10-Q
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file Number 0-24216
IMAX Corporation
(Exact name of registrant as specified in its charter)
     
Canada   98-0140269
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
     
2525 Speakman Drive,   L5K 1B1
Mississauga, Ontario, Canada   (Postal Code)
(Address of principal executive offices)    
Registrant’s telephone number, including area code
(905) 403-6500
N/A
(Former name or former address, if changed since last report)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o    Accelerated filer þ    Non-accelerated filer   o
(Do not check if a smaller reporting company)
  Smaller Reporting Company o 
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practicable date:
     
Class   Outstanding as of April 30, 2009
Common stock, no par value   43,730,631
 
 

 


 

IMAX CORPORATION
Table of Contents
         
    Page
PART I. FINANCIAL INFORMATION
 
       
    4  
    37  
    61  
    62  
 
       
PART II. OTHER INFORMATION
 
       
    62  
    62  
    63  
    63  
    63  
    64  
 EX-10.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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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 effect of the current economic downturn and credit market disruption on the Company’s ability to refinance its existing indebtedness and on the Company’s movie exhibitor customers; 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 associated with the Company’s transition to a digitally-based projector; 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 fluctuations; risks related to the Company’s prior restatements and the related litigation and ongoing inquiries by the Securities and Exchange Commission (the “SEC”) and the Ontario Securities Commission; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this annual 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®,
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.

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IMAX CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
         
    Page
The following Condensed Consolidated Financial Statements are filed as part of this Report:
       
 
       
    5  
    6  
    7  
    8  

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IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
                 
    March 31,     December 31,  
    2009     2008  
    (unaudited)          
Assets
               
Cash and cash equivalents
  $ 18,721     $ 27,017  
Accounts receivable, net of allowance for doubtful accounts of $2,808 (December 31, 2008 — $2,901)
    24,822       22,982  
Financing receivables (note 3)
    57,452       56,138  
Inventories (note 4)
    15,863       19,822  
Prepaid expenses
    3,071       1,998  
Film assets
    3,629       3,923  
Property, plant and equipment (note 5)
    45,237       39,405  
Other assets (note 19(c))
    16,945       16,074  
Goodwill
    39,027       39,027  
Other intangible assets (note 6)
    2,214       2,281  
 
           
Total assets
  $ 226,981     $ 228,667  
 
           
 
               
Liabilities
               
Bank indebtedness (note 8)
  $ 20,000     $ 20,000  
Accounts payable
    16,205       15,790  
Accrued liabilities (notes 9(a), 9(c), 10, 15(a), 17(a), 17(c), 19(c))
    64,108       58,199  
Deferred revenue
    65,187       71,452  
Senior Notes due December 2010 (note 7)
    160,000       160,000  
 
           
Total liabilities
    325,500       325,441  
 
           
 
               
Commitments and contingencies (notes 9 and 10)
               
 
               
Shareholders’ deficiency
               
Capital stock (note 15) common shares — no par value. Authorized — unlimited number. Issued and outstanding — 43,730,631 (December 31, 2008 — 43,490,631)
    142,430       141,584  
Other equity
    5,728       5,183  
Deficit
    (249,651 )     (247,009 )
Accumulated other comprehensive income
    2,974       3,468  
 
           
Total shareholders’ deficiency
    (98,519 )     (96,774 )
 
           
Total liabilities and shareholders’ deficiency
  $ 226,981     $ 228,667  
 
           
(the accompanying notes are an integral part of these condensed consolidated financial statements)

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IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
                 
    Three Months  
    Ended March 31,  
    2009     2008  
Revenues
               
Equipment and product sales
  $ 13,360     $ 6,698  
Services (note 11(c))
    14,887       14,207  
Rentals (note 11(c))
    3,247       1,544  
Finance income
    1,012       1,071  
Other
    1,216        
 
           
 
    33,722       23,520  
 
           
 
               
Costs and expenses applicable to revenues
               
Equipment and product sales (note 11(a))
    7,241       2,965  
Services (note 11(a))
    9,940       9,689  
Rentals (note 11(a))
    2,166       730  
Other
    245        
 
           
 
    19,592       13,384  
 
           
Gross margin
    14,130       10,136  
Selling, general and administrative expenses (note 11(b))
    10,904       12,387  
Research and development
    547       2,488  
Amortization of intangibles
    145       133  
Receivable provisions net of recoveries (note 13)
    510       748  
 
           
Income (loss) from operations
    2,024       (5,620 )
Interest income
    21       126  
Interest expense
    (4,427 )     (4,496 )
 
           
Loss from continuing operations before income taxes
    (2,382 )     (9,990 )
Provision for income taxes
    (260 )     (269 )
 
           
Net loss
  $ (2,642 )   $ (10,259 )
 
           
 
               
Loss per share — basic & diluted:
               
Net loss
  $ (0.06 )   $ (0.25 )
 
           
 
               
Comprehensive loss consists of:
               
Net loss
  $ (2,642 )   $ (10,259 )
Amortization of prior service cost (credits) (net of income tax provision of $10 and recovery of $17 for the three months ended March 31, 2009 and 2008, respectively)
    26       (45 )
Amortization of actuarial gain on defined benefit plan (net of income tax recovery of $47 for the three months ended March 31, 2009)
    (123 )      
Unrealized hedging loss (net of income tax recovery of $47 for the three months ended March 31, 2009)
    (482 )      
Realization of hedging losses upon settlement (net of income tax provision of $nil for the three months ended March 31, 2009)
    85        
 
           
 
  $ (3,136 )   $ (10,304 )
 
           
(the accompanying notes are an integral part of these condensed consolidated financial statements)

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IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
(Unaudited)
                 
    Three Months  
    Ended March 31,  
    2009     2008  
Cash provided by (used in):
               
Operating Activities
               
Net loss
  $ (2,642 )   $ (10,259 )
Items not involving cash:
               
Depreciation and amortization (note 12(c))
    3,993       4,203  
Write-downs net of recoveries (note 13)
    510       748  
Change in deferred income taxes
    84       17  
Stock and other non-cash compensation
    855       1,257  
Foreign currency exchange loss
    814       191  
Change in cash surrender value of life insurance
    (19 )     (13 )
Investment in film assets
    (2,169 )     (2,445 )
Changes in other non-cash operating assets and liabilities (note 12(a))
    (3,358 )     9,443  
 
           
Net cash (used in) provided by operating activities
    (1,932 )     3,142  
 
           
 
               
Investing Activities
               
Purchase of property, plant and equipment
    (343 )     (1,766 )
Investment in joint revenue sharing equipment
    (7,022 )      
Acquisition of other assets
    (187 )     (78 )
Acquisition of other intangible assets
    (78 )     (95 )
 
           
Net cash used in investing activities
    (7,630 )     (1,939 )
 
           
 
               
Financing Activities
               
Common shares issued — stock options exercised
    846       266  
 
           
Net cash provided by financing activities
    846       266  
 
           
 
               
Effects of exchange rate changes on cash
    420       (309 )
 
           
 
               
(Decrease) increase in cash and cash equivalents, during the period
    (8,296 )     1,160  
 
               
Cash and cash equivalents, beginning of period
    27,017       16,901  
 
           
Cash and cash equivalents, end of period
  $ 18,721     $ 18,061  
 
           
(the accompanying notes are an integral part of these condensed consolidated financial statements)

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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with U.S. Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
(Unaudited)
1. Basis of Presentation
     IMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), reports its results under United States Generally Accepted Accounting Principles (“U.S. GAAP”).
     The condensed consolidated financial statements include the accounts of the Company, except for subsidiaries which the Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary. The nature of the Company’s business is such that the results of operations for the interim periods presented are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations.
     The Company has evaluated its various variable interests to determine whether they are VIEs in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). The Company has 7 film production companies that are VIEs. As the Company is exposed to the majority of the expected losses 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 less than $0.1 million as at March 31, 2009 (December 31, 2008 — less than $0.1 million). For the other 5 film production companies which are VIEs, the Company did not consolidate these film entities since it does not bear the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. As at March 31, 2009, these 5 VIEs have total assets of $0.3 million (December 31, 2008 — less than $0.1 million) and total liabilities of $0.3 million (December 31, 2008 — less than $0.1 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, 2009 (March 2008 — $nil). The carrying value of these investments in VIEs that are not consolidated is $nil at March 31, 2009 (December 31, 2008 — $nil). A loss in value of an investment other than a temporary decline is recognized as a charge to the consolidated statement of operations.
     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 2008 Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 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, 2008, except as noted below.

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2. Changes in Accounting Policies
     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities that are not remeasured at fair value on a recurring basis until fiscal years beginning after November 15, 2008. In October 2008, the FASB issued FASB Staff Position 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. For financial assets and financial liabilities, SFAS 157 was effective for the Company on January 1, 2008, on a prospective basis. The application of SFAS 157, as amended by SFAS 157-3, to the financial assets and financial liabilities did not have a material effect on the Company’s financial condition or results of operations as of January 1, 2008. For non-financial assets and non-financial liabilities, SFAS 157 was effective for the Company on January 1, 2009, on a prospective basis. The application of SFAS 157, as amended, to the non-financial assets and non-financial liabilities did not have a material effect on the Company’s financial condition or results of operations.
     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), which identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s (“SEC’s”) approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to Proposed Auditing Standard Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. In 2008, the Company adopted SFAS 162. The application of SFAS 162 had no impact on the Company’s financial condition or results of operations as the accounting principles used to prepare its financial statements are in accordance with the SFAS 162 framework and therefore in conformance with U.S. GAAP.
     In December 2008, the FASB issued FASB Staff Position Financial Accounting Standard 140-4 and FASB Interpretation No. 46R-8, “Disclosures by Public Entities (Enterprises) about Interests in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”), to require public enterprises to provide additional disclosures about their involvement with variable interest entities as defined in FIN 46R. Additional disclosures include disclosures of the significant judgments and assumptions made in determining whether or not to consolidate a variable interest entity, the nature of restrictions on the consolidated variable interest entity’s assets, the nature of, and changes in, the risks associated with the Company’s involvement with the variable interest entity and how the Company’s involvement affects its financial position, financial performance, and cash flows. FSP FAS 140-4 and FIN 46(R)-8 is effective for the first reporting period ending after December 15, 2008. In 2008, the Company adopted FSP FAS 140-4 and FIN 46(R)-8. The application of FSP FAS 140-4 and FIN 46(R)-8 had no material impact on the Company’s financial condition or results of operations as presented in note 1.
     In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160, “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted SFAS 160 on January 1, 2009. The application of SFAS 160 did not have an effect on the Company’s financial condition or results of operations.

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     In December 2007, the FASB ratified the Emerging Issues Task Force consensus No. 07-01, “Accounting for Collaborative Arrangements” (“EITF 07-01”). The objective of the EITF 07-01 is to define collaborative arrangements and establish reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties that are not specifically addressed within the scope of other authoritative accounting literature. EITF 07-01 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. EITF 07-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. EITF 07-01 is to be applied as a change in accounting principle through retrospective application to all prior periods presented for all collaborative arrangements existing as of the effective date, unless it is impracticable to do so. The Company adopted EITF 07-01 on January 1, 2009. The application of EITF 07-01 did not have an effect on the Company’s financial condition or results of operations. In accordance with EITF 07-01, the Company has expanded its disclosures as presented in note 11(c).
     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), in order to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (c) how derivative instruments and related hedge items affect an entity’s financial position, financial performance, and cash flows. The statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. SFAS 161 is effective for fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS 161 and, accordingly, has expanded its disclosures as presented in note 19.
     In April 2008, the FASB issued FASB Staff Position 142-3, “Determination of the Useful Lifes of Intangible Assets”, (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) and the period of expected cash flows used to measure the fair value of the asset. Specifically, the Company is required to use its own historical experience in renewing or extending the estimated life of an intangible asset as opposed to legal, regulatory or contractual provisions that enable renewal or extension of the asset’s legal or contractual life without substantial cost. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, on a prospective basis. Early adoption is prohibited. Intangible assets acquired after January 1, 2009 are accounted for in accordance with SFAS 142, as amended by FSP 142-3, and the required disclosure is presented in note 6.
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,  
    2009     2008  
Gross minimum lease payments receivable
  $ 71,059     $ 72,100  
Unearned finance income
    (22,901 )     (23,558 )
 
           
Minimum lease payments receivable
    48,158       48,542  
Accumulated allowance for uncollectible amounts
    (5,001 )     (4,884 )
 
           
Net investment in leases
    43,157       43,658  
 
           
Gross receivables from financed sales
    21,123       18,515  
Unearned financed income
    (6,828 )     (6,035 )
 
           
Net financed sale receivables
    14,295       12,480  
 
           
Total financing receivables
  $ 57,452     $ 56,138  
 
           
 
               
Net financed sale receivables due within one year
  $ 2,518     $ 1,948  
Net financed sale receivables due after one year
  $ 11,777     $ 10,532  
     As at March 31, 2009, the financed sale receivables had a weighted average effective interest rate of 9.8% (December 31, 2008 — 9.5%).

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4. Inventories
                 
    March 31,     December 31,  
    2009     2008  
Raw materials
  $ 5,369     $ 6,392  
Work-in-process
    949       1,863  
Finished goods
    9,545       11,567  
 
           
 
  $ 15,863     $ 19,822  
 
           
     At March 31, 2009, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $6.1 million (December 31, 2008 — $5.5 million).
     Inventories at March 31, 2009 include provisions for excess and obsolete inventory based upon current estimates of net realizable value considering future events and conditions of $5.3 million (December 31, 2008 — $5.3 million).
5. Property, Plant and Equipment
                         
    As at March 31, 2009  
            Accumulated     Net Book  
    Cost     Depreciation     Value  
Equipment leased or held for use
                       
Theater system components(1)(2)
  $ 53,076     $ 27,520     $ 25,556  
Camera equipment
    5,954       5,954        
 
                 
 
    59,030       33,474       25,556  
 
                 
Assets under construction(3)
    5,375             5,375  
 
                 
Other property, plant and equipment
                       
Land
    1,593             1,593  
Buildings
    14,723       8,028       6,695  
Office and production equipment(4)
    28,213       24,854       3,359  
Leasehold improvements
    8,272       5,613       2,659  
 
                 
 
    52,801       38,495       14,306  
 
                 
 
  $ 117,206     $ 71,969     $ 45,237  
 
                 
                         
    As at December 31, 2008  
            Accumulated     Net Book  
    Cost     Depreciation     Value  
Equipment leased or held for use
                       
Theater system components(1)(2)
  $ 48,474     $ 29,007     $ 19,467  
Camera equipment
    5,954       5,953       1  
 
                 
 
    54,428       34,960       19,468  
 
                 
Assets under construction(3)
    5,063             5,063  
 
                 
Other property, plant and equipment
                       
Land
    1,593             1,593  
Buildings
    14,723       7,902       6,821  
Office and production equipment(4)
    28,006       24,371       3,635  
Leasehold improvements
    8,272       5,447       2,825  
 
                 
 
    52,594       37,720       14,874  
 
                 
 
  $ 112,085     $ 72,680     $ 39,405  
 
                 
 
(1)   Included in theater system components are assets with costs of $23.7 million (December 31, 2008 — $23.5 million) and accumulated depreciation of $21.5 million (December 31, 2008 — $21.3 million) that are leased to customers under operating leases.
 
(2)   Included in theater system components are assets with costs of $25.2 million (December 31, 2008 — $20.8 million) and accumulated depreciation of $2.9 million (December 31, 2008 — $4.5 million) that are used in joint revenue sharing arrangements.
 
(3)   Included in assets under construction are components with costs of $5.0 million (December 31, 2008 — $4.8 million) that will be utilized to construct assets to be used in joint revenue sharing arrangements.
 
(4)   Included in office and production equipment are assets under capital lease with costs of $1.5 million (December 31, 2008 — $1.5 million) and accumulated depreciation of $1.2 million (December 31, 2008— $1.1 million).

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6. Other Intangible Assets
                         
    As at March 31, 2009  
            Accumulated     Net Book  
    Cost     Amortization     Value  
Patents and trademarks
  $ 6,435     $ 4,279     $ 2,156  
Intellectual property rights
    100       42       58  
Other
    250       250        
 
                 
 
  $ 6,785     $ 4,571     $ 2,214  
 
                 
                         
    As at December 31, 2008  
            Accumulated     Net Book  
    Cost     Amortization     Value  
Patents and trademarks
  $ 6,357     $ 4,137     $ 2,220  
Intellectual property rights
    100       39       61  
Other
    250       250        
 
                 
 
  $ 6,707     $ 4,426     $ 2,281  
 
                 
     The Company expects to amortize approximately $0.4 million of other intangible assets for the remainder of 2009 and $0.5 million for each of the next 5 years, respectively. Fully amortized other intangible assets are still in use by the Company.
     During the quarter ended March 31, 2009, the Company acquired less than $0.1 million in patents and trademarks. The residual value of these patents and trademarks was less than $0.1 million as at March 31, 2009. The weighted average amortization period for these additions was 10 years.
     During the quarter ended March 31, 2009, the Company did not incur costs to renew or extend the term of acquired other intangible assets.
7. Senior Notes due December 2010
     As at March 31, 2009 the Company had outstanding $160.0 million (December 31, 2008 — $160.0 million) in principal amount of Senior Notes due December 1, 2010 (the “Senior Notes”).
     The Senior Notes bear interest at a rate of 9.625% per annum and are unsecured obligations that rank equally with any of the Company’s existing and future senior indebtedness and senior to all of the Company’s existing and future subordinated indebtedness. The payment of principal, premium, if any, and interest on the Senior Notes is unconditionally guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries. Interest is paid on a semi-annual basis on June 1 and December 1. The Senior Notes are subject to redemption for cash by the Company, in whole or in part, from April 1, 2009 to November 30, 2009 at 102.406%, together with accrued and unpaid interest thereon to the redemption date. Beginning December 1, 2009, and thereafter, the Senior Notes will be redeemable by the Company at 100.000%, together with accrued and unpaid interest thereon to the redemption date. If certain changes were to result in the imposition of withholding taxes under Canadian law, the Senior Notes are subject to redemption at the Company’s option, in whole but not in part, at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest to the date of redemption. In the event of a change in control, the Company will be required to make an offer to repurchase the Senior Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase.
     The terms of the Company’s Senior Notes impose certain restrictions on its operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; make certain distributions or certain other restricted payments; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; sell certain assets or merge with or into other companies; and enter into certain transactions with affiliates. The Company believes these restrictions will not have a material impact on its financial condition or results of operations.

