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Capital Stock and Reserves
 9 Months Ended
Sep. 30, 2021
Equity [Abstract]  
Capital Stock And Reserves

12.  Capital Stock And Reserves

 

(a)

Share-Based Compensation

For the three and nine months ended September 30, 2021, share-based compensation expense totaled $6.1 million and $18.2 million, respectively (2020 — $5.3 million and $16.0 million, respectively) and is reflected in the following accounts in the Condensed Consolidated Statements of Operations:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(In Thousands of U.S. Dollars)

2021

 

 

2020

 

 

2021

 

 

2020

 

Cost and expenses applicable to revenues

$

 

314

 

 

$

 

130

 

 

$

 

920

 

 

$

 

530

 

Selling, general and administrative expenses

 

 

5,706

 

 

 

 

5,151

 

 

 

 

17,046

 

 

 

 

15,325

 

Research and development

 

 

89

 

 

 

 

29

 

 

 

 

245

 

 

 

 

114

 

 

$

 

6,109

 

 

$

 

5,310

 

 

$

 

18,211

 

 

$

 

15,969

 

 

For the three and nine months ended September 30, 2020, there was a lower level of share-based compensation expenses allocated to Costs and Expense Applicable to Revenues or Research and Development due to the lower level of production during the COVID-19 global pandemic.

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(In Thousands of U.S. Dollars)

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock Options

$

 

253

 

 

$

 

433

 

 

$

 

808

 

 

$

 

1,449

 

Restricted Share Units

 

 

3,900

 

 

 

 

3,430

 

 

 

 

11,524

 

 

 

 

10,866

 

Performance Stock Units

 

 

1,183

 

 

 

 

483

 

 

 

 

3,169

 

 

 

 

1,229

 

IMAX China Stock Options

 

 

41

 

 

 

 

600

 

 

 

 

143

 

 

 

 

701

 

IMAX China Long Term Incentive Plan Restricted Share Units

 

 

600

 

 

 

 

332

 

 

 

 

2,217

 

 

 

 

1,645

 

IMAX China Long Term Incentive Plan Performance Stock Units

 

 

132

 

 

 

 

32

 

 

 

 

350

 

 

 

 

79

 

 

$

 

6,109

 

 

$

 

5,310

 

 

$

 

18,211

 

 

$

 

15,969

 

Included in the above table is an expense of $nil in the three and nine months ended September 30, 2021 (2020 — $nil and $0.1 million, respectively) related to restricted share units granted to a certain advisor of the Company.

 

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 nine months ended September 30, 2021 and 2020:

 

 

 

Number of Shares

 

 

 

Weighted Average Exercise

Price Per Share

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock options outstanding, beginning of period

 

 

4,892,962

 

 

 

5,732,209

 

 

$

 

26.81

 

 

$

 

26.82

 

Granted

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Exercised

 

 

(41,613

)

 

 

—

 

 

 

 

21.23

 

 

 

 

—

 

Forfeited

 

 

(86,587

)

 

 

(23,633

)

 

 

 

22.51

 

 

 

 

22.35

 

Expired

 

 

(903,038

)

 

 

(772,665

)

 

 

 

28.31

 

 

 

 

27.03

 

Cancelled

 

 

(123,220

)

 

 

(18,483

)

 

 

 

26.68

 

 

 

 

27.97

 

Stock options outstanding, end of period

 

 

3,738,504

 

 

 

4,917,428

 

 

 

 

26.61

 

 

 

 

26.80

 

Stock options exercisable, end of period

 

 

3,487,857

 

 

 

4,315,484

 

 

 

 

26.93

 

 

 

 

27.32

 

 

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 nine months ended September 30, 2021 and 2020:

 

 

 

Number of Awards

 

 

Weighted Average Grant Date

Fair Value Per Share

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

 

2020

 

RSUs outstanding, beginning of period

 

 

1,564,838

 

 

 

1,065,347

 

 

$

 

18.33

 

 

$

 

