UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN THE PROXY STATEMENT

SCHEDULE 14A INFORMATION

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Exchange Act of 1934 (Amendment No.    )

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Cinemark Holdings, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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PROXY STATEMENT

AND

NOTICE OF 2018 ANNUAL MEETING

OF STOCKHOLDERS

MAY 24, 2018 AT 9:00 A.M. CENTRAL DAYLIGHT TIME

CINEMARK WEST PLANO THEATRE, 3800 DALLAS PARKWAY, PLANO, TEXAS 75093

LETTER FROM OUR CHIEF EXECUTIVE OFFICER

 

Dear Cinemark Stockholders:

On behalf of the Board of Directors (the “Board”), I would like to invite you to the 2018 annual meeting of stockholders (the “Annual Meeting”) of Cinemark Holdings, Inc. to be held at our West Plano Theatre located at 3800 Dallas Parkway, Plano, TX 75093 on May 24, 2018 at 9:00 a.m. CDT. The accompanying formal notice and proxy statement set forth the details regarding admission and the business to be conducted at the Annual Meeting.

Our dedicated and talented employees have delivered yet another year of solid performance following record-breaking results in both 2015 and 2016. During 2017, we achieved our third consecutive year of all-time highs across our global platform, including records in each of our revenue categories, net income and Adjusted EBITDA. We attained these record financial results in an industry box office environment that slightly declined year-over-year. This success reiterates the consistency of our operations and successful execution of our strategic initiatives.

Our Board continues to fulfill its critical mission of providing active engagement and oversight of the Company’s strategy, capabilities, leadership and risk management to ensure the Company is well-positioned to continue creating value for our stockholders. In 2017, we added a new independent director to the Board which enhanced and strengthened the diversity of skill sets represented on the Board. Also in 2017, the Board adopted a stock ownership guideline for directors and key members of management to continue to promote the Company’s commitment to sound corporate governance.

I would like to personally thank you for your continued investment in Cinemark and sincerely hope that you will be able to attend the Annual Meeting in person.

YOUR VOTE IS VERY IMPORTANT TO US. Whether or not you plan to attend the Annual Meeting, I urge you to please cast your vote as soon as possible via the Internet, telephone or mail.

Warm regards,

Mark Zoradi

Chief Executive Officer

CINEMARK HOLDINGS, INC.

3900 Dallas Parkway, Suite 500

Plano, Texas 75093

NOTICE OF 2018 ANNUAL MEETING AND PROXY STATEMENT

April 6, 2018

Dear Stockholders:

Notice is hereby given that the Annual Meeting of the Company will be held on May 24, 2018 at 9:00 a.m. CDT at our West Plano Theatre located at 3800 Dallas Parkway, Plano, TX 75093, for the following purposes:

 

1.

To elect three Class II directors to serve for three years on our Board;

2.

To ratify the appointment of Deloitte as our independent registered public accounting firm for 2018;

3.

To hold the annual, non-binding, advisory vote on our executive compensation program; and

4.

To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

Only stockholders of record as of the Record Date will be entitled to notice of, and to vote at, the Annual Meeting.

YOUR VOTE IS IMPORTANT TO US. Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented. Therefore, we urge you to promptly vote and submit your proxy in advance of the Annual Meeting. You can vote your shares via the Internet, by telephone, or by signing, dating, and returning the proxy card or voting instruction form. To vote via the Internet or telephone, follow the instructions included in the proxy card or the voting instruction form. You can revoke a proxy at any time prior to its exercise at the Annual Meeting by following the instructions in the proxy statement.

 

PROXY STATEMENT TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY			1
GENERAL INFORMATION			9
ITEM ONE — ELECTION OF DIRECTORS			9
Composition of the Board			9
Changes in the Board during 2017			9
Board Diversity and Director Qualifications			9
Nominations for Election to the Board			10
Annual Meeting Slate			11
CORPORATE GOVERNANCE			17
Board Leadership Structure			17
Board’s Role in Risk Oversight			17
Director Independence			18
Meeting Attendance			19
Executive Sessions			19
Stockholder Communications with the Board			19
Corporate Governance Policies and Charters			20
Code of Business Conduct and Ethics			20
BOARD COMMITTEES			20
DIRECTOR COMPENSATION			23
Stock Ownership Guideline			25
ITEM TWO —  RATIFICATION OF THE APPOINTMENT OF DELOITTE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018			25
ITEM THREE — ANNUAL ADVISORY VOTE ON EXECUTIVE COMPENSATION			25
COMPENSATION DISCUSSION AND ANALYSIS			26
Executive Officers			26
Executive Summary			27
Compensation Philosophy			29
The Process of Setting Executive Compensation			32
Design of Our Executive Compensation Program			33
Analysis of the Design of Our Executive Compensation Program			34
Fixed Components			34
Variable Components/Performance Compensation			34
Compensation Risk Assessment			39
Compensation Committee Report			40
Securities Authorized for Issuance Under Equity Compensation Plans			40
Summary Compensation Table for 2017			41
CEO Pay Ratio for 2017			43
Grants of Plan-Based Awards in 2017			44
Outstanding Equity Awards at Fiscal Year-End 2017			45
Stock Option Exercises and Stock Vested in 2017			46
Discussion of the Terms of the Employment Agreements with our NEOs			47
Potential Payments upon Termination by us Without Cause or by Executive for Good Reason			50
Potential Payments upon Termination for Cause			51
Potential Payments upon Termination due to Change in Control			51
Potential Payments upon Termination due to Death or Disability			53
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			55
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			56
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			57
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING			58
DEADLINE FOR STOCKHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING			62
ADDITIONAL INFORMATION			62
OTHER MATTERS			63
AVAILABILITY OF REPORT ON FORM 10-K			63
QUESTIONS			64

 

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GENERAL INFORMATION

 

 

Solicitation of Proxies

The Board is soliciting proxies in connection with the Annual Meeting (and any adjournment thereof) to be held on May 24, 2018 at 9:00 a.m. CDT at the Company’s West Plano Theatre located at 3800 Dallas Parkway, Plano, TX 75093. The approximate date on which this proxy statement and the enclosed proxy are first being sent to stockholders is April 13, 2018.

Shares Outstanding and Voting Rights

As of the Record Date, 116,779,546 shares of the Company’s common stock, par value $0.001 per share of the Company (the “Common Stock”) were outstanding. The Common Stock constitutes the only class of voting securities of the Company. Only stockholders of record as the Record Date are entitled to receive notice of, and to vote at, the Annual Meeting. Holders of Common Stock are entitled to one vote for each share so held.

 

 

ITEM ONE — ELECTION OF DIRECTORS

Composition of the Board

Our Board is currently comprised of 10 members. The size of the Board may be fixed from time to time exclusively by our Board as provided in our Certificate of Incorporation. Our Certificate of Incorporation also provides that our Board consists of three classes of directors, designated as Class I, Class II and Class III. 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.

Changes in the Board during 2017

Effective May 25, 2017, the Board elected Ms. Nancy Loewe to the Board to fill Mr. Don Soderquist’s vacancy, who passed away in 2016. Ms. Loewe was elected as a Class I director.

Board Diversity and Director Qualifications

Our Fourth Amended and Restated Corporate Governance Guidelines (“Corporate Governance Guidelines”) contain membership criteria for a position on our Board. The Board has not adopted a formal diversity policy but pursuant to the Corporate Governance Guidelines, the Board broadly construes diversity to mean diverse background, education, skills, age, expertise with a proven record of accomplishment and the ability to work well with others. The Nominating and Corporate Governance Committee (the “Governance Committee”) of the Board which is responsible for nominating members to the Board, does not assign specific weight to any particular factor when evaluating candidates for potential Board nominations. The Board, in selecting members, takes into account such factors as it deems appropriate, which may include the current composition of the Board, the range of talents, experiences and skills that would best complement those already represented on the Board and the need for financial or other specialized expertise. The Board seeks to achieve a mix of members whose experience and backgrounds are relevant to the Company’s strategic priorities and the scope and complexity of the Company’s business.

 

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Set forth below are the experience and skills each director brings to the Board.

 

Skill/Experience Matrix

Experience

Director

Financial Literacy

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•

•

•

•

•

•

•

Financial Management

•

•

•

•

•

•

Accounting and Financial Oversight/Enterprise Risk Management

•

•

•

•

•

Corporate Governance

•

•

•

•

CEO Positions Held

•

•

•

•

•

•

Non-CEO Executive Positions

•

•

•

•

Film, Media and Entertainment Industry

•

•

•

•

•

Beverage Industry

•

Corporate Finance

•

•

•

Mergers and Acquisitions

•

•

•

U.S. Public Company Board

•

•

•

•

•

Leadership

•

•

•

•

•

•

Strategic Planning

•

•

•

•

•

•

Information Technology

•

•

Cybersecurity

•

•

 

 

Nominations for Election to the Board

The Governance Committee of our Board receives nominations for Board members which it evaluates based on the standards, qualifications and diversity criteria set forth by the Board in the Corporate Governance Guidelines. The Governance Committee annually evaluates the criteria for the selection of new directors and recommends any proposed changes to the Board. Although the Board retains ultimate responsibility for approving candidates for election, the Governance Committee conducts the initial screening and evaluation process. In doing so, the Governance Committee considers candidates recommended by the directors, the CEO and the Company’s stockholders. The Governance Committee also has the authority, to the extent it deems appropriate, to retain one or more search firms to be used to identify director candidates.

While typically the Governance Committee recommends candidates to the full Board, under the director nomination agreement which we entered into on April 9, 2007 with certain of our then current stockholders (the “Director Nomination Agreement”), the Mitchell Investors (as defined in the Director Nomination Agreement) have a right to designate two nominees to the Board. The nominees of the Mitchell Investors however, must fulfil the membership criteria set by the Board. Currently, Messrs. Mitchell (Class III) and Sepulveda (Class II) are the nominees of the Mitchell Investors.

 

Darcy Antonellis Ben Chereskin Nancy Loewe Lee Roy Mitchell Steve Rosenberg Enrique Senior Carlos Sepulveda Ray Syufy Nina Vaca Mark Zoradi

 

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All candidates nominated for election or re-election to the Board should possess the following qualifications:

 

•

high personal and professional ethics, integrity, practical wisdom, and mature judgment;

•

broad training and experience at the policy-making level in business, government, education, or technology;

•

expertise that is beneficial to the Company and complementary to the background and experience of other Board members;

•

willingness to devote the required amount of time to carrying out duties and responsibilities of Board membership;

•

commitment to serve on the Board over a period of several years to develop knowledge about the Company’s principal operations; and

•

willingness to represent the best interests of all stockholders and objectively appraise management performance.

