UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
Commission File Number: 001-33401
CINEMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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20-5490327
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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3900 Dallas Parkway
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Suite 500
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Plano, Texas
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75093
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (972) 665-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check One):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
o
No
þ
As of April 30, 2008, 107,364,776 shares of common stock were outstanding.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
Cautionary Statement Regarding Forward-Looking Statements
Certain matters within this Quarterly Report on Form 10Q include forwardlooking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements included in this Form 10Q, other than
statements of historical fact, may constitute forward-looking statements. Forward-looking
statements can be identified by the use of words such as may, should, will, could,
estimates, predicts, potential, continue, anticipates, believes, plans, expects,
future and intends and similar expressions. Forward-looking statements may involve known and
unknown risks, uncertainties and other factors that may cause the actual results or performance to
differ from those projected in the forward-looking statements. These statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors, some of which are
beyond our control and difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. For a description of the
risk factors, please review the Risk Factors section or other sections in the Companys Annual
Report on Form 10-K filed March 28, 2008 and quarterly reports on Form 10-Q, filed with the
Securities and Exchange Commission. All forward-looking statements are expressly qualified in their
entirety by such risk factors. We undertake no obligation, other than as required by law, to update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
3
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
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March 31,
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December 31,
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2008
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2007
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ASSETS
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CURRENT ASSETS
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|
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Cash and cash equivalents
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$
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305,004
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|
|
$
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338,043
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Inventories
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|
7,670
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|
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7,000
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|
Accounts receivable
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29,840
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35,368
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Income tax receivable
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|
1,367
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|
18,339
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Current deferred tax asset
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|
5,270
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|
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5,215
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|
Prepaid expenses and other
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6,908
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10,070
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|
|
|
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Total current assets
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356,059
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414,035
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THEATRE PROPERTIES AND EQUIPMENT
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1,855,998
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1,818,505
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Less accumulated depreciation and amortization
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546,056
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504,439
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Theatre properties and equipment, net
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1,309,942
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1,314,066
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OTHER ASSETS
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Goodwill
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1,138,675
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1,134,689
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Intangible assets net
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351,902
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353,047
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Investments in and advances to affiliates
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3,837
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3,662
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Deferred charges and other assets net
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80,470
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77,393
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Total other assets
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1,574,884
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|
1,568,791
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|
|
|
|
|
|
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TOTAL ASSETS
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$
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3,240,885
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$
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3,296,892
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES
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Current portion of long-term debt
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$
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12,001
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$
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9,166
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Current portion of capital lease obligations
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5,089
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|
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4,684
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|
Accounts payable and accrued expenses
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150,756
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204,472
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|
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|
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Total current liabilities
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167,846
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218,322
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|
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LONG-TERM LIABILITIES
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Long-term debt, less current portion
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1,511,931
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|
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1,514,579
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Capital lease obligations, less current portion
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123,025
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116,486
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Deferred income taxes
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153,034
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168,475
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Long-term portion FIN 48 liability
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15,585
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15,500
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Deferred lease expenses
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20,506
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19,235
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Deferred revenue NCM
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172,291
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172,696
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Other long-term liabilities
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55,496
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36,214
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|
|
|
|
|
|
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Total long-term liabilities
|
|
|
2,051,868
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|
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|
2,043,185
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COMMITMENTS AND CONTINGENCIES (see Note 19)
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MINORITY INTERESTS IN SUBSIDIARIES
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18,148
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|
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16,182
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STOCKHOLDERS EQUITY
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Common stock, $0.001 par value: 300,000,000 shares authorized and
106,983,684 shares issued and outstanding at December 31, 2007 and
107,131,769 shares issued and outstanding at March 31, 2008
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107
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|
|
107
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|
Additional paid-in-capital
|
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|
940,237
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|
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939,327
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|
Retained earnings
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|
33,055
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|
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|
47,074
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|
Accumulated other comprehensive income
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29,624
|
|
|
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32,695
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|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,003,023
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|
|
|
1,019,203
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
3,240,885
|
|
|
$
|
3,296,892
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)
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|
|
|
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|
|
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|
Three months ended March 31,
|
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2008
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2007
|
|
REVENUES
|
|
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|
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Admissions
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|
$
|
262,367
|
|
|
$
|
243,990
|
|
Concession
|
|
|
122,157
|
|
|
|
115,087
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Other
|
|
|
16,492
|
|
|
|
18,945
|
|
|
|
|
|
|
|
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Total revenues
|
|
|
401,016
|
|
|
|
378,022
|
|
|
|
|
|
|
|
|
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|
COST OF OPERATIONS
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
138,140
|
|
|
|
128,294
|
|
Concession supplies
|
|
|
18,749
|
|
|
|
17,457
|
|
Salaries and wages
|
|
|
42,587
|
|
|
|
40,182
|
|
Facility lease expense
|
|
|
56,322
|
|
|
|
51,645
|
|
Utilities and other
|
|
|
48,165
|
|
|
|
44,193
|
|
General and administrative expenses
|
|
|
20,572
|
|
|
|
18,733
|
|
Depreciation and amortization
|
|
|
37,407
|
|
|
|
36,875
|
|
Amortization of favorable leases
|
|
|
704
|
|
|
|
934
|
|
Impairment of long-lived assets
|
|
|
4,487
|
|
|
|
49,730
|
|
(Gain) loss on sale of assets and other
|
|
|
(199
|
)
|
|
|
305
|
|
|
|
|
|
|
|
|
Total cost of operations
|
|
|
366,934
|
|
|
|
388,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
34,082
|
|
|
|
(10,326
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32,073
|
)
|
|
|
(41,497
|
)
|
Interest income
|
|
|
3,744
|
|
|
|
3,783
|
|
Gain on NCM Transaction
|
|
|
|
|
|
|
210,773
|
|
Foreign currency exchange gain (loss)
|
|
|
(216
|
)
|
|
|
220
|
|
Loss on early retirement of debt
|
|
|
(40
|
)
|
|
|
(7,829
|
)
|
Distributions from NCM
|
|
|
5,182
|
|
|
|
|
|
Equity in loss of affiliates
|
|
|
(635
|
)
|
|
|
(1,231
|
)
|
Minority interests in income of subsidiaries
|
|
|
(1,152
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(25,190
|
)
|
|
|
163,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
8,892
|
|
|
|
153,604
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
3,641
|
|
|
|
35,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
5,251
|
|
|
$
|
118,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106,965
|
|
|
|
92,561
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
109,197
|
|
|
|
94,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,251
|
|
|
$
|
118,211
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
36,383
|
|
|
|
35,871
|
|
Amortization of intangible and other assets
|
|
|
1,728
|
|
|
|
1,938
|
|
Amortization of long-term prepaid rents
|
|
|
404
|
|
|
|
236
|
|
Amortization of debt issue costs
|
|
|
1,162
|
|
|
|
1,191
|
|
Amortization of debt premium
|
|
|
|
|
|
|
(678
|
)
|
Amortization of deferred revenues, deferred lease incentives and other
|
|
|
(846
|
)
|
|
|
(266
|
)
|
Impairment of long-lived assets
|
|
|
4,487
|
|
|
|
49,730
|
|
Share based awards compensation expense
|
|
|
861
|
|
|
|
733
|
|
Gain on NCM Transaction
|
|
|
|
|
|
|
(210,773
|
)
|
(Gain) loss on sale of assets and other
|
|
|
(199
|
)
|
|
|
305
|
|
Write-off of unamortized bond premiums and unamortized debt issue costs
related to the early retirement of debt
|
|
|
193
|
|
|
|
(17,098
|
)
|
Accretion of interest on senior discount notes
|
|
|
10,008
|
|
|
|
10,449
|
|
Deferred lease expenses
|
|
|
1,232
|
|
|
|
1,607
|
|
Deferred income tax expenses
|
|
|
(8,041
|
)
|
|
|
(91,026
|
)
|
Equity in loss of affiliates
|
|
|
635
|
|
|
|
1,231
|
|
Minority interests in income of subsidiaries
|
|
|
1,152
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(670
|
)
|
|
|
(330
|
)
|
Accounts receivable
|
|
|
5,528
|
|
|
|
6,206
|
|
Prepaid expenses and other
|
|
|
3,162
|
|
|
|
1,692
|
|
Other assets
|
|
|
(3,176
|
)
|
|
|
(3,570
|
)
|
Advances with affiliates
|
|
|
190
|
|
|
|
(111
|
)
|
Accounts payable and accrued expenses
|
|
|
(49,194
|
)
|
|
|
(41,404
|
)
|
Interest paid on repurchased senior discount notes
|
|
|
(2,929
|
)
|
|
|
|
|
Increase in deferred revenues related to NCM Transaction
|
|
|
|
|
|
|
174,001
|
|
Other long-term liabilities
|
|
|
310
|
|
|
|
(2,272
|
)
|
Income tax receivable/payable
|
|
|
17,057
|
|
|
|
125,004
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
24,688
|
|
|
|
161,166
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment
|
|
|
(30,801
|
)
|
|
|
(32,065
|
)
|
Proceeds from sale of theatre properties and equipment
|
|
|
2,439
|
|
|
|
8,359
|
|
Increase in escrow deposit due to like-kind exchange
|
|
|
(2,089
|
)
|
|
|
|
|
Investment in joint venture DCIP
|
|
|
(1,000
|
)
|
|
|
|
|
Net proceeds from sale of NCM stock
|
|
|
|
|
|
|
214,842
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
(31,451
|
)
|
|
|
191,136
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
49
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
(19,270
|
)
|
|
|
|
|
Repurchase of senior discount notes
|
|
|
(6,174
|
)
|
|
|
|
|
Retirement of senior subordinated notes
|
|
|
|
|
|
|
(332,000
|
)
|
Repayments of other long-term debt
|
|
|
(1,266
|
)
|
|
|
(3,576
|
)
|
Payments on capital leases
|
|
|
(1,137
|
)
|
|
|
(868
|
)
|
Other
|
|
|
(119
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(27,917
|
)
|
|
|
(336,492
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
|
|
|
1,641
|
|
|
|
186
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(33,039
|
)
|
|
|
15,996
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
338,043
|
|
|
|
147,099
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
305,004
|
|
|
$
|
163,095
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION (see Note 16)
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. The Company and Basis of Presentation
Cinemark Holdings, Inc. and subsidiaries (the Company) are leaders in the motion picture
exhibition industry in terms of both revenues and the number of screens in operation, with theatres
in the United States (U.S.), Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras,
El Salvador, Nicaragua, Costa Rica, Panama and Colombia. The Company also managed additional
theatres in the U.S., Brazil, and Colombia during the three months ended March 31, 2008.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. On August 7, 2006, the Cinemark, Inc. stockholders entered into a share exchange
agreement pursuant to which they agreed to exchange their shares of Class A common stock for an
equal number of shares of common stock of Cinemark Holdings, Inc. (Cinemark Share Exchange). The
Cinemark Share Exchange was completed on October 5, 2006 and facilitated the acquisition of Century
Theatres, Inc. (the Century Acquisition). On October 5, 2006, Cinemark, Inc. became a wholly
owned subsidiary of Cinemark Holdings, Inc. Prior to October 5, 2006, Cinemark Holdings, Inc. had
no assets, liabilities or operations. The accompanying condensed consolidated financial statements
are reflective of the change in reporting entity that occurred as a result of the Cinemark Share
Exchange. Cinemark Holdings, Inc.s condensed consolidated financial statements reflect the
accounting basis of its stockholders for all periods presented. On April 24, 2007, Cinemark
Holdings, Inc. completed an initial public offering of its common stock.
The condensed consolidated financial statements have been prepared by the Company, without
audit, according to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, these interim financial statements reflect all adjustments necessary to
state fairly the financial position and results of operations as of, and for, the periods
indicated. Majority-owned subsidiaries that the Company controls are consolidated while those
subsidiaries of which the Company owns between 20% and 50% and does not control are accounted for
as affiliates under the equity method. Those subsidiaries of which the Company owns less than 20%
are generally accounted for as affiliates under the cost method, unless the Company is deemed to
have the ability to exercise significant influence over the affiliate, in which case the Company
would account for its investment under the equity method. The results of these subsidiaries and
affiliates are included in the condensed consolidated financial statements effective with their
formation or from their dates of acquisition. Significant intercompany balances and transactions
are eliminated in consolidation.
These condensed consolidated financial statements should be read in conjunction with the
audited annual consolidated financial statements and the notes thereto for the year ended December
31, 2007, included in the Annual Report on Form 10-K filed March 28, 2008 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Operating results for the three
months ended March 31, 2008, are not necessarily indicative of the results to be achieved for the
full year.
2. New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements.
Among other
requirements, this statement defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and expands disclosures about fair value measurements. The
statement applies whenever other statements require or permit assets or liabilities to be measured
at fair value. SFAS No. 157 became effective for the Company beginning January 1, 2008 (January 1,
2009 for nonfinancial assets and liabilities). Adoption of this statement did not have a
significant impact on the Companys condensed consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets
and Financial Liabilities.
This statement provides companies with an option to report selected
financial assets and liabilities at fair value that are currently not required to be measured at
fair value. SFAS No. 159 establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement attributes for similar
types of assets and liabilities. SFAS No. 159 is effective for the Company beginning January 1,
2009. The
Company has elected not to measure eligible items at fair value upon initial adoption.
Adoption of this statement is not expected to have a significant impact on the Companys condensed
consolidated financial statements.
7
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
. This statement
requires all business combinations completed after the effective date to be accounted for by
applying the acquisition method (previously referred to as the purchase method); expands the
definition of transactions and events that qualify as business combinations; requires that the
acquired assets and liabilities, including contingencies, be recorded at the fair value determined
on the acquisition date and changes thereafter reflected in income, not goodwill; changes the
recognition timing for restructuring costs; and requires acquisition costs to be expensed as
incurred. Adoption of SFAS No. 141(R) is required for business combinations that occur after
December 15, 2008. Early adoption and retroactive application of SFAS No. 141 (R) to fiscal years
preceding the effective date is not permitted. The Company is evaluating the adoption of SFAS No.
141(R) and its impact on the Companys condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interest in Consolidated
Financial Statements
. This statement establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically,
this statement requires the recognition of a noncontrolling interest (minority interest) as equity
in the consolidated financial statements and separate from the parents equity. The amount of net
income attributable to the noncontrolling interest will be included in consolidated net income on
the face of the income statement. SFAS No. 160 clarifies that changes in a parents ownership
interest in a subsidiary that do not result in deconsolidation are equity transactions if the
parent retains its controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is prohibited. The Company is evaluating the adoption of SFAS No. 160 and its
impact on the Companys condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161
Disclosures about Derivative Instruments and
Hedging Activitiesan Amendment of FASB Statement No. 133
. This statement intends
to improve financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures about their impact on an entitys financial position, financial performance,
and cash flows. SFAS No. 161 requires disclosures regarding the objectives for using derivative
instruments, the fair values of derivative instruments and their related gains and losses, and the
accounting for derivatives and related hedged items. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008, with early adoption permitted. The Companys
adoption of SFAS No. 161 will not impact its condensed consolidated financial statements, however
the Company is evaluating the impact of SFAS No. 161 on its disclosures.
3. Initial Public Offering
On April 24, 2007, the Company completed an initial public offering of its common stock. The
Company sold 13,888,889 shares of its common stock and selling stockholders sold an additional
14,111,111 shares of common stock at a price of $17.955 ($19 per share less underwriting
discounts). The net proceeds (before expenses) received by the Company were $249,375 and the
Company paid approximately $3,526 in legal, accounting and other fees, all of which are recorded in
additional paid-in-capital. The selling stockholders granted the underwriters a 30-day option to
purchase up to an additional 2,800,000 shares of the Companys common stock at a price of $17.955
($19 per share less underwriting discounts). On May 21, 2007, the underwriters purchased an
additional 269,100 shares from the selling stockholders pursuant to this option. The Company did
not receive any proceeds from the sale of shares by the selling stockholders. The Company has
utilized a portion of the net proceeds that it received from the offering to repurchase a portion
of its outstanding 9
3
/
4
% senior discount notes. The Company expects to continue to use the net
proceeds to repurchase a portion of the remaining 9
3
/
4
% senior discount notes or repay debt
outstanding under the senior secured credit facility. The 9
3
/
4
% senior discount notes are not
currently subject to repurchase at the Companys option. Accordingly, if the Company is unable to
repurchase the 9
3
/
4
% senior discount notes at acceptable prices, the Company expects to use a
portion of the remaining net proceeds to repay term loan debt outstanding under the senior secured
credit facility. The Company has significant flexibility in applying the net proceeds from the
initial public offering. The Company has invested the remaining net proceeds in short-term,
investment-grade marketable securities or money market funds.
8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
4. Earnings Per Share
Basic earnings per share is computed by dividing income by the weighted average number of
shares of all classes of common stock outstanding during the reported period. Diluted earnings per
share is computed by dividing income by the weighted average number of shares of common stock and
potentially dilutive common equivalent shares outstanding determined under the treasury stock
method. The following table sets forth the computation of basic and diluted earnings per share
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Net income
|
|
$
|
5,251
|
|
|
$
|
118,211
|
|
Basic:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
106,965
|
|
|
|
92,561
|
|
|
|
|
Net income per common share
|
|
$
|
0.05
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
106,965
|
|
|
|
92,561
|
|
Common equivalent shares for stock options
(1)
|
|
|
2,232
|
|
|
|
2,351
|
|
|
|
|
Weighted average common and common equivalent shares outstanding
|
|
|
109,197
|
|
|
|
94,912
|
|
|
|
|
Net income per common and common equivalent share
|
|
$
|
0.05
|
|
|
$
|
1.25
|
|
|
|
|
(1)
Common equivalent shares for restricted stock of 163 were excluded from the diluted earnings
per share calculation for the three months ended March 31, 2008 because they were anti-dilutive.
5. Dividend Payment
In August 2007, the Company initiated a quarterly dividend policy. On February 26, 2008, the
Companys board of directors declared a cash dividend for the fourth quarter of 2007 in the amount
of $0.18 per share of common stock payable to stockholders of record on March 6, 2008. The
dividend was paid on March 14, 2008 in the total amount of approximately $19,270.
6. Investment in National CineMedia and Transaction Related to its Initial Public Offering
In March 2005, Regal Entertainment Inc. (Regal) and AMC Entertainment Inc. (AMC) formed
National CineMedia, LLC, or NCM, and on July 15, 2005, the Company joined NCM, as one of the
founding members. NCM operates the largest digital in-theatre network in the U.S. for providing
cinema advertising and non-film events and combines the cinema advertising and non-film events
businesses of the three largest motion picture companies in the U.S. Upon joining NCM, the Company
and NCM entered into an Exhibitor Services Agreement, pursuant to which NCM provides advertising,
promotion and event services to the Companys theatres. On February 13, 2007, National CineMedia, Inc. (NCM, Inc.), a newly
formed entity that now serves as a member and the sole manager of NCM, completed an initial public
offering of its common stock. In connection with the NCM, Inc. initial public offering, the Company
amended its operating agreement with NCM and the Exhibitor Services Agreement pursuant to which NCM
provides advertising, promotion and event services to the Companys theatres. In connection with
NCM Inc.s initial public offering and the transactions described below (the NCM Transaction),
the Company received an aggregate of $389,003.
Prior to pricing the initial public offering of NCM, Inc., NCM completed a recapitalization
whereby (1) each issued and outstanding Class A unit of NCM was split into 44,291 Class A units,
and (2) following such split of Class A Units, each issued and outstanding Class A Unit was
recapitalized into one common unit and one preferred unit. As a result, the Company received
14,159,437 common units and 14,159,437 preferred units. All existing preferred units of NCM, or
55,850,951 preferred units, held by Regal, AMC and the Company were redeemed on a pro-rata basis on
February 13, 2007. NCM utilized the proceeds of its new $725,000 term loan facility and a portion
of the proceeds it received from NCM, Inc. from its initial public offering to redeem all of its
outstanding preferred units. Each preferred unit was redeemed for $13.7782 and the Company received
approximately $195,092 as payment in full for redemption of all of the
Companys preferred units in NCM. Upon payment of such amount, each preferred unit was
cancelled and the holders of
9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
the preferred units ceased to have any rights with respect to the
preferred units.
At the closing of the initial public offering, the underwriters exercised their over-allotment
option to purchase additional shares of common stock of NCM, Inc. at the initial public offering
price, less underwriting discounts and commissions. In connection with the over-allotment option
exercise, Regal, AMC and the Company each sold to NCM, Inc. common units of NCM on a pro-rata basis
at the initial public offering price, less underwriting discounts and expenses. The Company sold
1,014,088 common units to NCM, Inc. for proceeds of $19,910, and upon completion of this sale of
common units, the Company owned 13,145,349 common units of NCM. The net proceeds of $215,002 from
the above described stock transactions were applied against the Companys existing investment basis
in NCM of $4,069 until such basis was reduced to $0 with the remaining $210,933 of proceeds net of
$160 of transaction related costs, recorded as a gain of $210,773 in the condensed consolidated
statement of income for the three months ended March 31, 2007.
NCM also paid the Company a portion of the proceeds it received from NCM, Inc. in the initial
public offering for agreeing to modify NCMs payment obligation under the prior Exhibitor Services
Agreement. The modification agreed to by the Company reflects a shift from circuit share expense
under the prior Exhibitor Services Agreement, which obligated NCM to pay the Company a percentage
of revenue, to the monthly theatre access fee described below. The theatre access fee significantly
reduced the contractual amounts paid to the Company by NCM. In exchange for the Company agreeing to
so modify the agreement, NCM paid the Company approximately $174,001 upon modification of the
Exhibitor Services Agreement on February 13, 2007, the proceeds of which were recorded as deferred
revenue on the Companys condensed consolidated balance sheet. The Company believes this payment
approximates the fair value of the Exhibitor Services Agreement modification. The deferred revenue
is being amortized into other revenues over the life of the agreement using the units of revenue
method. Regal and AMC similarly amended their exhibitor service arrangements with NCM.
In consideration for NCMs exclusive access to the Companys theatre attendees for on-screen
advertising and use of off-screen locations within the Companys theatres for the lobby
entertainment network and lobby promotions, the Company receives a monthly theatre access fee under
the Exhibitor Services Agreement. The theatre access fee is composed of a fixed payment per patron,
initially seven cents, and a fixed payment per digital screen, which may be adjusted for certain
enumerated reasons. The payment per theatre patron will increase by 8% every five years, with the
first such increase taking effect after the end of fiscal 2011, and the payment per digital screen,
initially eight hundred dollars per digital screen per year, will increase annually by 5%,
beginning after 2007. For 2008, the annual payment per digital screen is eight hundred forty
dollars. The theatre access fee paid in the aggregate to Regal, AMC and the Company will not be
less than 12% of NCMs Aggregate Advertising Revenue (as defined in the Exhibitor Services
Agreement), or it will be adjusted upward to reach this minimum payment. Additionally, with respect
to any on-screen advertising time provided to the Companys beverage concessionaire, the Company is
required to purchase such time from NCM at a negotiated rate. The exhibitor services agreement has,
except with respect to certain limited services, a term of 30 years.
