e424b3
PROSPECTUS
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-175331
CINEMARK USA, INC.
Offer to Exchange
all outstanding
7.375% Senior Subordinated Notes due 2021
($200,000,000 aggregate
principal amount)
for
7.375% Senior Subordinated
Notes due 2021
which have been registered
under the Securities Act of 1933, as amended
The exchange offer will expire at midnight, New York City
time, on September 7, 2011, unless we extend the exchange
offer. We do not currently intend to extend the exchange
offer.
|
|
|
|
|
We are offering to exchange up to $200,000,000 aggregate
principal amount of new 7.375% Senior Subordinated Notes
due 2021, or Exchange Notes, which have been registered under
the Securities Act of 1933, as amended, or the Securities Act,
for an equal principal amount of our outstanding
7.375% Senior Subordinated Notes due 2021, or Initial
Notes, issued in a private offering on June 3, 2011. We
refer to the Exchange Notes and the Initial Notes collectively
as the Notes.
|
|
|
|
We will exchange all Initial Notes that are validly tendered and
not validly withdrawn prior to the closing of the exchange offer
for an equal principal amount of Exchange Notes that have been
registered.
|
|
|
|
You may withdraw tenders of Initial Notes at any time prior to
the expiration of the exchange offer.
|
|
|
|
The terms of the Exchange Notes to be issued are identical in
all material respects to the Initial Notes, except for transfer
restrictions and registration rights that do not apply to the
Exchange Notes, and different administrative terms.
|
|
|
|
The Exchange Notes, together with any Initial Notes not
exchanged in the exchange offer, will constitute a single class
of debt securities under the indenture governing the Notes.
|
|
|
|
The exchange of Initial Notes will not be a taxable exchange for
United States federal income tax purposes.
|
|
|
|
We will not receive any proceeds from the exchange offer.
|
|
|
|
No public market exists for the Initial Notes. We do not intend
to list the Exchange Notes on any securities exchange and,
therefore, no active public market is anticipated.
|
See Risk Factors beginning on page 14 for a
discussion of factors that you should consider before tendering
your Initial Notes.
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. The related letter of transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
underwriter within the meaning of the Securities
Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Initial Notes
where such Initial Notes were acquired by such broker-dealer as
a result of market-making activities or other trading
activities. We have agreed that, for a period of 12 months
after the consummation of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection
with any such resale. See Plan of Distribution.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is August 9, 2011.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
14
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
43
|
|
|
|
|
63
|
|
|
|
|
76
|
|
|
|
|
101
|
|
|
|
|
102
|
|
|
|
|
104
|
|
|
|
|
149
|
|
|
|
|
152
|
|
|
|
|
155
|
|
|
|
|
155
|
|
|
|
|
156
|
|
|
|
|
158
|
|
|
|
|
159
|
|
|
|
|
159
|
|
In this prospectus, references to we,
us, our, the issuer, the
Company or Cinemark are to the combined
business of Cinemark USA, Inc. and all of its consolidated
subsidiaries unless otherwise indicated or the context requires
otherwise.
This prospectus incorporates important business and financial
information about us that is not included in or delivered with
this prospectus. This information is available without charge to
security holders upon written or oral request to Cinemark USA,
Inc., 3900 Dallas Parkway, Suite 500, Plano, TX 75093,
Attn: Michael D. Cavalier, Corporate Secretary, telephone number
(972) 665-1000.
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE
INFORMATION NO LATER THAN AUGUST 30, 2011, WHICH IS FIVE
BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER
UNLESS WE DECIDE TO EXTEND THE EXPIRATION DATE.
WHERE YOU
CAN FIND MORE INFORMATION
You should rely only upon the information contained and
incorporated by reference in this prospectus. We have not
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not
making an offer to exchange these securities in any jurisdiction
where the offer or sale is not permitted. You should assume the
information appearing in this prospectus is accurate only as of
the date on the front cover of this prospectus. Our business,
financial condition, results of operations and prospects may
have changed since that date.
We and our parent company, Cinemark Holdings, Inc., or Cinemark
Holdings, currently file periodic reports and other information
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. Under the terms of the indenture governing the
Notes, we have agreed that, whether or not we are required to do
so by the rules and regulations of the Securities and Exchange
Commission, or the Commission, after the exchange offer is
completed and for so long as any of the Exchange Notes remain
outstanding, we will furnish
to the trustee and the holders of the Exchange Notes and, upon
written request, to prospective investors, and file with the
Commission (unless the Commission will not accept such a filing)
(i) all quarterly and annual financial information that
would be required to be contained in a filing with the
Commission on
Forms 10-Q
and 10-K if
we were required to file such reports, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations and, with respect to
the annual information only, a report thereon by our independent
registered public accountant and (ii) all reports that would be
required to be filed with the Commission on
Form 8-K
if we were required to file such reports, in each case within
the time period specified in the rules and regulations of the
Commission. In addition, for so long as any of the Exchange
Notes remain outstanding, we have agreed to make available to
any holder of the Exchange Notes or prospective purchaser of the
Exchange Notes, at their request, the information required by
Rule 144A(d)(4) under the Securities Act.
This prospectus contains or incorporates by reference summaries
of certain agreements that we have entered into, such as the
indenture governing the Notes, the exchange and registration
rights agreement, or the registration rights agreement, and the
agreements described under Description of Certain Debt
Instruments and Certain Relationships and Related
Party Transactions. The descriptions contained or
incorporated by reference in this prospectus of these agreements
do not purport to be complete and are subject to, or qualified
in their entirety by reference to, the definitive agreements.
Copies of the definitive agreements will be made available
without charge to you by making a written or oral request to us.
MARKET
AND INDUSTRY DATA
Information regarding market share, market position and industry
data pertaining to our business contained in this prospectus
consists of estimates based on data and reports compiled by
industry professional organizations, including the Motion
Picture Association of America, or the MPAA, industry analysts
and our knowledge of our revenues and markets.
We take responsibility for compiling and extracting, but have
not independently verified, market and industry data provided by
third parties, or by industry or general publications.
Similarly, while we believe our internal estimates are reliable,
our estimates have not been verified by any independent sources.
Although we do not make any representation as to the accuracy of
information described in these paragraphs, we believe and act as
if the information is accurate.
Statements as to our market position are based on the most
currently available data. While we are not aware of any
misstatements regarding our industry data presented herein, our
estimates involve risks and uncertainties and are subject to
change based on various factors, including those discussed under
the heading Risk Factors in this prospectus.
TRADEMARKS,
TRADE NAMES AND SERVICE MARKS
We own or have rights to use the trademarks, service marks and
trade names that we use in conjunction with the operation of our
business. Some of the more important trademarks that we own or
have rights to use that appear in this prospectus include the
Cinemark and Century marks, which may be registered in the
United States and other jurisdictions. We do not own any
trademark, trade name or service mark of any other company
appearing in this prospectus.
ii
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act that are based on our
current expectations, assumptions, estimates and projections
about our business and our industry. They include statements
relating to:
|
|
|
|
|
future revenues, expenses and profitability;
|
|
|
|
the future development and expected growth of our business;
|
|
|
|
projected capital expenditures;
|
|
|
|
attendance at movies generally, or in any of the markets in
which we operate;
|
|
|
|
the number or diversity of popular movies released and our
ability to successfully license and exhibit popular films;
|
|
|
|
national and international growth in our industry;
|
|
|
|
competition from other exhibitors and alternative forms of
entertainment; and
|
|
|
|
determinations in lawsuits in which we are defendants.
|
You can identify forward-looking statements by the use of words
such as may, should, could,
estimates, predicts,
potential, continue,
anticipates, believes,
plans, expects, future and
intends and similar expressions which are intended
to identify 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. In evaluating these forward-looking
statements, you should carefully consider the risks and
uncertainties described in Risk Factors and
elsewhere included or incorporated by reference in this
prospectus. These forward-looking statements reflect our view
only as of the date of this prospectus. We do not undertake any
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. All forward-looking
statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary
statements and risk factors contained throughout or incorporated
by reference in this prospectus.
iii
PROSPECTUS
SUMMARY
This summary contains basic information about us and the
exchange offer. This summary may not contain all of the
information that is important to you. You should read this
summary together with the entire prospectus, including the more
detailed information in our consolidated financial statements
and related notes and schedules incorporated by reference in
this prospectus. Except as otherwise indicated by the context,
references in this prospectus to we, us,
our, the issuer or Cinemark
are to the combined business of Cinemark USA, Inc. and all of
its consolidated subsidiaries, and references to North America
are to the United States, or the U.S., and Canada. Unless
otherwise specified, all operating data is as of March 31,
2011.
Our
Company
We are a leader in the motion picture exhibition industry in
terms of both attendance and the number of screens in operation.
We operated 431 theatres and 4,941 screens in the
U.S. and Latin America as of March 31, 2011, and
approximately 241.2 million patrons attended our theatres
worldwide during the year ended December 31, 2010. Our
circuit is the third largest in the U.S. with
292 theatres and 3,816 screens in 39 states. We
are the most geographically diverse circuit in Latin America
with 139 theatres and 1,125 screens in 13 countries.
Our modern theatre circuit features stadium seating in
approximately 86% of our first-run auditoriums.
We selectively build or acquire new theatres in markets where we
can establish and maintain a strong market position. We believe
our portfolio of modern theatres provides a preferred
destination for moviegoers and contributes to our significant
cash flows from operating activities. Our significant presence
in the U.S. and Latin America has made us an important
distribution channel for movie studios, particularly as they
look to capitalize on the expanding worldwide box office. Our
market leadership is attributable in large part to our senior
executives, whose years of industry experience range from 14 to
52 years and who have successfully navigated us through
multiple industry and economic cycles.
Revenues, operating income and net income attributable to
Cinemark USA, Inc. for the year ended December 31, 2010,
were $2,141.1 million, $294.9 million and
$147.4 million, respectively, and were $483.1 million,
$49.2 million and $25.2 million, respectively, for the
three months ended March 31, 2011. At March 31, 2011,
we had cash and cash equivalents of $462.6 million and
long-term debt of $1,530.0 million. Approximately
$420.1 million, or 27.5%, of our total long-term debt
accrues interest at variable rates and approximately
$10.8 million of our long-term debt matures in 2011.
During 2009, we began converting our circuit from film-based to
digital projection technology. Digital projection technology
gives us greater flexibility in programming and facilitates the
exhibition of live and
pre-recorded
alternative entertainment. We also developed a premium
experience auditorium concept utilizing large screens and the
latest in digital projection and sound technologies, which we
call our Cinemark XD Extreme Digital Cinema, or XD. The XD
experience includes
wall-to-wall
and
ceiling-to-floor
screens,
wrap-around
sound and a maximum comfort entertainment environment for an
intense sensory experience. We charge a premium price for the XD
experience. The XD technology does not require special format
movie prints, which provides us the flexibility to play any
available digital print we choose, including
3-D content,
in the XD auditorium. We currently have 50 XD auditoriums in our
theatres and have plans to install 35 to 40 more XD
auditoriums during the remainder of 2011.
During late 2010, we introduced our NextGen concept, which
features
wall-to-wall
and
ceiling-to-floor
screens and the latest digital projection and sound technologies
in all of the auditoriums of a complex. These theatres generally
also have an XD auditorium, which offers the
wall-to-wall
and
ceiling-to-floor
screen in a larger auditorium with enhanced sound and seating.
Most of our future domestic theatres will incorporate this
NextGen concept. We also converted our six existing IMAX screens
to digital technology and purchased two additional digital IMAX
systems to convert two of our existing screens during 2011.
1
Competitive
Strengths
We believe the following strengths allow us to compete
effectively:
Disciplined Operating Philosophy. We generated
operating income and net income attributable to Cinemark USA,
Inc. of $294.9 million and $147.4 million,
respectively, for the year ended December 31, 2010 and
$49.2 million and $25.2 million, respectively, for the
three months ended March 31, 2011. Our solid operating
performance is a result of our disciplined operating philosophy
that centers on building high quality assets, while negotiating
favorable theatre level economics, controlling operating costs
and effectively reacting to economic and market changes.
Leading Position in Our U.S. Markets. We
have a leading market share in the U.S. metropolitan and
suburban markets we serve. For the year ended December 31,
2010, we ranked either first or second based on box office
revenues in 25 out of our top 30 U.S. markets, including
the San Francisco Bay Area, Dallas, Houston and Salt Lake
City.
Strategically Located in Heavily Populated Latin American
Markets. Since 1993, we have invested throughout
Latin America in response to the continued growth of the region.
We currently operate 139 theatres and 1,125 screens in
13 Latin American countries. Our international screens generated
revenues of $564.2 million, or 26.4%, of our total revenue,
for the year ended December 31, 2010. We have successfully
established a significant presence in major cities in the
region, with theatres in 12 of the 15 largest metropolitan
areas. With a geographically diverse circuit, we are an
important distribution channel to the movie studios.
Approximately 84% of our international screens offer stadium
seating. We are well-positioned with our modern, large-format
theatres to take advantage of these factors for further growth
and diversification of our revenues.
State-of-the-Art
Theatre Circuit. We offer
state-of-the-art
theatres, which we believe makes our theatres a preferred
destination for moviegoers in our markets. We feature stadium
seating in approximately 86% of our first run auditoriums.
During 2010, we increased the size of our circuit by adding
138 state-of-the-art
screens worldwide. We currently have commitments to build 220
additional new screens over the next three years. We plan to
install digital projection technology in 100% of our
U.S. and international auditoriums of which
40-50% will
be 3-D
compatible. We also converted our six existing IMAX screens to
digital technology and purchased two additional digital IMAX
systems to convert two of our existing screens during 2011. We
currently have 50 XD auditoriums in our theatres and have plans
to install 35 to 40 more XD auditoriums during the remainder of
2011. Our new NextGen theatre concept provides further credence
to our commitment to provide a continuing
state-of-the-art
movie-viewing experience to our patrons.
Solid Balance Sheet with Significant Cash Flow from Operating
Activities. We generate significant cash flow
from operating activities as a result of several factors,
including a geographically diverse and modern theatre circuit
and managements ability to control costs and effectively
react to economic and market changes. Additionally, owning land
and buildings for 42 of our theatres is a strategic advantage
that enhances our cash flows. We believe our expected level of
cash flow generation will provide us with the financial
flexibility to continue to pursue growth opportunities, support
our debt payments and continue to make dividend payments to our
stockholders. In addition, as of March 31, 2011, we owned
approximately 17.5 million units of National CineMedia,
LLC, or NCM, convertible into shares of National CineMedia,
Inc., or NCMI, common stock, and owned approximately
1.2 million shares of common stock of RealD, Inc., or
RealD, the company from which we license our
3-D systems.
Our investment in both NCM and RealD, offer us additional
sources of cash flow. As of March 31, 2011, we had cash and
cash equivalents of $462.6 million.
Experienced Management. Led by Chairman and
founder Lee Roy Mitchell, Chief Executive Officer Alan Stock,
President and Chief Operating Officer Timothy Warner, Chief
Financial Officer Robert Copple and President-International
Valmir Fernandes, our management team has many years of theatre
operating experience, ranging from 14 to 52 years,
executing a focused strategy that has led to consistent
operating results. This management team has successfully
navigated us through many industry and economic cycles.
2
Our
Strategy
We believe our disciplined operating philosophy and experienced
management team will enable us to continue to enhance our
leading position in the motion picture exhibition industry. Key
components of our strategy include:
Establish and Maintain Leading Market
Positions. We will continue to seek growth
opportunities by building or acquiring modern theatres that meet
our strategic, financial and demographic criteria. We focus on
establishing and maintaining a leading position in the markets
we currently serve. We also monitor economic and market trends
to ensure we offer a broad range of products and prices that
satisfy our patrons.
Continue to Focus on Operational
Excellence. We will continue to focus on
achieving operational excellence by controlling theatre
operating costs and adequately training our staff while
continuing to provide leading customer service. Our margins
reflect our track record of operating efficiency.
Selectively Build in Profitable, Strategic Latin American
Markets. Our continued international expansion
will remain focused primarily on Latin America through
construction of modern,
state-of-the-art
theatres in growing urban markets. We have commitments to build
seven new theatres with 45 screens during the remainder of
2011 and seven new theatres with 48 screens subsequent to
2011, which we expect will require investing an additional
$66 million in our Latin American markets. We also plan to
install digital projection technology in all of our
international auditoriums, which allows us to present
3-D and
alternative content in these markets. We have also installed ten
of our proprietary XD auditoriums in our international theatres
and have plans to install approximately 20 to 25 additional XD
auditoriums internationally during the remainder of 2011.
Commitment to Digital Innovation. Our
commitment to technological innovation has resulted in us having
1,939 digital auditoriums in the U.S. as of March 31,
2011, 1,419 of which are
3-D
compatible. We also had 256 digital auditoriums in our
international markets as of March 31, 2011, all of which
are 3-D
compatible. We are planning to convert 100% of our worldwide
circuit to digital projection technology, approximately
40-50% of
which will be
3-D
compatible. We also plan to expand our XD auditorium footprint
in various markets throughout the U.S. and in select
international markets, which offers our patrons a premium movie
viewing experience.
Our
Industry
Domestic
Markets
The U.S. motion picture exhibition industry has a track
record of long-term growth, with box office revenues growing at
an estimated compound annual growth rate, or CAGR, of 3.6% from
2000 to 2010. Against this background of steady long-term
growth, the exhibition industry has experienced periodic
short-term increases and decreases in attendance, and
consequently box office revenues.
3
The following table represents the results of a survey by the
MPAA published during February 2011, outlining the historical
trends in U.S. box office performance for the ten year
period from 2001 to 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Box
|
|
|
|
Average Ticket
|
|
|
Year
|
|
Office Revenues
|
|
Attendance
|
|
Price
|
|
|
|
|
($ In billions)
|
|
(In billions)
|
|
|
|
|
|
2001
|
|
$
|
8.1
|
|
|
|
1.43
|
|
|
$
|
5.66
|
|
|
|
|
|
2002
|
|
$
|
9.1
|
|
|
|
1.57
|
|
|
$
|
5.81
|
|
|
|
|
|
2003
|
|
$
|
9.2
|
|
|
|
1.52
|
|
|
$
|
6.03
|
|
|
|
|
|
2004
|
|
$
|
9.3
|
|
|
|
1.50
|
|
|
$
|
6.21
|
|
|
|
|
|
2005
|
|
$
|
8.8
|
|
|
|
1.38
|
|
|
$
|
6.41
|
|
|
|
|
|
2006
|
|
$
|
9.2
|
|
|
|
1.40
|
|
|
$
|
6.55
|
|
|
|
|
|
2007
|
|
$
|
9.6
|
|
|
|
1.40
|
|
|
$
|
6.88
|
|
|
|
|
|
2008
|
|
$
|
9.6
|
|
|
|
1.34
|
|
|
$
|
7.18
|
|
|
|
|
|
2009
|
|
$
|
10.6
|
|
|
|
1.42
|
|
|
$
|
7.50
|
|
|
|
|
|
2010
|
|
$
|
10.6
|
|
|
|
1.34
|
|
|
$
|
7.89
|
|
|
|
|
|
Films leading the box office during the year ended
December 31, 2010 included the carryover of Avatar,
which grossed approximately $475 million in
U.S. box office revenues during 2010 and new releases such
as Toy Story 3, Alice in Wonderland, Harry Potter and the
Deathly Hallows: Part 1, Iron Man 2, The Twilight Saga:
Eclipse, Inception, Despicable Me, How to Train Your Dragon,
Shrek Forever After, Clash of the Titans, The Karate Kid,
Tangled, Grown Ups, Megamind, Tron: Legacy, Little Fockers, The
Fighter and True Grit.
The film slate for 2011 currently includes Rio, Fast Five,
Thor, Pirates of the Caribbean: On Stranger Tides, The Hangover
Part II, Kung Fu Panda 2: The Kaboom of Doom, Cars 2, X
Men: First Class, Transformers: Dark of the Moon, Harry Potter
and the Deathly Hallows: Part 2, Twilight: Breaking Dawn,
Captain America: The First Avenger, Cowboys and Aliens, Rise of
the Planet of the Apes, Puss in Boots, Happy Feet 2, Mission
Impossible Ghost Protocol, Sherlock Holmes 2 and
Alvin and the Chipmunks: Chipwrecked, among other films.
International
Markets
International box office revenue continues to grow. According to
the MPAA, international box office revenues were
$21.2 billion for the year ended December 31, 2010,
which is a result of increasing acceptance of movie going as a
popular form of entertainment throughout the world, ticket price
increases and new theatre construction. According to the MPAA,
Latin American box office revenues were $2.1 billion for
the year ended December 31, 2010, representing an
approximate 25% increase from 2009.
Growth in Latin America is expected to continue to be fueled by
a combination of robust economies, growing populations,
attractive demographics (i.e., a significant teenage
population), substantial retail development, and quality product
from Hollywood, including an increasing number of
3-D films.
In many Latin American countries, particularly Mexico and
Brazil, successful local film product can also provide
incremental growth opportunities.
We believe many international markets for theatrical exhibition
have historically been underserved and that certain of these
markets, especially those in Latin America, will continue to
experience growth as additional modern stadium-styled theatres
are introduced and film product offerings continue to expand.
Drivers
of Continued Industry Success
We believe the following market trends will drive the continued
growth and strength of our industry:
Importance of Theatrical Success in Establishing Movie Brands
and Subsequent Markets. Theatrical exhibition is
the primary distribution channel for new motion picture
releases. A successful theatrical release which
brands a film is one of the major factors in
determining its success in downstream markets, such
as DVDs, network and syndicated television, video on-demand,
pay-per-view
television and the Internet.
4
Increased Importance of International Markets for Box Office
Success. International markets continue to be an
increasingly important component of the overall box office
revenues generated by Hollywood films, accounting for
$21.2 billion, or approximately 67%, of 2010 total
worldwide box office revenues according to the MPAA. With the
continued growth of the international motion picture exhibition
industry, we believe the relative contribution of markets
outside North America will become even more significant. Many of
the top U.S. films released recently also performed
exceptionally well in international markets. Such films included
Avatar, which grossed approximately $1.5 billion in
international markets and Harry Potter and the Deathly
Hallows: Part 1, which grossed approximately
$610 million in international markets.
Stable Long-Term Attendance Trends. We believe
that long-term trends in motion picture attendance in the
U.S. will continue to benefit the industry. Even during the
recent recessionary period, attendance levels remained stable as
consumers selected the theatre as a preferred value for their
discretionary income. Although domestic attendance declined
slightly in 2010, patronage trends during 2010 reflected
increasing demand for products unique to the exhibition industry
such as 3-D.
With the motion picture exhibition industrys transition to
digital projection technology, the products offered by motion
picture exhibitors continue to expand, attracting a broader base
of patrons.
Convenient and Affordable Form of
Out-Of-Home
Entertainment. Movie-going continues to be one of
the most convenient and affordable forms of
out-of-home
entertainment, with an estimated average ticket price in the
U.S. of $7.89 in 2010. Average prices in 2010 for other
forms of
out-of-home
entertainment in the U.S., including sporting events and theme
parks, range from approximately $25.00 to $77.00 per ticket
according to the MPAA.
Innovation with Digital Technology. Our
industry began its conversion to digital projection technology
during 2009, which has allowed exhibitors to expand their
product offerings. Digital technology allows the presentation of
3-D content
and alternative entertainment such as live and pre-recorded
sports programs, the opera, concert events and special live
documentaries. These additional programming alternatives may
expand the industrys customer base and increase patronage
for exhibitors.
Additional
Information
We were incorporated under the laws of Texas. We are a direct,
wholly-owned subsidiary of Cinemark Holdings, a public company
traded on the New York Stock Exchange, or the NYSE, under the
symbol CNK. Our corporate headquarters is located at
3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Our
telephone number is
(972) 665-1000.
Our web site address is www.cinemark.com. The
information on our web site does not constitute part of
this prospectus.
5
Corporate
Structure
The chart below shows our corporate structure and our principal
indebtedness on an as adjusted basis as of March 31, 2011.
|
|
|
(1) |
|
Cinemark Holdings is a Delaware corporation and a public company
listed on the NYSE. |
|
(2) |
|
The senior secured credit facility includes a
$150.0 million revolving credit facility and a
$1,120.0 million term loan facility. As of March 31,
2011, there was $1,070.1 million outstanding under our term
loan facility and no borrowings outstanding under the
$150.0 million revolving credit line of our senior secured
credit facility. Approximately $157.3 million of the term
loan matures in October 2013 and approximately
$912.8 million matures in April 2016. As of March 31,
2011, on an as adjusted basis, after giving effect to the
issuance of the Initial Notes and the use of proceeds therefrom,
we would have had $912.8 million outstanding under our term
loan facility, all of which matures in April 2016. |
|
(3) |
|
As of March 31, 2011, approximately $470.0 million
aggregate principal amount at maturity was outstanding. |
|
(4) |
|
Our subsidiaries that guarantee the senior secured credit
facility and the 8.625% senior notes due 2019, or the
Senior Notes, will also guarantee the Notes on a senior
subordinated basis. |
6
Summary
of the Terms of the Exchange Offer
|
|
|
The Exchange Offer |
|
We are offering to exchange up to $200,000,000 aggregate
principal amount of our 7.375% Senior Subordinated Notes
due 2021 that have been registered under the Securities Act for
up to $200,000,000 aggregate principal amount of our
7.375% Senior Subordinated Notes due 2021 issued on
June 3, 2011. You may exchange your Initial Notes only by
following the procedures described elsewhere in this prospectus
under The Exchange Offer Procedures for
Tendering Initial Notes. |
|
Registration Rights Agreement |
|
We issued the Initial Notes on June 3, 2011. In connection
with the issuance of the Initial Notes, we entered into the
registration rights agreement with the initial purchasers of the
notes, or the initial purchasers, which provides, among other
things, for this exchange offer. |
|
Resale of Exchange Notes |
|
Based upon interpretive letters written by the Commission, we
believe that the Exchange Notes issued in the exchange offer may
be offered for resale, resold or otherwise transferred by you
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that: |
|
|
|
You are acquiring the Exchange Notes in the ordinary
course of your business;
|
|
|
|
You are not participating, do not intend to
participate and have no arrangement or understanding with any
person to participate, in the distribution of the Exchange
Notes; and
|
|
|
|
You are not our affiliate, as that term
is defined for the purposes of Rule 144A under the
Securities Act.
|
|
|
|
If any of the foregoing are not true and you transfer any
Exchange Note without registering the Exchange Note and
delivering a prospectus meeting the requirements of the
Securities Act, or without an exemption from registration of
your Exchange Notes from such requirements, you may incur
liability under the Securities Act. We do not assume any
responsibility for, and will not indemnify you for, any such
liability. |
|
|
|
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Initial Notes that were acquired by such
broker-dealer as a result of market-making or other trading
activities must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection
with any resale of the Exchange Notes. A broker-dealer may use
this prospectus for an offer to resell, a resale or any other
retransfer of the Exchange Notes. See Plan of
Distribution. |
|
Consequences of Failure to Exchange Initial Notes |
|
Initial Notes that are not tendered or that are tendered but not
accepted will, following the completion of the exchange offer,
continue to be subject to existing restrictions upon transfer.
The trading market for Initial Notes not exchanged in the
exchange offer may be significantly more limited than at
present. Therefore, if your Initial Notes are not tendered and
accepted in the exchange offer, it |
7
|
|
|
|
|
may become more difficult for you to sell or transfer your
Initial Notes. Furthermore, you will no longer be able to compel
us to register the Initial Notes under the Securities Act and we
will not be required to pay additional interest as described in
the registration rights agreement. In addition, you will not be
able to offer or sell the Initial Notes unless they are
registered under the Securities Act (and we will have no
obligation to register them, except for some limited
exceptions), or unless you offer or sell them under an exemption
from the requirements of, or a transaction not subject to, the
Securities Act. |
|
Expiration of the Exchange Offer |
|
The exchange offer will expire at midnight, New York City time
on September 7, 2011, unless we decide to extend the
expiration date. |
|
Conditions to the Exchange Offer |
|
The exchange offer is not subject to any condition other than
certain customary conditions, which we may, but are not required
to, waive. We currently anticipate that each of the conditions
will be satisfied and that we will not need to waive any
conditions. We reserve the right to terminate or amend the
exchange offer at any time before the expiration date if any
such condition occurs. In the event of a material change in the
exchange offer, including the waiver of a material condition, we
will extend, if necessary, the expiration date of the exchange
offer such that at least five business days remain in the
exchange offer following notice of the material change. For
additional information regarding the conditions to the exchange
offer, see The Exchange Offer Conditions to
the Exchange Offer. |
|
Procedures for Tendering Initial Notes |
|
If you wish to accept the exchange offer, you must complete,
sign and date the letter of transmittal, or a facsimile of the
letter of transmittal, and transmit it together with all other
documents required by the letter of transmittal (including the
Initial Notes to be exchanged) to Wells Fargo Bank, N.A., as
exchange agent, at the address set forth on the cover page of
the letter of transmittal. In the alternative, you can tender
your Initial Notes by following the procedures for book-entry
transfer, as described in this prospectus. For more information
on accepting the exchange offer and tendering your Initial
Notes, see The Exchange Offer Procedures for
Tendering Initial Notes and Book-Entry
Transfer. |
|
Guaranteed Delivery Procedures |
|
If you wish to tender your Initial Notes and you cannot get your
required documents to the exchange agent by the expiration date,
you may tender your Initial Notes according to the guaranteed
delivery procedure under the heading The Exchange
Offer Guaranteed Delivery. |
|
Special Procedure for Beneficial Holders |
|
If you are a beneficial holder whose Initial Notes are
registered in the name of a broker, dealer, commercial bank,
trust company, or other nominee and you wish to tender your
Initial Notes in the exchange offer, you should contact the
registered holder promptly and instruct the registered holder to
tender your Initial Notes on your behalf. If you are a
beneficial holder and you wish to tender your Initial Notes on
your own behalf, you must, prior to delivering the letter of
transmittal and your Initial Notes to the exchange |
8
|
|
|
|
|
agent, either make appropriate arrangements to register
ownership of your Initial Notes in your own name or obtain a
properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time. |
|
Withdrawal Rights |
|
You may withdraw the tender of your Initial Notes at any time
prior to midnight, New York City time, on the expiration date.
To withdraw, you must send a written or facsimile transmission
of your notice of withdrawal to the exchange agent at its
address set forth in this prospectus under The Exchange
Offer Withdrawal of Tenders by midnight, New
York City time, on the expiration date. |
|
Acceptance of Initial Notes and Delivery of Exchange
Notes |
|
Subject to certain conditions, we will accept all Initial Notes
that are properly tendered in the exchange offer and not
withdrawn prior to midnight, New York City time, on the
expiration date. We will deliver the Exchange Notes promptly
after the expiration date. Initial Notes will be validly
tendered and not validly withdrawn if they are tendered in
accordance with the terms of the exchange offer as detailed
under The Exchange Offer Procedures for
Tendering Initial Notes and not withdrawn in accordance
with the terms of the exchange offer as detailed under The
Exchange Offer Withdrawal of Tenders. |
|
United States Federal Income Tax Consequences |
|
We believe that the exchange of Initial Notes for Exchange Notes
generally will not be a taxable exchange for federal income tax
purposes, but you should consult your tax adviser about the tax
consequences of this exchange. See Certain Federal Income
Tax Consequences. |
|
Exchange Agent |
|
Wells Fargo Bank, N.A., the trustee under the indenture
governing the Notes, is serving as exchange agent in connection
with the exchange offer. The mailing address of the exchange
agent is set forth on the cover page of the letter of
transmittal. |
|
Fees and Expense |
|
We will bear all expenses related to consummating the exchange
offer and complying with the registration rights agreement. |
|
Use of Proceeds |
|
We will not receive any cash proceeds from the issuance of the
Exchange Notes. We received net proceeds of approximately
$196.0 million from the sale of the Initial Notes. We used
the proceeds in part to optionally prepay approximately
$157.3 million of term loans outstanding under our senior
secured credit facility and will use the remainder for general
corporate purposes. |
|
Regulatory Approvals |
|
Other than the federal securities laws, there are no federal or
state regulatory requirements that we must comply with and there
are no approvals that we must obtain in connection with the
exchange offer. |
9
Summary
Description of Exchange Notes
The terms of the Exchange Notes are identical in all material
respects to those of the Initial Notes except for transfer
restrictions and registration rights that do not apply to the
Exchange Notes. The Exchange Notes will evidence the same debt
as the Initial Notes, and the same indenture will govern the
Exchange Notes as the Initial Notes. The summary below describes
the principal terms of the Exchange Notes. Certain of the terms
and conditions described below are subject to important
limitations and exceptions. The Description of Exchange
Notes section of this prospectus contains a more detailed
description of the terms and conditions of the Exchange Notes.
|
|
|
Issuer |
|
Cinemark USA, Inc. |
|
Exchange Notes Offered |
|
$200,000,000 aggregate principal amount of 7.375% of Senior
Subordinated Notes due 2021, registered under the Securities Act. |
|
Maturity Date |
|
June 15, 2021. |
|
Interest Rate and Payment Dates |
|
The Exchange Notes will bear interest at the rate of 7.375% per
annum, payable on June 15 and December 15 of each year,
beginning on December 15, 2011. |
|
Guarantees |
|
The Exchange Notes will be fully and unconditionally guaranteed
on a joint and several senior subordinated unsecured basis by
our subsidiaries that guarantee, assume or become liable with
respect to any of our or a guarantors debt. If we cannot
make payments on the Exchange Notes when they are due, the
guarantors must make them instead. Under certain circumstances,
the guarantees may be released without action by, or the consent
of, the holders of the Notes. See Description of Exchange
Notes Subsidiary Guarantees. |
|
Ranking |
|
The Exchange Notes and the guarantees will be our and our
guarantors senior subordinated unsecured obligations and
they will: |
|
|
|
rank equally in right of payment to our and our
guarantors future senior subordinated indebtedness, if any;
|
|
|
|
be subordinate in right of payment to all of our and
our guarantors existing and future senior indebtedness,
whether secured or unsecured, including our obligations under
our senior secured credit facility and our Senior Notes; and
|
|
|
|
be structurally subordinate to all existing and
future indebtedness and other liabilities of our non-guarantor
subsidiaries (other than indebtedness and other liabilities owed
to us).
|
|
|
|
As of March 31, 2011, on an as adjusted basis, after giving
effect to the issuance of the Initial Notes and the use of
proceeds therefrom as described under Use of
Proceeds, the Exchange Notes would be: |
|
|
|
subordinate to $1,382.8 million of our senior
debt; and
|
|
|
|
structurally subordinate to $184.9 million of
indebtedness and other liabilities of our non-guarantor
subsidiaries.
|
|
|
|
For the three months ended March 31, 2011, our
non-guarantor subsidiaries generated in the aggregate
$157.3 million, or 32.6%, of our consolidated revenues. As
of March 31, 2011, our non- |
10
|
|
|
|
|
guarantor subsidiaries accounted for $891.6 million, or
26.1%, of our consolidated total assets. |
|
Optional Redemption |
|
Prior to June 15, 2016, we may redeem all or any part of
the Exchange Notes at our option at 100% of the principal amount
plus a make-whole premium. We may redeem the Exchange Notes in
whole or in part at any time on or after June 15, 2016 at
the redemption prices described in this prospectus. In addition,
prior to June 15, 2014, we may redeem up to 35% of the
aggregate principal amount of Exchange Notes from the net
proceeds of certain equity offerings at the redemption price set
forth in this prospectus. See Description of Exchange
Notes Optional Redemption. |
|
Mandatory Offer to Repurchase |
|
If we or Cinemark Holdings experience specific kinds of changes
in control, we must offer to repurchase all of the Exchange
Notes at 101% of their principal amount, plus accrued and unpaid
interest, if any, to the repurchase date. |
|
Covenants |
|
The indenture governing the Notes contains restrictive covenants
which restrict our and our restricted subsidiaries ability
to take certain actions. For a more detailed description, please
see Description of Exchange Notes Certain
Covenants. |
For a discussion of certain risks that should be considered in
connection with an investment in the Exchange Notes, see
Risk Factors beginning on page 14.
11
Summary
Historical Condensed Consolidated Financial and Operating
Data
The following tables set forth our summary historical condensed
consolidated financial and operating data as of and for the
periods indicated. Our summary historical condensed consolidated
financial data as of and for the years ended December 31,
2008, 2009 and 2010 are derived from our audited consolidated
financial statements incorporated by reference in this
prospectus. Our summary historical condensed consolidated
financial data as of and for the three months ended
March 31, 2010 and 2011 are derived from our unaudited
interim condensed consolidated financial statements incorporated
by reference in this prospectus, which, in the opinion of
management, reflect all adjustments of a recurring nature
necessary for a fair presentation of this information. The
historical financial information for the three months ended
March 31, 2011 is not necessarily indicative of the results
expected for the full year.
You should read the summary historical condensed consolidated
financial and operating data set forth below in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes incorporated by reference
in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
1,126,977
|
|
|
$
|
1,293,378
|
|
|
$
|
1,405,389
|
|
|
$
|
342,990
|
|
|
$
|
311,692
|
|
Concession
|
|
|
534,836
|
|
|
|
602,880
|
|
|
|
642,326
|
|
|
|
153,104
|
|
|
|
146,681
|
|
Other
|
|
|
80,474
|
|
|
|
80,242
|
|
|
|
93,429
|
|
|
|
20,537
|
|
|
|
24,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,742,287
|
|
|
$
|
1,976,500
|
|
|
$
|
2,141,144
|
|
|
$
|
516,631
|
|
|
$
|
483,136
|
|
Theatre operating costs
|
|
|
1,085,630
|
|
|
|
1,226,175
|
|
|
|
1,327,898
|
|
|
|
318,988
|
|
|
|
298,341
|
|
Facility lease expense
|
|
|
225,595
|
|
|
|
238,779
|
|
|
|
255,717
|
|
|
|
62,715
|
|
|
|
66,426
|
|
General and administrative expenses
|
|
|
89,583
|
|
|
|
94,818
|
|
|
|
107,015
|
|
|
|
24,991
|
|
|
|
28,552
|
|
Depreciation and amortization
|
|
|
158,034
|
|
|
|
149,515
|
|
|
|
143,508
|
|
|
|
34,091
|
|
|
|
39,140
|
|
Impairment of long-lived assets
|
|
|
113,532
|
|
|
|
11,858
|
|
|
|
12,538
|
|
|
|
347
|
|
|
|
1,015
|
|
(Gain) loss on sale of assets and other
|
|
|
8,488
|
|
|
|
3,202
|
|
|
|
(431
|
)
|
|
|
3,167
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations
|
|
|
1,680,862
|
|
|
|
1,724,347
|
|
|
|
1,846,245
|
|
|
|
444,299
|
|
|
|
433,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
61,425
|
|
|
$
|
252,153
|
|
|
$
|
294,899
|
|
|
$
|
72,332
|
|
|
$
|
49,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
74,406
|
|
|
$
|
81,609
|
|
|
$
|
112,444
|
|
|
$
|
26,010
|
|
|
$
|
29,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,954
|
)
|
|
$
|
133,087
|
|
|
$
|
150,930
|
|
|
$
|
37,047
|
|
|
$
|
25,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cinemark USA, Inc.
|
|
$
|
(23,849
|
)
|
|
$
|
129,439
|
|
|
$
|
147,387
|
|
|
$
|
35,429
|
|
|
$
|
25,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year Ended December 31,
|
|
Ended March 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
Other Financial Data (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
219,788
|
|
|
$
|
366,706
|
|
|
$
|
266,230
|
|
|
$
|
43,640
|
|
|
$
|
60,756
|
|
Investing activities
|
|
$
|
(94,942
|
)
|
|
$
|
(183,130
|
)
|
|
$
|
(136,067
|
)
|
|
$
|
(19,670
|
)
|
|
$
|
(35,856
|
)
|
Financing activities
|
|
$
|
(29,290
|
)
|
|
$
|
(75,478
|
)
|
|
$
|
(108,162
|
)
|
|
$
|
(28,189
|
)
|
|
$
|
(28,859
|
)
|
Capital expenditures
|
|
$
|
(106,109
|
)
|
|
$
|
(124,797
|
)
|
|
$
|
(156,102
|
)
|
|
$
|
(19,517
|
)
|
|
$
|
(35,769
|
)
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
As of and for the
|
|
|
Three Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
313,238
|
|
|
$
|
437,737
|
|
|
$
|
464,765
|
|
|
$
|
433,159
|
|
|
$
|
462,589
|
|
Theatre properties and equipment, net
|
|
$
|
1,208,283
|
|
|
$
|
1,219,588
|
|
|
$
|
1,215,446
|
|
|
$
|
1,191,215
|
|
|
$
|
1,206,796
|
|
Total assets
|
|
$
|
3,018,838
|
|
|
$
|
3,283,588
|
|
|
$
|
3,427,974
|
|
|
$
|
3,290,656
|
|
|
$
|
3,411,064
|
|
Total long-term debt, including current portion
|
|
$
|
1,097,144
|
|
|
$
|
1,543,705
|
|
|
$
|
1,532,441
|
|
|
$
|
1,540,796
|
|
|
$
|
1,529,938
|
|
Equity
|
|
$
|
1,155,891
|
|
|
$
|
922,141
|
|
|
$
|
1,040,705
|
|
|
$
|
947,724
|
|
|
$
|
1,057,876
|
|
Operating Data (attendance in thousands):
|
North
America(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
293
|
|
|
|
294
|
|
|
|
293
|
|
|
|
292
|
|
|
|
292
|
|
Screens operated (at period end)
|
|
|
3,742
|
|
|
|
3,830
|
|
|
|
3,832
|
|
|
|
3,817
|
|
|
|
3,816
|
|
Total attendance
|
|
|
147,897
|
|
|
|
165,112
|
|
|
|
161,174
|
|
|
|
39,573
|
|
|
|
33,389
|
|
International(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
127
|
|
|
|
130
|
|
|
|
137
|
|
|
|
131
|
|
|
|
139
|
|
Screens operated (at period end)
|
|
|
1,041
|
|
|
|
1,066
|
|
|
|
1,113
|
|
|
|
1,067
|
|
|
|
1,125
|
|
Total attendance
|
|
|
63,413
|
|
|
|
71,622
|
|
|
|
80,026
|
|
|
|
18,934
|
|
|
|
20,382
|
|
Worldwide(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
420
|
|
|
|
424
|
|
|
|
430
|
|
|
|
423
|
|
|
|
431
|
|
Screens operated (at period end)
|
|
|
4,783
|
|
|
|
4,896
|
|
|
|
4,945
|
|
|
|
4,884
|
|
|
|
4,941
|
|
Total attendance
|
|
|
211,310
|
|
|
|
236,734
|
|
|
|
241,200
|
|
|
|
58,507
|
|
|
|
53,771
|
|
|
|
|
(1) |
|
The data excludes certain theatres operated by us in the U.S.
pursuant to management agreements that are not part of our
consolidated operations. |
|
(2) |
|
The data excludes certain theatres operated by us
internationally that are not part of our consolidated operations. |
Ratio of
Earnings to Fixed Charges
Our ratio of earnings to fixed charges for the three months
ended March 31, 2011 and the years ended December 31,
2010, 2009, 2008, 2007, and the period from January 1, 2006
to October 4, 2006 were 1.71, 2.11, 2.28, 1.11, 2.47, and
2.05, respectively. For the period from October 4, 2006 to
December 31, 2006, earnings were insufficient to cover
fixed charges by $6.9 million. For the purposes of
calculating the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes plus fixed charges
excluding capitalized interest. Fixed charges consist of
interest expense, capitalized interest, amortization of debt
issue costs and that portion of rental expense which we believe
to be representative of the interest factor.
13
RISK
FACTORS
You should carefully consider the risks described below as
well as other information and data included in this prospectus
before participating in this exchange offer. Additional risks
and uncertainties not presently known to us or that we currently
believe are immaterial may also adversely impact our business
operations. If any of the events described in the risk factors
below occur, our business, financial condition, operating
results and prospects could be materially adversely affected. As
a result, the trading price of the Exchange Notes could decline,
perhaps significantly, and our ability to pay principal and
interest on the Exchange Notes could be adversely affected.
Risks
Related to the Exchange Notes and this Exchange Offer
Your
failure to participate in the exchange offer may have adverse
consequences.
If you do not exchange your Initial Notes for Exchange Notes
pursuant to the exchange offer, you will continue to be subject
to the restrictions on transfer of your Initial Notes, as set
forth in the legend on your Initial Notes. The restrictions on
transfer of your Initial Notes arise because we sold the Initial
Notes in private offerings. In general, the Initial Notes may
not be offered or sold, unless registered under the Securities
Act or pursuant to an exemption from, or in a transaction not
subject to, such requirements.
After completion of the exchange offer, holders of Initial Notes
who do not tender their Initial Notes in the exchange offer will
no longer be entitled to any exchange or registration rights
under the registration rights agreement, except under limited
circumstances. The tender of Initial Notes under the exchange
offer will reduce the principal amount of the currently
outstanding Initial Notes. Due to the corresponding reduction in
liquidity, this may have an adverse effect upon, and increase
the volatility of, the market price of any currently outstanding
Initial Notes that you continue to hold following completion of
the exchange offer. See The Exchange Offer.
You
must comply with the exchange offer procedures in order to
receive new, freely tradable Exchange Notes.
Delivery of Exchange Notes in exchange for Initial Notes
tendered and accepted for exchange pursuant to the exchange
offer will be made provided the procedures for tendering the
Initial Notes are followed. We are not required to notify you of
defects or irregularities in tenders of Initial Notes for
exchange. See The Exchange Offer.
Some
holders who exchange their Initial Notes may be deemed to have
received restricted securities, and these holders will be
required to comply with the registration and prospectus delivery
requirements in connection with any resale
transaction.
If you exchange your Initial Notes in the exchange offer for the
purpose of participating in a distribution of the Exchange
Notes, you may be deemed to have received restricted securities
and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
An
active trading market for the Exchange Notes may not
develop.
There is no existing market for the Exchange Notes. The Exchange
Notes will not be listed on any securities exchange. There can
be no assurance that a trading market for the Exchange Notes
will ever develop or will be maintained. Further, there can be
no assurance as to the liquidity of any market that may develop
for the Exchange Notes, your ability to sell your Exchange Notes
or the price at which you will be able to sell your Exchange
Notes. Future trading prices of the Exchange Notes will depend
on many factors, including prevailing interest rates, our
financial condition and results of operations, the then-current
ratings assigned to the Exchange Notes, the market for similar
securities and the results of our competitors. In addition, if a
large amount of Initial Notes are not tendered or are tendered
improperly, the limited amount of Exchange Notes
14
that would be issued and outstanding after we consummate this
exchange offer would reduce liquidity and could lower the market
price of those Exchange Notes.
Any trading market that develops would be affected by many
factors independent of and in addition to the foregoing,
including:
|
|
|
|
|
our operating performance and financial condition;
|
|
|
|
time remaining to the maturity of the Notes;
|
|
|
|
outstanding amount of the Notes;
|
|
|
|
the terms related to optional redemption of the Notes; and
|
|
|
|
level, direction and volatility of market interest rates
generally.
|
We
have substantial long-term lease and debt obligations, which may
restrict our ability to fund current and future operations and
that restrict our ability to enter into certain
transactions.
We have, and will continue to have, significant long-term debt
service obligations and long-term lease obligations. As of
March 31, 2011, we had $1,540.1 million in long-term
debt obligations (including $10.1 million in original issue
discount related to the Senior Notes), $138.5 million in
capital lease obligations and $1,800.5 million in long-term
operating lease obligations. As of March 31, 2011, on an as
adjusted basis, after giving effect to the issuance of the
Initial Notes and the use of proceeds therefrom, we would have
had $1,582.8 million in long-term debt obligations. We
incurred $112.4 million and $29.3 million of interest
expense for the year ended December 31, 2010 and for the
three months ended March 31, 2011, respectively. We also
incurred $255.7 million and $66.4 million of rent
expense under operating leases for the year ended
December 31, 2010 and for the three months ended
March 31, 2011, respectively (with terms, excluding renewal
options, ranging from one to 28 years). Our substantial
lease and debt obligations pose risk to you by:
|
|
|
|
|
making it more difficult for us to satisfy our obligations;
|
|
|
|
requiring us to dedicate a substantial portion of our cash flow
to payments on our lease and debt obligations, thereby reducing
the availability of our cash flow to fund working capital,
capital expenditures, acquisitions and other corporate
requirements and to pay dividends;
|
|
|
|
impeding our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions
and general corporate purposes;
|
|
|
|
subjecting us to the risk of increased sensitivity to interest
rate increases on our variable rate debt, including our
borrowings under our senior secured credit facility; and
|
|
|
|
making us more vulnerable to a downturn in our business and
competitive pressures and limiting our flexibility to plan for,
or react to, changes in our industry or the economy.
|
We may
incur substantial additional indebtedness, including additional
senior debt.
Subject to the restrictions in the indenture governing the Notes
and in other instruments governing our other outstanding debt
(including our senior secured credit facility and the indenture
governing the Senior Notes), we and our subsidiaries may incur
substantial additional debt in the future, including substantial
senior debt. Although the indenture governing the Notes and the
instruments governing certain of our other outstanding debt
(including our senior secured credit facility and the indenture
governing the Senior Notes), contain restrictions on the
incurrence of additional debt, these restrictions are subject to
a number of significant qualifications and exceptions, and debt
incurred in compliance with these restrictions could be
substantial. To the extent new debt is added to our current debt
levels, the substantial leverage-related risks described above
would increase. As of March 31, 2011, there were no
borrowings outstanding under the $150.0 million revolving
credit line of our senior secured credit facility. If we or any
of our subsidiaries that is a guarantor of the Exchange Notes
incur any additional debt that ranks equally with the Exchange
Notes (or with the guarantee thereof), including trade payables,
the holders of that debt will be entitled to share ratably
15
with holders of Exchange Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization,
dissolution or other
winding-up
of us or such guarantor. This may reduce the amount of proceeds
paid to holders of the Exchange Notes in connection with such a
distribution.
To
service our indebtedness, we will require a significant amount
of cash, and our ability to generate cash flow depends on many
factors beyond our control.
Our ability to make scheduled payments of principal and interest
with respect to our indebtedness, including the Exchange Notes,
will depend on our ability to generate cash flow and on our
future financial results. Similarly, the ability of our
guarantors to make payments on and refinance their indebtedness
will depend on their ability to generate cash in the future. Our
ability to generate cash flow is subject to general economic,
financial, competitive, regulatory and other factors that are
beyond our control. We and our guarantors cannot assure you that
we will continue to generate cash flow at current levels, or
that future borrowings will be available under our senior
secured credit facility, in an amount sufficient to enable any
of us to pay our indebtedness, including the Exchange Notes. If
our cash flows and capital resources are insufficient to fund
our lease and debt service obligations, we may be forced to
reduce or delay capital expenditures, sell assets or operations,
seek additional capital or restructure or refinance our
indebtedness, including the Exchange Notes. We may not be able
to take any of these actions, and these actions may not be
successful or permit us to meet our scheduled debt service
obligations and these actions may not be permitted under the
terms of our existing or future debt agreements, including our
senior secured credit facility, the indenture governing the
Senior Notes and the indenture governing the Notes. In the
absence of such operating results and resources, we could face
substantial liquidity problems and might be required to dispose
of material assets or operations to meet our debt service and
other obligations. Our senior secured credit facility and the
indenture governing the Senior Notes restrict our ability to
dispose of assets and use the proceeds from the disposition. We
may not be able to consummate those dispositions or to obtain
the proceeds which we could realize from them and these proceeds
may not be adequate to meet any debt service obligations then
due.
If we fail to make any required payment under the agreements
governing our leases and indebtedness or fail to comply with the
financial and operating covenants contained in them, we would be
in default, and as a result, our debt holders would have the
ability to require that we immediately repay our outstanding
indebtedness and the lenders under our senior secured credit
facility could terminate their commitments to lend us money and
foreclose against the assets securing their borrowings and we
could be forced into bankruptcy or liquidation, which could
result in the loss of your investment in the Exchange Notes. The
acceleration of our indebtedness under one agreement may permit
acceleration of indebtedness under other agreements that contain
cross-default and cross-acceleration provisions. If our
indebtedness is accelerated, we may not be able to repay our
indebtedness or borrow sufficient funds to refinance it. Even if
we are able to obtain new financing, it may not be on
commercially reasonable terms or on terms that are acceptable to
us. If our debt holders require immediate payment, we may not
have sufficient assets to satisfy our obligations under the
Exchange Notes, our senior secured credit facility, our Senior
Notes and our other indebtedness.
Your
right to receive payments on the Exchange Notes is junior to our
senior debt and possibly all of our future borrowings, and the
guarantees of the Exchange Notes are junior to all of our
guarantors existing senior debt and possibly to all of
their future borrowings.
The Exchange Notes and the guarantees are subordinated in right
of payment to all of our and our guarantors existing and
future indebtedness, other than trade payables, except any
indebtedness that expressly provides that it ranks equal with,
or is subordinated in right of payment to, the Exchange Notes
and the guarantees. Upon any distribution to our creditors or to
the creditors of our guarantors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or our
guarantors or our or their property, the holders of our and our
guarantors senior debt will be entitled to be paid in full
in cash before any payment may be made with respect to the
Exchange Notes or the guarantees.
In addition, we will be prohibited from making payments on the
Exchange Notes and our guarantors will be prohibited from making
any payments on the guarantees in the event of a payment default
on our senior
16
debt. We and our guarantors also may be prohibited from making
these payments in the event of non-payment defaults on our
senior debt.
In the event of a bankruptcy, liquidation or reorganization or
similar proceeding relating to us or our guarantors, holders of
the Exchange Notes will participate on a pari passu basis
with trade creditors and all other holders of our and our
guarantors senior subordinated indebtedness. However,
because the indenture with respect to the Notes requires that
amounts otherwise payable to holders of the Exchange Notes in
bankruptcy or similar proceeding be paid instead to holders of
senior debt until they are paid in full, holders of the Exchange
Notes may receive less, ratably, than holders of trade payables.
In any of these cases, we and our guarantors may not have
sufficient funds to repay all of our creditors, and holders of
the Exchange Notes may receive less, ratably, than the holders
of our trade payables.
As of March 31, 2011, on an as adjusted basis, after giving
effect to the offering of the Initial Notes and the use of
proceeds therefrom, the Exchange Notes would have been
(i) subordinate to $1,382.8 million of our senior debt
and (ii) structurally subordinate to $184.9 million of
indebtedness and other liabilities of our non-guarantor
subsidiaries. The terms of the indenture governing the Notes and
our instruments governing certain of our other outstanding debt,
including our senior secured credit facility and our Senior
Notes, will permit us to incur substantial additional
indebtedness, including additional senior debt. If we or our
subsidiaries incur additional debt, the related risks that we
now face could intensify.
Your
right to receive payments on the Exchange Notes is effectively
junior to the right of lenders who have a security interest in
our assets to the extent of the value of those
assets.
Our obligations under the Exchange Notes and our
guarantors obligations under their guarantees of the
Exchange Notes will be unsecured, but our obligations under our
senior secured credit facility and each guarantors
obligations under its guarantee of our indebtedness under our
senior secured credit facility are secured by a security
interest in substantially all of our domestic tangible and
intangible assets, including the stock of substantially all of
our wholly-owned domestic subsidiaries. If we are declared
bankrupt or insolvent, or if we default under our senior secured
credit facility, the amounts borrowed thereunder, together with
any accrued interest, could become immediately due and payable.
If we were unable to repay such indebtedness, the lenders under
our senior secured credit facility could foreclose on the
pledged assets to the exclusion of holders of the Exchange
Notes, even if an event of default exists under the indenture
governing the Notes at such time and the assets that secured the
senior secured credit facility will not be available to pay our
obligations under the Exchange Notes unless and until payment in
full of our senior indebtedness. In any such event, because the
Exchange Notes are not secured, it is possible that there would
be no assets from which your claims could be satisfied or, if
any assets existed, they might be insufficient to satisfy your
claims in full.
The guarantees of the Exchange Notes will have a similar ranking
with respect to secured and unsecured indebtedness of our
guarantors as the Exchange Notes do with respect to our secured
and unsecured indebtedness.
Our
ability to repay our debt, including the Exchange Notes, is
affected by the cash flow generated by our
subsidiaries.
Our subsidiaries own some of our assets and conduct some of our
operations. Accordingly, repayment of our indebtedness,
including the Exchange Notes, will be dependent on the
generation of cash flow by our subsidiaries and their ability to
make such cash available to us, by dividend, debt repayment or
otherwise. Unless they are guarantors, our subsidiaries will not
have any obligation to pay amounts due on the Exchange Notes or
to make funds available for that purpose. Our subsidiaries may
not be able to, or may not be permitted to, make distributions
to enable us to make payments in respect of our indebtedness,
including the Exchange Notes. Each subsidiary is a distinct
legal entity and, under certain circumstances, legal and
contractual restrictions may limit our ability to obtain cash
from our subsidiaries. While the indenture governing the Notes
limits the ability of our non-guarantor subsidiaries to incur
consensual encumbrances or restrictions on their ability to pay
dividends or make other intercompany payments to us, these
limitations are subject to certain qualifications and
exceptions. In the event that we do not receive distributions
from our
17
subsidiaries, we may be unable to make required principal and
interest payments on our indebtedness, including the Exchange
Notes.
We
have capacity to make substantial restricted
payments.
We have capacity to make substantial restricted payments, which
includes dividends, stock repurchases and investments. Our
direct parent, Cinemark Holdings, relies on distributions from
us to make dividend payments to its stockholders and for other
ongoing operating expenses. As of March 31, 2011, we would
have been able to make in excess of $650 million of
restricted payments under the formula set forth in the covenant
described under the caption Description of Exchange
Notes Certain Covenants Restricted
Payments, subject to other limitations set forth in that
covenant and in the covenants governing our other indebtedness,
and limitations imposed by applicable law. In addition, the
indenture governing the Notes will permit us to make substantial
other restricted payments and substantial permitted investments.
Claims
of noteholders will be structurally subordinated to claims of
creditors of our non-guarantor subsidiaries.
We conduct some of our operations through our subsidiaries, and
certain of our subsidiaries will not guarantee the Exchange
Notes. You will not have a claim as a creditor against any of
our subsidiaries that are not guarantors of the Exchange Notes,
and the indebtedness and other liabilities, including trade
payables, whether secured or unsecured, of those non-guarantor
subsidiaries (other than indebtedness and liabilities owed to
us) will be effectively senior to your claims as a noteholder.
Subject to certain limitations, the indenture governing the
Notes permits us to form or acquire additional subsidiaries that
are not guarantors of the Exchange Notes and to permit such
non-guarantor subsidiaries to acquire and incur additional
indebtedness. Noteholders would not have any claim as a creditor
against any of our non-guarantor subsidiaries to the assets and
earnings of those non-guarantor subsidiaries. The claims of the
creditors of those non-guarantor subsidiaries, including their
trade creditors, banks and other lenders, would have priority
over any of our claims or those of our other subsidiaries as
equity holders of our non-guarantor subsidiaries. Consequently,
in any insolvency, liquidation, reorganization, dissolution or
other
winding-up
of any of our non-guarantor subsidiaries, creditors of those
subsidiaries would be paid before any amounts would be
distributed to us or to any of our guarantors as equity, and
thus be available to satisfy our obligations under the Exchange
Notes and other claims against us or our guarantors.
For the three months ended March 31, 2011, our
non-guarantor subsidiaries generated in the aggregate
$157.3 million, or 32.6%, of our consolidated revenues. As
of March 31, 2011, our non-guarantor subsidiaries accounted
for $891.6 million, or 26.1%, of our consolidated total
assets and their indebtedness and other liabilities (excluding
indebtedness and other liabilities owed to us) were
$184.9 million in the aggregate. The indenture governing
the Notes will permit these subsidiaries to incur significant
additional debt.
The
guarantees of the Exchange Notes may be released in a variety of
circumstances.
Any guarantee of the Exchange Notes may be released without
action by, or consent of, any holder of the Exchange Notes or
the trustee under the indenture governing the Notes, if a
guarantor is no longer a guarantor or otherwise liable with
respect to any of our and our guarantors other
indebtedness, including the indebtedness under the senior
secured credit facility. In addition, a guarantee of the
Exchange Notes will be released upon the sale of capital stock
of a guarantor or the sale or other disposition of all or
substantially all of the assets of a guarantor in transactions
that comply with the terms of the indenture. You will not have a
claim as a creditor against any subsidiary that is no longer a
guarantor of the Exchange Notes, and the indebtedness and other
liabilities, including trade payables, whether secured or
unsecured, of those non-guarantor subsidiaries (other than
indebtedness and liabilities owed to us) will be structurally
senior to your claims.
