Annual report pursuant to Section 13 and 15(d)

CAPITAL STOCK

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CAPITAL STOCK
12 Months Ended
Dec. 31, 2012
CAPITAL STOCK
19. CAPITAL STOCK

Common Stock — Common stockholders are entitled to vote on all matters submitted to a vote of the Company’s stockholders. Subject to the rights of holders of any then outstanding shares of the Company’s preferred stock, the Company’s common stockholders are entitled to any dividends that may be declared by the board of directors. The shares of the Company’s common stock are not subject to any redemption provisions. The Company has no issued and outstanding shares of preferred stock.

The Company’s ability to pay dividends is effectively limited by its status as a holding company and the terms of its indentures and its subsidiary’s amended senior secured credit facility, which also significantly restricts the ability of certain of the Company’s subsidiaries to pay dividends directly or indirectly to the Company. See Note 13. Furthermore, certain of the Company’s foreign subsidiaries currently have a deficit in retained earnings which prevents the Company from declaring and paying dividends from those subsidiaries.

During April 2010, the Company’s partners in Colombia (the “Colombian Partners”) exercised an option available to them under an Exchange Option Agreement dated April 9, 2007 between the Company and the Colombian Partners. Under this option, which was contingent upon completion of an initial public offering of common stock by the Company, the Colombian Partners were entitled to exchange their shares in Cinemark Colombia S.A. for shares of the Company’s common stock. The number of shares to be exchanged was determined based on the Company’s equity value and the equity value of the Colombian Partners’ interest in Cinemark Colombia S.A., both of which are defined in the Exchange Option Agreement. As a result of this exchange, on June 14, 2010, the Company issued 1,112,723 shares of its common stock to the Colombian Partners. See Note 9.

Treasury Stock — Treasury stock represents shares of common stock repurchased by the Company and not yet retired. The Company has applied the cost method in recording its treasury shares.

Below is a summary of the Company’s treasury stock activity for the years ended December 31, 2011 and 2012:

 

     Number of
Treasury
Shares
     Cost  

Balance at January 1, 2011

     3,359,859       $ 44,725   

Restricted stock forfeitures (1)

     1,920         —     

Restricted stock withholdings (2)

     25,200         494   

Restricted stock awards canceled (1)

     4,613         —     
  

 

 

    

 

 

 

Balance at December 31, 2011

     3,391,592       $ 45,219   

Restricted stock forfeitures (1)

     14,423         —     

Restricted stock withholdings (2)

     147,070         3,263   
  

 

 

    

 

 

 

Balance at December 31, 2012

     3,553,085       $ 48,482   
  

 

 

    

 

 

 

 

(1) 

The Company repurchased forfeited and canceled restricted shares at a cost of $0.001 per share in accordance with the Company’s Amended and Restated 2006 Long Term Incentive Plan.

(2) 

The Company withheld restricted shares as a result of the election by certain employees to satisfy their tax liabilities upon vesting in restricted stock. The Company determined the number of shares to be withheld based upon market values that ranged from $19.60 to $22.50 per share.

 

As of December 31, 2012, the Company had no plans to retire any shares of treasury stock.

Stock Options — Below is a summary of stock option activity and related information for the years ended December 31, 2010, 2011 and 2012:

 

     Year Ended
December 31, 2010
     Year Ended
December 31, 2011
     Year Ended
December 31, 2012
        
     Shares     Weighted
Average
Exercise
Price
     Shares     Weighted
Average
Exercise
Price
     Shares     Weighted
Average
Exercise
Price
     Aggregate
Intrinsic
Value
 

Outstanding at January 1

     1,231,892      $ 7.63         140,356      $ 7.63         82,166      $ 7.63      

Exercised

     (1,091,536   $ 7.63         (58,190   $ 7.63         (60,144   $ 7.63      
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Outstanding at December 31

     140,356      $ 7.63         82,166      $ 7.63         22,022      $ 7.63       $ 404   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Vested options at December 31

     140,356      $ 7.63         82,166      $ 7.63         22,022      $ 7.63       $ 404   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

All outstanding stock options were fully vested as of April 2, 2009. There were no options granted or forfeited during any of the periods presented. The total intrinsic value of options exercised during the years ended December 31, 2010, 2011 and 2012, was $9,836, $699 and $1,070, respectively. The Company recognized tax benefits of approximately $2,680, $238 and $449 related to the options exercised during the year ended December 31, 2010, 2011 and 2012, respectively.

