Capital Stock and Reserves

3 Months Ended

Mar. 31, 2022

Equity [Abstract]

Capital Stock and Reserves

12. Capital Stock and Reserves

(a)Share-Based Compensation

For the three months ended March 31, 2022, share-based compensation expense totaled $6.1 million (2021 — $5.3 million) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

	Three Months Ended
	March 31,
(In thousands of U.S. Dollars)	2022		2021
Cost and expenses applicable to revenues	$	239	$	294
Selling, general and administrative expenses		5,726		4,944
Research and development		87		69
	$	6,052	$	5,307

The following table summarizes the Company’s share-based compensation expense by each award type:

	Three Months Ended
	March 31,
(In thousands of U.S. Dollars)	2022		2021
Stock Options	$	207	$	351
Restricted Share Units		3,411		3,151
Performance Stock Units		1,729		1,014
IMAX China Stock Options		34		56
IMAX China Long Term Incentive Plan Restricted Share Units		497		632
IMAX China Long Term Incentive Plan Performance Stock Units		174		103
	$	6,052	$	5,307

For three months ended March 31, 2022 and 2021, the Company did not record any expenses related to restricted share units granted to non-employees.

Stock Option Summary

The following table summarizes the activity under the Company’s Stock Option Plan (“SOP”) and the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, “IMAX LTIP”) for the three months ended March 31, 2022 and 2021:

	Number of Shares							Weighted Average Exercise Price Per Share
	2022			2021				2022		2021
Stock options outstanding, beginning of period		3,736,157			4,892,962		$		26.61	$	26.81
Granted		—			—				—		—
Exercised		—			(38,754	)			—		21.26
Forfeited		—			(44,362	)			—		23.12
Expired		(126,569	)		(885,698	)			33.61		28.31
Cancelled		(2,197	)		(10,917	)			32.50		27.20
Stock options outstanding, end of period		3,607,391			3,913,231				26.36		26.56
Stock options exercisable, end of period		3,524,298			3,615,079				26.45		26.93

Stock options are no longer granted under the Company’s previously approved SOP.

Restricted Share Units (“RSU”) Summary

The following table summarizes the activity in respect of RSUs issued under the IMAX LTIP for the three months ended March 31, 2022 and 2021:

	Number of Awards						Weighted Average Grant Date Fair Value Per Share
	2022			2021				2022			2021
RSUs outstanding, beginning of period		1,457,883			1,564,838		$		19.16	$		18.33
Granted		636,427			754,778				19.64			20.94
Vested and settled		(648,527	)		(523,573	)			18.78			18.82
Forfeited		(1,328	)		(60,329	)			14.84			20.08
RSUs outstanding, end of period		1,444,455			1,735,714				19.54			19.26

Performance Stock Units ("PSU") Summary

The Company grants awards for two types of PSUs, one which vests based on a combination of employee service and the achievement of certain EBITDA-based targets and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The achievement of the EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial award, depending upon actual performance versus the established EBITDA and stock-price targets.

The grant date fair value of PSUs with EBITDA-based targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that considers the likelihood of achieving the TSR targets embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.

The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share price volatility over the term of the awards, and other relevant data. The compensation expense is fixed on the date of grant based on the fair value of the PSUs granted.

The amount and timing of compensation expense recognized for PSUs with EBITDA-based targets is dependent upon management's assessment of the likelihood of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period that such determination is made. Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period that such determination is made. The expense recognized in the three months ended March 31, 2022 and 2021 includes adjustments reflecting management’s estimate of the number of PSUs with EBITDA-based targets expected to vest.

The following table summarizes the activity in respect of PSUs issued under the IMAX LTIP for the three months ended March 31, 2022 and 2021:

	Number of Awards					Weighted Average Grant Date Fair Value Per Share
	2022		2021				2022			2021
PSUs outstanding, beginning of period		613,405		361,844		$		18.21	$		15.68
Granted		359,138		308,438				20.34			20.77
Forfeited		—		(2,526	)			—			14.84
PSUs outstanding, end of period		972,543		667,756				19.00			18.03

As of March 31, 2022, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 1,701,951, assuming full achievement of the EBITDA and TSR targets.

(b)Issuer Purchases of Equity Securities

In April 2021, the Company’s Board of Directors approved a 12-month extension to its share repurchase program through June 30, 2022. The extension authorized the Company to repurchase up to approximately $89.4 million worth of common shares, the remaining amount available of the original $200.0 million initially authorized under the share repurchase program when it commenced on July 1, 2017. The repurchases may be made either in the open market or through private transactions, including repurchases made pursuant a plan intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other relevant factors. The Company has no obligation to repurchase shares and the share repurchase program may be suspended or discontinued by the Company at any time.