Prior to the initial public offering of NCM Inc. common stock, the Companys ownership
interest in NCM was approximately 25% and subsequent to the completion of the offering the Company
held a 14% interest in NCM. Subsequent to NCM, Inc.s initial public offering, the Company
continues to account for its investment in NCM under the equity method of accounting due to its
ability to exercise significant control over NCM. The Company has substantial rights as a founding
member, including the right to designate a total of two nominees to the ten-member Board of
Directors of NCM Inc., the sole manager. So long as the Company owns at least 5% of NCMs
membership interests, approval of at least 90% (80% if the board has less than 10 directors) will
be required before NCM, Inc. may take certain actions including but not limited to mergers and
acquisitions, issuance of common or preferred shares, approval of NCMs budget, incurrence of
indebtedness, entering into or terminating material agreements, and modifications to its articles
of incorporation or bylaws. Additionally, if any of the Companys director designees are not
appointed to the Board of Directors of NCM, Inc., nominated by NCM, Inc. or elected by NCM, Inc.s
stockholders, then the Company (so long as the Company continues to own at least 5% of NCMs
membership interest) will be entitled to approve certain actions of NCM including without
limitation, approval of the budget, incurrence of indebtedness, consummating or amending material
agreements, approving dividends, amending the NCM operating agreement, hiring or termination of
the chief executive officer, chief financial officer, chief technology officer or chief marketing
officer of NCM and the dissolution or liquidation of NCM.
During the three months ended March 31, 2007 and 2008, the Company recorded equity losses of
$1,284 and $0,
respectively. The Company recognized $4,016 and $401 of other revenue from NCM during the
three months ended
10
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
March 31, 2007 and 2008, respectively. The Company had a receivable due from NCM
of $225 and $144 as of December 31, 2007 and March 31, 2008, respectively, related to screen
advertising and other ancillary revenue. The Company is entitled to receive mandatory quarterly
distributions of excess cash from NCM. During the three months ended March 31, 2008, the Company
received distributions of approximately $5,182, which were in excess of the carrying value of its
investment in NCM and are reflected as distributions from NCM on the condensed consolidated
statement of income for the three months ended March 31, 2008.
In 2008, NCM performed a common unit adjustment calculation in accordance with the common unit
adjustment agreement. As a result of the calculation, the Company received an additional 846,303
common units of NCM, each of which is convertible into one share of NCM Inc. common stock. As of
the date of this report, the Company owned a total of 13,991,652 common units. The common unit
adjustment resulted in an increase in the Companys ownership percentage in NCM from approximately
14.0% to approximately 14.5%.
Below is summary financial information for NCM for the three month period ended March 27, 2008:
|
|
|
|
|
Gross revenues
|
|
$
|
62,652
|
|
Operating income
|
|
$
|
17,701
|
|
Net earnings
|
|
$
|
4,246
|
|
7. Investment in Digital Cinema Implementation Partners
On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital
Cinema Implementation Partners LLC (DCIP) to facilitate the implementation of digital cinema in
the Companys theatres and to establish agreements with major motion picture studios for the
financing of digital cinema. Future digital cinema developments will be managed by DCIP, subject to
the Companys approval along with the Companys partners, AMC and Regal. During the year ended
December 31, 2007, the Company invested $1,500 for a one-third ownership interest in DCIP. During
February 2008, the Company, AMC and Regal each invested an additional $1,000 in DCIP.
The Company is accounting for its investment in DCIP under the equity method of accounting.
During the three months ended March 31, 2007 and 2008, the Company recorded equity losses of $0 and
$601, respectively, relating to this investment. The Companys investment basis in DCIP was $260
and $659 at December 31, 2007 and March 31, 2008, respectively, which is included in investments in
and advances to affiliates on the condensed consolidated balance sheets.
8. Income Taxes
The Company recorded income tax expense of $35,393 and $3,641 during the three months ended
March 31, 2007 and 2008, respectively. The effective tax rate was 23.0% and 40.9% for the three
months ended March 31, 2007 and 2008, respectively. Income tax provisions for interim (quarterly)
periods are based on estimated annual income tax rates and are adjusted for the effects of
significant, infrequent or unusual items occurring during the interim period. As a result of the
full inclusion in the interim rate calculation of these items, the interim rate may vary
significantly from the normalized annual rate. This rate is reflective of permanent differences
such as goodwill impairment, which is recorded for financial statement purposes but not deductible
for income tax purposes. The change in the effective tax rate from the three months ended March 31,
2007 to the three months ended March 31, 2008 was mainly due to the gain on the NCM Transaction recorded
during the three months ended March 31, 2007.
9. Share Based Awards
During September 2004, Cinemark, Inc.s board of directors approved the 2004 Long Term
Incentive Plan (the 2004 Plan), under which 9,097,360 shares of Class A common stock were made
available for issuance to selected employees, directors and consultants of the Company. The 2004
Plan provided for restricted share grants, incentive option grants and nonqualified option grants.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. and the Cinemark Share Exchange was completed on October 5, 2006.
11
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In November 2006, the Companys board of directors amended the 2004 Plan to provide that no
additional awards may be granted under the 2004 Plan. At that time, the board of directors and the
majority of its stockholders approved the Cinemark Holdings, Inc. 2006 Long Term Incentive Plan
(the 2006 Plan) and all options to purchase shares of Cinemark, Inc.s Class A common stock under
the 2004 Plan were exchanged for an equal number of options to purchase shares of Cinemark
Holdings, Inc.s common stock under the 2006 Plan. The 2006 Plan is substantially similar to the
2004 Plan.
During September 2007, the Company filed a registration statement with the Securities and
Exchange Commission on Form S-8 for purposes of registering shares available for issuance under the
2006 Plan.
During March 2008, the Companys board of directors approved the Amended and Restated Cinemark
Holdings, Inc. 2006 Long Term Incentive Plan (the Restated Incentive Plan). The Restated
Incentive Plan amends and restates the 2006 Plan, to (i) increase the number of shares reserved for
issuance from 9,097,360 shares of common stock to 19,100,000 shares of common stock and (ii) permit
the compensation committee of the Companys board of directors (the Compensation Committee) to
award participants restricted stock units and performance awards. The right of a participant to
exercise or receive a grant of a restricted stock unit or performance award may be subject to the
satisfaction of such performance or objective business criteria as determined by the Compensation
Committee. With the exception of the changes identified in (i) and (ii) above, the Restated
Incentive Plan does not materially differ from the 2006 Plan. The Restated Incentive Plan and
restricted stock unit awards made thereunder during the three months ended March 31, 2008 are
subject to approval by the Companys stockholders at its annual meeting of stockholders to be held
on May 15, 2008.
Stock Options
A summary of stock option activity and related information for the three
months ended March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Number
|
|
Average
|
|
|
of
|
|
Exercise
|
|
|
Options
|
|
Price
|
Outstanding at December 31, 2007
|
|
|
6,323,429
|
|
|
$
|
7.63
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,500
|
)
|
|
$
|
7.63
|
|
Forfeited
|
|
|
(11,276
|
)
|
|
$
|
7.63
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
6,305,653
|
|
|
$
|
7.63
|
|
|
|
|
Options exercisable at March 31, 2008
|
|
|
4,973,962
|
|
|
$
|
7.63
|
|
|
|
|
The Company recorded compensation expense of $716 and a tax benefit of approximately $275
during the three months ended March 31, 2008, related to the outstanding stock options. As of March
31, 2008, the unrecognized compensation expense related to outstanding stock options was $2,864 and
the weighted average period over which this remaining compensation expense will be recognized is
approximately 1 year. All options outstanding at March 31, 2008 have an average remaining
contractual life of approximately 6.5 years.
Restricted Stock
- During October 2007, the Company issued 21,880 shares of restricted stock
to its independent directors at a purchase price of $0.001 per share. The fair value of the shares
was approximately $400 based on the market value of the Companys stock on the date of grant, which
was $18.28 per share. These restricted stock awards fully vest on June 29, 2008 after one year of
service. The Company recorded compensation expense of $100 related to these awards during the
three months ended March 31, 2008. The remaining compensation expense of $100 will be recognized
during the three months ended June 30, 2008.
During the three months ended March 31, 2008, the Company granted 141,585 shares of restricted
stock to employees of the Company. The fair value of the shares of restricted stock was determined
based on the market value of the Companys stock on the dates of grant, which ranged from $12.89 to
$14.65 per share. The Company assumed forfeiture rates ranging from zero to approximately 2% for the
restricted stock awards. The restricted stock vests over periods ranging
from eighteen months to four years based on continued service by the employee. The Company
recorded compensation expense of $42 related to these restricted stock awards during the three
months ended March 31, 2008. As of March 31, 2008, the remaining unrecognized compensation
12
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
expense
related to these restricted stock awards was $1,880 and the weighted average period over which this
remaining compensation expense will be recognized is approximately 3.5 years. Upon vesting, the Company
receives a tax deduction. The recipients of restricted stock are entitled to receive dividends and
to vote their respective shares, however the sale and transfer of the restricted shares is
prohibited during the restriction period.
A summary of restricted stock activity for the three months ended March 31, 2008 is as
follows:
|
|
|
|
|
|
|
Shares of
|
|
|
Restricted
|
|
|
Stock
|
Outstanding at December 31, 2007
|
|
|
21,880
|
|
Granted
|
|
|
141,585
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
163,465
|
|
|
|
|
|
|
Unvested restricted stock at March 31, 2008
|
|
|
163,465
|
|
|
|
|
|
|
Restricted Stock Units
During the three months ended March 31, 2008, the Company granted
restricted stock units representing 113,456 hypothetical shares of common stock under the Restated
Incentive Plan to certain executive officers who, the Compensation Committee believes, will be the
named executive officers for 2008. The restricted stock unit awards are subject to stockholder
approval at the Companys annual meeting of stockholders to be held on May 15, 2008. The
restricted stock units vest based on a combination of financial performance factors and continued
service. The financial performance factors are based on an implied equity value concept that
determines an internal rate of return (IRR) during the three fiscal year period ending December
31, 2010 based on a formula utilizing a multiple of Adjusted EBITDA subject to certain specified
adjustments (as defined in the restricted stock unit award agreement). The financial performance
factors for the restricted stock units have a threshold, target and maximum level of payment
opportunity. If the IRR for the three year period is at least 8.5%, which is the threshold,
one-third of the restricted stock units vest. If the IRR for the three year period is at least
10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the
three year period is at least 12.5%, which is the maximum, 100% of the restricted stock units vest.
All payouts of restricted stock units that vest will be subject to an additional service
requirement and will be paid in the form of common stock if the participant continues to provide
services through March 28, 2012, which is the fourth anniversary of the grant date. Restricted
stock unit award participants are eligible to receive dividend equivalent payments if and at the
time the restricted stock unit awards become vested.
Below is a table summarizing the potential awards at each of the three levels of financial
performance:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Shares
|
|
Value at
|
|
|
Vesting
|
|
Grant
|
at IRR of at least 8.5%
|
|
|
37,819
|
|
|
$
|
487
|
|
at IRR of at least 10.5%
|
|
|
75,638
|
|
|
$
|
975
|
|
at IRR of at least 12.5%
|
|
|
113,456
|
|
|
$
|
1,462
|
|
13
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Due to the fact that the IRR for the three year period ending December 31, 2010 cannot be
determined at the time of grant, the Company has estimated that the most likely outcome is the
achievement of the mid-point IRR level. As a result, the total compensation expense to be recorded
for the restricted stock unit awards is $975 assuming a total of 75,638 units will vest at the end
of the four year period. If during the service period, additional information becomes available to
lead the Company to believe a different IRR level will be achieved for the three year period ending
December 31, 2010, the Company will reassess the number of units that will vest and adjust its
compensation expense accordingly on a prospective basis over the remaining service period. The
Company recorded compensation expense of $3 related to these awards during the three months ended
March 31, 2008. As of March 31, 2008, the remaining unrecognized compensation expense related to
these restricted stock unit awards was $972 and the weighted average period over which the
remaining compensation expense will be recognized is approximately 4 years.
10. Early Retirement of Long-Term Debt
On March 6, 2007, the Company commenced an offer to purchase for cash, on the terms and
subject to the conditions set forth in an Offer to Purchase and Consent Solicitation Statement, any
and all of its 9% senior subordinated notes, of which $332,250 aggregate principal amount remained
outstanding. In connection with the tender offer, the Company solicited consents for certain
proposed amendments to the indenture to remove substantially all restrictive covenants and certain
events of default provisions. On March 20, 2007, the early settlement date, approximately $332,000
aggregate principal amount of the 9% senior subordinated notes were tendered and repurchased by the
Company for approximately $360,164, including accrued interest and premiums paid. The Company
funded the repurchase with the net proceeds received from the NCM Transaction (see Note 6). The
Company recorded a loss on early retirement of debt of $7,829 during the three months ended March
31, 2007, which consisted of tender offer repurchase costs, including premiums paid and other fees,
and the write-off of unamortized debt issue costs, partially offset by the write-off of the
unamortized bond premium.
On March 20, 2008, in one open market purchase, the Company repurchased $10,000 aggregate
principal amount at maturity of its 9
3
/
4
% senior discount notes for approximately $8,950. The
Company funded the transaction with proceeds from the initial public offering of its common stock.
As a result of the transaction, the Company recorded a loss on early retirement of debt of $40
during the three months ended March 31, 2008, which primarily includes the write-off of unamortized
debt issue costs partially offset by a discount on the repurchased senior discount notes.
11. Interest Rate Swap Agreements
During March 2007, the Company entered into two interest rate swap agreements with effective
dates of August 13, 2007 and terms of five years each. The interest rate swaps were designated to
hedge approximately $500,000 of the Companys variable rate debt obligations under its senior
secured credit facility. Under the terms of the interest rate swap agreements, the Company pays
fixed rates of 4.918% and 4.922% on $375,000 and $125,000, respectively, of variable rate debt and
receives interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each
reset date determines the variable portion of the interest rate swaps for the three-month period
following the reset date. No premium or discount was incurred upon the Company entering into the
interest rate swaps because the pay and receive rates on the interest rate swaps represented
prevailing rates for each counterparty at the time the interest rate swaps were consummated. The
interest rate swaps qualify for cash flow hedge accounting treatment in accordance with SFAS No.
133,
Accounting for Derivative Instruments and Hedging Activities
, and as such, the Company has
effectively hedged its exposure to variability in the future cash flows attributable to the 3-month
LIBOR on $500,000 of variable rate debt. The change in the fair values of the interest rate swaps
is recorded on the Companys condensed consolidated balance sheet as an asset or liability with the
effective portion of the interest rate swaps gains or losses reported as a component of other
comprehensive income and the ineffective portion reported in earnings.
As of March 31, 2008, the aggregate fair value of the interest rate swaps was a liability of
approximately $37,836, which has been recorded as a component of other long-term liabilities. A
corresponding cumulative amount of $23,307, net of taxes, has been recorded as a decrease in
accumulated other comprehensive income on the Companys condensed consolidated balance sheet as of
March 31, 2008. The interest rate swaps exhibited no ineffectiveness during the three months ended
March 31, 2008.
14
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
12. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
|
|
|
Operating
|
|
Operating
|
|
|
|
|
Segment
|
|
Segment
|
|
Total
|
Balance at December 31, 2007
|
|
$
|
979,148
|
|
|
$
|
155,541
|
|
|
$
|
1,134,689
|
|
Foreign currency translation adjustments
(1)
|
|
|
(160
|
)
|
|
|
4,146
|
|
|
|
3,986
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
978,988
|
|
|
$
|
159,687
|
|
|
$
|
1,138,675
|
|
|
|
|
|
|
|
(1)
|
|
U.S. operating segment includes one theatre located in Canada.
|
In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
, the Company evaluates
goodwill for impairment on an annual basis at fiscal year-end or whenever events or changes in
circumstances indicate the carrying value of goodwill might exceed its estimated fair value. The
Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to
the reporting unit based on an estimate of its relative fair value. The goodwill impairment
evaluation is a two-step approach requiring the Company to compute the estimated fair value of a
reporting unit and compare it with its carrying value. If the carrying value exceeds the estimated
fair value, a second step is performed to measure the potential goodwill impairment. Fair values
are determined based on a multiple of cash flows, which was eight
times for the evaluations performed during 2007. Significant judgment is involved in estimating
cash flows and fair value. Managements estimates are based on historical and projected operating
performance as well as recent market transactions. Prior to January 1, 2008, the Company considered
its theatres reporting units for purposes of evaluating goodwill for impairment. Recent changes in
the organization, including changes in the structure of the Companys executive management team,
the Companys initial public offering, the resulting changes in the level at which the Companys
management team evaluates the business on a regular basis, and the Century Acquisition that
increased the size of the Companys theatre base by approximately 25%, led the Company to conclude
that its U.S. regions and international countries are now more reflective of how it manages and
operates its business. Accordingly, the Companys U.S. regions and international countries
represent the appropriate reporting units for purposes of evaluating goodwill for impairment.
Consequently, effective January 1, 2008, the Company changed the reporting unit to sixteen regions
in the U.S. and eight countries internationally from approximately 400 theatres. The goodwill impairment test performed during
December 2007 that resulted in the recording of impairment charges during the year ended December 31,
2007 reflects the final calculation utilizing theatres as the
reporting units.
15
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
Balance at
|
|
|
|
|
|
Currency
|
|
Balance at
|
|
|
December 31,
|
|
|
|
|
|
Translation
|
|
March 31,
|
|
|
2007
|
|
Amortization
|
|
Adjustments
|
|
2008
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized licensing fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
5,138
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,138
|
|
Accumulated amortization
|
|
|
(1,565
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
(1,671
|
)
|
|
|
|
Net carrying amount
|
|
|
3,573
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
3,467
|
|
|
|
|
Vendor contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
56,973
|
|
|
|
|
|
|
|
292
|
|
|
|
57,265
|
|
Accumulated amortization
|
|
|
(23,342
|
)
|
|
|
(909
|
)
|
|
|
|
|
|
|
(24,251
|
)
|
|
|
|
Net carrying amount
|
|
|
33,631
|
|
|
|
(909
|
)
|
|
|
292
|
|
|
|
33,014
|
|
|
|
|
Net favorable leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
20,691
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
20,614
|
|
Accumulated amortization
|
|
|
(15,581
|
)
|
|
|
(704
|
)
|
|
|
|
|
|
|
(16,285
|
)
|
|
|
|
Net carrying amount
|
|
|
5,110
|
|
|
|
(704
|
)
|
|
|
(77
|
)
|
|
|
4,329
|
|
|
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
Accumulated amortization
|
|
|
(20
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
Net carrying amount
|
|
|
49
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
48
|
|
|
|
|
Total net intangible assets with finite lives
|
|
|
42,363
|
|
|
|
(1,720
|
)
|
|
|
215
|
|
|
|
40,858
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
310,681
|
|
|
|
|
|
|
|
360
|
|
|
|
311,041
|
|
Other unamortized intangible assets
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
Total intangible assets net
|
|
$
|
353,047
|
|
|
$
|
(1,720
|
)
|
|
$
|
575
|
|
|
$
|
351,902
|
|
|
|
|
Aggregate amortization expense of $1,728 for the three months ended March 31, 2008 consisted
of $1,720 of amortization of intangible assets and $8 of amortization of other assets. Estimated
aggregate future amortization expense for intangible assets is as follows:
|
|
|
|
|
For the nine months ended December 31, 2008
|
|
$
|
4,684
|
|
For the twelve months ended December 31, 2009
|
|
|
5,287
|
|
For the twelve months ended December 31, 2010
|
|
|
5,005
|
|
For the twelve months ended December 31, 2011
|
|
|
4,551
|
|
For the twelve months ended December 31, 2012
|
|
|
3,686
|
|
Thereafter
|
|
|
17,645
|
|
|
|
|
|
Total
|
|
$
|
40,858
|
|
|
|
|
|
16
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
13. Impairment of Long-Lived Assets
In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets
, the Company reviews long-lived assets for impairment on a quarterly basis or whenever
events or changes in circumstances indicate the carrying amount of the assets may not be fully
recoverable.
The Company considers actual theatre level cash flows, future years budgeted theatre level
cash flows, theatre property and equipment carrying values, amortizing intangible assets carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, changes in
foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal
options and other factors in its assessment of impairment of individual theatre assets. Long-lived
assets are evaluated for impairment on an individual theatre basis, which the Company believes is
the lowest applicable level for which there are identifiable cash flows. The impairment evaluation
is based on the estimated cash flows from continuing use through the remainder of the theatres
useful life. The remainder of the useful life correlates with the available remaining lease period,
which includes the probability of renewal periods for leased properties and a period of twenty
years for fee owned properties. If the estimated cash flows are not sufficient to recover a
long-lived assets carrying value, the Company then compares the carrying value of the asset group
(theatre) with its estimated fair value. Fair value is determined based on a multiple of cash
flows, which was eight times for the evaluations performed during the three months ended March 31,
2007 and March 31, 2008. When estimated fair value is determined to be lower than the carrying
value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair
value. Significant judgment is involved in estimating cash flows and fair value. Managements
estimates are based on historical and projected operating performance as well as recent market
transactions.
The Companys long-lived asset impairment losses of $4,487 for the three months ended March
31, 2008 were for U.S. theatre properties. The Companys long-lived asset impairment losses of
$49,730 for the three months ended March 31, 2007 consisted of $6,381 for theatre properties,
$40,811 of goodwill related to theatre properties and $2,538 of intangible assets associated with
theatre properties. As a result of the NCM Transaction discussed in Note 6, and more specifically
the modification of the NCM Exhibitor Services Agreement with the Company, which significantly
reduced the contractual amounts paid to the Company, the Company evaluated the carrying value of
its goodwill as of March 31, 2007 leading to a majority of the goodwill impairment charges recorded
during the three months ended March 31, 2007.
14. Foreign Currency Translation
The accumulated other comprehensive income account in stockholders equity of $32,695 and
$29,624 at December 31, 2007 and March 31, 2008, respectively, includes the cumulative foreign
currency adjustments from translating the financial statements of the Companys international
subsidiaries into U.S. dollars.
In 2008 and 2007, all foreign countries where the Company has operations were deemed
non-highly inflationary. Thus, any fluctuation in the currency results in a cumulative foreign
currency translation adjustment to the accumulated other comprehensive income account recorded as
an increase in, or reduction of, stockholders equity.
On March 31, 2008, the exchange rate for the Brazilian real was 1.75 reais to the U.S. dollar
(the exchange rate was 1.77 reais to the U.S. dollar at December 31, 2007). As a result, the
effect of translating the March 31, 2008 Brazilian financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive income account as an increase in stockholders equity of $3,001. At March 31, 2008,
the total assets of the Companys Brazilian subsidiaries were U.S. $211,840.
On March 31, 2008, the exchange rate for the Mexican peso was 10.71 pesos to the U.S. dollar
(the exchange rate was 10.92 pesos to the U.S. dollar at December 31, 2007). As a result, the
effect of translating the March 31, 2008 Mexican financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive income account as an increase in stockholders equity of $2,450. At March 31, 2008,
the total assets of the Companys Mexican subsidiaries were U.S. $162,506.
On March 31, 2008, the exchange rate for the Chilean peso was 440.0 pesos to the U.S. dollar
(the exchange rate was 497.7 pesos to the U.S. dollar at December 31, 2007). As a result, the
effect of translating the March 31, 2008 Chilean
financial statements into U.S. dollars is reflected as a cumulative foreign currency
translation adjustment to the
17
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
accumulated other comprehensive income account as an increase in
stockholders equity of $1,968. At March 31, 2008, the total assets of the Companys Chilean
subsidiaries were U.S. $30,839.