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8. Credit Facility
     Under the indenture, dated as at December 4, 2003, and as thereafter amended and supplemented, governing the Company’s Senior Notes due December 2010 (the “Indenture”), the Company is permitted to incur indebtedness on a secured basis pursuant to a credit agreement, or the refinancing or replacement of a credit facility, provided that the aggregate principal amount of indebtedness thereunder outstanding at any time does not exceed the greater of: (a) $30.0 million minus the amount of any such indebtedness retired with the proceeds of an Asset Sale (as defined in the Indenture); and (b) 15% of Total Assets (as defined in the Indenture) of the Company. Amongst other indebtedness, the Indenture also permits the Company to incur indebtedness solely in respect of performance, surety or appeal bonds, letters of credit and letters of guarantee as required in the ordinary course of business in accordance with customary industry practices.
     On February 6, 2004, the Company entered into a Loan Agreement for a secured revolving credit facility, as amended on June 30, 2005, May 16, 2006, November 7, 2007, December 5, 2007 and May 5, 2008 (the “Credit Facility”). The Credit Facility is a revolving credit facility expiring on October 31, 2010.
     The Credit Facility permits maximum aggregate borrowings equal to the lesser of:
  (i)   $40.0 million,
 
  (ii)   a collateral calculation based on percentages of the book values for the Company’s net investment in sales-type leases, financing receivables, finished goods inventory allocated to backlog contracts and the appraised values of the expected future cash flows related to operating leases and of the Company’s owned real property, reduced by certain accruals and accounts payable, and
 
  (iii)   a minimum level of trailing cash collections in the preceding twenty-six week period ($63.4 million as at March 31, 2009),
reduced for outstanding letters of credit and advance payment guarantees and subject to maintaining a minimum Excess Availability (as defined in the Credit Facility) of $5.0 million.
     The Credit Facility, which is collateralized by a first priority security interest in all of the current and future assets of the Company, contains typical affirmative and negative covenants, including covenants that restrict the Company’s ability 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. In addition, the Credit Facility agreement contains customary events of default, including upon an acquisition or a change of control that may have a material adverse effect on the Company or a guarantor. As at March 31, 2009, the Company was in compliance with all covenants under the agreement.
     On May 5, 2008, the Company entered into an amendment to the Credit Facility, effective January 1, 2008, whereby the minimum Cash and Excess Availability (as defined in the Credit Facility) requirement was reduced from $15.0 million to $7.5 million. The Credit Facility had previously required the Company to maintain, over a period of time, a minimum level of adjusted earnings before interest, taxes, depreciation and amortization including film asset amortization, stock and non-cash compensation, write downs (recoveries), asset impairment charges, and other non-cash uses of funds on a trailing four quarter basis calculated quarterly, of not less than $20.0 million (the “EBITDA Requirement”). Under the current terms of Credit Facility, the Company shall not be subject to an EBITDA Requirement so long as the Company is in compliance with the Cash and Excess Availability requirement. The amendment also provided for a one-year extension of the expiration of the Credit Facility to October 31, 2010 and adjusted the collateral calculation for certain finished goods inventory items to be installed under joint revenue sharing arrangements, which could result in an increase to maximum aggregate borrowings of up to $3.0 million in the future. Under the amended terms of the Credit Facility, in the event that the Company’s Excess Availability falls below the $5.0 million requirement, the excess borrowings above the minimum availability requirement must be remedied immediately. Failure to remedy would result in a Cash Dominion Event and an Event of Default (as defined in the Credit Facility). The failure to comply with the Cash and Excess Availability requirement of $7.5 million would also result in an immediate Cash Dominion Event and an Event of Default. If the Credit Facility were to be terminated by either the Company or the lender, the Company would have the right to pursue another source of secured financing pursuant to the terms of the Indenture.
     As at March 31, 2009, the Company’s current borrowing capacity under the Credit Facility (which is also limited under the terms of the Indenture) was $11.6 million after deduction for outstanding borrowings of $20.0 million, letters of credit and advance payment guarantees of $0.3 million and the minimum Excess Availability of $5.0 million, compared with a borrowing capacity, as at December 31, 2008, of $10.5 million after deduction for outstanding borrowings of $20.0 million, letters of credit and advanced payment guarantees of $1.4 million and the minimum excess availability reserve of $5.0 million.

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     The Credit Facility bears interest at the applicable prime rate per annum or LIBOR plus a margin as specified therein. As at March 31, 2009, outstanding borrowings bear interest at the LIBOR rate plus an applicable margin. The effective interest rate for the three months ended March 31, 2009 was 2.27% under the Credit Facility.
Bank of Montreal Facilities
     As at March 31, 2009, the Company has available a $10.0 million facility (December 31, 2008 — $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 Export Development Canada (the “Bank of Montreal Facility”). As at March 31, 2009, the Company also has letters of credit outstanding of $5.7 million as compared to $5.2 million as at December 31, 2008, under the Bank of Montreal Facility.
     As at March 31, 2009, the Company has available a $5.0 million (December 31, 2008 — $5.0 million) facility solely used to cover the Company’s settlement risk on its purchased foreign currency forward contracts. The facility is fully insured by Export Development Canada. As at March 31, 2009, the settlement risk on its foreign currency forward contracts was $0.6 million (December 31, 2008 — $nil) as notional value exceeded the fair value of the forward contracts.
9. 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, 2009 for each of the years ended December 31, are as follows:
         
2009 (nine months remaining)
  $ 4,434  
2010
    6,072  
2011
    6,047  
2012
    5,917  
2013
    2,129  
Thereafter
    3,114  
 
     
 
  $ 27,713  
 
     
     Rent expense was $1.3 million for three months ended March 31, 2009 (2008 — $1.4 million) net of sublease rental of $0.1 million
(2008 — less than $0.1 million).
     Recorded in the accrued liabilities balance as at March 31, 2009 is $6.1 million (December 31, 2008 — $6.2 million) related to lease inducements and accrued rent.
     Purchase obligations under long-term supplier contracts as at March 31, 2009 were $7.0 million (December 31, 2008 — $4.8 million).
     (b) As at March 31, 2009, the Company has letters of credit and advance payment guarantees of $0.3 million (December 31, 2008 — $1.4 million) outstanding, of which the entire balance has been secured by the Credit Facility. As at March 31, 2009, the Company also has letters of credit outstanding of $5.7 million as compared to $5.2 million as at December 31, 2008, 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, 2009, $0.6 million (December 31, 2008 —$0.5 million) of commissions have been accrued and will be payable in future periods.

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10. 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 Statements of Financial Accounting Standards No. 5, “Accounting for Contingencies,” 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. On June 12, 2006, the U.S. District Court for the Central District of California, Western Division, entered a stay in the proceedings against In-Three pending the arbitration of disputes between the Company and 3DMG. Arbitration was initiated by the Company against 3DMG on May 15, 2006 before the International Centre for Dispute Resolution in New York, 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. On October 5, 2007, 3DMG amended its counterclaims and added counterclaims from UNIPAT.ORG relating to fees allegedly owed to UNIPAT.ORG by the Company. An evidentiary hearing on liability issues originally scheduled for June 2008 has been postponed until a later date to be set by the Arbitration Panel. The proceeding was suspended on May 4, 2009 due to failure of 3DMG to pay fees associated with the proceeding. Further proceedings on damages issues will be scheduled if and when necessary. 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.

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     (c) In June 2004, Robots of Mars, Inc. (“Robots”) initiated an arbitration proceeding against the Company in California with the American Arbitration Association pursuant to an arbitration provision in a 1994 film production agreement between Robots’ predecessor-in-interest and a subsidiary of the Company, asserting claims for breach of contract, fraud, breach of fiduciary duty and intentional interference with the contract. Robots is seeking an accounting of the Company’s revenues and an award of all sums alleged to be due to Robots under the production agreement, as well as punitive damages. The Company recently filed a dispositive motion with respect to Robots’ tort causes of action, as well as its claims for an accounting and punitive damages. The arbitration hearing of this matter is scheduled to commence June 1, 2009. The Company intends to vigorously defend the arbitration proceeding and believes the amount of the loss, if any, that may be suffered in connection with this proceeding will not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to the ultimate outcome of such arbitration.
     (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 and is ongoing. 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. The lawsuit is at an early stage and as a result 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 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. The plaintiffs require leave of the Court before they are permitted to proceed with certain claims they have made pursuant to the Securities Act (Ontario). They have filed a motion to obtain leave, along with a separate motion for certification of the action as a class proceeding. The Company has opposed both of these motions and a hearing on the motions took place during the week of December 15, 2008. It is not known when the Court will render a decision on these motions. 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.

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     (f) On September 7, 2007, Catalyst Fund Limited Partnership II (“Catalyst”), a holder of the Company’s Senior Notes, commenced an application against the Company in the Ontario Superior Court of Justice for a declaration of oppression pursuant to sections 229 and 241 of the Canada Business Corporations Act (“CBCA”) and for a declaration that the Company is in default of the Indenture governing its Senior Notes. The allegations of oppression are substantially the same as allegations Catalyst made in a May 10, 2007 complaint filed against the Company in the Supreme Court of the State of New York, and subsequently withdrawn on October 12, 2007, wherein Catalyst challenged the validity of the consent solicitation through which the Company requested and obtained a waiver of any and all defaults arising from a failure to comply with the reporting covenant under the Indenture and alleged common law fraud. Catalyst has also requested the appointment of an inspector and an order that an investigation be carried out pursuant to section 229 of the CBCA. In addition, between March 2007 and October 2007, Catalyst sent the Company eight purported notices of default or acceleration under the Indenture. It is the Company’s position that no event of default (as that term is defined in the Indenture) has occurred and, accordingly, that Catalyst’s purported acceleration notice is of no force or effect. On September 26, 2008, on the Company’s motion, the Ontario Superior Court stayed Catalyst’s application in Canada pending a further order of the court, and ordered Catalyst to pay the Company’s costs associated with the motion. The stay was issued on the basis of Catalyst having brought similar claims in the state of New York. At this stage of the litigation, the Company is not able to estimate a potential loss exposure. The Company believes this application is entirely without merit and plans to contest it vigorously and seek costs from Catalyst, although no assurances can be given with respect to the outcome of the 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.
     (g) In a related matter, on December 21, 2007, U.S. Bank National Association, trustee under the Indenture, filed a complaint in the Supreme Court of the State of New York against the Company and Catalyst, requesting a declaration that the theory of default asserted by Catalyst before the Ontario Superior Court of Justice is without merit and further that Catalyst has failed to satisfy certain prerequisites to bondholder action, which are contained in the Indenture (the “U.S. Bank’s New York Action”). As a result of this action, on January 10, 2008, the Company filed a motion with the Ontario Superior Court of Justice seeking a stay of all or part of the action Catalyst initiated before that court. On February 6, 2008, the Company served a Verified Answer to U.S. Bank’s New York Action. On February 22, 2008, Catalyst filed a Verified Answer to U.S. Bank’s New York Action and Cross-Claims against the Company in the same proceeding. The Cross-Claims repeat the allegations and seek substantially the same relief as in Catalyst’s application in the Ontario Superior Court of Justice and as were raised in Catalyst’s May 10, 2007 complaint filed against the Company in the Supreme Court of the State of New York. Catalyst moved for summary judgment on the Cross-Claims. The Company opposed this motion and requested that summary judgment be granted in its favor. In December 2008, discovery closed. On January 16, 2009, the Company moved for summary judgment, seeking a ruling that the Company satisfies the terms of the declaratory relief requested by the Trustee and the dismissal of the Cross-Claims. The Court heard oral argument to the Company’s motion on February 26, 2009.
     On April 27, 2009, the Court denied Catalyst’s motion for partial summary judgment and granted the Company’s motion for summary judgment, disposing of the Cross-Claims. Specifically, the Court held that the consent solicitation conducted by the Company in April 2007 was “valid, effective, and not tainted by fraud,” and that the Annual Report on Form 10-K for the year-ended December 31, 2006 was filed “in accord with the terms of the Indenture, and made in good faith.” The Court further found that “no Event of Default occurred under the Indenture, and thus no acceleration of maturity has occurred.” The Court considered all of the other arguments made by Catalyst and deemed them to be “without merit.” Catalyst has indicated an intent to appeal the Court’s ruling on summary judgment. The Company believes that any appeal would be taken without merit. The Company is unable to comment on the outcome of such an appeal, if taken, or estimate the potential loss exposure, if any.
     (h) Since June 2006, the Company has been subject to ongoing informal inquiries by the U.S. Securities and Exchange Commission and the Ontario Securities Commission. The Company has been cooperating with these inquiries and believes that they 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. See “Risk Factors” in Item 1A in the Company’s 2008 10-K for further discussion of these inquiries and their potential impact on the Company, including the ongoing expenses incurred in connection with cooperating with the authorities.
     (i) 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.

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     (j) In the normal course of business, the Company enters into agreements that may contain features that meet the FIN 45 definition of a guarantee. FIN 45 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 consolidated balance sheets:
         
Balance as at December 31, 2008
  $ 33  
Payments
    (5 )
Warranties issued
    50  
Revisions
    (16 )
 
     
Balance as at March 31, 2009
  $ 62  
 
     
     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 sheet as at March 31, 2009 with respect to this indemnity.
     Other Indemnification Agreements
     In the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: theater system lease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; real property lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costs incurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach or non-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of the agreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification however, virtually all of the Company’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potential amount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnifications and no amount has been accrued in the accompanying condensed consolidated financial statements with respect to the contingent aspect of these indemnities.
11. 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 $0.3 million for the three months ended March 31, 2009 (2008 — $0.1 million).
     Film exploitation costs, including advertising and marketing totaled $0.5 million for the three months ended March 31, 2009 (2008 — $0.1 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 $0.4 million for the three months ended March 31, 2009 (2008 — $nil). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable to revenues-rental as incurred. These costs totaled $0.3 million for the three months ended March 31, 2009 (2008 — $nil).
   (b) Foreign Exchange
     Included in selling, general and administrative expenses for the three months ended March 31, 2009 is $1.2 million (2008 —less than $0.1 million) for net foreign exchange losses related to the translation of foreign currency denominated monetary assets, liabilities and integrated subsidiaries. See note 19(c) for additional information.
   (c) Collaborative Arrangements
   Joint Revenue Sharing Arrangements
     In a joint revenue sharing arrangement, the Company receives a portion of a theater’s box-office and concession revenues in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements are typically non-cancellable for 7 to 10 years with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company.

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     At March 31, 2009, the Company has signed 6 joint revenue sharing agreements for a total of 156 theater systems, 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 2008 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, 2009 amounted to $1.9 million (2008 — $0.3 million).
   IMAX DMR
     In an IMAX DMR arrangement, the Company transforms 35mm film into the Company’s large screen film 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 period ended March 31, 2009, the Company exhibited 6 IMAX DMR titles through the network and is scheduled to release 6 more in the remainder of 2009, 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 2008 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, 2009 amounted to $3.7 million (2008 — $2.9 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 2008 Form 10-K.
     At March 31, 2009, the Company has 4 significant co-produced film arrangements, the terms of which are similar.
     For the three months ended March 31, 2009, amounts totaling $1.8 million (2008 — $1.0 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.
12. 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,  
    2009     2008  
Decrease (increase) in:
               
Accounts receivable
  $ (564 )   $ 4,144  
Financing receivables
    (2,072 )     1,141  
Inventories
    2,934       534  
Prepaid expenses
    (1,072 )     (1,534 )
Commissions and other deferred selling expenses
    (5 )     (332 )
Insurance recoveries
    (1,413 )     1,050  
Increase (decrease) in:
               
Accounts payable
    924       (3,526 )
Accrued and other liabilities
    4,175       (2 )
Deferred revenue
    (6,265 )     7,968  
 
           
 
  $ (3,358 )   $ 9,443  
 
           
     (b) Cash payments made on account of:
                 
    Three Months  
    Ended March 31,  
    2009     2008  
Income taxes
  $ 86     $ 138  
 
           
Interest
  $ 172     $ 97  
 
           
     (c) Depreciation and amortization are comprised of the following:
                 
    Three Months  
    Ended March 31,  
    2009     2008  
Film assets(1)
  $ 1,460     $ 2,311  
Property, plant and equipment
               
Joint revenue sharing arrangements
    887       308  
Other property, plant and equipment
    1,148       1,093  
Other intangible assets
    145       133  
Deferred financing costs
    353       358  
 
           
 
  $ 3,993     $ 4,203  
 
           
 
(1)   Included in film asset amortization is a charge of $nil (2008 — $0.7 million) relating to changes in estimates based on the ultimate recoverability of future films.

