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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-140390
PROSPECTUS
 
 
28,000,000 Shares
 
 
(CINEMARK INC. LOGO)
 
Cinemark Holdings, Inc.
 
Common Stock
 
 
 
 
 
We are offering 13,888,889 shares of our common stock in this initial public offering. The selling stockholders named in this prospectus are offering an additional 14,111,111 shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.
 
No public market currently exists for our common stock. Our common stock has been approved for listing, subject to official notice of issuance, on the New York Stock Exchange under the trading symbol “CNK.”
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 11.
 
                 
    Per Share     Total  
 
Public offering price
  $ 19.000     $ 532,000,000  
Underwriting discount
  $ 1.045     $ 29,260,000  
Proceeds to Cinemark Holdings, Inc. (before expenses)
  $ 17.955     $ 249,375,002  
Proceeds to the Selling Stockholders (before expenses)
  $ 17.955     $ 253,364,998  
 
The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 2,800,000 shares of our common stock on the same terms and conditions as set forth above if the underwriters sell more than 28,000,000 shares of our common stock in this offering.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about April 27, 2007.
 
 
 
 
Joint Book-Running Managers
 
Lehman Brothers  
  Credit Suisse  
  Merrill Lynch & Co.  
  Morgan Stanley
Co-Managers
 
Banc of America Securities LLC Citi Deutsche Bank Securities
JPMorgan Wachovia Securities
 
April 23, 2007


 

 
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You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
 
Dealer Prospectus Delivery Obligation
 
Until May 18, 2007 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
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, or MPAA, PricewaterhouseCoopers LLP, or PwC, MPA Worldwide Market Research, the National Association of Theatre Owners, or NATO, and BIA Financial Network, Inc., or BIAfn), industry analysts and our knowledge of our business and markets.


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About Us
 
Financial Presentation
 
On April 2, 2004, an affiliate of Madison Dearborn Partners, LLC, or MDP, acquired approximately 83% of the capital stock of Cinemark, Inc., pursuant to which a newly formed subsidiary owned by an affiliate of MDP was merged with and into Cinemark, Inc. with Cinemark, Inc. continuing as the surviving corporation, hereinafter referred to as the MDP Merger. Management, including Lee Roy Mitchell, Chairman and then Chief Executive Officer, retained at such time an approximately 17% ownership interest in Cinemark, Inc.
 
Cinemark Holdings, Inc. was formed on August 2, 2006. On August 7, 2006, the Cinemark, Inc. stockholders entered into a share exchange agreement pursuant to which they agreed to exchange their shares of Class A common stock for an equal number of shares of common stock of Cinemark Holdings, Inc., hereinafter referred to as the Cinemark Share Exchange. The Cinemark Share Exchange and the acquisition of Century Theatres, Inc., or Century, were completed on October 5, 2006. Prior to October 5, 2006, Cinemark Holdings, Inc. had no assets, liabilities or operations. On October 5, 2006, Cinemark, Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
 
As of December 31, 2006, MDP owned approximately 66% of our capital stock, Lee Roy Mitchell and the Mitchell Special Trust collectively owned approximately 14%, Syufy Enterprises, LP owned approximately 11%, outside investors owned approximately 8%, and certain members of management owned the remaining 1%.
 
For purposes of the financial presentation in this prospectus, the historical financial information reflects the change in reporting entity that occurred as a result of the Cinemark Share Exchange. Cinemark Holdings, Inc.’s consolidated financial information reflects the historical accounting basis of its stockholders for all periods presented. Accordingly, financial information for periods preceding the MDP Merger is presented as Predecessor and for the periods subsequent to the MDP Merger is presented as Successor.
 
The Century acquisition is reflected in the historical financial information of Cinemark Holdings, Inc. from October 5, 2006. Because of the significance of the Century acquisition, we have included in this prospectus historical financial statements for Century as well as pro forma financial information giving effect to the Century acquisition as more fully described in “Unaudited Pro Forma Condensed Consolidated Financial Information.”
 