15. Comprehensive Income
SFAS No. 130,
Reporting Comprehensive Income
, establishes standards for the reporting and
display of comprehensive income and its components in the condensed consolidated financial
statements. The Companys comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Net income
|
|
$
|
5,251
|
|
|
$
|
118,211
|
|
Fair value adjustments on interest rate swap
agreements (see Note 11)
|
|
|
(11,959
|
)
|
|
|
(1,206
|
)
|
Foreign
currency translation adjustment (see Note 14)
|
|
|
8,888
|
|
|
|
1,868
|
|
|
|
|
Comprehensive income
|
|
$
|
2,180
|
|
|
$
|
118,873
|
|
|
|
|
16. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements
of cash flows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Cash paid for interest
|
|
$
|
26,522
|
|
|
$
|
43,932
|
|
Cash paid for income taxes, net of refunds received
|
|
$
|
(5,063
|
)
|
|
$
|
840
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Change in construction lease obligations related to construction of theatres
|
|
$
|
|
|
|
$
|
2,109
|
|
Change in accounts payable and accrued expenses for the acquisition of
theatre properties and equipment
|
|
$
|
(5,104
|
)
|
|
$
|
(3,402
|
)
|
Theatre properties acquired under capital lease
|
|
$
|
7,911
|
|
|
$
|
|
|
17. Segments
At March 31, 2008, the Company operates its international market and its U.S. market as
separate reportable operating segments. The international segment consists of operations in Mexico,
Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Colombia. The U.S. segment includes U.S. and Canada operations. Each segments revenue is derived
from admissions and concession sales and other ancillary revenues, primarily screen advertising.
The primary measure of segment profit and loss the Company uses to evaluate performance and
allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The
Companys management evaluates the performance of its assets on a consolidated basis.
18
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a breakdown of selected financial information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
308,799
|
|
|
$
|
306,374
|
|
International
|
|
|
93,109
|
|
|
|
72,263
|
|
Eliminations
|
|
|
(892
|
)
|
|
|
(615
|
)
|
|
|
|
Total Revenues
|
|
$
|
401,016
|
|
|
$
|
378,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
64,876
|
|
|
$
|
66,699
|
|
International
|
|
|
19,284
|
|
|
|
13,395
|
|
|
|
|
Total Adjusted EBITDA
|
|
$
|
84,160
|
|
|
$
|
80,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
25,895
|
|
|
$
|
24,897
|
|
International
|
|
|
4,906
|
|
|
|
7,168
|
|
|
|
|
Total Capital Expenditures
|
|
$
|
30,801
|
|
|
$
|
32,065
|
|
|
|
|
The following table sets forth a reconciliation of net income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Net income
|
|
$
|
5,251
|
|
|
$
|
118,211
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
3,641
|
|
|
|
35,393
|
|
Interest expense
(1)
|
|
|
32,073
|
|
|
|
41,497
|
|
Gain on NCM Transaction
|
|
|
|
|
|
|
(210,773
|
)
|
Loss on early retirement of debt
|
|
|
40
|
|
|
|
7,829
|
|
Other income
|
|
|
(1,741
|
)
|
|
|
(2,483
|
)
|
Depreciation and amortization
|
|
|
37,407
|
|
|
|
36,875
|
|
Amortization of favorable leases
|
|
|
704
|
|
|
|
934
|
|
Impairment of long-lived assets
|
|
|
4,487
|
|
|
|
49,730
|
|
(Gain) loss on sale of assets and other
|
|
|
(199
|
)
|
|
|
305
|
|
Deferred lease expenses
|
|
|
1,232
|
|
|
|
1,607
|
|
Amortization of long-term prepaid rents
|
|
|
404
|
|
|
|
236
|
|
Share based awards compensation expense
|
|
|
861
|
|
|
|
733
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
84,160
|
|
|
$
|
80,094
|
|
|
|
|
|
|
|
(1)
|
|
Includes amortization of debt issue costs.
|
19
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Financial Information About Geographic Areas
The Company has operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador,
Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia, which are reflected in the
condensed consolidated financial statements. Below is a breakdown of selected financial information
by geographic area:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
308,799
|
|
|
$
|
306,374
|
|
Brazil
|
|
|
44,634
|
|
|
|
34,412
|
|
Mexico
|
|
|
19,402
|
|
|
|
16,678
|
|
Other foreign countries
|
|
|
29,073
|
|
|
|
21,173
|
|
Eliminations
|
|
|
(892
|
)
|
|
|
(615
|
)
|
|
|
|
Total
|
|
$
|
401,016
|
|
|
$
|
378,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
|
Theatre Properties and Equipment-net
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
1,133,412
|
|
|
$
|
1,137,244
|
|
Brazil
|
|
|
70,775
|
|
|
|
72,635
|
|
Mexico
|
|
|
59,943
|
|
|
|
59,201
|
|
Other foreign countries
|
|
|
45,812
|
|
|
|
44,986
|
|
|
|
|
Total
|
|
$
|
1,309,942
|
|
|
$
|
1,314,066
|
|
|
|
|
18. Related Party Transactions
The Company leases one theatre from Plitt Plaza Joint Venture (Plitt Plaza) on a
month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy
Mitchell, who owns approximately 12% of the Companys issued and
outstanding shares of common stock. Annual rent is
approximately $118 plus certain taxes, maintenance expenses and insurance. The Company recorded $31
and $30 of facility lease and other operating expenses payable to Plitt Plaza joint venture during
the three months ended March 31, 2007 and 2008, respectively.
The Company manages one theatre for Laredo Theatre, Ltd. (Laredo). The Company is the sole
general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres,
Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr.
David Roberts, Lee Roy Mitchells son-in-law. Under the agreement, management fees are paid by
Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000 and 3% of annual
theatre revenues in excess of $50,000. The Company recorded $22 and $23 of management fee revenues
during the three months ended March 31, 2007 and 2008, respectively. All such amounts are included
in the Companys condensed consolidated financial statements with the intercompany amounts
eliminated in consolidation.
The Company leases 25 theatres and two parking facilities from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy, which owns approximately 8% of the Companys issued and outstanding shares
of common stock. Raymond Syufy is one of the Companys directors and is an officer of the general
partner of Syufy. Of these 27 leases, 22 have fixed minimum annual rent in an aggregate amount of
approximately $23,280. Of these 22 leases with fixed minimum annual rent, 17 have a remaining lease
term plus extension option(s) that exceed 30 years, four have a remaining lease term plus extension
option(s) that exceed 17 years, and one has a remaining lease term of approximately two years.
Three of these 22 leases have triggering events that allow the Company to convert the fixed minimum
rent to a fixed percentage of gross sales as defined in the lease with the further right to
terminate the lease if the theatre level cash flow drops below $0. Five of these 22 leases have
triggering events that allow the Company to terminate the lease prior to expiration of the term.
The five leases without minimum annual rent have rent based upon a specified percentage of gross
sales as defined in the lease with no minimum annual rent. Four of these percentage rent leases
expire in approximately six months but have automatic 12 month renewal options, and the Company has
the right to terminate the leases if theatre level cash flow drops below $0. One of these
percentage rent leases has a remaining term of six months and Syufy has the right to terminate this
lease prior to the end of the term.
The Company also has an office lease with Syufy for corporate office space in San Rafael,
California. The lease will expire in September 2008. The lease has a fixed minimum annual rent of
approximately $300.
20
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company entered into an amended and restated profit participation agreement on March 12,
2004 with its CEO, Alan Stock, which became effective on April 2, 2004, and amended the profit
participation agreement with Mr. Stock in effect since May 2002. Under the agreement, Mr. Stock
received a profit interest in two theatres once the Company recovered its capital investment in
these theatres plus its borrowing costs. During the three months ended March 31, 2007, the Company
recorded $114 in profit participation expense payable to Mr. Stock, which is included in general
and administrative expenses on the Companys condensed consolidated statement of income. After the
Companys initial public offering in April 2007, the Company exercised its option to terminate the
amended and restated profit participation agreement and purchased Mr. Stocks interest in the
theatres on May 3, 2007 for a price of $6,853 pursuant to the terms of the agreement. The Company
also paid payroll taxes of approximately $99 related to the payment made to terminate the amended
and restated profit participation agreement. The agreement with Mr. Stock has been terminated.
19. Commitments and Contingencies
From time to time, the Company is involved in various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, most of which are covered by insurance. The
Company believes its potential liability with respect to proceedings currently pending is not
material, individually or in the aggregate, to the Companys financial position, results of
operations and cash flows.
20. Subsequent Event Dividend Declaration
On May 9, 2008, the Company declared a cash dividend in the amount of $0.18 per common share
payable to stockholders of record on May 30, 2008. The dividend will be paid on June 12, 2008.
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and related notes and schedules included elsewhere in this
report.
We are one of the leaders in the motion picture exhibition industry, in terms of both revenues
and the number of screens in operation, with theatres in the U.S., Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia.
For financial reporting purposes at March 31, 2008, we have two reportable operating segments, our
U.S. operations and our international operations.
We generate revenues primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other revenue streams, such as vendor marketing
programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our
investment in NCM has assisted us in expanding our offerings to advertisers, exploring ancillary
revenue sources such as digital video monitor advertising, third party branding, and the use of
theatres for non-film events. In addition, we are able to use theatres during non-peak hours for
concerts, sporting events, and other cultural events. Successful films released during the three
months ended March 31, 2008 included
Horton Hears A Who, 10,000 B.C., Cloverfield, Jumper
and the
3-D release of
Hannah Montana & Miley Cyrus: Best of Both Worlds.
Film releases scheduled for the
remainder of 2008 include
Iron Man, The Chronicles of Narnia: Prince Caspian, Indiana Jones and the
Kingdom of the Crystal Skull, Sex and the City, Kung Fu Panda, Incredible Hulk, Get Smart, Wall-E,
Hancock, The Dark Knight, The Mummy: Tomb of the Dragon Emperor, Quantum of Solace, Madagascar 2:
The Crate Escape, Harry Potter and the Half-Blood Prince
and the release of 3-D movies including
Journey to the Center of the Earth
and
Bolt.
In 2009, a broad slate of 3-D films is expected,
including
Monsters vs. Aliens, Ice Age 3: Dawn of the Dinosaurs,
and
Avatar.
Our revenues are
affected by changes in attendance and average admissions and concession revenues per patron.
Attendance is primarily affected by the quality and quantity of films released by motion picture
studios.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film
rental costs as a percentage of revenues are generally higher for periods in which more blockbuster
films are released. Film rental costs can also vary based on the length of a films run. Film
rental rates are negotiated on a film-by-film and theatre-by-theatre basis. Advertising costs,
which are expensed as incurred, are primarily fixed at the theatre level as daily movie directories
placed in newspapers represent the largest component of advertising costs. The monthly cost of
these advertisements is based on, among other things, the size of the directory and the frequency
and size of the newspapers circulation.
Concession supplies expense is variable in nature and fluctuates with our concession revenues.
We purchase concession supplies to replace units sold. We negotiate prices for concession
supplies directly with concession vendors and manufacturers to obtain bulk rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to
operate a theatre facility during non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to address changes in attendance.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility
leases require a fixed monthly minimum rent payment. Certain of our leases are subject to
percentage rent only while others are subject to percentage rent in addition to their fixed monthly
rent if a target annual revenue level is achieved. Facility lease expense as a percentage of
revenues is also affected by the number of theatres under operating leases versus the number of
theatres under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that are fixed such as property taxes, certain
costs that are variable such as liability insurance, and certain costs that possess both fixed and
variable components such as utilities, repairs and maintenance and security services.
Recent Developments
On May 9, 2008, we declared a cash dividend in the amount of $0.18 per common share payable to
stockholders of record on May 30, 2008. The dividend will be paid on June 12, 2008.
22
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues
represented by certain items reflected in our condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
Operating data (in millions):
|
|
2008
|
|
2007
|
Revenues
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
262.4
|
|
|
$
|
244.0
|
|
Concession
|
|
|
122.2
|
|
|
|
115.1
|
|
Other
|
|
|
16.4
|
|
|
|
18.9
|
|
|
|
|
Total revenues
|
|
$
|
401.0
|
|
|
$
|
378.0
|
|
|
|
|
Theatre operating costs
(1)
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
$
|
138.1
|
|
|
$
|
128.3
|
|
Concession supplies
|
|
|
18.7
|
|
|
|
17.5
|
|
Salaries and wages
|
|
|
42.6
|
|
|
|
40.2
|
|
Facility lease expense
|
|
|
56.3
|
|
|
|
51.6
|
|
Utilities and other
|
|
|
48.2
|
|
|
|
44.2
|
|
|
|
|
Total theatre operating costs
|
|
$
|
303.9
|
|
|
$
|
281.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
data as a percentage of
revenues
(2)
:
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Admissions
|
|
|
65.4
|
%
|
|
|
64.6
|
%
|
Concession
|
|
|
30.5
|
%
|
|
|
30.4
|
%
|
Other
|
|
|
4.1
|
%
|
|
|
5.0
|
%
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre operating costs
(1) (2)
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
52.7
|
%
|
|
|
52.6
|
%
|
Concession supplies
|
|
|
15.3
|
%
|
|
|
15.2
|
%
|
Salaries and wages
|
|
|
10.6
|
%
|
|
|
10.6
|
%
|
Facility lease expense
|
|
|
14.0
|
%
|
|
|
13.7
|
%
|
Utilities and other
|
|
|
12.0
|
%
|
|
|
11.7
|
%
|
Total theatre operating costs
|
|
|
75.8
|
%
|
|
|
74.6
|
%
|
|
|
|
Average screen count (month end average)
|
|
|
4,658
|
|
|
|
4,481
|
|
|
|
|
Revenues per average screen (in dollars)
|
|
$
|
86,101
|
|
|
$
|
84,356
|
|
|
|
|
|
|
|
(1)
|
|
Excludes depreciation and amortization expense.
|
|
(2)
|
|
All costs are expressed as a percentage of total
revenues, except film rentals and advertising, which are
expressed as a percentage of admissions revenues and concession
supplies, which are expressed as a percentage of concession
revenues.
|
23
Three months ended March 31, 2008 and 2007
Revenues.
Total revenues increased $23.0 million to $401.0 million for the three months ended
March 31, 2008 (first quarter of 2008) from $378.0 million for the three months ended March 31,
2007 (first quarter of 2007), representing a 6.1% increase. The table below, presented by
reportable operating segment, summarizes our year-over-year revenue performance and certain key
performance indicators that impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating
|
|
|
|
|
U.S. Operating Segment
|
|
Segment
|
|
Consolidated
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
Admissions revenues
(in millions)
|
|
$
|
202.8
|
|
|
$
|
197.5
|
|
|
|
2.7
|
%
|
|
$
|
59.6
|
|
|
$
|
46.5
|
|
|
|
28.2
|
%
|
|
$
|
262.4
|
|
|
$
|
244.0
|
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concession revenues
(in millions)
|
|
$
|
96.7
|
|
|
$
|
95.6
|
|
|
|
1.2
|
%
|
|
$
|
25.5
|
|
|
$
|
19.5
|
|
|
|
30.8
|
%
|
|
$
|
122.2
|
|
|
$
|
115.1
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
(in millions)
(1)
|
|
$
|
8.4
|
|
|
$
|
12.7
|
|
|
|
(33.9
|
)%
|
|
$
|
8.0
|
|
|
$
|
6.2
|
|
|
|
29.0
|
%
|
|
$
|
16.4
|
|
|
$
|
18.9
|
|
|
|
(13.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
(in millions)
(1)
|
|
$
|
307.9
|
|
|
$
|
305.8
|
|
|
|
0.7
|
%
|
|
$
|
93.1
|
|
|
$
|
72.2
|
|
|
|
28.9
|
%
|
|
$
|
401.0
|
|
|
$
|
378.0
|
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance
(in millions)
|
|
|
34.3
|
|
|
|
34.9
|
|
|
|
(1.7
|
)%
|
|
|
15.4
|
|
|
|
14.3
|
|
|
|
7.7
|
%
|
|
|
49.7
|
|
|
|
49.2
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues per screen
(in dollars)
(1)
|
|
$
|
84,416
|
|
|
$
|
86,771
|
|
|
|
(2.7
|
)%
|
|
$
|
92,187
|
|
|
$
|
75,468
|
|
|
|
22.2
|
%
|
|
$
|
86,101
|
|
|
$
|
84,356
|
|
|
|
2.1
|
%
|
|
|
|
(1)
|
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 17 of our condensed consolidated financial
statements.
|
Consolidated.
The increase in admissions revenues of $18.4 million was attributable
to a 1.0% increase in attendance from 49.2 million patrons for the first quarter of 2007 to
49.7 million patrons for the first quarter of 2008, which contributed $0.1 million, and a 6.5%
increase in average ticket price from $4.96 for the first quarter of 2007 to $5.28 for the
first quarter of 2008, which contributed $18.3 million. The increase in concession revenues of
$7.1 million was primarily attributable to a 5.1% increase in concession revenues per patron
from $2.34 for the first quarter of 2007 to $2.46 for the first quarter of 2008. The increases
in average ticket price and concession revenues per patron were primarily due to price
increases and the impact of exchange rates in certain countries in which we operate. The 13.2%
decrease in other revenues was primarily attributable to reduced screen advertising revenues
earned in the U.S. under the amended Exhibitor Services Agreement with NCM. See Note 6 to the
condensed consolidated financial statements.
U.S.
The increase in admissions revenues of $5.3 million was primarily attributable
to a 4.6% increase in average ticket price from $5.65 for the first quarter of 2007 to $5.91
for the first quarter of 2008, slightly offset by a 1.7% decline in attendance. The increase
in concession revenues of $1.1 million was primarily attributable to a 3.3% increase in
concession revenues per patron from $2.73 for the first quarter of 2007 to $2.82 for the first
quarter of 2008. The increases in average ticket price and concession revenues per patron were
primarily due to price increases. The $4.3 million, or 33.9%, decrease in other revenues was
primarily attributable to reduced screen advertising revenues earned under the amended
Exhibitor Services Agreement with NCM. See Note 6 to the condensed consolidated financial
statements.
International.
The increase in admissions revenues of $13.1 million was attributable
to an 18.4% increase in average ticket price from $3.26 for the first quarter of 2007 to $3.86
for the first quarter of 2008, which contributed $9.3 million, and a 7.7% increase in
attendance, which contributed $3.8 million. The increase in concession revenues of $6.0
million was attributable to a 20.4% increase in concession revenues per patron from $1.37 for
the first quarter of 2007 to $1.65 for the first quarter of 2008, which contributed $4.3
million, and a 7.7% increase in attendance, which contributed $1.7 million. The increases in
average ticket price and concession revenues per patron were primarily due to price increases
and the impact of exchange rates in certain countries in which we operate. The increase in
24
attendance was primarily due to the solid performance of the 2007 carryover films in our
international markets in the first quarter of 2008 and new theatre openings.
Theatre Operating Costs (excludes depreciation and amortization expense).
Theatre operating
costs were $303.9 million, or 75.8% of revenues, for the first quarter of 2008 compared to $281.8
million, or 74.6% of revenues, for the first quarter of 2007. The table below, presented by
reportable operating segment, summarizes our year-over-year theatre operating costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating
|
|
|
|
|
U.S. Operating Segment
|
|
Segment
|
|
Consolidated
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Film rentals and advertising
|
|
$
|
108.9
|
|
|
$
|
105.5
|
|
|
$
|
29.2
|
|
|
$
|
22.8
|
|
|
$
|
138.1
|
|
|
$
|
128.3
|
|
Concession supplies
|
|
|
12.5
|
|
|
|
12.5
|
|
|
|
6.2
|
|
|
|
5.0
|
|
|
$
|
18.7
|
|
|
$
|
17.5
|
|
Salaries and wages
|
|
|
35.4
|
|
|
|
34.3
|
|
|
|
7.2
|
|
|
|
5.9
|
|
|
$
|
42.6
|
|
|
$
|
40.2
|
|
Facility lease expense
|
|
|
41.5
|
|
|
|
39.9
|
|
|
|
14.8
|
|
|
|
11.7
|
|
|
$
|
56.3
|
|
|
$
|
51.6
|
|
Utilities and other
|
|
|
36.3
|
|
|
|
34.3
|
|
|
|
11.9
|
|
|
|
9.9
|
|
|
$
|
48.2
|
|
|
$
|
44.2
|
|
|
|
|
Total theatre operating costs
|
|
$
|
234.6
|
|
|
$
|
226.5
|
|
|
$
|
69.3
|
|
|
$
|
55.3
|
|
|
$
|
303.9
|
|
|
$
|
281.8
|
|
|
|
|
Consolidated.
Film rentals and advertising costs were $138.1 million, or 52.7% of
admissions revenues, for the first quarter of 2008 compared to $128.3 million, or 52.6% of
admissions revenues, for the first quarter of 2007. The increase in film rentals and
advertising costs of $9.8 million is primarily due to an $18.4 million increase in admissions
revenues, which contributed $9.2 million, and an increase in our film rental and advertising
rate, which contributed $0.6 million. Concession supplies expense was $18.7 million, or 15.3%
of concession revenues, for the first quarter of 2008, compared to $17.5 million, or 15.2% of
concession revenues, for the first quarter of 2007. The increase in concession supplies
expense of $1.2 million is primarily due to increased concession revenues.
Salaries and wages increased to $42.6 million for the first quarter of 2008 from $40.2 million
for the first quarter of 2007 primarily due to minimum wage increases in the U.S. during the
latter part of 2007, the impact of exchange rates in certain countries in which we operate, and
new theatre openings. Facility lease expense increased to $56.3 million for the first quarter of
2008 from $51.6 million for the first quarter of 2007 primarily due to new theatre openings and
the impact of exchange rates in certain countries in which we operate. Utilities and other costs
increased to $48.2 million for the first quarter of 2008 from $44.2 million for the first
quarter of 2007 primarily due to new theatre openings and the impact of exchange rates in
certain countries in which we operate.
U.S.
Film rentals and advertising costs were $108.9 million, or 53.7% of admissions
revenues, for the first quarter of 2008 compared to $105.5 million, or 53.4% of admissions
revenues, for the first quarter of 2007. The increase in film rentals and advertising costs of
$3.4 million is due to a $5.3 million increase in admissions revenues, which contributed $2.8
million, and an increase in our film rentals and advertising rate, which contributed $0.6
million. Concession supplies expense was $12.5 million for the first quarter of 2008 and the
first quarter of 2007. As a percentage of concession revenues, concession supplies expense
was 12.9% for the first quarter of 2008 compared to 13.1% for the first quarter of 2007.
Salaries and wages increased to $35.4 million for the first quarter of 2008 from $34.3 million
for the first quarter of 2007 primarily due to minimum wage increases during the latter part of
2007 and new theatre openings. Facility lease expense increased to $41.5 million for the first
quarter of 2008 from $39.9 million for the first quarter of 2007 primarily due to new theatre
openings. Utilities and other costs increased to $36.3 million for the first quarter of 2008
from $34.3 million for the first quarter of 2007 primarily due to new theatre openings.
International.