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13. Receivable Provisions, Net of Recoveries
                 
    Three Months  
    Ended March 31,  
    2009     2008  
Accounts receivable provisions, net of recoveries
  $ 19     $ 730  
Financing receivables, net of recoveries
    491       18  
 
           
Receivable provisions, net of recoveries
  $ 510     $ 748  
 
           
14. Income Taxes
     The Company’s effective tax rate differs from the statutory tax rate and will vary 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 in the Company’s valuation allowance based on the Company’s recoverability assessments of deferred tax assets, and favourable or unfavourable resolution of various tax examinations. There was no change in the Company’s estimates of projected future earnings and the recoverability of its deferred tax assets based on an analysis of both positive and negative evidence.
     On March 12, 2009, the Government of Canada enacted Bill C-10, which included legislation allowing corporations to elect to file their Canadian corporate tax returns in the corporation’s functional currency. The Company has submitted an election to file the 2008 and subsequent Canadian corporate tax returns in U.S. dollars. As a result of the election and its impact on the Company’s opening 2008 tax return balances in Canada, the Company has recorded an increase in the gross deferred tax asset of $15.6 million, which has been fully offset by a corresponding valuation allowance.
     As at March 31, 2009, the Company had net deferred income tax assets of $nil (December 31, 2008 — $nil). As at March 31, 2009, the Company had a gross deferred income tax asset of $78.8 million (December 31, 2008 — $62.4 million), against which the Company is carrying a $78.8 million valuation allowance (December 31, 2008 — $62.4 million).
     As at March 31, 2009 and December 31, 2008, the Company had total unrecognized tax benefits of $4.5 million and $4.4 million for international withholding taxes, respectively. 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 $0.1 million in potential interest and penalties associated with uncertain tax positions for the three months ended March 31, 2009 and 2008, respectively.
15. Capital Stock
(a) Stock-Based Compensation
     The Company has 5 stock-based compensation plans that are described below. The compensation costs recorded in the condensed consolidated statement of operations for these plans were $0.5 million and $0.8 million for the three months ended March 31, 2009 and 2008, respectively. No income tax benefit is recorded in the condensed consolidated statement of operations for these costs.
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 $0.4 million for the three months ended March 31, 2009 (2008 — $0.2 million), related to grants issued to employees and directors in the plan.
     The Company’s policy is to issue new shares from treasury to satisfy stock options which are exercised.

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     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.
     There were no common share options granted to employees for the three months ended March 31, 2008. The weighted average fair value of all common share options, granted to employees for the three months ended March 31, 2009 at the measurement date was $2.21 per share. The following assumptions were used:
         
    Three Months
    Ended March 31,
    2009   2008
Average risk-free interest rate
  2.33%   N/A
Expected option life (in years)
  5.45 - 5.85   N/A
Expected volatility
  62%   N/A
Annual termination probability
  0% - 10.01%   N/A
Dividend yield
  0%   N/A
     As at March 31, 2009, the Company has reserved a total of 8,746,126 (December 31, 2008— 8,698,126) common shares for future issuance under the Stock Option Plan, of which options in respect of 6,492,830 common shares are outstanding at March 31, 2009. All awards of stock options are made at fair market value of the Company’s Common Shares on the date of grant. “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 NASDAQ/National Market System, The Toronto Stock Exchange (the “TSX”) and such national exchange, as may be designated by the Company’s Board of Directors. 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. At March 31, 2009, options in respect of 4,198,491 common shares were vested and exercisable.
     The following table summarizes certain information in respect of option activity under the Stock Option Plan for the periods ended March 31:
                                 
                    Weighted Average Exercise Price
    Number of Shares   per Share
    2009   2008   2009   2008
Options outstanding, beginning of year
    6,686,182       5,908,080     $ 5.97     $ 6.71  
Granted
    128,398             4.18        
Exercised
    (240,000 )     (87,333 )     3.53       3.04  
Forfeited
    (22,750 )     (15,338 )     5.94       7.20  
Expired
    (53,000 )     (57,500 )     5.11       26.83  
Cancelled
    (6,000 )     (7,662 )     24.53       11.04  
 
                               
Options outstanding, end of period
    6,492,830       5,740,247       6.01       6.56  
 
                               
Options exercisable, end of period
    4,198,491       4,472,010       6.64       6.79  
 
                               
     During the three months ended March 31, 2009, the Company cancelled 6,000 stock options from its Stock Option Plan (2008 — 7,662) surrendered by Company employees for $nil consideration. Compensation cost recognized up to the cancellation date was not reversed for options cancelled.
     As at March 31, 2009, 6,067,208 options were fully vested or are expected to vest with a weighted average exercise price of $6.06, aggregate intrinsic value of $1.2 million and weighted average remaining contractual life of 4.3 years. As at March 31, 2009, options that are exercisable have an intrinsic value of $0.1 million and a weighted average remaining contractual life of 3.2 years. The intrinsic value of options exercised in the three months ended March 31, 2009 was $0.3 million (2008 — $0.3 million).

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   Options to Non-Employees
     During the three months ended March 31, 2009, an aggregate of 100,000 common share options to purchase the Company’s common stock with an average exercise price of $4.05 were granted to certain advisors and strategic partners of the Company. These options have a maximum contractual life of 6 years. The option vesting ranges from immediately to 5 years. These options were granted under the Stock Option Plan. There were no common share options granted to non-employees during the three months ended March 31, 2008.
     As at March 31, 2009, non-employee options outstanding amounted to 423,314 options (2008 — 315,804) with a weighted average exercise price of $5.79 (2008 — $6.53). 317,615 options (2008 — 238,979) were exercisable with an average weighted exercise price of $6.35 (2008 — $6.98) and the vested options have an aggregate intrinsic value of less than $0.1 million (2008 — $0.2 million). The weighted average fair value of options granted to non-employees during the three months ended March 31, 2009 at the measurement date was $2.34 per share utilizing a Binomial Model with the following underlying assumptions for periods ended March 31:
         
    Three Months
    Ended March 31,
    2009   2008
Average risk-free interest rate
  2.03%   N/A
Contractual option life
  6 years   N/A
Average expected volatility
  62%   N/A
Dividend yield
  0%   N/A
     For the three months ended March 31, 2009, the Company recorded a charge of less than $0.1 million (2008 — less than $0.1 million) to cost and expenses applicable to revenues — services related to the non-employee stock options.
   Restricted Common Shares
     Under the terms of certain employment agreements dated July 12, 2000, the Company is required to issue either 160,000 restricted common shares or pay their cash equivalent. The restricted shares are required to be issued, or payment of their cash equivalent, upon request by the employees at any time. The aggregate intrinsic value of the awards outstanding at March 31, 2009 is $0.7 million (December 31, 2008 — $0.7 million). The Company accounts for the obligation as a liability, which is classified within accrued liabilities. The Company has recorded a recovery of less than $0.1 million and an expense of less than $0.1 million for the three months ended March 31, 2009 and 2008, respectively, due to the changes in the Company’s stock price during the period.
   Stock Appreciation Rights
     There were no stock appreciation rights (“SARs”) granted during the first quarters of 2008 and 2009. During 2007, 2,280,000 SARs with a weighted average exercise price of $6.20 per right were granted to certain Company executives. As at March 31, 2009, all 2,280,000 SARs were outstanding, of which 1,266,000 SARs were exercisable. The SARs vesting ranges from immediately to 5 years, with a remaining contractual life ranging from 4.75 to 8.75 years at March 31, 2009. The SARs were measured at fair value at the date of grant and are remeasured each period until settled. At March 31, 2009, the SARs had an average fair value of $1.16 per right (December 31, 2008 — $1.22). The Company accounts for the obligation of these SARs as a liability (March 31, 2009 — $2.0 million, December 31, 2008 — $1.9 million), which is classified within accrued liabilities. The Company has recorded a $0.1 million expense for the three months ended March 31, 2009 (2008 — $0.6 million expense) to selling, general and administrative expenses related to these SARs. None of the SARs have been exercised. The following assumptions were used for measuring the fair value of the SARs:
         
    As at   As at
    March 31,   December 31,
    2009   2008
Average risk-free interest rate
  2.18%   1.95%
Expected option life (in years)
  3.50 - 5.78   3.54 - 5.82
Expected volatility
  62%   62%
Annual termination probability
  0% - 10.01%   0% - 10.01%
Dividend yield
  0%   0%

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Warrants
     There were no warrants issued during the three months ended or outstanding as at March 31, 2009 and 2008.
   (b) Loss 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,  
    2009     2008  
Net loss from continuing operations applicable to common shareholders
  $ (2,642 )   $ (10,259 )
 
           
Weighted average number of common shares (000’s):
               
Issued and outstanding, beginning of period
    43,491       40,423  
Weighted average number of shares issued during the period
    190       21  
 
           
Weighted average number of shares used in computing basic loss per share
    43,681       40,444  
 
           
Weighted average number of shares used in computing diluted loss per share
    43,681       40,444  
 
           
     The calculation of diluted loss per share for the three months ended March 31, 2009 and 2008 excludes all shares that are issuable upon exercise of options as the impact of these exercises would be antidilutive.
   (c) Shareholders’ Deficiency
     The following summarizes the movement of Shareholders’ Deficiency for the three months ended March 31, 2009:
         
Balance as at December 31, 2008
  $ (96,774 )
Issuance of common shares
    846  
Net loss
    (2,642 )
Adjustment to other equity for employee stock options granted
    411  
Adjustment to other equity for non-employee stock options granted
    134  
Adjustments to accumulated other comprehensive income to amortize the prior service costs related to pensions and record the prior service cost
    26  
Adjustments to accumulated other comprehensive income to amortize the defined benefit pension plan actuarial gain
    (123 )
Adjustments to accumulated other comprehensive income to record unrealized hedging losses
    (482 )
Adjustments to accumulated other comprehensive income to record the realization of hedging losses upon settlement
    85
 
     
Balance as at March 31, 2009
  $ (98,519 )
 
     
16. Segmented Information
     The Company has eight 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 owns and operates certain IMAX theaters. The Company refers to all theater 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 2008 Form 10-K.
     The Company’s Chief Operating Decision Maker (“CODM”), as defined in Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), assess segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), interest revenue, interest expense and tax provision (recovery) are not allocated to the segments.

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     In the fourth quarter of 2008, based on the guidance in SFAS 131, the Company identified a change in internal reporting and business activities resulting in theater system maintenance and joint revenue sharing arrangements becoming new reportable segments, separate and distinct from the IMAX systems reportable segment. Prior year amounts have been restated to conform to the current reportable segment presentation.
     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,  
    2009     2008  
Revenue
               
IMAX systems
  $ 16,452     $ 8,158  
Theater system maintenance
    4,360       3,983  
Joint revenue sharing arrangements
    1,908       348  
Films
               
Production and IMAX DMR
    3,700       2,916  
Distribution
    3,242       2,753  
Post-production
    872       1,724  
Theater operations
    2,714       2,831  
Other
    474       807  
 
           
Total
  $ 33,722     $ 23,520  
 
           
 
               
Gross margins
               
IMAX systems(1)
  $ 8,895     $ 5,559  
Theater system maintenance
    2,312       1,588  
Joint revenue sharing arrangements(1)
    344       40  
Films
               
Production and IMAX DMR(1)
    1,770       306  
Distribution(1)
    336       1,374  
Post-production
    640       1,551  
Theater operations
    (110 )     (302 )
Other
    (57 )     20  
 
           
Total
  $ 14,130     $ 10,136  
 
           
 
(1)   IMAX systems include commission costs of $0.3 million and $0.1 million for the three months ended March 31, 2009 and 2008, respectively. Joint revenue sharing arrangements includes advertising, marketing and commission costs of $0.7 million and $nil for the three months ended March 31, 2009 and 2008, respectively. Production and DMR includes marketing costs of $0.1 million and $nil for the three months ended March 31, 2009 and 2008, respectively. Distribution includes marketing costs of $0.4 million and $0.1 million for the three months ended March 31, 2009 and 2008, respectively.
                 
    March 31,     December 31,  
    2009     2008  
Assets
               
IMAX systems
  $ 105,266     $ 107,640  
Theater system maintenance
    13,638       14,120  
Joint revenue sharing arrangements
    44,079       37,145  
Films
               
Production and IMAX DMR
    13,253       14,891  
Distribution
    7,723       5,106  
Post-production
    4,350       3,086  
Theater operations
    904       873  
Other
    813       845  
Corporate and other non-segment specific assets
    36,955       44,961  
 
           
Total
  $ 226,981     $ 228,667  
 
           

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17. 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, 2009, the benefits of Mr. Wechsler were 100% vested while the benefits of Mr. Gelfond were approximately 93.4% vested. The vesting percentage of a member whose employment terminates other than by voluntary retirement or upon a change in control shall be 100%.
     Under the terms of the SERP, if Mr. Gelfond’s employment terminates other than for cause prior to August 1, 2010, he is 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 is entitled to receive remaining benefits in the form of a lump sum payment. If Mr. Gelfond’s employment terminates other than for cause on or after August 1, 2010, he is 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.
     Under the terms of the SERP, annuity payments payable thereunder to Mr. Wechsler, whose employment as Co-CEO terminated effective April 1, 2009, shall be deferred for six months after the termination of his employment and paid on the first date of the seventh month following such termination, at which time Mr. Wechsler will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short term obligations. Thereafter, in accordance with the terms of the SERP, Mr. Wechsler is entitled to receive monthly annuity payments until the earlier of a change of control or August 1, 2010, at which time he is entitled to receive remaining benefits in the form of a lump sum payment.
     On May 4, 2007, the Company amended the SERP to provide for the determination of benefits to be 75% of the member’s best average 60 consecutive months of earnings over the member’s employment history from 75% of the member’s best average 60 consecutive months of earnings over the past 120 months. The actuarial liability was remeasured to reflect this amendment. The amendment resulted in a $1.0 million increase to the pension liability and a corresponding $1.0 million charge to other comprehensive income.
     The amounts accrued for the SERP are determined as follows:
         
    Three Months  
    Ended March 31,  
    2009  
Projected benefit obligation:
       
Obligation, beginning of period
  $ 26,381  
Service cost
    161  
Interest cost
    335  
Amendments
     
Actuarial (gain) loss
     
 
     
Obligation, end of period and unfunded status
  $ 26,877  
 
     
     The following table provides disclosure of pension expense for the SERP:
                 
    Three Months Ended March 31,  
    2009     2008  
Service cost
  $ 161     $ 198  
Interest cost
    335       313  
Amortization of prior service cost (credit)
    36       (62 )
Amortization of actuarial gain
    (170 )      
 
           
Pension expense
  $ 362     $ 449  
 
           
     The accumulated benefit obligation for the SERP was $26.9 million at March 31, 2009 and $26.4 million at December 31, 2008.

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     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,  
    2009     2008  
Prior service cost
  $  109     $ 145  
Unrecognized actuarial gain
    (3,698 )     (3,868 )
 
           
 
  $ (3,589 )   $ (3,723 )
 
           
     No contributions are expected to be made for the SERP during 2009 except to meet benefit payment obligations as they come due. The Company expects prior service costs of $0.1 million and amortization of actuarial gains of $0.5 million to be recognized as a component of net periodic benefit cost during the remainder of 2009.
     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:
         
2009 (nine months remaining)
  $ 861  
2010
    15,342 (1)
2011
    13,970  
2012
     
2013
     
Thereafter
     
 
     
 
  $ 30,173  
 
     
 
(1)   The SERP assumptions include that Mr. Wechsler will receive a lump sum payment at August 1, 2010 and that Mr. Gelfond will receive a lump sum payment in 2011 upon retirement at the end of the current term of his employment agreement.
     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 is the beneficiary. The Company may use the cash surrender value or the proceeds of the life insurance policies taken on Messrs. Gelfond and Wechsler to be applied towards the benefits due and payable under the SERP, although there can be no assurance that the Company will ultimately do so. At March 31, 2009, the cash surrender value of the insurance policies is $6.4 million (December 31, 2008 — $6.2 million) and has been included in other assets.
   (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, 2009 and 2008, the Company contributed and expensed an aggregate of $0.2 million and $0.2 million, respectively, to its Canadian plan and an aggregate of $0.1 million and $0.1 million, respectively, to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.
   (c) Postretirement Benefits
     The Company has an unfunded postretirement plan covering Messrs. Gelfond and Wechsler. The plan provides that the Company will maintain health benefits for Messrs. Gelfond and Wechsler until they become eligible for medicare and, thereafter, the Company will provide Medicare supplement coverage as selected by Messrs. Gelfond and Wechsler. The postretirement benefits obligation as at March 31, 2009 is $0.4 million (December 31, 2008 — $0.4 million). The Company has expensed less than $0.1 million for the three months ended March 31, 2009, and 2008, respectively.
     The following benefit payments are expected to be made as per the current plan assumptions in each of the next 5 years:
         
2009 (nine months remaining)
  $ 10  
2010
  $ 14  
2011
  $ 30  
2012
  $ 34  
2013
  $ 37  

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18. Impact of Recently Issued Accounting Pronouncements
     In April 2009, the FASB issued Staff Position 107-1 “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”). FSP FAS 107-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”), to require disclosures about fair value of financial instruments for interim financial reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 also amends Accounting Principle Board (“APB”) Opinion No. 28, “Interim Financial Reporting,” (“APB 28-1”) to require the disclosures under FSP FAS 107-1 in all interim financial statements. FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, on a prospective basis. The Company will adopt the required disclosures in its June 30, 2009 interim condensed consolidated financial statements.
     In April 2009, the FASB issued Staff Position 157-4, “Determining Whether a Market is Not Active and a Transaction is Not Distressed” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. The Staff Position applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157 and is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, on a prospective basis. The Company is currently evaluating the potential impact of FSP FAS 157-4 on its condensed consolidated financial statements.
     In April 2009, the FASB issued Staff Position 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”) which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The objective is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings should recognize a loss in earnings when the investment is impaired. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, on a prospective basis. The Company is currently evaluating the potential impact of FSP FAS 115-2 and FAS 124-2 on its condensed consolidated financial statements.
19. 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. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.
   (b) Fair Value Measurements
     The carrying values of the Company’s cash and cash equivalents, accounts receivable, borrowings under the Credit Facility, 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 fair valued at each reporting period-end.
     The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 1 input in accordance with the SFAS 157 hierarchy) for identical instruments at the measurement date.

