IMAX Corporation Reports Third Quarter 2011 Financial Results

HIGHLIGHTS

• Record Third Quarter Revenues Increase to $67.5 Million, Up 32% Vs. Last Year, Resulting in a 41% Increase in Gross Margin
• Q3 2011 Adjusted Earnings Per Diluted Share of $0.16 Includes $0.06 Foreign Exchange Charge Due to Weakened Canadian Dollar at Quarter-End
• Third Quarter Box Office Increases 53% to $149.3 Million Vs. Third Quarter 2010
• Company Increases Fourth Quarter Installation Guidance to a Record 49 to 59 Theatres, Leading to Year-over-Year Commercial Network Growth of Over 30%
• Updated Study of Key International Markets Leads to Approximate 25% Increase in Worldwide IMAX Zones to 1,500 to 1,550

SHANGHAI, China, Oct. 27, 2011 (GLOBE NEWSWIRE) -- IMAX Corporation (NYSE:IMAX) (TSX:IMX) today reported third quarter revenues of $67.5 million, up from $51.1 million in the year ago period. Adjusted net income was $11.0 million, up from $9.8 million. Adjusted earnings per diluted share were $0.16, up from $0.15 per diluted share. Reported net income was $8.4 million, up from $6.7 million.   Reported earnings per diluted share were $0.12, up from $0.10 per diluted share. Adjusted EBITDA was $21.3 million, up from $17.3 million. For reconciliations of adjusted net income to reported net income and to adjusted EBITDA, please see the tables at the end of this press release.

The majority of the Company's revenues are in U.S. dollars, while the majority of the Company's expenses are in Canadian dollars. A sudden decrease of Canadian Dollar against the U.S. Dollar at the end of the third quarter negatively impacted the Company's foreign exchange forward contracts by $4.1 million, or $0.06 per share.  However, since quarter-end the Canadian dollar has strengthened versus the U.S. dollar. Assuming current levels hold through the fourth quarter, the Company would anticipate recording a $3.4 million gain from foreign exchange in the fourth quarter of 2011.

"The combination of strong film performance, a growing theatre network and prudent expense management resulted in strong third quarter results," said IMAX Chief Executive Officer Richard L. Gelfond. "This quarter demonstrates the operating leverage that will propel our growth going forward. In addition, we are pleased to announce a significant increase to our zone analysis, reinforcing that we are still very early on in our international network expansion. This, along with continued investments we're making in technology, such as securing exclusive rights to Kodak's laser technology, and our commitment to working with studios to eventize blockbuster films, like the IMAX five-day early preview window for Mission Impossible – Ghost Protocol, should position us well for long-term success."

Third Quarter Segment Results

In the third quarter of 2011, IMAX systems revenue increased 39% to $20.6 million from $14.8 million in the third quarter of 2010, primarily reflecting the installation of 11 full, new theatre systems in the most recent third quarter, compared to 7 full, new systems in the third quarter of 2010. The Company also installed four digital upgrades in the third quarter of 2011, compared to three in the same year-ago period.

Third quarter 2011 total film revenue increased to $26.6 million from $21.0 million in the third quarter of 2010. Production and IMAX DMR® revenues increased 50% to $18.6 million in the third quarter of 2011 from $12.4 million in the year-ago period, which primarily reflects the growth of the IMAX theatre network, as compared to the year-ago period. Gross box office from DMR titles increased 53% to $149.3 million in the third quarter of 2011 from $97.8 million in the third quarter of 2010. The average DMR box office per screen in the third quarter was $356,200 ($257,200 domestic, $560,000 international).

"This was our highest-grossing box office quarter since the first quarter of 2010 – which included Avatar – primarily driven by Paramount Pictures' and Michael Bay's Transformers: Dark of the Moon and the final chapter of Warner Bros.' beloved Harry Potter franchise," added Mr. Gelfond. "Our upcoming lineup of films is shaping up to be an exciting one for IMAX audiences, beginning with a five-day preview of Paramount's Mission Impossible – Ghost Protocol: The IMAX Experience, and continuing into 2012 with key franchise titles including The Amazing Spider-Man, The Hobbit: An Unexpected Journey, and The Dark Knight Rises, which is currently being filmed using IMAX cameras."