During the three months ended March 31, 2022, the Company repurchased 380,652 common shares, respectively (2021 — nil), at an average price of $16.45 per share (2021 — $nil), for a total of $6.3 million (2021 — $nil), excluding commissions. As of March 31, 2022, the Company has $69.2 million available under its approved repurchase program. During the three months ended March 31, 2022 and 2021, there were no shares purchases in the administration of employee share based plans.

As of March 31, 2022 and December 31, 2021, the IMAX LTIP trustee did not hold any shares. Any shares held with the trustee are recorded at cost and are reported as a reduction against Capital Stock on the Company’s Condensed Consolidated Balance Sheets.

Subsequent to March 31, 2022 and through April 27, 2022, the Company completed repurchases through a 10b5-1 program of 869,048 shares at an average price of $16.42 per share, for a total cost of $14.3 million, excluding commissions.

In 2021, IMAX China's shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase shares of IMAX China not to exceed 10% of the total number of issued shares as of May 6, 2021 (34,835,824 shares). This program will be valid until the 2022 Annual General Meeting of IMAX China, which will be held on May 26, 2022. The repurchases may be made in the open market or through other means permitted by applicable laws. IMAX China has no obligation to repurchase its shares and the share repurchase program may be suspended or discontinued by IMAX China at any time. During the three months ended March 31, 2022, IMAX China repurchased 1,448,000 common shares, at an average price of HKD 9.89 per share (U.S. $1.26 per share) for a total of HKD 14.3 million or U.S. $1.8 million. The change in non-controlling interest as a result of common shares repurchased by IMAX China is recorded within Non-Controlling Interests in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Shareholders’ Equity. The difference between the consideration paid and the ownership interest obtained as a result of IMAX China share repurchases is recorded within Other Equity in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Shareholders’ Equity. (See Note 1.)

(c)Basic and Diluted Weighted Average Shares Outstanding

The following table reconciles the denominator of the basic and diluted weighted average share computations:

	Three Months Ended
	March 31,
(In thousands)	2022			2021
Issued and outstanding, beginning of period		58,654			58,921
Weighted average number of shares (repurchased) issued, net		(80	)		91
Weighted average number of shares outstanding — basic		58,574			59,012
Weighted average effect of potential common shares, if dilutive		—			—
Weighted average number of shares outstanding — diluted		58,574			59,012

For the three months ended March 31, 2022, the calculation of diluted weighted average shares outstanding excludes 6,348,736 shares (2021 — 6,494,829 shares) that are issuable upon the vesting or exercise of share-based compensation including: (i) 1,444,455 RSUs (2021 — 1,735,714 RSUs), (ii) 1,296,890 PSUs (2021 — 845,884 PSUs) and (iii) 3,607,391 stock options (2021 — 3,913,231 stock options), as the effect would be anti-dilutive.

The calculation of diluted weighted average shares outstanding for the three months ended March 31, 2022 also excludes any shares potentially issuable upon the conversion of the Convertible Notes as the average market price of the Company’s common shares during the period of time they were outstanding was less than the conversion price of the Convertible Notes. (See Note 7(b).)

(d)Statutory Surplus Reserve

Pursuant to the corporate law of the People’s Republic of China (the “PRC”), entities registered in the PRC are required to maintain certain statutory reserves, which are appropriated from after-tax profits (after offsetting accumulated losses from prior years), as reported in their respective statutory financial statements, before the declaration or payment of dividends to equity holders. All statutory reserves are created for specific purposes.

The Company’s PRC subsidiaries are required to appropriate 10% of statutory net profits to statutory surplus reserves, upon distribution of their after-tax profits. The Company’s PRC subsidiaries may discontinue the contribution when the aggregate sum of the statutory surplus reserve is more than 50% of its registered capital. The statutory surplus reserve is non-distributable other than during liquidation and may only be used to fund losses from prior years, to expand production operations, or to increase the capital of the subsidiaries. In addition, the subsidiaries may make further contribution to the discretional surplus reserve using post-tax profits in accordance with resolutions of the Board of Directors.

In 2021, one of the Company’s PRC subsidiaries declared and paid dividends of RMB 131.6 million ($20.4 million). In the third quarter of 2021, upon passage of the requisite resolution of the Board of Directors, a statutory surplus reserve of RMB 36.4 million ($5.6 million) was recorded within Shareholders’ Equity as an appropriation of the retained earnings of the Company’s PRC subsidiaries, of which $3.9 million is attributable to the Company’s common shareholders and $1.7 million is attributable to non-controlling shareholders. The statutory surplus reserve of RMB 36.4 million ($5.6 million) has reached 50% of its PRC subsidiaries’ registered capital. No additional statutory surplus reserve was recorded by the Company's PRC subsidiaries for the three months ended March 31, 2022.