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   (c) Foreign Exchange Risk Management
     The Company is exposed to market risk from changes in foreign currency rates. A majority portion of the Company’s revenues is denominated in U.S. dollars while a substantial portion of its costs and expenses are denominated in Canadian dollars. A portion of the net U.S. dollar cash flows of the Company is periodically converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In Japan, the Company has ongoing operating expenses related to its operations. Net Japanese yen cash flows are converted to U.S. dollars generally through the spot market. The Company also has cash receipts under leases denominated in Japanese yen, Canadian dollar and Euros which are converted to U.S. dollars generally through the spot market.
     Beginning in the fourth quarter of 2008 and continuing in 2009, the Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under SFAS 133 at inception, and continue to meet hedge effectiveness tests at March 31, 2009 (the “Foreign Currency Hedges”), with settlement dates throughout 2009 and 2010. In addition, at March 31, 2009, the Company held foreign currency forward contracts to manage foreign currency risk on future anticipated Canadian dollar expenditures that were not considered Foreign Currency Hedges by the Company. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the condensed consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income (“OCI”) and reclassified to the condensed consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations.
     The following tabular disclosures reflect the impact that derivatives instruments and hedging activities have on the Company’s condensed consolidated financial statements:
     Notional value of derivative instruments as at:
                 
    Notional Value  
    March 31,     December 31,  
    2009     2008  
Derivatives designated as hedging instruments:
               
Foreign exchange contracts — Forwards
  $ 14,190     $ 13,072  
 
               
Derivatives not designated as hedging instruments:
               
Foreign exchange contracts — Forwards
    18,450       17,050  
 
           
 
  $ 32,640     $ 30,122  
 
           
     Fair value of derivative instruments as at:
                         
            Fair Value  
          March 31,     December 31,  
    Balance Sheet Location       2009     2008  
Derivatives designated as hedging instruments:
                       
Foreign exchange contracts — Forwards
  Other assets (Accrued liabilities)   $ (272 )   $ 172  
 
                       
Derivatives not designated as hedging instruments:
                       
Foreign exchange contracts — Forwards
  Other assets (Accrued liabilities)   $ (349 )   $ 226  
 
                   
 
          $ (621 )   $ 398  
 
                   

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     Derivatives in Foreign Currency Hedging relationships as at:
                                         
                    Location of Derivative Gain        
    Derivative Gain (Loss) Recognized     (Loss) Reclassified from     Loss Reclassified from AOCI  
    in OCI (Effective Portion)     AOCI into Income     to Income (Effective Portion)  
    March 31, 2009     March 31, 2008     (Effective Portion)     March 31, 2009     March 31, 2008  
Foreign exchange contracts — Forwards
  $ (529 )   $     Selling, general and administrative expenses   $ (85 )   $  
 
                               
 
  $ (529 )   $             $ (85 )   $  
 
                               
     Non Designated Derivatives in Foreign Currency relationships for the three months ended March 31:
                         
            Three Months Ended  
          March 31,  
    Location of Derivative Loss   2009     2008  
Foreign exchange contracts — Forwards
  Selling, general and administrative expenses   $ (575 )   $  
 
                   
 
          $ (575 )   $  
 
                   
   (d) Other
     As at March 31, 2009, the Company’s principal sources of liquidity included cash and cash equivalents of $18.7 million, the Credit Facility, trade accounts receivable of $24.8 million and anticipated collection from financing receivables due in the next 12 months of $10.8 million. As at March 31, 2009, the Company has drawn down $20.0 million on the Credit Facility, and has letters of credit of $0.3 million outstanding under the Credit Facility and $5.7 million under the Bank of Montreal Facility.
     During the first quarter of 2009, the Company used cash of $1.9 million (including film assets) to fund its operations and $7.3 million to fund capital expenditures, principally to build equipment for use in joint revenue sharing arrangements. In addition, the Company has experienced an operating loss in the last 3 fiscal years. Based on management’s current operating plan for 2009, the Company expects to continue to use cash as it deploys additional theater systems under joint revenue sharing arrangements. Cash flows from joint revenue sharing arrangements are derived solely from the theater box-office and concession revenues and the Company invested directly in the roll out of 17 new theater systems and 5 digital upgrades under joint revenue sharing arrangements in the first quarter of 2009.
     In addition to uncertainties related to the global economy and credit environment, the Company faces many risks and uncertainties which could affect management’s operating plan. The Company believes that the following factors could have a material impact on the Company’s operating plan and future cash flows: (i) future signings for theater systems and film productions, (ii) volume of installations and (iii) box office performance of films.
     Under the terms of the Company’s sale and sales-type lease agreements, the Company receives substantial cash payments before the theater systems are delivered and operational. For the co-production or production of films, the Company receives cash payments in advance of related cash expenditures which may be utilized for other purposes. Management believes its assumptions with respect to future signings for theater systems and film productions are reasonable; however, there is a risk due to economic conditions that signings may be delayed or not achieved consistent with the assumptions used in management’s operating plan.
     A significant portion of the Company’s future cash flows are expected to be generated from box office performance of films. Under joint revenue sharing arrangements, the Company receives a portion of theater box-office and concession revenues. Under arrangements for IMAX DMR films, the Company receives participation fees from the film studios based on the revenues generated by the IMAX DMR films. The box office receipts are subject to consumer spending habits and acceptance and success of the respective films. It is possible that the estimated future cash flows arising from these sources assumed in management’s operating plan may not be achieved.

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     In addition to the risks and uncertainties related to the 2009 operating plan, the Company has certain significant expected future payments. The Company’s Senior Notes and the Credit Facility mature on December 1, 2010 and October 31, 2010, respectively. In addition, the Company has an unfunded defined benefit pension plan covering Messrs. Gelfond and Wechsler (see note 17) with estimated cash payments of approximately $15.3 million due August 1, 2010, although Messrs. Gelfond and Wechsler have indicated a willingness to discuss potential deferment of the pension obligations if the Company were to initiate such discussions. The Company expects it will need to obtain financing in the future to settle the obligations noted above and there is no assurance that the Company will be successful in obtaining financing to settle these obligations on a timely basis, on satisfactory terms or at all. If the Company is unable to refinance its indebtedness or obtain other financing, the Company will face substantial liquidity challenges.
     The Company forecasts its short-term liquidity requirements on a quarterly and annual basis. In addition, management of the Company believes it could take additional actions to mitigate certain of the consequences if certain of its assumptions in the 2009 operating plan are not met. Notwithstanding the measures taken by management to monitor and manage the Company’s liquidity, the current global economic environment and other factors outside the Company’s control could place additional pressures on the Company’s short- and long-term liquidity.
20. Supplemental Consolidating Financial Information
     The Company’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by specific wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”). The main Guarantor Subsidiaries are David Keighley Productions 70MM Inc., Sonics Associates Inc., and the subsidiaries that own and operate certain theaters. These guarantees are full and unconditional. The information under the column headed “Non-Guarantor Subsidiaries” relates to the following subsidiaries of the Company: IMAX Japan Inc. and IMAX B.V. (the “Non-Guarantor Subsidiaries”) which have not provided any guarantees of the Senior Notes.
     Investments in subsidiaries are accounted for by the equity method for purposes of the supplemental consolidating financial data. Some subsidiaries may be unable to pay dividends due to negative working capital.

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     Supplemental consolidating balance sheets as at March 31, 2009:
                                         
                            Adjustments        
    IMAX     Guarantor     Non-Guarantor     and     Consolidated  
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
Assets
                                       
Cash and cash equivalents
  $ 12,974     $ 4,993     $ 754     $     $ 18,721  
Accounts receivable
    21,621       2,918       283             24,822  
Financing receivables
    56,867       585                   57,452  
Inventories
    15,697       86       80             15,863  
Prepaid expenses
    2,792       257       22             3,071  
Intercompany receivables
    13,831       49,857       13,532       (77,220 )      
Film assets
    3,629                         3,629  
Property, plant and equipment
    44,265       970       2             45,237  
Other assets
    16,945                         16,945  
Goodwill
    39,027                         39,027  
Other intangible assets
    2,214                         2,214  
Investments in subsidiaries
    40,830                   (40,830 )      
 
                             
Total assets
  $ 270,692     $ 59,666     $ 14,673     $ (118,050 )   $ 226,981  
 
                             
 
                                       
Liabilities
                                       
Bank indebtedness
  $ 20,000     $     $     $     $ 20,000  
Accounts payable
    8,755       7,447       3             16,205  
Accrued liabilities
    58,217       5,800       91             64,108  
Intercompany payables
    60,736       37,434       8,404       (106,574 )      
Deferred revenue
    61,923       3,214       50             65,187  
Senior Notes due 2010
    160,000                         160,000  
 
                             
Total liabilities
    369,631       53,895       8,548       (106,574 )     325,500  
 
                             
 
                                       
Shareholders’ deficit
                                       
Capital stock
    142,430             117       (117 )     142,430  
Other equity
    4,695       46,959             (45,926 )     5,728  
Retained earnings (deficit)
    (249,651 )     (40,575 )     6,008       34,567       (249,651 )
Accumulated other comprehensive income (loss)
    3,587       (613 )                 2,974  
 
                             
Total shareholders’ equity (deficiency)
    (98,939 )     5,771       6,125       (11,476 )     (98,519 )
 
                             
Total liabilities & shareholders’ equity (deficiency)
  $ 270,692     $ 59,666     $ 14,673     $ (118,050 )   $ 226,981  
 
                             
     In certain Guarantor Subsidiaries, accumulated losses have exceeded the original investment balance. As a result of applying equity accounting, the parent company has consequently offset its liability for the accumulated losses in excess of investment against intercompany receivable balances with respect to these Guarantor Subsidiaries in the amounts of $29.4 million as at March 31, 2009.

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     Supplemental consolidating balance sheets as at December 31, 2008:
                                         
                            Adjustments        
    IMAX     Guarantor     Non-Guarantor     and     Consolidated  
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
Assets
                                       
Cash and cash equivalents
  $ 16,843     $ 9,313     $ 861     $     $ 27,017  
Accounts receivable
    21,097       1,611       274             22,982  
Financing receivables
    55,536       602                   56,138  
Inventories
    19,642       90       90             19,822  
Prepaid expenses
    1,760       212       26             1,998  
Intercompany receivables
    16,851       41,449       14,573       (72,873 )      
Film assets
    3,923                         3,923  
Property, plant and equipment
    38,364       1,039       2             39,405  
Other assets
    16,074                         16,074  
Goodwill
    39,027                         39,027  
Other intangible assets
    2,281                         2,281  
Investments in subsidiaries
    41,186                   (41,186 )      
 
                             
Total assets
  $ 272,584     $ 54,316     $ 15,826     $ (114,059 )   $ 228,667  
 
                             
 
                                       
Liabilities
                                       
Bank indebtedness
  $ 20,000     $     $     $     $ 20,000  
Accounts payable
    11,368       4,419       3             15,790  
Accrued liabilities
    52,440       5,626       133             58,199  
Intercompany payables
    57,709       35,525       8,993       (102,227 )      
Deferred revenue
    68,261       3,053       138             71,452  
Senior Notes due 2010
    160,000                         160,000  
 
                             
Total liabilities
    369,778       48,623       9,267       (102,227 )     325,441  
 
                             
 
                                       
Shareholders’ deficiency
                                       
Capital stock
    141,584             117       (117 )     141,584  
Other equity
    4,150       46,959             (45,926 )     5,183  
Retained earnings (deficit)
    (247,009 )     (40,653 )     6,442       34,211       (247,009 )
Accumulated other comprehensive income (loss)
    4,081       (613 )                 3,468  
 
                             
Total shareholders’ equity (deficiency)
    (97,194 )     5,693       6,559       (11,832 )     (96,774 )
 
                             
Total liabilities and shareholders’ equity (deficiency)
  $ 272,584     $ 54,316     $ 15,826     $ (114,059 )   $ 228,667  
 
                             
     In certain Guarantor Subsidiaries, accumulated losses have exceeded the original investment balance. As a result of applying equity accounting, the parent company has consequently offset its liability for the accumulated losses in excess of investment against intercompany receivable balances with respect to these Guarantor Subsidiaries in the amounts of $29.4 million.

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     Supplemental consolidating statements of operations for the three months ended March 31, 2009:
                                         
                            Adjustments        
    IMAX     Guarantor     Non-Guarantor     and     Consolidated  
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
Revenues
                                       
Equipment and product sales
  $ 13,202     $ 90     $ 68     $     $ 13,360  
Services
    11,302       3,536       49             14,887  
Rentals
    3,235       7       5             3,247  
Finance income
    1,004       8                   1,012  
Other revenues
    1,216                         1,216  
 
                             
 
    29,959       3,641       122             33,722  
 
                             
 
                                       
Cost and expenses applicable to revenues
                                       
Equipment and product sales
    7,137       100       4             7,241  
Services
    6,749       3,066       125             9,940  
Rentals
    2,166                         2,166  
Other
    245                         245  
 
                             
 
    16,297       3,166       129             19,592  
 
                             
 
                                       
Gross margin
    13,662       475       (7 )           14,130  
Selling, general and administrative expenses
    10,091       391       422             10,904  
Research and development
    547                         547  
Amortization of intangibles
    145                         145  
Loss (income) from equity-accounted investees
    356                   (356 )      
Receivable provisions net of recoveries
    510                         510  
 
                             
Earnings (loss) from operations
    2,013       84       (429 )     356       2,024  
Interest income
    21                         21  
Interest expense
    (4,427 )                       (4,427 )
 
                             
Net (loss) earnings from continuing operations before income taxes
    (2,393 )     84       (429 )     356       (2,382 )
Provision for income taxes
    (249 )     (7 )     (4 )           (260 )
 
                             
Net (loss) earnings
  $ (2,642 )   $ 77     $ (433 )   $ 356     $ (2,642 )
 
                             

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     Supplemental consolidating statements of operations for the three months ended March 31, 2008:
                                         
                            Adjustments        
    IMAX     Guarantor     Non-Guarantor     and     Consolidated  
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
Revenues
                                       
Equipment and product sales
  $ 6,786     $ 146     $ 5     $ (239 )   $ 6,698  
Services
    9,520       4,688       171       (172 )     14,207  
Rentals
    1,462       70       12             1,544  
Finance income
    1,061       10                   1,071  
Other revenues
    (94 )     (207 )           301        
 
                             
 
    18,735       4,707       188       (110 )     23,520  
 
                             
 
                                       
Cost and expenses applicable to revenues
                                       
Equipment and product sales
    3,170       (42 )     2       (165 )     2,965  
Services
    6,258       3,478       105       (152 )     9,689  
Rentals
    730                         730  
Other
          (207 )           207        
 
                             
 
    10,158       3,229       107       (110 )     13,384  
 
                             
 
                                       
Gross margin
    8,577       1,478       81             10,136  
Selling, general and administrative expenses
    12,535       134       (282 )           12,387  
Research and development
    2,488                         2,488  
Amortization of intangibles
    133                         133  
(Income) loss from equity-accounted investees
    (1,700 )                 1,700        
Receivable provisions net of recoveries
    748                         748  
 
                             
(Loss) earnings from operations
    (5,627 )     1,344       363       (1,700 )     (5,620 )
Interest income
    126                         126  
Interest expense
    (4,496 )                       (4,496 )
 
                             
Net (loss) earnings from continuing operations before income taxes
    (9,997 )     1,344       363       (1,700 )     (9,990 )
Provision for income taxes
    (262 )     (7 )                 (269 )
 
                             
Net (loss) earnings
  $ (10,259 )   $ 1,337     $ 363     $ (1,700 )   $ (10,259 )
 
                             

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     Supplemental consolidating statements of cash flows for the three months ended March 31, 2009:
                                         
                            Adjustments        
    IMAX     Guarantor     Non-Guarantor     and     Consolidated  
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
Cash provided by (used in):
                                       
Operating Activities
                                       
Net (loss) earnings
  $ (2,642 )   $ 77     $ (433 )   $ 356     $ (2,642 )
Items not involving cash:
                                       
Depreciation and amortization
    3,924       69                   3,993  
Write-downs net of recoveries
    510                         510  
Loss (income) from equity-accounted investees
    356                   (356 )      
Change in deferred income taxes
    84                         84  
Stock and other non-cash compensation
    855                         855  
Foreign currency exchange loss
    814                         814  
Change in cash surrender value of life insurance
    (19 )                       (19 )
Investment in film assets
    (2,169 )                       (2,169 )
Changes in other non-cash operating assets and liabilities
    782       (4,466 )     326             (3,358 )
 
                             
Net cash provided by (used in) operating activities
    2,495       (4,320 )     (107 )           (1,932 )
 
                             
 
                                       
Investing Activities
                                       
Purchase of property, plant and equipment
    (343 )                       (343 )
Investment in joint revenue sharing equipment
    (7,022 )                       (7,022 )
Acquisition of other assets
    (187 )                       (187 )
Acquisition of other intangible assets
    (78 )                       (78 )
 
                             
Net cash used in investing activities
    (7,630 )                       (7,630 )
 
                             
 
                                       
Financing Activities
                                       
Common shares issued
    846                         846  
 
                             
Net cash provided by financing activities
    846                         846  
 
                             
 
                                       
Effects of exchange rate changes on cash
    420                         420  
 
                             
 
                                       
Decrease in cash and cash equivalents, during the period
    (3,869 )     (4,320 )     (107 )           (8,296 )
 
                                       
Cash and cash equivalents, beginning of period
    16,843       9,313       861             27,017  
 
                             
 
                                       
Cash and cash equivalents, end of period
  $ 12,974     $ 4,993     $ 754     $     $ 18,721  
 
                             

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     Supplemental consolidating statements of cash flows for the three months ended March 31, 2008:
                                         
                            Adjustments        
    IMAX     Guarantor     Non-Guarantor     and     Consolidated  
    Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
Cash provided by (used in):
                                       
Operating Activities
                                       
Net (loss) earnings
  $ (10,259 )   $ 1,337     $ 363     $ (1,700 )   $ (10,259 )
Items not involving cash:
                                       