Certain Definitions
 
Unless the context otherwise requires, all references to “we,” “our,” “us,” the “issuer” or “Cinemark” relate to Cinemark Holdings, Inc. or Cinemark, Inc., its predecessor, and its consolidated subsidiaries, including Cinemark USA, Inc. and Century. We use the term “pro forma” in this prospectus to refer to information presented after giving effect to the Century acquisition. Unless otherwise specified, all operating and other statistical data for the U.S. include one theatre in Canada. All references to Latin America are to Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Mexico, Nicaragua, Panama and Peru. Unless otherwise specified, all operating and other statistical data are as of and for the year ended December 31, 2006.


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PROSPECTUS SUMMARY
 
The following summary highlights information contained elsewhere in this prospectus. It is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors” and the financial statements and accompanying notes.
 
Cinemark Holdings, Inc.
 
Our Company
 
We are a leader in the motion picture exhibition industry with 396 theatres and 4,488 screens in the U.S. and Latin America. Our circuit is the third largest in the U.S. with 281 theatres and 3,523 screens in 37 states. We are the most geographically diverse circuit in Latin America with 115 theatres and 965 screens in 12 countries. During the year ended December 31, 2006, over 215 million patrons attended our theatres, when giving effect to the Century acquisition as of the beginning of the year. Our modern theatre circuit features stadium seating for approximately 73% of our screens.
 
We selectively build or acquire new theatres in markets where we can establish and maintain a strong market position. We believe our portfolio of modern theatres provides a preferred destination for moviegoers and contributes to our significant cash flows from operating activities. Our significant presence in the U.S. and Latin America has made us an important distribution channel for movie studios, particularly as they look to increase revenues generated in Latin America. Our market leadership is attributable in large part to our senior executives, who average approximately 32 years of industry experience and have successfully navigated us through multiple business cycles.
 
We grew our total revenue per patron at the highest compound annual growth rate, or CAGR, during the last three fiscal years among the three largest motion picture exhibitors in the U.S. Revenues, operating income and net income for the year ended December 31, 2006 were $1,220.6 million, $127.4 million and $0.8 million, respectively. On a pro forma basis for the Century acquisition, revenues, operating income and net loss for the year ended December 31, 2006 were $1,612.1 million, $175.6 million and $(3.5) million, respectively. At December 31, 2006, we had cash and cash equivalents of $147.1 million and long-term debt, excluding capital leases, of $1,911.7 million. Approximately $1,126.7 million, or 59%, of our total long-term debt accrues interest at variable rates.
 
Acquisition of Century Theatres, Inc.
 
On October 5, 2006, we completed the acquisition of Century, a national theatre chain headquartered in San Rafael, California with 77 theatres and 1,017 screens in 12 states, for a purchase price of approximately $681 million and the assumption of approximately $360 million of Century debt. The acquisition of Century combines two family founded companies with common operating philosophies and cultures, strong operating performances and complementary geographic footprints. The key strategic benefits of the acquisition include:
 
High Quality Theatres with Strong Operating Performance.  Century’s theatre circuit is among the most modern in the U.S. based on 77% of their screens featuring stadium seating. Prior to the Century acquisition, Century achieved strong performance with revenues of $516.0 million, operating income of $59.9 million and net income of $18.1 million for its fiscal year ended September 28, 2006. These results are due in part to Century’s operating philosophy which is similar to Cinemark’s.
 
Strengthens Our Geographic Footprint.  The Century acquisition enhances our geographic diversity, strengthens our presence in key large- and medium-sized metropolitan and suburban markets such as Las Vegas, the San Francisco Bay Area and Tucson, and complements our existing footprint. The increased number of theatres and markets diversifies our revenues and broadens the composition of our overall portfolio.
 
Leading Share in Attractive Markets.  With the Century acquisition, we have a leading market share in a large number of attractive metropolitan and suburban markets. For the year ended December 31, 2006, on a


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pro forma basis, we ranked either first or second by box office revenues in 28 out of our top 30 U.S. markets, including Chicago, Dallas, Houston, Las Vegas, Salt Lake City and the San Francisco Bay Area.
 