23.17

 

Granted

 

 

831,123

 

 

 

1,050,385

 

 

 

 

21.03

 

 

 

 

15.35

 

Vested and settled

 

 

(571,616

)

 

 

(386,451

)

 

 

 

19.11

 

 

 

 

21.59

 

Forfeited

 

 

(231,380

)

 

 

(54,933

)

 

 

 

19.50

 

 

 

 

19.70

 

RSUs outstanding, end of period

 

 

1,592,965

 

 

 

1,674,348

 

 

 

 

19.29

 

 

 

 

18.75

 

 

Performance Stock Units Summary

The Company grants awards for two types of performance stock units (“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. 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 takes into account 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 nine months ended September 30, 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 nine months ended September 30, 2021 and 2020:

 

 

Number of Awards

 

 

Weighted Average Grant Date

Fair Value Per Share

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

 

2020

 

PSUs outstanding, beginning of period

 

 

361,844

 

 

 

—

 

 

$

 

15.68

 

 

$

 

—

 

Granted

 

 

309,574

 

 

 

370,265

 

 

 

 

20.77

 

 

 

 

15.66

 

Forfeited

 

 

(54,634

)

 

 

(2,526

)

 

 

 

16.08

 

 

 

 

14.84

 

PSUs outstanding, end of period

 

 

616,784

 

 

 

367,739

 

 

 

 

18.20

 

 

 

 

15.67

 

 

As of September 30, 2021, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 1,079,372, 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 and nine months ended September 30, 2021, the Company repurchased 316,812 common shares, respectively (2020 — nil and 2,484,123 common shares, respectively), at an average price of $14.53 per share, respectively (2020 — $nil and $14.72 per share, respectively), excluding commissions. During the three and nine months ended September 30, 2021, there were no common shares purchased in the administration of employee share-based compensation plans (2020 — nil and 200,000 common shares at an average price of $nil and $15.43 per share, respectively).

As of September 30, 2021, the IMAX LTIP trustee held 276 shares purchased for less than $0.1 million (December 31, 2020 — 723 shares for less than $0.1 million), in the open market to be issued upon the settlement of RSUs and certain stock options. The 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.

In 2021, IMAX China announced that its shareholders granted its Board of Directors a general mandate authorizing the Board, subject to applicable laws, to repurchase of 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. 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 and nine months ended September 30, 2021, IMAX China repurchased 3,569,000 common shares, respectively, at an average price of HKD 10.90 per share, respectively (U.S. $1.40 per share, respectively). During three and nine months ended September 30, 2020, IMAX China repurchased nil and 906,400 common shares, respectively, at an average price of HKD nil and HKD 13.13 per share, respectively (U.S. $nil and $1.69 per share, respectively).

 

(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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued and outstanding, beginning of period

 

 

59,396

 

 

 

 

58,857

 

 

 

 

58,921

 

 

 

 

61,176

 

Weighted average number of shares (repurchased) issued, net

 

 

(152

)

 

 

 

2

 

 

 

 

286

 

 

 

 

(1,816

)

Weighted average number of shares outstanding - basic

 

 

59,244

 

 

 

 

58,859

 

 

 

 

59,207

 

 

 

 

59,360

 

Weighted average effect of potential common shares, if dilutive

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Weighted average number of shares outstanding - diluted

 

 

59,244

 

 

 

 

58,859

 

 

 

 

59,207

 

 

 

 

59,360

 

 

For the three and nine months ended September 30, 2021, the calculation of diluted weighted average shares outstanding excludes 6,115,389 shares (2020 — 6,959,515 shares) that are issuable upon the vesting or exercise of share-based compensation including: (i) 1,592,965 RSUs (2020 — 1,674,348 RSUs), (ii) 783,920 PSUs (2020 — 367,739 PSUs) and (iii) 3,738,504 stock options (2020 — 4,917,428 stock options), as the effect would be anti-dilutive.

The calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2021 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 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.

During the three months ended September 30, 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.