18
If we
default on our obligations to pay our other indebtedness, we may
not be able to make payments on the Exchange
Notes.
If we are unable to generate sufficient cash flow and are
otherwise unable to obtain funds necessary to meet required
payments of principal, premium, if any, and interest on our
indebtedness, or if we otherwise fail to comply with the various
covenants under the agreements governing our indebtedness,
including any financial and operating covenants, we could be in
default under the terms of such agreements. In the event of any
such default:
|
|
|
|
|
the holders of such indebtedness could elect to declare all the
funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest, if any;
|
|
|
|
the lenders under our senior secured credit facility could elect
to terminate their commitments thereunder, cease making further
loans and commence foreclosure proceedings against our
assets; and
|
|
|
|
we could be forced into bankruptcy or liquidation.
|
If we breach our covenants under our senior secured credit
facility and seek a waiver, we may not be able to obtain a
waiver from the required lenders. If this occurs, we would be in
default under our senior secured credit facility, the lenders
could exercise their rights, as described above, and we could be
forced into bankruptcy or liquidation.
Restrictive
covenants in our debt agreements may adversely affect
us.
Our senior secured credit facility and other instruments
governing our other outstanding debt, including the Senior
Notes, contain, and the indenture governing the Notes contain,
certain restrictive covenants that limit our ability to engage
in activities that may be in our long-term best interests. For
example, these covenants significantly restrict our and certain
of our subsidiaries ability to:
|
|
|
|
|
borrow money;
|
|
|
|
pay dividends or make other distributions;
|
|
|
|
repurchase or redeem capital stock or subordinated indebtedness
and make investments;
|
|
|
|
create liens;
|
|
|
|
incur dividend or other payment restrictions affecting
non-guarantor subsidiaries;
|
|
|
|
transfer or sell assets, including capital stock of subsidiaries;
|
|
|
|
merge or consolidate with other entities or transfer all or
substantially all of our assets;
|
|
|
|
engage in certain business activities; and
|
|
|
|
enter into transactions with affiliates.
|
These covenants are subject to a number of important exceptions
and qualifications. These restrictions could affect our ability
to operate our business and may limit our ability to take
advantage of potential business opportunities. Events beyond our
control can affect our ability to comply with these covenants.
Failure to comply with these covenants could result in an event
of default which, if not cured or waived, could result in the
acceleration of all of our debt. If an event of default occurs,
we cannot assure you that we would have sufficient assets to
repay all of our obligations. In addition, under our senior
secured credit facility, when the revolver is drawn or letters
of credit are outstanding, we are required to satisfy a
consolidated net senior secured leverage ratio covenant as
determined in accordance with the senior secured credit
facility. You should read the discussions under the heading
Description of Certain Debt Instruments in this
prospectus for further information about the covenants contained
in the senior secured credit facility and the Senior Notes.
19
Variable
rate indebtedness subjects us to interest rate risk, which could
cause our debt service obligations to increase
significantly.
Certain of our borrowings, primarily borrowings under our senior
secured credit facility, are at variable interest rates and
expose us to interest rate risk. If interest rates increase, our
debt service obligations on the variable rate indebtedness would
increase even though the amount borrowed remained the same, and
our net income would decrease. Although we have entered into,
and may continue to enter into, interest rate swaps, involving
the exchange of floating for fixed rate interest payments, to
reduce interest volatility, we cannot assure you we will or will
be able to continue to do so nor can we assure you that any
interest rate swaps would be beneficial to us.
Under
insolvency and fraudulent conveyance laws, a court could void
obligations under the Exchange Notes and the
guarantees.
Federal and state fraudulent transfer and conveyance statutes
may apply to the issuance of the Exchange Notes and the
incurrence of the guarantees. Under the federal bankruptcy laws
and comparable provisions of state fraudulent transfer and
conveyance laws, a court could void obligations under the
Exchange Notes or the guarantees, subordinate those obligations
to more junior obligations or require holders of the Exchange
Notes to repay any payments made under the Exchange Notes or
pursuant to the guarantees if an unpaid creditor or
representative of creditors, such as a trustee in bankruptcy or
the Company as a
debtor-in-possession,
claims that the Exchange Notes or guarantees constituted a
fraudulent conveyance. For this claim to succeed, the claimant
must generally show that (1) we paid the consideration, or
any guarantor issued its guarantee, with the intent of
hindering, delaying or defrauding creditors or (2) we, or
any of our guarantors, received less than reasonably equivalent
value or fair consideration in return for paying the
consideration or issuing their respective guarantees, and, in
the case of (2) above only, one of the following is also
true:
|
|
|
|
|
we or any of our guarantors were insolvent or rendered insolvent
by reason of the incurrence of the indebtedness;
|
|
|
|
payment of the consideration left us or any of our guarantors
with an unreasonably small amount of capital to carry on the
business; or
|
|
|
|
we or any of our guarantors intended to, or believed that we or
it would, incur debts beyond our or its ability to pay as they
mature.
|
We cannot be certain as to the standards a court would use to
determine whether or not we or our guarantors were solvent at
the relevant time or, regardless of the standard that a court
uses, that the issuance of the Exchange Notes or the guarantees
would not be subordinated to our or any of our guarantors
other debt. In the event of a finding that a fraudulent transfer
or conveyance occurred, you may not receive any repayment on the
Exchange Notes.
Generally, an obligor will be considered insolvent for these
purposes if:
|
|
|
|
|
the sum of its debts, including contingent liabilities, was
greater than the salable value of all of its assets at a fair
valuation;
|
|
|
|
the present fair salable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
|
|
|
|
it could not pay its debts as they become due.
|
We may
not be permitted or have the ability to purchase the Exchange
Notes upon a change of control as required by the
indenture.
Upon the occurrence of specific kinds of change of control
events, we will be required to offer to repurchase all the
Exchange Notes at 101% of their principal amount, plus accrued
and unpaid interest, if any, to the date of repurchase. We may
not be able to repurchase the Exchange Notes upon a change of
control
20
because we or our subsidiaries may not have sufficient funds,
and we may be required to secure third party financing to do so.
We may not be permitted to do so under our senior secured credit
facility, the indenture governing the Senior Notes or other
agreements. In addition, we may not be able to obtain this
financing on commercially reasonable terms, or on terms
acceptable to us, or at all. A change of control would also
result in a default under the senior secured credit facility and
permit lenders to accelerate the maturity of borrowings under
our senior secured credit facility and, if such debt is not
paid, to enforce security interests in the collateral securing
such debt, thereby limiting our ability to raise cash to
purchase the Exchange Notes, and reducing the practical benefit
of the
offer-to-purchase
provisions to the holders of the Exchange Notes. Accordingly, we
may not be able to satisfy our obligations to purchase your
Exchange Notes unless we are able to refinance or obtain waivers
under our senior secured credit facility or other senior
indebtedness. We may enter into debt agreements containing
similar provisions in the future.
The change of control provisions in the indenture governing the
Notes may not protect you in the event we consummate a highly
leveraged transaction, reorganization, restructuring, merger or
other similar transaction, unless such transaction constitutes a
change of control under the indenture. If an event occurs that
does not constitute a change of control under the indenture
governing the Notes, we will not be required to make an offer to
repurchase the Exchange Notes and you may be required to
continue to hold your Exchange Notes despite the event.
Holders
of the Exchange Notes may not be able to determine when a change
of control giving rise to their right to have the Exchange Notes
repurchased has occurred following a sale of substantially
all of our assets.
The definition of change of control in the indenture
governing the Notes includes a phrase relating to the sale of
all or substantially all of our assets. There is no
precise established definition of the phrase substantially
all under applicable law. Accordingly, the ability of a
holder of Exchange Notes to require us to repurchase its
Exchange Notes as a result of a sale of less than all our assets
to another person may be uncertain.
Risks
Related to Our Business and Industry
Our
business depends on film production and
performance.
Our business depends on both the availability of suitable films
for exhibition in our theatres and the success of those films in
our markets. Poor performance of films, the disruption in the
production of films due to events such as a strike by directors,
writers or actors, a reduction in financing options for the film
distributors, or a reduction in the marketing efforts of the
film distributors to promote their films could have an adverse
effect on our business by resulting in fewer patrons and reduced
revenues.
A
deterioration in relationships with film distributors could
adversely affect our ability to obtain commercially successful
films.
We rely on the film distributors to supply the films shown in
our theatres. The film distribution business is highly
concentrated, with six major film distributors accounting for
82.7% of U.S. box office revenues and 47 of the top
50 grossing films during 2010. Numerous antitrust cases and
consent decrees resulting from these antitrust cases impact the
distribution of films. The consent decrees bind certain major
film distributors to license films to exhibitors on a
theatre-by-theatre
and
film-by-film
basis. Consequently, we cannot guarantee a supply of films by
entering into long-term arrangements with major distributors. We
are therefore required to negotiate licenses for each film and
for each theatre. A deterioration in our relationship with any
of the six major film distributors could adversely affect our
ability to obtain commercially successful films and to negotiate
favorable licensing terms for such films, both of which could
adversely affect our business and operating results.
21
Our
results of operations vary from period to period based upon the
quantity and quality of the motion pictures that we show in our
theatres.
Our results of operations vary from period to period based upon
the quantity and quality of the motion pictures that we show in
our theatres. The major film distributors generally release the
films they anticipate will be most successful during the summer
and holiday seasons. Consequently, we typically generate higher
revenues during these periods. Due to the dependency on the
success of films released from one period to the next, results
of operations for one period may not be indicative of the
results for the following period or the same period in the
following year.
We
face intense competition for patrons and films, which may
adversely affect our business.
The motion picture industry is highly competitive. We compete
against local, regional, national and international exhibitors.
We compete for both patrons and licensing of films. The
competition for patrons is dependent upon such factors as
location, theatre capacity, quality of projection and sound
equipment, film showtime availability, customer service quality,
and ticket prices. The principal competitive factors with
respect to film licensing include the theatres location
and its demographics, the condition, capacity and revenue
potential of each theatre and licensing terms. If we are unable
to attract patrons or to license successful films, our business
may be adversely affected.
An
increase in the use of alternative or downstream
film distribution channels and other competing forms of
entertainment may reduce movie theatre attendance and limit
revenue growth.
We face competition for patrons from a number of alternative
film distribution channels, such as DVDs, network and syndicated
television, video on-demand,
pay-per-view
television and the Internet. We also compete with other forms of
entertainment, such as concerts, theme parks and sporting
events, for our patrons leisure time and disposable
income. A significant increase in popularity of these
alternative film distribution channels or competing forms of
entertainment could have an adverse effect on our business and
results of operations.
Our
results of operations may be impacted by shrinking video release
windows.
Over the last decade, the average video release window, which
represents the time that elapses from the date of a films
theatrical release to the date a film is available on DVD, an
important downstream market, has decreased from approximately
six months to approximately three to four months. Also, film
studios have started to offer consumers a premium video on
demand option for certain films 60 days following the
theatrical release. If patrons choose to wait for a DVD release
rather than attend a theatre for viewing the film, it may
adversely impact our business and results of operations,
financial condition and cash flows. We cannot assure you that
these release windows, which are determined by the film studios,
will not shrink further or be eliminated altogether, which could
have an adverse impact on our business and results of operations.
General
political, social and economic conditions can adversely affect
our attendance.
Our results of operations are dependent on general political,
social and economic conditions, and the impact of such
conditions on our theatre operating costs and on the willingness
of consumers to spend money at movie theatres. If
consumers discretionary income declines as a result of an
economic downturn, our operations could be adversely affected.
If theatre operating costs, such as utility costs, increase due
to political or economic changes, our results of operations
could be adversely affected. Political events, such as terrorist
attacks, and health-related epidemics, such as flu outbreaks,
could cause people to avoid our theatres or other public places
where large crowds are in attendance. In addition, a natural
disaster, such as a hurricane or an earthquake, could impact our
ability to operate certain of our theatres, which could
adversely affect our results of operations.
22
Our
foreign operations are subject to adverse regulations, economic
instability and currency exchange risk.
We have 139 theatres with 1,125 screens in 13
countries in Latin America. Brazil and Mexico represented
approximately 14.8% and 3.3% of our consolidated 2010 revenues,
respectively. Governmental regulation of the motion picture
industry in foreign markets differs from that in the
U.S. Changes in regulations affecting prices, quota systems
requiring the exhibition of locally-produced films and
restrictions on ownership of property may adversely affect our
international operations. Our international operations are
subject to certain political, economic and other uncertainties
not encountered by our domestic operations, including risks of
severe economic downturns and high inflation. We also face risks
of currency fluctuations, hard currency shortages and controls
of foreign currency exchange and transfers abroad, all of which
could have an adverse effect on the results of our international
operations.
We may
not be able to generate additional revenues or continue to
realize value from our investment in NCM.
In 2005, we joined Regal Entertainment Group, or Regal, and AMC
Entertainment, Inc., or AMC, as founding members of NCM, a
provider of digital advertising content and digital non-film
event content. As of March 31, 2011, we had an ownership
interest in NCM of 15.8%. We receive a monthly theatre access
fee under our Exhibitor Services Agreement with NCM and we are
entitled to receive mandatory quarterly distributions of excess
cash from NCM. During the years ended December 31, 2009 and
2010 and the three months ended March 31, 2011, we received
$5.7 million, $5.0 million and $1.3 million in
other revenues from NCM, respectively, and $20.8 million,
$23.4 million and $9.9 million in cash distributions
in excess of our investment in NCM, respectively. Cinema
advertising is a small component of the U.S. advertising
market and therefore, NCM competes with larger, established and
well known media platforms such as broadcast radio and
television, cable and satellite television, outdoor advertising
and Internet portals. NCM also competes with other cinema
advertising companies and with hotels, conference centers,
arenas, restaurants and convention facilities for its non-film
related events to be shown or held in our auditoriums.
In-theatre advertising may not continue to attract advertisers
or NCMs in-theatre advertising format may not continue to
be received favorably by theatre patrons. If NCM is unable to
continue to generate consistent advertising revenues, its
results of operations may be adversely affected and our
investment in and distributions and revenues from NCM may be
adversely impacted.
We are
subject to uncertainties related to digital cinema, including
insufficient financing to obtain digital projectors and
insufficient supply of digital projectors.
We, along with some of our competitors, began a roll-out of
digital projection equipment for exhibiting feature films during
2009 and plan to continue our domestic roll-out through our
joint venture known as Digital Cinema Implementation Partners
LLC, or DCIP. However, significant obstacles may exist that
impact such a roll-out plan including the cost of digital
projectors and the supply of projectors by manufacturers. During
2010, DCIP completed its formation and a $660 million
financing to facilitate the deployment of digital projectors in
approximately 71% of our domestic theatres. During March 2011,
DCIP obtained an additional $220 million of financing,
which is expected to facilitate the deployment of digital
projectors in the remainder of our domestic theatres. We cannot
assure you that DCIP will be able to obtain sufficient
additional financing to be able to purchase and lease to us the
number of digital projectors needed for our domestic roll-out or
that the manufacturers will be able to supply the volume of
projectors needed for our worldwide roll-out. As a result, our
roll-out of digital equipment could be delayed. Additionally,
there is no local financing available to finance the deployment
of digital projectors for our international theatres.
Accordingly, the cost of digital projection systems and
manufacturer limitations may delay our international deployment.
We are
subject to uncertainties relating to future expansion plans,
including our ability to identify suitable acquisition
candidates or site locations, and to obtain financing for such
activities on favorable terms or at all.
We have greatly expanded our operations over the last decade
through targeted worldwide theatre development and acquisitions.
We will continue to pursue a strategy of expansion that will
involve the
23
development of new theatres and may involve acquisitions of
existing theatres and theatre circuits both in the U.S. and
internationally. There is significant competition for new site
locations and for existing theatre and theatre circuit
acquisition opportunities. As a result of such competition, we
may not be able to acquire attractive site locations, existing
theatres or theatre circuits on terms we consider acceptable.
Acquisitions and expansion opportunities may divert a
significant amount of managements time away from the
operation of our business. Growth by acquisition also involves
risks relating to difficulties in integrating the operations and
personnel of acquired companies and the potential loss of key
employees of acquired companies. We cannot assure you that our
expansion strategy will result in improvements to our business,
financial condition, profitability or cash flows. Further, our
expansion programs may require financing above our existing
borrowing capacity and operating cash flows. We cannot assure
you that we will be able to obtain such financing or that such
financing will be available to us on acceptable terms or at all.
If we
do not comply with the Americans with Disabilities Act of 1990,
or the ADA, and the safe harbor framework included in the
consent order we entered into with the Department of Justice, or
the DOJ, we could be subject to further
litigation.
Our theatres must comply with Title III of the ADA and
analogous state and local laws. Compliance with the ADA requires
among other things that public facilities reasonably
accommodate individuals with disabilities and that new
construction or alterations made to commercial
facilities conform to accessibility guidelines unless
structurally impracticable for new construction or
technically infeasible for alterations. In March 1999, the DOJ
filed suit against us in Ohio alleging certain violations of the
ADA relating to wheelchair seating arrangements in certain of
our stadium-style theatres and seeking remedial action. We and
the DOJ have resolved this lawsuit and a consent order was
entered by the U.S. District Court for the Northern
District of Ohio, Eastern Division, on November 15, 2004.
Under the consent order, we were required to make modifications
to wheelchair seating locations in fourteen stadium-style movie
theatres and spacing and companion seating modifications in 67
auditoriums at other stadium-styled movie theatres. These
modifications were completed by November 2009. Upon completion
of these modifications, these theatres comply with wheelchair
seating requirements, and no further modifications will be
required to our other stadium-style movie theatres in the
U.S. existing on the date of the consent order. In
addition, under the consent order, the DOJ approved the seating
plans for nine stadium-styled movie theatres then under
construction and also created a safe harbor framework for us to
construct all of our future stadium-style movie theatres. The
DOJ has stipulated that all theatres built in compliance with
the consent order will comply with the wheelchair seating
requirements of the ADA. If we fail to comply with the ADA,
remedies could include imposition of injunctive relief, fines,
awards for damages to private litigants and additional capital
expenditures to remedy non-compliance. Imposition of significant
fines, damage awards or capital expenditures to cure
non-compliance could adversely affect our business and operating
results.
We
depend on key personnel for our current and future
performance.
Our current and future performance depends to a significant
degree upon the continued contributions of our senior management
team and other key personnel. The loss or unavailability to us
of any member of our senior management team or a key employee
could significantly harm us. We cannot assure you that we would
be able to locate or employ qualified replacements for senior
management or key employees on acceptable terms.
We are
subject to impairment losses due to potential declines in the
fair value of our assets.
We review long-lived assets for impairment indicators on a
quarterly basis or whenever events or changes in circumstances
indicate the carrying amount of the assets may not be fully
recoverable. We assess many factors when determining whether to
impair individual theatre assets, including actual theatre level
cash flows, future years budgeted theatre level cash flows,
theatre property and equipment carrying values, amortizing
intangible asset carrying values, the age of a recently built
theatre, competitive theatres in the marketplace, the impact of
recent ticket price changes, available lease renewal options and
other factors considered relevant in our assessment of
impairment of individual theatre assets. Long-lived assets are
evaluated for impairment on an individual theatre basis, which
we believe is the lowest applicable level for which there are
identifiable
24
cash flows. When estimated fair value is determined to be lower
than the carrying value of the theatre assets, the theatre
assets are written down to their estimated fair value. Fair
value is determined based on a multiple of cash flows, which was
eight times for the evaluations performed during the first,
second and third quarters of 2008 and six and a half times for
the evaluation performed during the fourth quarter of 2008 and
the evaluations performed during 2009 and 2010. Significant
judgment is involved in estimating cash flows and fair value.
Managements estimates, which fall under Level 3 of
the generally accepted accounting principles in the U.S., or
U.S. GAAP, fair value hierarchy, as defined by Financial
Accounting Standards Board, or FASB, Accounting Standards
Codification, or ASC, Topic
820-10-35,
are based on historical and projected operating performance,
recent market transactions and current industry trading
multiples. Since we evaluate long-lived assets for impairment at
the theatre level, if a theatre is directly and individually
impacted by increased competition, adverse changes in market
demographics or adverse changes in the development or condition
of the areas surrounding the theatre, we may record impairment
charges to reflect the decline in estimated fair value of that
theatre.
We have a significant amount of goodwill. We evaluate goodwill
for impairment at the reporting unit level at least annually
during the fourth quarter or whenever events or changes in
circumstances indicate the carrying value of goodwill may not be
fully recoverable. Goodwill impairment is evaluated using a
two-step approach requiring us to compute the fair value of a
reporting unit and compare it with its carrying value. If the
carrying value of the reporting unit exceeds its fair value, a
second step would be performed to measure the potential goodwill
impairment. Fair values are determined based on a multiple of
cash flows, which was six and a half times for the evaluations
performed during 2008, 2009 and 2010. Significant judgment is
involved in estimating cash flows and fair value.
Managements estimates, which fall under Level 3 of the
U.S. GAAP fair value hierarchy, as defined by FASB ASC
Topic
820-10-35,
are based on historical and projected operating performance,
recent market transactions and current industry trading
multiples. Declines in Cinemark Holdingss stock price or
its market capitalization, declines in our attendance due to
increased competition in certain regions
and/or
countries or economic factors that lead to a decline in
attendance in any given region or country could negatively
affect our estimated fair values and could result in further
impairments of goodwill. As of December 31, 2010, the
carrying value of goodwill allocated to reporting units where
the estimated fair value was less than 10% more than the
carrying value was approximately $77 million.
We also have a significant amount of tradename intangible
assets. Tradename intangible assets are tested for impairment at
least annually during the fourth quarter or whenever events or
changes in circumstances indicate the carrying value may not be
fully recoverable. We estimate the fair value of our tradenames
by applying an estimated market royalty rate that could be
charged for the use of our tradename to forecasted future
revenues, with an adjustment for the present value of such
royalties. If the estimated fair value is less than the carrying
value, the tradename intangible asset is written down to its
estimated fair value. Significant judgment is involved in
estimating market royalty rates and long- term revenue
forecasts. Managements estimates, which fall under
Level 3 of the U.S. GAAP fair value hierarchy, as
defined by FASB ASC Topic
820-10-35,
are based on historical and projected revenue performance and
industry trends. As of December 31, 2010, the carrying
value of tradename intangible assets where the estimated fair
value was less than 10% more than the carrying value was
approximately $136 million.
We recorded asset impairment charges, including goodwill and
intangible asset impairment charges, of $113.5 million,
$11.8 million, $12.5 million and $1.0 million for
the years ended December 31, 2008, 2009, 2010 and the three
months ended March 31, 2011, respectively. We cannot assure
you that additional impairment charges will not be required in
the future, and such charges may have an adverse effect on our
financial condition and results of operations. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Notes 8 and 9
to our consolidated financial statements incorporated by
reference in this prospectus.
The
impairment or insolvency of other financial institutions could
adversely affect us.
We have exposure to different counterparties with regard to our
interest rate swap agreements. These transactions expose us to
credit risk in the event of a default by one or more of our
counterparties to such
25
agreements. We also have exposure to financial institutions used
as depositories of our corporate cash balances. If our
counterparties or financial institutions become impaired or
insolvent, this could have an adverse impact on our results of
operations or impair our ability to access our cash.
A
credit market crisis may adversely affect our ability to raise
capital and may materially impact our operations.
Severe dislocations and liquidity disruptions in the credit
markets could materially impact our ability to obtain debt
financing on reasonable terms or at all. The inability to access
debt financing on reasonable terms could materially impact our
ability to make acquisitions or significantly expand our
business in the future.
We may
be subject to liability under environmental laws and
regulations.
We own and operate a large number of theatres and other
properties within the U.S. and internationally, which may
be subject to various foreign, federal, state and local laws and
regulations relating to the protection of the environment or
human health. Such environmental laws and regulations include
those that impose liability for the investigation and
remediation of spills or releases of hazardous materials. We may
incur such liability, including for any currently or formerly
owned, leased or operated property, or for any site, to which we
may have disposed, or arranged for the disposal of, hazardous
materials or wastes. Certain of these laws and regulations may
impose liability, including on a joint and several liability,
which can result in a liable party being obliged to pay for
greater than its share, regardless of fault or the legality of
the original disposal. Environmental conditions relating to our
properties or operations could have an adverse effect on our
business and results of operations and cash flows.
Legislative
or regulatory initiatives related to global warming/climate
change concerns may negatively impact our
business.
Recently, there has been an increasing focus and continuous
debate on global climate change including increased attention
from regulatory agencies and legislative bodies. This increased
focus may lead to new initiatives directed at regulating an as
yet unspecified array of environmental matters. Legislative,
regulatory or other efforts in the U.S. to combat climate
change could result in future increases in the cost of raw
materials, taxes, transportation and utilities for our vendors
and for us which would result in higher operating costs. Also,
compliance of our theatres and accompanying real estate with new
and revised environmental, zoning, land-use or building codes,
laws, rules or regulations, could have a material and adverse
effect on our business. However, we are unable to predict at
this time, the potential effects, if any, that any future
environmental initiatives may have on our business.
The
interests of Madison Dearborn Capital Partners IV, L.P., or
MDCP, may not be aligned with yours.
MDCP beneficially owns approximately 9% of Cinemark
Holdingss common stock and under a director nomination
agreement, is entitled to designate nominees for five members of
Cinemark Holdingss board of directors. Accordingly, MDCP
has influence and effectively controls our corporate and
management policies and has significant influence over the
outcome of any corporate transaction or other matters submitted
to Cinemark Holdingss board, or the Holdings Board, for
approval, including potential mergers or acquisitions, asset
sales and other significant corporate transactions. MDCP could
seek to take other actions that might be adverse to your
interests as holders of the Exchange Notes.
26
USE OF
PROCEEDS
This exchange offer is intended to satisfy certain of our
obligations under the registration rights agreement between us
and the initial purchasers of the Initial Notes. We will not
receive any cash proceeds from the issuance of the Exchange
Notes. In consideration for issuing the Exchange Notes as
contemplated in this prospectus, we will receive in exchange
Initial Notes in like principal amount, the terms of which are
the same in all material respects as the form and terms of the
Exchange Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain terms
restricting the transfer thereof or providing for registration
rights. The Initial Notes surrendered in exchange for the
Exchange Notes will be retired and cancelled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not
increase our indebtedness.
27
THE
EXCHANGE OFFER
Purpose
and Effect of this Exchange Offer
In connection with the issuance of the Initial Notes, we entered
into the registration rights agreement that provides for the
exchange offer. The registration statement of which this
prospectus forms a part was filed in compliance with the
obligations under the exchange and registration rights
agreement. A copy of the exchange and registration rights
agreement relating to the Initial Notes is filed as an exhibit
to the registration statement of which this prospectus is a
part. Under the exchange and registration rights agreement
relating to the Initial Notes we agreed that we would, subject
to certain exceptions:
|
|
|
|
|
use our commercially reasonable best efforts to file, within
90 days after the issue date of the Initial Notes, a
registration statement with the Commission, with respect to a
registered offer to exchange such Initial Notes for the Exchange
Notes having terms substantially identical in all material
respects to the Initial Notes (except that the Exchange Notes
will not contain transfer restrictions);
|
|
|
|
use our commercially reasonable best efforts to cause the
registration statement to be declared effective under the
Securities Act no later than 180 days after the issue date
of the Initial Notes;
|
|
|
|
use our commercially reasonable best efforts to issue the
Exchange Notes in exchange for surrender of the Initial Notes no
later than 30 days following the declaration of the
effectiveness of the registration statement; and
|
|
|
|
if obligated to file a shelf registration statement, use our
commercially reasonable best efforts to file the shelf
registration statement with the Commission on or prior to
30 days after such filing obligation arises (and in any
event within 210 days after the issue date of the Initial
Notes) and to cause the shelf registration statement to be
declared effective by the Commission within 180 days after
such obligation arises.
|
For each Initial Note tendered to us pursuant to the exchange
offer, we will issue to the holder of such Initial Note an
Exchange Note having a principal amount equal to that of the
surrendered Initial Note.
Under existing Commission interpretations, the Exchange Notes
will be freely transferable by holders other than our affiliates
after the exchange offer without further registration under the
Securities Act if the holder of the Exchange Notes represents to
us in the exchange offer that it is acquiring the Exchange Notes
in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in
the distribution of the Exchange Notes and that it is not an
affiliate of ours, as such terms are interpreted by the
Commission; provided, however, that broker-dealers receiving the
Exchange Notes in the exchange offer will have a prospectus
delivery requirement with respect to resales of such Exchange
Notes. The Commission has taken the position that such
participating broker-dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of
the Initial Notes) with this prospectus contained in the
registration statement. Each broker-dealer that receives the
Exchange Notes for its own account in exchange for the Initial
Notes, where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
See Plan of Distribution.
A holder of Initial Notes (other than certain specified holders)
who wishes to exchange the Initial Notes for the Exchange Notes
in the exchange offer will be required to represent that any
Exchange Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the
commencement of the exchange offer it has no arrangement or
understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes
and that it is not an affiliate of ours, as defined
in Rule 405 of the Securities Act, or if it is an
affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the
extent applicable. In the event that:
(1) we are not required to file an exchange offer
registration statement or consummate the exchange offer because
the exchange offer is not permitted by applicable law or
Commission policy; or
28
(2) any holder of the Initial Notes or Exchange Notes
notifies us on or prior to the 20th business day following
the consummation of the exchange offer that;
(a) such holder is prohibited by a change in applicable law
or Commission policy from participating in the exchange offer,
(b) such holder may not resell the Exchange Notes to be
acquired by it in the exchange offer to the public without
delivering a prospectus and that the prospectus contained in the
exchange offer registration statement is not appropriate or
available for such resales by such holder, or
(c) such holder is a broker-dealer and owns Initial Notes
directly from us, then, we will, subject to certain exceptions,
(1) use our reasonable best efforts to file a shelf
registration statement with the Commission covering resales of
the Initial Notes or Exchange Notes, as the case may be, on or
prior to the date (which we call the shelf filing date) which is
the 30th day after the date on which the obligation to file
the shelf registration statement arises (and in any event on or
prior to the date which is the 180th day after the date we
issued the Initial Notes);
(2) use our reasonable best efforts to cause the shelf
registration statement to be declared effective under the
Securities Act on or prior to the 180th day after the
obligation to file the shelf registration statement
arises; and
(3) use our best efforts to keep the shelf registration
statement continuously effective, supplemented and amended until
two years from the date we issued the Initial Notes registered
thereunder.
We will, in the event a shelf registration statement is filed,
among other things, provide to each holder for whom such shelf
registration statement was filed copies of the prospectus which
is a part of the shelf registration statement, notify each such
holder when the shelf registration statement has become
effective and take certain other actions as are required to
permit unrestricted resales of the Initial Notes or the Exchange
Notes, as the case may be. A holder selling such Initial Notes
or Exchange Notes pursuant to the shelf registration statement
generally would be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the registration
rights agreement that are applicable to such holder (including
certain indemnification obligations).
We will pay additional cash interest on the applicable Initial
Notes and Exchange Notes, subject to certain exceptions:
(1) if we fail to file the registration statement of which
this prospectus forms a part with the Commission on or prior to
the 90th day after the issue date of the Initial Notes;
(2) if the registration statement of which this prospectus
forms a part is not declared effective by the Commission on or
prior to the 180th day after the issue date of the Initial
Notes;
(3) if the exchange offer is not consummated on or before
the 30th business day after the registration statement of
which this prospectus forms a part is declared effective;
(4) if obligated to file the shelf registration statement,
we fail to file the shelf registration statement with the
Commission on or prior to the shelf filing date;
(5) if obligated to file a shelf registration statement,
the shelf registration statement is not declared effective on or
prior to the 180th day after the shelf filing date; or
(6) after the registration statement of which this
prospectus forms a part or the shelf registration statement, as
the case may be, is declared effective, such registration
statement thereafter ceases to be effective or usable for its
intended purpose without being succeeded within two business
days by a post-effective amendment to such registration
statement that cures such failure and that is immediately
declared effective.
29
The rate of any such additional interest will be 0.50% per
annum. The amount of additional interest will increase by an
additional 0.50% per annum with respect to each subsequent
90-day
period relating to such registration default until cured up to a
maximum of 1.0% per annum. We will pay any such additional
interest on regular interest payment dates. Such additional
interest will be in addition to any other interest payable from
time to time with respect to the Initial Notes and the Exchange
Notes. The accrual of additional interest will cease, upon the
earlier of, the third anniversary of the date we issued the
Initial Notes or the cure of all registration defaults.
All references in the indenture governing the Notes, in any
context, to any interest or other amount payable on or with
respect to the Initial Notes or the Exchange Notes shall be
deemed to include any additional interest pursuant to the
exchange and registration rights agreement relating to the
Initial Notes.
If we effect the exchange offer, we will be entitled to close
the exchange offer 30 days after the commencement thereof
provided that we have accepted all Initial Notes theretofore
validly tendered in accordance with the terms of the exchange
offer. Initial Notes will be validly tendered if tendered in
accordance with the terms of the exchange offer as detailed
under Procedures for Tendering Initial
Notes.
Background
of the Exchange Offer
We issued $200,000,000 aggregate principal amount of the Initial
Notes on June 3, 2011. The Initial Notes were offered and
sold in the United States only to qualified institutional buyers
in reliance on Rule 144A under the Securities Act, and to
certain
non-U.S. persons
in transactions outside the United States in reliance on
Regulation S under the Securities Act based on the
representations and agreements of the qualified institutional
buyers and certain
non-U.S. persons
made in connection with their purchase of the Initial Notes. The
terms of the Exchange Notes and the Initial Notes will be
identical in all material respects, except for transfer
restrictions and registration rights that will not apply to the
Exchange Notes. Cash interest will be payable on the Exchange
Notes on June 15 and December 15 of each year, beginning on
December 15, 2011. The Exchange Notes will mature on
June 15, 2021.
In order to exchange your Initial Notes for the Exchange Notes
containing no transfer restrictions in the exchange offer, you
will be required to make the following representations:
|
|
|
|
|
the Exchange Notes will be acquired in the ordinary course of
your business;
|
|
|
|
you have no arrangements with any person to participate in the
distribution of the Exchange Notes; and
|
|
|
|
you are not our affiliate as defined in
Rule 405 of the Securities Act, or if you are an affiliate
of ours, you will comply with the applicable registration and
prospectus delivery requirements of the Securities Act.
|
Upon the terms and subject to the conditions set forth in this
prospectus and in the related letter of transmittal, we will
accept for exchange any Initial Notes validly tendered and not
validly withdrawn in the exchange offer, and the exchange agent
will deliver the Exchange Notes promptly after the expiration
date of the exchange offer. Initial Notes will be validly
tendered and not validly withdrawn if they are tendered in
accordance with the terms of the exchange offer as detailed
under Procedures for Tendering Initial
Notes and not withdrawn in accordance with the terms of
the exchange offer as detailed under
Withdrawal of Tenders. We expressly
reserve the right to delay acceptance, subject to
Rule 14e-1(c)
under the Exchange Act, of any of the tendered Initial Notes or
terminate the exchange offer and not accept for exchange any
tendered Initial Notes not already accepted if any condition set
forth under Conditions to the Exchange
Offer have not been satisfied or waived by us or do not
comply, in whole or in part, with the securities laws or changes
in any applicable law. We reserve the right to delay acceptance
of the tendered Initial Notes if any condition set forth under
Conditions to the Exchange Offer is not
satisfied or if the exchange offer is extended.
If you tender your Initial Notes, you will not be required to
pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with
respect to the exchange of the Initial Notes.
30
Expiration
Date; Extensions; Termination; Amendments
The exchange offer will expire at midnight, New York City time,
on September 7, 2011, unless we extend it. We expressly
reserve the right to extend the exchange offer on a daily basis
or for such period or periods as we may determine in our sole
discretion from time to time by giving oral, confirmed in
writing, or written notice to the exchange agent and by making a
public announcement by press release to Businesswire prior to
9:00 a.m., New York City time, on the first business day
following the scheduled expiration date. During any extension of
the exchange offer, all Initial Notes previously tendered, not
validly withdrawn and not accepted for exchange will remain
subject to the exchange offer and may be accepted for exchange
by us.
To the extent we are legally permitted to do so, we expressly
reserve the absolute right, in our sole discretion, but are not
required, to:
|
|
|
|
|
waive any condition of the exchange offer; and
|
|
|
|
amend any terms of the exchange offer.
|
Any waiver of any condition of or amendment to the exchange
offer will apply to all Initial Notes tendered, regardless of
when or in what order the Initial Notes were tendered. If we
make a material change in the terms of the exchange offer or if
we waive a material condition of the exchange offer, we will
disseminate additional exchange offer materials, and we will
extend, if necessary, the expiration date of the exchange offer
such that at least five business days remain in the exchange
offer following notice of the material change.
We expressly reserve the right, in our sole discretion, to
terminate the exchange offer if any of the conditions set forth
under Conditions of the Exchange Offer
exist. Any such termination will be followed promptly by a
public announcement. In the event we terminate the exchange
offer, we will give immediate notice to the exchange agent, and
all Initial Notes previously tendered and not accepted for
exchange will be returned promptly to the tendering holders.
In the event that the exchange offer is withdrawn or otherwise
not completed, the Exchange Notes will not be given to holders
of Initial Notes who have validly tendered their Initial Notes.
We will return any Initial Notes that have been tendered for
exchange but that are not exchanged to their holder without cost
to the holder, or, in the case of the Initial Notes tendered by
book-entry transfer into the exchange agents account at a
book-entry transfer facility under the procedure set forth under
Procedures for Tendering Initial
Notes Book-Entry Transfer, such Initial Notes
will be credited to the account maintained at such book-entry
transfer facility from which such Initial Notes were delivered,
unless otherwise requested by such holder under
Special Delivery Instructions in the
letter of transmittal, promptly following the exchange date or
the termination of the exchange offer.
Resale of
the Exchange Notes
Based on interpretations of the Commission set forth in
no-action letters issued to third parties, we believe that the
Exchange Notes issued under the exchange offer in exchange for
the Initial Notes may be offered for resale, resold and
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act, if:
|
|
|
|
|
you are not an affiliate of ours within the meaning
of Rule 405 under the Securities Act;
|
|
|
|
you are acquiring the Exchange Notes in the ordinary course of
business; and
|
|
|
|
you do not intend to participate in the distribution of the
Exchange Notes.
|
If you tender Initial Notes in the exchange offer with the
intention of participating in any manner in a distribution of
the Exchange Notes:
|
|
|
|
|
you cannot rely on those interpretations of the
Commission; and
|
|
|
|
you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction, and the secondary resale
transaction must be covered.
|
31
Unless an exemption from registration is otherwise available,
any security holder intending to distribute the Exchange Notes
should be covered by an effective registration statement under
the Securities Act containing the selling security holders
information required by Item 507 of
Regulation S-K.
This prospectus may be used for an offer to resell, a resale or
other re-transfer of the Exchange Notes only as specifically set
forth in the section captioned Plan of Distribution.
Only broker-dealers that acquired the Exchange Notes as a result
of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that
receives the Exchange Notes for its own account in exchange for
Initial Notes, where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes.
Please read the section captioned Plan of
Distribution for more details regarding the transfer of
the Exchange Notes.
Acceptance
of Initial Notes for Exchange
We will accept for exchange Initial Notes validly tendered
pursuant to the exchange offer, or defectively tendered, if such
defect has been waived by us, after the later of:
|
|
|
|
|
the expiration date of the exchange offer; and
|
|
|
|
the satisfaction or waiver of the conditions specified below
under Conditions of the Exchange Offer.
|
Except as specified above, we will not accept Initial Notes for
exchange subsequent to the expiration date of the exchange
offer. Tenders of Initial Notes will be accepted only in
aggregate principal amounts equal to $1,000 or integral
multiples thereof.
We expressly reserve the right, in our sole discretion, to:
|
|
|
|
|
delay acceptance for exchange of Initial Notes tendered under
the exchange offer, subject to
Rule 14e-1
under the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or
on behalf of the holders promptly after the termination or
withdrawal of a tender offer; or
|
|
|
|
terminate the exchange offer and not accept for exchange any
Initial Notes, if any of the conditions set forth below under
Conditions of the Exchange Offer have
not been satisfied or waived by us or in order to comply in
whole or in part with the securities laws or changes in any
applicable law.
|
In all cases, the Exchange Notes will be issued only after
receipt by the exchange agent prior to the expiration of the
exchange offer of certificates representing Initial Notes, or
confirmation of book-entry transfer, a letter of transmittal,
properly completed and duly executed or a manually signed
facsimile thereof, and any other required documents in
accordance with instructions set forth under The Exchange
Offer Procedures for Tendering Initial Notes
and the letter of transmittal provided with this prospectus. For
purposes of the exchange offer, we will be deemed to have
accepted for exchange validly tendered Initial Notes, or
defectively tendered Initial Notes with respect to which we have
waived such defect, if, as and when we give oral, confirmed in
writing, or written notice to the exchange agent. Promptly after
the expiration date, we will deposit the Exchange Notes with the
exchange agent, who will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes and transmitting
them to the holders. The exchange agent will deliver the
Exchange Notes to holders of Initial Notes accepted for exchange
after the exchange agent receives the Exchange Notes.
If we delay acceptance for exchange of validly tendered Initial
Notes or we are unable to accept for exchange validly tendered
Initial Notes, then the exchange agent may, nevertheless, on its
behalf, retain tendered Initial Notes, without prejudice to our
rights described in this prospectus under the captions
Expiration Date; Extensions; Termination;
Amendments, Conditions of the Exchange
Offer and Withdrawal of Tenders,
subject to
Rule 14e-1
under the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination
or withdrawal of a tender offer.
32
If any tendered Initial Notes are not accepted for exchange, or
if certificates are submitted evidencing more Initial Notes than
those that are tendered, certificates evidencing Initial Notes
that are not exchanged will be returned, without expense, to the
tendering holder, or, in the case of the Initial Notes tendered
by book-entry transfer into the exchange agents account at
a book-entry transfer facility under the procedure set forth
under Procedures for Tendering Initial
Notes Book-Entry Transfer, such Initial Notes
will be credited to the account maintained at such book-entry
transfer facility from which such Initial Notes were delivered,
unless otherwise requested by such holder under
Special Delivery Instructions in the
letter of transmittal, promptly following the exchange date or
the termination of the exchange offer.
Tendering holders of Initial Notes exchanged in the exchange
offer will not be obligated to pay brokerage commissions or
transfer taxes with respect to the exchange of their Initial
Notes other than as described under the caption
Transfer Taxes or as set forth in the
letter of transmittal. We will pay all other charges and
expenses in connection with the exchange offer.
Procedures
for Tendering Initial Notes
Any beneficial owner whose Initial Notes are registered in the
name of a broker, dealer, commercial bank, trust company or
other nominee or held through a book-entry transfer facility and
who wishes to tender Initial Notes should contact such
registered holder promptly and instruct such registered holder
to tender Initial Notes on such beneficial owners behalf.
Tender
of Initial Notes Held Through The Depository
Trust Company
The exchange agent and The Depository Trust Company, or
DTC, have confirmed that the exchange offer is eligible for the
DTC automated tender offer program. Accordingly, DTC
participants may electronically transmit their acceptance of the
exchange offer by causing DTC to transfer Initial Notes to the
exchange agent in accordance with DTCs automated tender
offer program procedures for transfer. DTC will then send an
agents message to the exchange agent.
The term agents message means a message
transmitted by DTC and received by the exchange agent that forms
part of the book-entry confirmation. The agents message
states that DTC has received an express acknowledgment from the
participant in DTC tendering Initial Notes that are the subject
of that book-entry confirmation, that the participant has
received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce such agreement against such
participant. In the case of an agents message relating to
guaranteed delivery, the term means a message transmitted by DTC
and received by the exchange agent, which states that DTC has
received an express acknowledgment from the participant in DTC
tendering Initial Notes that they have received and agree to be
bound by the notice of guaranteed delivery.
Tender
of Initial Notes Held in Physical Form
For a holder to validly tender Initial Notes held in physical
form:
|
|
|
|
|
the exchange agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together
with any signature guarantees and any other documents required
by the instructions to the letter of transmittal; and
|
|
|
|
the exchange agent must receive certificates for tendered
Initial Notes at such address, or such Initial Notes must be
transferred pursuant to the procedures for book-entry transfer
described above. A confirmation of such book-entry transfer must
be received by the exchange agent prior to the expiration date
of the exchange offer. A holder who desires to tender Initial
Notes and who cannot comply with the procedures set forth herein
for tender on a timely basis or whose Initial Notes are not
immediately available must comply with the procedures for
guaranteed delivery set forth below.
|
Letters
of transmittal and Initial Notes should be sent only to the
exchange agent, and not to us or to any book-entry transfer
facility.
The method of delivery of Initial Notes, letters of
transmittal and all other required documents to the exchange
agent is at the election and risk of the holder tendering
Initial Notes. Delivery of such
33
documents will be deemed made only when actually received by
the exchange agent. If such delivery is by mail, we suggest that
the holder use properly insured, registered mail with return
receipt requested, and that the mailing be made sufficiently in
advance of the expiration date of the exchange offer to permit
delivery to the exchange agent prior to such date. No
alternative, conditional or contingent tenders of Initial Notes
will be accepted.
Signature
Guarantees
A signature on a letter of transmittal or a notice of withdrawal
must be guaranteed by an eligible institution. Eligible
institutions include banks, brokers, dealers, municipal
securities dealers, municipal securities brokers, government
securities dealers, government securities brokers, credit
unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. The
signature need not be guaranteed by an eligible institution if
the Initial Notes are tendered:
|
|
|
|
|
by a registered holder who has not completed the box entitled
Special Issuance Instructions or Special
Delivery Instructions on the letter of transmittal; or
|
|
|
|
for the account of an eligible institution.
|
If the letter of transmittal is signed by a person other than
the registered holder of any Initial Notes, the Initial Notes
must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as
the registered holders name appears on the Initial Notes
and an eligible institution must guarantee the signature on the
bond power.
If the letter of transmittal or any Initial Notes or bond powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in
a fiduciary or representative capacity, these persons should so
indicate when signing. Unless we waive this requirement, they
should also submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
Book-Entry
Transfer
The exchange agent will seek to establish a new account or
utilize an existing account with respect to the Initial Notes at
DTC promptly after the date of this prospectus. Any financial
institution that is a participant in the book-entry transfer
facility system and whose name appears on a security position
listing it as the owner of the Initial Notes may make book-entry
delivery of Initial Notes by causing the book-entry transfer
facility to transfer such Initial Notes into the exchange
agents account. However, although delivery of Initial
Notes may be effected through book-entry transfer into the
exchange agents account at a book-entry transfer facility,
a letter of transmittal, properly completed and duly executed or
a manually signed facsimile thereof, in accordance with
instructions set forth under Procedures for
Tendering Initial Notes and the letter of transmittal
provided with this prospectus, must be received by the exchange
agent at its address set forth in this prospectus on or prior to
the expiration date of the exchange offer, or else the
guaranteed delivery procedures described below must be complied
with. The confirmation of a book-entry transfer of Initial
Notes into the exchange agents account at a book-entry
transfer facility is referred to in this prospectus as a
book-entry confirmation. Delivery of documents to
the book-entry transfer facility in accordance with that
book-entry transfer facilitys procedures does not
constitute delivery to the exchange agent.
Guaranteed
Delivery
If you wish to tender your Initial Notes and:
|
|
|
|
|
certificates representing your Initial Notes are not lost but
are not immediately available;
|
|
|
|
time will not permit your letter of transmittal, certificates
representing your Initial Notes and all other required documents
to reach the exchange agent on or prior to the expiration date
of the exchange offer; or
|
34
|
|
|
|
|
the procedures for book-entry transfer cannot be completed on or
prior to the expiration date of the exchange offer;
|
You may tender your Initial Notes if:
|
|
|
|
|
your tender is made by or through an eligible
institution; and
|
|
|
|
on or prior to the expiration date of the exchange offer, the
exchange agent has received from the eligible institution a
properly completed and validly executed notice of guaranteed
delivery, by manually signed facsimile transmission, mail or
hand delivery, in substantially the form provided with this
prospectus:
|
|
|
|
setting forth your name and address, the registered number(s) of
your Initial Notes and the principal amount of the Initial Notes
tendered;
|
|
|
|
stating that the tender is being made by guaranteed delivery;
|
|
|
|
guaranteeing that, within three NYSE trading days after the date
of the notice of guaranteed delivery, the letter of transmittal
or facsimile thereof, properly completed and duly executed in
accordance with instructions set forth under
Procedures for Tendering Initial Notes,
together with certificates representing the Initial Notes, or a
book-entry confirmation, and any other documents required by the
letter of transmittal and the instructions thereto, will be
deposited by the eligible institution with the exchange
agent; and
|
|
|
|
the exchange agent receives the properly completed and validly
executed letter of transmittal or facsimile thereof with any
required signature guarantees, together with certificates for
all Initial Notes in proper form for transfer, or a book-entry
confirmation, and any other required documents, within three
NYSE trading days after the date of the notice of guaranteed
delivery.
|
Other
Matters
Exchange Notes will be issued in exchange for Initial Notes
accepted for exchange only after receipt by the exchange agent
prior to expiration of the exchange offer of:
|
|
|
|
|
certificates for, or a timely book-entry confirmation with
respect to, your Initial Notes;
|
|
|
|
a letter of transmittal properly completed and duly executed or
facsimile thereof with any required signature guarantees, or, in
the case of a book-entry transfer, an agents
message; and
|
|
|
|
any other documents required by the letter of transmittal; all
the above in accordance with instructions set forth under
Procedures for Tendering Initial Notes,
and the letter of transmittal provided with this prospectus.
|
We will decide all questions as to the form of all documents and
the validity, including time of receipt, and acceptance of all
tenders of Initial Notes, the determination of which shall be
final and binding. Alternative, conditional or contingent
tenders of Initial Notes will not be considered valid. We
reserve the absolute right to reject any or all tenders of
Initial Notes that are not in proper form or the acceptance of
which, in our opinion, would be unlawful. We also reserve the
right to waive any defects, irregularities or conditions of
tender as to any particular Initial Notes.
Unless waived by us, any defect or irregularity in connection
with tenders of Initial Notes must be cured within the time that
we determine. Tenders of Initial Notes will not be deemed to
have been made until all defects and irregularities have been
waived by us or cured. Neither us, the exchange agent, nor any
other person will be under any duty to give notice of any
defects or irregularities in tenders of Initial Notes, or will
incur any liability to holders for failure to give any such
notice.
By signing or agreeing to be bound by the letter of transmittal,
you will represent to us that, among other things:
|
|
|
|
|
any Exchange Notes that you receive will be acquired in the
ordinary course of your business;
|
35
|
|
|
|
|
you have no arrangement or understanding with any person or
entity to participate in the distribution of the Exchange Notes;
|
|
|
|
if you are not a broker-dealer, that you are not engaged in and
do not intend to engage in the distribution of the Exchange
Notes;
|
|
|
|
if you are a broker-dealer that will receive the Exchange Notes
for your own account in exchange for Initial Notes that were
acquired as a result of market-making activities or other
trading activities, that you will deliver a prospectus, as
required by law, in connection with any resale of the Exchange
Notes; and
|
|
|
|
you are not an affiliate of ours, as defined in
Rule 405 of the Securities Act, or, if you are an
affiliate, you will comply with any applicable registration and
prospectus delivery requirements of the Securities Act.
|
Withdrawal
of Tenders
Except as otherwise provided in this prospectus, you may
withdraw your tender of Initial Notes at any time prior to the
expiration date of the exchange offer.
For a withdrawal to be effective:
|
|
|
|
|
the exchange agent must receive a written notice of withdrawal
at the address set forth below under Exchange
Agent; or
|
|
|
|
you must comply with the appropriate procedures of DTCs
automated tender offer program system.
|
Any notice of withdrawal must:
|
|
|
|
|
specify the name of the person who tendered the Initial Notes to
be withdrawn; and
|
|
|
|
identify the Initial Notes to be withdrawn, including the
principal amount of the Initial Notes to be withdrawn.
|
If certificates for the Initial Notes have been delivered or
otherwise identified to the exchange agent, then, prior to the
release of those certificates, the withdrawing holder must also
submit:
|
|
|
|
|
the serial numbers of the particular certificates to be
withdrawn; and
|
|
|
|
a signed notice of withdrawal with signatures guaranteed by an
eligible institution, unless the withdrawing holder is an
eligible institution.
|
If the Initial Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at
DTC to be credited with the withdrawn Initial Notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of notices of
withdrawal, and our determination shall be final and binding on
all parties. We will deem any Initial Notes so withdrawn not to
have been validly tendered for exchange for purposes of the
exchange offer.
We will return any Initial Notes that have been tendered for
exchange but that are not exchanged to their holder without cost
to the holder. In the case of Initial Notes tendered by
book-entry transfer into the exchange agents account at
DTC, according to the procedures described above, those Initial
Notes will be credited to an account maintained with DTC for the
Initial Notes. This return or crediting will take place promptly
after withdrawal, rejection of tender or termination of the
exchange offer. You may re-tender properly withdrawn Initial
Notes by following one of the procedures described under
Procedures for Tendering Initial Notes
at any time on or prior to the expiration date of the exchange
offer.
36
Conditions
to the Exchange Offer
Despite any other term of the exchange offer, we will not be
required to accept for exchange any Initial Notes and we may
terminate or amend the exchange offer as provided in this
prospectus before the expiration of the exchange offer if in our
reasonable judgment:
|
|
|
|
|
the Exchange Notes to be received will not be tradable by the
holder without restriction under the Securities Act and the
Exchange Act and without material restrictions under the blue
sky or securities laws of substantially all of the states of the
United States;
|
|
|
|
the exchange offer, or the making of any exchange by a holder of
Initial Notes, would violate applicable law or any applicable
interpretation of the staff of the Commission;
|
|
|
|
any action or proceeding has been instituted or threatened in
any court or by or before any governmental agency with respect
to the exchange offer that would reasonably be expected to
impair our ability to proceed with the exchange offer; or
|
|
|
|
all governmental approvals necessary for the consummation of the
exchange offer have not been obtained. Other than the federal
securities laws, there are no federal or state regulatory
requirements that we must comply with and there are no approvals
that we must obtain in connection with the exchange offer.
|
We will not be obligated to accept for exchange the Initial
Notes of any holder that has not made to us:
|
|
|
|
|
the representations described under the captions
Procedures for Tendering Initial Notes
and Plan of Distribution; and
|
|
|
|
any other representations that may be reasonably necessary under
applicable Commission rules, regulations or interpretations to
make available to us an appropriate form for registration of the
Exchange Notes under the Securities Act.
|
We expressly reserve the right, at any time or at various times,
to extend the period of time during which the exchange offer is
open. Consequently, we may delay acceptance of any Initial
Notes, subject to
Rule 14e-1(c)
under the Exchange Act, by giving oral or written notice of an
extension to their holders. During an extension, all Initial
Notes previously tendered will remain subject to the exchange
offer, and we may accept them for exchange. We will return any
Initial Notes that we do not accept for exchange without expense
to their tendering holder promptly after the expiration or
termination of the exchange offer.
We expressly reserve the right to amend or terminate the
exchange offer and to reject for exchange any Initial Notes not
previously accepted for exchange, upon the occurrence of any of
the conditions of the exchange offer specified above. By public
announcement we will give oral or written notice of any
extension, amendment, non-acceptance or termination to the
holders of the Initial Notes in accordance with the requirements
of
Rule 14e-1(d)
of the Exchange Act. If we amend the exchange offer in a manner
that we consider material, we will disclose the amendment in the
manner required by applicable law. In the event of a material
change in the exchange offer, including the waiver of a material
condition, we will extend, if necessary, the expiration date of
the exchange offer such that at least five business days remain
in the exchange offer following notice of the material change.
We may assert these conditions regardless of the circumstances
that may give rise to them or waive them in whole or in part at
any time or at various times in our sole discretion. If we fail
at any time to exercise any of the foregoing rights, this
failure will not constitute a waiver of that right. Each of
these rights will be deemed an ongoing right that we may assert
at any time or at various times.
We will not accept for exchange any Initial Notes tendered, and
will not issue the Exchange Notes in exchange for any Initial
Notes, if at any time a stop order is threatened or in effect
with respect to the registration statement of which this
prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act of 1939.
37
Transfer
Taxes
We will pay all transfer taxes, if any, applicable to the
transfer and exchange of Initial Notes pursuant to the exchange
offer. The tendering holder, however, will be required to pay
any transfer taxes, whether imposed on the record holder or any
other person, if:
|
|
|
|
|
delivery of the Exchange Notes, or certificates for Initial
Notes for principal amounts not exchanged, are to be made to any
person other than the record holder of the Initial Notes
tendered;
|
|
|
|
tendered certificates for Initial Notes are recorded in the name
of any person other than the person signing any letter of
transmittal; or
|
|
|
|
a transfer tax is imposed for any reason other than the transfer
and exchange of Initial Notes under the exchange offer.
|
Consequences
of Failure to Exchange
If you do not exchange your Initial Notes for the Exchange Notes
in the exchange offer, you will remain subject to restrictions
on transfer of the Initial Notes:
|
|
|
|
|
as set forth in the legend printed on the Initial Notes as a
consequence of the issuance of the Initial Notes pursuant to the
exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable
state securities laws; and
|
|
|
|
as otherwise set forth in the prospectus distributed in
connection with the private offering of each of the Initial
Notes.
|
In general, you may not offer or sell the Initial Notes unless
they are registered under the Securities Act or if the offer or
sale is exempt from registration under the Securities Act and
applicable state securities laws. Except as required by the
registration rights agreements relating to the Initial Notes, we
do not intend to register resales of the Initial Notes under the
Securities Act. Based on interpretations of the Commission, you
may offer for resale, resell or otherwise transfer the Exchange
Notes issued in the exchange offer without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that:
|
|
|
|
|
you are not an affiliate within the meaning of
Rule 405 under the Securities Act;
|
|
|
|
you acquired the Exchange Notes in the ordinary course of your
business; and
|
|
|
|
you have no arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired in the
exchange offer.
|
If you tender Initial Notes in the exchange offer for the
purpose of participating in a distribution of the Exchange Notes:
|
|
|
|
|
you cannot rely on the applicable interpretations of the
Commission; and
|
|
|
|
you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration
statement containing the selling security holder information
required by Item 507 or 508, as applicable, of
Regulation S-K
under the Securities Act.
|
Exchange
Agent
Wells Fargo Bank, N.A. has been appointed as exchange agent for
the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus,
the letter of transmittal
38
or any other documents to the exchange agent. You should send
certificates for Initial Notes, letters of transmittal and any
other required documents to the exchange agent addressed as
follows:
|
|
|
|
|
|
|
By Registered or Certified
Mail
|
|
By Overnight Delivery
|
|
By Hand Delivery
|
|
Facsimile
Transmission
|
|
Wells Fargo Bank, N.A.
MAC N9303-121
P.O. Box 1517
Minneapolis,
Minnesota 55480
Attn: Corporate Trust Operations
|
|
Wells Fargo Bank, N.A.
MAC N9303-121
6th & Marquette Avenue
Minneapolis,
Minnesota 55479
Attn: Corporate Trust
Operations
|
|
Wells Fargo Bank, N.A.
608 2nd Avenue South
Northstar East
Building 12th Floor
Minneapolis, Minnesota
|
|
(612) 667-6282
Attn: Corporate Trust
Operations
Confirm by Telephone:
(800) 344-5128
|
Delivery of a letter of transmittal to an address other than as
shown above or transmission via facsimile other than as set
forth above does not constitute valid delivery of such letter of
transmittal.
Other
Participation in the exchange offer is voluntary, and you should
carefully consider whether to exchange the Initial Notes for the
Exchange Notes. We urge you to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered Initial Notes in
open market or privately negotiated transactions, through
subsequent exchange offers or otherwise, on terms that may
differ from the terms of this exchange offer. We have no present
plans to acquire any Initial Notes that are not tendered in the
exchange offer or to file a registration statement to permit
resales of any untendered Initial Notes.
39
CAPITALIZATION
The following table presents our cash and cash equivalents and
capitalization as of March 31, 2011. Our capitalization is
presented: (1) on an actual basis and (2) on an as
adjusted basis to give effect to the receipt of the gross
proceeds from issuance of the Initial Notes by us and the
application of the gross proceeds therefrom.
You should read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and related notes thereto that are
incorporated by reference in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
In thousands
|
|
|
|
(Unaudited)
|
|
|
Cash and cash equivalents
|
|
$
|
462,589
|
|
|
$
|
500,354
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities:
|
|
|
|
|
|
|
|
|
Senior secured credit
facility(1)
|
|
$
|
1,070,055
|
|
|
$
|
912,820
|
|
Senior
Notes(2)
|
|
|
470,000
|
|
|
|
470,000
|
|
Senior subordinated Exchange Notes offered hereby
|
|
|
|
|
|
|
200,000
|
|
Total long-term debt
|
|
|
1,540,055
|
|
|
|
1,582,820
|
|
Capital lease obligations, including current portion
|
|
|
138,471
|
|
|
|
138,471
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations
|
|
|
1,678,526
|
|
|
|
1,721,291
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Cinemark USA, Inc.s stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value:
10,000,000 shares authorized and 1,500 shares issued
and outstanding
|
|
|
|
|
|
|
|
|
Class B common stock, no par value: 1,000,000 shares
authorized and 239,893 shares issued and outstanding
|
|
|
49,543
|
|
|
|
49,543
|
|
Additional
paid-in-capital
|
|
|
1,170,775
|
|
|
|
1,170,775
|
|
Retained
deficit(3)
|
|
|
(190,901
|
)
|
|
|
(193,846
|
)
|
Treasury stock, 57,245 Class B shares at cost
|
|
|
(24,233
|
)
|
|
|
(24,233
|
)
|
Accumulated other comprehensive
income(4)
|
|
|
40,827
|
|
|
|
42,978
|
|
|
|
|
|
|
|
|
|
|
Total Cinemark USA, Inc.s stockholders equity
|
|
|
1,046,011
|
|
|
|
1,045,217
|
|
Noncontrolling interests
|
|
|
11,865
|
|
|
|
11,865
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,057,876
|
|
|
|
1,057,082
|
|
Total capitalization
|
|
$
|
2,736,402
|
|
|
$
|
2,778,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of March 31, 2011, our senior secured credit facility
consisted of a $150.0 million revolving credit facility,
with no borrowings outstanding, and a $1,120.0 million term
loan, of which $1,070.1 million was outstanding.
Approximately $157.3 million of the term loan matures in
October 2013 and approximately $912.8 million matures in
April 2016. As of March 31, 2011, the average interest rate
on the term loan borrowings that mature in October 2013 was 3.1%
per annum. As of March 31, 2011, on an as adjusted basis,
after giving effect to the issuance of the Exchange Notes and
the use of proceeds therefrom, we would have had
$912.8 million outstanding under our term loan facility,
all of which matures in April 2016 at an average interest rate
of 5.1% per annum. |
|
(2) |
|
Represents the aggregate principal amount of the Senior Notes
before the original issue discount, which was $10.1 million
as of March 31, 2011. |
|
(3) |
|
Reflects the impact of loss on early retirement of debt of
approximately $2.9 million, which includes the write-off of
a portion of the unamortized debt issue costs associated with
our senior secured credit facility and the write-off of a
portion of the accumulated other comprehensive loss associated
with certain of our interest rate swap agreements, net of taxes. |
|
(4) |
|
Reflects the write-off of a portion of the accumulated other
comprehensive loss associated with certain of our interest rate
swap agreements. |
40
SELECTED
HISTORICAL CONDENSED CONSOLIDATED FINANCIAL AND OPERATING
DATA
The following tables set forth our selected historical condensed
consolidated financial and operating data as of and for the
periods indicated. On August 2, 2006, Cinemark Holdings was
formed as the Delaware holding company of Cinemark, Inc. On
August 7, 2006, the Cinemark, Inc. stockholders entered
into a share exchange, or the Cinemark Share Exchange. The
Cinemark Share Exchange was completed on October 5, 2006
and facilitated the acquisition of Century Theatres, Inc., or
the Century Acquisition. On October 5, 2006, Cinemark, Inc.
became a wholly-owned subsidiary of Cinemark Holdings and
Cinemark became a wholly-owned subsidiary of Cinemark, Inc. Due
to a change in reporting entity that occurred as a result of the
Cinemark Share Exchange, Cinemark Holdingss accounting
basis was pushed down to us effective October 5, 2006, the
date of the Cinemark Share Exchange. The selected information as
of and for periods through October 4, 2006 are of Cinemark,
as Predecessor, and the selected information as of and for all
subsequent periods are of Cinemark, as Successor. Effective
December 11, 2009, Cinemark, Inc. was merged into Cinemark
Holdings, with no accounting impact, and Cinemark became a
wholly-owned subsidiary of Cinemark Holdings. You should read
the summary historical consolidated financial information set
forth below in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our audited consolidated financial
statements and related notes incorporated by reference in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
October 5,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to
|
|
|
|
2006 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
October 4,
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2006
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Predecessor)
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
|
(In thousands)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
514,183
|
|
|
|
$
|
246,092
|
|
|
$
|
1,087,480
|
|
|
$
|
1,126,977
|
|
|
$
|
1,293,378
|
|
|
$
|
1,405,389
|
|
|
$
|
342,990
|
|
|
$
|
311,692
|
|
Concession
|
|
|
260,223
|
|
|
|
|
115,575
|
|
|
|
516,509
|
|
|
|
534,836
|
|
|
|
602,880
|
|
|
|
642,326
|
|
|
|
153,104
|
|
|
|
146,681
|
|
Other
|
|
|
54,683
|
|
|
|
|
29,838
|
|
|
|
78,852
|
|
|
|
80,474
|
|
|
|
80,242
|
|
|
|
93,429
|
|
|
|
20,537
|
|
|
|
24,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
829,089
|
|
|
|
$
|
391,505
|
|
|
$
|
1,682,841
|
|
|
$
|
1,742,287
|
|
|
$
|
1,976,500
|
|
|
$
|
2,141,144
|
|
|
$
|
516,631
|
|
|
$
|
483,136
|
|
Theatre operating costs
|
|
|
496,794
|
|
|
|
|
231,637
|
|
|
|
1,035,360
|
|
|
|
1,085,630
|
|
|
|
1,226,175
|
|
|
|
1,327,898
|
|
|
|
318,988
|
|
|
|
298,341
|
|
Facility lease expense
|
|
|
109,513
|
|
|
|
|
48,246
|
|
|
|
212,730
|
|
|
|
225,595
|
|
|
|
238,779
|
|
|
|
255,717
|
|
|
|
62,715
|
|
|
|
66,426
|
|
General and administrative expenses
|
|
|
45,865
|
|
|
|
|
21,784
|
|
|
|
78,664
|
|
|
|
89,583
|
|
|
|
94,818
|
|
|
|
107,015
|
|
|
|
24,991
|
|
|
|
28,552
|
|
Termination of profit participation agreement
|
|
|
|
|
|
|
|
|
|
|
|
6,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
60,043
|
|
|
|
|
34,948
|
|
|
|
151,716
|
|
|
|
158,034
|
|
|
|
149,515
|
|
|
|
143,508
|
|
|
|
34,091
|
|
|
|
39,140
|
|
Impairment of long-lived assets
|
|
|
5,741
|
|
|
|
|
23,337
|
|
|
|
86,558
|
|
|
|
113,532
|
|
|
|
11,858
|
|
|
|
12,538
|
|
|
|
347
|
|
|
|
1,015
|
|
(Gain) loss on sale of assets and other
|
|
|
2,938
|
|
|
|
|
2,345
|
|
|
|
(2,953
|
)
|
|
|
8,488
|
|
|
|
3,202
|
|
|
|
(431
|
)
|
|
|
3,167
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations
|
|
|
720,894
|
|
|
|
|
362,297
|
|
|
|
1,569,027
|
|
|
|
1,680,862
|
|
|
|
1,724,347
|
|
|
|
1,846,245
|
|
|
|
444,299
|
|
|
|
433,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
108,195
|
|
|
|
$
|
29,208
|
|
|
$
|
113,814
|
|
|
$
|
61,425
|
|
|
$
|
252,153
|
|
|
$
|
294,899
|
|
|
$
|
72,332
|
|
|
$
|
49,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
$
|
37,993
|
|
|
|
$
|
31,680
|
|
|
$
|
102,760
|
|
|
$
|
74,406
|
|
|
$
|
81,609
|
|
|
$
|
112,444
|
|
|
$
|
26,010
|
|
|
$
|
29,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
52,344
|
|
|
|
$
|
(14,757
|
)
|
|
$
|
116,220
|
|
|
$
|
(19,954
|
)
|
|
$
|
133,087
|
|
|
$
|
150,930
|
|
|
$
|
37,047
|
|
|
$
|
25,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cinemark USA, Inc.
|
|
$
|
50,554
|
|
|
|
$
|
(14,436
|
)
|
|
$
|
115,428
|
|
|
$
|
(23,849
|
)
|
|
$
|
129,439
|
|
|
$
|
147,387
|
|
|
$
|
35,429
|
|
|
$
|
25,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
October 5,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to
|
|
|
|
2006 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
October 4,
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2006
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Predecessor)
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
|
(In thousands, except for ratios)
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed
charges(1)
|
|
|
2.05
|
x
|
|
|
|
|
|
|
|
2.47
|
x
|
|
|
1.11
|
x
|
|
|
2.28
|
x
|
|
|
2.11
|
x
|
|
|
2.28
|
x
|
|
|
1.71
|
x
|
Cash flow provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
81,846
|
|
|
|
$
|
80,611
|
|
|
$
|
344,708
|
|
|
$
|
219,788
|
|
|
$
|
366,706
|
|
|
$
|
266,230
|
|
|
$
|
43,640
|
|
|
$
|
60,756
|
|
Investing
activities(2)
|
|
$
|
(76,395
|
)
|
|
|
$
|
(555,352
|
)
|
|
$
|
93,178
|
|
|
$
|
(94,942
|
)
|
|
$
|
(183,130
|
)
|
|
$
|
(136,067
|
)
|
|
$
|
(19,670
|
)
|
|
$
|
(35,856
|
)
|
Financing activities
|
|
$
|
(45,707
|
)
|
|
|
$
|
478,854
|
|
|
$
|
(356,993
|
)
|
|
$
|
(29,290
|
)
|
|
$
|
(75,478
|
)
|
|
$
|
(108,162
|
)
|
|
$
|
(28,189
|
)
|
|
$
|
(28,859
|
)
|
Capital expenditures
|
|
$
|
(77,902
|
)
|
|
|
$
|
(29,179
|
)
|
|
$
|
(146,304
|
)
|
|
$
|
(106,109
|
)
|
|
$
|
(124,797
|
)
|
|
$
|
(156,102
|
)
|
|
$
|
(19,517
|
)
|
|
$
|
(35,769
|
)
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and
|
|
|
|
As of and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the
|
|
|
|
for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
October 5,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
2006 to
|
|
|
|
2006 to
|
|
|
As of and for the
|
|
|
Three Months
|
|
|
|
October 4,
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2006
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Predecessor)
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Successor)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
142,192
|
|
|
|
$
|
147,045
|
|
|
$
|
233,383
|
|
|
$
|
313,238
|
|
|
$
|
437,737
|
|
|
$
|
464,765
|
|
|
$
|
433,159
|
|
|
$
|
462,589
|
|
Theatre properties and equipment, net
|
|
$
|
791,380
|
|
|
|
$
|
1,324,571
|
|
|
$
|
1,314,066
|
|
|
$
|
1,208,283
|
|
|
$
|
1,219,588
|
|
|
$
|
1,215,446
|
|
|
$
|
1,191,215
|
|
|
$
|
1,206,796
|
|
Total assets
|
|
$
|
1,070,778
|
|
|
|
$
|
3,159,385
|
|
|
$
|
3,181,403
|
|
|
$
|
3,018,838
|
|
|
$
|
3,283,588
|
|
|
$
|
3,427,974
|
|
|
$
|
3,290,656
|
|
|
$
|
3,411,064
|
|
Total long-term debt, including current portion
|
|
$
|
605,998
|
|
|
|
$
|
1,477,580
|
|
|
$
|
1,107,977
|
|
|
$
|
1,097,144
|
|
|
$
|
1,543,705
|
|
|
$
|
1,532,441
|
|
|
$
|
1,540,796
|
|
|
$
|
1,529,938
|
|
Equity
|
|
$
|
304,997
|
|
|
|
$
|
1,127,361
|
|
|
$
|
1,266,732
|
|
|
$
|
1,155,891
|
|
|
$
|
922,141
|
|
|
$
|
1,040,705
|
|
|
$
|
947,724
|
|
|
$
|
1,057,876
|
|
Operating Data (attendance in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
202
|
|
|
|
|
281
|
|
|
|
287
|
|
|
|
293
|
|
|
|
294
|
|
|
|
293
|
|
|
|
292
|
|
|
|
292
|
|
Screens operated (at period end)
|
|
|
2,468
|
|
|
|
|
3,523
|
|
|
|
3,654
|
|
|
|
3,742
|
|
|
|
3,830
|
|
|
|
3,832
|
|
|
|
3,817
|
|
|
|
3,816
|
|
Total attendance
|
|
|
81,558
|
|
|
|
|
37,156
|
|
|
|
151,712
|
|
|
|
147,897
|
|
|
|
165,112
|
|
|
|
161,174
|
|
|
|
39,573
|
|
|
|
33,389
|
|
International(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
113
|
|
|
|
|
115
|
|
|
|
121
|
|
|
|
127
|
|
|
|
130
|
|
|
|
137
|
|
|
|
131
|
|
|
|
139
|
|
Screens operated (at period end)
|
|
|
945
|
|
|
|
|
965
|
|
|
|
1,011
|
|
|
|
1,041
|
|
|
|
1,066
|
|
|
|
1,113
|
|
|
|
1,067
|
|
|
|
1,125
|
|
Total attendance
|
|
|
46,930
|
|
|
|
|
12,620
|
|
|
|
60,958
|
|
|
|
63,413
|
|
|
|
71,622
|
|
|
|
80,026
|
|
|
|
18,934
|
|
|
|
20,382
|
|
Worldwide(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
315
|
|
|
|
|
396
|
|
|
|
408
|
|
|
|
420
|
|
|
|
424
|
|
|
|
430
|
|
|
|
423
|
|
|
|
431
|
|
Screens operated (at period end)
|
|
|
3,413
|
|
|
|
|
4,488
|
|
|
|
4,665
|
|
|
|
4,783
|
|
|
|
4,896
|
|
|
|
4,945
|
|
|
|
4,884
|
|
|
|
4,941
|
|
Total attendance
|
|
|
128,488
|
|
|
|
|
49,776
|
|
|
|
212,670
|
|
|
|
211,310
|
|
|
|
236,734
|
|
|
|
241,200
|
|
|
|
58,507
|
|
|
|
53,771
|
|
|
|
|
(1) |
|
For the purposes of calculating the ratio of earnings to fixed
charges, earnings consist of income (loss) before income taxes
plus fixed charges excluding capitalized interest. Fixed charges
consist of interest expense, capitalized interest, amortization
of debt issue costs and that portion of rental expense which we
believe to be representative of the interest factor. For the
period from October 5, 2006 to December 31, 2006,
earnings were insufficient to cover fixed charges by
$6.9 million. |
|
(2) |
|
Includes the cash portion of the Century Acquisition purchase
price of $531.2 million during the period from
October 5, 2006 to December 31, 2006. |
|
(3) |
|
The data excludes certain theatres operated by us in the U.S.
pursuant to management agreements that are not part of our
consolidated operations. |
|
(4) |
|
The data excludes certain theatres operated by us
internationally that are not part of our consolidated operations. |
42
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with our unaudited condensed consolidated financial
statements and our audited consolidated financial statements and
related notes thereto both of which are incorporated by
reference into this prospectus.
Overview
We are a leader in the motion picture exhibition industry, with
theatres in the U.S., Brazil, Mexico, Chile, Colombia,
Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua,
Costa Rica, Panama and Guatemala. As of March 31, 2011, we
managed our business under two reportable operating
segments U.S. markets and international markets.
Revenues
and Expenses
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 promotions and electronic video games located in some
of our theatres. Our contracts with NCM have assisted us in
expanding our offerings to domestic advertisers and broadening
ancillary revenue sources such as digital video monitor
advertising, third party branding, and the use of our domestic
theatres for alternative entertainment, such as live and
pre-recorded concert events, the opera, sports programs and
other cultural events. Films leading the box office during the
three months ended March 31, 2011 included Rango,
Just Go With It, Kings Speech, True Grit
and Green Hornet. 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. Films scheduled for release during the remainder of
2011 include Rio, Fast Five, Thor, Pirates of the
Caribbean: On Stranger Tides, The Hangover Part II, Kung Fu
Panda 2: The Kaboom of Doom, Cars 2, X Men: First Class, Super
8, Transformers: Dark of the Moon, Harry Potter and the Deathly
Hallows: Part 2, Twilight: Breaking Dawn, Captain America:
The First Avenger, Cowboys and Aliens, Rise of the Planet of the
Apes, Puss in Boots, Happy Feet 2, Mission:
Impossible Ghost Protocol, Sherlock Holmes 2 and
Alvin and the Chipmunks: Chipwrecked, among other films.
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
generally 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
volume 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 respond to 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, the number of theatres under
capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that have both
fixed and variable components such as utilities, property taxes,
janitorial costs, repairs and maintenance and security services.
43
Critical
Accounting Policies
We prepare our consolidated financial statements in conformity
with U.S. GAAP. As such, we are required to make certain
estimates and assumptions that we believe are reasonable based
upon the information available. These estimates and assumptions
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. The
significant accounting policies, which we believe are the most
critical to aid in fully understanding and evaluating our
reported consolidated financial results, include the following:
Revenue
and Expense Recognition
Revenues are recognized when admissions and concession sales are
received at the box office. Other revenues primarily consist of
screen advertising. Screen advertising revenues are recognized
over the period that the related advertising is delivered
on-screen or in-theatre. We record proceeds from the sale of
gift cards and other advanced sale-type certificates in current
liabilities and recognize admissions and concession revenue when
a holder redeems the card or certificate. We recognize
unredeemed gift cards and other advanced sale-type certificates
as revenue only after such a period of time indicates, based on
historical experience, the likelihood of redemption is remote,
and based on applicable laws and regulations. In evaluating the
likelihood of redemption, we consider the period outstanding,
the level and frequency of activity, and the period of
inactivity.
Film rental costs are accrued based on the applicable box office
receipts and either mutually agreed upon firm terms or a sliding
scale formula, which are generally established prior to the
opening of the film, or estimates of the final mutually agreed
upon settlement, which occurs at the conclusion of the film run,
subject to the film licensing arrangement. Under a firm terms
formula, we pay the distributor a mutually agreed upon specified
percentage of box office receipts, which reflects either a
mutually agreed upon aggregate rate for the life of the film or
rates that decline over the term of the run. Under a sliding
scale formula, we pay a percentage of box office revenues using
a pre-determined matrix that is based upon box office
performance of the film. The settlement process allows for
negotiation of film rental fees upon the conclusion of the film
run based upon how the film performs. Estimates are based on the
expected success of a film. The success of a film can typically
be determined a few weeks after a film is released when initial
box office performance of the film is known. Accordingly, final
settlements typically approximate estimates since box office
receipts are known at the time the estimate is made and the
expected success of a film can typically be estimated early in
the films run. If actual settlements are different than
those estimates, film rental costs are adjusted at that time.
Our advertising costs are expensed as incurred.
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
monthly percentage rent only, which is accrued each month based
on actual revenues. Certain of our other theatres require
payment of percentage rent in addition to fixed monthly rent if
a target annual revenue level is achieved. Percentage rent
expense is recorded for these theatres on a monthly basis if the
theatres historical performance or forecasted performance
indicates that the annual target will be reached. The estimate
of percentage rent expense recorded during the year is based on
historical and forecasted annual revenues. Once annual revenues
are known, which is generally at the end of the year, the
percentage rent expense is adjusted based on actual revenues. We
record the fixed minimum rent payments on a straight-line basis
over the lease term.
Theatre properties and equipment are depreciated using the
straight-line method over their estimated useful lives. In
estimating the useful lives of our theatre properties and
equipment, we have relied upon our experience with such assets
and our historical replacement period. We periodically evaluate
these estimates and assumptions and adjust them as necessary.
Adjustments to the expected lives of assets are accounted for on
a prospective basis through depreciation expense. Leasehold
improvements for which we pay and to which we have title are
amortized over the lease term.
44
Impairment
of Long-Lived Assets
We review long-lived assets for impairment indicators on a
quarterly basis or whenever events or changes in circumstances
indicate the carrying amount of the assets may not be fully
recoverable. We assess many factors including the following to
determine whether to impair individual theatre assets:
|
|
|
|
|
actual theatre level cash flows;
|
|
|
|
future years budgeted theatre level cash flows;
|
|
|
|
theatre property and equipment carrying values;
|
|
|
|
amortizing intangible asset carrying values;
|
|
|
|
the age of a recently built theatre;
|
|
|
|
competitive theatres in the marketplace;
|
|
|
|
the impact of recent ticket price changes;
|
|
|
|
available lease renewal options; and
|
|
|
|
other factors considered relevant in our assessment of
impairment of individual theatre assets.
|
Long-lived assets are evaluated for impairment on an individual
theatre basis, which we believe is the lowest applicable level
for which there are identifiable cash flows. The impairment
evaluation is based on the estimated undiscounted 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 approximately twenty years for fee owned properties.
If the estimated undiscounted cash flows are not sufficient to
recover a long-lived assets carrying value, we then
compare the carrying value of the asset group (theatre) with its
estimated fair value. 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, which fall under
Level 3 of the U.S. GAAP fair value hierarchy as
defined by FASB ASC Topic
820-10-35,
are based on historical and projected operating performance,
recent market transactions and current industry trading
multiples. Fair value is determined based on a multiple of cash
flows, which was eight times for the evaluations performed
during the first, second and third quarters of 2008 and six and
a half times for the evaluation performed during the fourth
quarter of 2008 and the evaluations performed during 2009 and
2010. We reduced the multiple we used to determine fair value
during the fourth quarter of 2008 due to the dramatic decline in
estimated market values that resulted from a significant
decrease in our stock price and the declines in our and our
competitors market capitalizations that occurred during
the fourth quarter of 2008. The long-lived asset impairment
charges related to theatre properties recorded during each of
the periods presented are specific to theatres that were
directly and individually impacted by increased competition,
adverse changes in market demographics or adverse changes in the
development or the conditions of the areas surrounding the
theatre.
Impairment
of Goodwill and Intangible Assets
We evaluate goodwill for impairment annually during the fourth
quarter or whenever events or changes in circumstances indicate
the carrying value of the goodwill may not be fully recoverable.
We evaluate goodwill for impairment at the reporting unit level
and have allocated goodwill to the reporting unit based on an
estimate of its relative fair value. Management considers the
reporting unit to be each of our sixteen regions in the
U.S. and each of our eight international countries
(Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala are considered one reporting unit). The evaluation is
a two-step approach requiring us to compute the fair value of a
reporting unit and compare it with its carrying value. If the
carrying value of the reporting unit exceeds its estimated fair
value, a second step is performed to measure the potential
goodwill impairment. Significant judgment is involved in
estimating cash flows and fair value. Managements
estimates, which fall under Level 3 of the U.S. GAAP
fair value hierarchy as defined by FASB ASC Topic
820-10-35,
are based on historical and projected operating performance,
recent market transactions and current industry
45
trading multiples. Fair value is determined based on a multiple
of cash flows, which was six and a half times for the
evaluations performed during 2008, 2009 and 2010. As of
December 31, 2010, the carrying value of goodwill allocated
to reporting units where the estimated fair value was less than
10% more than the carrying value was approximately
$77 million. Declines in our stock price or market
capitalization, declines in our attendance due to increased
competition in certain regions
and/or
countries or economic factors that lead to a decline in
attendance in any given region or country could negatively
affect our estimated fair values and could result in further
impairments of goodwill.
Tradename intangible assets are tested for impairment at least
annually during the fourth quarter or whenever events or changes
in circumstances indicate the carrying value may not be fully
recoverable. We estimate the fair value of our tradenames by
applying an estimated market royalty rate that could be charged
for the use of our tradename to forecasted future revenues, with
an adjustment for the present value of such royalties. If the
estimated fair value is less than the carrying value, the
tradename intangible asset is written down to its estimated fair
value. Significant judgment is involved in estimating market
royalty rates and long-term revenue forecasts. Managements
estimates, which fall under Level 3 of the U.S. GAAP
fair value hierarchy as defined by FASB ASC Topic
820-10-35,
are based on historical and projected revenue performance and
industry trends. As of December 31, 2010, the carrying
value of tradename intangible assets where the estimated fair
value was less than 10% more than the carrying value was
approximately $136 million.
Income
Taxes
We use an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income taxes are
provided when tax laws and financial accounting standards differ
with respect to the amount of income for a year and the basis of
assets and liabilities. A valuation allowance is recorded to
reduce the carrying amount of deferred tax assets unless it is
more likely than not that such assets will be realized. Income
taxes are provided on unremitted earnings from foreign
subsidiaries unless such earnings are expected to be
indefinitely reinvested. Income taxes have also been provided
for potential tax assessments. The evaluation of an uncertain
tax position is a two-step process. The first step is
recognition: We determine whether it is more likely than not
that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation
processes, based on the technical merits of the position. In
evaluating whether a tax position has met the
more-likely-than-not recognition threshold, we presume that the
position would be examined by the appropriate taxing authority
that would have full knowledge of all relevant information. The
second step is measurement: A tax position that meets the
more-likely than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. Differences between tax
positions taken in a tax return and amounts recognized in the
financial statements result in (1) a change in a liability
for income taxes payable or (2) a change in an income tax
refund receivable, a deferred tax asset or a deferred tax
liability or both (1) and (2).We accrue interest and
penalties on uncertain tax positions.
Accounting
for Investment in NCM and Related Agreements
We have an investment in NCM. NCM operates a digital in-theatre
network in the U.S. for providing cinema advertising and
non-film events. Upon joining NCM, we entered into an Exhibitor
Services Agreement, or the ESA, with NCM, pursuant to which NCM
provides advertising, promotion and event services to our
theatres. On February 13, 2007, NCMI, a newly formed entity
that serves as a member and the sole manager of NCM, completed
an initial public offering of its common stock. In connection
with the NCMI initial public offering, we amended our operating
agreement and the ESA with NCM and received proceeds related to
the sale of certain of our shares in NCM and the modification of
the ESA. The ESA modification reflected a shift from circuit
share expense under the prior ESA, which obligated NCM to pay us
a percentage of revenue, to a monthly theatre access fee, which
significantly reduced the contractual amounts paid to us by NCM.
We recorded the proceeds related to the ESA modification as
deferred revenue, which is being amortized into other revenues
over the life of the agreement using the units of revenue method.
46
As a result of the application of a portion of the proceeds we
received from the NCMI initial public offering, we had a
negative basis in our original membership units in NCM, which we
refer to herein as our Tranche 1 Investment. We will not
recognize undistributed equity in the earnings on our
Tranche 1 Investment until NCMs future net earnings,
less distributions received, surpass the amount of our negative
basis. We recognize cash distributions we receive from NCM on
our Tranche 1 Investment as a component of earnings as
Distributions from NCM. We believe that the accounting model
provided by FASB
ASC 323-10-35-22
for recognition of equity investee losses in excess of an
investors basis is analogous to the accounting for equity
income subsequent to recognizing an excess distribution.
Pursuant to a Common Unit Adjustment Agreement dated as of
February 13, 2007 between NCMI and us, AMC and Regal, which
we refer to collectively as the Founding Members, annual
adjustments to the common membership units are made primarily
based on increases or decreases in the number of theatre screens
operated and theatre attendance generated by each Founding
Member. To account for the receipt of additional common units
under the Common Unit Adjustment Agreement, we follow the
guidance in FASB
ASC 323-10-35-29
(formerly
EITF 02-18,
Accounting for Subsequent Investments in an Investee after
Suspension of Equity Loss Recognition) by analogy, which
also refers to AICPA Technical Practice Aid 2220.14, which
indicates that if a subsequent investment is made in an equity
method investee that has experienced significant losses, the
investor must determine if the subsequent investment constitutes
funding of prior losses. We concluded that the construction or
acquisition of new theatres that has led to the common unit
adjustments equates to making additional investments in NCM. We
evaluated the receipt of the additional common units in NCM and
the assets exchanged for these additional units and have
determined that the right to use our incremental new screens
would not be considered funding of prior losses. We account for
these additional common units, which we refer to herein as our
Tranche 2 Investment, as a separate investment than our
Tranche 1 Investment. The common units received are
recorded at fair value as an increase in our investment in NCM
with an offset to deferred revenue. The deferred revenue is
amortized over the remaining term of the ESA. Our Tranche 2
Investment is accounted for following the equity method, with
undistributed equity earnings related to our Tranche 2
Investment included as a component of earnings in equity in
income (loss) of affiliates and distributions received related
to our Tranche 2 Investment are recorded as a reduction of
our investment basis. In the event that a common unit adjustment
is determined to be a negative number, the Founding Member can
elect to either transfer and surrender to NCM the number of
common units equal to all or part of such Founding Members
common unit adjustment or to pay to NCM an amount equal to such
Founding Members common unit adjustment calculated in
accordance with the Common Unit Adjustment Agreement. If the
Company then elects to surrender common units as part of a
negative common unit adjustment, the Company would record a
reduction to deferred revenue at the then fair value of the
common units surrendered and a reduction of the Companys
Tranche 2 investment at an amount equal to the weighted
average cost for Tranche 2 common units, with the
difference between the two values recorded as a gain or loss on
disposal of assets and other.
47
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain items reflected in
our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
Operating data (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
1,127.0
|
|
|
$
|
1,293.4
|
|
|
$
|
1,405.4
|
|
|
$
|
343.0
|
|
|
$
|
311.7
|
|
Concession
|
|
|
534.8
|
|
|
|
602.9
|
|
|
|
642.3
|
|
|
|
153.1
|
|
|
|
146.7
|
|
Other
|
|
|
80.5
|
|
|
|
80.2
|
|
|
|
93.4
|
|
|
|
20.5
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,742.3
|
|
|
$
|
1,976.5
|
|
|
$
|
2,141.1
|
|
|
$
|
516.6
|
|
|
$
|
483.1
|
|
Cost of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
612.2
|
|
|
|
708.2
|
|
|
|
769.7
|
|
|
|
188.8
|
|
|
|
165.2
|
|
Concession supplies
|
|
|
86.6
|
|
|
|
91.9
|
|
|
|
97.5
|
|
|
|
22.4
|
|
|
|
23.3
|
|
Salaries and wages
|
|
|
181.0
|
|
|
|
203.4
|
|
|
|
221.2
|
|
|
|
52.5
|
|
|
|
50.1
|
|
Facility lease expense
|
|
|
225.6
|
|
|
|
238.8
|
|
|
|
255.7
|
|
|
|
62.7
|
|
|
|
66.4
|
|
Utilities and other
|
|
|
205.8
|
|
|
|
222.7
|
|
|
|
239.5
|
|
|
|
55.2
|
|
|
|
59.8
|
|
General and administrative expenses
|
|
|
89.6
|
|
|
|
94.8
|
|
|
|
107.0
|
|
|
|
25.0
|
|
|
|
28.6
|
|
Depreciation and amortization
|
|
|
158.1
|
|
|
|
149.5
|
|
|
|
143.5
|
|
|
|
34.1
|
|
|
|
39.1
|
|
Impairment of long-lived assets
|
|
|
113.5
|
|
|
|
11.8
|
|
|
|
12.5
|
|
|
|
0.4
|
|
|
|
1.0
|
|
(Gain) loss on sale of assets and other
|
|
|
8.5
|
|
|
|
3.2
|
|
|
|
(0.4
|
)
|
|
|
3.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations
|
|
|
1,680.9
|
|
|
|
1,724.3
|
|
|
|
1,846.2
|
|
|
|
444.3
|
|
|
|
434.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
61.4
|
|
|
$
|
252.2
|
|
|
$
|
294.9
|
|
|
$
|
72.3
|
|
|
$
|
49.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data as a percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
|
64.7
|
%
|
|
|
65.4
|
%
|
|
|
65.6
|
%
|
|
|
66.4
|
%
|
|
|
64.5
|
%
|
Concession
|
|
|
30.7
|
%
|
|
|
30.5
|
%
|
|
|
30.0
|
%
|
|
|
29.6
|
%
|
|
|
30.4
|
%
|
Other
|
|
|
4.6
|
%
|
|
|
4.1
|
%
|
|
|
4.4
|
%
|
|
|
4.0
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
operations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
54.3
|
%
|
|
|
54.8
|
%
|
|
|
54.8
|
%
|
|
|
55.0
|
%
|
|
|
53.0
|
%
|
Concession supplies
|
|
|
16.2
|
%
|
|
|
15.2
|
%
|
|
|
15.2
|
%
|
|
|
14.6
|
%
|
|
|
15.9
|
%
|
Salaries and wages
|
|
|
10.4
|
%
|
|
|
10.3
|
%
|
|
|
10.3
|
%
|
|
|
10.2
|
%
|
|
|
10.4
|
%
|
Facility lease expense
|
|
|
12.9
|
%
|
|
|
12.1
|
%
|
|
|
11.9
|
%
|
|
|
12.1
|
%
|
|
|
13.7
|
%
|
Utilities and other
|
|
|
11.8
|
%
|
|
|
11.3
|
%
|
|
|
11.2
|
%
|
|
|
10.7
|
%
|
|
|
12.4
|
%
|
General and administrative expenses
|
|
|
5.2
|
%
|
|
|
4.8
|
%
|
|
|
5.0
|
%
|
|
|
4.8
|
%
|
|
|
5.9
|
%
|
Depreciation and amortization
|
|
|
9.1
|
%
|
|
|
7.6
|
%
|
|
|
6.7
|
%
|
|
|
6.6
|
%
|
|
|
8.1
|
%
|
Impairment of long-lived assets
|
|
|
6.5
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
(Gain) loss on sale of assets and other
|
|
|
0.5
|
%
|
|
|
0.2
|
%
|
|
|
(0.0
|
)%
|
|
|
0.6
|
%
|
|
|
0.1
|
%
|
Total cost of operations
|
|
|
96.4
|
%
|
|
|
87.2
|
%
|
|
|
86.2
|
%
|
|
|
86.0
|
%
|
|
|
89.8
|
%
|
Operating income
|
|
|
3.6
|
%
|
|
|
12.8
|
%
|
|
|
13.8
|
%
|
|
|
14.0
|
%
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average screen count (month end average)
|
|
|
4,703
|
|
|
|
4,860
|
|
|
|
4,909
|
|
|
|
4,891
|
|
|
|
4,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues per average screen (dollars)
|
|
$
|
370,469
|
|
|
$
|
406,681
|
|
|
$
|
436,181
|
|
|
$
|
105,634
|
|
|
$
|
97,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
(1) |
|
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. |
Comparison
of Three Months Ended March 31, 2011 and March 31,
2010
Revenues. Total revenues decreased
$33.5 million to $483.1 million for the three months
ended March 31, 2011, or the first quarter of 2011, from
$516.6 million for the three months ended March 31,
2010, or the first quarter of 2010. The table below, presented
by reportable operating segment, summarizes our
year-over-year
revenue performance and certain key performance indicators that
impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
|
International Operating Segment
|
|
|
Consolidated
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Admissions
revenues(1)
|
|
$
|
213.6
|
|
|
$
|
259.3
|
|
|
|
(17.6
|
)%
|
|
$
|
98.1
|
|
|
$
|
83.7
|
|
|
|
17.2
|
%
|
|
$
|
311.7
|
|
|
$
|
343.0
|
|
|
|
(9.1
|
)%
|
Concession
revenues(1)
|
|
$
|
104.8
|
|
|
$
|
118.5
|
|
|
|
(11.6
|
)%
|
|
$
|
41.9
|
|
|
$
|
34.6
|
|
|
|
21.1
|
%
|
|
$
|
146.7
|
|
|
$
|
153.1
|
|
|
|
(4.2
|
)%
|
Other
revenues(1)(2)
|
|
$
|
10.3
|
|
|
$
|
9.5
|
|
|
|
8.4
|
%
|
|
$
|
14.4
|
|
|
$
|
11.0
|
|
|
|
30.9
|
%
|
|
$
|
24.7
|
|
|
$
|
20.5
|
|
|
|
20.5
|
%
|
Total
revenues(1)(2)
|
|
$
|
328.7
|
|
|
$
|
387.3
|
|
|
|
(15.1
|
)%
|
|
$
|
154.4
|
|
|
$
|
129.3
|
|
|
|
19.4
|
%
|
|
$
|
483.1
|
|
|
$
|
516.6
|
|
|
|
(6.5
|
)%
|
Attendance(1)
|
|
|
33.4
|
|
|
|
39.6
|
|
|
|
(15.7
|
)%
|
|
|
20.4
|
|
|
|
18.9
|
|
|
|
7.9
|
%
|
|
|
53.8
|
|
|
|
58.5
|
|
|
|
(8.0
|
)%
|
Revenues per average
screen(2)
|
|
$
|
86,038
|
|
|
$
|
101,264
|
|
|
|
(15.0
|
)%
|
|
$
|
137,859
|
|
|
$
|
121,325
|
|
|
|
13.6
|
%
|
|
$
|
97,791
|
|
|
$
|
105,634
|
|
|
|
(7.4
|
%)
|
|
|
|
(1) |
|
Amounts in millions. |
|
(2) |
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating
segment. See Note 15 of our condensed consolidated
financial statements incorporated by reference into this
prospectus. |
|
|
|
|
|
Consolidated. The decrease in
admissions revenues of $31.3 million was attributable to an
8.0% decrease in attendance and a 1.2% decrease in average
ticket price from $5.86 for the first quarter of 2010 to $5.79
for the first quarter of 2011. The decrease in concession
revenues of $6.4 million was attributable to the 8.0%
decrease in attendance partially offset by a 4.2% increase in
concession revenues per patron from $2.62 for the first quarter
of 2010 to $2.73 for the first quarter of 2011. The decrease in
average ticket price was primarily due to the increased
weighting of
2-D
attendance during the first quarter of 2011. The increase in
concession revenues per patron was primarily due to price
increases and the favorable impact of exchange rates in certain
countries in which we operate. The 20.5% increase in other
revenues was primarily due to increases in ancillary revenue and
the favorable impact of exchange rates in certain countries in
which we operate.
|
|
|
|
U.S. The decrease in admissions
revenues of $45.7 million was attributable to a 15.7%
decrease in attendance and a 2.3% decrease in average ticket
price from $6.55 for the first quarter of 2010 to $6.40 for the
first quarter of 2011. The decrease in concession revenues of
$13.7 million was attributable to the 15.7% decrease in
attendance, partially offset by a 5.0% increase in concession
revenues per patron from $2.99 for the first quarter of 2010 to
$3.14 for the first quarter of 2011. The decrease in average
ticket price was primarily due to the increased weighting of
2-D
attendance during the first quarter of 2011. The increase in
concession revenues per patron was primarily due to price
increases.
|
|
|
|
International. The increase in
admissions revenues of $14.4 million was attributable to a
7.9% increase in attendance and an 8.6% increase in average
ticket price from $4.43 for the first quarter of 2010 to $4.81
for the first quarter of 2011. The increase in concession
revenues of $7.3 million was attributable to the 7.9%
increase in attendance and a 12.0% increase in concession
revenues per patron from $1.83 for the first quarter of 2010 to
$2.05 for the first quarter of 2011. The increase in average
ticket price was primarily due to the favorable impact of
exchange rates in certain countries in which
|
49
|
|
|
|
|
we operate and price increases. The increase in concession
revenues per patron was primarily due to price increases and the
favorable impact of exchange rates in certain countries in which
we operate. The 30.9% increase in other revenues was primarily
due to increases in ancillary revenue and the favorable impact
of exchange rates in certain countries in which we operate.
|
Cost of Operations. The table below summarizes
certain of our
year-over-year
theatre operating costs by reportable operating segment (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
Segment
|
|
Consolidated
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
Film rentals and advertising
|
|
$
|
116.2
|
|
|
$
|
148.5
|
|
|
$
|
49.0
|
|
|
$
|
40.3
|
|
|
$
|
165.2
|
|
|
$
|
188.8
|
|
Concession supplies
|
|
|
12.6
|
|
|
|
13.9
|
|
|
|
10.7
|
|
|
|
8.5
|
|
|
|
23.3
|
|
|
|
22.4
|
|
Salaries and wages
|
|
|
37.9
|
|
|
|
42.4
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
50.1
|
|
|
|
52.5
|
|
Facility lease expense
|
|
|
45.7
|
|
|
|
45.7
|
|
|
|
20.7
|
|
|
|
17.0
|
|
|
|
66.4
|
|
|
|
62.7
|
|
Utilities and other
|
|
|
39.9
|
|
|
|
39.6
|
|
|
|
19.9
|
|
|
|
15.6
|
|
|
|
59.8
|
|
|
|
55.2
|
|
|
|
|
|
|
Consolidated. Film rentals and
advertising costs were $165.2 million, or 53.0% of
admissions revenues, for the first quarter of 2011 compared to
$188.8 million, or 55.0% of admissions revenues, for the
first quarter of 2010. The decrease in film rentals and
advertising costs of $23.6 million was due to a
$31.3 million decrease in admissions revenues, which
contributed $19.3 million, and a decrease in our film
rentals and advertising rate, which contributed
$4.3 million. The decrease in the film rentals and
advertising rate was primarily due to lower film rental rates in
the U.S. segment during the first quarter of 2011 due to
fewer blockbuster films during that period. Concession supplies
expense was $23.3 million, or 15.9% of concession revenues,
for the first quarter of 2011 compared to $22.4 million, or
14.6% of concession revenues, for the first quarter of 2010. The
increase in the concession supplies rate was primarily due to
the increased weighting of our international segment and
increases in inventory procurement costs.
|
Salaries and wages decreased to $50.1 million for the first
quarter of 2011 from $52.5 million for the first quarter of
2010 primarily due to a reduction in staffing levels given the
decline in attendance in the U.S. segment, partially offset
by new theatres and the impact of exchange rates in certain
countries in which we operate. Facility lease expense increased
to $66.4 million for the first quarter of 2011 from
$62.7 million for the first quarter of 2010 primarily due
to new theatres, increased percentage rent in the international
segment and the impact of exchange rates in certain countries in
which we operate. Utilities and other costs increased to
$59.8 million for the first quarter of 2011 from
$55.2 million for the first quarter of 2010 primarily due
to new theatres, increased expenses related to digital and
3-D
equipment, increased utility expenses and the impact of exchange
rates in certain countries in which we operate.
|
|
|
|
|
U.S. Film rentals and advertising costs
were $116.2 million, or 54.4% of admissions revenues, for
the first quarter of 2011 compared to $148.5 million, or
57.3% of admissions revenues, for the first quarter of 2010. The
decrease in film rentals and advertising costs of
$32.3 million was due to a $45.7 million decrease in
admission revenues, which contributed $26.2 million, and a
decrease in our film rentals and advertising rate, which
contributed $6.1 million. The decrease in the film rentals
and advertising rate was primarily due to the decrease in the
number of blockbuster films released, which generally have
higher film rental rates. Concession supplies expense was
$12.6 million, or 12.0% of concession revenues, for the
first quarter of 2011 compared to $13.9 million, or 11.7%
of concession revenues, for the first quarter of 2010. The
increase in the concession supplies rate was primarily due to
increases in inventory procurement costs.
|
Salaries and wages decreased to $37.9 million for the first
quarter of 2011 from $42.4 million for the first quarter of
2010 primarily due to a reduction in staffing levels given the
15.7% decline in
50
attendance. Facility lease expense was $45.7 million for
the first quarter of 2011 and 2010. Utilities and other costs
increased to $39.9 million for the first quarter of 2011
from $39.6 million for the first quarter of 2010.
|
|
|
|
|
International. Film rentals and
advertising costs were $49.0 million, or 49.9% of
admissions revenues, for the first quarter of 2011 compared to
$40.3 million, or 48.1% of admissions revenues, for the
first quarter of 2010. The increase in film rentals and
advertising costs was due to a $14.4 million increase in
admissions revenues, which contributed $6.9 million, and an
increase in the film rentals and advertising rate, which
contributed $1.8 million. Concession supplies expense was
$10.7 million, or 25.5% of concession revenues, for the
first quarter of 2011 compared to $8.5 million, or 24.6% of
concession revenues, for the first quarter of 2010. The increase
in concession supplies expense of $2.2 million was
primarily due to a $7.3 million increase in concession
revenues. The increased concession supplies rate was primarily
due to increases in inventory procurement costs.
|
Salaries and wages increased to $12.2 million for the first
quarter of 2011 from $10.1 million for the first quarter of
2010 primarily due to new theatres, increased staffing levels to
support the 7.9% increase in attendance, increased minimum wages
and the impact of exchange rates in certain countries in which
we operate. Facility lease expense increased to
$20.7 million for the first quarter of 2011 from
$17.0 million for the first quarter of 2010 primarily due
to new theatres, increased percentage rent and the impact of
exchange rates in certain countries in which we operate.
Utilities and other costs increased to $19.9 million for
the first quarter of 2011 from $15.6 million for the first
quarter of 2010 primarily due to new theatres, increased
expenses related to
3-D
equipment, increased utility expenses and the impact of exchange
rates in certain countries in which we operate.
General and Administrative Expenses. General
and administrative expenses increased to $28.6 million for
the first quarter of 2011 from $25.0 million for the first
quarter of 2010. The increase was primarily due to increased
salaries and incentive compensation expense, increased share
based award compensation expense and the impact of exchange
rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation
and amortization expense, including amortization of
favorable/unfavorable leases, was $39.1 million during the
first quarter of 2011 compared to $34.1 million during the
first quarter of 2010. The increase was primarily related to the
impact of exchange rates in certain countries in which we
operate, new theatres and the impact of accelerated depreciation
taken on our domestic 35 millimeter projection systems that are
being replaced with digital projection systems, which began in
March 2010. We recorded approximately $3.5 million of
depreciation expense related to these 35 millimeter projection
systems during the first quarter of 2011 compared to
$1.3 million during the first quarter of 2010.
Impairment of Long-Lived Assets. We recorded
asset impairment charges on assets held and used of
$1.0 million during the first quarter of 2011 compared to
$0.4 million during the first quarter of 2010. Impairment
charges for the first quarter of 2011 consisted of U.S. and
international theatre properties, impacting nine of our
twenty-four reporting units. Impairment charges for the first
quarter of 2010 consisted of U.S. theatre properties,
impacting six of our twenty-four reporting units. See
Note 11 to our condensed consolidated financial statements
incorporated by reference into this prospectus.
Loss on Sale of Assets and Other. We recorded
a loss on sale of assets and other of $0.5 million during
the first quarter of 2011 compared to $3.2 million during
the first quarter of 2010. The loss recorded during the first
quarter of 2010 included $1.7 million that was recorded
upon the contribution of digital projection systems to DCIP. See
Note 5 to our condensed consolidated financial statements
incorporated by reference into this prospectus for discussion of
DCIP.
Interest Expense. Interest costs incurred,
including amortization of debt issue costs, were
$29.3 million during the first quarter of 2011 compared to
$26.0 million during the first quarter of 2010. The
increase in interest expense is due to the increase in interest
rates on a portion of our term loan debt that was amended and
extended during March 2010.
51
Distributions from NCM. We recorded
distributions from NCM of $9.9 million during the first
quarter of 2011 and 2010, which were in excess of the carrying
value of our investment. See Note 4 to our condensed
consolidated financial statements incorporated by reference into
this prospectus.
Equity in Income of Affiliates. We recorded
equity in income of affiliates of $2.4 million during the
first quarter of 2011 compared to $0.03 million during the
first quarter of 2010. The equity in income of affiliates
recorded during the first quarter of 2011 primarily included
income of approximately $1.7 million related to our equity
investment in DCIP (see Note 5 to our condensed
consolidated financial statements incorporated by reference into
this prospectus) and income of approximately $0.9 million
related to our equity investment in NCM (see Note 4 to our
condensed consolidated financial statements incorporated by
reference into this prospectus). The equity in income of
affiliates recorded during the first quarter of 2010 primarily
included income of approximately $0.8 million related to
our equity investment in NCM, offset by a loss of approximately
$0.8 million related to our equity investment in DCIP.
Income Taxes. Income tax expense of
$9.2 million was recorded for the first quarter of 2011
compared to $20.0 million for the first quarter of 2010.
The effective tax rate was 26.4% for the first quarter of 2011
compared to 35.1% for the first quarter of 2010. 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 (i.e.
discrete items) occurring during the interim period. As a
result, the interim rate may vary significantly from the
normalized annual rate. During the first quarter of 2011, the
Company reduced its liabilities for uncertain tax positions due
to settlements and closures of various tax years, which resulted
in a tax benefit of approximately $3.6 million that
impacted the effective tax rate for the period.
Comparison
of Years Ended December 31, 2010 and December 31,
2009
Revenues. Total revenues increased
$164.6 million to $2,141.1 million for 2010 from
$1,976.5 million for 2009, representing an 8.3% 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
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Admissions
revenues(1)
|
|
$
|
1,044.7
|
|
|
$
|
1,025.9
|
|
|
|
1.8
|
%
|
|
$
|
360.7
|
|
|
$
|
267.5
|
|
|
|
34.8
|
%
|
|
$
|
1,405.4
|
|
|
$
|
1,293.4
|
|
|
|
8.7
|
%
|
Concession
revenues(1)
|
|
$
|
487.9
|
|
|
$
|
485.2
|
|
|
|
0.6
|
%
|
|
$
|
154.4
|
|
|
$
|
117.7
|
|
|
|
31.2
|
%
|
|
$
|
642.3
|
|
|
$
|
602.9
|
|
|
|
6.5
|
%
|
Other
revenues(1)(2)
|
|
$
|
44.3
|
|
|
$
|
43.6
|
|
|
|
1.6
|
%
|
|
$
|
49.1
|
|
|
$
|
36.6
|
|
|
|
34.2
|
%
|
|
$
|
93.4
|
|
|
$
|
80.2
|
|
|
|
16.5
|
%
|
Total
revenues(1)(2)
|
|
$
|
1,576.9
|
|
|
$
|
1,554.7
|
|
|
|
1.4
|
%
|
|
$
|
564.2
|
|
|
$
|
421.8
|
|
|
|
33.8
|
%
|
|
$
|
2,141.1
|
|
|
$
|
1,976.5
|
|
|
|
8.3
|
%
|
Attendance(1)
|
|
|
161.2
|
|
|
|
165.1
|
|
|
|
(2.4
|
)%
|
|
|
80.0
|
|
|
|
71.6
|
|
|
|
11.7
|
%
|
|
|
241.2
|
|
|
|
236.7
|
|
|
|
1.9
|
%
|
Revenues per average
screen(2)
|
|
$
|
411,708
|
|
|
$
|
408,017
|
|
|
|
0.9
|
%
|
|
$
|
523,078
|
|
|
$
|
401,828
|
|
|
|
30.2
|
%
|
|
$
|
436,181
|
|
|
$
|
406,681
|
|
|
|
7.3
|
%
|
|
|
|
(1) |
|
Amounts in millions. |
|
(2) |
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating
segment. See Note 21 of our consolidated financial
statements incorporated by reference into this prospectus. |
|
|
|
|
|
Consolidated. The increase in
admissions revenues of $112.0 million was primarily
attributable to a 1.9% increase in attendance and a 6.8%
increase in average ticket price from $5.46 for 2009 to $5.83
for 2010. The increase in concession revenues of
$39.4 million was primarily attributable to the 1.9%
increase in attendance and a 4.3% increase in concession
revenues per patron from $2.55 for 2009 to $2.66 for 2010. The
increase in average ticket price was primarily due to
incremental
3-D and
premium pricing and other price increases and the favorable
impact of exchange rates in certain countries in which we
operate. The increase in concession revenues per patron was
primarily due to price increases
|
52
|
|
|
|
|
and the favorable impact of exchange rates in certain countries
in which we operate. The 16.5% increase in other revenues was
primarily due to increases in ancillary revenue.
|
|
|
|
|
|
U.S. The increase in admissions
revenues of $18.8 million was primarily attributable to a
4.3% increase in average ticket price from $6.21 for 2009 to
$6.48 for 2010, partially offset by a 2.4% decrease in
attendance for 2010. The increase in concession revenues of
$2.7 million was primarily attributable to a 3.1% increase
in concession revenues per patron from $2.94 for 2009 to $3.03
for 2010, partially offset by the 2.4% decrease in attendance
for 2010. The increase in average ticket price was primarily due
to incremental
3-D and
premium pricing and other price increases, and the increase in
concession revenues per patron was primarily due to price
increases.
|
|
|
|
International. The increase in
admissions revenues of $93.2 million was primarily
attributable to an 11.7% increase in attendance and a 20.6%
increase in average ticket price from $3.74 for 2009 to $4.51
for 2010. The increase in concession revenues of
$36.7 million was primarily attributable to the 11.7%
increase in attendance and a 17.7% increase in concession
revenues per patron from $1.64 for 2009 to $1.93 for 2010. The
increase in average ticket price was primarily due to
incremental
3-D and
premium pricing and other price increases and the favorable
impact of exchange rates in certain countries in which we
operate. The increase in concession revenues per patron was
primarily due to price increases and the favorable impact of
exchange rates in certain countries in which we operate. The
34.2% increase in other revenues was primarily due to increases
in ancillary revenue.
|
Cost of Operations. The table below summarizes
certain of our theatre operating costs by reportable operating
segment (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
U.S. Operating
|
|
Operating
|
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Consolidated
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Film rentals and advertising
|
|
$
|
586.6
|
|
|
$
|
572.3
|
|
|
$
|
183.1
|
|
|
$
|
135.9
|
|
|
$
|
769.7
|
|
|
$
|
708.2
|
|
Concession supplies
|
|
|
59.1
|
|
|
|
61.9
|
|
|
|
38.4
|
|
|
|
30.0
|
|
|
|
97.5
|
|
|
|
91.9
|
|
Salaries and wages
|
|
|
174.1
|
|
|
|
168.8
|
|
|
|
47.1
|
|
|
|
34.6
|
|
|
|
221.2
|
|
|
|
203.4
|
|
Facility lease expense
|
|
|
181.9
|
|
|
|
178.8
|
|
|
|
73.8
|
|
|
|
60.0
|
|
|
|
255.7
|
|
|
|
238.8
|
|
Utilities and other
|
|
|
161.5
|
|
|
|
163.5
|
|
|
|
78.0
|
|
|
|
59.2
|
|
|
|
239.5
|
|
|
|
222.7
|
|
|
|
|
|
|
Consolidated. Film rentals and
advertising costs were $769.7 million for 2010 compared to
$708.2 million for 2009, both of which represented 54.8% of
admissions revenues. The increase in film rentals and
advertising costs of $61.5 million was primarily due to the
$112.0 million increase in admissions revenues. Concession
supplies expense was $97.5 million for 2010 compared to
$91.9 million for 2009, both of which represent 15.2% of
concession revenues. The increase in concession supplies expense
of $5.6 million was primarily due to the $39.4 million
increase in concession revenues.
|
Salaries and wages increased to $221.2 million for 2010
from $203.4 million for 2009 primarily due to increased
minimum wages in both our U.S. and international segments,
increased staffing levels to support the 1.9% increase in
attendance, new theatre openings and the impact of exchange
rates in certain countries in which we operate. Facility lease
expense increased to $255.7 million for 2010 from
$238.8 million for 2009 primarily due to new theatres,
increased percentage rent related to the 8.3% increase in
revenues and the impact of exchange rates in certain countries
in which we operate. Utilities and other costs increased to
$239.5 million for 2010 from $222.7 million for 2009
primarily due to increased variable costs related to the 1.9%
increase in attendance, increased costs related to new theatres,
increased
3-D
equipment rental fees and the impact of exchange rates in
certain countries in which we operate.
|
|
|
|
|
U.S. Film rentals and advertising costs were
$586.6 million, or 56.2% of admissions revenues, for 2010
compared to $572.3 million, or 55.8% of admissions
revenues, for 2009. The increase in film rentals
|
53
|
|
|
|
|
and advertising costs of $14.3 million was primarily due to
the $18.8 million increase in admissions revenues and an
increase in our film rentals and advertising rate. The increase
in the film rentals and advertising rate was primarily due to
higher film rental rates associated with certain blockbuster
films released in 2010, including the carryover of
Avatar. Concession supplies expense was
$59.1 million, or 12.1% of concession revenues, for 2010,
compared to $61.9 million, or 12.8% of concession revenues,
for 2009. The decrease in concession supplies expense was
primarily due to a decrease in the concession supplies rate due
to favorable inventory procurement costs along with the
successful implementation of sales price increases.
|
Salaries and wages increased to $174.1 million for 2010
from $168.8 million for 2009 primarily due to increased
minimum wage rates and new theatre openings. Facility lease
expense increased to $181.9 million for 2010 from
$178.8 million for 2009 primarily due to new theatres.
Utilities and other costs decreased to $161.5 million for
2010 from $163.5 million for 2009 primarily due to lower
utility costs and property taxes, offset by increased
3-D
equipment rental fees.
|
|
|
|
|
International. Film rentals and
advertising costs were $183.1 million for 2010 compared to
$135.9 million for 2009, both of which represented 50.8% of
admissions revenues. The increase in film rentals and
advertising costs of $47.2 million was primarily due to the
$93.2 million increase in admissions revenues. Concession
supplies expense was $38.4 million, or 24.9% of concession
revenues, for 2010 compared to $30.0 million, or 25.5% of
concession revenues, for 2009. The increase in concession
supplies expense of $8.4 million was primarily due to the
$36.7 million increase in concession revenues, partially
offset by a lower concession supplies rate.
|
Salaries and wages increased to $47.1 million for 2010 from
$34.6 million for 2009 primarily due to increased staffing
levels to support the 11.7% increase in attendance, increased
minimum wage rates, new theatre openings and the impact of
exchange rates in certain countries in which we operate.
Facility lease expense increased to $73.8 million for 2010
from $60.0 million for 2009 primarily due to new theatres,
increased percentage rent related to the 33.8% increase in
revenues and the impact of exchange rates in certain countries
in which we operate. Utilities and other costs increased to
$78.0 million for 2010 from $59.2 million for 2009
primarily due to increased variable costs related to the 11.7%
increase in attendance, increased costs related to new theatres,
increased
3-D
equipment rental fees and the impact of exchange rates in
certain countries in which we operate.
General and Administrative Expenses. General
and administrative expenses increased to $107.0 million for
2010 from $94.8 million for 2009. The increase was
primarily due to increased service charges of $4.1 million
related to increased credit card activity, increased share based
awards compensation expense of $3.8 million, increased
professional fees of $2.2 million and the impact of
exchange rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation
and amortization expense, including amortization of
favorable/unfavorable leases, was $143.5 million for 2010
compared to $149.5 million for 2009. The decrease was
primarily due to a significant amount of the equipment acquired
in the Century Acquisition becoming fully depreciated during the
fourth quarter of 2009, partially offset by the impact of
accelerated depreciation taken on our domestic 35 millimeter
projection systems that will be replaced with digital projection
systems. We recorded approximately $9.4 million of
depreciation expense related to these 35 millimeter projection
systems during 2010.
Impairment of Long-Lived Assets. We recorded
asset impairment charges on assets held and used of
$12.5 million for 2010 compared to $11.8 million for
2009. Impairment charges for 2010 consisted of
$10.8 million of theatre properties and $1.5 million
of intangible assets, impacting 18 of our 24 reporting units,
and $0.2 million related to an equity investment that was
written down to its estimated fair value. Impairment charges for
2009 consisted of $11.4 million of theatre properties and
$0.3 million of intangible assets associated with theatre
properties, impacting 19 of our 24 reporting units, and
$0.1 million related to an equity investment that was
written down to its estimated fair value. The long-lived asset
impairment charges recorded during each of the periods presented
were specific to theatres that were directly and individually
impacted by increased competition, adverse changes in market
demographics, or adverse changes in the
54
development or the conditions of the areas surrounding the
theatre. See Notes 8 and 9 to our consolidated financial
statements incorporated by reference into this prospectus.
(Gain) Loss on Sale of Assets and Other. We
recorded a gain on sale of assets and other of $0.4 million
during 2010 compared to a loss on sale of assets and other of
$3.2 million during 2009. The gain recorded during 2010
included a gain of $7.0 million related to the sale of a
theatre in Canada and a gain of $8.5 million related to the
sale of our interest in a profit sharing agreement related to
another previously sold property in Canada, which were partially
offset by a loss of $5.8 million for the write-off of an
intangible asset associated with a vendor contract in Mexico
that was terminated, a loss of $2.3 million for the
write-off of intangible assets associated with our original IMAX
license agreement that was terminated, a loss of
$2.0 million that was recorded upon the contribution and
sale of digital projection systems to DCIP and a loss of
$0.9 million related to storm damage to a
U.S. theatre. See Note 5 to our consolidated financial
statements incorporated by reference into this prospectus for
discussion of DCIP. The loss recorded during 2009 was primarily
related to the write-off of theatre equipment that was replaced.
Interest Expense. Interest costs incurred,
including amortization of debt issue costs, were
$112.4 million for 2010 compared to $81.6 million for
2009. The increase was due to the issuance of our Senior Notes
during June 2009 and increases in interest rates on our variable
rate debt related to the amendment and extension of our senior
secured credit facility. See Note 11 to our consolidated
financial statements incorporated by reference into this
prospectus for further discussion of our long-term debt.
Interest Income. We recorded interest income
of $6.1 million during 2010 compared to interest income of
$4.7 million during 2009. The increase in interest income
was primarily due to higher interest rates earned on our cash
investments.
Distributions from NCM. We recorded
distributions received from NCM of $23.4 million during
2010 and $20.8 million during 2009, which were in excess of
the carrying value of our investment. See Note 4 to our
consolidated financial statements incorporated by reference into
this prospectus.
Equity in Loss of Affiliates. We recorded
equity in loss of affiliates of $3.4 million during 2010
compared to $0.9 million during 2009. The equity in loss of
affiliates recorded during 2010 included a loss of approximately
$7.9 million related to our equity investment in DCIP (see
Note 5 to our consolidated financial statements
incorporated by reference into this prospectus) offset by income
of approximately $4.5 million related to our equity
investment in NCM (see Note 4 to our consolidated financial
statements incorporated by reference into this prospectus). The
equity in loss of affiliates recorded during 2009 included a
loss of approximately $2.8 million related to our equity
investment in DCIP offset by income of approximately
$1.9 million related to our equity investment in NCM.
Income Taxes. Income tax expense of
$58.6 million was recorded for 2010 compared to
$62.8 million recorded for 2009. The effective tax rate for
2010 was 28.0%. The effective tax rate for 2009 was 32.1%. See
Note 19 to our consolidated financial statements
incorporated by reference into this prospectus.
Liquidity
and Capital Resources
Operating
Activities
We primarily collect our revenues in cash, mainly through box
office receipts and the sale of concessions. In addition, a
majority of our theatres provide the patron a choice of using a
credit card or debit card in place of cash. 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 amounted to $219.8 million,
$366.7 million and $266.2 million for the years ended
December 31, 2008, 2009 and 2010, respectively. Cash
provided by operating activities was $60.8 million for the
three months ended March 31, 2011 compared to
$43.6 million for the three months ended March 31,
2010. The cash provided by operating activities was lower for
the three months ended March 31, 2010 primarily due to a
higher film rental liability at December 31, 2009
attributable to the record-breaking domestic box office
performance during the latter part of December 2009.
55
Investing
Activities
We plan to fund capital expenditures for our continued
development with cash flow from operations, borrowings under our
senior secured credit facility, and proceeds from debt
issuances, sale leaseback transactions
and/or sales
of excess real estate. Our investing activities have been
principally related to the development and acquisition of
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 amounted to
$94.9 million, $183.1 million and $136.1 million
for the years ended December 31, 2008, 2009 and 2010,
respectively. The increase in cash used for investing activities
for the year ended December 31, 2009 was primarily due to
the acquisition of four theatres in the U.S. for
approximately $49.0 million (see Note 5 to the
consolidated financial statements incorporated by reference into
this prospectus) and the acquisition of one theatre in Brazil
for approximately $9.1 million. Cash used for investing
activities was $35.9 million for the three months ended
March 31, 2011 compared to $19.7 million for the three
months ended March 31, 2010.
Capital expenditures for the years ended December 31, 2008,
2009 and 2010 and the three months ended March 31, 2011 and
2010 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
|
Existing
|
|
|
|
|
Theatres
|
|
Theatres
|
|
Total
|
|
Year Ended December 31, 2008
|
|
$
|
69.9
|
|
|
$
|
36.2
|
|
|
$
|
106.1
|
|
Year Ended December 31, 2009
|
|
$
|
36.5
|
|
|
$
|
88.3
|
|
|
$
|
124.8
|
|
Year Ended December 31, 2010
|
|
$
|
54.5
|
|
|
$
|
101.6
|
|
|
$
|
156.1
|
|
Three months ended March 31, 2011
|
|
$
|
11.3
|
|
|
$
|
24.5
|
|
|
$
|
35.8
|
|
Three months ended March 31, 2010
|
|
$
|
5.2
|
|
|
$
|
14.3
|
|
|
$
|
19.5
|
|
We continue to invest in our U.S. theatre circuit. Our
total domestic screen count was 3,816 as of March 31, 2011.
At March 31, 2011, we had signed commitments to open four
new theatres and 50 screens in domestic markets during the
remainder of 2011 and open five new theatres with
77 screens subsequent to 2011. We estimate the remaining
capital expenditures for the development of these 127 domestic
screens will be approximately $62 million. Actual
expenditures for continued theatre development and acquisitions
are subject to change based upon the availability of attractive
opportunities.
We also continue to expand our international theatre circuit. We
built two theatres with 12 screens during the three months
ended March 31, 2011, bringing our total international
screen count to 1,125. At March 31, 2011, we had signed
commitments to open seven new theatres with 45 screens in
international markets during the remainder of 2011 and open
seven new theatres with 48 screens subsequent to 2011. We
estimate the remaining capital expenditures for the development
of these 93 international screens will be approximately
$66 million. Actual expenditures for continued theatre
development and acquisitions are subject to change based upon
the availability of attractive opportunities.
Financing
Activities
Cash used for financing activities was $29.3 million,
$75.5 million and $108.2 million during the years
ended December 31, 2008, 2009 and 2010, respectively. Cash
used for financing activities was $28.9 million for the
three months ended March 31, 2011 compared to
$28.2 million for the three months ended March 31,
2010.
56
We may from time to time, subject to compliance with our debt
instruments, purchase our debt securities on the open market
depending upon the availability and prices of such securities.
Long-term debt consisted of the following as of March 31,
2011 and December 31, 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Cinemark, USA, Inc. term loan
|
|
$
|
1,070.1
|
|
|
$
|
1,072.8
|
|
Cinemark USA, Inc. Senior
Notes(1)
|
|
|
459.9
|
|
|
|
459.7
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,530.0
|
|
|
$
|
1,532.5
|
|
Less current portion
|
|
|
10.8
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
1,519.2
|
|
|
$
|
1,521.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the $470.0 million aggregate principal amount of
the Senior Notes before the original issue discount, which was
$10.1 million as of March 31, 2011. |
As of March 31, 2011, we had borrowings of
$1,070.1 million outstanding on the term loan under our
senior secured credit facility and $459.9 million accreted
principal amount outstanding under our 8.625% senior
discount notes. We had $150.0 million in available
borrowing capacity on our revolving credit line.
As of March 31, 2011, 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 and
other obligations for each period indicated are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations
|
|
Total
|
|
|
One Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
5 Years
|
|
|
|
(In millions)
|
|
|
Long-term
debt(1)
|
|
$
|
1,540.1
|
|
|
$
|
10.8
|
|
|
$
|
174.2
|
|
|
$
|
18.4
|
|
|
$
|
1,336.7
|
|
Scheduled interest payments on long-term
debt(2)
|
|
|
563.6
|
|
|
|
91.4
|
|
|
|
174.0
|
|
|
|
164.7
|
|
|
|
133.5
|
|
Operating lease obligations
|
|
|
1,800.5
|
|
|
|
203.0
|
|
|
|
403.4
|
|
|
|
375.5
|
|
|
|
818.6
|
|
Capital lease obligations
|
|
|
138.5
|
|
|
|
7.6
|
|
|
|
18.1
|
|
|
|
23.2
|
|
|
|
89.6
|
|
Scheduled interest payments on capital leases
|
|
|
96.9
|
|
|
|
13.7
|
|
|
|
24.9
|
|
|
|
20.7
|
|
|
|
37.6
|
|
Employment agreements
|
|
|
11.4
|
|
|
|
3.8
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
Purchase
commitments(3)
|
|
|
138.3
|
|
|
|
42.5
|
|
|
|
94.0
|
|
|
|
0.5
|
|
|
|
1.3
|
|
Current liability for uncertain tax
positions(4)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
4,289.8
|
|
|
$
|
373.3
|
|
|
$
|
896.2
|
|
|
$
|
603.0
|
|
|
$
|
2,417.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the Senior Notes in the aggregate principal amount of
$470.0 million, excluding the discount of
$10.1 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 currently in
effect. The average interest rates currently in effect on our
fixed rate and variable rate debt are 7.0% and 3.2%,
respectively. |
|
(3) |
|
Includes estimated capital expenditures associated with the
construction of new theatres to which we were committed as of
March 31, 2011. |
|
(4) |
|
The contractual obligations table excludes the long-term portion
of our liability for uncertain tax positions of
$16.3 million because we cannot make a reliable estimate of
the timing of the related cash payments. |
Senior
Secured Credit Facility
On October 5, 2006, in connection with the Century
Acquisition, we entered into a senior secured credit facility
that provided for a $1,120.0 million term loan facility and
a $150.0 million revolving credit facility. On
March 2, 2010, we completed an amendment and extension to
the senior secured credit facility to
57
primarily extend the maturities of the facility and make certain
other modifications. Approximately $924.4 million of our
then remaining outstanding $1,083.6 million term loan debt
was extended from an original maturity date of October 2013 to a
maturity date of April 2016. The remaining term loan debt of
approximately $159.2 million that was not extended matures
on the original maturity date of October 2013. Payments on the
extended amount are due in equal quarterly installments of
approximately $2.3 million beginning March 31, 2010
through March 31, 2016, with the remaining principal amount
of approximately $866.6 million due April 30, 2016.
Payments on the original amount that was not extended are due in
equal quarterly installments of approximately $0.4 million
beginning March 31, 2010 through September 30, 2012
and increase to $37.4 million each calendar quarter from
December 31, 2012 to June 30, 2013, with one final
payment of approximately $42.6 million due at maturity on
October 5, 2013.
The interest rate on the original term loan debt that was not
extended accrues interest, at our 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%, or the base rate, 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. The margin of the original term loan debt
that was not extended is determined by the applicable corporate
credit rating. The interest rate on the extended portion of the
term loan debt accrues interest, at our 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 2.25% margin per annum, or
(B) a eurodollar rate plus a 3.25% margin per
annum.
The maturity date of $73.5 million of our
$150.0 million revolving credit line was extended from
October 2012 to March 2015. The maturity date of the remaining
$76.5 million of our revolving credit line did not change
and remains October 2012. The interest rate on the original
revolving credit line accrues interest, at our 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. The interest rate on the extended revolving credit line
accrues interest, at our 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 1.75% to 2.0% per annum,
or (B) a eurodollar rate plus a margin that
ranges from 2.75% to 3.0% per annum. The margin of the revolving
credit line is determined by the consolidated net senior secured
leverage ratio as defined in the credit agreement.
At March 31, 2011, there was $1,070.1 million
outstanding under the term loan facility and no borrowings
outstanding under the revolving credit facility. Approximately
$157.3 million of the term loan matures in October 2013 and
approximately $912.8 million matures in April 2016. As of
March 31, 2011, the average interest rate on the term loan
borrowings that mature in October 2013 was 3.1% per annum. As of
March 31, 2011, on an as adjusted basis, after giving
effect to the issuance of the Exchange Notes and the use of
proceeds therefrom, we would have had $912.8 million
outstanding under our term loan facility, all of which matures
in April 2016, at an average interest rate of 5.1% per annum.
Our obligations under the senior secured credit facility are
guaranteed by Cinemark Holdings and certain of our domestic
subsidiaries and are secured by mortgages on certain fee and
leasehold properties and security interests in substantially all
of our and our guarantors personal property, including,
without limitation, pledges of all of our capital stock, all of
the capital stock of certain of our domestic subsidiaries and
65% of the voting stock of certain of our foreign subsidiaries.
The senior secured credit facility contains usual and customary
negative covenants for agreements of that type, including, but
not limited to, restrictions on our ability, and in certain
instances, our subsidiaries and Cinemark Holdingss
ability, to consolidate or merge or liquidate; wind up or
dissolve; substantially change the nature of their respective
business; sell, transfer or dispose of assets; create or incur
indebtedness; create liens; pay dividends and repurchase stock;
and make capital expenditures and investments. The senior
secured credit facility also requires us to satisfy a
consolidated net senior secured leverage ratio covenant as
determined in accordance with the senior secured credit facility
if any revolving loans are outstanding.
58
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
dividends declared by the board of directors, is less than the
sum of (a) the aggregate amount of cash and the fair market
value of non-cash items received by Cinemark Holdings or us as
common equity since October 5, 2006, (b) our
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 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.
8.625% Senior
Notes
On June 29, 2009, we issued $470.0 million aggregate
principal amount of Senior Notes with an original issue discount
of approximately $11.5 million, resulting in proceeds to us
of approximately $458.5 million. Interest is payable on
June 15 and December 15 of each year. The Senior Notes mature on
June 15, 2019. As of March 31, 2011, the carrying
value of the Senior Notes was approximately $459.9 million.
We filed a registration statement with the Commission on
September 24, 2009 pursuant to which we offered to exchange
the Senior Notes for substantially similar registered Senior
Notes. The registration statement became effective on
December 17, 2009. The exchanged registered Senior Notes do
not have transfer restrictions.
The Senior Notes are fully and unconditionally guaranteed on a
joint and several senior unsecured basis by certain of our
subsidiaries that guarantee, assume or become liable with
respect to any of our or our guarantors debt. The Senior
Notes and the guarantees are senior unsecured obligations and
rank equally in right of payment with all of our and our
guarantors existing and future senior unsecured debt and
senior in right of payment to all of our and our
guarantors existing and future subordinated debt,
including the Exchange Notes. The Senior Notes and the
guarantees are effectively subordinated to all of our and our
guarantors existing and future secured debt to the extent
of the value of the assets securing such debt, including all
borrowings under our senior secured credit facility. The Senior
Notes and the guarantees are structurally subordinated to all
existing and future debt and other liabilities of our
subsidiaries that do not guarantee the Senior Notes.
The indenture governing the Senior Notes contains covenants that
limit, among other things, our ability and that of certain of
our subsidiaries to (1) consummate specified asset sales,
(2) make investments or other restricted payments,
including paying dividends, making other distributions or
repurchasing subordinated debt or equity, (3) incur
additional indebtedness and issue preferred stock,
(4) enter into transactions with affiliates, (5) enter
new lines of business, (6) merge or consolidate with, or
sell all or substantially all of its assets to another person
and (7) create liens. Upon a change of control of Cinemark
Holdings or us, we would be required to make an offer to
repurchase the Senior Notes at a price equal to 101% of the
aggregate principal amount outstanding plus accrued and unpaid
interest through the date of repurchase. Certain asset
dispositions are considered triggering events that may require
us to use the proceeds from those asset dispositions to make an
offer to repurchase the Exchange Notes at 100% of their
principal amount, plus accrued and unpaid interest, if any, to
the date of repurchase if such proceeds are not otherwise used
within 365 days as described in the indenture. The
indenture governing the Senior Notes allows us to incur
additional indebtedness if we
59
satisfy the coverage ratio specified in the indenture, after
giving effect to the incurrence of the additional indebtedness,
and in certain other circumstances. The required minimum
coverage ratio is 2 to 1 and our actual ratio as of
March 31, 2011 was 4.9 to 1.
We may redeem some or all of the Senior Notes at any time at
redemption prices described or set forth in the indenture
governing the Senior Notes. The indenture governing the Senior
Notes also provides for events of default which, if any of them
occurs, would permit or require the principal of, and accrued
interest on, the Senior Notes to become or to be declared due
and payable.
7.375% Senior
Subordinated Notes
On June 3, 2011, we issued $200.0 million aggregate
principal amount of 7.375% senior subordinated notes due
2021 resulting in proceeds of approximately $196.3 million.
We used the proceeds in part to optionally prepay approximately
$157.3 million of term loans outstanding under our senior
secured credit facility that mature in October 2013 and will use
the remainder for general corporate purposes. Interest is
payable on June 15 and December 15 of each year beginning on
December 15, 2021. See Description of
Exchange Notes.
Covenant
Compliance
As of March 31, 2011, we were in full compliance with all
agreements, including all related covenants, governing our
outstanding debt.
Ratings
We are rated by nationally recognized rating agencies. The
significance of individual ratings varies from agency to agency.
However, companies assigned ratings at the top end of the
range have, in the opinion of certain rating agencies, the
strongest capacity for repayment of debt or payment of claims,
while companies at the bottom end of the range have the weakest
capability. Ratings are always subject to change and there can
be no assurance that our current ratings will continue for any
given period of time. A downgrade of our debt ratings, depending
on the extent, could increase the cost to borrow funds. Below
are our latest ratings per category, which were current as of
May 31, 2011.
|
|
|
|
|
Category
|
|
Moodys
|
|
Standard and Poors
|
|
Cinemark USA, Inc. 7.375% Senior Subordinated Notes
|
|
B3
|
|
B
|
Cinemark USA, Inc. 8.625% Senior Notes
|
|
B2
|
|
B
|
Cinemark USA, Inc. Senior Secured Credit Facility
|
|
Ba2
|
|
BB
|
New
Accounting Pronouncements
In December 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-17,
Consolidations (Topic 810) Improvements to
Financial Reporting by Enterprises Involved with Variable
Interest Entities (ASU
No. 2009-17).
This update changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to
consolidate another entity is based on, among other things, the
other entitys purpose and design and the reporting
entitys ability to direct the activities of the other
entity that most significantly impact the other entitys
economic performance. ASU
No. 2009-17
requires a reporting entity to provide additional disclosures
about its involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A
reporting entity is required to disclose how its involvement
with a variable interest entity affects the reporting
entitys financial statements. ASU
No. 2009-17
is effective for fiscal years beginning after November 15,
2009, and interim periods within those fiscal years. We adopted
ASU
No. 2009-17
as of January 1, 2010, and its application had no impact on
our consolidated financial statements.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements (ASU
No. 2010-06),
which amends FASB ASC
60
Topic
820-10,
Fair Value Measurements and Disclosures. This
update requires additional disclosures for transfers in and out
of Levels 1 and 2 and for activity in Level 3 and
clarifies certain other existing disclosure requirements. We
adopted ASU
No. 2010-06
beginning January 1, 2010. This update did not have a
significant impact on our disclosures.
In August 2010, the FASB issued ASU
No. 2010-21,
Accounting for Technical Amendments to Various
Commission Rules and Schedules (ASU
No. 2010-21).
This update amends various Commission paragraphs in the FASB
Accounting Standards Codification pursuant to Commission Final
Rule, Technical Amendments to Rules Forms, Schedules
and Codification of Financial Reporting Policies. The
adoption of ASU
No. 2010-21
did not affect our consolidated financial statements.
In August 2010, the FASB issued ASU
No. 2010-22,
Accounting for Various Topics (ASU
No. 2010-22),
which amends various Commission paragraphs based on external
comments received and the issuance of Staff Accounting Bulletin
(SAB) 112. SAB 112 was issued to bring existing
Commission guidance into conformity with ASC Topic 805,
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 early
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.
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 our interest
expense relating to our variable rate debt facilities. At
March 31, 2011, there was an aggregate of approximately
$420.1 million of variable rate debt outstanding under
these facilities, which excludes $650.0 million of our term
loan debt that is hedged with our interest rate swap agreements
in effect as of March 31, 2011 as discussed below. Based on
the interest rates in effect on the variable rate debt
outstanding at March 31, 2011, a 100 basis point
increase in market interest rates would increase our annual
interest expense by approximately $4.2 million.
As of March 31, 2011, our interest rate swap agreements
qualified for cash flow hedge accounting. The fair values of the
interest rate swaps are 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 accumulated other comprehensive
income (loss) and the ineffective portion reported in earnings.
Below is a summary of our interest rate swap agreements as of
March 31, 2011:
|
|
|
|
|
|
|
|
|
Amount Hedged
|
|
Effective Date
|
|
Pay Rate
|
|
Receive Rate
|
|
Expiration Date
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
$125,000
|
|
August 2007
|
|
4.9220%
|
|
3-month LIBOR
|
|
August 2012
|
$175,000
|
|
November 2008
|
|
3.6300%
|
|
1-month LIBOR
|
|
(1)
|
$175,000
|
|
December 2010
|
|
1.3975%
|
|
1-month LIBOR
|
|
September 2015
|
$175,000
|
|
December 2010
|
|
1.4000%
|
|
1-month LIBOR
|
|
September 2015
|
|
|
|
(1) |
|
$100,000 expires November 2011 and $75,000 expires November 2012. |
61
Below is a summary of our interest rate swap agreements as of
March 31, 2011, on an as adjusted basis, giving effect to
the prepayment of a portion of our term loan debt:
|
|
|
|
|
|
|
|
|
Amount Hedged
|
|
Effective Date
|
|
Pay Rate
|
|
Receive Rate
|
|
Expiration Date
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
$106,632
|
|
August 2007
|
|
4.9220%
|
|
3-month LIBOR
|
|
August 2012
|
$149,285
|
|
November 2008
|
|
3.6300%
|
|
1-month LIBOR
|
|
(1)
|
$175,000
|
|
December 2010
|
|
1.3975%
|
|
1-month LIBOR
|
|
September 2015
|
$175,000
|
|
December 2010
|
|
1.4000%
|
|
1-month LIBOR
|
|
September 2015
|
|
|
|
(1) |
|
$85,310 expires November 2011 and $63,975 expires November 2012. |
The table below provides information about our fixed rate and
variable rate long-term debt agreements as of March 31,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Expected Maturity for the Twelve-Month Periods Ending
March 31,
|
|
|
Interest
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
Rate
|
|
|
|
(In millions)
|
|
|
|
|
|
Fixed
rate(1)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,120.0
|
|
|
$
|
1,120.0
|
|
|
$
|
1,164.2
|
|
|
|
7.0
|
%
|
Variable rate
|
|
|
10.8
|
|
|
|
84.9
|
|
|
|
89.3
|
|
|
|
9.2
|
|
|
|
9.2
|
|
|
|
216.7
|
|
|
|
420.1
|
|
|
|
421.0
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
10.8
|
|
|
$
|
84.9
|
|
|
$
|
89.3
|
|
|
$
|
9.2
|
|
|
$
|
9.2
|
|
|
$
|
1,336.7
|
|
|
$
|
1,540.1
|
|
|
$
|
1,585.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $650.0 million of our term loan, which represents
the debt hedged with our interest rate swap agreements discussed
above as of March 31, 2011. |
|
(2) |
|
Includes the Senior Notes in the aggregate principal amount of
$470.0 million, excluding the discount of
$10.1 million. |
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. A
majority of the revenues and operating expenses of our
international subsidiaries are transacted in the countrys
local currency. U.S. GAAP requires 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, U.S. GAAP
requires that the U.S. dollar be used as the functional
currency for the subsidiary. Currency fluctuations in the
countries in which we operate result in us reporting exchange
gains (losses) or foreign currency translation adjustments.
Based upon our equity ownership in our international
subsidiaries as of March 31, 2011, 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 aggregate net book value of our
investments in our international subsidiaries by approximately
$49 million and would decrease the aggregate net income of
our international subsidiaries by approximately $2 million.
62
BUSINESS
Our
Company
We, together with our subsidiaries, are 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.,
Brazil, Mexico, Chile, Colombia, Argentina, Peru, Ecuador,
Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. We also managed theatres in the U.S., Brazil and
Colombia during the year ended December 31, 2010 and the
three months ended March 31, 2011.
As of March 31, 2011, we managed our business under two
reportable operating segments U.S. markets and
international markets. See Note 23 to the consolidated
financial statements incorporated by reference into this
prospectus.
On August 2, 2006, Cinemark Holdings was formed as the
Delaware holding company of Cinemark, Inc. On April 24,
2007, Cinemark Holdings completed an initial public offering of
its common stock. Effective December 11, 2009, Cinemark,
Inc. was merged into Cinemark Holdings and Cinemark Holdings
became our direct parent company. Our principal executive
offices are at 3900 Dallas Parkway, Suite 500, Plano, Texas
75093. Our telephone number is
(972) 665-1000.
We maintain a corporate website at www.cinemark.com.
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and any amendments, are available on our website free of charge
under the heading Investor Relations
Commission Filings as soon as practicable after such
reports are filed or furnished electronically to the Commission.
Description
of Business
We are a leader in the motion picture exhibition industry in
terms of both attendance and the number of screens in operation.
We operated 431 theatres and 4,941 screens in the
U.S. and Latin America as of March 31, 2011, and
approximately 241.2 million patrons attended our theatres
worldwide during the year ended December 31, 2010. Our
circuit is the third largest in the U.S. with
292 theatres and 3,816 screens in 39 states. We
are the most geographically diverse circuit in Latin America
with 139 theatres and 1,125 screens in 13 countries.
Our modern theatre circuit features stadium seating in
approximately 86% of our first-run auditoriums.
We selectively build or acquire new theatres in markets where we
can establish and maintain a strong market position. We believe
our portfolio of modern theatres provides a preferred
destination for moviegoers and contributes to our significant
cash flows from operating activities. Our significant presence
in the U.S. and Latin America has made us an important
distribution channel for movie studios, particularly as they
look to capitalize on the expanding worldwide box office. Our
market leadership is attributable in large part to our senior
executives, whose years of industry experience range from 14 to
52 years and who have successfully navigated us through
multiple industry and economic cycles.
Revenues, operating income and net income attributable to
Cinemark USA, Inc. for the year ended December 31, 2010,
were $2,141.1 million, $294.9 million and
$147.4 million, respectively, and were $483.1 million,
$49.2 million and $25.2 million, respectively, for the
three months ended March 31, 2011. At March 31, 2011,
we had cash and cash equivalents of $462.6 million and
long-term debt of $1,530.0 million. Approximately
$420.1 million, or 27.5%, of our long-term debt accrues
interest at variable rates and approximately $10.8 million
of our long-term debt matures in 2011.
During 2009, we began converting our circuit from film based to
digital projection technology. Digital projection technology
gives us greater flexibility in programming and facilitates the
exhibition of live and pre-recorded alternative entertainment.
We also developed a premium experience auditorium concept
utilizing large screens and the latest in digital projection and
sound technologies, which we call our Cinemark XD Extreme
Digital Cinema, or XD. The XD experience includes
wall-to-wall
and
ceiling-to-floor
screens, wrap-around sound and a maximum comfort entertainment
environment for an intense sensory experience. We charge a
premium price for the XD experience. The XD technology does not
require special format movie prints, which allows us the
flexibility to play any available digital print we choose,
including
3-D content,
in
63
the XD auditorium. We currently have 50 XD auditoriums in our
theatres and have plans to install 35 to 40 more XD auditoriums
during the remainder of 2011.
During late 2010, we introduced our NextGen concept, which
features
wall-to-wall
and
ceiling-to-floor
screens and the latest digital projection and sound technologies
in all of the auditoriums of a complex. These theatres generally
also have an XD auditorium, which offers the
wall-to-wall
and
ceiling-to-floor
screen in a larger auditorium with enhanced sound and seating.
Most of our future domestic theatres will incorporate this
NextGen concept. We also converted our six existing IMAX screens
to digital technology and purchased two additional digital IMAX
systems to convert two of our existing screens during 2011.
Motion
Picture Industry Overview
The motion picture exhibition industry began its transition to
digital projection technology during 2009. Digital projection
technology allows filmmakers the ability to showcase imaginative
works of art exactly as they were intended, with incredible
realism and detail and in a range of up to 35 trillion colors.
Because digital features arent susceptible to scratching
and fading, digital presentations will always remain clear and
sharp every time they are shown. A digitally produced or
digitally converted movie can be distributed to theatres via
satellite, physical media, or fiber optic networks. The
digitized movie is stored on a
computer/server
which serves it to a digital projector for each
screening of the movie and due to its format, it enables us to
more efficiently move films between auditoriums within a theatre
as demand increases or decreases for each film.
Digital projection also allows the presentation of
3-D content
and alternative entertainment such as live and pre-recorded
concert events, the opera, sports programs and special live
documentaries. Twenty-two films released wide during 2010 were
available in
3-D format
and at least 34
3-D films
are expected to be released during 2011. Three-dimensional
technology offers a premium experience with crisp, bright,
ultra-realistic images that immerse the patron into a film. A
premium is generally charged for a
3-D
presentation.
Domestic
Markets
The U.S. motion picture exhibition industry has a track
record of long-term growth, with box office revenues growing at
an estimated CAGR of 3.6% from 2000 to 2010. Against this
background of steady long-term growth, the exhibition industry
has experienced periodic short-term increases and decreases in
attendance, and consequently box office revenues.
The following table represents the results of a survey by the
MPAA published during February 2011, outlining the historical
trends in U.S. box office performance for the ten year
period from 2001 to 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Box
|
|
|
|
|
|
Average Ticket
|
|
Year
|
|
Office Revenues
|
|
|
Attendance
|
|
|
Price
|
|
|
|
($ in billions)
|
|
|
(In billions)
|
|
|
|
|
|
2001
|
|
$
|
8.1
|
|
|
|
1.43
|
|
|
$
|
5.66
|
|
2002
|
|
$
|
9.1
|
|
|
|
1.57
|
|
|
$
|
5.81
|
|
2003
|
|
$
|
9.2
|
|
|
|
1.52
|
|
|
$
|
6.03
|
|
2004
|
|
$
|
9.3
|
|
|
|
1.50
|
|
|
$
|
6.21
|
|
2005
|
|
$
|
8.8
|
|
|
|
1.38
|
|
|
$
|
6.41
|
|
2006
|
|
$
|
9.2
|
|
|
|
1.40
|
|
|
$
|
6.55
|
|
2007
|
|
$
|
9.6
|
|
|
|
1.40
|
|
|
$
|
6.88
|
|
2008
|
|
$
|
9.6
|
|
|
|
1.34
|
|
|
$
|
7.18
|
|
2009
|
|
$
|
10.6
|
|
|
|
1.42
|
|
|
$
|
7.50
|
|
2010
|
|
$
|
10.6
|
|
|
|
1.34
|
|
|
$
|
7.89
|
|
Films leading the box office during the year ended
December 31, 2010 included the carryover of Avatar,
which grossed approximately $475 million in
U.S. box office revenues during 2010 and new releases such
as Toy Story 3, Alice in Wonderland, Harry Potter and the
Deathly Hallows: Part 1, Iron Man 2, The Twilight
64
Saga: Eclipse, Inception, Despicable Me, How to Train Your
Dragon, Shrek Forever After, Clash of the Titans, The Karate
Kid, Tangled, Grown Ups, Megamind, Tron: Legacy, Little Fockers,
The Fighter and True Grit.
The film slate for 2011 currently includes Rio, Fast Five,
Thor, Pirates of the Caribbean: On Stranger Tides, The Hangover
Part II, Kung Fu Panda 2: The Kaboom of Doom, Cars 2, X
Men: First Class, Transformers: Dark of the Moon, Harry Potter
and the Deathly Hollows: Part 2, Twilight: Breaking Dawn,
Captain America: The First Avenger, Cowboys and Aliens, Rise of
the Planet of the Apes, Puss in Boots, Happy Feet 2, Mission
Impossible-Ghost Protocol, Sherlock Holmes 2 and Alvin
and the Chipmunks: Chipwrecked, among other films.
International
Markets
International box office revenue continues to grow. According to
the MPAA, international box office revenues were
$21.2 billion for the year ended December 31, 2010,
which is a result of increasing acceptance of movie going as a
popular form of entertainment throughout the world, ticket price
increases and new theatre construction. According to the MPAA,
Latin American box office revenues were $2.1 billion for
the year ended December 31, 2010, representing a 25%
increase from 2009.
Growth in Latin America is expected to continue to be fueled by
a combination of robust economies, growing populations,
attractive demographics (i.e., a significant teenage
population), substantial retail development, and quality product
from Hollywood, including an increasing number of
3-D films.
In many Latin American countries, particularly Mexico and
Brazil, successful local film product can also provide
incremental growth opportunities.
We believe many international markets for theatrical exhibition
have historically been underserved and that certain of these
markets, especially those in Latin America, will continue to
experience growth as additional modern stadium-styled theatres
are introduced and film product offerings continue to expand.
Drivers
of Continued Industry Success
We believe the following market trends will drive the continued
growth and strength of our industry:
Importance of Theatrical Success in Establishing Movie Brands
and Subsequent Markets. Theatrical exhibition is
the primary distribution channel for new motion picture
releases. A successful theatrical release which
brands a film is one of the major factors in
determining its success in downstream markets, such
as DVDs, network and syndicated television, video on-demand,
pay-per-view
television and the Internet.
Increased Importance of International Markets for Box Office
Success. International markets continue to be an
increasingly important component of the overall box office
revenues generated by Hollywood films, accounting for
$21.2 billion, or approximately 67% of 2010 total worldwide
box office revenues according to the MPAA. With the continued
growth of the international motion picture exhibition industry,
we believe the relative contribution of markets outside North
America will become even more significant. Many of the top
U.S. films released recently also performed exceptionally
well in international markets. Such films included
Avatar, which grossed approximately $1.5 billion in
international markets and Harry Potter and the Deathly
Hallows: Part 1, which grossed approximately
$610 million in international markets.
Stable Long-Term Attendance Trends. We believe
that long-term trends in motion picture attendance in the
U.S. will continue to benefit the industry. Even during the
recent recessionary period, attendance levels remained stable as
consumers selected the theatre as a preferred value for their
discretionary income. Although domestic attendance declined
slightly in 2010, patronage trends during 2010 reflected
increasing demand for products unique to the exhibition industry
such as 3-D.
With the motion picture exhibition industrys transition to
digital projection technology, the products offered by motion
picture exhibitors continue to expand, attracting a broader base
of patrons.
65
Convenient and Affordable Form of
Out-Of-Home
Entertainment. Movie going continues to be one of
the most convenient and affordable forms of
out-of-home
entertainment, with an estimated average ticket price in the
U.S. of $7.89 in 2010. Average prices in 2010 for other
forms of
out-of-home
entertainment in the U.S., including sporting events and theme
parks, range from approximately $25.00 to $77.00 per ticket
according to the MPAA.
Innovation with Digital Technology. Our
industry began its conversion to digital projection technology
during 2009, which has allowed exhibitors to expand their
product offerings. Digital technology allows the presentation of
3-D content
and alternative entertainment such as live and pre-recorded
sports programs, the opera, concert events and special live
documentaries. These additional programming alternatives may
expand the industrys customer base and increase patronage
for exhibitors.
Competitive
Strengths
We believe the following strengths allow us to compete
effectively:
Disciplined Operating Philosophy. We generated
operating income and net income attributable to Cinemark USA,
Inc. of $294.9 million and $147.4 million,
respectively, for the year ended December 31, 2010 and
$49.2 million and $25.2 million, respectively, for the
three months ended March 31, 2011. Our solid operating
performance is a result of our disciplined operating philosophy
that centers on building high quality assets, while negotiating
favorable theatre level economics, controlling operating costs
and effectively reacting to economic and market changes.
Leading Position in Our U.S. Markets. We
have a leading market share in the U.S. metropolitan and
suburban markets we serve. For the year ended December 31,
2010, we ranked either first or second based on box office
revenues in 25 out of our top 30 U.S. markets, including
the San Francisco Bay Area, Dallas, Houston and Salt Lake
City.
Strategically Located in Heavily Populated Latin American
Markets. Since 1993, we have invested throughout
Latin America in response to the continued growth of the region.
We currently operate 139 theatres and 1,125 screens in
13 countries. Our international screens generated revenues of
$564.2 million, or 26.4% of our total revenue, for the year
ended December 31, 2010. We have successfully established a
significant presence in major cities in the region, with
theatres in 12 of the 15 largest metropolitan areas. With a
geographically diverse circuit, we are an important distribution
channel to the movie studios. Approximately 84% of our
international screens offer stadium seating. We are
well-positioned with our modern, large-format theatres to take
advantage of these factors for further growth and
diversification of our revenues.
State-of-the-Art
Theatre Circuit. We offer
state-of-the-art
theatres, which we believe makes our theatres a preferred
destination for moviegoers in our markets. We feature stadium
seating in approximately 86% of our first run auditoriums.
During 2010, we increased the size of our circuit by adding
138 state-of-the-art
screens worldwide. We currently have commitments to build 220
additional new screens over the next three years. We plan to
install digital projection technology in 100% of our
U.S. and international auditoriums of which
40-50% will
be 3-D
compatible. We also converted our six existing IMAX screens to
digital technology and purchased two additional digital IMAX
systems to convert two of our existing screens during 2011. We
currently have 50 XD auditoriums in our theatres and have plans
to install 35 to 40 more XD auditoriums during the remainder of
2011. Our new NextGen theatre concept provides further credence
to our commitment to provide a continuing
state-of-the-art
movie-viewing experience to our patrons.
Solid Balance Sheet with Significant Cash Flow from Operating
Activities. We generate significant cash flow
from operating activities as a result of several factors,
including a geographically diverse and modern theatre circuit
and managements ability to control costs and effectively
react to economic and market changes. Additionally, owning land
and buildings for 42 of our theatres is a strategic advantage
that enhances our cash flows. We believe our expected level of
cash flow generation will provide us with the financial
flexibility to continue to pursue growth opportunities, support
our debt payments and
66
continue to make dividend payments to our stockholders. In
addition, as of March 31, 2011, we owned approximately
17.5 million units of NCM, convertible into shares of NCMI
common stock, and owned approximately 1.2 million shares of
common stock of RealD, the company from which we license our
3-D systems.
Our investment in both NCM and RealD offer us additional sources
of cash flows. As of March 31, 2011, we had cash and cash
equivalents of $462.6 million.
Experienced Management. Led by Chairman and
founder Lee Roy Mitchell, Chief Executive Officer Alan Stock,
President; Chief Operating Officer Timothy Warner, Chief
Financial Officer Robert Copple and President-International
Valmir Fernandes, our management team has many years of theatre
operating experience, ranging from 14 to 52 years,
executing a focused strategy that has led to consistent
operating results. This management team has successfully
navigated us through many industry and economic cycles.
Our
Strategy
We believe our disciplined operating philosophy and experienced
management team will enable us to continue to enhance our
leading position in the motion picture exhibition industry. Key
components of our strategy include:
Establish and Maintain Leading Market
Positions. We will continue to seek growth
opportunities by building or acquiring modern theatres that meet
our strategic, financial and demographic criteria. We focus on
establishing and maintaining a leading position in the markets
we currently serve. We also monitor economic and market trends
to ensure we offer a broad range of products and prices that
satisfy our patrons.
Continue to Focus on Operational
Excellence. We will continue to focus on
achieving operational excellence by controlling theatre
operating costs and adequately training our staff while
continuing to provide leading customer service. Our margins
reflect our track record of operating efficiency.
Selectively Build in Profitable, Strategic Latin American
Markets. Our continued international expansion
will remain focused primarily on Latin America through
construction of modern,
state-of-the-art
theatres in growing urban markets. We have commitments to build
seven new theatres with 45 screens during the remainder of
2011 and seven new theatres with 48 screens subsequent to
2011, which we expect will require investing an additional
$66 million in our Latin American markets. We also plan to
install digital projection technology in all of our
international auditoriums, which allows us to present
3-D and
alternative content in these markets. We have also installed ten
of our proprietary XD auditoriums in our international theatres
and have plans to install approximately 20 to 25 additional XD
auditoriums internationally during the remainder of 2011.
Commitment to Digital Innovation. Our
commitment to technological innovation has resulted in us having
1,939 digital auditoriums in the U.S. as of March 31,
2011, 1,419 of which are
3-D
compatible. We also had 256 digital auditoriums in our
international markets as of March 31, 2011, all of which
are 3-D
compatible. See further discussion of our digital expansion at
Conversion to Digital Projection Technology. We are
planning to convert 100% of our worldwide circuit to digital
projection technology, approximately
40-50% of
which will be
3-D
compatible. We also plan to expand our XD auditorium footprint
in various markets throughout the U.S. and in select
international markets, which offers our patrons a premium
movie-viewing experience.
67
Theatre
Operations
As of March 31, 2011, we operated 431 theatres and
4,941 screens in 39 states and 13 Latin American
countries. Our theatres in the U.S. are primarily located
in mid-sized U.S. markets, including suburbs of major
metropolitan areas. We believe these markets are generally less
competitive and generate high, stable margins. Our theatres in
Latin America are primarily located in major metropolitan
markets, which we believe are generally underscreened. The
following tables summarize the geographic locations of our
theatre circuit as of March 31, 2011.
United
States Theatres
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
State
|
|
Theatres
|
|
|
Screens
|
|
|
Texas
|
|
|
79
|
|
|
|
1,030
|
|
California
|
|
|
61
|
|
|
|
740
|
|
Ohio
|
|
|
19
|
|
|
|
213
|
|
Utah
|
|
|
14
|
|
|
|
177
|
|
Nevada
|
|
|
10
|
|
|
|
154
|
|
Illinois
|
|
|
9
|
|
|
|
128
|
|
Colorado
|
|
|
8
|
|
|
|
127
|
|
Oregon
|
|
|
7
|
|
|
|
102
|
|
Kentucky
|
|
|
7
|
|
|
|
87
|
|
Arizona
|
|
|
6
|
|
|
|
90
|
|
Pennsylvania
|
|
|
6
|
|
|
|
89
|
|
Oklahoma
|
|
|
6
|
|
|
|
71
|
|
Florida
|
|
|
5
|
|
|
|
98
|
|
Louisiana
|
|
|
5
|
|
|
|
74
|
|
Indiana
|
|
|
5
|
|
|
|
48
|
|
New Mexico
|
|
|
4
|
|
|
|
54
|
|
Virginia
|
|
|
4
|
|
|
|
52
|
|
North Carolina
|
|
|
4
|
|
|
|
41
|
|
Mississippi
|
|
|
3
|
|
|
|
41
|
|
Iowa
|
|
|
3
|
|
|
|
37
|
|
Arkansas
|
|
|
3
|
|
|
|
36
|
|
Washington
|
|
|
2
|
|
|
|
30
|
|
Georgia
|
|
|
2
|
|
|
|
27
|
|
New York
|
|
|
2
|
|
|
|
27
|
|
South Dakota
|
|
|
2
|
|
|
|
26
|
|
South Carolina
|
|
|
2
|
|
|
|
22
|
|
West Virginia
|
|
|
2
|
|
|
|
22
|
|
Maryland
|
|
|
1
|
|
|
|
24
|
|
Kansas
|
|
|
1
|
|
|
|
20
|
|
Alaska
|
|
|
1
|
|
|
|
16
|
|
Michigan
|
|
|
1
|
|
|
|
16
|
|
New Jersey
|
|
|
1
|
|
|
|
16
|
|
Missouri
|
|
|
1
|
|
|
|
15
|
|
Tennessee
|
|
|
1
|
|
|
|
14
|
|
Wisconsin
|
|
|
1
|
|
|
|
14
|
|
Massachusetts
|
|
|
1
|
|
|
|
12
|
|
Delaware
|
|
|
1
|
|
|
|
10
|
|
Minnesota
|
|
|
1
|
|
|
|
8
|
|
Montana
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
292
|
|
|
|
3,816
|
|
|
|
|
|
|
|
|
|
|
68
International
Theatres
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
Country
|
|
Theatres
|
|
|
Screens
|
|
|
Brazil
|
|
|
49
|
|
|
|
409
|
|
Mexico
|
|
|
31
|
|
|
|
296
|
|
Colombia
|
|
|
13
|
|
|
|
74
|
|
Central
America(1)
|
|
|
12
|
|
|
|
83
|
|
Chile
|
|
|
11
|
|
|
|
87
|
|
Argentina
|
|
|
10
|
|
|
|
80
|
|
Peru
|
|
|
9
|
|
|
|
70
|
|
Ecuador
|
|
|
4
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
139
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Honduras, El Salvador, Nicaragua, Costa Rica, Panama
and Guatemala. |
We first entered Latin America when we began operating movie
theatres in Chile in 1993 and Mexico in 1994. Since then,
through our focused international strategy, we have developed
into the most geographically diverse theatre circuit in the
region. We have balanced our risk through a diversified
international portfolio, currently operating theatres in twelve
of the fifteen largest metropolitan areas in Latin America. In
addition, we have achieved significant scale in Brazil and
Mexico, the two largest Latin American economies, with
409 screens in Brazil and 296 screens in Mexico as of
March 31, 2011.
We believe that certain markets within Latin America continue to
be underserved as penetration of movie screens per capita in
Latin American markets is substantially lower than in the
U.S. and European markets. We will continue to build and
expand our presence in underserved international markets, with
emphasis on Latin America, and fund our expansion primarily with
cash flow generated in those markets. We are able to mitigate
cash flow exposure to currency fluctuations by using local
currencies to collect a majority of our revenues and fund a
majority of the costs of our international operations. Our
geographic diversity throughout Latin America has allowed us to
maintain consistent revenue growth, notwithstanding currency and
economic fluctuations that may affect any particular market. Our
international revenues were approximately $564.2 million
during 2010 compared to $421.8 million during 2009.
Film
Licensing
In the domestic marketplace, our film department negotiates with
film distributors, which are made up of the traditional major
film companies, specialized and art divisions of some of these
major film companies, and many other independent film
distributors. The film distributors are responsible for
determining film release dates, the related marketing campaigns
and the expenditures related to marketing materials, television
spots and other advertising outlets. The marketing campaign of
each movie may include tours of the actors in the movies and
coordination of articles and features about each movie. We are
responsible for booking the films in negotiated film zones,
which are either free zones or competitive zones. In free zones,
movies can be booked without regard to the location of another
exhibitor within that area. In competitive zones, the
distributor allocates their movies to the exhibitors located in
that area generally based on demographics and grossing potential
of that particular area. We are the sole exhibitor in
approximately 91% of the 246 film zones in which our first run
U.S. theatres operate. In film zones where there is no
direct competition from other theatres, we select those films
that we believe will be the most successful from those offered
to us by film distributors.
Internationally, our local film personnel negotiate with local
offices of major film distributors as well as local film
distributors to license films for our international theatres. In
the international marketplace, films are not allocated to a
single theatre in a geographic film zone, but played by
competitive theatres simultaneously. Our theatre personnel focus
on providing excellent customer service, and we provide a modern
facility with the most
up-to-date
sound systems, comfortable stadium style seating and other
amenities typical of modern
69
American-style multiplexes, which we believe gives us a
competitive advantage in markets where competing theatres play
the same films. Of the 1,125 screens we operate in
international markets, approximately 75% have no direct
competition from other theatres.
Our film rental fees in the U.S. are generally based on a
films box office receipts and either mutually agreed upon
firm terms, a sliding scale formula, or a mutually agreed upon
settlement, subject to the film licensing agreement. Under a
firm terms formula, we pay the distributor a mutually agreed
upon specified percentage of box office receipts. Under a
sliding scale formula, we pay a percentage of box office
revenues using a pre-determined matrix that is based upon box
office performance of the film. The settlement process allows
for negotiation of film rental fees upon the conclusion of the
film run based upon how the film performs. Internationally, our
film rental fees are primarily based on mutually agreed upon
firm terms that are based upon a specified percentage of box
office receipts.
We regularly play art and independent films at many of our
U.S. theatres, providing a variety of film choices to our
patrons. Bringing art and independent films to our theatres
allows us to benefit from the growth in the art and independent
market driven by the more mature patron and increased interest
in art, foreign and documentary films. High profile film
festivals, such as the Sundance Film Festival, have contributed
to interest in this genre. Recent hits such as The Kids are
Alright, Black Swan, and The Kings Speech have
demonstrated the box office potential of art and independent
films.
Food,
Beverages and Amusements
Concession sales are our second largest revenue source,
representing approximately 30% of total revenues for each of the
years ended December 31, 2008, 2009 and 2010. Concession
sales have a much higher margin than admissions sales. We have
devoted considerable management effort to increase concession
sales and improve operating margins. These efforts include
implementation of the following strategies:
|
|
|
|
|
Optimization of product mix. We offer
concession products that primarily include various sizes and
types of popcorn, soft drinks, coffees, juices, candy and
quickly-prepared food, such as hot dogs, nachos and ice cream.
Different varieties and flavors of candy and drinks are offered
at theatres based on preferences in that particular market. Our
point of sale system allows us to monitor product sales and make
changes to product mix when necessary, which also allows us to
take advantage of national product launches. Specially priced
combos and promotions are introduced on a regular basis to
increase average concession purchases as well as to attract new
buyers. We periodically offer our loyal patrons opportunities to
receive a discount on certain products by offering reusable
popcorn tubs and soft drink cups that can be refilled at a
discount off the regular price.
|
|
|
|
Staff training. Employees are continually
trained in suggestive-selling and
upselling techniques. Consumer promotions conducted
at the concession stand usually include a motivational element
that rewards theatre staff for exceptional sales of certain
promotional items.
|
|
|
|
Theatre design. Our theatres are designed to
optimize efficiencies at the concession stands, which include
multiple service stations throughout a theatre to facilitate
serving more customers more quickly. We strategically place
large concession stands within theatres to heighten visibility,
reduce the length of concession lines, and improve traffic flow
around the concession stands. We have self-service concession
areas in many of our domestic theatres, which allow customers to
select their own refreshments and proceed to the cash register
when they are ready. This design allows for efficient service,
enhanced choices and superior visibility of concession items.
Concession designs in many of our new domestic theatres have
incorporated the self-service model.
|
|
|
|
Cost control. We negotiate prices for
concession supplies directly with concession vendors and
manufacturers to obtain volume rates. Concession supplies are
distributed through a national distribution network. The
concession distributor supplies and distributes inventory to the
theatres, who place orders directly with the vendors to
replenish stock. We conduct a weekly inventory of all concession
products at each theatre to ensure proper stock levels are
maintained for business.
|
70
Pre-Feature
Screen Advertising
In our domestic markets, our theatres are part of the in-theatre
digital network operated by NCM. NCMs primary activities
that impact our theatres include: advertising through its
branded First Look pre-feature entertainment
program, lobby promotions and displays; live and pre-recorded
networked and single-site meetings and events; and live and
pre-recorded concerts, sporting events and other non-film
entertainment programming. We believe that the reach, scope and
digital delivery capability of NCMs network provides an
effective platform for national, regional and local advertisers
to reach an engaged audience. We receive a monthly theatre
access fee for participation in the NCM network. In addition, we
are entitled to receive mandatory quarterly distributions of
excess cash from NCM. As of March 31, 2011, we had an
approximate 15.8% ownership interest in NCM. See Note 6 to
the condensed consolidated financial statements incorporated by
reference into this prospectus.
In many of our international markets, we outsource our screen
advertising to local companies who have established
relationships with local advertisers that provide similar
benefits as NCM. The terms of our international screen
advertising contracts vary by country. In some locations, we
earn a percentage of the screen advertising revenues collected
by our partners and in other locations we are paid a fixed
annual fee for access to our screens.
Conversion
to Digital Projection Technology
The motion picture exhibition industry began its conversion to
digital projection technology during 2009.
Participation
in Digital Cinema Implementation Partners
During 2007, we, AMC and Regal entered into DCIP as a joint
venture, to facilitate the implementation of digital cinema in
our U.S. theatres and to establish agreements with major
motion picture studios for the financing of digital cinema.
Digital cinema developments are managed by DCIP, subject to
certain approvals by us, AMC and Regal with each of us having an
equal voting interest in DCIP. DCIPs wholly-owned
subsidiary, Kasima, LLC, or Kasima, executed long-term
deployment agreements with all of the major motion picture
studios, under which Kasima receives a virtual print fee from
such studios for each digital presentation. In accordance with
these agreements, the digital projection systems deployed by
Kasima comply with the technology and security specifications
developed by the Digital Cinema Initiatives studio consortium.
Kasima leases digital projection systems to us, AMC and Regal
under master lease agreements that have an initial term of
12 years.
On March 10, 2010, we signed a master lease agreement and
other related agreements (collectively the
agreements) with Kasima. Upon signing these
agreements, we contributed cash and our existing digital
projection systems to DCIP. Subsequent to the contributions, we
had a 33% voting interest in DCIP and a 24.3% economic interest
in DCIP. As of March 31, 2011, we had 1,939 digital
auditoriums in the U.S., 1,419 of which are capable of
exhibiting
3-D content.
We ultimately expect to install digital projection systems in
all of our auditoriums, with approximately
40-50% being
3-D
compatible.
International
Markets
In our international markets, we continue to convert our
auditoriums to digital projection technology. The digital
projection systems we deploy are generally funded with operating
cash flows generated by each international country. As of
March 31, 3011, we had 256 digital auditoriums in our
international markets, all of which are capable of exhibiting
3-D content.
Similar to our domestic markets, we expect to install digital
projection systems in all of our international auditoriums.
Marketing
In the U.S., we rely on Internet advertising and also newspaper
directory film schedules. Radio and television advertising spots
are used to promote certain motion pictures and special events.
We exhibit previews of coming attractions and films we are
currently playing as part of our pre-feature program. We offer
71
patrons access to movie times, the ability to buy and print
their tickets at home and purchase gift cards at our website
www.cinemark.com. Customers subscribing to our
weekly email receive targeted information about current and
upcoming films at their preferred Cinemark theatre(s), including
details about advanced tickets, special events, concerts and
live broadcasts; as well as contests, promotions, and exclusive
coupons for concession savings. We partner with film
distributors to use monthly web contests to drive traffic to our
website and to ensure that customers visit often. In addition,
we work with all of the film distributors on a regular basis to
promote their films with local, regional and national programs
that are exclusive to our theatres. These programs may involve
customer contests, cross-promotions with the media and third
parties and other means to increase patronage for a particular
film showing at one of our theatres. We have also developed an
iPhone application in the U.S. that allows patrons to check
showtimes and purchase tickets.
Internationally, we exhibit upcoming and current film previews
on screen, we partner with film distributors for certain
promotions and advertise our new locations through various forms
of media and events. We partner with large multi-national
corporations in the large metropolitan areas in which we have
theatres to promote our brand, our image and to increase
attendance levels at our theatres. Our customers are encouraged
to register on our Web site to receive weekly information by
email for showtime information, invitations to special
screenings, sponsored events and promotional information. In
addition, our customers can request to receive showtime
information on their cell phones. We also have loyalty programs
in some of our international markets that allow customers to pay
a nominal fee for a membership card that provides them with
certain admissions and concession discounts. In addition, we
have introduced an iPhone application in Brazil ranking among
the top ten downloads in Brazils local Apple stores. The
application allows consumers to check showtimes and purchase
tickets for our Brazil theatres.
Our domestic and international marketing departments also focus
on maximizing ancillary revenue, which includes the sale of our
gift cards and our SuperSaver discount tickets. We market these
programs to such business representatives as realtors, human
resource managers, incentive program managers and hospital and
pharmaceutical personnel. Gift cards can be purchased for
certain of our locations at our theatres or online through our
Web site, www.cinemark.com. SuperSavers are also
sold online at www.cinemark.com or via phone, fax
or email by our local corporate offices and are also available
at certain retailers in the U.S.
Online
Sales
Our patrons may purchase advance tickets for all of our domestic
screens and approximately seventy-five percent of our
international screens by accessing our corporate Web site at
www.cinemark.com. Advance tickets may also be
purchased for our domestic screens at
www.fandango.com. Our iPhone applications in the
U.S. and Brazil currently offer patrons the ability to
purchase tickets. Our Internet initiatives help improve customer
satisfaction, allowing patrons who purchase tickets over the
Internet to often bypass lines at the box office by printing
their tickets at home or picking up their tickets at kiosks
located at the theatre.
Point of
Sale Systems
We have developed our own proprietary point of sale system to
enhance our ability to maximize revenues, control costs and
efficiently manage operations. The system is currently installed
in all of our U.S. theatres. The point of sale system
provides corporate management with real-time admissions and
concession revenues data and reports to allow for timely changes
to movie schedules, including extending film runs, increasing
the number of screens on which successful movies are being
played, or substituting films when gross receipts do not meet
expectations. Real-time seating, as well as reserved seating,
and box office information is available to box office personnel,
preventing overselling of a particular film and providing faster
and more accurate responses to customer inquiries regarding
showtimes and available seating. The system tracks concession
sales by product, provides in-theatre inventory reports for
efficient inventory management and control, offers numerous
ticket pricing options, connects with digital concession signage
for real-time pricing modifications, integrates Internet ticket
sales and processes credit card transactions. Barcode scanners,
pole displays, touch screens, credit card readers and other
equipment are integrated with the system to enhance its
functions and provide print at home and mobile ticketing. In our
international locations, we currently use other point of sale
systems that have been developed by third parties, which have
been certified
72
as compliant with applicable governmental regulations and
provide generally the same capabilities as our proprietary point
of sale system.
Competition
We are a leader in the motion picture exhibition industry in
terms of both attendance and the number of screens in operation.
We compete against local, regional, national and international
exhibitors with respect to attracting patrons, licensing films
and developing new theatre sites.
We are the sole exhibitor in approximately 91% of the 246 film
zones in which our first run U.S. theatres operate. In film
zones where there is no direct competition from other theatres,
we select those films that we believe will be the most
successful from those offered to us by film distributors. Where
there is competition, the distributor allocates their movies to
the exhibitors located in that area generally based on
demographics and grossing potential of that particular area. Of
the 1,125 screens we operate outside of the U.S.,
approximately 75% of those screens have no direct competition
from other theatres. In areas where we face direct competition,
our success in attracting patrons depends on location, theatre
capacity, quality of projection and sound equipment, film
showtime availability, customer service quality, and ticket
prices. The competition for film licensing in the U.S. is
dependent upon factors such as the theatres location and
its demographics, the condition, capacity and revenue potential
of each theatre, and licensing terms.
We compete for new theatre sites with other movie theatre
exhibitors as well as other entertainment venues, with securing
a potential site being dependent upon factors such as committed
investment and resources, theatre design and capacity, revenue
and patron potential, and financial stability.
We also face competition from a number of other motion picture
exhibition delivery systems, such as DVDs, network and
syndicated television, video on-demand,
pay-per-view
television and the Internet. We also face competition from other
forms of entertainment competing for the publics leisure
time and disposable income, such as concerts, theme parks and
sporting events.
Corporate
Operations
Our corporate headquarters is located in Plano, Texas. Personnel
at our corporate headquarters provide oversight for our domestic
and international theatres. Domestic personnel at our corporate
headquarters include our executive team and department heads in
charge of film licensing, concessions, theatre operations,
theatre construction and maintenance, real estate, human
resources, legal, finance and accounting, audit, information
systems support and marketing. Our U.S. operations are
divided into 16 regions, primarily organized geographically,
each of which is headed by a region leader.
International personnel at our corporate headquarters include
our President of Cinemark International, L.L.C. and department
heads in charge of film licensing, concessions, theatre
operations, theatre construction, real estate, legal, audit,
information systems and accounting. We have eight regional
offices in Latin America responsible for the local management of
theatres in thirteen individual countries (Honduras, El
Salvador, Nicaragua, Costa Rica, Panama and Guatemala are
operated out of one Central American regional office). Each
regional office is headed by a general manager and includes
personnel in film licensing, marketing, human resources,
information systems, operations and accounting. We have a chief
financial officer in both Brazil and Mexico, which are our two
largest international markets. The regional offices are staffed
with experienced personnel from the region to mitigate cultural
and operational barriers.
Employees
We have approximately 14,600 employees in the U.S.,
approximately 10% of whom are full time employees and 90% of
whom are part time employees. We have approximately
7,400 employees in our international markets, approximately
63% of whom are full time employees and approximately 37% of
whom are part time employees. Some of our U.S. employees
are represented by unions under collective bargaining
agreements, and some of our international locations are subject
to union regulations. We regard our relations with our employees
to be satisfactory.
73
Regulations
The distribution of motion pictures is largely regulated by
federal and state antitrust laws and has been the subject of
numerous antitrust cases. The manner in which we can license
films from certain major film distributors is subject to consent
decrees resulting from these cases. Consent decrees bind certain
major film distributors and require the films of such
distributors to be offered and licensed to exhibitors, including
us, on a
theatre-by-theatre
and
film-by-film
basis. Consequently, exhibitors cannot enter into long-term
arrangements with major distributors, but must negotiate for
licenses on a
theatre-by-theatre
and
film-by-film
basis.
We are subject to various general regulations applicable to our
operations including the ADA. We develop new theatres to be
accessible to the disabled and we believe we are substantially
compliant with current regulations relating to accommodating the
disabled. Although we believe that our theatres comply with the
ADA, we have been a party to lawsuits which claim that our
handicapped seating arrangements do not comply with the ADA or
that we are required to provide captioning for patrons who are
deaf or are severely hearing impaired.
Our theatre operations are also subject to federal, state and
local laws governing such matters as wages, working conditions,
citizenship, health and sanitation requirements and licensing.
Financial
Information About Geographic Areas
We currently have operations in the U.S., Brazil, Mexico, Chile,
Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador,
Nicaragua, Costa Rica, Panama and Guatemala, which are reflected
in the consolidated financial statements. See Note 23 to
the consolidated financial statements incorporated by reference
into this prospectus for segment information and financial
information by geographic area.
Properties
United
States
As of March 31, 2011, in the U.S., we operated
250 theatres with 3,225 screens pursuant to leases and
own the land and building for 42 theatres with
591 screens. Our leases are generally entered into on a
long-term basis with terms, including optional renewal periods,
generally ranging from 20 to 45 years. As of March 31,
2011, approximately 9% of our theatre leases in the U.S.,
covering 23 theatres with 174 screens, have remaining
terms, including optional renewal periods, of less than six
years. Approximately 10% of our theatre leases in the U.S.,
covering 24 theatres with 199 screens, have remaining
terms, including optional renewal periods, of between six and
15 years and approximately 81% of our theatre leases in the
U.S., covering 203 theatres with 2,852 screens, have
remaining terms, including optional renewal periods, of more
than 15 years. The leases generally provide for a fixed
monthly minimum rent payment, with certain leases also subject
to additional percentage rent if a target annual revenue level
is achieved. We also lease an office building in Plano, Texas
for our corporate headquarters.
International
As of March 31, 2011, internationally, we operated
139 theatres with 1,125 screens, all of which are
leased. Our international leases are generally entered into on a
long term basis with terms, including optional renewal periods,
generally ranging from 5 to 40 years. The leases generally
provide for contingent rental based upon operating results with
an annual minimum. As of March 31, 2011, approximately 5%
of our international theatre leases, covering seven theatres
with 54 screens, have a remaining term, including optional
renewal periods, of less than six years. Approximately 42% of
our international theatre leases, covering 58 theatres and
476 screens, have remaining terms, including optional
renewal periods, of between six and 15 years and
approximately 53% of our international theatre leases, covering
74 theatres and 595 screens, have remaining terms,
including optional renewal periods, of more than 15 years.
We also lease office space in eight regions in Latin America for
our local management.
See Note 22 to the consolidated financial statements
incorporated by reference into this prospectus for information
regarding our minimum lease commitments. We periodically review
the profitability of each of
74
our theatres, particularly those whose lease terms are nearing
expiration, to determine whether to continue its operations.
Legal
Proceedings
From time to time, we are involved in other various legal
proceedings arising from the ordinary course of our business
operations, such as personal injury claims, employment matters,
landlord-tenant disputes, patent claims and contractual
disputes, some of which are covered by insurance or by
indemnification from vendors. We believe our potential liability
with respect to these types of proceedings is not material,
individually or in the aggregate, to our financial position,
results of operations and cash flows.
75
MANAGEMENT
Executive
Officers
Set forth below is the name, age, position and a brief account
of the business experience of our directors and executive
officers:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Lee Roy Mitchell
|
|
|
74
|
|
|
Chairman of the Board
|
Alan W. Stock
|
|
|
50
|
|
|
Chief Executive Officer; Director
|
Timothy Warner
|
|
|
66
|
|
|
President; Chief Operating Officer; Director
|
Robert Copple
|
|
|
52
|
|
|
Executive Vice President; Treasurer;
Chief Financial Officer; Assistant Secretary; Director
|
Valmir Fernandes
|
|
|
50
|
|
|
President-Cinemark International L.L.C.
|
Michael Cavalier
|
|
|
44
|
|
|
Senior Vice President-General Counsel and Secretary
|
Tom Owens
|
|
|
54
|
|
|
Senior Vice President-Real Estate
|
Steve Bunnell
|
|
|
51
|
|
|
Senior Vice President-Film Licensing
|
Lee Roy Mitchell has served as Chairman of the Board
since March 1996 and as a director since our inception in 1987.
Mr. Mitchell served as our Chief Executive Officer from our
inception until December 2006. Mr. Mitchell was Vice
Chairman of the Board from March 1993 until March 1996 and was
President from our inception in 1987 until March 1993. From 1985
until 1987, Mr. Mitchell served as President and Chief
Executive Officer of a predecessor corporation.
Mr. Mitchell currently serves on the board of directors of
Texas Capital Bancshares, Inc. and NCMI. Mr. Mitchell is
also on the board of directors of the National Association of
Theatre Owners, Champions for Life and Dallas County Community
College. Mr. Mitchell has been engaged in the motion
picture exhibition business for over 50 years.
Mr. Mitchell is the
brother-in-law
of Walter Hebert, III, the Senior Vice
President Purchasing of the Company.
Alan W. Stock has served as Chief Executive Officer since
December 2006. Mr. Stock served as President from March
1993 until December 2006 and as Chief Operating Officer from
March 1992 until December 2006. Mr. Stock also served as a
director from April 1992 until April 2004. Mr. Stock was
Senior Vice President from June 1989 until March 1993.
Mr. Stock has been engaged in the motion picture exhibition
business for 30 years.
Timothy Warner has served as President and Chief
Operating Officer since December 2006. Mr. Warner served as
Senior Vice President from May 2002 until December 2006 and
President of Cinemark International, L.L.C. from August 1996
until December 2006. Mr. Warner has been engaged in the
motion picture exhibition business for 43 years.
Robert Copple has served as Executive Vice President
since January 2007 and as Senior Vice President, Treasurer,
Chief Financial Officer and Assistant Secretary since August
2000 and also served as a director from September 2001 until
April 2004. Mr. Copple was acting Chief Financial Officer
from March 2000 until August 2000. From August 1997 until March
2000, Mr. Copple was President of PBA Development, Inc., an
investment management and venture capital company controlled by
Mr. Mitchell. From June 1993 until July 1997,
Mr. Copple was Director of Finance of our company. Prior to
joining our Company, Mr. Copple was a Senior Manager with
Deloitte & Touche, LLP where he was employed from 1982
until 1993.
Valmir Fernandes has served as President of Cinemark
International since March 2007. From 1996 until March 2007,
Mr. Fernandes was the general manager of Cinemark Brasil
S.A.
Michael Cavalier has served as Senior Vice
President-General Counsel since January 2006, as Vice
President-General Counsel since August 1999, as Assistant
Secretary from May 2001 until December 2003 and as Secretary
since December 2003. From July 1997 until July 1999,
Mr. Cavalier was General Counsel of our Company and from
July 1993 until July 1997 was Associate General Counsel.
76
Tom Owens has served as Senior Vice President-Real Estate
since January 2007, as Vice President-Development since December
2003 and as Director of Real Estate since April 2002. From 1998
until April 2001, Mr. Owens was President of NRE, a company
he founded that specialized in the development and financing of
motion picture theatres. From 1996 until 1998, Mr. Owens
served as President of Silver Cinemas International, Inc., a
motion picture exhibitor. From 1993 until 1996, Mr. Owens
served as our Vice President-Development.
Steve Bunnell has served as Senior Vice President-Film
Licensing since May 2009. From March 2006 until May 2009,
Mr. Bunnell was the Chairman of Distribution of The
Weinstein Company, an independent film studio. From May 1993
until February 2006, Mr. Bunnell was the Senior Vice
President and Head Film Buyer of Loews Cineplex Entertainment,
the oldest theatre chain in North America until its merger with
AMC Entertainment in 2006.
Composition
of the Board of Directors
Our board of directors consists of four members. The individuals
currently serving on the board are Lee Roy Mitchell, Alan Stock,
Tim Warner and Robert Copple. The Chairman of the Board is Lee
Roy Mitchell. Our board of directors is elected annually, and
each director holds office for a one-year term. Our directors
receive no additional compensation for their service as
directors.
The Company does not have a standing audit committee, nominating
committee or compensation committee; however, such functions are
conducted by committees of the Cinemark Holdings board, or the
Holdings Board.
Cinemark
Holdings Directors
The Holdings Board is currently comprised of ten members.
Cinemark Holdingss Second Amended and Restated Certificate
of Incorporation provides that the Holdings Board consists of
three classes of directors, designated as Class I,
Class II and Class III, and the members of each class
are elected to serve a three-year term, with the terms of office
of each class ending in successive years. On April 9, 2007,
immediately prior to Cinemark Holdingss initial public
offering, it entered into a director nomination agreement, or
the Director Nomination Agreement, with certain stockholders
permitting those certain stockholders to designate persons for
appointment or nomination for election to the Holdings Board.
Pursuant to the Director Nomination Agreement, MDCP has the
right to designate five nominees to the Holdings Board, the
Mitchell Investors (as defined in the Director Nomination
Agreement) have the right to designate two nominees to the
Holdings Board, Syufy Enterprises, LP had the right to designate
one nominee to the Holdings Board and the Quadrangle Investors
(as defined in the Director Nomination Agreement) had the right
to designate one nominee to the Holdings Board. Effective
August 25, 2010 and December 9, 2009, Syufy
Enterprises and Quadrangle Investors, respectively, no longer
have a right to designate a nominee to the Holdings Board as
they have sold their beneficial ownership in the common stock of
Cinemark Holdings. However, Raymond Syufy, a former nominee of
Syufy Enterprises and Peter Ezersky, a former nominee of the
Quadrangle Investors are continuing as Class III and
Class II directors respectively, subject to their
re-election upon the expiry of their terms.
77
Set forth below is the name, age, position and a brief account
of the business experience of the directors of Cinemark Holdings:
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Lee Roy Mitchell
|
|
|
74
|
|
|
|
Chairman; Director
|
|
Benjamin D. Chereskin
|
|
|
52
|
|
|
|
Director
|
|
Vahe A. Dombalagian
|
|
|
37
|
|
|
|
Director
|
|
Peter R. Ezersky
|
|
|
50
|
|
|
|
Director
|
|
Enrique F. Senior
|
|
|
68
|
|
|
|
Director
|
|
Raymond W. Syufy
|
|
|
48
|
|
|
|
Director
|
|
Carlos M. Sepulveda
|
|
|
54
|
|
|
|
Director
|
|
Roger T. Staubach
|
|
|
69
|
|
|
|
Director
|
|
Donald G. Soderquist
|
|
|
77
|
|
|
|
Director
|
|
Steven P. Rosenberg
|
|
|
52
|
|
|
|
Director
|
|
Lee Roy Mitchell is our founder. He has served as
Chairman since March 1996 and as a director since our inception
in 1987. Mr. Mitchell served as our Chief Executive Officer
from our inception in 1987 until December 2006.
Mr. Mitchell was Vice Chairman from March 1993 until March
1996 and was President from our inception in 1987 until March
1993. Mr. Mitchell currently serves on the board of
directors of Texas Capital Bancshares, Inc. and NCMI.
Mr. Mitchells other affiliations include service on
the board of directors of the National Association of Theatre
Owners, Champions for Life and Dallas County Community College.
Mr. Mitchell is the
brother-in-law
of Walter Hebert, III, our Senior Vice-President-Purchasing.
Benjamin D. Chereskin has served as a director since
April 2004 and is the chairperson of the nominating and
corporate governance committee and the compensation committee of
the Holdings Board. Mr. Chereskin is President of Profile
Management LLC, or Profile Management, which he founded in
October 2009. Prior to founding Profile Management,
Mr. Chereskin was a Managing Director and Member of MDP
from 1993 until October 2009 having co-founded the firm in 1993.
Prior to co-founding MDP, Mr. Chereskin was with First
Chicago Venture Capital for nine years. Mr. Chereskin
currently serves on the board of directors of Tuesday Morning
Corporation. Mr. Chereskins other affiliations
include service on the board of directors of BF Bolthouse Holdco
LLC, CDW Corporation, KIPP Chicago and board of trustees of The
University of Chicago Medical Center and The University of
Chicago Laboratory Schools.
Vahe A. Dombalagian has served as a director since April
2004 and is a member of the nominating and corporate governance
committee and the compensation committee of the Holdings Board.
Mr. Dombalagian is a Managing Director of Madison Dearborn
Partners, LLC, or MDP, and has been with the Madison Dearborn
entities since July 2001. Prior to joining Madison Dearborn,
Mr. Dombalagian was with Texas Pacific Group and Bear,
Stearns & Co., Inc. Mr. Dombalagians other
affiliations include service on the board of directors of
La Fitness International, LLC, Nuveen Investments, Inc. and
TransUnion Corporation.
Peter R. Ezersky has served as a director since December
2004 and is a member of the audit committee of the Holdings
Board. Since 2000, Mr. Ezersky has been the Managing
Principal of Quadrangle Group LLC, or the Quadrangle Group, a
private equity firm, focused on the firms media and
communications private equity business. Prior to the formation
of the Quadrangle Group in March 2000, Mr. Ezersky was a
Managing Director of Lazard Frères & Co. LLC and
headed the firms worldwide Media and Communications Group.
Mr. Ezersky currently serves on the board of directors of
Dice Holdings, Inc. (compensation and nominating and corporate
governance committees) and was a member of the board of
directors of Protection One, Inc. from October 2009 to June 2010.
Enrique F. Senior has served as a director since April
2004. Mr. Senior is a Managing Director of
Allen & Company LLC, a boutique investment bank, and
has been employed by the firm since 1972. Mr. Senior serves
on the board of directors of Grupo Televisa S.A. de C.V., Coca
Cola FEMSA S.A. de C.V, FEMSA S.A. de C.V. and Univision
Communications, Inc. He has served as a financial advisor to
several
78
corporations including
Coca-Cola
Company, General Electric, CapCities/ABC, Columbia Pictures and
QVC Networks.
Raymond W. Syufy has served as a director since October
2006. Mr. Syufy began working for Century Theatres, Inc. or
Century Theatres, in 1977 and held positions in each of the
major departments within Century Theatres. In 1994,
Mr. Syufy was named president of Century Theatres and was
later appointed chief executive officer and chairman of the
board of directors of Century Theatres. Mr. Syufy resigned
as an officer and director of Century Theatres upon the
consummation of our acquisition of Century Theatres in 2006.
Since then Mr. Syufy has presided as chief executive
officer of Syufy Enterprises, a retail and real estate holding
company with operations in California, Nevada, Arizona,
Colorado, and Texas.
Carlos M. Sepulveda has served as a director since June
2007. Mr. Sepulveda serves as chairman of the audit
committee of the Holdings Board and is designated as the audit
committee financial expert. Mr. Sepulveda has been the
President and Chief Executive Officer of Interstate Battery
System International, Inc., or Interstate Battery, a seller of
automotive and commercial batteries, since March 2004 and was
its Executive Vice President from 1995 until 2004. Prior to
joining Interstate Battery in 1990, he was an audit partner with
the accounting firm of KPMG Peat Marwick in Austin, New York and
San Francisco for 11 years. Mr. Sepulvedas
other affiliations include serving as the chairman of the board
of Triumph Consolidated Companies.
Roger T. Staubach has served as a director since June
2007. Since July 2008, Mr. Staubach has been the Executive
Chairman, Americas, of Jones Lang LaSalle, a financial and
professional services firm specializing in real estate services
and investment management. Prior to joining Jones Lang LaSalle,
Mr. Staubach was the Executive Chairman of The Staubach
Company, a global commercial real estate strategy and services
firm founded by him in 1982. Before establishing The Staubach
Company, Mr. Staubach played professional football from
1969 to 1979 with the Dallas Cowboys and was the Chairman of the
Host Committee for Super Bowl XLV. He is also involved with The
Childrens Cancer Fund, the United States Naval Academy
Foundation and numerous other civic, charitable and professional
organizations. Mr. Staubach currently serves on the board
of directors of AMR Corporation.
Donald G. Soderquist has served as a director since June
2007. Since 2001, he has been a motivational speaker and
business counselor for OnCourse, LLC, a financial planning and
investment advisory firm. Mr. Soderquist was Senior Vice
Chairman of Wal-Mart Stores, Inc., the worlds largest
retailer, from January 1999 to August 2000. Prior to 1999,
Mr. Soderquist was Vice Chairman and Chief Operating
Officer of Wal-Mart Stores, Inc. from 1988 through 2000 and
served on the board of directors from 1980 through 2002.
Mr. Soderquist is also the founder of Soderquist Center for
Leadership and Ethics at John Brown University.
Mr. Soderquists other affiliations include service on
the board of directors of ARVEST Bank, John Brown University and
the Salvation Army-National.
Steven P. Rosenberg has served as a director since April
2008 and is a member of the audit committee of the Holdings
Board. Mr. Rosenberg is the President of SPR Ventures Inc.,
a private investment firm he founded in 1997, and has been the
President of SPR Packaging LLC, a manufacturer of flexible
packaging, since 2006. From 1992 until 1997, Mr. Rosenberg
was the President of the Arrow division of ConAgra, Inc., a
leading manufacturer of grocery products. Mr. Rosenberg
currently serves on the board of directors of Texas Capital
Bancshares, Inc. and PRGX Global, Inc.
Director
Independence
Based upon the review of the nominating and corporate governance
committee of the Holdings Board, the Holdings Board has
determined, in its business judgment, that (a) the majority
of the Holdings Board is independent, (b) each of
Messrs. Chereskin, Dombalagian, Ezersky, Rosenberg, Senior,
Sepulveda, Soderquist, and Staubach is independent within the
meaning of the rules of the New York Stock Exchange, or the
NYSE, director independence standards, as currently in effect,
(c) each of Messrs. Ezersky, Rosenberg and Sepulveda
meets all applicable requirements of the Commission and NYSE for
membership in the audit committee of the Holdings Board and
(d) Mr. Sepulveda is an audit committee
financial expert as such term is defined in
Item 407(d)(5)(ii) of
Regulation S-K
promulgated by the Commission, and satisfies the NYSEs
financial
79
experience requirements. For purposes of Holdings Board
membership, the Holdings Board has affirmatively determined the
independence of each member of the Holdings Board based on the
independence standards of the NYSE. The bright-line tests for
independence are whether the director:
1. is or has been within the last 3 years an employee
of Cinemark Holdings or an immediate family member is, or has
been within the last three years, an executive officer of
Cinemark Holdings;
2. has received, or has an immediate family member who has
received, during any 12 month period within the last
3 years, more than $120,000 in direct compensation from
Cinemark Holdings (other than director and committee fees and
pension or other forms of deferred compensation for prior
service, provided such compensation is not contingent in any way
on continued service);
3. (a) is a current partner or employee that is
Cinemark Holdingss internal or external auditor; (b) an
immediate family member is a current partner of such a firm;
(c) an immediate family member is a current employee of
such firm and personally works on Cinemark Holdingss
audit; or (d) is or an immediate family member was within
the last 3 years a partner or employee of such a firm and
personally worked on Cinemark Holdingss audit within that
time;
4. is or an immediate family member is, or has been within
the last 3 years, employed as an executive officer of
another company where any of Cinemark Holdingss present
executive officers at the same time serves or has served on that
companys compensation committee; or
5. is a current employee, or an immediate family member is
a current executive officer, of a company that has made payments
to, or received payments from, Cinemark Holdings for property or
services in an amount which, in any of the last 3 fiscal years,
exceeds the greater of $1 million, or 2% of such other
companys consolidated gross revenues.
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
We are a wholly-owned subsidiary of Cinemark Holdings, a
publicly traded company on the NYSE, traded under the symbol
CNK. We do not have a compensation committee. The
compensation committee of the Holdings Board, which we refer to
as the Compensation Committee, is responsible for establishing,
implementing and monitoring Cinemark Holdingss executive
compensation program, including the compensation of our Chairman
of the Board (Lee Roy Mitchell), Chief Executive Officer (Alan
W. Stock), President (Tim Warner), Chief Financial Officer
(Robert Copple) and President Cinemark International
(Valmir Fernandes). We refer to these executives as our named
executive officers and they are the top five most highly
compensated officers. Generally, the types of compensation and
benefits provided to our named executive officers are similar to
those provided to other officers of the Company. These
executives are also the named executive officers and the top
five most highly compensated officers of Cinemark Holdings.
Cinemark Holdings held a non-binding shareholder advisory vote
at its 2011 Annual Meeting of Stockholders to approve the
compensation of Cinemark Holdings named executives. The
shareholder resolution was approved by over 79 percent of
the votes cast. Although the Compensation Committee reviewed the
outcome of the vote, the result did not impact compensation
decisions with respect to our named executive officers.
The compensation discussion and analysis provides important
information regarding our executive compensation program. The
named executive officers are the five executives
whose compensation is detailed in the compensation table. All
members of management, including the named executive officers
are referred to as executive officers.
80
Executive
Summary
Our executive compensation philosophy is to enhance the value of
our stockholders investment and reward and retain
executive talent. The goals of our compensation program are:
|
|
|
|
|
enhance our long term competitive advantage and sustainable
profitability, thereby contributing to the value of our
stockholders investment;
|
|
|
|
attract, motivate, reward and retain high caliber talent who
will direct the Company to increase value for its stockholders;
|
|
|
|
align the executives and stockholders long-term
interests;
|
|
|
|
minimize incentives for risky business practices with short-term
impact; and
|
|
|
|
support our business strategy by defining specific business
criteria and performance targets for executives and rewarding
achievement of these targets.
|
The principal elements of our executive compensation are as
follows:
|
|
|
|
|
base salaries;
|
|
|
|
annual performance-based cash incentive payments; and
|
|
|
|
annual long term equity incentive compensation.
|
Generally, total compensation of all executive officers is
distributed between the three elements. The annual base salary
is the only portion of the compensation guaranteed to the
executive officers and is set by the Compensation Committee in
December of the prior fiscal year. In 2008, the stockholders of
Cinemark Holdings approved the performance-based cash incentive
compensation pursuant to the Cinemark Holdings, Inc. Performance
Bonus Plan, or the Bonus Plan. Incentive compensation under the
Bonus Plan is paid based upon the performance of the Company
during the fiscal year measured against an objective business
criteria and performance factors set up during the first quarter
of the fiscal year by the Compensation Committee. The objective
of the Bonus Plan is to make cash bonus payments annually to
executives provided the Company achieves certain pre-established
metrics.
Long term equity incentive compensation awarded annually
pursuant to the Restated Plan, approved by the stockholders of
Cinemark Holdings in 2008, ties executive compensation to
long-term Company performance. The Company believes that
long-term performance is achieved through an ownership culture
that encourages such performance and aligns the employees
interests with the interests of our stockholders. In addition,
we believe we must be able to attract and retain highly
qualified executive officers as leaders to ensure our success
and that long term equity incentive compensation is a key factor
to attract and retain such officers. In order to achieve our
compensation goals we balance the various elements of our
compensation program. Performance awards entitle recipients to
vest in or acquire shares of Cinemark Holdingss common
stock upon the attainment of specified performance goals over a
three year performance period established by the Compensation
Committee. The grants of performance awards are usually at a
higher percentage of total compensation for the named executive
officers compared to the other executive officers as the named
executive officers have a greater leadership role in directing
the Company. The restricted stock are awarded annually as a
retention incentive. Restricted stock vesting is not tied to
Company performance but have long-term vesting schedules of 50%
each on the second and fourth anniversaries of the grant date,
providing the executive is continuously employed with the
Company through the vest date.
For 2010, the Compensation Committee granted the named executive
officers and certain other executive officers additional shares
of restricted stock and performance shares in the form of
restricted stock units in the form of Cinemark Holdingss
common stock in consideration of the Companys
outperformance of its peer group and the industry and the
leadership shown in not only guiding the Company through, but
increasing its equity value during, the challenging economic
environment over the previous years. The Compensation Committee
determined that the additional awards awarded in 2010 were
appropriate to incentivize these executive officers to continue
to create long term value for the stockholders.
81
Since 2006, Cinemark Holdings has achieved
year-over-year
revenue growth and increased profitability. Over the
four-year
period from 2006 to 2009, Cinemark Holdings achieved the
following:
|
|
|
|
|
average revenue growth of 18% compared to the peer group average
increase of 8%;
|
|
|
|
average earnings per share of $1.15 compared to $0.22 for the
peer group.
|
In 2010, Cinemark Holdings continued its strong performance
record. Cinemark Holdingss revenues for 2010 increased
8.3% to over $2 billion from 2009. Net income of Cinemark
Holdings for 2010 increased to approximately $146 million
from approximately $97 million for 2009.
We achieved these results not only because of factors such as
our disciplined operating philosophy, business model, leading
state-of-the-art
technology and strong customer relationships but because of the
leadership and strong management. Improving our results,
positioning the Company for continued future success as a leader
in the industry and increasing financial returns for our
stockholders require that we foster and retain talent. Led by
Chairman of the Board and founder Lee Roy Mitchell, Chief
Executive Officer Alan W. Stock, President and Chief Operating
Officer Timothy Warner, Chief Financial Officer Robert Copple
and President of Cinemark International Valmir Fernandes, our
management team has 14 to 52 years of theatre operating
experience executing a focused strategy that has led to
consistent operating results. This management team has
successfully navigated the Company through many industry and
economic cycles.
The pie charts below show the percentage composition of the
total direct compensation for each named executive officer for
2010. The percentage of compensation component listed in each
graph is calculated by dividing the value of compensation
received under each category by the total direct compensation.
The performance share percentages have been calculated based on
a target level of achievement as the number of restricted stock
units to vest cannot be determined prior to December 31,
2012.
The base salaries of the named executive officers, except
Mr. Mitchell, were aligned closely to market midpoint.
Mr. Mitchells base salary was between the market
50th and
market
75th
percentiles. The actual performance-based cash incentive
payments received in February 2011 by the named executive
officers for 2010 was between the market
50th and
market
75th
percentiles. Overall, the target total direct compensation of
the named executive officers is below the market midpoint
targeted total direct compensation.
The Compensation Committee believes our executive compensation
program is not only effective at achieving our performance
goals, but reasonable in relation to the programs of our peer
group companies, and balanced in that it encourages our named
executive officers to work for meaningful stockholder returns,
82
without taking unnecessary or excessive risks. The highlights of
our compensation program and compensation governance include:
|
|
|
|
|
Total direct compensation for our named executive officers is
generally targeted to compensate between the
50th and
75th
percentiles of our peer group companies for on-target
performance.
|
|
|
|
Our compensation program for named executive officers rewards
performance while minimizing incentives for risky business
practices with short-term impact.
|
|
|
|
The change of control provisions in our employment agreements
are double trigger.
|
|
|
|
No tax
gross-ups
upon termination of employment due to change of control.
|
|
|
|
Our named executive officers are prohibited from engaging in
hedging transactions in Cinemark Holdingss common stock.
|
The following section discusses the process of determining
executive compensation and the specifics of the elements of
compensation.
Roles
and Responsibilities
Compensation Committee. The
Compensation Committee is responsible for:
|
|
|
|
|
determining the compensation for each of the named executive
officers, and reviewing, evaluating and overseeing the
Companys compensation program;
|
|
|
|
determining the compensation for the other executive officers
and other senior officers it deems appropriate;
|
|
|
|
establishing certain business criteria and performance targets
relevant to compensation for the Chief Executive Officer and
other executive officers and evaluating their performance
against such business criteria and performance targets; and
|
|
|
|
approving the grant of all equity based compensation.
|
The Compensation Committee establishes the compensation of the
Chief Executive Officer without management input, but may be
assisted in this determination by outside compensation
consultants. In establishing the compensation for the executive
officers, the Compensation Committee may consider the
recommendations of the Chief Executive Officer and input
received from a compensation consultant. The Compensation
Committee advises the board of its determination prior to
implementation of annual cash incentive bonus and equity based
awards for the named executive officers and executive officers
it deems appropriate. While the Compensation Committee may
consider input provided by the board, the decisions regarding
performance-based cash incentive compensation and long term
equity incentive compensation are made solely by the
Compensation Committee.
Management. The Chief Executive Officer
conducts an annual review of the aggregate level of our
executive compensation as part of our annual budget review and
annual performance review. This review considers financial and
non-financial criteria to measure our performance against
internal goals and the performance of comparable companies in
the theatrical exhibition industry. Annually, the Chief
Executive Officer provides recommendations to the Compensation
Committee for specific levels of base salary, target levels for
annual performance-based cash incentive payments and long-term
equity based compensation for the executive officers (other than
for the Chief Executive Officer). Management also provides data
with respect to the competitive market for executives and
compensation levels provided by comparable companies, the
compensation practices of companies in the theatrical exhibition
industry and companies of comparable size and financial
performance with whom we may compete for talent.
Compensation Consultant. The
Compensation Committee Charter authorizes the Compensation
Committee to retain one or more compensation consultants to
assist in the evaluation of the Chief Executive Officer or
executive compensation. In 2007, the Company management, with
the approval of the Compensation Committee, engaged an outside
compensation consultant, Longnecker & Associates,
which
83
reviewed and made recommendations to our executive compensation
program. The consultant is independent of management and
provides data (including data provided by management) to the
Compensation Committee for review and determination of
compensation of individual executive officers.
Longnecker & Associates does not provide any other
services to the Company and works with the Companys
management only on matters for which the Compensation Committee
is responsible. The consultant was re-engaged by management to
make recommendations regarding the 2010 compensation levels of
the executive officers based on appropriate peer companies and
market survey data. For 2010, as in previous years, management
provided comparable compensation data from Commission filings
for a peer group of companies, namely, AMC Entertainment, Inc.,
Regal Entertainment Group, Inc., Carmike Cinemas, Inc. and IMAX
Corporation. The Compensation Committee believes, based upon its
experience and knowledge, that the executive compensation
program discussed herein provides the best method to achieve our
executive compensation goal of aligning stockholder interest of
long-term growth while attracting, retaining and motivating key
executive personnel.
Base
Salary
The Compensation Committee seeks to keep base salary competitive
and to establish the minimum levels of compensation that helps
attract and retain qualified executives. Base salaries for the
Chief Executive Officer and the other executive officers are
determined by the Compensation Committee based on a variety of
factors including:
|
|
|
|
|
nature and responsibility of the position;
|
|
|
|
expertise of the individual executive;
|
|
|
|
competitiveness of the market for the executives services;
|
|
|
|
potential for driving the Companys success in the future;
|
|
|
|
peer data;
|
|
|
|
the performance reviews and recommendations of the Chief
Executive Officer (except in the case of his own
compensation); and
|
|
|
|
other judgmental factors deemed relevant by the Compensation
Committee, such as recommendations of the compensation
consultant.
|
The Compensation Committee has not adopted any formula with
specific weightings assigned to any of the factors above. For
the 2010 fiscal year, annual base salaries were reviewed during
the fourth quarter of 2009. Following this review, for 2010,
base salaries for our named executive officers increased 1% over
their respective 2009 base salaries.
Annual
Performance-Based Cash Incentive Compensation
In setting compensation, the Compensation Committee considers
annual cash incentives based on Company performance to be an
important tool in motivating and rewarding the performance of
our executive officers. Performance-based cash incentive
compensation is paid to our executive officers pursuant to our
Bonus Plan to align executive pay with the financial performance
of the Company. Under the Bonus Plan, during the first quarter
of the fiscal year, the Compensation Committee establishes
objective business criteria and performance factors for the
Company for the fiscal year and based upon the performance of
the Company during the fiscal year, the Compensation Committee
awards annual cash incentive bonuses to the Bonus Plan
participants prior to the end of the first quarter of the
following fiscal year. The objective of the Bonus Plan is to
make cash bonus payments annually to individuals based on the
achievement of specific objective annual performance factors or
business criteria that contributes to the growth, profitability
and increased value of the Company.
The bonus process for the named executive officers under the
Bonus Plan involves the following steps:
(1) Setting a Target Bonus. During the
first quarter of the fiscal year, the Compensation Committee
approves the target bonus amount for each named executive
officer. The target bonus amount
84
may take into account all factors deemed relevant by the
Compensation Committee, including recommendations from the Chief
Executive Officer (except for target bonus amounts for the Chief
Executive Officer). The Compensation Committee also approves the
maximum bonus that a named executive officer is entitled to
receive. The maximum bonus amount will not exceed 200% of such
named executive officers annual base salary at the time
the target bonus is determined.
(2) Setting the Performance
Factors. During the first quarter of each fiscal
year, the Compensation Committee establishes the performance
factors for the Company and the executive officers. Performance
factors may include by way of example but not limitation, any or
all of the following: revenue; net sales; operating income;
earnings before all or any of interest, taxes, depreciation
and/or
amortization, or EBITDA; Adjusted EBITDA; Adjusted EBITDA
Margin; cash flow; working capital and components thereof;
return on equity or average stockholders equity; return on
assets; market share; sales (net or gross) measured by product
line, territory, customer(s), or other category; stock price;
earnings per share; earnings from continuing operations; net
worth; credit rating; levels of expense, cost or liability by
category, operating unit or any other delineation; any increase
or decrease of one or more of the foregoing over a specified
period; or implementation or completion of critical projects.
With respect to certain participants who are not named executive
officers, these targets may also include such objective or
subjective performance goals as the Compensation Committee may,
from time to time, establish.
(3) Measuring Performance. Prior to
making any payments under the Bonus Plan, the Compensation
Committee will certify whether the applicable performance
factors were attained. In reaching its conclusions, the
Compensation Committee will make certain adjustments as
specified in the Bonus Plan. Such adjustments include but are
not limited to issues such as changes in accounting principles,
extraordinary, unusual or non-recurring events that were not
included in the operating budget for the performance period
(such as the disposition of a theatre or theatres or the
cessation of operation of a theatre as a result of a natural
disaster).
In March 2010, the Compensation Committee established
performance criteria, performance targets and awards for our
named executive officers for the 2010 fiscal year under the
terms of the Bonus Plan. The 2010 awards provided for the
payment of bonus compensation based on the achievement of
Adjusted EBITDA financial metrics, which we believe reflect the
effective implementation of the Companys business plan and
objectives in a manner that will be beneficial to stockholders
and to the long-term financial health and development of our
business. Each performance target under the 2010 awards had a
threshold, target and maximum level of payment opportunity.
Messers. Mitchell and Stock had a target opportunity of 100% of
their individual 2010 base salary and Messers. Warner, Copple
and Fernandes had a target opportunity of 75% of their
individual 2010 base salary. The threshold opportunity for each
of Messers. Mitchell, Stock, Warner, Copple and Fernandes was
33.33%, with the maximum payment opportunity equal to 133.33% of
the individuals target opportunity. Each named executive
officer was entitled to receive a ratable portion of his target
bonus if we achieved Adjusted EBITDA within the specified
parameters. The actual amount of bonuses paid, if any, may
result in a bonus that is greater or less than the stated target
(and could be zero) depending on whether, and to what extent,
the applicable performance and other conditions are satisfied.
In February 2011, based on the Adjusted EBITDA target achieved
by Cinemark Holdings, the Compensation Committee determined the
cash incentive bonus for each of the named executive officers.
The percentage at which the bonus was awarded was 133.33% of the
target bonus for each named executive officer. The Adjusted
EBITDA target for purposes of the Bonus Plan for 2010, before
payment of bonuses, was set by the Compensation Committee at
$435 million. The Adjusted EBITDA target achieved by
Cinemark Holdings for purposes of the Bonus Plan in 2010 was
$493.2 million. The reported Adjusted EBITDA was
485.9 million after adjustment for payment of bonuses of
$7.3 million. The amount of the cash bonus paid on
85
February 24, 2011, to each of Messers. Mitchell, Stock,
Warner, Copple and Fernandes under the Bonus Plan for the 2010
fiscal year are as follows:
|
|
|
|
|
Name
|
|
Bonus Amount
|
|
Lee Roy Mitchell
|
|
$
|
1,091,347
|
|
Alan W. Stock
|
|
$
|
828,556
|
|
Timothy Warner
|
|
$
|
455,348
|
|
Robert Copple
|
|
$
|
428,563
|
|
Valmir Fernandes
|
|
$
|
350,000
|
|
Long
Term Equity Incentive Compensation
The Company believes granting awards with long vesting periods
creates an ownership culture which provides substantial
retention incentive and also encourages focus on the
Companys long term business objectives and performance. In
addition, we believe we must be able to attract and retain
highly qualified executive officers as leaders to ensure our
success and that long term equity incentive compensation is a
key factor to attract and retain such officers.
Our long term equity incentive compensation under the Amended
and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive
Plan, or the Restated Plan, permits the Compensation Committee
to grant stock options, restricted stock awards, restricted
stock units, performance awards in the form of restricted stock
or restricted stock units or a mix of any such type of award.
Stock options, restricted stock awards and restricted stock
units reward participants in slightly different ways as measured
against increases in stockholder value. Stock options are issued
with an exercise price equal to the fair market value of
Cinemark Holdingss common stock on the date of grant.
Accordingly, a recipient of stock options is rewarded only if
the stock price increases after the dates of grant. Restricted
stock and restricted stock units are impacted by increases or
decreases in stock price from the market price at the date of
grant.
No stock options were granted to any employee in 2010. Pursuant
to the Restated Plan, restricted stock and performance awards in
the form of restricted stock units were granted to eligible
employees, including named executive officers, before the end of
the first quarter of 2010. The grants of restricted stock and
restricted stock units based performance awards were at a higher
percentage of total compensation for the named executive
officers compared to the other executive officers.
Restricted Stock. Restricted stock granted
under the Restated Plan is subject to a time based vesting
condition. Annual grants of restricted stock to the executive
officers may be based upon a percentage of such executives
annual base salary. Recipients of restricted stock awards are
permitted to (i) receive dividends on the restricted stock
to the extent dividends are paid by Cinemark Holdings on shares
of its common stock and (ii) to vote such common stock
during the restriction period. Periodic awards of restricted
stock can be made to eligible employees at the discretion of the
Compensation Committee.
The restricted stock awarded to the executive officers generally
vest 50% on each of the second and fourth anniversaries of the
grant date provided, the executive is continuously employed with
the Company through the vest date.
Performance Awards. Performance awards can be
granted in the form of restricted stock or restricted stock
units. Performance awards entitle recipients to vest in or
acquire shares of Cinemark Holdingss common stock upon the
attainment of specified performance goals established by the
Compensation Committee. The performance awards and performance
goals are based on one or more pre-established objective
criteria that specify the number of shares of Cinemark
Holdingss common stock under the performance award that
will be granted (if performance award is in the form of
restricted stock unit) or will vest (if performance award is in
the form of restricted stock) if the performance goal is
attained. During the first quarter of a fiscal year, the
Compensation Committee approves the performance goal for each
performance award. Common stock received upon attainment of the
performance goals under a restricted stock unit based
performance award may be subject to additional time-based
vesting conditions. Any dividends that are attributable to the
underlying
86
Cinemark Holdingss common stock relating to a restricted
stock unit based performance award will be payable to the
recipient when the established vesting conditions are satisfied.
The total number of shares of Cinemark Holdingss common
stock that may be awarded pursuant to the performance share
agreement is based on an implied equity value concept that
determines an internal rate of return during a three fiscal year
period, or the Performance Period, based on a formula utilizing
a multiple of Adjusted EBITDA (subject to certain specified
adjustments). Each performance target underlying the performance
awards has a threshold, target and maximum level of payment
opportunity, with the maximum payment opportunity equal to 150%
of the individuals target opportunity based upon an
internal rate of return during such three year period, or the
IRR. The targets were established in writing by the Compensation
Committee. The number of shares of Cinemark Holdingss
common stock an executive may receive on the attainment of a
performance goal cannot be determined at the date of grant
because the payment of such compensation is contingent upon
attainment of pre-established goals and the actual compensation
to be paid to an executive officer is at the Compensation
Committees discretion. In 2010, the performance awards
were awarded in the form of restricted stock units. The 2010
restricted stock unit awards will vest on a prorated basis
according to the IRR achieved by Cinemark Holdings during the
Performance Period. For example, if Cinemark Holdings achieves
an IRR equal to 11.5%, the number of restricted stock units that
will vest will be greater than the target but less than the
maximum number that would have vested had Cinemark Holdings
achieved the highest IRR.
The following table sets forth the various IRR percentages and
the number of corresponding restricted stock units underlying
the performance awards to be made to eligible participants:
|
|
|
IRR
|
|
Performance Shares Issuable
|
|
IRR equal to 8.5% but less than 10.5%
|
|
331/3%
of the maximum performance shares issuable
|
IRR equal to 10.5% but less than 12.5%
|
|
662/3%
of the maximum performance shares issuable
|
IRR equal to or greater than 12.5%
|
|
100% of the maximum performance shares issuable
|
The shares of Cinemark Holdingss common stock each
executive officer receives upon attainment of the specified
performance targets are subject to further service based vesting
for a period of one year beyond the calculation date. See
Grants of Plan-Based Awards table.
In March 2010, the Compensation Committee modified the criteria
used to determine the IRR related to the performance awards (in
the form of restricted stock units) granted to certain executive
officers and employees in 2008. The modification was
necessitated to more accurately reflect the intention of the
Compensation Committee to reward participants for value created
by factors that are within the control of the employee. Such
factors and certain external inputs comprise the performance
criteria for the performance awards. Although the Company has
performed remarkably well since the beginning of the Performance
Period for the 2008 performance awards, the challenging economic
environment has adversely impacted certain external inputs in
the performance criteria that is outside of the
participants control. Accordingly, the Compensation
Committee modified the performance criteria by changing the
multiple upon which the implied equity value is calculated to
determine the IRR for the Performance Period for the 2008
performance awards. The number of restricted stock units subject
to each performance award however remained unchanged. As a
result of the application of IRC Section 162(m), for the
named executive officers the 2008 performance awards were deemed
cancelled and reissued as of March 31, 2010. For all other
recipients of the 2008 performance awards, the change was deemed
as a modification.
In March 2011, the Compensation Committee certified that
Cinemark Holdings had achieved the highest level of IRR for the
Performance Period from January 1, 2008 to
December 31, 2010. Consequently, the restricted stock units
that were awarded to the named executive officers in March and
April 2008 will vest in the maximum amounts in March and April
2012 respectively, provided the named executive officer
satisfies the additional time based vesting condition. See
Outstanding Equity Awards at Fiscal Year End table.
87
Perquisites
With limited exceptions, the Compensation Committees
policy is to provide benefits and perquisites to our named
executive officers that are substantially the same as those
offered to our other employees at or above the level of vice
president. The benefits and perquisites that may be available in
addition to those available to our other employees include life
insurance premiums and long term disability insurance.
401(k)
Plan
We sponsor a defined contribution savings plan, the 401(k) Plan,
whereby certain employees may elect to contribute in whole
percentages between 1% and 50% of such employees
compensation, provided no employees elective contribution
shall exceed the amount permitted under Section 402(g) of
the Internal Revenue Code of 1986, as amended, or the Code,
($16,500 for 2010, $16,500 for 2009 and $15,500 for 2008). In
2010, participants over the age of 50 could contribute an
additional $5,500.
We may make an annual discretionary matching contribution up to
a maximum of 6% of the employees annual contribution to
the 401(k) Plan. In 2010, our annual discretionary matching
contribution was 100% up to 3% and 75% for the remaining 3% of
the employees contribution. Our discretionary matching
contributions immediately vest.
Summary
of Employment Agreements for our Named Executive
Officers
We have employment agreements with our named executive officers
and certain other executive officers. The employment agreements
with Lee Roy Mitchell, Alan W. Stock, Timothy Warner and Robert
Copple were executed in 2008 and the employment agreement with
Valmir Fernandes was entered into in 2010. In line with our
compensation philosophy, Cinemark Holdings entered into the
employment agreements to more closely align the compensation of
certain executive officers with market competitive compensation.
In approving the employment agreements, the Compensation
Committee compared the employment agreements for similarly
situated executives at Regal, AMC and NCMI. A summary of the
employment agreements of the named executive officers is below:
Term
The term of the employment agreements initially is three years.
However, at the end of each year of the term, the term is
extended for an additional one-year period unless the named
executive officers employment is terminated.
Base Compensation
The base salaries are subject to annual review for increase (but
not decrease) each year by our Compensation Committee. In
addition, the named executive officers are eligible to receive
an annual cash incentive bonus upon our meeting certain
performance targets established by our Compensation Committee
for the fiscal year.
Severance Payments
The employment agreements provide for severance payments upon
termination of employment, the amount and nature of which
depends upon the reason for termination.
Termination
for Good Reason or Without Cause
If Mr. Mitchell resigns for good reason (as defined in the
agreement) or is terminated by us without cause,
Mr. Mitchell will receive, in a lump sum, subject to
applicable Section 409A requirements: accrued compensation
(which includes base salary and a pro rata bonus) through the
date of termination; vacation pay and any vested equity awards
and benefits such as retirement benefits, in accordance with the
terms of the plan or agreement pursuant to which such equity
awards or benefits were granted to Mr. Mitchell; an amount
equal to Mr. Mitchells annual base salary in effect
as of the date of such termination and an amount equal to the
most recent annual bonus he received prior to the date of
termination payable within 30 days of the end of
88
the current fiscal year. Mr. Mitchell and his dependents
will also be entitled to continue to participate in the
Companys welfare benefit plans and insurance programs for
twelve (12) months from the termination date.
If either Mr. Stock, Mr. Warner, Mr. Copple or
Mr. Fernandes resign for good reason or is terminated by us
without cause, such executive will receive, subject to
applicable Section 409A requirements: accrued compensation
(which includes base salary and a pro rata bonus) through the
date of termination; vacation pay and any vested equity awards
and benefits such as retirement benefits, in accordance with the
terms of the plan or agreement pursuant to which such equity
awards or benefits were granted to such executive. The executive
will also receive two times his annual base salary in effect at
the time of termination for a period of 24 months following
such termination, subject to applicable Section 409A
requirements; an amount equal to the most recent annual bonus
received by the executive for any fiscal year ended prior to the
date of such termination payable in 30 days of termination;
outstanding stock options will become fully vested and
exercisable upon such termination or resignation; equity awards
other than stock options with time vesting provisions shall
become vested on a pro rata basis and equity awards other than
stock options with performance based vesting provisions shall
remain outstanding through the remainder of the applicable
performance period (without regard to any continued employment
requirement) and if or to the extent the performance provisions
are attained shall become vested without any regard to any
continued employment requirement on a pro rata basis. The
executive and executives dependents will also be entitled
to continue to participate in the Companys welfare benefit
plans and insurance programs for a period of 24 months from
the termination date.
Termination
Due to Death or Disability
In the event an executives employment is terminated due to
his death or disability, the executive or his estate will
receive, in a lump sum: accrued compensation (which includes
base salary and a pro rata bonus) through the date of
termination; vacation pay and any vested equity awards and
benefits such as retirement benefits, in accordance with the
terms of the plan or agreement pursuant to which such equity
awards or benefits were granted; a lump sum payment equal to
12 months of executives annual base salary as in
effect at the time of termination, provided, in the case of
disability, such amount shall be offset by the amount of base
salary paid by the Company to executive or his representative
following the date he was first unable to substantially perform
his duties under his employment agreement through the date of
termination and any benefits payable to executive
and/or his
beneficiaries in accordance with the terms of any applicable
benefit plan. The executive and executives dependents will
be entitled to continue to participate in Cinemark
Holdingss welfare benefit plans and insurance programs for
12 months from the termination date.
Termination
For Cause or Voluntary Termination
In the event executives employment is terminated by us for
cause or under a voluntary termination (other than termination
due to disability or good reason), the executive will receive
accrued base salary through the date of termination and any
previously vested rights under a stock option or similar
incentive compensation plan in accordance with the terms of such
plan.
Termination
Due to Change of Control
Mr. Mitchell does not have a change of control provision in
his employment agreement.
In the employment agreements of Messers. Stock, Warner, Copple
and Fernandes, change of control shall be deemed to have
occurred (i) on the date (A) any individual, entity or
group other than MDCP or the Mitchell Family (as defined in the
employment agreement) acquires or has acquired during the
12-month
period ending on the date, beneficial ownership of thirty
percent (30%) or more of the total voting stock at the election
of directors and (B) such beneficial ownership then exceeds
the combined voting power of MDCP and the Mitchell Family,
(ii) a majority of Holdings Board shall not be Continuing
Directors (as defined in the employment agreement) or
(iii) the sale of all or substantially all of Cinemark
Holdingss assets.
If within one year after a change of control, executives
employment is terminated by us (other than for disability, death
or cause) or by executive for good reason, the executive shall
receive, in a lump sum within
89
30 days of termination, subject to applicable
Section 409A requirements: accrued compensation (which
includes base salary and a pro rata bonus) through the date of
termination; vacation pay and any vested equity awards and
benefits such as retirement benefits, in accordance with the
terms of the plan or agreement pursuant to which such equity
awards or benefits were granted; sum of two times the
executives annual base salary and one and one half times
the most recent annual bonus received by executive for any
fiscal year ended prior to the date of termination. The
executive and executives dependents will be entitled to
continue to participate in our welfare benefit plans and
insurance programs for a period of 30 months from the
termination date. Any outstanding equity award granted to
executive shall become fully vested
and/or
exercisable as of the date of such termination and shall remain
exercisable in accordance with the terms of the plan or
agreement pursuant to which such equity awards were granted.
Benefits
The named executive officers qualify for our 401(k) matching
program and are also entitled to certain additional benefits
including life insurance and disability insurance. Pursuant to
his employment agreement, Mr. Mitchell is entitled to life
insurance benefits of not less than $5 million and
disability benefits of not less than 66% of such officers
base salary.
Perquisites
Under his employment agreement, Mr. Mitchell is entitled to
a luxury automobile and a membership at a country club.
Currently, Mr. Mitchell does not have a luxury automobile
or a country club membership paid for by the Company.
Unless Mr. Mitchells employment is terminated by us
for cause or under a voluntary termination, Mr. Mitchell
will also be entitled, for a period of five years, to tax
preparation assistance upon termination of his employment. The
employment agreement contains various covenants, including
covenants related to confidentiality, non-competition (other
than certain permitted activities as defined therein) and
non-solicitation.
The employment agreements of Messers. Stock, Warner, Copple or
Fernandes provide that unless the executives employment is
terminated by us for cause the executive will also be entitled
to office space and support services for a period of not more
than 3 following the date of any termination.
Covenants
All the employment agreements contain various covenants,
including covenants related to confidentiality, non-competition
(other than certain permitted activities as defined therein) and
non-solicitation.
Additional information on amounts payable had a termination for
good reason, a change of control, death or disability occurred
on December 31, 2010 may be found under the
heading Potential Payments Upon Termination
by us Without Cause or by Executive for Good Reason,
Potential Payments Upon Termination due to Change of
Control and Potential Payments Upon Death or
Disability.
Compensation
Risk
With respect to risks related to compensation matters, the
Compensation Committee considers whether our compensation
programs for executives and employees encourages unnecessary or
excessive risk taking. Upon such consideration the Compensation
Committee has concluded that our compensation programs do not
create risks that are reasonably likely to have a material
adverse effect on the Company. The base salaries of executives
are fixed, annual cash incentives are tied to Companys
overall performance and measured against a pre-established
objective business criteria and long-term incentive awards are
equity-based with vesting schedules tied to performance and
long-term service to the Company, all of which ensure that
executives have significant value tied to the growth of the
Company.
90
Summary
Compensation Table
The following table contains summary information concerning the
total compensation earned during 2010, 2009 and 2008 by our
Chief Executive Officer, Chief Financial Officer and our three
other most highly compensated executive officers serving in this
capacity as of December 31, 2010, whose total compensation
exceeded $100,000 for the fiscal year ended December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
Salary
|
|
Awards
|
|
Compensation
|
|
All Other
|
|
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
Compensation ($)
|
|
Total ($)
|
|
Lee Roy Mitchell
|
|
|
2010
|
|
|
|
818,510
|
|
|
|
|
|
|
|
1,091,347
|
|
|
|
113,008
|
(3)
|
|
|
2,022,865
|
|
Executive Chairman of the Board
|
|
|
2009
|
|
|
|
802,461
|
|
|
|
|
|
|
|
1,069,948
|
|
|
|
113,008
|
(3)
|
|
|
1,985,417
|
|
|
|
|
2008
|
|
|
|
794,516
|
|
|
|
|
|
|
|
855,241
|
|
|
|
130,637
|
(3)
|
|
|
1,780,394
|
|
Alan W. Stock
|
|
|
2010
|
|
|
|
621,417
|
|
|
|
2,610,736
|
|
|
|
828,556
|
|
|
|
114,289
|
(4)
|
|
|
4,174,997
|
|
Chief Executive Officer
|
|
|
2009
|
|
|
|
609,232
|
|
|
|
761,539
|
|
|
|
812,309
|
|
|
|
59,260
|
(4)
|
|
|
2,242,340
|
|
|
|
|
2008
|
|
|
|
603,200
|
|
|
|
753,988
|
|
|
|
649,303
|
|
|
|
31,563
|
(4)
|
|
|
2,038,054
|
|
Timothy Warner
|
|
|
2010
|
|
|
|
455,348
|
|
|
|
2,289,346
|
|
|
|
455,348
|
|
|
|
86,523
|
(5)
|
|
|
3,286,564
|
|
President & Chief Operating
|
|
|
2009
|
|
|
|
446,420
|
|
|
|
446,405
|
|
|
|
446,420
|
|
|
|
41,193
|
(5)
|
|
|
1,380,438
|
|
Officer
|
|
|
2008
|
|
|
|
442,000
|
|
|
|
441,998
|
|
|
|
356,837
|
|
|
|
24,445
|
(5)
|
|
|
1,265,280
|
|
Robert Copple
|
|
|
2010
|
|
|
|
428,563
|
|
|
|
2,262,532
|
|
|
|
428,563
|
|
|
|
87,300
|
(6)
|
|
|
3,206,958
|
|
Chief Financial Officer,
|
|
|
2009
|
|
|
|
420,160
|
|
|
|
420,147
|
|
|
|
420,160
|
|
|
|
41,281
|
(6)
|
|
|
1,301,748
|
|
Treasurer & Executive VP
|
|
|
2008
|
|
|
|
416,000
|
|
|
|
415,986
|
|
|
|
335,846
|
|
|
|
25,648
|
(6)
|
|
|
1,193,480
|
|
Valmir Fernandes
|
|
|
2010
|
|
|
|
350,000
|
|
|
|
1,908,864
|
|
|
|
350,000
|
|
|
|
105,341
|
(7)
|
|
|
2,714,205
|
|
President Cinemark
|
|
|
2009
|
|
|
|
294,415
|
|
|
|
220,809
|
|
|
|
350,000
|
|
|
|
47,842
|
(7)
|
|
|
913,066
|
|
International
|
|
|
2008
|
|
|
|
291,500
|
|
|
|
214,451
|
|
|
|
175,587
|
|
|
|
36,396
|
(7)
|
|
|
717,934
|
|
|
|
|
(1) |
|
The amounts reflect the aggregate grant date fair value of
restricted stock and performance awards (in the form of
restricted stock units) granted to the named executive officers
in 2010, 2009 and 2008, computed in accordance with FASB ASC
Topic 718. The amounts shown exclude the impact of estimated
forfeitures. |
|
|
|
The grant date fair values were calculated based on the closing
price of Cinemark Holdingss common stock on March 31,
2010 of $18.34 per share, on March 27, 2009 of $9.50 per
share and on March 28, 2008 of $12.89 per share assuming
the target level of payment as the most probable outcome. |
|
|
|
The values of the restricted stock units at the grant dates in
2010, 2009 and 2008, assuming that the highest level of IRR is
achieved, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
2010
|
|
2009
|
|
2008
|
|
Alan W. Stock
|
|
$
|
1,499,533
|
|
|
$
|
571,150
|
|
|
$
|
565,484
|
|
Timothy Warner
|
|
$
|
1,258,491
|
|
|
$
|
334,799
|
|
|
$
|
331,492
|
|
Robert Copple
|
|
$
|
1,238,390
|
|
|
$
|
315,106
|
|
|
$
|
311,990
|
|
Valmir Fernandes
|
|
$
|
1,041,914
|
|
|
$
|
143,526
|
|
|
$
|
139,380
|
|
|
|
|
|
|
In March 2010, the Compensation Committee modified the criteria
used to determine the IRR for the performance awards (in the
form of restricted stock units) granted to certain executive
officers and employees in 2008. The modification was
necessitated to more accurately reflect the intention of the
Compensation Committee to reward participants for value created
by factors that are within the control of the employee. Such
factors and certain external inputs comprise the performance
criteria for the performance awards. Although the Company has
performed remarkably well since the beginning of the Performance
Period for the 2008 performance awards, the challenging economic
environment has adversely impacted certain external inputs in
the performance criteria which is outside of the
participants control. Accordingly, the Compensation
Committee modified the performance criteria by changing the
multiple upon which the implied equity value is calculated to
determine the IRR for the Performance Period for the 2008
performance awards. The number of restricted stock units subject
to each performance award however remained unchanged. As a
result of the application of IRC Section 162(m), for the
named executive officers the 2008 performance awards were deemed
cancelled and reissued as of March 31, |
91
|
|
|
|
|
2010. For all other recipients of the 2008 performance awards,
the change was classified as a modification. |
|
|
|
The fair values (maximum) of the 2008 stock awards on the
modification date, using the closing price of Cinemark
Holdingss common stock as of March 31, 2010 of $18.34
per share are as follows: |
|
|
|
|
|
|
|
2008
|
Name
|
|
(Maximum)
|
|
Alan W. Stock
|
|
$
|
804,576
|
|
Timothy Warner
|
|
$
|
471,650
|
|
Robert Copple
|
|
$
|
443,901
|
|
Valmir Fernandes
|
|
$
|
198,310
|
|
|
|
|
|
|
In March 2011, the Compensation Committee certified that
Cinemark Holdings had achieved the highest level of IRR for the
Performance Period from January 1, 2008 to
December 31, 2010. Consequently, the restricted stock units
that were awarded to the named executive officers in March and
April 2008 will vest in the maximum amounts in March and April
2012 respectively, provided the named executive officer
satisfies the additional time based vesting condition. |
|
|
|
See Note 19 to Cinemark Holdingss 2010 Annual Report
on
Form 10-K
filed March 1, 2011, for discussion of the assumptions used
in determining the fair values of these share based awards,
including forfeiture assumptions and the period over which
Cinemark Holdings will recognize compensation expense for such
awards. |
|
|
|
The specific terms of the restricted stock and restricted stock
units are discussed in more detail under Compensation
Discussion and Analysis. See also Grants of
Plan-Based Awards table for the 2010 restricted stock and
performance awards. |
|
|
|
The grant date fair values for the equity awards do not
necessarily correspond to the actual values that will be
realized by the named executive officers. The actual values
realized will depend on the market value of Cinemark
Holdingss common stock on the vesting date of the
restricted stock and the restricted stock units. |
|
(2) |
|
Bonuses earned in a fiscal year are paid in February or March of
the following year pursuant to the Bonus Plan and are based upon
the attainment of performance targets established by the
Compensation Committee. The 2010 bonuses were paid on
February 24, 2011, the 2009 bonuses were paid on
February 25, 2010 and the 2008 bonuses were paid on
March 2, 2009. |
|
(3) |
|
Represents an annual matching contribution to
Mr. Mitchells 401(k) savings plan ($12,863 in 2010,
$12,863 in 2009 and $12,075 in 2008), value of the use of a
Company vehicle for one year ($0 in 2010, $0 in 2009 and $18,417
in 2008) and the dollar value of life insurance premiums
and disability insurance paid by us for the benefit of
Mr. Mitchell ($100,145 in 2010, 2009 and 2008). |
|
(4) |
|
Represents an annual matching contribution to
Mr. Stocks 401(k) savings plan ($12,863 in 2010,
$12,863 in 2009 and $12,075 in 2008), dollar value of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Stock ($3,695 in 2010, $3,696 in 2009 and
$3,695 in 2008) and dividends paid on restricted stock
($97,731in 2010, $42,702 in 2009 and $15,793 in 2008). |
|
(5) |
|
Represents an annual matching contribution to
Mr. Warners 401(k) savings plan ($12,863 in 2010,
$12,863 in 2009 and $12,075 in 2008), dollar value of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Warner ($2,990 in 2010, $3,299 in 2009 and
$3,112 in 2008) and dividends paid on restricted stock
($70,670 in 2010, $25,032 in 2009 and $9,258 in 2008). |
|
(6) |
|
Represents an annual matching contribution to
Mr. Copples 401(k) savings plan ($12,863 in 2010,
$12,863 in 2009 and $12,075 in 2008), dollar value of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Copple ($5,690 in 2010, $4,860 in 2009 and
$4,860 in 2008) and dividends paid on restricted stock
($68,747 in 2010, $23,559 in 2009 and $8,713 in 2008). |
|
(7) |
|
Represents an annual matching contribution to
Mr. Fernandess 401(k) savings plan ($12,863 in 2010,
$12,863 in 2009 and $12,075 in 2008), expatriate allowance
($37,356 in 2010, $17,957 in 2009 and $16,108 in 2008), dollar
value of life insurance premiums and disability insurance paid
by us for the |
92
|
|
|
|
|
benefit of Mr. Fernandes ($3,122 in 2010, 2009 and
2008) and dividends paid on restricted stock ($52,001 in
2010, $13,901 in 2009 and $5,091in 2008). |
Grants of
Plan-Based Awards
The following table specifies the grants of awards made to the
named executive officers during the fiscal year ended
December 31, 2010 under the Restated Plan and the Bonus
Plan.
Grants of
Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: Number of
|
|
|
Grant Date Fair
|
|
|
|
2010
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan
Awards(1)
|
|
|
Estimated Future Payouts Under Equity Incentive Plan
Awards(2)
|
|
|
Shares of Stock or
|
|
|
Value of Stock
|
|
|
|
Grant
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units(3)
|
|
|
Awards(4)
|
|
Name
|
|
Dates
|
|
|
*
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
Lee Roy Mitchell
|
|
|
2/24/11
|
|
|
|
|
|
|
|
272,809
|
|
|
|
818,510
|
|
|
|
1,091,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan W. Stock
|
|
|
2/24/11
|
|
|
|
|
|
|
|
207,118
|
|
|
|
621,417
|
|
|
|
828,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,254
|
|
|
|
54,509
|
|
|
|
81,763
|
|
|
|
|
|
|
|
999,695
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,843
|
|
|
|
1,611,041
|
|
Timothy Warner
|
|
|
2/24/11
|
|
|
|
|
|
|
|
113,826
|
|
|
|
341,511
|
|
|
|
455,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,873
|
|
|
|
45,747
|
|
|
|
68,620
|
|
|
|
|
|
|
|
839,000
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,081
|
|
|
|
1,450,346
|
|
Robert Copple
|
|
|
2/24/11
|
|
|
|
|
|
|
|
107,130
|
|
|
|
321,422
|
|
|
|
428,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,507
|
|
|
|
45,016
|
|
|
|
67,524
|
|
|
|
|
|
|
|
825,593
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,350
|
|
|
|
1,436,939
|
|
Valmir Fernandes
|
|
|
2/24/11
|
|
|
|
|
|
|
|
87,491
|
|
|
|
262,500
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,936
|
|
|
|
37,874
|
|
|
|
56,811
|
|
|
|
|
|
|
|
694,609
|
|
|
|
|
3/31/10
|
|
|
|
3/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,208
|
|
|
|
1,214,255
|
|
|
|
|
* |
|
The date the Compensation Committee took action to grant the
2010 equity awards. |
|
(1) |
|
In March 2010, the Compensation Committee established
performance targets for our named executive officers for the
2010 fiscal year under the terms of the Bonus Plan. The
Compensation Committee approved the 2010 bonuses for the named
executive officers on February 21, 2011 and the bonuses
were paid on February 24, 2011. See Compensation
Discussion and Analysis for a description of the bonus
process under the Bonus Plan and the Summary Compensation
Table for the actual bonus amounts paid to each named
executive officer for the 2010 fiscal year. |
|
(2) |
|
In March 2010, under the terms of the Restated Plan, the
Compensation Committee approved performance awards in the form
of restricted stock units for an aggregate maximum of 274,718
hypothetical shares of restricted stock to our named executive
officers, except Mr. Mitchell, who, the Compensation
Committee determined, had sufficient equity ownership to align
his interests with the interests of the stockholders. The number
of shares subject to each performance award was determined in
part by reference to the closing price of Cinemark
Holdingss common stock on March 31, 2010 of $18.34
per share. The performance shares vest based on a combination of
financial performance factors and continued service. The
Performance Period for the 2010 performance awards ends
December 31, 2012. All payouts of restricted stock units
upon attainment of performance goal will be in the form of
restricted stock that will vest if the participant continues to
provide services through March 31, 2014 (the fourth
anniversary of the grant date). Restricted stock unit awards are
eligible to receive dividend equivalent payments to the extent
declared by our Board if and at the time the restricted stock
unit awards become vested. See Compensation Discussion and
Analysis for a description of the performance awards. |
|
(3) |
|
In March 2010, under the terms of the Restated Plan, the
Compensation Committee approved restricted stock awards for an
aggregate of 311,482 shares of restricted stock to our
named executive officers, except Mr. Mitchell. The number
of shares subject to each award was determined by reference to
the closing price of Cinemark Holdingss common stock on
March 31, 2010 of $18.34 per share. Such shares vest as
follows subject to continued service: 50% on March 31, 2012
and the remaining 50% on March 31, 2014. |
93
|
|
|
|
|
Holders of restricted stock receive dividends to the extent
declared by our Board, at the same rate paid to other
stockholders of Cinemark Holdings, currently at $0.21 per share. |
|
(4) |
|
The grant date fair values of restricted stock and restricted
stock units were determined using the closing price of Cinemark
Holdingss common stock on the grant date of $18.34 per
share. The grant date fair values of the restricted stock units
were determined based upon the target level of payment as the
most probable outcome and were computed in accordance with FASB
ASC Topic 718. The amounts shown exclude the impact of estimated
forfeitures. See Note 19 to Cinemark Holdingss 2010
Annual Report on
Form 10-K
filed March 1, 2011, for discussion of the assumptions used
in determining the fair values of these share based awards,
including forfeiture assumptions, and the period over which
Cinemark Holdings will recognize compensation expense for such
awards. |
Outstanding
Equity Awards
There were no unexercised options for each named executive
officer as of December 31, 2010.
Outstanding
Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
Equity Incentive
|
|
Equity Incentive
|
|
|
|
|
Market
|
|
Plan Awards:
|
|
Plan Awards:
|
|
|
Number of
|
|
Value of
|
|
Number of
|
|
Market or
|
|
|
Shares or
|
|
Shares or
|
|
Unearned
|
|
Payout Value of
|
|
|
Units of
|
|
Units of
|
|
Shares, Units or
|
|
Unearned Shares,
|
|
|
Stock That
|
|
Stock That
|
|
Other Rights That
|
|
Units or Other
|
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
Rights That Have
|
|
|
Vested
|
|
Vested
|
|
Vested
|
|
Not Vested
|
Name
|
|
(#)
|
|
($)(5)
|
|
(#)
|
|
($)
(8)
|
|
Lee Roy Mitchell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan W. Stock
|
|
|
87,843
|
(1)
|
|
|
1,514,413
|
|
|
|
27,254
|
(6)
|
|
|
469,859
|
|
|
|
|
40,081
|
(2)
|
|
|
690,996
|
|
|
|
20,040
|
(7)
|
|
|
345,490
|
|
|
|
|
14,624
|
(3)
|
|
|
252,118
|
|
|
|
|
|
|
|
|
|
|
|
|
43,870
|
(4)
|
|
|
756,319
|
|
|
|
|
|
|
|
|
|
Timothy Warner
|
|
|
79,081
|
(1)
|
|
|
1,363,356
|
|
|
|
22,873
|
(6)
|
|
|
394,331
|
|
|
|
|
23,495
|
(2)
|
|
|
405,054
|
|
|
|
11,747
|
(7)
|
|
|
202,518
|
|
|
|
|
8,573
|
(3)
|
|
|
147,799
|
|
|
|
|
|
|
|
|
|
|
|
|
25,717
|
(4)
|
|
|
443,361
|
|
|
|
|
|
|
|
|
|
Robert Copple
|
|
|
78,350
|
(1)
|
|
|
1,350,754
|
|
|
|
22,507
|
(6)
|
|
|
388,021
|
|
|
|
|
22,113
|
(2)
|
|
|
381,228
|
|
|
|
11,056
|
(7)
|
|
|
190,605
|
|
|
|
|
8,068
|
(3)
|
|
|
139,092
|
|
|
|
|
|
|
|
|
|
|
|
|
24,204
|
(4)
|
|
|
417,277
|
|
|
|
|
|
|
|
|
|
Valmir Fernandes
|
|
|
66,208
|
(1)
|
|
|
1,141,426
|
|
|
|
18,936
|
(6)
|
|
|
326,457
|
|
|
|
|
13,171
|
(2)
|
|
|
227,068
|
|
|
|
5,036
|
(7)
|
|
|
86,821
|
|
|
|
|
4,714
|
(3)
|
|
|
81,269
|
|
|
|
|
|
|
|
|
|
|
|
|
10,813
|
(4)
|
|
|
186,416
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The reported numbers represent the number of shares of
restricted stock granted on March 31, 2010. Subject to
continued employment, 50% of these shares will vest on
March 31, 2012 and the remaining 50% on March 31, 2014. |
|
(2) |
|
The reported numbers represent the number of shares of
restricted stock granted on March 27, 2009. Subject to
continued employment, 50% of these shares will vest on
March 27, 2011 and the remaining 50% on March 27, 2013. |
|
(3) |
|
The reported numbers represent 50% of the restricted stock
granted on March 28, 2008 (for Messers. Stock, Warner and
Copple) and April 10, 2008 (for Mr. Fernandes) which
remain after 50% of the 2008 |
94
|
|
|
|
|
grant vested on March 28 (for Messers. Stock, Warner and Copple)
and April 10, 2010 (for Mr. Fernandes). The restricted
stock reported will vest on March 28, 2012 (for Messers.
Stock, Warner and Copple) and April 10, 2010 (for
Mr. Fernandes). |
|
(4) |
|
The reported numbers represent the number of performance shares
awarded in the form of restricted stock units on March 28,
2008 and cancelled and reissued on March 31, 2010. The
relevant performance condition was based on an IRR for the three
year Performance Period from January 1, 2008 to
December 31, 2010. On February 21, 2011, the
Compensation Committee certified that Cinemark Holdings had
achieved the highest level of IRR for the Performance Period
from January 1, 2008 to December 31, 2010. The shares
underlying the restricted stock units are subject to an
additional service requirement and will be paid in the form of
Common Stock if the executive continues to provide services
through March 28, 2012. |
|
(5) |
|
The market value of the restricted stock was valued at the
closing price of Cinemark Holdingss common stock on
December 31, 2010 of $17.24 per share. |
|
(6) |
|
Assumes achievement of the threshold performance goals for such
award. The performance shares in the form of restricted stock
units were awarded on March 31 2010. The payout of the
performance shares are subject to achieving performance targets
over a three year Performance Period from January 1, 2010
to December 31, 2012 and satisfying an additional year of
continued employment. The performance shares will vest on
March 31, 2014. |
|
(7) |
|
Assumes achievement of the threshold performance goals for such
award. The performance shares in the form of restricted stock
units were awarded on March 27, 2009. The payout of the
performance shares are subject to achieving performance targets
over a three year Performance Period from January 1, 2009
to December 31, 2011 and satisfying an additional year of
continued employment. The performance shares will vest on
March 27, 2013. |
|
(8) |
|
The market value of the unearned performance shares in the form
of restricted stock units was valued based on the achievement of
threshold performance goals at the closing price of Cinemark
Holdingss common stock on December 31, 2010 of $17.24
per share. |
Option
Exercises and Stock Vested
Stock
Vested
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
Acquired on
|
|
|
Realized on
|
|
Name
|
|
Vesting (#)
|
|
|
Vesting
|
|
|
Lee Roy Mitchell
|
|
|
|
|
|
|
|
|
Alan W. Stock
|
|
|
14,623
|
|
|
$
|
266,139(1
|
)
|
Timothy Warner
|
|
|
8,572
|
|
|
$
|
156,010(1
|
)
|
Robert Copple
|
|
|
8,068
|
|
|
$
|
146,838(1
|
)
|
Valmir Fernandes
|
|
|
4,714
|
|
|
$
|
85,512(2
|
)
|
|
|
|
(1) |
|
The aggregate dollar amount realized upon vesting was calculated
based upon the closing price of Common Stock on March 26,
2010 of $18.20 per share. |
|
(2) |
|
The aggregate dollar amount realized upon vesting was calculated
based upon the closing price of Common Stock on April 12,
2010 of $18.14 per share. |
95
The minimum tax withholdings were paid by each named executive
officer by means of stock withholding. The following table
specifies the number of shares withheld by Cinemark Holdings for
the payment of the minimum tax withholding and the net shares of
Common Stock issued to each of Alan W. Stock, Timothy Warner and
Robert Copple. Valmir Fernandes did not pay his tax dues by the
stock withholding method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Withheld by
|
|
|
|
|
|
|
|
|
|
Cinemark Holdings
|
|
|
Net Shares
|
|
|
|
Shares Vested
|
|
|
for Payment of Tax
|
|
|
Issued
|
|
Name
|
|
(#)
|
|
|
Withholding (#)
|
|
|
(#)
|
|
|
Lee Roy Mitchell
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan W. Stock
|
|
|
14,623
|
|
|
|
3,867
|
|
|
|
10,756
|
|
Timothy Warner
|
|
|
8,572
|
|
|
|
2,267
|
|
|
|
6,305
|
|
Robert Copple
|
|
|
8,068
|
|
|
|
2,133
|
|
|
|
5,935
|
|
Valmir Fernandes
|
|
|
4,714
|
|
|
|
0
|
|
|
|
4,714
|
|
Potential
Payments upon Termination by us Without Cause or by Executive
for Good Reason
The employment agreements with the named executive officers will
require us to provide compensation to named executive officers
in the event of a termination of employment by us without cause
or by the named executive officer for good reason. The amount of
compensation payable to each named executive officer upon such
termination is listed in the table below assuming such
triggering event occurred on December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
|
|
|
Disability
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Assistance
|
|
|
Awards
|
|
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
|
(3)
|
|
|
(4)
|
|
|
(5)
|
|
|
Total
|
|
|
Lee Roy Mitchell
|
|
$
|
818,510
|
|
|
$
|
2,161,295
|
|
|
$
|
5,813
|
|
|
$
|
100,145
|
|
|
$
|
86,500
|
|
|
$
|
|
|
|
$
|
3,172,263
|
|
Alan W. Stock
|
|
$
|
1,242,834
|
|
|
$
|
1,640,865
|
|
|
$
|
23,484
|
|
|
$
|
7,390
|
|
|
$
|
792
|
|
|
$
|
2,861,530
|
|
|
$
|
5,776,895
|
|
Timothy Warner
|
|
$
|
910,696
|
|
|
$
|
901,768
|
|
|
$
|
19,806
|
|
|
$
|
5,980
|
|
|
$
|
792
|
|
|
$
|
1,909,123
|
|
|
$
|
3,748,165
|
|
Robert Copple
|
|
$
|
857,126
|
|
|
$
|
848,723
|
|
|
$
|
23,484
|
|
|
$
|
11,380
|
|
|
$
|
792
|
|
|
$
|
1,829,750
|
|
|
$
|
3,571,255
|
|
Valmir Fernandes
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
$
|
23,484
|
|
|
$
|
6,244
|
|
|
$
|
792
|
|
|
$
|
1,148,736
|
|
|
$
|
2,579,256
|
|
|
|
|
(1) |
|
Except for Mr. Mitchell, the amounts reported are
calculated as follows: two times the annual base salary in
effect as of December 31, 2010 payable according to
Companys normal payroll practices for a period of
24 months. Mr. Mitchell will only receive his annual
base salary for a period of twelve (12) months. |
|
(2) |
|
The amounts reported are calculated as follows: the sum of the
annual bonus the executive would have received for the fiscal
year ended December 31, 2010 and the annual bonus received
by the executive for the fiscal year ended December 31,
2009. See Footnote 2 to Summary Compensation Table. |
|
(3) |
|
The amounts reported are calculated as follows: welfare benefit
plans and insurance programs for a period of 12 months for
Mr. Mitchell and 24 months for Messers. Stock, Warner,
Copple and Fernandes. Disability insurance includes premiums for
long-term disability, individual disability income protection
and short-term disability. |
|
(4) |
|
Mr. Mitchell is entitled to receive tax preparation
assistance for five years following the date of termination. We
estimate the cost of such preparation to be approximately
$17,300 per year for five years. Messers Stock, Warner, Copple
and Fernandes are entitled to use our office space for a period
of three months following the date of termination. We estimate
the amount to be approximately $792 for the use of a
144 square foot office at a rental rate of approximately
$22 per square foot per annum. |
|
(5) |
|
The amounts reported have been determined based on the following
provision in the respective employment agreements. |
|
|
|
Any outstanding equity award with time based vesting provisions
shall vest on a prorata basis. Any equity awards with
performance based vesting provisions shall remain outstanding
through the remainder of the applicable Performance Period and
if or to the extent the performance provisions are attained
shall vest without regard to any continued employment
requirement on a pro rata basis. The pro rata basis for the |
96
|
|
|
|
|
equity awards is based on the percentage determined by dividing
(i) the number of days from and including the grant date of
such equity award through the termination date of the
executives employment, by (ii) the number of days
from the grant date to the full vesting date/end of the
applicable Performance Period, as applicable, of such equity
awards. Based on the above provision, the total number of equity
awards that would have vested in each named executive officer on
December 31, 2010 is as follows: restricted
stock 61,390 for Alan W. Stock, 43,771 for Timothy
Warner, 42,302 for Robert Copple and 30,648 for Valmir
Fernandes; and performance shares (in the form of restricted
stock units) 104,592 for Alan W. Stock, 66,967 for
Timothy Warner, 63,832 for Robert Copple and 35,984 for Valmir
Fernandes. The number of performance shares (restricted stock
units) that would vest has been determined based on the
assumption that the maximum IRR would be achieved over the
Performance Period. There were no outstanding options for any of
the named executive officers as of December 31, 2010. See
Grants of Plan-Based Awards table and Outstanding
Equity Awards at Fiscal Year-End table. |
|
|
|
The values of the equity awards have been calculated using the
closing price of our Common Stock on December 31, 2010 of
$17.24 per share. |
Potential
Payments upon Termination for Cause
If a named executive officer terminates his employment
voluntarily, or is terminated for cause, we are only required to
pay such named executive officer any accrued unpaid base salary
through the date of such termination.
Potential
Payments upon Termination due to Change of Control
The employment agreements with the named executive officers will
require us to provide compensation to named executive officers
in the event of a termination of employment by the Company
within one year of a change of control or by executive for good
reason. There is no change of control provision in
Mr. Mitchells employment agreement. The amount of
compensation payable to Messers. Stock, Warner, Copple and
Fernandes upon such termination is listed in the table below
assuming such triggering event occurred on December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
Salary
|
|
|
|
|
|
Health
|
|
|
Life
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
2010
|
|
|
Bonus
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Assistance
|
|
|
Awards
|
|
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
|
(3)
|
|
|
(4)
|
|
|
(5)
|
|
|
Total
|
|
|
Lee Roy Mitchell
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Alan W. Stock
|
|
$
|
1,242,834
|
|
|
$
|
2,047,020
|
|
|
$
|
29,355
|
|
|
$
|
9,238
|
|
|
$
|
792
|
|
|
$
|
5,659,926
|
|
|
$
|
8,989,164
|
|
Timothy Warner
|
|
$
|
910,696
|
|
|
$
|
1,124,978
|
|
|
$
|
24,758
|
|
|
$
|
7,475
|
|
|
$
|
792
|
|
|
$
|
4,150,151
|
|
|
$
|
6,218,849
|
|
Robert Copple
|
|
$
|
857,126
|
|
|
$
|
1,058,803
|
|
|
$
|
29,355
|
|
|
$
|
14,225
|
|
|
$
|
792
|
|
|
$
|
4,024,299
|
|
|
$
|
5,984,600
|
|
Valmir Fernandes
|
|
$
|
700,000
|
|
|
$
|
875,000
|
|
|
$
|
29,355
|
|
|
$
|
7,805
|
|
|
$
|
792
|
|
|
$
|
2,876,063
|
|
|
$
|
4,489,015
|
|
|
|
|
(1) |
|
The amounts reported are calculated as follows: two times the
annual base salary in effect as of December 31, 2010
payable in a lump sum within 30 days of such termination. |
|
(2) |
|
The amounts reported are calculated as follows: the sum of the
annual bonus the executive would have received for the fiscal
year ended December 31, 2010 and one and a half times the
annual bonus received by the executive for the fiscal year ended
December 31, 2009. See Footnote 2 to Summary
Compensation Table. |
|
(3) |
|
The amounts reported are calculated as follows: welfare benefit
plans and insurance programs for 30 months for Messers.
Stock, Warner, Copple and Fernandes. Disability insurance
includes premiums for long-term disability, individual
disability income protection and short-term disability. |
|
(4) |
|
Messers Stock, Warner, Copple and Fernandes are entitled to use
our office space for three months following the date of
termination. We estimate the amount to be approximately $792 for
the use of a 144 square foot office at a rental rate of
approximately $22 per square foot per annum. |
|
(5) |
|
The amounts reported have been determined based on the following
provision in the respective employment agreements. Upon
termination due to change of control, any outstanding equity
award granted to the executive shall be fully vested and
exercisable and all restrictions lapse. Based on the above
provision, the total number of equity awards that would have
vested on an accelerated basis in each named executive officer
on December 31, 2010 are as follows: restricted
stock 142,548 for Alan W. Stock, |
97
|
|
|
|
|
111,149 for Timothy Warner, 108,531 for Robert Copple and 84,093
for Valmir Fernandes; performance shares (in the form of
restricted stock units) 185,754 for Alan W. Stock,
129,579 for Timothy Warner, 124,897 for Robert Copple and 82,732
for Valmir Fernandes. The number of performance shares
(restricted stock units) that would vest has been determined
based on the assumption that the maximum IRR would be achieved
over the Performance Period. See Grants of Plan-Based Awards
table and Outstanding Equity Awards at Fiscal Year End
table. |
The values of the equity awards have been calculated using the
closing price of our Common Stock on December 31, 2010 of
$17.24 per share.
Potential
Payments upon Termination due to Death or Disability
The employment agreements with the named executive officers will
require us to provide compensation to named executive officers
in the event of a termination of employment as a result of the
death or disability of such named executive officer. The amount
of compensation payable to each named executive officer upon
such termination is listed in the table below assuming such
triggering event occurred on December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and
|
|
Value of
|
|
|
|
|
|
|
|
|
Health
|
|
Disability
|
|
Equity
|
|
|
|
|
Salary
|
|
Bonus
|
|
Insurance
|
|
Insurance
|
|
Awards
|
|
|
|
|
(1)
|
|
(2)
|
|
(3)
|
|
(3)
|
|
(4)
|
|
Total
|
|
Lee Roy Mitchell
|
|
$
|
818,510
|
|
|
$
|
1,091,347
|
|
|
$
|
5,813
|
|
|
$
|
100,145
|
|
|
$
|
|
|
|
$
|
2,015,815
|
|
Alan W. Stock
|
|
$
|
621,417
|
|
|
$
|
828,556
|
|
|
$
|
11,742
|
|
|
$
|
3,695
|
|
|
$
|
541,905
|
|
|
$
|
2,007,315
|
|
Timothy Warner
|
|
$
|
455,348
|
|
|
$
|
455,348
|
|
|
$
|
9,903
|
|
|
$
|
2,990
|
|
|
$
|
412,795
|
|
|
$
|
1,336,384
|
|
Robert Copple
|
|
$
|
428,563
|
|
|
$
|
428,563
|
|
|
$
|
11,742
|
|
|
$
|
5,690
|
|
|
$
|
402,020
|
|
|
$
|
1,276,578
|
|
Valmir Fernandes
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
11,742
|
|
|
$
|
3,122
|
|
|
$
|
306,200
|
|
|
$
|
1,021,064
|
|
|
|
|
(1) |
|
The amounts reported are the annual base salary of each
executive in effect as of December 31, 2010, payable as a
lump sum. |
|
(2) |
|
The amounts reported are the annual bonus each executive would
have received for the fiscal year ended December 31, 2010.
See Footnote 2 to Summary Compensation Table. |
|
(3) |
|
The amounts reported are calculated as follows: welfare benefit
plans and insurance programs for a period of 12 months for
Messers. Mitchell, Stock, Warner, Copple and Fernandes.
Disability insurance includes premiums for long-term disability,
individual disability income protection and short-term
disability. |
|
(4) |
|
Pursuant to the respective employment agreement of each named
executive officer, upon termination due to death or disability,
the executive or executives estate or representative shall
be entitled to receive any previously vested equity awards.
Additionally, pursuant to the Restated Plan, upon death or
disability, the lesser of, (a) an additional twenty percent
(20%) of the shares of Common Stock covered by an individual
option or restricted award and (b) the remaining amount of
unvested shares of Common Stock covered by the option or
restricted award shall become vested and exercisable. |
|
|
|
Pursuant to the above, the total number of equity awards that
would have vested and be exercisable upon death or disability of
each named executive officer would be as follows: restricted
stock 31,433 for Alan W. Stock, 23,944 for Timothy
Warner, 23,319 for Robert Copple and 17,761 for Valmir Fernandes. |
|
|
|
As of December 31, 2010, there were no vested, exercisable
options for Messers. Stock, Warner, Copple and Fernandes. |
|
|
|
The values of the equity awards have been calculated using the
closing price of our Common Stock on December 31, 2010 of
$17.24 per share. |
Internal
Revenue Code Section 162(m)
Section 162(m) of the Code, as amended disallows a tax
deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for
certain senior executive officers, except for compensation that
is performance-based under a plan that is approved by the
stockholders and that meets certain other technical
requirements. Section 162(m) did not prevent us from
receiving a tax deduction in 2010
98
for any of the compensation paid to our named executive
officers. While we consider the potential impact of
Section 162(m) on our compensation decisions, we may
approve compensation for an executive officer that does not meet
the deductibility requirements of Section 162(m) in the
future in order to maintain competitive compensation packages
and attract talented leaders.
Compensation
Committee Interlocks and Insider Participation
We do not have a compensation committee. None of our executive
officers served as a member of the board of directors or the
compensation committee of any entity that has one or more
executive officers serving on our board or on the Compensation
Committee of Holdings Board. Messers. Chereskin and Dombalagian
served as the members of the Compensation Committee of Cinemark
Holdings during the last completed fiscal year.
Compensation
of Directors
In order to attract and retain qualified non-employee directors,
the Holdings Board adopted a Non-Employee Director Compensation
Policy in August 2007, by which non-employee directors are
compensated for their service to Cinemark Holdings. Only those
members of the Holdings Board who constitute non-employee
directors are eligible to receive compensation under this
policy. Non-employee directors include any member of the
Holdings Board who (i) is neither an employee of Cinemark
Holdings nor an employee of any of Cinemark Holdingss
subsidiaries; and (ii) is not an employee of any of
Cinemark Holdingss stockholders with contractual rights to
nominate directors.
Each non-employee director receives the following annual
compensation in connection with the service of such non-employee
director as a member of the Holdings Board:
(a) A base director retainer of $50,000;
(b) An additional retainer of $20,000 if such non-employee
director serves as the chairman of the Audit Committee;
(c) An additional retainer of $10,000 if such non-employee
director serves as a member of the Audit Committee, other than
the chairman of the Audit Committee;
(d) An additional retainer of $10,000 if such non-employee
director serves as the chairman of the Compensation Committee;
(e) An additional retainer of $5,000 if such non-employee
director serves as a member of the Compensation Committee, other
than the chairman of the Compensation Committee; and
(f) An additional retainer of $5,000 if such non-employee
director serves as a member of the Nominating and Corporate
Governance Committee.
Annual compensation is paid in four equal quarterly installments
at the end of each quarter for services rendered during the
quarter. Additionally, on an annual basis the non-employee
directors receive a grant of restricted stock of Cinemark
Holdingss common stock valued at $100,000. The number of
restricted stock to be issued is determined by dividing $100,000
by the fair market value of a share of Cinemark Holdingss
common stock on the grant date, rounded down to the nearest
whole share. The initial award and each annual award generally
vest on the first anniversary of the date of the grant, subject
to the non-employee directors continued service to
Cinemark Holdings through the vesting dates. An employee
director who ceases to be an employee, but who remains a
director, will not receive an initial award or an annual award
for any remaining term or renewal term of office during which
such director does not qualify as an independent director under
applicable Commission rules and NYSE listing standards. All
grants of restricted stock are made pursuant to the Amended and
Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan,
or the Restated Plan.
Members of the Holdings Board who are also officers or employees
of Cinemark Holdings or employees of Cinemark Holdingss
stockholders with contractual rights to nominate directors do
not receive compensation for their services as a director. All
directors are reimbursed for expenses incurred for each board
meeting which they attend.
99
The following table sets forth certain information regarding the
compensation of Cinemark Holdingss directors for year
ended December 31, 2010.
Director
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
Earned or
|
|
Stock
|
|
Other
|
|
|
|
|
Paid in Cash
|
|
Awards
|
|
Compensation
|
|
Total
|
Name
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
Benjamin D. Chereskin
|
|
|
66,250
|
|
|
|
174,980
|
|
|
|
4,826
|
|
|
|
246,056
|
|
Vahe A. Dombalagian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter R. Ezersky
|
|
|
60,000
|
|
|
|
155,885
|
|
|
|
4,352
|
|
|
|
220,237
|
|
Enrique F. Senior
|
|
|
50,000
|
|
|
|
99,993
|
|
|
|
6,145
|
|
|
|
156,138
|
|
Raymond W. Syufy
|
|
|
17,432
|
|
|
|
|
|
|
|
|
|
|
|
17,432
|
|
Carlos M. Sepulveda
|
|
|
70,000
|
|
|
|
99,993
|
|
|
|
6,145
|
|
|
|
176,138
|
|
Roger T. Staubach
|
|
|
50,000
|
|
|
|
99,993
|
|
|
|
6,145
|
|
|
|
156,138
|
|
Donald G. Soderquist
|
|
|
50,000
|
|
|
|
99,993
|
|
|
|
6,145
|
|
|
|
156,138
|
|
Steven P. Rosenberg
|
|
|
77,500
|
|
|
|
99,997
|
|
|
|
4,908
|
|
|
|
182,405
|
|
|
|
|
(1) |
|
Fees earned by our non-employee directors pursuant to Cinemark
Holdings Non-Employee Director Compensation Policy.
Mr. Chereskin and Mr. Rosenbergs fees were
higher in 2010 due to adjustments for certain underpayments in
previous years. As the Chairman of the compensation committee
and member of the nominating and corporate governance committee
to the Holdings Board, Mr. Chereskin received an additional
$6,250 (prorated) for his services in 2009. Mr. Rosenberg
received an additional $17,500 for his services as a member of
the audit committee to the Holdings Board in 2008 (prorated) and
2009. |
|
(2) |
|
Pursuant to our Non-Employee Director Compensation Policy, in
January 2010, Messers. Chereskin and Ezersky were awarded 5,168
and 3,852 shares of restricted stock, respectively, for
2009. Mr. Chereskin became eligible to receive the annual
restricted stock grant upon the termination of his employment
with MDCP on September 30, 2009 and Mr. Ezersky became
eligible for the same upon sale by the Quadrangle Investors of
their ownership of Common Stock on December 9, 2009.
Consequently, at the first Holdings Board meeting of 2010, the
Holdings Board approved the annual restricted stock grants for
2009 to Messers. Chereskin and Ezersky, prorated from the
respective eligible dates to the vest date of June 30, 2010. |
|
|
|
The grant date fair value of the restricted stock awarded to
Messers. Chereskin and Ezersky in January 2010 were calculated
using the closing price of Cinemark Holdings common stock on
January 28, 2010 of $14.51 per share. |
|
|
|
In April 2010, Mr. Rosenberg received the annual restricted
stock grant for 2010 of 5,414 shares of restricted stock
and in June 2010, Messers. Chereskin, Ezersky, Senior,
Sepulveda, Staubach and Soderquist each received the annual
restricted stock grant of 7,604 shares of restricted stock
for 2010. |
|
|
|
The grant date fair value of the restricted stock awarded to
Mr. Rosenberg in April 2010 was calculated using the
closing price of Cinemark Holdings common stock on April 1,
2010 of $18.47 per share. |
|
|
|
The grant date fair value of the restricted stock awarded to
Messers. Chereskin, Ezersky, Senior, Sepulveda, Staubach and
Soderquist in June 2010 were calculated using the closing price
of Cinemark Holdings common stock on June 30, 2010 of
$13.15 per share. |
|
|
|
The grant date fair value of each equity award has been computed
in accordance with FASB ASC Topic 718. |
|
|
|
See Note 19 to Cinemark Holdingss 2010 Annual Report
on
Form 10-K
filed March 1, 2011, for discussion of the assumptions used
in determining the fair values of these share based awards,
including forfeiture assumptions and the period over which
Cinemark Holdings will recognize compensation expense for such
awards. |
|
(3) |
|
The amounts reported are dividends paid during 2010 on the
shares of restricted stock. See Security Ownership of
Certain Beneficial Owners and Management. |
100
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of our outstanding common stock is beneficially owned by
Cinemark Holdings. The following table presents information
regarding beneficial ownership of Cinemark Holdingss
common stock as of June 29, 2011 by:
|
|
|
|
|
each person known by us to beneficially hold five percent or
more of Cinemark Holdingss common stock;
|
|
|
|
each of Cinemark Holdingss directors;
|
|
|
|
each of Cinemark Holdingss named executive
officers; and
|
|
|
|
all of Cinemark Holdingss executive officers and directors
as a group.
|
Beneficial ownership has been determined in accordance with the
applicable rules and regulations, promulgated under the Exchange
Act. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of Cinemark
Holdingss common stock, subject to options that are
currently exercisable or exercisable within 60 days of
June 29, 2011, are deemed to be outstanding and to be
beneficially owned by the person holding the options for the
purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Percentage ownership
is based on 117,564,361 shares of Cinemark Holdingss
common stock issued and outstanding as of June 29, 2011. As
of June 29, 2011, there were 123 holders of record of
Cinemark Holdingss common stock.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
Names of Beneficial Owner
|
|
Number(1)
|
|
Percentage
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
Madison Dearborn Capital Partners IV,
LP(2)(10)
|
|
|
10,203,708
|
|
|
|
9
|
%
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
Lee Roy
Mitchell(3)
|
|
|
10,122,845
|
|
|
|
9
|
%
|
Alan W.
Stock(4)
|
|
|
158,766
|
|
|
|
|
*
|
Timothy
Warner(5)
|
|
|
112,767
|
|
|
|
|
*
|
Robert
Copple(6)
|
|
|
159,715
|
|
|
|
|
*
|
Valmir
Fernandes(7)
|
|
|
93,489
|
|
|
|
|
*
|
Benjamin D.
Chereskin(8)
|
|
|
44,482
|
|
|
|
|
*
|
Vahe A.
Dombalagian(9)
|
|
|
10,210,348
|
|
|
|
|
*
|
Peter R.
Ezersky(10)
|
|
|
11,456
|
|
|
|
|
*
|
Steven P.
Rosenberg(11)
|
|
|
28,285
|
|
|
|
|
*
|
Enrique F.
Senior(12)
|
|
|
29,563
|
|
|
|
|
*
|
Carlos M.
Sepulveda(12)
|
|
|
29,563
|
|
|
|
|
*
|
Roger T.
Staubach(12)
|
|
|
29,563
|
|
|
|
|
*
|
Donald G.
Soderquist(12)
|
|
|
29,563
|
|
|
|
|
*
|
Raymond W. Syufy
|
|
|
|
|
|
|
|
*
|
Executive Officers & Directors as a Group
(15 persons)(13)
|
|
|
21,290,250
|
|
|
|
18
|
%
|
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
In computing the number of shares of Cinemark Holdingss
common stock beneficially owned by a person and the percentage
ownership of that person, we deemed outstanding shares of
Cinemark Holdingss common stock subject to options held by
that person that were currently exercisable at, or were
exercisable within 60 days of, the Record Date. The Company
did not deem these shares outstanding, however, for the purpose
of computing the percentage ownership of any other person. |
101
|
|
|
(2) |
|
The address of MDCP is Three First National Plaza,
Suite 3800, 70 West Madison Street, Chicago, Illinois
60602. |
|
(3) |
|
Includes 4,419,095 shares of Common Stock owned by The
Mitchell Special Trust. Mr. Mitchell is the co-trustee of
The Mitchell Special Trust. Mr. Mitchell expressly
disclaims beneficial ownership of all shares held by The
Mitchell Special Trust. |
|
(4) |
|
Includes 145,308 shares of restricted stock. |
|
(5) |
|
Includes 112,767 shares of restricted stock. |
|
(6) |
|
Includes 110,054 shares of restricted stock. |
|
(7) |
|
Includes 88,645 shares of restricted stock. |
|
(8) |
|
Includes 7,604 shares of restricted stock. |
|
(9) |
|
The shares beneficially owned by MDCP may be deemed to be
beneficially owned by Madison Dearborn Partners IV, LP, or MDP
IV, the sole general partner of MDCP. John A. Canning, Jr., Paul
J. Finnegan and Samuel M. Mencoff are the sole members of a
limited partner committee of MDCP that has the power, acting by
majority vote, to vote or dispose of the shares beneficially
held by MDCP. Mr. Dombalagian is a limited partner of MDP
IV and a Managing Director of MDP, and therefore may be deemed
to share beneficial ownership of the shares beneficially owned
by MDCP. Messrs. Canning, Finnegan, Mencoff and Dombalagian
and MDP IV each hereby disclaims any beneficial ownership of the
10,210,348 shares beneficially owned by MDCP. |
|
(10) |
|
Includes 7,604 shares of restricted stock. |
|
(11) |
|
Includes 5,005 shares of restricted stock. |
|
(12) |
|
Includes 7,604 shares of restricted stock. |
|
(13) |
|
Includes no shares of Cinemark Holdingss common stock
issuable upon the exercise of options. |
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Holdings Board has adopted a written policy supplementing
our Code of Business Conduct and Ethics relating to the review,
approval and ratification of transactions between us and
related parties as generally defined by applicable
rules under the Securities Act. The policy covers any related
party transaction in which the amount involved exceeds $120,000.
The Holdings Board has determined that the audit committee is
best suited to review and approve related party transactions,
although in certain circumstances the Holdings Board may
determine that a particular related party transaction be
reviewed and approved by a majority of disinterested directors.
In reviewing and approving a related party transaction, the
audit committee, after satisfying itself that it has received
full all material information regarding the related party
transaction under review, shall approve based upon the
determination whether the transaction is fair and in the best
interest of Cinemark Holdings or the applicable subsidiary. At
such audit committee meeting, management shall recommend any
related party transactions to be entered into by Cinemark
Holdings or any of its subsidiaries. If management becomes aware
of a proposed or existing related party transaction that has not
been pre-approved by the audit committee, management shall
promptly notify the chairman of the audit committee who shall
submit such related party transaction to the audit committee for
approval or ratification if the audit committee determines that
such transaction is fair to Cinemark Holdings or the applicable
subsidiary. If management, in consultation with our Chief
Executive Officer, Chief Financial Officer or General Counsel
determines that it is not practicable to wait until the next
audit committee meeting, the chairman of the audit committee has
been delegated the authority during this period to review,
consider and approve any such transaction. In such event, the
chairman of the audit committee shall report any related party
transaction approved by him or her at the next audit committee
meeting. The audit committee may establish guidelines it
determines are necessary and appropriate for management to
follow in dealings with related parties and related party
transactions. The procedures followed in considering a related
party transaction are evidenced in the resolutions and minutes
of the meeting of the audit committee or the Holdings Board, as
applicable.
102
Certain
Agreements
Plitt
Plaza Joint Venture
We leased one theatre from Plitt Plaza Joint Venture, or Plitt
Plaza. Plitt Plaza is indirectly owned by Lee Roy Mitchell. We
closed this theatre during March 2010. We recorded approximately
$0.1 million related to the termination of the lease
pertaining to the theatre.
Laredo
Theatre
We manage one theatre for Laredo Theatre, Ltd., or Laredo. We
are the sole general partner and own 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 us at
a rate of 5% of annual theatre revenues up to $50 million
and 3% of annual theatre revenues in excess of $50 million.
We recorded $0.1 million of management fee revenue and
received no distributions during the year ended
December 31, 2010. As the sole general partner and the
majority limited partner of Laredo, we control the affairs of
the limited partnership and have the rights to dissolve the
partnership or sell the theatre. We also have a license
agreement with Laredo permitting Laredo to use the
Cinemark service mark, name and corresponding logos
and insignias in Laredo, Texas.
Copper
Beech LLC
Effective September 2, 2009, we entered into an Aircraft
Time Sharing Agreement, or the Aircraft Agreement, with Copper
Beech Capital, LLC, a Texas limited liability company, or the
Operator, for the use of an aircraft and flight crew on a time
sharing basis. Lee Roy Mitchell and his wife, Tandy Mitchell own
the membership interests of the Operator. Prior to the execution
of the Aircraft Agreement, we had an informal agreement with the
Operator to use, on occasion, a private aircraft owned by the
Operator. The private aircraft is used by Mr. Mitchell and
other executives who accompany Mr. Mitchell to business
meetings for us. The Aircraft Agreement specifies the maximum
amount that the Operator can charge us under the applicable
regulations of the Federal Aviation Administration for the use
of the aircraft and flight crew. We will pay the Operator the
direct costs and expenses related to fuel, pilots, landing fees,
storage fees, insurance obtained for the specific flight, flight
planning, weather contract services and expenses such as
in-flight food and beverage services and passenger ground
transportation incurred during a trip. For the year ended
December 31, 2010, the aggregate amounts paid to the
Operator for the use of the aircraft was approximately
$0.1 million.
Century
Theatres
Our subsidiary, Century Theatres, leases 20 theatres and
one parking facility from Syufy Enterprises or affiliates of
Syufy Enterprises. Raymond Syufy, a director, is an officer of
the general partner of Syufy Enterprises. Of the 21 leases, 17
have fixed minimum annual rent in an aggregate amount of
approximately $21 million. The four 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. For
the year ended December 31, 2010, we paid approximately
$1.2 million in percentage rent for these leases.
103
DESCRIPTION
OF EXCHANGE NOTES
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. In this description, the word
Company refers only to Cinemark USA, Inc. and not to
any of its subsidiaries or its Parent Entities.
The Company issued the Initial Notes, and will issue the
Exchange Notes, under the Indenture dated June 3, 2011,
among itself, the Guarantors and Wells Fargo Bank, N.A., as
trustee. The terms of the Exchange Notes include those stated in
the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the
Trust Indenture Act). The aggregate
principal amount of Notes issuable under the Indenture is
unlimited, although the issuance of Exchange Notes in this
exchange offering will be limited to an aggregate principal
amount of $200,000,000. The form of Exchange Notes will be
identical in all material respects to that of the Initial Notes
except that the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting
their transfer and the registration rights will not apply to the
Exchange Notes. The Exchange Notes will not represent new
Indebtedness of the Company. We may issue an unlimited principal
amount of Additional Notes having identical terms and conditions
as the Exchange Notes, subject to our compliance with the
covenants contained in the Indenture. Any Additional Notes will
be part of the same issue as the Exchange Notes and will vote on
all matters with the holders of the Exchange Notes.
The following description is a summary of the material
provisions of the Indenture. It does not restate that agreement
in its entirety. We urge you to read the Indenture because it,
and not this description, defines your rights as holders of the
Exchange Notes. Certain defined terms used in this description
but not defined below under Certain
Definitions have the meanings assigned to them in the
Indenture.
The registered Holder of an Exchange Note will be treated as the
owner of it for all purposes. Only registered Holders will have
rights under the Indenture.
Brief
Description of the Exchange Notes and the Subsidiary
Guarantees
The Exchange Notes will:
|
|
|
|
|
be general senior subordinated unsecured obligations of the
Company;
|
|
|
|
be limited to an aggregate principal amount of $200,000,000,
subject to our ability to issue Additional Notes;
|
|
|
|
mature on June 15, 2021;
|
|
|
|
rank equal in right of payment with all existing and future
Senior Subordinated Debt of the Company;
|
|
|
|
be subordinated in right of payment to any existing and future
Senior Debt of the Company, including Indebtedness of the
Company under the Credit Agreement and the Senior Notes;
|
|
|
|
be structurally subordinated to Indebtedness and other
liabilities, including trade payables, of the Companys
non-Guarantor Subsidiaries; and
|
|
|
|
rank effectively junior in right of payment to any secured
Indebtedness of the Company to the extent of the value of the
collateral securing that Indebtedness, including Indebtedness of
the Company under the Credit Agreement which is secured by a
pledge of the Capital Stock of certain of the Companys
domestic subsidiaries and by certain of the Companys real
property and substantially all of the Companys personal
and intangible property.
|
The Exchange Notes will be guaranteed by each of the
Companys Restricted Subsidiaries that guarantees any of
the Companys or a Guarantors Indebtedness.
Each Subsidiary Guarantee will:
|
|
|
|
|
be a general senior subordinated unsecured obligation of such
Guarantor;
|
104
|
|
|
|
|
rank equal in right of payment with any existing and future
Senior Subordinated Debt of such Guarantor;
|
|
|
|
be subordinated in right of payment to any existing and future
Senior Debt of such Guarantor, including the guarantees by such
Guarantor of the Credit Agreement and the Senior Notes; and
|
|
|
|
rank effectively junior in right of payment to any secured
Indebtedness of such Guarantor to the extent of the value of the
collateral securing that Indebtedness, including the guarantee
by such Guarantor of Indebtedness under the Credit Agreement.
|
At March 31, 2011, on an as adjusted basis, after giving
effect to the issuance of the Initial Notes and the use of
proceeds therefrom, the Company would have had total Senior Debt
of approximately $1,382.8 million and total Senior
Subordinated Debt of approximately $200.0 million. As of
March 31, 2011, on the same basis, the Guarantors would
have had total Senior Debt of approximately
$1,382.8 million and total Senior Subordinated Debt of
approximately $200.0 million. Subject to certain
limitations, the Company and its Restricted Subsidiaries may
incur other Indebtedness in the future, including secured and
unsecured Senior Debt. Moreover, the Indenture does not impose
any limitation on the incurrence by the Company and its
Restricted Subsidiaries of liabilities that are not considered
Indebtedness under the Indenture.
Not all of our subsidiaries will Guarantee the Exchange Notes.
For the three months ended March 31, 2011, the
non-guarantor Subsidiaries generated in the aggregate
$157.3 million, or 32.6%, of our consolidated revenues. As
of March 31, 2011, our non-guarantor Subsidiaries on a
combined basis accounted for $891.6 million, or 26.1%, of
our consolidated total assets, and the Indebtedness and other
liabilities (other than Indebtedness and other liabilities owed
to the Company or a Guarantor) of the non-guarantor Subsidiaries
were $184.9 million, and the Notes would have been
structurally subordinated to such Indebtedness and other
liabilities. The Indenture permits, subject to certain
significant limitations, the Companys non-guarantor
subsidiaries to incur additional Indebtedness and other
liabilities. In the event of a bankruptcy, liquidation or
reorganization of any of the Companys non-guarantor
Subsidiaries, such Subsidiaries will pay the holders of their
debt and their trade creditors before they will be able to
distribute any of their assets to the Company or any Guarantor.
As of the Issue Date, all of the Companys Subsidiaries
other than Cinemark Media, Inc. were Restricted
Subsidiaries. However, under the circumstances described
below under the subheading Certain
Covenants Designation of Restricted and Unrestricted
Subsidiaries, the Company will be permitted to designate
additional Subsidiaries as Unrestricted
Subsidiaries. The Companys Unrestricted Subsidiaries
will not be subject to many of the restrictive covenants in the
Indenture. Unrestricted Subsidiaries and certain Restricted
Subsidiaries will not guarantee the Exchange Notes. Cinemark
Media, Inc. conducts no independent operations and its primary
assets are its ownership interests in NCMI, Digital Cinema
Implementation Partners LLC and DCDC Holdings, Inc.
Principal,
Maturity and Interest
The Company will issue Exchange Notes with an initial maximum
aggregate principal amount of $200,000,000. The Company may
issue Additional Notes from time to time after this offering.
Any offering of Additional Notes is subject to the covenant
described below under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock. The Initial Notes, Exchange Notes and any
Additional Notes subsequently issued under the Indenture will be
treated as a single class for all purposes under the Indenture,
including, without limitation, waivers, amendments, redemptions
and offers to purchase. The Company will issue Notes in
denominations of $2,000 and integral multiples of $1,000 in
excess thereof. The Notes will mature on June 15, 2021.
Interest on the Notes will accrue at a rate of 7.375% per annum
and will be payable semi-annually in arrears on June 15 and
December 15, commencing on December 15, 2011. We will
pay interest to those persons who were Holders of record on the
June 1 and December 1 immediately preceding the related interest
payment dates.
105
Interest on the Notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it
was most recently paid. Interest will be computed on the basis
of a 360-day
year comprised of twelve
30-day
months.
Methods
of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company,
the Company will pay all principal, interest and premium and
Additional Interest, if any, on that Holders Notes in
accordance with those instructions. All other payments on the
Notes will be made at the office or agency of the paying agent
and registrar within the City and State of New York unless the
Company elects to make interest payments by check mailed to the
Holders at their address set forth in the register of Holders.
Subordination
of the Notes
Only Indebtedness of the Company or a Guarantor that is Senior
Debt will rank senior in right of payment to the Notes and the
Guarantees in accordance with the provisions of the Indenture.
The Notes and Guarantees will in all respects rank equal in
right of payment with all other Senior Subordinated Debt of the
Company and the relevant Guarantor, respectively.
Neither the Company nor any Guarantor is permitted to pay
principal of, premium, if any, or interest on the Notes (or pay
any other Obligations relating to the Notes, including
Additional Interest, fees, costs, expenses, indemnities and
rescission or damage claims) or make any deposit pursuant to the
provisions described under Legal Defeasance and Covenant
Defeasance or Satisfaction and Discharge below
and may not purchase, redeem or otherwise retire or acquire for
cash or property any Notes (collectively, pay the
Notes) (except in the form of Permitted Junior
Securities) if either of the following occurs (a
Designated Senior Debt Payment Default):
(1) any obligation on any Designated Senior Debt of the
Company is not paid in full in cash when due (after giving
effect to any applicable grace period); or
(2) any other default on Designated Senior Debt of the
Company occurs and the maturity of such Designated Senior Debt
is accelerated in accordance with its terms;
unless, in either case, the Designated Senior Debt Payment
Default has been cured or waived and any such acceleration has
been rescinded or such Designated Senior Debt has been paid in
full in cash. Regardless of the foregoing, the Company is
permitted to pay the Notes if the Company and the trustee
receive written notice approving such payment from the
Representatives of all Designated Senior Debt with respect to
which the Designated Senior Debt Payment Default has occurred
and is continuing.
During the continuance of any default (other than a Designated
Senior Debt Payment Default) (a Non-Payment
Default) with respect to any Designated Senior Debt
pursuant to which the maturity thereof may be accelerated
without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable
grace periods, the Company is not permitted to pay the Notes
(except in the form of Permitted Junior Securities) for a period
(a Payment Blockage Period) commencing upon
the receipt by the trustee (with a copy to the Company) of
written notice (a Blockage Notice) of such
Non-Payment Default from the Representative of such Designated
Senior Debt specifying an election to effect a Payment Blockage
Period and ending 179 days thereafter. The Payment Blockage
Period will end earlier if such Payment Blockage Period is
terminated:
(1) by written notice to the trustee and the Company from
the Person or Persons who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice
is cured, waived or otherwise no longer continuing; or
(3) because such Designated Senior Debt has been discharged
or repaid in full in cash.
106
Notwithstanding the provisions described above (but subject to
the subordination provisions in the immediately succeeding
paragraph), unless the holders of such Designated Senior Debt or
the Representative of such Designated Senior Debt has
accelerated the maturity of such Designated Senior Debt, the
Company and the Guarantors are permitted to resume paying the
Notes after the end of such Payment Blockage Period. The Notes
shall not be subject to more than one Payment Blockage Period in
any consecutive
360-day
period irrespective of the number of defaults with respect to
Designated Senior Debt during such period; provided that
if any Blockage Notice is delivered to the trustee by or on
behalf of the holders of Designated Senior Debt of the Company
(other than the holders of Indebtedness under the Credit
Agreement), a Representative of holders of Indebtedness under
the Credit Agreement may in the aggregate give one other
Blockage Notice within such period. However, in no event may the
total number of days during which any Payment Blockage Period or
Periods on the Notes is in effect exceed 179 days in the
aggregate during any consecutive
360-day
period, and there must be at least 181 days during any
consecutive
360-day
period during which no Payment Blockage Period is in effect.
In connection with the Notes, in the event of any payment or
distribution of the assets of the Company upon a total or
partial liquidation or dissolution or reorganization, insolvency
or bankruptcy of or similar proceeding relating to the Company
or its property:
(1) the holders of Senior Debt of the Company will be
entitled to receive payment in full in cash of such Senior Debt
before the Holders of the Notes are entitled to receive any
payment or distribution of any kind or character with respect to
any Obligations on, or relating to, the Notes, except that
Holders of Notes may receive Permitted Junior Securities;
(2) until the Senior Debt of the Company is paid in full in
cash, any payment or distribution to which Holders of the Notes
would be entitled but for the subordination provisions of the
Indenture will be made to holders of such Senior Debt as their
interests may appear, except that Holders of Notes may receive
Permitted Junior Securities; and
(3) if a distribution is made to Holders of the Notes that,
due to the subordination provisions, should not have been made
to them, such Holders of the Notes are required to hold it in
trust for the holders of Senior Debt of the Company and pay it
over to them as their interests may appear.
The subordination and payment blockage provisions described
above will not prevent a Default from occurring under the
Indenture upon the failure of the Company to pay interest or
principal with respect to the Notes when due by their terms. If
payment of the Notes is accelerated because of an Event of
Default, the Company must promptly notify the holders of
Designated Senior Debt or the Representative of such Designated
Senior Debt of the acceleration; provided that any
failure to give such notice shall have no effect whatsoever on
the subordination provisions described herein. So long as there
shall remain outstanding any Senior Debt under the Credit
Agreement, a Blockage Notice may be given only by the respective
Representatives thereunder unless otherwise agreed to in writing
by the requisite lenders named therein. If any Designated Senior
Debt of the Company is outstanding, neither the Company nor any
Guarantor may pay the Notes until five Business Days after the
Representatives of all the issuers of such Designated Senior
Debt receive notice of such acceleration and, thereafter, may
pay the Notes only if the Indenture otherwise permits payment at
that time.
Each Guarantors obligations under its Subsidiary Guarantee
are senior subordinated obligations of that Guarantor. As such,
the rights of Holders to receive payment pursuant to such
Subsidiary Guarantee will be subordinated in right of payment to
the rights of holders of Senior Debt of such Guarantor. The
terms of the subordination and payment blockage provisions
described above with respect to the Companys obligations
under the Notes apply equally to the obligations of such
Guarantor under its Subsidiary Guarantee.
A Holder by its acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the trustee, on
its behalf, to take such action as may be necessary or
appropriate to effectuate the subordination provided for in the
Indenture and appoints the trustee its attorney-in-fact for such
purpose.
By reason of the subordination provisions contained in the
Indenture, in the event of a liquidation or insolvency
proceeding, creditors of the Company or a Guarantor who are
holders of Senior Debt of the
107
Company or such Guarantor, as the case may be, may recover more,
ratably, than the Holders of the Notes, and creditors who are
not holders of Senior Debt may recover less, ratably, than
holders of Senior Debt and may recover more, ratably, than the
Holders of the Notes.
The terms of the subordination provisions described above will
not apply to payments from money or the proceeds of Government
Securities held in trust by the trustee for the payment of
principal of and interest on the Notes pursuant to the
provisions described under Legal Defeasance and Covenant
Defeasance or Satisfaction and Discharge, if
the foregoing subordination provisions were not violated at the
time the applicable amounts were deposited in trust pursuant to
such provisions and such deposit was otherwise made in
accordance with such provisions.
Paying
Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar.
The Company may change the paying agent or registrar without
prior notice to the Holders of the Notes, and the Company or any
of its Subsidiaries may act as paying agent or registrar.
Transfer
and Exchange
A Holder may transfer or exchange Notes in accordance with the
Indenture. The registrar and the trustee may require a Holder to
furnish appropriate endorsements and transfer documents in
connection with a transfer of Notes. Holders will be required to
pay all taxes due on transfer. The Company is not required to
transfer or exchange any note selected for redemption. Also, the
Company is not required to transfer or exchange any note for a
period of 15 days before a selection of Notes to be
redeemed.
Subsidiary
Guarantees
The Notes will be guaranteed by each of the Companys
current and future Restricted Subsidiaries that guarantees,
assumes or in any other manner becomes liable with respect to
any Indebtedness of the Company or any Guarantor. The Guarantors
will, jointly and severally, unconditionally guarantee on a
senior subordinated unsecured basis the Companys
obligations under the Notes and all obligations under the
Indenture. The Guarantors will agree to pay, in addition to the
amount stated above, any and all costs and expenses (including
reasonable counsel fees and expenses) incurred by the trustee or
the Holders in enforcing any rights under the Subsidiary
Guarantees. The obligations of the Guarantors under the
Subsidiary Guarantees will be subordinated in right of payment
to all existing and future Senior Debt of such Guarantor.
The obligations of each Guarantor under its Subsidiary Guarantee
will be limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance or
fraudulent transfer under applicable law.
A Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge
with or into (whether or not such Guarantor is the surviving
Person), another Person, other than the Company or another
Guarantor, unless immediately after giving effect to the
transaction, no Default or Event of Default exists.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all
or substantially all of the assets of that Guarantor (including
by way of merger or consolidation) to a Person that is not
(either before or after giving effect to such transaction) a
Subsidiary of the Company, if the sale or other disposition
complies with the applicable provisions of the Indenture; or
(2) in connection with any sale, exchange or transfer of
the Capital Stock of a Guarantor, after which such Guarantor is
no longer a Subsidiary of the Company, so long as the sale,
exchange or transfer is made in compliance with the applicable
provisions of the Indenture; or
(3) if the Company designates any Restricted Subsidiary
that is a Guarantor as an Unrestricted Subsidiary in accordance
with the applicable provisions of the Indenture; or
108
(4) upon the discharge of the Notes in accordance with the
legal defeasance provisions of the Indenture; or
(5) upon the release, termination or satisfaction of the
Guarantors guarantee or assumption of certain other
Indebtedness as more particularly described in the covenant
under the caption Certain
Covenants Future Guarantors.
Optional
Redemption
Except as described below, the Notes will not be redeemable at
the Companys option prior to June 15, 2016.
At any time prior to June 15, 2014, the Company may on any
one or more occasions redeem up to 35% of the aggregate
principal amount of Notes issued under the Indenture (including
any Additional Notes) at a redemption price of 107.375% of the
principal amount thereof, plus accrued and unpaid interest and
Additional Interest, if any, to the redemption date, with the
net cash proceeds of one or more Equity Offerings by the
Company, provided that:
(1) at least 65% of the principal amount of Notes issued
under the Indenture (including any Additional Notes) remains
outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company or any of its
Subsidiaries); and
(2) the redemption occurs within 90 days of the date
of the closing of such Equity Offering.
On and after June 15, 2016, the Company may redeem all or a
part of the Notes upon not less than 30 nor more than
60 days notice except that a redemption notice may be
mailed more than 60 days prior to a redemption if the
notice is issued in connection with a defeasance of the Notes or
a satisfaction and discharge of the Indenture, at the redemption
prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Additional Interest,
if any, on the Notes redeemed, to the applicable redemption
date, if redeemed during the
12-month
period beginning on June 15 of the years indicated below:
|
|
|
|
|
Year
|
|
Percentage
|
|
2016
|
|
|
103.688
|
%
|
2017
|
|
|
102.458
|
%
|
2018
|
|
|
101.229
|
%
|
2019 and thereafter
|
|
|
100.000
|
%
|
If the redemption date is on or after an interest payment record
date and on or before the related interest payment date, the
accrued and unpaid interest and Additional Interest, if any,
will be paid to the Holder in whose name the note is registered
at the close of business on such record date, and no additional
interest or Additional Interest, if any, will be payable to
Holders whose Notes will be subject to redemption by the Company.
