sv4
 

As filed with the Securities and Exchange Commission on June 8, 2004
Registration No. 333-            



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


Cinemark, Inc.

(Exact name of Registrant as Specified in Its Charter)
         
Delaware   7832   01-0687923
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)


3900 Dallas Parkway, Suite 500

Plano, Texas 75093
(972) 665-1000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

Michael Cavalier, Vice President — General Counsel

3900 Dallas Parkway, Suite 500
Plano, Texas 75093
(972) 665-1000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)


With a copy to:

Terry M. Schpok, P.C.
Akin Gump Strauss Hauer & Feld LLP
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Telephone: (214) 969-2800

     Approximate date of commencement of proposed sale to the public: As soon as practicable on or after the effective date of this Registration Statement.


     If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.     o

     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o


CALCULATION OF REGISTRATION FEE

                 


Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit Offering Price Fee(1)

9 3/4% Senior Discount Notes due 2014.
  $577,173,000   100%   $577,173,000   $73,128


(1)  Calculated pursuant to Rule 457 under the Securities Act of 1933, as amended

     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




 

The information in this prospectus is not complete and may be changed. We may not exchange these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.



Subject to Completion, Dated June 8, 2004

PROSPECTUS

(CINEMARK INC. LOGO)

Offer to Exchange

all outstanding 9 3/4% Senior Discount Notes due 2014
($577,173,000 aggregate principal amount at maturity)
for
9 3/4% Senior Discount Notes due 2014
which have been registered under the Securities Act of 1933

      The exchange offer will expire at 5:00 p.m., New York City time, on                               , 2004, unless we extend the offer. We do not currently intend to extend the exchange offer.

  •  We are offering to exchange up to $577,173,000 aggregate principal amount at maturity of new 9 3/4% Senior Discount Notes due 2014, or “exchange notes”, which have been registered under the Securities Act of 1933, as amended, for an equal principal amount of our outstanding 9 3/4% Senior Discount Notes due 2014, or “initial notes”, issued in a private offering on March 31, 2004.
 
  •  We will exchange all initial notes that are validly tendered and not validly withdrawn prior to the closing of the exchange offer for an equal principal amount at maturity of exchange notes that have been registered.
 
  •  You may withdraw tenders of initial notes at any time prior to the expiration of the exchange offer.
 
  •  The terms of the exchange notes to be issued are identical in all material respects to the initial notes, except for transfer restrictions and registration rights that do not apply to the exchange notes, and different administrative terms.
 
  •  The exchange notes, together with any initial notes not exchanged in the exchange offer, will constitute a single class of debt securities under the indenture.
 
  •  The exchange of notes will not be a taxable exchange for United States federal income tax purposes.
 
  •  We will not receive any proceeds from the exchange offer.
 
  •  No public market exists for the initial notes. We do not intend to list the exchange notes on any securities exchange and, therefore, no active public market is anticipated.

       See “Risk Factors” beginning on page 16 for a discussion of factors that you should consider before tendering your initial notes.

      Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of these exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for initial notes where such initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 12 months after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2004.


 

TABLE OF CONTENTS

         
Page

Prospectus Summary
    1  
Risk Factors
    16  
Use of Proceeds
    25  
The Exchange Offer
    26  
Capitalization
    38  
Unaudited Pro Forma Condensed Consolidated Financial Information
    40  
Selected Historical Consolidated Financial and Operating Data
    46  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    48  
Business
    65  
Management
    78  
Principal Stockholders
    86  
Certain Relationships and Related Party Transactions
    87  
Description of Exchange Notes
    91  
Description of Certain Debt Instruments
    132  
Important Federal Income Tax Considerations
    138  
Plan of Distribution
    143  
Legal Matters
    144  
Experts
    144  
Index to Consolidated Financial Statements
    F-1  

      You should rely only upon the information contained and incorporated by reference in this document. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to exchange these securities in any jurisdiction where the offer or sale is not permitted. You should assume the information appearing in this document is accurate only as of the date on the front cover of this document. Our business, financial condition, results of operations and prospects may have changed since that date.

MARKET INFORMATION

      Information regarding market share, market position and industry data pertaining to our business contained in this prospectus consists of estimates based on data and reports compiled by industry professional organizations (including the Motion Picture Association of America and the National Association of Theatre Owners), analysts and our knowledge of our revenues and markets.

      We take responsibility for compiling and extracting, but have not independently verified, market and industry data provided by third parties, or by industry or general publications, and take no further responsibility for such data. Similarly, while we believe our internal estimates are reliable, our estimates have not been verified by any independent sources, and we cannot assure you as to their accuracy.

AVAILABLE INFORMATION

      Cinemark, Inc. has not been subject to the informational requirements of the Exchange Act. However, Cinemark USA, Inc., our subsidiary, files Exchange Act reports with the SEC. Such reports should be available for inspection at the public reference room at the SEC’s office located at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, United States. Copies may be obtained by mail, upon payment of the SEC’s customary charges, by writing to its principal office at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, United States. Further information on the operations of the SEC’s public reference room in Washington, D.C. can be obtained by calling the SEC at +1-800-732-0330. The SEC also maintains an Internet website that contains reports and other information about issuers who file reports with the SEC. The address of that website is http://www.sec.gov.


 

      You may request a copy of each of our filings at the SEC, by writing or telephoning us at the following address, telephone or facsimile number:

  3900 Dallas Parkway
  Suite 500
  Plano, TX 75093
  Tel: (972) 665-1000
  Fax: (972) 665-1004

      Under the terms of the indenture, we have agreed that, whether or not we are required to do so by the rules and regulations of the SEC, after the exchange offer is completed and for so long as any of the notes remain outstanding, we will furnish to the trustee and the holders of the notes and, upon written request, to prospective investors, and file with the SEC (unless the SEC will not accept such a filing), (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if we were required to file such reports, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report thereon by our certified independent accountants and (ii) all reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports, in each case within the time period specified in the rules and regulations of the SEC. In addition, for so long as any of the notes remain outstanding, we have agreed to make available to any holder of the notes or prospective purchaser of the notes, at their request, the information required by Rule 144A(d)(4) under the Securities Act.

      This prospectus contains summaries of certain agreements that we have entered into such as the indenture, the exchange and registration rights agreement, and the agreements described under “Summary — The Transactions — The Recapitalization”, “Description of Certain Debt Instruments” and “Certain Relationships and Related Party Transactions.” The descriptions contained in this prospectus of these agreements do not purport to be complete and are subject to, or qualified in their entirety by reference to, the definitive agreements. Copies of the definitive agreements will be made available without charge to you by making a written or oral request to us. To obtain timely delivery of any of our filings, agreements and other documents, you must make your request to us no later than five business days before the expiration of the exchange offer. The exchange offer will expire at 5:00 pm, New York City time on                           , 2004 unless we decide to extend the expiration date.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      This prospectus includes “forward-looking statements” based on our current expectations, assumptions, estimates and projections about our business and our industry. Forward looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under headings “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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.

      You can identify forward-looking statements by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. In evaluating these forward-looking statements, you should carefully consider the risks and uncertainties described in “Risk Factors” and elsewhere in this prospectus. These forward-looking statements reflect our view only as of the date of this prospectus. We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained throughout this prospectus.

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PROSPECTUS SUMMARY

      This summary contains basic information about us and the exchange offer. You should read this summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes and schedules appearing elsewhere in this prospectus. Except as otherwise indicated by the context, references in this prospectus to “we,” “our,” the “issuer” or “Cinemark” are to the combined business of Cinemark, Inc. and all of its consolidated subsidiaries, and references to North America are to the U.S. and Canada. Unless otherwise specified, all operating data is as of March 31, 2004. Unless otherwise specified, all statement of operations data included in this prospectus excludes the results of the Company’s two United Kingdom theatres from continuing operations as these theatres were classified as held for sale at March 31, 2004.

Cinemark, Inc.

      We are one of the leaders in the motion picture exhibition industry, in terms of both revenues and number of screens in operation. We were founded in 1987 by our Chairman and Chief Executive Officer, Lee Roy Mitchell, and have grown primarily through targeted worldwide new theatre development. As of March 31, 2004 we operated 3,175 screens in 297 theatres. For the year ended December 31, 2003, we had revenues of $950.9 million, operating income of $135.6 million and net income of $44.6 million. For the three months ended March 31, 2004, we had revenues of $235.1 million, operating income of $32.8 million and net income of $9.8 million.

      Our geographic diversity within North America and internationally has allowed us to maintain consistent revenue growth. We have increased revenues by a compound annual growth rate of 7.5% from the beginning of 1999 through 2003. We operate 2,323 screens in 200 theatres in North America. These theatres, located in 33 states and one Canadian province, are primarily in mid-sized U.S. markets, including suburbs of major metropolitan areas. We believe these markets are less competitive and generate high, stable margins. We also operate 852 screens in 97 theatres outside of North America, primarily located in major Latin American metropolitan markets, which we believe are generally underscreened and have significant growth potential.

Competitive Strengths

      We believe the following strengths allow us to compete effectively:

      Significant Cash Flow. Our business strategy and disciplined building program allowed us to generate $135.6 million of operating income for the year ended December 31, 2003, which we utilized to reduce our leverage. During the year ended December 31, 2003, we reduced our long-term debt by $47.7 million (including the net unamortized premium of $13.6 million related to the senior subordinated notes of Cinemark USA, Inc.) and increased our cash and cash equivalents by $43.6 million. We generated $32.8 million of operating income for the three months ended March 31, 2004.

      Focused Philosophy Resulting in Strong Financial Performance. We focus on negotiating favorable theatre facility economics, providing a superior viewing experience and controlling theatre operating costs. As a result of this philosophy, we generated $44.6 million of net income for the year ended December 31, 2003. We generated $9.8 million of net income for the three months ended March 31, 2004.

      Strong Management Team. Led by Mr. Mitchell, our management team has an average of approximately 20 years of theatre operating experience and a proven track record of superior performance. The team has successfully navigated us through many industry cycles; between 1999 and 2001, we were one of only two major motion picture exhibitors in the U.S. that did not file for bankruptcy protection. Management’s success during this period is largely a result of its financial discipline and focus on investment returns, as demonstrated by its decision to decrease its building commitments earlier than its competitors. Mr. Mitchell and the other members of our existing management team retained their current positions after the Recapitalization described in “— The Transactions — The Recapitalization.”

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      Selective Building in Less Competitive U.S. Markets and Heavily Populated International Markets.

  •  Less Competitive U.S. Markets: We have historically built modern theatres in mid-sized U.S. markets, including suburbs of major metropolitan areas, which we believe were underserved. We believe our targeting of these markets, together with the high quality of our theatre circuit, has protected us from the negative financial impact of overbuilding and reduces the risk of competition from new entrants. As the sole exhibitor in approximately 85% of the first run film zones in which we operate, we have maximum access to film product. This enables us to select the films that we believe will deliver the highest returns in those markets.
 
  •  Heavily Populated, High Growth International Markets: We have directed our activities in international markets primarily toward Latin America due to the growth potential in these under-screened markets. We have successfully established a significant presence in most of the major cities in Latin America with theatres in nine of the ten largest metropolitan areas. We have strategic alliances with local partners in many countries, which help us obtain additional market insight. We generally fund our operating and capital expenditures in local currencies, thereby matching our expenses with revenues. We have also geographically diversified our international portfolio in an effort to balance risk and become one of the predominant Pan American motion picture exhibition companies.

      Modern Theatre Circuit. We have built our modern theatre circuit primarily through targeted worldwide new theatre development, which we believe provides a preferred destination for moviegoers in our markets. Since 1996, we have built 1,989 screens, or 63% of our total screen count. Our ratio of screens to theatres is one of the highest in the industry: 11.6 to 1 in North America and 8.8 to 1 internationally. Approximately 68% of our North American first run screens and 78% of our international screens feature stadium seating.

Our Strategy

      We believe our operating philosophy provides us with a competitive advantage. We intend to continue to focus on the following key components of our business plan.

      Focus on Less Competitive U.S. Markets and Target Profitable, High Growth International Markets. We will continue to seek growth opportunities in underserved, mid-sized U.S. markets and major international metropolitan areas by building or acquiring modern theatres that meet our strategic, financial and demographic criteria.

      Maximize Profitability Through Continued Focus on Operational Excellence. We will continue to focus on executing our operating philosophy. We believe that our successful track record of executing this philosophy is evidenced by the fact that we successfully navigated through the significant industry downturn between 1999 and 2001, during which period at least twelve exhibitors filed for bankruptcy protection.

      Pursue Additional Revenue Opportunities. We will continue to pursue additional growth opportunities by developing and expanding ancillary revenue streams such as advertising. We are able to offer advertisers national, regional or local coverage in a variety of formats to reach our patrons, which numbered approximately 173 million during the year ended December 31, 2003. We are also exploring additional revenue sources such as digital video monitor advertising, third party branding, and the use of theatres for non-film events. We have used theatres during non-peak hours for simulcast concerts, pay-per-view sporting events, corporate meetings and cultural events.

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Our Industry

      The U.S. motion picture exhibition industry has enjoyed revenue growth at a compound annual growth rate of 6.3% from 1993 to 2003, according to the Motion Picture Association of America. In 2002, single year U.S. motion picture box office revenues exceeded the $9.0 billion mark for the first time in history, reaching a total of $9.52 billion, a 13.2% increase from 2001, according to the Motion Picture Association of America. The 2003 box office, while down 0.3% from 2002, was the second highest in history and again exceeded the $9.0 billion mark with a total of $9.49 billion. The strong U.S. box office performance was primarily driven by an increase in attendance which increased nearly 27% between 1993 and 2003. Factors contributing to the continued success of the industry include a strong movie slate, the improvement of theatre circuits resulting from the creation of the modern multiplex format and the screen rationalization of 2000 and 2001. Three films released in 2003 grossed over $300 million, three other films grossed over $200 million and an additional 23 films grossed over $100 million in the U.S.

      The international motion picture exhibition industry has also grown significantly over the past several years. Global box office revenues increased 28% from $15.9 billion in 2000 to $20.3 billion in 2003 according to the Motion Picture Association of America. This growth is a result of the increasing acceptance of moviegoing as a popular form of entertainment throughout the world, ticket price increases and new theatre construction. According to Informa Media Group, Latin America is the fastest growing region in the world in terms of box office revenues.

Drivers of Continued Industry Success

      We believe the following market trends will drive the continued growth and strength of our industry:

      Increased Investment in Film Production and Marketing. Theatrical exhibition is the primary distribution channel for new motion picture releases. The success of a theatrical release, which “brands” a film, is one of the major factors in determining its success in “downstream” distribution channels, such as home video, DVD and network, syndicated and pay-per-view television. The growing importance of downstream distribution channels has enabled studios to increase production and marketing expenditures. Production and marketing costs per new film in the U.S. have increased by compound annual growth rates of 7.9% and 10.7%, respectively, from 1993 to 2003, according to the Motion Picture Association of America. This has led to an increase in “blockbuster” features, which attract larger audiences to theatres.

      Increased Importance of International Markets for Ensuring Box Office Success. International markets are becoming an increasingly important component of the overall box office revenues generated by Hollywood films. For example, markets outside of North America accounted for greater than 60% of the global box office revenues for The Last Samurai, The Matrix Revolutions, Finding Nemo and Lord of the Rings: The Return of the King. With the continued growth of the international motion picture exhibition industry, the relative contribution of markets outside North America should become even more significant.

      Favorable Attendance Trends. Increased movie going frequency and attendance from key demographic groups have benefited the industry. According to the Motion Picture Association of America, annual admissions per capita in the U.S. increased from 4.5x to 5.4x, between 1991 and 2003. Additionally, the U.S. teenage segment, defined as 12-17 year olds, represented 18% of admissions in 2003, up from 14% in 1997.

      Reduced Seasonality of Revenues. The seasonality of motion picture exhibition has become less pronounced in recent years. Studios have begun to release films more evenly throughout the year, and hit films have emerged during traditionally weaker periods. This benefits exhibitors by allowing them to more effectively manage their operations.

      Convenient and Affordable Form of Out-of-Home Entertainment. Movie going continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an average ticket price in the U.S. of $6.03 in 2003. Average prices for other forms of out-of-home entertainment in the U.S., including

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sporting events, theme parks, musical concerts and plays, ranged from approximately $18.00 to $62.00 per ticket in 2002.

Additional Information

      On May 16, 2002, Cinemark, Inc. was formed as the Delaware holding company of Cinemark USA, Inc. Our corporate headquarters is located at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Our telephone number is (972) 665-1000. Our web site address is www.cinemark.com. The information on our web site does not constitute part of this prospectus.

The Transactions

The Recapitalization

      On March 12, 2004, Popcorn Merger Corp., a Delaware corporation and newly formed subsidiary of Madison Dearborn Partners, LLC, entered into an agreement and plan of merger with Cinemark, Inc., or the “merger agreement,” pursuant to which Popcorn Merger Corp. merged with and into Cinemark, Inc. with Cinemark, Inc. continuing as the surviving corporation. The effective date of the merger was April 2, 2004. Simultaneously with the merger, an affiliate of Madison Dearborn Partners, LLC, which we refer to as the “equity sponsor,” purchased shares of common stock of Cinemark, Inc. for approximately $518.3 million in cash. Lee Roy Mitchell and The Mitchell Special Trust, whom we refer to as the “Mitchell investors,” and certain members of our management, whom we refer to as the “management investors,” which were stockholders of Cinemark, Inc. and others, received cash consideration in the merger pursuant to the merger agreement. In addition, the Mitchell investors and the management investors retained a portion of their holdings of shares of Cinemark, Inc. After the closing of the recapitalization and the related financing transactions described below, all of the capital stock of Cinemark, Inc. is owned by the equity sponsor, the Mitchell investors and the management investors. The equity sponsor is the controlling stockholder, with approximately 83% of our capital stock, and is initially entitled to elect 10 of the 12 members to our Board of Directors. We refer to the transactions consummated under the merger agreement as the “Recapitalization.”

The Related Financing Transactions

      Concurrently with the closing of the Recapitalization, we entered into the following financing transactions, which we refer to, together with the Recapitalization and the offering of the initial notes, as the “Transactions”:

  •  the gross proceeds from the sale of the initial notes, the net proceeds of which were used to fund in part the purchase of our common stock in connection with the Recapitalization;
 
  •  the closing of Cinemark USA, Inc.’s amended and restated senior secured credit facility, consisting of a $260.0 million term loan and a $100.0 million revolving credit facility, which we refer to collectively as the “amended senior credit facility”;
 
  •  the repayment of all outstanding amounts under Cinemark USA, Inc.’s former senior secured credit facility, or the “former senior credit facility,” from a portion of the proceeds of the amended senior credit facility; and
 
  •  the settlement of a tender offer and consent solicitation, or the “tender offer,” initiated by Cinemark USA, Inc. on March 16, 2004 for the $105.0 million aggregate principal amount outstanding of its 8 1/2% Series B Senior Subordinated Notes due 2008, or the “8 1/2% senior subordinated notes”. Cinemark USA, Inc. redeemed approximately $94.2 million aggregate principal amount of the 8 1/2% senior subordinated notes that were tendered in the tender offer.
 
  •  the settlement of a change of control offer initiated by Cinemark USA, Inc. on April 6, 2004 for the $360 million aggregate principal amount outstanding of its 9% Senior Subordinated Notes due 2013, or the “9% senior subordinated notes.” Cinemark USA, Inc. repurchased approximately $17.8 million aggregate principal amount of the 9% senior subordinated notes that were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004.

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Sources and Uses of Funds

      The following table illustrates the sources and uses of funds relating to the Transactions, assuming the Transactions had occurred on March 31, 2004.

           
Sources
(dollars in millions)

Amended senior credit facility(1):
       
 
Revolving credit facility
  $  
 
Term loan facility
    260.0  
Senior discount notes
    360.0  
Existing debt(2)
    367.1  
Existing cash
    35.3  
Net equity from investors(3)
    518.3  
     
 
Total sources
  $ 1,540.7  
     
 
Payment to equity holders(4)
  $ 840.7  
Repay former senior credit facility(5)
    163.8  
Repurchase 8 1/2% senior subordinated notes of Cinemark USA, Inc.(6)
    94.2  
Repurchase 9% senior subordinated notes of Cinemark USA, Inc.(2)
    17.8  
Existing debt(2)
    367.1  
Fees and expenses(7)
    57.1  
     
 
Total uses
  $ 1,540.7  
     
 


(1)  The amended senior credit facility consists of an amortizing seven-year term loan facility in aggregate principal amount of $260.0 million, and a six-and-a-half-year revolving credit facility in aggregate principal amount of $100.0 million, which was undrawn on the date of the closing of the Recapitalization. The effective interest rate on outstanding borrowings under the amended senior credit facility at the date of the Recapitalization was 5.3% per annum.
 
(2)  Consists of $360.0 million in aggregate principal amount of 9% senior subordinated notes due 2013 of Cinemark USA, Inc., or the “9% senior subordinated notes,” $10.8 million in aggregate principal amount of 8.5% senior subordinated notes due 2008 of Cinemark USA, Inc., $3.6 million of borrowings of Cinemark Brasil S.A., $7.2 million of borrowings of Cinemark Chile S.A. and $3.3 million of other long-term debt of our subsidiaries. In accordance with the terms of the indenture governing the 9% senior subordinated notes, Cinemark USA, Inc. made a change of control offer following the closing of the Transactions to repurchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, to 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 offer price was made with available cash by Cinemark USA, Inc. on June 1, 2004.
 
(3)  Excludes rollover equity of the Mitchell investors and the management investors of $106.7 million.
 
(4)  The amount shown excludes the proceeds relating to the exercise of stock options in an aggregate amount of $8.1 million.
 
(5)  The former senior credit facility consisted of a $75.0 million revolving credit facility and a $165.0 million term loan. The effective interest rate on outstanding borrowings under the former senior credit facility at March 31, 2004 was 5.5% per annum.
 
(6)  Cinemark USA, Inc. redeemed approximately $94.2 million aggregate principal amount of the 8 1/2% senior subordinated notes that were tendered in the tender offer.
 
(7)  Consists of fees and expenses related to the Transactions, including accrued interest, tender premiums and fees, legal, accounting and consulting fees, commissions related to the notes and fees payable to an affiliate of the equity sponsor at closing.

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Corporate Structure

      The following chart illustrates our corporate structure and principal indebtedness assuming that the Transactions had occurred as of March 31, 2004:

(CHART)


(1)  The amended senior credit facility consists of an amortizing seven-year term loan facility in aggregate principal amount of $260.0 million, and a six-and-a-half-year revolving credit facility in aggregate principal amount of $100.0 million, which was undrawn on the date of the closing of the Recapitalization. The effective interest rate on outstanding borrowings under the amended senior credit facility at the date of the Recapitalization was 5.3% per annum.
 
(2)  In accordance with the terms of the indenture governing the 9% senior subordinated notes, Cinemark USA, Inc. made a change of control offer following the closing of the Transactions to repurchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, to 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 offer price was made with available cash by Cinemark USA, Inc. on June 1, 2004.
 
(3)  Amount includes $3.6 million of borrowings of Cinemark Brasil S.A., $7.2 million of borrowings of Cinemark Chile S.A. and $3.3 million of other long-term debt of our subsidiaries as of March 31, 2004.

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Equity Sponsor

      Madison Dearborn Partners, LLC, or “Madison Dearborn,” is a leading private equity firm based in Chicago, Illinois. Madison Dearborn, through limited partnerships of which it is the general partner, has approximately $8 billion of capital under management. Madison Dearborn focuses on investments in several specific industry sectors, including basic industries, communications, consumer, financial services and health care. Madison Dearborn’s objective is to invest in companies with strong competitive characteristics that it believes have the potential for significant long-term equity appreciation. To achieve this objective, Madison Dearborn seeks to partner with outstanding management teams who have a solid understanding of their businesses and track records of building shareholder value.

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The Exchange Offer

 
Registration Rights Agreement We issued the initial notes on March 31, 2004 to Lehman Brothers Inc., Goldman, Sachs & Co., Deutsche Bank Securities Inc., CIBC World Markets Corp. and BNY Capital Markets, Inc. These initial purchasers placed the initial notes with qualified institutional buyers and non-U.S. persons in transactions exempt from the registration requirements of the Securities Act and applicable state securities laws. In connection with these private placements, we entered into an exchange and registration rights agreement with the initial purchasers, which provide, among other things, for this exchange offer.
 
The Exchange Offer We are offering exchange notes in exchange for an equal principal amount of initial notes. As of the date of this prospectus, there is $577,173,000 aggregate principal amount at maturity of initial notes outstanding. Initial notes may be tendered only in integral multiples of $1,000. You may exchange your initial notes only by following the procedures described elsewhere in this prospectus under “The Exchange Offer — Procedures for Tendering.”
 
Resale of Exchange Notes Based upon interpretive letters written by the Securities and Exchange Commission, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:
 
• You are acquiring the exchange notes in the ordinary course of your business;
 
• You are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes; and
 
• You are not our “affiliate”, as that term is defined for the purposes of Rule 144A under the Securities Act.
 
If any of the foregoing are not true and you transfer any exchange note without registering the exchange note and delivering a prospectus meeting the requirements of the Securities Act, or without an exemption from registration of your exchange notes from such requirements, you may incur liability under the Securities Act. We do not assume or indemnify you against such liability.
 
Each broker-dealer that receives exchange notes for its own account in exchange for initial notes that were acquired by such broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. A broker-dealer may use this prospectus for an offer to resell, a resale or any other retransfer of the exchange notes.

8


 

 
Consequences of Failure to Exchange Initial Notes Initial notes that are not tendered or that are tendered but not accepted, will, following the completion of the exchange offer, continue to be subject to existing restrictions upon transfer of the initial notes. The trading market for initial notes not exchanged in the exchange offer may be significantly more limited than at present. Therefore, if your initial notes are not tendered and accepted in the exchange offer, it may become more difficult for you to sell or transfer your unexchanged initial notes. Furthermore, you will no longer be able to compel us to register the initial notes under the Securities Act. In addition, you will not be able to offer or sell the initial notes unless they are registered under the Securities Act (and we will have no obligation to register them, except for some limited exceptions), or unless you offer or sell them under an exemption from the requirements of, or a transaction not subject to, the Securities Act.
 
Expiration of the Exchange Offer The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2004 unless we decide to extend the expiration date.
 
Conditions to the Exchange Offer The exchange offer is not subject to any condition other than certain customary conditions, which we may, but are not required to, waive. We currently anticipate that each of the conditions will be satisfied and that we will not need to waive any conditions. We reserve the right to terminate or amend the exchange offer at any time before the expiration date if any such condition occurs. For additional information regarding the conditions to the exchange offer, see “The Exchange Offer — Conditions to the Exchange Offer.”
 
Procedures for Tendering Initial
Notes
If you wish to accept the exchange offer, you must complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal, and transmit it together with all other documents required by the letter of transmittal (including the initial notes to be exchanged) to The Bank of New York Trust Company, N.A., as exchange agent, at the address set forth on the cover page of the letter of transmittal. In the alternative, you can tender your initial notes by following the procedures for book-entry transfer, as described in this prospectus. For more information on accepting the exchange offer and tendering your initial notes, see “The Exchange Offer — Procedures for Tendering” and “— Book-Entry Transfer.”
 
Guaranteed Delivery Procedures If you wish to tender your initial notes and you cannot get your required documents to the exchange agent by the expiration date, you may tender your initial notes according to the guaranteed delivery procedure under the heading “The Exchange Offer — Guaranteed Delivery Procedures.”
 
Special Procedure for Beneficial Holders If you are a beneficial holder whose initial notes are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee and you wish to tender your initial notes in the exchange offer, you should contact the registered holder promptly

9


 

and instruct the registered holder to tender your initial notes on your behalf. If you are a beneficial holder and you wish to tender your initial notes on your own behalf, you must, prior to delivering the letter of transmittal and your initial notes to the exchange agent, either make appropriate arrangements to register ownership of your initial notes in your own name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
 
Withdrawal Rights You may withdraw the tender of your initial notes at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw, you must send a written or facsimile transmission of your notice of withdrawal to the exchange agent at its address set forth in this prospectus under “The Exchange Offer — Withdrawal of Tenders” by 5:00 p.m., New York City time, on the expiration date.
 
Acceptance of Initial Notes and Delivery of Exchange Notes Subject to certain conditions, we will accept all initial notes that are properly tendered in the exchange offer and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We will deliver the exchange notes promptly after the expiration date.
 
United States Federal Income Tax Considerations We believe that the exchange of initial notes for exchange notes generally will not be a taxable exchange for federal income tax purposes, but you should consult your tax adviser about the tax consequences of this exchange. See “Certain Federal Income Tax Consequences.”
 
Exchange Agent The Bank of New York Trust Company, N.A., the trustee under the indenture for the initial notes, is serving as exchange agent in connection with the exchange offer. The mailing address of the exchange agent is The Bank of New York Trust Company, N.A., 101 Barclay Street — 7 East, New York, NY 10286, Attention: Kin Lau.
 
Fees and Expenses We will bear all expenses related to consummating the exchange offer and complying with the exchange and registration rights agreement.
 
Use of Proceeds We will not receive any cash proceeds from the issuance of the exchange notes. We received gross proceeds of approximately $360.0 million from the sale of the initial notes. We used the net proceeds from the sale of the initial notes to fund in part the purchase of our common stock in connection with the Recapitalization.

10


 

Summary Description of Exchange Notes

      The terms of the exchange notes are identical in all material respects to those of the initial notes, except for transfer restrictions and registration rights that do not apply to the exchange notes. The exchange notes will evidence the same debt as the initial notes, and the same indenture will govern the exchange notes as the initial notes. The summary below describes the principal terms of the exchange notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The “Description of Exchange Notes” section of this prospectus contains a more detailed description of the terms and conditions of the exchange notes.

 
Issuer Cinemark, Inc.
 
Notes Offered $577,173,000 in aggregate principal amount at maturity of 9 3/4% Senior Discount Notes due 2014 which have been registered under the Securities Act of 1933.
 
Maturity Date March 15, 2014
 
Yield and Interest Payment Dates Interest will accrete at a rate of 9 3/4% per annum, to an aggregate principal amount at maturity of $577,173,000 until March 15, 2009. Cash interest will not accrue on the exchange notes prior to March 15, 2009. Thereafter, cash interest will accrue on the exchange notes and will be payable on March 15 and September 15 of each year, beginning on September 15, 2009.
 
Ranking The exchange notes will be our unsecured senior obligations. Accordingly, they will rank:
 
• equal in right of payment to our existing and future senior indebtedness;
 
• senior in right of payment to any of our future subordinated indebtedness;
 
• effectively junior to our secured indebtedness up to the value of the collateral securing that indebtedness;
 
• effectively junior to our indebtedness that has been guaranteed by subsidiaries with respect to the assets and earnings of those subsidiaries; and
 
• effectively junior to all existing and future indebtedness and other liabilities, including trade payables, of all of our subsidiaries with respect to the assets and earnings of those subsidiaries.
 