In the third quarter of 2011, revenue from joint revenue sharing arrangements increased 54% to $10.0 million from $6.5 million in the prior-year period, primarily reflecting an increase in the number of joint revenue sharing theatres in operation. During the quarter, the Company installed 14 new theatres under joint revenue sharing arrangements, compared to 18 in the year-ago period. As of September 30, 2011, there were 218 IMAX® theatres operating under joint revenue sharing arrangements, compared to 144 joint revenue sharing theatres open as of September 30, 2010.

Third quarter 2011 gross margin increased 41% to $36.4 million from $25.9 million in the third quarter of 2010, and as a percentage of revenues, gross margin increased to 54.0% from 50.8% last year. The increase was driven by margin expansion across virtually all of the Company's key business segments, including sales and sales-type leases, production and IMAX DMR, and joint revenue sharing arrangements.

Reported selling, general and administrative expense for the third quarter of 2011 was $19.4 million, which includes a benefit of $2.0 million, or $0.03 per share, related to the change in the value of the Company's variable stock compensation, offset by the afore-mentioned foreign exchange charge of $4.1 million, or $0.06 per share, related to the Canadian dollar. Excluding these items, selling, general and administrative expense was $17.3 million, which is $2.5 million better than the Company's most recent implied guidance, reflecting prudent operating expense management throughout the quarter. Last year's reported selling, general and administrative expense was $16.1 million, which included a $3.1 million charge related to the change in the value of the Company's variable stock compensation during the period, and a $1.1 million foreign exchange benefit related to the Canadian dollar.  The Company actively hedges against currency risks for cash flow budgeting purposes, especially related to movement in the Canadian dollar, given its large operation in Canada, and related operating expenses that are transacted in Canadian dollars.

For the nine months ended September 30, 2011, total revenues were $169.9 million, compared to $179.5 million in the year-ago period. The nine months of fiscal 2010 benefited from the record setting performance of Avatar: An IMAX 3D Experience and its related positive impact on revenue, gross margin and earnings. Adjusted net income was $18.1 million, or $0.27 per diluted share, versus $53.5 million, or $0.81 per diluted share, on the same basis last year. Reported net income for the nine-month period was $9.2 million, or $0.14 per diluted share, compared to $46.6 million, or $0.70 per diluted share, for the year-ago period. 

Network Growth Update

In the third quarter of 2011, the Company installed 25 new theatre systems and four digital upgrades, and signed contracts for 28 new theatre systems and two digital upgrades. This resulted in a record backlog of 295 theatre systems as of September 30, 2011. For a breakdown of system installations, signings and backlog by type, please see the end of this press release.Through the first nine months of 2011, the Company has already signed contracts for 166 new theatre systems compared to 166 new theatre signings in all of 2010. 

"Our robust level of theatre signings in the first nine months of 2011 is positioning us to set another new theatre signing record in 2011," said Mr. Gelfond. "Strong signings momentum, along with developments in key markets is driving our outlook for worldwide IMAX zones upwards to 1,500 to 1,550, from 1,200 to 1,250 based on an updated market study of the BRIC nations, as well as Japan, the UK, France and Spain. Today, approximately 80 percent of our theatre backlog is international, and currently our international theatres generate 2 times the level of box office as our domestic theatres. The combined benefit of our theatre mix shifting to international, which generate higher levels of box office, should enable to us to capture increased revenues and margin."

Network Growth Outlook

The Company is increasing its installation outlook for the fourth quarter 2011, and now expects to install a record 49 to 59 new theatres in the quarter. As a result, it expects to have between 490 and 500 commercial multiplex theatres in operation by year-end, implying commercial network growth in 2011 of over 30 percent.  Current network growth outlook is based solely on theatres in backlog as of September 30, 2011. The Company cautions that installations can slip from period to period, usually for reasons beyond its control.