Depreciation and amortization
    4,128       75                   4,203  
Write-downs net of recoveries
    748                         748  
(Income) loss from equity-accounted investees
    (1,700 )                 1,700        
Change in deferred income taxes
    17                         17  
Stock and other non-cash compensation
    1,257                         1,257  
Foreign currency exchange loss
    191                         191  
Change in cash surrender value of life insurance
    (13 )                       (13 )
Investment in film assets
    (2,445 )                       (2,445 )
Changes in other non-cash operating assets and liabilities
    11,855       (2,182 )     (230 )           9,443  
 
                             
Net cash provided by (used in) operating activities
    3,779       (770 )     133             3,142  
 
                             
 
                                       
Investing Activities
                                       
Purchase of property, plant and equipment
    (1,714 )     (52 )                 (1,766 )
Acquisition of other assets
    (78 )                       (78 )
Acquisition of other intangible assets
    (95 )                       (95 )
 
                             
Net cash used in investing activities
    (1,887 )     (52 )                 (1,939 )
 
                             
 
                                       
Financing Activities
                                       
Common shares issued
    266                         266  
 
                             
Net cash provided by financing activities
    266                         266  
 
                             
 
                                       
Effects of exchange rate changes on cash
    (235 )     (49 )     (25 )           (309 )
 
                             
 
                                       
Increase (decrease) in cash and cash equivalents, during the period
    1,923       (871 )     108             1,160  
 
                                       
Cash and cash equivalents, beginning of period
    11,182       5,329       390             16,901  
 
                             
 
                                       
Cash and cash equivalents, end of period
  $ 13,105     $ 4,458     $ 498     $     $ 18,061  
 
                             

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IMAX CORPORATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
     IMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), is one of the world’s leading entertainment technology companies, specializing in motion picture technologies and large-format film presentations. The Company’s principal business is (i) the design and manufacture of large-format digital and film-based theater systems, (ii) the sale or lease of such systems or the contribution of such systems under revenue-sharing arrangements and (iii) the conversion of two-dimensional (“2D”) and three-dimensional (“3D”) Hollywood feature films for exhibition on such systems around the world. The Company’s theater systems are based on proprietary and patented technology for both large-format digital projectors and large-format 15-perforation film frame, 70mm format (“15/70-format”) projectors. The Company’s customers who purchase, lease or otherwise acquire the Company’s theater systems are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own IMAX theaters, but licenses the use of its trademarks along with the sale, lease or contribution of its equipment. The Company refers to all theaters using the IMAX theater system as “IMAX theaters.”
     At March 31, 2009, there were 371 IMAX theaters (250 commercial, 121 institutional) operating in 43 countries, compared to 298 IMAX theaters (179 commercial, 119 institutional) operating in 40 countries at March 31, 2008.
     The Company derives revenue principally from the sale or long-term lease of its theater systems and associated maintenance and extended warranty services, the installation of theater systems under joint revenue sharing arrangements, the provision of film production and digital re-mastering services, the distribution of certain films, and the provision of post-production services. The Company also derives revenue from the operation of its own theaters, camera rentals and the provision of aftermarket parts for its system components.
     Important factors that the Company’s Chief Executive Officer (“CEO”) Richard L. Gelfond uses in assessing the Company’s business and prospects include revenue, gross margins from the Company’s operating segments, earnings from operations as adjusted for unusual items that the Company views as non-recurring and the success of strategic initiatives such as the securing of new film projects, particularly IMAX DMR films, the signing and financial performance of new theater system arrangements, particularly its joint revenue sharing arrangements and the overall execution, reliability and consumer acceptance of the Company’s proprietary digital projector and related technologies and short- and long-term cash flow projections.
     On April 1, 2009, Mr. Gelfond, who had served as Co-Chief Executive Officer and Co-Chairman with Bradley J. Wechsler, assumed the role of sole CEO. Also on April 1, 2009, Mr. Wechsler assumed the role of sole Chairman of the Company’s Board of Directors. Mr. Gelfond remains a member of the Company’s Board of Directors.
IMAX Systems, Theater System Maintenance and Joint Revenue Sharing Arrangements
     The Company provides its theater systems to customers on a sales or long-term lease basis, typically with initial terms of 10 to 20 years. These agreements typically provide for three major sources of cash flows: initial fees, ongoing fees (which include a fixed minimum amount per annum and contingent fees in excess of the minimum payments) and maintenance and extended warranty fees. The initial fees vary depending on the system configuration and location of the theater and generally are paid to the Company in installments commencing upon the signing of the agreement. Finance income is derived over the term of the sales or sales-type lease arrangement as the unearned income on financed sales or sales-type leases is earned. Ongoing fees are paid monthly over the term of the contract, commencing after the theater system has been installed and are generally equal to the greater of a fixed minimum amount per annum and a percentage of box-office receipts. An annual maintenance and extended warranty fee is generally payable commencing in the second year of theater operations. Both ongoing fees and maintenance and extended warranty fees are typically indexed to the local consumer price index.
     The Company is increasingly offering certain commercial clients joint revenue sharing arrangements, where the Company receives a portion of a theater’s box-office and concession revenue in exchange for placing a theater system at the theater operator’s venue.
     Revenue on theater system arrangements is recognized at a different time than when cash is collected. See “Critical Accounting Policies” below for further discussion on the Company’s revenue recognition policies.

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Sales Backlog and Theater Network
     The Company’s sales backlog will vary from quarter to quarter depending on the signing of new theater system arrangements, which adds to backlog, and the installation and acceptance of theater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signed theater system sale and lease agreements that the Company believes will be recognized as revenue as the associated theater systems are installed and accepted. Sales backlog includes initial fees along with the present value of contractual ongoing fees due over the lease term, but excludes amounts allocated to maintenance and extended warranty revenues as well as fees in excess of contractual ongoing fees that might be received in the future. Operating leases and joint revenue sharing arrangements are assigned no value in the sales backlog. The value of sales backlog does not include revenue from theaters in which the Company has an equity interest, letters of intent or long-term conditional theater commitments.
     During the three months ended March 31, 2009, the Company signed contracts for 3 theater systems under sales and sales-type lease arrangements valued at $4.3 million, 1 of which was installed in the first quarter of 2009 and 2 of which are included in backlog as at March 31, 2009. During the three months ended March 31, 2008, the Company signed contracts for 66 theater systems: 35 under sales and sale-type lease arrangements valued at $45.9 million and 31 under joint revenue sharing arrangements.
     The Company’s sales backlog is as follows:
                                 
    March 31, 2009     March 31, 2008  
    Number of     Dollar Value     Number of     Dollar Value  
    Systems     (in thousands)     Systems     (in thousands)  
Sales and sale-type lease arrangements
    101     $ 135,633       110     $ 157,285  
Joint revenue sharing arrangements
    89       n/a       135       n/a  
 
                       
 
    190     $ 135,633       245     $ 157,285  
 
                       
     Theater systems under joint revenue sharing arrangements carry no assigned backlog value. The Company believes that the contractual obligations for theater system installations that are listed in sales backlog are valid and binding commitments.
     The following chart shows the number of the Company’s theater systems by configuration, opened theater network base and backlog as at March 31:
                                         
    2009
    2D   3D
        Theater               Theater    
        Network               Network    
    System   Base   Backlog   System   Base   Backlog
Flat Screen
  IMAX     39           IMAX 3D GT     87       7  
 
                      IMAX 3D SR     51       4  
 
                      IMAX MPX     49 (1)     29  
 
                      IMAX digital     73 (1)     148 (2)
Dome Screen
  IMAX Dome     67       2     IMAX 3D Dome     5        
 
                               
 
                      Total     371       190  
 
                               

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    2008        
    2D   3D        
        Theater               Theater            
        Network               Network            
    System   Base   Backlog   System   Base   Backlog        
Flat Screen
  IMAX     40           IMAX 3D GT     84       7          
 
                      IMAX 3D SR     49       9          
 
                      IMAX MPX     51       46          
 
                      IMAX digital           181 (2)        
Dome Screen
  IMAX Dome     68       2     IMAX 3D Dome     6                
 
                               
 
                      Total     298       245          
 
                               
 
(1)   In 2009, the Company upgraded 8 IMAX MPX theater systems to digital theater systems (2 sales arrangements, 1 operating lease arrangement and 5 joint revenue sharing arrangements).
 
(2)   Includes 89 and 135 theater systems as at March 31, 2009 and 2008, respectively, under joint revenue sharing arrangements.
     The following table outlines the breakdown of the theater network by type and geographic location as of March 31:
                                                 
    2009 Theater Network Base   2008 Theater Network Base
    Commercial   Institutional   Total   Commercial   Institutional   Total
United States
    142       68       210       84       67       151  
Canada
    16       7       23       16       7       23  
Mexico
    7       10       17       6       10       16  
Europe
    40       10       50       36       10       46  
Japan
    3       7       10       4       7       11  
China
    8       10       18       5       9       14  
Rest of World
    34       9       43       28       9       37  
 
                       
Total
    250       121       371       179       119       298  
 
                       
CRITICAL ACCOUNTING POLICIES
     The Company reports its results under United States Generally Accepted Accounting Principles (“U.S. GAAP”).
     The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, management evaluates its estimates, including those related to fair values associated with the individual elements in multiple element arrangements; residual values of leased theater systems; economic lives of leased assets; allowances for potential uncollectibility of accounts receivable, financing receivables and net investment in leases; provisions for inventory obsolescence; ultimate revenues for film assets; impairment provisions for film assets, long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful lives of intangible assets; pension plan and post retirement assumptions; accruals for contingencies including tax contingencies; valuation allowances for deferred income tax assets; and, estimates of the fair value and expected exercise dates of stock-based payment awards. Management bases its estimates on historic experience, future expectations and other assumptions that are believed to be reasonable at the date of the consolidated financial statements. Actual results may differ from these estimates due to uncertainty involved in measuring, at a specific point in time, events which are continuous in nature, and differences may be material. The Company’s significant accounting policies are discussed in note 2 to its audited consolidated financial statements in the Company’s 2008 Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”) and are summarized below.

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     The Company considers the following accounting policies to have the most significant effect on its estimates, assumptions and judgments:
Revenue Recognition
     The Company generates revenue from various sources as follows:
    Design, manufacture, sale and lease of proprietary theater systems for IMAX theaters principally owned and operated by commercial and institutional customers located in 43 countries as at March 31, 2009;
 
    Production, digital re-mastering, post-production and/or distribution of certain films shown throughout the IMAX theater network;
 
    Operation of certain IMAX theaters primarily in the United States and Canada;
 
    Provision of other services to the IMAX theater network, including ongoing maintenance and extended warranty services for IMAX theater systems; and
 
    Other activities, which includes short-term rental of cameras and aftermarket sales of projector system components.
   Multiple Element Arrangements
     The Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system, screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision of installation, and projectionist training; a license to use the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films. The Company evaluates all elements in an arrangement to determine what are considered typical deliverables for accounting purposes and which of the deliverables represent separate units of accounting based on the applicable accounting guidance in Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (“SFAS 13”); Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts” (“FTB 90-1”); Statement of Position 00-2, “Accounting by Producers or Distributors of Films” (“SOP 00-2”); and Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). If separate units of accounting are either required under the relevant accounting standards or determined to be applicable under EITF 00-21, the total consideration received or receivable in the arrangement is allocated based on the applicable guidance in the above noted standards.
   Theater Systems
     The Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater design support, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (the “System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in the arrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement.

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     The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration in the Company’s arrangements, that are not joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation of the theater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments are the greater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixed minimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default and only if the Company does not cure the default within a specified period. Recently, the Company has entered into a number of joint revenue sharing arrangements, where the Company receives a portion of a theater’s box-office and concession revenue in exchange for placing a theater system at theater operators’ venues. Under these arrangements, the Company receives no up-front fee, and the Company retains title to the theater system. Joint revenue sharing arrangements typically have 7 to 10 year terms with renewal provisions. The Company’s joint revenue sharing arrangements are non-cancellable.
     Sales Arrangements
     For arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Securities and Exchange Commission (the “SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”), when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectibility is reasonably assured.
     The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoing payments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized when reported by theater operators, provided collection is reasonably assured.
     The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyouts is included in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable and collectibility is reasonably assured.
     In certain sales arrangements for MPX theater systems, the Company provides customers with an option to acquire, for a specified period of time, digital upgrades (each upgrade consisting of a projector, certain sound system components and screen enhancements) at a fixed or variable discount towards a future price of such digital upgrades. At the current period-end, the Company has not yet established the fair value for such digital upgrades. Accordingly, the Company defers all consideration received and receivable under such arrangements, except for the amount allocated to maintenance and extended warranty services being provided to the customers for the installed system, until the maximum amount of the discount, if any, and the fair value of digital upgrades are determinable or the option expires, if applicable. When the maximum amount of the discount, if any, and the fair value of the digital upgrades are determinable, the Company allocates the actual or implied discount between the delivered MPX theater system and the option to acquire the digital upgrade ordered on a relative fair value or residual, as applicable, basis and recognizes the discounted amount as revenue for the delivered MPX system, provided all of the other conditions for recognition of a theater system are met. The remaining consideration allocated to the digital upgrade is deferred until all of the conditions required for the recognition of revenue for the sale of a theater system have been met or the option expires, if applicable. Costs related to the installed MPX system for which revenue has not been recognized are included in inventories until the conditions for revenue recognition are met. The Company also provides customers, in certain cases, with sales arrangements for multiple systems consisting of a combination of MPX theater systems and complete digital theater systems for a specified price. The Company allocates the actual or implied discount between the delivered and undelivered theater systems on a relative fair value basis, provided all of the other conditions for recognition of a theater system are met.
   Lease Arrangements
     The Company uses the guidance in EITF Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease” (“EITF 01-8”), to evaluate whether an arrangement is a lease within the scope of SFAS 13. Arrangements not within the scope of SFAS 13 are accounted for either as a sales or services arrangement, as applicable.

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     For lease arrangements, the Company determines the classification of the lease in accordance with SFAS 13. A lease arrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteria established by SFAS 13; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease based on the modified terms and conditions.
     For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met; (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater, provided collection is reasonably assured.
     The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixed minimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognized when reported by theater operators, provided collection is reasonably assured.
     For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. For operating leases, the lease term is considered to commence when all of the following conditions have been met (i) the projector, sound system and screen system have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collection is reasonably assured.
     For joint revenue sharing arrangements, where the Company receives a portion of a theater’s box-office and concession revenue in exchange for placing a theater system at the theater operator’s venue, revenue is recognized when box-office and concession revenues are reported by the theater operator, provided collection is reasonably assured.
     Equipment and components allocated to be used in future joint revenue sharing arrangements, as well as direct labour costs and an allocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life.
   Finance Income
     Finance income is recognized over the term of the lease or financed sales receivable, provided collection is reasonably assured. Finance income recognition ceases when the Company determines that the associated receivable is not recoverable.
   Terminations, Consensual Buyouts and Concessions
     The Company enters into theater system arrangements with customers that provide for customer payment obligations prior to the scheduled installation of the theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customers may be unable to, or elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may be terminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”). Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amounts paid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any further obligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company are recognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amounts are recognized in Other revenues.

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     In addition, with the introduction of the IMAX digital theater system in 2008, the Company may agree with some customers to convert their obligations for film-based theater system configurations that have not yet been installed to arrangements to acquire or lease IMAX digital theater systems. The Company considers these situations to be a termination of the previous arrangement and origination of a new arrangement for the IMAX digital theater system. The Company continues to defer an amount of any initial fees received from the customer such that the aggregate of the fees deferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the fair value of the IMAX digital theater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for the terminated theater system is recorded in Other revenues at the time when the obligation for the original theater system is terminated and the IMAX MPX theater system arrangement is signed.
     The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services and products such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a direct reduction in the sales price or a reduction of payments to be discounted in accordance with SFAS 13 or Accounting Principle Board Opinion No. 21, “Interest on Receivables and Payables” (“APB 21”). Free products and services are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with Emerging Issues Task Force Abstract No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (“EITF 01-09”).
   Maintenance and Extended Warranty Services
     Maintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenues related to these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenance and extended warranty services includes maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements, maintenance services may include additional training services to the customer’s technicians. All costs associated with this maintenance and extended warranty program are expensed as incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the services under the contracts exceeds the related deferred revenue.
   Film Production and IMAX DMR Services
     In certain film arrangements, the Company produces a film financed by third parties, whereby the third party retains the copyright and the Company obtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding over cost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company on distributing the film, which is charged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the cost of the film, based on the ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film.
     Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Services revenue when performance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collection is reasonably assured.
     Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derived in the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees are recognized as Services revenue when the performance of the related re-mastering service is completed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized as Services revenues when box-office receipts are reported by the third party that owns or holds the related film right, provided collection is reasonably assured.
     Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it is determined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on the film production and the cost of IMAX DMR services.

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   Film Distribution
     Revenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has been completed and delivered, the license period has begun, the fee is fixed or determinable and collection is reasonably assured. When license fees are based on a percentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collection is reasonably assured.
   Film Post-Production Services
     Revenues from post-production film services are recognized in Services revenue when performance of the contracted services is complete provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured.
   Theater Operations Revenue
     The Company recognizes revenue in Services revenue from its owned and operated theaters resulting from box-office ticket and concession sales as tickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theatergoers based on fixed prices per seat or per concession item.
     In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which are recognized in Services revenue when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenue over the term of such services.
   Other
     Revenues on camera rentals are recognized in Rental revenue over the rental period.
     Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer.
     Other service revenues are recognized in Services revenues when the performance of contracted services is complete.
Allowances for Accounts Receivable and Financing Receivables
     Allowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is based upon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest on overdue accounts receivable is recognized as income as the amounts are collected.
     The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. When facts and circumstances indicate that there is a potential impairment in the accounts receivable, net investment in lease or a financing receivable, the Company will evaluate the potential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the contractual terms of the arrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease.
     When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between the carrying value in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in the lease or the financing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of the investment over the fair value of the equipment.
     When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is applied to reduce unearned finance income.
     These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differ from cash flow previously expected.

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     Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectibility issues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivable or gross receivables from financed sales.
Inventories
     Inventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried out at the lower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and an applicable share of manufacturing overhead costs.
     The costs related to theater systems under sales and sales-type lease arrangement are relieved from inventory to costs and expenses applicable to revenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements and joint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signed joint revenue sharing arrangement or when the arrangement is first classified as an operating lease.
     The Company records provisions for excess and obsolete inventory based upon current estimates of future events and conditions, including the anticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects within the customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.
     Finished goods inventories can contain theater systems for which title has passed to the Company’s customer (as the theater system has been delivered to the customer) but the revenue recognition criteria as discussed above have not been met.
Asset Impairments
     The Company performs an impairment test on its goodwill on an annual basis, coincident with the year-end, as well as in quarters where events or changes in circumstances suggest that the carrying amount may not be recoverable.
     Goodwill impairment is assessed at the reporting unit level by comparing the unit’s carrying value, including goodwill, to the fair value of the unit. Significant estimates are involved in the impairment test. The carrying values of each unit are subject to allocations of certain assets and liabilities that the Company has applied in a systematic and rational manner. The fair value of the Company’s units is assessed using a discounted cash flow model. The model is constructed using the Company’s budget and long-range plan as a base.
     Long-lived asset impairment testing is performed at the lowest level of an asset group at which identifiable cash flows are largely independent. For a significant portion of long-lived assets, this is the reporting unit level used for goodwill testing. In performing its review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.
     The Company’s estimates of future cash flows involve anticipating future revenue streams, which contain many assumptions that are subject to variability, as well as estimates for future cash outlays, the amounts of which, and the timing of which are both uncertain. Actual results that differ from the Company’s budget and long-range plan could result in a significantly different result to an impairment test, which could impact earnings.
Foreign Currency Translation
     Monetary assets and liabilities of the Company’s operations which are denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the end of the period. Non-monetary items are translated at historical exchange rates. Revenue and expense transactions are translated at exchange rates prevalent at the transaction date. Such exchange gains and losses are included in the determination of earnings in the period in which they arise.

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     Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations.
Pension Plan and Postretirement Benefit Obligations Assumptions
     The Company’s pension plan and postretirement benefit obligations and related costs are calculated using actuarial concepts, within the framework of Statement of Financial Accounting Standards No. 87, “Employer’s Accounting for Pensions” and Statement of Financial Accounting Standards No. 106, “Employer’s Accounting for Postretirement Benefits Other Than Pension”. A critical assumption to this accounting is the discount rate. The Company evaluates this critical assumption annually or when otherwise required to by accounting standards. Other assumptions include factors such as expected retirement date, mortality rate, rate of compensation increase, and estimates of inflation.
     The discount rate enables the Company to state expected future cash payments for benefits as a present value on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increases pension expense. The Company’s discount rate was determined by considering the average of pension yield curves constructed from a large population of high-quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.
Deferred Tax Asset Valuation
     As at March 31, 2009, the Company had net deferred income tax assets of $nil. The Company’s management assesses realization of its deferred tax assets based on all available evidence in order to conclude whether it is more likely than not that the deferred tax assets will be realized. Available evidence considered by the Company includes, but is not limited to, the Company’s historic operation results, projected future operating earnings results, reversing temporary differences, contracted sales backlog at March 31, 2009, changing business circumstances, and the ability to realize certain deferred tax assets through loss and tax credit carry-back and carry-forward strategies. At March 31, 2009, the Company has determined that based on the weight of the available evidence, both positive and negative, a full valuation allowance for the net deferred tax assets was required.
     When there is a change in circumstances that causes a change in judgment about the realizability of the deferred tax assets, the Company would adjust all or a portion of the applicable valuation allowance in the period when such change occurs.
Tax Exposures
     The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. The Company provides for such exposures in accordance with FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (an interpretation of FASB Statement No. 109) (“FIN 48”).

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Impact of Recently Issued Accounting Pronouncements
     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities that are not remeasured at fair value on a recurring basis until fiscal years beginning after November 15, 2008. In October 2008, the FASB issued FASB Staff Position 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. For financial assets and financial liabilities, SFAS 157 was effective for the Company on January 1, 2008, on a prospective basis. The application of SFAS 157, as amended, to the financial assets and financial liabilities did not have a material effect on the Company’s financial condition or results of operations as of January 1, 2008. For non-financial assets and non-financial liabilities, SFAS 157 was effective for the Company on January 1, 2009, as disclosed in note 2 to the accompanying condensed consolidated financial statements in Item 1 on a prospective basis. The application of SFAS 157, as amended, to the non-financial assets and non-financial liabilities did not have a material effect on the Company’s financial condition or results of operations as of January 1, 2009.
     In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160, “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted SFAS 160 on January 1, 2009 as disclosed in note 2 to the accompanying condensed consolidated financial statements in Item 1.
     In December 2007, the FASB ratified the Emerging Issues Task Force consensus No. 07-01, “Accounting for Collaborative Arrangements” (“EITF 07-01”). The objective of the EITF 07-01 is to define collaborative arrangements and establish reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties that are not specifically addressed within the scope of other authoritative accounting literature. EITF 07-01 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. EITF 07-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. EITF 07-01 is to be applied as a change in accounting principle through retrospective application to all prior periods presented for all collaborative arrangements existing as of the effective date, unless it is impracticable to do so. The adoption of EITF 07-01 on January 1, 2009, did not have an effect on the Company’s financial condition or results of operations, as disclosed in note 2 to the accompanying condensed consolidated financial statements in Item 1.
     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), in order to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedge items affect an entity’s financial position, financial performance, and cash flows. The statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. SFAS 161 is effective for fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS 161 as disclosed in note 2 to the accompanying condensed consolidated financial statements in Item 1.

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     In April 2008, the FASB issued FASB Staff Position 142-3, “Determination of the Useful Lifes of Intangible Assets”, (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) and the period of expected cash flows used to measure the fair value of the asset. Specifically, the Company is required to use its own historical experience in renewing or extending the estimated life of an intangible asset as opposed to legal, regulatory or contractual provisions that enable renewal or extension of the asset’s legal or contractual life without substantial cost. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, on a prospective basis. Early adoption is prohibited. Intangible assets acquired after January 1, 2009 are accounted for in accordance with SFAS 142, as amended by FSP 142-3 as disclosed in note 2 to the accompanying condensed consolidated financial statements in Item 1.
     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), which identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to Proposed Auditing Standard Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. In 2008, the Company adopted SFAS 162. The application of SFAS 162 has no impact on the Company’s financial condition or results of operations, as disclosed in note 2 to the accompanying condensed consolidated financial statements in Item 1, as the accounting principles used to prepare its financial statements are in accordance with the SFAS 162 framework and are therefore in accordance with U.S. GAAP.
     In December 2008, the FASB issued FASB Staff Position Financial Accounting Standard 140-4 and FASB Interpretation No. 46R-8, “Disclosures by Public Entities (Enterprises) about Interests in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”), to require public enterprises to provide additional disclosures about their involvement with variable interest entities as defined in FIN 46R. Additional disclosures include disclosures of the significant judgments and assumptions made in determining whether or not to consolidate a variable interest entity, the nature of restrictions on the consolidated variable interest entity’s assets, the nature of, and changes in, the risks associated with the Company’s involvement with the variable interest entity and how the Company’s involvement affects its financial position, financial performance, and cash flows. FSP FAS 140-4 and FIN 46(R)-8 is effective for the first reporting period ending after December 15, 2008. In 2008, the Company adopted FSP FAS 140-4 and FIN 46(R)-8.
     In April 2009, the FASB issued Staff Position 107-1 “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”). FSP FAS 107-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”), to require disclosures about fair value of financial instruments for interim financial reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 also amends APB 21 to require the disclosures under FSP FAS 107-1 in all interim financial statements. FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, on a prospective basis. The Company will adopt the required disclosures in its June 30, 2009 interim condensed consolidated financial statements.
     In April 2009, the FASB issued Staff Position 157-4, “Determining Whether a Market is Not Active and a Transaction is Not Distressed” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. The Staff Position applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157 and is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, on a prospective basis. The Company is currently evaluating the potential impact of this FSP FAS 157-4 on its condensed consolidated financial statements.
     In April 2009, the FASB issued Staff Position 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”) which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The objective is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings should recognize a loss in earnings when the investment is impaired. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, on a prospective basis. The Company is currently evaluating the potential impact of this FSP FAS 115-2 and FAS 124-2 on its condensed consolidated financial statements.

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DISCONTINUED OPERATIONS
     There were no discontinued operations in the three months ended March 31, 2009 and 2008, respectively.
RESULTS OF OPERATIONS
     As identified in note 16 to the accompanying consolidated financial statements in Item 1, the Company has eight 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 installs IMAX theater projection system equipment to an exhibitor in exchange for a certain percentage of box-office and concession revenue. 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 owns and operates certain 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 2008 Form 10-K.
     The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations have been organized and discussed with respect to the above stated segments. Management feels that a discussion and analysis based on its segments is significantly more relevant as the Company’s Consolidated Statements of Operations captions combine results from several segments.
     The following table sets forth the breakdown of revenue and gross margin by category:
                                 
    Revenue     Gross Margin  
    Three Months Ended March 31,     Three Months Ended March 31,  
(In thousands of U.S. dollars)   2009     2008     2009     2008  
IMAX Systems
                               
Sales and sales-type leases(1)
  $ 13,788     $ 5,816     $ 6,721     $ 3,491  
Ongoing rent, fees and finance income(2)
    2,664       2,342       2,174       2,068  
 
                       
 
    16,452       8,158       8,895       5,559  
 
                       
 
                               
Theater System Maintenance
    4,360       3,983       2,312       1,588  
 
                       
 
                               
Joint Revenue Sharing Arrangements
    1,908       348       344       40  
 
                       
 
                               
Film
                               
Production and IMAX DMR
    3,700       2,916       1,770       306  
Distribution
    3,242       2,753       336       1,374  
Post-production
    872       1,724       640       1,551  
 
                       
 
    7,814       7,393       2,746       3,231  
 
                       
 
                               
Theater Operations
    2,714       2,831       (110 )     (302 )
 
                       
 
                               
Other
    474       807       (57 )     20  
 
                       
 
                               
 
  $ 33,722     $ 23,520     $ 14,130     $ 10,136  
 
                       
 
(1)   Includes initial rents and fees and the present value of fixed minimum rents and fees from equipment, sales and sales-type lease transactions.
 
(2)   Includes rental income from operating leases, contingent rents from sales-type leases and contingent fees from sales arrangements.

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Three Months Ended March 31, 2009 Versus Three Months Ended March 31, 2008
     The Company reported a net loss of $2.6 million or $0.06 per share on a diluted basis for the first quarter of 2009. For the first quarter of 2008, the Company reported a net loss of $10.3 million or $0.25 per share on diluted basis.
     Revenues and Gross Margin
     The Company’s revenues for the first quarter of 2009 increased by 43.4% to $33.7 million from $23.5 million in the same period last year due in large part to an increase in IMAX Systems revenue. The gross margin across all segments in the first quarter of 2009 was $14.1 million, or 41.9% of total revenue, compared to $10.1 million, or 43.1% of total revenue in the first quarter of 2008.
     IMAX Systems
     IMAX systems revenue was $16.5 million in the first quarter of 2009 as compared to $8.2 million in the first quarter of 2008, an increase of over 100% resulting primarily from an increase in systems installed and recognized as compared to the prior year comparative period.
     Revenue from sales and sales-type leases increased over 100% to $13.8 million in the first quarter of 2009 from $5.8 million in the first quarter of 2008. The Company recognized revenue on 9 theater systems which qualified as either sales or sales-type leases in the first quarter of 2009 versus 4 in the first quarter of 2008. There were 8 new theater systems with a value of $11.9 million recognized into revenue in the first quarter of 2009, as compared to 4 new theater systems with a total value of $5.5 million recognized in the first quarter of 2008. One of the theater systems recognized in the first quarter of 2009 was a used theater system with a value of $0.5 million while none of the theater systems in the first quarter of 2008 were used systems.
     Average revenue per sales and sales-type lease systems was consistent at $1.4 million for the three months ended March 31, 2009 and 2008, respectively. The breakdown in mix of sales and sales-type lease, joint revenue sharing arrangements (see discussion below) and operating lease installations by theater system configuration for the first quarter of 2009 and 2008 is outlined in the table below.
                 
    Three Months
    Ended March 31,
    2009   2008
Sales and Sales-type lease systems — installed and recognized
               
IMAX 3D GT
    1        
IMAX 3D SR
    2        
IMAX 3D MPX
          4  
IMAX digital
    6 (1)      
 
       
 
    9       4  
IMAX 3D MPX — installed and deferred
          1  
 
       
 
    9       5  
Operating lease — installed and operating
               
IMAX 3D MPX
    1        
Joint revenue sharing arrangements — installed and operating
               
IMAX digital
    22 (1)      
 
       
 
    32       5  
 
       
 
(1)   Includes the digital upgrade of 8 systems (2 sales arrangements, 1 operating lease arrangement and 5 systems under a joint revenue sharing arrangement) from film-based to digital.
     As noted in the table above, one theater system under a sales arrangement subject to provisions providing the customer with an upgrade to a digital system at a discounted price when available was installed in the first quarter of 2008. Had the transaction not included this digital upgrade clause, the Company would have recognized $1.3 million in revenue and $0.6 million in gross margin related to this sale. The Company expects that once the digital upgrade is provided or the fair value for the upgrade is established, the Company will allocate total contract consideration, including any upgrade revenues, between the delivered and undelivered elements on a fair value basis and recognize the revenue allocated to the delivered elements with their associated costs.
     Settlement revenue was $1.2 million for the three months ended March 31, 2009 as compared to $nil in the first quarter of 2008. Included in settlement revenue are $0.1 million related to an operating lease termination to convert to a different system configuration and $1.1 million related to a consensual buyout for an uninstalled MPX theater system.

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     IMAX theater systems margin from sales and sale-type leases was 48.8% in the first quarter of 2009, as compared to 60.0% in the first quarter of 2008. The lower than normal gross margin experienced in the first quarter of 2009 reflects the digital upgrade of 2 locations under sales arrangements where revenue had previously been deferred (which are at lower margins) and a loss of $0.2 million from the sale of one used system. Gross margins on sales and sale-type leases of new systems were 57.1% in the first quarter of 2009 as compared to 58.1% in the prior year quarter. The gross margin on the sale of one used system recognized in the first quarter of 2009 was a loss of $0.2 million.
     Ongoing rent revenue and finance income increased to $2.7 million in the first quarter of 2009 from $2.3 million in the first quarter of 2008, an increase of 13.8%. Gross margin for ongoing rent and finance income increased 5.1% to $2.2 million in the first quarter of 2009 from $2.1 million in the first quarter of 2008. The increase in revenue and gross margin was primarily due to growth in the theater network. Contingent fees included in this caption amounted to $0.1 million in the first quarter of 2009 and 2008, respectively.
     Theater System Maintenance
     Theater system maintenance revenue was $4.4 million during the first quarter of 2009 as compared to $4.0 million in the first quarter of 2008, an increase of 9.5%. Theater system maintenance gross margin increased to $2.3 million in the first quarter of 2009 from $1.6 million in the first quarter of 2008. Maintenance revenue and margin continues to grow as the number of theaters in the IMAX network grows.
     Joint Revenue Sharing Arrangements
     Revenue from joint revenue sharing arrangements increased to $1.9 million in the first quarter of 2009 compared to $0.3 million in the first quarter of 2008. The Company participated in 69 joint revenue sharing arrangements during the first quarter of 2009 as compared to 11 in the first quarter of 2008. The increase in revenues from joint revenue sharing arrangements was primarily due to the number of theaters operating in the first quarter of 2009 as compared to the first quarter of 2008.
     The gross margin from joint revenue sharing arrangements in the first three months of 2009 increased to $0.3 million from less than $0.1 million in the first quarter of 2008. The increase was largely due to the increase in joint revenue sharing theaters operating in the first quarter of 2009 as compared to the first quarter of 2008. Offsetting the margin in the first three months of 2009 were certain advertising, marketing and selling expenses of $0.7 million associated with the initial launch of 17 new theaters opened during the quarter. Excluding these launch expenses, gross margin would have been $1.0 million for the first quarter of 2009 compared to less than $0.1 million in the first quarter of 2008.
     Film
     Film segment revenues increased 5.7% to $7.8 million in the first quarter of 2009 from $7.4 million in the first quarter of 2008. Film production and IMAX DMR revenues increased 26.9% to $3.7 million in the first quarter of 2009 from $2.9 million in the first quarter of 2008. The increase in film production and IMAX DMR revenues was due primarily to the overall growth of the IMAX theater network and better film performance. Films exhibited in the current quarter included The Day The Earth Stood Still: The IMAX Experience, The Dark Knight: The IMAX Experience, Watchmen: The IMAX Experience and Monsters vs. Aliens: An IMAX 3D Experience in comparison to The Spiderwick Chronicles: The IMAX Experience and I am Legend: The IMAX Experience exhibited in the first quarter of 2008. Film distribution revenues increased 17.8% to $3.2 million in the first quarter of 2009 from $2.8 million in the first quarter of 2008 due to the strong performance of Under the Sea 3D which was released on February 13, 2009. The Company did not distribute any new titles in the first quarter of 2008. Film post-production revenues decreased 49.4% to $0.9 million in the first quarter of 2009 from $1.7 million in the first quarter of 2008 primarily due to a decrease in third party business.
     The Company’s gross margin from its film segment decreased in the first quarter of 2009 by $0.5 million over the first quarter of 2008. The film distribution margin of $0.3 million in the first quarter of 2009 was lower than the $1.4 million experienced in the first quarter of 2008. Film distribution margin experienced in the first quarter of 2009 included initial marketing expenditures of $0.3 million associated with the launch of Under the Sea 3D. Film post-production gross margin decreased by $0.9 million due to a decrease in third party business. These decreases were offset by an increase in film production and IMAX DMR gross margin of $1.4 million due primarily to an increase in IMAX DMR revenue and lower IMAX DMR costs.