Options outstanding at December 31, 2012 have an average remaining contractual life of approximately two years.

Restricted Stock — Below is a summary of restricted stock activity for the years ended December 31, 2010, 2011 and 2012:

 

     Year Ended
December 31, 2010
     Year Ended
December 31, 2011
     Year Ended
December 31, 2012
 
     Shares     Weighted
Average
Exercise
Price
     Shares     Weighted
Average
Exercise
Price
     Shares     Weighted
Average
Exercise
Price
 

Outstanding at January 1

     764,078      $ 11.10         1,254,691      $ 14.60         1,384,390      $ 16.85   

Granted

     683,921      $ 17.94         424,436      $ 19.45         653,229      $ 21.70   

Vested

     (190,589   $ 12.63         (288,204   $ 10.84         (489,033   $ 17.00   

Canceled

     —        $ —           (4,613   $ 18.35         —        $ —     

Forfeited

     (2,719   $ 11.03         (1,920   $ 14.34         (14,423   $ 18.58   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Outstanding at December 31

     1,254,691      $ 14.60         1,384,390      $ 16.85         1,534,163      $ 18.85   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

During the year ended December 31, 2012, the Company granted 653,229 shares of restricted stock to directors and employees of the Company. The fair values of the restricted stock granted were determined based on the market values of the Company’s common stock on the dates of grant, which ranged from $21.63 to $22.97 per share. The Company assumed forfeiture rates ranging from 0% to 5% for the restricted stock awards. Certain of the restricted stock granted to employees vests over three years based on continued service and the remaining restricted stock granted to employees vests over four years based on continued service. The restricted stock granted to the directors vests over one year based on continued service. The recipients of restricted stock are entitled to receive dividends and to vote their respective shares, however the sale and transfer of the restricted shares is prohibited during the restriction period.

 

The Company recorded total compensation expense of $4,928, $6,591 and $10,637 related to restricted stock awards during the years ended December 31, 2010, 2011 and 2012, respectively. Upon vesting, the Company receives an income tax deduction. The total fair value of shares vested during the years ended December 31, 2010, 2011 and 2012 was $3,272, $5,658 and $9,702, respectively. The Company recognized tax benefits of approximately $1,087, $2,188 and $4,075 related to shares that vested during the years ended December 2010, 2011 and 2012, respectively.

As of December 31, 2012, the remaining unrecognized compensation expense related to these restricted stock awards was approximately $18,341. The weighted average period over which this remaining compensation expense will be recognized is approximately two years.

Restricted Stock Units — During the years ended December 31, 2010, 2011 and 2012, the Company granted restricted stock units representing 396,429, 153,727 and 152,955 hypothetical shares of common stock, respectively, under the Restated Incentive Plan. The restricted stock units vest based on a combination of financial performance factors and continued service. The financial performance factors are based on an implied equity value concept that determines an internal rate of return (“IRR”) during a three fiscal year period based on a formula utilizing a multiple of Adjusted EBITDA subject to certain specified adjustments (as defined in the restricted stock unit award agreement). The financial performance factors for the restricted stock units have a threshold, target and maximum level of payment opportunity. If the IRR for the three year period is at least 8.5%, which is the threshold, one-third of the restricted stock units vest. If the IRR for the three year period is at least 10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the three year period is at least 12.5%, which is the maximum, 100% of the restricted stock units vest. All payouts of restricted stock units that vest will be subject to an additional one year service requirement and will be paid in the form of common stock if the participant continues to provide services through the fourth anniversary of the grant date. At the time of each of the 2010, 2011 and 2012 restricted stock unit grants, the Company was not able to determine which IRR level would be reached for the respective three year performance period, therefore the Company assumed the mid-point IRR level for these grants in determining the amount of compensation expense to record for such grants. The fair values of the restricted stock unit awards granted were determined based on the market values of the Company’s common stock on the dates of grant, which ranged from $18.34 to $21.63 per share. The Company assumed forfeiture rates ranging from 0% to 5% for the restricted stock unit awards. Restricted stock unit award participants are eligible to receive dividend equivalent payments if and at the time the restricted stock unit awards vest.