Participation in National CineMedia
 
In March 2005, Regal Entertainment, Inc., or Regal, and AMC Entertainment, Inc., or AMC, formed National CineMedia, LLC, or NCM, and on July 15, 2005, we joined NCM as one of the founding members. NCM operates the largest in-theatre network in the U.S. which delivers digital advertising content and digital non-film event content to the screens and lobbies of the three largest motion picture companies in the country. The digital projectors currently used to display advertising will not be used to exhibit digital film content or digital cinema. NCM’s primary activities that impact us include the following activities:
 
  •  Advertising:  NCM develops, produces, sells and distributes a branded, pre-feature entertainment and advertising program called “FirstLook,” along with an advertising program for its lobby entertainment network, or LEN, and various marketing and promotional products in theatre lobbies;
 
  •  CineMeetings:  NCM provides live and pre-recorded networked and single-site meetings and events in the theatres throughout its network; and
 
  •  Digital Programming Events:  NCM distributes live and pre-recorded concerts, sporting events and other non-film entertainment programming to theatres across its digital network.
 
We believe that the reach, scope and digital delivery capability of NCM’s network provides an effective platform for national, regional and local advertisers to reach a young, affluent and engaged audience on a highly targeted and measurable basis.
 
On February 13, 2007, we received $389.0 million in connection with National CineMedia, Inc.’s, or NCM, Inc.’s, initial public offering and related transactions, or the NCM transactions. As a result of these transactions, we will no longer receive a percentage of NCM’s revenue but rather a monthly theatre access fee which we expect will reduce the contractual amounts required to be paid to us by NCM. In addition, we expect to receive mandatory quarterly distributions of excess cash from NCM. Prior to the initial public offering of NCM, Inc. common stock, our ownership interest in NCM was approximately 25% and subsequent to the completion of the offering we owned a 14% interest in NCM.
 
Competitive Strengths
 
We believe the following strengths allow us to compete effectively.
 
Strong Operating Performance and Discipline.  We generated operating income and net income of $127.4 million and $0.8 million, respectively, for the year ended December 31, 2006. Our strong operating performance is a result of our financial discipline, such as negotiating favorable theatre level economics and controlling theatre operating costs. We believe the Century acquisition will result in additional revenues and cost efficiencies to further improve our operating performance.
 
Leading Position in Our U.S. Markets.  We have a leading share in the U.S. metropolitan and suburban markets we serve. For the year ended December 31, 2006, on a pro forma basis we ranked either first or second based on box office revenues in 28 out of our top 30 U.S. markets, including Chicago, Dallas, Houston, Las Vegas, Salt Lake City and the San Francisco Bay Area. On average, the population in over 80% of our domestic markets, including Dallas, Las Vegas and Phoenix, is expected to grow 61% faster than the average growth rate of the U.S. population over the next five years, as reported by BIAfn and U.S. census data.
 
Strategically Located in Heavily Populated Latin American Markets.  Since 1993, we have invested throughout Latin America due to the growth potential of the region. We operate 115 theatres and 965 screens in 12 countries, generating revenues of $285.9 million for the year ended December 31, 2006. We have successfully established a significant presence in major cities in the region, with theatres in twelve of the fifteen largest metropolitan areas. With the most geographically diverse circuit in Latin America, we are an important distribution channel to the movie studios. The region’s improved economic climate and rising


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disposable income are also a source for growth. Over the last three years, the CAGR of our international revenue has been greater than that of our U.S. operations. We are well-positioned with our modern, large-format theatres and new screens to take advantage of this favorable economic environment for further growth and diversification of our revenues.
 
Modern Theatre Circuit.  We have one of the most modern theatre circuits in the industry which we believe makes our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in 79% of our first run auditoriums, the highest percentage among the three largest U.S. exhibitors, and 81% of our international screens also feature stadium seating. During 2006, we continued our organic expansion by building 210 screens. We currently have commitments to build 382 additional screens over the next four years.
 
Strong Balance Sheet with Significant Cash Flow from Operating Activities.  We generate significant cash flow from operating activities as a result of several factors, including management’s ability to contain costs, predictable revenues and a geographically diverse, modern theatre circuit requiring limited maintenance capital expenditures. Additionally, a strategic advantage, which enhances our cash flows, is our ownership of land and buildings. We own 45 properties with an aggregate value in excess of $350 million. For the year ended December 31, 2006, as adjusted to give effect to our repurchase of approximately $332 million of our 9% senior subordinated notes and this offering, our net debt is approximately $1,283.1 million. We believe our expected level of cash flow generation will provide us with the strategic and financial flexibility to pursue growth opportunities, support our debt payments and make dividend payments to our stockholders.
 