As of March 31, 2004, after giving effect to the Transactions, we (excluding our subsidiaries) would have had total senior indebtedness of approximately $360.0 million (excluding our guarantee of the amended senior credit facility) and no subordinated indebtedness. As of March 31, 2004, on the same basis, our subsidiaries would have had $802.9 million of indebtedness and other liabilities, including trade payables, and the exchange notes would have been effectively subordinated to such indebtedness and other liabilities.
 
Optional Redemption On or after March 15, 2009, we may redeem some or all of the exchange notes at the redemption prices set forth under “Description of Exchange Notes — Optional Redemption.”

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At any time prior to March 15, 2007, we may redeem up to 35% of the exchange notes with the proceeds of certain equity offerings at the redemption prices set forth under “Description of Exchange Notes — Optional Redemption.”
 
Mandatory Offer to Repurchase If we experience specific kinds of changes in control, we must offer to repurchase the exchange notes at the redemption prices set forth under “Description of Exchange Notes — Repurchase at the Option of Holders.”
 
Covenants The exchange notes will be issued under an indenture among us and The Bank of New York Trust Company, N.A., as trustee. The indenture, among other things, restricts our ability and the ability of our restricted subsidiaries, as defined in the indenture, to:
 
• make investments;
 
• incur or guarantee additional indebtedness;
 
• pay dividends or make other distributions on capital stock or redeem or repurchase capital stock;
 
• create liens;
 
• incur dividend or other payment restrictions affecting subsidiaries;
 
• sell assets;
 
• merge or consolidate with other entities;
 
• enter into transactions with affiliates; and
 
• engage in certain business activities.
 
These covenants are subject to a number of important exceptions and qualifications.

      For a discussion of certain risks that should be considered in connection with an investment in the exchange notes, see “Risk Factors” beginning on page 16.

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Summary Consolidated Financial and Operating Information

      The following table provides our summary historical and unaudited pro forma condensed consolidated financial data as of and for the periods ended at the dates indicated below. Our historical financial data for each of the years ended December 31, 2001, 2002 and 2003 is derived from our consolidated audited financial statements appearing elsewhere in this prospectus. Our historical financial data for the three months ended March 31, 2003 and 2004 is derived from our unaudited interim financial statements which, in the opinion of management, contain all adjustments necessary for a fair presentation of this information. The historical financial data for the three months ended March 31, 2004 is not necessarily indicative of the results expected for the full year. Certain reclassifications have been made to the 2001, 2002 and 2003 financial statements to conform to the 2004 presentation. Our unaudited pro forma statement of operations data and other financial data for the year ended December 31, 2003 and for three months ended March 31, 2004 give effect to the Transactions as if they had been consummated on January 1, 2003. Our unaudited pro forma balance sheet data as of March 31, 2004 gives effect to the Transactions as if they had been consummated on March 31, 2004. For the pro forma financial statements and a more detailed discussion of the pro forma adjustments, see “Unaudited Pro Forma Condensed Consolidated Financial Information.”

      The unaudited pro forma consolidated financial information should not be considered indicative of actual results that would have been achieved had the Transactions been consummated on the date or for the periods indicated and do not purport to indicate consolidated balance sheet data or statement of operations data or other financial data as of any future date or for any future period.

      You should read the summary historical and unaudited pro forma condensed consolidated financial data set forth below in conjunction with the information contained in “— The Transactions,” “Selected Historical Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.

                                                           
Pro Forma
Pro Forma Three Months Three Months
Year Ended December 31, Year Ended Ended March 31, Ended

December 31,
March 31,
2001 2002 2003 2003(4) 2003 2004 2004(4)







(Unaudited)
(In thousands, except for ratios)
Statement of Operations Data (Consolidated)(1):
                                                       
 
Revenues
  $ 853,658     $ 935,854     $ 950,872     $ 950,872     $ 202,473     $ 235,112     $ 235,112  
 
Theatre operating costs
    531,967       570,947       582,574       582,574       124,062       141,982       141,982  
 
Facility lease expense
    114,737       115,588       119,517       119,517       28,451       31,088       31,088  
 
General and administrative expenses
    42,597       47,953       44,285       44,285       9,443       11,869       11,869  
 
Depreciation and amortization
    73,079       66,583       65,085       65,085       15,996       16,889       16,889  
 
Asset impairment loss
    20,723       3,869       5,049       5,049             1,000       1,000  
 
(Gain) loss on sale of assets and other
    12,408       470       (1,202 )     (1,202 )     (616 )     (513 )     (513 )
     
     
     
     
     
     
     
 
 
Total expenses
    795,511       805,410       815,308       815,308       177,336       202,315       202,315  
     
     
     
     
     
     
     
 
 
Operating income
    58,147       130,444       135,564       135,564       25,137       32,797       32,797  
 
Interest expense(2)
    70,931       57,793       54,163       85,365       13,879       12,562       20,459  
 
Income (loss) from continuing operations before cumulative effect of an accounting change
    (3,462 )     40,516       47,589       27,183       5,765       11,535       6,860  
 
Loss from discontinued operations
    (559 )     (1,651 )     (2,939 )             (315 )     (1,763 )        
 
Net income (loss)(3)
  $ (4,021 )   $ 35,476     $ 44,650             $ 5,450     $ 9,772          
     
     
     
             
     
         

13


 

                                                             
Pro Forma
Three
Pro Forma Three Months Months
Year Ended December 31, Year Ended Ended March 31, Ended

December 31,
March 31,
2001 2002 2003 2003 2003 2004 2004(4)







(Unaudited)
(In thousands, except for ratios)
Other Financial Data(1):
                                                       
 
Cash flow from (used for):
                                                       
   
Operating activities
  $ 87,117     $ 150,119     $ 135,522             $ (15,649 )   $ 10,004          
   
Investing activities
    (33,799 )     (34,750 )     (47,151 )             (7,116 )     (16,210 )        
   
Financing activities
    (21,508 )     (96,140 )     (45,738 )             1,545       347,079          
 
Capital expenditures
    40,352       38,032       51,002               8,603       17,850          
 
Ratio of earnings to fixed charges(5)
          1.7 x     1.8 x     1.3 x     1.4 x     1.9 x     1.4 x
                                           
Pro Forma
Year Ended December 31, As of as of

March 31, March 31,
2001 2002 2003 2004 2004(4)





(Unaudited)
(In thousands)
Balance Sheet Data (Consolidated):
                                       
 
Cash and cash equivalents
  $ 50,199     $ 63,719     $ 107,322     $ 448,150     $ 52,897  
 
Theatre properties and equipment — net
    866,406       791,731       775,880       773,285       773,285  
 
Total assets
    996,544       916,814       960,736       1,309,883       927,576  
 
Total long-term debt, including current portion
    780,956       692,587       658,431       1,016,297       1,001,008  
 
Stockholders’ equity (deficiency)
    25,337       27,664       76,947       86,869       (253,242 )
                                                     
Three Months
Ended
Year Ended December 31, March 31,


2001 2002 2003 2003 2004





(Unaudited)
(In thousands, except theatres and screen data)
Operating Data(1):
                                               
 
North America(6)(8)
                                               
   
Theatres operated (at period end)
    188       188       189       186       200          
   
Screens operated (at period end)
    2,217       2,215       2,244       2,206       2,323          
   
Total attendance
    100,022       111,959       112,581       24,264       26,323          
 
International(7)
                                               
   
Theatres operated (at period end)
    88       92       97       92       97          
   
Screens operated (at period end)
    783       816       852       818       852          
   
Total attendance
    53,853       60,109       60,553       13,727       15,791          
 
Worldwide(6)(7)(8)
                                               
   
Theatres operated (at period end)
    276       280       286       278       297          
   
Screens operated (at period end)
    3,000       3,031       3,096       3,024       3,175          
   
Total attendance
    153,875       172,068       173,134       37,991       42,114          


(1)  Statement of operations data and attendance data exclude the results of our two United Kingdom theatres for all periods presented, as these theatres were classified as held for sale at March 31, 2004. The results of operations for these two theatres are presented as discontinued operations.
 
(2)  Interest expense includes amortization of debt issue cost and excludes capitalized interest for all periods presented.
 
(3)  In 2002, a cumulative effect of a change in accounting principle charge of $3.4 million (net of tax benefit) was recorded as a transitional impairment adjustment in connection with the adoption of Statement of Financial Accounting Standards No. 142 requiring that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually.
 
(4)  As adjusted to give effect to the Transactions.

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(5)  For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before taxes and cumulative effect of an accounting change plus fixed charges excluding capitalized interest. Fixed charges consist of interest expense, capitalized interest, amortization of debt issue cost and debt discount and that portion of rental expense which we believe to be representative of the interest factor. For the year ended December 31, 2001, earnings were insufficient to cover fixed charges by $17.9 million.
 
(6)  The data excludes certain theatres operated by us in North America pursuant to management agreements that are not part of our consolidated operations.
 
(7)  The data excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations.
 
(8)  The data for 2003 excludes theatres, screens and attendance for the eight theatres with 46 screens in the United States we acquired on December 31, 2003, because the results of operations for these theatres are not included in our 2003 consolidated results of operations.

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RISK FACTORS

      Before you invest in the exchange notes, you should understand the high degree of risk involved. You should consider carefully the following risks and other information in this prospectus, including our financial statements and related notes and schedules, before you decide to exchange the initial notes for any of the exchange notes. The following risks and uncertainties are not the only ones we face. If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our exchange notes could decline, perhaps significantly, and our ability to pay principal and interest on the exchange notes could be adversely affected.

Risks Related to the Exchange Notes and this Exchange Offer

 
      Your failure to participate in the exchange offer will have adverse consequences.

      If you do not exchange your initial notes for exchange notes pursuant to the exchange offer, you will continue to be subject to the restrictions on transfer of your initial notes, as set forth in the legend on your initial notes. The restrictions on transfer of your initial notes arise because we sold the initial notes in private offerings. In general, the initial notes may not be offered or sold, unless registered under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, such requirements. We do not intend to register the initial notes under the Securities Act.

      After completion of the exchange offer, holders of initial notes who do not tender their initial notes in the exchange offer will no longer be entitled to any exchange or registration rights under the registration rights agreement, except under limited circumstances.

      If you exchange your initial notes in the exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent the initial notes are tendered and accepted in the exchange offer, the trading market, if any, for the initial notes would be adversely affected. See “The Exchange Offer.”

 
      We are the sole obligor of the exchange notes, and our subsidiaries do not guarantee our obligations under the exchange notes and do not have any obligation with respect to the exchange notes.

      Cinemark, Inc. is a holding company with no business operations or assets other than the capital stock of CNMK Holding, Inc., which itself is a holding company with no operations or assets of its own other than the capital stock of Cinemark USA, Inc. Operations are conducted through Cinemark USA, Inc. and its subsidiaries. Consequently, we will be dependent on loans, dividends and other payments from Cinemark USA, Inc. and its subsidiaries to make payments of principal and interest on the exchange notes. However, our subsidiaries are separate and distinct legal entities, and they will have no obligation, contingent or otherwise, to pay the amounts due under the exchange notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments. You will not have any direct claim on the cash flows or assets of our subsidiaries.

      The ability of our subsidiaries to make dividends and other payments to us will depend on their cash flows and earnings which, in turn, will be affected by all of the factors discussed in these “Risk Factors.” The ability of our subsidiaries to make distributions to us may be restricted by, among other things, applicable laws and regulations and by the terms of agreements into which they enter. If we are unable to obtain funds from our subsidiaries as a result of restrictions under their debt or other agreements, applicable laws and regulations or otherwise, we may not be able to pay interest or principal on the exchange notes when due. The terms of the amended senior credit facility significantly restrict Cinemark USA, Inc. from paying dividends and otherwise transferring assets to CNMK Holding, Inc. and Cinemark, Inc., except for taxes and ordinary course corporate operating expenses and accounting services. The terms of the indenture governing the 9% senior subordinated notes significantly restrict Cinemark USA, Inc. and its other subsidiaries from paying dividends and otherwise transferring assets to us. The terms of the agreements governing indebtedness of our other subsidiaries also restrict such subsidiaries from paying dividends or

16


 

otherwise transferring assets to us. We cannot assure you that the agreements governing the current and future indebtedness of our subsidiaries will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund cash interest payments on the exchange notes when scheduled to begin on September 15, 2009.

      We currently anticipate that, in order to pay the principal amount at maturity of the exchange notes or to repurchase the exchange notes upon a change of control as defined in the indenture governing the exchange notes, we will be required to adopt one or more alternatives, such as refinancing all of our indebtedness, selling our equity securities or the equity securities or assets of Cinemark USA, Inc. or seeking capital contributions or loans from our affiliates. None of our affiliates is required to make any capital contributions, loans or other payments to us with respect to our obligations on the exchange notes. There can be no assurance that any of the foregoing actions could be effected on satisfactory terms, if at all, or that any of the foregoing actions would enable us to refinance our indebtedness or pay the principal amount of the exchange notes or that any of such actions would be permitted by the terms of any debt instruments of us or our subsidiaries then in effect.

 
      The exchange notes are structurally subordinated to all of the debt and liabilities of our subsidiaries, and will be effectively subordinated to any of our secured debt.

      Generally, claims of creditors of a subsidiary, including trade creditors, will have priority with respect to the assets and earnings of the subsidiary over the claims of creditors of its parent company. Your rights under the exchange notes offered hereby, therefore, will be structurally subordinated to those of the creditors of our subsidiaries. In the event of bankruptcy or insolvency, you may receive less, ratably, than holders of debt and other liabilities of our subsidiaries, including, in all likelihood, the claims of the holders of Cinemark USA, Inc.’s 9% senior subordinated notes and the lenders under the amended senior credit facility. As of March 31, 2004, after giving effect to the Transactions, our subsidiaries would have had $802.9 million of indebtedness and other liabilities, including trade payables, and the exchange notes would have been effectively subordinated to such indebtedness and other liabilities.

      In addition, holders of the secured debt of Cinemark, Inc. will have claims that are prior to your claims as a holder of the exchange notes, to the extent of the value of the assets securing that debt. We guaranteed the obligations of Cinemark USA, Inc. under its amended senior credit facility and secured our guarantee with substantially all of our assets, including the stock of CNMK Holding, Inc. In addition, the amended senior credit facility is secured, subject to certain exceptions, by mortgages on a large percentage of the assets of Cinemark USA, Inc. and its subsidiaries. If we become insolvent or are liquidated, or if payment under the amended senior credit facility is not made, the lenders would be entitled to exercise the remedies available to a secured lender. Accordingly, these lenders have a secured claim against the mortgaged assets of Cinemark USA, Inc. and have priority with respect to those assets over any other claim for payment, including any claim of Cinemark, Inc. for amounts invested in Cinemark USA, Inc. In such event, it is possible that there would be no assets remaining after payment to these lenders from which claims to the holders of the exchange notes could be satisfied.

 
      Our substantial lease and debt obligations could impair our liquidity and financial condition.

      We have significant debt service obligations. For the year ended December 31, 2003, our facility lease expense and interest expense were $119.5 million and $51.9 million, respectively. As of March 31, 2004, assuming the Transactions had occurred as of that date, our total debt would have been $1,001.0 million. For the year ended December 31, 2003 and the three months ended March 31, 2004, assuming the Transactions had occurred as of January 1, 2003, our ratio of earnings to fixed charges would have been 1.3x and 1.4x, respectively. Additionally, we would have had $100.0 million available under the amended senior credit facility, subject to our compliance with maintenance covenants and other conditions. You should read the discussions under the headings “Capitalization” and “Unaudited Pro Forma Condensed Consolidated Financial Information” for further information about our substantial indebtedness.

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      Our substantial lease and debt obligations pose risk to you by:

  •  making it more difficult for us to satisfy our obligations;
 
  •  requiring us to dedicate a substantial portion of our cash flow to payments on our lease and debt obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other corporate requirements;
 
  •  impeding us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;
 
  •  subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including our borrowings under the amended senior credit facility; and
 
  •  making us more vulnerable to a downturn in our business and competitive pressures and limiting our flexibility to plan for, or react to, changes in our business.

      Subject to the restrictions contained in our indebtedness agreements, we expect to incur additional indebtedness from time to time to finance acquisitions, capital expenditures, working capital requirements and other general business purposes. In addition, we may need to refinance all or a portion of our indebtedness, including the exchange notes, on or before maturity. However, we may not be able to refinance all or any of our indebtedness, including the exchange notes, on commercially reasonable terms or at all.

 
      Our subsidiaries may not be able to generate sufficient cash to service all of their indebtedness and may be forced to take other actions to satisfy their obligations under such indebtedness, which may not be successful.

      Our subsidiaries’ ability to make scheduled payments on or to refinance their debt obligations depends on our subsidiaries’ financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond their or our control. We cannot assure you that our subsidiaries will maintain a level of cash flows from operating activities sufficient to permit them to pay the principal, premium, if any, and interest on their indebtedness. If our subsidiaries’ cash flows and capital resources are insufficient to fund their debt service obligations, our subsidiaries may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance their indebtedness. These alternative measures may not be successful and may not permit our subsidiaries to meet their scheduled debt service obligations. In the absence of such operating results and resources, they could face substantial liquidity problems and might be required to dispose of material assets or operations to meet their debt service and other obligations. The amended senior credit facility, the indenture governing Cinemark USA, Inc.’s 9% senior subordinated notes and the indenture governing the exchange notes offered hereby significantly restrict our subsidiaries’ ability to dispose of assets and use the proceeds from the disposition. Our subsidiaries may not be able to consummate those dispositions or to obtain the proceeds which could be realized from them and these proceeds may not be adequate to meet any debt service obligations then due.

 
      If our subsidiaries default on their obligations to pay their indebtedness, we may not be able to make payments on the exchange notes.

      If our subsidiaries are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on their indebtedness, or if they otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing their indebtedness, we or they would be in default under the terms of such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the amended senior credit facility could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. Any of the foregoing could prevent us from paying principal, premium, if any, and interest on the exchange notes and substantially decrease the market value of the exchange notes.

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      Despite our current leverage, we may still be able to incur substantially more debt. This could further exacerbate the risks that we and our subsidiaries face.

      We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing the exchange notes offered hereby and the indenture governing Cinemark USA, Inc.’s 9% senior subordinated notes do not fully prohibit us or our subsidiaries from incurring additional debt. Cinemark USA, Inc.’s amended senior credit facility provides commitments of up to $360.0 million, $100.0 million of which is available for future borrowings. All of those borrowings would be secured, and as a result, would be effectively senior to the exchange notes and further, because they represent debt of one of our subsidiaries, the borrowings would be structurally senior to the exchange notes. If we incur any additional indebtedness that ranks equally with the notes, the holders of that debt will be entitled to share ratably with the holders of the exchange notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. This may have the effect of reducing the amount of proceeds paid to you. If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

 
      Restrictive covenants in our and our subsidiaries’ debt agreements may adversely affect us.

      The exchange notes indenture, the indenture governing Cinemark USA, Inc.’s 9% senior subordinated notes and the amended senior credit facility contain financial and other restricted covenants that limit our ability to engage in activities that may be in our long-term best interests. For example, these covenants significantly restrict our ability to:

  •  borrow money;
 
  •  pay dividends or make other distributions;
 
  •  make other restricted payments and investments;
 
  •  create liens;
 
  •  incur dividend or other payment restrictions affecting subsidiaries;
 
  •  sell assets;
 
  •  merge or consolidate with other entities;
 
  •  engage in certain business activities; and
 
  •  enter into transactions with affiliates.

      These covenants are subject to a number of important exceptions and qualifications. These restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. In addition, the amended senior credit facility requires Cinemark USA, Inc. to comply with certain financial covenants. You should read the discussions under the headings “Description of Certain Debt Instruments — Amended Senior Credit Facility” and “Description of Certain Debt Instruments — 9% Senior Subordinated Notes” for further information about these covenants. Events beyond our control can affect Cinemark USA, Inc.’s ability to comply with these covenants. Its failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts. If an event of default occurs, we cannot assure you that we would have sufficient assets to repay all of our obligations.

 
      Under fraudulent conveyance laws, a court could void obligations under the exchange notes.

      Under the federal bankruptcy laws and comparable provisions of state fraudulent conveyance laws, a court could void obligations under the exchange notes, subordinate those obligations to more junior obligations or require holders of the exchange notes to repay any payments made under the exchange notes if an unpaid creditor or representative of creditors, such as a trustee in bankruptcy or our company as a debtor-

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in-possession, claims that the exchange notes constituted a fraudulent conveyance. For this claim to succeed, the claimant must generally show that:

      (1) fair consideration or reasonably equivalent value was not received in exchange for the obligation; and

      (2) at the time the obligation was incurred, the obligor:

  •  was insolvent;
 
  •  was rendered insolvent by reason of the obligation;
 
  •  was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
 
  •  intended to incur, or believed that it would incur, debts beyond its ability to pay them as the debts matured.

      The measure of insolvency for these purposes will depend upon the law of the jurisdiction being applied. Generally, however, an obligor will be considered insolvent for these purposes if:

  •  the sum of its debts, including contingent liabilities, was greater than the salable value of all of its assets at a fair valuation;
 
  •  the present fair salable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
 
  •  it could not pay its debts as they become due.

      Moreover, regardless of solvency, a court could void an incurrence of indebtedness, including under the amended senior credit facility or the exchange notes if it is determined that the transaction was made with the intent to hinder, delay or defraud our creditors.

      On the basis of historical financial information, recent operating history and other factors, we believe that, after the Recapitalization, the Transactions and the use of proceeds therefrom, we are not insolvent, do not have unreasonably small capital for the business in which we are engaged and have not incurred debts beyond our ability to pay our debts as they mature. However, we cannot assure you as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

 
      We may not be permitted or have the ability to purchase the exchange notes upon a change of control as required by the indenture.

      Upon the occurrence of specific kinds of change of control events, we will be required to offer to repurchase all the exchange notes, and Cinemark USA, Inc. will be required to offer to purchase all the 9% senior subordinated notes that are outstanding, at 101% of their principal amount. We may not be able to repurchase the exchange notes upon a change of control because we or our subsidiaries may not have sufficient funds. Our failure to repurchase the exchange notes or Cinemark USA, Inc.’s failure to repurchase the 9% senior subordinated notes upon a change of control would cause a default under the respective indentures. Cinemark USA, Inc.’s amended senior credit facility also provides that a change of control (as defined therein) will be a default that permits lenders to accelerate the maturity of borrowings under the amended senior credit facility. We may enter into debt agreements containing similar provisions in the future.

 
      An active trading market may not develop for the exchange notes, and securities laws will restrict your ability to transfer the exchange notes.

      The exchange notes will be a new issue of debt securities of the same class as the initial notes and will generally be freely transferrable. However, we do not intend to have the exchange notes listed on a national securities exchange, although we expect that the exchange notes will be eligible for trading in PORTAL. In addition, although the initial purchasers of the initial notes have advised us that they currently intend to make

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a market in the initial notes and the exchange notes, they are not obligated to do so and may discontinue market making activities at any time without notice. While an application to have the exchange notes accepted for trading in PORTAL will be made, there can be no assurance that an active trading market for the exchange notes will develop on PORTAL or elsewhere or, if a trading market develops, that it will continue. The lack of an active trading market may have a material adverse effect on the market price and liquidity of the exchange notes. If a market for the exchange notes develops, the exchange notes may trade at a discount from their initial offering price, depending on many factors, including (1) our financial performance or prospects, (2) the prospects for other companies in our industry, (3) prevailing interest rates, (4) the market for similar securities and (5) general economic conditions. Historically, the market for non-investment grade securities, such as the notes, has been subject to disruptions that have caused volatility in the prices of these securities. The market for the notes may be subject to similar disruptions.
 
      You will be required to pay U.S. federal income tax on accrual of original issue discount on the exchange notes even if we do not pay cash interest.

      The initial notes were issued at a substantial discount from their principal amount at maturity. Although cash interest will not accrue on the exchange notes prior to March 15, 2009, and there will be no periodic payments of cash interest on the exchange notes prior to September 15, 2009, original issue discount (the excess of the stated redemption price at maturity over the issue price of the notes) will accrete from the issue date of the initial notes. Consequently, purchasers of the exchange notes generally will be required to include amounts in gross income for U.S. federal income tax purposes in advance of their receipt of the cash payments to which the income is attributable. See “Important Federal Income Tax Considerations.”

Risks Related to Our Business and Industry

 
      Poor motion picture production or performance could have a material adverse effect on our business.

      Our business is dependent both upon the availability of suitable motion pictures for exhibition in our theatres and the performance of such pictures in our markets. Poor performance of films or disruption in the production of motion pictures by, or a reduction in the marketing efforts of, the major studios and/or independent producers could have a material adverse effect on our business.

 
      A deterioration in relationships with film distributors could adversely affect our ability to obtain commercially successful films.

      We rely on the film distributors for the motion pictures shown in our theatres. The film distribution business is highly concentrated, with ten major film distributors accounting for approximately 92% of U.S. box office revenues and 49 of the top 50 grossing films during 2003. Numerous antitrust cases and consent decrees resulting from these cases impact the distribution of motion pictures. The consent decrees bind certain major film distributors to license films to exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a supply of films by entering into long-term arrangements with major distributors. We are therefore required to negotiate licenses for each film and for each theatre. We cannot assure you that we will be able to negotiate favorable licensing terms for all first-run film. A deterioration in our relationship with any of the ten major film distributors could adversely affect our ability to negotiate film licenses and our ability to obtain commercially successful films and, therefore could adversely affect our business and operating results.

 
      The oversupply of screens in the motion picture exhibition industry and other factors may adversely affect the performance of some of our theatres.

      Since 1999, several major theatre exhibition companies, including Regal Cinemas, Loews Cineplex Entertainment and United Artists filed for bankruptcy. One significant cause of those bankruptcies was the emphasis by theatre circuits on the development of large multiplexes in recent years. The strategy of aggressively building multiplexes was adopted throughout the industry which generated significant competition and resulted in an oversupply of screens in the North American exhibition industry.

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Consequently, many older multiplex theatres were rendered obsolete more rapidly than expected. Many of these theatres are under long-term lease commitments that make closing them financially burdensome and some companies have elected to continue operating them notwithstanding their lack of profitability. In other instances, because theatres are typically limited use design facilities, or for other reasons, landlords have been willing to make rent concessions to keep them open. As a result, some analysts believe that there continues to be an oversupply of screens in the North American exhibition industry. This has caused motion picture exhibitors to experience impairment write-offs, losses on theatre dispositions and downward adjustments of credit ratings, and some of our competitors defaulted under their loan agreements. Oversupply of screens may affect the performance of some of our theatres.
 
      Our foreign operations are subject to adverse regulations and currency exchange risk, which may have a material adverse effect on our business.

      Outside of North America, we operate 97 theatres with 852 screens in Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Colombia and the United Kingdom, with Mexico and Brazil representing approximately 7% and 8% of 2003 revenues, respectively. We will continue to investigate opportunities in these and other foreign markets. Governmental regulation of the motion picture industry in foreign markets differs from those in the United States. Regulations affecting price controls or admission prices, quota systems requiring the exhibition of films produced in the subject country and restrictions on ownership of land may adversely affect our international operations in foreign markets. Our international operations are subject to certain political, economic and other uncertainties not encountered by our domestic operations. We also face the additional risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange. We do not actively hedge against foreign currency exchange risk.

 
      If we do not comply with the Americans with Disabilities Act of 1990, we could be subject to further litigation.

      Our theatres must comply with Title III of the Americans with Disabilities Act of 1990, or the “ADA,” and analogous state and local laws. Compliance with the ADA requires among other things that public facilities “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.

      We have been involved in significant litigation in which it is claimed that many of our theatres do not comply with the ADA. Currently, we are the subject of lawsuits brought by the Department of Justice, or the “DOJ,” in Cleveland, Ohio and by private plaintiffs in one case in Texas. In each of these cases it is alleged that the wheelchair seating positions do not comply with the ADA, or in the Texas cases, with the Texas Accessibility Standards. The plaintiffs in the DOJ litigation and Mission, Texas litigation have argued that the theatres must provide wheelchair seating locations with viewing angles to the screen that are at the median or better than all seats in the stadium style sections of the auditorium. If we lose the DOJ litigation, our business and results of operations may be materially and adversely affected.

      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 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 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. On August 13, 2003, the Ninth Circuit Court of Appeals issued its divided

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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. 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 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. 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, Cinemark USA, Inc. and Regal Cinemas have each filed petitions for writs of certiorari with the United States Supreme Court. Those petitions for certiorari are currently pending. We are unable to predict whether the United States Supreme Court will grant Cinemark USA, Inc.’s petition for certiorari.
 
      We face intense competition for patrons, film licensing and theatre locations, which may affect our business.

      The motion picture industry is competitive. We compete against local, national and international exhibitors. We compete for both patrons and licensing of motion pictures. Some of our competitors have substantially greater resources and may have lower costs. The principal competitive factors with respect to film licensing include licensing terms, number of seats and screens available for a particular picture, revenue potential and the location and condition of an exhibitor’s theatres.

      The competition for patrons is dependent upon such factors as the availability of popular motion pictures, the location and number of theatres and screens in a market, the comfort and quality of the theatres and pricing. Many of our competitors have sought to increase the number of screens that they operate. The multiplex building programs by many of our competitors during the second half of the 1990s were aggressive, according to some industry analysts. Most of the building was financed primarily with debt resulting in increased operating and financial leverage. The significant increase in multiplexes rendered many of the older theatre facilities obsolete more rapidly than expected. Many of the landlords have been unwilling to make rent concessions or terminate the leases for underperforming theatres. Several of our competitors filed for bankruptcy protection and have used the bankruptcy proceedings to reject the leases for underperforming theatres. As a result, some of our competitors may have a lower cost structure.

 
      An increase in the use of alternative film distribution channels and other competing forms of entertainment may drive down movie theatre attendance and limit ticket prices.

      We face competition for patrons from a number of alternative motion picture distribution channels, such as home video, pay-per-view, cable, DVD and syndicated and broadcast television. We also compete with other forms of entertainment competing for our patrons’ leisure time and disposable income such as concerts, amusement parks and sporting events. Alternative film distribution channels and competing forms of entertainment could have a material adverse effect on our business and results of operations.

 
      We may not be able to generate additional revenue opportunities.

      We intend to continue to pursue additional revenue streams such as advertising and the use of theatres for non-film events. Our ability to achieve our business objectives may depend in part on our success in generating these revenue streams. We cannot assure you that we will be able to effectively generate these additional revenues and our inability to do so may have an adverse effect on our financial performance.

 
      Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres.

      Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres. The major film distributors generally release during the summer and

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holiday seasons those films that they anticipate will be the most successful. Consequently, we typically generate higher revenues during these periods.
 
      We are subject to uncertainties related to digital cinema, including potentially high costs of re-equipping theatres.

      If a digital cinema roll-out progresses rapidly, we may not have adequate resources to finance the conversion costs. Digital cinema is in an experimental stage in our industry. There are multiple parties vying for the position of being the primary generator of the digital projector roll-out. However, there are significant obstacles to such a roll-out plan including:

  •  quality of image: many industry leaders feel that the quality of the digital image does not yet surpass the quality of the traditional 35mm image, even though consumers have tended to respond favorably to test screenings; and
 
  •  costs: electronic projectors will require substantial investment in re-equipping theatres.

      Even if the technical issues surrounding digital cinema are resolved, business arrangements for the financing of the digital projector roll-out will require significant discussions. Further, we cannot assure you that financing arrangements to fund our portion of the digital cinema roll-out can be obtained on terms we deem acceptable.

 
      We are subject to uncertainties relating to future expansion plans, including our ability to identify suitable acquisition candidates or site locations.

      We have greatly expanded our operations over the last decade through new theatre construction and selective theatre acquisitions. We will continue to pursue a strategy of expansion that will involve the development of new theatres, including international markets, and may involve acquisitions of existing theatres and theatre circuits. Acquisitions generally would be made to provide initial entry into a new market or to strengthen our position in an existing market. We may not be able to develop or acquire suitable theatres in the future; therefore, we cannot assure you that our expansion strategy will result in improvements to our business, financial condition or profitability. There is significant competition for potential site locations and existing theatre and theatre circuit acquisition opportunities. As a result of such competition, we may not be able to acquire attractive site locations or existing theatres or theatre circuits on terms we consider acceptable. Further, our expansion programs may require financing in addition to our existing borrowing capacity and internally generated funds that we would use for such purpose. We cannot assure you that financing will be available to us on acceptable terms.

 
      We depend on key personnel for our current and future performance.

      Our current and future performance depends to a significant degree upon the continued contributions of our senior management team and other key personnel. The loss or unavailability to us of any member of our senior management team or a key employee could significantly harm us. We cannot assure you that we would be able to locate or employ qualified replacements on acceptable terms for senior management or key employees if their services are no longer available.

 
      We are subject to impairment losses due to potential declines in valuations.

      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 consider 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 and other factors in our assessment of impairment of individual theatre assets. Assets are evaluated 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

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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, an impairment review is performed in which we 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.

      We also test goodwill and other intangible assets for impairment at least annually in accordance with Statement of Financial Accounting Standards No. 142, which we adopted on January 1, 2002. The adoption of this accounting pronouncement resulted in a $3.4 million write-down of goodwill and other intangible assets to fair value on January 1, 2002 (recorded as a cumulative effect of a change in accounting principle).

      In recent years, in the U.S., our competitors’ strategy of aggressively building multiplexes generated significant competition and rendered many older theatres obsolete more rapidly than expected. In addition, certain of the international markets served by us experienced adverse economic conditions and currency devaluations. Due to these factors, we recorded asset impairment charges, including goodwill impairment charges, of $20.7 million, $3.9 million and $5.0 million for 2001, 2002 and 2003, respectively. For the three months ended March 31, 2004 we recorded asset impairment charges of $1.0 million. We cannot assure you that additional impairment charges will not be required in the future, and such charges may have a material adverse effect on our financial condition and results of operations.

 
      The interests of our controlling stockholders may conflict with your interests.

      Madison Dearborn and its affiliates own approximately 83% of our outstanding voting capital stock. Pursuant to a stockholders agreement among us, an affiliate of Madison Dearborn, the Mitchell investors and the management investors, Madison Dearborn and its affiliates have the right to appoint up to ten of our twelve directors.

      Madison Dearborn and its affiliates, by virtue of their stock ownership and board rights, have the ability to control the outcome of all matters presented for approval to our stockholders. Such concentration of ownership may have the effect of preventing a change in control. Because a limited number of people control us, transactions could be difficult or impossible to complete without the support of these persons. It is possible that these persons will exercise control over us in a manner that is adverse to your interests as a holder of the exchange notes. See “Principal Stockholders” and “Certain Relationships and Related Party Transactions.”

USE OF PROCEEDS

      We will not receive any cash proceeds from the issuance of the exchange notes offered hereby. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange, initial notes in like principal amount, the terms of which are the same in all material respects as the form and terms of the exchange notes except that the exchange notes have been registered under the Securities Act and will not contain terms restricting the transfer thereof or providing for registration rights. The initial notes surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the exchange notes will not increase our indebtedness.

      We received gross proceeds of approximately $360.0 million from the issuance of the initial notes. We used the net proceeds from the offering of the initial notes together with the borrowings under the amended senior credit facility, existing cash and the proceeds from the cash equity investment to pay the consideration for the Recapitalization, refinance the former senior credit facility, fund the purchase of the 8 1/2% senior subordinated notes pursuant to the tender offer and pay related fees and expenses. Refer to “Prospectus Summary — Sources and Uses of Funds.” For a discussion of the terms of the former senior credit facility or the 8 1/2% senior subordinated notes see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Historical Financings.”

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THE EXCHANGE OFFER

      This section of the prospectus describes the proposed exchange offer. While we believe that the description covers the material terms of the exchange offer, this summary may not contain all of the information that is important to you. You should carefully read this entire document and the other documents referred to herein for a more complete understanding of the exchange offer.

Purpose of the Exchange Offer

      In connection with the issuance of the initial notes, we entered into an exchange and registration rights agreement that provides for the exchange offer. A copy of the exchange and registration rights agreement relating to the initial notes is filed as an exhibit to the registration statement of which this prospectus is a part. Under the exchange and registration rights agreement relating to the initial notes we agreed that we would, subject to certain exceptions:

  •  within 90 days after the issue date of the initial notes, use our reasonable best efforts to file a registration statement with the Securities Exchange Commission, or the SEC, with respect to a registered offer to exchange such initial notes for the exchange notes having terms substantially identical in all material respects to the initial notes (except that the exchange notes will not contain terms with respect to transfer restrictions and will have different administrative terms);
 
  •  use our reasonable best efforts to cause the registration statement to be declared effective under the Securities Act within 180 days after the issue date of the initial notes;
 
  •  within 30 days following the declaration of the effectiveness of the registration statement, issue the exchange notes in exchange for surrender of the initial notes; and
 
  •  if obligated to file a shelf registration statement, use our reasonable best efforts to file the shelf registration statement with the SEC within 30 days after such filing obligation arises (and in any event within 210 days after the issue date of the initial notes) and to cause the shelf registration statement to be declared effective by the SEC within 180 days after such obligation arises.

      For each initial note tendered to us pursuant to the exchange offer, we will issue to the holder of such initial note an exchange note having a principal amount equal to that of the surrendered initial note.

      Under existing SEC interpretations, the exchange notes will be freely transferable by holders other than our affiliates after the exchange offer without further registration under the Securities Act if the holder of the exchange notes represents to us in the exchange offer that it is acquiring the exchange notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the exchange notes and that it is not an affiliate of ours, as such terms are interpreted by the SEC; provided, however, that broker-dealers receiving the exchange notes in the exchange offer will have a prospectus delivery requirement with respect to resales of such exchange notes. The SEC has taken the position that such participating broker-dealers may fulfill their prospectus delivery requirements with respect to the exchange notes (other than a resale of an unsold allotment from the original sale of the initial notes) with the prospectus contained in this registration statement. Each broker-dealer that receives the exchange notes for its own account in exchange for the initial notes, where such initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

      A holder of initial notes (other than certain specified holders) who wishes to exchange the initial notes for the exchange notes in the exchange offer will be required to represent that any exchange notes to be received by it will be acquired in the ordinary course of its business and that at the time of the commencement of the exchange offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes and that it is not an “affiliate” of ours, as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

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      In the event that:

        (1) we are not required to file an exchange offer registration statement or consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy; or
 
        (2) any holder of the initial notes or exchange notes notifies us on or prior to the 20th business day following the consummation of the exchange offer that

        (a) such holder is prohibited by a change in applicable law or SEC policy from participating in the exchange offer,
 
        (b) such holder may not resell the exchange notes to be acquired by it in the exchange offer to the public without delivering a prospectus and that the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales by such holder, or
 
        (c) such holder is a broker-dealer and owns initial notes directly from us,

      then, we will, subject to certain exceptions,

        (1) use our reasonable best efforts to file a shelf registration statement with the SEC covering resales of the initial notes or the exchange notes, as the case may be, on or prior to the date (which we call the shelf filing date) which is the 30th day after the date on which the obligation to file the shelf registration statement arises (and in any event on or prior to the date which is the 180th day after the date we issued the initial notes);
 
        (2) use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act on or prior to the 180th day after the obligation to file the shelf registration statement arises; and
 
        (3) use our best efforts to keep the shelf registration statement effective until the earliest of (A) the date on which all initial notes or exchange of notes registered thereunder are disposed of in accordance therewith or (B) two years from the date we issued the initial notes registered thereunder.

      We will, in the event a shelf registration statement is filed, among other things, provide to each holder for whom such shelf registration statement was filed copies of the prospectus which is a part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective and take certain other actions as are required to permit unrestricted resales of the initial notes or the exchange notes, as the case may be. A holder selling such initial notes or exchange notes pursuant to the shelf registration statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to such holder (including certain indemnification obligations).

      We will pay additional cash interest on the applicable initial notes and exchange notes, subject to certain exceptions:

        (1) if we fail to file the registration statement of which this prospectus forms a part with the SEC on or prior to the 90th day after the issue date of the initial notes;
 
        (2) if the registration statement of which this prospectus forms a part is not declared effective by the SEC on or prior to the 180th day after the issue date of the initial notes;
 
        (3) if the exchange offer is not consummated on or before the 30th business day after the registration statement of which this prospectus forms a part is declared effective;
 
        (4) if obligated to file the shelf registration statement, we fail to file the shelf registration statement with the SEC on or prior to the shelf filing date;
 
        (5) if obligated to file a shelf registration statement, the shelf registration statement is not declared effective on or prior to the 180th day after the shelf filing date; or

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        (6) after the registration statement of which this prospectus forms a part or the shelf registration statement, as the case may be, is declared effective, such registration statement thereafter ceases to be effective or usable for its intended purpose without being succeeded within two business days by a post effective amendment to such registration statement that cures such failure and that is immediately declared effective; from and including the date on which any such default shall occur to, but excluding, the date on which all such defaults have been cured.

      The rate of any such additional interest will be 0.50% per annum. The amount of additional interest will increase by an additional 0.50% per annum with respect to each subsequent 90-day period relating to such registration default until cured up to a maximum of 1.0% per annum. We will pay any such additional interest on regular interest payment dates. Such additional interest will be in addition to any other interest payable from time to time with respect to the initial notes and the exchange notes. The accrual of additional interest will cease upon the cure of all registration defaults.

      All references in the indenture, in any context, to any interest or other amount payable on or with respect to the initial notes or the exchange notes shall be deemed to include any additional interest pursuant to the registration rights agreements relating to the initial notes.

      If we effect the exchange offer, we will be entitled to close the exchange offer 30 days after the commencement thereof provided that we have accepted all initial notes theretofore validly tendered in accordance with the terms of the exchange offer.

Background of the Exchange Offer

      We issued $577,173,000 aggregate principal amount at maturity of 9 3/4% senior discount notes due 2014 on March 31, 2004, the “initial notes.” The terms of the exchange notes and the initial notes will be identical in all material respects, except for transfer restrictions and registration rights that will not apply to the exchange notes.

      The exchange notes will accrete in value until March 15, 2009, at which time the exchange notes will have an aggregate principal amount of $577,173,000. Thereafter, cash interest will be payable on the exchange notes on March 15 and September 15 of each year, beginning on September 15, 2009. The exchange notes will mature on March 15, 2014.

      In order to exchange your initial notes for the exchange notes containing no transfer restrictions in the exchange offer, you will be required to make the following representations:

  •  the exchange notes will be acquired in the ordinary course of your business;
 
  •  you have no arrangements with any person to participate in the distribution of the exchange notes; and
 
  •  you are not our “affiliate” as defined in Rule 405 of the Securities Act, or if you are an affiliate of ours, you will comply with the applicable registration and prospectus delivery requirements of the Securities Act.

      Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any initial notes properly tendered and not validly withdrawn in the exchange offer, and the exchange agent will deliver the exchange notes promptly after the expiration date of the exchange offer. We expressly reserve the right to delay acceptance of any of the tendered initial notes or terminate the exchange offer and not accept for exchange any tendered initial notes not already accepted if any conditions set forth under “— Conditions to the Exchange Offer” have not been satisfied or waived by us or do not comply, in whole or in part, with any applicable law.

      If you tender your initial notes, you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of the initial notes.

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Expiration Date; Extensions; Termination; Amendments

      The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2004, unless we extend it. We expressly reserve the right to extend the exchange offer on a daily basis or for such period or periods as we may determine in our sole discretion from time to time by giving oral, confirmed in writing, or written notice to the exchange agent and by making a public announcement by press release to the Dow Jones News Service prior to 9:00 a.m., New York City time, on the first business day following the previously scheduled expiration date. During any extension of the exchange offer, all initial notes previously tendered, not validly withdrawn and not accepted for exchange will remain subject to the exchange offer and may be accepted for exchange by us.

      To the extent we are legally permitted to do so, we expressly reserve the absolute right, in our sole discretion, but are not required, to:

  •  waive any condition of the exchange offer; and
 
  •  amend any terms of the exchange offer.

      Any waiver or amendment to the exchange offer will apply to all initial notes tendered, regardless of when or in what order the initial notes were tendered. If we make a material change in the terms of the exchange offer or if we waive a material condition of the exchange offer, we will disseminate additional exchange offer materials, and we will extend the exchange offer to the extent required by law.

      We expressly reserve the right, in our sole discretion, to terminate the exchange offer if any of the conditions set forth under “— Conditions of the Exchange Offer” exist. Any such termination will be followed promptly by a public announcement. In the event we terminate the exchange offer, we will give immediate notice to the exchange agent, and all initial notes previously tendered and not accepted for exchange will be returned promptly to the tendering holders.

      In the event that the exchange offer is withdrawn or otherwise not completed, the exchange notes will not be given to holders of initial notes who have validly tendered their initial notes. We will return any initial notes that have been tendered for exchange but that are not exchanged for any reason to their holder without cost to the holder, or, in the case of the initial notes tendered by book-entry transfer into the exchange agent’s account at a book-entry transfer facility under the procedure set forth under “— Procedures for Tendering Initial Notes — Book-Entry Transfer,” such initial notes will be credited to the account maintained at such book-entry transfer facility from which such initial notes were delivered, unless otherwise requested by such holder under “— Special Delivery Instructions” in the letter of transmittal, promptly following the exchange date or the termination of the exchange offer.

Resale of the Exchange Notes

      Based on interpretations of the SEC set forth in no-action letters issued to third parties, we believe that the exchange notes issued under the exchange offer in exchange for the initial notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if:

  •  you are not an “affiliate” of ours within the meaning of Rule 405 under the Securities Act;
 
  •  you are acquiring the exchange notes in the ordinary course of your business; and
 
  •  you do not intend to participate in the distribution of the exchange notes.

      If you tender initial notes in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes:

  •  you cannot rely on those interpretations of the SEC; and
 
  •  you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction, and the secondary resale transaction must be covered

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  by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act.

      Unless an exemption from registration is otherwise available, any security holder intending to distribute the exchange notes should be covered by an effective registration statement under the Securities Act containing the selling security holder’s information required by Item 507 of Regulation S-K. This prospectus may be used for an offer to resell, a resale or other re-transfer of the exchange notes only as specifically set forth in the section captioned “Plan of Distribution.” Only broker-dealers that acquired the exchange notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives the exchange notes for its own account in exchange for initial notes, where such initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Please read the section captioned “Plan of Distribution” for more details regarding the transfer of the exchange notes.

Acceptance of Initial Notes for Exchange

      We will accept for exchange initial notes validly tendered pursuant to the exchange offer, or defectively tendered, if such defect has been waived by us, after the later of:

  •  the expiration date of the exchange offer; and
 
  •  the satisfaction or waiver of the conditions specified below under “— Conditions of the Exchange Offer.”

      Except as specified above, we will not accept initial notes for exchange subsequent to the expiration date of the exchange offer. Tenders of initial notes will be accepted only in aggregate principal amounts at maturity equal to $1,000 or integral multiples thereof.

      We expressly reserve the right, in our sole discretion, to:

  •  delay acceptance for exchange of initial notes tendered under the exchange offer, subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders promptly after the termination or withdrawal of a tender offer; or
 
  •  terminate the exchange offer and not accept for exchange any initial notes, if any of the conditions set forth below under “— Conditions of the Exchange Offer” have not been satisfied or waived by us or in order to comply in whole or in part with any applicable law.

      In all cases, the exchange notes will be issued only after timely receipt by the exchange agent of certificates representing initial notes, or confirmation of book-entry transfer, a properly completed and duly executed letter of transmittal, or a manually signed facsimile thereof, and any other required documents. For purposes of the exchange offer, we will be deemed to have accepted for exchange validly tendered initial notes, or defectively tendered initial notes with respect to which we have waived such defect, if, as and when we give oral, confirmed in writing, or written notice to the exchange agent. Promptly after the expiration date, we will deposit the exchange notes with the exchange agent, who will act as agent for the tendering holders for the purpose of receiving the exchange notes and transmitting them to the holders. The exchange agent will deliver the exchange notes to holders of initial notes accepted for exchange after the exchange agent receives the exchange notes.

      If, for any reason, we delay acceptance for exchange of validly tendered initial notes or we are unable to accept for exchange validly tendered initial notes, then the exchange agent may, nevertheless, on its behalf, retain tendered initial notes, without prejudice to our rights described in this prospectus under the captions “— Expiration Date; Extensions; Termination; Amendments,” “— Conditions of the Exchange Offer” and “— Withdrawal of Tenders,” subject to Rule 14e-1 under the Securities Exchange Act of 1934, which requires that an offer or pay the consideration offered or return the securities deposited by or on behalf of the holders thereof promptly after the termination or withdrawal of a tender offer.

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      If any tendered initial notes are not accepted for exchange for any reason, or if certificates are submitted evidencing more initial notes than those that are tendered, certificates evidencing initial notes that are not exchanged will be returned, without expense, to the tendering holder, or, in the case of the initial notes tendered by book-entry transfer into the exchange agent’s account at a book-entry transfer facility under the procedure set forth under “— Procedures for Tendering Initial Notes Book-Entry Transfer,” such initial notes will be credited to the account maintained at such book-entry transfer facility from which such initial notes were delivered, unless otherwise requested by such holder under “— Special Delivery Instructions” in the letter of transmittal, promptly following the exchange date or the termination of the exchange offer.

      Tendering holders of initial notes exchanged in the exchange offer will not be obligated to pay brokerage commissions or transfer taxes with respect to the exchange of their initial notes other than as described under the caption “— Transfer Taxes” or as set forth in the letter of transmittal. We will pay all other charges and expenses in connection with the exchange offer.

Procedures for Tendering Initial Notes

      Any beneficial owner whose initial notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee or held through a book-entry transfer facility and who wishes to tender initial notes should contact such registered holder promptly and instruct such registered holder to tender initial notes on such beneficial owner’s behalf.

     Tender of Initial Notes Held Through The Depository Trust Company

      The exchange agent and The Depository Trust Company, or DTC, have confirmed that the exchange offer is eligible for the DTC automated tender offer program. Accordingly, DTC participants may electronically transmit their acceptance of the exchange offer by causing DTC to transfer initial notes to the exchange agent in accordance with DTC’s automated tender offer program procedures for transfer. DTC will then send an agent’s message to the exchange agent.

      The term “agent’s message” means a message transmitted by DTC and received by the exchange agent that forms part of the book-entry confirmation. The agent’s message states that DTC has received an express acknowledgment from the participant in DTC tendering initial notes that are the subject of that book-entry confirmation, that the participant has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against such participant. In the case of an agent’s message relating to guaranteed delivery, the term means a message transmitted by DTC and received by the exchange agent, which states that DTC has received an express acknowledgment from the participant in DTC tendering initial notes that they have received and agree to be bound by the notice of guaranteed delivery.

     Tender of Initial Notes Held in Physical Form

      For a holder to validly tender initial notes held in physical form:

  •  the exchange agent must receive at its address set forth in this prospectus a properly completed and validly executed letter of transmittal, or a manually signed facsimile thereof, together with any signature guarantees and any other documents required by the instructions to the letter of transmittal; and
 
  •  the exchange agent must receive certificates for tendered initial notes at such address, or such initial notes must be transferred pursuant to the procedures for book-entry transfer described above. A confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date of the exchange offer. A holder who desires to tender initial notes and who cannot comply with the procedures set forth herein for tender on a timely basis or whose initial notes are not immediately available must comply with the procedures for guaranteed delivery set forth below.

      Letters of transmittal and initial notes should be sent only to the exchange agent, and not to us or to any book-entry transfer facility.

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      The method of delivery of initial notes, letters of transmittal and all other required documents to the exchange agent is at the election and risk of the holder tendering initial notes. Delivery of such documents will be deemed made only when actually received by the exchange agent. If such delivery is by mail, we suggest that the holder use properly insured, registered mail with return receipt requested, and that the mailing be made sufficiently in advance of the expiration date of the exchange offer to permit delivery to the exchange agent prior to such date. No alternative, conditional or contingent tenders of initial notes will be accepted.

     Signature Guarantees

      A signature on a letter of transmittal or a notice of withdrawal must be guaranteed by an eligible institution. Eligible institutions include banks, brokers, dealers, municipal securities dealers, municipal securities brokers, government securities dealers, government securities brokers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. The signature need not be guaranteed by an eligible institution if the initial notes are tendered:

  •  by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or
 
  •  for the account of an eligible institution.

      If the letter of transmittal is signed by a person other than the registered holder of any initial notes, the initial notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the initial notes and an eligible institution must guarantee the signature on the bond power.

      If the letter of transmittal or any initial notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing. Unless we waive this requirement, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal.

     Book-Entry Transfer

      The exchange agent will seek to establish a new account or utilize an existing account with respect to the initial notes at DTC promptly after the date of this prospectus. Any financial institution that is a participant in the book-entry transfer facility system and whose name appears on a security position listing it as the owner of the initial notes may make book-entry delivery of initial notes by causing the book-entry transfer facility to transfer such initial notes into the exchange agent’s account. However, although delivery of initial notes may be effected through book-entry transfer into the exchange agent’s account at a book-entry transfer facility, a properly completed and validly executed letter of transmittal, or a manually signed facsimile thereof, must be received by the exchange agent at its address set forth in this prospectus on or prior to the expiration date of the exchange offer, or else the guaranteed delivery procedures described below must be complied with. The confirmation of a book-entry transfer of initial notes into the exchange agent’s account at a book-entry transfer facility is referred to in this prospectus as a “book-entry confirmation.” Delivery of documents to the book-entry transfer facility in accordance with that book-entry transfer facility’s procedures does not constitute delivery to the exchange agent.

     Guaranteed Delivery

      If you wish to tender your initial notes and:

  •  certificates representing your initial notes are not lost but are not immediately available;
 
  •  time will not permit your letter of transmittal, certificates representing your initial notes and all other required documents to reach the exchange agent on or prior to the expiration date of the exchange offer; or

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  •  the procedures for book-entry transfer cannot be completed on or prior to the expiration date of the exchange offer;

you may tender your initial notes if:

  •  your tender is made by or through an eligible institution; and
 
  •  on or prior to the expiration date of the exchange offer, the exchange agent has received from the eligible institution a properly completed and validly executed notice of guaranteed delivery, by manually signed facsimile transmission, mail or hand delivery, in substantially the form provided with this prospectus:
 
  •  setting forth your name and address, the registered number(s) of your initial notes and the principal amount of the initial notes tendered;
 
  •  stating that the tender is being made by guaranteed delivery;
 
  •  guaranteeing that, within three New York Stock Exchange trading days after the date of the notice of guaranteed delivery, the letter of transmittal or facsimile thereof, properly completed and validly executed, together with certificates representing the initial notes, or a book-entry confirmation, and any other documents required by the letter of transmittal and the instructions thereto, will be deposited by the eligible institution with the exchange agent; and
 
  •  the exchange agent receives the properly completed and validly executed letter of transmittal or facsimile thereof with any required signature guarantees, together with certificates for all initial notes in proper form for transfer, or a book-entry confirmation, and any other required documents, within three New York Stock Exchange trading days after the date of the notice of guaranteed delivery.

     Other Matters

      Exchange notes will be issued in exchange for initial notes accepted for exchange only after timely receipt by the exchange agent of:

  •  certificates for, or a timely book-entry confirmation with respect to, your initial notes;
 
  •  a properly completed and duly executed letter of transmittal or facsimile thereof with any required signature guarantees, or, in the case of a book-entry transfer, an agent’s message; and
 
  •  any other documents required by the letter of transmittal.

      All questions as to the form of all documents and the validity, including time of receipt, and acceptance of all tenders of initial notes will be determined by us, in our sole discretion, the determination of which shall be final and binding. Alternative, conditional or contingent tenders of initial notes will not be considered valid. We reserve the absolute right to reject any or all tenders of initial notes that are not in proper form or the acceptance of which, in our opinion, would be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to any particular initial notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties.

      Unless waived by us, any defect or irregularity in connection with tenders of initial notes must be cured within the time that we determine. Tenders of initial notes will not be deemed to have been made until all defects and irregularities have been waived by us or cured. Neither us, the exchange agent, nor any other person will be under any duty to give notice of any defects or irregularities in tenders of initial notes, or will incur any liability to holders for failure to give any such notice.

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      By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

  •  any exchange notes that you receive will be acquired in the ordinary course of your business;
 
  •  you have no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes;
 
  •  if you are not a broker-dealer, that you are not engaged in and do not intend to engage in the distribution of the exchange notes;
 
  •  if you are a broker-dealer that will receive the exchange notes for your own account in exchange for initial notes that were acquired as a result of market-making activities or other trading activities, that you will deliver a prospectus, as required by law, in connection with any resale of the exchange notes; and
 
  •  you are not an “affiliate” of ours, as defined in Rule 405 of the Securities Act, or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act.

Withdrawal of Tenders

      Except as otherwise provided in this prospectus, you may withdraw your tender of initial notes at any time prior to the expiration date of the exchange offer.

      For a withdrawal to be effective:

  •  the exchange agent must receive a written notice of withdrawal at the address set forth below under “— Exchange Agent”; or
 
  •  you must comply with the appropriate procedures of DTC’s automated tender offer program system.

      Any notice of withdrawal must:

  •  specify the name of the person who tendered the initial notes to be withdrawn; and
 
  •  identify the initial notes to be withdrawn, including the principal amount of the initial notes to be withdrawn.

      If certificates for the initial notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of those certificates, the withdrawing holder must also submit:

  •  the serial numbers of the particular certificates to be withdrawn; and
 
  •  a signed notice of withdrawal with signatures guaranteed by an eligible institution, unless the withdrawing holder is an eligible institution.

      If the initial notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn initial notes and otherwise comply with the procedures of DTC.

      We will determine all questions as to the validity, form and eligibility, including time of receipt, of notices of withdrawal, and our determination shall be final and binding on all parties. We will deem any initial notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer.

      We will return any initial notes that have been tendered for exchange but that are not exchanged for any reason to their holder without cost to the holder. In the case of initial notes tendered by book-entry transfer into the exchange agent’s account at DTC, according to the procedures described above, those initial notes will be credited to an account maintained with DTC for the initial notes. This return or crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may re-tender properly withdrawn initial notes by following one of the procedures described under

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“— Procedures for Tendering Initial Notes” at any time on or prior to the expiration date of the exchange offer.

Conditions to the Exchange Offer

      Despite any other term of the exchange offer, we will not be required to accept for exchange any initial notes and we may terminate or amend the exchange offer as provided in this prospectus before accepting any initial notes for exchange if in our reasonable judgment:

  •  the exchange notes to be received will not be tradable by the holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States;
 
  •  the exchange offer, or the making of any exchange by a holder of initial notes, would violate applicable law or any applicable interpretation of the staff of the SEC; or
 
  •  any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that would reasonably be expected to impair our ability to proceed with the exchange offer.

      We will not be obligated to accept for exchange the initial notes of any holder that has not made to us:

  •  the representations described under the captions “— Procedures for Tendering Initial Notes” and “Plan of Distribution;” and
 
  •  any other representations that may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registration of the exchange notes under the Securities Act.

      We expressly reserve the right, at any time or at various times, to extend the period of time during which the exchange offer is open. Consequently, we may delay acceptance of any initial notes by giving oral or written notice of an extension to their holders. During an extension, all initial notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange. We will return any initial notes that we do not accept for exchange for any reason without expense to their tendering holder as promptly as practicable after the expiration or termination of the exchange offer.

      We expressly reserve the right to amend or terminate the exchange offer and to reject for exchange any initial notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. By public announcement we will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the initial notes as promptly as practicable. If we amend the exchange offer in a manner that we consider material, we will disclose the amendment in the manner required by applicable law.

      These conditions are solely for our benefit and we may assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any time or at various times in our sole discretion. If we fail at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of that right. Each of these rights will be deemed an ongoing right that we may assert at any time or at various times.

      We will not accept for exchange any initial notes tendered, and will not issue the exchange notes in exchange for any initial notes, if at any time a stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939.

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Transfer Taxes

      We will pay all transfer taxes, if any, applicable to the transfer and exchange of initial notes pursuant to the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the record holder or any other person, if:

  •  delivery of the exchange notes, or certificates for initial notes for principal amounts not exchanged, are to be made to any person other than the record holder of the initial notes tendered;
 
  •  tendered certificates for initial notes are recorded in the name of any person other than the person signing any letter of transmittal; or
 
  •  a transfer tax is imposed for any reason other than the transfer and exchange of initial notes under the exchange offer.

Consequences of Failure to Exchange

      If you do not exchange your initial notes for the exchange notes in the exchange offer, you will remain subject to restrictions on transfer of the initial notes:

  •  as set forth in the legend printed on the initial notes as a consequence of the issuance of the initial notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and
 
  •  as otherwise set forth in the offering memorandum distributed in connection with the private offering of each of the initial notes.

      In general, you may not offer or sell the initial notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreements relating to the initial notes, we do not intend to register resales of the initial notes under the Securities Act. Based on interpretations of the SEC, you may offer for resale, resell or otherwise transfer the exchange notes issued in the exchange offer without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:

  •  you are not an “affiliate” within the meaning of Rule 405 under the Securities Act;
 
  •  you acquired the exchange notes in the ordinary course of your business; and
 
  •  you have no arrangement or understanding with respect to the distribution of the exchange notes to be acquired in the exchange offer.