Mr. Gelfond concluded, "It was a strong quarter for us financially, one in which the leverage that is inherent in our model was evident. This, combined with the strategic developments of the last several weeks reflect our unwavering commitment to staying on the cutting edge of our industry.   These initiatives, coupled with our fast-growing theatre network and strong line up of 2012 titles, position us well for the medium and long-term."

Conference Call

The Company will host a conference call today at 8:00 AM ET to discuss its third quarter 2011 financial results. To access the call via telephone, interested parties should dial (866) 321-6651 approximately 5 to 10 minutes before it begins. International callers should dial (416) 642-5212. The participant passcode for the call is 4444302. This call is also being webcast by Thomson Financial and can be accessed on the 'Investor Relations' section of www.imax.com. A replay of the call will be available via webcast on the 'Investor Relations' section of www.imax.com or via telephone by dialing (888) 203-1112, or (647) 436-0148 for international callers. The participant passcode for the telephone replay is 4444302.

About IMAX Corporation

IMAX Corporation is one of the world's leading entertainment and technology companies, specializing in the creation and delivery of premium, awe-inspiring entertainment experiences. With a growing suite of cutting-edge motion picture and sound technologies, and a globally recognized entertainment brand, IMAX is singularly situated at the convergence of the entertainment industry, innovation and the digital media world. The industry's top filmmakers and studios are utilizing IMAX theatres to connect with audiences in extraordinary ways, and as such, the IMAX network is among the most important and successful theatrical distribution platforms for major event films around the globe. The Company's new digital projection and sound systems - combined with a growing blockbuster film slate - are fueling the rapid expansion of the IMAX network in established markets such as North America, Western Europe, and Japan, as well as emerging markets such as China and Russia. IMAX theaters deliver the world's best cinematic presentations using proprietary IMAX®, IMAX 3D®, and IMAX DMR® (Digital Re-Mastering) technologies. IMAX DMR enables virtually any motion picture to be transformed into the unparalleled image and sound quality of The IMAX Experience®. 

IMAX is headquartered in New York, Toronto and Los Angeles, with offices in London, Tokyo, Shanghai and Beijing. As of September 30, 2011, there were 583 IMAX theatres (441 commercial multiplex, 23 commercial destination and 119 institutional) operating in 48 countries.

The IMAX Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6469

IMAX®, IMAX® 3D, IMAX DMR®, Experience It In IMAX®, An IMAX 3D Experience® and The IMAX Experience® are trademarks of IMAX Corporation. More information about the Company can be found at www.imax.com. You may also connect with IMAX on Facebook (www.facebook.com/imax), Twitter (www.twitter.com/imax) and YouTube (www.youtube.com/imaxmovies).

This press release contains forward looking statements that are based on management's assumptions and existing information and involve certain risks and uncertainties which could cause actual results to differ materially from future results expressed or implied by such forward looking statements. Important factors that could affect these statements include, but are not limited to, general economic, market or business conditions, including the length and severity of the current economic downturn, the opportunities 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 theatre system agreements, changes in law or regulations, conditions, changes and developments in the commercial exhibition industry, the failure to convert theatre system backlog into revenue, new business initiatives, investments and operations in foreign jurisdictions and any future international expansion, foreign currency fluctuations and the Company's prior restatements and the related litigation.  These factors and other risks and uncertainties are discussed in the Company's most recent Annual Report on Form 10-K and most recent Quarterly Reports on Form 10-Q.