Strong Management with Focused Operating Philosophy.  Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Alan Stock, President and Chief Operating Officer Timothy Warner and Chief Financial Officer Robert Copple, our management team has an average of approximately 32 years of theatre operating experience executing a focused strategy which has led to strong operating results. Our operating philosophy has centered on providing a superior viewing experience and selecting less competitive markets or clustering in strategic metropolitan and suburban markets in order to generate a high return on invested capital. This focused strategy includes strategic site selection, building appropriately-sized theatres for each of our markets, and managing our properties to maximize profitability. As a result, we grew our admissions and concessions revenues per patron at the highest CAGR during the last three fiscal years among the three largest motion picture exhibitors in the U.S.
 
Our Strategy
 
We believe our operating philosophy and management team will enable us to continue to enhance our leading position in the motion picture exhibition industry. Key components of our strategy include:
 
Establish and Maintain Leading Market Positions.  We will continue to seek growth opportunities by building or acquiring modern theatres that meet our strategic, financial and demographic criteria. We will continue to focus on establishing and maintaining a leading position in the markets we serve.
 
Continue to Focus on Operational Excellence.  We will continue to focus on achieving operational excellence by controlling theatre operating costs. Our margins reflect our track record of operating efficiency.
 
Selectively Build in Profitable, Strategic Latin American Markets.  Our international expansion will continue to focus primarily on Latin America through construction of American-style, state-of-the-art theatres in major urban markets.
 
Our Industry
 
The U.S. motion picture exhibition industry has a track record of long-term growth, with box office revenues growing at a CAGR of 5.7% over the last 35 years. Against this background of steady long-term growth, the exhibition industry has experienced periodic short-term increases and decreases in attendance, and consequently box office revenues. In 2006 the motion picture exhibition industry experienced a marked improvement over 2005, with box office revenue increasing 5.5%, after a decrease of 5.7% in 2005 over the prior year. Strong revenue and attendance growth has been driven by a steadily growing number of movie releases, which, according to MPAA, reached an all-time high of 607 in 2006, up 11%. We believe this trend


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will continue into 2007 with a strong slate of franchise films, such as Spider-Man 3, Shrek the Third, Pirates of the Caribbean: At World’s End and Harry Potter and the Order of the Phoenix.
 
International growth has also been strong. According to MPAA, global box office revenues grew steadily at a CAGR of 8.2% from 2003 to 2006 as 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 PwC, Latin America’s estimated box office revenue CAGR was 8.4% over the same period.
 
Drivers of Continued Industry Success
 
We believe the following market trends will drive the continued growth and strength of our industry:
 
Importance of Theatrical Success in Establishing Movie Brands and Subsequent Markets.  Theatrical exhibition is the primary distribution channel for new motion picture releases. A successful theatrical release which “brands” a film is one of the major factors in determining its success in “downstream” markets, such as home video, DVD, and network, syndicated and pay-per-view television.
 
Increased Importance of International Markets for Box Office Success.  International markets are becoming an increasingly important component of the overall box office revenues generated by Hollywood films, accounting for $16 billion, or 63% of 2006 total worldwide box office revenues according to MPAA, with many international blockbusters such as Pirates of the Caribbean: Dead Man’s Chest, The Da Vinci Code, Ice Age: The Meltdown, and Mission Impossible III. With continued growth of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America will become even more significant.
 
Increased Investment in Production and Marketing of Films by Distributors.  As a result of the additional revenues generated by domestic, international and “downstream” markets, studios have increased production and marketing expenditures at a CAGR of 5.5% and 6.3%, respectively, since 1995. Over the last three years, third party funding sources such as hedge funds have also provided over $5 billion of incremental capital to fund new film content production. This has led to an increase in “blockbuster” features, which attract larger audiences to theatres.
 
