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Capital Stock and Reserves
 3 Months Ended
Mar. 31, 2023
Equity [Abstract]  
Capital Stock and Reserves

11. Capital Stock and Reserves

(a)
Share-Based Compensation

For the three months ended March 31, 2023, share-based compensation expense totaled $5.1 million (2022 — $6.1 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)

2023

 

 

2022

 

Costs and expenses applicable to revenues

$

 

263

 

 

$

 

239

 

Selling, general and administrative expenses

 

 

5,196

 

 

 

 

5,726

 

Research and development

 

 

99

 

 

 

 

87

 

Executive transition costs

 

 

(499

)

 

 

 

—

 

$

 

5,059

 

 

$

 

6,052

 

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)

2023

 

 

2022

 

 

Stock Options

$

 

84

 

 

$

 

207

 

 

Restricted Share Units

 

 

3,365

 

 

 

 

3,411

 

 

Performance Stock Units

 

 

924

 

 

 

 

1,729

 

 

IMAX China Stock Options

 

 

10

 

 

 

 

34

 

 

IMAX China Long Term Incentive Plan Restricted Share Units

 

 

541

 

 

 

 

497

 

 

IMAX China Long Term Incentive Plan Performance Stock Units

 

 

135

 

 

 

 

174

 

 

$

 

5,059

 

 

$

 

6,052

 

 

For the three months ended March 31, 2023 and 2022, 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, 2023 and 2022:

 

 

 

Number of Shares

 

 

 

Weighted Average Exercise
Price Per Share

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Stock options outstanding, beginning of period

 

 

3,604,739

 

 

 

3,736,157

 

 

$

 

26.36

 

 

$

 

26.61

 

Granted

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Exercised

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Forfeited

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Expired

 

 

(144,366

)

 

 

(126,569

)

 

 

 

31.85

 

 

 

 

33.61

 

Cancelled

 

 

—

 

 

 

(2,197

)

 

 

 

—

 

 

 

 

32.50

 

Stock options outstanding, end of period

 

 

3,460,373

 

 

 

3,607,391

 

 

 

 

26.13

 

 

 

 

26.36

 

Stock options exercisable, end of period

 

 

3,460,373

 

 

 

3,524,298

 

 

 

 

26.13

 

 

 

 

26.45

 

 

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

IMAX LTIP 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, 2023 and 2022:

 

 

 

Number of Awards

 

 

Weighted Average Grant Date
Fair Value Per Share

 

 

 

2023

 

 

2022

 

 

 

2023

 

 

 

2022

 

RSUs outstanding, beginning of period

 

 

1,252,044

 

 

 

1,457,883

 

 

$

 

19.16

 

 

$

 

19.16

 

Granted

 

 

811,529

 

 

 

636,427

 

 

 

 

17.73

 

 

 

 

19.64

 

Vested and settled

 

 

(677,611

)

 

 

(648,527

)

 

 

 

18.70

 

 

 

 

18.78

 

Forfeited

 

 

(19,509

)

 

 

(1,328

)

 

 

 

19.80

 

 

 

 

14.84

 

RSUs outstanding, end of period

 

 

1,366,453

 

 

 

1,444,455

 

 

 

 

18.53

 

 

 

 

19.54

 

IMAX LTIP Performance Stock Units (“PSU”) Summary

The Company grants two types of PSU awards, 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 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, 2023 and 2022 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, 2023 and 2022:

 

 

Number of Awards

 

 

Weighted Average Grant Date
Fair Value Per Share

 

 

 

2023

 

 

2022

 

 

 

2023

 

 

 

2022

 

PSUs outstanding, beginning of period

 

 

931,716

 

 

 

613,405

 

 

$

 

18.96

 

 

$

 

18.21

 

Granted(1)

 

 

580,118

 

 

 

359,138

 

 

 

 

17.68

 

 

 

 

20.34

 

Forfeited

 