      If you tender initial notes in the exchange offer for the purpose of participating in a distribution of the exchange notes:

  •  you cannot rely on the applicable interpretations of the SEC; and
 
  •  you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act.

36


 

Exchange Agent

      The Bank of New York Trust Company, N.A. has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus, the letter of transmittal or any other documents to the exchange agent. You should send certificates for initial notes, letters of transmittal and any other required documents to the exchange agent addressed as follows:

         
By Registered or Certified Mail
  By Hand or Overnight Delivery   Facsimile Transmission
 
The Bank of New York
Trust Company, N.A.
Corporate Trust Operations
Reorganization Unit
101 Barclay Street — 7 East
New York, NY 10286
Attn: Kin Lau
  The Bank of New York
Trust Company, N.A.
(Eligible Institutions Only)
Corporate Trust Operations
Reorganization Unit
101 Barclay Street — 7 East
New York, NY 10286
Attn: Kin Lau
  (212) 298-1915
Attn: Kin Lau

Confirm by Telephone
(212) 815-3750

      Delivery of the letter of transmittal to an address other than as shown above or transmission via facsimile other than as set forth above does not constitute a valid delivery of the letter of transmittal.

Other

      Participation in the exchange offer is voluntary, and you should carefully consider whether to exchange the initial notes for the exchange notes. We urge you to consult your financial and tax advisors in making your own decision on what action to take.

      We may in the future seek to acquire untendered initial notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise, on terms that may differ from the terms of the exchange offer. We have no present plans to acquire any initial notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered initial notes.

37


 

CAPITALIZATION

      The following table presents our capitalization as of March 31, 2004. Our capitalization is presented:

  •  on an actual basis; and
 
  •  on a pro forma basis to give effect to the Transactions.

      You should read this table in conjunction with “Summary — The Transactions,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes that are included in this prospectus.

                         
As of March 31, 2004

Actual Pro Forma


(Unaudited)
(In thousands)
Cash and cash equivalents
  $ 448,150     $ 52,897  
     
     
 
Long-term debt, including current maturities:
               
 
Subsidiary debt:
               
   
Senior credit facility of Cinemark USA, Inc.(1)
  $ 163,762     $ 260,000  
   
8 1/2% senior subordinated notes of Cinemark USA, Inc.(2)
    104,567       10,790  
   
9% senior subordinated notes of Cinemark USA, Inc.(3)
    373,817       356,067  
   
Other subsidiary indebtedness(4)
    14,055       14,055  
   
9 3/4% senior discount notes
    360,096       360,096  
     
     
 
       
Total long-term debt
    1,016,297       1,001,008  
Minority interest in subsidiaries
    34,434       34,434  
Stockholders’ equity (deficiency):
               
 
Common stock
    41       28  
 
Additional paid-in capital
    40,369       597,069  
 
Retained earnings (deficit)
    134,593       (763,800 )
 
Accumulated other comprehensive loss
    (86,539 )     (86,539 )
 
Unearned compensation — stock options
    (1,595 )      
     
     
 
   
Total stockholders’ equity (deficiency)
    86,869       (253,242 )
     
     
 
     
Total capitalization(5)
  $ 1,137,600     $ 782,200  
     
     
 


(1)  As of March 31, 2004, on an actual basis $74.9 million was available under Cinemark USA, Inc.’s former senior credit facility, subject to compliance with the terms thereof. The former senior credit facility consisted of a $75.0 million revolving credit facility that expired in February 2008 and a $165.0 million term loan that matured in March 2008. The effective interest rate on outstanding borrowings under the former senior credit facility at March 31, 2004 was 5.5% per annum.
 
In connection with the Transactions, the former senior credit facility was refinanced by the amended senior credit facility. The amended senior credit facility consists of an amortizing seven-year term loan facility in aggregate principal amount of $260.0 million, and a six-and-a-half-year revolving credit facility in aggregate principal amount of $100.0 million, which was undrawn on the date of the closing of the Recapitalization.
 
(2)  The amount shown on an actual basis is net of an unamortized debt discount of approximately $0.4 million associated with the issuance of the 8 1/2% senior subordinated notes. In connection with the Transactions, Cinemark USA, Inc. redeemed approximately $94.2 million aggregate principal amount of 8 1/2% senior subordinated notes that were tendered in the tender offer and concurrently therewith approximately $0.4 million of related unamortized bond discount was written off.

38


 

(3)  The amount shown includes an unamortized premium of approximately $13.8 million associated with the issuance of the 9% senior subordinated notes. In accordance with the terms of the indenture governing the 9% senior subordinated notes, Cinemark USA, Inc. made a change of control offer following the closing of the Transactions to repurchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, to 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 offer price was made with available cash by Cinemark USA, Inc. on June 1, 2004.

(4)  Consists of $3.6 million of borrowings of Cinemark Brasil S.A., $7.2 million of borrowings of Cinemark Chile S.A. and $3.3 million of other long-term debt of our subsidiaries.
 
(5)  Pro forma total capitalization is less than actual total capitalization by $355.4 million as a result of the adjustments set forth in “Unaudited Pro Forma Condensed Consolidated Financial Information.”

39


 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

      On March 12, 2004, Popcorn Merger Corp., a Delaware company and newly formed subsidiary of Madison Dearborn, entered into a merger agreement with Cinemark, Inc., pursuant to which Popcorn Merger Corp. merged on April 2, 2004 with and into Cinemark, Inc. with Cinemark, Inc. continuing as the surviving corporation. Simultaneously with the merger, the equity sponsor purchased shares of common stock of Cinemark, Inc. Lee Roy Mitchell, the Mitchell Special Trust and certain members of our management which were stockholders of Cinemark, Inc., among others, received cash consideration in the merger pursuant to the merger agreement. In addition, after the merger the Mitchell investors and the management investors retained a portion of their holdings of shares of Cinemark, Inc. After the closing of the Recapitalization and the related financing transactions, all of the capital stock of Cinemark, Inc. is owned by the equity sponsor, the Mitchell investors and the management investors. The equity sponsor is our controlling stockholder.

      We derived the following unaudited pro forma condensed consolidated data by applying pro forma adjustments to our historical consolidated financial statements included elsewhere in this offering memorandum. The unaudited pro forma condensed consolidated income statement data for the year ended December 31, 2003 and for the three months ended March 31, 2004 give effect to the Transactions, including the offering of the notes and the application of the proceeds, as if they had occurred on January 1, 2003. The unaudited pro forma condensed consolidated balance sheet data gives effect to the Transactions, including the offering of the notes and the application of the proceeds, as if they had occurred on March 31, 2004. We describe the assumptions underlying the pro forma adjustments in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed consolidated financial statements.

      The pro forma adjustments related to the Recapitalization are based on actual adjustments made upon the closing date of the Recapitalization.

      Unaudited pro forma condensed consolidated financial information gives effect to:

  •  the Recapitalization;
 
  •  the offering of the initial notes, the repurchase of the approximately $94.2 million aggregate principal amount of 8 1/2% senior subordinated notes in the tender offer, the repurchase of approximately $17.8 million aggregate principal amount of 9% senior subordinated notes tendered and not withdrawn in the change of control offer, $260.0 million of borrowings under the amended senior credit facility and the repayment of all outstanding amounts under the former senior credit facility; and
 
  •  the fees and expenses associated with the Transactions.

      The unaudited pro forma condensed consolidated financial information should not be considered indicative of actual results that would have been achieved had the Transactions been consummated on the date or for the periods indicated and do not purport to indicate consolidated balance sheet data or income statement data or other financial data as of any future date or for any future period.

      The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the information contained in “Selected Historical Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes appearing elsewhere in this offering memorandum.

40


 

CINEMARK, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of March 31, 2004
                             
Historical Adjustments(1) Pro Forma



(In thousands)
ASSETS
Cash and cash equivalents
  $ 448,150     $ (350,314 )(a)   $ 52,897  
              (44,939 )(b)        
Accounts receivable
    13,671               13,671  
Other current assets
    10,361       150  (b)     10,511  
Theatre properties and equipment, net
    773,285               773,285  
Goodwill
    11,977               11,977  
Intangible assets — net
    7,744               7,744  
Deferred charges and other assets — net
    44,695       12,796  (b)     57,491  
     
     
     
 
TOTAL ASSETS
  $ 1,309,883     $ (382,307 )   $ 927,576  
     
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
LIABILITIES
                       
 
Accounts payable
    41,228       (10,480 )(g)     30,748  
 
Accrued film rentals
    24,737               24,737  
 
Accrued interest
    6,931       (1,408 )(g)     5,523  
 
Accrued payroll
    9,535               9,535  
 
Accrued property taxes
    9,691               9,691  
 
Accrued other current liabilities
    27,726               27,726  
 
Long-term debt
    1,016,297       260,000  (b)     1,001,008  
              (163,763 )(b)        
              (94,165 )(b)        
              389  (b)        
              (17,750 )(b)        
 
Deferred income taxes
    15,092       (15,019 )(d)     73  
 
Deferred lease expenses
    27,716               27,716  
 
Deferred revenues and other long-term liabilities
    9,627               9,627  
     
     
     
 
   
Total liabilities
    1,188,580       (42,196 )     1,146,384  
COMMITMENTS AND CONTINGENCIES
                   
MINORITY INTERESTS IN SUBSIDIARIES
    34,434               34,434  
STOCKHOLDERS’ EQUITY (DEFICIENCY)
                       
 
Common stock
    41       (13 )(c)     28  
 
Additional paid-in-capital
    40,369       556,700  (c)     597,069  
 
Retained earnings (deficit)
    134,593       (898,393 )(c)     (763,800 )
 
Accumulated other comprehensive loss
    (86,539 )             (86,539 )
 
Other
    (1,595 )     1,595  (c)      
     
     
     
 
TOTAL STOCKHOLDERS’ EQUITY (DEFICIENCY)
    86,869       (340,111 )     (253,242 )
     
     
     
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
  $ 1,309,883     $ (382,307 )   $ 927,576  
     
     
     
 


(1) See notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

41


 

CINEMARK, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

For the Three Months Ended March 31, 2004
                             
Historical Adjustments(1) Pro Forma



(In thousands, except per share amounts)
Revenues
  $ 235,112     $       $ 235,112  
Cost of operations:
                       
 
Film rentals and advertising
    78,972               78,972  
 
Concession supplies
    12,113               12,113  
 
Salaries and wages
    24,317               24,317  
 
Facility lease expense
    31,088               31,088  
 
Utilities and other
    26,580               26,580  
     
     
     
 
   
Total cost of operations
    173,070             173,070  
General and administrative expenses
    11,869               11,869  
Depreciation and amortization
    16,889               16,889  
Asset impairment loss
    1,000               1,000  
Gain on sale of assets and other
    (513 )             (513 )
     
     
     
 
   
Total costs and expenses
    202,315             202,315  
     
     
     
 
OPERATING INCOME
    32,797             32,797  
OTHER EXPENSE
                       
 
Interest expense
    (12,562 )     (7,378 )(e)     (20,459 )
              (519 )(f)        
 
Other
    (752 )             (752 )
     
     
     
 
   
Total other expenses
    (13,314 )     (7,897 )     (21,211 )
     
     
     
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    19,483       (7,897 )     11,586  
INCOME TAXES
    7,948       (3,222 )(d)     4,726  
     
     
     
 
INCOME FROM CONTINUING OPERATIONS
  $ 11,535     $ (4,675 )   $ 6,860  
     
     
     
 
INCOME FROM CONTINUING OPERATIONS PER SHARE — BASIC
  $ 0.28             $ 0.25  
INCOME FROM CONTINUING OPERATIONS PER SHARE — DILUTED
  $ 0.28             $ 0.25  


(1) See notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

42


 

CINEMARK, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

For the Year Ended December 31, 2003
                             
Historical Adjustments(1) Pro Forma



(In thousands, except per share amounts)
Revenues
  $ 950,872     $       $ 950,872  
Cost of operations:
                       
 
Film rentals and advertising
    324,902               324,902  
 
Concession supplies
    49,640               49,640  
 
Salaries and wages
    97,240               97,240  
 
Facility lease expense
    119,517               119,517  
 
Utilities and other
    110,792               110,792  
     
     
     
 
   
Total cost of operations
    702,091             702,091  
General and administrative expenses
    44,285               44,285  
Depreciation and amortization
    65,085               65,085  
Asset impairment loss
    5,049               5,049  
Gain on sale of assets and other
    (1,202 )             (1,202 )
     
     
     
 
   
Total costs and expenses
    815,308               815,308  
     
     
     
 
OPERATING INCOME
    135,564               135,564  
OTHER EXPENSE
                       
 
Interest expense
    (54,163 )     (29,896 )(e)     (85,365 )
              (1,306 )(f)        
 
Loss on early retirement of debt
    (7,540 )             (7,540 )
 
Other
    (1,106 )             (1,106 )
     
     
     
 
   
Total other expenses
    (62,809 )     (31,202 )     (94,011 )
     
     
     
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    72,755       (31,202 )     41,553  
INCOME TAXES
    25,166       (10,796 )(d)     14,370  
     
     
     
 
INCOME FROM CONTINUING OPERATIONS
  $ 47,589     $ (20,406 )   $ 27,183  
     
     
     
 
INCOME FROM CONTINUING OPERATIONS PER SHARE — BASIC
  $ 1.10             $ 0.98  
INCOME FROM CONTINUING OPERATIONS PER SHARE — DILUTED
  $ 1.09             $ 0.98  


(1) See notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

43


 

CINEMARK, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL INFORMATION
(Dollars in thousands)

(a) Reflects the sources and uses of funds in connection with the Recapitalization as summarized below.

           
Sources of Funds:

Cash from equity sponsor
  $ 518,245  
Net cash used(1)
    350,314  
     
 
 
Total
  $ 868,559  
     
 
           
Uses of Funds:

Payment to equity holders(2)
  $ 840,655  
Transaction fees(3)
    27,904  
     
 
 
Total
  $ 868,559  
     
 

 

  (1)  Consists of cash provided by the issuance of the 9 3/4% senior discount notes on March 31, 2004, which resulted in gross proceeds of $360,000.

  (2)  Includes $11,363 of withholding taxes.
 
  (3)  Represents transaction fees associated with the Recapitalization that were recorded as a reduction to additional paid-in-capital.

(b)  Reflects the sources and uses of the proceeds from the financing transactions in connection with the Recapitalization as summarized below.
           
Sources of Funds:

Amended senior credit facility(1)
  $ 260,000  
Net cash used(2)
    44,939  
     
 
 
Total
  $ 304,939  
     
 
           
Uses of Funds:

Repay former senior credit facility term note
  $ 163,763  
Repurchase 8 1/2% senior subordinated notes(3)
    94,165  
Repurchase 9% senior subordinated notes(4)
    17,750  
Debt issue and tender fees(5)
    29,261  
     
 
 
Total
  $ 304,939  
     
 

 

  (1)  Represents borrowings by Cinemark USA, Inc. under the amended senior credit facility.

  (2)  Consists of a portion of the cash received upon the issuance of the 9 3/4% senior discount notes on March 31, 2004 together with available cash of $35,253.
 
 
  (3)  Represents repurchase of $94,165 aggregate principal amount of the 8 1/2% senior subordinated notes pursuant to the tender offer (which includes $389 of unamortized bond discount).
 
 
  (4)  Represents repurchase of $17,750 aggregate principal amount of the 9% senior subordinated notes pursuant to the change of control offer.
 
 
  (5)  Represents debt issue fees in conjunction with the issuance of the senior discount notes and the amended senior credit facility, of which $12,946 were capitalized, and certain premiums and fees associated with the tender offer.

(c)  Records the impact on equity as a result of the Transactions. Common stock, additional paid-in-capital and retained earnings reflects the constructive retirement of all outstanding common stock and the subsequent reissuance of common stock to the equity sponsor and management investors. Retained earnings has been adjusted by $21,792 related to the Transactions that will be recognized in our 2004 Consolidated Statement of Operations but are not reflected in the unaudited pro forma condensed statement of income due to the non-recurring nature of the transaction costs.

(d)  Adjusts income taxes on a pro forma basis to reflect our effective tax rate of 34.6% for the year ended December 31, 2003 and 40.8% for the three months ended March 31, 2004.

44


 

CINEMARK, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL INFORMATION — (Continued)

(e) Represents change in interest expense arising from:

                   
Three Months
Year Ended Ended
December 31, 2003 March 31, 2004


Interest expense on amended senior credit facility:
               
 
Term loan
  $ 8,710     $ 2,178  
 
Revolving credit facility
           
Interest expense on 9 3/4% senior discount notes
    35,100       8,679  
Interest expense on former senior credit facility:
               
 
Term loan
    (5,910 )     (1,478 )
 
Revolving credit facility
           
Interest expense on 8 1/2% senior subordinated notes
    (8,004 )     (2,001 )
     
     
 
Net increase
  $ 29,896     $ 7,378  
     
     
 

(f) Represents change in amortization of debt issue costs:

                 
Debt issuance costs related to the amended senior credit facility
  $ 1,036     $ 259  
Debt issuance costs related to 9 3/4% senior discount notes
    1,589       397  
Debt issuance costs related to former senior credit facility
    (1,319 )     (137 )
Debt issuance costs related to 8 1/2% senior subordinated notes
           
     
     
 
Net increase
  $ 1,306     $ 519  
     
     
 

(g)  Represents debt issue costs and interest accrued as of March 31, 2004 that were paid upon the consummation of the Recapitalization.

45


 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

      The following tables set forth our selected consolidated financial and operating data as of and for the periods indicated. Our historical financial data for each of the years ended December 31, 2003 is derived from our consolidated audited financial statements. Our historical financial data for the three months ended March 31, 2003 and 2004 is derived from our unaudited interim financial statements which, in the opinion of management, contain all adjustments necessary for a fair presentation of this information. The historical financial data for the three months ended March 31, 2004 is not necessarily indicative of the results expected for the full year. Certain reclassifications have been made to the 1999, 2000, 2001, 2002 and 2003 financial statements to conform to the 2004 presentation. You should read the selected consolidated financial and operating data set forth below in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and with our consolidated financial statements and unaudited interim financial statements and related notes appearing elsewhere in this prospectus.

                                                             
Three Months
Ended
Year Ended December 31, March 31,


1999 2000 2001 2002 2003 2003 2004







(In thousands, except for ratios) (Unaudited)
Statement of Operations Data (Consolidated)(1):                                                
 
Revenues
  $ 712,604     $ 786,264     $ 853,658     $ 935,854     $ 950,872     $ 202,473     $ 235,112  
 
Theatre operating costs
    463,673       504,519       531,967       570,947       582,574       124,062       141,982  
 
Facility lease expense
    89,808       108,489       114,737       115,588       119,517       28,451       31,088  
 
General and administrative expenses
    34,833       39,013       42,597       47,953       44,285       9,443       11,869  
 
Depreciation and amortization
    53,269       66,111       73,079       66,583       65,085       15,996       16,889  
 
Asset impairment loss
    3,720       3,872       20,723       3,869       5,049             1,000  
 
(Gain) loss on sale of assets and other
    2,420       912       12,408       470       (1,202 )     (616 )     (513 )
     
     
     
     
     
     
     
 
   
Total expenses
    647,723       722,916       795,511       805,410       815,308       177,336       202,315  
     
     
     
     
     
     
     
 
 
Operating income
    64,881       63,348       58,147       130,444       135,564       25,137       32,797  
 
Interest expense(2)
    59,867       74,037       70,931       57,793       54,163       13,879       12,562  
 
Income (loss) from continuing operations before cumulative effect of an accounting change
    4,004       (10,423 )     (3,462 )     40,516       47,589       5,765       11,535  
 
Loss from discontinued operations
                (559 )     (1,651 )     (2,939 )     (315 )     (1,763 )
 
Net income (loss)(3)
  $ 1,035     $ (10,423 )   $ (4,021 )   $ 35,476     $ 44,650     $ 5,450     $ 9,772  
     
     
     
     
     
     
     
 
Other Financial Data (Consolidated)(1):                                                
Cash flow from (used for):
                                                       
 
Operating activities
  $ 92,102     $ 54,796     $ 87,117     $ 150,119     $ 135,522     $ (15,649 )   $ 10,004  
 
Investing activities
    (223,044 )     (94,886 )     (33,799 )     (34,750 )     (47,151 )     (7,116 )     (16,210 )
 
Financing activities
    114,927       51,280       (21,508 )     (96,140 )     (45,738 )     1,545       347,079  
 
Capital expenditures
    248,371       113,081       40,352       38,032       51,002       (8,603 )     (17,850 )
Ratio of earnings to fixed charges(4)
    1.0x                   1.7x       1.8x       1.4x       1.9x  
                                                           
As of December 31, As of March 31,


1999 2000 2001 2002 2003 2003 2004







(In thousands) (Unaudited)
Balance Sheet Data (Consolidated):                                                
 
Cash and cash equivalents
  $ 8,872     $ 19,840     $ 50,199     $ 63,719     $ 107,322     $ 42,652     $ 448,150  
 
Theatre properties and equipment — net
    933,959       950,135       866,406       791,731       775,880       784,294       773,285  
 
Total assets
    1,041,861       1,060,576       996,544       916,814       960,736       898,929       1,309,883  
 
Total long-term debt, including current portion
    778,413       810,323       780,956       692,587       658,431       704,099       1,016,297  
 
Stockholders’ equity
    63,851       48,910       25,337       27,664       76,947       34,335       86,869  
(footnotes begin on the following page)

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Three Months
Ended
As of December 31, March 31,


1999 2000 2001 2002 2003 2003 2004







Operating Data(1):                                                
 
North America(5)(7)
                                                       
   
Theatres operated (at period end)
    185       190       188       188       189       186       200  
   
Screens operated (at period end)
    2,102       2,217       2,217       2,215       2,244       2,206       2,323  
   
Total attendance
    90,996       92,425       100,022       111,959       112,581       24,264       26,323  
 
International(6)
                                                       
   
Theatres operated (at period end)
    69       80       88       92       97       92       97  
   
Screens operated (at period end)
    606       695       783       816       852       818       852  
   
Total attendance
    39,938       46,152       53,853       60,109       60,553       13,727       15,791  
 
Worldwide(5)(6)(7)
                                                       
   
Theatres operated (at period end)
    254       270       276       280       286       278       297  
   
Screens operated (at period end)
    2,708       2,912       3,000       3,031       3,096       3,024       3,175  
   
Total attendance
    130,934       138,577       153,875       172,068       173,134       37,991       42,114  


(1)  Statement of operations data and attendance data exclude the results of our United Kingdom theatres for all periods presented, as these theatres were classified as held for sale at March 31, 2004. The results of operations for these two theatres are presented as discontinued operations.
 
(2)  Includes amortization of debt issue cost and excludes capitalized interest for all periods presented.
 
(3)  In 1999, a cumulative effect of a change in accounting principle charge of $3.0 million (net of tax benefit) was recorded in connection with the adoption of Statement of Position (SOP) 98-5 requiring start-up activities and organization costs to be expensed as incurred. In 2002, a cumulative effect of a change in accounting principle charge of $3.4 million (net of tax benefit) was recorded as a transitional impairment adjustment in connection with the adoption of Statement of Financial Accounting Standards No. 142 requiring that goodwill and other intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually.
 
(4)  For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before taxes and cumulative effect of an accounting change plus fixed charges excluding capitalized interest. Fixed charges consist of interest expense, capitalized interest, amortization of debt issue cost and that portion of rental expense which we believe to be representative of the interest factor. For the years ended December 31, 2000 and 2001, earnings were insufficient to cover fixed charges by $10.4 million and $17.9 million, respectively.
 
(5)  The data excludes certain theatres operated by us in North America pursuant to management agreements that are not part of our consolidated operations.
 
(6)  The data excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations.
 
(7)  The data for 2003 excludes theatres, screens and attendance for the eight theatres and 46 screens acquired in the United States on December 31, 2003, because the results of operations for these theatres are not included in our 2003 consolidated results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

      The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes and schedules included elsewhere in this prospectus.

Revenues and Expenses

      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 quarter of 2004 included the blockbuster The Passion of the Christ, which exceeded $300 million in U.S. box office receipts. Films released and scheduled for release during the remainder of 2004 include highly anticipated sequels such as Shrek 2, Harry Potter and the Prisoner of Azkaban and Spider-Man 2 as well as other anticipated blockbusters such as Van Helsing and The Day After Tomorrow.

      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 rules 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 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

48


 

believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

     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

49


 

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.

     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.

50


 

Results of Operations

      Set forth below is a summary of operating revenues and expenses, certain income statement items expressed as a percentage of revenues, average screen count and revenues per average screen for the three most recent years ended December 31, 2001, 2002 and 2003 and for the three months ended March 31, 2003 and 2004.

                                             
Three Months Ended
Year Ended December 31, March 31,


2001 2002 2003 2003 2004





(Unaudited)
Operating Data (in millions)(1):
                                       
Revenues:
                                       
 
Admissions
  $ 548.9     $ 595.3     $ 597.5     $ 127.7     $ 149.7  
 
Concession
    257.6       291.8       300.6       63.9       73.3  
 
Other
    47.2       48.8       52.8       10.9       12.1  
     
     
     
     
     
 
   
Total revenues
  $ 853.7     $ 935.9     $ 950.9     $ 202.5     $ 235.1  
     
     
     
     
     
 
Cost of operations:
                                       
 
Film rentals and advertising
  $ 295.0     $ 320.7     $ 324.9     $ 66.9     $ 79.0  
 
Concession supplies
    44.9       50.4       49.6       9.8       12.1  
 
Salaries and wages
    90.8       96.7       97.2       22.3       24.3  
 
Facility lease expense
    114.7       115.6       119.5       28.5       31.1  
 
Utilities and other
    101.3       103.2       110.8       25.0       26.6  
     
     
     
     
     
 
   
Total cost of operations
  $ 646.7     $ 686.6     $ 702.0     $ 152.5     $ 173.1  
     
     
     
     
     
 
Operating data as a percentage of total revenues(1):
                                       
Revenues:
                                       
 
Admissions
    64.3 %     63.6 %     62.8 %     63.1 %     63.7 %
 
Concession
    30.2       31.2       31.6       31.6       31.2 %
 
Other
    5.5       5.2       5.6       5.3       5.1 %
     
     
     
     
     
 
   
Total revenues
    100.0       100.0       100.0       100.0       100.0 %
Cost of operations:
                                       
 
Film rentals and advertising(2)
    53.7       53.9       54.4       52.4       52.8  
 
Concession supplies(2)
    17.4       17.3       16.5       15.3       16.5  
 
Salaries and wages
    10.6       10.3       10.2       11.0       10.3  
 
Facility lease expense
    13.4       12.4       12.6       14.1       13.2  
 
Utilities and other
    11.9       11.0       11.7       12.3       11.3  
   
Total cost of operations
    75.8       73.4       73.8       75.3       73.6  
Average screen count (month end average)
    2,954       2,998       3,027       3,009       3,118  
     
     
     
     
     
 
Revenues per average screen
  $ 288,961     $ 312,183     $ 314,178     $ 67,295     $ 75,417  
     
     
     
     
     
 


(1)  Certain reclassifications have been made to the 2001, 2002 and 2003 financial statements to conform to the 2004 presentation.
 
(2)  All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues, and concession supplies, which are expressed as a percentage of concession revenues.

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     Comparison of Three Months Ended March 31, 2004 and March 31, 2003

      Revenues. Revenues for the three month period ended March 31, 2004 increased to $235.1 million from $202.5 million for the three month period ended March 31, 2003, representing a 16.1% increase. Attendance increased 10.9% from 38.0 million patrons for the first quarter of 2003 to 42.1 million patrons for the first quarter of 2004. The increase in attendance and revenues for the first quarter of 2004 is primarily due to quality film product, including the first quarter release of the blockbuster The Passion of the Christ, which has exceeded the $300 million level in U.S. box office receipts. Our average ticket price was $3.55 for the first quarter of 2004 compared to $3.36 for the first quarter of 2003, an increase of 5.7%. Concession revenues per patron was $1.74 for the first quarter of 2004 compared to $1.68 for the first quarter of 2003, an increase of 3.4%. Revenues per screen increased 12.1% to $75,417 for the first quarter of 2004 from $67,295 for the first quarter of 2003.

      Cost of Operations. Cost of operations, as a percentage of revenues, decreased to 73.6% for the first quarter of 2004 from 75.3% for the first quarter of 2003. The decrease, as a percentage of revenues, was primarily due to the 16.1% increase in revenues and our ability to effectively control our theatre operating costs, many of which are primarily fixed in nature, such as salaries and wages, facility lease expense and utilities and other costs.

      Film rentals and advertising costs increased to 52.8% of admissions revenues for the first quarter of 2004 from 52.4% for the first quarter of 2003, primarily related to stronger film product during the first quarter of 2004. Concession supplies increased to 16.5% of concession revenues for the first quarter of 2004 from 15.3% for the first quarter of 2003, primarily related to increased costs on certain concession products.

      Salaries and wages increased to $24.3 million for the first quarter of 2004 from $22.3 million for the first quarter of 2003 due to the increase in attendance. Facility lease expense increased to $31.1 million for the first quarter of 2004 from $28.5 million for the first quarter of 2003 primarily due to new theatre openings and increased percentage rent expense. Utilities and other costs increased to $26.6 million for the first quarter of 2004 from $25.1 million for the first quarter of 2003 primarily due to increased utility rates in certain regions in which we operate.

      General and Administrative Expenses. General and administrative expenses increased to $11.9 million for the first quarter of 2004 from $9.4 million for the first quarter of 2003. The increase was due to a $1.2 million increase in corporate salaries and benefits including incentive bonus expense, a $0.8 million increase in international overhead expenses, a $0.3 million increase in professional fees and a $0.2 million increase in credit card and bank service charges.

      Depreciation and Amortization. Depreciation and amortization expense was $16.9 million for the first quarter of 2004 compared to $16.0 million for the first quarter of 2003. The increase is primarily due to an increase in our asset base since the first quarter of 2003 due to new theatre development.

      Asset Impairment Loss. During the first quarter of 2004, we wrote down the long-lived assets of one theatre located in the U.S. to estimated fair value, which resulted in an asset impairment charge of $1.0 million.

      Interest Expense. Interest costs incurred, which includes amortization of debt issue costs, was $12.6 million for the first quarter of 2004 compared to $13.9 million for the first quarter of 2003.

      Loss on Early Retirement of Debt. During the first quarter of 2003, we recorded a loss on early retirement of debt of $1.6 million which represented the write-off of unamortized debt issue costs associated with the retirement of certain debt agreements, including our then existing credit facility.

      Income Taxes. Income tax expense of $7.9 million was recorded for the first quarter of 2004 compared to income tax expense of $3.9 million recorded for the first quarter of 2003. Our effective tax rate for the first quarter of 2004 was 40.8% compared to 40.7% for the first quarter of 2003.