Stable Long-term Attendance Trends.  We believe that long-term trends in motion picture attendance in the U.S. will continue to benefit the industry. Despite historical economic and industry cycles, attendance has grown at a 1.6% CAGR over the last 35 years to 1.45 billion patrons in 2006. As reported by MPAA, 80% of moviegoers stated their overall theatre experience in 2006 was time and money well spent. Additionally, younger moviegoers in the U.S. continue to be the most frequent patrons.
 
Reduced Seasonality of Revenues.  Box office revenues have historically been highly seasonal, with a majority of blockbusters being released during the summer and year-end holiday season. In recent years, the seasonality of motion picture exhibition has become less pronounced as studios have begun to release films more evenly throughout the year. This benefits exhibitors by allowing more effective allocation of the fixed cost base throughout the year.
 
Convenient and Affordable Form of Out-Of-Home Entertainment.  Moviegoing continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an estimated average ticket price in the U.S. of $6.55 in 2006. Average prices in 2006 for other forms of out-of-home entertainment in the U.S., including sporting events and theme parks, range from approximately $22.40 to $61.60 per ticket according to MPAA. Movie ticket prices have risen at approximately the rate of inflation, while ticket prices for other forms of out-of-home entertainment have increased at higher rates.
 
Recent Developments
 
Repurchase of 9% Senior Subordinated Notes
 
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all of its then outstanding $332.2 million aggregate principal amount of 9% senior subordinated notes. In connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed amendments to the indenture to


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remove substantially all restrictive covenants and certain events of default. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased $332.0 million aggregate principal amount of 9% senior subordinated notes and executed a supplemental indenture removing substantially all of the restrictive covenants and certain events of default. On April 3, 2007, we purchased $66,000 of the 9% senior subordinated notes tendered after the early settlement date. Approximately $184,000 aggregate principal amount of 9% senior subordinated notes remain outstanding. We used the proceeds from the NCM transactions and cash on hand to purchase the 9% senior subordinated notes tendered pursuant to the tender offer and consent solicitation.
 
Amendments to the New Senior Secured Credit Facility
 
On March 14, 2007, Cinemark USA, Inc. amended its new senior secured credit facility to, among other things, modify the interest rate on the term loans under the new senior secured credit facility, modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 1.75%, per annum. In each case, the margin is a function of the corporate credit rating applicable to the borrower. The interest rate on the revolving credit line was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding under the new senior secured credit facility in an amount equal to the amount of the net cash proceeds received from the NCM transactions or from excess cash flows, and imposed a 1% prepayment premium for one year on certain prepayments of the term loans.
 
Digital Cinema Implementation Partners LLC
 
On February 12, 2007, we, along with AMC and Regal, entered into a joint venture known as Digital Cinema Implementation Partners LLC, or DCIP, to explore the possibility of implementing digital cinema in our theatres and to establish agreements with major motion picture studios for the implementation and financing of digital cinema. In addition, DCIP has entered into a digital cinema services agreement with NCM for purposes of assisting DCIP in the development of digital cinema systems. Future digital cinema developments will be managed by DCIP, subject to certain approvals by us, AMC and Regal.
 
Risk Factors
 
Investing in our common stock involves risk. Our business is subject to a number of risks including the following:
 
  •  our dependency on motion picture production and performance could have a material adverse effect on our business;
 
  •  a deterioration in relationships with film distributors could adversely affect our ability to license commercially successful films at reasonable rental rates;
 
  •  we may not be able to successfully execute our business strategy because of the competitive nature of our industry as well as increasing competition from alternative forms of entertainment;
 
  •  alternative or “downstream” film distribution channels that may drive down movie theatre attendance, limit ticket price growth and shrink video release windows;


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  •  our substantial lease and debt obligations could impair our liquidity and financial condition; and
 
  •  we may not be able to identify suitable locations for expansion or generate additional revenue opportunities.
 
You should refer to the section entitled “Risk Factors,” for a discussion of these and other risks, before investing in our common stock.
 