Film rentals and advertising costs were $29.2 million, or 49.0% of
admissions revenues, for the first quarter of 2008 compared to $22.8 million, or 49.0% of
admissions revenues, for the first quarter of 2007. The increase in film rentals and
advertising costs is primarily due to increased admissions revenues. Concession supplies
expense was $6.2 million, or 24.3% of concession revenues, for the first quarter of 2008
compared to $5.0 million, or 25.6% of concession revenues, for the first quarter of 2007. The
increase in concession supplies expense is primarily due to increased concession revenues.
25
Salaries and wages increased to $7.2 million for the first quarter of 2008 from $5.9 million for
the first quarter of 2007 primarily due to new theatre openings and the impact of exchange rates
in certain countries in which we operate. Facility lease expense increased to $14.8 million for
the first quarter of 2008 from $11.7 million for the first quarter of 2007 primarily due to new
theatre openings and the impact of exchange rates in certain countries in which we operate.
Utilities and other costs increased to $11.9 million for the first quarter of 2008 from $9.9
million for the first quarter of 2007 primarily due to new theatre openings and the impact of
exchange rates in certain countries in which we operate.
General and Administrative Expenses.
General and administrative expenses increased to $20.6
million for the first quarter of 2008 from $18.7 million for the first quarter of 2007. The
increase was primarily due to increased service charges related to increased credit card activity
and increased professional fees.
Depreciation and Amortization.
Depreciation and amortization expense, including amortization
of favorable leases, was $38.1 million for the first quarter of 2008 compared to $37.8 million for
the first quarter of 2007 primarily due to new theatre openings.
Impairment of Long-Lived Assets
. We recorded asset impairment charges on assets held and used
of $4.5 million for the first quarter of 2008 compared to $49.7 million during the first quarter of
2007. Impairment charges for the first quarter of 2008 consisted of $4.5 million of theatre
properties. Impairment charges for the first quarter of 2007 consisted of $6.4 million of theatre
properties, $40.8 million of goodwill and $2.5 million of intangible assets associated with theatre
properties. As a result of the modification to the NCM Exhibitor Services Agreement during the
first quarter of 2007, we performed a goodwill impairment evaluation on all of our U.S. theatres,
which led to a majority of the goodwill impairment charges recorded during the
first quarter of 2007.
Significant judgment is involved in estimating cash flows and fair value. Managements estimates
are based on historical and projected operating performance as well as recent market transactions.
See notes 6, 12 and 13 to our condensed consolidated financial statements. See also discussion of
Gain on NCM Transaction
.
(Gain) Loss on Sale of Assets and Other.
We recorded a gain on sale of assets and other of
$0.2 million during the first quarter of 2008 compared to a loss on sale of assets and other of
$0.3 million during the first quarter of 2007. The gain recorded during the first quarter of 2008
was due to the gain on sale of land parcels slightly offset by the write-off of theatre equipment
that was replaced. The loss recorded during the first quarter of 2007 was due to a loss on the sale
of real property associated with one of our U.S. theatres.
Interest Expense.
Interest costs incurred, including amortization of debt issue costs, were
$32.1 million for the first quarter of 2008 compared to $41.5 million for the first quarter of
2007. The decrease was primarily due to a reduction in the variable interest rates on a portion of
our long-term debt and the repurchase of substantially all of our outstanding 9% senior
subordinated notes that occurred during March 2007.
Loss on Early Retirement of Debt.
We recorded a loss on early retirement of debt of $0.1
million during the first quarter of 2008, which consisted of the write-off of unamortized debt
issue costs partially offset by a discount on the repurchase of $10.0 million aggregate principal
amount at maturity of our 9
3
/
4
% senior discount notes. We recorded a loss on early retirement of
debt of $7.8 million during the first quarter of 2007, which consisted of tender offer repurchase
costs, including premiums paid and other fees, and the write-off of unamortized debt issue costs,
partially offset by the write-off of the unamortized bond premium, associated with the repurchase
of $332.0 million aggregate principal amount of our 9% senior subordinated notes during March 2007.
Gain on NCM Transaction.
During the first quarter of 2007, we recorded a gain of $210.8
million on the sale of a portion of our equity investment in NCM in conjunction with the initial
public offering of NCM, Inc. Our ownership interest in NCM was reduced from approximately 25% to
approximately 14% as part of this sale of stock in the offering. See Note 6 to our condensed
consolidated financial statements.
Distributions from NCM.
We recorded distributions from NCM of $5.2 million during the first
quarter of 2008, which were in excess of the carrying value of our investment. See Note 6 to our
condensed consolidated financial statements.
26
Income Taxes.
Income tax expense of $3.6 million was recorded for the first quarter of 2008
compared to $35.4 million recorded for the first quarter of 2007. The effective tax rate was 40.9%
for the first quarter of 2008 compared to 23.0% for the first quarter of 2007. The change in the
effective tax rate from the first quarter of 2007 to the first
quarter of 2008 was mainly due to the gain on
the NCM Transaction recorded in the first quarter of 2007. See Note 8 to our condensed consolidated
financial statements.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the sale of
concession supplies. In addition, a majority of our theatres provide the patron a choice of using a
credit card, in place of cash, which we convert to cash over a range of one to six days. Because
our revenues are received in cash prior to the payment of related expenses, we have an operating
float and historically have not required traditional working capital financing. Cash provided by
operating activities was $24.7 million for the three months ended March 31, 2008 compared to cash
provided by operating activities of $161.2 million for the three months ended March 31, 2007. The
decrease in cash provided by operating activities is primarily due to the proceeds received from
NCM during the three months ended March 31, 2007 for the modification of our Exhibitor Services
Agreement with NCM. See Note 6 to our condensed consolidated financial statements for further
discussion of the NCM Transaction.
Since the issuance of the 9
3
/
4
% senior discount notes on March 31, 2004, interest has accreted
rather than been paid in cash, which has benefited our operating cash flows for the periods
presented. Interest will be paid in cash commencing September 15, 2009, at which time our operating
cash flows will be impacted by these cash payments.
Investing Activities
Our investing activities have been principally related to the development and acquisition of
additional theatres. New theatre openings and acquisitions historically have been financed with
internally generated cash and by debt financing, including borrowings under our senior secured
credit facility. Cash used for investing activities was $31.5 million for the three months ended
March 31, 2008 compared to cash provided by investing activities of $191.1 million for the three
months ended March 31, 2007. The decrease in cash provided by investing activities is primarily due
to the proceeds received during the three months ended March 31, 2007 from the sale of a portion of
our investment in NCM. See Note 6 to our condensed consolidated financial statements for further
discussion of the NCM Transaction
During February 2008, we, AMC and Regal each invested an additional $1.0 million in DCIP. See
Note 7 to our condensed consolidated financial statements.
Capital expenditures for the three months ended March 31, 2008 and 2007 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
|
Existing
|
|
|
Period
|
|
Theatres
|
|
Theatres
|
|
Total
|
Three Months Ended March 31, 2008
|
|
$
|
24.5
|
|
|
$
|
6.3
|
|
|
$
|
30.8
|
|
Three Months Ended March 31, 2007
|
|
$
|
21.7
|
|
|
$
|
10.4
|
(1)
|
|
$
|
32.1
|
|
|
|
|
(1)
|
|
Includes approximately $2.7 million of expenditures related to the rollout of
digital technology for NCM advertising to the Century theatres acquired.
|
We continue to expand our U.S. theatre circuit. We acquired two theatres with 28 screens and
closed two theatres with 32 screens during the three months ended March 31, 2008. At March 31,
2008, we had signed commitments to open ten new theatres with 128 screens in domestic markets
during 2008 and open seven new theatres with 104 screens subsequent to 2008. We estimate the
remaining capital expenditures for the development of these 232 domestic screens will be
approximately $93.3 million. Actual expenditures for continued theatre development and acquisitions
are subject to change based upon the availability of attractive opportunities.
We plan to continue to expand our international theatre circuit. We closed four screens during
the three months ended March 31, 2008; however, at March 31, 2008, we had signed commitments to
open four new theatres with 25 screens in international markets during 2008. We estimate the
remaining capital expenditures for the development of these 25
international screens will be approximately $12.8 million. Actual expenditures for continued
theatre development and
27
acquisitions are subject to change based upon the availability of
attractive opportunities.
We plan to fund capital expenditures for our continued development with cash flow from
operations, borrowings under our senior secured credit facility, subordinated note borrowings,
proceeds from sale leaseback transactions and/or sales of excess real estate.
Financing Activities
Cash used for financing activities was $27.9 million for the three months ended March 31, 2008
compared to $336.5 million for the three months ended March 31, 2007. The decrease in cash used for
financing activities was primarily due to the repurchase of $332.0 million of our 9% senior
subordinated notes that occurred during the three months ended March 31, 2007.
In August 2007, we initiated a quarterly dividend policy. On February 26, 2008, our board of
directors declared a cash dividend for the fourth quarter of 2007 in the amount of $0.18 per share
of common stock payable to stockholders of record on March 6, 2008. The dividend was paid on March
14, 2008 in the total amount of $19.3 million.
On March 20, 2008, in one open market purchase, we repurchased $10.0 million aggregate
principal amount at maturity of our 9
3
/
4
% senior discount notes for approximately $9.0 million,
including accreted interest of $2.9 million. We funded the transaction with proceeds from our
initial public offering. As a result of the transaction, we recorded a loss on early retirement of
debt of approximately $0.1 million, which primarily includes the write-off of unamortized debt
issue costs partially offset by a discount on the repurchased notes.
We may from time to time, subject to compliance with our debt instruments, purchase on the
open market our debt securities depending upon the availability and prices of such securities.
Long-term debt consisted of the following as of March 31, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31, 2008
|
|
2007
|
Cinemark, Inc. 9
3
/
4
% senior discount notes due 2014
|
|
$
|
416,674
|
|
|
$
|
415,768
|
|
Cinemark USA, Inc. term loan
|
|
|
1,101,686
|
|
|
|
1,101,686
|
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013
|
|
|
184
|
|
|
|
184
|
|
Other long-term debt
|
|
|
5,388
|
|
|
|
6,107
|
|
|
|
|
Total long-term debt
|
|
$
|
1,523,932
|
|
|
|
1,523,745
|
|
Less current portion
|
|
|
12,001
|
|
|
|
9,166
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
1,511,931
|
|
|
$
|
1,514,579
|
|
|
|
|
As of March 31, 2008, we had borrowings of $1,101.7 million outstanding on the term loan under
our senior secured credit facility, $416.7 million accreted principal amount outstanding under our
9
3
/
4
% senior discount notes and approximately $0.2 million aggregate principal amount outstanding
under the 9% senior subordinated notes, respectively, and had approximately $149.9 million in
available borrowing capacity under our revolving credit facility. We were in full compliance with
all covenants governing our outstanding debt at March 31, 2008.
28
As of March 31, 2008, our long-term debt obligations, scheduled interest payments on long-term
debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled
interest payments under capital leases, outstanding letters of credit, obligations under employment
agreements and purchase commitments for each period indicated are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
(in millions)
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
After
|
Contractual Obligations
|
|
Total
|
|
One Year
|
|
1 - 3 Years
|
|
4 - 5 Years
|
|
5 Years
|
Long-term debt
1
|
|
$
|
1,563.6
|
|
|
$
|
12.0
|
|
|
$
|
25.5
|
|
|
$
|
543.4
|
|
|
$
|
982.7
|
|
Scheduled interest payments on long-term debt
2
|
|
$
|
532.0
|
|
|
|
62.0
|
|
|
|
210.9
|
|
|
|
196.2
|
|
|
|
62.9
|
|
Operating lease obligations
|
|
$
|
1,956.4
|
|
|
|
180.4
|
|
|
|
354.0
|
|
|
|
333.9
|
|
|
|
1,088.1
|
|
Capital lease obligations
|
|
$
|
128.1
|
|
|
|
5.1
|
|
|
|
12.0
|
|
|
|
13.0
|
|
|
|
98.0
|
|
Scheduled interest payments on capital leases
|
|
$
|
115.3
|
|
|
|
12.7
|
|
|
|
23.8
|
|
|
|
21.4
|
|
|
|
57.4
|
|
Letters of credit
|
|
$
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements
|
|
$
|
10.5
|
|
|
|
3.5
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
Purchase commitments
3
|
|
$
|
145.0
|
|
|
|
83.5
|
|
|
|
60.1
|
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
|
Total obligations
4
|
|
$
|
4,451.0
|
|
|
$
|
359.3
|
|
|
$
|
693.3
|
|
|
$
|
1,109.1
|
|
|
$
|
2,289.3
|
|
|
|
|
|
|
|
1
|
|
Includes the 9
3
/
4
% senior discount notes in the aggregate principal amount at maturity
of $456.4 million.
|
|
2
|
|
Amounts include scheduled interest payments on fixed rate and variable rate debt
agreements. Estimates for the variable rate interest payments were based on interest rates in
effect on March 31, 2008. The average interest rates on our fixed rate and variable rate debt
were 8.1% and 4.8%, respectively, as of March 31, 2008.
|
|
3
|
|
Includes estimated capital expenditures associated with the construction of new theatres to
which we were committed as of March 31, 2008.
|
|
4
|
|
The contractual obligations table excludes the Companys FIN 48 liabilities of $15.6
million because the Company cannot make a reliable estimate of the timing of the related cash
payments.
|
Cinemark, Inc. 9
3
/
4
% Senior Discount Notes
On March 31, 2004, Cinemark, Inc. issued approximately $577.2 million aggregate principal
amount at maturity of 9
3
/
4
% senior discount notes due 2014. Interest on the notes accretes until
March 15, 2009 up to their aggregate principal amount. Cash interest will accrue and be payable
semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009. Due to
Cinemark, Inc.s holding company status, payments of principal and interest under these notes will
be dependent on loans, dividends and other payments from its subsidiaries. Cinemark, Inc. may
redeem all or part of the 9
3
/
4
% senior discount notes on or after March 15, 2009.
Prior to 2007, Cinemark, Inc. repurchased a total of $41.6 million aggregate principal amount
at maturity of its 9
3
/
4
% senior discount notes for approximately $33.0 million, including accreted
interest. Cinemark, Inc. funded these transactions with available cash from its operations.
During July and August 2007, Cinemark, Inc. repurchased in six open market purchases a total
of $47.0 million aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for
approximately $42.8 million, including accreted interest of $10.9 million and a cash premium of
$2.5 million. During November 2007, as part of an open market purchase, Cinemark, Inc. repurchased
$22.2 million aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for
approximately $20.9 million, including accreted interest of $5.7 million and a cash premium of $1.5
million. On March 20, 2008, in one open market purchase, Cinemark, Inc. repurchased $10.0 million
aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for approximately $9.0
million, including accreted interest of $2.9 million. We funded the 2007 and 2008 transactions
with proceeds from our initial public offering.
As of March 31, 2008, the accreted principal balance of the notes was approximately $416.7
million and the aggregate principal amount at maturity was approximately $456.4 million.
The indenture governing the 9
3
/
4
% senior discount notes contains covenants that limit, among
other things, dividends, transactions with affiliates, investments, sales of assets, mergers,
repurchases of our capital stock, liens and additional indebtedness. The dividend restriction
contained in the indenture prevents Cinemark, Inc. from paying a
29
dividend or
otherwise distributing cash to its stockholders unless (1) it is not in default, and the
distribution would not cause it to be in default, under the indenture; (2) it would be able to
incur at least $1.00 more of indebtedness without the ratio of its consolidated cash flow to its
fixed charges (each as defined in the indenture, and calculated on a pro forma basis for the most
recently ended four full fiscal quarters for which internal financial statements are available,
using certain assumptions and modifications specified in the indenture, and including the
additional indebtedness then being incurred) falling below two to one (the senior notes debt
incurrence ratio test); and (3) the aggregate amount of distributions made since March 31, 2004,
including the distribution proposed, is less than the sum of (a) half of its consolidated net
income (as defined in the indenture) since February 11, 2003, (b) the net proceeds to it from the
issuance of stock since April 2, 2004, and (c) certain other amounts specified in the indenture,
subject to certain adjustments specified in the indenture. The dividend restriction is subject to
certain exceptions specified in the indenture.
Upon certain specified types of change of control of Cinemark, Inc., Cinemark, Inc. would be
required under the indenture to make an offer to repurchase all of the 9
3
/
4
% senior discount notes
at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if
any, through the date of repurchase.
Senior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, the Companys wholly-owned
subsidiary, Cinemark USA, Inc., entered into a senior secured credit facility. The senior secured
credit facility provides for a seven year term loan of $1.12 billion and a $150 million revolving
credit line that matures in six years unless our 9% senior subordinated notes have not been
refinanced by August 1, 2012 with indebtedness that matures no earlier than seven and one-half
years after the closing date of the senior secured credit facility, in which case the maturity date
of the revolving credit line becomes August 1, 2012. The net proceeds of the term loan were used to
finance a portion of the $531.2 million cash portion of the Century Acquisition, repay in full the
$253.5 million outstanding under the former senior secured credit facility, repay $360.0 million of
existing indebtedness of Century and to pay for related fees and expenses. The revolving credit
line was left undrawn at closing. The revolving credit line is used for our general corporate
purposes.
At March 31, 2008, there was $1,101.7 million outstanding under the term loan and no
borrowings outstanding under the revolving credit line. Approximately $149.9 million was available
for borrowing under the revolving credit line, after giving effect to a $0.1 million letter of
credit outstanding. The average interest rate on outstanding borrowings under the senior secured
credit facility at March 31, 2008 was 5.6% per annum.
Under the term loan, principal payments of $2.8 million are due each calendar quarter
beginning December 31, 2006 through September 30, 2012 and increase to $263.2 million each calendar
quarter from December 31, 2012 to maturity at October 5, 2013. Prior to the amendment to the senior
secured credit facility discussed below, the term loan accrued interest, at Cinemark USA, Inc.s
option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the
British Banking Association Telerate page 5 or (2) the federal funds effective rate from time to
time plus 0.50%, plus a margin that ranges from 0.75% to 1.00% per annum, or (B) a eurodollar
rate plus a margin that ranges from 1.75% to 2.00% per annum, in each case as adjusted pursuant to
Cinemark USA, Inc.s corporate credit rating. Borrowings under the revolving credit line bear
interest, at Cinemark USA, Inc.s option, at: (A) a base rate equal to the higher of (1) the prime
lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal
funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 1.00%
per annum, or (B) a eurodollar rate plus a margin that ranges from 1.50% to 2.00% per annum, in
each case as adjusted pursuant to Cinemark USA, Inc.s consolidated net senior secured leverage
ratio as defined in the credit agreement. Cinemark USA, Inc. is required to pay a commitment fee
calculated at the rate of 0.50% per annum on the average daily unused portion of the revolving
credit line, payable quarterly in arrears, which rate decreases to 0.375% per annum for any fiscal
quarter in which Cinemark USA, Inc.s consolidated net senior secured leverage ratio on the last
day of such fiscal quarter is less than 2.25 to 1.0.
On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to, among
other things, modify the interest rate on the term loans under the senior secured credit facility,
modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior
subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.s option, at: (A) the
base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking
Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%,
plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a eurodollar rate plus a margin
that ranges from 1.50% to 1.75%, per annum. In each case, the margin is a function of the corporate
credit rating applicable to the borrower. The interest rate on the revolving credit line was not
amended. Additionally, the amendment removed any obligation to prepay amounts
30
outstanding under the
senior secured credit facility in an amount equal to the amount of the net cash proceeds received
from the NCM transaction or from excess cash flows, and imposed a 1% prepayment premium for
one year on certain prepayments of the term loans.
Cinemark USA, Inc.s obligations under the senior secured credit facility are guaranteed by
Cinemark Holdings, Inc., Cinemark, Inc., CNMK Holding, Inc., and certain of Cinemark USA, Inc.s
domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and
security interests in substantially all of Cinemark USA, Inc.s and the guarantors personal
property, including, without limitation, pledges of all of Cinemark USA, Inc.s capital stock, all
of the capital stock of Cinemark, Inc., CNMK Holding, Inc. and certain of Cinemark USA, Inc.s
domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.
The senior secured credit facility contains usual and customary negative covenants for
transactions of this type, including, but not limited to, restrictions on Cinemark USA, Inc.s
ability, and in certain instances, its subsidiaries and Cinemark Holdings, Inc.s, Cinemark,
Inc.s and CNMK Holding, Inc.s ability, to consolidate or merge or liquidate, wind up or dissolve;
substantially change the nature of its business; sell, transfer or dispose of assets; create or
incur indebtedness; create liens; pay dividends, repurchase stock and voluntarily repurchase or
redeem the 9
3
/
4
% senior discount notes; and make capital expenditures and investments. The senior
secured credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior
secured leverage ratio covenant as determined in accordance with the senior secured credit
facility. The dividend restriction contained in the senior secured credit facility prevents us and
any of our subsidiaries from paying a dividend or otherwise distributing cash to its stockholders
unless (1) we are not in default, and the distribution would not cause us to be in default, under
the senior secured credit facility; and (2) the aggregate amount of certain dividends,
distributions, investments, redemptions and capital expenditures made since October 5, 2006,
including the distribution currently proposed, is less than the sum of (a) the aggregate amount of
cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common
equity since October 5, 2006, (b) Cinemark USA, Inc.s consolidated EBITDA minus 1.75 times its
consolidated interest expense, each as defined in the senior secured credit facility, since October
1, 2006, (c) $150 million and (d) certain other amounts specified in the senior secured credit
facility, subject to certain adjustments specified in the senior secured credit facility. The
dividend restriction is subject to certain exceptions specified in the senior secured credit
facility.
The senior secured credit facility also includes customary events of default, including, among
other things, payment default, covenant default, breach of representation or warranty, bankruptcy,
cross-default, material ERISA events, certain types of change of control, material money judgments
and failure to maintain subsidiary guarantees. If an event of default occurs, all commitments under
the senior secured credit facility may be terminated and all obligations under the senior secured
credit facility could be accelerated by the lenders, causing all loans outstanding (including
accrued interest and fees payable thereunder) to be declared immediately due and payable. The
Cinemark Holdings, Inc. initial public offering is not considered a change of control under the
senior secured credit facility.
During March 2007, we entered into two interest rate swap agreements with effective dates of
August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500.0 million of our variable rate debt obligations. Under the terms of the interest
rate swap agreements, we pay fixed rates of 4.918% and 4.922% on $375.0 million and $125.0 million,
respectively, of variable rate debt and receive interest at a variable rate based on the 3-month
LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest
rate-swaps for the three-month period following the reset date. No premium or discount was incurred
upon us entering into the interest rate swaps because the pay and receive rates on the interest
rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps
were consummated. The interest rate swaps qualify for cash flow hedge accounting treatment in
accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, and
as such, we have effectively hedged our exposure to variability in the future cash flows
attributable to the 3-month LIBOR on approximately $500.0 million of debt. The change in the fair
value of the interest rate swaps is recorded on our condensed consolidated balance sheet as an
asset or liability with the effective portion of the interest rate swaps gains or losses reported
as a component of other comprehensive income and the ineffective portion reported in earnings. At
March 31, 2008, the estimated aggregate fair value of the interest rate swaps was a liability of
approximately $37.8 million.
31
Cinemark USA, Inc. 9% Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued $150 million aggregate principal amount of 9%
senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210
million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred
to as the 9% senior subordinated notes. Interest is payable on February 1 and August 1 of each
year.