      Loss from Discontinued Operations. We recorded a loss from discontinued operations, net of income tax benefit, of $1.8 million during the first quarter of 2004 and $0.3 million during the first quarter of 2003.

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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 the first quarter of 2004, is a loss on assets held for sale of $1.8 million recorded to write down these theatres to their estimated fair market value less costs to sell, in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. See Note 4 to the condensed consolidated financial statements.

     Comparison of Years Ended December 31, 2003 and December 31, 2002

      Revenues. Revenues for 2003 increased 1.6% to $950.9 million from $935.9 million in 2002. The increase in revenues is attributable to a 0.6% increase in attendance and a 2.4% increase in concession revenues per patron. Attendance for 2003 was 173.1 million compared to 172.1 million for 2002. Concession revenues per patron were $1.74 for 2003 compared to $1.70 for 2002. The increase in concession revenues per patron is primarily a result of the successful implementation of a domestic concession price increase during the fourth quarter of 2002. Average ticket prices for 2003 were consistent with 2002. Revenues per average screen increased 0.6% to $314,178 for 2003 from $312,183 for 2002.

      Cost of Operations. Cost of operations, as a percentage of revenues, increased to 73.8% in 2003 from 73.4% in 2002. Film rentals and advertising increased to 54.4% of admissions revenues for 2003 from 53.9% for 2002. The increase is due to increased film rental costs and promotional activities during 2003. Facility lease expense increased to 12.6% of revenues for 2003 from 12.4% for 2002. Utilities and other costs increased to 11.7% of revenues for 2003 from 11.0% for 2002, primarily due to increased utility costs, insurance and repairs and maintenance expense. Concession supplies decreased to 16.5% of concession revenues for 2003 from 17.3% for 2002, primarily as a result of the successful implementation of a domestic concession price increase during the fourth quarter of 2002. Salaries and wages decreased to 10.2% of revenues for 2003 from 10.3% for 2002.

      General and Administrative Expenses. General and administrative expenses, as a percentage of revenues, decreased to 4.7% in 2003 from 5.1% in 2002. General and administrative expenses decreased to $44.3 million for 2003 from $48.0 million for 2002. The decrease is primarily related to the write-off of $3.1 million of legal, accounting and other professional fees and costs in 2002, associated with our proposed initial public offering which was subsequently postponed due to unfavorable market conditions.

      Depreciation and Amortization. Depreciation and amortization decreased to $65.1 million in 2003 from $66.6 million in 2002. Depreciation and amortization as a percentage of revenues decreased to 6.8% in 2003 from 7.1% in 2002.

      Asset Impairment Loss. We recorded asset impairment charges on assets held and used of $5.0 million in 2003 and $3.9 million in 2002, as follows:

                 
Years Ended
December 31,

2003 2002


Mexico
  $ 1.2     $  
U.S. 
    3.0       1.8  
Chile
    0.7       1.3  
Other
    0.1       0.8  
     
     
 
Total
  $ 5.0     $ 3.9  
     
     
 

      Gain/loss on Sale of Assets and Other. We recorded a gain on sale of assets and other of $1.2 million in 2003 compared to a loss on sale of assets and other of $0.5 million in 2002.

      Interest Expense. Interest costs incurred, including amortization of debt issue cost, decreased 6.2% to $54.2 million in 2003 from $57.8 million in 2002. The decrease in interest costs incurred during 2003 was primarily due to a decrease in average debt outstanding during the year under our long-term debt facilities.

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      Foreign Currency Exchange Loss. We recorded a foreign currency exchange loss of $0.2 million in 2003 compared to a foreign currency exchange loss of $5.1 million in 2002. The loss recorded during 2002 was due to the translation of Cinemark Brasil S.A.’s assets and liabilities denominated in other than local currency and the devaluation of the real during 2002.

      Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of $7.5 million during 2003 that included a $1.6 million loss resulting from the write-off of unamortized debt issue costs associated with the retirement of our then existing credit facility and the Cinema Properties Facility that occurred during the first quarter of 2003, a $5.6 million loss resulting from the write-off of unamortized debt issue costs, unamortized bond premiums/ discounts and tender offer repurchase costs associated with the tender offer to repurchase and subsequent retirement of approximately $233 million principal amount of outstanding 9 5/8% Senior Subordinated Notes due 2008, or the 9 5/8% senior subordinated notes, that occurred during the second quarter of 2003 and a $0.3 million loss resulting from the write-off of unamortized debt issue costs, unamortized bond premiums/discounts and other fees associated with the redemption of the remaining $42 million principal amount of the 9 5/8% senior subordinated notes that occurred during the third quarter of 2003.

      Income Taxes. Income tax expense of $25.2 million was recorded in 2003 compared to income tax expense of $29.2 million in 2002. Our effective tax rate for 2003 was 34.6% as compared to 41.9% in 2002. The change in the effective tax rate is primarily due to a decrease in foreign losses not offset by a valuation allowance.

      Loss from Discontinued Operations. We recorded a loss from discontinued operations, net of taxes, of $2.9 million for 2003 and $1.7 million for 2002, both of which represent the results of operations for our two United Kingdom theatres for the respective periods. Included in the loss recorded in 2003 is an asset impairment loss of $2.5 million recorded to write down one of these theatres to estimated fair value.

     Comparison of Years Ended December 31, 2002 and December 31, 2001

      Revenues. Revenues in 2002 increased to $935.9 million from $853.7 million in 2001, a 9.6% increase. The increase in revenues is primarily attributable to an 11.8% increase in attendance resulting from stronger film product in 2002. Revenues per average screen increased 8.0% to $312,183 for 2002 from $288,961 for 2001.

      Cost of Operations. Cost of operations, as a percentage of revenues, decreased to 73.4% in 2002 from 75.8% in 2001. The decrease is primarily related to the 9.6% increase in revenues and our ability to effectively control our theatre operating costs (some of which are of a fixed nature). The decrease as a percentage of revenues resulted from a decrease in facility lease expense as a percentage of revenues to 12.4% in 2002 from 13.4% in 2001, a decrease in utilities and other costs as a percentage of revenues to 11.0% in 2002 from 11.9% in 2001, a decrease in salaries and wages as a percentage of revenues to 10.3% in 2002 from 10.6% in 2001, a decrease in concession supplies as a percentage of concession revenues to 17.3% in 2002 from 17.4% in 2001, partially offset by an increase in film rentals and advertising as a percentage of admissions revenues to 53.9% in 2002 from 53.7% in 2001 as a result of stronger film product in 2002.

      General and Administrative Expenses. General and administrative expenses, as a percentage of revenues, increased to 5.1% in 2002 from 5.0% in 2001. General and administrative expenses increased to $48.0 million for 2002 from $42.6 million for 2001. The increase is primarily related to the write-off of $3.1 million of legal, accounting and other professional fees and costs associated with our proposed initial public offering which was subsequently postponed due to unfavorable market conditions.

      Depreciation and Amortization. Depreciation and amortization decreased to $66.6 million in 2002 from $73.1 million in 2001. Depreciation and amortization as a percentage of revenues decreased to 7.1% in 2002 from 8.6% in 2001. The decrease is partially related to the January 1, 2002 adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142 which required that goodwill and other intangible assets with indefinite useful lives no longer be amortized. The decrease is also related to a reduction in the

54


 

depreciable basis of properties and equipment resulting from the devaluation in foreign currencies (primarily in Argentina, Mexico and Brazil) and the decline in new construction.

      Asset Impairment Loss. We recorded asset impairment charges on assets held and used of $3.9 million in 2002 and $20.7 million in 2001, as follows:

                 
Years Ended
December 31,

2002 2001


U.S. 
  $ 1.8     $ 19.0  
Brazil
          1.7  
Chile
    1.3        
Other
    0.8        
     
     
 
Total
  $ 3.9     $ 20.7  
     
     
 

      Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $0.5 million in 2002 and $12.4 million in 2001. Included in loss on sale of assets and other in 2001 is a charge of $7.2 million to write down one property to be disposed of in the U.S. to fair value and a charge of $1.5 million to write down one property to be disposed of in Argentina to fair value.

      Interest Expense. Interest costs incurred, including amortization of debt issue cost, decreased 18.5% to $57.8 million in 2002 from $70.9 million in 2001. The decrease in interest costs incurred during 2002 was due principally to a decrease in average debt outstanding under our then existing credit facility and the lower interest rates on our variable rate debt facilities.

      Income Taxes (Benefit). Income tax expense of $29.2 million was recorded in 2002 as compared to an income tax benefit of $14.1 million in 2001. Our effective tax rate for 2002 was 41.9% as compared to 80.3% in 2001. The change in the effective tax rate is mainly due to the recognition of the Mexico deferred tax asset in 2001.

      Loss from Discontinued Operations. We recorded a loss from discontinued operations, net of taxes, of $1.7 million for 2002 and $0.6 million for 2001, both of which represent the results of operations for our United Kingdom theatres for the respective periods.

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 are expanding 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 (used for) operating activities, as reflected in the consolidated statement of cash flows, amounted to $87.1 million, $150.1 million and $135.5 million in 2001, 2002 and 2003, respectively, and $10.0 million and ($15.6) million for the three months ended March 31, 2004 and March 31, 2003, respectively. The increase in cash provided by operating activities in 2004 is primarily due to the timing of payment of accounts payable and accrued expenses.

      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 consolidated statements of cash flows, amounted to $33.8 million, $34.7 million and $47.2 million in 2001, 2002 and 2003, respectively, and $16.2 million and $7.1 million for the three months ended March 31, 2004 and March 31, 2003, respectively.

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      We are continuing to expand our U.S. theatre circuit. We opened three new theatres with 33 screens during the three month period ended March 31, 2004. At March 31, 2004, we had signed commitments to open nine new theatres with 108 screens and add four screens to two existing theatres by the end of 2004 and signed commitments to open six new theatres with 63 screens thereafter. We estimate the remaining capital expenditures for the development of these 175 screens will be approximately $55 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

      We are continuing to expand our international theatre circuit. At March 31, 2004, we had signed commitments to open five new theatres with 35 screens in international markets by the end of 2004 and signed commitments to open five new theatres with 44 screens in international markets thereafter. We estimate the remaining capital expenditures for the development of these 79 screens in international markets will be approximately $42 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.

      Financing Activities. Cash provided by (used for) financing activities, as reflected in the consolidated statement of cash flows, amounted to ($21.5) million, ($96.1) million and ($45.7) million in 2001, 2002 and 2003, respectively and $347.1 million and $1.5 million for the three month period ended March 31, 2004 and March 31, 2003, respectively. The increase in cash provided by financing activities in 2004 is a result of the issuance of 9 3/4% senior discount notes on March 31, 2004, which resulted in gross proceeds to us in the amount of $360,000,115.

      As of March 31, 2004, our long-term debt obligations, capital lease obligations, future minimum lease obligations under non-cancelable operating leases, outstanding letters of credit, obligations under employment agreements and purchase obligations for each period indicated are summarized as follows:

                                         
Payments Due by Period

Less Than 1 – 3 4 – 5 After 5
Contractual Obligations Total 1 Year Years Years Years






(In millions)
Long-term debt(1)
  $ 1,233.4     $ 6.6     $ 10.5     $ 265.3     $ 951.0  
Operating lease obligations
    1,467.7       106.8       219.4       214.3       927.2  
Letters of Credit
    0.1       0.1                    
Employment Agreements
    8.4       2.8       5.6              
Purchase obligations(2)
    101.3       51.1       49.9       0.3        
     
     
     
     
     
 
Total Contractual Obligations
  $ 2,810.9     $ 167.4     $ 285.4     $ 479.9     $ 1,878.2  
     
     
     
     
     
 


(1)  Includes the 9 3/4% senior discount notes in the aggregate principal amount at maturity of $577.2 million.
 
(2)  Includes estimated capital expenditures associated with the construction of new theatres that we expect to expend as of March 31, 2004.

      As of March 31, 2004, we were in full compliance with all agreements governing our outstanding debt.

Historical Financings

     Senior Subordinated Notes

      As of March 31, 2004, Cinemark USA, Inc. had outstanding two issues of senior subordinated notes, which we refer to collectively as the “senior subordinated notes”: (1) $105.0 million principal amount of the 8 1/2% senior subordinated notes and (2) $360.0 million principal amount of the 9% senior subordinated notes.

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Interest on each issue is payable on February 1 and August 1 of each year. The 9% senior subordinated notes were issued in February and May of 2003. These issues were used to pay a portion of our then existing revolving credit facility and to repurchase a portion of 9 5/8% senior subordinated notes of Cinemark USA, Inc.

      The senior subordinated notes are general, unsecured obligations and are subordinated in right of payment to the former senior credit facility or other senior indebtedness. The senior subordinated notes are guaranteed by certain of Cinemark USA, Inc.’s domestic subsidiaries on a senior subordinated basis. The guarantees are subordinated to the senior debt of the subsidiary guarantors and rank pari passu with the senior subordinated debt of the subsidiary guarantors. The senior subordinated notes are effectively subordinated to the indebtedness and other liabilities of Cinemark USA, Inc.’s 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, Cinemark USA, Inc. 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 Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in each indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.

      In connection with the Transactions, on March 16, 2004, Cinemark USA, Inc. commenced a tender offer for the $105.0 million aggregate principal amount outstanding of the 8 1/2% senior subordinated notes. On April 2, 2003, Cinemark USA, Inc. purchased approximately $94.1 million aggregate principal amount of the 8 1/2% senior subordinated notes which were tendered prior to the consent date as set forth in the tender offer and executed a supplemental indenture removing substantially all of the covenants contained in the indenture governing the 8 1/2% senior subordinated notes. Additionally, on April 14, 2004, Cinemark USA, Inc. purchased $50,000 aggregate principal amount of the 8 1/2% senior subordinated Notes which were tendered after the consent date but prior to the expiration date pursuant to the tender offer. As of the date of this prospectus, Cinemark USA, Inc. has outstanding $10.8 million in aggregate principal amount of 8 1/2% senior subordinated notes. Cinemark USA, Inc. has, in accordance with the terms of the indenture, made a change of control offer following the closing of the Transactions to repurchase the 9% senior subordinated notes at a purchase price equal to 101% of the principal amount of the 9% senior subordinated notes tendered. Approximately $17.8 million in 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 offer price was made on June 1, 2004. As of the date of this prospectus, Cinemark USA, Inc. has outstanding $342.2 million in aggregate principal amount of 9% senior subordinated notes. See “— Financings After the Transactions.”

     Former Senior Credit Facility

      On February 14, 2003, Cinemark USA, Inc. entered into the former senior credit facility consisting of a $75.0 million five-year revolving credit line and a $125.0 million term loan with Lehman Commercial Paper Inc. for itself and as administrative agent for a syndicate of lenders. The former senior credit facility provided for incremental term loans of up to $100.0 million. The net proceeds from the former senior credit facility were used to repay, in full, the then existing revolving credit facility and the Cinema Properties Facility. The revolving credit line had a maturity date of February 14, 2008.

      On August 15, 2003, Cinemark USA, Inc. amended the former senior credit facility to provide a $165.0 million term loan expiring on March 31, 2008. As amended, the former senior credit facility provided for incremental term loans of up to $60.0 million. The net proceeds of the $165.0 million term loan and additional borrowings under the $75.0 million five-year revolving credit line were used to (i) repay $124.7 million of term loans outstanding under the former senior credit facility and (ii) redeem on September 18, 2003 the remaining $42.0 million principal amount of Cinemark USA, Inc.’s then outstanding 9 5/8% senior subordinated notes.

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      Under the amended term loan, principal payments of $412,500 are due each calendar quarter through March 31, 2007 and increase to $39,703,125 each calendar quarter from June 30, 2007 to maturity at March 31, 2008.

      The amended term loan beared interest, at Cinemark USA, Inc.’s option, at: (A) the “base rate” equal to the higher of (i) the prime lending rate as set forth on British Banking Association Telerate page 5 and (ii) the federal funds effective rate from time to time in effect plus 0.50% plus a margin ranging from 1.25% per annum to 1.50% per annum or (B) the eurodollar rate plus a margin ranging from 2.25% per annum to 2.50% per annum. In each case the applicable margin is based upon Cinemark USA, Inc. achieving certain ratios of debt to consolidated EBITDA (as defined in the former senior credit facility).

      Borrowings under the revolving line of credit beared interest, at Cinemark USA, Inc.’s option, at: (A) the base rate plus a margin ranging from 1.25% per annum to 2.00% per annum or (B) the eurodollar rate plus a margin ranging from 2.25% per annum to 3.00% per annum. In each case the applicable margin is based upon Cinemark USA, Inc. achieving certain ratios of debt to consolidated EBITDA (as defined in the former senior credit facility).

      The former senior credit facility was guaranteed by certain subsidiaries of Cinemark USA, Inc. and by Cinemark, Inc. and CNMK Holding, Inc. and was secured by mortgages on certain fee and leasehold properties and security interests on substantially all of our personal and intangible property, including without limitation, pledges of all of the capital stock of CNMK Holding, Inc., Cinemark USA, Inc. and certain domestic subsidiaries and 65% of the voting stock of certain of Cinemark USA, Inc.’s foreign subsidiaries. Under the former senior credit facility, Cinemark USA, Inc. was required to maintain specified levels of fixed charge coverage and set limitations on its leverage ratios. The former senior credit facility limited Cinemark USA, Inc.’s ability to pay dividends and its ability to incur additional indebtedness and liens and, following the issuance of certain types of indebtedness or the disposition of assets, subject to certain exceptions, it would be required to apply certain of the proceeds to repay amounts outstanding under the former senior credit facility. The former senior credit facility also contained certain other covenants and restrictions customary in credit agreements of this kind.

      At March 31, 2004, there was approximately $163.8 million outstanding under the term loan and no outstanding revolver borrowings. Approximately $74.9 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 former senior credit facility at March 31, 2004 was 5.5% per annum. In connection with the Transactions, on April 2, 2004, the former senior credit facility was amended and restated by the amended senior credit facility, the proceeds of which were used to refinance the former senior credit facility. See “— Financings After the Transactions.”

     Cinemark USA Revolving Credit Facility

      In February 1998, Cinemark USA, Inc. entered into a reducing revolving credit facility, or the “revolving credit facility,” with a group of banks for which Bank of America, N.A. acted as administrative agent. Cinemark USA, Inc. prepaid a portion of the indebtedness outstanding under the revolving credit facility on February 11, 2003 with the net proceeds of the original issuance of the 9% senior subordinated notes. The revolving credit facility was repaid in full on February 14, 2003 from the net proceeds of the former senior credit facility.

     Cinemark Mexico Revolving Credit Facility

      In November 1998, Cinemark Mexico (USA), Inc. executed a credit agreement with Bank of America National Trust and Savings Association, or the “Cinemark Mexico Credit Agreement.” On January 15, 2003, the Cinemark Mexico Credit Agreement was paid in full.

     Cinema Properties Credit Facility

      In December 2000, Cinema Properties, Inc., a wholly owned subsidiary that was not subject to restrictions imposed by the former senior credit facility or the indentures governing the senior subordinated

58


 

notes, borrowed $77 million under a 3-year term loan from Lehman Brothers Bank, FSB, or the “Cinema Properties Facility,” which was originally scheduled to mature on December 31, 2003. The $77 million Cinema Properties Facility was repaid in full on February 14, 2003 from the net proceeds of the former senior credit facility. Simultaneously, with such repayment, Cinema Properties, Inc. and its shareholders were merged with and into Cinemark USA, Inc.

     Cinemark Investments Revolving Credit Facility

      In September 1998, Cinemark Investments Corporation borrowed $20 million under the Cinemark Investments Credit Agreement, the proceeds of which were used to purchase fixed rate notes issued by Cinemark Brasil S.A. In September 2001, Cinemark Investments Corporation repaid the $20 million Cinemark Investments Credit Agreement at maturity.

     Cinemark Brasil Notes Payable

      As of March 31, 2004, Cinemark Brasil S.A. had four main types of funding sources executed with local and international banks. These include:

        (1) BNDES (Banco Nacional de Desenvolvimento Econômico e Social (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 March 31, 2004, approximately US$1.0 million was 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 March 31, 2004, approximately US$1.3 million was 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 March 31, 2004, approximately US$0.6 million was outstanding under this financing arrangement;
 
        (4) Project developer financing executed with a mall developer in February 2004 in the amount of $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 March 31, 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 March 31, 2004, an aggregate of US$3.6 million was outstanding and the effective interest rate on such borrowings was 12.7% per annum.

     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 guarantees issued by Cinemark International, L.L.C. and Chile Films S.A., whose owners are shareholders of Cinemark Chile S.A. The agreement requires Cinemark Chile S.A. to maintain certain financial ratios and contains other restrictive

59


 

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%. As of March 31, 2004, $7.2 million was outstanding under this agreement and the effective interest rate on such borrowings was 6.4% per annum.

     Cinemark Brasil Equity Financing

      During 2001, Cinemark Brasil S.A. received additional capital from its Brazilian shareholders in an aggregate amount equal to the approximate U.S. dollar equivalent in Brazilian reais of $11.0 million in exchange for shares of common stock of Cinemark Brasil S.A. The contributions were made in July in the aggregate amount of $5.0 million and in November in the aggregate amount of $6.0 million. The additional capital was used to fund development in Brazil and to reduce Cinemark Brasil S.A.’s outstanding indebtedness. After giving effect to the additional issuance of common stock, Cinemark International’s ownership interest was diluted to approximately 53%.

      As a result of the Recapitalization, we have provided notice to our Brazilian partners (i) that our then existing stockholders will no longer own more than 25% of our common stock and (ii) that Lee Roy Mitchell has sold certain of his shares of our common stock for cash. The Brazilian partners have exercised their option to cause us or one of our designees to purchase shares of common stock of Cinemark Brazil 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. We 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 we are unable to agree upon a price on or prior to June 18, 2004, 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 by Cinemark USA, Inc. or with available cash.

Financings After the Transactions

      We intend to fund our ongoing operations through cash generated by operations and availability under the amended senior credit facility.

     Amended Senior Credit Facility

      In connection with the Transactions, Cinemark USA, Inc., as borrower, Cinemark, Inc., as parent and a guarantor and CNMK Holding, Inc., as a guarantor, entered into an amended and restated senior secured credit facility with Lehman Commercial Paper Inc., as administrative agent, Goldman Sachs Credit Partners L.P., as syndication agent, and Lehman Brothers Inc. and Goldman Sachs Credit Partners L.P., acting as joint lead arrangers and joint bookrunners, Deutsche Bank Securities Inc., The Bank of New York, General Electric Capital Corporation and CIBC Inc., as co-documentation agents, and a syndicate of banks, financial institutions and other institutional lenders. The amended senior credit facility consists of a seven year $260.0 million term loan and a six and one-half year $100.0 million revolving credit facility (which was undrawn on the date of the closing of the Recapitalization). The term loan was made in a single drawing of $260.0 million on the closing date of the Transactions, or the “closing date.” The net proceeds of the term loan were used to refinance Cinemark USA, Inc.’s former senior credit facility and to fund a portion of the purchase of Cinemark USA, Inc.’s 8 1/2% senior subordinated notes pursuant to the tender offer.

      Principal payments of the term loan equal to 0.25% of the original principal amount of the initial term loan are due each calendar quarter beginning on June 30, 2004 through March 31, 2010 and increase to 23.50% each calendar quarter from June 30, 2010 to maturity at March 31, 2011.

      The term loan bears interest, at Cinemark USA, Inc.’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 1.25% per annum, or (B) a “eurodollar rate” equal to the rate at which eurodollar deposits are offered in the interbank eurodollar market for terms of one, two, three or six, or (if available to all lenders in their sole discretion) nine or twelve months, as selected by us, plus a margin of 2.25% per annum. After the completion of two full fiscal quarters after the closing date, the margin under the term loans applicable to base rate loans ranges from 1.00% per annum to

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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 performance targets to be agreed upon, if no default or event of default under the amended senior credit facility has occurred or is continuing.

      Borrowings under the revolving credit line bear interest, at Cinemark USA, Inc.’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” equal to the rate at which eurodollar deposits are offered in the interbank eurodollar market for terms of one, two, three or six, or (if available to all lenders in their sole discretion) nine or twelve months, as selected by us, plus a margin of 2.50% per annum. After the completion of two full 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 performance targets to be agreed upon, if no default or event of default under the amended senior credit facility has occurred or is continuing.

      The obligations of Cinemark USA, Inc. under the amended senior credit facility are guaranteed by Cinemark, Inc., CNMK Holding, Inc. and certain of Cinemark USA, Inc.’s subsidiaries and are secured by mortgages on certain fee and leasehold properties and a security interest in substantially all of our personal and intangible property, including without limitation, pledges of all of the capital stock of certain domestic subsidiaries and 65% of the voting stock of certain of our foreign subsidiaries. Under the amended senior credit facility, Cinemark USA, Inc. is required to maintain specified levels of interest coverage and set limitations on its leverage ratios. We are limited in our ability to pay dividends and in our ability to incur additional indebtedness and liens and, following the issuance of certain types of indebtedness or the disposition of assets, subject to certain exceptions, we are required to apply certain of the proceeds to repay amounts outstanding under the amended senior credit facility. The amended senior credit facility also contains certain other covenants and restrictions customary in credit agreements of this kind.

     Tender Offer for 8 1/2% Senior Subordinated Notes

      On March 31, 2004, Cinemark USA, Inc. had outstanding $105.0 million in 8  1/2% senior subordinated notes due 2008. On March 16, 2004, Cinemark USA, Inc. initiated a tender offer for the 8 1/2% senior subordinated notes and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. The 8 1/2% senior subordinated notes are currently redeemable at our option at 104.25% of the principal amount thereof, and at declining amounts after August 1, 2004, plus accrued and unpaid interest thereon to the date of redemption. On March 25, 2004, a supplemental indenture removing substantially all of the covenants was executed, which became effective on April 2, 2004, the date the Recapitalization was consummated. Upon closing of the Recapitalization, Cinemark USA, Inc. purchased approximately $94.1 million aggregate principal amount of 8 1/2% senior subordinated notes which were tendered prior to the consent date as set forth in the tender offer. On April 14, 2004, Cinemark USA, Inc. purchased an additional $50,000 aggregate principal amount of 8 1/2% senior subordinated notes which were tendered after the consent date but prior to the expiration date pursuant to the tender offer. After the expiration of the tender offer, Cinemark USA, Inc. had outstanding $10.8 million principal amount of 8 1/2% senior subordinated notes.

     Change of Control Offer for 9% Senior Subordinated Notes

      In accordance with the terms of the indenture governing the 9% senior subordinated notes, on April 6, 2004, Cinemark USA, Inc. made a change of control offer following the closing of the Transactions to repurchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, to 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 offer price was made with available cash by Cinemark USA, Inc. on June 1, 2004. After the expiration of the tender offer, Cinemark USA, Inc. had outstanding $342.2 million principal amount of 9% senior subordinated notes.

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     Issuance of the Initial Notes

      We have $577,173,000 in aggregate principal amount at maturity of initial notes outstanding. The indenture governing the notes, among other things: (1) restricts our ability and the ability of our subsidiaries to incur additional indebtedness, issue shares of preferred stock, incur liens, pay dividends or make certain other restricted payments and enter into certain transactions with affiliates; (2) prohibits certain restrictions on the ability of certain of our subsidiaries to pay dividends or make certain payments to us; and (3) places restrictions on our ability and the ability of our subsidiaries to merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. The indenture relating to the initial notes and the amended senior credit facility also contain various covenants that limit our discretion in the operation of our business.

      As of March 31, 2004, our long-term debt obligations, capital lease obligations, future minimum lease obligations under non-cancelable operating leases and purchase obligations, on a pro forma basis after giving effect to the Transactions, would have been as follows:

                                         
Payments Due by Period As Adjusted

Less Than 1 – 3 4 – 5 After 5
Contractual Obligations Total 1 Year Years Years Years






(In millions)
Long-term debt(1)
  $ 1,218.1     $ 7.6     $ 12.4     $ 17.9     $ 1,180.2  
Operating lease obligations
    1,467.7       106.8       219.4       214.3       927.2  
Letters of Credit
    0.1       0.1                    
Employment Agreements
    8.4       2.8       5.6              
Purchase obligations(2)
    101.3       51.1       49.9       0.3        
     
     
     
     
     
 
Total Contractual Obligations
  $ 2,795.6     $ 168.4     $ 287.3     $ 232.5     $ 2,107.4  
     
     
     
     
     
 


(1)  Includes the 9 3/4% senior discount notes in the aggregate principal amount at maturity of $577.2 million.
 
(2)  Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as of March 31, 2004.

      For more information, see “Description of Certain Debt Instruments — Amended Senior Credit Facility,” “Description of Exchange Notes” and “Risk Factors — Restrictive covenants in our and our subsidiaries’ debt agreements may adversely affect us.”

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.

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. Our subsidiaries are currently parties to such variable rate debt facilities. As of March 31, 2004, we had an aggregate of $177.6 million of variable rate debt outstanding under these facilities. At March 31,

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2004, on a pro forma basis after giving effect to the Transactions, there was an aggregate of approximately $273.9 million of variable rate debt outstanding under these facilities. Based on interest rates in effect on our variable rate debt outstanding at March 31, 2004, a 10% increase in these 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 March 31, 2004 and December 31, 2003.

                                                                         
Expected Maturity Date As of March 31, 2004

Average
Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Fair Interest
2005 2006 2007 2008 2009 Thereafter Total Value Rate









(In millions)
Fixed rate
  $ 0.1     $ 0.1     $     $     $ 104.6     $ 951.0     $ 1,055.8     $ 830.8       9.4 %
Variable rate
    6.5       6.0       4.4       160.6       0.1             177.6       177.4       4.5 %
     
     
     
     
     
     
     
     
         
Total debt
  $ 6.6     $ 6.1     $ 4.4     $ 160.6     $ 104.7     $ 951.0     $ 1,233.4     $ 1,008.2          
     
     
     
     
     
     
     
     
         
                                                                         
Expected Maturity Date As of December 31, 2003

Average
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Fair Interest
2004 2005 2006 2007 2008 Thereafter Total Value Rate









(In millions)
Fixed 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          
     
     
     
     
     
     
     
     
         

      The table below provides information about our fixed rate and variable rate long-term debt agreements as of March 31, 2004 on a pro forma basis after giving effect to the Transactions.

                                                                         
Expected Maturity Date As of March 31, 2004 Pro Forma

Average
Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Fair Interest
2005 2006 2007 2008 2009 Thereafter Total Value Rate









(In millions)
Fixed rate(1)
  $ 0.1     $ 0.1     $     $     $ 10.8     $ 933.2     $ 944.2     $ 715.7       9.5 %
Variable rate
    7.5       7.0       5.3       4.4       2.7       247.0       273.9       271.8       4.6 %
     
     
     
     
     
     
     
     
         
Total debt
  $ 7.6     $ 7.1     $ 5.3     $ 4.4     $ 13.5     $ 1,180.2     $ 1,218.1     $ 987.5          
     
     
     
     
     
     
     
     
         


(1)  Amount due at maturity for the notes offered hereby includes original issue discount that will accrete but not be paid in cash during years 1 through 5, in accordance with the terms of the notes, which is approximately $217.2 million.

      In December 2000, Cinema Properties, Inc., one of our then-existing wholly-owned subsidiaries, entered into the Cinema Properties Facility. As a part of the Cinema Properties Facility, to hedge against future changes in interest rates, Cinema Properties, Inc. purchased an Interest Rate Cap Agreement, with a notional amount equal to $77 million, a five-year term and a strike rate equal to the excess of three month LIBOR over the strike price of 6.58%, from Lehman Brothers Derivative Products Inc. At December 31, 2002, the Interest Rate Cap Agreement was recorded at its fair value of $0.1 million. During the year ended December 31, 2003, the Interest Rate Cap Agreement was written down to $0. We do not have any additional derivative financial instruments in place as of March 31, 2004 that would have a material effect on our financial position, results of operations and cash flows.

     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

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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 expenses of our international subsidiaries are transacted in the country’s local currency. Based upon our equity ownership in our international subsidiaries as of March 31, 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 $6 million.

      The accumulated other comprehensive loss account in stockholders’ equity of $86,538,823 and $86,544,422 at March 31, 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 2002, 2003 and 2004 all foreign countries where we have 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, stockholders’ equity.

      At December 31, 2003, the exchange rate for the Argentine peso was 2.94 pesos to the U.S. dollar (the exchange rate was 3.4 pesos to the U.S. dollar at December 31, 2002). As a result, the effect of translating the 2003 Argentine financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in stockholders’ equity of approximately $2 million. On March 31, 2004, the exchange rate for the Argentine peso was 2.86 pesos to the U.S. dollar. As a result, the effect of translating the March 31, 2004 Argentine financial statements into U.S. dollars resulted in a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in stockholders’ equity of approximately $0.4 million. At March 31, 2004, the total assets of our Argentine subsidiaries were approximately U.S. $16 million.

      On December 31, 2003, the exchange rate for the Brazilian real was 2.89 reais to the U.S. dollar (the exchange rate was 3.5 reais to the U.S. dollar at December 31, 2002). As a result, the effect of translating the 2003 Brazilian financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in stockholders’ equity of approximately $4 million. On March 31, 2004, the exchange rate for the Brazilian real was 2.91 reais to the U.S. dollar. As a result, the effect of translating the March 31, 2004 Brazilian financial statements into U.S. dollars resulted in a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as a reduction in stockholders’ equity of approximately $0.1 million. At March 31, 2004, the total assets of our Brazilian subsidiaries were approximately U.S. $62 million.

      On December 31, 2003, the exchange rate for the Mexican peso was 11.20 pesos to the U.S. dollar (the exchange rate was 10.4 pesos to the U.S. dollar at December 31, 2002). As a result, the effect of translating the 2003 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 stockholders’ equity of approximately $6 million. On March 31, 2004, the exchange rate for the Mexican peso was 11.21 pesos to the U.S. dollar. As a result, the effect of translating the March 31, 2004 Mexican financial statements into U.S. dollars resulted in a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as a reduction of stockholders’ equity of approximately $0.1 million. At March 31, 2004, the total assets of our Mexican subsidiaries were approximately U.S. $85 million.

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BUSINESS

Cinemark, Inc.

      We are one of the leaders in the motion picture exhibition industry, in terms of both revenues and number of screens in operation. We were founded in 1987 by our Chairman and Chief Executive Officer, Lee Roy Mitchell, and have grown primarily through targeted worldwide new theatre development. As of March 31, 2004, we operated 3,175 screens in 297 theatres. For the year ended December 31, 2003, we had revenues of $950.9 million, operating income of $135.6 million and net income of $44.6 million. For the three months ended March 31, 2004, we had revenues of $235.1 million, operating income of $32.8 million and net income of $9.8 million.

      Our geographic diversity within North America and internationally has allowed us to maintain consistent revenue growth. We have increased revenues by a compound annual growth rate of 7.5% from the beginning of 1999 through 2003. We operate 2,323 screens in 200 theatres in North America. These theatres, located in 33 states and one Canadian province, are primarily in mid-sized markets, including suburbs of major metropolitan areas. We believe these markets are less competitive and generate high, stable margins. We also operate 852 screens in 97 theatres outside of North America, primarily located in major Latin American metropolitan markets, which we believe are generally underscreened and have significant growth potential.

Motion Picture Industry Overview

     Domestic Markets

      The U.S. motion picture exhibition industry has enjoyed revenue growth at a compound annual growth rate of 6.3% from 1993 to 2003, according to the Motion Picture Association of America. In 2002, single year U.S. motion picture box office revenues exceeded the $9.0 billion mark for the first time in history, reaching a total of $9.52 billion, a 13.2% increase from 2001, according to the Motion Picture Association of America. The 2003 box office, while down 0.3% from 2002, was the second highest in history and again exceeded the $9.0 billion mark with a total of $9.49 billion. The strong U.S. box office performance was primarily driven by an increase in attendance which increased nearly 27% between 1993 and 2003. Factors contributing to the continued success of the industry include a strong movie slate, the improvement of theatre circuits resulting from the creation of the modern multiplex format and the screen rationalization of 2000 and 2001. Three films released in 2003 grossed over $300 million, three other films grossed over $200 million and an additional 23 films grossed over $100 million in the U.S.

      The following table represents the results of a survey by Motion Picture Association of America Worldwide Market Research outlining the historical trends in U.S. theatre attendance, average ticket prices and box office sales for the last ten years.

                                                 
U.S. % Change Average % Change U.S. Box % Change
Year Attendance Since 1994 Ticket Price Since 1994 Office Sales Since 1994







(In millions) (In millions)
1994
    1,292           $ 4.18           $ 5,396        
1995
    1,263       (2.2 )%   $ 4.35       4.1 %   $ 5,494       1.8 %
1996
    1,339       3.6 %   $ 4.42       5.7 %   $ 5,912       9.6 %
1997
    1,388       7.4 %   $ 4.59       9.8 %   $ 6,366       18.0 %
1998
    1,481       14.6 %   $ 4.69       12.2 %   $ 6,949       28.8 %
1999
    1,465       13.4 %   $ 5.08       21.5 %   $ 7,448       38.0 %
2000
    1,421       10.0 %   $ 5.39       28.9 %   $ 7,661       42.0 %
2001
    1,487       15.1 %   $ 5.66       35.4 %   $ 8,413       55.9 %
2002
    1,639       26.9 %   $ 5.81       39.0 %   $ 9,520       76.4 %
2003
    1,574       21.8 %   $ 6.03       44.3 %   $ 9,489       75.9 %

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     International Markets

      The international motion picture exhibition industry has also grown significantly over the past several years. Global box office revenues increased 28% from $15.9 billion in 2000 to $20.3 billion in 2003 according to the Motion Picture Association of America. This growth is a result of the increasing acceptance of movie going as a popular form of entertainment throughout the world, ticket price increases and new theatre construction. According to Informa Media Group, Latin America is the fastest growing region in the world in terms of box office revenues.

      Growth in Latin America is expected to be fueled by a combination of continued development of modern theatres, attractive demographics (i.e., a significant teenage population), strong product from Hollywood and the emergence of a local film industry. In many Latin American countries the local film industry had been dormant because of the lack of sufficient theatres to screen the film product. The development of new modern multiplex theatres has awakened the local film industry and, in Mexico and Brazil, local film product is now playing a significant role in driving attendance growth.

      We believe many international markets for motion picture exhibition have historically been underserved due to antiquated or run-down theatres, among other things, and that international markets, especially those in Latin America, will continue to experience growth as additional modern stadium seating theatres are introduced.

     Recent History

      In recent years, the U.S. exhibition industry has felt the impact of rapid overbuilding by the largest industry players, high levels of overall capital expenditures and high leverage. As a result of the financial burden imposed on theatre operators by these three factors, the industry entered a period of significant industry rationalization. Many industry players had already begun the rationalization process in 2000 by closing hundreds of smaller, less profitable theatres. The pace of theatre closings increased during 2001 as a number of companies took advantage of the protections provided by the bankruptcy process to reject long-term leases on many underperforming theatres. The overall reduction in the numbers of theatres and screens in operation has improved industry profitability. According to the Motion Picture Association of America, the total number of screens in the U.S. reached an all-time high of 37,396 in 2000, and then declined in both 2001 and 2002. There were 35,786 screens at the end of 2003. In addition to closing hundreds of theatres, the largest players in the industry have dramatically scaled back new theatre builds, resulting in significant decreases in capital expenditures.

      Significant capital expenditures by major industry players during the latter half of the 1990’s has resulted in a higher quality theatre base. Current circuits are comprised of a significant number of modern multiplex theatres, which generally include 10 or more screens, digital sound and stadium seating. We believe these improved facilities, which have been well received by patrons, will benefit the industry both by stimulating demand and by limiting the need for future capital expenditures.

Drivers of Continued Industry Success

      We believe the following market trends will drive the continued growth and strength of our industry:

      Increased Investment in Film Production and Marketing. Theatrical exhibition is the primary distribution channel for new motion picture releases. The success of a theatrical release, which “brands” a film, is one of the major factors in determining its success in “downstream” distribution channels, such as home video, DVD and network, syndicated and pay-per-view television. The growing importance of downstream distribution channels has enabled studios to increase production and marketing expenditures. Production and marketing costs per new film in the U.S. have increased by compound annual growth rates of 7.9% and 10.7%, respectively, from 1993 to 2003, according to the Motion Picture Association of America. This has led to an increase in “blockbuster” features, which attract larger audiences to theatres.

      Increased Importance of International Markets for Ensuring Box Office Success. International markets are becoming an increasingly important component of the overall box office revenues generated by

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Hollywood films. For example, markets outside of North America accounted for greater than 60% of the global box office revenues for The Last Samurai, The Matrix Revolutions, Finding Nemo and Lord of the Rings: Return of the King. With the continued growth of the international motion picture exhibition industry, the relative contribution of markets outside North America should become even more significant.

      Favorable Attendance Trends. Increased movie going frequency and attendance from key demographic groups have benefited the industry. According to the Motion Picture Association of America, annual admissions per capita in the U.S. increased from 4.5x to 5.4x, between 1991 and 2003. Additionally, the U.S. teenage segment, defined as 12 – 17 year olds, represented 18% of admissions in 2003, up from 14% in 1997.

      Reduced Seasonality of Revenues. Historically, industry revenues have been highly seasonal, coinciding with the timing of film releases by the major distributors. The most marketable motion pictures were generally released during the summer, extending from Memorial Day to Labor Day, and during the holiday season, extending from Thanksgiving through year-end. However, the seasonality of motion picture exhibition has become less pronounced in recent years. Studios have begun to release films more evenly throughout the year, and hit films have emerged during traditionally weaker periods. This benefits exhibitors by allowing them to more effectively manage their operations.

      Convenient and Affordable Form of Out-of-Home Entertainment. Movie going continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an average ticket price in the U.S. of $6.03 in 2003. Average prices for other forms of out-of-home entertainment in the U.S., including sporting events, theme parks, musical concerts and plays, ranged from approximately $18.00 to $62.00 per ticket in 2002.

      Increasing Ancillary Revenue. Advertising revenues represent a small, but growing portion of revenues for motion picture exhibitors. The “Arbitron Cinema Advertising Study”, which was released in 2003, measured consumer awareness of on-screen advertising in the U.S., and indicated that 86% of all cinema audiences (representing 40% of the U.S. population) remembered on-screen ads a month after seeing them. The proliferation in broadcast and cable channels, as well as new recording devices that allow people to skip television commercials, has eroded broadcast media’s advertising reach. As a result, captive and attentive cinema audiences are becoming more attractive to advertisers. The Cinema Advertising Council reports that cinema advertising sales in the U.S. increased by an estimated 20% to approximately $300 million in 2003, making it one of the fastest growing mediums in the advertising industry.

Competitive Strengths

      We believe the following strengths allow us to compete effectively:

      Significant Cash Flow. Our business strategy and disciplined building program allowed us to generate $135.6 million of operating income for the year ended December 31, 2003, which we utilized to reduce our leverage. During the year ended December 31, 2003, we reduced our long-term debt by $47.7 million (including the net unamortized premium of $13.6 million related to the senior subordinated notes of Cinemark USA, Inc.) and increased our cash and cash equivalents by $43.6 million. We generated $32.8 million of operating income for the three months ended March 31, 2004.

      Focused Philosophy Resulting in Strong Financial Performance. We focus on negotiating favorable theatre facility economics, providing a superior viewing experience and controlling theatre operating costs. As a result of this philosophy, we generated $44.6 million of net income for the year ended December 31, 2003. We generated $9.8 million of net income for the three months ended March 31, 2004.

      Strong Management Team. Led by Mr. Mitchell, our management team has an average of approximately 20 years of theatre operating experience and a proven track record of superior performance. The team has successfully navigated us through many industry cycles; between 1999 and 2001, we were one of only two major motion picture exhibitors in the U.S. that did not file for bankruptcy protection. Management’s success during this period is largely a result of its financial discipline and focus on investment returns, as demonstrated by its decision to decrease its building commitments earlier than its competitors.

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Mr. Mitchell and the other members of our existing management team retained their current positions after the Recapitalization.

      Selective Building in Less Competitive U.S. Markets and Heavily Populated International Markets.

  •  Less Competitive U.S. Markets: We have historically built modern theatres in mid-sized U.S. markets, including suburbs of major metropolitan areas, which we believe were underserved. We believe our targeting of these markets, together with the high quality of our theatre circuit, has protected us from the negative financial impact of overbuilding and reduces the risk of competition from new entrants. As the sole exhibitor in approximately 85% of the first run film zones in which we operate, we have maximum access to film product. This enables us to select the films that we believe will deliver the highest returns in those markets.
 
  •  Heavily Populated, High Growth International Markets: We have directed our activities in international markets primarily toward Latin America due to the growth potential in these under-screened markets. We have successfully established a significant presence in most of the major cities in Latin America with theatres in nine of the ten largest metropolitan areas. We have strategic alliances with local partners in many countries, which help us obtain additional market insight. We generally fund our operating and capital expenditures in local currencies, thereby matching our expenses with revenues. We have also geographically diversified our international portfolio in an effort to balance risk and become one of the predominant Pan American motion picture exhibition companies.

      Modern Theatre Circuit. We have built our modern theatre circuit primarily through targeted worldwide new theatre development, which we believe provides a preferred destination for moviegoers in our markets. Since 1996, we have built 1,989 screens, or 63% of our total screen count. Our ratio of screens to theatres is one of the highest in the industry: 11.6 to 1 in North America and 8.8 to 1 internationally. Approximately 68% of our North American first run screens and 78% of our international screens feature stadium seating.

Our Strategy

      We believe our operating philosophy provides us with a competitive advantage. We intend to continue to focus on the following key components of our business plan.

      Focus on Less Competitive U.S. Markets and Target Profitable, High Growth International Markets. We will continue to seek growth opportunities in underserved, mid-sized U.S. markets and major international metropolitan areas by building or acquiring modern theatres that meet our strategic, financial and demographic criteria.

      Maximize Profitability Through Continued Focus on Operational Excellence. We will continue to focus on executing our operating philosophy. We believe that our successful track record of executing this philosophy is evidenced by the fact that we successfully navigated through the significant industry downturn between 1999 and 2001, during which period at least twelve exhibitors filed for bankruptcy protection.

      Pursue Additional Revenue Opportunities. We will continue to pursue additional growth opportunities by developing and expanding ancillary revenue streams such as advertising. We are able to offer advertisers national, regional or local coverage in a variety of formats to reach our patrons, which numbered approximately 173 million during the year ended December 31, 2003. We are also exploring additional revenue sources such as digital video monitor advertising, third party branding, and the use of theatres for non-film events. We have used theatres during non-peak hours for simulcast concerts, pay-per-view sporting events, corporate meetings and cultural events.

Our International Operations

      We have been successfully introducing American-style modern multiplex theatres to underserved international markets since 1993. Our activities in international markets have been primarily directed toward Latin America, where we have successfully established a significant presence in most of the major cities in

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Latin America. We presently have theatres in nine of the ten largest metropolitan areas in Latin America. We have become one of the predominant Pan American exhibition companies while balancing our risk through a diversified international portfolio. In addition, we have achieved significant scale in Mexico and Brazil, two of the most important Latin American markets.

      We believe that Latin America is one of the fastest growing international markets in terms of box office revenues. Penetration of movie screens per capita in Latin American markets is substantially lower than in the U.S. and European markets. Our geographic diversity throughout Latin America has allowed us to maintain consistent revenue and operating margin growth notwithstanding currency fluctuations that may affect any particular market.

      We will continue to consider selective opportunities for development of modern multiplex theatres in underserved international markets, emphasizing Latin America, funded primarily with cash flow generated in those countries. We are able to mitigate exposure to currency fluctuations by using local currencies to fund substantially all aspects of our operations, including rent expense.

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Theatre Operations

      As of March 31, 2004, we operated 3,175 screens in 297 theatres located in 33 states and 14 foreign countries. We operated 2,753 screens in 246 first run theatres and 422 screens in 51 discount theatres. The following tables summarize the geographic locations of our theatre circuit as of March 31, 2004.

     North American Theatres

                 
State Total Theatres Total Screens



Texas
    64       809  
Ohio
    20       202  
California
    20       183  
Utah
    10       123  
Oklahoma
    9       88  
Kentucky
    7       75  
Colorado
    5       73  
Illinois
    6       72  
Louisiana
    4       54  
Virginia
    4       52  
Oregon
    4       50  
Indiana
    6       50  
Florida
    3       48  
Pennsylvania
    3       43  
North Carolina
    4       41  
Mississippi
    3       41  
Michigan
    2       36  
Arkansas
    3       30  
Georgia
    2       27  
New York
    2       27  
Kansas
    1       20  
Iowa
    3       19  
New Jersey
    1       16  
New Mexico
    2       16  
Arizona
    2       14  
Missouri
    1       14  
Tennessee
    1       14  
Wisconsin
    1       14  
Massachusetts
    1       12  
Delaware
    1       10  
Minnesota
    1       8  
Nebraska
    1       8  
South Carolina
    2       22  
     
     
 
Total United States
    199       2,311  
Canada
    1       12  
     
     
 
Total North America
    200       2,323  
     
     
 

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     International Theatres

                 
Country Total Theatres Total Screens



Brazil
    30       272  
Mexico
    27       264  
Chile
    12       95  
Argentina
    8       73  
Central America(1)
    9       59  
Peru
    3       30  
Colombia
    4       26  
United Kingdom(2)
    2       17  
Ecuador
    2       16  
     
     
 
Total
    97       852  
     
     
 


(1)  Includes Honduras, El Salvador, Nicaragua, Costa Rica and Panama.
 
(2)  Theatres sold subsequent to March 31, 2004.

Corporate Operations

      We maintain a corporate office in Plano, Texas that provides oversight for our domestic and international theatres. Domestic operations includes theatre operations support, film licensing and settlements, human resources, legal, finance and accounting, operational audit, theatre maintenance and construction, internet and information systems, real estate and marketing. Our North American operations are divided into ten regions, each of which is headed by a region leader.

      International operations function relatively autonomously. International personnel in the corporate office include the International President and directors/vice presidents in charge of film licensing, marketing, concessions, operations, construction, real estate, legal, loss prevention, management information systems and accounting. We have eight regional offices in Latin America responsible for the local management of operations in twelve individual countries. Each regional office is headed by a general manager and includes personnel in film licensing, marketing, operations and accounting. We employ three “super-regional” chief financial officers in Brazil, Chile and Mexico. The regional offices are staffed with nationals from the region to overcome cultural and operational barriers. Training is conducted at the corporate office to establish consistent standards throughout our international operations.

     Film Licensing

      In North America, films are typically licensed from film distributors that are owned by major film production companies or from independent film distributors that distribute films for smaller production companies. For new release films, film distributors typically establish geographic zones and offer each available film to one theatre in each zone. The size of a film zone is generally determined by the population density, demographics and box office potential of a particular market or region. A film zone can range from a radius of three to five miles in major metropolitan and suburban areas to up to fifteen miles in small towns. We currently operate theatres in 144 first run film zones in North America. New film releases are licensed at the discretion of the film distributors. As the sole exhibitor in approximately 85% of the first run film zones in which we operate, we have maximum access to film product, which allows us to select those pictures that we believe will be the most successful in our markets from those offered to us by distributors. We usually license films on an allocation basis in film zones where we face competition. Films are released to discount theatres once the attendance levels substantially drop off at the first run theatres. For discount films, film distributors generally establish availability on a market-by-market basis after the completion of exhibition at first run theatres and permit each theatre within a market to exhibit such films without regard to film zones.

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      Unlike our North American operations, distributors in our international markets do not allocate film to a single theatre in a geographic film zone. Rather, competitive theatres can play the same films at the same time as other theatres. Our theatre personnel focus on providing excellent customer service, and we provide a modern facility with the most up-to-date sound systems, comfortable stadium style seating and other amenities typical of modern American-style multiplexes which we believe gives us a competitive advantage in markets where there are competing theatres. Of the 97 theatres we operate outside of North America, approximately 90% of those theatres have no direct competition.

      In North America, our film rental licenses typically state that rental fees are based on either mutually agreed upon firm terms established prior to the opening of the picture or on a mutually agreed upon settlement at the conclusion of the picture run. Under a firm terms formula, we pay the distributor a specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Firm term film rental fees that decline over the term of the run generally start at 60% or 70% of box office admissions, gradually declining to as low as 30% over a period of four to seven weeks. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. In international markets, film rental percentages are generally lower than in North American markets and gradually decline over a period of several weeks.

      We also operate discount theatres in North America, with admissions ranging from $0.50 to $2 per ticket, to serve an alternative market of patrons that extends the life of a film past the first run screening. By serving this alternative market of patrons in our discount theatres, we have been able to increase the number of potential customers beyond traditional first run moviegoers. Our discount theatres offer many of the same amenities as our first run theatres, including wall-to-wall screens, comfortable seating with cup holder armrests, digital sound and multiple concession stands. Discount film rental percentages typically begin at 35% of box office receipts and often decline to 30% after the first week.

      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 upon the film licensing arrangement. Estimates are 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.

     Concessions

      Concession sales are our second largest revenue source, representing approximately 32% of total revenues for 2003. Concession sales have a much higher margin than admissions sales. We have devoted considerable management effort to increase concession sales and improve operating margins. These efforts include implementation of the following strategies:

  •  Optimization of product mix. Concession products are primarily comprised of various sizes of popcorn, soft drinks and candy. Different varieties and flavors of candy and soft drinks are offered at theatres based on preferences in that particular geographic region. Specially priced “combo-meals” have been implemented for all patrons as well as “movie meals” targeted toward children and senior citizens. We periodically introduce new concession products designed to generate additional concession sales.
 
  •  Staff training. Employees are continually trained in “suggestive-selling” and “upselling” techniques. This training occurs through situational role-playing conducted at our “Customer Satisfaction University” as well as continued on-the-job training. Individual theatre managers receive additional compensation based on concession sales at their theatres and are therefore motivated to maximize concession sales.

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  •  Theatre design. Our theatres are designed to optimize efficiencies at the concession stands, which include multiple service stations to facilitate serving more customers quicker. We strategically place large concession stands within theatres to heighten visibility, reduce the length of concession lines, and improve traffic flow around the concession stands.
 
  •  Cost control. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain bulk rates. Concession supplies are distributed through a national distribution network. The concession distributor supplies and distributes inventory to the theatres, which place volume orders directly with the vendors to replenish stock. The concession distributor is paid a percentage fee for this service. We believe that utilizing a concession distributor is more cost effective than operating a concession warehousing network.

     Marketing

      In order to attract customers, we rely on newspaper display advertisements, substantially paid for by film distributors, newspaper directory film schedules, generally paid for by the exhibitor, and internet advertising which has emerged as a strong media source to inform patrons of film titles and show times. Radio and television advertising spots, generally paid for by film distributors, are used to promote certain motion pictures and special events. We also exhibit previews of coming attractions and films presently playing on the other screens which we operate in the same theatre or market.

      Our marketing department also focuses on maximizing revenue generating opportunities, which include the following:

  •  Advertising. We believe the advertising industry recognizes the value of in-theatre advertising as an important medium due to the demographics of theatre patrons. The “Arbitron Cinema Advertising Study,” which was released in 2003, measured consumer awareness of on-screen advertising in the U.S., and indicated that 86% of all cinema audiences (representing 40% of the U.S. population) remembered on-screen ads a month after seeing them. In order to effectively realize and manage this opportunity, we entered into advertising contracts for rolling stock and screen slide advertising. We deliver advertising through “lights-up” on-screen slide advertising in the auditoriums, audio ads paired with music played throughout the theatre and rolling stock advertisements. We also advertise on digital lobby monitors located in concessions stands and game rooms. We are also exploring additional revenue sources such as digital video monitor advertising, third party branding, and the use of theatres for non- film events. We are able to offer advertisers national, regional or local coverage in a variety of formats to reach our patrons, which numbered approximately 173 million during the year ended December 31, 2003. We currently carry advertising for several large advertisers. We also generate ancillary revenue from “imaging” in the lobby, including mini-billboards and displays, and distributing coupons and samples to patrons passing through the theatre complex.
 
  •  Sales. We have a sales department that oversees the development and implementation of a comprehensive theatre rental and group sales effort. This department is responsible for increasing theatre rental income during periods when the theatre is normally closed and maximizing group film bookings to specialized groups such as schools, daycare centers and churches. During 2003, our group sales bookings for schools increased 48% over 2002. We believe the large lobbies, comfortable seating, big screen and sound capabilities make our theatres an attractive venue to hold corporate events, private parties, private screenings and team building meetings and can generate additional revenues. Our theatres have been used for simulcast concerts, pay-per-view sporting events, corporate meetings and cultural events. We believe the trend to use theatre auditoriums for non-film events during non-peak times will increase, which will add revenue and attract new audiences to our theatres while not significantly increasing costs. In addition, targeted efforts to sell niche films to particular groups will also increase overall revenues.

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     Online Sales

      We have successfully used the internet to provide patrons access to movie times, the ability to buy tickets and print their tickets at home and purchase gift cards and other advanced sale-type certificates. The internet is quickly becoming the primary way to check movie times, replacing the traditional newspaper advertisements. In addition, many newspapers also add an internet component to their advertising and add movie showtimes to their internet offerings. Over time, the internet will allow us to reduce our advertising costs associated with newspaper directory advertisements. Patrons may purchase advance tickets from approximately 95 of our North American theatres (approximately 1,300 screens), and print tickets at home for eleven theatres by simply accessing our corporate website at www.cinemark.com.

      Our internet initiatives help improve customer satisfaction, as customers who purchase tickets over the internet are often able to bypass lines at the box office by printing their tickets at home or picking up their tickets at kiosks in the theatre lobby. We were the first major exhibitor to introduce this technology and also the first major exhibitor to make showtimes available for patrons through wireless handheld devices.

     Management Information Systems

      We developed our own proprietary point of sale management information system (the “system”) to further enhance our ability to maximize revenues, control costs and efficiently manage operations. The system provides corporate management with real-time admissions and concession revenue reports that allow managers to make real-time adjustments to movie schedules, extend runs or increase the number of screens on which successful movies are being played and substitute films when gross receipts cease to meet expectations. Real-time seating and box office information is available to box office personnel, allowing theatre management to avoid overselling a particular film and providing faster and more accurate responses to customer inquiries regarding showings and available seating. The system also tracks concession sales and provides in-theatre inventory reports, leading to better inventory management and control. The system also has multiple language capabilities, numerous ticket pricing options, integrates internet ticket sales and has the ability to process credit cards. The system also supports barcode scanners, pole displays, touch screens, credit card readers and other equipment specific to individual country requirements.

Competition

      We are one of the leading motion picture exhibitors in terms of both revenues and the number of screens in operation. We compete against local, national and international exhibitors.

      We are the sole exhibitor in approximately 85% of the first run film zones in which our first run North American theatres operate. In film zones where there is no direct competition, we select those pictures we believe will be the most successful from among those offered to us by distributors. Where there is competition, we usually license films based on an allocation process. We currently operate in 144 first run film zones in North America. Of the 97 theatres we operate outside of North America, approximately 90% of those theatres have no direct competition. The principal competitive factors with respect to film licensing are:

  •  capacity and location of an exhibitor’s theatre;
 
  •  theatre comfort;
 
  •  quality of projection and sound equipment;
 
  •  level of customer service; and
 
  •  licensing terms.

      The competition for customers is dependent upon factors such as the availability of popular films, the location of theatres, the comfort and quality of theatres and ticket prices. Our admission prices at first run and discount theatres are competitive with admission prices of competing theatres.

      We also face competition from a number of other motion picture exhibition delivery systems, such as home video, DVD, and network, syndicated and pay-per-view television. We do not believe that these

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additional distribution channels have adversely affected theatre attendance; however, we can give no assurance that existing or future alternative delivery systems will not have an adverse impact on attendance. We also face competition from other forms of entertainment competing for the public’s leisure time and disposable income.

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. The seasonality of the release of successful films, however, has become less pronounced in recent years with the release of major motion pictures occurring more evenly throughout the year.

Employees

      We have approximately 8,500 employees in North America, approximately 10% of whom are full time employees and 90% of whom are part time employees. We have approximately 4,200 employees outside of North America. Approximately 20 North American employees are represented by unions under collective bargaining agreements. Some of our international operations utilize union labor. We regard our relations with our employees as satisfactory.

Regulations

      The distribution of motion pictures is largely regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. We have not been a party to any of such cases, but the manner in which we can license films from certain major film distributors is subject to consent decrees resulting from these cases. Consent decrees bind certain major film distributors and require the films of such distributors to be offered and licensed to exhibitors, including us, on a theatre-by-theatre and film-by-film basis. Consequently, exhibitors cannot assure themselves of a supply of films by entering long-term arrangements with major distributors, but must negotiate for licenses on a film-by-film and theatre-by-theatre basis.

      We are subject to various general regulations applicable to our operations including the Americans with Disabilities Act, or the “ADA.” We develop new theatres to be accessible to the disabled and we believe we are in substantial compliance with current regulations relating to accommodating the disabled. Although we believe that our theatres comply with the ADA, we are, or have been, a party to lawsuits which claim that our handicapped seating arrangements do not comply with the ADA or that we are required to provide captioning for patrons who are deaf or are severely hearing impaired. See “Legal Proceedings.”

      Our theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship, health and sanitation requirements and licensing.

Financial Information About Geographic Areas

      We operate in a single business segment as a motion picture exhibitor. We are a multinational corporation with consolidated operations, as of March 31, 2004, in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Colombia and the United Kingdom. See Note 17 of the Notes to our Consolidated Financial Statements for information on our revenues and theatre properties and equipment in the U.S. and Canada, Mexico, Brazil and other foreign countries.

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Properties

     North America

      As of March 31, 2004, we operated 167 theatres, with 1,835 screens, pursuant to leases and own the land and building for 33 theatres, with 488 screens, in North America. During the three months ended March 31, 2004, we opened three new theatres with 33 screens. Our leases are generally entered into on a long term basis with terms generally ranging from 15 to 25 years. The exercise of available renewal options can generally extend our leases by another 5 to 20 years. As of March 31, 2004, approximately 8% of our theatre leases in North America, covering 92 screens, have remaining terms, including optional renewal periods, of less than five years and approximately 76% of our theatre leases in North America, covering 1,545 screens, have remaining terms, including optional renewal periods, of more than 15 years. The leases generally provide for a fixed monthly minimum rent payment, with certain leases also subject to additional percentage rent if a target annual revenue level is achieved. We lease an office building in Plano, Texas for our corporate office. See Note 16 of our Notes to Consolidated Financial Statements for information with respect to our lease commitments. We periodically review the profitability of each of our North American theatres, particularly those whose lease terms are about to expire, to determine whether to continue its operations.

     International

      As of March 31, 2004, we operated 97 theatres, with 852 screens, outside of North America, all of which are leased pursuant to ground or building leases. The leases generally provide for contingent rental based upon operating results (some of which are subject to an annual minimum). Generally, these leases will include renewal options for various periods at stipulated rates. We attempt to obtain lease terms that provide for build-to-suit construction obligations of the landlord. No international theatre leases have remaining terms, including optional renewal periods, of less than five years, and approximately 75% of our international theatre leases, covering 638 screens, have remaining terms, including optional renewal periods, of more than 15 years. We periodically review the profitability of each of our international theatres, particularly those whose lease terms are about to expire, to determine whether to continue its operations.

Legal Proceedings

     DOJ Litigation

      In March 1999, the Department of Justice, or the “DOJ,” filed suit in the U.S. District Court, Northern District of Ohio, Eastern Division, against Cinemark USA, Inc. alleging certain violations of the ADA relating to wheelchair seating arrangements and seeking remedial action. An order granting summary judgment to Cinemark USA, Inc. 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 Cinemark USA, Inc. 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 Cinemark USA, Inc. loses this litigation, our financial position, results of operations and cash flows may be materially and adversely affected. We are unable to predict the outcome of this litigation or the range of potential loss, however, management believes that based upon current precedent our potential liability with respect to such proceeding is not material in the aggregate to our financial position, results of operations and cash flows. Accordingly, we have 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

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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 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, Cinemark USA, Inc. and Regal Cinemas have each filed petitions for writs of certiorari with the United States Supreme Court. Those petitions for certiorari are currently pending. We are unable to predict whether the United States Supreme Court will grant Cinemark USA, Inc.’s petition for certiorari.

     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. Cinemark USA, Inc. filed an answer denying the allegations and are vigorously defending this suit and have filed motions to dismiss this case based upon the favorable results we had on a similar case in Austin, Texas. We are unable to predict the outcome of this litigation or the range of potential loss, however, management believes that based upon current precedent our potential liability with respect to such proceeding is not material in the aggregate to our financial position, results of operations and cash flows. Accordingly, we have not established a reserve for loss in connection with this proceeding.

     Houston, Texas Litigation

      In May 2002, Robert Todd on behalf of Robert Preston Todd, his minor child and “all individuals who are deaf or are severely hearing impaired” brought this case in the United States District Court for the Southern District of Texas, Houston Division against several movie theatre operators, including AMC Entertainment, Inc., Regal Entertainment, Inc., Cinemark USA, Inc. and Century Theaters as well as eight movie production companies. The lawsuit alleges violation of Title III of the ADA and the First Amendment to the Constitution of the United States. Plaintiffs sought unspecified injunctive relief, unspecified declaratory relief, unspecified monetary damages (both actual and punitive) and unspecified attorney’s fees. Cinemark USA, Inc. denied any violation of law and have vigorously defended against all claims. On March 7, 2003, the federal district judge presiding over the case granted summary judgment to the defendants on the alleged First Amendment violations. On August 5, 2003, the federal district judge presiding over the case granted summary judgment to the defendants on the alleged ADA violations. The plaintiffs appealed the August 5, 2003 decision but have since withdrawn the appeal. Accordingly, the district court’s summary judgment in Cinemark USA, Inc.’s favor is final.

      From time to time, we are involved in other various legal proceedings arising from the ordinary course of our business operations, such as personal injury claims, employment matters and contractual disputes, most of which are covered by insurance. We believe our potential liability with respect to proceedings currently pending is not material, individually or in the aggregate, to our financial position, results of operations and cash flows.

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MANAGEMENT

Executive Officers and Directors

      Set forth below is certain information concerning individuals that serve as our executive officers and directors after the Recapitalization. In addition, we expect to identify at least 7 additional individuals to serve as our directors.

             
Name Age Position



Lee Roy Mitchell
    67     Chairman of the Board; Chief Executive Officer; Director
Tandy Mitchell
    53     Executive Vice President; Assistant Secretary
Alan Stock
    44     President; Chief Operating Officer
Robert Copple
    45     Senior Vice President; Treasurer; Chief Financial Officer; Assistant Secretary
Tim Warner
    59     Senior Vice President; President of Cinemark International, L.L.C.
Robert Carmony
    46     Senior Vice President — Operations
Margaret Richards
    45     Vice President — Real Estate; Assistant Secretary
John Lundin
    55     Vice President — Film Licensing
Walter Hebert, III
    58     Vice President — Purchasing
Don Harton
    47     Vice President — Construction
Michael Cavalier
    37     Vice President — General Counsel; Secretary
Terrell Falk
    53     Vice President — Marketing and Communications
Tom Owens
    47     Vice President — Development
Benjamin D. Chereskin
    45     Director
James N. Perry, Jr.
    43     Director
Robin P. Selati
    38     Director
Vahe A. Dombalagian
    30     Director

      The following is a brief description of the business experience of our directors and executive officers for at least the past five years:

      Lee Roy Mitchell has served as Chairman of the Board since March 1996 and as Chief Executive Officer and a Director since our inception in 1987. Mr. Mitchell was Vice Chairman of the Board of Directors from March 1993 to March 1996 and was President from our inception in 1987 until March 1993. From 1985 to 1987, Mr. Mitchell served as President and Chief Executive Officer of a predecessor corporation. Since March 1999, Mr. Mitchell has served as a director of Texas Capital Bancshares, Inc., a bank holding company. Mr. Mitchell has served on the Board of Directors of the National Association of Theatre Owners since 1991. Mr. Mitchell has been engaged in the motion picture exhibition business for nearly 46 years. Mr. Mitchell is the husband of Tandy Mitchell. After the consummation of the Recapitalization, Mr. Mitchell continued as Chairman of the Board of Directors.

      Tandy Mitchell has served as Vice Chairman of the Board since March 1996, as a Director since April 1992, as Executive Vice President since October 1989, as Secretary from 1987 to December 2003 and as Assistant Secretary since December 2003. Mrs. Mitchell was General Manager of the theatre division of Texas Cinema Corporation from 1985 to 1987. From 1978 to 1985, Mrs. Mitchell was employed by Southwest Cinemas Corporation, a motion picture exhibitor, most recently as Director of Operations. Mrs. Mitchell is the wife of Lee Roy Mitchell and sister of Walter Hebert, III. Upon the consummation of the Recapitalization, Mrs. Mitchell resigned from the Board of Directors.

      Alan Stock has served as President since March 1993, as a Director since April 1992 and as Chief Operating Officer since March 1992. Mr. Stock was Senior Vice President from October 1989 to March 1993.

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Mr. Stock was General Manager from our inception in 1987 to March 1992. Mr. Stock was employed by the theatre division of Texas Cinema Corporation from January 1986 to December 1987 as Director of Operations. From 1981 to 1985, he was employed by Consolidated Theaters, a motion picture exhibitor, most recently as District Manager. Upon the consummation of the Recapitalization, Mr. Stock resigned from the Board of Directors.

      Robert Copple has served as Senior Vice President, Treasurer and Chief Financial Officer since August 2000 and as a Director since September 2001. Mr. Copple was acting Chief Financial Officer from March 2000 to August 2000. From August 1997 to March 2000, Mr. Copple was President of PBA Development, Inc., an investment management and venture capital company. From June 1993 to July 1997, Mr. Copple was Director of Finance for the Company. Prior to joining our company, Mr. Copple was a Senior Manager with Deloitte & Touche, LLP where he was employed from 1982 to 1993. Upon consummation of the Recapitalization, Mr. Copple resigned from the Board of Directors.

      Tim Warner has served as Senior Vice President since May 2002 and has served as President of Cinemark International, L.L.C. since April 1996. From 1990 to 1996, Mr. Warner served as Chairman/ CEO of the National Association of Theatre Owners of California and General Chairman of NATO/ Showest. Mr. Warner has served on the Board of Directors of the National Association of Theatre Owners since 1982. He has been active in the theatre industry for over 35 years.

      Robert Carmony has served as Senior Vice President — Operations since July 1997, as Vice President — Operations since March 1996 and as Director of Operations since June 1988. Prior to joining our company, Mr. Carmony was owner of O.C. Enterprises, a software development firm, from 1986 to 1988. Prior to forming his own software company, Mr. Carmony worked for Plitt-Cineplex Odeon theatres from 1985 to 1986.

      Margaret Richards has served as Vice President — Real Estate since March 1994 and as a Vice President and Assistant Secretary since October 1989. Ms. Richards has been Director of Leasing since our inception in 1987 and was employed by the theatre division of Texas Cinema Corporation in its real estate department from August 1986 to December 1987.

      John Lundin has served as Vice President — Film Licensing since September 2000, as Head Film Buyer from September 1997 to September 2000 and was a film buyer from September 1994 to September 1997. Prior to joining our company, Mr. Lundin was Vice President — General Sales Manager of Cannon Pictures. He has also held the positions of Vice President — Assistant General Sales Manager for Columbia Pictures and Head Film Buyer for Litchfield Theatres. Mr. Lundin has nearly 30 years of experience in the motion picture exhibition business.

      Walter Hebert, III has served as Vice President — Purchasing since July 1997 and was the Director of Purchasing from October 1996 until July 1997. From December 1995 until October 1996, Mr. Hebert was the President of 2 Day Video, Inc., a 21-store video chain that was our subsidiary. Prior to joining our company, Mr. Hebert worked for Dillard’s Department Stores from 1973 to 1993, serving as a Divisional Merchandise Manager in the Arkansas Division from 1981 until 1993. Mr. Hebert is the brother of Tandy Mitchell.

      Don Harton has served as Vice President — Construction since July 1997. From August 1996 to July 1997, Mr. Harton was Director of Construction. Prior to joining our company in August 1996, Mr. Harton was an architect with Urban Architecture, where he was employed from October 1983 until July 1996.

      Michael Cavalier has served as Vice President — General Counsel since July 1999, as Assistant Secretary from December 2002 to December 2003 and as Secretary since December 2003. From July 1997 to July 1999, Mr. Cavalier was General Counsel of our company and from July 1993 to July 1997 was Associate General Counsel. Prior to joining our company in July 1993, Mr. Cavalier was an associate attorney at the Dallas office of Akin Gump Strauss Hauer & Feld LLP.

      Terrell Falk has served as Vice President — Marketing and Communications since April 2001. From March 1998 to April 2001, Ms. Falk was Director of Large Format Theatres, overseeing the marketing and operations of our company’s IMAX theatres. From March 1995 until joining our company, she was Vice

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President of Marketing for JQH Film Entertainment, a large format film production and distribution company, where she was responsible for film marketing, distribution and production. Prior to this, Ms. Falk was Director of Marketing for the Houston Museum of Natural Science and Wortham IMAX Theatre from February 1982 to April 1995.

      Tom Owens has served as Vice President — Development since December 2003 and as Director of Real Estate since April 2002. From 1998 to April 2002, Mr. Owens was President of NRE, a company he founded that specialized in the development and financing of motion picture theatres. From 1996 to 1998, Mr. Owens served as President of Silver Cinemas International, Inc., a motion picture exhibitor. In May 2000, Silver Cinemas International, Inc., filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. From 1989 to 1996, Mr. Owens served as our Vice President — Development.

      Benjamin D. Chereskin has been a Director since the consummation of the Recapitalization. Mr. Chereskin is a Managing Director of Madison Dearborn Partners, LLC and co-founded the firm in 1993. Before that, Mr. Chereskin was with First Chicago Venture Capital for nine years. Mr. Chereskin also serves on the Board of Directors of Cornerstone Brands, Inc., Tuesday Morning Corporation, NWL Holdings, Inc., Family Christian Stores, Inc. and Carrols Holdings Corp.

      James N. Perry, Jr., has been a Director since the consummation of the Recapitalization. Mr. Perry is a Managing Director of Madison Dearborn Partners, LLC and co-founded the firm in 1993. Before that, Mr. Perry was with First Chicago Venture Capital for eight years. Mr. Perry currently serves on the Board of Directors of Nextel Partners, Inc., XM Satellite Radio Holdings Inc., Cbeyond Communications, LLC, Madison River Telephone Company, Focal Communications, Allegiance Telecom and Band-X.

      Robin P. Selati has been a Director since the consummation of the Recapitalization. Mr. Selati is a Managing Director of Madison Dearborn Partners, LLC and has been employed by the firm since 1993. Before that, Mr. Selati was with Alex Brown & Sons Incorporated, an investment bank, as a Financial Analyst in the consumer/ retailing investment banking group. Mr. Selati currently serves on the Board of Directors of Tuesday Morning Corporation, Peter Piper, Inc., NWL Holdings, Inc., Carrols Holdings Corporation, Family Christian Stores, Inc., Ruth’s Chris Steak House, Inc and Beverages & More, Inc.

      Vahe A. Dombalagian has been a Director since the consummation of the Recapitalization. Mr. Dombalagian is a Vice President of Madison Dearborn Partners, LLC and has been employed by the firm since July 2001. Before that, Mr. Dombalagian was an Associate with Texas Pacific Group, a private equity firm, from August 1997 to August 1999. Mr. Dombalagian currently serves on the Board of Directors of Outsourcing Solutions Inc.

Board Composition

      Except as described in this prospectus, there are no arrangements or understandings between any member of the Board of Directors or executive officer and any other person pursuant to which that person was elected or appointed to his or her position.

      Our Board of Directors has the power to appoint officers. Each officer will hold office for the term determined by our Board of Directors and until such person’s successor is chosen and qualified or until such person’s death, resignation or removal.

Committees of the Board of Directors

      Our Board of Directors has established an audit committee and a compensation committee. Mr. Dombalagian is serving as the initial chairman of the audit committee, and Mr. Chereskin is serving as the initial chairman of the compensation committee. The audit committee will recommend the annual appointment of auditors with whom the audit committee will review the scope of audit and non-audit assignments and related fees, accounting principles we will use in financial reporting, internal auditing procedures and the adequacy of our internal control procedures. The compensation committee will review and approve the compensation and benefits for our executive officers, administer our employee benefit plans,

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authorize and ratify stock option grants and other incentive arrangements, and authorize employment and related agreements. The Board of Directors may contemplate establishing other committees.

Compensation of Directors After the Recapitalization

      To the extent any future directors are not employees of our company, such directors may receive fees. All of the directors will be reimbursed for out-of-pocket expenses related to their service as directors.

Executive Compensation

      The following Summary Compensation Table sets forth the compensation earned for each of the past three years by our Chief Executive Officer and our four most highly compensated executive officers:

Summary Compensation Table

                                           
Long-Term
Compensation
Awards

Annual Compensation Securities

Underlying All Other
Name and Principal Position Year Salary(1) Bonus Options/SARs Compensation(2)






Lee Roy Mitchell
    2003     $ 682,500     $ 652,740 (3)         $ 132,020 (6)
  Chairman of the Board and     2002       572,870       975,000 (4)           124,309 (7)
  Chief Executive Officer     2001       474,516       1,525,484 (5)           223,285 (8)
Alan Stock
    2003       403,891       98,826 (3)           10,500 (9)
  President and Chief Operating Officer     2002       384,658       230,795 (4)           9,750 (9)
        2001       366,341       198,899 (5)           267,308 (10)
Tim Warner
    2003       327,525       80,140 (3)             10,500 (9)
  Senior Vice President, President —     2002       311,929       187,157 (4)           9,750 (9)
  Cinemark International     2001       297,075       161,291 (5)           336,445 (11)
Robert Copple
    2003       294,919       72,162 (3)           10,500 (9)
  Senior Vice President and     2002       280,875       168,525 (4)           9,750 (9)
  Chief Financial Officer     2001       267,500       145,235 (5)     154,000 (12)     138,274 (13)
Robert Carmony
    2003       284,313       69,567 (3)           9,035 (9)
  Senior Vice President — Operations     2002       270,775       162,465 (4)           9,750 (9)
        2001       257,881       140,012 (5)           225,827 (14)


(1)  Amounts shown include cash and non-cash compensation earned and received by executive officers as well as amounts earned but deferred at the election of those officers.
 
(2)  All other compensation relating to stock or stock options gives effect to the share exchange agreement dated May 17, 2002, and a subsequent reverse stock split, pursuant to which each outstanding share, and each outstanding option to purchase shares of common stock of Cinemark USA, Inc. was exchanged for 220 shares and options to purchase shares of our common stock.
 
(3)  Bonuses were earned in 2003 but were paid in 2004.
 
(4)  Bonuses were earned in 2002 but were paid in 2003.
 
(5)  Bonuses were earned in 2001 but were paid in 2002.
 
(6)  Represents a $10,500 annual contribution to our 401(k) savings plan, $22,665 representing the value of the use of a company vehicle for one year and $98,855 of life insurance premiums paid by us for the benefit of Mr. Mitchell.
 
(7)  Represents a $2,800 annual contribution to our 401(k) savings plan, $22,665 representing the value of the use of a company vehicle for one year and $98,844 of life insurance premiums paid by us for the benefit of Mr. Mitchell.
 
(8)  Represents a $1,950 annual contribution to our 401(k) savings plan, $15,940 representing the value of the use of a company vehicle for one year, $98,844 for 2001 life insurance premiums and $106,551 for

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2000 life insurance premiums and interest on such premiums paid in 2001 by us for the benefit of Mr. Mitchell.
 
(9)  Represents an annual contribution to our 401(k) savings plan.

(10)  Represents a $4,590 annual contribution to our 401(k) savings plan, $156,194 of compensation relating to the value of stock options exercised for 104,500 shares of our Class A common stock over the $0.0045 per share exercise price and a $106,524 reimbursement for estimated tax obligations incurred upon the exercise of such stock options.
 
(11)  Represents a $4,590 annual contribution to our 401(k) savings plan, $197,298 of compensation relating to the value of stock options exercised for 132,000 shares of our Class A common stock over the $0.0045 per share exercise price and a $134,557 reimbursement for estimated tax obligations incurred upon the exercise of such stock options.
 
(12)  In October 2001 we granted Mr. Copple options to purchase an aggregate of 250 shares of Class B common stock of Cinemark USA, Inc. under the Cinemark Employee Stock Option Plan at an exercise price of $1.00 per share. On the date of grant, the Class B common stock of Cinemark USA, Inc. had a market value of $330 per share. These options were immediately vested and such options were exercised by Mr. Copple. In December 2001, Cinemark USA, Inc. granted Mr. Copple options to purchase 450 shares of its Class B common stock at an exercise price of $330 per share. We believed that on the date of grant, the Class B common stock had a market value of $330 per share. Under the share exchange agreement dated May 17, 2002, and after giving effect to a subsequent reverse stock split, each outstanding share and each outstanding option to purchase shares of Class B common stock of Cinemark USA, Inc. was exchanged for 220 shares, and options to purchase shares, of our Class A common stock. Additionally, in connection with the proposed initial public offering of our Class A common stock in 2002 and Staff Accounting Bulletin Topic 4.D., we revised the market value of a share of our Class A common stock as of December 2001 to $11.45 per share, which exceeded the option price of $1.50 per share by $9.95 per share. These options vest 20% per year for five years.
 
(13)  Represents $82,208 of compensation relating to the value of stock options exercised for 55,000 shares of our Class A common stock over the $0.0045 per share exercise price and a $56,066 reimbursement for estimated tax obligations incurred upon the exercise of such stock options.
 
(14)  Represents a $4,590 annual contribution to our 401(k) savings plan, $131,532 of compensation relating to the value of stock options exercised for 88,000 shares of our Class A common stock over the $0.0045 per share exercise price and an $89,705 reimbursement for estimated tax obligations incurred upon the exercise of such stock options.

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Options/Stock Appreciation Right Grants

      There were no stock options or Stock Appreciation Right (“SAR”) grants to the named executive officers during the fiscal year ended December 31, 2003.

      The following table sets forth information concerning option exercises during the 2003 fiscal year and option holdings as of the end of the 2003 fiscal year with respect to the named executive officers. No SAR’s were outstanding at the end of the 2003 fiscal year.

Aggregated Options/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values

                                 
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired on Value December 31, 2003 (#) December 31, 2003 ($)
Name Exercise(#) Realized($) Exercisable/Unexercisable(1) Exercisable/Unexercisable(2)





Lee Roy Mitchell
                       
Alan Stock
                —/66,000        
Tim Warner
                —/66,000        
Robert Copple
                59,400/39,600        
Robert Carmony
                —/66,000        


(1)  The options give effect to the share exchange agreement dated May 17, 2002, and a subsequent reverse stock split, pursuant to which shares and options to purchase shares of Class B common stock of Cinemark USA, Inc. were exchanged for 220 shares and options to purchase shares of our Class A common stock. As a result of the Recapitalization, the outstanding options were purchased for the merger consideration and cancelled. Mr. Copple exercised options to purchase 74,272 shares of common stock, and the remaining options were purchased for the merger consideration.
 
(2)  We have the right to call the shares issued or issuable upon exercise of the options for terminating employees. The call price is equal to the fair market value of the common stock.

Employment Agreements

      On March 12, 2004, we entered into new employment agreements with certain executives which became effective upon the consummation of the Recapitalization. In addition, in connection with the consummation of the Recapitalization, we paid a one-time special bonus in the amount of $2.4 million to Lee Roy Mitchell and in the amount of $50,000 to each of Alan Stock, Tim Warner and Robert Copple. Set forth below is a summary of the new agreements.

     Lee Roy Mitchell

      We entered into an employment agreement with Lee Roy Mitchell pursuant to which Mr. Mitchell serves as our Chief Executive Officer. The employment agreement became effective upon the consummation of the Recapitalization. The initial term of the employment agreement is three years, subject to an automatic extension for a one-year period, unless the employment agreement is terminated. Mr. Mitchell receives a base salary of $716,625 per year, which is subject to annual review for increase (but not decrease) each year by our Board of Directors or committee or delegate thereof. In addition, Mr. Mitchell is eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by the board or the compensation committee for the fiscal year. Mr. Mitchell is also entitled to additional fringe benefits including life insurance benefits of not less than $5 million, disability benefits of not less than 66% of base salary, a luxury automobile and a membership at a country club.

      The employment agreement provides for severance payments upon termination of employment, the amount and nature of which depends upon the reason for the termination of employment. If Mr. Mitchell resigns for good reason or is terminated by us without cause (as defined in the agreement), Mr. Mitchell will receive: accrued compensation (which includes base salary and a pro rata bonus) through the date of

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termination; any previously vested stock options and accrued benefits, such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such options or benefits were granted; his annual base salary as in effect at the time of termination for a period of twelve months following such termination; and an amount equal to the most recent annual bonus he received prior to the date of termination. Mr. Mitchell’s equity-based or performance-based awards will become fully vested and exercisable upon such termination or resignation. Mr. Mitchell may choose to continue to participate in our benefit plans and insurance programs on the same terms as other actively employed senior executives for a one-year period. Furthermore, so long as Mr. Mitchell remains Chief Executive Officer, he will possess approval rights over certain significant transactions that may be pursued by us.

      In the event Mr. Mitchell’s employment is terminated due to his death or disability, Mr. Mitchell or his estate will receive: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; any previously vested stock options and accrued benefits, such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such options or benefits were granted; his annual base salary as in effect at the time of termination for a period of six months following such termination; a lump sum payment equal to an additional six months of base salary payable six months after the date of termination; and any benefits payable to Mr. Mitchell and or his beneficiaries in accordance with the terms of any applicable benefit plan.

      In the event Mr. Mitchell’s employment is terminated by us for cause or under a voluntary termination (as defined in the agreement), Mr. Mitchell will receive: accrued base salary through the date of termination; and any previously vested rights under a stock option or similar incentive compensation plan in accordance with the terms of such plan.

      Mr. Mitchell will also be entitled, for a period of five years, to tax preparation assistance upon termination of his employment for any reason other than for cause or under a voluntary termination. The employment agreement contains various covenants, including covenants related to confidentiality, non-competition, other than certain permitted activities (as defined therein) and non-solicitation.

 
      Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier

      We entered into executive employment agreements with each of Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier pursuant to which Mrs. Mitchell and Messrs. Stock, Copple, Warner, Carmony, Lundin and Cavalier serve, respectively, as our Executive Vice President, President and Chief Operating Officer, Senior Vice President and Chief Financial Officer, Senior Vice President, Senior Vice President of Operations, Vice President of Film Licensing and Vice President and General Counsel. The employment agreements became effective upon the consummation of the Recapitalization. The initial term of each employment agreement is three years, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated. Pursuant to the employment agreements, each of these individuals receives a base salary, which is subject to annual review for increase (but not decrease) each year by our board of directors or committee or delegate thereof. In addition, each of these executives is eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by the board or the compensation committee for the fiscal year.

      Our Board of Directors will adopt a stock option plan and grant each executive stock options to acquire such number of shares as set forth in that executive’s employment agreement. The executive’s stock options vest and become exercisable twenty percent per year on a daily pro rata basis and shall be fully vested and exercisable five years after the date of the grant, as long as the executive remains continuously employed by us. Upon consummation of a sale of our company, the executive’s stock options will accelerate and become fully vested.

      The employment agreement with each executive provides for severance payments on substantially the same terms as the employment agreement for Mr. Mitchell, except that if the executive resigns for good reason or is terminated by us without cause (as defined in the agreements) prior to the first anniversary of the

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effectiveness of the employment agreement, the executive will receive his or her annual base salary in effect at the time of termination for a period commencing on the date of termination and ending on the second anniversary of the effective date (rather than for twelve months); and an amount equal to the most recent annual bonus he or she received prior to the date of termination pro rated for the number of days between such termination and the second anniversary of the effective date (rather than a single annual bonus).

      Each executive will also be entitled to office space and support services for a period of not more than three months following the date of any termination except for termination for cause. The employment agreements contain various covenants, including covenants related to confidentiality, non-competition and non-solicitation.

 
      Non-Competition, Non-Solicitation and Non-Disclosure Agreement

      Each of Lee Roy Mitchell, Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin, Michael Cavalier and certain trusts, in his, her or its capacity as a seller of our common stock, have entered into non-competition, non-solicitation and non-disclosure agreements with us. These agreements became effective upon the consummation of the Recapitalization. Pursuant to the agreements, each executive agreed not to compete with us for a period of two years, and each executive agreed not to solicit our customers or hire our employees, or disparage us, for a period of three years. The obligation not to compete will terminate prior to the two year period if we effect a sale of our company (as defined in the agreements). In addition, each executive agreed not to disclose our confidential information for a period of three years.

401(k) Plan

      We sponsor a defined contribution savings plan, or 401(k) Plan, whereby certain employees may elect to contribute, in whole percentages between 1% and 50% of such employee’s compensation, provided no employee’s elective contribution shall exceed the amount permitted under Section 402(g) of the Internal Revenue Code of 1986, as amended ($12,000 in 2003). We may make an annual discretionary matching contribution. For plan years prior to 2002, our discretionary matching contribution is subject to vesting and forfeiture. Our discretionary matching contributions vest to individual accounts at the rate of 20% per year beginning two years from the date of employment. Employees are fully vested in the discretionary matching contributions after six years of employment. For plan years beginning in 2002, our discretionary matching contributions immediately vest.

 
      Independent Director Stock Options and Long Term Incentive Plan

      As part of the Recapitalization, all of the outstanding options to purchase our Class A common stock pursuant to director options and the Long Term Incentive Plan immediately vested (to the extent not vested), were exercised and received the merger consideration as set forth in the merger agreement. The Long Term Incentive Plan was terminated upon the consummation of the Recapitalization.

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PRINCIPAL STOCKHOLDERS

      The following table sets forth information with respect to the beneficial ownership of our capital stock immediately upon the consummation of the Recapitalization by:

  •  each person or entity known to us to beneficially hold five percent or more of our common stock;
 
  •  each of our directors;
 
  •  each of our named executive officers; and
 
  •  all of our executive officers and directors as a group.

      Beneficial ownership has been determined in accordance with the applicable rules and regulations promulgated under the Exchange Act. The numbers presented in the table below are subject to change based on the price payable with respect to the shares of common stock in connection with the Recapitalization. Upon the consummation of the Recapitalization, our outstanding securities consist of 27,674,916 shares of Class A common stock.

                 
Common Percent of
Name of Beneficial Owner Stock Class



Madison Dearborn Capital Partners IV, L.P.(1)
    22,947,820       82.9 %
Mitchell Special Trust(2)
    2,169,713       7.8 %
Lee Roy Mitchell(3)
    4,427,986       16.0 %
Alan W. Stock
    83,526       *  
Tim Warner
    82,892       *  
Robert Copple
    74,272       *  
Robert Carmony
           
Benjamin D. Chereskin(4)
    22,947,820       82.9 %
James N. Perry, Jr.(4)
    22,947,820       82.9 %
Robin P. Selati(4)
    22,947,820       82.9 %
Vahe A. Dombalagian
           
All directors and executive officers (17 persons)
    27,674,916       100.0 %


  * Less than 1.0%

(1)  The address of Madison Dearborn Capital Partners IV, L.P. is Three First National Plaza, Suite 3800, 70 West Madison Street, Chicago, Illinois 60602.
 
(2)  The address of The Mitchell Special Trust is 3900 Dallas Parkway, Suite 500, Plano, Texas 75093.
 
(3)  Includes 2,169,713 shares held by the Mitchell Special Trust. Mr. Mitchell is the co-trustee of the Mitchell Special Trust. Mr. Mitchell disclaims beneficial ownership of all shares held by the Mitchell Special Trust. Mr. Mitchell’s address is c/o Cinemark, Inc., 3900 Dallas Parkway, Suite 500, Plano, Texas 75093.
 