Madison Dearborn Partners
 
On April 2, 2004, an affiliate of MDP acquired approximately 83% of the capital stock of Cinemark, Inc. for approximately $518.2 million in cash. Prior to this offering, MDP beneficially owned approximately 66% of our outstanding common stock. MDP will receive net proceeds from this offering of approximately $199 million after deducting underwriting discounts and commissions. We will not receive any of the net proceeds from the sale of shares by the selling stockholders. Upon completion of the offering, MDP will beneficially own approximately 47% of our common stock (approximately 45% of our common stock if the underwriters’ option to purchase additional shares is exercised in full). MDP currently has the right, pursuant to a stockholders agreement, to designate a majority of our Board of Directors. We expect that, upon completion of this offering, the stockholders agreement will be terminated and replaced with a director nomination agreement, pursuant to which MDP would have the right to designate nominees for five of the members of our Board of Directors.
 
Corporate Information
 
We are incorporated under the laws of the state of Delaware. Our principal executive offices are located at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. The telephone number of our principal executive offices is (972) 665-1000. We maintain a website at www.cinemark.com, on which we will, after completion of this offering, post our key corporate governance documents, including our board committee charters and our code of ethics. We do not incorporate the information on our website into this prospectus and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.
 


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The Offering
 
Common stock offered by us 13,888,889 shares
 
Common stock offered by the selling stockholders 14,111,111 shares
 
Common stock to be outstanding after the offering 106,449,511 shares
 
Underwriters’ option The selling stockholders have granted the underwriters a 30-day option to purchase up to an aggregate of 2,800,000 additional shares of our common stock if the underwriters sell more than 28,000,000 shares in this offering.
 
Dividend policy Following this offering, we intend to pay a quarterly cash dividend at an annual rate initially equal to $0.72 per share (or a quarterly rate initially equal to $0.18 per share) of common stock, commencing in the third quarter of 2007, which will be a partial dividend paid on a pro rata basis depending on the closing date of this offering. The declaration of future dividends on our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements. See “Dividend Policy.”
 
Use of proceeds We expect to use the net proceeds that we receive from this offering to repay outstanding debt. See “Use of Proceeds.” We will not receive any proceeds from the sale of shares by the selling stockholders.
 
Lehman Brothers Inc. acted as initial purchaser in connection with the offering of our 93/4% senior discount notes. An affiliate of Lehman Brothers Inc. was a joint lead arranger and is a lender and the administrative agent under our new senior secured credit facility. Morgan Stanley Senior Funding, Inc. was a joint lead arranger and is a lender and the syndication agent under our new senior secured credit facility. An affiliate of Deutsche Bank Securities Inc. is a lender under our new senior secured credit facility. Lehman Brothers Inc. acted as dealer manager and solicitation agent in connection with Cinemark USA, Inc.’s offer to purchase and related consent solicitation of its 9% senior subordinated notes. See “Underwriting — Relationships.”
 
New York Stock Exchange symbol “CNK”
 
The outstanding share information is based on 92,560,622 shares of our common stock that will be outstanding immediately prior to the consummation of this offering. Unless otherwise indicated, information contained in this prospectus regarding the number of outstanding shares of our common stock does not include the following:
 
  •  6,915,591 shares of our common stock issuable upon the exercise of outstanding stock options, which have a weighted average exercise price of $7.63 per share after giving effect to a 2.9585-for-one stock split with respect to our common stock effected April 9, 2007; and
 
  •  an aggregate of 2,177,166 shares of our common stock reserved for future issuance under our 2006 Long Term Incentive Plan.


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Unless otherwise indicated, all information contained in this prospectus:
 
  •  gives effect to a 2.9585-for-one stock split with respect to our common stock effected on April 9, 2007; and
 
  •  assumes no exercise of the underwriters’ option to purchase up to an aggregate of 2,800,000 additional shares of our common stock.


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Summary Consolidated Financial and Operating Information
 
The following table provides our summary historical consolidated financial and operating information and unaudited pro forma condensed consolidated financial information. The summary information for periods through April 1, 2004 are of Cinemark, Inc., the predecessor, and the summary information for all subsequent periods are of Cinemark Holdings, Inc., the successor. Our summary historical financial information for the period January 1, 2004 to April 1, 2004, the period April 2, 2004 to December 31, 2004 and the years ended December 31, 2005 and 2006 is derived from our audited consolidated financial statements appearing elsewhere in this prospectus.
 