In addition, at any time and from time to time prior to
June 15, 2016, the Company may, at its option, redeem all
or a portion of the Notes at a redemption price equal to 100% of
the principal amount thereof plus the Applicable Premium with
respect to the Notes plus accrued and unpaid interest, if any,
thereon to the redemption date. Notice of such redemption must
be mailed to holders of the Notes called for redemption not less
than 30 nor more than 60 days prior to the redemption date.
The notice need not set forth the Applicable Premium but only
the manner of calculation of the redemption price. The Indenture
provides that, with respect to any such redemption, the Company
will notify the trustee of the Applicable Premium with respect
to the Notes promptly after the calculation and that the trustee
will not be responsible for such calculation.
Adjusted Treasury Rate means, with respect to
any redemption date, (i) the yield, under the heading which
represents the average for the immediately preceding week,
appearing in the most recently published statistical release
designated H.15(519) or any successor publication
which is published weekly by the Board of Governors of the
Federal Reserve System and which establishes yields on actively
traded United States Treasury securities adjusted to constant
maturity under the caption Treasury Constant
Maturities for
109
the maturity corresponding to the Comparable Treasury Issue with
respect to the Notes called for redemption (if no maturity is
within three months before or after June 15, 2016, yields
for the two published maturities most closely corresponding to
the Comparable Treasury Issue shall be determined and the
Adjusted Treasury Rate shall be interpolated or extrapolated
from such yields on a straight line basis, rounding to the
nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per
year equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for
such redemption date, in each case calculated on the third
business day immediately preceding the redemption date, plus, in
the case of each of clause (i) and (ii), 0.50%.
Applicable Premium means, at any redemption
date, the excess of (A) the present value at such
redemption date of (1) the redemption price of the Notes on
June 15, 2016 (such redemption price being described above
in the third paragraph of this Optional
Redemption section) plus (2) all required remaining
scheduled interest payments due on the Notes through
June 15, 2016 (excluding accrued and unpaid interest),
computed using a discount rate equal to the Adjusted Treasury
Rate, over (B) the principal amount of the Notes on such
redemption date.
Comparable Treasury Issue means the United
States Treasury security selected by the Quotation Agent as
having a maturity comparable to the remaining term from the
redemption date to June 15, 2016, that would be utilized,
at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt
securities of a maturity most nearly equal to June 15, 2016.
Comparable Treasury Price means, with respect
to any redemption date, if clause (ii) of the Adjusted
Treasury Rate is applicable, the average of three, or such
lesser number as is obtained by the trustee, Reference Treasury
Dealer Quotations for the redemption date.
Quotation Agent means the Reference Treasury
Dealer selected by the trustee after consultation with the
Company.
Reference Treasury Dealer means any three
nationally recognized investment banking firms selected by the
Company that are primary dealers of Government Securities.
Reference Treasury Dealer Quotations means,
with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the trustee, of
the bid and asked prices for the Comparable Treasury Issue with
respect to the Notes, expressed in each case as a percentage of
its principal amount, quoted in writing to the trustee by such
Reference Treasury Dealer at 5:00 p.m., New York City time,
on the third business day immediately preceding the redemption
date.
Selection
and Notice
If less than all of the Notes are to be redeemed at any time,
the trustee will select Notes for redemption as follows:
(1) if the Notes are listed on any national securities
exchange, in compliance with the requirements of the principal
national securities exchange on which the Notes are
listed; or
(2) if the Notes are not listed on any national securities
exchange, on a pro rata basis (and in the case of global Notes,
on as near a pro rata basis as practical, subject to the
applicable procedures of the Depository Trust Company or
other depositary for the Notes), by lot or by such method as the
trustee deems fair and appropriate.
No Notes of $2,000 in aggregate principal amount or less can be
redeemed in part. Except as otherwise specified, notices of
redemption will be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days
prior to a redemption date if the notice is issued in connection
with a defeasance of the Notes or a satisfaction and discharge
of the Indenture. Notices of redemption may not be conditional.
110
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount of that note that is to be redeemed. A new
note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the Holder of Notes
upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and
after the redemption date, interest and Additional Interest, if
any, will cease to accrue on Notes or portions of them called
for redemption.
Mandatory
Redemption
The Company is not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
Repurchase
at the Option of Holders
Change
of Control
If a Change of Control occurs, the Company will be required to
make an offer (a Change of Control Offer) to
each Holder of Notes to repurchase all or any part (equal to
$1,000 in principal amount or an integral multiple thereof ) of
that Holders Notes on the terms set forth in the
Indenture. In the Change of Control Offer, the Company will
offer a payment in cash (the Change of Control
Payment) equal to 101% of the principal amount of the
Notes repurchased plus accrued and unpaid interest and
Additional Interest, if any, on the Notes repurchased to the
date of purchase (a Change of Control Payment
Date). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes on the Change
of Control Payment Date specified in the notice, which date will
be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, pursuant to the procedures
required by the Indenture and described in such notice.
On the Change of Control Payment Date, the Company will, to the
extent lawful:
(1) accept for payment all Notes or portions of Notes
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all Notes or portions of
Notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the
Notes properly accepted together with an officers
certificate stating the aggregate principal amount of Notes or
portions of Notes being purchased by the Company.
The paying agent will promptly mail to each Holder of Notes
properly tendered the Change of Control Payment for such Notes,
and the trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Exchange Note
equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided that each new note
will be in a principal amount of $2,000 or an integral multiple
of $1,000 in excess thereof.
The Credit Agreement and the Senior Notes prohibit or limit, and
future credit agreements or other agreements relating to Senior
Debt to which the Company becomes a party may prohibit or limit,
the Company from repurchasing any Exchange Note as a result of a
Change of Control. If the Company is unable to obtain the
requisite consents under the agreements governing such Senior
Debt to permit the repurchase of the Notes or is unable to repay
such borrowings, the Company will remain prohibited from
repurchasing the Notes.
If the Change of Control Payment Date is on or after an interest
payment record date and on or before the related interest
payment date, any accrued and unpaid interest and Additional
Interest, if any, will be paid to the Holder in whose name a
note is registered at the close of business on such record date,
and no other interest or Additional Interest, if any, will be
payable to Holders who tender pursuant to the Change of Control
Offer.
111
The provisions described above that require the Company to make
a Change of Control Offer following a Change of Control will be
applicable whether or not any other provisions of the Indenture
are applicable. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions
that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and
purchases all Notes properly tendered and not withdrawn under
the Change of Control Offer or if an irrevocable notice of
redemption has been given pursuant to the Indenture in
accordance with the provisions set forth under the caption
Optional Redemption.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, lease, transfer, conveyance or
other disposition of all or substantially all of the
properties or assets of the Company and its Restricted
Subsidiaries taken as a whole to any person other than a
Permitted Holder. Although there is a limited body of case law
interpreting the phrase substantially all, there is
no precise established definition of the phrase under applicable
law. Accordingly, in certain circumstances there may be a degree
of uncertainty as to whether a particular transaction would
involve a disposition of all or substantially all of
the property or assets of a Person. As a result, it may be
unclear as to whether a Change of Control has occurred and
whether a Holder of Notes may require the Company to make a
Change of Control Offer.
The Company will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with each repurchase of Notes
pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the Change of Control provisions of the Indenture, the Company
will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under
the Change of Control provisions of the Indenture by virtue of
such conflict.
Certain
Covenants
Restricted
Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of the Companys or any of its
Restricted Subsidiaries Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the
Companys or any of its Restricted Subsidiaries
Equity Interests in their capacity as such (other than dividends
or distributions payable (a) in Equity Interests (other
than Disqualified Stock) of the Company or (b) to the
Company or a Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any
merger or consolidation involving the Company) any Equity
Interests of the Company or any Parent Entity held by Persons
other than the Company or a Restricted Subsidiary (other than in
exchange for Capital Stock of the Company (other than
Disqualified Stock));
(3) make any payment of principal on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness (other than any Indebtedness of the
Company owing to and held by a Guarantor or Indebtedness of a
Guarantor owing to and held by the Company or any other
Guarantor permitted under the Indenture) that is subordinated to
the Notes or the Subsidiary Guarantees, if any, except a payment
of principal at the Stated Maturity thereof, other than any
purchase, repurchase, redemption, defeasance or other
acquisition or retirement of any such Indebtedness made in
anticipation of a sinking fund obligation, principal installment
or final maturity, in each case, within one year of the date of
such purchase, repurchase, redemption, defeasance or other
acquisition or retirement; or
112
(4) make any Restricted Investment (all such payments and
other actions set forth in these clauses (1) through
(4) above being collectively referred to as
Restricted Payments),
unless, at the time of and after giving effect to such
Restricted Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted
Payment; and
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the
applicable four- quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and
its Restricted Subsidiaries since the Start Date (including
Restricted Payments permitted by clauses (1), (9), (12) and
(13) of the next succeeding paragraph, but excluding all
other Restricted Payments permitted by the next succeeding
paragraph; all calculations being made as if this covenant had
been in effect as of the Start Date and at all times
thereafter), is less than the sum, without duplication, of:
(a) (i) Consolidated Cash Flow of the Company and its
Restricted Subsidiaries on a consolidated basis for the
Restricted Payments Computation Period, minus (ii) (A) for
the period from the Start Date to the end of the fiscal quarter
immediately preceding the fiscal quarter during which the Issue
Date occurred, 2.0 and (B) thereafter, 1.7, multiplied by
Fixed Charges of the Company and its Restricted Subsidiaries on
a consolidated basis for the Restricted Payments Computation
Period, plus
(b) 100% of the aggregate net cash proceeds and the fair
market value of marketable securities and other property
received by the Company or any Guarantor since immediately after
the Start Date from the sale of:
(i)(A) Equity Interests of the Company, excluding cash proceeds
and the fair market value of marketable securities or other
property received from the sale of Equity Interests to members
of management, directors or consultants of the Company, any
Parent Entity and the Companys Subsidiaries after the
Start Date to the extent such amounts have been applied to
Restricted Payments made in accordance with clause (5) of
the next succeeding paragraph; and
(B) to the extent such net cash proceeds or marketable
securities or other property are actually contributed to the
Company, Equity Interests of the Parent Entities (excluding
contributions to the extent such amounts have been applied to
Restricted Payments made in accordance with clause (5) of
the next succeeding paragraph); or
(ii) debt securities of the Company that have been
converted into or exchanged for such Equity Interests of the
Company (or any Parent Entity);
provided, however, that this clause (b) shall not
include the proceeds from (X) Equity Interests or
convertible debt securities of the Company sold to a Restricted
Subsidiary, (Y) Disqualified Stock or debt securities that
have been converted into Disqualified Stock or (Z) Excluded
Contributions or Equity Interests used to make a Permitted
Investment pursuant to clause (8) of the definition of
Permitted Investments; plus
(c) 100% of the aggregate amount of cash and the fair
market value of marketable securities or other property
contributed to the capital of the Company following the Start
Date (other than by a Restricted Subsidiary and other than by
any Excluded Contributions); plus
113
(d) 100% of the aggregate amount received in cash and the
fair market value of marketable securities or other property
received after the Start Date by means of:
(i) the sale or other disposition (other than to the
Company or a Restricted Subsidiary) of Restricted Investments
made by the Company or its Restricted Subsidiaries and
repurchases and redemptions of such Restricted Investments from
the Company or its Restricted Subsidiaries and repayments of
loans or advances, and releases of Guarantees and other
liabilities (other than contingent liabilities), which
constitute Restricted Investments by the Company or its
Restricted Subsidiaries, in each case after the Start
Date; or
(ii) the sale (other than to the Company or a Restricted
Subsidiary) of the Equity Interests of an Unrestricted
Subsidiary (other than to the extent the Investment in such
Unrestricted Subsidiary constituted a Permitted Investment) or a
dividend or distribution from an Unrestricted Subsidiary after
the Start Date; plus
(e) in the case of the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary after the Start Date, the
fair market value of the Companys and its Restricted
Subsidiaries aggregate interests in such Unrestricted
Subsidiary (which, if the fair market value of such interests
(other than the value attributable to marketable securities held
by such Unrestricted Subsidiary) exceeds $50.0 million,
shall be set forth in writing by an accounting, appraisal or
investment banking firm of national standing or determined by
the Companys Board of Directors) at the time of the
designation of such Unrestricted Subsidiary as a Restricted
Subsidiary, other than the amount of the Investments in such
Unrestricted Subsidiary made after the Start Date as Permitted
Investments hereunder; plus
(f ) $300.0 million.
The preceding provisions will not prohibit:
(1) the payment of any dividend or distribution within
60 days after the date of declaration thereof, if at the
date of declaration the dividend or distribution payment would
have complied with the provisions of the Indenture;
(2) the payment of principal on or with respect to, or the
purchase, redemption, repurchase, retirement, defeasance or
other acquisition of, any Indebtedness subordinated to the Notes
or any Subsidiary Guarantee or of any Equity Interests of the
Company or any Parent Entity made by conversion into, in
exchange for, or out of the proceeds of the substantially
concurrent (a) sale (other than to a Subsidiary of the
Company or constituting an Excluded Contribution or Equity
Interests used to make a Permitted Investment pursuant to
clause (8) of the definition of Permitted Investments) of,
Equity Interests of the Company (other than Disqualified Stock
and other than Equity Interests issued or sold to an employee
stock ownership plan or similar trust to the extent such sale to
an employee stock ownership plan or similar trust is financed by
loans from or guaranteed by the Company or any Restricted
Subsidiary unless such loans have been repaid with cash on or
prior to the date of determination) or any Parent Entity or
(b) contribution to the capital of the Company (other than
by a Subsidiary and other than constituting an Excluded
Contribution); provided that the amount of any such
proceeds that are utilized for any such payment, purchase,
redemption, repurchase, retirement, defeasance or other
acquisition will be excluded from clauses (3)(b) and (3)(c) of
the preceding paragraph;
(3) the payment of principal on or with respect to, or the
purchase, defeasance, redemption, repurchase or other
acquisition or retirement of, Indebtedness subordinated to the
Notes or any Subsidiary Guarantee with the proceeds from an
incurrence of, or in exchange for, Permitted Refinancing
Indebtedness, that is permitted to be incurred pursuant to the
covenant described below under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock;
(4) the declaration and payment of any dividend or
distribution by a Restricted Subsidiary of the Company to the
holders of its Capital Stock on a pro rata basis;
(5) the purchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or
any Parent Entity held by any current or former employee,
director or consultant of the
114
Company, any Parent Entity or any of the Companys
Restricted Subsidiaries (or any permitted transferee of any of
the foregoing) pursuant to any management equity subscription
agreement, stock option agreement, stock plan or similar
agreement; provided that the aggregate price paid for all
such purchased, redeemed, acquired or retired Equity Interests
may not exceed $7.5 million in any
12-month
period (with unused amounts in any
12-month
period after the Start Date being carried over to succeeding
12-month
periods subject to a maximum carry-over amount of
$15.0 million (without giving effect to the following
proviso)); provided further that such amount in any
calendar year may be increased by an amount not to exceed:
(a) the cash proceeds from the sale of Equity Interests
(other than Disqualified Stock) of the Company and, to the
extent contributed to the Company, Equity Interests of any
Parent Entity, in each case to members of management, directors
or consultants of the Company, any Parent Entity or any of its
Subsidiaries that occurs after the Start Date, to the extent the
cash proceeds from the sale of such Equity Interests have not
otherwise been applied to the payment of Restricted Payments by
virtue of clause (3)(b) of the preceding paragraph; plus
(b) the cash proceeds of key man life insurance policies
received by the Company or its Restricted Subsidiaries after the
Start Date; less
(c) the amount of any Restricted Payments made in any prior
calendar year pursuant to clauses (a) and (b) of this
clause (5);
(6) the declaration and payment of dividends to holders of
any class or series of Disqualified Stock of the Company or any
of its Restricted Subsidiaries or any class or series of
preferred stock of a Restricted Subsidiary issued in accordance
with the covenant described under Incurrence
of Indebtedness and Issuance of Preferred Stock to the
extent such dividends are included in the definition of
Fixed Charges;
(7) purchases, redemptions or other acquisitions or
retirements of Equity Interests occurring or deemed to occur
upon (i) exercise of stock options, warrants or other
equity- based awards to the extent such Equity Interests
represent a portion of the exercise price of such options,
warrants or other equity-based awards and (ii) the exercise
of stock options, warrants or other equity-based awards or the
vesting or issuance of shares of restricted stock or other
Equity Interests to the extent such Equity Interests represent a
portion of the tax liability of the holder thereof with respect
thereto;
(8) [RESERVED];
(9) repurchases of Indebtedness that is subordinated to the
Notes or a Subsidiary Guarantee at a purchase price not greater
than 101% of the principal amount of such subordinated
Indebtedness in the event of a Change of Control, and
redemptions of preferred Equity Interests, in connection with
any change of control offer required by the terms thereof, but
only if the Company has first complied with and fully satisfied
its obligations under the provisions described under
Repurchase at the Option of
Holders Change of Control;
(10) Investments that are made with Excluded Contributions;
(11) the declaration and payment of dividends or
distributions by the Company or any Restricted Subsidiary of the
Company to, or the making of other Restricted Payments to, any
Parent Entity in aggregate amounts not to exceed the aggregate
amounts required for any such Parent Entities to pay, in each
case without duplication,
(a) franchise taxes and expenses required to maintain their
corporate existence;
(b) foreign, federal, state and local income and other
taxes, to the extent such taxes are attributable to the income,
revenue, receipts, capital or margin of the Company and its
Restricted Subsidiaries and, to the extent of the amount
actually received from their Unrestricted Subsidiaries, in
amounts required to pay such taxes to the extent attributable to
the income, revenue, receipts, capital or margin of such
Unrestricted Subsidiaries; provided that in each case the
amount of such
115
payments in any fiscal year does not exceed the amount that the
Company and its Restricted Subsidiaries would be required to pay
in respect of foreign, federal, state and local taxes for such
fiscal year were the Company, its Restricted Subsidiaries and
its Unrestricted Subsidiaries (to the extent described above) to
pay such taxes separately from any such Parent Entity;
(c) customary salary, bonus and other benefits payable to
officers, directors and employees of any Parent Entity to the
extent such salaries, bonuses and other benefits are directly or
indirectly attributable to the ownership or operation of the
Company and its Restricted Subsidiaries, including the
Companys proportionate share of such amounts relating to
any Parent Entity being a public company, including
directors fees;
(d) general corporate operating and overhead costs and
expenses of any Parent Entity to the extent such costs and
expenses are directly or indirectly attributable to the
ownership or operation of the Company and its Restricted
Subsidiaries, including the Companys proportionate share
of the expenses relating to any Parent Entity being a public
company, and
(e) reasonable fees and expenses other than to Affiliates
of the Company related to any unsuccessful equity or debt
offering of such Parent Entity;
(12) so long as no Default or Event of Default shall have
occurred and be continuing, the payment of dividends on the
Companys common Capital Stock (or any Restricted Payment
to any Parent Entity to fund the payment by such Parent Entity
of dividends on such entitys common Capital Stock)
following the consummation after the Start Date of an
underwritten public Equity Offering of the Companys or any
Parent Entitys common Capital Stock of up to 6% per annum
of the net cash proceeds received after the Start Date by the
Company from any public Equity Offering of common Capital Stock
of the Company or contributed after the Start Date to the
Company by any Parent Entity from any public Equity Offering of
common Capital Stock of the Parent Entity;
(13) the payment of cash in lieu of issuance of fractional
shares of Capital Stock in connection with any transaction
otherwise permitted under this covenant;
(14) payments to dissenting stockholders not to exceed
$5.0 million in the aggregate (A) pursuant to
applicable law or (B) in connection with the settlement or
other satisfaction of legal claims made pursuant to or in
connection with a consolidation, merger or transfer of assets in
connection with a transaction that is not prohibited by the
Indenture;
(15) the declaration and payment of dividends and
distributions by the Company to the holders of its Capital Stock
on a pro rata basis in an aggregate amount not to exceed
$100.0 million during any
12-month
period from and after the start of the fiscal quarter during
which the Issue Date occurred; and
(16) the declaration and payment of dividends and
distributions by the Company to the holders of its Capital Stock
on a pro rata basis of the net after-tax proceeds from sales or
other dispositions of the Capital Stock of (a) NCM and
NCMI, or their respective successors, in an aggregate amount not
to exceed $65.0 million and (b) RealD, or its
successors, in an aggregate amount not to exceed
$40.0 million.
The amount of all Restricted Payments (other than cash) will be
the fair market value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
by the Company or such Restricted Subsidiary, as the case may
be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this
covenant will be determined by the Company or, if such fair
market value exceeds $25.0 million, by the Board of
Directors of the Company.
As of March 31, 2011, the Company would have been able to
make approximately $650 million of restricted payments
under the formula set forth in the second clause (3) of the
first paragraph of this covenant, subject to the other
limitations set forth in this covenant and in the covenants
governing the Companys other Indebtedness, and limitations
imposed by applicable law. In addition, this covenant will
permit the Company to make substantial other restricted payments
and substantial permitted investments.
116
Incurrence
of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to
(collectively, incur) any Indebtedness
(including Acquired Debt), and the Company will not issue any
Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any Disqualified Stock or shares of
preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock, and any Restricted Subsidiary may incur
Indebtedness (including Acquired Debt), issue shares of
Disqualified Stock and issue shares of preferred stock, if the
Fixed Charge Coverage Ratio for the Companys most recently
ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such Disqualified
Stock or preferred stock is issued would have been at least 2.0
to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or Disqualified Stock or
preferred stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit:
(1) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness and letters of credit under one or
more Credit Facilities in an aggregate principal amount at any
one time outstanding under this clause (1) (with letters of
credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Restricted
Subsidiaries thereunder) not to exceed $1,700.0 million;
(2) the incurrence by the Company and its Restricted
Subsidiaries of Existing Indebtedness (other than Indebtedness
described in clauses (1) and (3));
(3) the incurrence by the Company and any Guarantor of
Indebtedness represented by the Notes (other than Additional
Notes) and the Exchange Notes issued in exchange therefor and
any Subsidiary Guarantees of the foregoing;
(4) Indebtedness (including Capital Lease Obligations other
than Deemed Capitalized Leases), Disqualified Stock and
preferred stock incurred by the Company or any of its Restricted
Subsidiaries to finance the purchase, lease or improvement of
property (real or personal) or equipment (other than software)
that is used or useful in a Permitted Business (but excluding
the purchase of Capital Stock of any Person), provided
that the aggregate amount of Indebtedness, Disqualified
Stock and preferred stock incurred pursuant to this
clause (4) when aggregated with the then outstanding amount
of such obligations under clause (5) incurred to refinance
such obligations initially incurred in reliance on this
clause (4) does not exceed 5.0% of Consolidated Net
Tangible Assets (determined as of the time of such incurrence)
at any time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness (other than intercompany Indebtedness)
that was permitted by the Indenture to be incurred under the
first paragraph of this covenant or clauses (2), (3), (4), (5),
(10) or (16) of this paragraph and related interest,
premiums, fees and other Obligations;
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness, Disqualified Stock or
preferred stock between or among the Company and any of its
Restricted Subsidiaries; provided, however, that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated
to the prior payment in full in cash of all Obligations with
respect to the Notes, in the case of the Company, or the
Subsidiary Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness, Disqualified
Stock or preferred stock being held by a Person other than the
Company or a Restricted Subsidiary of the Company and
(ii) any sale or other transfer of any such
117
Indebtedness, Disqualified Stock or preferred stock (but for the
avoidance of doubt excluding the grant of a Permitted Lien
thereon) to a Person that is neither the Company nor a
Restricted Subsidiary of the Company will be deemed, in each
case, to constitute an incurrence of such Indebtedness,
Disqualified Stock or preferred stock by the Company or such
Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations;
(8) the Guarantee by the Company or a Restricted Subsidiary
of the Company of Indebtedness of the Company or a Restricted
Subsidiary of the Company that was permitted to be incurred by
another provision of this covenant; provided that in the
event such Indebtedness that is being guaranteed is
(a) pari passu with the Notes or a Subsidiary
Guarantee, as the case may be, then the related Guarantee shall
rank equally in right of payment to the Notes or Subsidiary
Guarantee, as the case may be, or (b) subordinated to the
Notes or a Subsidiary Guarantee, as the case may be, then the
related Guarantee shall be subordinated in right of payment to
the Notes or such Subsidiary Guarantee, as the case may be;
(9) the accrual of interest or dividends, the accretion or
amortization of original issue discount, the payment of interest
on any Indebtedness in the form of additional Indebtedness with
the same terms, the payment of dividends on Disqualified Stock
or preferred stock in the form of additional shares of the same
class of Disqualified Stock or preferred stock and the
incurrence of unrealized losses or charges in respect of Hedging
Obligations (including those resulting from the application of
FAS 133, ASC Topic 815 and similar provisions), in each
case will be deemed not to be an incurrence of Indebtedness or
an issuance of Disqualified Stock or preferred stock for
purposes of this covenant;
(10) Indebtedness arising from agreements of the Company or
a Restricted Subsidiary providing for indemnification,
adjustment of purchase price, earn-out or other similar
obligations, in each case, incurred or assumed in connection
with the disposition or acquisition of any business, assets or a
Restricted Subsidiary, other than Guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of
financing such acquisition; provided that the maximum
aggregate liability in respect of all such Indebtedness shall at
no time exceed the fair market value of the consideration
actually received (or, in the case of an acquisition, paid) by
the Company and its Restricted Subsidiaries in connection with
such transaction;
(11) Indebtedness supported by one or more letters of
credit incurred under a Credit Facility in accordance with and
pursuant to clause (1) of this paragraph; provided
the amount of Indebtedness permitted to be incurred under
this clause (11) relating to any such letter of credit
shall not exceed the amount of the letter of credit provided for
therein; provided, further, upon any reduction,
cancellation or termination of the applicable letter of credit,
there shall be deemed to be an incurrence of Indebtedness under
the Indenture equal to the excess of the amount of such
Indebtedness outstanding immediately after such reduction,
cancellation or termination over the remaining stated amount, if
any, of such letter of credit or the stated amount of any letter
of credit issued in replacement of such letter of credit;
(12) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument inadvertently drawn against insufficient funds in the
ordinary course of business; provided, however, that such
Indebtedness is extinguished within ten business days of
incurrence;
(13) Indebtedness represented by property, liability and
workers compensation insurance, completion guarantees,
performance bonds (provided that to the extent that such
performance bonds secure Indebtedness, such Indebtedness is
otherwise permitted under this covenant), surety bonds, appeal
bonds and other obligations (which, in each case, may be in the
form of or secured by letters of credit), in each case required
or incurred in the ordinary course of business or in connection
with the enforcement of rights or claims of the Company or any
Restricted Subsidiary of the Company or in connection with
judgments that do not result in a Default or an Event of Default
and all reimbursement obligations under such letters of credit;
(14) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness, Disqualified Stock or
preferred stock that is not secured by a Lien in an aggregate
principal amount (or
118
accreted value or liquidation preference, as applicable) at any
time outstanding not to exceed $350.0 million;
(15) Construction Indebtedness and Permitted Refinancing
Indebtedness incurred in respect thereof in an aggregate
principal amount that does not exceed $100.0 million at any
time outstanding;
(16) Indebtedness, Disqualified Stock or preferred stock of
(x) the Company or a Restricted Subsidiary incurred to
finance an acquisition or (y) Persons that are acquired by
the Company or any Restricted Subsidiary or merged into the
Company or a Restricted Subsidiary in accordance with the terms
of the Indenture; provided that after giving effect to
such acquisition or merger, either
(a) the Company would be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first sentence of this
covenant, or
(b) the Fixed Charge Coverage Ratio is equal to or greater
than such ratio immediately prior to such acquisition or merger;
(17) Indebtedness of the Company or any of its Restricted
Subsidiaries to an Unrestricted Subsidiary for money borrowed;
provided that such Indebtedness is subordinated in right
of payment to the Notes or such Restricted Subsidiarys
Subsidiary Guarantee, the Weighted Average Life to Maturity of
such Indebtedness is greater than the Weighted Average Life to
Maturity of the Notes and the holders of such Indebtedness are
not permitted to accelerate such Indebtedness or exercise any
other remedies with respect thereto until 91 days after the
Stated Maturity of the Notes; and
(18) Indebtedness incurred by the Company or any Restricted
Subsidiary with respect to Digital Projector Financing in an
aggregate principal amount incurred not to exceed
(i) $70.0 million during the period from the Start
Date to the first anniversary thereof;
(ii) $70.0 million during the period from the first
anniversary of the Start Date to the second anniversary of the
Start Date and (iii) $60.0 million after the second
anniversary of the Start Date; provided that any unused
or repaid amounts may be carried forward and used in subsequent
periods without limitation.
Neither the Company nor any Restricted Subsidiary will incur any
Indebtedness under the preceding paragraph if the proceeds
thereof are used, directly or indirectly, to refinance any
Indebtedness subordinated to the Notes or any Subsidiary
Guarantee unless such Indebtedness will be subordinated to the
Notes or such Subsidiary Guarantee to at least the same extent
as such subordinated Indebtedness. No Restricted Subsidiary of
the Company that is not a Guarantor may incur any Indebtedness
(other than Senior Debt) if the proceeds are used to refinance
Indebtedness of the Company or a Guarantor (other than a
refinancing of all the Notes).
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Stock covenant, in the event that an item of proposed
Indebtedness (including Acquired Debt) meets the criteria of
more than one of the categories described in clauses (1)
through (18) above, or is entitled to be incurred pursuant
to the first paragraph of this covenant, the Company will be
permitted to classify (or later classify or reclassify in whole
or in part in its sole discretion) such item of Indebtedness in
any manner that complies with this covenant; provided
that all Indebtedness under the Credit Agreement outstanding
on the Issue Date shall be deemed to have been incurred on the
Issue Date pursuant to clause (1) above and the Company
shall not be permitted to later reclassify all or any portion of
such Indebtedness under the Credit Agreement outstanding on the
Issue Date. Notwithstanding any other provision of this
covenant, the maximum amount of Indebtedness that the Company or
any Restricted Subsidiary may incur pursuant to this covenant
shall not be deemed to be exceeded solely as a result of
fluctuations in the exchange rate of currencies. The principal
amount of any Disqualified Stock of the Company or a Restricted
Subsidiary, or preferred stock of a Restricted Subsidiary that
is not a Guarantor, will be equal to the greater of the maximum
mandatory redemption or repurchase price (not including, in
either case, any redemption or repurchase premium) or the
liquidation preference thereof.
119
Liens
The Company will not and will not permit any Guarantor to
create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien (other than Permitted Liens) of any
kind securing Indebtedness ranking pari passu in right of
payment with or subordinated in right of payment to the Notes or
such Guarantors Subsidiary Guarantee, as the case may be,
upon any of their property or assets (including Capital Stock of
Subsidiaries of the Company), now owned or hereafter acquired,
unless contemporaneously with the incurrence of such Lien
effective provision is made to secure the Obligations due under
the Indenture and the Notes or, in respect any Lien on any
Guarantors property or assets, any Subsidiary Guarantee of
such Guarantor, (1) in the case of Liens securing
Indebtedness that is pari passu in right of payment with
the Notes or any Subsidiary Guarantee, on an equal and ratable
basis with (or, if the Company so elects, on a senior basis to)
the obligations so secured until such time as such obligations
are no longer secured by a Lien and (2) in the case of
Liens securing Indebtedness that is expressly subordinated in
right of payment to the Notes or any Subsidiary Guarantee, on a
senior basis to the obligations so secured with the same
relative priority as the Notes or such Subsidiary Guarantee, as
the case may be, will have to that subordinated Indebtedness
until such time as such obligations are no longer secured by a
Lien.
Any Lien created for the benefit of Holders of the Notes
pursuant to this covenant shall be deemed automatically and
unconditionally released and discharged upon the release and
discharge of each of the Liens described in clauses (1) and
(2) in the preceding paragraph.
Dividend
and Other Payment Restrictions Affecting
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to
exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary that is
not a Guarantor to:
(1) pay dividends or make any other distributions on its
Capital Stock to the Company or any of its Restricted
Subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(2) make loans or advances to the Company or any of its
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company
or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness, Credit
Facilities and Hedging Obligations, including the Credit
Agreement and the Senior Notes indenture as in effect on the
Issue Date, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings of those agreements, provided that the
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are not
materially more restrictive, taken as a whole, with respect to
such dividend and other payment restrictions than those
contained in those agreements on the Issue Date;
(2) the Indenture, the Notes and the Subsidiary Guarantees
(including the Exchange Notes and the Guarantees thereof );
(3) applicable law, rule, regulation or order;
(4) any agreement, instrument or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries
(including by merger or consolidation) as in effect at the time
of such acquisition (except to the extent such agreement,
instrument or Capital Stock was incurred in connection with or
in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in
the case of Indebtedness, such Indebtedness was permitted by the
terms of the Indenture to be incurred;
120
(5) customary non-assignment provisions in leases, licenses
and conveyances entered into in the ordinary course of business;
(6) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on that
property of the nature described in clause (3) of the
preceding paragraph;
(7) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are not materially more
restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be
incurred under the provisions of the covenant described above
under the caption Liens that limit the
right of the debtor to dispose of the assets subject to such
Liens;
(10) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements,
stockholder agreements, asset sale agreements, stock sale
agreements and other similar agreements and agreements relating
to Permitted Business Investments;
(11) the issuance of preferred stock by a Restricted
Subsidiary or the payment of dividends thereon in accordance
with the terms thereof, provided that issuance of such preferred
stock is permitted pursuant to the covenant described under the
caption Incurrence of Indebtedness and
Issuance of Preferred Stock and the terms of such
preferred stock do not expressly restrict the ability of a
Restricted Subsidiary to pay dividends or make any other
distributions on its Capital Stock (other than requirements to
pay dividends or liquidation preferences on such preferred stock
prior to paying any dividends or making any other distributions
on such other Capital Stock);
(12) encumbrances or restrictions contained in any
Indebtedness, Disqualified Stock or preferred stock incurred by
a Foreign Restricted Subsidiary pursuant to the first paragraph
or clause (1), (4), (5) (but only to the extent a Foreign
Restricted Subsidiary initially would have been permitted to
incur the underlying Indebtedness), (14), (15), (16) or
(18) of the second paragraph of the covenant described
under the caption Incurrence of Indebtedness
and Issuance of Preferred Stock; provided that such
encumbrance or restriction shall only apply to such Foreign
Restricted Subsidiary;
(13) supermajority voting requirements existing under
corporate charters, bylaws, stockholders agreements and similar
documents and agreements;
(14) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the
ordinary course of business;
(15) customary subordination provisions governing
Indebtedness permitted pursuant to the covenant described under
the caption Incurrence of Indebtedness and
Issuance of Preferred Stock;
(16) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in
clauses (1) through (15) above or this clause (16);
provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of
the Company, not materially more restrictive with respect to
such encumbrances and restrictions taken as a whole than those
prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or
refinancing; and
(17) restrictions or conditions of the types contained in
clause (3) of the preceding paragraph contained in any
operating, construction, service, supply, purchase or other
agreement to which the Company or any Restricted Subsidiary is a
party entered into in the ordinary course of business;
provided that such agreement limits the encumbrance
solely to the property or assets of the Company or such
Restricted Subsidiary that is the subject of such agreement, the
payment rights arising thereunder and the
121
proceeds thereof and does not extend to any other asset or
property of such Restricted Subsidiary or the assets or property
of the Company or any other Restricted Subsidiary.
Limitations
on Layering
The Company will not, and will not permit any Guarantor to,
incur any Indebtedness (including Acquired Debt) that is
subordinate in right of payment to any Senior Debt of the
Company or such Guarantor, as the case may be, unless such
Indebtedness is either:
(1) equal in right of payment with the Notes or such
Guarantors Subsidiary Guarantee, as the case may
be; or
(2) expressly subordinated in right of payment to the Notes
or such Guarantors Subsidiary Guarantee, as the case may
be.
The Indenture does not treat (1) unsecured Indebtedness as
subordinated to secured Indebtedness merely because it is
unsecured, (2) secured Indebtedness as subordinated to any
other secured Indebtedness merely because it has a junior
priority with respect to the same collateral, (3) any
Indebtedness as subordinated to any other Indebtedness merely
because of maturity date, order of payment or order of
application of funds or (4) Indebtedness that is not
Guaranteed as subordinated to Indebtedness that is Guaranteed
merely because of such Guarantee.
Merger,
Consolidation or Sale of Assets
The Company may not, directly or indirectly, in one or more
related transactions:
(1) consolidate or merge with or into another Person
(whether or not the Company is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the
Company and its Restricted Subsidiaries, taken as a whole, to
another Person; unless:
(1) either: (a) the Company is the surviving
corporation; or (b) the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, conveyance or other
disposition has been made is a corporation, limited liability
company or partnership organized or existing under the laws of
the United States, any state of the United States or the
District of Columbia; provided that if the Person is a
partnership or limited liability company, a corporation wholly
owned by such Person organized or existing under the laws of the
United States, any state of the United States or the District of
Columbia that does not and will not have any material assets or
operations shall promptly thereafter become a co-issuer of the
Notes pursuant to a supplemental indenture;
(2) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, conveyance or
other disposition has been made expressly assumes all the
obligations of the Company under the Notes, the Indenture and
the registration rights agreement pursuant to agreements
reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event
of Default exists;
(4) the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, conveyance or other
disposition has been made will, on the date of such transaction
after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the
applicable four-quarter period, (a) be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock or (b) have a Fixed Charge Coverage
Ratio equal to or greater than the Fixed Charge Coverage Ratio
of the Company immediately prior to such transaction; and
122
(5) if the Company is not the surviving corporation, each
Guarantor (unless it is the other party to the transactions
above, in which case clause (2) shall apply) shall have by
supplemental indenture confirmed that its Subsidiary Guarantee
shall apply to such Persons obligations in respect of the
Notes and the Indenture and its obligations under the
registration rights agreement shall continue to be in effect.
In addition, the Company may not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or
more related transactions, to any other Person.
Notwithstanding the preceding clause (4), any Restricted
Subsidiary may consolidate with, merge into or transfer all or
part of its properties and assets to the Company or any
Guarantor.
Transactions
with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of any Affiliate
(each, an Affiliate Transaction) involving
aggregate payments or considerations in excess of
$5.0 million, unless:
(1) the Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with a
Person who is not an Affiliate; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $5.0 million, an officers certificate
certifying that such Affiliate Transaction complies with this
covenant; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $25.0 million, a resolution of the Board of
Directors of Cinemark Holdings, Inc. and the Company set forth
in an officers certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested
members of the Board of Directors of Cinemark Holdings, Inc. and
the Company.
The following items will be deemed to not be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
(1) any employment, consulting or similar agreement or
other compensation arrangement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of
business of the Company or such Restricted Subsidiary;
(2) transactions between or among the Company
and/or its
Restricted Subsidiaries;
(3) transactions with a Person that is an Affiliate of the
Company solely because the Company owns an Equity Interest in,
or controls, such Person;
(4) reasonable fees and expenses and compensation paid to,
and indemnity provided on behalf of, officers, directors or
employees of the Company or any Subsidiary as determined in good
faith by the Board of Directors or senior management of the
Company;
(5) sales of Equity Interests (other than Disqualified
Stock) to Affiliates of the Company and the granting of
registration and other customary rights in connection therewith;
(6) Restricted Payments that are permitted by the
provisions of the Indenture described above under the caption
Restricted Payments, Permitted
Investments (other than pursuant to clause (3) of such
definition) and any transactions excluded from their or any
component definitions;
123
(7) transactions effected in connection with the Notes
Transactions, including the payment of all related fees and
expenses;
(8) transactions pursuant to any contract or agreement
described in the offering memorandum under which the Initial
Notes were sold under the caption Certain Relationships
and Related Party Transactions, as in effect on the Issue
Date, in each case as amended, modified or replaced from time to
time so long as the amended, modified or new agreements, taken
as a whole, are not materially less favorable to the Company and
its Restricted Subsidiaries taken as a whole than those in
effect on the Issue Date;
(9) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case, in the
ordinary course of business and otherwise in compliance with the
terms of the Indenture which are fair to the Company and its
Restricted Subsidiaries, in the reasonable determination of the
Board of Directors of the Company or the senior management
thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated
party;
(10) the pledge of Equity Interests of an Unrestricted
Subsidiary to its lenders to support the Indebtedness of such
Unrestricted Subsidiary owed to such lenders; and
(11) transactions in which the Company or any of its
Restricted Subsidiaries delivers to the trustee a letter from an
accounting, appraisal or investment banking firm of national
standing stating that such transaction is fair to the Company or
such Restricted Subsidiary from a financial point of view or
stating that the terms are not materially less favorable to the
Company or such Restricted Subsidiary than those that would have
reasonably been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person
on an arms-length basis.
Designation
of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if that
designation would not cause a Default. If a Restricted
Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned
by the Company and its Restricted Subsidiaries in the Subsidiary
properly designated will be deemed to be an Investment made as
of the time of the designation and will reduce the amount
available for Restricted Payments or Permitted Investments, as
determined by the Company. That designation will only be
permitted if the Investment would be permitted at that time and
if the Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The Board of Directors of the
Company may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a
Default.
Future
Guarantors
The Indenture provides that if any Restricted Subsidiary of the
Company that is not a Guarantor (the New
Guarantor) Guarantees, assumes or in any other manner
becomes liable with respect to Indebtedness of the Company or
any Guarantor (the Other Indebtedness), then
the New Guarantor shall, within ten business days of the date of
the New Guarantors Guarantee or assumption of the Other
Indebtedness, execute and deliver to the trustee a supplemental
indenture satisfactory to the trustee pursuant to which the New
Guarantor shall become a Guarantor and Guarantee the obligations
of the Company under the Indenture and the Notes on a senior
subordinated basis. Upon the release, termination or
satisfaction of the New Guarantors Guarantee or assumption
of all Other Indebtedness (other than a release, termination or
satisfaction as a result of payment under such Guarantee), the
New Guarantors Subsidiary Guarantee shall automatically be
released and terminated.
Business
Activities
The Company will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to
the Company and its Subsidiaries taken as a whole.
124
Reports
Whether or not required by the Commission, so long as any Notes
are outstanding, the Company will furnish to the trustee and the
Holders of Notes, within the time periods specified in the
Commissions rules and regulations (including all
applicable extensions):
(1) all quarterly and annual financial information that
would be required to be contained in a filing with the
Commission on
Forms 10-Q
and 10-K if
the Company were required to file such Forms, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations and, with respect to
the annual information only, a report on the annual financial
statements by the Companys independent auditors; and
(2) all current reports that would be required to be filed
with the Commission on
Form 8-K
if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual
financial information required by the preceding paragraph will
include an unaudited consolidating balance sheet and related
statements of income and cash flows for the Company and its
Subsidiaries, separately identifying (a) the Company and
the Restricted Subsidiaries and (b) the Unrestricted
Subsidiaries, in all reports containing the consolidated
financial statements (which in the case of annual reports shall
be audited) of the Company and its consolidated Subsidiaries.
In addition, following the consummation of the exchange offer
contemplated by the registration rights agreement (the
Exchange Offer), whether or not required by
the Commission, the Company will file a copy of all of the
information and reports referred to in clauses (1) and
(2) above with the Commission for public availability
within the time periods specified in the Commissions rules
and regulations after giving effect to all applicable extensions
(unless the Commission will not accept such a filing) and make
such information available to securities analysts and
prospective investors upon request. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act.
The Company will be deemed to have furnished such reports to the
trustee and the Holders if it has filed such reports with the
Commission using the EDGAR filing system and such reports are
publicly available.
Notwithstanding anything herein to the contrary, the Company
will be deemed not to have failed to comply with any of its
obligations hereunder for purposes of clause (5) under
Events of Default and Remedies until
120 days after the date any report hereunder is required to
be made available to the trustee and the Holders pursuant to
this covenant.
Events of
Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of
interest on, or Additional Interest with respect to, the Notes
(whether or not prohibited by the subordination provisions of
the Indenture);
(2) default in payment when due of the principal of, or
premium, if any, on, the Notes (whether or not prohibited by the
subordination provisions of the Indenture);
(3) failure by the Company or any of its Restricted
Subsidiaries to comply with the provisions described under the
caption Certain Covenants Merger,
Consolidation or Sale of Assets;
(4) failure by the Company or any of its Restricted
Subsidiaries for 30 days after receipt of written notice
from the trustee or the Holders of not less than 25% in
principal amount of the Notes to comply with the provision
described under the caption Repurchase at the
Option of Holders Change of Control;
125
(5) failure by the Company or any of its Restricted
Subsidiaries for 60 days after receipt of written notice
from the trustee or the Holders of not less than 25% in
principal amount of the Notes to comply with any of the other
agreements in the Indenture;
(6) default by the Company or any of its Restricted
Subsidiaries under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee was created before or
after the Issue Date, if that default:
(a) is caused by a failure to pay principal on such
Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a
Payment Default); or
(b) results in the acceleration of such Indebtedness prior
to its express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$25.0 million or more;
(7) failure by the Company or any of its Restricted
Subsidiaries to pay final non- appealable judgments aggregating
in excess of $25.0 million (net of any amount with respect
to which a reputable and solvent insurance company has
acknowledged liability in writing), which judgments are not
paid, discharged or stayed for a period of 60 days;
(8) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations
under its Subsidiary Guarantee; and
(9) certain events of bankruptcy, insolvency or
reorganization described in the Indenture with respect to the
Company or any of its Restricted Subsidiaries that are
individually or collectively a Significant Subsidiary.
In the case of an Event of Default arising from certain events
of bankruptcy, insolvency or reorganization, with respect to the
Company, any Subsidiary that is a Significant Subsidiary or any
group of Subsidiaries that taken together would constitute a
Significant Subsidiary, all outstanding Notes will become due
and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or
the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and
payable immediately; provided, however, that so long as
any Designated Senior Debt remains outstanding, no such
acceleration shall be effective until the earlier date of:
(1) acceleration of any such Designated Senior Debt; or
(2) five Business Days after the giving of written notice
of such acceleration to the Company and the Representative of
such Designated Senior Debt. When any such declaration becomes
effective, the principal of, premium, if any, and accrued and
unpaid interest, if any, and Additional Interest, if any, shall
become due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in aggregate principal amount
of the then outstanding Notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from
Holders of the Notes notice of any continuing Default or Event
of Default if it determines that withholding notice is in their
interest, except a Default or Event of Default relating to the
payment of principal of, or interest or premium or Additional
Interest, if any, on the Notes.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the trustee may on behalf of
the Holders of all of the Notes waive any existing Default or
Event of Default and its consequences under the Indenture except
a continuing Default or Event of Default in the payment of
principal of, or interest or premium or Additional Interest, if
any, on the Notes.
126
Notwithstanding the foregoing, if an Event of Default specified
in clause (6) above shall have occurred and be continuing,
such Event of Default and any consequential acceleration shall
be automatically rescinded if (i) the Indebtedness that is
the subject of such Event of Default has been repaid or
(ii) if the default relating to such Indebtedness is waived
or cured and if such Indebtedness has been accelerated, then the
holders thereof have rescinded their declaration of acceleration
in respect of such Indebtedness.
The Company is required to deliver to the trustee annually a
statement regarding compliance with the Indenture. Upon becoming
aware of any Default or Event of Default, the Company is
required to deliver to the trustee a statement specifying such
Default or Event of Default.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of
the Company or any Guarantor, as such, will have any liability
for any obligations of the Company under the Notes, the
Indenture, the Subsidiary Guarantees or the registration rights
agreement or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of
the Notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
Legal
Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have
all of its obligations discharged with respect to the
outstanding Notes and all obligations of the Guarantors
discharged with respect to their Subsidiary Guarantees
(Legal Defeasance) except for:
(1) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, or interest or premium
and Additional Interest, if any, on such Notes when such
payments are due from the trust referred to below;
(2) the Companys obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance
of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee, and the Companys and the Guarantors
obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guarantors
released with respect to certain covenants that are described in
the Indenture (Covenant Defeasance) and
thereafter any omission to comply with those covenants will not
constitute a Default or Event of Default with respect to the
Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment and bankruptcy, reorganization and
insolvency events with respect to the Company) described under
Events of Default and Remedies will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the Company must irrevocably deposit with the trustee,
in trust, for the benefit of the Holders of the Notes, cash in
U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants (or, if two or more nationally recognized firms of
independent public accountants decline to issue such opinion as
a matter of policy after the Company has made reasonable efforts
to obtain such an opinion, in the opinion of the Companys
chief financial officer), to pay the principal of, or interest
and premium and Additional Interest, if any, on the outstanding
Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether
the Notes are being defeased to maturity or to a particular
redemption date;
127
(2) in the case of Legal Defeasance, the Company has
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that (a) the Company
has received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the Issue Date, there
has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion
of counsel will confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company has
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is
continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit and the granting of Liens in connection
therewith);
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is
bound;
(6) the Company must have delivered to the trustee an
opinion of counsel to the effect that, subject to customary
assumptions and exclusions, assuming that no intervening
bankruptcy of the Company between the date of the deposit and
the 91st day following the deposit will occur and that no
holder of Notes is an insider of the Company under applicable
bankruptcy law, no trust funds will be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors rights generally;
(7) the Company must deliver to the trustee an
officers certificate stating that the deposit was not made
by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(8) the Company must deliver to the trustee an
officers certificate and an opinion of counsel, each
stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Amendment,
Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
Indenture, the Notes or the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for,
Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the
then outstanding Notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or
exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a
non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
128
(2) reduce the principal of or change the fixed maturity of
any note or alter the provisions with respect to the redemption
of the Notes (other than provisions relating to the covenant
described above under the caption Repurchase
at the Option of Holders Change of Control);
(3) reduce the rate of or change the time for payment of
interest on any note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium, or Additional Interest, if
any, on the Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in currency other than that
stated in the Notes;
(6) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of, or interest or
premium or Additional Interest, if any, on the Notes;
(7) waive a redemption payment with respect to any note
(other than a payment required by the covenant described above
under the caption Repurchase at the Option of
Holders Change of Control);
(8) impair the right of any Holder to receive payment of
principal of, or interest on such Holders Notes on or
after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such
Holders Notes;
(9) release any Guarantor from any of its obligations under
its Subsidiary Guarantee or the Indenture, except in accordance
with the terms of the Indenture;
(10) make any change to or modify the subordination
provisions of the Notes that would adversely affect the
Holders; or
(11) make any change in the preceding amendment and waiver
provisions. Notwithstanding the preceding paragraph, without the
consent of any Holder of Notes, the Company, the Guarantors and
the trustee may amend or supplement the Indenture, the Notes or
the Subsidiary Guarantees to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated
Notes are issued in registered form for purposes of
Section 163(f ) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f )(2)(B)
of the Code);
(3) provide for the assumption of the Companys or a
Guarantors obligations to Holders of Notes in the case of
a merger or consolidation or sale of all or substantially all of
the Companys assets or a Guarantor;
(4) make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not
adversely affect the legal rights under the Indenture of any
such Holder;
(5) provide for the issuance of Additional Notes in
accordance with the provisions set forth in the Indenture on the
Issue Date;
(6) add Subsidiary Guarantees with respect to the Notes or
to secure the Notes or the Subsidiary Guarantees;
(7) comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the
Trust Indenture Act;
(8) evidence and provide for the acceptance and appointment
under the Indenture of a successor trustee thereunder pursuant
to the requirements thereof; or
129
(9) conform the text of the Notes, the Subsidiary
Guarantees or the Indenture to any provision of this
Description of Exchange Notes to the extent that
such provision in this Description of Exchange Notes
was intended to be a verbatim recitation of a provision of the
Notes, the Subsidiary Guarantees or the Indenture.
Notwithstanding the foregoing, no amendment to or waiver of the
subordination provisions of the Indenture (or the component
definitions used therein) that is adverse to the lenders under
the Credit Agreement in any material respect may be made without
the consent of the holders of a majority of the Indebtedness in
respect of the Credit Agreement (or their Representative(s)).
Satisfaction
and Discharge
The Indenture will be discharged and will cease to be of further
effect as to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated, except lost,
stolen or destroyed Notes that have been replaced or paid and
Notes for whose payment money has been deposited in trust and
thereafter repaid to the Company, have been delivered to the
trustee for cancellation; or
(b) all Notes that have not been delivered to the trustee
for cancellation have become due and payable or will become due
and payable within one year or are to be called for redemption
within one year and the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the trustee as trust
funds in trust solely for the benefit of the Holders, cash in
U.S., dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants (or, if two or more nationally recognized firms of
independent public accountants decline to issue such opinion as
a matter of policy after the Company has made reasonable efforts
to obtain such an opinion, in the opinion of the Companys
chief financial officer), without consideration of any
reinvestment of interest, to pay and discharge the entire
indebtedness on the Notes not delivered to the trustee for
cancellation for principal, premium and Additional Interest, if
any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is
continuing on the date of the deposit or will occur as a result
of the deposit and the deposit will not result in a breach or
violation of, or constitute a default under, any other
instrument to which the Company or any Guarantor is a party or
by which the Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be
paid all sums payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to
the trustee under the Indenture to apply the deposited money
toward the payment of the Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver
an officers certificate and an opinion of counsel to the
trustee each stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning
the Trustee
If the trustee becomes a creditor of the Company, the Indenture
limits its right to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be
permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the trustee, subject to certain exceptions. The
Indenture provides that in case an Event of Default occurs and
is continuing,
130
the trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of Notes,
unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or
expense.
Additional
Information
Anyone who receives this prospectus may obtain a copy of the
Indenture without charge by writing to Cinemark Holdings, Inc.,
3900 Dallas Parkway, Suite 500, Plano, Texas 75093,
Attention: Chief Financial Officer.
Certain
Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein
for which no definition is provided.
Acquired Debt means, with respect to any
specified Person:
(1) Indebtedness of any other Person existing at the time
such other Person is merged with or into or becomes a Subsidiary
of such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other
Person merging with or into, or becoming a Subsidiary of, such
specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
Additional Interest has the meaning assigned
to such term under the heading Registration
Rights; Additional Interest.
Additional Notes means the 7.375% senior
subordinated notes due 2021 of the Company issued under the
Indenture after the Issue Date and having identical terms to the
Initial Notes or the Exchange Notes other than with respect to
the date of issuance and issue price, first payment of interest
and rights under a related registration rights agreement, if any.
Affiliate of any specified Person means any
other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For
purposes of this definition, the terms controlling,
controlled by and under common control
with have corresponding meanings; provided that
exclusively for purposes of the covenant described above under
Certain Covenants Transactions
with Affiliates, beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control.
Attributable Debt in respect of a sale and
leaseback transaction means, at the time of determination, the
present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which
such lease has been extended or may, at the option of the
lessor, be extended. Such present value shall be calculated
using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP.
Beneficial Owner has the meaning assigned to
such term in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act, except that in calculating the
beneficial ownership of any particular person or
group of related persons (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), such
person or group will be deemed to have
beneficial ownership of all securities that such
person or group has the right to acquire
by conversion or exercise of other securities, whether such
right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition or only after the passage
of time. The terms Beneficially Owns and
Beneficially Owned have corresponding meanings.
131
Board of Directors means:
(1) with respect to a corporation, the board of directors
of the corporation;
(2) with respect to a partnership, the board of directors
of the general partner of the partnership; and
(3) with respect to any other Person, the board or
committee of such Person serving a similar function.
Business Day means each day that is not a
Saturday, Sunday or other day on which banking institutions in
New York, New York are authorized or required by law to close.
Capital Lease Obligation means, at the time
any determination is to be made, the amount of the liability in
respect of a capital lease that would at that time be required
to be capitalized on a balance sheet in accordance with GAAP.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or
limited);
(3) in the case of an association or other business entity,
any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock; and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
Cash Equivalents means:
(1) U.S. dollars or in the case of any Foreign
Restricted Subsidiary, such local currencies held by it from
time to time in the ordinary course of business;
(2) securities issued or directly and fully guaranteed or
insured by the U.S. government or any agency or
instrumentality of the U.S. government (provided
that the full faith and credit of the United States is
pledged in support of those securities) having maturities of not
more than 12 months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits
with maturities of twelve months or less from the date of
acquisition, bankers acceptances with maturities not
exceeding twelve months and overnight bank deposits, in each
case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of
$100.0 million and a Thomson Bank Watch Rating of
B or better;
(4) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (2) and (3) above entered into with any
financial institution meeting the qualifications specified in
clause (3) above;
(5) commercial paper having the rating of at least
P-1
from Moodys Investors Service, Inc. or
A-1
from Standard & Poors Rating Services and in
each case maturing within 12 months after the date of
acquisition;
(6) with respect to any Foreign Restricted Subsidiary
having its principal operations in Mexico only,
(A) Certificados de la Tesoreria de la Federacion
(Cetes), Bonos de Desarrollo del Gobierno Federal
(Bondes) or Bonos Adjustables del Gobierno Federal
(Adjustabonos), in each case, issued by the Mexican
government; and (B) any other instruments issued or
guaranteed by Mexico and denominated and payable in pesos;
provided, that, in each case, such investments under this
clause (6) are made in the ordinary course of business for
cash management purposes;
(7) demand or time deposit accounts used in the ordinary
course of business with overseas branches of commercial banks
incorporated under the laws of the United States of America, any
state thereof, the
132
District of Columbia, Canada or any province or territory
thereof, provided that such commercial bank has, at the
time of the Companys or such Restricted Subsidiarys
Investment therein, (A) capital, surplus and undivided
profits (as of the date of such institutions most recently
published financial statements) in excess of $100.0 million
and (B) the long-term unsecured debt obligations (other
than such obligations rated on the basis of the credit of a
Person other than such institution) of such institution, at the
time of the Companys or any Restricted Subsidiarys
Investment therein, are rated in the highest rating category of
both Moodys Investors Service, Inc. and
Standard & Poors Rating Services;
(8) obligations (including, but not limited to demand or
time deposits, bankers acceptances and certificates of
deposit) issued or guaranteed by a depository institution or
trust company incorporated under the laws of the United States
of America, any state thereof, the District of Columbia, Canada
or any province or territory thereof, provided that
(A) such instrument has a final maturity not more than one
year from the date of purchase thereof by the Company or any
Restricted Subsidiary of the Company and (B) such
depository institution or trust company has at the time of the
Companys or such Restricted Subsidiarys Investment
therein or contractual commitment providing for such Investment,
(x) capital, surplus and undivided profits (as of the date
of such institutions most recently published financial
statements) in excess of $100.0 million and (y) the
long-term unsecured debt obligations (other than such
obligations rated on the basis of the credit of a Person other
than such institution) of such institution, at the time of the
Companys or such Restricted Subsidiarys Investment
therein or contractual commitment providing for such Investment,
are rated in the highest rating category of both
Standard & Poors Rating Services and
Moodys Investors Service, Inc.;
(9) in the case of any Foreign Restricted Subsidiary,
demand or time deposit accounts used in the ordinary course of
business with reputable commercial banks and similar
institutions located in the jurisdiction of organization of such
Foreign Restricted Subsidiary; and
(10) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in
clauses (1) through (5) of this definition.
Change of Control means the occurrence of any
of the following:
(1) the direct or indirect sale, lease, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of the
Company and its Restricted Subsidiaries taken as a whole to any
person (as that term is used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder;
(2) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(3) any person or group of related
persons (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) other than one or more Permitted Holders
becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the Voting Stock of the Company or any Parent
Entity, measured by voting power rather than number of
shares; or
(4) the first day on which Continuing Directors do not
constitute a majority of the members of the Board of Directors
of the Company or Cinemark Holdings, Inc.
Commission means Securities and Exchange
Commission.