To recommend a candidate for election to the Board for the 2019 annual meeting of stockholders, a stockholder must submit the following information to the Company Secretary no later than 90 and no earlier than 120 days in advance of the anniversary date of this Annual Meeting:

 

•

the name and address of the stockholder of record and the beneficial owner, if any, on whose behalf the proposal is made;

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a representation that the stockholder intends to appear in person or by proxy at the annual meeting;

•

the number of shares of capital stock of the Company that are owned beneficially and of record by such stockholder and the beneficial owner, if any, on whose behalf the nomination is made;

•

a description of any arrangements or understandings between the stockholder, the beneficial owner and the nominee or any other person (including their names);

•

the name, age, business and residential addresses of the stockholder’s nominee for director;

•

the biographical and other information about the nominee (including the number of shares of capital stock of the Company owned beneficially or of record by the nominee) that would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission (“SEC”); and

•

the nominee’s consent to be named as a nominee and to serve on the Board.

Candidates recommended by stockholders will be evaluated on the basis of the same qualifications discussed above as candidates recommended by existing directors and the CEO.

Annual Meeting Slate

The terms of the current Class II directors, Ms. Antonellis, Messrs. Sepulveda and Zoradi expire at the Annual Meeting. All three directors have been recommended by the Governance Committee and nominated by the Board for re-election at the Annual Meeting.

Each of Ms. Antonellis, Messrs. Sepulveda and Zoradi has consented to be nominated for re-election to the Board as a Class II director. If elected, they will serve on the Board for a three-year term expiring on the date of our 2021 annual meeting of stockholders. At this time, we have no reason to believe that either Ms. Antonellis, Mr. Sepulveda or Mr. Zoradi will be unable or unwilling to serve if elected. However, should any of them become unavailable or unwilling to serve before the Annual Meeting, your proxy card authorizes us to vote for a replacement nominee if the Board names one.

 

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Information on each of our nominees and continuing directors is given below.

NOMINEES FOR CLASS II DIRECTORS

Term Expiring 2018

 

		Darcy Antonellis, 55   Director Since: July 2015   Nominee of: Board   Board Committees: Audit Committee   Other Public Company Boards: None

Professional Experience: Since January 2014, Ms. Antonellis has been the CEO of Vubiquity, Inc., the largest global provider of premium content services and technical solutions serving clients in 37 countries and reaching more than 100 million households. From June 1998 until December 2013, Ms. Antonellis held numerous positions at Warner Bros. Entertainment Inc., (a Time Warner company) including President of Technical Operations and Chief Technology Officer.

Qualifications: Ms. Antonellis’s background in engineering and experience in technology in the entertainment industry is invaluable to the Board. In addition to her management experience in the positions of CEO and senior executive of one of the largest studios, her success in digital media, as well as her strong understanding of our industry brings valuable experience and perspective to our Board.

 

		Carlos M. Sepulveda, 60   Director Since: June 2007   Nominee of: Mitchell Investors pursuant to the Director Nomination Agreement   Board Committees: Audit Committee (Chair and financial expert); Compensation Committee; Strategic Long-Range Planning Committee; lead independent director   Other Public Company Boards: Triumph Bancorp Inc.; Matador Resources Company (2013-2017)

Professional Experience: Since May 2010, Mr. Sepulveda has been the Chairman of the board of directors of Triumph Bancorp, Inc. (“Triumph Bancorp”), a bank holding company with interests in wholesale banking, commercial finance and real estate investments. Prior to Triumph Bancorp, Mr. Sepulveda was the President and CEO of Interstate Battery System International, Inc. (“Interstate Battery”), a seller of automotive and commercial batteries, from March 2004 until April 2013 and its Executive Vice President from 1995 until March 2004. Prior to joining Interstate Battery, Mr. Sepulveda was an audit partner with the accounting firm of KPMG Peat Marwick in Austin, New York and San Francisco for 11 years.

Qualifications: Mr. Sepulveda’s extensive public accounting background provides the Board critical financial and accounting expertise. As a certified public accountant with proven management and leadership skills, having served as the CEO of a major corporation, Mr. Sepulveda brings to the Board strong accounting and financial oversight skills coupled with experience in strategic planning and enterprise and operational risk management.

 

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		Mark Zoradi, 64   Director Since: June 2015   Nominee of: Board   Board Committees: None   Other Public Company Boards: None

Professional Experience: Since August 2015, Mr. Zoradi has served as our CEO. Mr. Zoradi spent 30 years at The Walt Disney Company (“Disney”), one of the world’s leading producers and providers of entertainment, in various positions including serving as the President of Walt Disney Studios Motion Picture Group. Mr. Zoradi’s positions at Disney included serving as the General Manager of Buena Vista Television and President of Buena Vista International with responsibility for the international theatrical and home entertainment marketing and distribution of Disney, Touchstone and Pixar films. Mr. Zoradi also served as the President and Chief Operating Officer (“COO”) of Dick Cook Studios, a new media and entertainment company, from January 2011 until July 2014 and the COO of Dreamworks Animation SKG, Inc. from August 2014 until January 2015.

Qualifications: A veteran motion picture executive with a background in distribution, Mr. Zoradi brings a wealth of knowledge to the Board with regards to strategic partnerships and relationships with the movie studios. Additionally, his experience in operations of large entertainment industry companies brings management expertise to the Board.

Unless marked to the contrary, proxies received will be voted “FOR” the election of each of the Class II nominees.

OUR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ELECTION OF EACH CLASS II NOMINEE.

CONTINUING CLASS III DIRECTORS

Term Expiring 2019

 

		Benjamin D. Chereskin, 59   Director Since: April 2004   Nominee of: Board   Board Committees: Compensation Committee; Strategic Long-Range Planning Committee (Chair)   Other Public Company Boards: CDW, Corporation; Boulder Brands, Inc. (2013-2016)

Professional Experience: Mr. Chereskin is President of Profile Capital Management LLC (“Profile Capital Management”), an investment management firm, which he founded in October 2009. Prior to founding Profile Capital Management, Mr. Chereskin was a Managing Director and Member of Madison Dearborn Partners, LLC, a private equity firm, from 1993 until October 2009, having co-founded the firm in 1993.

Qualifications: Mr. Chereskin’s background in private equity is a valuable resource to us in our efforts to attract capital, which helps us implement our business strategies and finance growth opportunities. His knowledge and experience in corporate finance, mergers and acquisitions, and corporate governance contributes to the Board’s expertise on strategic planning and provides valuable input on executive compensation matters.

 

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		Lee Roy Mitchell, 81   Director Since: Founder   Nominee of: Mitchell Investors pursuant to the Director Nomination Agreement   Board Committees: Executive Chairman of the Board; New Ventures Committee (Chair)   Other Public Company Boards: National CineMedia, Inc. (“NCMI”)

Professional Experience: Mr. Mitchell is the founder of the Company. He has served as Chairman of the Board since March 1996 and as a director since our inception in 1987.

Related Party: Mr. Mitchell is the husband of Tandy Mitchell, an employee of the Company, and the brother-in-law of Walter Hebert III, the Executive Vice President – Purchasing of the Company.

Qualifications: Mr. Mitchell has been engaged in the motion picture exhibition business for over 50 years. His depth of experience in the motion picture industry has been invaluable to the Board. Additionally, Mr. Mitchell brings a long-term historic industry perspective and leadership experience to the Board.

 

		Raymond W. Syufy, 55   Director Since: October 2006   Nominee of: Board   Board Committees: Strategic Long-Range Planning Committee; New Ventures Committee   Other Public Company Boards: None

Professional Experience: Mr. Syufy began working for Century Theatres, Inc. (“Century Theatres”), a regional movie exhibitor, 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 CEO 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 CEO of Syufy Enterprises, a retail and real estate holding company with operations in California, Nevada, Arizona, Colorado, and Texas.

Qualifications: Mr. Syufy’s experience in managing a successful, family-owned movie theatre business brings to the Board industry insight and operational experience. Mr. Syufy’s background also brings key strategic planning expertise to the Board, particularly with respect to competition from other forms of entertainment.

 

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CONTINUING CLASS I DIRECTORS

Term Expiring 2020

 

		Nancy S. Loewe, 50   Director Since: June 2017   Nominee of: Board   Board Committees: Audit Committee; Governance Committee   Other Public Company Boards: None

Professional Experience: Since January 2018, Ms. Loewe has been the COO of X3EM Brands, LLC (“X3EM Brands”), a consumer packaged goods and technology company, and served as its Chief Financial Officer (“CFO”) from April 2017 until December 2017. Prior to X3EM Brands, Ms. Loewe served in various executive positions at Kimberly-Clark Corporation, a multinational company producing paper-based consumer products. Her positions included serving as the CEO for Kimberly-Clark International from April 2014 until February 2017 and as the Chief Strategy Officer from December 2012 until April 2014 and Global Treasurer from September 2011 until March 2013, of Kimberly Clark Corporation. Additionally, Ms. Loewe has served as Vice President and CFO of Frito Lay North America and has held numerous positions during her 20-year tenure at GE, both inside and outside the U.S.

Qualifications: Ms. Loewe’s accounting and financial management expertise has added to the Board’s skillset of strategic planning and financial decision making. Due to her experience in leading large financial teams and financial management including audit, risk and treasury, she provides guidance and direction to the Company on accounting and financial processes and management.

 

		Steven P. Rosenberg, 59   Director Since: April 2008   Nominee of: Board   Board Committees: Audit Committee; Governance Committee (Chair)   Other Public Company Boards: Texas Capital Bancshares, Inc.; PRGX Global, Inc. (2007-2014)

Professional Experience: 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.

Qualifications: Mr. Rosenberg’s background in corporate leadership, private entrepreneurial investment and public company management brings to the Board strategic planning, risk management, board governance and general management skills that are critical to the implementation of our growth strategies and oversight of our enterprise and operational risk management. His experience in accounting and financial management, having served in corporate leadership positions and on audit committees of other public companies, is valuable to the Board with respect to the oversight of our financial reporting and enterprise risk management.

 

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		Enrique F. Senior, 74   Director Since: April 2004   Nominee of: Board   Board Committees: Strategic Long-Range Planning Committee; New Ventures Committee   Other Public Company Boards: Grupo Televisa S.A.B.; Coca-Cola FEMSA, S.A

Professional Experience: Mr. Senior is a Managing Director of Allen & Company LLC, a boutique investment bank, and has been employed by the firm since 1972. He has served as a financial advisor to several corporations including Coca-Cola Company, General Electric, CapCities/ABC, Columbia Pictures and QVC Networks.