Additional Information

2011 Film Slate

In addition to the 20 DMR films that have already been shown in the IMAX theatre network in the first nine months of 2011, six additional DMR films are scheduled to be released to the IMAX theatre network during the remaining three months of 2011:

• Real Steel: The IMAX Experience (DreamWorks, Disney, October 2011);
• Puss in Boots: An IMAX 3D Experience (DreamWorks Animation, Paramount, October 2011);
• Happy Feet 2: An IMAX 3D Experience (WB, November 2011);
• Flying Swords of Dragon Gate: An IMAX 3D Experience (Bona Film Group, December 2011, in the P.R.C);
• Mission: Impossible – Ghost Protocol: The IMAX Experience (Paramount, December 2011); and
• The Adventures of Tintin: The Secret of the Unicorn: An IMAX 3D Experience (Paramount, December 2011, int'l beginning in October 2011).

2012 Films Announced to Date

To date, IMAX has announced 10 titles to be released in 2012. The Company remains in discussions with virtually every studio regarding future titles. 

• Underworld: Awakening: An IMAX 3D Experience (Sony, January 2012);
• The Lorax: An IMAX 3D Experience (Universal, March 2012);
• John Carter: An IMAX 3D Experience (Disney, March 2012);
• Wrath of the Titans: An IMAX 3D Experience (WB, March 2012);
• Dark Shadows: An IMAX 3D Experience (WB, May 2012);
• Men in Black III: An IMAX 3D Experience (Sony, May 2012);
• The Amazing Spider-Man: An IMAX 3D Experience (Sony, July 2012);
• The Dark Knight Rises: The IMAX Experience (WB, July 2012);
• Gravity: An IMAX 3D Experience (WB, November 2012); and
• The Hobbit: An Unexpected Journey: An IMAX 3D Experience (WB, December 2012).

Theatre System Signings

During the third quarter of 2011, the Company signed contracts for 28 new theatre systems (18 under revenue sharing arrangements, 10 sales/sales-type lease systems) and two digital upgrades, compared to contracts for 81 new theatre systems (30 systems under revenue sharing arrangements, 51 sales/sales-type lease systems) and 19 digital upgrades in the third quarter of 2010.

Through the first nine months of 2011, the Company has signed contracts for 166 new theatre systems (120 systems under revenue sharing arrangements, 46 sales/sales-type lease systems) and 17 digital upgrades, compared to contracts for 157 new theatre systems (67 systems under revenue sharing arrangements, 90 sales/sales-type lease systems) and 41 digital upgrades during the first nine months of 2010.

Theatre System Installations

In the third quarter of 2011, the Company installed 25 new theatre systems (14 under revenue sharing arrangements, 11 sales/sales-type lease systems) and four digital upgrades, compared to having installed 25 new theatre systems (18 under revenue sharing arrangements, seven sales/sales-type lease systems) and four digital upgrades in the third quarter of 2010.

Through the first nine months of 2011, the Company has installed 81 new theatre systems (47 under revenue sharing arrangements, 34 sales/sales-type lease systems) and 32 digital upgrades, compared to having installed 44 new theatre systems (27 under revenue sharing arrangements, 17 sales/sales-type lease systems) and 25 digital upgrades during the first nine months of 2010.

Theatre System Backlog

As of September 30, 2011, the Company's backlog consisted of 295 theatre systems, including 147 systems under sales and sales-type lease arrangements, 10 of which were systems designated for digital upgrades, and 148 systems under revenue sharing arrangements. This compares to a theatre backlog of 257 systems as of September 30, 2010, which included 175 theatres under sales and sales-type lease arrangements, 20 of which were systems designated for digital upgrades, and 82 theatres under revenue sharing arrangements.

IMAX CORPORATION

SELECTED FINANCIAL DATA

In accordance with United States Generally Accepted Accounting Principles

(in thousands of U.S. dollars)

The Company has seven reportable segments identified by category of product sold or service provided: IMAX systems; theater system maintenance; joint revenue sharing arrangements; film production and IMAX DMR; film distribution; film post-production; and other. The IMAX systems segment designs, manufactures, sells or leases IMAX theater projection system equipment. The theater system maintenance segment maintains IMAX theater projection system equipment in the IMAX theater network. The joint revenue sharing arrangements segment provides IMAX theater projection system equipment to an exhibitor in exchange for a share of the box-office and concessions 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 other segment includes theater operations from certain IMAX theaters, camera rentals and other miscellaneous items.

