IMAX Corporation — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. Unless stated otherwise, amounts are in U.S. dollars. The filing also reports unaudited fourth-quarter results.
Business context
IMAX designs and supplies premium theater systems, earns revenue from theater arrangements and maintenance, and converts, produces and distributes films for its theater network. It generally does not own theaters, but increasingly funds equipment under joint revenue-sharing arrangements (JRSAs), making results more sensitive to box-office performance. At year-end, 731 systems operated in 53 countries, including 598 commercial multiplex theaters; 316 systems operated under JRSAs.
Key financial metrics
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $284.3 million | $236.6 million |
| Gross margin | $152.7 million; 53.7% of revenue | $113.2 million; 47.9% of revenue |
| Operating income | $58.4 million | $28.1 million |
| Net income | $41.3 million; diluted EPS $0.61 | $15.3 million; diluted EPS $0.22 |
| Cash from operating activities | $73.6 million | $6.2 million |
| Cash used in investing activities | $35.5 million | $63.5 million |
| Cash used in financing activities | $34.8 million | Cash provided: $45.1 million |
| Cash and cash equivalents at year-end | $21.3 million | $18.1 million |
| Total indebtedness at year-end | $11.0 million | $55.1 million |
| Total assets / shareholders’ equity | $421.9 million / $253.1 million | $407.2 million / $189.9 million |
Fourth-quarter 2012 revenue was $77.8 million, gross margin $42.3 million, net income $12.9 million and diluted EPS $0.19. Fourth-quarter 2011, as revised, recorded revenue of $66.7 million, gross margin of $29.8 million, net income of $6.3 million and diluted EPS of $0.09.
Year-end financing receivables were $94.2 million, including $81.1 million in net financed sales receivables and $13.0 million in net investment in leases. Accounts receivable was $42.0 million. The company reported $199.8 million of theater-system backlog across 276 systems; backlog excludes most future revenue from JRSAs and is not a guarantee of installation or collection.
Changes versus prior comparable periods
- Revenue rose 20.2% year over year, led by film production/DMR and JRSAs. Film production and DMR revenue increased to $78.1 million from $50.6 million; JRSA revenue increased to $57.5 million from $30.8 million.
- Global IMAX DMR box office increased 48.8% to $620.6 million; average gross box office per screen rose to $1.15 million from $1.07 million. The network released 35 new DMR films, versus 25 in 2011.
- IMAX systems revenue declined 10.5% to $83.4 million, reflecting fewer recognized digital upgrades and slightly fewer systems under sales and sales-type leases. Theater-system installations totaled 125, down from 170.
- Operating cash flow increased substantially from $6.2 million to $73.6 million. The company used $44.1 million net to repay bank debt during 2012.
- Management-reported adjusted net income, a non-GAAP measure excluding specified items, was $54.3 million, or $0.80 per diluted share, versus $28.0 million, or $0.41, in 2011. GAAP net income was $41.3 million and $15.3 million, respectively.
Outlook, commentary, risks and unusual items
- Management estimated 110–125 new theater installations in 2013, excluding digital upgrades, and expected a similar number of DMR film releases to 2012. Installations can slip, and the estimate includes systems expected to be signed and installed in the same year.
- IMAX planned continued investment in JRSAs, film agreements and research and development. R&D expense rose to $11.4 million in 2012, primarily for a laser projection system; rollout was planned for the second half of 2014.
- On February 7, 2013, the company replaced its prior credit facility with a secured facility of up to $200 million, maturing in 2018. It borrowed $18 million at closing to repay prior indebtedness and pay transaction costs. The facility permits up to $150 million in share repurchases and dividends subject to covenants; the company reported no current dividend plan.
- Management said operating cash flow, existing cash and available borrowing were expected to fund operations and strategic initiatives for the next 12 months. This depends on theater signings and installations, film performance and collections.
- Significant risks include reliance on successful films and exhibitor investment; competition from other premium and digital formats; international and China regulatory, currency and operating risks; customer concentration; backlog conversion and collection risk; and the shift away from analog film. Kodak, IMAX’s sole analog-film supplier, rejected its supply agreement in bankruptcy proceedings, while Fujifilm planned to cease motion-picture film production in 2013.
- Wanda/AMC became the largest customer after Wanda acquired AMC; the combined customer represented approximately 12.2% of 2012 revenue. The company also highlighted foreign-exchange exposure, a new ERP-system implementation beginning in 2013, and restrictive secured-credit covenants.
- The filing revised prior financial statements for an omitted Canadian employee postretirement-benefit obligation, which management deemed not material to prior periods. 2011 year-end liabilities increased by $4.1 million and equity decreased by $3.0 million. In February 2013, the plan was amended; management expected a $2.4 million pre-tax curtailment gain in Q1 2013.
- Other items include $13.1 million of 2012 stock-based compensation, a $0.2 million impairment of an available-for-sale investment, and a $0.9 million inventory write-down. The 2011 arbitration provision of $2.1 million related to a discontinued business was resolved by confidential settlement in 2012.
- The U.S. securities class-action settlement received final approval in 2012, with a $12 million fund expected to be funded by insurers and the auditor. A Canadian securities class action remained pending; the filing describes claimed damages of $210 million and says the company could not assure the outcome. The company also continued efforts to collect a judgment against E-City.
- Auditors gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of year-end. Management likewise concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the 2013 installation outlook and backlog convert into completed systems, recognized revenue and cash collections.
- Whether film releases sustain box-office performance, particularly as the JRSA network grows and increases exposure to film results.
- Customer concentration and the commercial terms and credit exposure associated with Wanda/AMC and other major exhibitors.
- Available liquidity, covenant headroom and actual borrowing under the new credit facility, including its restrictions and capital-return provisions.
- Progress, cost and timing of the laser projection project; analog-film supply continuity; and implementation of the ERP system.
- The final effects of the Canadian benefit-plan amendment, the pending Canadian litigation and collection of the E-City judgment.