Qualifications: Mr. Senior’s experience in financial advisory services has given him extensive knowledge of the film, media and entertainment and beverage industries. Mr. Senior’s experience has brought key insight into these two critical components of the Company’s business. He also provides strategic guidance to the Board.

 

		Nina G. Vaca (Ximena Humrichouse), 46   Director Since: November 2014   Nominee of: Board   Board Committees: Governance Committee; Compensation Committee (Chair)   Other Public Company Boards: Kohls, Corp., Comerica, Inc.

Professional Experience: Ms. Vaca is the founder, Chairman and CEO of the Pinnacle Group of companies, including Pinnacle Technical Resources, Inc. (together, “Pinnacle”). Founded in 1996, Pinnacle is an information technology services and solutions provider.

Qualifications: Ms. Vaca is a successful entrepreneur and brings to the Board a wealth of leadership and business expertise, especially with regard to information technology and e-commerce. Her experience as a director of other public companies adds to the governance skill set of the Board particularly in the area of executive compensation.

 

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CORPORATE GOVERNANCE

We are governed by our Board, which, in turn, appoints executive officers to manage our business operations. The Board oversees our executive management, reviews our long-term strategic plans and exercises oversight over all major decisions.

Board Leadership Structure

We believe that a key factor in a company’s performance is a leadership structure that provides a balance between independent oversight by an engaged Board and day-to-day operations by management to implement the Board’s strategic vision. To achieve this balance, we have split the roles of the Chairman of the Board and the CEO such that the Board is separated from the day-to-day operations of the Company.

In addition to the separation of the positions of the Chairman of the Board and the CEO, the Board has a lead independent director, which role provides leadership and an organizational structure to the non-management directors. The position of the lead independent director has the following significant authority and responsibilities under our Corporate Governance Guidelines:

 

•

to act as a liaison between the non-management directors and the Company’s management;

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to call meetings of non-management directors;

•

chair the executive sessions of non-management directors;

•

chair Board meetings when the Chairman is not present;

•

consult with the Chairman and the CEO and approve the schedules, agendas and information provided to the Board for each meeting;

•

be available for consultation and communication with stockholders upon request; and

•

provide the Chairman and the CEO with the results of the Board’s annual performance review.

Board’s Role in Risk Oversight

Responsibility for risk oversight rests with the Board. The Board has oversight responsibility of the processes established to identify, report and mitigate material risks applicable to the Company. The Board approves management’s policies related to key risk areas and provides input to management regarding risks and the appropriateness of management’s response. The Board also approves actions relating to our capital structure, annual operating budget and material acquisitions. While the Board considers risk in all its decisions, it also recognizes that appropriate and measured risk-taking may be required for the Company to retain its competitiveness, and thus increase stockholder value.

 

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The Board implements its risk oversight function both as a whole and through delegation to certain Board committees.

 

		The Board has delegated its oversight responsibility with respect to financial and accounting risks to the Audit Committee. The Audit Committee periodically discusses with management the Company’s major financial risk exposures and the Company’s risk assessment and risk management procedures. On a periodic basis, management provides the Audit Committee an update on key risks and the processes and systems of internal control to manage the risks. As deemed appropriate, the Chair of the Audit Committee reports to the full Board regarding material risks.   The Compensation Committee reviews the executive compensation program to ensure that the design of the program does not encourage excessive risk-taking. See Compensation Risk Assessment section of the Compensation Discussion and Analysis (the “CD&A”) for more detail on how the Compensation Committee mitigates risk without diminishing the incentive nature of our compensation program. It also reviews succession plans to ensure the Company has appropriate practices in place to support the retention and development of the talent necessary to achieve the Company's business goals and objectives.

Risks associated with governance structure and processes are managed by the Governance Committee of the Board. On an ongoing basis, the Governance Committee reviews the regulatory developments related to corporate governance and advises the Board accordingly.

In order to provide oversight of the risks associated with strategic planning and business development initiatives, the Board has established two additional committees, the Strategic Long-Range Planning Committee and the New Ventures Committee. The Strategic Long- Range Planning Committee assists management in the analysis of alternative strategic options and reviews with management key industry and market issues and external developments impacting the Company. The New Ventures Committee monitors the strategic direction of the Company. It evaluates new development programs or business growth and diversification opportunities within established strategic plan targets and applicable regulatory boundaries.

Director Independence

We comply with the independence requirements of the New York Stock Exchange (the “NYSE”). The NYSE bright-line tests for independence are whether the director:

 

1.

is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company;

2.

has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company (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 of a firm that is the Company’s internal or external auditor; (b) has an immediate family member who is a current partner of such a firm; (c) has an immediate family member who is a current employee of such firm and personally works on the

 

Board (ultimate risk management oversight responsibility) Audit Committee (financial and accounting risk) Compensation Committee (compensation risk) Governance Committee (regulatory risk) Strategic Long-Range Planning Committee (strategic and market risk) New Ventures Committee (new development risk)

 

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Company’s audit; or (d) is or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time;

4.

is, or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or has served on that company’s 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, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues. With the assistance of legal counsel to the Company, the Governance Committee has reviewed the NYSE standards for Board and committee member independence.

With the assistance of the Company’s legal counsel, the Governance Committee and the Board reviews the NYSE standards for Board and committee member independence. On the basis of this review, the Board has affirmatively determined, in its business judgment, that (a) the majority of the Board was, and continues to be, independent, (b) each of Mmes. Antonellis, Loewe and Vaca and Messrs. Chereskin, Rosenberg, Senior and Sepulveda are independent, (c) Messrs. Mitchell and Syufy are not independent due to their transactions with the Company exceeding $120,000 annually, (d) Messrs. Mitchell and Zoradi are not independent because they are employees of the Company, (e) each of Mmes. Antonellis and Loewe and Messrs. Rosenberg and Sepulveda meet all applicable requirements for membership in the Audit Committee, (f) 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 SEC and satisfies the NYSE’s financial experience requirements, and (g) each of Ms. Vaca and Messrs. Chereskin and Sepulveda meet all applicable requirements for membership in the Compensation Committee.

Meeting Attendance

During 2017, the Board held four (4) meetings and took action by written consent on five (5) occasions. All directors attended at least seventy-five percent (75%) of all meetings held by the Board and all meetings held by committees of the Board on which such director served.

All directors are strongly encouraged to attend the Annual Meeting, but we do not have a formal attendance requirement. All directors, except Mr. Senior, attended the annual meeting held in May 2017.

Executive Sessions

Pursuant to our Corporate Governance Guidelines and the rules of the NYSE, our non-management directors meet periodically in executive sessions with no Company employees present. Our Corporate Governance Guidelines require separate sessions of the non-management directors at least twice a year.

The presiding director of the executive sessions is currently our lead independent director, Mr. Sepulveda. During 2017, our non-management directors met twice and our independent directors met once in executive sessions.

Stockholder Communications with the Board

As stated in our Corporate Governance Guidelines, any Company stockholder or other interested party who wishes to communicate with the non-management directors as a group may direct such communications by writing to the:

Company Secretary

Cinemark Holdings, Inc.

3900 Dallas Parkway, Suite 500

Plano, TX 75093

 

19

The communication must be clearly addressed to the Board or to a specific director. If a response is desired, the individual should also provide contact information such as name, address and telephone number.

All such communications will be reviewed initially by the Company Secretary. The Company Secretary will forward to the appropriate director(s) all correspondence, except for items of the following nature:

 

•

advertising;

•

promotions of a product or service;

•

patently offensive material; and

•

matters completely unrelated to the Board’s functions, Company performance, Company policies or that could not reasonably be expected to affect the Company’s public perception.

The Company Secretary will prepare a periodic summary report of all such communications for the Board. Correspondence not forwarded to the Board will be retained by the Company and will be made available to any director upon request.

Corporate Governance Policies and Charters

The following documents make up our corporate governance framework:

 

•

Corporate Governance Guidelines;

•

Amended and Restated Charter of the Audit Committee (the “Audit Committee Charter”);

•

Charter of the Governance Committee (the “Governance Committee Charter”); and

•

First Amendment to Amended and Restated Compensation Committee Charter (the “Compensation Committee Charter”).

Current copies of the above policies and guidelines are available publicly on the Company’s website at http://investors.cinemark.com under the “Corporate Governance” tab.

Code of Business Conduct and Ethics

The Company has also adopted a Code of Business Conduct and Ethics, which applies to directors, executive officers and employees. The Code of Business Conduct and Ethics sets forth the Company’s policies on critical issues such as conflicts of interest, insider trading, protection of our property, business opportunities and proprietary information. We will post on our website any amendment to, or a waiver from, a provision of the Code of Business Conduct and Ethics for executive officers and directors that have been approved by our Board or any Board committee. The Code of Business Conduct and Ethics is available on our website at http://investors.cinemark.com under the “Corporate Governance” tab.

BOARD COMMITTEES

Our Board currently has five standing committees – Audit Committee, Compensation Committee, Governance Committee, Strategic Long-Range Planning Committee and the New Ventures Committee. The current composition of each of the committees is set forth below:

 

Name of Director		Audit		Compensation		Governance		Strategic       Long-Range Planning		New Ventures
Darcy Antonellis		Member
Benjamin Chereskin				Member				Chair
Nancy Loewe		Member				Member
Lee Roy Mitchell										Chair
Steven Rosenberg		Member				Chair
Enrique Senior								Member		Member
Carlos Sepulveda		Chair		Member				Member
Raymond Syufy								Member		Member
Nina Vaca				Chair		Member
Mark Zoradi

 

20

Audit Committee		Number of Meetings Held During 2017: 4   Number of Decisions by Consent During 2017: 1

Each of the Audit Committee members satisfies the standards for independence of the NYSE and the SEC as they relate to audit committees. Our Board has determined that each member of the Audit Committee is financially literate and that Mr. Sepulveda, a licensed certified public accountant with extensive public company accounting experience, qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC. See Mr. Sepulveda’s biography on page 12 for further information regarding his qualifications to be an “audit committee financial expert”.

The Audit Committee is governed by the Audit Committee Charter which sets forth the purpose and responsibilities of this committee.

Functions:

The functions of the Audit Committee include the following:

 

•

assisting the Board in its oversight responsibilities regarding (1) the integrity of our financial statements, (2) our risk management compliance with legal and regulatory requirements, (3) our systems of internal control and (4) our accounting, auditing and financial reporting processes generally, including the qualifications, independence and performance of the independent registered public accountants;

•

approving the report required by the SEC for inclusion in our annual proxy or information statement;

•

appointing, retaining, compensating, evaluating and replacing our independent registered public accountants;

•

approving audit and non-audit services to be performed by the independent registered public accountants;

•

establishing procedures for the receipt, retention and resolution of complaints regarding accounting, internal control or auditing matters submitted confidentially and anonymously by employees through the whistleblower hotline; and

•

performing such other functions as the Board may from time to time assign to the Audit Committee.

The Audit Committee meets on a quarterly basis with Company management and Deloitte, to discuss among other items, the earnings press release related to the quarter and the year (as applicable), the Company’s financial statements for the respective period and any changes in significant accounting policies and its impact on the Company’s financial statements. Twice a year, the Audit Committee is updated by Company management on the Company’s cybersecurity risks and processes and controls in place to address and manage those risks. The Audit Committee also meets, on a periodic basis, with Deloitte in executive sessions without the presence of members of management.

The Board has delegated its authority to approve related party transactions to the Audit Committee. The Company’s written policy regarding approval of related party transactions provides that, management must present to the Audit Committee all potential related party transactions including the nature of the transaction, material terms and the maximum dollar value of the transaction. The Audit Committee approves based upon the determination whether the transaction is fair and in the best interest of the Company. See Certain Relationships and Related Party Transactions on page 57 for further details on the approval of related party transactions.

Approval of Audit and Non-Audit Services:

The Audit Committee approves all audit and permissible non-audit services (including the fees and terms of the services) performed for the Company by its independent registered public accounting firm prior to the time that those services are commenced. The Audit Committee may, when it deems appropriate, form and delegate this authority to a sub-committee consisting of one or more Audit Committee members, including the

 

21

authority to grant pre-approvals of audit and permitted non-audit services. The decision of such sub-committee is presented to the full Audit Committee at its next meeting. The Audit Committee pre-approved all fees for 2017 noted in the table below.

Fees Paid to Independent Registered Public Accounting Firm:

We paid the following fees (in thousands) to Deloitte and its affiliates for professional services rendered by them during 2017 and 2016, respectively:

 

Fees		2017				2016
Audit		$	1,784.9			$	1,640.1
Audit Related		$	6.6			$	82.5
Tax(1)		$	145.5			$	283.9
Other		$	-			$	-
Total		$	1,937.0			$	2,006.5

⁽¹⁾ Fees primarily include transfer pricing studies and tax compliance services.

Audit Committee Report

Our committee has reviewed and discussed with management the Company’s audited financial statements for 2017. We have discussed with Deloitte the matters required to be discussed by the Statement on Auditing Standard No. 1301, Communications with Audit Committees, and Related and Transitional Amendments to PCAOB Standards. We have received the written disclosures and the letter from Deloitte as required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and have discussed with Deloitte its independence. Based on the review and discussions referred to above, we recommended to the Board that the audited financial statements for the Company be included in the Company’s 2017 Form 10-K for filing with the SEC.

Respectfully submitted,

Carlos Sepulveda (Chair)

Steven Rosenberg

Darcy Antonellis

Nancy Loewe

 

Compensation Committee		Number of Meetings Held During 2017: 5   Number of Decisions by Consent During 2017: 3

Each member of the Compensation Committee satisfies the standards for independence of the NYSE as they relate to compensation committees, qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code (the “Code”) and “non-employee directors” within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act. The Compensation Committee is governed by the Compensation Committee Charter, which sets forth the purpose and responsibilities of this committee.

Functions

The functions of the Compensation Committee include the following:

 

•

making recommendations to the Board on the Company’s general compensation philosophy and objectives and on all matters of policy and procedures relating to executive compensation;

•

reviewing and approving corporate goals and objectives relevant to the CEO’s compensation, and determining and approving the CEO’s compensation level;

 

22

•

determining and approving the compensation of the other executive officers;

•

administering (to the extent such authority is delegated to the Compensation Committee by the Board) the incentive compensation and equity-based plans and recommending to the Board any modifications of such plans;

•

validating and approving the achievement of performance levels under the Company’s incentive compensation plans;

•

reviewing, recommending, and discussing with management the CD&A section included in the Company’s annual proxy statement; and

•

developing a succession planning program for the CEO and senior management.

 

Governance Committee		Number of Meetings Held During 2017: 0   Number of Decisions by Consent During 2017: 1

The Governance Committee is composed solely of directors who satisfy all criteria for independence under the rules of the NYSE. The Governance Committee is governed by the Governance Committee Charter setting forth the purpose and responsibilities of this committee.

Functions

The functions of the Governance Committee include the following:

 

•

identifying individuals qualified to become Board members and evaluate candidates for Board membership, including those recommended by stockholders in compliance with the Company’s by-laws;

•

recommending to the Board the director nominees for election or to fill any vacancies and newly created directorships on the Board;

•

identifying and recommending to the Board members qualified to fill any vacancies on a committee of the Board;

•

developing and recommending to the Board a set of corporate governance guidelines and reviewing and reassessing the adequacy of such guidelines at least annually;

•

overseeing the Board’s annual self-evaluation process and the Board’s evaluation of management;

•

periodically reviewing the criteria for the selection of new directors to serve on the Board and recommending any proposed changes to the Board for approval;

•

periodically reviewing and making recommendations regarding the composition and size of the Board;

•

periodically reviewing and making recommendations regarding the composition, size, purpose, structure, operations and charter of each of the Board’s committees, including the creation of additional committees or elimination of existing committees;

•

annually recommending to the Board the chairpersons and members of each of the Board’s committees; and

•

reviewing and reassessing the adequacy of the Governance Committee Charter on an annual basis and recommend any proposed changes to the Board for approval.

DIRECTOR COMPENSATION

The compensation of the non-employee directors for 2017 was governed by our Third Amended and Restated Non-Employee Director Compensation Policy (the “Director Compensation Policy”) adopted by the Board in February 2017. A non-employee director is one who is not (i) an employee of the Company or any of our subsidiaries, or (ii) an employee of any of the Company’s stockholders which has contractual rights to nominate directors. Therefore, Messrs. Mitchell and Zoradi did not receive any compensation for their services on the Board in addition to their employee compensation. See the compensation tables beginning on page 41 for the compensation paid to Messrs. Mitchell and Zoradi.

 

23

In early 2017, Pearl Meyer, our independent compensation consultant, was engaged to conduct a competitive market assessment of our director compensation program. To better align with market median practices and to reflect the intensifying workload for directors, increases were adopted for our Lead Independent Director ($25,000 to $35,000), Compensation Committee Chairperson ($10,000 to $15,000), and members of both the Compensation ($5,000 to $10,000) and Governance ($5,000 to $7,500) Committees. The base director retainer and retainers associated with the other committees remain unchanged. Each non-employee director received the following annual cash retainers, as applicable, for services as a Board member during 2017:

 

(a)

a base director retainer of $60,000;

(b)

additional retainer of $35,000 for the non-employee director who serves as the lead independent director;

(c)

additional cash retainer for services on the committees as follows:

 

Committee		Chairperson				Member
Audit		$	20,000			$	10,000
Compensation		$	15,000			$	10,000
Governance		$	10,000			$	7,500
Strategic Long-Range Planning		$	10,000			$	5,000
New Ventures		$	10,000			$	5,000

Annual cash retainers are paid in four equal quarterly installments at the end of each quarter for services rendered during the quarter. All directors are reimbursed for travel related expenses incurred for each Board meeting they attend.

In addition to the annual cash retainers, the non-employee directors received an annual grant of restricted stock valued at $115,000 which was increased from $110,000. The number of shares of restricted stock issued was determined by dividing $115,000 by the closing price of 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 grant date subject to continued service to the Company through the vest date.

The following table sets forth summary information regarding the compensation of our non-employee directors for 2017.

 

 

(1)

Includes all annual cash retainers, as applicable. Nancy Loewe’s fees were paid beginning on May 25, 2017.

(2)

The grant date fair values were calculated based upon the closing price of Common Stock on June 15, 2017 of $40.74 per share. This calculation is in accordance with FASB ASC Topic 718.

See footnote 14 to the Company’s 2017 Form 10-K, for discussion of the assumptions used in determining the grant date fair values of these share based awards, including forfeiture assumptions and the period over which the Company will recognize compensation expense for such awards.

At December 31, 2017, each of the directors owned 2,822 shares of restricted stock. See Security Ownership of Certain Beneficial Owners and Management table on page 55 for total stock ownership of each of the directors.

(3)

The amounts reported are dividends paid during 2017 on the shares of unvested restricted stock granted in 2016 and 2017.

 

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Stock Ownership Guideline:

In 2017, the Board adopted the Stock Ownership Guideline (the “Guideline”) applicable to non-employee directors and certain executive officers. Under the Guideline, a non-employee director has to retain Common Stock ownership equal in value to at least five times the value of the director’s annual cash retainer for that year. Each director must satisfy his or her applicable Guideline level within five years from the date of adoption of the Guideline. The Common Stock that counts towards satisfaction of the Guideline include Common Stock owned outright, Common Stock held in trust for the benefit of the director or his or her family member residing in the same household, unvested restricted stock or performance-based awards that have been earned based upon certification by the Compensation Committee but are subject to further time-based vesting.

ITEM TWO — RATIFICATION OF THE APPOINTMENT OF DELOITTE AS OUR

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018

The Audit Committee has appointed and the Board has ratified the appointment of Deloitte as the Company’s independent registered public accounting firm for 2018. As a matter of good corporate governance, we are seeking stockholder ratification of the appointment of Deloitte. If the stockholders do not ratify the appointment of Deloitte, the Audit Committee may review its future selection of auditors. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its stockholders.

One or more representatives of Deloitte are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to answer appropriate questions.

Unless marked to the contrary, proxies received will be voted “FOR” ratification of the appointment of Deloitte as the independent registered public accounting firm for 2018.

OUR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION

OF THE APPOINTMENT OF DELOITTE AS OUR INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM FOR 2018.

ITEM THREE — ANNUAL ADVISORY VOTE ON EXECUTIVE COMPENSATION

Our Board believes that we have created a compensation program that is tied to performance, aligns with stockholder interests and merits stockholder approval. Accordingly, we are seeking approval of the compensation paid to our NEOs for 2017 as disclosed in this proxy statement in the CD&A, the compensation tables and the narrative discussion following the compensation tables.

 

At the annual meeting of stockholders held in May 2017, approximately 90% of our stockholders present in person or represented by proxy and entitled to vote at the annual meeting approved the 2016 say-on-pay. The Compensation Committee reviewed the results of the 2016 say-on-pay vote. Given the high stockholder approval, the Compensation Committee did not make any changes to the structure of our executive compensation program but calibrated it to better align with our compensation philosophy.

 

25

COMPENSATION DISCUSSION AND ANALYSIS

The CD&A provides information on our executive compensation program and the amounts shown in the executive compensation tables that follow. It details our compensation philosophy, the structure of the compensation program and the ways in which the philosophy is implemented generally, as well as, specifically for individual performers.

EXECUTIVE OFFICERS

Our NEOs for 2017 were the following executives:

 

Name		Age		Position
Lee Roy Mitchell		81		Executive Chairman of the Board
Mark Zoradi		64		Chief Executive Officer; Director
Sean Gamble		43		Chief Operating Officer; Chief Financial Officer
Valmir Fernandes		57		President-Cinemark International
Michael Cavalier		51		Executive Vice President-General Counsel and Secretary

Lee Roy Mitchell is the founder of the Company. He has served as our Chairman of the Board since March 1996 and as a director since our inception in 1987. Mr. Mitchell has been engaged in the motion picture exhibition business for over 50 years. Mr. Mitchell is the husband of Tandy Mitchell, an employee of the Company, and the brother-in-law of Walter Hebert III, the Executive Vice President–Purchasing, of the Company. Mr. Mitchell currently serves on the board of directors of NCMI.

Mark Zoradi has served as our director since June 2015 and our CEO since August 2015. Mr. Zoradi spent 30 years at Disney, one of the world’s leading producers and providers of entertainment, in various positions including serving as the President of Walt Disney Studios Motion Picture Group. Mr. Zoradi’s positions at Disney included serving as the General Manager of Buena Vista Television and President of Buena Vista International with responsibility for the international theatrical and home entertainment marketing and distribution of Disney, Touchstone and Pixar films. Mr. Zoradi also served as the President and COO of Dick Cook Studios, a new media and entertainment company, from January 2011 until July 2014 and the COO of Dreamworks Animation SKG, Inc. from August 2014 until January 2015.

Sean Gamble has served as our COO and CFO since January 2018 and as our Executive Vice President and CFO since August 2014. Prior to joining Cinemark, from February 2009 until April 2014, Mr. Gamble worked for the Comcast Corporation as Executive Vice President and CFO of Universal Pictures within NBCUniversal, one of the world’s leading media and entertainment companies. He joined Comcast after 15 years at the General Electric Company, a multinational conglomerate providing energy, health, transportation and financial services solutions, where he held multiple senior leadership positions, including CFO of GE Oil & Gas’ Equipment business based in Florence, Italy from May 2007 until January 2009.

Valmir Fernandes has served as our President of Cinemark International, L.L.C. since March 2007 and has been with Cinemark for more than 20 years.

Michael Cavalier has served as our Executive Vice President-General Counsel and Secretary since February 2014 and as our Senior Vice President-General Counsel and Secretary since January 2006. He has been with Cinemark for more than 20 years.

 

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EXECUTIVE SUMMARY

We delivered in 2017 our third consecutive year of all-time highs across our global platform

On the heels of our record-breaking performance in both 2015 and 2016, we achieved another year of record financial results. Our domestic operations over-indexed the North American industry box office by 90 basis points for the full year, in spite of having an average of 148 screens closed per day over the course of the year due to recliner conversions. Internationally, in 2017, despite challenging headwinds from a reduced volume of animated content and local product, our international admission revenues grew by nearly 7%.

ONE-YEAR GROWTH

FYE 2016 - FYE 2017

 

 

 

2.5%		3.6%		3.2%		2.5%
Revenue $2,991.6 million		Net Income1, 2 $264.2 million		Diluted EPS2 $2.26		Adjusted EBITDA3 $723.8 million

¹ Attributable to Cinemark Holdings, Inc.

² Includes impact of new tax reform legislation enacted in December 2017 and effective beginning with 2017.

³ See footnote 18 to the Company’s 2017 Form 10-K for reconciliation of net income to Adjusted EBITDA.

 

 

Our financial results over the past five years indicate solid performance and long-term growth

The achievements in 2017 mark 8 out of the past 9 years of industry outperformance and exemplifies our consistent financial performance. The chart below provides Cinemark’s growth in key financial categories over the past 5 years:

FIVE-YEAR GROWTH

FYE 2012 - FYE 2017

 

 

 

20.9%		56.4%		53.7%		21.3%
Revenue		Net Income1, 2		Diluted EPS2		Adjusted EBITDA3

¹ Attributable to Cinemark Holdings, Inc.

² Includes impact of new tax reform legislation enacted in December 2017 and effective beginning with 2017.

³ See footnote 18 to the Company’s 2017 Form 10-K for reconciliation of net income to Adjusted EBITDA.

 

 

 

27

Our return to stockholders relative to our Theatre Peers has been strong over the past five years

We compare our Total Stockholder Return (“TSR”) against our direct competitors in the movie exhibition industry (referred to as the “Theatre Peers”). Our Theatre Peers for 2017 included the three publicly-held companies in our industry, namely, Regal Entertainment Group (RGC), AMC Entertainment Holdings, Inc. (AMC) and IMAX Corporation (IMAX). For purposes of evaluating our fiscal performance over five years as of FYE 2017, we believe that this peer group is an appropriate benchmark since we directly competed with these companies for business and investor capital. As compared to our Theatre Peers, our TSR (with dividends reinvested) for the one-year and cumulative three-year and cumulative five-year periods as of FYE 2017 has been as follows:

 

		1 Yr. TSR		3 Yr. TSR		5 Yr. TSR
Cinemark		(6.2%)		7.0%		53.9%
AMC		(52.7%)		(33.2%)		N/A
Regal(1)		16.0%		20.1%		103.4%
IMAX		(26.3%)		(25.1%)		3.0%
S&P 500		21.8%		38.3%		108.1%
Theatre Peers (2)		(54.1%)		(50.9%)		41.4%

 

(1)

RGC stock price has been positively impacted by its all-cash acquisition by Cineworld, at a premium of 43.2% over its 30-day weighted average stock price of $16.06.

(2)

AMC’s initial public offering occurred on December 13, 2013. For purposes of the table above, the one-year and three-year TSR for the Theatre Peers include AMC, RGC and IMAX and the five-year TSR for the Theatre Peers only includes RGC and IMAX.

Our cumulative total return between FYE 2012 and FYE 2017 as compared to our Theatre Peers and S&P 500 is presented below.

 

 

 

CUMULATIVE TOTAL RETURN Based upon initial investment of $100 on December 31, 2012 with dividends reinvested Cinemark Holdings Inc. S&P © 500 AMC (1) RGC IMAX SOURCE: Yahoo! Finance & Company

 

28

COMPENSATION PHILOSOPHY

Our compensation philosophy is designed to recognize and reward contributions of all employees, including our executives. In addition to performance-driven compensation, we offer competitive annual base salary and a comprehensive benefits package. We believe our compensation practices motivate our employees to build long-term stockholder value. In keeping with this philosophy, our executive compensation program is designed to:

 

•

Attract and retain top talent by competing effectively for the highest quality people who will determine our long-term success;

 

•

Pay-for-performance by aligning compensation with the achievement of both short-term and long-term financial objectives that build stockholder value;

 

•

Motivate performance with appropriate risk-taking; and

 

•

Recognize the role and responsibility of the individual in the Company’s performance

The majority of our executive compensation is in the form of compensation that is variable and “at-risk”

A core principle of our executive compensation program is to provide a significant percentage of the total compensation as variable, performance-based and “at-risk” balanced with the nature and responsibility of the position. This ensures executive compensation is tied to the financial success of the Company and the performance of our Common Stock. The presentations below show the percentage of performance-based compensation of the target total compensation for Mr. Zoradi and for our other NEOs as a group, for 2017.

The mix of the variable and fixed components of compensation for the NEOs for 2017 were as follows:

 

		Variable Components				Fixed Components
CEO			75%				25%
All NEOS (except CEO)			61%				39%

 

 

CEO Benefits [PERCENTAGE] salary [PERCENTAGE] cash bonus target [PERCENTAGE] total equity target [PERCENTAGE]ALL OTHER NEOS Benefits [PERCENTAGE] salary [PERCENTAGE] cash bonus target [PERCENTAGE] total equity target [PERCENTAGE] Target Total Compensation Mix for 2017

 

29

Our executive compensation program reflects a strong pay-for-performance alignment including individual contributions to Company and business unit performance

Our incentive programs, both short and long-term, are structured to ensure that target payouts are achieved based on goals that continue to encourage performance that exceeds industry standards. The combination of performance-focused elements of our compensation program and retention enables us to deliver long-term value creation for our stockholders.

Cash Bonus:

Cash bonus for the year is based not only on the Company achieving pre-set goals but also on individual targets which are consistent with the role, responsibilities and performance of the individual in the prior years. Accordingly, target bonus percentages vary among the NEOs. The target cash bonus for Messrs. Mitchell and Zoradi are higher than that of the other NEOs and that for Mr. Fernandes is based 50% on the performance of our international segment. Also, in 2017, Mr. Gamble’s target cash bonus was increased due to his performance the past couple of years since his hiring in 2014, market norms and internal pay equity.

The cash bonus weightings and the individual targets (as percentages of base salaries) for 2017 and the individual targets for 2016 for each of the NEOs is provided in the following table.

 

NEO		Bonus Weighting				Target (% of Base Salary)
		Worldwide		Corporate International		2017		2016
Lee Roy Mitchell		100%		-		100%		100%
Mark Zoradi		100%		-		100%		100%
Sean Gamble		100%		-		85%		75%
Michael Cavalier		100%		-		85%		85%
Valmir Fernandes		50%		50%		85%		85%

We consistently encourage performance and strive to outperform our peers. To support this performance-driven culture that strives to “raise the bar” and drive accountability, for 2017, the Compensation Committee raised the level of Company achievement for maximum payout of the cash bonus to 108% of target Adjusted EBITDA from 105% of target Adjusted EBITDA for 2016. For Mr. Zoradi, the level for his maximum payout for 2017 was further raised to 110% of the target Adjusted EBITDA compared to 108% for all other NEOs.

Given the varying individual target cash bonus opportunities and differentiated levels of maximum payouts, Mr. Zoradi received 139% and Mr. Fernandes received 124.7% of their respective target cash bonus payouts while each of Messrs. Mitchell, Gamble and Fernandes received 148.8% of their respective targets.

Long-term Equity Incentive Awards:

Long-term equity incentive awards also encourage performance and alignment with long-term stockholder interests. The realizable value of our long-term equity incentive awards is tied to Company stock price at a future date and Company performance over a period of time. Long-term equity incentive awards are commensurate with individual’s position within the Company, however, Mr. Mitchell does not receive any long-term equity incentive award due to his substantial ownership as the founder of the Company.

The long-term equity incentive awarded to all NEOs has historically been split 50% between time-based restricted stock and performance-based restricted stock units. However, in 2017, the Compensation Committee split Mr. Zoradi’s long-term equity incentive award at the target level as 75% performance-based restricted stock units and 25% as time-based restricted stock.

 

30

To better align with our compensation philosophy and evolving market competitive rates, the target long-term equity incentive awards (as percentages of base salary) were increased for Messrs. Zoradi, Gamble and Cavalier and were as follows for all NEOs:

 

NEO		Percentage of Base Salary
		2017				2016
Lee Roy Mitchell			N/A				N/A
Mark Zoradi1			225%				200%
Sean Gamble			150%				125%
Michael Cavalier			135%				125%
Valmir Fernandes			125%				125%

 

(1)

In 2016, Mr. Zoradi was awarded a special equity grant of performance shares issued as restricted stock units ($400,000) for his service as the CEO in 2015. The percentage for 2016 does not include the value of the special grant.

Additionally, the Compensation Committee raised the IRR goals for the 2017 performance-based awards from those for the 2016 awards. The IRR goals for the 2017 performance-based awards, as compared to those for the 2016 awards, are as follows with straight-line interpolation used to determine payout between threshold, target and maximum goals:

 

Performance Metric and Payout				Goals
				Threshold		Target		Maximum
IRR		2017		7.0%		9.5%		13.0%
		2016		6.0%		8.0%		10.0%
Percentage of Individual   Target Payout				50%		100%		150%

We attract and retain top talent while driving above-industry performance

Our employees are our most valuable asset. The majority of our executives have been with the Company for many years and have significant industry experience. Retention is therefore a key objective of our compensation package and we set a competitive target compensation based on surveys of industry peers. See The Process of Setting Executive Compensation – Use of Peer Review in Setting Our Executive Compensation on page 33 for a discussion of the Company’s peer review of compensation. To better align with market median standards, the Compensation Committee approved the following base salaries for 2017, and increases from 2016, for each of the NEOs:

 

NEO		Base Salary				Change
		2017		2016
Lee Roy Mitchell		$                         958,645		$                         930,723		3%
Mark Zoradi		$                         950,000		$                         816,000		16%
Sean Gamble		$                         525,000		$                         482,040		9%
Michael Cavalier		$                         500,000		$                         462,264		8%
Valmir Fernandes		$                         508,000		$                         493,782		3%

We align executive wealth with long-term performance of the Company

Stock Ownership Guideline: In 2017, our Board adopted the Guideline which applies to the NEOs and all officers with the title of Executive Vice President. Under the Guideline, the CEO has to retain Common Stock ownership equal in value to at least five times his base salary and the other applicable executives must retain ownership equal in value to at least two times their respective base salaries. Each executive officer must satisfy his or her applicable Guideline level within five years from the adoption of the Guideline. The Common Stock

 

31

that count towards satisfaction of the Guideline include Common Stock owned outright, Common Stock held in trust for the benefit of the executive officer or his or her family member residing in the same household, unvested restricted stock and unvested performance-based awards that have been earned based upon certification by the Compensation Committee but are subject to further time-based vesting.

Anti-Pledging; Anti-Hedging: We prohibit our NEOs and those employees covered by the Supplemental Insider Trading Policy to trade in puts, calls or other derivative securities with respect to Company securities and short sales of Company securities. The covered employees may not also hold Company securities in a margin account, and may not, without prior approval, pledge Company securities as collateral for any other loan (unless the covered person can clearly demonstrate the financial capacity to repay the non-margin loan without resorting to the pledged securities). Our Supplemental Insider Trading Policy also prohibits certain forms of hedging transactions, such as zero-cost collars and forward sale contracts.

Double-Trigger: The Company has entered into employment agreements with the NEOs that include compensation in the event of a change in control. The change in control payment provision is subject to a “double trigger” acceleration which we believe is in the best interest of the Company. Payout upon a change in control will occur only if the NEO’s employment is involuntarily terminated, without cause, or where the NEO terminates employment for good reason, within one year of the change in control event.

We limit perks

We provide very limited perks. We provide benefits and perquisites to our NEOs that are substantially the same as those offered to our other employees at or above the level of Vice President. The perquisites that may be available in addition to those available to our other employees are of de minimis amounts except our reimbursement of Mr. Zoradi for certain personal expenses, pursuant to his employment agreement, in the amount of $30,000 annually.

We sponsor a defined contribution savings plan, or 401(k) Plan, whereby certain employees may elect to contribute, in whole percentages between 1% and 50% of such employee’s cash compensation, provided no employee’s elective contribution shall exceed the amount permitted under Section 402(g) of the Code ($18,000 for 2017, $18,000 for 2016 and $18,000 for 2015). In 2017, participants over the age of 50 could contribute an additional $6,000.

In 2017, we made an annual discretionary matching contribution up to a maximum of 5.25% of the employee’s annual cash compensation to the 401(k) Plan, subject to the limits specified by Section 402(g) of the Code. In 2017, our annual discretionary matching contribution was 100% up to 3% and 75% for the remaining 3% of the employee’s contribution. Beginning 2017, our discretionary matching contributions are paid quarterly and vest immediately.

THE PROCESS OF SETTING EXECUTIVE COMPENSATION

Role of the Compensation Committee and the Compensation Consultant: The Compensation Committee oversees and provides strategic direction to management regarding all aspects of our pay program for senior executives. It sets the compensation of the CEO and the non-CEO NEOs. If deemed appropriate, the Compensation Committee advises the Board of its determination of the compensation of the CEO and certain other executive officers, prior to its implementation. But, while the Compensation Committee may consider input provided by the Board, the compensation decisions and determinations are made solely by the Compensation Committee.

During 2017, the Compensation Committee continued to engage Pearl Meyer as its independent compensation consultant. The Compensation Committee determined the independence of Pearl Meyer using the NYSE listing standards regarding independence of compensation consultants. Pearl Meyer evaluates the competitiveness of the design of the Company’s executive compensation program, including that for directors

 

32

and recommends appropriate changes; reviews the competitiveness of the compensation of individual NEOs and certain other executive officers; evaluates market pay data and competitive-positioning; provides analyses and inputs on program structure, performance measures, and goals; provides updates on market trends and the regulatory environment as it relates to executive compensation; reviews various management proposals presented to the Compensation Committee related to executive compensation and provides objective analysis and recommendations; and works with the Compensation Committee to validate and strengthen the pay-for-performance relationship and alignment with stockholder interests. Pearl Meyer does not perform other services for Cinemark, and will not do so without the prior consent of the Compensation Committee. Pearl Meyer meets with the Compensation Committee, outside the presence of management, in executive sessions.

Role of Management and the CEO in Setting Executive Compensation: The Compensation Committee solicits the views of our CEO when making compensation decisions for his direct reports. The CEO may also provide input to the Compensation Committee regarding performance metrics and the setting of appropriate performance targets for executives who report directly to him. The CEO however, does not make recommendations to the Compensation Committee about his own compensation and none of our executive officers are involved in the Compensation Committee’s determination of their own compensation.

Use of Peer Review in Setting Our Executive Compensation: The Compensation Committee believes the management team’s compensation should be aligned to similarly situated executives within a peer group of companies in order to attract, retain and motivate the highest caliber executive management team critical to our long-term success. While we do not rely solely on benchmark compensation to establish target pay levels, Pearl Meyer conducts a review, annually, of the compensation programs of peers selected based on size appropriate comparators operating in entertainment and retail industries (the “Peer Group”). We believe the resulting peer group provides the Compensation Committee with a valid comparison for the Company’s executive compensation program. In 2017, our Peer Group remained the same as for 2016. A blended market data using the most recent proxy data and survey information provided by Pearl Meyer was used by the Compensation Committee to determine 2017 compensation for each of the NEOs.

Our Peer Group for 2017 were as follows:

 

AMC Entertainment Holdings, Inc.		IMAX Corporation
AMC Networks Inc.		Lions Gate Entertainment Corp.
Brinker International, Inc.		Live Nation Entertainment, Inc.
Carmike Cinemas, Inc.		Panera Bread Company
Cineplex, Inc.		Regal Entertainment Group
Discovery Communications, Inc.		Scripps Networks Interactive, Inc.
DreamWorks Animation SKG Inc.		Six Flags Entertainment Corporation

DESIGN OF OUR EXECUTIVE COMPENSATION PROGRAM

The design of our executive compensation program is consistent with the compensation structure used in our industry:

 

•

base salary;

•

performance-based cash bonus;

•

long-term equity incentive awards;

•

standard benefits; and

•

limited perks

 

33

Base salary and benefits are the only fixed components of our compensation program. Cash bonus and long-term equity incentive awards are the variable/performance-based components of our compensation. We believe the allocation between fixed and variable/ performance-based components offers a competitive compensation program while appropriately mitigating risk.

The following chart summarizes the components and associated objectives of our executive compensation program:

 

Pay Element						Objective		Performance Metric and Payment
Fixed		Annual		Base Salary		Fixed pay to recognize individual’s role and responsibilities		Individual performance and market competitiveness
Variable		Annual		Annual Cash Bonus		Achieve annual goals measured in terms of financial performance		Adjusted EBITDA @Threshold, Target, Maximum   Pro rata payment
		Long-Term		Restricted Stock		Retain executive talent		Increase in value of Common Stock   Time-based; 4 year vesting
				Restricted Stock Units		Align NEO’s interests with stockholders; long-term Company growth		IRR   Pro rata payment based on 2 year Company performance + 2 year service

ANALYSIS OF THE DESIGN OF OUR EXECUTIVE COMPENSATION PROGRAM

Fixed Components

Base Salary:

Base salary component of our compensation program is designed to attract and retain key talent. Base salaries are determined by the Compensation Committee based on a variety of factors including:

 

•

Nature and responsibility of the position;

•

Expertise of the executive and competition in the market for the executive’s services;

•

Potential for driving the Company’s success in the future;

•

Peer Group compensation data;

•

Performance reviews and recommendations of the CEO (except in the case of his own compensation); and

•

Other judgmental factors deemed relevant by the Compensation Committee

The Compensation Committee has not adopted any formula with specific weightings assigned to any of the factors above.

The Company has employment agreements with each NEO. Under the employment agreements, the base salaries are subject to annual review by the Compensation Committee and can be increased but not decreased.

Variable Components/Performance Compensation

The awards for 2017, as discussed in this proxy statement, for cash bonus and long-term equity incentive were made pursuant to the Cinemark Holdings, Inc. Performance Bonus Plan (the “Bonus Plan”) and

 

34

the 2006 Amended and Restated Long Term Incentive Plan (the “Incentive Plan”) respectively. Both the Bonus Plan and the Incentive Plan have been replaced by the 2017 Omnibus Plan (the “Omnibus Plan”) which the stockholders approved effective May 25, 2017. Therefore, all cash bonus and long-term equity incentive awards beginning May 25, 2017 have, and will be, awarded pursuant to the Omnibus Plan.