IMAX CORPORATION

OTHER INFORMATION

(in thousands of U.S. dollars)

Non-GAAP Financial Measures:

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

Adjusted EBITDA is calculated on a basis consistent with the Company's Credit Facility, which refers to Adjusted EBITDA as EBITDA. The Credit Facility provides that the Company will be required to maintain a ratio of funded debt (as defined in the Credit Agreement) to EBITDA (as defined in the Credit Agreement) of not more than 2:1. The Company will also be required to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.1:1.0. At all times under the terms of the Credit Facility, the Company is required to maintain minimum Excess Availability of not less than $5.0 million and minimum Cash and Excess Availability of not less than $15.0 million. The ratio of funded debt to EBITDA was 0.55:1 as at September 30, 2011, where Funded Debt (as defined in the Credit Agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments and was $39.6 million. EBITDA is calculated as follows:

IMAX CORPORATION

OTHER INFORMATION

(in thousands of U.S. dollars)

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Quarter Ended September 30, 2011 vs. 2010:

The Company reported net income of $8.4 million or $0.13 per basic share and $0.12 per diluted share for the third quarter of 2011, as compared to net income of $6.7 million or $0.11 per basic share and $0.10 per diluted share for the third quarter of 2010. Net income for the quarter includes a $2.0 million recovery or $0.03 per diluted share (2010 – charge of $3.1 million or $0.05 per diluted share) for variable share-based compensation primarily due to the decrease in the Company's stock price during the quarter (from $32.49 per share to $14.48 per share) offset by a deferred tax provision of $4.6 million ($0.07 per diluted share). Adjusted net income, which consists of net income excluding the impact of variable share-based compensation and the deferred tax provision was $11.0 million or $0.16 per diluted share in the third quarter of 2011 as compared to adjusted net income of $9.8 million or $0.15 per diluted share for the third quarter of 2010. Reported and adjusted net income for the quarter was negatively impacted by a $4.1 million charge or $0.06 per diluted share due to a foreign exchange loss related to the Canadian dollar. A reconciliation of net income, the most directly comparable GAAP measure, to adjusted net income and adjusted net income per diluted share is presented in the table below:

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Nine Months Ended September 30, 2011 vs. 2010:

The Company reported net income of $9.2 million or $0.14 per basic and diluted share for the nine months ended September 30, 2011, as compared to net income of $46.6 million or $0.73 per basic share and $0.70 per diluted share for the nine months ended September 30, 2010. The nine months ended September 30, 2010 included the record-breaking performance of the film Avatar: An IMAX 3D Experience. Net income for the nine months ended September 30, 2011 includes a $1.2 million pre-tax charge or $0.02 per diluted share (2010 – $6.9 million or $0.11 per diluted share) for variable share-based compensation expense during the nine months ended September 30, 2011, a one-time $2.1 million pre-tax charge ($0.03 per diluted share) due to an arbitration award arising from an arbitration proceeding brought against the Company in connection with a discontinued subsidiary and a deferred tax provision of $5.7 million ($0.08 per diluted share). Adjusted net income, which consists of net income excluding the impact of the variable share-based compensation expense, the charge for the arbitration award and the deferred tax provision was $18.1 million or $0.27 per diluted share in the nine months ended September 30, 2011, as compared to adjusted net income of $53.5 million or $0.81 per diluted share for the nine months ended September 30, 2010. Reported and adjusted net income for the nine months ended September 30, 2011 was negatively impacted by a $4.1 million charge or $0.06 per diluted share due to a foreign exchange loss related to the Canadian dollar, which was experienced in the third quarter of the year. A reconciliation of net income, the most directly comparable GAAP measure, to adjusted net income and adjusted net income per diluted share is presented in the table below: