##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 Commission File Number: 033-47040 CINEMARK USA, INC. (Exact name of registrant as specified in its charter)
 Texas
(State or other jurisdiction
of incorporation or organization)
    
    75-2206284
(I.R.S. Employer
Identification No.)
 3900 Dallas Parkway
Suite 500
Plano, Texas
(Address of principal executive offices)
    
    75093
(Zip Code)
 Registrants telephone number, including area code: (972) 665-1000 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x As of August 5, 2004, 1,500 shares of Class A common stock and 182,648
shares of Class B common stock were outstanding.




---



CINEMARK USA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS  
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
    
    
    3Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2004 and 2003
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2004 and 2003
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits and Reports on Form 8-K
    
    
    39SIGNATURES
    
    
    42Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,2004
    
    December 31,(Unaudited)
    
    2003ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    98,465,153
    
    
    $
    107,319,285Inventories
    
    
    4,811,979
    
    
    
    4,323,687Accounts receivable
    
    
    15,778,236
    
    
    
    15,440,048Income tax receivable
    
    
    1,352,482
    
    
    
    Prepaid expenses and other
    
    
    3,651,808
    
    
    
    5,476,066Total current assets
    
    
    124,059,658
    
    
    
    132,559,086THEATRE PROPERTIES AND EQUIPMENT
    
    
    1,262,325,669
    
    
    
    1,237,896,969Less accumulated depreciation and amortization
    
    
    (486,125,344
    )
    
    
    (462,016,911
    )Theatre properties and equipment - net
    
    
    776,200,325
    
    
    
    775,880,058OTHER ASSETSGoodwill
    
    
    11,899,841
    
    
    
    12,083,095Intangible assets - net
    
    
    7,598,681
    
    
    
    7,865,294Investments in and advances to affiliates
    
    
    1,277,722
    
    
    
    2,347,104Deferred charges and other - net
    
    
    38,296,806
    
    
    
    30,011,763Total other assets
    
    
    59,073,050
    
    
    
    52,307,256TOTAL ASSETS
    
    $
    959,333,033
    
    
    $
    960,746,400LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term debt
    
    $
    7,130,230
    
    
    $
    6,744,842Income tax payable
    
    
    
    
    
    
    5,521,581Accounts payable and accrued expenses
    
    
    127,933,322
    
    
    
    135,659,950Total current liabilities
    
    
    135,063,552
    
    
    
    147,926,373LONG-TERM LIABILITIESSenior credit agreements
    
    
    264,079,550
    
    
    
    172,936,210Senior subordinated notes
    
    
    366,469,020
    
    
    
    478,749,929Deferred lease expenses
    
    
    27,712,639
    
    
    
    27,652,702Deferred gain on sale leasebacks
    
    
    3,823,740
    
    
    
    4,006,700Deferred income taxes
    
    
    10,111,094
    
    
    
    13,033,013Deferred revenues and other long-term liabilities
    
    
    5,278,910
    
    
    
    5,665,863Total long-term liabilities
    
    
    677,474,953
    
    
    
    702,044,417COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    MINORITY INTERESTS IN SUBSIDIARIES
    
    
    35,492,658
    
    
    
    33,932,183SHAREHOLDERS EQUITYClass A common stock, $0.01 par value: 10,000,000 shares authorized,
1,500 shares issued and outstanding

    
    
    15
    
    
    
    15Class B common stock, no par value: 1,000,000 shares authorized,
239,893 shares issued and outstanding
    
    
    49,543,427
    
    
    
    49,543,427Additional paid-in-capital
    
    
    42,408,865
    
    
    
    13,054,686Retained earnings
    
    
    136,316,459
    
    
    
    125,022,611Treasury stock, 57,245 Class B shares at cost
    
    
    (24,232,890
    )
    
    
    (24,232,890
    )Accumulated other comprehensive loss
    
    
    (92,734,006
    )
    
    
    (86,544,422
    )Total shareholders equity
    
    
    111,301,870
    
    
    
    76,843,427TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    959,333,033
    
    
    $
    960,746,400
 The accompanying notes are an integral part of the condensed consolidated financial statements. 3




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    2004
    
    2003REVENUESAdmissions
    
    $
    174,199,063
    
    
    $
    156,352,473
    
    
    $
    323,887,009
    
    
    $
    284,064,040Concession
    
    
    89,197,568
    
    
    
    78,933,162
    
    
    
    162,471,438
    
    
    
    142,872,608Other
    
    
    13,301,812
    
    
    
    12,222,582
    
    
    
    25,452,085
    
    
    
    23,044,716Total revenues
    
    
    276,698,443
    
    
    
    247,508,217
    
    
    
    511,810,532
    
    
    
    449,981,364COSTS AND EXPENSESCost of operations:Film rentals and advertising
    
    
    94,925,913
    
    
    
    88,340,516
    
    
    
    173,898,300
    
    
    
    155,218,081Concession supplies
    
    
    14,473,242
    
    
    
    12,692,208
    
    
    
    26,586,439
    
    
    
    22,478,894Salaries and wages
    
    
    27,178,889
    
    
    
    24,420,457
    
    
    
    51,495,735
    
    
    
    46,745,296Facility lease expense
    
    
    31,333,161
    
    
    
    29,403,407
    
    
    
    62,421,306
    
    
    
    57,853,992Utilities and other
    
    
    28,988,844
    
    
    
    27,875,793
    
    
    
    55,568,583
    
    
    
    52,949,196Total cost of operations
    
    
    196,900,049
    
    
    
    182,732,381
    
    
    
    369,970,363
    
    
    
    335,245,459General and administrative expenses
    
    
    13,191,438
    
    
    
    10,494,781
    
    
    
    24,991,058
    
    
    
    19,934,762Stock option compensation and change of control
expenses related to the Recapitalization
    
    
    31,994,529
    
    
    
    
    
    
    
    31,994,529
    
    
    
    Depreciation and amortization
    
    
    16,884,130
    
    
    
    16,537,710
    
    
    
    33,773,037
    
    
    
    32,533,424Asset impairment loss
    
    
    
    
    
    
    2,060,845
    
    
    
    1,000,000
    
    
    
    2,060,845Gain on sale of assets and other
    
    
    (39,706
    )
    
    
    (374,590
    )
    
    
    (552,840
    )
    
    
    (991,019
    )Total costs and expenses
    
    
    258,930,440
    
    
    
    211,451,127
    
    
    
    461,176,147
    
    
    
    388,783,471OPERATING INCOME
    
    
    17,768,003
    
    
    
    36,057,090
    
    
    
    50,634,385
    
    
    
    61,197,893OTHER INCOME (EXPENSE)Interest expense
    
    
    (10,505,815
    )
    
    
    (14,218,719
    )
    
    
    (22,382,133
    )
    
    
    (27,514,327
    )Amortization of debt issue cost
    
    
    (677,142
    )
    
    
    (587,330
    )
    
    
    (1,267,128
    )
    
    
    (1,170,950
    )Interest income
    
    
    386,019
    
    
    
    424,735
    
    
    
    877,252
    
    
    
    1,083,364Foreign currency exchange gain
    
    
    402,657
    
    
    
    135,068
    
    
    
    572,483
    
    
    
    151,199Loss on early retirement of debt
    
    
    (5,576,935
    )
    
    
    (5,612,377
    )
    
    
    (5,576,935
    )
    
    
    (7,258,136
    )Equity in income (loss) of affiliates
    
    
    (72,525
    )
    
    
    (46,832
    )
    
    
    (35,467
    )
    
    
    149,524Minority interests in income of subsidiaries
    
    
    (2,104,228
    )
    
    
    (1,506,280
    )
    
    
    (3,556,556
    )
    
    
    (2,276,485
    )Total other expenses
    
    
    (18,147,969
    )
    
    
    (21,411,735
    )
    
    
    (31,368,484
    )
    
    
    (36,835,811
    )INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (BENEFIT)
    
    
    (379,966
    )
    
    
    14,645,355
    
    
    
    19,265,901
    
    
    
    24,362,082Income taxes (benefit)
    
    
    (522,103
    )
    
    
    6,069,227
    
    
    
    7,426,421
    
    
    
    10,017,898INCOME FROM CONTINUING OPERATIONS
    
    
    142,137
    
    
    
    8,576,128
    
    
    
    11,839,480
    
    
    
    14,344,184Gain (loss) from discontinued operations, net of income tax
benefit of $191,250 for the six months ended June 30, 2004
    
    
    1,217,593
    
    
    
    (194,034
    )
    
    
    (545,632
    )
    
    
    (509,164
    )NET INCOME
    
    $
    1,359,730
    
    
    $
    8,382,094
    
    
    $
    11,293,848
    
    
    $
    13,835,020EARNINGS (LOSS) PER SHARE:Basic and Diluted:Income from continuing operations
    
    $
    0.77
    
    
    $
    46.57
    
    
    $
    64.29
    
    
    $
    77.89Gain (loss) from discontinued operations
    
    
    6.61
    
    
    
    (1.05
    )
    
    
    (2.96
    )
    
    
    (2.76
    )Net income
    
    $
    7.38
    
    
    $
    45.52
    
    
    $
    61.33
    
    
    $
    75.13
 The accompanying notes are an integral part of the condensed consolidated financial statements. 4




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,2004
    
    2003OPERATING ACTIVITIESNet income
    
    $
    11,293,848
    
    
    $
    13,835,020Noncash items in net income:Depreciation
    
    
    33,449,523
    
    
    
    32,208,079Depreciation  assets held for sale
    
    
    118,157
    
    
    
    302,058Amortization of intangible and other assets
    
    
    323,514
    
    
    
    325,345Amortization of foreign advanced rents
    
    
    879,894
    
    
    
    865,123Amortized compensation  stock options
    
    
    145,021
    
    
    
    548,595Amortization of debt issue costs
    
    
    1,267,128
    
    
    
    1,170,950Amortization of gain on sale leasebacks
    
    
    (182,960
    )
    
    
    (182,960
    )Amortization of debt discount and premium
    
    
    (754,526
    )
    
    
    (235,522
    )Amortization of deferred revenues
    
    
    (165,258
    )
    
    
    (2,013,119
    )Loss on impairment of assets
    
    
    1,000,000
    
    
    
    2,060,845Loss on disposal of UK theatres
    
    
    565,501
    
    
    
    Gain on sale of assets and other
    
    
    (552,840
    )
    
    
    (991,019
    )Write-off unamortized debt issue costs and debt discount and
premium related to the early retirement of debt
    
    
    897,659
    
    
    
    3,335,915Write-off of unearned compensation related to the Recapitalization
    
    
    1,595,234
    
    
    
    Deferred lease expenses
    
    
    59,937
    
    
    
    759,004Deferred income tax expenses
    
    
    (2,921,919
    )
    
    
    548,051Equity in (income) loss of affiliates
    
    
    35,467
    
    
    
    (149,524
    )Minority interests in income of subsidiaries
    
    
    3,556,556
    
    
    
    2,276,485Cash provided by (used for) operating working capital:Inventories
    
    
    (488,292
    )
    
    
    (709,287
    )Accounts receivable
    
    
    (338,188
    )
    
    
    (2,860,287
    )Prepaid expenses and other
    
    
    1,824,258
    
    
    
    (1,696,228
    )Other assets
    
    
    (2,885,466
    )
    
    
    (3,386,690
    )Advances with affiliates
    
    
    (125,122
    )
    
    
    302,966Accounts payable and accrued expenses
    
    
    (5,981,131
    )
    
    
    (13,742,782
    )Other long-term liabilities
    
    
    (221,695
    )
    
    
    (116,763
    )Income tax receivable/payable
    
    
    (6,874,063
    )
    
    
    7,818,636Net cash provided by operating activities
    
    
    35,520,237
    
    
    
    40,272,891INVESTING ACTIVITIESAdditions to theatre properties and equipment
    
    
    (45,932,115
    )
    
    
    (17,976,259
    )Proceeds from sale of United Kingdom theatres
    
    
    2,645,812
    
    
    
    Proceeds from sale of other theatre properties and equipment
    
    
    820,841
    
    
    
    2,075,395Proceeds from sale of equity investment
    
    
    1,250,000
    
    
    
    Investment in affiliates
    
    
    
    
    
    
    (3,314
    )Dividends/capital returned from affiliates
    
    
    127,500
    
    
    
    228,000Net cash used for investing activities
    
    
    (41,087,962
    )
    
    
    (15,676,178
    )FINANCING ACTIVITIESCapital contribution from parent
    
    
    27,613,924
    
    
    
    Issuance of senior subordinated notes
    
    
    
    
    
    
    375,225,000Retirement of senior subordinated notes
    
    
    (111,915,000
    )
    
    
    (232,989,000
    )Increase in long-term debt
    
    
    260,762,643
    
    
    
    238,508,545Decrease in long-term debt
    
    
    (168,741,208
    )
    
    
    (408,827,678
    )Increase in debt issue cost
    
    
    (7,637,446
    )
    
    
    (14,944,223
    )Increase in minority investment in subsidiaries
    
    
    670,491
    
    
    
    3,896,860Decrease in minority investment in subsidiaries
    
    
    (2,666,572
    )
    
    
    (275,304
    )Net cash used for financing activities
    
    
    (1,913,168
    )
    
    
    (39,405,800
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    (1,373,239
    )
    
    
    1,737,270DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (8,854,132
    )
    
    
    (13,071,817
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    107,319,285
    
    
    
    63,718,515End of period
    
    $
    98,465,153
    
    
    $
    50,646,698
 The accompanying notes are an integral part of the condensed consolidated financial statements. 5




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES 
   1. The Company and Basis of Presentation Cinemark USA, Inc. and its subsidiaries (the Company) is one of the
leaders in the motion picture exhibition industry in terms of both revenues and
the number of screens in operation, with theatres in the United States
(U.S.), Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El
Salvador, Nicaragua, Costa Rica, Panama and Colombia. The Company also managed
additional theatres in the U.S., Canada, Brazil and Taiwan during the six
months ended June 30, 2004. The condensed consolidated financial statements have been prepared by the
Company, without audit, according to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these
interim financial statements reflect all adjustments necessary to state fairly
the financial position and results of operations as of, and for, the periods
indicated. The condensed consolidated financial statements include the
accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned
subsidiaries that the Company controls are consolidated while those
subsidiaries of which the Company owns between 20% and 50% and does not control
are accounted for as affiliates under the equity method. Those subsidiaries of
which the Company owns less than 20% are accounted for as affiliates under the
cost method. The results of these subsidiaries and affiliates are included in
the condensed consolidated financial statements effective with their formation
or from their dates of acquisition. Significant intercompany balances and
transactions are eliminated in consolidation. Certain reclassifications have
been made to the 2003 financial statements to conform to the 2004 presentation. These condensed consolidated financial statements should be read in
conjunction with the audited annual consolidated financial statements and the
notes thereto for the year ended December 31, 2003, included in the Annual
Report filed March 17, 2004 on Form 10-K by the Company under the Securities
Exchange Act of 1934. Operating results for the three and six months ended
June 30, 2004 are not necessarily indicative of the results to be achieved for
the full year. 2. Recapitalization of Cinemark, Inc. and Refinancing of Certain Long-Term
Debt Recapitalization of Cinemark, Inc.- On March 12, 2004, the Companys
parent, Cinemark, Inc., entered into an agreement and plan of merger with a
newly formed subsidiary of Madison Dearborn Partners, LLC (Madison). The
transaction was completed on April 2, 2004, at which time the newly formed
subsidiary of Madison was merged with and into Cinemark, Inc., with Cinemark,
Inc. continuing as the surviving corporation. Simultaneously, an affiliate of
Madison purchased shares of common stock of Cinemark, Inc. for approximately
$518.3 million in cash and became the controlling stockholder of Cinemark,
Inc., owning approximately 83% of Cinemark, Inc.s capital stock. Lee Roy
Mitchell, the Companys Chief Executive Officer, and the Mitchell Special Trust
collectively retained approximately 16% ownership of Cinemark, Inc.s capital
stock and certain members of management own the remaining 1%. As part of the
transaction, Cinemark, Inc. paid change of control fees and other management
compensation expenses of $15,749,259, which are included in general and
administrative expense on the Companys condensed consolidated statement of
operations for the three and six months ended June 30, 2004. Based on the
terms of the transaction, including Mr. Mitchells ownership retention, the
transaction was accounted for as a recapitalization, which resulted in
Cinemark, Inc. and its subsidiaries retaining their historical book values. On March 31, 2004, Cinemark, Inc. issued $577,173,000 aggregate principal
amount at maturity of 9 3/4% senior discount notes due 2014. The gross
proceeds at issuance of $360,000,115 were used to fund in part the
Recapitalization. Interest on the notes accretes until March 15, 2009 up to
the aggregate principal amount of $577,173,000. Cash interest will accrue and
be payable semi-annually in arrears on March 15 and September 15, commencing on
September 15, 2009. Due to the holding company status of Cinemark, Inc.,
payments of principal and interest under these notes will be dependent on
loans, dividends and other payments from the Company to Cinemark, Inc. The
Company has no obligation, contingent or otherwise, to pay the amounts due
under the 9 3/4% senior discount notes or to make funds available to pay
those amounts. The 9 3/4% senior discount notes are general, unsecured senior
obligations of Cinemark, Inc. that are effectively subordinated to indebtedness
and other liabilities of the Company. Upon a change of control, Cinemark, Inc.
would be required to make an offer to repurchase all of the 9 3/4% senior
discount notes at a price equal to 101% of the accreted value of the notes plus
accrued and unpaid interest, if any, through the date of purchase. As of June
30, 2004, the accreted principal balance of the notes was $368,763,903. 6




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) Upon consummation of the Recapitalization on April 2, 2004, all
outstanding stock options of Cinemark, Inc. immediately vested and the majority
were repurchased, resulting in compensation expense of $16,245,270 recorded by
the Company. Compensation expense includes the write-off of the unamortized
unearned compensation expense for options outstanding as of the date of the
Recapitalization and the impact of the cash settlement of these options, and
are included in general and administrative expense on the Companys condensed
consolidated statement of operations for the three and six months ended June
30, 2004. As a result of the Recapitalization, Cinemark, Inc. provided notice to its
Brazilian partners (i) that its then existing stockholders no longer own more
than 25% of Cinemark, Inc.s common stock and (ii) that Lee Roy Mitchell has
sold certain of his shares of Cinemark, Inc.s common stock for cash. The
Brazilian partners have exercised their option to cause Cinemark, Inc. or one
of its designees to purchase shares of common stock of Cinemark Brasil S.A.
owned by the Brazilian partners. The purchase price shall be determined through
an appraisal process conducted by up to three approved investment banks.
Cinemark, Inc. and the Brazilian partners have each received appraisals from
investment banks and are currently negotiating the price per share for the
common stock of Cinemark Brasil S.A. If Cinemark, Inc. and the Brazilian
partners are unable to agree upon a price, a third investment bank will be
retained to determine the price per share of the common stock of Cinemark
Brasil S.A. The Company is unable to predict at this time what the purchase
price will be. The Company expects that the purchase will be financed through
additional borrowings or with available cash. Refinancing of Certain Long-Term Debt- On March 16, 2004, the Company
initiated a tender offer for its then outstanding $105 million aggregate
principal amount 8 1/2% senior subordinated notes due 2008 and a consent
solicitation to remove substantially all restrictive covenants in the indenture
governing those notes. On March 25, 2004, a supplemental indenture removing
substantially all of the covenants was executed and became effective on the
date of the Recapitalization. Additionally, on the date of the
Recapitalization, the Company amended its senior secured credit facility to
provide for a $260 million seven year term loan and a $100 million six and
one-half year revolving credit line, which was left undrawn. The net proceeds
from the amended senior secured credit facility were used to repay the term
loan under the Companys then existing senior secured credit facility of
approximately $163.8 million and to redeem the approximately $94.2 million
aggregate principal amount of the Companys outstanding $105 million aggregate
principal amount of 8 1/2% senior subordinated notes that were tendered
pursuant to the tender offer. The tender offer was made at 104.5% of the
principal amount of the notes tendered on or prior to the consent date and at
101.5% of the principal amount of the notes tendered subsequent to the consent
date but prior to the expiration date. The unamortized bond discount, tender
offer repurchase costs, including premiums paid, and other fees of $4,800,211
related to the retirement of the 8 1/2% notes were recorded as a loss on
early retirement of debt on the Companys condensed consolidated statement of
operations for the three and six months ended June 30, 2004. Under the amended term loan, principal payments of $650,000 are due each
calendar quarter through March 31, 2010 and increase to $61,100,000 each
calendar quarter from June 30, 2010 to maturity at March 31, 2011. The amended
term loan bears interest, at the Companys option, at: (A) the base rate equal
to the higher of (i) the prime lending rate as set forth on the British Banking
Association Telerate page 5 or (ii) the federal funds effective rate from time
to time plus 0.50%, plus a margin of 1.25% per annum, or (B) a eurodollar
rate plus a margin of 2.25% per annum. After the completion of two fiscal
quarters after the closing date, the margin under the term loan applicable to
base rate loans ranges from 1.00% per annum to 1.25% per annum and the margin
applicable to eurodollar rate loans ranges from 2.00% per annum to 2.25% per
annum, and will be adjusted based upon the Company achieving certain
performance targets. Borrowings under the amended revolving credit line bear interest, at the
Companys option, at: (A) a base rate equal to the higher of (i) the prime
lending rate as set forth on the British Banking Association Telerate page 5 or
(ii) the federal funds effective rate from time to time plus 0.50%, plus a
margin of 1.50% per annum, or (B) a eurodollar rate plus a margin of 2.50%
per annum. After the completion of two fiscal quarters after the closing date,
the margin under the revolving credit line applicable to base rate loans ranges
from 1.00% per annum to 1.50% per annum and the margin applicable to eurodollar
rate loans ranges from 2.00% per annum to 2.50% per annum, and will be adjusted
based upon the Company achieving certain performance targets. The Company will
also be required to pay a commitment fee calculated at the rate of 0.50% per
annum on the average daily unused portion of the amended revolving credit line,
payable quarterly in arrears. 7




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) On April 6, 2004, as a result of the consummation of the Recapitalization
and in accordance with the terms of the indenture governing the Companys 9%
senior subordinated notes due 2013, the Company made a change of control offer
to purchase the 9% senior subordinated notes at a purchase price of 101%
of the aggregate principal amount, plus accrued and unpaid interest, if any, at
the date of purchase. Approximately $17.8 million aggregate principal amount of
the 9% senior subordinated notes were tendered and not withdrawn in the change
of control offer, which expired on May 26, 2004. Payment of the change of
control price was made with available cash by the Company on June 1, 2004. The
unamortized debt issue costs, tender offer repurchase costs, including premiums
paid, and other fees of $776,724 related to the retirement of the 9% notes
were recorded as a loss on early retirement of debt on the Companys condensed
consolidated statement of operations for the three and six months ended June
30, 2004. On July 28, 2004, the Company provided notice to the holders of its
remaining outstanding 8 1/2% senior subordinated notes due 2008 that it has
elected to redeem all outstanding notes on August 27, 2004 at a redemption
price of 102.833% of the aggregate principal amount plus accrued interest. 3. Acquisitions and Divestitures During 2003, the Company accounted for its 50% investment in Interstate
Theatres, L.L.C. under the equity method of accounting. On December 31, 2003,
the Company purchased the remaining 50% interest in Interstate Theatres, L.L.C,
which owns 80% of Interstate Theatres II, L.L.C. The Company accounted for the
purchase as a step acquisition. The total purchase price of $1,500,000 was
allocated to theatre properties and equipment ($404,083), working capital
($65,515) and goodwill ($1,030,402). The Companys condensed consolidated
balance sheet at December 31, 2003 reflects the assets and liabilities of
Interstate Theatres, L.L.C. and its subsidiary. Results of operations for
Interstate Theatres, L.L.C. and its subsidiary are included in the Companys
condensed consolidated statement of operations for the three and six months
ended June 30, 2004. On December 31, 2003, the Company purchased Mitchell Theatres, Inc., which
was 100% owned by members of Lee Roy Mitchells family (a related party to the
Company). The total purchase price of $681,034 included the assumption of
$156,000 in outstanding debt, which was immediately paid off at the time of
purchase. The Companys condensed consolidated balance sheet at December 31,
2003 reflects the assets and liabilities of Mitchell Theatres, Inc., which
consisted of a working capital deficit of $137,511 and theatre property and
equipment of $818,545. Results of operations for Mitchell Theatres, Inc. are
included in the Companys condensed consolidated statement of operations for
the three and six months ended June 30, 2004. In January 2004, the Company sold its 50% investment in Entertainment
Amusement Enterprises, Inc. for $1,500,000. The Company received proceeds of
$1,250,000 in cash and a three-year $250,000 note, resulting in a gain of
$468,463. The note receivable is included in deferred charges and other assets
on the Companys condensed consolidated balance sheet. The gain is included in
gain on sale of assets and other on the Companys condensed consolidated
statement of operations. 4. Discontinued Operations As of March 31, 2004, the Companys two United Kingdom theatres met the
criteria of assets held for sale in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets.On April 30, 2004, the Company sold its two United
Kingdom theatres. The Company received $2,645,812 in proceeds upon closing of
the transaction and recorded a receivable of $437,073. Prior to September 30,
2004, the Company anticipates collecting the receivable once a final working
capital position is determined in accordance with the share purchase agreement.
The sale resulted in a loss of $565,501, which is included in the loss from
discontinued operations on the Companys condensed consolidated statement of
operations. 8




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) The results of operations for the United Kingdom theatres have been
classified as discontinued operations for all periods presented. Amounts
reported as discontinued operations in the Companys condensed consolidated
statements of operations include the following components: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003REVENUESAdmissions
    
    $
    413,319
    
    
    $
    942,957
    
    
    $
    1,589,115
    
    
    $
    1,912,527Concession
    
    
    168,921
    
    
    
    405,543
    
    
    
    659,446
    
    
    
    839,337Other
    
    
    54,139
    
    
    
    120,854
    
    
    
    241,645
    
    
    
    246,102Total revenues
    
    
    636,379
    
    
    
    1,469,354
    
    
    
    2,490,206
    
    
    
    2,997,966COSTS AND EXPENSESCost of operations:Film rentals and advertising
    
    
    110,678
    
    
    
    408,134
    
    
    
    572,953
    
    
    
    779,776Concession supplies
    
    
    37,785
    
    
    
    104,645
    
    
    
    176,262
    
    
    
    231,533Salaries and wages
    
    
    88,693
    
    
    
    270,975
    
    
    
    388,977
    
    
    
    555,885Facility lease expense
    
    
    125,419
    
    
    
    235,386
    
    
    
    560,497
    
    
    
    598,931Utilities and other
    
    
    11,306
    
    
    
    366,762
    
    
    
    347,157
    
    
    
    772,486Total cost of operations
    
    
    373,881
    
    
    
    1,385,902
    
    
    
    2,045,846
    
    
    
    2,938,611General and administrative expenses
    
    
    220,125
    
    
    
    116,628
    
    
    
    497,584
    
    
    
    266,461Depreciation and amortization
    
    
    59,279
    
    
    
    160,858
    
    
    
    118,157
    
    
    
    302,058(Gain) loss on sale of assets and other
    
    
    (1,234,499
    )
    
    
    
    
    
    
    565,501
    
    
    
    Total costs and expenses
    
    
    (581,214
    )
    
    
    1,663,388
    
    
    
    3,227,088
    
    
    
    3,507,130OPERATING INCOME (LOSS)
    
    
    1,217,593
    
    
    
    (194,034
    )
    
    
    (736,882
    )
    
    
    (509,164
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    (191,250
    )
    
    
    Income (loss) from discontinued operations
    
    $
    1,217,593
    
    
    $
    (194,034
    )
    
    $
    (545,632
    )
    
    $
    (509,164
    )
 Amounts related to the United Kingdom theatres included in the Companys
condensed consolidated balance sheet at December 31, 2003 are as follows: Current assets
    
    $
    1,262,892Theatre properties and equipment, net
    
    
    4,520,104Current liabilities
    
    
    (1,336,145
    )
 5. Earnings Per Share Basic earnings per share is computed by dividing income by the weighted
average number of shares of all classes of common stock outstanding during the
period. Diluted earnings per share is computed by dividing income by the
weighted average number of shares of common stock and potentially dilutive
common equivalent shares outstanding determined under the treasury stock
method. The weighted average number of shares of common stock outstanding for
the three and six months ended June 30, 2004 and 2003 was 184,148. The Company
does not have any options outstanding and its weighted average common and
common equivalent shares outstanding for the three and six months ended June
30, 2004 and 2003 do not include options to purchase shares of Cinemark, Inc.
common stock. 9




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 6. Stock Option Accounting Upon consummation of the Recapitalization on April 2, 2004, all
outstanding stock options of Cinemark, Inc. immediately vested and the majority
were repurchased, resulting in compensation expense of $16,245,270 recorded by
the Company. The then existing stock option plans were terminated. Although the Company did not have any options outstanding during the
periods presented, compensation expense related to outstanding options of
Cinemark, Inc. has been recorded in the Companys condensed consolidated
statements of operations. The Company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for stock option
plans. Had compensation costs been determined based on the fair value at the
date of grant for awards under the plans, consistent with the method of SFAS
No. 123, Accounting for Stock-Based Compensation and SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure, the
Companys net income and earnings per share would have been reduced to the
pro-forma amounts indicated below: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income as reported
    
    $
    1,359,730
    
    
    $
    8,382,094
    
    
    $
    11,293,848
    
    
    $
    13,835,020Compensation expense
included in reported
net income, net of
tax
    
    
    
    
    
    
    164,579
    
    
    
    88,463
    
    
    
    331,900Compensation expense
under fair value
method, net of tax
    
    
    
    
    
    
    (339,417
    )
    
    
    (162,402
    )
    
    
    (678,831
    )Pro-forma net income
    
    $
    1,359,730
    
    
    $
    8,207,256
    
    
    $
    11,219,909
    
    
    $
    13,488,089Basic and diluted
earnings per share:As reported
    
    $
    7.38
    
    
    $
    45.52
    
    
    $
    61.33
    
    
    $
    75.13Pro-forma
    
    $
    7.38
    
    
    $
    44.57
    
    
    $
    60.93
    
    
    $
    73.25
 The weighted average fair value per share of stock options granted by
Cinemark, Inc. during 2003 was $12.76 (all of which had an exercise price equal
to the market value at the date of grant). No options were issued by Cinemark,
Inc. under the then existing plans during the three months ended March 31,
2004. The fair value of each 2003 option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0 percent; an expected life of 6.5 years;
expected volatility of approximately 39 percent; and a risk-free interest rate
of 3.29 percent. 10




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 7. Goodwill and Other Intangible Assets No additional goodwill was recorded during the three or six months ended
June 30, 2004. The Company recorded foreign currency translation adjustments to
goodwill for the six months ended June 30, 2004, which resulted in a net
decrease to goodwill of $183,254. Intangible assets consisted of the following: June 30,
    
    December 31,2004
    
    2003Capitalized licensing fees
    
    $
    9,000,000
    
    
    $
    9,000,000Other intangible assets
    
    
    439,329
    
    
    
    442,561Less: Accumulated amortization
    
    
    (1,856,811
    )
    
    
    (1,593,430
    )Amortized intangible assets
    
    
    7,582,518
    
    
    
    7,849,131Unamortized intangible assets
    
    
    16,163
    
    
    
    16,163Total
    
    $
    7,598,681
    
    
    $
    7,865,294
 Aggregate amortization expense of $323,514 for the six months ended June
30, 2004 consisted of $263,381 of amortization of intangible assets and $60,133
of amortization of other assets. Estimated aggregate future amortization
expense for intangible assets is as follows: For the six months ended December 31, 2004
    
    $
    263,382For the twelve months ended December 31, 2005
    
    
    526,763For the twelve months ended December 31, 2006
    
    
    526,763For the twelve months ended December 31, 2007
    
    
    526,763For the twelve months ended December 31, 2008
    
    
    526,763Thereafter
    
    
    5,212,084Total
    
    $
    7,582,518
 8. Asset Impairment In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company reviews long-lived assets for
impairment on a quarterly basis or whenever events or changes in circumstances
indicate the carrying amount of the assets may not be fully recoverable. The Company considers actual theatre level cash flow, future years
budgeted theatre level cash flow, theatre property and equipment values,
goodwill values, the age of a recently built theatre, competitive theatres in
the marketplace, the sharing of a market with other Company theatres, changes
in foreign currency exchange rates, the impact of recent ticket price changes,
available lease renewal options and other factors in its assessment of
impairment of individual theatre assets. Assets are evaluated for impairment on
an individual theatre basis or a group of theatres that share the same
marketplace, which the Company believes is the lowest applicable level for
which there are identifiable cash flows. The evaluation is based on the
estimated undiscounted cash flows from continuing use through the remainder of
the theatres useful life. The remainder of the useful life correlates with the
available remaining lease period for leased properties and a period of twenty
years for fee owned properties. If the estimated undiscounted cash flows are
not sufficient to recover an assets carrying amount, the Company then compares
the carrying value of the asset with its fair value, which is determined based
on estimated undiscounted cash flows. When estimated fair value is determined
to be lower than the carrying value of the asset, the asset is written down to
its estimated fair value. During the six months ended June 30, 2004, the
Company recorded an asset impairment charge of $1.0 million to write-down one
theatre in the United States to its estimated fair value. 11




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 9. Foreign Currency Translation The accumulated other comprehensive loss account in shareholders equity
of $92,734,006 and $86,544,422 at June 30, 2004 and December 31, 2003,
respectively, primarily relates to the cumulative foreign currency adjustments
from translating the financial statements of Cinemark Argentina, S.A., Cinemark
Brasil S.A. and Cinemark de Mexico, S.A. de C.V. into U.S. dollars. In 2003 and 2004, all foreign countries where the Company has operations,
including Argentina, Brazil and Mexico were deemed non-highly inflationary.
Thus, any fluctuation in the currency results in a cumulative foreign currency
translation adjustment to the accumulated other comprehensive loss account
recorded as an increase in, or reduction of, shareholders equity. On June 30, 2004, the exchange rate for the Brazilian real was 3.11 reais
to the U.S. dollar (the exchange rate was 2.89 reais to the U.S. dollar at
December 31, 2003). As a result, the effect of translating the June 30, 2004
Brazilian financial statements into U.S. dollars is reflected as a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as a reduction of shareholders equity of $1,482,456. At June 30,
2004, the total assets of the Companys Brazilian subsidiaries were U.S.
$60,023,108. On June 30, 2004, the exchange rate for the Mexican peso was 11.53 pesos
to the U.S. dollar (the exchange rate was 11.20 pesos to the U.S. dollar at
December 31, 2003). As a result, the effect of translating the June 30, 2004
Mexican financial statements into U.S. dollars is reflected as a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as a reduction of shareholders equity of $2,136,630. At June 30,
2004, the total assets of the Companys Mexican subsidiaries were U.S.
$88,865,225. 10. Comprehensive Income (Loss) SFAS No. 130, Reporting Comprehensive Income, establishes standards for
the reporting and display of comprehensive income and its components in the
financial statements. The Companys comprehensive income (loss) was as follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    1,359,730
    
    
    $
    8,382,094
    
    
    $
    11,293,848
    
    
    $
    13,835,020Foreign currency translation adjustment
    
    
    (5,119,500
    )
    
    
    6,868,190
    
    
    
    (5,113,901
    )
    
    
    7,713,869Comprehensive income (loss)
    
    $
    (3,759,770
    )
    
    $
    15,250,284
    
    
    $
    6,179,947
    
    
    $
    21,548,889
 11. Supplemental Cash Flow Information The following is provided as supplemental information to the condensed
consolidated statements of cash flows: Six Months EndedJune 30,2004
    
    2003Cash paid for interest
    
    $
    25,105,366
    
    
    $
    28,944,777Cash paid for income taxes (net of refunds)
    
    $
    13,087,033
    
    
    $
    1,067,061
 12




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 12. Financial Information About Geographic Areas The Company operates in one business segment as a motion picture
exhibitor. The Company has operations in the U.S., Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica,
Panama and Colombia, which are reflected in the condensed consolidated
financial statements. Below is a breakdown of select financial information by
geographic area: Six Months EndedJune 30,Revenues
    
    2004
    
    2003U.S. and Canada
    
    $
    389,885,678
    
    
    $
    350,520,276Brazil
    
    
    44,047,819
    
    
    
    35,563,541Mexico
    
    
    39,538,761
    
    
    
    33,695,235Other foreign countries(1)
    
    
    39,144,115
    
    
    
    30,704,798Eliminations
    
    
    (805,841
    )
    
    
    (502,486
    )Total
    
    $
    511,810,532
    
    
    $
    449,981,364
 June 30,
    
    DecemberTheatre Properties and Equipment, net
    
    2004
    
    31, 2003U.S. and Canada
    
    $
    630,625,731
    
    
    $
    616,729,729Mexico
    
    
    57,117,978
    
    
    
    61,893,971Brazil
    
    
    43,977,240
    
    
    
    44,903,308Other foreign countries(2)
    
    
    44,479,376
    
    
    
    52,353,050Total
    
    $
    776,200,325
    
    
    $
    775,880,058
  (1)
    
    Revenues for both periods do not include results of the
United Kingdom theatres, as these theatres were classified as held
for sale as of March 31, 2004 and sold on April 30, 2004 and the
results of operations are included as discontinued operations for
all periods presented.(2)
    