Cash Bonus:

We provide participants to our Bonus Plan an opportunity to earn a cash bonus tied to annual Company performance, measured against pre-established performance metrics set for the year by the Compensation Committee. This opportunity is intended to compensate participants for achieving short-term financial and operational goals of the Company with individual targets based on the participant’s position and potential contribution to the achievement of the Company’s goals. The goals are established in writing by the Compensation Committee, with the expectation that attainment of these goals would require significant effort in light of the current business environment.

How does the cash bonus program work?

In order to qualify the cash bonus as fully tax deductible to the Company per Section 162(m) of the Code, the Compensation Committee sets the Company’s target performance metric for the year and the target cash bonus for each NEO (as a percentage of base salary) before the end of the first 90 days of the year.

A participant’s target cash bonus is a percentage of his/her base salary. In setting the target cash bonus percentages of each NEO, the Compensation Committee takes into consideration the Peer Group data and such other factors as deemed relevant, such as the individual’s potential contribution to the Company’s performance, the individual’s prior performance, overall market conditions, market variables in a specific sector, and recommendations from the CEO (except for himself).

Each participant is entitled to receive a ratable portion of the participant’s target cash bonus based upon the Company’s level of achievement, within the range of threshold and maximum percentages, of the target performance metric set by the Compensation Committee. The actual amount of cash bonuses paid, if any, may result in a cash bonus that is greater or less than the stated individual target (and could be zero) depending on whether, and to what extent, the applicable performance metric and other conditions are satisfied.

How does the Compensation Committee set the Company’s pre-established performance metric?

Although our Bonus Plan permits the consideration of various performance metrics for the year, the Compensation Committee has set performance goals in terms of Adjusted EBITDA which is regarded as a key performance determinant of a company in our industry and highly correlated to long-term stockholder value.

The Adjusted EBITDA goals are set based on Company’s approved annual budget.

At the end of the year, in order to determine the level of cash bonus, Adjusted EBITDA is adjusted for the following factors:

 

1.

Addbacks for severance, cash bonus accruals and other unusual expenses such as accounting changes;

2.

Variance between the actual North American industry box office and the industry forecast used to set the Adjusted EBITDA target at the beginning of the year; and

3.

Foreign currency exchange volatility

The North American industry box office performance meaningfully impacts our Adjusted EBITDA due to its effect on attendance-driven revenues and costs. However, the Compensation Committee recognizes that

 

35

this factor is largely outside the Company’s control. The Compensation Committee, therefore, may modify the Adjusted EBITDA target (up or down) to address the industry box office performance. Additionally, Adjusted EBITDA is impacted by foreign exchange volatility which affects the translation of local currency Adjusted EBITDA of our Latin America business, into U.S. dollars. Foreign exchange can vary significantly relative to our assumptions and, similar to North American industry box office, is subject to non-performance related factors. As such, to limit the non-forecasted impact of foreign exchange, the Compensation Committee has adopted a +/-5% collar so that foreign exchange fluctuation outside of the collar would not impact payout. While cash bonus payouts for the domestic employees, including Mr. Zoradi, is based 100% on the worldwide Adjusted EBITDA, for U.S.-domiciled international team employees, including Mr. Fernandes, bonus payout is based 50% on the worldwide Adjusted EBITDA and 50% on international Adjusted EBITDA, both adjusted as discussed above including the +/-5% FX collar.

How do we measure performance and determine cash bonus payouts after the year?

Prior to making any payouts, the Compensation Committee assesses and certifies the Company’s performance for the bonus year in the first quarter of the payout year which follows the bonus year. In its assessment, in addition to the adjustments discussed above, the Compensation Committee may make further adjustments as permitted by the Bonus Plan. Such adjustments include, but are not limited to, factors such as changes in accounting principles and extraordinary, unusual or non-recurring events that were not included in the operating budget for the year being considered (such as the disposition of a theatre or theatres or the cessation of operation of a theatre as a result of a natural disaster). The Compensation Committee may, in its discretion, at any time, establish (and, once established, rescind, waive or amend) additional conditions and terms of payment of the cash bonus (including, but not limited to, the achievement of other financial, strategic or individual goals, which may be objective or subjective) as it may deem desirable in carrying out the purposes of the Bonus Plan. The Compensation Committee may also take into account such other factors as it deems appropriate in administering any aspect of the Bonus Plan, including reducing the amount of the cash bonus at any time prior to payout based on such criteria as it shall determine, including, but not limited to, individual merit and the attainment of specified levels of one or any combination of the performance factors. However, the Compensation Committee cannot adjust upwards the cash bonus payable to a NEO or waive the achievement of a performance target requirement for a NEO except in the case of the death or disability of the executive or a change in control of the Company.

Cash Bonus for 2017

For 2017, the Adjusted EBITDA was set at a threshold of $608.1 million, target was $675.6 million and maximum was $729.7 million.

 

36

The graded scale of the payout for the 2017 cash bonus was as follows:

 

 

*Mr. Zoradi’s maximum payout of 150% of his individual target was set at a higher threshold compared to other NEOs. His maximum cash bonus was set at Company achieving 110% of the target domestic Adjusted EBITDA or $743.2 million compared to 108% for other NEOs.

The Company’s actual Adjusted EBITDA, as adjusted for the variance between actual and projected North American industry box office performance and foreign currency exchange fluctuations over the established cap, for 2017 was $728.6 million. This resulted in a payout at 148.8% of the individual target cash bonus for all participants, including Messrs. Mitchell, Gamble and Cavalier. However, given a higher goal for maximum payout, Mr. Zoradi received 139.0% of his individual target. Mr. Fernandes received 124.7% of his individual target due to the 50% split between worldwide and international Adjusted EBITDA.

Long-term Equity Incentive Compensation:

In addition to cash bonus, the Compensation Committee annually awards time-based and performance-based equity incentive compensation. Time-based equity compensation enables us to attract and retain highly qualified executive officers as leaders to ensure our continued success. Performance-based equity compensation encourages Company’s long-term growth and aligns the executive’s interests with the interests of our stockholders. Typically, grants to all eligible employees, including the NEOs, are made on the same day and, to avail of tax deductibility for performance-based awards, within the first 90 days of the year.

No stock options have been granted by the Company since 2004. The Compensation Committee has concluded that, at this time, time-based restricted stock and performance-based restricted stock units provide an appropriate balance between retention and performance.

The Compensation Committee determines the percentage split between time-based and performance-based awards taking into consideration various factors such as Company’s performance with respect to its industry competitors on a historical basis, individual leadership, contribution of individual executive officers to Company operations, and projected state of the economy over the performance period. Historically, the equity incentive award has been split 50%/50% between time-based and performance-based awards (at the target level) with the maximum potential of the performance-based awards at 150% of the value of the time-based restricted stock award. However, as discussed above, in 2017 the Compensation Committee awarded Mr. Zoradi performance-based awards the value of which (at the target level) was 75% of his total long-term equity incentive award.

 

Company Achieves 90% of Target Adjusted EBITDA($608.1 million) (Threshold) Company Achieves 100% of Target Adjusted EBITDA ($675.6 million) (Target) Company Achieves 108%* of Target Adjusted EBITDA ($729.7 million) (Maximum) Participant Receives 50% of Participant’s Target Payout Participant Receives 100% of Participant’s Target Payout Participant Receives 150% of Participant’s Target Payout

 

37

Restricted Stock. Restricted stock is awarded to eligible employees as a retention incentive. Grants of restricted stock are generally based upon a percentage of the eligible employee’s base salary. However, such grants could be subject to adjustment based on the individual employee’s performance during the previous year. All participants to our equity plan are eligible to receive restricted stock. Restricted stock grants typically vest 50% on each of the second and fourth anniversaries of the grant date subject to continuous employment through the vest dates.

Recipients of restricted stock awards are permitted to:

 

(i)

receive dividends on the restricted stock to the extent dividends are paid by the Company on shares of its Common Stock, and

 

(ii)

to vote such Common Stock during the restriction period.

As of the Record Date, the Company’s dividend rate is $0.32 per common share per quarter.

Performance Awards. Performance awards can be granted in the form of restricted stock or restricted stock units although since 2008 the performance awards have only been granted as restricted stock units. The goals for the performance shares are based on one or more pre-established objective criteria that specify the number of shares of Common Stock covered by the performance award that will be issued (if the performance award is in the form of restricted stock unit) or shall vest (if the performance award is in the form of restricted stock) upon attaining the performance goals. After attainment of the performance goals, the underlying Common Stock is subject to additional time-based vesting conditions. Any dividends that are attributable to the underlying Common Stock relating to a restricted stock unit performance-based award will be accrued and paid to the recipient when the vesting conditions are satisfied.

Currently the performance goal is based on an implied equity value concept that measures the change in an IRR during a performance period. For restricted stock units granted from 2008 until 2013, the performance period was a three-year period with an additional one-year service requirement. Beginning in 2014, the Compensation Committee changed the performance period to a two-year period with an additional two-year service requirement. This change of the performance period was based on an annual re-evaluation of the Company’s growth, strategic plan and results delivered in the past years.

The implied equity value is based on a valuation model utilizing a multiple of Adjusted EBITDA (subject to certain specified adjustments) and other factors that produce a fundamental valuation of Cinemark equity. IRR represents the growth in this implied equity value during the performance period. The structure of the performance award program is similar to that of cash bonus. Each performance target underlying the performance awards has a threshold, target and maximum level and vest on a pro rata basis according to the IRR achieved during the performance period, with the maximum level equal to 150% of the individual’s target. The target IRR goal for the performance-based award is set by the Compensation Committee based on projected value creation with a substantial degree of difficulty to attain the performance level. The IRR for the performance period is calculated applying a 7.5% cap for fluctuation in foreign currency translation adjustments. The targets for the current year are established by the Compensation Committee within the first 90 days of the year. The number of shares of Common Stock an executive may receive upon 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 the IRR. If, at the end of the performance period, the Compensation Committee certifies that the performance target has been met, the shares of Common Stock underlying the restricted stock units are subject to an additional time-based vesting restriction contingent upon the employee’s continued service until the vest date. Straight-line interpolation is used to determine payout between threshold, target and maximum goals. As an example, if the Company achieves an IRR equal to 11%, 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 the Company achieved the highest IRR.

 

38

Equity Incentive Compensation Awarded in 2017

In 2017, Mr. Zoradi’s long-term equity incentive award consisted of 75% performance-based restricted stock units and 25% time-based restricted stock for the total value of the equity award at 225% of his target total compensation for 2017.

