Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

(a)Income Tax Expense

For the three months ended June 30, 2023, the Company recorded income tax expense of $3.5 million (2022 — $3.1 million). For the three months ended June 30, 2023, the Company’s effective tax rate differs from the combined Canadian federal and provincial statutory income tax rate due to the following factors:

	Three Months Ended					Three Months Ended
	June 30, 2023					June 30, 2022
(In thousands of U.S. Dollars, except rates)	Amount			Rate		Amount			Rate
Income tax (expense) benefit at combined statutory rates	$	(3,465	)	26.5%		$	296		26.5%
Adjustments resulting from:
Increase in valuation allowance		(74	)	0.6%			(5,426	)	(485.3%)
Shortfall tax benefits related to share-based compensation		—			—		(23	)	(2.1%)
Changes to tax reserves		(291	)	2.2%			(251	)	(22.5%)
Changes to deferred tax assets and liabilities resulting from audit and other tax return adjustments		(179	)	1.4%			2,497		223.4%
Other		548		(4.2%)			(226	)	(20.2%)
Income tax expense	$	(3,461	)	26.5%		$	(3,133	)	(280.2%)

For the three months ended June 30, 2023, the Company recorded an additional $0.1 million (2022 — increase of $5.4 million) valuation allowance against deferred tax assets. The valuation allowance includes an increase of $1.4 million in reporting entities where management cannot reliably forecast that sufficient future tax liabilities will arise. Accordingly, the tax benefit associated with the current period losses in these reporting entities is not reflected in the Company’s Condensed Consolidated Statements of Operations. The valuation allowance is partially offset by a decrease of $1.3 million related to the recognition of certain losses in IMAX China Holding, Inc. (“IMAX China”) that management now considers to be realizable.

For the six months ended June 30, 2023, the Company recorded income tax expense of $8.3 million (2022 — $5.7 million). For the six months ended June 30, 2023, the Company’s effective tax rate differs from the combined Canadian federal and provincial statutory income tax rate due to the following factors:

	Six Months Ended				Six Months Ended
	June 30, 2023				June 30, 2022
(In thousands of U.S. Dollars, except rates)	Amount			Rate	Amount			Rate
Income tax (expense) benefit at combined statutory rates	$	(6,117	)	26.5%	$	2,772		26.5%
Adjustments resulting from:
Increase of valuation allowance		(1,684	)	7.3%		(10,435	)	(99.8%)
Shortfall excess tax benefits related to share-based compensation		(83	)	0.4%		(152	)	(1.5%)
Changes to tax reserves		(549	)	2.4%		(411	)	(3.9%)
Changes to deferred tax assets and liabilities resulting from audit and other tax return adjustments		(179	)	0.8%		2,497		23.9%
Other		266		(1.2%)		(14	)	(0.1%)
Income tax expense	$	(8,346	)	36.2%	$	(5,743	)	(54.9%)

As of June 30, 2023, the Company’s Condensed Consolidated Balance Sheets include deferred income tax assets of $11.5 million, net of a valuation allowance of $64.5 million (December 31, 2022 — $9.9 million, net of a valuation allowance of $62.9 million). A net increase of $1.7 million in the valuation allowance recorded in the six months ended June 30, 2023, includes an increase of $3.0 million in reporting entities where management cannot reliably forecast that sufficient future tax liabilities will arise. Accordingly, the tax benefit associated with the current period losses in these reporting entities is not reflected in the Company's Condensed Consolidated Statements of Operations. The valuation allowance is partially offset by a decrease of $1.3 million related to the recognition of certain losses in IMAX China that management now considers to be realizable. The valuation allowance is determined at the level of each reporting entity and is expected to reverse at the point in time when management determines it is more likely than not that the reporting entity will incur sufficient tax liabilities to allow it to utilize the deferred tax assets against which the valuation allowance is recorded.

As of June 30, 2023, the Company’s Condensed Consolidated Balance Sheets also include deferred tax liabilities of $13.6 million (December 31, 2022 — $14.9 million).

(b)Income Tax Effect on Other Comprehensive (Loss) Income

For the three and six months ended June 30, 2023 and 2022, the Income Tax (Expense) Benefit related to the components of Other Comprehensive (Loss) Income (“OCI”) is as follows:

	Three Months Ended							Six Months Ended
		June 30,						June 30,
(In thousands of U.S. Dollars)		2023			2022			2023				2022
Unrealized change in cash flow hedging instruments		$	(180	)	$	159			$	(215	)		$	77
Realized change in cash flow hedging instruments			(32	)		(17	)			(121	)			(25	)
Defined benefit and postretirement benefit plans			46			(12	)			92				(24	)
		$	(166	)	$	130			$	(244	)		$	28