Consolidated Cash Flow means, with respect to
any specified Person for any period, the Consolidated Net Income
of such Person for such period plus:
(1) any increase in deferred lease expense; plus
(2) provision for taxes directly or indirectly based on
income, receipts, margin or profits of such Person and its
Restricted Subsidiaries for such period; plus
(3) Fixed Charges to the extent such amounts are included
in the calculation of Consolidated Net Income; plus
133
(4) depreciation, impairment losses, charges, write-offs
and write-downs, amortization (including amortization of
goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and
other non-cash charges and expenses, including foreign exchange
losses not included in operating income, (excluding (other than
foreign advance rents paid at the inception of the lease) any
such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period;
plus
(5) for purposes of calculating the Fixed Charge Coverage
Ratio only, the Net Income of any Person and its Restricted
Subsidiaries shall be calculated without deducting the income
attributable to, or adding the losses attributable to, the
minority equity interests of third parties in any
non-wholly-owned Restricted Subsidiary; plus
(6) for purposes of calculating the Fixed Charge Coverage
Ratio only, any reasonable expenses and charges related to any
Equity Offering, recapitalization or Indebtedness permitted to
be incurred under the Indenture (in each case, whether or not
successful); plus
(7) any reasonable expenses and charges related to any
Permitted Investment, acquisition or disposition permitted under
the Indenture (in each case, whether or not successful) or the
Notes Transactions; minus
(8) non-cash items increasing such Consolidated Net Income
for such period (including foreign exchange gains not included
in operating income), other than (i) the accrual of revenue
or amortization of prepaid cash income in the ordinary course of
business and (ii) the reversal of an accrual or cash
reserve that was excluded pursuant to paragraph (4) above
in any prior period; minus
(9) any decrease in deferred lease expense, in each case,
on a consolidated basis and determined in accordance with GAAP;
provided, however, that expenses payable by any Parent
Entity described in clause (11) of the second paragraph of
the covenant described above under Certain
Covenants Restricted Payments, the funds of
which are provided by the Company or its Restricted Subsidiaries
shall be treated as if paid by the Company for the purposes of
calculating Consolidated Cash Flow of the Company.
Notwithstanding the preceding sentence, clauses (1) through
(9) relating to amounts of a Restricted Subsidiary of a
Person will be added to (or subtracted from) Consolidated Net
Income to compute Consolidated Cash Flow of such Person only to
the extent (and in the same proportion) that the net income
(loss) of such Restricted Subsidiary was included in calculating
the Consolidated Net Income of such Person.
Consolidated Net Income means, with respect
to any specified Person for any period, the aggregate of the Net
Income of such Person and its Restricted Subsidiaries for such
period, on a consolidated basis, determined in accordance with
GAAP, provided, however, in the case of the Company and
its Restricted Subsidiaries, (i) Consolidated Net Income
shall not include management fees from Unrestricted Subsidiaries
except to the extent actually received by the Company and its
Restricted Subsidiaries, (ii) accrued but unpaid
compensation expenses related to any stock appreciation,
restricted stock or stock option plans shall not be deducted
until such time as such expenses result in a cash expenditure
and (iii) compensation expenses related to tax payment
plans implemented by the Company from time to time in connection
with the exercise
and/or
repurchase of restricted stock or stock options shall not be
deducted from Net Income to the extent of the related tax
benefits arising therefrom; provided, further, that:
(1) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting will be included only to the extent of the amount of
dividends, distributions or other payments paid in cash (or
marketable securities) to the specified Person or a Restricted
Subsidiary of the specified Person (or, in the case of a loss,
only to the extent funded with cash from the specified Person or
a Restricted Subsidiary of the specified Person);
(2) other than for the purpose of calculating the Fixed
Charge Coverage Ratio, the Net Income of any Restricted
Subsidiary will be excluded to the extent that the declaration
or payment of dividends or
134
similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained or, with
respect to Foreign Restricted Subsidiaries, is typically
obtained in the ordinary course of business consistent with past
practice and shall be excluded to the extent such approval is
subsequently not received) or, directly or indirectly, by
operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders (other than to the extent of the amount of
dividends or distributions that have actually been paid in the
calculation period);
(3) the cumulative effect of a change in accounting
principles will be excluded;
(4) any non-cash goodwill or other intangible asset
impairment charges incurred subsequent to the Start Date
resulting from the application of SFAS No. 142 or ASC
Topic 350 (or similar pronouncements) shall be excluded;
(5) any net after-tax income or loss from discontinued
operations, net after-tax gains or losses on disposal of
discontinued operations and losses arising from lease
dispositions shall be excluded; and
(6) items classified as extraordinary or nonrecurring gains
and losses (less all fees and expenses related thereto) or
expenses (including, without limitation, costs and expenses
arising from the Notes Transactions), and the related tax
effects according to GAAP, shall be excluded.
Consolidated Net Tangible Assets means, as of
any date of determination, the consolidated total assets of the
Company and its Restricted Subsidiaries determined in accordance
with GAAP as of the end of the Companys most recent fiscal
quarter for which internal financial statements are available,
less the sum of (1) all current liabilities and current
liability items, and (2) all goodwill, trade names,
trademarks, patents, organization expense, unamortized debt
discount and expense and other similar intangibles properly
classified as intangibles in accordance with GAAP.
Construction Indebtedness means Indebtedness
incurred by the Company or its Restricted Subsidiaries in
connection with the construction of motion picture theatres or
screens.
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of the
Company or Cinemark Holdings, Inc., as the case may be, who:
(1) was a member of such Board of Directors on the Issue
Date; or
(2) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such
nomination or election.
Credit Agreement means that certain Credit
Agreement, dated as of October 5, 2006, as amended on each
of March 14, 2007, January 29, 2010 and March 2,
2010, by and among the Company, as borrower, Cinemark Holdings,
Inc, Cinemark Inc., CNMK Holding, Inc. and the subsidiary
guarantors named therein, as guarantors, the lenders and other
entities party thereto and Lehman Commercial Paper Inc., as
administrative agent, including any related notes, Guarantees,
collateral documents, instruments and agreements executed in
connection therewith from time to time, and in each case as
amended, modified, renewed, refunded, replaced or refinanced
from time to time.
Credit Facilities means one or more debt
facilities (including, without limitation, the Credit
Agreement), commercial paper facilities or indentures, in each
case with banks or other institutional lenders or investors
providing for revolving credit loans, term loans, debt
securities, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or
letters of credit and any agreement or agreements governing
Indebtedness incurred to refinance, replace, restructure or
refund such agreements in whole or in part from time to time
(whether with the original agent and lenders or other agents and
lenders or otherwise).
DCIP means Digital Cinema Implementation
Partners LLC, a Delaware limited liability company, and any
similar Person with a primary business purpose of facilitating
the implementation of digital cinemas in
135
theatres and agreements and arrangements with respect to the
financing of digital cinema and any Person that is a direct or
indirect parent entity thereof and has no independent operations.
Deemed Capitalized Leases means obligations
of the Company or any Restricted Subsidiary of the Company that
are classified as capital lease obligations under
GAAP due to the application of Emerging Issues Task Force
Regulation 97-10
or ASC Topic 840 or any subsequent pronouncement having similar
effect and, except for such regulation or pronouncement, such
obligation would not constitute Capital Lease Obligations.
Default means any event that is, or with the
passage of time or the giving of notice or both would be, an
Event of Default.
Designated Senior Debt means:
(1) any Indebtedness outstanding under the Credit
Facilities (to the extent that such Indebtedness constitutes
Senior Debt); and
(2) any other Senior Debt permitted under the Indenture,
the principal amount of which is $25.0 million or more and
that has been specifically designated by the Company as
Designated Senior Debt for purposes of the Indenture
in the instrument evidencing or governing such Senior Debt.
Digital Projector Financing means any
financing arrangement in respect of digital projector equipment
for use in the ordinary course of business in theatres owned,
leased or operated by the Company and its Restricted
Subsidiaries.
Disqualified Stock means any Capital Stock
that, by its terms (or by the terms of any security into which
it is convertible, or for which it is exchangeable), or upon the
happening of any event, (1) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding Capital Stock which is convertible
or exchangeable solely at the option of the Company or a
Restricted Subsidiary), or (3) is redeemable at the option
of the holder of the Capital Stock, in whole or in part, in each
case on or prior to the date that is 91 days after the
earlier of the date on which the Notes mature or the date on
which there are no Notes outstanding. Notwithstanding the
preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital
Stock have the right to require the Company to repurchase or
redeem such Capital Stock upon the occurrence of a change of
control or an asset sale not in the ordinary course of business
will not constitute Disqualified Stock if the terms of such
Capital Stock (and all such securities into which it is
convertible or for which it is exchangeable) provide that the
Company may not repurchase or redeem any such Capital Stock (and
all such securities into which it is convertible or for which it
is exchangeable) pursuant to such provisions unless such
repurchase or redemption complies with the covenant described
above under the caption Certain
Covenants Restricted Payments and the covenant
described above under the caption Repurchase
at the Option of Holders Change of Control.
Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Equity Offering means any public (other than
pursuant to a
Form S-4
or
Form S-8
or any other form relating to securities issuable under any
employee benefit plan of the Company or any Parent Entity) or
private sale of Capital Stock (other than Disqualified Stock)
made for cash on a primary basis by the Company or any Parent
Entity (the proceeds of which have been contributed to the
Company).
Exchange Act means the Securities Exchange
Act of 1934, as amended.
Exchange Notes means the notes issued in the
Exchange Offer pursuant to the Indenture.
Excluded Contribution means the net cash
proceeds received by the Company after the Issue Date from
(a) contributions to its common equity capital and
(b) the sale (other than to a Subsidiary of the Company or
pursuant to any management equity plan or stock option plan or
any other management or employee benefit plan or agreement of
the Company or any of its Subsidiaries or Parent Entities) of
Capital Stock (other than Disqualified Stock) of the Company or
any Parent Entity (the proceeds of which have been
136
contributed to the Company), in each case designated within
60 days of the receipt of such net cash proceeds as
Excluded Contributions pursuant to an officers
certificate, the cash proceeds of which are excluded from the
calculation set forth in clauses (3)(b) and (3)(c) of the first
paragraph of the covenant described above under the heading
Certain Covenants Restricted
Payments.
Existing Indebtedness means Indebtedness of
the Company and its Restricted Subsidiaries in existence on the
Issue Date, until such amounts are repaid.
Fixed Charges means, with respect to any
specified Person for any period, the sum, without duplication,
of:
(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or
accrued, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment
obligations, the interest component of all payments associated
with Capital Lease Obligations (but excluding any interest
expense attributable to Deemed Capitalized Leases), imputed
interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of
letter of credit or bankers acceptance financings, and net
of the effect of all payments made or received pursuant to
interest rate Hedging Obligations (excluding the amortization or
write-off of debt issuance costs incurred in connection with the
Notes Transactions); plus
(2) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period;
plus
(3) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends paid (whether or
not in cash) on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on
Equity Interests payable (X) solely in Equity Interests of
the Company (other than Disqualified Stock) or (Y) to the
Company or a Restricted Subsidiary of the Company, times
(b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined
effective federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP; minus
(5) the cash interest income (exclusive of deferred
financing fees) of such specified Person and its Restricted
Subsidiaries during such period, in each case as determined in
accordance with GAAP consistently applied.
Fixed Charge Coverage Ratio means with
respect to any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person for such period to the
Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness
(other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the Calculation Date), then
the Fixed Charge Coverage Ratio will be calculated giving pro
forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such
issuance, repurchase or redemption of preferred stock, and the
use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) acquisitions and Investments that have been made by the
specified Person or any of its Restricted Subsidiaries (and by
any Person so acquired), including through mergers or
consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date will be
given pro forma effect as if they
137
had occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period will
be calculated on a pro forma basis (giving effect to any Pro
Forma Cost Savings);
(2) operations or businesses disposed of prior to the
Calculation Date will be deemed to have been disposed of on the
first day of the four-quarter reference period and the
Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, will be excluded;
(3) operations or businesses disposed of prior to the
Calculation Date will be deemed to have been disposed of on the
first day of the four-quarter reference period and the Fixed
Charges attributable to discontinued operations, as determined
in accordance with GAAP, will be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges
will not be obligations of the specified Person or any of its
Restricted Subsidiaries following the Calculation Date;
(4) Consolidated Cash Flow shall include the effects of
incremental contributions the Company reasonably believes in
good faith could have been achieved during the relevant period
as a result of a Theatre Completion had such Theatre Completion
occurred as of the beginning of the relevant period;
provided, however, that such incremental contributions
were identified and quantified in good faith in an
officers certificate delivered to the trustee at the time
of any calculation of the Fixed Charge Coverage Ratio;
(5) Consolidated Cash Flow shall be calculated on a pro
forma basis after giving effect to any motion picture theatre or
screen that was permanently or indefinitely closed for business,
at any time on or subsequent to the first day of such period as
if such theatre or screen was closed for the entire period;
(6) all preopening expense and theatre closure expense
which reduced Consolidated Net Income during any applicable
period shall be added to Consolidated Cash Flow;
(7) the Fixed Charges attributable to interest on any
Indebtedness computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate
for the entire period; and
(8) with respect to any Indebtedness which bears, at the
option of such Person, a fixed or floating rate of interest,
such Person shall apply, at its option, either the fixed or
floating rate.
Foreign Restricted Subsidiary means any
Restricted Subsidiary of the Company that is not organized under
the laws of the United States, any state thereof or the District
of Columbia.
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a
significant segment of the accounting profession, which were in
effect on the Start Date.
Government Securities means securities that
are (i) direct obligations of the United States of America
for the timely payment of which its full faith and credit is
pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the
United States of America, the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation
by the United States of America which, in either case, are not
callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as
custodian, with respect to any such Government Securities or a
specific payment of principal of or interest on any such
Government Securities held by such custodian for the account of
the holder of such depository receipt; provided, however,
that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by
the custodian in respect of the Government Securities or the
specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository
receipt.
138
Guarantee means with respect to any Person,
any obligation, contingent or otherwise, of such Person directly
or indirectly guaranteeing any Indebtedness of any other Person
and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
Person:
(1) to purchase or pay (or advance or supply funds for the
purchase or payment of ) such Indebtedness of such other Person
(whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities
or services, to
take-or-pay,
or to maintain financial statement conditions or
otherwise); or
(2) entered into for purposes of assuring in any other
manner the obligee of such Indebtedness of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part);
provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary
course of business. The amount of any Guarantee shall be the
lesser of such Indebtedness and the amount of such Persons
maximum liability with respect thereto. The term
Guarantee used as a verb has a corresponding meaning.
Guarantor means each Restricted Subsidiary of
the Company that executes and delivers the Indenture on the
Issue Date as a guarantor and each other Restricted Subsidiary
of the Company that thereafter Guarantees the Notes pursuant to
the terms of the Indenture, and their respective successors and
assigns, in each case unless and until such Person is released
from its obligations under its Subsidiary Guarantee pursuant to
the Indenture.
Hedging Obligations means, with respect to
any specified Person, the obligations of such Person incurred in
the normal course of business and not for speculative purposes
under:
(1) interest rate swap agreements (whether from fixed to
floating or from floating to fixed), interest rate cap
agreements and interest rate collar agreements entered into with
one or more financial institutions and designed to protect the
Person entering into the agreement against interest rate risk;
(2) foreign exchange contracts and currency protection
agreements entered into with one or more financial institutions
and designed to protect the Person entering into the agreement
against currency exchange rate risk; and
(3) any commodity futures contract, commodity option or
other similar agreement or arrangement designed to protect
against risk related to the price of commodities used by that
Person.
Holder means a Person in whose name a note is
registered on the registrars books.
Indebtedness means, with respect to any
specified Person, any indebtedness of such Person, whether or
not contingent (without duplication):
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof );
(3) in respect of bankers acceptances;
(4) representing Capital Lease Obligations and Attributable
Debt of such Person;
(5) representing the balance deferred and unpaid of the
purchase price of any property, except any such balance that
constitutes an accrued expense or trade payable;
(6) all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any non-Guarantor Subsidiary, any
preferred stock (but excluding, in each case, any accrued
dividends); or
(7) representing the net amount owing under any Hedging
Obligations,
if and to the extent any of the preceding items (other than
letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of the specified Person prepared
in accordance with
139
GAAP, but excluding (a) deposits and advances received in
the ordinary course of business and (b) Deemed Capitalized
Leases. In addition, the term Indebtedness includes
all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included,
the Guarantee by the specified Person of any Indebtedness of any
other Person.
The amount of any Indebtedness outstanding as of any date will
be:
(1) the accreted value of the Indebtedness, in the case of
any Indebtedness issued with original issue discount to the
extent such Indebtedness is deemed to ratably accrete to its
stated principal amount pursuant to the instrument under which
it was issued; and
(2) the principal amount of and premium (if any) in respect
of the Indebtedness, together with any interest on the
Indebtedness that is more than 30 days past due, in the
case of any other Indebtedness.
Investments means, with respect to any
Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the forms of loans
(including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances
to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, that would
be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person
is no longer a Subsidiary of the Company, the Company will be
deemed to have made an Investment on the date of any such sale
or disposition in an amount equal to the fair market value of
the Equity Interests of such Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of
the covenant described above under the caption
Certain Covenants Restricted
Payments.
Indenture means the indenture, dated as of
June 3, 2011, by and among the Company, the Guarantors and
Wells Fargo Bank, N.A., as trustee, governing the Companys
7.375% senior subordinate notes due 2021, as amended or
supplemented from time to time.
Initial Notes means the 7.375% senior
subordinated notes due 2021 issued by the Company on the Issue
Date.
Issue Date means the date on which the
Initial Notes were originally issued.
Lien means, with respect to any property or
asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such property or asset,
whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title
retention agreement, any lease in the nature thereof and any
filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
Net Income means, with respect to any
specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, any
gain or loss (net of related costs, fees, expenses and with any
related provision for taxes on such gain or loss) realized in
connection with: (a) any asset sale other than in the
ordinary course of business (as determined in good faith by
senior management or the Board of Directors of the Company) or
(b) the disposition of any securities by such Person or any
of its Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries.
Non-Recourse Debt means Indebtedness:
(1) as to which neither the Company nor any of its
Restricted Subsidiaries (a) provides credit support of any
kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or
indirectly liable as a Guarantor or otherwise or
(c) constitutes the lender, other than Indebtedness secured
by Liens permitted by clause (9) of the definition of
Permitted Liens;
140
(2) no default with respect to which (including any rights
that the holders of the Indebtedness may have to take
enforcement action against an Unrestricted Subsidiary) would
permit upon notice, lapse of time or both any holder of any
other Indebtedness (other than the Notes) of the Company or any
of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment of such other
Indebtedness to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing
that they will not have any recourse to the stock or assets of
the Company or any of its Restricted Subsidiaries.
Notes means the Initial Notes, the Exchange
Notes and any Additional Notes issued under the Indenture.
Notes Transactions means (i) the
offering of the 8.625% Senior Notes due 2019, the
dividending of the proceeds thereof to Cinemark, Inc. and the
application of the proceeds therefrom to redeem, repurchase,
retire or otherwise acquire the $419.4 million aggregate
principal amount at maturity of
93/4% Senior
Discount Notes due 2014 of Cinemark, Inc., and the payment of
all fees, costs, expenses, premiums and other payments in
connection with the foregoing and (ii) the offering of the
Initial Notes, the application of the proceeds therefrom as
described in the offering memorandum under which the Initial
Notes were sold under the section Use of Proceeds
and the payment of all fees, costs, expenses, premiums and other
payments in connection with the foregoing.
Obligations means any principal, premium and
Additional Interest, if any, interest (including interest
accruing on or after the filing of any petition in bankruptcy or
for reorganization, whether or not a claim for post-filing
interest is allowed in such proceeding), penalties, fees,
charges, expenses, indemnifications, reimbursement obligations,
damages, guarantees and other liabilities or amounts payable
under the documentation governing any Indebtedness or in respect
thereto.
Parent Entity means any Person that is a
direct or indirect parent of the Company.
Permitted Business means the lines of
business conducted by the Company and its Subsidiaries on the
Issue Date and any business incidental or reasonably related
thereto or which is a reasonable extension thereof as determined
in good faith by the Board of Directors of the Company and
Cinemark Holdings, Inc.
Permitted Business Investment means any
Investment made in a Permitted Business through agreements,
transactions, interests or arrangements that permit one to share
risks or costs, achieve economies of scale, pool resources,
comply with regulatory requirements regarding local ownership or
satisfy other objectives customarily achieved through the
conduct of such businesses jointly with third parties, relating
to ownership interests in projectors, advertising rights,
ticketing rights, Internet properties and other tangible and
intangible assets and properties, either directly or through
entities the primary business of which is to own or operate any
of the foregoing, including entry into and Investments in the
form of or pursuant to, operating agreements, pooling
arrangements, service contracts, joint venture agreements,
partnership agreements (whether general or limited), limited
liability company agreements, subscription agreements, stock
purchase agreements, stockholder agreements and other similar
agreements with third parties (other than Unrestricted
Subsidiaries).
Permitted Holders means (a) Madison
Dearborn Partners, LLC and its Affiliates, (b) Permitted
Mitchell Holders and (c) Cinemark Holdings, Inc. and
wholly-owned Subsidiaries thereof.
Permitted Investments means:
(1) any Investment in the Company or in a Restricted
Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the
Company; or
141
(b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company;
and, in each case, any Investment held by such Person;
provided, that such Investment was not acquired by such
Person in contemplation of such acquisition, merger,
consolidation or transfer;
(4) receivables owing to the Company or any Restricted
Subsidiary created or acquired in the ordinary course of
business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade
terms may include such concessionary trade terms as the Company
or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) workers compensation, utility, lease and similar
deposits and prepaid expenses in the ordinary course of business
and endorsements of negotiable instruments and documents in the
ordinary course of business;
(6) loans or advances to employees (other than executive
officers) made in the ordinary course of business;
(7) any Investment made as a result of the receipt of
non-cash consideration from an asset sale or other disposition;
(8) Investments and other assets the payment for which
consists of Equity Interests (exclusive of Disqualified Stock)
of the Company, or Equity Interests of any Parent Entity;
provided, however, that such Equity Interests will not
increase the amount available for Restricted Payments under
clause (3) of the first paragraph under the covenant
described in Certain Covenants Restricted
Payments;
(9) any Investment acquired by the Company or any of its
Restricted Subsidiaries:
(a) in exchange for any Investment or accounts receivable
held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other
Investment or accounts receivable; or
(b) as a result of a foreclosure by the Company or any of
its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any
secured Investment in default;
(10) Hedging Obligations;
(11) refundable construction advances made with respect to
the construction of properties of a nature or type that are used
in a business similar or related to the business of the Company
or its Restricted Subsidiaries in the ordinary course of
business;
(12) advances or extensions of credit on terms customary in
the industry in the form of accounts or other receivables
incurred, or pre-paid film rentals, and loans and advances made
in settlement of such accounts receivable, all in the ordinary
course of business;
(13) other Investments in any Person having an aggregate
fair market value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to
this clause (13) that are at the time outstanding, not to
exceed the greater of $125.0 million and 6.0% of
Consolidated Net Tangible Assets (determined as of the time each
such Investment is made);
(14) Investments existing on the Issue Date;
(15) Guarantees issued in accordance with the covenant set
forth under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock;
(16) Permitted Business Investments;
142
(17) advances, loans or extensions of credit to suppliers
and vendors in the ordinary course of business; and
(18) Investments in DCIP in an aggregate amount (measured
on the date each such Investment was made and without giving
effect to subsequent changes in value) not to exceed, at any one
time outstanding, $100.0 million.
Permitted Junior Securities means:
(1) Equity Interests in any direct or indirect parent of
the Company; or
(2) unsecured debt securities that are subordinated in
right of payment to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Notes and the
related Guarantees are subordinated in right of payment to
Senior Debt under the Indenture;
provided that the term Permitted Junior
Securities shall not include any securities distributed
pursuant to a plan of reorganization if the Indebtedness under
the Credit Agreement is treated as part of the same class as the
Notes for purposes of such plan of reorganization; provided
further that to the extent that any Senior Debt of the
Company or the Guarantors outstanding on the date of
consummation of any such plan of reorganization is not paid in
full in cash on such date, the holders of any such Senior Debt
not so paid in full in cash have consented to the terms of such
plan of reorganization.
Permitted Liens means:
(1) [RESERVED];
(2) Liens in favor of the Company or any Restricted
Subsidiary of the Company;
(3) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company
or any Restricted Subsidiary of the Company; provided
that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with
the Company or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition
of the property by the Company or any Restricted Subsidiary of
the Company, provided that such Liens were in existence
prior to the contemplation of such acquisition and do not extend
to any other assets;
(5) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business and related letters of credit;
(6) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) of the second
paragraph of the covenant entitled Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock covering only the assets, accessions,
improvements and proceeds acquired with such Indebtedness;
(7) Liens existing on the Issue Date (excluding Liens
relating to obligations under Credit Facilities and Liens of the
kind referred to in clause (21) below);
(8) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted,
provided that any reserve or other appropriate provision
as is required in conformity with GAAP has been made therefor;
(9) Liens on the Capital Stock of Unrestricted Subsidiaries;
(10) Encumbrances, easements or reservations of, or rights
of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or
zoning, building codes or other restrictions (including, without
limitation, minor defects or irregularities in title and similar
encumbrances) as to the use of real properties or liens
incidental to the conduct of the business of the
143
Company or such Restricted Subsidiary or to the ownership or
leasing of its properties which, in the aggregate, do not
materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the
business of the Company or such Restricted Subsidiary;
(11) Leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole;
(12) Landlords, carriers, warehousemens,
mechanics, materialmens, repairmens or the
like Liens arising by contract or statute in the ordinary course
of business and with respect to amounts which are not yet
delinquent or are not more than 60 days past due or are
being contested in good faith by appropriate proceedings,
provided that any reserve or other appropriate provision
as is required in conformity with GAAP has been made therefor;
(13) Pledges or deposits made in the ordinary course of
business (A) in connection with bids, tenders, leases,
performance bonds and similar obligations, or (B) in
connection with workers compensation, unemployment
insurance and other social security or similar legislation;
(14) Liens encumbering property or assets under
construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating
to such property or assets;
(15) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
in connection with the importation of goods;
(16) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business;
(17) Liens on or sales of receivables;
(18) the rights of film distributors under film licensing
contracts entered into by the Company or any Restricted
Subsidiary in the ordinary course of business on a basis
customary in the movie exhibition industry;
(19) any attachment or judgment Lien that does not
constitute an Event of Default;
(20) Liens in favor of the trustee for its own benefit and
for the benefit of the holders of the Notes;
(21) Liens (including extensions and renewals thereof )
upon real or personal property acquired after the Issue Date;
provided that (a) such Lien is created solely for
the purpose of securing Indebtedness incurred, in accordance
with the covenant set forth under the caption
Certain Covenants Incurrence of
Indebtedness and Issuance of Preferred Stock, (1) to
finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of
construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and
(c) any such Lien shall not extend to or cover any property
or assets other than such item of property or assets and any
accessions, proceeds and improvements on such item;
(22) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory
obligations, bankers acceptances, surety and appeal bonds,
government contracts, performance and
return-of-money
bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the
payment of borrowed money);
(23) Liens securing Hedging Obligations;
(24) Liens arising from filing Uniform Commercial Code
financing statements with respect to leases;
(25) Liens incurred in the ordinary course of business of
the Company or any Guarantor with respect to obligations that do
not exceed $50.0 million at any one time outstanding;
144
(26) Liens arising solely by virtue of any statutory or
common law provisions and ordinary course of business
contractual provisions, in each case, relating to bankers
Liens, rights of set-off or similar rights and remedies as to
deposit accounts or other funds maintained with a depositary
institution or brokerage;
(27) Liens on property or shares of stock of a Person at
the time such Person becomes a Restricted Subsidiary;
provided, however, that such Liens are not
created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming a Restricted
Subsidiary; provided further, however, that any
such Lien may not extend to any other property owned by the
Company or any Restricted Subsidiary;
(28) Liens securing the Notes and the Subsidiary Guarantees;
(29) Liens securing Indebtedness incurred to refinance
Indebtedness that was previously so secured (other than Liens
incurred pursuant to clauses (25) or (32) of this
definition), provided that any such Lien is limited to
all or part of the same property or assets (plus improvements,
accessions, proceeds or dividends or distributions in respect
thereof ) that secured (or, under the written arrangements under
which the original Lien arose, could secure) the Indebtedness
being refinanced;
(30) leases, licenses, subleases and sublicenses of assets
(including, without limitation, real property and intellectual
property rights) which do not materially interfere with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries;
(31) Liens securing Indebtedness permitted by
clauses (15) and (18) of the covenant under
Certain Covenants Incurrence of
Indebtedness and Issuance of Preferred Stock and Liens on
money escrowed to secure Indebtedness permitted by
clause (10) of such covenant;
(32) Liens securing letters of credit in an amount not to
exceed $25.0 million in the aggregate at any one time;
(33) Liens to secure Capital Lease Obligations;
(34) any encumbrance or restriction (including put and call
arrangements) with respect to Capital Stock of any joint venture
or any interest acquired pursuant to a Permitted Business
Investment;
(35) Liens arising under the Indenture in favor of the
trustee for its own benefit and similar Liens in favor of other
trustees, agents and representatives arising under instruments
governing Indebtedness permitted to be incurred or outstanding
under the Indenture, provided that such Liens are solely
for the benefit of the trustees, agents and representatives in
their capacities as such and not for the benefit of the holders
of such Indebtedness; and
(36) Liens arising from the deposit of funds or securities
in trust for the purpose of decreasing or defeasing Indebtedness
so long as such deposit of funds or securities and such
decreasing or defeasing of Indebtedness are permitted under the
covenant described under Certain
Covenants Restricted Payments.
In each case set forth above, notwithstanding any stated
limitation on the assets that may be subject to such Lien, a
Permitted Lien on a specified asset or group or type of assets
may include Liens on all improvements, additions and accessions
thereto and all products and proceeds thereof, including
dividends, distributions, interest and increases in respect
thereof.
Permitted Mitchell Holders means (a) Lee
Roy Mitchell or Tandy Mitchell, or any descendant of Lee Roy
Mitchell or the spouse of any such descendant, the estate of Lee
Roy Mitchell, Tandy Mitchell, any descendant of Lee Roy Mitchell
or the spouse of any such descendant or any trust or other
arrangement for the benefit of Lee Roy Mitchell, Tandy Mitchell,
any descendant of Lee Roy Mitchell or the spouse of any such
descendant (collectively, the Mitchell
Family) and (b) any group which includes any
member or members of the Mitchell Family if a majority of the
Capital Stock of the Company held by such group is beneficially
owned (including the power to vote such Capital Stock of the
Company) by such member or
145
members of the Mitchell Family or by one or more affiliates at
least 80% of the equity interests of which are owned by such
member or members of the Mitchell Family.
Permitted Refinancing Indebtedness means any
Indebtedness, Disqualified Stock or preferred stock of the
Company or any of its Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness,
Disqualified Stock or preferred stock of the Company or any of
its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that:
(1) the principal amount (or accreted value or liquidation
preference, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accreted
value or liquidation preference, if applicable) of the
Indebtedness, Disqualified Stock or preferred stock extended,
refinanced, renewed, replaced, defeased or refunded (plus all
accrued interest (or dividends, if applicable) on the
Indebtedness, Disqualified Stock or preferred stock and the
amount of all expenses, fees and premiums incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date later than or equal to the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, the Indebtedness,
Disqualified Stock or preferred stock being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness, Disqualified Stock or preferred
stock being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to
the Holders of Notes as those contained in the documentation
governing the Indebtedness, Disqualified Stock or preferred
stock being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4) such Indebtedness, Disqualified Stock or preferred
stock is incurred or issued either by the Company or any
Guarantor or by the Restricted Subsidiary who is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
Pro Forma Cost Savings means, with respect to
any period, the reduction in costs and related adjustments that
occurred during the four-quarter reference period or after the
end of the four-quarter period and on or prior to the
Calculation Date that were (i) directly attributable to an
acquisition or disposition and calculated on a basis that is
consistent with
Regulation S-X
under the Securities Act as in effect and applied as of the
Issue Date or (ii) implemented, or for which the steps
necessary for implementation have been taken by the Company and
are reasonably expected to occur, with respect to the Company or
the business that was the subject of any such acquisition or
disposition within six months before or after the date of the
acquisition or disposition and that are supportable and
quantifiable by the underlying accounting records of such
business, as if, in the case of each of clause (i) and
(ii), all such reductions in costs and related adjustments had
been effected as of the beginning of such period.
Representative means any trustee, agent or
representative (if any) for an issue of Senior Debt of the
Company or any Guarantor.
Restricted Investment means an Investment
other than a Permitted Investment.
Restricted Payments Computation Period means
the period (taken as one accounting period) beginning on
April 1, 2009 to the end of the Companys most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment.
Restricted Subsidiary of a Person means any
Subsidiary of the referent Person (or if no such Person is
specified, the Company) that is not an Unrestricted Subsidiary.
Securities Act means the Securities Act of
1933, as amended.
146
Senior Debt means, whether outstanding on the
Issue Date or thereafter incurred:
(1) all Indebtedness of the Company outstanding under the
Credit Agreement or the Senior Notes and the related subsidiary
guarantees;
(2) any other amounts payable by the Company and its
Restricted Subsidiaries under or in respect of Indebtedness of
the Company and its Restricted Subsidiaries, unless the
instrument under which such Indebtedness is incurred expressly
provides that it is subordinated in right of payment to the
Senior Notes and the related subsidiary guarantees or other
Senior Debt of the Company or any Guarantor; and
(3) all Obligations with respect to the items listed in the
preceding clauses (1) and (2) (including any premiums and
accrued and unpaid interest and interest accruing on or
subsequent to the filing of a petition of bankruptcy or for
reorganization relating to the Company or any of its Restricted
Subsidiaries at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed
claim under applicable law) and fees relating thereto.
Notwithstanding anything to the contrary in the preceding,
Senior Debt will not include:
(1) any liability for federal, state, local or other taxes
owed or owing by the Company or any of its Restricted
Subsidiaries;
(2) any Indebtedness of the Company to any of its
Restricted Subsidiaries or any obligation of a Restricted
Subsidiary to the Company or another Restricted Subsidiary;
(3) any trade payables arising in the ordinary course of
business;
(4) any Capital Stock, or
(5) the portion of any Indebtedness that is incurred in
violation of the Indenture (but only to the extent so incurred);
provided, however that such Indebtedness shall be
deemed not to have been incurred in violation of the Indenture
for purposes of this clause if such Indebtedness consists of
Designated Senior Debt, and the holder(s) of such Indebtedness
or their Representative (a) had no actual knowledge at the
time of incurrence that the incurrence of such Indebtedness
violated the Indenture and (b) shall have received a
certificate from an officer of the Company to the effect that
the incurrence of such Indebtedness does not violate the
provisions of the Indenture.
Senior Notes means the $470,000,000 aggregate
principal amount of the Companys 8.625% senior notes
due 2019 issued on June 29, 2009.
Senior Subordinated Debt means:
(1) with respect to the Company, Indebtedness that ranks
equal in right of payment to the Notes and is not subordinated
by its terms in right of payment to any Indebtedness or other
obligation that is not Senior Debt; and
(2) with respect to any Guarantor, Indebtedness that ranks
equal in right of payment to the Subsidiary Guarantee of such
Guarantor and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation that is not
Senior Debt.
Significant Subsidiary means any Subsidiary
that would be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act and the Exchange Act,
as such Regulation is in effect on the Issue Date.
Start Date means June 29, 2009.
Stated Maturity means, with respect to any
installment of interest or principal on any series of
Indebtedness, the date on which the payment of interest or
principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment
thereof.
147
Subsidiary means, with respect to any
specified Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof ); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof ).
Subsidiary Guarantee means, individually, any
Guarantee of payment of the Notes by a Guarantor pursuant to the
terms of the Indenture and any supplemental indenture thereto,
and, collectively, all such Guarantees. Each such Subsidiary
Guarantee will be in the form prescribed by the Indenture.
Theatre Completion means any motion picture
theatre or screen which was first opened for business by the
Company or a Restricted Subsidiary during any applicable period.
Unrestricted Subsidiary means any Subsidiary
of the Company that is designated by the Board of Directors of
the Company as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors, but only if such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract,
arrangement or understanding, taken as a whole, are not
materially less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company
nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Persons
financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not Guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or
any of its Restricted Subsidiaries; and
(5) either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or
indirectly, all or substantially all of the business of the
Company and its Subsidiaries.
Any designation of a Subsidiary of the Company as an
Unrestricted Subsidiary will be evidenced to the trustee by
filing with the trustee a certified copy of the resolution of
the Board of Directors giving effect to such designation and an
officers certificate certifying that such designation
complied with the preceding conditions and was permitted by the
covenants described above under the captions
Certain Covenants Restricted
Payments and Certain
Covenants Designation of Restricted and Unrestricted
Subsidiaries. If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date and, if such
Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption
Certain Covenants Incurrence of
Indebtedness and Issuance of Preferred Stock, the Company
will be in default of such covenant. The Board of Directors of
the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that
such designation will be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and
such designation will only be permitted if (1) such
Indebtedness is permitted under the covenant described under the
caption Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred
Stock, calculated on a pro forma basis as if such
designation had
148
occurred at the beginning of the four-quarter reference
period; and (2) no Default or Event of Default would
be in existence following such designation.
Notwithstanding the foregoing definition and the covenant
described under the caption Certain
Covenants Designation of Restricted and Unrestricted
Subsidiaries, if the Company indirectly acquires
additional Equity Interests in DCIP pursuant to a merger or
acquisition such that DCIP becomes a Subsidiary of the Company,
DCIP shall be deemed to be an Unrestricted Subsidiary and the
aggregate amount of the Companys and its Restricted
Subsidiaries Investments in DCIP at such date shall be
deemed not to be an Investment and shall not reduce the amounts
available for Restricted Payments and Permitted Investments;
provided, however, that any subsequent Investment in DCIP
shall be an Investment.
Voting Stock of any Person as of any date
means the Capital Stock of such Person that is normally entitled
to vote in the election of the Board of Directors of such Person.
Weighted Average Life to Maturity means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such
Indebtedness.
BOOK-ENTRY
SETTLEMENT AND CLEARANCE
We will issue the Exchange Notes in the form of one or more
global Exchange Notes, or the Global Exchange Note. The Global
Exchange Note will be deposited with, or on behalf of, The
Depository Trust Company, or DTC, and registered in the
name of the DTC or its nominee. Except as set forth below, the
Global Exchange Note may be transferred, in whole and not in
part, and only to DTC or another nominee of DTC. You may hold
your beneficial interests in the Global Exchange Note directly
through DTC if you have an account with DTC or indirectly
through organizations that have accounts with DTC.
DTC has advised us that it is:
|
|
|
|
|
a limited purpose trust company organized under the laws of the
State of New York;
|
|
|
|
a banking organization within the meaning of the New
York State Banking Law;
|
|
|
|
a member of the Federal Reserve System;
|
|
|
|
a clearing corporation within the meaning of the
Uniform Commercial Code; and
|
|
|
|
a clearing agency registered under Section 17A
of the Exchange Act.
|
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between its participants through electronic
book-entry changes to the accounts of its participants.
DTCs participants include securities brokers and dealers,
including the initial purchasers; banks and trust companies;
clearing corporations and other organizations. Indirect access
to DTCs system is also available to others such as banks,
brokers, dealers and trust companies; these indirect
participants clear through or maintain a custodial relationship
with a DTC participant, either directly or indirectly. Investors
who are not DTC participants may beneficially own securities
held by or on behalf of DTC only through DTC participants or
indirect participants in DTC.
So long as DTCs nominee is the registered owner of a
Global Exchange Note, that nominee will be considered the sole
owner or holder of the Exchange Notes represented by that Global
Exchange Note for all
149
purposes under the indenture. Except as provided below under
Certificated Notes, owners of beneficial
interests in a Global Exchange Note:
|
|
|
|
|
will not be entitled to have Exchange Notes represented by the
Global Exchange Note registered in their names;
|
|
|
|
will not receive or be entitled to receive physical,
certificated Exchange Notes; and
|
|
|
|
will not be considered the owners or holders of the Exchange
Notes under the indenture for any purpose, including with
respect to the giving of any direction, instruction or approval
to the trustee under the indenture.
|
As a result, each investor who owns a beneficial interest in a
Global Exchange Note must rely on the procedures of DTC to
exercise any rights of a holder of Exchange Notes under the
indenture (and, if the investor is not a participant or an
indirect participant in DTC, on the procedures of the DTC
participant through which the investor owns its interest).
Payments of principal, premium (if any) and interest with
respect to the Exchange Notes represented by a Global Exchange
Note will be made by the trustee to DTCs nominee as the
registered holder of the Global Exchange Note. We understand
that under existing industry practice, in the event an owner of
a beneficial interest in the Global Exchange Note desires to
take any action that the DTC, as the holder of the Global
Exchange Note, is entitled to take, the DTC would authorize the
participants to take such action, and the participants would
authorize beneficial owners owning through such participants to
take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
We will make payments of principal of, premium, if any, and
interest on Exchange Notes represented by the Global Exchange
Note registered in the name of and held by the DTC or its
nominee to the DTC or its nominee, as the case may be, as the
registered owner and holder of the Global Exchange Note. We
expect that the DTC or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on the Global
Exchange Note will credit participants accounts with
payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Exchange Note as
shown on the records of the DTC or its nominee. We also expect
that payments by participants or indirect participants to owners
of beneficial interests in the Global Exchange Note held through
such participants or indirect participants will be governed by
standing instructions and customary practices and will be the
responsibility of such participants or indirect participants. We
will not have any responsibility or liability for any aspect of
the records relating to, or payments made on account of,
beneficial ownership interests in the Global Exchange Note for
any Exchange Note or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests or
for any other aspect of the relationship between the DTC and its
participants or indirect participants or the relationship
between such participants or indirect participants and the
owners of beneficial interests in the Global Exchange Note
owning through such participants. Transfers between participants
in DTC will be effected under DTCs procedures and will be
settled in
same-day
funds.
Although the DTC has agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Exchange Note
among participants of the DTC, it is under no obligation to
perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Trustee
nor the Company will have any responsibility or liability for
the performance by the DTC or its participants or indirect
participants of their respective obligations under the rules and
procedures governing their operations.
150
Certificated
Notes
Exchange Notes in physical, certificated form will be issued and
delivered to each person that DTC identifies as a beneficial
owner of the related Exchange Notes only if:
|
|
|
|
|
DTC notifies us at any time that it is unwilling or unable to
continue as depositary for the Global Exchange Notes and a
successor depositary is not appointed within 90 days;
|
|
|
|
DTC ceases to be registered as a clearing agency under the
Exchange Act and a successor depositary is not appointed within
90 days;
|
|
|
|
we, at our option, notify the trustee that we elect to cause the
issuance of certificated Exchange Notes; or
|
|
|
|
certain other events provided in the indenture should occur.
|
151
DESCRIPTION
OF CERTAIN DEBT INSTRUMENTS
Senior
Secured Credit Facility
On October 5, 2006, in connection with the Century
Acquisition, we entered into a senior secured credit facility
that provided for a $1,120.0 million term loan facility and
a $150.0 million revolving credit facility. On
March 2, 2010, we completed an amendment and extension to
the senior secured credit facility to primarily extend the
maturities of the facility and make certain other modifications.
Approximately $924.4 million of our then remaining
outstanding $1,083.6 million term loan debt was extended
from an original maturity date of October 2013 to a maturity
date of April 2016. Approximately $159.2 million of the
remaining term loan debt that was not extended would have
matured on October 2013. However, after our regular quarterly
payment of approximately $1.9 million, the remaining
$157.3 million was prepaid with a portion of the net
proceeds from the issuance of the Initial Notes.
The interest rate on the remaining outstanding term loan debt
accrues interest, at our 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 2.25% margin per annum, or (B) a
eurodollar rate plus a 3.25% margin per annum.
As a result of the amendment and extension during March 2010,the
maturity date of $73.5 million of our $150.0 million
revolving credit line was extended from October 2012 to March
2015. The maturity date of the remaining $76.5 million of
our revolving credit line did not change and remains October
2012. The interest rate on the original revolving credit line
accrues interest, at our 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. The interest rate on the
extended revolving credit line accrues interest, at our 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 1.75% to 2.0% per annum, or (B) a
eurodollar rate plus a margin that ranges from 2.75%
to 3.0% per annum. The margin of the revolving credit line is
determined by the consolidated net senior secured leverage ratio
as defined in the credit agreement.
At March 31, 2011, there was $1,070.1 million
outstanding under the term loan facility and no borrowings
outstanding under the revolving credit facility. Approximately
$157.3 million of the term loan matures in October 2013 and
approximately $912.8 million matures in April 2016. As of
March 31, 2011, the average interest rate on the term loan
borrowings that mature in October 2013 was 3.1% per annum. As of
March 31, 2011, on an as adjusted basis, after giving
effect to the issuance of the Exchange Notes and the use of
proceeds therefrom, we would have had $912.8 million
outstanding under our term loan facility, all of which matures
in April 2016, at an average interest rate of 5.1% per annum.
Our obligations under the senior secured credit facility are
guaranteed by Cinemark Holdings and certain of our domestic
subsidiaries and are secured by mortgages on certain fee and
leasehold properties and security interests in substantially all
of our and our guarantors personal property, including,
without limitation, pledges of all of our capital stock, all of
the capital stock of certain of our domestic subsidiaries and
65% of the voting stock of certain of our foreign subsidiaries.
The senior secured credit facility contains usual and customary
negative covenants for agreements of that type, including, but
not limited to, restrictions on our ability, and in certain
instances, our subsidiaries and Cinemark Holdingss
ability, to consolidate or merge or liquidate; wind up or
dissolve; substantially change the nature of their respective
business; sell, transfer or dispose of assets; create or incur
indebtedness; create liens; pay dividends and repurchase stock;
and make capital expenditures and investments. The senior
secured credit facility also requires us to satisfy a
consolidated net senior secured leverage ratio covenant as
determined in accordance with the senior secured credit facility
if any revolving loans are outstanding.
152
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
dividends declared by the board of directors, is less than the
sum of (a) the aggregate amount of cash and the fair market
value of non-cash items received by Cinemark Holdings or us as
common equity since October 5, 2006, (b) our
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 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.
8.625% Senior
Notes
On June 29, 2009, we issued $470.0 million aggregate
principal amount of Senior Notes with an original issue discount
of approximately $11.5 million, resulting in proceeds to us
of approximately $458.5 million. Interest is payable on
June 15 and December 15 of each year. The Senior Notes mature on
June 15, 2019. As of March 31, 2011, the carrying
value of the Senior Notes was approximately $459.9 million.
We filed a registration statement with the Commission on
September 24, 2009 pursuant to which we offered to exchange
the Senior Notes for substantially similar registered Senior
Notes. The registration statement became effective on
December 17, 2009. The exchanged registered Senior Notes do
not have transfer restrictions.
The Senior Notes are fully and unconditionally guaranteed on a
joint and several senior unsecured basis by certain of our
subsidiaries that guarantee, assume or become liable with
respect to any of our or our guarantors debt. The Senior
Notes and the guarantees are senior unsecured obligations and
rank equally in right of payment with all of our and our
guarantors existing and future senior unsecured debt and
senior in right of payment to all of our and our
guarantors existing and future subordinated debt,
including the Exchange Notes. The Senior Notes and the
guarantees are effectively subordinated to all of our and our
guarantors existing and future secured debt to the extent
of the value of the assets securing such debt, including all
borrowings under our senior secured credit facility. The Senior
Notes and the guarantees are structurally subordinated to all
existing and future debt and other liabilities of our
subsidiaries that do not guarantee the Senior Notes.
The indenture governing the Senior Notes contains covenants that
limit, among other things, our ability and that of certain of
our subsidiaries to (1) consummate specified asset sales,
(2) make investments or other restricted payments,
including paying dividends, making other distributions or
repurchasing subordinated debt or equity, (3) incur
additional indebtedness and issue preferred stock,
(4) enter into transactions with affiliates, (5) enter
new lines of business, (6) merge or consolidate with, or
sell all or substantially all of its assets to another person
and (7) create liens. Upon a change of control of Cinemark
Holdings or us, we would be required to make an offer to
repurchase the Senior Notes at a price equal to 101% of the
aggregate principal amount outstanding plus accrued and unpaid
interest through the date of repurchase. Certain asset
dispositions are considered triggering events that may require
us to use the proceeds from those asset dispositions to make an
offer to repurchase the Exchange Notes at 100% of their
principal amount, plus accrued and unpaid interest, if any, to
the date of repurchase if such proceeds are not otherwise used
within 365 days as described in the indenture. The
indenture governing the Senior Notes allows us to incur
additional indebtedness if we
153
satisfy the coverage ratio specified in the indenture, after
giving effect to the incurrence of the additional indebtedness,
and in certain other circumstances. The required minimum
coverage ratio is 2 to 1 and our actual ratio as of
March 31, 2011 was 4.9 to 1.
We may redeem some or all of the Senior Notes at any time at
redemption prices described or set forth in the indenture
governing the Senior Notes. The indenture governing the Senior
Notes also provides for events of default which, if any of them
occurs, would permit or require the principal of, and accrued
interest on, the Senior Notes to become or to be declared due
and payable.
154
CERTAIN
UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of material U.S. federal income
tax consequences of the exchange of Initial Notes for Exchange
Notes pursuant to this Exchange Offer, but does not purport to
be a complete analysis of all potential tax considerations. This
summary is based upon the Code, the Treasury Regulations
promulgated or proposed thereunder, and administrative and
judicial interpretations thereof, all as of the date hereof and
all of which are subject to change, possibly on a retroactive
basis.
This summary is limited to the tax consequences of those persons
who are original beneficial owners of the Initial Notes, who
exchange Initial Notes for Exchange Notes in this Exchange
Offer, and that will hold the Exchange Notes, as capital assets
within the meaning of Section 1221 of the Code, which we
refer to as Holders. This summary does not purport to deal with
all aspects of U.S. federal income taxation that might be
relevant to particular Holders in light of their particular
circumstances or status nor does it address specific tax
consequences that may be relevant to particular persons
(including, for example, financial institutions, broker-dealers,
insurance companies, partnerships or other pass-through
entities, expatriates, banks, real estate investment trusts,
regulated investment companies, tax-exempt organizations and
persons that have a functional currency other than the
U.S. Dollar, or persons in special situations, such as
those who have elected to mark securities to market or those who
Initial Notes as part of a straddle, hedge, conversion
transaction or other integrated investment). In addition, this
summary does not address U.S. federal alternative minimum,
estate and gift tax consequences or consequences under the tax
laws of any state, local or foreign jurisdiction. We have not
sought any ruling from the Internal Revenue Service, or the IRS,
with respect to the statements made and the conclusions reached
in this summary, and we cannot assure you that the IRS will
agree with such statements and conclusions.
If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes holds Initial Notes and
participates in the Exchange Offer, the tax treatment of a
partner generally will depend upon the status of the partner and
the activities of the partnership. If you are a partner of a
partnership holding the Initial Notes, you should consult your
tax advisor regarding the tax consequences of the exchange of
Initial Notes for Exchange Notes pursuant to this Exchange Offer.
This summary is for general information only. Persons
considering the exchange of Initial Notes for Exchange Notes are
urged to consult their independent tax advisors concerning the
U.S. federal income taxation and other tax consequences to
them of exchanging the Initial Notes, as well as the application
of state, local and foreign income and other tax laws.
Exchange
of an Initial Note for an Exchange Note Pursuant to this
Exchange Offer
The Exchange Notes described herein will not differ materially
in kind or extent from the Initial Notes. Your exchange of
Initial Notes for Exchange Notes will not constitute a taxable
disposition of the Initial Notes for United States federal
income tax purposes. As a result, (1) you will not
recognize taxable income, gain or loss on such exchange,
(2) your holding period for the Exchange Notes will
generally include the holding period for the Initial Notes so
exchanged, and (3) your adjusted tax basis in the Exchange
Notes will generally be the same as your adjusted tax basis in
the Initial Notes so exchanged.
ACCOUNTING
TREATMENT
The Exchange Notes will be recorded at the same carrying value
as the Initial Notes as reflected in our accounting records on
the date of exchange. Accordingly, no gain or loss will be
recognized by us for accounting purposes. The expenses related
to the exchange offer and the unamortized debt issue costs
related to the issuance of the Initial Notes will be amortized
over the remaining term of the Exchange Notes.
155
CERTAIN
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated
with the purchase of the Exchange Notes by employee benefit
plans that are subject to Title I of the U.S. Employee
Retirement Income Security Act of 1974, as amended, or ERISA,
plans, individual retirement accounts and other arrangements
that are subject to Section 4975 of the Code or provisions
under any other federal, state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
ERISA or the Code, or collectively Similar Laws, and entities
whose underlying assets are considered to include plan
assets of any such plan, account or arrangement, referred
to herein as a Plan.
General
Fiduciary Matters
ERISA and the Code impose certain duties on persons who are
fiduciaries of a Plan subject to Title I of ERISA or
Section 4975 of the Code, or an ERISA Plan, and prohibit
certain transactions involving the assets of an ERISA Plan and
its fiduciaries or other interested parties. Under ERISA and the
Code, any person who exercises any discretionary authority or
control over the administration of such an ERISA Plan or the
management or disposition of the assets of such an ERISA Plan,
or who renders investment advice for a fee or other compensation
to such an ERISA Plan, is generally considered to be a fiduciary
of the ERISA Plan.
In considering an investment in the Exchange Notes of a portion
of the assets of any Plan, a fiduciary should determine whether
the investment is in accordance with the documents and
instruments governing the Plan and the applicable provisions of
ERISA, the Code or any Similar Law relating to a
fiduciarys duties to the Plan including, without
limitation, the prudence, diversification, delegation of control
and prohibited transaction provisions of ERISA, the Code and any
other applicable Similar Laws.
Prohibited
Transaction Issues
Section 406 of ERISA and Section 4975 of the Code
prohibit ERISA Plans from engaging in specified transactions
involving plan assets with persons or entities who are
parties in interest, within the meaning of ERISA, or
disqualified persons, within the meaning of
Section 4975 of the Code, unless an exemption is available.
A party in interest or disqualified person who engaged in a
non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In
addition, the fiduciary of the ERISA Plan that engaged in such a
non-exempt prohibited transaction may be subject to penalties
and liabilities under ERISA and the Code. The acquisition
and/or
holding of Exchange Notes by an ERISA Plan with respect to which
we or our guarantors or the initial purchasers are considered a
party in interest or a disqualified person may constitute or
result in a direct or indirect prohibited transaction under
Section 406 of ERISA
and/or
Section 4975 of the Code, unless the investment is acquired
and is held in accordance with an applicable statutory, class or
individual prohibited transaction exemption. In this regard, the
U.S. Department of Labor has issued prohibited transaction
class exemptions, or PTCEs, that may apply to the acquisition
and holding of the Exchange Notes. These class exemptions
include, without limitation,
PTCE 84-14
respecting transactions determined by independent qualified
professional asset managers,
PTCE 90-1
respecting insurance company pooled separate accounts,
PTCE 91-38
respecting bank collective investment funds,
PTCE 95-60
respecting life insurance company general accounts and
PTCE 96-23
respecting transactions determined by in-house asset managers.
In addition, Section 408(b)(17) of ERISA and
Section 4975(d)(20) of the Code provide relief from the
prohibited transaction provisions of ERISA and Section 4975
of the Code for certain transactions, provided that neither the
issuer of the securities nor any of its affiliates (directly or
indirectly) have or exercise any discretionary authority or
control or render any investment advice with respect to the
assets of any ERISA Plan involved in the transaction and
provided, further that the ERISA Plan pays no more than
adequate consideration in connection with the transaction. There
can be no assurance that all of the conditions of any such
exemptions will be satisfied.
Because of the foregoing, the Exchange Notes should not be
purchased or held by any person investing plan
assets of any Plan, unless such purchase and holding will
not constitute a non-exempt prohibited transaction under ERISA
and the Code or similar violation of any applicable Similar Laws.
156
Representation
Accordingly, by acceptance of an Exchange Note, each purchaser
and subsequent transferee will be deemed to have represented and
warranted that either (i) no portion of the assets used by
such purchaser or transferee to acquire or hold the Exchange
Notes constitutes assets of any Plan or (ii) the purchase
and holding of the Exchange Notes by such purchaser or
transferee will not constitute a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975
of the Code or a violation under any applicable Similar Laws.
The foregoing discussion is general in nature and is not
intended to be all inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons
considering purchasing the Exchange Notes on behalf of, or with
the assets of, any Plan, consult with their counsel regarding
the potential applicability of ERISA, Section 4975 of the
Code and any Similar Laws to such investment and whether an
exemption would be applicable to the purchase and holding of the
Exchange Notes.
157
PLAN OF
DISTRIBUTION
Based on interpretations of the Commission set forth in
no-action letters issued to third parties, we believe that the
Exchange Notes issued under the exchange offer in exchange for
Initial Notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided:
|
|
|
|
|
you are not an affiliate of ours within the meaning
of Rule 405 under the Securities Act;
|
|
|
|
you are acquiring the Exchange Notes in the ordinary course of
your business; and
|
|
|
|
you do not intend to participate in the distribution of the
Exchange Notes.
|
If you tender Initial Notes in the exchange offer with the
intention of participating in any manner in a distribution of
the Exchange Notes:
|
|
|
|
|
you cannot rely on the above interpretations of the
Commission; and
|
|
|
|
you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction, and the secondary resale
transaction must be covered by an effective registration
statement containing the selling security holder information
required by Item 507 or 508, as applicable, of
Regulation S-K
under the Securities Act.
|
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of the
Exchange Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker dealer
in connection with resales of Exchange Notes received in
exchange for Initial Notes where such Initial Notes were
acquired as a result of market-marking activities or other
trading activities. We have agreed that, for a period of
12 months after the effective date of this prospectus, we
will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of the Exchange
Notes by broker-dealers. Exchange Notes received by
broker-dealers for their own accounts pursuant to the exchange
offer may be sold from time to time in one or more transactions
in the
over-the-counter
market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such
broker-dealer
and/or the
purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of such Exchange Notes may
be deemed to be an underwriter within the meaning of
the Securities Act and any profit on any such resale Exchange
Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
For a period of twelve months after the effective date of this
prospectus, we will promptly send additional copies of this
prospectus and any amendment to this prospectus to any
broker-dealer that requests such documents. We have agreed, in
connection with the exchange offer, to indemnify the holders of
Notes against certain liabilities, including liabilities under
the Securities Act.
By acceptance of the exchange offer, each broker-dealer that
receives Exchange Notes pursuant to the exchange offer hereby
agrees to notify us prior to using the prospectus in connection
with the sale or transfer of Exchange Notes, and acknowledges
and agrees that, upon receipt of notice from us of the happening
of any event which makes any statement in the prospectus untrue
in any material respect or which requires the making of any
changes in the prospectus in order to make the statements
therein not misleading (which notice we agree to deliver
promptly to such broker-dealer), such broker-dealer will suspend
use of the prospectus
158
until we have amended or supplemented the prospectus to correct
such misstatement or omission and has furnished copies of the
amended or supplemented prospectus to such broker-dealer.
LEGAL
MATTERS
The validity of the Exchange Notes will be passed upon for us by
Akin Gump Strauss Hauer & Feld LLP.
EXPERTS
The financial statements incorporated by reference in this
prospectus from the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010, have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report, which is
incorporated herein by reference. Such financial statements have
been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus incorporates by reference
information contained in certain documents that we file with the
Commission, which means that we can disclose important
information by referring you to those documents. The information
incorporated by reference is considered to be a part of this
prospectus and information that we file later with the
Commission will automatically update and supersede the
information in this prospectus.
This prospectus incorporates by reference the following
documents:
|
|
|
|
|
the consolidated financial statements and supplemental schedules
included in our Annual Report filed on
Form 10-K
for the fiscal year ended December 31, 2010, as filed with
the Commission on March 11, 2011;
|
|
|
|
the consolidated financial statements and supplemental schedules
included in our Quarterly Report filed on
Form 10-Q
for the quarter ended March 31, 2011, as filed with the
Commission on May 6, 2011;
|
|
|
|
our Current Report on
Form 8-K
filed on May 31, 2011; and
|
|
|
|
our Current Report on
Form 8-K
filed on June 9, 2011
|
We are also incorporating by reference additional documents that
we file with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, on or after the date of
this prospectus through the completion of this offering. We are
not, however, incorporating by reference any documents or
portions thereof, that are not deemed filed with the
Commission or any information furnished pursuant to
Items 2.02 or 7.01 of
Form 8-K
or the exhibits relating to such items and furnished pursuant to
Item 9.01 of
Form 8-K.
Any statement contained in a document incorporated by reference
or deemed to be incorporated by reference in this prospectus
will be deemed to be modified or superseded to the extent that a
statement contained herein or in any other subsequently filed
document which also is incorporated by reference in this
prospectus modifies or supersedes that statement. Any statement
so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
159
$200,000,000
Cinemark USA, Inc.
7.375% Senior Subordinated
Notes
due 2021
PROSPECTUS
August 9, 2011