    Amount at December 31, 2003 includes $4,520,104 for the two
United Kingdom theatres that were sold on April 30, 2004. 13. New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
- an Interpretation of ARB No. 51. FIN 46 addresses consolidation by business
enterprises of variable interest entities. FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or entitled
to receive a majority of the entitys residual returns or both. The Company
adopted FIN 46 on January 1, 2004. The adoption of FIN 46 did not have a
material impact on its condensed consolidated financial statements. 14. Related Party Transactions The Company has paid certain fees and expenses on behalf of its parent,
Cinemark, Inc., that are included in investments in and advances to affiliates
on the Companys condensed consolidated balance sheets. At June 30, 2004, the
amount due from Cinemark, Inc. was $28,487. The Company also received capital
contributions from Cinemark, Inc. totaling $27,613,924 during the six months
ended June 30, 2004, primarily due to the Recapitalization. The Company manages one theatre for Laredo Theatre, Ltd. (Laredo). The
Company is the sole general partner and owns 75% of the limited partnership
interests of Laredo. Lone Star Theatres, Inc. owns the remaining 25% of the
limited partnership interests in Laredo and is 100% owned by Mr. David Roberts,
Lee Roy Mitchells son-in-law. Under the agreement, management fees are paid
by Laredo to the Company at a rate of 5% of annual theatre revenues up to
$50,000,000 and 3% of annual theatre revenues in excess of $50,000,000. The
Company recorded $84,552 of management fee revenues and received $300,000 of
distributions from Laredo during the six months ended June 30, 2004. All such
amounts are included in the Companys condensed consolidated financial
statements with the intercompany
amounts eliminated in consolidation. 13




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) The Company leases one theatre from Plitt Plaza Joint Venture (Plitt
Plaza). Plitt Plaza is indirectly owned by Lee Roy Mitchell. Annual rent is
approximately $118,000 plus certain taxes, maintenance expenses and insurance.
The Company recorded $60,930 of facility lease expense payable to Plitt Plaza
joint venture during the six months ended June 30, 2004. The Company entered into an amended and restated profit participation
agreement on March 12, 2004 with its President, Alan Stock, which became
effective upon consummation of the Recapitalization and amends a profit
participation agreement with Mr. Stock in effect since May 2002. Under the
agreement, Mr. Stock receives a profit interest in two theatres once the
Company has recovered its capital investment in these theatres plus its
borrowing costs. Under this agreement, operating losses and disposition losses
for any year are allocated 100% to the Company. Operating profits and
disposition profits for these theatres for any fiscal year are allocated first
to the Company to the extent of total operating losses and losses from any
disposition of these theatres. Thereafter, net cash from operations from these
theatres or from any disposition of these theatres is paid first to the Company
until such payments equal the Companys investment in these theatres, plus
interest, and then 51% to the Company and 49% to Mr. Stock. During the six
months ended June 30, 2004, the Company recorded $240,949 in profit
participation expense payable to Mr. Stock, which is included in general and
administrative expense on the Companys condensed consolidated statement of
operations. The Company has paid $48,949 of this amount to Mr. Stock as of
June 30, 2004. In the event that Mr. Stocks employment is terminated without
cause, profits will be distributed according to this formula without first
allowing the Company to recoup its investment plus interest thereon. Upon
consummation of an initial public offering of Cinemark, Inc.s common stock,
the Company will have the option to purchase Mr. Stocks interest in the
theatres for a price equal to the greater of (i) stated price reduced by any
payments received during the term and (ii) 49% of adjusted theatre level cash
flow multiplied by seven. The Company does not intend to enter into similar
arrangements with its executive officers in the future. 15. Litigation DOJ Litigation- In March 1999, the Department of Justice (DOJ) filed suit in
the U.S. District Court, Northern District of Ohio, Eastern Division, against
the Company alleging certain violations of the Americans with Disabilities Act
of 1990 (the ADA) relating to the Companys wheelchair seating arrangements
and seeking remedial action. An order granting summary judgment to the Company
was issued in November 2001. The Department of Justice appealed the district
courts ruling with the Sixth Circuit Court of Appeals. On November 7, 2003,
the Sixth Circuit Court of Appeals reversed the summary judgment and sent the
case back to the district court for further review without deciding whether
wheelchair seating at the Companys theatres comply with the ADA. The Sixth
Circuit Court of Appeals also stated that if the district court found that the
theatres did not comply with the ADA, any remedial action should be prospective
only. If the Company loses this litigation, the Companys financial position,
results of operations and cash flows may be materially and adversely affected.
The Company is unable to predict the outcome of this litigation or the range of
potential loss, however, management believes that based upon current precedent
the Companys potential liability with respect to such proceeding is not
material in the aggregate to the Companys financial position, results of
operations and cash flows. Accordingly, the Company has not established a
reserve for loss in connection with this proceeding. To date, there have been three divergent opinions published by federal
circuit courts addressing whether wheelchair seating locations in stadium-style
movie theatres must comply with an alleged viewing angle requirement
purportedly interpreted from the lines of sight comparable clause of Section
4.33.3 of the ADA Accessibility Guidelines. On April 6, 2000, the Fifth Circuit Court of Appeals issued its decision
in Lara v. Cinemark, in which it rejected an interpretation by the United
States Department of Justice that Section 4.33.3 imposes a viewing angle
requirement, and held that wheelchair seating locations in the sloped-floor
areas of stadium-style movie theatres that provide unobstructed views of the
movie screen comply with the lines of sight comparable language of Section
4.33.3 as a matter of law. Lara v. Cinemark USA, Inc., 207 F.3d 783, 788-89
(5th Cir. 2000). On August 13, 2003, the Ninth Circuit Court of Appeals issued
its divided decision in Stewmon v. Regal, in which the majority deferred to an
interpretation by the DOJ that Section 4.33.3 imposes a viewing angle
requirement, and held that wheelchair seating locations in the sloped-floor
areas of stadium-style movie theatres did not provide comparable viewing
angles of the movie screen and thus were unlawful. Stewmon v. Regal Cinemas,
Inc., 339 F.3d 1126, 1133 (9th Cir. 2003). On November 6, 2003, the Sixth
Circuit Court of Appeals issued its opinion in United States v. Cinemark, in
which it deferred in part to an interpretation by the DOJ that compliance with
Section 4.33.3 includes a consideration of the quality of the viewing angle
of the movie 14




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) screen, but remanded the case to the district court to determine liability
and remedies issues with dicta suggesting that any remedy should be given
prospective application only. United States of America v. Cinemark USA, Inc.,
348 F.3d 569, 579, 582-83 (6th Cir. 2003). These decisions have created
three-way circuit conflicts on issues concerning interpreting federal
accessibility law, deferring to the DOJs purported interpretations of federal
accessibility law, and whether federal courts should retroactively apply such
interpretations after construction of the subject facilities. Due to the
circuit conflicts, the Company and Regal Cinemas filed petitions for certiorari
with the United States Supreme Court, but these petitions were denied on June
28, 2004. The Company will continue to vigorously defend the Northern District
of Ohio lawsuit. Mission, Texas Litigation- In July 2001, Sonia Rivera-Garcia and Valley
Association for Independent Living filed suit in the 93rd Judicial District
Court of Hidalgo County, Texas alleging certain violations of the Human
Resources Code, the Texas Architectural Barriers Act, the Texas Accessibility
Standards and the Deceptive Trade Practices Act relating to accessibility of
movie theatres for patrons using wheelchairs at one theatre in the Mission,
Texas market. The plaintiffs are seeking remedial action and unspecified
damages. The Company has filed an answer denying the allegations and is
vigorously defending this suit. The Company is unable to predict the outcome
of this litigation or the range of potential loss, however, management believes
that based upon current precedent the Companys potential liability with
respect to such proceeding is not material in the aggregate to the Companys
financial position, results of operations and cash flows. Accordingly, the
Company has not established a reserve for loss in connection with this
proceeding. From time to time, the Company is involved in other various legal
proceedings arising from the ordinary course of its business operations, such
as personal injury claims, employment matters and contractual disputes, most of
which are covered by insurance. The Company believes its potential liability
with respect to proceedings currently pending is not material, individually or
in the aggregate, to the Companys financial position, results of operations
and cash flows. 16. Condensed Consolidating Financial Statements of Subsidiary Guarantors As of June 30, 2004, the Company had outstanding $10.8 million aggregate
principal amount of 8 1/2% senior subordinated notes due 2008 and $342.3
million aggregate principal amount of 9% senior subordinated notes due 2013.
These senior subordinated notes are fully and unconditionally guaranteed,
jointly and severally, on a senior subordinated unsecured basis by the
following subsidiaries of Cinemark USA, Inc.: Cinemark, L.L.C., Sunnymead Cinema Corp., Cinema Properties, Inc., Greeley
Holdings, Inc. (formerly known as Cinemark Paradiso, Inc.), Trans Texas Cinema,
Inc., Missouri City Central 6, Inc., Cinemark Mexico (USA), Inc., Cinemark
Leasing Company, Cinemark Partners I, Inc., Multiplex Properties, Inc.,
Multiplex Services, Inc., CNMK Investments, Inc., CNMK Delaware Investments I,
L.L.C., CNMK Delaware Investments II, L.L.C., CNMK Delaware Investments
Properties, L.P., CNMK Texas Properties, Ltd., Laredo Theatre, Ltd. and
Cinemark Investments Corporation. The following supplemental condensed consolidating financial statements
present: 1. Condensed consolidating balance sheets as of June 30, 2004 and December
31, 2003 and condensed consolidating statements of operations and cash
flows for each of the six months ended June 30, 2004 and 2003. 2. Cinemark USA, Inc. (the Parent and Issuer), combined Guarantor
Subsidiaries and combined Non-Guarantor Subsidiaries with their
investments in subsidiaries accounted for using the equity method of
accounting and therefore, the Parent column reflects the equity income
(loss) of its Guarantor Subsidiaries and Non-Guarantor Subsidiaries,
which are also separately reflected in the stand-alone Guarantor
Subsidiaries and Non-Guarantor Subsidiaries column. Additionally, the
Guarantor Subsidiaries column reflects the equity income (loss) of its
Non-Guarantor Subsidiaries, which are also separately reflected in the
stand-alone Non-Guarantor Subsidiaries column. 3. Elimination entries necessary to consolidate the Parent and all of its
Subsidiaries. 15




---



##### Table of Contents



SUBSIDIARY GUARANTORSCONDENSED CONSOLIDATING BALANCE SHEET INFORMATIONJUNE 30, 2004 Parent
    
    Subsidiary
    
    SubsidiaryCompany
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    21,647,474
    
    
    $
    13,761,395
    
    
    
    63,056,284
    
    
    $
    
    
    
    $
    98,465,153Inventories
    
    
    2,201,899
    
    
    
    1,273,669
    
    
    
    1,336,411
    
    
    
    
    
    
    
    4,811,979Accounts receivable
    
    
    60,351,761
    
    
    
    (23,255,371
    )
    
    
    7,754,558
    
    
    
    (29,072,712
    )
    
    
    15,778,236Income tax receivable
    
    
    6,850,888
    
    
    
    57,389
    
    
    
    3,482,030
    
    
    
    (9,037,825
    )
    
    
    1,352,482Prepaid expenses and other
    
    
    9,886,132
    
    
    
    518,946
    
    
    
    1,176,730
    
    
    
    (7,930,000
    )
    
    
    3,651,808Total current assets
    
    
    100,938,154
    
    
    
    (7,643,972
    )
    
    
    76,806,013
    
    
    
    (46,040,537
    )
    
    
    124,059,658THEATRE PROPERTIES AND EQUIPMENT - net
    
    
    300,903,504
    
    
    
    306,710,679
    
    
    
    168,586,142
    
    
    
    
    
    
    
    776,200,325OTHER ASSETSGoodwill
    
    
    7,834,692
    
    
    
    412,327
    
    
    
    3,849,517
    
    
    
    (196,695
    )
    
    
    11,899,841Investments in and advances to affiliates
    
    
    462,626,657
    
    
    
    395,916,548
    
    
    
    803,590
    
    
    
    (858,069,073
    )
    
    
    1,277,722Intangible assets, deferred charges and other - net
    
    
    27,972,224
    
    
    
    1,537,704
    
    
    
    71,907,344
    
    
    
    (55,521,785
    )
    
    
    45,895,487Total other assets
    
    
    498,433,573
    
    
    
    397,866,579
    
    
    
    76,560,451
    
    
    
    (913,787,553
    )
    
    
    59,073,050TOTAL ASSETS
    
    $
    900,275,231
    
    
    $
    696,933,286
    
    
    $
    321,952,606
    
    
    $
    (959,828,090
    )
    
    $
    959,333,033LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term debt
    
    $
    2,655,629
    
    
    $
    
    
    
    $
    4,474,601
    
    
    $
    
    
    
    $
    7,130,230Income tax payable
    
    
    4,060,776
    
    
    
    491,485
    
    
    
    4,485,564
    
    
    
    (9,037,825
    )
    
    
    Accounts payable and accrued expenses
    
    
    73,966,990
    
    
    
    40,513,284
    
    
    
    42,375,277
    
    
    
    (28,922,229
    )
    
    
    127,933,322Total current liabilities
    
    
    80,683,395
    
    
    
    41,004,769
    
    
    
    51,335,442
    
    
    
    (37,960,054
    )
    
    
    135,063,552LONG-TERM LIABILITIESLong-term debt, less current portion
    
    
    641,383,250
    
    
    
    43,737,910
    
    
    
    67,394,897
    
    
    
    (121,967,487
    )
    
    
    630,548,570Deferred income taxes
    
    
    9,954,701
    
    
    
    8,249,214
    
    
    
    (8,092,821
    )
    
    
    
    
    
    
    10,111,094Other long-term liabilities and deferrals
    
    
    29,498,052
    
    
    
    78,108,671
    
    
    
    7,128,566
    
    
    
    (77,920,000
    )
    
    
    36,815,289Total long-term liabilities
    
    
    680,836,003
    
    
    
    130,095,795
    
    
    
    66,430,642
    
    
    
    (199,887,487
    )
    
    
    677,474,953COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MINORITY INTERESTS IN SUBSIDIARIES
    
    
    
    
    
    
    1,229,301
    
    
    
    34,263,357
    
    
    
    
    
    
    
    35,492,658SHAREHOLDERS EQUITYCommon stock
    
    
    49,543,442
    
    
    
    19,120
    
    
    
    96,584,705
    
    
    
    (96,603,825
    )
    
    
    49,543,442Other shareholders equity
    
    
    89,212,391
    
    
    
    524,584,301
    
    
    
    73,338,460
    
    
    
    (625,376,724
    )
    
    
    61,758,428Total shareholders equity
    
    
    138,755,833
    
    
    
    524,603,421
    
    
    
    169,923,165
    
    
    
    (721,980,549
    )
    
    
    111,301,870TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    900,275,231
    
    
    $
    696,933,286
    
    
    $
    321,952,606
    
    
    $
    (959,828,090
    )
    
    $
    959,333,033
 16




---



##### Table of Contents



SUBSIDIARY GUARANTORSCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONSIX MONTHS ENDED JUNE 30, 2004 Parent
    
    Subsidiary
    
    SubsidiaryCompany
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    ConsolidatedREVENUES
    
    $
    234,650,315
    
    
    $
    178,785,171
    
    
    $
    134,646,243
    
    
    $
    (36,271,197
    )
    
    $
    511,810,532COSTS AND EXPENSESCost of operations
    
    
    200,304,617
    
    
    
    109,578,270
    
    
    
    96,586,558
    
    
    
    (36,499,082
    )
    
    
    369,970,363General and administrative expenses
    
    
    6,863,003
    
    
    
    42,882,788
    
    
    
    7,011,911
    
    
    
    227,885
    
    
    
    56,985,587Depreciation and amortization
    
    
    10,597,093
    
    
    
    11,308,487
    
    
    
    11,867,457
    
    
    
    
    
    
    
    33,773,037Asset impairment loss
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Gain on sale of assets and other
    
    
    (419,219
    )
    
    
    
    
    
    
    (133,621
    )
    
    
    
    
    
    
    (552,840
    )Total costs and expenses
    
    
    217,345,494
    
    
    
    164,769,545
    
    
    
    115,332,305
    
    
    
    (36,271,197
    )
    
    
    461,176,147OPERATING INCOME
    
    
    17,304,821
    
    
    
    14,015,626
    
    
    
    19,313,938
    
    
    
    
    
    
    
    50,634,385OTHER INCOME (EXPENSE)Interest expense
    
    
    (22,240,750
    )
    
    
    (1,739,499
    )
    
    
    (3,384,059
    )
    
    
    4,982,175
    
    
    
    (22,382,133
    )Amortization of debt issue cost
    
    
    (1,249,407
    )
    
    
    
    
    
    
    (17,721
    )
    
    
    
    
    
    
    (1,267,128
    )Interest income
    
    
    2,078,844
    
    
    
    3,024,554
    
    
    
    756,029
    
    
    
    (4,982,175
    )
    
    
    877,252Foreign currency exchange gain
    
    
    
    
    
    
    
    
    
    
    572,483
    
    
    
    
    
    
    
    572,483Loss on early retirement of debt
    
    
    (5,576,935
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,576,935
    )Equity in income (loss) of affiliates
    
    
    19,111,450
    
    
    
    9,603,301
    
    
    
    26,417
    
    
    
    (28,776,635
    )
    
    
    (35,467
    )Minority interests in income of subsidiaries
    
    
    
    
    
    
    (72,819
    )
    
    
    (3,483,737
    )
    
    
    
    
    
    
    (3,556,556
    )Total other income (expense)
    
    
    (7,876,798
    )
    
    
    10,815,537
    
    
    
    (5,530,588
    )
    
    
    (28,776,635
    )
    
    
    (31,368,484
    )INCOME (LOSS) FROM CONTINUINGOPERATIONS BEFORE INCOME TAXES (BENEFIT)
    
    
    9,428,023
    
    
    
    24,831,163
    
    
    
    13,783,350
    
    
    
    (28,776,635
    )
    
    
    19,265,901Income taxes (benefit)
    
    
    (1,715,779
    )
    
    
    6,411,307
    
    
    
    2,730,893
    
    
    
    
    
    
    
    7,426,421INCOME (LOSS) FROM CONTINUING OPERATIONS
    
    
    11,143,802
    
    
    
    18,419,856
    
    
    
    11,052,457
    
    
    
    (28,776,635
    )
    
    
    11,839,480Loss from discontinued operations, net of income taxbenefit of $191,250
    
    
    
    
    
    
    
    
    
    
    (545,632
    )
    
    
    
    
    
    
    (545,632
    )NET INCOME (LOSS)
    
    $
    11,143,802
    
    
    $
    18,419,856
    
    
    $
    10,506,825
    
    
    $
    (28,776,635
    )
    
    $
    11,293,848
 17




---



##### Table of Contents



SUBSIDIARY GUARANTORSCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATIONSIX MONTHS ENDED JUNE 30, 2004 Parent
    
    Subsidiary
    
    SubsidiaryCompany
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIESNet income (loss)
    
    $
    11,143,802
    
    
    $
    18,419,856
    
    
    
    10,506,825
    
    
    $
    (28,776,635
    )
    