 

(208,648

)

 

 

—

 

 

 

 

18.09

 

 

 

 

—

 

Vested and settled(1)

 

 

(368,602

)

 

 

—

 

 

 

 

16.92

 

 

 

 

—

 

PSUs outstanding, end of period

 

 

934,584

 

 

 

972,543

 

 

 

 

19.16

 

 

 

 

19.00

 

 

(1)
For the three months ended March 31, 2023, the balance of shares granted includes 157,963 additional shares, at a weighted average grant date fair value per share of $16.92, as PSUs granted in 2020 with EBITDA-based targets vested at 175% on account of full achievement of the targets. This performance adjustment in the first quarter of 2023 reflects the Company's performance assessment of its first PSU awards.

As of March 31, 2023, the maximum number of shares of common stock that may be issued with respect to PSUs outstanding is 1,635,522, assuming full achievement of the EBITDA and TSR targets.

(b)
Issuer Purchases of Equity Securities

In 2022, the Company’s Board of Directors approved a 12-month extension to its share repurchase program through June 30, 2023 and an increase of $200.0 million in the share repurchase program. With the increase of $200.0 million, the Company’s total share repurchase authority is $400.0 million under the current share repurchase program. As of March 31, 2023, the Company has $191.8 million available under its approved repurchased program. 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, 2023, the Company repurchased 109,477 common shares, at an average price of $14.87 per share, for a total of $1.6 million, excluding commissions. The repurchases for the three months ended March 31, 2023 excludes repurchases of 140,000 shares with trade dates in December 2022, which were settled in January 2023 at an average price of $14.45 per share, for a total of $2.0 million, excluding commissions. During the three months ended March 31, 2022, the Company repurchased 380,652 common shares, at an average price of $16.45 per share, for a total of $6.3 million, excluding commissions. During the three months ended March 31, 2023 and 2022, there were no shares purchases in the administration of employee share based plans.

As of March 31, 2023 and December 31, 2022, 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.

In 2022, IMAX China Holding, Inc. (“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 June 23, 2022 (34,063,480 shares). This program will be valid until the 2023 Annual General Meeting of IMAX China on June 6, 2023. 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, 2023, IMAX China did not repurchase any common shares. 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, ($1.26 per share) for a total of HKD 14.3 million ($1.8 million). During the three months ended March 31, 2023 and 2022, there were no shares purchases in the administration of employee share based plans. The change in the non-controlling interest attributable to IMAX China as a result of common shares repurchased is recorded as a reduction to 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.

(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,

 

 

 

2023

 

 

 

2022

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

Issued and outstanding, beginning of period

 

 

54,149

 

 

 

 

 

58,654

 

 

Weighted average number of shares repurchased, net

 

 

(85

)

 

 

 

 

(80

)

 

Weighted average number of shares outstanding - basic

 

 

54,064

 

 

 

 

 

58,574

 

 

Weighted average effect of potential common shares, if dilutive

 

 

927

 

 

 

 

 

—

 

 

Weighted average number of shares outstanding - diluted

 

 

54,991

 

 

 

 

 

58,574

 

 

 

For the three months ended March 31, 2023, the calculation of diluted weighted average shares outstanding excludes 4,260,382 shares (2022 — 6,348,736 shares) that are issuable upon the vesting or exercise of share-based compensation including: (i) 620,553 RSUs (2022 — 1,444,455 RSUs), (ii) 179,456 PSUs (2022 — 1,296,890 PSUs) and (iii) 3,460,373 stock options (2022 — 3,607,391 stock options), as the effect would be anti-dilutive.

The calculation of diluted weighted average shares outstanding for the three months ended March 31, 2023 and 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.

(d)
Statutory Surplus Reserve

Pursuant to the corporate law of 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.

The statutory surplus reserve of RMB 36.4 million ($5.6 million) has reached 50% of its PRC subsidiaries’ registered capital.