Prior to 2007, Cinemark USA, Inc. repurchased a total of $27.8 million aggregate principal
amount of its 9% senior subordinated notes. The transactions were funded by Cinemark USA, Inc. with
available cash from operations.
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all of
its then outstanding $332.2 million aggregate principal amount of 9% senior subordinated notes. In
connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture to remove substantially all restrictive covenants and certain events of
default provisions. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased
$332.0 million aggregate principal amount of 9% senior subordinated notes and executed a
supplemental indenture removing substantially all of the restrictive covenants and certain events
of default. Cinemark USA, Inc. used the proceeds from the NCM transaction and cash on hand to
purchase the 9% senior subordinated notes tendered pursuant to the tender offer and consent
solicitation. On March 20, 2007, we and the Bank of New York Trust Company, N.A.. as trustee to the
Indenture dated February 11, 2003, executed the Fourth Supplemental Indenture. The Fourth
Supplemental Indenture became effective on March 20, 2007 and it amends the Indenture by
eliminating substantially all restrictive covenants and certain events of default provisions. On
April 3, 2007, the Company repurchased an additional $0.1 million aggregate principal amount of the
9% senior subordinated notes tendered after the early settlement date.
As of March 31, 2008, Cinemark USA, Inc. had outstanding approximately $0.2 million aggregate
principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining 9%
senior subordinated notes on or after February 1, 2008.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion
pictures by the major distributors. Generally, the most successful motion pictures have been
released during the summer, extending from May to mid-August, and during the holiday season,
extending from the beginning of November through year-end. The unexpected emergence of a hit film
during other periods can alter this seasonality trend. The timing of such film releases can have a
significant effect on our results of operations, and the results of one quarter are not necessarily
indicative of results for the next quarter or for the same period in the following year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates, foreign
currency exchange rates and other relevant market prices.
Interest Rate Risk
We are currently party to variable rate debt facilities. An increase or decrease in interest
rates would affect interest costs relating to our variable rate debt facilities. At March 31,
2008, there was an aggregate of approximately $607.1 million of variable rate debt outstanding
under these facilities. Based on the interest rate levels in effect on the variable rate debt
outstanding at March 31, 2008, a 100 basis point increase in market interest rates would increase
our annual interest expense by approximately $6.1 million.
During March 2007, we entered into two interest rate swap agreements with effective dates of
August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500.0 million of our variable rate debt obligations. Under the terms of the interest
rate swap agreements, we pay fixed rates of 4.918% and 4.922% on $375.0 million and $125.0 million,
respectively, of variable rate debt and receive interest at a variable rate based on the 3-month
LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest
rate-swaps for the three-month period following the reset date. No premium or discount was incurred
upon us entering into the interest rate swaps because the pay and receive rates on the interest
rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps
were consummated. The interest rate swaps qualify for cash flow hedge accounting
treatment in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, and as
32
such, we have effectively hedged our exposure to variability in the future cash
flows attributable to the 3-month LIBOR on approximately $500.0 million of debt. The change in the
fair values of the interest rate swaps is recorded on our condensed consolidated balance sheet as
an asset or liability with the effective portion of the interest rate swaps gains or losses
reported as a component of other comprehensive income and the ineffective portion reported in
earnings. At March 31, 2008, the estimated aggregate fair value of the interest rate swaps was a
liability of approximately $37.8 million.
The tables below provide information about our fixed rate and variable rate long-term debt
agreements as of March 31, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity as of March 31, 2008
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
Rate
|
Fixed rate
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
956.3
|
|
|
$
|
956.5
|
|
|
$
|
922.4
|
|
|
|
8.1
|
%
|
Variable rate
|
|
|
12.0
|
|
|
|
13.5
|
|
|
|
12.0
|
|
|
|
11.2
|
|
|
|
532.0
|
|
|
|
26.4
|
|
|
|
607.1
|
|
|
|
609.3
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
12.0
|
|
|
$
|
13.5
|
|
|
$
|
12.0
|
|
|
$
|
11.2
|
|
|
$
|
532.2
|
|
|
$
|
982.7
|
|
|
$
|
1,563.6
|
|
|
$
|
1,531.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity as of December 31, 2007
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
Interest
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Value
|
|
Rate
|
Fixed rate
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
966.6
|
|
|
$
|
966.6
|
|
|
$
|
940.1
|
|
|
|
8.2
|
%
|
Variable rate
|
|
|
9.2
|
|
|
|
13.8
|
|
|
|
12.4
|
|
|
|
11.2
|
|
|
|
271.6
|
|
|
|
289.6
|
|
|
|
607.8
|
|
|
|
612.8
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
9.2
|
|
|
$
|
13.8
|
|
|
$
|
12.4
|
|
|
$
|
11.2
|
|
|
$
|
271.6
|
|
|
$
|
1,256.2
|
|
|
$
|
1,574.4
|
|
|
$
|
1,552.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $500.0 million of the Cinemark USA, Inc. term loan, which represents the
debt hedged with the Companys interest rate swap agreements.
|
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as
a result of our international operations. Generally, we export from the U.S. certain of the
equipment and construction interior finish items and other operating supplies used by our
international subsidiaries. Principally all the revenues and operating expenses of our
international subsidiaries are transacted in the countrys local currency. Generally accepted
accounting principles in the U.S. require that our subsidiaries use the currency of the primary
economic environment in which they operate as their functional currency. If our subsidiaries
operate in a highly inflationary economy, generally accepted accounting principles in the U.S.
require that the U.S. dollar be used as the functional currency for the subsidiary. Currency
fluctuations result in us reporting exchange gains (losses) or foreign currency translation
adjustments relating to our international subsidiaries depending on the inflationary environment of
the country in which we operate. Based upon our equity ownership in our international subsidiaries
as of March 31, 2008, holding everything else constant, a 10% immediate, simultaneous, unfavorable
change in all of the foreign currency exchange rates to which we are exposed would decrease the net
book value of our investments in our international subsidiaries by approximately $37 million and
would decrease the aggregate net income of our international subsidiaries by approximately $0.8
million.
33
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established a system of controls and other procedures designed to ensure that
information required to be disclosed in our periodic reports filed under the Exchange Act, is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. These disclosure controls and procedures have been
evaluated under the direction of our Chief Executive Officer and Chief Financial Officer for the
period covered by this report. Based on such evaluations, the Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures are effective in
alerting them in a timely basis to material information relating to the Company and its
consolidated subsidiaries required to be included in our reports filed or submitted under the
Exchange Act.
Changes in Internal Controls Over Financial Reporting
There have been no material changes in our system of internal controls over financial
reporting or in other factors that have materially affected, or are
reasonably likely to materially
affect, our internal controls over financial reporting within the period covered by this report.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported under Business Legal Proceedings in the Companys Annual Report on
Form 10-K filed March 28, 2008.
Item 1A. Risk Factors
There have been no material
changes from risk factors previously disclosed in Risk Factors
in the Companys Annual Report on
Form 10-K filed March 28, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During March 2008, we repurchased in one open market purchase $10.0 million aggregate
principal amount at maturity of our 9
3
/
4
% senior discount notes for approximately $9.0 million,
including accreted interest of $2.9 million. We funded the transaction with proceeds from our
initial public offering. There has been no material change in the planned use of proceeds from our
initial public offering as described in our final prospectus filed with the SEC pursuant to Rule
424(b) on April 24, 2007.
34
Item 6. Exhibits
|
|
|
*4.1
|
|
Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan.
|
|
|
|
*4.2
|
|
Form of Restricted Stock Unit Award Agreement pursuant to the Amended and
Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan.
|
|
|
|
*31.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
CINEMARK HOLDINGS, INC.
|
|
|
|
|
Registrant
|
|
|
|
|
|
|
|
DATE:
May 9, 2008
|
|
|
|
|
|
|
|
|
|
|
|
/s/Alan W. Stock
|
|
|
|
|
|
|
|
|
|
Alan W. Stock
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
/s/Robert Copple
|
|
|
|
|
|
|
|
|
|
Robert Copple
|
|
|
|
|
Chief Financial Officer
|
|
|
36
EXHIBIT INDEX
|
|
|
Number
|
|
Exhibit Title
|
* 4.1
|
|
Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan.
|
|
|
|
* 4.2
|
|
Form of Restricted Stock Unit Award Agreement pursuant to the Amended and Restated Cinemark Holdings, Inc. 2006 Long Term
Incentive Plan.
|
|
|
|
*31.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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*32.1
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Certification of Alan Stock, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*32.2
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Certification of Robert Copple, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Exhibit 4.1
AMENDED AND RESTATED
CINEMARK HOLDINGS, INC.
2006 LONG TERM INCENTIVE PLAN
ARTICLE I.
GENERAL
1.1
Purposes of Plan
. The purposes of the Amended and Restated Cinemark Holdings,
Inc. 2006 Long Term Incentive Plan (the
Plan
) are to (i) advance the interests of Cinemark
Holdings, Inc. (the
Company
) and its stockholders by providing significant incentives to selected
Employees, Directors and Consultants (as defined herein) of the Company and its Subsidiaries (as
defined herein), (ii) enhance the interest of such persons in the success and progress of the
Company and its Subsidiaries by providing them with an opportunity to become stockholders of the
Company, (iii) enhance the ability of the Company and its Subsidiaries to attract and retain
qualified management and other personnel necessary for the success and progress of the Company and
its Subsidiaries. The Plan provides for grants of Restricted Shares, Restricted Stock Units,
Performance Awards, Incentive Options and Nonqualified Options. The Plan is intended to be a
compensatory benefit plan within the meaning of such term under Rule 701 of the Securities Act of
1933, as amended. The Plan is an amendment and restatement of the Cinemark Holdings, Inc. 2006
Long Term Incentive Plan, as amended to the date hereof.
1.2
Assumption of Obligations under Cinemark, Inc. 2004 Long Term Incentive Plan
. The
assumption and substitution of options to acquire Cinemark Holdings, Inc. stock for options to
acquire common stock of Cinemark, Inc. granted under the Cinemark, Inc. 2004 Long Term Incentive
Plan (collectively, the
Substituted Options
) was made in connection with the share exchange
agreement, dated August 7, 2006 and consummated on October 5, 2006 among the then current
stockholders of Cinemark, Inc., by which the stockholders exchanged their shares of Class A common
stock of Cinemark, Inc. for an equal number of shares of Class A common stock of Company. The
number of shares subject to each option, the exercise price per share, the option terms, and the
vesting provisions of any Substituted Options did not change as a result of this substitution. The
Substituted Options will otherwise be subject to the provisions in the present Plan as though this
Plan constituted an amendment and restatement of the Cinemark, Inc. 2004 Long Term Incentive Plan.
This assumption and substitution is intended not to constitute a modification of the Substituted
Options for purposes of Code § 409A and shall be implemented and administered consistent with such
intent.
ARTICLE II.
DEFINITIONS
2.1
Definitions
. Certain terms used herein shall have the meaning below stated.
(a)
Adjusted EBITDA
means for any period, without duplication, consolidated net income for
such period
plus
, to the extent reflected as a charge in the statement of such consolidated
net income for such period, the sum of:
1
(i) expenses for taxes based on income or capital, including franchise and similar taxes;
(ii) consolidated interest expense, amortization or write-off of debt discount and debt
issuance costs and commissions, discounts and other fees and charges associated with indebtedness;
(iii) depreciation and amortization expense, including changes in deferred lease expense and
amortization of long-term prepaid rent;
(iv) amortization of intangibles and organization costs;
(v) any extraordinary, unusual or non-recurring gains, losses, income or expense reported by
the Company in its public filings with respect to the performance period that are extraordinary or
unusual in nature or infrequent in occurrence (including, without limitation, expenses for
severance, non-recurring retention bonuses, payments to employees of acquired entities under stock
option plans or similar incentive plans such as long term incentive plans, relocation and
restructuring costs related to acquisitions or losses);
(vi) the impact of impairment of tangible or intangible assets;
(vii) net losses on sales of assets outside of the ordinary course of business;
(viii) losses or costs arising from lease dispositions;
(ix) any call premium (or original issue discount) expenses associated with the repurchase or
repayment of indebtedness;
(x) any other non-cash charges (including stock option, restricted stock and other noncash
compensation or foreign exchange losses);
(xi) any reasonable expense related to any equity offering, acquisition, recapitalization,
asset sale or indebtedness (whether or not successful);
(xii) and
minus
(1) any extraordinary, unusual or non-recurring income or gains, (2)
any other non-cash income or gains (including foreign exchange gains) (other than the amortization
of prepaid cash income) and (3) any dividends received from any publicly traded Affiliate the
equity value of which has been added to Implied Equity Value. Adjusted EBITDA may include such
additional measures of performance and liquidity as the Administrator determines are appropriate to
determine value and service debt. Adjusted EBITDA is a non-GAAP financial measure used by the
Company in the budget and reporting process.
(b)
Administrator
means the Board or Committee designated to administer the Plan in
accordance with Section 7.1.
2
(c)
Affiliate
or
Affiliates
means any Person that directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control with the Person
specified. For purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and polices of such Person, whether by
Contract or otherwise and, in any event and without limitation of the previous sentence, any Person
owning ten percent (10%) or more of the voting securities of another Person shall be deemed to
control that Person.
(d)
Award
means a Restricted Share, a Restricted Stock Unit, a Performance Award, an
Incentive Option or a Nonqualified Option granted under the Plan.
(e)
Award Agreement
means an agreement between the Company and a Participant containing the
terms of an Award under this Plan.
(f)
Board
or
Board of Directors
means the Board of Directors of the Company.
(g)
Cause
means Cause as defined in any written Service Agreement in effect between the
applicable Participant and the Company or a Subsidiary, or if such Participant is not a party to a
written Service Agreement in which Cause is defined, then Cause means (i) the abuse of illegal
drugs, alcohol or other controlled substances or the intoxication of such Participant during
working hours, (ii) the arrest for, or conviction of, a felony, (iii) the commission of fraud,
embezzlement or theft by such Participant (iv) the unexcused absence by such Participant from such
Participants regular job location for more than five consecutive days or for more than the
aggregate number of days permitted to the Participant under Company vacation and sick leave
policies applicable to the Participant or (v) any conduct or activity of such Participant deemed
injurious to the Company in the reasonable discretion of the Company or the Board of Directors.
(h)
Code
means the Internal Revenue Code of 1986, as amended.
(i)
Committee
means the committee of directors appointed by the Board to administer the Plan
pursuant to ARTICLE VII hereof.
(j)
Common Stock
means (i) the authorized Common Stock of the Company, par value $.001 per
share, as constituted on the date the Plan becomes effective or (ii) the shares resulting from a
change in the Common Stock as presently constituted which is limited to a change of all of its
authorized shares with par value into the same number of shares without par value or as a change in
the par value.
(k)
Company
means Cinemark Holdings, Inc., a Delaware corporation, or any successor
corporation.
(l)
Consultant
means a consultant or advisor who is a natural person and who provides bona
fide services to the Company or a Subsidiary, provided such services are not in connection with the
offer or sale of securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Companys securities.
3
(m)
Corporate Event
shall have the meaning ascribed to such term in Section 6.5.
(n)
Covered Employee
means the chief executive officer and the four other highest
compensated officers of the Company for whom total compensation is or would be required to be
reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of
the Code.
(o)
Date of Grant
means, provided the key terms and conditions of the Award are communicated
to the Participant within a reasonable period of time following the Administrators action, the
date on which the Administrator adopts a resolution, or takes other appropriate action, expressly
granting an Award to a Participant that specifies the key terms and conditions of the Award and
from which the Participant begins to benefit from or be adversely affected by subsequent changes in
the Fair Market Value of the Company Common Stock or, if a subsequent date is set forth in such
resolution or determined by the Administrator as the Date of Grant, then such date as is set forth
in such resolution. In any situation where the terms of the Award are subject to negotiation with
the Participant, the Date of Grant shall not be earlier than the date the key terms and conditions
of the Award are communicated to the Participant.
(p)
Designee
means a party designated by the Company as having the Repurchase Right
described in Section 9.3 including, without limitation, the stockholders of the Company on a pro
rata basis.
(q)
Director
means a member of the Board or a member of the board of directors of a
Subsidiary.
(r)
Disability
means Disability as defined in any written Service Agreement in effect
between the applicable Participant and the Company or a Subsidiary, or if such Participant is not a
party to a written Service Agreement in which Disability is defined, then Disability means a
physical or mental impairment that (a) renders Participant unable to perform the essential
functions of Participants Service to the Company or its Subsidiaries, even with reasonable
accommodation that does not impose an undue hardship on the Company or its Subsidiaries, (b) has
existed for at least sixty (60) consecutive days, and (c) in the opinion of a physician selected by
the Company will last for a duration of at least one hundred eight (180) consecutive days.
Participants Disability shall be determined by the Company, in good faith, based upon information
supplied by Participant and a physician selected by the Company. For purposes of determining the
rules relating to an Incentive Option, the term Disability shall have the meaning ascribed to it
under Code Section 22(e)(3). Participant shall submit to physical exams and diagnostic tests
reasonably recommended by such physician.
(s)
Employee
means an officer or other employee of the Company or a Subsidiary.
(t)
Fair Market Value
of each share of Common Stock on the date for which Fair Market Value
is to be determined will be determined using a method consistent with the definition of fair market
value found in Code § 409A and any regulations promulgated thereunder and in effect as of such
date, and, where possible, will be determined using a method
4
that is a presumptively reasonable valuation method under the Code and/or the regulations. As
of the date of this Agreement, such methods include:
(i) If the Common Stock is readily tradable on an established securities market, the Fair
Market Value may be determined based upon the last sale before or the first sale after the grant,
the closing price on the trading day before or the trading day of the grant, or may be based upon
an average selling price during a specified period that is within 30 days before or 30 days after
the grant, provided that the commitment to grant the stock rights based on such valuation method
must be irrevocable before the beginning of the specified period, and such valuation method must be
used consistently for grants of stock rights under the same and substantially similar programs.
(ii) If at any time the Common Stock is not listed on any securities exchange or readily
tradable on a recognized securities market, the Fair Market Value shall be determined in good faith
by the Administrator through the reasonable application of a reasonable valuation method based on
the facts and circumstances as of the valuation date, including by an independent appraisal that
meets the requirements of Code § 401(a)(28)(C) and the regulations promulgated thereunder as of a
date that is no more than 12 months before the relevant transaction to which the valuation is
applied (for example, the grant date of a stock option) and such determination shall be conclusive
and binding on all persons.
(u)
Immediate Family
has the meaning given to such term in Section 5.4(c).
(v)
Implied Equity Value
means the creation of equity value based on the annual internal
rate of return (IRR) of all equity returns per share, including dividends paid to stockholders
during the period between the inception of the performance measurement period and the end of the
performance measurement period. This value is not intended to track and may be different from
changes in the stock price over the same period. IRR is calculated by reference to enterprise
value. Enterprise value is determined by multiplying Adjusted EBITDA for the trailing 12 month
period ending on the most recent preceding fiscal quarter by a multiple factor designated by the
Administrator. The enterprise value so determined is adjusted by subtracting net debt and the book
value of consolidated minority interests as reflected on the balance sheet of the Company and
adding the fair market value of the equity holdings of any nonconsolidated entity held by the
Company. The Administrator may, in its discretion, exclude the fair market value of the equity
holdings of any nonpublic nonconsolidated entity from the calculation of Implied Equity Value if
such exclusion results in a reduction in the IRR, but may not exercise such discretion if it
results in an increase in the IRR. If the Administrator does not designate a multiple factor, the
multiple factor will be 10.
(w)
Incentive Option
means an Option intended to qualify as an incentive stock option under
Section 422 of the Code.
(x)
Incentive Option Agreement
has the meaning given to such term in Section 5.2.
5
(y)
Listing Date
means the first date upon which any security of the Company is listed (or
approved for listing) upon notice of issuance on any securities exchange or designated (or approved
for designation) upon notice of issuance as a national market security on an interdealer quotation
system.
(z)
Non-Employee Director
means a Director who is a non-employee director within the
meaning of Rule 16b-3.
(aa)
Nonqualified Option
means an Option that is not intended to qualify as an Incentive
Option.
(bb)
Nonqualified Option Agreement
has the meaning given to such term in Section 5.3.
(cc)
Option
means an option to purchase Common Stock granted by the Administrator to a
Participant pursuant to ARTICLE V hereof.
(dd)
Option Agreement
means an Incentive Option Agreement and/or a Nonqualified Option
Agreement, as applicable.
(ee)
Option Shares
means shares of Common Stock purchased as a result of the exercise by an
Option holder of an Option, as well as any securities received by the holder in respect of such
Option Shares.
(ff)
Optionholder
means a Participant to whom an Option has been granted under the Plan.
(gg)
Outside Director
means a Director who is an outside director within the meaning of
Section 162(m) of the Code and Treasury Regulations § 1.162-27(e)(3).
(hh)
Participant
means an Employee, Director or Consultant to whom Awards have been granted
or awarded under the Plan.
(ii)
Performance Award
means an Award granted pursuant to Section 5.7.
(jj)
Permitted Transferee
has the meaning given to such term in Section 5.4(c).
(kk)
Person
means a natural person, partnership (whether general or limited), limited
liability company, trust, estate, association, corporation, custodian, nominee or any other
individual or entity in its own or any representative capacity.
(ll)
Plan
means the Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive
Plan, as set forth herein and as from time to time amended.
(mm)
Publicly Traded
means corporate stock that is listed on any national securities
exchange or traded in any recognized securities market system.
6
(nn)
Requisite Holders
means the holders of the Companys capital stock constituting more
than 50% of the Companys voting power of all classes of Common Stock of the Company then
outstanding.
(oo)
Restricted Award
means an Award of either Restricted Shares or Restricted Stock Units,
which may include a Performance Award.
(pp)
Restricted Shares
means the shares of Common Stock that are awarded to a Participant
pursuant to Section 5.5 which on the date of award are both nontransferable and subject to a
substantial risk of forfeiture.
(qq)
Restricted Stock Unit
means a hypothetical Common Stock unit awarded to a Participant
pursuant to Section 5.6.
(rr)
Restriction Period
means the period during which Restricted Shares or Restricted Stock
Units remain nontransferable and subject to the substantial risk of forfeiture.
(ss)
Sale of the Company
means the Sale of the Company as defined in any written Service
Agreement in effect between the applicable Participant and the Company or a Subsidiary, or if such
Participant is not a party to a written Service Agreement in which Sale of the Company is
defined, the Sale of the Company means the sale of the Company to a Person or Persons, pursuant
to which such Person or Persons directly or indirectly acquire (i) capital stock of the Company
possessing the voting power under normal circumstances to elect a majority of the Companys board
of directors or entitling such Person or Persons to exercise more than fifty percent (50%) of the
total voting power of the outstanding shares of capital stock entitled to vote of the Company or of
the surviving entity (whether by merger, consolidation or sale or transfer of the Companys capital
stock) or (ii) all or substantially all of the Companys assets determined on a consolidated basis.
(tt)
Service
means service provided to the Company or a Subsidiary as an Employee, Director
or Consultant.
(uu)
Service Agreement
means any written agreement between a Participant and the Company or
any of its Subsidiaries regarding the provision of Service to the Company or any of its
Subsidiaries by such Participant.
(vv)
Securities Laws
means the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended.