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     Theater Operations
     Theater operations revenue in the first quarter of 2009 was relatively consistent at $2.7 million in comparison to the $2.8 million experienced in the first quarter of 2008.
     Theater operations margin increased $0.2 million in the first quarter of 2009 as compared to first quarter of 2008.
     Other
     Other revenue decreased to $0.5 million in the first quarter of 2009 compared to $0.8 million in the same period in 2008. Other revenue primarily includes revenue generated from the Company’s camera and rental business and after market sales of projection system parts and 3D glasses.
     The gross margin on other revenue decreased by $0.1 million in the first quarter of 2009 as compared to the first quarter of 2008.
     Outlook
     Based on the Company’s expectation of 2009 theater system installations, particularly those under joint revenue sharing arrangements, and its estimate of films to be released in 2009, the Company believes it will experience higher revenues in 2009 as compared to 2008.
     In addition to the 32 theater systems installed in the first quarter of 2009, the Company currently estimates that approximately 65 of the 190 theater systems arrangements in its backlog as at March 31, 2009, will be installed and accepted in the last nine months of 2009. In 2009, the Company’s total theater network will increase by approximately 25% and its commercial theater network by approximately 40% as the vast majority of the new 2009 systems are to be installed in commercial settings. In addition, the Company anticipates that it will install a select number of digital system upgrades in 2009 as was the case in the first quarter. However, the Company cautions that theater system installations slip from period to period in the course of the Company’s business and such slippages remain a recurring and unpredictable part of its business. In fact, the Company has seen a number of theater system installations originally anticipated for the third and fourth quarters of 2008 move to anticipated installations for 2009 and beyond. These slippages and delays could impact the timing of revenue recognition. In addition, each year the Company installs a number of systems that are signed in that same calendar year.
     The Company has announced that it expects to release the following 6 titles to its network during the remaining nine months of 2009:
    Star Trek: The IMAX Experience (Paramount Pictures, May 2009);
 
    Night at the Museum: Battle of the Smithsonian: The IMAX Experience (Twentieth Century Fox, May 2009);
 
    Transformers: Revenge of the Fallen: The IMAX Experience (Paramount Pictures, June 2009);
 
    Harry Potter and the Half-Blood Prince: An IMAX 3D Experience (Warner Bros., July 2009);
 
    A Christmas Carol: An IMAX 3D Experience (Walt Disney Pictures and ImageMovers Digital, November 2009); and
 
    Avatar: An IMAX 3D Experience (Twentieth Century Fox, December 2009).
In addition, the Company is currently in discussions about releasing an additional film to the IMAX network in fall 2009.
     Disney’s, “A Christmas Carol: An IMAX 3D Experience” directed by Robert Zemeckis (The Polar Express) is slated for wide release to the IMAX network under a new multi-picture arrangement with Walt Disney Studios, this includes the 2010 release of Disney’s, Alice in Wonderland: An IMAX 3D Experience. As a result of a box office milestone reached in connection with DreamWorks Animation SKG, Inc.’s film release of Monsters vs. Aliens: An IMAX 3D Experience, DreamWorks Animation is contractually obligated to release two additional films, How to Train Your Dragon: An IMAX 3D Experience and Shrek Goes Fourth: An IMAX 3D Experience, during the first six months of 2010. . In addition, the Company, in conjunction with Warner Bros. and the National Aeronautics and Space Administration (NASA), also announced that the next IMAX 3D space film, which will chronicle the Hubble Space Telescope, is set for release to IMAX theaters in 2010. The Company also remains in active negotiations with virtually all of Hollywood’s studios for additional films to fill out its short and long-term film slate.

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     The increased number of IMAX DMR films released to the IMAX theater network can minimize the impact of an individual film’s poor performance. In addition, the increased number of titles can mean a greater opportunity to capitalize on the early weeks of a movie’s release, when over half of a given title’s gross box office is typically generated. However, films can be subject to delays in production or changes in release schedule, which can negatively impact the number, timing and type of IMAX DMR and IMAX original films released to the IMAX theater network.
     Given the film slate and the growth of the network, the Company anticipates improved financial performance in 2009 as compared to 2008. The outlook for the global macro-environment in 2009, however, is largely negative and the U.S. and global economies could remain significantly challenged for an indeterminate period of time. While historically the movie industry has been somewhat resistant to economic downturns, and while the Company is actively taking steps to mitigate the effect of the economic downturn on its operations, present economic conditions, which are beyond the Company’s control, could lead to a decrease in discretionary consumer spending. It is difficult to predict the severity and duration of any decrease in consumer spending resulting from the economic downturn and what affect it may have on the movie industry in general and IMAX DMR box-office results in particular. Year-to-date box-office results have been strong despite the general economic environment. According to various industry reports and trade publications, year-to-date domestic gross box office totalled approximately $3.3 billion through May 3, 2009, approximately 15% increase over the same period last year.
     To date, the Company has signed joint revenue sharing arrangements for 158 theater systems, 69 of which have been installed as at March 31, 2009. As the Company adds joint revenue sharing systems to its theater base, the Company’s revenues are increasingly dependent on box-office and concessions revenues and, accordingly, increasingly exposed to any decline in attendance at commercial IMAX theaters. If the industry were to face declining admissions, commercial exhibitors could become less willing or, as a result of disruptions in the capital and credit markets that may limit exhibitors’ access to capital less able to invest capital in new IMAX theaters or to fulfill their existing obligations to the Company. As a result, the Company’s revenues could be lower than expected.
     The Company currently believes that cash flow from future operations together with existing cash and borrowing available under the Company’s Credit Facility will be sufficient to fund the Company’s business operations, including its strategic initiatives relating to joint revenue sharing arrangements, and the continued roll-out of its proprietary digitally-based projection system. However, continued volatility and disruptions in the capital and credit markets could limit the Company’s access to liquidity, constrain the Company’s ability to pursue strategic initiatives or business opportunities in its best interests and make it difficult for the Company to refinance its 9.625% Senior Notes due December 2010 (“the Senior Notes”) and the Credit Facility when they mature in December and October of 2010, respectively, on a timely basis or on satisfactory terms or at all.
     In sum, while the Company believes it will see higher revenues and increased growth in 2009 as a result of a significant increase in the number of theater system installations and IMAX DMR films released to its theater network, the impact that the challenging global macro-economic environment could have on the discretionary spending of consumers and the liquidity and capital resources of the Company’s customers is uncertain, although box-office results have been relatively resilient in past recessionary periods and have been strong year-to-date.
     The Company anticipates that its digital projector, introduced in 2008, will provide a differentiated experience to moviegoers that is consistent with what they have come to expect from the IMAX brand. The Company believes its introduction of a digital platform for a large portion of its customer base is compelling for a number of reasons. The savings to the studios as a result of eliminating film prints are considerable, as the typical cost of an IMAX film print ranges from $20 thousand per 2D print to $45 thousand per 3D print. Removing those costs will significantly increase the profit of an IMAX release for a studio which, the Company believes, provides more incentive for studios to release their films to IMAX theaters. The Company similarly believes that economics change favorably for its exhibition clients as a result of a digital theater system, since lower print costs and the increased programming flexibility that digital delivery provides should allow theaters to program between 10 and 12 IMAX DMR films per year, thereby increasing both customer choice and total box-office revenue. Finally, digital transmission eventually allows for the opportunity to show attractive alternate programming, such as live sporting events and concerts, in the immersive environment of an IMAX theater. The Company has signed agreements with exhibitors for 213 new digital projection systems.

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     Selling, General and Administrative Expenses
     Selling, general and administrative expenses decreased to $10.9 million in the first quarter of 2009 as compared to $12.4 million in 2008. The $1.5 million decrease experienced from the prior year was largely the result of the following:
    a $1.0 million decrease in legal and professional fees, including costs incurred in connection with certain regulatory matters;
 
    a $0.9 million decrease in staff-related costs and compensation costs, which was the result of a decrease in salaries and benefits of $0.5 million and a $0.4 million decrease in travel and entertainment costs;
 
    a $0.4 million decrease in office-related costs resulting from cost reduction efforts;
 
    a $0.3 million decrease in the Company’s stock-based compensation expense, including a recovery on variable awards, based on the decline in the Company’s stock price during the period; and
 
    a $1.1 million increase in foreign exchange translation adjustments. During the first quarter of 2009, the Company recorded a foreign exchange loss of $1.2 million largely due to a decline in the exchange rates of foreign currency denominated receivables and other working capital balances, as compared to a loss of less than $0.1 million recorded in the first quarter of 2008. See note 11(c) of the accompanying condensed consolidated financial statements in Item 1. for more information.
     Receivable Provisions Net of Recoveries
     Receivable provisions net of recoveries for accounts receivable and financing receivables amounted to a net provision of $0.5 million in the first quarter of 2009 as compared to $0.8 million in the first quarter of 2008.
     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. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.
     Interest Income and Expense
     Interest income decreased to less than $0.1 million in the first quarter of 2009 as compared to $0.1 million in the first quarter of 2008.
     Interest expense decreased to $4.4 million in the first quarter of 2009 as compared to $4.5 million in the first quarter of 2008. Included in interest expense is the amortization of deferred finance costs in the amount of $0.3 million and $0.3 million in the first quarter of 2009 and 2008, respectively, relating to the Company’s Senior Notes. The Company’s policy is to defer and amortize all the costs relating to a debt financing, paid directly to the debt provider, over the life of the debt instrument.
     Income Taxes
     The Company’s effective tax rate differs from the statutory tax rate and will vary from year to year primarily as a result of numerous permanent differences, investments 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 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. As at March 31, 2009, the Company had a gross deferred income tax asset of $78.8 million (including a $15.6 million increase due to the impact of filing an election allowing the Company to file its Canadian corporate tax returns in U.S. dollars), against which the Company is carrying a $78.8 million valuation allowance. The Company recorded an income tax provision of $0.3 million for the three months ended March 31, 2009, of which $0.1 million is related to an increase in unrecognized tax benefits. For the three months ended March 31, 2008 the Company recorded an income tax provision of $0.3 million, of which less than $0.2 million was related to an increase in unrecognized tax benefits.

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     Research and Development
     Research and development expenses decreased to $0.5 million in the first quarter of 2009 compared to $2.5 million in the first quarter of 2008. The expenses incurred in the first quarter of 2008 principally reflect a high level of research and development activities pertaining to development of the Company’s new proprietary digitally-based theater projector which was launched in July of 2008. Through research and development, the Company continues to design and develop cinema-based equipment, software and other technologies to enhance its product offering. The Company believes that the motion picture industry will be affected by the development of digital technologies, particularly in the areas of content creation (image capture), post-production (editing and special effects), distribution and display. Consequently, the Company has made significant investments in digital technologies, including the development of proprietary, patent-pending technology related to a digital projector, as well as technologies to digitally enhance image resolution and quality of motion picture films, and convert monoscopic (2D) to stereoscopic (3D) images. The Company also holds a number of patents, patents pending and intellectual property rights in these areas. In addition, the Company holds numerous digital patents and long-term relationships with key manufacturers and suppliers in digital technology. However, there can be no assurance that the Company will be awarded patents covering its technology or that competitors will not develop similar technologies.
     In recent years, a number of companies have introduced digital 3D projection technology and more and more Hollywood features are being exhibited in 3D using these technologies. The Company believes that there are approximately 2,000 conventional-sized screens in the U.S. multiplexes equipped with such digital 3D systems. The Company believes that its many competitive strengths, including the IMAX brand name, the quality and immersiveness of The IMAX Experience, its IMAX DMR technology and its patented theater geometry significantly differentiate the Company’s 3D presentations from any other 3D presentations. Consistent with this view, for the small number of films released to both IMAX 3D theaters and conventional 3D theaters, the IMAX theaters have outperformed the conventional theaters on a per-screen revenue basis.
LIQUIDITY AND CAPITAL RESOURCES
     Credit Facility
     Under the indenture, dated as at December 4, 2003, and as thereafter amended and supplemented, governing the Company’s Senior Notes due December 2010 (the “Indenture”), the Company is permitted to incur indebtedness on a secured basis pursuant to a credit agreement, or the refinancing or replacement of a credit facility, provided that the aggregate principal amount of indebtedness thereunder outstanding at any time does not exceed the greater of: (a) $30.0 million minus the amount of any such indebtedness retired with the proceeds of an Asset Sale (as defined in the Indenture); and (b) 15% of Total Assets (as defined in the Indenture) of the Company. Amongst other indebtedness, the Indenture also permits the Company to incur indebtedness solely in respect of performance, surety or appeal bonds, letters of credit and letters of guarantee as required in the ordinary course of business in accordance with customary industry practices.
     On February 6, 2004, the Company entered into a Loan Agreement for a secured revolving credit facility, as amended on June 30, 2005, May 16, 2006, November 7, 2007, December 5, 2007 and May 5, 2008 (the “Credit Facility”). The Credit Facility is a revolving credit facility expiring on October 31, 2010.
     The Credit Facility permits maximum aggregate borrowings equal to the lesser of:
  (i)   $40.0 million,
 
  (ii)   a collateral calculation based on percentages of the book values for the Company’s net investment in sales-type leases, financing receivables, finished goods inventory allocated to backlog contracts and the appraised values of the expected future cash flows related to operating leases and of the Company’s owned real property, reduced by certain accruals and accounts payable, and
 
  (iii)   a minimum level of trailing cash collections in the preceding twenty-six week period ($63.4 million as at March 31, 2009),
reduced for outstanding letters of credit and advance payment guarantees and subject to maintaining a minimum Excess Availability (as defined in the Credit Facility) of $5.0 million.

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     The Credit Facility, which is collateralized by a first priority security interest in all of the current and future assets of IMAX Corporation, contains typical affirmative and negative covenants, including covenants that restrict IMAX’s ability 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. In addition, the Credit Facility agreement contains customary events of default, including upon an acquisition or a change of control that may have a material adverse effect on IMAX or a guarantor. As at March 31, 2009, the Company was in compliance with all covenants under the agreement.
     On May 5, 2008, the Company entered into an amendment to the Credit Facility, effective January 1, 2008, whereby the minimum Cash and Excess Availability (as defined in the Credit Facility) requirement was reduced from $15.0 million to $7.5 million. The Credit Facility had previously required the Company to maintain, over a period of time, a minimum level of adjusted earnings before interest, taxes, depreciation and amortization including film asset amortization, stock and non-cash compensation, write downs (recoveries), asset impairment charges, and other non-cash uses of funds on a trailing four quarter basis calculated quarterly, of not less than $20.0 million (the “EBITDA Requirement”). Under the current terms of Credit Facility, the Company shall not be subject to an EBITDA Requirement so long as the Company is in compliance with the Cash and Excess Availability requirement. The amendment also provided for a one-year extension of the expiration of the Credit Facility to October 31, 2010 and adjusted the collateral calculation for certain finished goods inventory items to be installed under joint revenue sharing arrangements, which could result in an increase to maximum aggregate borrowings of up to $3.0 million in the future. Under the amended terms of the Credit Facility, in the event that the Company’s Excess Availability falls below the $5.0 million requirement, the excess borrowings above the minimum availability requirement must be remedied immediately. Failure to remedy would result in a Cash Dominion Event and an Event of Default (as defined in the Credit Facility). The failure to comply with the Cash and Excess Availability requirement of $7.5 million would also result in an immediate Cash Dominion Event and an Event of Default. If the Credit Facility were to be terminated by either the Company or the lender, the Company would have the right to pursue another source of secured financing pursuant to the terms of the Indenture.
     As at March 31, 2009, the Company’s current borrowing capacity under the Credit Facility (which is also limited under the terms of the Indenture) was $11.6 million after deduction for outstanding borrowings of $20.0 million, letters of credit and advance payment guarantees of $0.3 million and the minimum Excess Availability of $5.0 million, compared with a borrowing capacity, as at December 31, 2008, of $10.5 million after deduction for outstanding borrowings of $20.0 million, letters of credit and advanced payment guarantees of $1.4 million and the minimum excess availability reserve of $5.0 million.
     The Credit Facility bears interest at the applicable prime rate per annum or LIBOR plus a margin as specified therein per annum. As at March 31, 2009, outstanding borrowings bear interest at the LIBOR rate plus an applicable margin. The effective interest rate for the quarter ended March 31, 2009 was 2.27% under the Credit Facility.
     Letters of Credit and Other Commitments
     As at March 31, 2009, the Company has letters of credit and advance payment guarantees of $0.3 million outstanding (December 31, 2008 — $1.4 million), of which the entire balance has been secured by the Credit Facility.
     The Company also has a $10.0 million facility for advance payment guarantees and letters of credit through the Bank of Montreal for use solely in conjunction with guarantees fully insured by Export Development Canada (the “Bank of Montreal Facility”). On October 2, 2008, the Company entered into an amendment to increase the amount available by $5.0 million to $10.0 million. The Bank of Montreal Facility is unsecured and includes typical affirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscal year. The Bank of Montreal Facility is subject to periodic annual reviews with the next review scheduled for June 30, 2009. As at March 31, 2009, the Company had letters of credit outstanding of $5.7 million compared with $5.2 million as at December 31, 2008 under the Bank of Montreal Facility.
     Senior Notes due December 2010
     As at March 31, 2009, the Company had outstanding $160.0 million (December 31, 2008 — $160.0 million) in principal amount of Senior Notes due December 1, 2010 (the “Senior Notes”).

