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Lease Arrangements | 3 Months Ended
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Mar. 31, 2023
Leases [Abstract] |
Lease Arrangements | 4. Lease Arrangements (a) IMAX Corporation as a Lessee The Company’s operating lease arrangements principally involve office and warehouse space. Office equipment is generally purchased outright. Leases with an initial term of less than 12 months are not recorded on the Condensed Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company has determined that it is reasonably certain that the renewal options on its warehouse leases will be exercised based on previous history, its current understanding of future business needs and its level of investment in leasehold improvements, among other factors. The incremental borrowing rate used in the calculation of the Company’s lease liabilities is based on the location of each leased property. None of the Company’s leases include options to purchase the leased property. The depreciable lives of right-of-use assets and related leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain office space to third parties, which have a remaining term of less than 12 months and are not expected to be renewed. In the second quarter of 2022, the Company entered into a finance lease arrangement involving equipment used to facilitate the delivery of live events to certain IMAX locations. The lease arrangement includes an option for the Company to purchase the equipment at the end of the lease term that is reasonably certain to be exercised. The resulting right-of-use assets are being depreciated from the lease commencement dates over the useful life of the underlying equipment. The incremental borrowing rate used in the calculation of the lease liabilities is based on the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term. For the three months ended March 31, 2023 and 2022, the components of lease expense recorded within Selling, General and Administrative Expenses are as follows:
|  | Three Months Ended March 31, |
(In thousands of U.S. Dollars) |  | 2023 |  |  |  | 2022 |
Operating lease cost: |  |  |  |  |  |  |
Amortization of operating lease assets |  | $ | 151 |  |  |  | $ | 693 |
Interest on operating lease liabilities |  |  | 724 |  |  |  |  | 215 |
Short-term and variable lease costs |  |  | 204 |  |  |  |  | 160 |
Finance lease cost: |  |  |  |  |  |  |
Amortization of finance lease assets |  |  | 100 |  |  |  | N/A |
Interest on finance lease liabilities |  |  | 14 |  |  |  | N/A |
Total lease cost |  | $ | 1,193 |  |  |  | $ | 1,068 |
For the three months ended March 31, 2023 and 2022, supplemental cash and non-cash information related to leases is as follows:
| Three Months Ended March 31, |
(In thousands of U.S. Dollars) |  | 2023 |  |  |  | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |
Operating leases | $ |  | 971 |  |  | $ |  | 945 |
Finance leases | $ |  | — |  |  |  | N/A |
Supplemental disclosure of noncash leasing activities: |  |  |  |  |  |  |
Right-of-use assets obtained in exchange for operating lease obligations | $ |  | 228 |  |  | $ |  | 217 |
Right-of-use assets obtained in exchange for finance lease obligations | $ |  | — |  |  |  | N/A |
As of March 31, 2023 and December 31, 2022, supplemental balance sheet information related to leases is as follows:
|  |  | March 31, |  |  | December 31, |
(In thousands of U.S. Dollars) |  |  | 2023 |  |  | 2022 |
Assets | Balance Sheet Location |  |  |  |  |  |
Operating lease right-of-use assets | Property, plant and equipment |  | $ | 11,888 |  |  | $ | 12,341 |
Finance lease right-of-use assets | Property, plant and equipment |  | $ | 1,776 |  |  | $ | 1,876 |
Liabilities | Balance Sheet Location |  |  |  |  |  |
Operating lease liabilities | Accrued and other liabilities |  | $ | 14,140 |  |  | $ | 14,461 |
Finance lease liabilities(1) | Accrued and other liabilities |  | $ | 967 |  |  | $ | 1,011 |
(1) Recorded net of a $0.9 million upfront payment made upon execution of the finance lease arrangement. As of March 31, 2023 and December 31, 2022, the weighted-average remaining lease term and weighted-average interest rate associated with the Company’s leases are as follows:
|  |  | March 31, |  |  | December 31, |
|  |  | 2023 |  |  | 2022 |
Operating leases: |  |  |  |  |  |
Weighted-average remaining lease term (years) |  |  | 5.8 |  |  |  | 6.0 |
Weighted-average discount rate |  | 5.91% |  |  | 5.90% |
Finance leases: |  |  |  |  |  |
Weighted-average remaining lease term (years) |  |  | 4.4 |  |  |  | 4.7 |
Weighted-average discount rate |  | 6.00% |  |  | 6.00% |
As of March 31, 2023, the maturities of the Company’s operating and finance lease liabilities are as follows:
(In thousands of U.S. Dollars) |  | Operating Leases |  |  | Finance Leases |
2023 (nine months remaining) |  | $ | 2,699 |  |  | $ | 508 |
2024 |  |  | 3,049 |  |  |  | 508 |
2025 |  |  | 2,457 |  |  |  | — |
2026 |  |  | 2,069 |  |  |  | — |
2027 |  |  | 2,093 |  |  |  | — |
Thereafter |  |  | 4,354 |  |  |  | — |
Total lease payments |  | $ | 16,721 |  |  | $ | 1,016 |
Less: interest expense |  |  | (2,581 | ) |  |  | (49 | )
Present value of lease liabilities |  | $ | 14,140 |  |  | $ | 967 |
(b) IMAX Corporation as a Lessor The Company provides IMAX Systems to customers through long-term lease arrangements that for accounting purposes are classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX System, the Company earns fixed upfront and ongoing consideration. Certain arrangements that are legal sales are also classified as sales-type leases as certain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under the Company’s sales-type lease arrangements are described in Note 3(o) of the Company’s audited Consolidated Financial Statements included in its 2022 Form 10-K. Under the Company’s sales-type lease 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 lease portfolio terms are typically non-cancellable for 10 years or longer with renewal provisions from inception. The Company’s sales-type lease arrangements do not contain a guarantee of residual value at the end of the lease 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 an extended warranty generally after the first year of the lease until the end of the lease term. The customer is responsible for obtaining insurance coverage for the IMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX System is returned to the Company. The Company also provides IMAX Systems to customers through joint revenue sharing arrangements. Under the traditional form of these arrangements, in exchange for providing the IMAX System under a long-term lease, the Company earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront fee or annual minimum payments. Under certain other joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX System. 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 10 years or longer with renewal provisions. Title to the IMAX System under a joint revenue sharing arrangement generally 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 lease 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 an extended warranty throughout the term. The customer is responsible for obtaining insurance coverage for the IMAX System commencing on the date specified in the arrangement’s shipping terms and ending on the date the IMAX System is returned to the Company. The following lease payments are expected to be received by the Company for its sales-type leases and joint revenue sharing arrangements in each of the next five years and thereafter following the March 31, 2023 balance sheet date:
|  | Sales-Type |  |  | Joint Revenue |
(In thousands of U.S. Dollars) |  | Leases |  |  | Sharing Arrangements |
2023 (nine months remaining) |  | $ | 2,260 |  |  | $ | 130 |
2024 |  |  | 3,519 |  |  |  | 69 |
2025 |  |  | 3,248 |  |  |  | 27 |
2026 |  |  | 3,163 |  |  |  | — |
2027 |  |  | 3,018 |  |  |  | — |
Thereafter |  |  | 16,889 |  |  |  | — |
Total |  | $ | 32,097 |  |  | $ | 226 |

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- References No definition available. + Details
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