(ww)
Subsidiary
or
Subsidiaries
means, as to any Person, any other Person (i) of which
such Person or any other Subsidiary of such Person is a general partner, (ii) of which such Person,
any one or more of its other subsidiaries of such Person, or such Person and any one or more of its
other Subsidiaries, directly or indirectly owns or controls securities or other equity interests
representing more than fifty percent (50%) of the aggregate voting power, or (iii) of which such
Person, any one or more of its other Subsidiaries of such Person, or such Person and any one or
more of its other Subsidiaries, possesses he right to elect more than fifty percent (50%) of the
board of directors or Persons holding similar positions; provided, however, with respect to
determining rules relating to Incentive Options, the term Subsidiary or
7
Subsidiaries means a subsidiary of the Company within the meaning of Section 424(f) of the
Code.
ARTICLE III.
STOCKHOLDER APPROVAL; RESERVATION OF SHARES
3.1
Stockholder Approval
. The Plan shall become effective only if, within 12 months
from the date the Plan is adopted by the Board, the Plan is approved by the affirmative vote of the
Requisite Holders, or by written consent of such Requisite Holders, in accordance with the
applicable provisions of the Certificate of Incorporation and Bylaws of the Company and applicable
state law. The Board may, in its sole discretion, submit any other amendment to the Plan for
stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of compensation paid to
certain executive officers, or amendments to satisfy Section 409A of the Code and the regulations
thereunder regarding requirements for deferred compensation plans.
3.2
Shares Reserved Under Plan
. The aggregate number of shares of Common Stock which
may be issued, whether upon the exercise of Options granted under the Plan or as Restricted Shares
granted under the Plan, shall not exceed 19,100,000 shares (as such shares may be adjusted pursuant
to Section 9.4 of the Plan). When the exercise price for an Option granted under this Plan is paid
with previously outstanding shares of Common Stock or with shares of Common Stock as to which the
Option is being exercised, as permitted in Section 5.4(f), the total number of shares of Common
Stock for which Options granted under this Plan may thereafter be exercised shall be irrevocably
reduced by the total number of shares for which such Option is thus exercised. Shares of Common
Stock subject to Awards granted under the Plan may consist of either authorized but unissued shares
or shares which have been issued and which shall have been heretofore or shall be hereafter
reacquired by the Company. The total number of shares of Common Stock authorized under the Plan
shall be subject to increase or decrease in order to give effect to the provisions of Section 9.4
hereof and to give effect to any amendment adopted pursuant to ARTICLE VIII. If any Option granted
under the Plan shall expire, terminate or be cancelled for any reason without having been exercised
in full, the number of shares as to which such Option was not exercised shall again be available
for purposes of the Plan. If any Restricted Shares granted under the Plan are terminated,
cancelled or forfeited for any reason, such Restricted Shares shall again be available for purposes
of the Plan. If any other Award granted under the Plan is terminated, cancelled or forfeited for
any reason, the shares of Common Stock not acquired under such Award shall again be available for
purposes of the Plan. The Company shall at all times while the Plan is in effect reserve such
number of shares of Common Stock, subject to this Section 3.2, as will be sufficient to satisfy the
requirements of the Plan.
8
ARTICLE IV.
PARTICIPATION IN PLAN
4.1
Eligibility
. Awards under the Plan may be granted to any Employee, Director or
Consultant of the Company or a Subsidiary. The Administrator shall determine those Employees,
Directors and Consultants to whom Awards shall be granted, and, subject to Section 3.1 hereof, the
number of shares of Common Stock subject to each such Award. The grant of an Award under the Plan
to a Participant shall not be deemed either to entitle such Participant to, or disqualify such
Participant from, participation in any other grant of Awards under the Plan.
4.2
Participation Not Guarantee of Service
. Subject to the terms of any Service
Agreement with a Participant, nothing in this Plan or in any Award Agreement shall in any manner be
construed to limit in any way the right of the Company or any Subsidiary to terminate a
Participants Service at any time, without regard to the effect of such termination on any rights
such Participant would otherwise have under this Plan or any Award Agreement, or to give any right
to a Participant to remain employed or retained by the Company or a Subsidiary thereof in any
particular position or at any particular rate of compensation.
4.3
Section 162(m) Limitation
. Subject to the provisions of Section 9.4 relating to
adjustments upon changes in the shares of Common Stock, no Employee will be eligible to be granted
Options covering more than 1,500,000 shares during any fiscal year, or Performance Awards
(including Restricted Shares and Restricted Stock Units) that could result in such Employee
receiving more than 1,000,000 shares of Common Stock for each full or partial fiscal year of the
Company contained in the performance period of a particular Performance Award. This Section 4.2
does not apply prior to the Listing Date and, following the Listing Date, this Section 4.2 does not
apply until (a) the earliest of (i) the first material modification of the Plan (including any
increase in the number of shares of Common Stock reserved for issuance under the Plan in accordance
with Section 3.2), (ii) the issuance of all of the shares of Common Stock reserved for issuance
under the Plan, (iii) the expiration of the Plan, or (iv) the first meeting of stockholders at
which Directors are to be elected that occurs after the close of the third calendar year following
the calendar year in which occurred the first registration of an equity security under Section 12
of the Exchange Act; or (b) such other date as is required by Section 162(m) of the Code and the
rules and regulations promulgated thereunder.
4.4
Effect of Plan
. Neither the adoption of the Plan nor any action of the Board, the
Committee or the Administrator shall be deemed to give any Employee, Director or Consultant any
right to be granted an Award or any other rights, except as may be evidenced by an Award Agreement,
or any amendment thereto, duly authorized by the Administrator and executed on behalf of the
Company, and then only to the extent and on the terms and conditions expressly set forth in such
Award Agreement. The existence of the Plan and the Awards granted hereunder shall not affect in
any way the right of the Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Companys capital structure or
its business, any merger or consolidation of the Company, any issue of bonds, debentures, or shares
of preferred stock ahead of or affecting the Common Stock or the rights thereof, the dissolution or
liquidation of the Company or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding.
9
ARTICLE V.
GRANT AND EXERCISE OF OPTIONS; GRANT OF RESTRICTED SHARES AND
RESTRICTED STOCK UNITS; GRANT OF PERFORMANCE AWARDS
5.1
Grant of Options
. The Administrator may from time to time in its discretion grant
Options, which may be Incentive Options or Nonqualified Options, to Employees, Directors or
Consultants. All Options under the Plan shall be granted within ten years from the date the Plan
is adopted by the Board or the date the Plan is approved by the Requisite Holders, whichever is
earlier.
5.2
Incentive Options
. The Administrator may authorize the grant of Incentive Options
subject to the terms and conditions set forth herein. The grant of an Incentive Option shall be
evidenced by a written agreement between the Company and the Optionholder setting forth the number
of shares of Common Stock subject to the Incentive Option evidenced thereby and the terms,
conditions and restrictions applicable thereto (an
Incentive Option Agreement
). The aggregate
Fair Market Value of the Common Stock with respect to which Incentive Options granted under all
incentive stock option plans of the Company and its Subsidiaries are exercisable for the first time
by the Optionholder during any calendar year shall not exceed $100,000 or such other threshold in
accordance with applicable law. Incentive Options may only be granted to Employees.
5.3
Nonqualified Options
. The Administrator may authorize the grant of Nonqualified
Options subject to the terms and conditions set forth herein. The grant of a Nonqualified Option
shall be evidenced by a written agreement between the Company and the Optionholder setting forth
the number of shares of Common Stock subject to the Nonqualified Option evidenced thereby and the
terms, conditions and restrictions applicable thereto (a
Nonqualified Option Agreement
).
5.4
Option Terms
. Options granted under the Plan shall be subject to the following
requirements:
(a)
Option Price
. The exercise price of each Incentive Option granted under the Plan
shall not be less than the greater of (i) the aggregate par value of the underlying shares of
Common Stock and (ii) 100% of the Fair Market Value of the underlying shares of Common Stock on the
date the Option is granted. The exercise price of any Nonqualified Options granted under the Plan
shall not be less than the Fair Market Value of the underlying shares of Common Stock on the Date
of Grant. The exercise price of an Option may be subject to adjustment pursuant to Section 9.4
hereof.
(b)
Term of Option
. The term during which an Option is exercisable shall be that
period determined by the Administrator as set forth in the applicable Option Agreement, provided
that no Option shall have a term that exceeds a period of ten years from the date of its grant.
Notwithstanding anything herein to the contrary, no portion of an Option may be exercised after the
end of the term of such Option.
(c)
Nontransferability of Options
. Any Option granted under the Plan shall not be
transferable by the Optionholder other than by will or the laws of descent and distribution,
10
and each such Option shall be exercisable during the Optionholders lifetime only by him or
her. No transfer of an Option by an Optionholder by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall have been furnished
with written notice thereof and a copy of the will and/or such other evidence as the Administrator
may determine necessary to establish the validity of the transfer. Notwithstanding the foregoing,
the Administrator, in its sole discretion, may permit the transfer of a Nonqualified Option as
follows: (i) by gift to a member of the Optionholders immediate family or (ii) by transfer by
instrument to a trust providing that the Option is to be passed to beneficiaries upon death of the
trustor (the recipient of the Nonqualified Option under either or both of (i) or (ii) immediately
above is referred to herein as a
Permitted Transferee
). For purposes of this Section 5.4(c)
immediate family shall mean the Optionholders spouse (but shall not include a former spouse),
child, stepchild, grandchild, child-in-law, parent, stepparent, grandparent, parent-in-law,
sibling, and sibling-in-law and shall include adoptive relationships. A transfer of a Nonqualified
Option permitted under this Section 5.4(c) may be made only upon written notice to and approval
thereof by the Administrator. A Permitted Transferee may not further assign, sell or transfer the
transferred Option, in whole or in part, other than by will or by operation of the laws of descent
and distribution provided that the Company shall have been furnished with written notice thereof
and a copy of the will and/or such other evidence as the Administrator may determine necessary to
establish the validity of the transfer. In addition, following the transfer, the Nonqualified
Option shall continue to be subject to the terms of this Plan and the Option Agreement evidencing
the Nonqualified Option; provided, however, that where appropriate, the term
Optionholder
shall
be deemed to apply to the Permitted Transferee. Upon the termination of Service of the
Optionholder, the provisions of this Plan or the Option Agreement pursuant to which the Option was
granted will apply to the Permitted Transferee as if such Permitted Transferee was substituted for
the Optionholder in such provisions.
(d)
Time and Amount Exercisable
. Each Option shall be exercisable in accordance with
the provisions of the Option Agreement pursuant to which it is granted in whole or in part, from
time to time, subject to any limitations with respect to the number of shares of Common Stock for
which the Option may be exercised at a particular time and to such other conditions as the
Administrator, in its discretion, may specify in the applicable Option Agreement. Any portion of
an Option which has become exercisable shall remain exercisable until it is exercised in full or it
terminates or expires pursuant to the terms of the Plan or the applicable Option Agreement. The
Administrator may provide that an Option may be immediately exercisable and provide that upon
exercise of the Option, the Optionholder shall receive Restricted Shares subject to any remaining
vesting restrictions on such Option.
(e)
Terms of Incentive Options Granted to Ten Percent Stockholders
. Notwithstanding
the foregoing, no Incentive Option shall be granted to any Employee who owns, directly or
indirectly within the meaning of Section 424(d) of the Code, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any Subsidiary, unless at the
time the Incentive Option is granted, the exercise price of the Incentive Option is at least 110%
of the Fair Market Value of the Common Stock subject to such Incentive Option and such Incentive
Option, by its terms, is not exercisable after the expiration of five years from the date such
Incentive Option is granted. For the purpose of clarification the limitations contained in this
Section 5.4(e) shall not apply to the grant of Nonqualified Options.
11
(f)
Payment of Exercise Price and Delivery of Shares; Tax Withholding
.
(i) The entire exercise price of shares of Common Stock purchased upon exercise of Options
shall, at the time of purchase, be paid for in full (the
Exercise Price
). To the extent that the
right to purchase shares has become exercisable in accordance with the terms of the Plan and the
applicable Option Agreement, Options may be exercised from time to time by written notice to the
Administrator, stating the full number of shares with respect to which the Option is being
exercised and the proposed time of delivery thereof (which shall be at least five (5) days after
the giving of such notice, unless an earlier date shall have been mutually agreed upon by the
Optionholder (or other person entitled to exercise the Option) and the Administrator), accompanied
by payment to the Company of the Exercise Price in full. Such payment shall be effected (i) by
certified or official bank check, (ii) if so permitted by the Administrator, by the delivery of a
number of shares of Common Stock owned by the Participant duly endorsed for transfer to the Company
(plus cash if necessary) having a Fair Market Value equal to the amount of such Exercise Price,
(iii) if so permitted by the Administrator, by payment with financial assistance from the Company
in accordance with the provisions of Section 7.4 hereof, (iv) during any period for which the
Common Stock is readily tradable on an established securities market (i.e., the Common Stock is
listed on any national securities exchange or traded in any recognized securities market system),
by a copy of instructions to a broker directing such broker to sell the Common Stock for which such
Option is exercised, and to remit to the Company the aggregate Exercise Price of such Options (a
"
Cashless Exercise
); or (v) subject to the discretion of the Administrator, upon such terms as the
Administrator shall approve, by notice of exercise including a statement directing the Company to
retain such number of shares of Common Stock from any transfer to the Optionholder (
Stock
Withholding
) that otherwise would have been delivered by the Company upon exercise of the Option
having a Fair Market Value equal to all or part of the Exercise Price of such Option exercise. In
the event the Exercise Price requires retention of a fractional share, the number of shares subject
to Stock Withholding shall be rounded down and the Optionholder shall be required to pay the
remainder of the Exercise Price by certified or official bank check. Any shares retained for the
purpose of satisfying the Stock Withholding shall not again be available for issuance under the
Plan. Unless otherwise provided in the terms of an Option Agreement, payment of the exercise price
by a Participant who is an officer, director or other insider subject to Section 16(b) of the
Exchange Act in the form of a Stock for Stock Exchange is subject to pre-approval by the
Administrator, in its sole discretion. Any such pre-approval shall be documented in a manner that
complies with the specificity requirements of Rule 16b-3, including the name of the Participant
involved in the transaction, the nature of the transaction, the number of shares to be acquired or
disposed of by the Participant and the material terms of the Award involved in the transaction.
(ii) In addition to payment of the Exercise Price, the Optionholder shall be required to
include payment of the amount of all federal, state, local and other income, excise or employment
taxes subject to withholding (if any) by the Company or a Subsidiary as a result of the exercise of
an Option. The Optionholder may pay all or a portion of the tax withholding by cash or check
payable to the Company, or, at the discretion of the Administrator, upon such terms as the
Administrator shall approve, by (i) certified or official bank check (ii) Cashless Exercise, if the
Stock is readily tradable on an established securities market; (iii) tendering Common Stock owned
by the Optionholder, duly endorsed for transfer to the Company, with a Fair Market Value on the
date of delivery equal to the withholding due for the
12
number of shares being exercised or purchased; (iv) by paying all or a portion of the tax
withholding for the number of shares being purchased by withholding shares from any transfer or
payment to the Optionholder (
Stock Withholding
); or (v) a combination of one or more of the
foregoing payment methods. Any shares issued pursuant to the exercise of an Option and transferred
by the Optionholder to the Company for the purpose of satisfying any withholding obligation shall
not again be available for issuance under the Plan. The Administrator will, as soon as reasonably
possible, notify the Optionholder (or such Optionholders representative) of the amount of
employment tax and other withholding tax that must be paid under federal, state and local law due
to the exercise of the Option. At the time of delivery, the Company shall, without transfer or
issue tax to the Optionholder (or other person entitled to exercise the Option), deliver to the
Optionholder (or to such other person) at the principal office of the Company, or such other place
as shall be mutually agreed upon, a certificate or certificates for the Option Shares after the
Exercise Price and all federal, state, local or other income, excise or employment taxes subject to
withholding have been paid; provided, however, that the time of delivery may be postponed by the
Administrator for such period as may be required for it with reasonable diligence to comply with
any requirements of law. Unless otherwise provided in the terms of an Option Agreement, payment of
the tax withholding by a Participant who is an officer, director or other insider subject to
Section 16(b) of the Exchange Act by delivering previously owned and unencumbered shares of Common
Stock of the Company or in the form of share withholding is subject to pre-approval by the
Administrator, in its sole discretion. Any such pre-approval shall be documented in a manner that
complies with the specificity requirements of Rule 16b-3, including the name of the Participant
involved in the transaction, the nature of the transaction, the number of shares to be acquired or
disposed of by the Participant and the material terms of the Award involved in the transaction.
(iii) Notwithstanding the foregoing, during any period for which the Common Stock is Publicly
Traded, payment of the Exercise Price or tax withholding with a promissory note or other
transaction by a Director or executive officer that involves or may involve a direct or indirect
extension of credit or arrangement of an extension of credit by the Company or an Affiliate in
violation of Section 402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of the Exchange
Act) is prohibited with respect to any Award under this Plan.
(g)
Rights of Optionholder in Common Stock
. Neither any Optionholder nor the legal
representatives, heirs, legatees, distributees or Permitted Transferees of any Optionholder shall
be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Option
Shares unless and until such shares of Common Stock are issued to such Person and such Person has
received a certificate or certificates therefor. Upon the issuance and receipt of such certificate
or certificates, such Option holder shall have absolute ownership of the shares of Common Stock
evidenced thereby, including the right to vote such shares, to the same extent as any other owner
of shares of Common Stock, and to receive dividends thereon, subject, however, to the terms,
conditions and restrictions of the Plan and any other undertakings of such holder of Common Stock.
5.5
Restricted Shares
.
(a)
General
. The Administrator, in its sole discretion, may from time to time
authorize the grant of Restricted Shares to Employees, Directors or Consultants. The
13
Administrator may determine the basis on which the restrictions imposed on the Restricted
Shares may lapse. A certificate or certificates representing the number of Restricted Shares
granted shall be registered in the name of the Participant. Until the expiration of the
Restriction Period or the lapse of restrictions in the manner provided in Section 5.5(c) or ARTICLE
VI, the certificate or certificates shall be held by the Company for the account of the
Participant, and the Participant shall have beneficial ownership of the Restricted Shares, subject
to the provisions of paragraph 5.5(b).
(b)
Restrictions
. Until the expiration of the Restriction Period or the lapse of
restrictions in the manner provided in paragraph 5.5(c) or ARTICLE VI and the Participants
satisfaction of applicable tax withholding obligations attributable to the Award, Restricted Shares
shall be subject to the following restrictions and any additional restrictions that the
Administrator, in its sole discretion, may from time to time deem desirable in furtherance of the
objectives of the Plan:
(i) The Participant shall not be entitled to receive the certificate or certificates
representing the Restricted Shares;
(ii) The Restricted Shares may not be sold, transferred, assigned, pledged, conveyed,
hypothecated, or otherwise disposed of;
(iii) The Restricted Shares will be forfeited immediately upon termination of Participants
employment with the Company or one of its Subsidiaries, unless otherwise expressly provided herein
or in the Award Agreement pursuant to such Restricted Shares were granted; and
(iv) The holder of Restricted Shares shall be entitled to receive dividends thereon and to
vote such Restricted Shares.
(c)
Waiver of Restrictions
. The Administrator, in its sole discretion, may waive any
or all restrictions with respect to Restricted Shares.
(d)
Distribution of Restricted Shares
. If a Participant to whom Restricted Shares
have been granted continues to provide Services to the Company or a Subsidiary during the
Restriction Period set forth in the Award Agreement, and all other applicable provisions of this
Plan have been complied with (including, without limitation, the Participants satisfaction of
applicable tax withholding obligations attributable to the Award), then upon the expiration of the
Restriction Period all restrictions applicable to the Restricted Shares shall lapse, and the
certificate or certificates representing the shares of Common Stock that were granted to the
Participant in the form of Restricted Shares shall be delivered to the Participant.
(e)
Agreement
. An award of Restricted Shares hereunder shall be evidenced by an Award
Agreement containing such terms and provisions as are approved by the Administrator, but not
inconsistent with the Plan. The Company shall execute such Award Agreements upon instructions from
the Administrator.
(f)
Section 83(b) Election
. Within thirty days after date a Participant is awarded
Restricted Shares hereunder, the Participant may file a Code Section 83(b) election with
14
the Internal Revenue Service with respect to all or a portion of the Restricted Shares. The
Code Section 83(b) election, if any, shall be filed in compliance with the Treasury regulations
promulgated pursuant to Code Section 83(b) of the Code.
5.6
Restricted Stock Units
.
(a)
Nature of Restricted Stock Units
. A Restricted Stock Unit is an Award of
hypothetical Common Stock units having a value equal to the Fair Market Value of an identical
number of shares of Common Stock. Each Restricted Stock Unit represents a right to receive one
share of Common Stock from the Company at the payment date set forth in the Award Agreement. Until
the Restricted Stock Units awarded shall have vested and become payable on the payment date
specified in the Award Agreement, the Restricted Stock Units and any related securities, cash
dividends or other property nominally credited to a Restricted Stock Unit account may not be sold,
transferred, or otherwise disposed of and may not be pledged or otherwise hypothecated during such
period (the
Restriction Period
) as the Administrator shall determine. Each Award of Restricted
Stock Units will be in such form and shall contain such terms, conditions and Restriction Periods
as the Administrator shall deem appropriate. The Administrator in its discretion may provide for
an acceleration of the end of the Restriction Period in the terms of any Restricted Stock Unit
Award, at any time, including the occurrence of a Sale of the Company. The terms and conditions of
the Restricted Stock Units may be changed from time to time, and the terms and conditions of
separate Restricted Stock Unit Awards need not be identical, but each Restricted Stock Unit Award
shall include (through incorporation of provisions hereof by reference in the Award Agreement or
otherwise) the substance of each of the following provisions:
(b)
Vesting
. Shares of Common Stock acquired under the Restricted Stock Units may,
but need not, be subject to an additional Restriction Period that specifies a Right of Repurchase
in favor of the Company in accordance with a vesting schedule to be determined by the
Administrator, or forfeiture in the event the consideration was in the form of services. The
Administrator in its discretion may provide for an acceleration of vesting in the terms of any
Restricted Stock Units or any Restricted Shares received as settlement of a Restricted Stock Unit,
at any time, including in the event of a Sale of the Company.
(c)
Termination of Participants Service
. Unless otherwise provided in an Award
Agreement or in an employment agreement the terms of which have been approved by the Administrator,
if a Participants Service terminates for any reason, the Participant shall forfeit the unvested
Restricted Stock Units acquired in consideration of prior or future services, and any or all of the
shares of Common Stock held by the Participant which have not vested as of the date of termination
under the terms of the Award Agreement shall be forfeited and the Participant shall have no rights
with respect to the Award.
(d)
Transferability
. Rights to acquire shares of Common Stock under the Restricted
Stock Units may be transferable by the Participant only upon such terms and conditions as are set
forth in the Award Agreement, as the Administrator shall determine in its discretion, as long as
Common Stock awarded under the Restricted Award remains subject to the terms of the Award
Agreement.