Below is a table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the years ended December 31, 2010, 2011 and 2012 at each of the three levels of financial performance (excluding forfeitures):

 

     Granted During the Year Ended December 31,  
     2010      2011      2012  
     Number of
Shares
Vesting
     Value at
Grant
     Number of
Shares
Vesting
     Value at
Grant
     Number of
Shares
Vesting
     Value at
Grant
 

at IRR of at least 8.5%

     132,144       $ 2,423         51,239       $ 991         50,981       $ 1,103   

at IRR of at least 10.5%

     264,288       $ 4,847         102,488       $ 1,983         101,974       $ 2,206   

at IRR of at least 12.5%

     396,429       $ 7,271         153,727       $ 2,975         152,955       $ 3,308   

During the year ended December 31, 2010, the Compensation Committee of the Company’s board of directors approved a modification of restricted stock unit awards granted to employees during 2008. The Compensation Committee also approved the cancellation and replacement of restricted stock unit awards granted to the Company’s top five executive officers during 2008. Both the modification and the cancellation and replacement were accounted for as modifications of share based awards. As a result of these modifications, the Company recorded incremental compensation expense of approximately $435 during the year ended December 31, 2010, which represented the difference between the grant date fair value and the modification date fair value of these awards for the portion of the service period that had been satisfied at the time of the modification. The service period for the modified awards did not change.

During the year ended December 31, 2010, based upon additional information, the Company determined that the 12.5% IRR level would be reached for the 2008 grant and recorded incremental compensation expense of approximately $823. During the year ended December 31, 2010, based upon additional information, the Company also determined that the 12.5% IRR level was expected to be reached for the 2009 grant and recorded incremental compensation expense of $377 during the year ended December 31, 2010.

During the year ended December 31, 2012, 196,051 restricted stock unit awards vested. Upon vesting, each restricted stock unit was converted into one share of the Company’s common stock. In addition, the Company paid approximately $600 in dividends on the vested restricted stock units, which represented dividends that had accumulated on the awards since they were granted in 2008. The fair value of the restricted stock unit awards that vested during the year ended December 31, 2012 was approximately $4,400. The Company recognized a tax benefit of approximately $1,848 during the year ended December 31, 2012 related to these vested awards. There were no forfeitures of restricted stock unit awards during the year ended December 31, 2012.

During the year ended December 31, 2012, based upon additional information, the Company determined that the 12.5% IRR level was reached for the 2010 grant and recorded incremental compensation expense of approximately $1,609.

The Company recorded total compensation expense of $3,424, $3,101 and $4,433 related to these restricted stock unit awards during the years ended December 31, 2010, 2011 and 2012, respectively. As of December 31, 2012, the Company had restricted stock units outstanding that represented a total of 994,671 hypothetical shares of common stock, net of actual cumulative forfeitures of 11,608 units, assuming the maximum IRR of at least 12.5% is achieved for all of the outstanding restricted stock unit awards. As of December 31, 2012, the remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $4,890, which assumes the high-point IRR level will be achieved for the 2009 and 2010 grants and the mid-point IRR level will be achieved for the 2011 and 2012 grants. The weighted average period over which this remaining compensation expense will be recognized is approximately two years.