(4)  Messrs. Chereskin, Perry and Selati are Managing Directors of Madison Dearborn Partners, LLC, which is the General Partner of Madison Dearborn Partners IV, L.P., which is the General Partner of Madison Dearborn Capital Partners IV, L.P., and they may therefore be deemed to share beneficial ownership of the shares owned by Madison Dearborn Capital Partners IV, L.P. Messrs. Chereskin, Perry and Selati expressly disclaim beneficial ownership of the shares owned by Madison Dearborn Capital Partners IV, L.P. The address of Messrs. Chereskin, Perry and Selati is c/o Madison Dearborn Partners, LLC, Three First National Plaza, Suite 3800, 70 West Madison Street, Chicago, Illinois 60602.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Following the Transactions

      In connection with the Recapitalization, we entered into the merger agreement, a stock purchase agreement, a stockholders agreement and a registration agreement with the equity sponsor, the Mitchell investors and the management investors. A brief summary of the principal terms of these agreements is set forth below.

 
Merger Agreement and Stock Purchase Agreement

      On March 12, 2004, Popcorn Merger Corp., a Delaware corporation and newly formed subsidiary of Madison Dearborn entered into the merger agreement with Cinemark, Inc., pursuant to which on April 2, 2004 Popcorn Merger Corp. merged with and into Cinemark, Inc. with Cinemark, Inc. continuing as the surviving corporation. Pursuant to a stock purchase agreement entered into between Cinemark, Inc. and the equity sponsor on March 12, 2004, the equity sponsor, simultaneously with the completion of the merger, purchased shares of common stock of Cinemark, Inc. for approximately $518.3 million in cash. The Mitchell investors and certain members of our management which were stockholders of Cinemark, Inc. and, among others, received cash consideration in the merger pursuant to the merger agreement. In addition, the Mitchell investors and the management investors retained a portion of their holdings of shares of Cinemark, Inc. All of the capital stock of Cinemark, Inc. is owned by the equity sponsor, the Mitchell investors and the management investors.

      Each of the merger agreement and the stock purchase agreement contained customary representations and warranties and customary covenants of the parties thereto. Neither the merger agreement nor the stock purchase agreement provided for indemnification for losses relating to specified events, circumstances and matters.

 
Stockholders Agreement

      On March 12, 2004, Madison Dearborn Capital Partners IV, L.P., an affiliate of Madison Dearborn Partners, LLC, or the “equity sponsor,” the Mitchell investors and the management investors entered into a stockholders agreement with us. The stockholders agreement became effective on April 2, 2004 upon the consummation of the Recapitalization. Future holders of our common stock, including any permitted co-investor introduced to us by the equity sponsor that acquires a portion of the common stock which the equity sponsor has agreed to purchase, or a “co-investor,” may also be required to become parties to the agreement. We refer to the equity sponsor, the co-investors, if any, the Mitchell investors, the management investors and their permitted transferees collectively as the “Stockholders.”

      Voting. The Stockholders will vote any voting securities over which they have control and will take all other reasonably necessary or desirable actions to elect and continue in office, members of our Board of Directors consisting of twelve members, initially composed of two persons designated by the Mitchell investors and ten persons designated by the equity sponsor. The equity sponsor has the right to assign to a co-investor, if any, the right to designate one of the ten directors the equity sponsor is entitled to designate.

      Transfer restrictions. Stockholders may not transfer shares, other than in an exempt transfer, which includes transfers to affiliates, transfers to family members in the case of a natural person, transfers in connection with certain sales of our company approved by our board or by the equity sponsor, transfers by the equity sponsor to any co-investors and transfers by the management investors to us. Any such affiliates, family members or co-investors to which the Stockholders transfer our shares will agree in writing to be bound by the provisions of the stockholders agreement.

      Rights of first refusal. We and the equity sponsor are granted certain rights of first refusal in connection with certain sales of our shares by any of the Mitchell investors, the management investors, the co-investors, if any, or their permitted assigns. We are granted certain rights of refusal in connection with certain transfers of our shares by the equity sponsor to any of our competitors.

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      Participation rights. Pursuant to the stockholders agreement, the co-investors, the Mitchell investors and the management investors are granted certain “tag-along” rights, which entitle them to participate in certain sales by the equity sponsor of the shares of our common stock held by the equity sponsor.

      Sale of Cinemark, Inc. Subject to certain exceptions, if our Board of Directors or the equity sponsor approves a sale of our company, each of the Stockholders will vote for and consent to the approved sale and will take all necessary and desirable actions in connection with the consummation of the approved sale as reasonably requested by the board or by the equity sponsor.

      Holdback agreement. No management investor or his permitted transferee shall sell any of our equity securities or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten demand registration or any underwritten piggyback registration pursuant to the equity registration agreement.

      Preemptive rights. If we propose to issue any additional shares of our common stock or of any other capital stock or equity securities, or any securities convertible into or exchangeable or exercisable for shares of our stock, subject to certain exceptions, we will offer to each Stockholder a portion of the number or amount of such securities proposed to be sold in any such transaction.

      Anti-takeover measures. Prior to the commencement of an initial public offering of our shares, the equity sponsor will request that our Board of Directors adopt reasonable and customary anti-takeover measures, except to the extent that our Board of Directors determines in the observance of its fiduciary duties that any such measures are not in the best interests of our stockholders, or the underwriters managing the initial public offering advise us that any such measures will adversely affect such offering or offering price.

      Approval of certain transactions. So long as the Mitchell investors and their permitted transferees own at least 10% of our outstanding common stock, they will possess approval rights over certain significant transactions that may be pursued by us.

 
Equity Registration Agreement

      On March 12, 2004, we entered into a registration agreement with the equity sponsor and the Mitchell investors. The registration agreement became effective on April 2, 2004 upon the consummation of the Recapitalization.

      Demand registrations. Under the registration agreement, the holders of at least a majority of the registrable securities held by the MDCP investors have the right at any time, subject to certain conditions, to require us to register any or all of their common stock under the Securities Act on a registration statement on Form S-1 or any similar long-form registration at our expense. The holders of a majority of the registrable securities held by the Mitchell investors have the right, upon the first to occur of (1) the third anniversary of the closing of the Recapitalization, (2) 180 days after the completion of an initial public offering of our common stock and (3) our achievement of certain financial targets as set forth therein for any two consecutive fiscal years prior to the end of 2008, subject to certain conditions, to require us to register any or all of their common stock on a registration statement on Form S-1 or any similar long-form registration at our expense. The holders of a majority of the registrable securities held by the co-investors, if any, have the right, at any time after 180 days after the completion of an initial public offering of our common stock, subject to certain conditions, to require us to register at a certain minimum price any or all of their common stock on a registration statement on Form S-1 or any similar long-form registration at our expense. In addition, the holders of a majority of the registrable securities held by the MDCP investors, the Mitchell investors and the co-investors, each as a separate group, have the right any time after an initial public offering, subject to conditions, to require us to register any or all of their common stock on a registration statement on Form S-3 or any similar short-form registration, if available. We refer to each of these types of registrations as “demand registrations.”

      We are not required, however, to effect any registration within 180 days of the effective date of a previous demand registration or a previous registration in which holders of the registrable securities were given piggyback rights. In addition, we may postpone for up to 180 days the filing or the effectiveness of a

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registration statement for a demand registration no more than once in any twelve month period, if our Board of Directors determines that the demand registration would reasonably be expected to have a material adverse effect on any proposal or plan by us or any of our subsidiaries to engage in any acquisition or sale of assets, or any merger, consolidation, tender offer, acquisition, recapitalization, reorganization or similar transaction.

      Piggyback registrations. All holders of registrable securities are entitled to request the inclusion of their securities in any registration statement at our expense whenever we propose to register any offering of our equity securities (other than pursuant to a demand registration). The registration form to be used may be used for the registration of such registrable securities.

      Holdback agreement. Each holder of registrable securities has agreed not to effect any public sale or distribution of our equity securities or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten demand registration or any underwritten piggyback registration (except as part of that registration or if the underwriters otherwise agree). We have agreed not to, and have agreed to cause any 5% holder of our common stock to agree not to, effect any public sale or distribution of our equity securities or any securities convertible into or exchangeable or exercisable for such securities, during the same time period.

      In connection with all registrations pursuant to the registration agreement, we have agreed to indemnify the holders of registrable common stock against liabilities relating to the registration, including liabilities under the Securities Act.

 
Transaction Fees

      Madison Dearborn or an affiliate received a fee of approximately $12.5 million at the closing of the Recapitalization plus out-of-pocket expenses incurred in connection with the Transactions. We will reimburse Madison Dearborn for all future expenses incurred in connection with its investment in us.

 
Amended and Restated Profit Participation

      On March 12, 2004, we entered into an amended and restated profit participation agreement with Alan Stock, our President, which became effective on April 2, 2004 upon the consummation of the Recapitalization and amends a profit participation agreement with Mr. Stock in effect since May 2002. Under this agreement, Mr. Stock will receive a profit interest in two recently built theatres after we have recovered our capital investment in these theatres plus our borrowing costs. Operating losses and disposition losses for any year are allocated 100% to us, and operating profits and disposition profits for these theatres for any fiscal year are allocated first to us 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 us until such payments equal our investment in these theatres, plus interest, and then 51% to us and 49% to Mr. Stock. During the three months ended March 31, 2004, we recorded approximately $50,000 in profit sharing expense payable to Mr. Stock, which is included in general and administrative expenses and other current liabilities on our condensed consolidated financial statements. In the event that Mr. Stock’s employment is terminated without cause, net cash from operations and from disposition of the theatres will be distributed according to this formula without first allowing us to recoup our investment plus interest thereon. Upon consummation of an initial public offering, we will have the option to purchase Mr. Stock’s interest in the theatres for a price equal to the greater of (i) a stated price reduced by any payments received during the term and (ii) 49% of adjusted theatre level cash flow multiplied by seven. We do not intend to enter into similar arrangements with our executive officers in the future.

Prior to the Transactions

 
Certain Agreements

      We manage one theatre with 12 screens for Laredo Theatre, Ltd. Lone Star Theatres, Inc. owns 25% of the limited partnership interests in Laredo Theatre, Ltd. We are the sole general partner and own the remaining limited partnership interests. Lone Star Theatres, Inc. is owned 100% by Mr. David Roberts, who

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is Mr. Mitchell’s son-in-law. Under the agreement, management fees are paid by Laredo Theatre, Ltd. to us at a rate of 5% of theatre revenues in each year up to $50,000,000 and 3% of theatre revenues in each year in excess of $50,000,000. We recorded $223,886 of management fee revenues and received dividends of $675,000 from Laredo Theatre, Ltd. in 2003. We recorded $39,991 of management fee revenues and received $150,000 of distributions from Laredo Theatres, Ltd. during the three month period ended March 31, 2004. In accordance with the terms of the limited partnership agreement, Laredo Theatres, Ltd. distributed dividends to Lone Star Theatre, Inc. of $225,000 in 2003 and $50,000 during the three month period ended March 31, 2004. All such amounts are included in our consolidated financial statements with the intercompany amounts eliminated in consolidation.

      During 2003, we managed one theatre with four screens for Mitchell Theatres, Inc., which was 100% owned by members of Lee Roy Mitchell’s family. Under the agreement, management fees were paid to us by Mitchell Theatres, Inc. at a rate of 5% of theatre revenues. We recorded $32,144 of management fee revenues from Mitchell Theatres during 2003. On December 31, 2003, we purchased all of the issued and outstanding capital stock of Mitchell Theatres, Inc. for approximately $0.7 million, which included the assumption of approximately $0.2 million in outstanding debt that was immediately paid off at the time of purchase. See Note 3 to our consolidated financial statements for a description of the acquisition.

      We lease one theatre with 7 screens from Plitt Plaza joint venture. Plitt Plaza joint venture is indirectly owned by Lee Roy Mitchell. The lease expired in July 2003 but was extended with similar terms through December 2003. We recorded $267,334 of facility lease expense payable to Plitt Plaza joint venture during 2003. We signed a new month-to-month lease effective January 1, 2004 under which the annual rent will be approximately $118,000 plus certain taxes, maintenance expenses and insurance. We recorded $30,024 of facility lease expense payable to Plitt Plaza joint venture during the three month period ended March 31, 2004.

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DESCRIPTION OF EXCHANGE NOTES

      You can find the definitions of certain terms used in this description under the subheading “— Certain Definitions.” In this description, the word “Company” refers only to Cinemark, Inc. and not to any of its subsidiaries.

      The Company issued the initial notes, and will issue the exchange notes, under the indenture dated March 31, 2004 between itself and The Bank of New York Trust Company, N.A., as trustee. The terms of the initial notes and the exchange notes offered hereby include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). The aggregate principal amount at maturity of notes issuable under the indenture is unlimited, although the issuance of exchange notes in this offering will be limited to an aggregate principal amount at maturity of $577,173,000. We may issue an unlimited principal amount of additional notes having identical terms and conditions as the initial notes, subject to our compliance with the covenants contained in the indenture. Any additional notes will be part of the same issue as the initial notes and will vote on all matters with the holders of the notes. The form of exchange notes will be identical in all material respects to that of the initial notes except that the exchange notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and the registration rights will not apply to the exchange notes. The exchange notes will not represent new indebtedness of the Company. Any provision of the indenture which requires action by or approval of a specified percentage of holders of the outstanding notes shall require the approval of the holders of such percentage of outstanding initial notes and exchange notes, in the aggregate. Upon the effectiveness of an exchange offer registration statement or shelf registration statements, as the case may be, filed under the Securities Act with respect to the exchange notes, the indenture will be subject to and governed by the Trust Indenture Act.

      The following description is a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because it, and not this description, defines your rights as holders of the exchange notes. Certain defined terms used in this description but not defined below under “— Certain Definitions” have the meanings assigned to them in the indenture.

      The registered Holder of an exchange note will be treated as the owner of it for all purposes. Only registered Holders will have rights under the indenture.

Brief Description of the Notes

      The notes:

  •  are general senior unsecured obligations of the Company;
 
  •  are limited to an aggregate principal amount at maturity of $577,173,000, subject to our ability to issue additional notes;
 
  •  mature on March 15, 2014;
 
  •  rank equal in right of payment with any existing and future Senior Debt of the Company, including the guarantee by the Company of the Credit Agreement;
 
  •  are effectively subordinated to Indebtedness and other liabilities, including trade payables, of the Company’s Subsidiaries, including Indebtedness of Cinemark USA, Inc. and its Subsidiaries under the Credit Agreement and the Existing Notes;
 
  •  rank effectively junior in right of payment to any secured Indebtedness of the Company to the extent of the value of the collateral securing that Indebtedness, including the guarantee by the Company of the Credit Agreement which is secured by a pledge of the Capital Stock of CNMK Holding, Inc.;
 
  •  rank senior in right of payment to all future subordinated Indebtedness of the Company; and
 
  •  are eligible for trading in PORTAL.

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Holding Company Structure

      The Company is a holding company and does not have any material assets or operations other than ownership of the Capital Stock of CNMK Holding, Inc., which in turn is also a holding company and does not have any material assets or operations other than ownership of the Capital Stock of Cinemark USA, Inc. All of the Company’s operations are conducted through Cinemark USA, Inc. and its Subsidiaries. The claims of creditors of the Company, including the claims of Holders of notes, are structurally subordinated to all existing and future third-party indebtedness and liabilities, including trade payables, of the Company’s Subsidiaries. At March 31, 2004, on a pro forma basis after giving effect to the Transactions, the Company would have had total Senior Debt (excluding the Company’s guarantee of the Credit Agreement) of approximately $360.0 million and no subordinated Indebtedness. As of March 31, 2004, on the same basis, the Company’s Subsidiaries would have had $802.9 million of Indebtedness and other liabilities, including trade payables, and the notes would have been effectively subordinated to such Indebtedness and other liabilities. Subject to certain significant limitations, the Company and its Subsidiaries may incur other Indebtedness in the future, including secured Indebtedness. Moreover, the indenture does not impose any limitation on the incurrence by the Company and its Restricted Subsidiaries of liabilities that are not considered Indebtedness under the indenture.

      As of the date of the indenture, all of the Company’s Subsidiaries are “Restricted Subsidiaries.” However, under the circumstances described below under the subheading “— Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries,” the Company is permitted to designate certain of its Subsidiaries as “Unrestricted Subsidiaries.” The Company’s Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture.

Principal, Maturity and Interest

      The Company issued initial notes in the aggregate principal amount at maturity of $577,173,000. The Company may issue additional notes from time to time. Any offering of additional notes is subject to the covenant described below under the caption “— Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock.” The notes and any additional notes subsequently issued under the indenture will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The Company will issue notes in denominations of $1,000 aggregate principal amount at maturity and integral multiples thereof. The notes will mature on March 15, 2014.

      The initial notes were issued at a substantial discount from their principal amount at maturity. See “Important Federal Income Tax Considerations — Consequences to U.S. Holders — Original Issue Discount.” Until March 15, 2009, no interest will accrue, but the Accreted Value will accrete (representing the amortization of original issue discount) between the date of original issuance and March 15, 2009, on a semiannual bond equivalent basis using a 360-day year comprised of twelve 30-day months such that the Accreted Value shall be equal to the full principal amount at maturity of the notes on March 15, 2009 (the “Full Accretion Date”). The initial Accreted Value per $1,000 in principal amount at maturity of notes was $623.73 (representing the original price at which initial notes were issued).

      Beginning on March 15, 2009, interest on the notes will accrue at the rate of 9 3/4% per annum and will be payable in U.S. dollars semiannually in arrears on March 15 and September 15, commencing on September 15, 2009, to Holders of record on the immediately preceding March 1 or September 1, respectively. Holders of record on such record dates will become irrevocably entitled to receive accrued interest in respect of the interest period during which such record date occurs as of the close of business on such record date, unless such interest is not paid on that interest record date. Interest on the notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Full Accretion Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

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Methods of Receiving Payments on the Notes

      If a Holder has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium and Additional Interest, if any, on that Holder’s notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless the Company elects to make interest payments by check mailed to the Holders at their address set forth in the register of Holders.

Paying Agent and Registrar for the Notes

      The trustee will initially act as paying agent and registrar. The Company may change the paying agent or registrar without prior notice to the Holders of the notes, and the Company or any of its Subsidiaries may act as paying agent or registrar.

Transfer and Exchange

      A Holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a Holder to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. The Company is not required to transfer or exchange any note selected for redemption. Also, the Company is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.

Optional Redemption

      At any time prior to March 15, 2007, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount at maturity of notes issued under the indenture (including any additional notes) at a redemption price of 109.750% of the Accreted Value thereof on the redemption date, plus accrued and unpaid Additional Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings by the Company, provided that:

        (1) at least 65% of the aggregate principal amount at maturity of notes issued under the indenture (including any additional notes) remains outstanding immediately after the occurrence of such redemption (excluding notes held by the Company or any of its Subsidiaries); and
 
        (2) the redemption occurs within 90 days of the date of the closing of such Equity Offering.

      Except pursuant to the preceding paragraph, the notes will not be redeemable at the Company’s option prior to March 15, 2009.

      On and after March 15, 2009, the Company may redeem all or a part of the notes upon not less than 30 nor more than 60 days’ notice except that a redemption notice may be mailed more than 60 days prior to a redemption if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Additional Interest, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on March 15 of the years indicated below:

         
Year Percentage


2009
    104.875 %
2010
    103.250 %
2011
    101.625 %
2012 and thereafter
    100.000 %

      If the redemption date is on or after an interest payment record date and on or before the related interest payment date, the accrued and unpaid interest and Additional Interest, if any, will be paid to the Holder in whose name the note is registered at the close of business on such record date, and no additional interest or

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Additional Interest, if any, will be payable to Holders whose notes will be subject to redemption by the Company.

Selection and Notice

      If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows:

        (1) if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or
 
        (2) if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the trustee deems fair and appropriate.

      No notes of $1,000 in aggregate principal amount at maturity or less can be redeemed in part. Except as otherwise specified, notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional.

      If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount at maturity of that note that is to be redeemed. A new note in principal amount at maturity equal to the unredeemed portion of the original note will be issued in the name of the Holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, Accreted Value will cease to accrete and interest and Additional Interest, if any, will cease to accrue on notes or portions of them called for redemption.

Mandatory Redemption

      The Company is not required to make mandatory redemption or sinking fund payments with respect to the notes.

Repurchase at the Option of Holders

 
Change of Control

      If a Change of Control occurs, the Company will be required to make an offer (a “Change of Control Offer”) to each Holder of notes to repurchase all or any part (equal to $1,000 in principal amount at maturity or an integral multiple thereof) of that Holder’s notes on the terms set forth in the indenture. In the Change of Control Offer, the Company will offer a payment in cash (the “Change of Control Payment”) equal to 101% of the Accreted Value of the notes repurchased plus accrued and unpaid interest and Additional Interest, if any, on the notes repurchased to the date of purchase (a “Change of Control Payment Date”). Within thirty days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice.

      On the Change of Control Payment Date, the Company will, to the extent lawful:

        (1) accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;
 
        (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and

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        (3) deliver or cause to be delivered to the trustee the notes properly accepted together with an officers’ certificate stating the aggregate Accreted Value of notes or portions of notes being purchased by the Company.

      The paying agent will promptly mail to each Holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new note equal in principal amount at maturity to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount at maturity of $1,000 or an integral multiple thereof.

      If the Change of Control Payment Date is on or after an interest payment record date and on or before the related interest payment date, any accrued and unpaid interest and Additional Interest, if any, will be paid to the Holder in whose name a note is registered at the close of business on such record date, and no other interest or Additional Interest, if any, will be payable to Holders who tender pursuant to the Change of Control Offer.

      The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the Holders of the notes to require that the Company repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

      The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by the Company and purchases all notes properly tendered and not withdrawn under the Change of Control Offer or if an irrevocable notice of redemption has been given pursuant to the indenture in accordance with the provisions set forth under the caption “— Optional Redemption.”

      The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of “all or substantially all” of the property or assets of a Person. As a result, it may be unclear as to whether a Change of Control has occurred and whether a Holder of notes may require the Company to make a Change of Control Offer.

      The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict.

 
Asset Sales

      The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

        (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of (such fair market value to be determined in good faith by the Company on the date of contractually agreeing to such Asset Sale);

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        (2) in the event the fair market value of such Asset Sale exceeds $10.0 million but is less than $25.0 million, the fair market value is determined by the Company’s Chief Financial Officer and in the event the fair market value of such Asset Sale equals or exceeds $25.0 million, the fair market value is determined by the Company’s Board of Directors and evidenced by a resolution of the Board of Directors of the Company and, in each case, such determination is set forth in an officers’ certificate delivered to the trustee; and
 
        (3) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash:

        (a) the amount of any liabilities, as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet, of the Company or such Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement or by operation of law that releases the Company or such Restricted Subsidiary from further liability; and
 
        (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days of the closing of the related Asset Sale, to the extent of the cash received in that conversion.

      Within 395 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply those Net Proceeds at its option to:

        (1) repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; provided, unless such Senior Debt being repaid consists of borrowings under the Credit Agreement or Guarantees of borrowings under the Credit Agreement, that the notes are reduced or repurchased on a pro rata basis with the Net Proceeds from the Asset Sale;
 
        (2) reduce or repurchase Indebtedness of Cinemark USA, Inc. or any Restricted Subsidiary of Cinemark USA, Inc. and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto;
 
        (3) acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business (or a division or unit thereof);
 
        (4) make a capital expenditure or commit pursuant to a binding agreement to make a capital expenditure within 24 months of such Asset Sale relating to an asset used or useful in a Permitted Business; or
 
        (5) acquire other long-term assets that are used or useful in a Permitted Business.

      Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture.

      Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $15 million, the Company will make an offer (an “Asset Sale Offer”) to all Holders of notes and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum Accreted Value of notes and the maximum principal amount of such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the Accreted Value thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the

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indenture. If the aggregate Accreted Value of notes and the maximum principal amount of other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the notes and such other pari passu Indebtedness will be purchased on a pro rata basis on the basis of the aggregate Accreted Value of notes and principal amount of other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.

      If the Asset Sale purchase date is on or after an interest payment record date and on or before the related interest payment date, any accrued and unpaid interest and Additional Interest, if any, will be paid to the Holder in whose name a note is registered at the close of business on such record date, and no interest or Additional Interest, if any, will be payable to holders who tender notes pursuant to the Asset Sale Offer.

      The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict.

      The Credit Agreement effectively prohibits, and future agreements relating to Indebtedness of the Company and its Subsidiaries may prohibit, the Company from purchasing any notes and also provides that certain change of control or asset sale events with respect to the Company would constitute a default under these agreements. In the event a Change of Control or Asset Sale occurs at a time when the Company is prohibited from purchasing notes, the Company could seek the consent of the lenders for the purchase of notes or could attempt to refinance any borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing notes. In such case, the Company’s failure to purchase tendered notes would constitute an Event of Default under the indenture which could result in a cross-default under the Credit Agreement or such other Indebtedness. Additionally, the occurrence of certain of the events that constitute a Change of Control may give holders of the Existing Notes the right to require Cinemark USA, Inc. to repurchase the Existing Notes. Moreover, the exercise by the Holders of their right to require the Company to repurchase the notes could cause a default under the Existing Notes and future agreements relating to Indebtedness of the Company and its Subsidiaries, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company and its Subsidiaries. In the event that a Change of Control occurs at a time when the Company’s Subsidiaries are prohibited from making funds available to the Company so that the Company can purchase the notes, the Company or any of its Subsidiaries may seek the consent of its lenders to purchase the notes or may attempt to refinance any borrowing that contains such prohibition. If such a consent or refinancing is not obtained, the Company’s Subsidiaries will remain prohibited from making such funds available to the Company so that it can purchase the notes. Finally, the Company’s ability to pay cash to the Holders upon a repurchase may be limited by the Company’s then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.

      Notwithstanding anything to the contrary contained in the indenture, the Company or any of its Restricted Subsidiaries may engage in transactions in which theatre properties will be transferred in exchange for one or more other theatre properties; provided that if the fair market value of the theatre properties to be transferred by the Company or such Restricted Subsidiary, plus the fair market value of any other consideration paid or credited by the Company or such Restricted Subsidiary (the “Transaction Value”) exceeds $2 million, such transaction shall require approval of the Board of Directors of the Company. In addition, each such transaction shall be valued at an amount equal to all consideration received by the Company or such Restricted Subsidiary in such transaction other than the theatre properties received pursuant to such exchange (“Other Consideration”) for purposes of determining whether an Asset Sale has occurred. If the Other Consideration is of an amount and character such that such transaction constituted an Asset Sale, then the paragraphs above of this “Asset Sales” covenant shall be applicable to any Net Proceeds of such Other Consideration.

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Certain Covenants

 
Restricted Payments

      The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

        (1) declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends or distributions payable (a) in Equity Interests (other than Disqualified Stock) of the Company or (b) to the Company or a Restricted Subsidiary of the Company);
 
        (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company;
 
        (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness (other than any Indebtedness held by the Company or a Guarantor) that is subordinated to the notes or the Subsidiary Guarantees, if any, except a payment of interest or principal at the Stated Maturity thereof; or
 
        (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as “Restricted Payments”),

unless, at the time of and after giving effect to such Restricted Payment:

        (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and
 
        (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock;” and
 
        (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the date of the indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (10) and (11) of the next succeeding paragraph), is less than the sum, without duplication, of:

        (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from February 11, 2003 to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus
 
        (b) 100% of the fair market value of the Qualified Proceeds received by the Company after the Recapitalization Date as a contribution to its equity capital or from the issue or sale of Equity Interests of the Company (other than Excluded Contributions and Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company or an employee stock ownership plan, option plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination), plus

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        (c) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the cash return of capital and other transfers of assets with respect to such Restricted Investment (less the cost of disposition, if any); provided, however, that no amount will be included under this clause (c) to the extent it is already included in Consolidated Net Income, plus
 
        (d) to the extent that any Unrestricted Subsidiary of the Company is redesignated as a Restricted Subsidiary after the date of the indenture, the lesser of (i) the fair market value of the Company’s Investment in such Subsidiary as of the date of such redesignation or (ii) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary.

      The preceding provisions will not prohibit:

        (1) the payment of any dividend or distribution within 60 days after the date of declaration thereof, if at the date of declaration the dividend or distribution payment would have complied with the provisions of the indenture;
 
        (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock and other than Equity Interests issued or sold to an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (3) (b) of the preceding paragraph;
 
        (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness subordinated to the notes or any Subsidiary Guarantee with the net cash proceeds from an incurrence of, or in exchange for, Permitted Refinancing Indebtedness;
 
        (4) the declaration and payment of any dividend or distribution by a Restricted Subsidiary of the Company to the holders of its Capital Stock on a pro rata basis;
 
        (5) so long as no Default or Event of Default shall have occurred and be continuing or would be caused thereby, the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former member of the Company’s (or any of its Restricted Subsidiaries’) management pursuant to any management equity subscription agreement, stock option agreement, stock plan or similar agreement other than any such agreement or plan with Madison Dearborn Partners, LLC or its Affiliates (other than Persons who are officers, directors or employees of the Company); provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $3.0 million in any twelve-month period (with unused amounts in any twelve-month period being carried over to succeeding twelve-month periods subject to a maximum carry-over amount of $6.0 million);
 
        (6) any payments made in connection with the consummation of the Transactions on substantially the terms described in this prospectus;
 
        (7) the repurchase of Equity Interests of the Company deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of such stock options;
 
        (8) so long as no Default has occurred and is continuing or would be caused thereby, repurchases of Indebtedness that is subordinated to the notes or a Subsidiary Guarantee at a purchase price not greater than (i) 101% of the principal amount of such subordinated Indebtedness in the event of a Change of Control or (ii) 100% of the principal amount of such subordinated Indebtedness in the event

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  of an Asset Sale, in connection with any change of control offer or asset sale offer required by the terms thereof, but only if:

        (a) in the case of a Change of Control, the Company has first complied with and fully satisfied its obligations under the provisions described under “— Repurchase at the Option of Holders — Change of Control;” or
 
        (b) in the case of an Asset Sale, the Company has complied with and fully satisfied its obligations in accordance with the covenant under the heading, “— Repurchase at the Option of Holders — Asset Sales;”

        (9) the repurchase, redemption or other acquisition for value of Capital Stock of the Company or any direct or indirect parent of the Company representing fractional shares of such Capital Stock in connection with a merger, consolidation, amalgamation or other combination involving the Company or any direct or indirect parent of the Company;
 
        (10) Investments that are made with Excluded Contributions; and
 
        (11) so long as no Default or Event of Default shall have occurred and be continuing or would be caused there