15
(e)
Lapse of Restrictions
. Upon the expiration or termination of the Restriction
Period and the satisfaction of any other conditions prescribed by the Administrator (including,
without limitation, the Participants satisfaction of applicable tax withholding obligations
attributable to the Award), the restrictions applicable to the Restricted Stock Units shall lapse
and a stock certificate for the number of shares of Common Stock with respect to which the
restrictions have lapsed shall be delivered, free of any restrictions except those that may be
imposed by law, the terms of the Plan or the terms of a Restricted Stock Unit Award, to the
Participant or the Participants beneficiary or estate, as the case may be. The Company shall not
deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value
of such fractional share in cash to the Participant or the Participants beneficiary or estate, as
the case may be. The Common Stock certificate shall be issued and delivered and the Participant
will be entitled to the beneficial ownership rights of such Common Stock not later than (i) the
date that is 2-1/2 months after the end of the Participants taxable year for which the Restriction
Period ends and the Participant has a legally binding right to such amounts; (ii) the date that is
2-1/2 months after the end of the Companys taxable year for which the Restriction Period ends and
the Participant has a legally binding right to such amounts, whichever is later; or (iii) such
earlier date as may be necessary to avoid application of Code Section 409A to such Award.
5.7
Performance Awards
.
(a)
Nature of Performance Awards
. A Performance Award is an Award entitling the
recipient to vest in or acquire shares of Common Stock or hypothetical Common Stock units having a
value equal to the Fair Market Value of an identical number of shares of Common Stock that will be
settled in the form of shares of Common Stock upon the attainment of specified performance goals.
The Administrator may make Performance Awards independent of or in connection with the granting of
any other Award under the Plan. Performance Awards may be granted under the Plan to any
Participant, including those who qualify for awards under other performance plans of the Company.
The Administrator in its sole discretion shall determine whether and to whom Performance Awards
shall be made, the performance goals applicable under each Award, the periods during which
performance is to be measured, and all other limitations and conditions applicable to the awarded
shares; provided, however, that the Administrator may rely on the performance goals and other
standards applicable to other performance plans of the Company in setting the standards for
Performance Awards under the Plan. Performance goals shall be based on a pre-established objective
formula or standard that specifies the manner of determining the number of shares of Common Stock
under the Performance Award that will be granted or will vest if the performance goal is attained.
Performance goals shall be determined by the Administrator prior to the time 25% of the service
period has elapsed, but not later than 90 days after the commencement of the period of service to
which the performance goal relates, and may be based on one or more business criteria that apply to
a Participant, a business unit or the Company and its Affiliates. Such business criteria may
include revenue, sales, earnings before interest, taxes, depreciation and amortization (EBITDA),
Adjusted EBITDA, funds from operations, funds from operations per share, operating income, pre-tax
or after-tax income, cash available for distribution, cash available for distribution per share,
net earnings, earnings per share, return on equity, return on assets, return on capital, Implied
Equity Value or other formula measure of enterprise value or economic value added, share price
performance, improvements in the Companys attainment of expense levels,
16
implementing or completion of critical projects, improvement in cash-flow (before or after
tax) or the occurrence of a Sale of the Company. A performance goal may be measured over a
performance period on a periodic, annual, cumulative or average basis and may be established on a
corporate-wide basis or established with respect to one or more operating units, divisions,
subsidiaries, acquired businesses, minority investments, partnerships or joint ventures. More than
one performance goal may be incorporated in a performance objective, in which case achievement with
respect to each performance goal may be assessed individually or in combination with each other.
The Administrator may, in connection with the establishment of performance goals for a performance
period, establish a matrix setting forth the relationship between performance on two or more
performance goals and the amount of the Performance Award payable for that performance period. The
level or levels of performance specified with respect to a performance goal may be established in
absolute terms, as objectives relative to performance in prior periods, as an objective compared to
the performance of one or more comparable companies or an index covering multiple companies, or
otherwise as the Administrator may determine. Performance goals shall be objective and, if the
Company is required to be registered under Section 12 of the Exchange Act, shall otherwise meet the
requirements of Section 162(m) of the Code. Performance goals may differ for Performance Awards
granted to any one Participant or to different Participants. A Performance Award to a Participant
who is a Covered Employee shall (unless the Administrator determines otherwise) provide that in the
event of the Participants termination of Continuous Service prior to the end of the performance
period for any reason, such Award will be payable only (i) if the applicable performance objectives
are achieved and (ii) to the extent, if any, the Administrator shall determine. Such objective
performance goals are not required to be based on increases in a specific business criterion, but
may be based on maintaining the status quo or limiting economic losses.
(b)
Restrictions on Transfer
. Performance Awards and all rights with respect to such
Performance Awards may not be sold, assigned, transferred, pledged or otherwise encumbered.
(c)
Rights as a Stockholder
. A Participant receiving a Performance Award that is
denominated in shares of Common Stock or hypothetical Common Stock units shall have the rights of a
stockholder only as to shares actually received by the Participant under the Plan and not with
respect to shares subject to the Award but not actually received by the Participant. A Participant
shall be entitled to receive a stock certificate evidencing the acquisition of shares of Common
Stock under a Performance Award only upon satisfaction of all conditions specified in the written
instrument evidencing the Performance Award (or in a performance plan adopted by the
Administrator), including, without limitation, the Participants satisfaction of applicable tax
withholding obligations attributable to the Award. The Common Stock certificate shall be issued
and delivered and the Participant shall be entitled to the beneficial ownership rights of such
Common Stock not later than (i) the date that is 2-1/2 months after the end of the Participants
taxable year for which the Administrator certifies that the Performance Award conditions have been
satisfied and the Participant has a legally binding right to such amounts; (ii) the date that is
2-1/2 months after the end of the Companys taxable year for which the Administrator certifies that
the Performance Award conditions have been satisfied and the Participant has a legally binding
right to such amounts, whichever is later; or (iii) such other date as may be necessary to avoid
application of Section 409A to such Awards.
17
(d)
Termination
. Except as may otherwise be provided by the Administrator at any
time, a Participants rights in all Performance Awards shall automatically terminate upon the
Participants termination of Service with the Company and its Affiliates for any reason.
(e)
Acceleration, Waiver, Etc
. Until such date as the Company Stock is required to be
registered under Section 12 of the Exchange Act, or after such date with respect to Participants
who are not Covered Employees, at any time prior to the Participants termination of employment (or
other business relationship) by the Company and its Affiliates, the Administrator may in its sole
discretion accelerate, waive or, subject to Section 8.1, amend any or all of the goals,
restrictions or conditions imposed under any Performance Award. The Administrator in its
discretion may provide for an acceleration of vesting in the terms of any Performance Award at any
time, including the occurrence of a Sale of the Company. However, with respect to a Covered
Employee after the Listing Date, no amendment or waiver of the performance goal will be permitted
and no acceleration will be permitted unless the performance goal has been attained and the award
is discounted to reasonably reflect the time value of money attributable to such acceleration.
(f)
Certification
. Following the completion of each performance period, the
Administrator shall certify in writing, in accordance with the requirements of Section 162(m) of
the Code, whether the performance objectives and other material terms of a Performance Award have
been achieved or met. Unless the Administrator determines otherwise, Performance Awards shall not
be settled until the Administrator has made the certification specified under this Section 5.7(f).
5.8
General Provisions Applicable to Restricted Awards
.
(a)
Purchase Price
. The purchase price of Restricted Awards (including Performance
Awards that may be settled in Common Stock), if any, and the sufficiency thereof shall be
determined by the Administrator, and may be stated as cash, property, prior or future services.
Shares of Common Stock acquired in connection with any Restricted Award may be issued for such
consideration, having a value not less than the par value thereof, as determined from time to time
by the Administrator.
(b)
Consideration
. The consideration for Common Stock acquired pursuant to the
Restricted Award shall be paid either: (i) in cash at the time of purchase; or (ii) in any other
form of legal consideration that may be acceptable to the Administrator in its discretion
including, without limitation, a recourse promissory note, property or a Stock for Stock Exchange,
or prior or future services that the Administrator determines have a value at least equal to the
par value of such Common Stock.
ARTICLE VI.
TERMINATION OF SERVICE; SALE OF THE COMPANY;
CORPORATE EVENT; DISSOLUTION OR LIQUIDATION
6.1
Termination of Service for Cause
. In the event that a Participants Service with
the Company or a Subsidiary shall terminate for Cause, immediately upon such termination of Service
all outstanding Awards granted to the Participant pursuant to this Plan shall be forfeited,
18
such Awards shall terminate, the Company shall cancel any outstanding Restricted Shares, and
such Awards (including any Restricted Shares) shall be of no further force or effect.
6.2
Death or Disability
.
(a) In the event that a Participants Service to the Company or a Subsidiary is terminated
because of Participants death or Disability, the Participant or his estate or legal
representative, as applicable, shall have the right to:
(i) exercise any Options granted hereunder at any time within one year after the date of
termination of the Participants Service due to death or six months after the date of termination
of the Participants Service due to Disability unless a longer period is otherwise required by the
Code (but in no event later than the date on which the Option otherwise would have expired by its
terms) only to the extent the Participant was entitled to exercise his Option immediately prior to
such date of termination; provided that, in addition to the Options held by such Participant that
have already vested as of such date of termination, the lesser of (A) an additional twenty percent
(20%) of the number of shares of Common Stock covered by the Option and (B) the remaining amount of
unvested shares of Common Stock covered by the Option shall become vested and exercisable on the
date of termination due to death or Disability; and
(ii) receive certificates for (x) all Restricted Shares on which the restrictions have lapsed
in accordance with the Plan and the applicable Award Agreement and for which certificates have not
previously been delivered by the Company as of the date of termination, and (y) the
lesser
of (A) an additional twenty percent (20%) of the number of Restricted Shares covered by the
applicable Award Agreement measured as of the date of termination and (B) the remaining Restricted
Shares covered by the applicable Award Agreement on which the restrictions have not lapsed as of
the date of termination. The Company shall as promptly as practical deliver the certificates
required to be delivered under this Section 6.2(a)(ii) to the Participant, his estate, or legal
representative, as applicable.
(b) If a Participant dies during the three-month period after the termination of his Service
to the Company or a Subsidiary and at the time of his death the Participant was entitled to
exercise an Option theretofore granted to him, the Option shall, unless the applicable Option
Agreement provides otherwise, expire one year after the date on which his position as an Employee,
Director or Consultant of the Company or a Subsidiary terminated, but in no event later than the
date on which the Option would have expired if the Participant had lived. Until the expiration of
such period the Option may be exercised by the Participants executor or administrator or by any
person or persons who shall have acquired the Option directly from the Participant by will or in
accordance with the laws of descent and distribution, upon delivery of written notice thereof, a
copy of the will, or such other evidence as the Administrator may determine necessary to establish
the validity of the Transfer, but only to the extent that the Participant was entitled to exercise
the Option at the date of his death and, to the extent the Option is not so exercised, it shall
expire at the end of such period.
6.3
Other Terminations
. In the event that a Participants Service to the Company or a
Subsidiary terminates other than for Cause or due to a Participants death or Disability pursuant
19
to Sections 6.1 or 6.2 above, as applicable, the Participant shall have the right to (i)
exercise any unexercised Options at any time within three months after such termination to the
extent such Participant was entitled to exercise the same immediately prior to such termination and
(ii) receive certificates for all Restricted Shares on which the restrictions have lapsed in
accordance with this Plan and the applicable Award Agreement and for which certificates have not
previously been delivered by the Company as of the date of termination. To the extent that
restrictions on any Restricted Shares have not lapsed as of such termination date, the Company
shall purchase any such Restricted Shares on which the restrictions have not lapsed at the cost
paid by the Participant and the Company shall cancel such Restricted Shares as of such date and
such Restricted Shares shall be of no further force or effect. To the extent that any Option is
not exercised in accordance with this Section 6.3, such Option shall expire at the end of the
three-month period beginning on the termination date.
6.4
Sale of the Company
. With respect to Options, upon a Sale of the Company, all
outstanding Options shall become fully vested and exercisable without regard to the limitations on
exercisability contained in Section 5.4 or the applicable Option Agreement immediately prior to
such transaction. With respect to Restricted Awards, upon a Sale of the Company, all restrictions
shall lapse automatically and the Administrator shall deliver certificates representing such shares
of Common Stock to the Participant as promptly as practical prior to the consummation of such Sale
of the Company. Upon the Sale of the Company, the Committee shall (i) cancel any or all
outstanding Options and Restricted Stock Units under the Plan in consideration for payment to the
Participants thereof of an amount equal to the portion of the consideration that would have been
payable to such Participants pursuant to such transaction giving effect to the accelerated vesting
and as if such Options and Restricted Stock Units had been fully vested immediately prior to such
transaction, less the aggregate exercise price that would have been payable therefore and any
required withholding tax and (ii) cause all Restricted Shares to be purchased for an equivalent
consideration payable in such transaction. Payment of any amount payable pursuant to the preceding
sentence may be made in cash or, in the event that the consideration to be received in such
transaction includes securities or other property, in cash and/or publicly tradable securities in
the Committees discretion.
6.5
Corporate Event
. In the event of any corporate separation or division, including,
but not limited to, a split-up, a split-off or a spin-off of the assets of the Company; a merger,
consolidation or exchange in which the Company is not the surviving entity; or a reverse merger or
other exchange in which the Company is the surviving entity, but the shares of Company Common Stock
outstanding immediately preceding the merger are converted by virtue of the merger or exchange into
other property, whether in the form of securities, cash or otherwise that does not constitute a
Sale of the Company (collectively, a
Corporate Event
), then, the Company, to the extent permitted
by applicable law, but otherwise in its sole discretion may provide for: (i) the continuation of
outstanding Awards by the Company (if the Company is the surviving entity); (ii) the assumption of
the Plan and such outstanding Awards by the surviving entity or its parent; or (iii) the
substitution by the surviving entity or its parent of Awards with substantially the same terms for
such outstanding Awards.
6.6
Dissolution or Liquidation of the Company
. In the event of the proposed
dissolution or liquidation of the Company that does not constitute a Sale of the Company,
outstanding Awards granted hereunder shall terminate as of a date to be fixed by the
20
Administrator; provided that not less than fifteen days prior written notice of the date so
fixed shall be given to each Participant, and each Participant shall have the right, (i) to
exercise his or her Options to the extent they are vested and exercisable and purchase or receive
the full number of shares of Common Stock not previously exercised under such Options as
applicable, if (and only if) such Options have not at the time expired or been terminated and (ii)
to receive certificates for Common Stock under all of Participants Restricted Awards on which all
restrictions have lapsed in accordance with the Plan and the applicable Award Agreement and for
which certificates have not already been delivered prior to such termination date. Failing such
exercise, any unexercised portion of all Options granted hereunder and all Restricted Awards on
which restrictions have not lapsed as of the termination date shall be forfeited and deemed
cancelled as of the effective date of such liquidation or dissolution. The Company shall deliver
the certificates required to be delivered by clause (ii) of the immediately preceding sentence no
later than 3 days prior to the termination date.
6.7
Subject to Repurchase
. At any time as the Common Stock ceases to be Publicly
Traded, all shares of Common Stock purchased by an Optionholder or his or her Permitted Transferee
or issued pursuant to Restricted Stock Units granted hereunder and all Restricted Shares granted
hereunder (regardless of whether or not the restrictions have lapsed) shall be subject to
repurchase pursuant to Section 9.3 of this Plan.
6.8
Alternative Provisions
. The provisions of this ARTICLE VI shall apply to all
Awards granted under the Plan except to the extent expressly provided otherwise in any Award
Agreement.
ARTICLE VII.
ADMINISTRATION OF PLAN
7.1
Administration
. The Plan shall be administered by the Board of Directors or a
Committee of the Board of Directors in accordance with the terms of this ARTICLE VII (the
"
Administrator
). Any such committee appointed by the Board, or the Board itself during such
periods as no such properly constituted and appointed committee exists, is herein referred to as
the
Committee
. At such time as the Common Stock is required to be registered under Section 12 of
the Exchange Act, the Committee shall consist of not less than two Directors appointed to the
Committee by the Board, each of whom shall be a member of the Board and each of whom shall qualify
as (i) a Non-Employee Director and (ii) an Outside Director. However, the Board shall have
discretion to determine whether or not it intends to comply with the exemption requirements of Rule
16b-3 and/or Section 162(m) of the Code. If the Board intends to satisfy such exemption
requirements, with respect to Awards to any Covered Employee and with respect to any insider
subject to Section 16 of the Exchange Act, the Committee shall be a compensation committee of the
Board that at all times consists solely of two or more Non-Employee Directors who are also Outside
Directors. Within the scope of such authority, the Board or the Committee may (i) delegate to a
committee of one or more members of the Board who are not Outside Directors the authority to grant
Awards to eligible persons who are either (A) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Award or (B) not persons
with respect to whom the Company wishes to comply with Section 162(m) of the Code, or (ii) delegate
to a committee of one or more
21
members of the Board who are not Non-Employee Directors the authority to grant Awards to
eligible persons who are not then subject to Section 16 of the Exchange Act. Nothing herein shall
create an inference that an Option is not validly granted under the Plan in the event Awards are
granted under the Plan by a compensation committee of the Board that does not at all times consist
solely of two or more Non-Employee Directors who are also Outside Directors. A majority of the
Committee shall constitute a quorum thereof and the actions of a majority of the Committee approved
at a meeting at which a quorum is present, or actions unanimously approved in writing by all
members of the Committee, shall be the actions of the Committee. Vacancies occurring on the
Committee shall be filled by the Board. The Board shall have full and final authority (i) to
interpret the Plan and each of the Option Agreements and other Award Agreements evidencing
Restricted Shares, Restricted Stock Units and Performance Awards, (ii) to prescribe, amend and
rescind rules and regulations, if any, relating to the Plan, (iii) to make all determinations
necessary or advisable for the administration of the Plan, (iv) to correct any defect, supply any
omission and reconcile any inconsistency in the Plan and any Option Agreements or other Award
Agreements, and (v) to amend any outstanding Option Agreements and other Award Agreements
(collectively
Rights
) for the purpose of modifying the time or manner of vesting, the Purchase
Price or Exercise Price, as the case may be, subject to applicable legal restrictions; provided,
however, that if any such amendment impairs a Participants Rights or increases a Participants
obligations under such Participants Right, such amendment shall also be subject to the
Participants consent. For the purposes of clarity, a purchase of a Participants Rights in
accordance with this Plan or the applicable Award in which the Participant receives consideration
for such Right shall in no event be deemed an impairment of the Participants Rights that requires
consent from such Participant. The determination by the Board in all matters referred to herein
shall be conclusive and binding for all purposes and upon all persons, including, without
limitation, the Company, the stockholders of the Company, the Administrator, and each of the
members thereof, and the Optionholders and the Participants and their respective successors in
interest. The Board may delegate such authority to the Committee (if the Board is not the
Administrator) with respect to this Plan as it deems to be in the Companys best interests in its
sole discretion, pursuant to a resolution of the Board granting such authority. However, the Board
will retain ultimate authority in all matters related to this Plan or any Awards granted hereunder.
7.2
Liability
. No member of the Board or any Committee shall be liable for anything
done or omitted to be done by him or by any other member of the Board or any Committee in
connection with the Plan, except for his own willful misconduct or gross negligence (unless the
Companys Certificate of Incorporation or Bylaws, or any indemnification agreement between the
Company and such person, in each case in accordance with applicable law, provides otherwise). The
Board and any Committee shall have power to engage outside consultants, auditors or other
professional help to assist in the fulfillment of the duties of the Board or any Committee under
the Plan at the Companys expense.
7.3
Determinations
. In making its determinations concerning the Participants who
shall receive Options and Restricted Awards, as well as the number of shares of Common Stock to be
covered thereby and the time or times at which they shall be granted, the Administrator shall take
into account the nature of the Service rendered by such Participants, their past, present and
potential contribution to the Companys success and such factors as the Administrator may deem
relevant. The Administrator shall determine the form of Award Agreements evidencing
22
Awards under the Plan and the terms and conditions to be included therein; provided such terms
and conditions are not inconsistent with the terms of the Plan, the Companys Certificate of
Incorporation or Bylaws. The Administrator may waive any provisions of any Award Agreement,
provided such waiver is not inconsistent with the terms of the Plan, the Companys Certificate of
Incorporation or Bylaws. The determinations of the Administrator under the Plan need not be
uniform and may be made by it selectively among persons who receive, or are eligible to receive,
Options or Restricted Awards under the Plan, whether or not such persons are similarly situated.
All powers exercised by the Administrator hereunder shall be subject to the ultimate authority of
the Board.
7.4
Financial Assistance
. Subject to any prohibitions, restrictions or other
requirements contained in the Securities Laws and any other applicable law, and prior to the
Company becoming a registrant or an issuer under the Securities Laws, the Company is vested with
authority under this Plan to assist any Participant to whom an Option is granted hereunder in the
payment of the Exercise Price payable on exercise of that Option by lending the amount of such
Exercise Price to such Participant pursuant to a full recourse promissory note on such terms and at
such rates of interest and upon such security (or unsecured) as shall have been authorized by or
under authority of the Administrator. Notwithstanding the foregoing, in the event there is a
stated par value of the Common Stock and applicable law requires, the par value of the Common
Stock, if newly issued, shall be paid in cash or cash equivalents. The interest rate payable under
the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid
the imputation of additional interest under the Code. Unless the Board determines otherwise,
shares of Common Stock having a Fair Market Value at least equal to the principal amount of the
loan shall be pledged by the holder to the Company as security for payment of the unpaid balance of
the loan and such pledge shall be evidenced by a pledge agreement, the terms of which shall be
determined by the Board, in its discretion; provided, however, that each loan shall comply with all
applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and
any other governmental agency having jurisdiction. Notwithstanding the foregoing, all financial
assistance provided by the Company to a Participant pursuant to this Section 7.4 shall be repaid in
full no later than immediately prior to the Company becoming a registrant or an issuer under the
Securities Laws.
7.5
Withholding
. The Administrator may establish such rules and procedures as it
considers desirable in order to satisfy any obligation of the Company or its Subsidiaries to
withhold Federal, state or local income tax or other employment taxes with respect to any Awards
granted, exercised or surrendered under the Plan and may impose such requirements as a condition to
the transfer or release of Common Stock to any Participant.
ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN
8.1
Amendment of Plan
. The Plan may be amended at any time and from time to time by
the Board, but no amendment which (i) increases the aggregate number of shares of Common Stock
which may be issued pursuant to Awards granted under the Plan or (ii) changes the class of
individuals eligible to be granted Awards, shall be effective unless and until the same is approved
by the Requisite Holders or the written consent of such Requisite Holders.
23
Notwithstanding the foregoing and subject to the provisions of Section 8.4, no amendment to
the Plan that has a material, adverse affect on a Participant with regard to outstanding Awards
shall be effective, without the consent of such Participant.
8.2
Other Award Provisions
. Options, Restricted Awards and other Performance Awards
granted under this Plan shall contain such other terms and provisions which are not inconsistent
with this Plan or other undertakings of the Participant in his/her capacity as such or as a holder
of Common Stock or Restricted Shares, as the Board or Committee may authorize, including but not
limited to (a) vesting schedules governing the exercisability of such Options and other Awards, (b)
provisions for acceleration of such vesting schedules in certain events, (c) arrangements whereby
the Company may fulfill any tax withholding obligations it may have in connection with the exercise
of such Options, Restricted Awards and Performance Awards, (d) provisions imposing restrictions
upon the transferability of Common Stock acquired on exercise of such Options, Restricted Awards or
Performance Awards, whether required by this Plan, Securities Laws or imposed for other reasons,
and (e) provisions regarding the termination or survival of any such Options, Restricted Awards or
Performance Awards, upon the Participants death, Disability, retirement or other termination of
Service and the extent, if any, to which any such Options may be exercised or the restrictions on
any Restricted Award or Performance Award may be caused to lapse after such event. Incentive
Options shall contain the terms and provisions required of them under the Code.