    $
    11,293,848Noncash items in net income (loss):Depreciation and amortization
    
    
    10,888,777
    
    
    
    11,308,487
    
    
    
    12,883,229
    
    
    
    
    
    
    
    35,080,493Loss on impairment of assets
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Loss on assets held for sale
    
    
    
    
    
    
    
    
    
    
    565,501
    
    
    
    
    
    
    
    565,501Gain on sale of assets and other
    
    
    (419,219
    )
    
    
    
    
    
    
    (133,621
    )
    
    
    
    
    
    
    (552,840
    )Write-off unamortized debt issue costs and debt premium/discount
    
    
    897,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    897,659Write-off of unearned compensation related to Recapitalization
    
    
    1,595,234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,595,234Deferred lease expenses
    
    
    634,127
    
    
    
    (6,123
    )
    
    
    (568,067
    )
    
    
    
    
    
    
    59,937Deferred income tax expenses
    
    
    (9,478,447
    )
    
    
    6,365,097
    
    
    
    191,431
    
    
    
    
    
    
    
    (2,921,919
    )Equity in (income) loss of affiliates
    
    
    (19,111,450
    )
    
    
    (9,603,301
    )
    
    
    (26,417
    )
    
    
    28,776,635
    
    
    
    35,467Minority interests in income of subsidiaries
    
    
    
    
    
    
    72,819
    
    
    
    3,483,737
    
    
    
    
    
    
    
    3,556,556Cash provided by (used for) operating working capital
    
    
    (52,388,839
    )
    
    
    40,748,059
    
    
    
    1,380,152
    
    
    
    (4,829,071
    )
    
    
    (15,089,699
    )Net cash provided by (used for) operating activities
    
    
    (56,238,356
    )
    
    
    68,304,894
    
    
    
    28,282,770
    
    
    
    (4,829,071
    )
    
    
    35,520,237INVESTING ACTIVITIESAdditions to theatre properties and equipment
    
    
    (12,170,743
    )
    
    
    (21,092,559
    )
    
    
    (12,668,813
    )
    
    
    
    
    
    
    (45,932,115
    )Proceeds from sale of United Kingdom theatres
    
    
    
    
    
    
    
    
    
    
    2,645,812
    
    
    
    
    
    
    
    2,645,812Proceeds from sale of other theatre properties and equipment
    
    
    
    
    
    
    
    
    
    
    820,841
    
    
    
    
    
    
    
    820,841Proceeds from sale of equity investment
    
    
    1,250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250,000Net transactions with affiliates
    
    
    38,628,653
    
    
    
    (42,899,360
    )
    
    
    960,914
    
    
    
    3,437,293
    
    
    
    127,500Net cash provided by (used for) investing activities
    
    
    27,707,910
    
    
    
    (63,991,919
    )
    
    
    (8,241,246
    )
    
    
    3,437,293
    
    
    
    (41,087,962
    )FINANCING ACTIVITIESCapital contribution from parent
    
    
    27,613,924
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,613,924Retirement of senior subordinated notes
    
    
    (111,915,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,915,000
    )Increase in long-term debt
    
    
    260,006,927
    
    
    
    
    
    
    
    755,716
    
    
    
    
    
    
    
    260,762,643Decrease in long-term debt
    
    
    (164,825,000
    )
    
    
    (55,629
    )
    
    
    (3,860,579
    )
    
    
    
    
    
    
    (168,741,208
    )Increase in debt issue cost
    
    
    (7,622,222
    )
    
    
    
    
    
    
    (15,224
    )
    
    
    
    
    
    
    (7,637,446
    )Change in intercompany notes
    
    
    
    
    
    
    81,309
    
    
    
    (1,473,087
    )
    
    
    1,391,778
    
    
    
    Increase in minority investment in subsidiaries
    
    
    
    
    
    
    
    
    
    
    670,491
    
    
    
    
    
    
    
    670,491Decrease in minority investment in subsidiaries
    
    
    
    
    
    
    (100,000
    )
    
    
    (2,566,572
    )
    
    
    
    
    
    
    (2,666,572
    )Net cash provided by (used for) financing activities
    
    
    3,258,629
    
    
    
    (74,320
    )
    
    
    (6,489,255
    )
    
    
    1,391,778
    
    
    
    (1,913,168
    )EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    (1,373,239
    )
    
    
    
    
    
    
    (1,373,239
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (25,271,817
    )
    
    
    4,238,655
    
    
    
    12,179,030
    
    
    
    
    
    
    
    (8,854,132
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    46,919,291
    
    
    
    9,522,740
    
    
    
    50,877,254
    
    
    
    
    
    
    
    107,319,285End of period
    
    $
    21,647,474
    
    
    $
    13,761,395
    
    
    $
    63,056,284
    
    
    $
    
    
    
    $
    98,465,153
 18




---



##### Table of Contents



SUBSIDIARY GUARANTORSCONDENSED CONSOLIDATING BALANCE SHEET INFORMATIONDECEMBER 31, 2003 Parent
    
    Subsidiary
    
    SubsidiaryCompany
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    46,919,291
    
    
    $
    9,522,740
    
    
    $
    50,877,254
    
    
    $
    
    
    
    $
    107,319,285Inventories
    
    
    1,941,400
    
    
    
    1,158,809
    
    
    
    1,223,478
    
    
    
    
    
    
    
    4,323,687Accounts receivable
    
    
    16,099,027
    
    
    
    18,666,355
    
    
    
    7,337,334
    
    
    
    (26,662,668
    )
    
    
    15,440,048Income tax receivable
    
    
    661,332
    
    
    
    43,600
    
    
    
    
    
    
    
    (704,932
    )
    
    
    Prepaid expenses and other
    
    
    6,605,385
    
    
    
    2,089,981
    
    
    
    1,802,389
    
    
    
    (5,021,689
    )
    
    
    5,476,066Total current assets
    
    

    72,226,435
    
    
    
    31,481,485
    
    
    
    61,240,455
    
    
    
    (32,389,289
    )
    
    
    132,559,086THEATRE PROPERTIES AND EQUIPMENT  net
    
    
    299,179,099
    
    
    
    297,926,605
    
    
    
    178,774,354
    
    
    
    
    
    
    
    775,880,058OTHER ASSETSGoodwill
    
    
    7,834,692
    
    
    
    412,327
    
    
    
    4,024,330
    
    
    
    (188,254
    )
    
    
    12,083,095Investments in and advances to affiliates
    
    
    487,113,511
    
    
    
    375,329,715
    
    
    
    28,494,989
    
    
    
    (888,591,111
    )
    
    
    2,347,104Intangible assets, deferred charges and other  net
    
    
    21,958,723
    
    
    
    1,236,729
    
    
    
    71,838,834
    
    
    
    (57,157,229
    )
    
    
    37,877,057Total other assets
    
    
    516,906,926
    
    
    
    376,978,771
    
    
    
    104,358,153
    
    
    
    (945,936,594
    )
    
    
    52,307,256TOTAL ASSETS
    
    $
    888,312,460
    
    
    $
    706,386,861
    
    
    $
    344,372,962
    
    
    $
    (978,325,883
    )
    
    $
    960,746,400LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term debt
    
    $
    1,705,629
    
    
    $
    
    
    
    $
    5,039,213
    
    
    $
    
    
    
    $
    6,744,842Income tax payable
    
    
    4,683,517
    
    
    
    491,485
    
    
    
    1,051,511
    
    
    
    (704,932
    )
    
    
    5,521,581Accounts payable and accrued expenses
    
    
    77,572,911
    
    
    
    47,276,056
    
    
    
    39,022,470
    
    
    
    (28,211,487
    )
    
    
    135,659,950Total current liabilities
    
    
    83,962,057
    
    
    
    47,767,541
    
    
    
    45,113,194
    
    
    
    (28,916,419
    )
    
    
    147,926,373LONG-TERM LIABILITIESLong-term debt, less current portion
    
    
    641,412,860
    
    
    
    43,737,910
    
    
    
    81,904,971
    
    
    
    (115,369,602
    )
    
    
    651,686,139Deferred income taxes
    
    
    19,433,148
    
    
    
    1,884,117
    
    
    
    (8,284,252
    )
    
    
    
    
    
    
    13,033,013Other long-term liabilities and deferrals
    
    
    28,480,667
    
    
    
    73,667,100
    
    
    
    8,642,498
    
    
    
    (73,465,000
    )
    
    
    37,325,265Total long-term liabilities
    
    
    689,326,675
    
    
    
    119,289,127
    
    
    
    82,263,217
    
    
    
    (188,834,602
    )
    
    
    702,044,417COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MINORITY INTERESTS IN SUBSIDIARIES
    
    
    
    
    
    
    1,256,482
    
    
    
    32,675,701
    
    
    
    
    
    
    
    33,932,183SHAREHOLDERS EQUITYCommon stock
    
    
    49,546,776
    
    
    
    25,787
    
    
    
    96,590,704
    
    
    
    (96,619,825
    )
    
    
    49,543,442Other shareholders equity
    
    
    65,476,952
    
    
    
    538,047,924
    
    
    
    87,730,146
    
    
    
    (663,955,037
    )
    
    
    27,299,985Total shareholders equity
    
    
    115,023,728
    
    
    
    538,073,711
    
    
    
    184,320,850
    
    
    
    (760,574,862
    )
    
    
    76,843,427TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    888,312,460
    
    
    $
    706,386,861
    
    
    $
    344,372,962
    
    
    $
    (978,325,883
    )
    
    $
    960,746,400
 19




---



##### Table of Contents



SUBSIDIARY GUARANTORSCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONSIX MONTHS ENDED JUNE 30, 2003 Parent
    
    Subsidiary
    
    SubsidiaryCompany
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    ConsolidatedREVENUES
    
    $
    215,226,617
    
    
    $
    159,125,440
    
    
    $
    107,048,271
    
    
    $
    (31,418,964
    )
    
    $
    449,981,364COSTS AND EXPENSESCost of operations
    
    
    186,959,288
    
    
    
    100,941,196
    
    
    
    79,025,735
    
    
    
    (31,680,760
    )
    
    
    335,245,459General and administrative expenses
    
    
    1,752,786
    
    
    
    11,967,292
    
    
    
    5,952,888
    
    
    
    261,796
    
    
    
    19,934,762Depreciation and amortization
    
    
    10,725,108
    
    
    
    10,952,463
    
    
    
    10,855,853
    
    
    
    
    
    
    
    32,533,424Asset impairment loss
    
    
    
    
    
    
    820,493
    
    
    
    1,240,352
    
    
    
    
    
    
    
    2,060,845(Gain) loss on sale of assets and other
    
    
    48,362
    
    
    
    (1,040,239
    )
    
    
    858
    
    
    
    
    
    
    
    (991,019
    )Total costs and expenses
    
    
    199,485,544
    
    
    
    123,641,205
    
    
    
    97,075,686
    
    
    
    (31,418,964
    )
    
    
    388,783,471OPERATING INCOME
    
    
    15,741,073
    
    
    
    35,484,235
    
    
    
    9,972,585
    
    
    
    
    
    
    
    61,197,893OTHER INCOME (EXPENSE)Interest expense
    
    
    (26,587,025
    )
    
    
    (2,902,912
    )
    
    
    (3,765,749
    )
    
    
    5,741,359
    
    
    
    (27,514,327
    )Amortization of debt issue cost
    
    
    (1,010,561
    )
    
    
    (130,329
    )
    
    
    (30,060
    )
    
    
    
    
    
    
    (1,170,950
    )Interest income
    
    
    2,713,017
    
    
    
    3,181,200
    
    
    
    930,506
    
    
    
    (5,741,359
    )
    
    
    1,083,364Foreign currency exchange gain
    
    
    
    
    
    
    
    
    
    
    151,199
    
    
    
    
    
    
    
    151,199Loss on early retirement of debt
    
    
    (6,374,514
    )
    
    
    (883,622
    )
    
    
    
    
    
    
    
    
    
    
    (7,258,136
    )Equity in income (loss) of affiliates
    
    
    31,973,164
    
    
    
    2,740,921
    
    
    
    170,915
    
    
    
    (34,735,476
    )
    
    
    149,524Minority interests in income of subsidiaries
    
    
    
    
    
    
    (118,678
    )
    
    
    (2,157,807
    )
    
    
    
    
    
    
    (2,276,485
    )Total other income (expense)
    
    
    714,081
    
    
    
    1,886,580
    
    
    
    (4,700,996
    )
    
    
    (34,735,476
    )
    
    
    (36,835,811
    )INCOME (LOSS) FROM CONTINUINGOPERATIONS BEFORE INCOME TAXES
    
    
    16,455,154
    
    
    
    37,370,815
    
    
    
    5,271,589
    
    
    
    (34,735,476
    )
    
    
    24,362,082Income taxes
    
    
    2,245,134
    
    
    
    5,751,236
    
    
    
    2,021,528
    
    
    
    
    
    
    
    10,017,898INCOME (LOSS) FROM CONTINUING OPERATIONS
    
    
    14,210,020
    
    
    
    31,619,579
    
    
    
    3,250,061
    
    
    
    (34,735,476
    )
    
    
    14,344,184Loss from discontinued operations, net of income tax
benefit of $0
    
    
    
    
    
    
    
    
    
    
    (509,164
    )
    
    
    
    
    
    
    (509,164
    )NET INCOME (LOSS)
    
    $
    14,210,020
    
    
    $
    31,619,579
    
    
    $
    2,740,897
    
    
    $
    (34,735,476
    )
    
    $
    13,835,020
 20




---



##### Table of Contents



SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2003 Parent
    
    Subsidiary
    
    SubsidiaryCompany
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIES
    
    
    
    
    
    
    
    
    
    $Net income (loss)
    
    $
    14,210,020
    
    
    $
    31,619,579
    
    
    
    2,740,897
    
    
    $
    (34,735,476
    )
    
    $
    13,835,020Noncash items in net income (loss):Depreciation and amortization
    
    
    9,852,662
    
    
    
    11,082,793
    
    
    
    12,053,094
    
    
    
    
    
    
    
    32,988,549Loss on impairment of assets
    
    
    
    
    
    
    820,493
    
    
    
    1,240,352
    
    
    
    
    
    
    
    2,060,845(Gain) loss on sale of assets and other
    
    
    48,362
    
    
    
    (1,040,239
    )
    
    
    858
    
    
    
    
    
    
    
    (991,019
    )Write-off unamortized debt issue costs and debt premium/discount
    
    
    2,452,293
    
    
    
    883,622
    
    
    
    
    
    
    
    
    
    
    
    3,335,915Deferred lease expenses
    
    
    8,375,193
    
    
    
    (7,536,514
    )
    
    
    (79,675
    )
    
    
    
    
    
    
    759,004Deferred income tax expenses
    
    
    (211,732
    )
    
    
    184,883
    
    
    
    574,900
    
    
    
    
    
    
    
    548,051Equity in (income) loss of affiliates
    
    
    (31,973,164
    )
    
    
    (2,740,921
    )
    
    
    (170,915
    )
    
    
    34,735,476
    
    
    
    (149,524
    )Minority interests in income of subsidiaries
    
    
    
    
    
    
    118,678
    
    
    
    2,157,807
    
    
    
    
    
    
    
    2,276,485Cash provided by (used for) operating working capital
    
    
    (8,238,221
    )
    
    
    1,241,817
    
    
    
    (1,989,457
    )
    
    
    (5,404,574
    )
    
    
    (14,390,435
    )Net cash provided by (used for) operating activities
    
    
    (5,484,587
    )
    
    
    34,634,191
    
    
    
    16,527,861
    
    
    
    (5,404,574
    )
    
    
    40,272,891INVESTING ACTIVITIESAdditions to theatre properties and equipment
    
    
    (5,752,807
    )
    
    
    (3,771,948
    )
    
    
    (8,451,504
    )
    
    
    
    
    
    
    (17,976,259
    )Proceeds from sale of theatre properties and equipment
    
    
    1,200
    
    
    
    2,063,364
    
    
    
    10,831
    
    
    
    
    
    
    
    2,075,395Net transactions with affiliates
    
    
    (45,089,611
    )
    
    
    (1,901,467
    )
    
    
    (2,826,886
    )
    
    
    50,042,650
    
    
    
    224,686Net cash provided by (used for) investing activities
    
    
    (50,841,218
    )
    
    
    (3,610,051
    )
    
    
    (11,267,559
    )
    
    
    50,042,650
    
    
    
    (15,676,178
    )FINANCING ACTIVITIESIssuance of senior subordinated notes
    
    
    375,225,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,225,000Retirement of senior subordinated notes
    
    
    (232,989,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (232,989,000
    )Increase in long-term debt
    
    
    238,508,545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238,508,545Decrease in long-term debt
    
    
    (328,532,229
    )
    
    
    (74,335,900
    )
    
    
    (5,959,549
    )
    
    
    
    
    
    
    (408,827,678
    )Increase in debt issue cost
    
    
    (14,944,223
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,944,223
    )Change in intercompany notes
    
    
    16,275,000
    
    
    
    23,050,000
    
    
    
    5,313,076
    
    
    
    (44,638,076
    )
    
    
    Increase in minority investment in subsidiaries
    
    
    
    
    
    
    
    
    
    
    3,896,860
    
    
    
    
    
    
    
    3,896,860Decrease in minority investment in subsidiaries
    
    
    
    
    
    
    (125,000
    )
    
    
    (150,304
    )
    
    
    
    
    
    
    (275,304
    )Net cash provided by (used for) financing activities
    
    
    53,543,093
    
    
    
    (51,410,900
    )
    
    
    3,100,083
    
    
    
    (44,638,076
    )
    
    
    (39,405,800
    )EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    1,737,270
    
    
    
    
    
    
    
    1,737,270INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (2,782,712
    )
    
    
    (20,386,760
    )
    
    
    10,097,655
    
    
    
    
    
    
    
    (13,071,817
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    9,487,744
    
    
    
    23,835,491
    
    
    
    30,395,280
    
    
    
    
    
    
    
    63,718,515End of period
    
    $
    6,705,032
    
    
    $
    3,448,731
    
    
    $
    40,492,935
    
    
    $
    
    
    
    $
    50,646,698
 21




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations The following discussion and analysis should be read in conjunction with
our condensed consolidated financial statements, including the notes thereto,
appearing elsewhere in this report. We are one of the leaders in the motion picture exhibition industry, in
terms of revenues and number of screens in operation, with theatres in the
U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El
Salvador, Nicaragua, Costa Rica, Panama and Colombia. We generate revenues
primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other ancillary revenue streams,
such as vendor marketing programs, pay phones, ATM machines and electronic
video games located in some of our theatres. Our revenues are affected by
changes in attendance and average admissions and concession revenues per
patron. Attendance is primarily affected by the quality and quantity of films
released by motion picture studios. Film releases during the first half of
2004 included the blockbusters The Passion of the Christand Shrek 2, which
have each generated domestic box office receipts in excess of $350 million, and
Harry Potter and the Prisoner of Azkaban, which has generated domestic box
office receipts in excess of $200 million. The highly anticipated sequel
Spider-Man 2was released on June 30, 2004 and is also expected to exceed $350
million in domestic box office receipts. Films scheduled for release during the
second half of 2004 include action movies such as I, Robot, The Bourne
Supremacyand The Village; teen-oriented films such as Princess Diaries 2and
family movies such as A Shark Taleand The Incredibles. Film rental costs are variable in nature and fluctuate with our admissions
revenues. Film rental costs as a percentage of revenues are generally higher
for periods in which successful films are released. Film rental costs can also
vary based on the length of a films run. Generally, a film that runs for a
longer period results in lower film rental costs as a percentage of revenues.
Film rental rates are negotiated on a film-by-film and theatre-by-theatre
basis. Advertising costs borne by us, which are expensed as incurred, are
primarily fixed at the theatre level as daily movie directories placed in
newspapers represent the largest component of advertising costs. The monthly
cost of these ads is based on, among other things, the size of the directory
and the frequency and size of the newspapers circulation. The internet is
quickly becoming the primary way to check movie times, replacing the
traditional newspaper advertisements. Over time, the internet may allow us to
reduce our advertising costs associated with newspaper directory
advertisements. Concession supplies expense is variable in nature and fluctuates with our
concession revenues. We purchase concession supplies to replace units sold. We
negotiate prices for concession supplies directly with concession vendors and
manufacturers to obtain bulk rates. Although salaries and wages include a fixed cost component (i.e. the
minimum staffing costs to operate a theatre facility during non-peak periods),
salaries and wages move in relation to revenues as theatre staffing is adjusted
to handle changes in attendance. Facility lease expense is primarily a fixed cost at the theatre level as
our facility leases generally require a fixed monthly minimum rent payment.
Certain leases are also subject to additional percentage rent if a target
annual revenue level is achieved. Facility lease expense as a percentage of
revenues is also affected by the number of leased versus fee owned facilities. Utilities and other costs include certain costs that are fixed such as
property taxes, certain costs which are variable such as liability insurance,
and certain costs that possess both fixed and variable components such as
utilities, repairs and maintenance and security services. Critical Accounting Policies We prepare our condensed consolidated financial statements in conformity
with accounting principles generally accepted in the U.S. As such, we are
required to make certain estimates, judgments and assumptions that we believe
are reasonable based upon the information available. These estimates, judgments
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. The significant accounting policies,
which we believe are the most critical to aid in fully understanding and
evaluating our reported financial results include the following: 22




---



##### Table of Contents



Revenue and Expense Recognition Revenues are recognized when admissions and concession sales are received
at the box office and screen advertising is shown at the theatres. We record
proceeds from the sale of gift cards and other advanced sale-type certificates
in current liabilities and recognize admissions and concession revenue when a
holder redeems a gift card or other advanced sale-type certificate. We
recognize unredeemed gift cards and other advanced sale-type certificates as
other revenue only after such a period of time indicates, based on our
historical experience, the likelihood of redemption is remote. Film rental costs are accrued based on the applicable box office receipts
and either the mutually agreed upon firm terms or estimates of the final
settlement depending on the film licensing arrangement. Estimates are made
based on the expected success of a film over the length of its run. The success
of a film can typically be determined a few weeks after a film is released when
initial box office performance of the film is known. Accordingly, final
settlements typically approximate estimates since box office receipts are known
at the time the estimate is made and the expected success of a film over the
length of its run can typically be estimated early in the films run. The final
film settlement amount is negotiated at the conclusion of the films run based
upon how a film actually performs. If actual settlements are higher than those
estimated, additional film rental costs are recorded at that time. When
participating in co-operative advertising, we share the total advertising costs
to promote a film with the film distributor on a negotiated basis and our
advertising expenses are presented net of the portion of advertising costs
reimbursed to us. We recognize advertising costs and any sharing arrangements
with film distributors in the same accounting period. Advertising costs borne
by us are expensed as incurred. Asset Impairment Loss We review long-lived assets for impairment on a quarterly basis or
whenever events or changes in circumstances indicate the carrying amount of the
assets may not be fully recoverable. We assess many factors including the
following to determine whether to impair individual theatre assets:  
    
    actual theatre level cash flow;
    
    future years budgeted theatre level cash flow;
    
    theatre property and equipment values;
    
    goodwill values;
    
    the age of a recently built theatre;
    
    competitive theatres in the marketplace;
    
    the sharing of a market with our other theatres;
    
    changes in foreign currency exchange rates;
    
    the impact of recent ticket price changes;
    
    available lease renewal options; and
    
    other factors considered relevant in our assessment of impairment of individual theatre assets. Assets are evaluated for impairment on an individual theatre basis or a
group of theatres that share the same marketplace, which we believe is the
lowest applicable level for which there are identifiable cash flows. The
evaluation is based on the estimated undiscounted cash flows from continuing
use through the remainder of the theatres useful life. The remainder of the
useful life correlates with the available remaining lease period for leased
properties and a period of twenty years for fee owned properties. If the
estimated undiscounted cash flows are not sufficient to recover an assets
carrying amount, we then compare the carrying value of the asset with its fair
value, which is determined based on estimated cash flows. When estimated fair
value is determined to be lower than the carrying value of the asset, the asset
is written down to its estimated fair value. 23




---



##### Table of Contents



Income Taxes We use an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes are provided when tax laws
and financial accounting standards differ with respect to the amount of income
for a year and the bases of assets and liabilities. A valuation allowance is
recorded to reduce the carrying amount of deferred tax assets unless it is more
likely than not that such assets will be realized. Income taxes are provided on
unremitted earnings from foreign subsidiaries unless such earnings are expected
to be indefinitely reinvested. Income taxes have also been provided for
potential tax assessments and the related tax accruals are in the condensed
consolidated balance sheets. To the extent tax accruals differ from actual
payments or assessments, the accruals will be adjusted. Results of Operations The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain items reflected in our condensed
consolidated statements of operations: % of Revenues
    
    % of RevenuesThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003RevenuesAdmissions
    
    
    63.0
    %
    
    
    63.2
    %
    
    
    63.3
    %
    
    
    63.1
    %Concession
    
    
    32.2
    
    
    
    31.9
    
    
    
    31.7
    
    
    
    31.8Other
    
    
    4.8
    
    
    
    4.9
    
    
    
    5.0
    
    
    
    5.1Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of operations
    
    
    71.2
    %
    
    
    73.8
    %
    
    
    72.3
    %
    
    
    74.5
    %General and administrative expenses
    
    
    4.8
    
    
    
    4.2
    
    
    
    4.9
    
    
    
    4.4Stock option compensation and
change of control expenses
    
    
    11.5
    
    
    
    
    
    
    
    6.3
    
    
    
    Depreciation and amortization
    
    
    6.1
    
    
    
    6.7
    
    
    
    6.5
    
    
    
    7.2Asset impairment loss
    
    
    
    
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.5Gain on sale of assets and other
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.2
    )Total costs and expenses
    
    
    93.6
    %
    
    
    85.4
    %
    
    
    90.1
    %
    
    
    86.4
    %Operating income
    
    
    6.4
    %
    
    
    14.6
    %
    
    
    9.9
    %
    
    
    13.6
    %
 Three months ended June 30, 2004 and 2003 Revenues Revenues for the three months ended June 30, 2004 increased to $276.7
million from $247.5 million for the three months ended June 30, 2003,
representing an 11.8% increase. Attendance increased 9.0% from 44.7 million
patrons for the second quarter of 2003 to 48.8 million patrons for the second
quarter of 2004. The increase in attendance for the second quarter of 2004 was
primarily due to quality film product, including the second quarter releases of
Shrek 2, Harry Potter and the Prisoner of Azkaban,and The Day After Tomorrow
and the continued success of The Passion of the Christwhich was released
during the first quarter. Our average ticket price was $3.57 for the second
quarter of 2004 compared to $3.50 for the second quarter of 2003, an increase
of 2.2%. Concession revenues per patron were $1.83 for the second quarter of
2004 compared to $1.76 for the second quarter of 2003, an increase of 3.7%.
Revenues per screen increased 5.6% to $86,617 for the second quarter of 2004
from $82,011 for the second quarter of 2003. 24




---



##### Table of Contents



Cost of Operations Cost of operations, as a percentage of revenues, decreased to 71.2% for
the second quarter of 2004 from 73.8% for the second quarter of 2003. The
decrease was primarily due to the 11.8% increase in revenues and the fixed
nature of some of our theatre operating costs, such as components of salaries
and wages expense, facility lease expense, and utilities and other costs. Film rentals and advertising costs decreased to 54.5% of admissions
revenues for the second quarter of 2004 from 56.5% for the second quarter of
2003, in part due to the increase in international business, which generally
has lower film rental rates, and also due to the long successful run of certain
high-grossing films during the second quarter of 2004. Concession supplies
expense increased to 16.2% of concession revenues for the second quarter of
2004 from 16.1% for the second quarter of 2003, primarily related to increased
costs on certain domestic concession products and the increase in international
business, which generally has higher concession supplies costs. Salaries and wages increased to $27.2 million for the second quarter of
2004 from $24.4 million for the second quarter of 2003 primarily due to the
increase in attendance. Facility lease expense increased to $31.3 million for
the second quarter of 2004 from $29.4 million for the second quarter of 2003
primarily due to new theatre openings and increased percentage rent expense.
Utilities and other costs increased to $29.0 million for the second quarter of
2004 from $27.9 million for the second quarter of 2003 primarily due to
increased utility rates in certain regions in which we operate. General and Administrative Expenses General and administrative expenses, excluding the stock option
compensation and change of control expenses related to the Recapitalization,
increased to $13.2 million for the second quarter of 2004 from $10.5 million
for the second quarter of 2003. The increase was primarily due to increases in
salary expense, incentive bonus expense and legal fees. Stock option compensation expense of $16.3 million and change of control
fees of $15.7 million were recorded during the second quarter of 2004 as a
result of the Recapitalization. See Note 2 to the condensed consolidated
financial statements. Depreciation and Amortization Depreciation and amortization expense was $16.9 million for the second
quarter of 2004 compared to $16.5 million for the second quarter of 2003. The
increase is primarily due to an increase in our asset base due to new theatre
development. Asset Impairment Loss During the second quarter of 2003, we wrote down the long-lived assets of
one theatre located in Mexico and one theatre located in the U.S. to their
estimated fair values, which resulted in asset impairment charges of $2.1
million. Interest Expense Interest costs incurred, including amortization of debt issue costs, was
$11.2 million for the second quarter of 2004 compared to $14.8 million for the
second quarter of 2003. The decrease is primarily due to a decrease in average
outstanding debt and a reduction in average interest rates due to the
refinancing transactions related to the Recapitalization. See Note 2 to the
condensed consolidated financial statements. Loss on Early Retirement of Debt During the second quarter of 2004, we recorded a loss on early retirement
of debt of $5.6 million, which represented the write-off of unamortized debt
issue costs, unamortized bond discount, tender offer repurchase costs,
including premiums paid, and other fees associated with the repurchase and
subsequent retirement of a portion of our 8 1/2% senior subordinated notes
and a portion of our 9% senior subordinated notes related to the
Recapitalization. During the second quarter of 2003, we recorded a loss on
early retirement of debt of $5.6 million, which represented the write-off of
unamortized debt issue costs, unamortized bond premiums/discounts, tender offer
repurchase costs, including premiums
paid, and other fees associated with the repurchase and subsequent
retirement of a portion of our former 9 5/8% senior subordinated notes. 25




---



##### Table of Contents



Income Taxes (Benefit) An income tax benefit of $0.5 million was recorded for the second quarter
of 2004 compared to income tax expense of $6.1 million recorded for the second
quarter of 2003. Gain (Loss) from Discontinued Operations We recorded a gain from discontinued operations of $1.2 million during the
second quarter of 2004 and a loss of $0.2 million during the second quarter of
2003. The gain recorded during the second quarter of 2004 includes the results
of operations for the United Kingdom theatres and a gain on sale of the
theatres, which includes the realization of approximately $1.0 in cumulative
foreign currency translation adjustments that were carried as a component of
shareholders equity prior to the sale. The loss recorded for the second
quarter of 2003 represents the results of operations for the United Kingdom
theatres. See Note 4 to the condensed consolidated financial statements. Six months ended June 30, 2004 and 2003 Revenues Revenues for the six months ended June 30, 2004 (the 2004 period)
increased to $511.8 million from $450.0 million for the six months ended June
30, 2003 (the 2003 period), representing a 13.7% increase. Attendance
increased 9.9% from 82.7 million patrons for the 2003 period to 90.9 million
patrons for the 2004 period. The increase in attendance for the 2004 period is
primarily due to quality film product, including the successful release of the
blockbusters The Passion of the Christ, Shrek 2and Harry Potter and the
Prisoner of Azkabanduring the 2004 period. Our average ticket price was $3.56
for the 2004 period compared to $3.43 for the 2003 period, an increase of 3.8%.
Concession revenues per patron were $1.79 for the 2004 period compared to
$1.73 for the 2003 period, an increase of 3.5%. Revenues per screen increased
8.6% to $162,185 for the 2004 period from $149,283 for the 2003 period. Cost of Operations Cost of operations, as a percentage of revenues, decreased to 72.3% for
the 2004 period from 74.5% for the 2003 period. The decrease was primarily due
to the 13.7% increase in revenues and the fixed nature of some of our theatre
operating costs, such as components of salaries and wages expense, facility
lease expense, and utilities and other costs. Film rentals and advertising costs decreased to 53.7% of admissions
revenues for the 2004 period from 54.6% for the 2003 period, in part due to the
increase in international business, which generally has lower film rental
rates, and also due to the long successful run of certain high-grossing films
during 2004. Concession supplies expense increased to 16.4% of concession
revenues for the 2004 period from 15.7% for the 2003 period, primarily related
to increased costs on certain domestic concession products and the increase in
international business, which generally has higher concession supplies costs. Salaries and wages increased to $51.5 million for the 2004 period from
$46.7 million for the 2003 period primarily due to the increase in attendance.
Facility lease expense increased to $62.4 million for the 2004 period from
$57.9 million for the 2003 period primarily due to new theatre openings and
increased percentage rent expense. Utilities and other costs increased to
$55.6 million for the 2004 period from $52.9 million for the 2003 period
primarily due to increased utility rates in certain regions in which we
operate. 26




---



##### Table of Contents



General and Administrative Expenses General and administrative expenses, excluding the stock option
compensation and change of control expenses related to the Recapitalization,
increased to $25.0 million for the 2004 period from $19.9 million for the 2003
period. The increase was primarily due to increases in salary expense,
incentive bonus expense, and legal fees. Stock option compensation expense of $16.3 million and change of control
fees of $15.7 million were recorded during the 2004 period as a result of the
Recapitalization. See Note 2 to the condensed consolidated financial
statements. Depreciation and Amortization Depreciation and amortization expense was $33.8 million for the 2004
period compared to $32.5 million for the 2003 period. The increase is
primarily due to an increase in our asset base due to new theatre development. Asset Impairment Loss During the 2004 period, we wrote down the long-lived assets of one theatre
located in the U.S. to its estimated fair value, which resulted in an asset
impairment charge of $1.0 million. During the 2003 period, we wrote down the
long-lived assets of one theatre located in Mexico and one theatre located in
the U.S. to their estimated fair values, which resulted in asset impairment
charges of $2.1 million. Interest Expense Interest costs incurred, including amortization of debt issue costs, was
$23.6 million for the 2004 period compared to $28.7 million for the 2003
period. The decrease is primarily due to a decrease in average outstanding
debt and a reduction in average interest rates due to the refinancing
transactions related to the Recapitalization. See Note 2 to the condensed
consolidated financial statements. Loss on Early Retirement of Debt During the 2004 period, we recorded a loss on early retirement of debt of
$5.6 million, which represented the write-off of unamortized debt issue costs,
unamortized bond discount, tender offer repurchase costs, including premiums
paid, and other fees associated with the repurchase and subsequent retirement
of a portion of our 8 1/2% senior subordinated notes and a portion of our 9%
senior subordinated notes related to the Recapitalization. During the 2003
period, we recorded a loss on early retirement of debt of $7.3 million, which
related to the write-off of unamortized debt issue costs, unamortized bond
premiums/discounts and tender offer repurchase costs, including premiums paid,
and other fees associated with the retirement of certain debt agreements,
including a portion of our former 9 5/8% senior subordinated notes, and the
refinancing of our then existing credit facility. Income Taxes Income tax expense of $7.4 million was recorded for the 2004 period
compared to income tax expense of $10.0 million recorded for the 2003 period.
Our effective tax rate for the 2004 period was 38.5% compared to 41.1% for the
2003 period. Gain (Loss) from Discontinued Operations We recorded a loss from discontinued operations, net of income tax
benefit, of $0.5 million during the 2004 period and $0.5 million during the
2003 period. The losses recorded for both periods reflect results of
operations for our two United Kingdom theatres for the respective periods.
Included in the loss recorded during 2004, is a loss on sale of these theatres
of $0.6 million. See Note 4 to the condensed consolidated financial
statements. 27




---



##### Table of Contents



Liquidity and Capital Resources Operating Activities We primarily collect our revenues in cash, mainly through box office
receipts and the sale of concession supplies. We also continue to expand the
number of theatres that provide the patron a choice of using a credit card, in
place of cash, which we convert to cash in approximately three to four days.
Because our revenues are received in cash prior to the payment of related
expenses, we have an operating float and historically have not required
traditional working capital financing. We typically operate with a negative
working capital position for our ongoing theatre operations throughout the
year, primarily because of the lack of significant inventory and accounts
receivable. Cash provided by operating activities, as reflected in the
condensed consolidated statements of cash flows, amounted to $35.5 million for
the six months ended June 30, 2004 compared to $40.3 million for the six months
ended June 30, 2003. Investing Activities Our investing activities have been principally related to the development
and acquisition of additional theatres. New theatre openings and acquisitions
historically have been financed with internally generated cash and by debt
financing, including borrowings under our senior secured credit facility. Cash
used for investing activities, as reflected in the condensed consolidated
statements of cash flows, amounted to $41.1 million for the six months ended
June 30, 2004 compared to $15.7 million for the six months ended June 30, 2003.
The increase in cash used for investing activities is primarily due to an
increase in capital expenditures during 2004. We are continuing to expand our U.S. theatre circuit. We opened nine new
theatres with 98 screens and added four screens to two existing theatres during
the six months ended June 30, 2004, bringing our total domestic screen count to
2,389 screens (12 of which are in Canada). At June 30, 2004, we had signed
commitments to open three new theatres with 42 screens in domestic markets by
the end of 2004 and open seven new theatres with 78 screens in domestic markets
subsequent to 2004. We estimate the remaining capital expenditures for the
development of these 120 screens will be approximately $37 million. Actual
expenditures for continued theatre development and acquisitions are subject to
change based upon the availability of attractive opportunities. We are also continuing to expand our international theatre circuit. We
opened two new theatres with 13 screens during the six months ended June 30,
2004, bringing our total international screen count to 848 screens. We had
signed commitments to open five new theatres with 35 screens in international
markets by the end of 2004 and open seven new theatres with 59 screens in
international markets subsequent to 2004. We estimate the remaining capital
expenditures for the development of these 94 screens in international markets
will be approximately $43 million. Actual expenditures for continued theatre
development and acquisitions are subject to change based upon the availability
of attractive opportunities. We plan to fund capital expenditures for our continued development from
cash flow from operations, borrowings under our senior secured credit facility,
subordinated note borrowings, proceeds from sale leaseback transactions and/or
sales of excess real estate. Additionally, we may from time to time, subject
to compliance with our debt instruments, purchase on the open market or call
our debt securities depending upon the availability and prices of such
securities. 28




---



##### Table of Contents



Financing Activities Cash used for financing activities, as reflected in the condensed
consolidated statements of cash flows, amounted to $1.9 million for the six
months ended June 30, 2004 compared to $39.4 million for the six months ended
June 30, 2003. As of June 30, 2004, our long-term debt obligations, future
minimum lease obligations under non-cancelable operating leases, outstanding
letters of credit, obligations under employment agreements and purchase
commitments for each period indicated are summarized as follows: Payments Due by Period(in millions)Less Than
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    One Year
    
    1- 3 Years
    
    4-5 Years
    
    5 YearsLong-term debt
    
    $
    637.7
    
    
    $
    7.1
    
    
    $
    11.1
    
    
    $
    17.4
    
    
    $
    602.1Operating lease obligations
    
    
    1,439.0
    
    
    
    108.0
    
    
    
    223.3
    
    
    
    217.2
    
    
    
    890.5Letters of credit
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Employment agreements
    
    
    8.4
    
    
    
    2.8
    
    
    
    5.6
    
    
    
    
    
    
    
    Purchase
commitments 1
    
    
    84.5
    
    
    
    49.6
    
    
    
    34.9
    
    
    
    
    
    
    
    Total obligations
    
    $
    2,169.7
    
    
    $
    167.6
    
    
    $
    274.9
    
    
    $
    234.6
    
    
    $
    1,492.6
  1Includes estimated capital expenditures associated with the construction
of new theatres to which we were committed as                     of June 30, 2004. As of June 30, 2004, we were in full compliance with all agreements
governing our outstanding debt. Recapitalization of Cinemark, Inc. On March 12, 2004, our parent, Cinemark, Inc., entered into an agreement
and plan of merger with a newly formed subsidiary of Madison Dearborn Partners,
LLC (Madison). The transaction was completed on April 2, 2004, at which time
the newly formed subsidiary of Madison was merged with and into Cinemark, Inc.,
with Cinemark, Inc. continuing as the surviving corporation. Simultaneously,
an affiliate of Madison purchased shares of common stock of Cinemark, Inc. for
approximately $518.3 million in cash and became the controlling stockholder of
Cinemark, Inc., owning approximately 83% of Cinemark, Inc.s capital stock.
Lee Roy Mitchell, the Companys Chief Executive Officer, and the Mitchell
Special Trust collectively retained approximately 16% ownership of Cinemark,
Inc.s capital stock and certain members of management own the remaining 1%. On March 31, 2004, Cinemark, Inc. issued $577,173,000 aggregate principal
amount at maturity of 9 3⁄4% senior discount notes due 2014. The gross
proceeds at issuance of $360,000,115 were used to fund in part the
Recapitalization. Interest on the notes accretes until March 15, 2009 up to
the aggregate principal amount of $577,173,000. Cash interest will accrue and
be payable semi-annually in arrears on March 15 and September 15, commencing on
September 15, 2009. Due to the holding company status of Cinemark, Inc.,
payments of principal and interest under these notes will be dependent on
loans, dividends and other payments from us to Cinemark, Inc. We have no
obligation, contingent or otherwise, to pay the amounts due under the 9 3⁄4%
senior discount notes or to make funds available to pay those amounts. The 9
3⁄4% senior discount notes are general, unsecured senior obligations of
Cinemark, Inc. that are effectively subordinated to indebtedness and other
liabilities of ours. Upon a change of control, Cinemark, Inc. would be
required to make an offer to repurchase all of the 9 3⁄4% senior discount
notes at a price equal to 101% of the accreted value of the notes plus accrued
and unpaid interest, if any, through the date of purchase. At June 30, 2004,
the accreted principal balance of the notes was $368,763,903. Senior Subordinated Notes On March 16, 2004, we initiated a tender offer for our then outstanding
$105 million aggregate principal amount 8 1/2% senior subordinated
notes due 2008 and a consent solicitation to remove substantially all
restrictive covenants in the indenture governing those notes. On March 25,
2004, a supplemental indenture removing substantially all of the covenants was
executed and became effective on the date of the Recapitalization. On April 2,
2004, in conjunction with the Recapitalization, we redeemed $94.1 million
aggregate principal amount of 8 1/2% senior subordinated notes that were
tendered, pursuant to the tender offer, utilizing a portion of the proceeds
from our amended senior secured credit facility. 29




---



##### Table of Contents



On April 14, 2004, after the expiration of the tender offer, we redeemed
an additional $50,000 aggregate principal amount of 8 1/2% senior
subordinated notes that were tendered. After the expiration of the tender
offer, we had outstanding $10.8 million aggregate principal
amount of 8 1/2%
senior subordinated notes. On April 6, 2004, as a result of the consummation of the Recapitalization
and in accordance with the terms of the indenture governing our 9% senior
subordinated notes due 2013, we made a change of control offer to purchase the
9% senior subordinated notes at a purchase price of 101% of the aggregate
principal amount, plus accrued and unpaid interest, if any, at the date of
purchase. Approximately $17.8 million in aggregate principal amount of the 9%
senior subordinated notes were tendered and not withdrawn in the change of
control offer, which expired on May 26, 2004. Payment of the change of control
price was made with available cash by us on June 1, 2004. After the expiration
of the change of control offer, we had outstanding $342.3 million aggregate
principal amount of 9% senior subordinated notes. As of June 30, 2004, we had two issues of senior subordinated notes
outstanding: (1) $10.8 million aggregate principal amount of 8 1/2% senior
subordinated notes due 2008; and (2) $342.3 million aggregate principal amount
of 9% senior subordinated notes due 2013. Interest on each issue is payable on
February 1 and August 1 of each year. The senior subordinated notes are general, unsecured obligations and are
subordinated in right of payment to the senior secured credit facility or other
senior indebtedness. The notes are guaranteed by certain of our domestic
subsidiaries. The guarantees are subordinated to the senior debt of the
subsidiary guarantors and rank pari passu with the senior subordinated debt of
our guarantor subsidiaries. The notes are effectively subordinated to the
indebtedness and other liabilities of our non-guarantor subsidiaries. The indentures governing the senior subordinated notes contain covenants
that limit, among other things, dividends, transactions with affiliates,
investments, sale of assets, mergers, repurchases of our capital stock, liens
and additional indebtedness. Upon a change of control, we would be required to
make an offer to repurchase the senior subordinated notes at a price equal to
101% of the principal amount outstanding plus accrued and unpaid interest
through the date of repurchase. The indentures governing the senior
subordinated notes allow us to incur additional indebtedness if we satisfy the
coverage ratio specified in each indenture, after giving effect to the
incurrence of the additional indebtedness, and in certain other circumstances. On July 28, 2004, we provided notice to the holders of our remaining
outstanding 8 1/2% senior subordinated notes due 2008 that we have elected to
redeem all outstanding notes on August 27, 2004 at a redemption price of
102.833% of the aggregate principal amount plus accrued interest. Senior Secured Credit Facility On February 14, 2003, we entered into a new senior secured credit facility
consisting of a $75 million five year revolving credit line and a $125 million
term loan with Lehman Commercial Paper, Inc. for itself and as administrative
agent for a syndicate of lenders. The net proceeds from the senior secured
credit facility were used to repay, in full, certain debt agreements, including
our then existing credit facility. On August 18, 2003, we amended the senior secured credit facility to
provide a $165 million term loan expiring on March 31, 2008. The net proceeds
of the $165 million term loan and additional borrowings under the $75 million
five year revolving credit line were used to (i) repay $124.7 million of term
loans outstanding under our senior secured credit facility entered into
February 14, 2003 and (ii) redeem the remaining $42 million aggregate principal
amount of our then outstanding 9 5/8% senior subordinated notes on September 18,
2003. On April 2, 2004, we amended our senior secured credit facility in
connection with the Recapitalization. The amended senior secured credit
facility provides for a $260 million seven year term loan and a $100 million
six and one-half year revolving credit line. The net proceeds from the amended
senior secured credit facility were used to repay the existing term loan of
approximately $163.8 million and to redeem the approximately $94.2 million
aggregate principal amount of our outstanding $105 million aggregate principal
amount 8 1/2% senior subordinated notes due 2008 that were tendered pursuant
to the tender offer. 30




---



##### Table of Contents



Under the amended term loan, principal payments of $650,000 are due each
calendar quarter through March 31, 2010 and increase to $61,100,000 each
calendar quarter from June 30, 2010 to maturity at March 31, 2011. The amended
term
loan bears interest, at our option, at: (A) the base rate equal to the
higher of (i) the prime lending rate as set forth on the British Banking
Association Telerate page 5 or (ii) the federal funds effective rate from time
to time plus 0.50%, plus a margin of 1.25% per annum, or (B) a eurodollar
rate plus a margin of 2.25% per annum. After the completion of two fiscal
quarters after the closing date, the margin under the term loan applicable to
base rate loans ranges from 1.00% per annum to 1.25% per annum and the margin
applicable to eurodollar rate loans ranges from 2.00% per annum to 2.25% per
annum, and will be adjusted based upon our achieving certain performance
targets. Borrowings under the amended revolving credit line bear interest, at our
option, at: (A) a base rate equal to the higher of (i) the prime lending rate
as set forth on the British Banking Association Telerate page 5 or (ii) the
federal funds effective rate from time to time plus 0.50%, plus a margin of
1.50% per annum, or (B) a eurodollar rate plus a margin of 2.50% per annum.
After the completion of two fiscal quarters after the closing date, the margin
under the revolving credit line applicable to base rate loans ranges from 1.00%
per annum to 1.50% per annum and the margin applicable to eurodollar rate loans
ranges from 2.00% per annum to 2.50% per annum, and will be adjusted based
upon our achieving certain performance targets. We will also be required to
pay a commitment fee calculated at the rate of 0.50% per annum on the average
daily unused portion of the amended revolving credit line, payable quarterly in
arrears. Our obligations under the amended senior secured credit facility are
guaranteed by Cinemark, Inc., CNMK Holding, Inc. and certain of our
subsidiaries and are secured by mortgages on certain fee and leasehold
properties and security interests in substantially all of our personal and
intangible property, including without limitation, pledges of all of our
capital stock, all of the capital stock of CNMK Holding, Inc. and certain of
our domestic subsidiaries and 65% of the voting stock of certain of our foreign
subsidiaries. At June 30, 2004, there was approximately $259.4 million outstanding under
the term loan and no outstanding revolver borrowings. Approximately $99.9
million was available for borrowing under the revolving credit line, giving
effect to a $0.1 million letter of credit outstanding. The effective interest
rate on outstanding borrowings under the senior secured credit facility at June
30, 2004 was 3.6% per annum. Cinemark Brasil Notes Payable As of June 30, 2004, Cinemark Brasil S.A. had four main types of funding
sources executed as follows: (1) Banco Nacional de Desenvolvimento Econômico e Social (BNDES, the
Brazilian National Development Bank) credit line in the U.S. dollar equivalent
in Brazilian reais of US$3.8 million executed in October 1999 with a maturity
date of September 2004. Interest accrues at a BNDES basket rate, which is a
multiple currency rate based on the rate at which the bank borrows, plus a
spread amounting to 14.5%. At June 30, 2004, there was approximately US$0.7
million outstanding under this credit line. (2) BNDES credit line in the U.S. dollar equivalent in Brazilian reais of
US$1.9 million executed in November 2001 with a maturity date of October 2006.
Interest accrues at a BNDES basket rate plus a spread amounting to 13.8%. At
June 30, 2004, there was approximately US$1.1 million outstanding under this
credit line. (3) Project developer financing executed with two engineering companies in
September 2000 in the amount of US$1.8 million with a maturity date of
September 2005. Interest accrues at a rate of TJLP+5% (Taxa de Juros de Longo
Prazo (a long-term interest rate published by the Brazilian government)). At
June 30, 2004, there was approximately US$0.5 million outstanding under this
financing arrangement. (4) Project developer financing executed with a mall developer in February
2004 in the amount of US$0.7 million with a maturity date of February 2009.
Interest accrues at a rate of TJLP + 5.5% (Taxa de Juros de Longo Prazo (a
long-term interest rate published by the Brazilian government)). At June 30,
2004, there was approximately US$0.7 million outstanding under this financing
arrangement. These sources are secured by a variety of instruments, including comfort
letters from Cinemark International, L.L.C., promissory notes for up to 130% of
the value, a revenue reserve account and equipment collateral. As of June 30,
2004, an aggregate of US$3.0 million was outstanding. 31




---



##### Table of Contents



Cinemark Chile Note Payable On March 26, 2002, Cinemark Chile S.A. entered into a Debt Acknowledgment,
Rescheduling and Joint Guarantee and Co-Debt Agreement with Scotiabank Sud
Americano and three local banks. Under this agreement, Cinemark Chile S.A.
borrowed the U.S. dollar equivalent of approximately $10.6 million in Chilean
pesos (adjusted for inflation pursuant to the Unidades de Fomento). Cinemark
Chile S.A. is required to make 24 equal quarterly installments of principal
plus accrued and unpaid interest, commencing March 27, 2002. The indebtedness
is secured by a first priority commercial pledge of the shares of Cinemark
Chile S.A., a chattel mortgage over Cinemark Chiles personal property and by a
guarantee issued by Cinemark International, L.L.C. The agreement requires
Cinemark Chile S.A. to maintain certain financial ratios and contains other
restrictive covenants typical for agreements of this type such as a limitation
on dividends. Funds borrowed under this agreement bear interest at the 90 day
TAB Banking rate (360 day TAB Banking rate with respect to one of the four
banks) as published by the Association of Banks and Financial Institutions Act
plus 2%. At June 30, 2004, US$6.7 million was outstanding under this agreement. Cinemark Brasil Purchase As a result of the Recapitalization, Cinemark, Inc. provided notice to its
Brazilian partners (i) that its then existing stockholders no longer own more
than 25% of Cinemark, Inc.s common stock and (ii) that Lee Roy Mitchell has
sold certain of his shares of Cinemark, Inc.s common stock for cash. The
Brazilian partners have exercised their option to cause Cinemark, Inc. or one

of its designees to purchase shares of common stock of Cinemark Brasil S.A.
owned by the Brazilian partners. The purchase price shall be determined through
an appraisal process conducted by up to three approved investment banks.
Cinemark, Inc. and the Brazilian partners have each received appraisals from
investment banks and are currently negotiating the price per share for the
common stock of Cinemark Brasil S.A. If Cinemark, Inc. and the Brazilian
partners are unable to agree upon a price, a third investment bank will be
retained to determine the price per share of the common stock of Cinemark
Brasil S.A. We are unable to predict at this time what the purchase price will
be. We expect that the purchase will be financed through additional borrowings
or with available cash. Seasonality Our revenues have historically been seasonal, coinciding with the timing
of releases of motion pictures by the major distributors. Generally, the most
successful motion pictures have been released during the summer, extending from
Memorial Day to Labor Day, and during the holiday season, extending from
Thanksgiving through year-end. The unexpected emergence of a hit film during
other periods can alter this seasonality trend. The timing of such film
releases can have a significant effect on our results of operations, and the
results of one quarter are not necessarily indicative of results for the next
quarter or for the same period in the following year. Cautionary Statement Regarding Forward-Looking Statements This quarterly report on Form 10-Q includes forward-looking statements
based on our current expectations, assumptions, estimates, and projections
about our and our subsidiaries business and industry. We intend that this
quarterly report be governed by the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 (the PSLR Act) with respect to
statements that may be deemed to be forward-looking statements under the PSLR
Act. They include statements relating to:  
    
    future revenues, expenses and profitability;
    
    the future development and expected growth of our business;
    
    projected capital expenditures;
    
    attendance at movies generally, or in any of the markets in which we operate;
    
    the number or diversity of popular movies released;
    
    our ability to successfully license and exhibit popular films;
    
    competition from other exhibitors; and
    
    determinations in lawsuits in which we are a defendant. You can identify forward-looking statements by the use of words such as
may, should, could, estimates, predicts, potential, continue,
anticipates, believes, plans, expects, future and intends and
similar expressions which are intended to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to
risks, uncertainties and other factors, some of which are beyond our control
and difficult to 32




---



##### Table of Contents



predict and could cause actual results to differ materially from those
expressed or forecasted in the forward-looking statements. In evaluating these
forward-looking statements, you should carefully consider the risks and
uncertainties described in this report. These forward-looking statements
reflect our view only as of the date of this report. Actual results could
differ materially from those indicated by such forward-looking statements due
to a number of factors. All forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this
cautionary statement. We undertake no current obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk We have exposure to financial market risks, including changes in interest
rates, foreign currency exchange rates and other relevant market prices. Interest Rate Risk An increase or decrease in interest rates would affect interest costs
relating to our variable rate debt facilities. We and our subsidiaries are
currently parties to variable rate debt facilities. At June 30, 2004, we had
an aggregate of $271.1 million of variable rate debt outstanding under these
facilities. Based on the interest rate levels in effect on the variable rate
debt outstanding at June 30, 2004, a 100 basis point increase in market
interest rates would not increase our annual interest expense by a material
amount. Changes in interest rates do not have a direct impact on interest
expense relating to the remaining fixed rate debt facilities. The tables below provide information about our fixed rate and variable
rate long-term debt agreements as of June 30, 2004 and December 31, 2003: Expected Maturity As of June 30, 2004
(in millions) June 30,AverageFair
    
    Interest2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    Value
    
    RateFixed rate
    
    $
    
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    
    
    
    $
    10.8
    
    
    $
    355.7
    
    
    $
    366.6
    
    
    $
    368.9
    
    
    
    9.0
    %Variable rate
    
    
    7.1
    
    
    
    5.9
    
    
    
    5.1
    
    
    
    3.9
    
    
    
    2.7
    
    
    
    246.4
    
    
    
    271.1
    
    
    
    270.8
    
    
    
    3.8
    %Total debt
    
    $
    7.1
    
    
    $
    6.0
    
    
    $
    5.1
    
    
    $
    3.9
    
    
    $
    13.5
    
    
    $
    602.1
    
    
    $
    637.7
    
    
    $
    639.7
 Expected Maturity As of December 31, 2003
(in millions) December 31,AverageFair
    
    Interest2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Value
    
    RateFixed rate
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    104.5
    
    
    $
    374.2
    
    
    $
    478.9
    
    
    $
    474.4
    
    
    
    8.9
    %Variable rate
    
    
    6.6
    
    
    
    6.9
    
    
    
    4.4
    
    
    
    121.8
    
    
    
    39.8
    
    
    
    
    
    
    
    179.5
    
    
    
    179.2
    
    
    
    4.1
    %Total debt
    
    $
    6.7
    
    
    $
    6.9
    
    
    $
    4.5
    
    
    $
    121.8
    
    
    $
    144.3
    
    
    $
    374.2
    
    
    $
    658.4
    
    
    $
    653.6
 Foreign Currency Exchange Rate Risk We are also exposed to market risk arising from changes in foreign
currency exchange rates as a result of our international operations. Generally
accepted accounting principles in the U.S. require that our subsidiaries use
the currency of the primary economic environment in which they operate as their
functional currency. If our subsidiaries operate in a highly inflationary
economy, generally accepted accounting principles in the U.S. require that the
U.S. dollar be used as the functional currency for the subsidiary. Currency
fluctuations result in us reporting exchange gains (losses) or foreign currency
translation adjustments relating to our international subsidiaries depending on
the inflationary environment of the country in which we operate. Generally, we
export from the U.S. certain of the equipment and construction interior finish
items and other operating supplies used by our international subsidiaries.
Principally all the revenues and operating 33




---



##### Table of Contents



expenses of our international subsidiaries are transacted in the countrys
local currency. Based upon our equity ownership in our international
subsidiaries as of June 30, 2004, holding everything else constant, a 10%
immediate unfavorable change in each of the foreign currency exchange rates to
which we are exposed would decrease the net fair value of our investments in
our international subsidiaries by approximately $7 million. 
 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We have established a system of controls and other procedures designed to
ensure that information required to be disclosed in our periodic reports filed
under the Securities Exchange Act of 1934 (the Exchange Act), as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. These disclosure
controls and procedures have been evaluated under the direction of our Chief
Executive Officer and Chief Financial Officer for the period covered by this
report. Based on such evaluations, the Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures
are effective in alerting them in a timely basis to material information
relating to the Company and its consolidated subsidiaries required to be
included in our reports filed or submitted under the Exchange Act. Changes in Internal Controls There have been no significant changes in our system of internal controls
or in other factors that could significantly affect internal controls within
the period covered by this report or subsequent to the evaluation by the Chief
Executive Officer and Chief Financial Officer. 34




---



##### Table of Contents



PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings Reference is made to Item 3 of the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2003. 
 Item 5. Other Information PageSupplemental Schedules specified by the senior subordinated notes Indenture:Condensed Consolidating Balance Sheets (unaudited) as of June 30, 2004
    
    
    36Condensed Consolidating Statements of Operations (unaudited) for the
six months ended June 30, 2004
    
    
    37Condensed Consolidating Statements of Cash Flows (unaudited) for the
six months ended June 30, 2004
    
    
    38
 35




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2004
(Unaudited) Restricted
    
    UnrestrictedGroup
    
    Group
    
    Eliminations
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    65,190,339
    
    
    $
    33,274,814
    
    
    $
    
    
    
    $
    98,465,153Inventories
    
    
    4,055,790
    
    
    
    756,189
    
    
    
    
    
    
    
    4,811,979Accounts receivable
    
    
    12,285,426
    
    
    
    4,088,342
    
    
    
    (595,532
    )
    
    
    15,778,236Income tax receivable
    
    
    433,901
    
    
    
    918,581
    
    
    
    
    
    
    
    1,352,482Prepaid expenses and other
    
    
    2,860,680
    
    
    
    791,128
    
    
    
    
    
    
    
    3,651,808Total current assets
    
    
    84,826,136
    
    
    
    39,829,054
    
    
    
    (595,532
    )
    
    
    124,059,658THEATRE
PROPERTIES AND EQUIPMENT - net
    
    
    700,983,591
    
    
    
    75,216,734
    
    
    
    
    
    
    
    776,200,325OTHER ASSETSGoodwill
    
    
    8,050,324
    
    
    
    3,849,517
    
    
    
    
    
    
    
    11,899,841Investments in and advances to affiliates
    
    
    145,545,709
    
    
    
    806,169
    
    
    
    (145,074,156
    )
    
    
    1,277,722Intangible
assets, deferred charges and other - net
    
    
    38,676,135
    
    
    
    7,219,352
    
    
    
    
    
    
    
    45,895,487Total other assets
    
    
    192,272,168
    
    
    
    11,875,038
    
    
    
    (145,074,156
    )
    
    
    59,073,050TOTAL ASSETS
    
    $
    978,081,895
    
    
    $
    126,920,826
    
    
    $
    (145,669,688
    )
    
    $
    959,333,033LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term debt
    
    $
    2,840,871
    
    
    $
    4,289,359
    
    
    $
    
    
    
    $
    7,130,230Accounts payable and accrued expenses
    
    
    110,174,627
    
    
    
    18,328,685
    
    
    
    (569,990
    )
    
    
    127,933,322Total current liabilities
    
    
    113,015,498
    
    
    
    22,618,044
    
    
    
    (569,990
    )
    
    
    135,063,552LONG-TERM LIABILITIESSenior credit agreements
    
    
    257,136,627
    
    
    
    6,942,923
    
    
    
    
    
    
    
    264,079,550Senior subordinated notes
    
    
    366,469,020
    
    
    
    
    
    
    
    
    
    
    
    366,469,020Deferred lease expenses
    
    
    25,828,719
    
    
    
    1,883,920
    
    
    
    
    
    
    
    27,712,639Deferred gain on sale leasebacks
    
    
    3,823,740
    
    
    
    
    
    
    
    
    
    
    
    3,823,740Deferred income taxes
    
    
    10,156,707
    
    
    
    (45,613
    )
    
    
    
    
    
    
    10,111,094Deferred revenues and other long-term liabilities
    
    
    762,222
    
    
    
    4,516,688
    
    
    
    
    
    
    
    5,278,910Total long-term liabilities
    

    
    664,177,035
    
    
    
    13,297,918
    
    
    
    
    
    
    
    677,474,953COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MINORITY INTERESTS IN SUBSIDIARIES
    
    
    11,518,437
    
    
    
    23,974,221
    
    
    
    
    
    
    
    35,492,658SHAREHOLDERS EQUITYClass A common stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding
    
    
    15
    
    
    
    2,000
    
    
    
    (2,000
    )
    
    
    15Class B common stock, no par value: 1,000,000 shares
authorized, 239,893 shares issued and outstanding
    
    
    49,543,427
    
    
    
    
    
    
    
    
    
    
    
    49,543,427Additional paid-in-capital
    
    
    42,408,865
    
    
    
    145,097,698
    
    
    
    (145,097,698
    )
    
    
    42,408,865Retained earnings
    
    
    177,815,319
    
    
    
    (41,498,860
    )
    
    
    
    
    
    
    136,316,459Treasury stock, 57,245 Class B shares at cost
    
    
    (24,232,890
    )
    
    
    
    
    
    
    
    
    
    
    (24,232,890
    )Accumulated other comprehensive loss
    
    
    (56,163,811
    )
    
    
    (36,570,195
    )
    
    
    
    
    
    
    (92,734,006
    )Total shareholders equity
    
    
    189,370,925
    
    
    
    67,030,643
    
    
    
    (145,099,698
    )
    
    
    111,301,870TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    978,081,895
    
    
    $
    126,920,826
    
    
    $
    (145,669,688
    )
    
    $
    959,333,033
 Note: Restricted Group and Unrestricted Group are defined in the Indentures for the Senior Subordinated Notes. 36




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited) Restricted
    
    UnrestrictedGroup
    
    Group
    
    Eliminations
    
    ConsolidatedREVENUES
    
    $
    437,902,895
    
    
    $
    74,554,076
    
    
    $
    (646,439
    )
    
    $
    511,810,532COSTS AND EXPENSESCost of operations
    
    
    314,718,859
    
    
    
    55,897,943
    
    
    
    (646,439
    )
    
    
    369,970,363General and administrative expenses
    
    
    52,247,126
    
    
    
    4,738,461
    
    
    
    
    
    
    
    56,985,587Depreciation and amortization
    
    
    27,226,918
    
    
    
    6,546,119
    
    
    
    
    
    
    
    33,773,037Asset impairment loss
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Gain on sale of assets and other
    
    
    (339,173
    )
    
    
    (213,667
    )
    
    
    
    
    
    
    (552,840
    )Total costs and expenses
    
    
    394,853,730
    
    
    
    66,968,856
    
    
    
    (646,439
    )
    
    
    461,176,147OPERATING INCOME
    
    
    43,049,165
    
    
    
    7,585,220
    
    
    
    
    
    
    
    50,634,385OTHER INCOME (EXPENSE)Interest expense
    
    
    (21,857,501
    )
    
    
    (524,632
    )
    
    
    
    
    
    
    (22,382,133
    )Amortization of debt issue cost
    
    
    (1,256,546
    )
    
    
    (10,582
    )
    
    
    
    
    
    
    (1,267,128
    )Interest income
    
    
    423,651
    
    
    
    453,601
    
    
    
    
    
    
    
    877,252Foreign currency exchange gain
    
    
    466,529
    
    
    
    105,954
    
    
    
    
    
    
    
    572,483Loss on early retirement of debt
    
    
    (5,576,935
    )
    
    
    
    
    
    
    
    
    
    
    (5,576,935
    )Equity in income (loss) of affiliates
    
    
    (61,884
    )
    
    
    26,417
    
    
    
    
    
    
    
    (35,467
    )Minority interests in income of subsidiaries
    
    
    (1,018,577
    )
    
    
    (2,537,979
    )
    
    
    
    
    
    
    (3,556,556
    )Total other expenses
    
    
    (28,881,263
    )
    
    
    (2,487,221
    )
    
    
    
    
    
    
    (31,368,484
    )INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    14,167,902
    
    
    
    5,097,999
    
    
    
    
    
    
    
    19,265,901Income taxes
    
    
    6,123,980
    
    
    
    1,302,441
    
    
    
    
    
    
    
    7,426,421INCOME FROM CONTINUING OPERATIONS
    
    
    8,043,922
    
    
    
    3,795,558
    
    
    
    
    
    
    
    11,839,480Loss from discontinued operations, net of income tax
benefit of $191,250
    
    
    (545,632
    )
    
    
    
    
    
    
    
    
    
    
    (545,632
    )NET INCOME
    
    $
    7,498,290
    
    
    $
    3,795,558
    
    
    $
    
    
    
    $
    11,293,848
 Note: Restricted Group and Unrestricted Group are defined in the Indentures for the Senior Subordinated Notes. 37




---



##### Table of Contents



CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited) Restricted
    
    UnrestrictedGroup
    
    Group
    
    
    
    
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIESNet income
    
    $
    7,498,290
    
    
    $
    3,795,558
    
    
    
    
    
    
    $
    
    
    
    $
    11,293,848Noncash items in net income:Depreciation
    
    
    26,936,652
    
    
    
    6,512,871
    
    
    
    
    
    
    
    
    
    
    
    33,449,523Depreciation  assets held for sale
    
    
    118,157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,157Amortization of intangible and other assets
    
    
    290,266
    
    
    
    33,248
    
    
    
    
    
    
    
    
    
    
    
    323,514Amortization of foreign advanced rents
    
    
    495,763
    
    
    
    384,131
    
    
    
    
    
    
    
    
    
    
    
    879,894Amortized compensation  stock options
    
    
    145,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,021Amortization of debt issue costs
    
    
    1,256,546
    
    
    
    10,582
    
    
    
    
    
    
    
    
    
    
    
    1,267,128Amortization of gain on sale leasebacks
    
    
    (182,960
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (182,960
    )Amortization of debt discount and premium
    
    
    (754,526
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (754,526
    )Amortization of deferred revenues
    
    
    (165,258
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165,258
    )Loss on impairment of assets
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Loss on assets held for sale
    
    
    565,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565,501Gain on sale of assets and other
    
    
    (339,174
    )
    
    
    (213,666
    )
    
    
    
    
    
    
    
    
    
    
    (552,840
    )Write-off unamortized debt issue costs and debt discount and
premium related to the early retirement of debt
    
    
    897,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    897,659Write-off of unearned compensation related to the Recapitalization
    
    
    1,595,234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,595,234Deferred lease expenses
    
    
    561,473
    
    
    
    (501,536
    )
    
    
    
    
    
    
    
    
    
    
    59,937Deferred income tax expenses
    
    
    (3,108,994
    )
    
    
    187,075
    
    
    
    
    
    
    
    
    
    
    
    (2,921,919
    )Equity in (income) loss of affiliates
    
    
    61,884
    
    
    
    (26,417
    )
    
    
    
    
    
    
    
    
    
    
    35,467Minority interests in income of subsidiaries
    
    
    1,018,577
    
    
    
    2,537,979
    
    
    
    
    
    
    
    
    
    
    
    3,556,556Cash provided by (used for) operating working capital
    
    
    (18,438,025
    )
    
    
    3,348,326
    
    
    
    
    
    
    
    
    
    
    
    (15,089,699
    )Net cash provided by operating activities
    
    
    19,452,086
    
    
    
    16,068,151
    
    
    
    
    
    
    
    
    
    
    
    35,520,237INVESTING ACTIVITIESAdditions to theatre properties and equipment
    
    
    (37,122,538
    )
    
    
    (8,809,577
    )
    
    
    
    
    
    
    
    
    
    
    (45,932,115
    )Proceeds from sale of United Kingdom theatres
    
    
    2,645,812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,645,812Proceeds from sale of other theatre properties and equipment
    
    
    290,957
    
    
    
    529,884
    
    
    
    
    
    
    
    
    
    
    
    820,841Proceeds from sale of equity investment
    
    
    1,250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250,000Dividends/capital returned from affiliates
    
    
    127,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,500Net cash used for investing activities
    
    
    (32,808,269
    )
    
    
    (8,279,693
    )
    
    
    
    
    
    
    
    
    
    
    (41,087,962
    )FINANCING ACTIVITIESCapital contribution from parent
    
    
    27,613,924
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,613,924Retirement of senior subordinated notes
    
    
    (111,915,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,915,000
    )Increase in long-term debt
    
    
    260,006,927
    
    
    
    755,716
    
    
    
    
    
    
    
    
    
    
    
    260,762,643Decrease in long-term debt
    
    
    (166,354,243
    )
    
    
    (2,386,965
    )
    
    
    
    
    
    
    
    
    
    
    (168,741,208
    )Increase in debt issue cost
    
    
    (7,622,222
    )
    
    
    (15,224
    )
    
    
    
    
    
    
    
    
    
    
    (7,637,446
    )Increase in minority investment in subsidiaries
    
    
    610,647
    
    
    
    59,844
    
    
    
    
    
    
    
    
    
    
    
    670,491Decrease in minority investment in subsidiaries
    
    
    (365,259
    )
    
    
    (2,301,313
    )
    
    
    
    
    
    
    
    
    
    
    (2,666,572
    )Net cash provided by (used for) financing activities
    
    
    1,974,774
    
    
    
    (3,887,942
    )
    
    
    
    
    
    
    
    
    
    
    (1,913,168
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    (546,614
    )
    
    
    (826,625
    )
    
    
    
    
    
    
    
    
    
    
    (1,373,239
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (11,928,023
    )
    
    
    3,073,891
    
    
    
    
    
    
    
    
    
    
    
    (8,854,132
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    77,118,362
    
    
    
    30,200,923
    
    
    
    
    
    
    
    
    
    
    
    107,319,285End of period
    
    $
    65,190,339
    
    
    $
    33,274,814
    
    
    
    
    
    
    $
    
    
    
    $
    98,465,153
 Note: Restricted Group and Unrestricted Group are defined in the Indentures for the Senior Subordinated Notes. 38




---



##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K  a)
    
    Exhibits 2
    
    Share Exchange Agreement dated as of May 17, 2002 by and among
Cinemark, Inc., Cinemark USA, Inc. and the shareholders signature
thereto incorporated by reference from Amendment 2 to Cinemark
Inc.s Registration Statement on Forms S-1 (File No. 333-88618)
filed June 28, 2002.3.1
    
    Amended and Restated Articles of Incorporation of the Company
filed with the Texas Secretary of State on June 3, 1992
(incorporated by reference to Exhibit 3.1(a) to the Companys
Annual Report on Form 10-K (File No. 033-47040) filed March 31,
1993).3.2(a)
    
    Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Companys Registration Statement on Form S-1
(File No. 033-47040) filed April 9, 1992).3.2(b)
    
    Amendment to Bylaws of the Company dated March 12, 1996
(incorporated by reference to Exhibit 3.2(b) to the Companys
Annual Report on Form 10-K (File No. 033-47040) filed March 6,
1997).4.2(a)
    
    Indenture dated January 14, 1998 between the Company and U.S.
Trust Company of Texas, N.A. governing the 8 1/2% Senior
Subordinated Notes issued thereunder (incorporated by reference
to Exhibit 4.1 to the Companys Registration Statement on Form
S-4 (File No. 333-45417) filed February 2, 1998).4.2(b)
    
    First Supplemental Indenture dated as of February 11, 2003
between the Company, the subsidiary guarantors party thereto and
The Bank of New York Trust Company of Florida, N.A., as successor
trustee to U.S. Trust Company of Texas, N.A. (incorporated by
reference to Exhibit 4.2 (g) to the Companys Registration
Statement on Form S-4 (File No. 333-104940) filed May 2, 2003).4.2(c)
    
    Second Supplemental Indenture dated as of March 25, 2004 between
the Company, the subsidiary guarantors party thereto and The Bank
of New York Trust Company, N.A. (incorporated by reference to
Exhibit 4.2(c) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).4.2(d)
    
    Indenture dated February 11, 2003 between the Company and The
Bank of New York Trust Company of Florida, N.A. governing the 9%
Senior Subordinated Notes issued thereunder (incorporated by
reference to Exhibit 10.2(b) to the Companys Annual Report on
Form 10-K (File No. 033-47040) filed March 19, 2003).4.2(e)
    
    First Supplemental Indenture dated as of May 7, 2003 between the
Company, the subsidiary guarantors party thereto and The Bank of
New York Trust Company of Florida, N.A. (incorporated by
reference to Exhibit 4.2(i) to the Companys Registration
Statement on Form S-4 (File No. 333-104940) filed May 28, 2003).4.2(f)
    
    Form of 8 1/2% Note (contained in the Indenture listed as Exhibit
4.2(f) above) (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-4 (File No. 333-45417)
filed February 2, 1998).4.2(g)
    
    Form of 9% Note (contained in the Indenture listed as Exhibit
4.2(h) above) (incorporated by reference to Exhibit 10.2(b) to
the Companys Annual Report on Form 10-K (File 033-47040) filed
March 19, 2003).10.1(a)
    
    Management Agreement, dated as of July 28, 1993, between the
Company and Cinemark Mexico (USA) (incorporated by reference to
Exhibit 10.1(a) to Cinemark, Inc.s Registration Statement on
Form S-1 (File No. 333-88618) filed May 17, 2002).10.1(b)
    
    Management Agreement, dated as of
September 10, 1992, between Cinemark USA, Inc. and Cinemark de
Mexico (incorporated by reference to Exhibit 10.8 to Cinemark
Mexico (USA)s Registration Statement on Form S-4
(File No. 033-72114) filed on November 24, 1994).10.1(c)
    
    Management Agreement, dated December 10, 1993, between Laredo
Theatre, Ltd. and the Company (incorporated by reference to
Exhibit 10.14(b) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1994).10.1(d)
    
    First Amendment to Management
Agreement of Laredo Theatre, Ltd. effective as of December 10,
2003, between CNMK Texas Properties, Ltd. (successor in interest to
Cinemark USA, Inc.) and Laredo Theatre Ltd. (incorporated by
reference to Exhibit 10.1(d) to Cinemark, Incs
Registration Statement on Form S-4
(File No. 333-116292) filed June 8, 2004).10.1(e)
    
    Management Agreement, dated September 1, 1994, between Cinemark
Partners II, Ltd. and the Company (incorporated by reference to
Exhibit 10.4(i) to the Companys Annual Report on Form 10-K (File
No. 033-47040) filed March 29, 1995).10.1(f)
    
    First Amendment to Management
Agreement of Cinemark Partners II, Ltd. dated as of
January 5, 1998 by and between Cinemark USA, Inc. and Cinemark
Partners II, Ltd. (incorporated by reference to
Exhibit 10.1(f) to Cinemark, Inc.s Registration Statement
on Form S-4 (File No. 333-116292) filed June 8,
2004.10.1(g)
    
    Management Services Agreement dated
April 10, 2003 between Greeley Partners L.P. and CNMK Texas
Properties, Ltd. (incorporated by reference to Exhibit 10.1(g)
to Cinemark, Inc.s Registration Statement on Form S-4
(File No. 333-116292) filed June 8, 2004).10.2
    
    Amended and Restated Agreement to Participate in Profits and
Losses, dated as of March 12, 2004, between Cinemark USA, Inc.
and Alan W. Stock (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q (File No. 033-47040)
filed May 14, 2004).10.3(a)
    
    License Agreement, dated December 10, 1993, between Laredo Joint
Venture and the Company (incorporated by reference to Exhibit
10.14(c) to the Companys Annual Report on Form 10-K (File No.
033-47040) filed March 31, 1994).10.3(b)
    
    License Agreement, dated September 1, 1994, between Cinemark
Partners II, Ltd. and the Company (incorporated by reference to
Exhibit 10.10(c) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 29, 1995).10.4(a)
    
    Tax Sharing Agreement, between the Company and Cinemark
International, L.L.C. (f/k/a Cinemark II, Inc. ), dated as of
June 10, 1992 (incorporated by reference to Exhibit 10.22 to the
Companys Annual Report on Form 10-K (File No. 033-47040) filed
March 31, 1993).
 39




---



##### Table of Contents



10.4(b)
    
    Tax Sharing Agreement, dated as of July 28, 1993, between the
Company and Cinemark Mexico (USA) (incorporated by reference to
Exhibit 10.10 to Cinemark Mexico (USA)s Registration Statement
on Form S-4 (File No. 033-72114) filed on November 24, 1993).10.5(a)
    
    Indemnification Agreement, between the Company and Lee Roy
Mitchell, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(a) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(b)
    
    Indemnification Agreement, between the Company and Tandy
Mitchell, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(b) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(c)
    
    Indemnification Agreement, between the Company and Alan Stock,
dated as of July 13, 1992 (incorporated by reference to Exhibit
10.23(d) to the Companys Annual Report on Form 10-K (File No.
033-47040) filed March 31, 1993).10.5(d)
    
    Indemnification Agreement, between the Company and W. Bryce
Anderson, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(f) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(e)
    
    Indemnification Agreement, between the Company and Sheldon I.
Stein, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(g) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(f)
    
    Indemnification Agreement, between the Company and Heriberto
Guerra, dated as of December 3, 1993 (incorporated by reference
to Exhibit 10.23(f) to the Companys Annual Report on Form 10-K
(File No. 033-11895) filed September 13, 1996).10.7(a)
    
    Senior Secured Credit Agreement dated December 4, 1995 among
Cinemark International, L.L.C. (f/k/a Cinemark II, Inc., Cinemark
Mexico (USA) and Cinemark de Mexico (incorporated by reference to
Exhibit 10.18 to the Companys Annual Report on Form 10-K (File
No. 033-47040) filed April 1, 1996).10.7(b)
    
    First Amendment to Senior Secured Credit Agreement, dated as of
September 30, 1996, by and among Cinemark II, Inc., Cinemark
Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V.
(incorporated by reference to Exhibit 10.11(b) to Cinemark,
Inc.s Registration Statement on Form S-1 (File No. 333-88618)
filed on May 17, 2002).10.7(c)
    
    Second Amendment to Senior Secured Credit Agreement, dated as of
September 28, 2000, by and among Cinemark II, Inc., Cinemark
Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V.
(incorporated by reference to Exhibit 10.11(c) to Cinemark,
Inc.s Registration Statement on Form S-1 (File No. 333-88618)
filed on May 17, 2002).10.14(a)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Lee Roy Mitchell (incorporated by reference to
Exhibit 10.14(a) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(b)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Alan Stock (incorporated by reference to
Exhibit 10.14(b) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(c)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Tim Warner (incorporated by reference to
Exhibit 10.14(c) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(d)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Robert Copple (incorporated by reference to
Exhibit 10.14(d) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(e)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Rob Carmony (incorporated by reference to
Exhibit 10.14(e) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(f)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Tandy Mitchell (incorporated by reference to
Exhibit 10.14(f) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).
 40




---



##### Table of Contents



10.15
    
    Amended and Restated Credit Agreement, dated April 2, 2004, among
Cinemark, Inc., CNMK Holdings, Inc., the Company, the several
lenders from time to time parties thereto, Lehman Brothers Inc.
and Goldman Sachs Credit Partners LP, as Joint Legal Arrangers,
Goldman Sachs Credit Partners LP, as Syndication Agent, Deutsche
Bank Securities, Inc., The Bank of New York, General Electric
Capital Corporation and CIBC Inc. as Documentation Agents and
Lehman Commercial Paper Inc. as Administrative Agent
(incorporated by reference to Exhibit 10.15 to the Companys
Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14,
2004).10.16
    
    Amended and Restated Guaranty and Collateral Agreement, dated
April 2, 2004, among Cinemark, Inc., CNMK Holdings Inc., the
Company and certain of it subsidiaries in favor of Lehman
Commercial Paper, Inc., as administrative agent (incorporated by
reference to Exhibit 10.16 to the Companys Quarterly Report on
Form 10-Q (File No. 033-47040) filed May 14, 2004).*31.1
    
    Certification of Chief Executive Officer of Cinemark USA, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer of Cinemark USA, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of the Chief Executive Officer of Cinemark USA,
Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of the Chief Financial Officer of Cinemark USA,
Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  *
    
    filed herewith.  b)
    
    Reports on Form 8-K On April 15, 2004, the Company filed on Form 8-K, reporting under
Item 9, a press release announcing it has accepted for purchase and
payment the remainder of the $105 million aggregate principal amount of
the 8 1/2% Senior Subordinated Notes due 2008 that were tendered and
not withdrawn pursuant to the tender offer. On May 19, 2004, the Company filed on Form 8-K, reporting under Item
7 and Item 9, a press release announcing our operating results for the
thee months ended March 31, 2004. On May 28, 2004, the Company filed on Form 8-K, reporting under Item
9, a press release announcing its acceptance for purchase and payment,
pursuant to the change of control offer, any and all outstanding 9%
Senior Subordinated Notes due 2013 that were tendered and not withdrawn. On August 2, 2004, the Company filed on Form 8-K, reporting under
Item 9, a press release announcing the redemption of its remaining
outstanding 8 1/2% Senior Subordinated Notes due 2008. On
August 5, 2004, the Company filed on Form 8-K, reporting under
Item 7 and Item 9, a press release announcing our operating results for
the three and six months ended June 30, 2004. 41




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. CINEMARK USA,
INC.RegistrantDATE:August 5, 2004/s/Alan W. StockAlan W. StockPresident/s/ Robert CoppleRobert Copple
Chief Financial Officer
 42




---



##### Table of Contents



EXHIBIT INDEX 2
    
    Share Exchange Agreement dated as of May 17, 2002 by and among
Cinemark, Inc., Cinemark USA, Inc. and the shareholders signature
thereto incorporated by reference from Amendment 2 to Cinemark
Inc.s Registration Statement on Forms S-1 (File No. 333-88618)
filed June 28, 2002.3.1
    
    Amended and Restated Articles of Incorporation of the Company
filed with the Texas Secretary of State on June 3, 1992
(incorporated by reference to Exhibit 3.1(a) to the Companys
Annual Report on Form 10-K (File No. 033-47040) filed March 31,
1993).3.2(a)
    
    Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Companys Registration Statement on Form S-1
(File No. 033-47040) filed April 9, 1992).3.2(b)
    
    Amendment to Bylaws of the Company dated March 12, 1996
(incorporated by reference to Exhibit 3.2(b) to the Companys
Annual Report on Form 10-K (File No. 033-47040) filed March 6,
1997).4.2(a)
    
    Indenture dated January 14, 1998 between the Company and U.S.
Trust Company of Texas, N.A. governing the 8 1/2% Senior
Subordinated Notes issued thereunder (incorporated by reference
to Exhibit 4.1 to the Companys Registration Statement on Form
S-4 (File No. 333-45417) filed February 2, 1998).4.2(b)
    
    First Supplemental Indenture dated as of February 11, 2003
between the Company, the subsidiary guarantors party thereto and
The Bank of New York Trust Company of Florida, N.A., as successor
trustee to U.S. Trust Company of Texas, N.A. (incorporated by
reference to Exhibit 4.2 (g) to the Companys Registration
Statement on Form S-4 (File No. 333-104940) filed May 2, 2003).4.2(c)
    
    Second Supplemental Indenture dated as of March 25, 2004 between
the Company, the subsidiary guarantors party thereto and The Bank
of New York Trust Company, N.A. (incorporated by reference to
Exhibit 4.2(c) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).4.2(d)
    
    Indenture dated February 11, 2003 between the Company and The
Bank of New York Trust Company of Florida, N.A. governing the 9%
Senior Subordinated Notes issued thereunder (incorporated by
reference to Exhibit 10.2(b) to the Companys Annual Report on
Form 10-K (File No. 033-47040) filed March 19, 2003).4.2(e)
    
    First Supplemental Indenture dated as of May 7, 2003 between the
Company, the subsidiary guarantors party thereto and The Bank of
New York Trust Company of Florida, N.A. (incorporated by
reference to Exhibit 4.2(i) to the Companys Registration
Statement on Form S-4 (File No. 333-104940) filed May 28, 2003).4.2(f)
    
    Form of 8 1/2% Note (contained in the Indenture listed as Exhibit
4.2(f) above) (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-4 (File No. 333-45417)
filed February 2, 1998).4.2(g)
    
    Form of 9% Note (contained in the Indenture listed as Exhibit
4.2(h) above) (incorporated by reference to Exhibit 10.2(b) to
the Companys Annual Report on Form 10-K (File 033-47040) filed
March 19, 2003).10.1(a)
    
    Management Agreement, dated as of July 28, 1993, between the
Company and Cinemark Mexico (USA) (incorporated by reference to
Exhibit 10.1(a) to Cinemark, Inc.s Registration Statement on
Form S-1 (File No. 333-88618) filed May 17, 2002).10.1(b)
    
    Management Agreement, dated as of
September 10, 1992, between Cinemark USA, Inc. and Cinemark de
Mexico (incorporated by reference to Exhibit 10.8 to Cinemark
Mexico (USA)s Registration Statement on Form S-4
(File No. 033-72114) filed on November 24, 1994).10.1(c)
    
    Management Agreement, dated December 10, 1993, between Laredo
Theatre, Ltd. and the Company (incorporated by reference to
Exhibit 10.14(b) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1994).10.1(d)
    
    First Amendment to Management
Agreement of Laredo Theatre, Ltd. effective as of December 10,
2003, between CNMK Texas Properties, Ltd. (successor in interest to
Cinemark USA, Inc.) and Laredo Theatre Ltd. (incorporated by
reference to Exhibit 10.1(d) to Cinemark, Incs
Registration Statement on Form S-4
(File No. 333-116292) filed June 8, 2004).10.1(e)
    
    Management Agreement, dated September 1, 1994, between Cinemark
Partners II, Ltd. and the Company (incorporated by reference to
Exhibit 10.4(i) to the Companys Annual Report on Form 10-K (File
No. 033-47040) filed March 29, 1995).10.1(f)
    
    First Amendment to Management
Agreement of Cinemark Partners II, Ltd. dated as of
January 5, 1998 by and between Cinemark USA, Inc. and Cinemark
Partners II, Ltd. (incorporated by reference to
Exhibit 10.1(f) to Cinemark, Inc.s Registration Statement
on Form S-4 (File No. 333-116292) filed June 8,
2004.10.1(g)
    
    Management Services Agreement dated
April 10, 2003 between Greeley Partners L.P. and CNMK Texas
Properties, Ltd. (incorporated by reference to Exhibit 10.1(g)
to Cinemark, Inc.s Registration Statement on Form S-4
(File No. 333-116292) filed June 8, 2004).10.2
    
    Amended and Restated Agreement to Participate in Profits and
Losses, dated as of March 12, 2004, between Cinemark USA, Inc.
and Alan W. Stock (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q (File No. 033-47040)
filed May 14, 2004).10.3(a)
    
    License Agreement, dated December 10, 1993, between Laredo Joint
Venture and the Company (incorporated by reference to Exhibit
10.14(c) to the Companys Annual Report on Form 10-K (File No.
033-47040) filed March 31, 1994).10.3(b)
    
    License Agreement, dated September 1, 1994, between Cinemark
Partners II, Ltd. and the Company (incorporated by reference to
Exhibit 10.10(c) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 29, 1995).10.4(a)
    
    Tax Sharing Agreement, between the Company and Cinemark
International, L.L.C. (f/k/a Cinemark II, Inc. ), dated as of
June 10, 1992 (incorporated by reference to Exhibit 10.22 to the
Companys Annual Report on Form 10-K (File No. 033-47040) filed
March 31, 1993).




---



##### Table of Contents



10.4(b)
    
    Tax Sharing Agreement, dated as of July 28, 1993, between the
Company and Cinemark Mexico (USA) (incorporated by reference to
Exhibit 10.10 to Cinemark Mexico (USA)s Registration Statement
on Form S-4 (File No. 033-72114) filed on November 24, 1993).10.5(a)
    
    Indemnification Agreement, between the Company and Lee Roy
Mitchell, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(a) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(b)
    
    Indemnification Agreement, between the Company and Tandy
Mitchell, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(b) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(c)
    
    Indemnification Agreement, between the Company and Alan Stock,
dated as of July 13, 1992 (incorporated by reference to Exhibit
10.23(d) to the Companys Annual Report on Form 10-K (File No.
033-47040) filed March 31, 1993).10.5(d)
    
    Indemnification Agreement, between the Company and W. Bryce
Anderson, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(f) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(e)
    
    Indemnification Agreement, between the Company and Sheldon I.
Stein, dated as of July 13, 1992 (incorporated by reference to
Exhibit 10.23(g) to the Companys Annual Report on Form 10-K
(File No. 033-47040) filed March 31, 1993).10.5(f)
    
    Indemnification Agreement, between the Company and Heriberto
Guerra, dated as of December 3, 1993 (incorporated by reference
to Exhibit 10.23(f) to the Companys Annual Report on Form 10-K
(File No. 033-11895) filed September 13, 1996).10.7(a)
    
    Senior Secured Credit Agreement dated December 4, 1995 among
Cinemark International, L.L.C. (f/k/a Cinemark II, Inc., Cinemark
Mexico (USA) and Cinemark de Mexico (incorporated by reference to
Exhibit 10.18 to the Companys Annual Report on Form 10-K (File
No. 033-47040) filed April 1, 1996).10.7(b)
    
    First Amendment to Senior Secured Credit Agreement, dated as of
September 30, 1996, by and among Cinemark II, Inc., Cinemark
Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V.
(incorporated by reference to Exhibit 10.11(b) to Cinemark,
Inc.s Registration Statement on Form S-1 (File No. 333-88618)
filed on May 17, 2002).10.7(c)
    
    Second Amendment to Senior Secured Credit Agreement, dated as of
September 28, 2000, by and among Cinemark II, Inc., Cinemark
Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V.
(incorporated by reference to Exhibit 10.11(c) to Cinemark,
Inc.s Registration Statement on Form S-1 (File No. 333-88618)
filed on May 17, 2002).10.14(a)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Lee Roy Mitchell (incorporated by reference to
Exhibit 10.14(a) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(b)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Alan Stock (incorporated by reference to
Exhibit 10.14(b) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(c)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Tim Warner (incorporated by reference to
Exhibit 10.14(c) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(d)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Robert Copple (incorporated by reference to
Exhibit 10.14(d) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(e)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Rob Carmony (incorporated by reference to
Exhibit 10.14(e) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).10.14(f)
    
    Employment Agreement, dated as of March 12, 2004, between
Cinemark, Inc. and Tandy Mitchell (incorporated by reference to
Exhibit 10.14(f) to the Companys Quarterly Report on Form 10-Q
(File No. 033-47040) filed May 14, 2004).




---



##### Table of Contents



10.15
    
    Amended and Restated Credit Agreement, dated April 2, 2004, among
Cinemark, Inc., CNMK Holdings, Inc., the Company, the several
lenders from time to time parties thereto, Lehman Brothers Inc.
and Goldman Sachs Credit Partners LP, as Joint Legal Arrangers,
Goldman Sachs Credit Partners LP, as Syndication Agent, Deutsche
Bank Securities, Inc., The Bank of New York, General Electric
Capital Corporation and CIBC Inc. as Documentation Agents and
Lehman Commercial Paper Inc. as Administrative Agent
(incorporated by reference to Exhibit 10.15 to the Companys
Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14,
2004).10.16
    
    Amended and Restated Guaranty and Collateral Agreement, dated
April 2, 2004, among Cinemark, Inc., CNMK Holdings Inc., the
Company and certain of it subsidiaries in favor of Lehman
Commercial Paper, Inc., as administrative agent (incorporated by
reference to Exhibit 10.16 to the Companys Quarterly Report on
Form 10-Q (File No. 033-47040) filed May 14, 2004).*31.1
    
    Certification of Chief Executive Officer of Cinemark USA, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer of Cinemark USA, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of the Chief Executive Officer of Cinemark USA,
Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of the Chief Financial Officer of Cinemark USA,
Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  *
    
    filed herewith.