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     The Senior Notes bear interest at a rate of 9.625% per annum and are unsecured obligations that rank equally with any of the Company’s existing and future senior indebtedness and senior to all of the Company’s existing and future subordinated indebtedness. The payment of principal, premium, if any, and interest on the Senior Notes is unconditionally guaranteed, jointly and severally, by certain of the Company’s wholly-owned subsidiaries. Interest is paid on a semi-annual basis on June 1 and December 1. The Senior Notes are subject to redemption for cash by the Company, in whole or in part, from April 1, 2009 to November 30, 2009 at 102.406%, together with accrued and unpaid interest thereon to the redemption date. Beginning December 1, 2009, and thereafter, the Senior Notes will be redeemable by the Company at 100.000%, together with accrued and unpaid interest thereon to the redemption date. If certain changes were to result in the imposition of withholding taxes under Canadian law, the Senior Notes are subject to redemption at the Company’s option, in whole but not in part, at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest to the date of redemption. In the event of a change in control, the Company will be required to make an offer to repurchase the Senior Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase.
     The terms of the Company’s Senior Notes impose certain restrictions on its operating and financing activities, including certain restrictions on the Company’s ability to: incur certain additional indebtedness; make certain distributions or certain other restricted payments; grant liens; make certain dividends and other payment restrictions affecting the Company’s subsidiaries; sell certain assets or merge with or into other companies; and enter into certain transactions with affiliates.
     The Company may from time to time seek to retire or purchase outstanding Senior Notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, could be material and will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.
     Cash and Cash Equivalents
     As at March 31, 2009, the Company’s principal sources of liquidity included cash and cash equivalents of $18.7 million, the Credit Facility, trade accounts receivable of $24.8 million and anticipated collection from financing receivables due in the next 12 months of $10.8 million. As at March 31, 2009, the Company has drawn down $20.0 million on the Credit Facility, and has letters of credit of $0.3 million outstanding under the Credit Facility and $5.7 million under the Bank of Montreal Facility.
     During the first quarter of 2009, the Company used cash of $1.9 million (including film assets) to fund its operations and $7.3 million to fund capital expenditures, principally to build equipment for use in joint revenue sharing arrangements. In addition, the Company has experienced an operating loss in the last 3 fiscal years. Based on management’s current operating plan for 2009, the Company expects to continue to use cash as it deploys additional theater systems under joint revenue sharing arrangements. Cash flows from joint revenue sharing arrangements are derived solely from the theater box office and concession revenues and the Company invested directly in the roll out of 17 new theater systems and 5 digital upgrades under joint revenue sharing arrangements in the first quarter of 2009.
     The Company currently believes that cash flow from future operations together with existing cash and borrowing available under the Credit Facility will be sufficient to fund the Company’s business operations, including its strategic initiatives relating to joint revenue sharing arrangements, and the continued roll-out of its proprietary digitally-based projection system. The Company similarly believes it will be able to continue to meet its commitments for at least the 12 month period commencing April 1, 2009. The Company’s operating cash flow will be adversely affected, however, if management’s projections of future signings for theater systems and film productions, installations and film performance are not realized. The Company forecasts its short-term liquidity requirements on a quarterly and annual basis. Since the Company’s future cash flows are based on estimates and there may be factors that are outside of the Company’s control (see “Risk Factors” in Item 1A in the Company’s 2008 Form 10-K), there is no guarantee that the Company will continue to be able to fund its operations through cash flows from operations. Under the terms of the Company’s typical sale and sales-type lease agreement, the Company receives substantial cash payments before the Company completes the performance of its obligations. Similarly, the Company receives cash payments for some of its film productions in advance of related cash expenditures.

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     In addition to operating risks and uncertainties, the capital markets are currently experiencing a period of dislocation and instability, as evidenced by a lack of liquidity in both the equity and debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of certain major financial institutions. These events have contributed to worsening general economic conditions that are materially and adversely affecting the broad financial and credit markets and reducing the availability and increasing the price of debt and equity capital. The Senior Notes and the Credit Facility mature on December 1, 2010 and October 31, 2010, respectively, and there can be no assurance that the Company will be successful in refinancing its existing indebtedness on a timely basis, on satisfactory terms or at all. In addition, the Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Messrs. Gelfond and Wechsler and current SERP assumptions include that approximately $15.3 million will be paid out in August 2010, although Messrs. Gelfond and Wechsler have indicated a willingness to discuss potential deferment of pension obligations if the Company were to initiate such discussions. If the Company is unable to refinance its indebtedness or obtain other financing, the Company will face substantial liquidity challenges and there is no guarantee that the Company will have sufficient cash flow or capital resources to meet its repayment obligations. Even if the Company is able to refinance its existing indebtedness in the short term, continued volatility and disruptions in the capital and credit markets could adversely affect the Company’s access to liquidity needed for its business in the longer term. See “Risk Factors — The Company is highly leveraged which may make it difficult to refinance its existing indebtedness and obtain new financing and which limits cash flow available for its operations and the Company may not generate cash flow to service all of its obligations” in Item 1A in the Company’s 2008 Form 10-K.
     Operating Activities
     The Company’s net cash provided by (used in) operating activities is affected by a number of factors, including the proceeds associated with new signings of theater system lease and sale agreements in the year, costs associated with contributing systems under joint revenue sharing arrangements, the box-office performance of films distributed by the Company and/or exhibited in the Company’s theaters, increases or decreases in the Company’s operating expenses, including research and development, and the level of cash collections received from its customers.
     Cash used in operating activities amounted to $1.9 million for the quarter ended March 31, 2009. Changes in other non-cash operating assets as compared to December 31, 2008 include: an increase of $2.1 million in financing receivables; a $0.6 million increase in accounts receivable; a decrease of $2.9 million in inventories; a $1.1 million increase in prepaid expenses, which primarily relates to prepaid directors’ and officers’ liability insurance for 2009; and a $1.4 million increase in insurance recoveries receivable. Changes in other non-cash operating liabilities as compared to December 31, 2008 include: a decrease in deferred revenue of $6.3 million related to amounts relieved from deferred revenue related to theater system installations in the current period offset by backlog payments received; an increase in accounts payable of $0.9 million and an increase of $4.2 million in accrued liabilities. Included in accrued liabilities at March 31, 2009, was $26.9 million in respect of accrued pension obligations which are mainly long-term in nature.
     Investing Activities
     Net cash used in investing activities amounted to $7.6 million in the first quarter of 2009, which includes an investment in joint revenue sharing equipment of $7.0 million, purchases of $0.3 million in property, plant and equipment, an increase in other assets of $0.2 million primarily relating to the increase in the cash surrender value of life insurance policies, and an increase in other intangible assets of $0.1 million.
     Financing Activities
     Net cash provided by financing activities in 2009 amounted to $0.9 million due to the issuance of common shares from the exercise of stock options in the current period.
     Capital Expenditures
     Capital expenditures including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment net of sales proceeds and investments in film assets were $9.5 million for the quarter ended March 31, 2009. The Company anticipates a higher level of capital expenditures in 2009 as compared to 2008 related, in part, to the anticipated roll-out of approximately 54 theaters pursuant to joint revenue sharing arrangements in the remainder of 2009, all of which are currently in backlog, and all of which the Company currently intends to fund through cash on hand and availability under the Credit Facility.

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     Digital Projection System
     In July 2008, the Company introduced to the market its new proprietary digital projection system. IMAX’s digital projection system delivers The IMAX Experience and helps drive profitability for studios, exhibitors and IMAX theaters by eliminating the need for film prints, increasing program flexibility and ultimately increasing the number of movies shown on IMAX screens. The system can run both IMAX and IMAX 3D presentations.
     As at March 31, 2009, the Company had 73 digital theaters installed and operating in exhibitor theaters and 148 digital theater system arrangements in its backlog, which include the significant transactions described below:
     On December 7, 2007, the Company announced a significant joint revenue sharing arrangement with AMC for the installation of 100 digital projection systems to be installed in the latter half of 2008 through 2010. The Company has projected that the deal will ultimately double the size of the commercial IMAX theater network in North America and triple the number of IMAX theaters in North American multiplexes, which are the primary targets of the Company’s business efforts. In December 2007, the Company announced that it estimates that the AMC agreement will generate $35.0 million in incremental earnings and $229.0 million in cumulative cash flow over 10 years, under certain assumptions. The system roll-out is to be implemented in 2 phases of 50 systems each, with the rollout of the second phase being subject to the achievement of certain performance thresholds that the Company believes will be met. As of March 31, 2009, the Company has installed 34 of the 100 digital projection systems contracted for under the agreement with AMC.
     The Company and Regal Cinemas, Inc (“Regal”) announced on March 24, 2008 a joint revenue sharing agreement to install 31 digital projection systems at Regal locations in 20 major U.S. markets. As of March 31, 2009, the Company has installed 20 of the 31 digital projection systems. In June 2008, the Company and Hoyts Multiplex Cinemas PTY Ltd (“Hoyts”) entered into a joint revenue sharing arrangement for 4 digital projection systems. To date, the Company has installed 3 of the 4 digital projection systems. In July 2008, the Company signed a joint revenue sharing arrangement with Tokyu Recreation Co., Ltd (“Tokyu”) to install up to 4 digital projection systems. In September 2008, the Company signed a joint revenue sharing arrangement with Cineplexx Kinobetriebe GMBH (“Cineplexx”) for 3 digital projection systems. The Company anticipates installing several of Tokyu and Cineplexx sites in the remainder of 2009.
     The Company anticipates meeting the cash requirements needed to manufacture the digital projection systems in its joint revenue sharing arrangements through a combination of cash on hand, cash inflows from future operations and draws on its Credit Facility.
     In addition, on March 10, 2008, the Company announced an agreement for 35 digital theater systems (under its traditional sales/sales-type-lease structure) with RACIMEC to be installed in Central and South America and the Caribbean. RACIMEC has made an initial cash-payment in connection with the terms of its agreement with the Company.
     Pension and Postretirement Obligations
     The Company has a defined benefit pension plan, the SERP, covering Messrs. Gelfond and Wechsler. As at March 31, 2009, the Company had an unfunded and accrued projected benefit obligation of approximately $26.9 million (December 31, 2008 — $26.4 million) in respect of the SERP. 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. The Company may use the proceeds of life insurance policies taken on Messrs. Gelfond and Wechsler to be applied towards the benefits due and payable under the SERP, although there can be no assurance that the Company will ultimately do so. As at March 31, 2009, the cash surrender value of the insurance policies is $6.4 million (December 31, 2008 — $6.2 million).
     In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at March 31, 2009, the Company had an unfunded benefit obligation of $0.4 million (December 31, 2008 — $0.4 million).

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     On March 8, 2006, the Company and Messrs. Gelfond and Wechsler negotiated an amendment to the SERP which reduced the related pension expense to the Company effective January 1, 2006. Under the terms of the SERP amendment, to reduce ongoing costs to the Company, the cost of living adjustment and surviving spouse benefits previously owed to Messrs. Gelfond and Wechsler are each reduced by 50%, subject to a recoupment of a percentage of such benefits upon a change of control of the Company, and the net present value of the reduced pension benefit payments is accelerated and paid out upon a change of control of the Company. The amendment resulted in reduction of the accrued pension liability by $6.2 million, a reduction in other assets of $3.4 million and a past services credit of $2.8 million. 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, 2009, Mr. Wechsler’s benefits were 100% vested while the benefits of Mr. Gelfond were approximately 93.4% vested. The vesting percentage of a member whose employment terminates other than by voluntary retirement or upon a change in control shall be 100%.
     On May 4, 2007, the Company amended the SERP to provide for the determination of benefits to be 75% of the member’s best average 60 consecutive months of earnings over the member’s employment history from 75% of the member’s best average 60 consecutive months of earnings over the past 120 months. The actuarial liability was remeasured to reflect this amendment. The amendment resulted in a $1.0 million increase to the pension liability and a corresponding $1.0 million charge to other comprehensive income.
     Under the terms of the SERP, annuity payments payable thereunder to Mr. Wechsler, whose employment as Co-CEO terminated effective April 1, 2009, are deferred for six months and shall be paid on the first date of the seventh month following such termination, at which time Mr. Wechsler will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short term obligations. Thereafter, in accordance with the terms of the SERP, Mr. Wechsler is entitled to receive monthly annuity payments until the earlier of a change of control or August 1, 2010, at which time he is entitled to receive remaining benefits in the form of a lump sum payment.
     Under the terms of the SERP, if Mr. Gelfond’s employment terminates other than for cause prior to August 1, 2010, he is 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 is entitled to receive remaining benefits in the form of a lump sum payment. If Mr. Gelfond’s employment terminates other than for cause on or after August 1, 2010, he shall 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 is entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations.
OFF-BALANCE SHEET ARRANGEMENTS
     There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition.

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CONTRACTUAL OBLIGATIONS
     Payments to be made by the Company under contractual obligations are as follows:
                                                         
    Payments Due by Period  
    Total                                      
(In thousands of U.S. Dollars)   Obligations     2009     2010     2011     2012     2013     Thereafter  
Senior Notes
                           
Principal
  $ 160,000     $     $ 160,000     $     $     $     $  
Interest
    30,800       15,400       15,400                          
Demand Loan
    20,000             20,000                          
Capital lease obligations
    241       115       71       19       19       17        
Operating lease obligations
    27,713       4,434       6,072       6,047       5,917       2,129       3,114  
Pension obligations(1)
    30,173       861       15,342       13,970                    
Postretirement benefits obligations
    125       10       14       30       34       37        
Purchase obligations
    6,995       6,995                                
 
                                         
 
  $ 276,047     $ 27,815     $ 216,899     $ 20,066     $ 5,970     $ 2,183     $ 3,114  
 
                                         
 
(1)   The SERP assumptions include that Mr. Wechsler will receive a lump sum payment at August 1, 2010 and that Mr. Gelfond will receive a lump sum payment in 2011 upon retirement at the end of the current term of his employment agreement.
Item 3. Quantitative and Qualitative Factors about Market Risk
     The Company is exposed to market risk from changes in foreign currency rates. The Company does not use financial instruments for trading or other speculative purposes.
     A majority of the Company’s revenue is denominated in U.S. dollars while a significant portion of its costs and expenses is denominated in Canadian dollars. A portion of the Company’s net U.S. dollar cash flows is converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In Japan, the Company has ongoing operating expenses related to its operations. Net Japanese yen cash flows are converted to U.S. dollars through the spot market. The Company also has cash receipts under leases denominated in Japanese yen, Euros and Canadian dollars. For the quarter ended March 31, 2009, the Company recorded a translation loss of $1.2 million (including $0.6 million of depreciation on unhedged forward contracts — see discussion below) compared with a translation loss of less than $0.1 million for quarter ended March 31, 2008, respectively, primarily from the receivables associated with leases denominated in Canadian dollars, as the value of the U.S. dollar declined in relation to the Canadian dollar. The decline in the value of the U.S. dollar also had an impact on working capital given the appreciation in value of the Canadian dollar, Euro and Japanese yen.
     Beginning in the fourth quarter of 2008 and continuing in 2009, the Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreign currencies with settlement dates throughout 2009 and 2010. In addition, at March 31, 2009, the Company held foreign currency forward contracts to manage foreign currency risk on future anticipated Canadian dollar expenditures that were not considered foreign currency hedges by the Company. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations. The notional value of these contracts at March 31, 2009 was $14.2 million (December 31, 2008 — $13.1 million). A loss of $0.4 million was recorded to Other Comprehensive Income with respect to the depreciation in the value of these contracts (March 31, 2008 — $nil). Appreciation or depreciation on forward contracts not meeting the requirements for hedge accounting in SFAS 133 are recorded to selling, general and administrative expenses. A loss of $0.6 million was recorded for the quarter ended March 31, 2009 (2008 — $nil). The notional value of forward contracts that do not qualify for hedge accounting at March 31, 2009 was $18.4 million (December 31, 2008 — $17.1 million).
     For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to the Company. To manage this risk, the Company enters into derivative transactions only with major financial institutions.

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     The Company is also subject to interest rate risk on its Credit Facility borrowings of $20.0 million as at March 31, 2009 (2008 — $nil).
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
     The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and that such information is accumulated and communicated to management, including the CEO and CFO, to allow timely discussions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
     The Company’s management, with the participation of its CEO and its CFO, has evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as at March 31, 2009 and has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were adequate and effective. The Company will continue to periodically evaluate its disclosure controls and procedures and will make modifications from time to time as deemed necessary to ensure that information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
     There were no changes in the Company’s internal control over financial reporting which occurred during the quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     See note 10 to the interim condensed consolidated financial statements for information regarding legal proceedings involving the Company.
Item 1A. Risk Factors
     There have been no material changes to the factors disclosed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

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Item 4. Submission of Matters to a Vote of Security Holders
     There were no matters submitted to a vote of the security holders during the quarter ended March 31, 2009.
Item 5. Other Information
     None.
Item 6. Exhibits
     
Exhibit    
   No.   Description
 
   
10.1
  Summary of Employment Arrangement, dated January 6, 2005, between IMAX Corporation and Larry O’Reilly.
 
   
31.1
  Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated May 7, 2009, by Richard L. Gelfond.
 
   
31.2
  Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated May 7, 2009, by Joseph Sparacio.
 
   
32.1
  Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated May 7, 2009, by Richard L. Gelfond.
 
   
32.2
  Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated May 7, 2009, by Joseph Sparacio.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  IMAX CORPORATION
 
 
Date: May 7, 2009  By:   /s/ JOSEPH SPARACIO    
    Joseph Sparacio   
    Executive Vice-President & Chief Financial Officer
(Principal Financial Officer) 
 
 
     
Date: May 7, 2009  By:   /s/ JEFFREY VANCE    
    Jeffrey Vance   
    Vice-President, Finance & Controller
(Principal Financial Officer) 
 
 

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