The equity-based compensation for Messrs. Gamble, Fernandes and Cavalier remained at target with a 50% split between time-based restricted stock and performance-based restricted stock units.

The Compensation Committee reviews the IRR hurdle rates annually to reflect changes in the industry and better align with long-term expectations. Based on that review, the Compensation Committee set the IRR goals for 2017.

The IRR goals and the target payouts for the 2017 performance-based equity incentive grants were as follows:

 

 

The performance period for the 2017 grants is from January 1, 2017 to December 31, 2018. Once the Compensation Committee certifies the IRR achieved for the performance period, the award recipient must still satisfy an additional two-year service period until the anniversary of the grant date in February 2021.

IRR Certification for 2016 RSU Grant: On February 14, 2018, the Compensation Committee certified the IRR level of 7.2% was achieved by the Company for the vesting of the performance-based awards (in the form of restricted stock units) granted on February 19, 2016 (the “2016 Grant”). The performance period for the 2016 Grant was from January 1, 2016 to December 31, 2017. Based upon the IRR level achieved, the Compensation Committee determined that 86% of the target opportunity would vest for each grantee, subject to continuous employment through February 19, 2020. The following table provides the number of shares of Common Stock that are expected to vest for each of the NEOs in 2020:

 

Name			Restricted Stock Units to     Vest
Mark Zoradi			35,617
Sean Gamble			8,823
Michael Cavalier			8,462
Valmir Fernandes			9,038

Compensation Risk Assessment

Our compensation program is designed to mitigate compensation related risk to the Company, both from a financial as well as from a reputational perspective. The Compensation Committee monitors whether the

 

IRR equal to or greater than 7% but less than 9. 5% (Threshold) IRR equal to or greater than 9.5% but less than 13% (Target) IRR equal to or greater than 13% (Maximum) Participant Receives 50% of Participant’s Target Payout Participant Receives 100% of Participant’s Target Payout Participant Receives 150% of Participant’s Target Payout

 

39

Company’s compensation programs encourage unnecessary or excessive risk taking. Upon such consideration the Compensation Committee has concluded that the Company’s compensation programs do not create risks that are reasonably likely to have a materially adverse effect on the Company. Below are some of the highlights of the Company’s compensation program which mitigate risks associated with compensation:

 

•

Balance of short and long-term growth and return objectives to reward overall performance without over-emphasizing a singular factor;

•

Measuring performance against objective financial metrics that link to the creation of value for our stockholders;

•

Linking vest of a significant portion of long-term equity incentive awards to performance over a period of time (with overlapping performance periods);

•

Validating pay-for-performance on an annual basis by stockholders; and

•

Compensation Committee having discretion to reduce but not adjust upward or waive achievement of performance targets for the cash bonus

Compensation Committee Report

The Compensation Committee has reviewed and discussed the CD&A as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this proxy statement and incorporated by reference in the Company’s 2017 Form 10-K, and the Board has approved the recommendation.

Respectfully submitted,

Nina Vaca (Chair)

Benjamin Chereskin

Carlos Sepulveda

Securities Authorized for Issuance Under Equity Compensation Plans

 

 

 

Plan Category			Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1)				Weighted Average Exercise Price of Outstanding Options, Warrants and Rights				Number of Securities Remaining Available for  Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)
Equity compensation plans approved by security holders			628,189				N/A				7,352,287
Equity compensation plans not approved by security holders			-				-				-
Total			628,189				N/A				7,352,287

 

(1)

Represents unearned shares underlying restricted stock units, assuming the achievement of maximum performance goals.

 

40

Summary Compensation Table for 2017

The following table sets forth summary information concerning the total compensation earned by our NEOs for each of the last three completed fiscal years.

 

Name and Principal Position		Year				Salary   ($)(1)				Bonus(2)				Stock   Awards   ($)(3)				Non-Equity Incentive Plan   Compensation ($)(4)				All Other   Compensation   ($)(5)				Total ($)
Lee Roy Mitchell Chairman of the Board			2017				958,645								-				1,426,464				21,586				2,406,695
			2016				930,723								-				1,396,085				21,122				2,347,930
			2015				912,474								-				1,368,711				21,603				2,302,788
Mark Zoradi Chief Executive Officer			2017				950,000								2,114,475				1,320,500				104,845				4,489,820
			2016				816,000								2,031,947				1,224,000				88,691				4,160,638
			2015				301,500								109,986				427,398				23,306				862,190
Sean Gamble Chief Operating Officer & Chief Financial Officer			2017				525,000								779,015				664,020				47,280				2,015,315
			2016				482,040								602,526				542,295				40,219				1,667,080
			2015				463,500								463,442				521,438				30,674				1,479,054
Michael Cavalier Executive Vice President – General Counsel & Secretary			2017				500,000								667,666				632,400				96,969				1,897,035
			2016				462,264								577,805				589,387				99,544				1,729,000
			2015				453,200								566,449				577,830				120,215				1,717,694
Valmir Fernandes President – Cinemark International			2017				508,000								628,178				538,455				103,858				1,778,491
			2016				493,782								617,206				629,572				107,576				1,848,136
			2015				484,100				132,128				605,054				485,100				131,524				1,837,906

 

(1)	See Analysis of the Design of Our Executive Compensation Program – Base Salary on page 34 for a discussion of how the base salary is determined. See Target Total Compensation Mix for 2017 on page 29 for the percentage of target total compensation for 2017 paid as base salary.

 

(2)

Mr. Fernandes’ target cash bonus is calculated based on the average of worldwide and international Adjusted EBITDA. In 2015, despite a record-setting performance, the international segment’s Adjusted EBITDA was adversely affected by the unusual foreign exchange translation adjustments occurring due to the substantial unforeseen currency devaluations across our Latin America operations. As a result, the portion of Mr. Fernandes’ cash bonus which was based on the international segment’s Adjusted EBITDA was impacted negatively. Had the currency impact been excluded, the portion of Mr. Fernandes’ cash bonus based on the international segment’s Adjusted EBITDA would have resulted in a payout of 150% of his individual target. Consequently, following our compensation philosophy of pay for performance, the Compensation Committee awarded Mr. Fernandes a discretionary bonus of the reported amount to adjust the portion of the cash bonus that was subject to the international segment’s Adjusted EBITDA to its maximum level. After the adjustment, Mr. Fernandes’s total cash bonus was 150% of his individual target level, consistent with other NEOs.

 

(3)

The reported amounts reflect the aggregate grant date fair values of the long-term equity incentive awards, at target as the most probable outcome, computed in accordance with FASB ASC Topic 718. The amounts shown exclude the impact of estimated forfeitures. See footnote 14 to the Company’s 2017 Form 10-K for a discussion of the assumptions used in determining the grant date fair values of these long-term equity incentive awards, including forfeiture assumptions and the period over which the Company will recognize compensation expense for such awards.

The long-term equity incentive awards granted were restricted stock and restricted stock units. Similar to previous years, Mr. Mitchell was not awarded any equity due to his substantial equity ownership in the Company.

The grant date fair values were calculated based upon the closing price of Common Stock on February 14, 2017 of $42.37, February 19, 2016 of $29.36, and March 18, 2015 of $43.28 per share. The grant date fair value of the restricted stock granted to Mr. Zoradi in 2015 when he joined the Board as a director was based upon the closing price of Common Stock on June 15, 2015 of $41.63 per share.

 

41

As required by the rules of the SEC, the table below provides the grant date fair values of the restricted stock units at the maximum level of payment:

 

Name		2017				2016				2015
Lee Roy Mitchell			-				-				-
Mark Zoradi		$	2,378,800			$	1,823,961				-
Sean Gamble		$	584,261			$	451,880			$	347,582
Mike Cavalier		$	500,750			$	433,354			$	424,836
Valmir Fernandes		$	471,133			$	462,890			$	453,791

The terms of the restricted stock and restricted stock units are discussed under Analysis of the Design of Our Executive Compensation Program – Long-term Equity Incentive Compensation beginning on page 37 and the footnote disclosures to the Grants of Plan-Based Awards in 2017 table. See also Target Total Compensation Mix for 2017 on page 29 for the percentage of target total compensation for 2017 granted as long-term equity incentive awards.

 

(4)

The reported amounts are the cash bonuses earned for the respective fiscal years. The cash bonuses earned for a fiscal year are paid in the first quarter of the following year subject to the attainment of performance targets set by the Compensation Committee at the beginning of the covered fiscal year. The cash bonuses were paid on February 27, 2018, February 24, 2017 and February 25, 2016 respectively. See Analysis of the Design of Our Executive Compensation Program – Cash Bonus beginning on page 35 for a discussion of how cash bonus is set. See also Target Total Compensation Mix for 2017 on page 29 for the percentage of the target total compensation paid as cash bonus.

 

(5)	The compensation reported in this column include the following:

 

Name		Fiscal     Year				Annual Matching Contributions to 401(K) Savings Plan ($)				Life, Group and   Disability Insurance Premiums Paid by Company ($)				Dividends Paid on   Restricted Stock and Vested RSU(i) ($)				Other     ($)
Lee Roy Mitchell			2017				14,175				7,411				-				-
			2016				13,912				7,210				-				-
			2015				13,913				7,690				-				-
Mark Zoradi			2017				14,175				13,959				46,711				30,000(ii)
			2016				13,912				13,337				31,442				30,000(ii)
			2015				-				3,173				1,321				18,812(iii)
Sean Gamble			2017				14,175				5,294				27,810				-
			2016				13,912				5,005				21,302				-
			2015				13,913				6,875				9,886				-
Michael Cavalier			2017				14,175				7,796				74,997				-
			2016				13,912				7,507				78,125				-
			2015				13,912				9,103				97,200				-
Valmir Fernandes			2017				14,175				9,898				79,786				-
			2016				13,912				9,672				83,993				-
			2015				13,913				13,996				103,615				-

 

(i)

Dividends paid on all outstanding restricted stock and dividends paid on restricted stock units at the time of issuance of the underlying Common Stock. The restricted stock units granted on March 29, 2013 vested on March 29, 2017 and the accrued dividends outstanding on the underlying Common Stock were paid.

(ii)

Annual personal expense allowance pursuant to Mr. Zoradi’s employment agreement.

(iii)

The Company paid $6,250 for Mr. Zoradi’s personal travel expenses and $12,562 for his moving expenses and rent.

For a narrative description of the amounts reported in the Summary Compensation Table for 2017, see Design of Our Executive Compensation Program and Analysis of the Design of Our Executive Compensation Program beginning on page 33 for a discussion of the various elements of compensation, including general description of the formula or criteria to be applied in determining the amounts payable, material terms of the

 

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