The revenue earned from customers under the Company's theater system sales or
lease agreements can vary from quarter to quarter and year to year based on a
number of factors, including the number and mix of theater system configurations
sold or leased, the timing of installation of the theater systems, the nature of
the arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements
The Company also provides
IMAXtheater systems to customers under joint revenue sharing arrangements, pursuant to which the Company provides the IMAXtheater system in return for a portion of the customer's IMAXbox-office receipts, and in some cases concession revenues and/or a small upfront or initial payment. Pursuant to these revenue-sharing arrangements, the Company retains title to the theater system equipment components and the applicable rent payments are contingent, instead of fixed or determinable, on film performance. Joint revenue sharing arrangements generally have a 10-year initial term and are typically renewable by the customer for one or more additional terms of between 5 and 10 years. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are generally non-cancellable by the customer unless the Company fails to perform its obligations. The introduction of joint revenue sharing arrangements has been an important factor in the expansion of the Company's commercial theater network, which has grown by approximately 264.8% since 2008. Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAXtheater systems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangements drive recurring cash flows and earnings for the Company, as customers under joint revenue sharing arrangements pay the Company a portion of their ongoing box office. The Company funds its joint revenue sharing arrangements through cash flows from operations and the Company's credit facility. As at June 30, 2013, the Company had 336 theaters in operation under joint revenue sharing arrangements, a 22.6% increase as compared to the 274 joint revenue sharing arrangements open as at June 30, 2012. The Company also had contracts in backlog for an additional 127 theaters under joint revenue sharing arrangements as at June 30, 2013. The revenue earned from customers under the Company's joint revenue sharing arrangements can vary from quarter to quarter and year to year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of these theater systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements. Ongoing revenue from theater systems under joint revenue sharing arrangements is derived from box-office results and concession revenues reported by the theater operator, provided collectibility is reasonably assured. Theater System Maintenance For all IMAXtheaters, theater owners or operators are also generally responsible for paying the Company an annual maintenance and extended warranty fee. Under these arrangements, the Company provides proactive and reactive maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAXquality standard. Annual maintenance fees are generally paid throughout the duration of the term of the theater agreements and are typically indexed to a local consumer price index.