The troubled accounting past of Imax Corp. took centre stage for the company again Friday as it restated its already tangled 2006 financial statements and amended its past accounting to recognize changes totalling $5.5 million to $6.5 million (US).
The giant-screen Toronto-based theatre company, which reports in U.S. dollars, said the changes correct one-time booking of property rent discounts for corporate facilities and theatres that should have been accounted for over the period of the leases. It stressed there is no effect on revenue recognition or liquidity.
The restatement adds to a growing list of dramatic developments that have seen Imax tumble into accounting errors, fall behind on financial reporting and face a pending court battle with private equity fund manager Catalyst Fund Limited Partnership II.
The $5.5 million to $6.5 million in total deferred rent credits is mostly connected to the accounting from 1997 to 2002 and will be amortized into income over the remaining terms of the leases.
Karen Berckmann, an analyst at Moody’s Investors Service in New York, played down the impact of the latest restatement, noting that the recognized amount is non-cash, which is considered "less critical."
"It seems pretty minor to me," she said.
The market seemed to agree, as Imax shares gained 5.7 per cent, or 26 cents, on Friday after spending the morning in the red. Shares closed at $4.79 with a low volume of 81,400 shares traded on the Toronto Stock Exchange.
Imax added that its amended annual and quarterly statements "will include certain additional and enhanced narrative disclosure in response to comments received by the company from the U.S. Securities and Exchange Commission."
Restatements have become almost commonplace for the company.
"You always think they’re on their way and then they figure something else out," Berckmann said. "It’s never positive, but I don’t see it as having any credit impact on the financials."
Imax’s 2006 report, delayed until July amid a restatement of results for 2002 though 2005 to revise revenue recognition, showed a net loss of $16.9 million on revenue of $129.3 million for the Canadian company.
The new revision, which also affects the first two quarters of this year, relates to seven Imax-operated theatres and corporate buildings, with most of the income-statement impact – about $5 million – dating to between 1997 and 2002.
The company recorded rent reductions in the years they were negotiated, instead of on a straight-line basis over the remaining lease terms. It also did not properly account for property improvements funded by landlord construction allowances.
In August, Imax posted a second-quarter loss of $4.6 million, down from a year-ago profit of $1.6 million while revenues fell to $27.5 million from $38.1 million.
Meanwhile, Catalyst Fund, which holds Imax shares and notes, has been seeking investor-oppression remedies, demanding to have an inspector appointed to resolve inquiries by securities regulators and to ensure the accuracy of Imax accounting.
Last month, Catalyst appeared in an Ontario Superior Court in an unsuccessful attempt to schedule the court case. The fund declined to comment Friday.
Berckmann said the restatement will probably just add fuel to the fire. "They’ll see it as one more piece of ammunition, but it doesn’t seem too material to me," she said.
Earlier this week the company inked a joint venture partnership with U.S.-based movie exhibitor Regal Cinemas, Inc. for five Imax theatre systems. The deal includes one of the first orders for Imax’s digital projector which is still under development.
<font size=1>Source: The Canadian Press</font>