8.3
Termination
. The Board may, at any time, terminate the Plan as of any date
specified in a resolution adopted by the Board. If not earlier terminated, the Plan shall
terminate on March 26, 2018, the day prior to the tenth anniversary of the Restatement Effective
Date. No Awards may be granted or awarded after the Plan has terminated, but the Administrator
shall continue to supervise the administration of Awards previously granted or awarded.
8.4
Tax Status of Options
. To the extent applicable, the Plan is intended to permit
the issuance of Incentive Options to Employees in accordance with the provisions of Section 422 of
the Code. Subject to the provision of Sections 7.4 and 8.1 of the Plan, the Plan and Option
Agreements may be modified or amended at any time, both prospectively and retroactively, and in a
manner that may affect Options previously granted, if such amendment or modification is necessary
for the Plan and Options granted hereunder to qualify under said provision of the Code. It is
expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary
or advisable to provide eligible Participants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder relating to Incentive
Stock Options or to the nonqualified deferred compensation provisions of Section 409A of the Code
and/or to bring the Plan and/or Awards granted under it into compliance therewith. For the
avoidance of doubt, the Company shall have no liability to any Participant or any other person if
an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an
Option is determined to constitute nonqualified deferred compensation within the meaning of
Section 409A of the Code and the terms of such Option do not satisfy the additional conditions
applicable to nonqualified deferred compensation under Section 409A of the Code. The Option
Agreement shall specify whether the Option is an Incentive Option or Nonqualified Option. To the
extent that any portion of the Options granted under the Plan does not meet the requirements of
Section 422 of the Code or the Option is not specified as an Incentive Option in the Option
Agreement, such Options or portion thereof shall
24
be deemed to be Nonqualified Options. Nothing in the Plan shall be deemed to prohibit the
issuance of Nonqualified Options to Employees, Directors and Consultants under the Plan.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
9.1
Restrictions Upon Grant of Awards
. If the listing upon any stock exchange or the
registration or qualification under any federal or state law of any shares of Common Stock to be
issued pursuant to an Award granted under the Plan (whether to permit the grant of Awards, the
issuance of shares of Common Stock to any Permitted Transferee or the resale or other disposition
of any such shares of Common Stock by or on behalf of the Participants receiving such shares)
should be or become required or desirable for the Company, the Board in its sole discretion may
determine that delivery of the certificates for such shares of Common Stock shall not be made until
such listing, registration or qualification shall have been completed. The Company agrees that it
will use its reasonable efforts to effect any such listing, registration or qualification;
provided, however, that the Company shall not be required to use its reasonable efforts to effect
such registration under the Securities Act of 1933 other than on Form S-8 or such other forms as
may be in effect from time to time calling for information comparable to that presently required to
be furnished under Form S-8. The previous sentence does not grant a Participant registration
rights with respect to Common Stock. In no event shall the Company be required to register shares
of Common Stock for issuance to a Permitted Transferee and any requested exercise of Options by a
Permitted Transferee shall be subject to any applicable prior registration of the shares of Common
Stock issuable upon such exercise. Any Award granted to a Participant who is a resident of
California shall comply with the additional requirements specified in Addendum A attached hereto
and forming part of this Plan.
9.2
Restrictions Upon Resale of Unregistered Stock
. Each Participant shall, if the
Company deems it advisable, represent and agree in writing (i) that any shares of Common Stock
acquired by such Participant pursuant to this Plan will not be sold except pursuant to an effective
registration statement under the Securities Act of 1933 or pursuant to an exemption from
registration under said Act, (ii) that such Participant is acquiring such shares of Common Stock
for his or her own account and not with a view to the distribution thereof and (iii) to such other
customary matters as the Company may request. In such case, no shares of Common Stock shall be
issued to such Participant unless such Participant provides such representations and agreements and
the Company is reasonably satisfied that such representations and agreements are correct.
9.3
Repurchase by the Company and/or its Designee; Restriction on Transfer; Right of First
Refusal
.
(a) At any time the Common Stock ceases to be Publicly Traded, the Company and its Designee
shall have the right (the
Repurchase Right
), to repurchase any shares of Common Stock that were
acquired pursuant to the exercise or vesting of an Award under this Plan (
Award Shares
) (or
securities into which such Award Shares have been converted) at the Repurchase Price (as
hereinafter defined) upon termination of a Participants Service with the Company or its
Subsidiaries. To the extent that a Participant holds exercisable
25
Options at the time of such termination of Service, the Company or its Designee, as
applicable, may elect to purchase such exercisable Options in the same manner as the Option Shares
at a price equal to the Repurchase Price less the Exercise Price of such exercisable Options.
Notwithstanding the foregoing, the Companys and its Designees right to repurchase Award Shares
under this Section 9.3 shall not apply during any period the Companys Common Stock is Publicly
Traded.
(b) The Repurchase Price to be paid by the Company or a Designee if the Participants Service
terminates or is terminated for any reason shall be the Fair Market Value of the Common Stock
underlying the vested Award Shares.
(c) To the extent that the Company or its Designee has the right to repurchase Award Shares,
the Company or its Designee may exercise such right by delivery of written notice to the
Participant (or such other holder of Award Shares) stating the full number of Award Shares that the
Company or its Designee has elected to repurchase, the Repurchase Price per Award Share, and the
time of repurchase (which time shall not be earlier than 5 days from the date of notice). The
Repurchase Right may be exercised until the later of (i) fifteen (15) days after the expiration of
the Award, (ii) two hundred (200) days after (A) the latest purchase by, vesting or transfer from
the Company of Award Shares to the Participant or (B) the latest receipt by Participant of
certificates representing Award Shares on which the restrictions have lapsed and for which
certificates have not been delivered by the Company and (iii) sixty (60) days after the date of
Participants termination of Service to the Company or a Subsidiary. At the time of repurchase,
the Participant shall deliver the certificate or certificates representing his Award Shares to the
Company or its Designee, as applicable, at its offices and shall execute any stock powers or other
instruments as may be necessary to transfer full ownership of the Option Shares or Restricted
Shares to the Company or its Designee. At the time of repurchase, the Company or its Designee
shall issue their own check within ten (10) days to the Participant in an amount equal to the
aggregate Repurchase Price for the Award Shares for which the Company or its Designee has exercised
its right to repurchase, less any amounts required to be withheld under applicable laws. In the
event of Participants death or Disability, the Companys or its Designees right to purchase and
the manner of purchase shall apply with regard to the Participants estate, beneficiary,
administrator or personal representative.
(d) If the Companys Common Stock is not Publicly Traded, then during the period a Participant
is employed by the Company or a Subsidiary, and for six months after such Participants Service to
the Company or a Subsidiary is terminated, such Participant shall not, except as provided in this
Plan with respect to a Sale of the Company or a Corporate Event, transfer, pledge, mortgage or
otherwise encumber or make any disposition of Option Shares or Restricted Shares whatsoever,
whether voluntary or involuntary without the Companys prior written consent (collectively, a
Disposition
), other than to the Company or a Designee. Any purported or attempted Disposition of
shares of Common Stock made in violation of this Section 9.3(d) shall be void and of no force and
effect.
(e) If (i) the Company or a Designee does not exercise its Repurchase Right as described in
this Section 9.3, (ii) the Participant is not otherwise prohibited from making a Disposition of
shares of Common Stock pursuant to this Plan and (iii) the Companys Common Stock is not Publicly
Traded, then if a Participant receives a written offer from any bona fide
26
third party purchaser(s) to acquire some or all of the Option Shares of the Participant (the
Offered Shares
), and the Participant intends to accept such offer, the Participant shall first
make an irrevocable offer (the
Offer
) to sell the Offered Shares to the Company. The Offer shall
be written and either actually delivered or sent by certified or registered mail, return receipt
requested, to the Company and shall identify the Offered Shares, the name and address of the
prospective purchaser and the terms of the Offer by said prospective purchaser to purchase the
Offered Shares. The date of the Offer shall be the date on which a notice containing the Offer has
been actually delivered or sent to the Company. The Company or a Designee shall have the
irrevocable right and option (the
Right of First Refusal
), for 60 days following the date such
notice has been actually delivered or sent, to purchase the Offered Shares at the price stipulated
in the Offer and, in the sole discretion of the Company or the Designee, either for cash or on the
same credit terms as those contained in the Offer. If the stated price set forth in the Offer
includes any property other than cash, such stated price shall be deemed to be the amount of any
cash included in the stated price plus the value, as determined by the Company, of such other
property included in such price. The Company or the Designee shall exercise its Right of First
Refusal to purchase the Offered Shares hereunder by actual delivery to the Participant of a written
notice of intent to purchase such Offered Shares or by sending such notice by certified or
registered mail, return receipt requested, properly stamped and addressed to the address of the
Participant. The sale and purchase shall be closed at the offices of the Company or the Designee
or its counsel on such date within 30 days thereafter as the Company or the Designee shall
determine. Upon the exercise of the Right of First Refusal, the Company or the Designee shall be
obligated at the closing to make payment as provided above and the Participant shall be obligated
at the closing to duly endorse and deliver to the Company or the Designee the certificate(s)
evidencing the Offered Shares. Certificates representing the Offered Shares purchased shall be
delivered by the Participant at the closing against payment. Each such certificate shall be
endorsed in blank or have attached a duly executed stock power, in each case in proper form for
transfer. By delivering the certificates at the closing, the Participant shall be deemed to
represent (and so shall certify if requested by the Company or the Designee) that the sale of the
Common Stock has been duly authorized, the certificates evidencing the Common Stock have been duly
and validly endorsed and delivered for transfer to the purchaser and that the Company will receive
good title to such shares, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders agreements, voting trusts, and preemptive rights.
9.4
Adjustments
. The number of shares of Common Stock authorized for issuance under
the Plan, as well as the price to be paid and the number of shares issued upon exercise of
outstanding Options, shall be adjusted by the Company to reflect any stock split, reverse stock
split, stock dividend, recapitalization, combination, reclassification, dissolution or liquidation
of the Company, any corporate separation or division (including, but not limited to, a split-up, a
split-off or a spin-off), a merger, consolidation or exchange, a reverse merger or similar
transaction which does not constitute a Sale of the Company. All adjustments permitted by this
Plan shall be made by the Administrator in a manner that is intended to provide an appropriate
adjustment that neither increases or decreases the value of such Award as in effect immediately
prior to such corporate change, and the Administrators determination as to what adjustments shall
be made and the extent thereof shall be final, binding and conclusive for all purposes of the Plan
and of each Option Agreement or other Award Agreement; provided, however, that each Incentive
Option granted pursuant to the Plan shall not be adjusted in a manner that causes such
27
Incentive Option to fail to continue to qualify as an Incentive Option without the prior
consent of the Optionholder thereof.
9.5
Use of Proceeds
. The proceeds from the sale of Common Stock pursuant to Options
and Restricted Shares granted under the Plan shall constitute general funds of the Company and may
be used for such corporate purposes as the Company may determine.
9.6
Substitution of Options
.
(a) The Administrator may, without the consent of the holder of any Option granted under the
Plan, cancel such Option and grant a new Option in substitution therefor, provided that the new
Option as so substituted shall satisfy all of the requirements of the Plan as of the date such new
Option is granted.
(b) Options may be granted under the Plan in substitution for options held by individuals who
are employees, directors or consultants of another corporation and who become Employees, Directors
or Consultants of the Company or any Subsidiary of the Company eligible to receive Options pursuant
to the Plan as a result of a merger, consolidation, exchange, reorganization or similar event
described in ARTICLE VI. The terms and conditions of any Options so granted may vary from those
set forth in the Plan to the extent deemed appropriate by the Administrator in order to conform the
provisions of Options granted pursuant to the Plan to the provisions of the options in substitution
for which they are granted.
9.7
Restrictive Legends
.
(a) Certificates representing shares of Common Stock delivered pursuant to the exercise of
Options and Restricted Stock Units and certificates representing Restricted Shares shall bear an
appropriate legend referring to the terms, conditions and restrictions described in this Plan. Any
attempt to dispose of any such shares of Common Stock or Restricted Shares in contravention of the
terms, conditions and restrictions described in the Plan shall be ineffective, null and void, and
the Company shall not effect any such transfer on its books.
(b) Any shares of Common Stock of the Company received by a Participant (or his or her heirs,
legatees, distributees or legal representative) or any Restricted Shares received as a stock
dividend on, or as a result of a stock split, combination, exchange of shares, reorganization,
merger, consolidation or otherwise with respect to, shares of Common Stock received pursuant to the
exercise or grant of Awards, shall be subject to the terms and conditions of the Plan and bear the
same legend as the shares received pursuant to the exercise or the grant of Awards.
9.8
Market Stand-Off
. Each Option Agreement and Award Agreement shall provide that in
connection with any underwritten public offering by the Company of its equity securities pursuant
to an effective registration statement filed under the Securities Act of 1933, as amended,
including the Companys initial public offering, the Participant shall agree not to sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the repurchase of, transfer the
economic consequences of ownership or otherwise dispose or transfer for value or otherwise agree to
engage in any of the foregoing transactions with respect to any Common Stock acquired pursuant to
this Plan without the prior written consent of the Company or its underwriters, for
28
such period of time from and after the effective date of such registration statement as may be
requested by the Company or such underwriters (the
Market Stand-Off
). In order to enforce the
Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Common
Stock acquired under this Plan until the end of the applicable stand-off period. If there is any
change in the number of outstanding shares of Common Stock by reason of a stock split, reverse
stock split, stock dividend, recapitalization, combination, reclassification, dissolution or
liquidation of the Company, any corporate separation or division (including, but not limited to, a
split-up, a split-off or a spin-off), a merger or consolidation; a reverse merger or similar
transaction, then any new, substituted or additional securities which are by reason of such
transaction distributed with respect to any Common Stock subject to the Market Stand-Off, or into
which such Common Stock thereby become convertible, shall immediately be subject to the Market
Stand-Off.
9.9
Notices
. Any notice required or permitted hereunder shall be sufficiently given
only if delivered personally, sent by registered or certified mail, return receipt requested,
postage prepaid, addressed to the Company at its principal place of business or sent by a
nationally recognized overnight delivery service, and to the Participant at the address on file
with the Company at the time of grant hereunder, or to such other address as either party may
hereafter designate in writing by notice similarly given by one party to the other.
9.10
Prior Option Agreements
. Each Option Agreement entered into prior to the
Restatement Effective Date (as hereinafter defined) is hereby amended to conform to the exercise
provisions of Section 5.4 of the Plan.
9.11
Restatement Effective Date
. The Board has determined that it is in the best
interest of the Company to amend and restate the Cinemark Holdings, Inc. 2006 Long Term Incentive
Plan, as amended to the date hereof, as provided herein. This amendment and restatement of the
Cinemark Holdings, Inc. Long Term Incentive Plan is effective as of
March 27, 2008 (the
Restatement Effective Date
) and applies to all Awards heretofore granted under (i) the Cinemark,
Inc. 2004 Long Term Incentive Plan, (ii) the Cinemark Holdings, Inc. 2006 Long Term Incentive Plan,
as amended, and (iii) all Awards that may hereafter be made under the Plan. The grant of any Award
hereunder shall be contingent upon stockholder approval of the Plan being obtained within 12 months
after the Board approves the Plan.
[Signature page follows]
29
IN WITNESS WHEREOF, upon authorization of the Board of Directors, the undersigned has caused
this Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan, to be executed on
the date specified below effective as of the 27th day of March, 2008.
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CINEMARK HOLDINGS, INC.
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Dated: April 4, 2008
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By:
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Name:
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Alan W. Stock
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Title:
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Chief Executive Officer
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Signature
Page to Cinemark Holdings, Inc. 2006 LTIP
Addendum A
ADDENDUM A TO
AMENDED AND RESTATED CINEMARK HOLDINGS, INC.
2006 LONG TERM INCENTIVE PLAN
FOR GRANTS MADE TO CALIFORNIA RESIDENTS
Securities sold and options granted in California prior to the Listing Date to employees,
directors, managers or consultants of Cinemark Holdings, Inc. or any of its Affiliates shall be
subject to the following additional provisions, which shall be part of the Amended and Restated
Cinemark Holdings, Inc. 2006 Long Term Incentive Plan. This Addendum A shall not apply to any
Awards granted on or after the Listing Date.
ARTICLE I.
EXERCISE AND PURCHASE PRICE
1.1
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Exercise Price Restrictions Applicable to Non-Qualified Stock Options
.
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(a)
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In the case of Non-Qualified Stock Options, the Exercise Price shall be
determined in the sole discretion of the Administrator; provided, however, that the
Exercise Price shall be no less than 100% of the Fair Market Value of the shares of
Stock on the Date of Grant of the Non-Qualified Stock Option.
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(b)
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A Ten Percent Shareholder shall not be eligible for designation as an
Optionholder, unless (i) the Exercise Price of a Non-Qualified Stock Option is at least
110% of the Fair Market Value of a Share on the Date of Grant.
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1.2
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Purchase Price Restrictions Applicable to Restricted Shares
.
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(a)
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Each Award Agreement for Restricted Shares shall state the price
at which the Stock subject to such Restricted Share Agreement may be purchased
(the
Purchase Price
), which, with respect to Restricted Shares, shall be
determined in the sole discretion of the Administrator; provided, however, that
the Purchase Price shall be no less than 85% of the Fair Market Value of the
shares of Common Stock on the Award date of the Restricted Stock subject to the
Award Agreement.
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(b)
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A Ten Percent Shareholder shall not be eligible for An Award
Agreement for Restricted Shares unless the Purchase Price (if any) is at least
100% of the Fair Market Value of a share of Common Stock.
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(c)
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At the discretion of the Administrator, Restricted Shares may be
awarded under the Plan in consideration of services rendered to the Company, a
parent or a Subsidiary prior to the Award.
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1.3
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Non-Applicability
. The Exercise Price restrictions applicable to Non-Qualified Stock
Options required by Section 1.1 hereof and the Purchase Price restrictions applicable to
Restricted Shares required by Section 1.2 hereof shall be inoperative if (a) the shares of
Stock to be issued upon payment of the Purchase Price have been registered under a then
currently effective registration statement under applicable federal securities laws and the
Company (i) is subject to the reporting requirements of Section 13 or 15(d) of the
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Exchange
Act or becomes an investment company registered or required to be registered under the
Investment
Company Act of 1940, and (ii) the Companys Stock is listed or approved for listing upon
notice of issuance on a national securities exchange or on the National Market System of the
Nasdaq Stock Market (or any successor to that entity), if the exchange or Nasdaq Stock
Market (or its successor) has been certified by rule or order of the California Commissioner
of Corporations; or (b) a determination is made by counsel for the Company that such
Exercise Price restrictions are not required in the circumstances under applicable federal
or state securities laws.
ARTICLE II.
EXERCISABILITY AND VESTING
2.1
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Options
. Each Stock Option Agreement shall specify the date when all or any
installment of the Option becomes exercisable. Unless a determination is made by counsel for
the Company that Section 25102(o) of the California Corporations Code no longer requires and
another exemption from qualification under the California Corporations Code applies which does
not require, an Option granted to an Optionholder who is not an officer of the Company, a
Director or a Consultant shall become exercisable at least as rapidly as 20% per year over the
five-year period commencing on the Date of Grant. Subject to the preceding sentence, the
exercise provisions of any Stock Option Agreement shall be determined by the Administrator, in
its sole discretion.
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2.2
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Restricted Shares
. The Restricted Shares will be forfeited immediately upon
termination of Participants employment with the Company or one of its Subsidiaries, unless
otherwise expressly provided herein or in the Award Agreement pursuant to such Restricted
Shares were granted. Unless a determination is made by counsel for the Company that Section
25102(o) of the California Corporations Code no longer requires and another exemption from
qualification under the California Corporations Code applies which does not require, an Award
of Restricted Shares granted to an employee who is not an officer of the Company, a Director,
a manager or a Consultant shall provide that the risk of forfeiture and any right to
repurchase unvested stock at less than Fair Market Value shall lapse at a rate of at least 20%
per year over five years from the date the Award Agreement for Restricted Shares is granted.
Subject to the preceding sentence, the vesting and forfeiture provisions of any Restricted
Share Award Agreement shall be determined by the Administrator, in its sole discretion.
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ARTICLE III.
TERM
3.1
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Term of Option
. Unless Optionholders Service with the Company, a parent, or
Subsidiaries is terminated for Cause, in no event may the right to exercise any Option in the
event of termination of Service (to the extent that the Optionholder is entitled to exercise
on the date of termination of Service) be (i) less than six months from the date of
termination if termination was caused by death or Disability and (ii) less than 30 days from
the date of termination if termination was caused by other than death, Disability or Cause.
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3.2
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Limits on Post Termination Exercise
. The provisions of Section 3.1 may not (i) allow
any Option to be exercised after the expiration of ten years after the date the Option is
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A-2
granted or (ii) preclude a Ten Percent Shareholder from receiving an ISO satisfying the
requirements of Section 422(c)(5) of the Code, including without limitation, that such ISO by
its terms not be exercisable after the expiration of five years from the Date of Grant.
ARTICLE IV.
REPURCHASE RIGHTS
4.1
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Lapse of Repurchase Rights
. For purposes of the Repurchase Right under Section 9.3
of the Plan upon termination of Service, the Repurchase Price shall be presumptively
reasonable if:
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(a)
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In the case of vested Common Stock, it is not less than the Fair Market Value
of the Common Stock to be repurchased on the date of termination of Service, and the
Repurchase Right must be exercised for cash or cancellation of purchase money
indebtedness for the Common Stock within 90 days of termination of Service (or in the
case of Common Stock issued upon exercise of Options after the date of termination,
within 90 days after the date of exercise), and the Repurchase Right terminates when
the Companys securities become Publicly Traded.
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(b)
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In the case of unvested Common Stock, it is at the lesser of the original
purchase price or Fair Market Value, provided the Repurchase Right at the original
purchase price lapses at the rate of at least 20% per year over five years from the
date the Option Agreement or Award Agreement for Restricted Shares is granted (without
respect to the date the Option or Award Agreement was exercised or became exercisable)
and the Repurchase Right must be exercised for cash or cancellation of purchase money
indebtedness for the Common Stock within 90 days of termination of Service (or in the
case of Common Stock issued upon exercise of Options after the date of termination,
within 90 days after the date of exercise).
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4.2
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Additional Restrictions Permitted
. In addition to the restrictions set forth in
clauses (a) and (b) of Section 4.1, the Common Stock held by an officer, a Director, a manager
or a Consultant of the Company or an Affiliate may be subject to additional or greater
restrictions.
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ARTICLE V.
ADDITIONAL COMPLIANCE PROVISIONS
5.1
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Voting Rights
. Notwithstanding anything to the contrary in the Plan, Common Stock
issued pursuant to the Plan shall carry equal voting rights on all matters where such vote is
required by applicable law.
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5.2
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Financial Information
. To the extent necessary to comply with California law, the
Company each year shall furnish to Participants its balance sheet and income statement, unless
such Participants are limited to key Employees whose duties with the Company assure them
access to equivalent information.
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