Our unaudited pro forma statement of operations information and other financial information for the year ended December 31, 2006 gives effect to the Century acquisition as if it had been consummated on January 1, 2006.
 
The unaudited pro forma condensed consolidated financial information does not purport to represent what our results of operations would have been had the transaction noted above actually occurred on the date specified, nor does it purport to project our results of operations for any future period or as of any future date. The unaudited pro forma condensed consolidated financial information is not comparable to our historical financial information due to the inclusion of the effects of the Century acquisition.
 
You should read the information set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ “Unaudited Pro Forma Condensed Consolidated Financial Information” and our consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
 
                                           
    Cinemark, Inc.       Cinemark Holdings, Inc.  
    Predecessor       Successor  
    Period from
      Period from
                   
    January 1,
      April 2,
                   
    2004
      2004
                Pro Forma  
    to
      to
    Year Ended
    Year Ended
    Year Ended
 
    April 1,
      December 31,
    December 31,
    December 31,
    December 31,
 
    2004       2004     2005     2006     2006  
                      (Dollars in thousand, except per share data)  
Statement of Operations Data(1):
                                         
Revenues:
                                         
Admissions
  $ 149,134       $ 497,865     $ 641,240     $ 760,275     $ 1,029,881  
Concession
    72,480         249,141       320,072       375,798       487,416  
Other
    12,011         43,611       59,285       84,521       94,807  
                                           
Total Revenue
  $ 233,625       $ 790,617     $ 1,020,597     $ 1,220,594     $ 1,612,104  
Operating Income
    556         73,620       63,501       127,369       175,579  
Income (loss) from continuing operations
    (9,068 )       (7,842 )     (25,408 )     841       (3,548 )
Net income (loss)
  $ (10,633 )     $ (3,687 )   $ (25,408 )   $ 841     $ (3,548 )
Net income (loss) per share(3):
                                         
Basic
  $ (0.09 )     $ (0.05 )   $ (0.31 )   $ 0.01     $ (0.04 )
Diluted
  $ (0.09 )     $ (0.05 )   $ (0.31 )   $ 0.01     $ (0.04 )
Weighted average shares outstanding(3):
                                         
Basic
    120,156         81,876       82,199       84,948       92,556  
Diluted
    120,156         81,876       82,199       86,618       92,556  
Other Financial Data:
                                         
Cash flow provided by (used for):
                                         
Operating activities
  $ 10,100       $ 112,986     $ 165,270     $ 155,662          
Investing activities
    (16,210 )       (100,737 )     (81,617 )     (631,747 )(2)        
Financing activities
    346,983         (361,426 )     (3,750 )     439,977          
Capital expenditures
    (17,850 )       (63,158 )     (75,605 )     (107,081 )        
 


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    Cinemark Holdings, Inc.  
    Successor  
    As of
 
    December 31,  
    2004     2005     2006  
    (In thousands)  
 
Balance Sheet Data:
                       
Cash and cash equivalents
  $ 100,248     $ 182,199     $ 147,099  
Theatre properties and equipment, net
    794,723       803,269       1,324,572  
Total assets
    1,831,855       1,864,852       3,171,582  
Total long-term debt and capital lease obligations, including current portion
    1,026,055       1,055,095       2,027,480  
Stockholders’ equity
    533,200       519,349       689,297  
 
                       
 
                                           
    Cinemark Inc.       Cinemark Holdings, Inc.        
    Predecessor       Successor     Cinemark
 
    Period from
      Period from
                and
 
    January 1,
      April 2,
                Century
 
    2004
      2004
                Combined  
    to
      to
    Year Ended
    Year Ended
    Year Ended
 
    April 1,
      December 31,
    December 31,
    December 31,
    December 31,
 
    2004       2004     2005     2006     2006  
    (Attendance in thousands)  
Operating Data:
                                         
United States(4)
                                         
Theatres operated (at period end)
    191         191       200       281       281  
Screens operated (at period end)
    2,262         2,303       2,417       3,523       3,523  
Total attendance(1)
    25,790         87,856       105,573       118,714       155,981  
International(5)
                                         
Theatres operated (at period end)
    95         101       108       115       115  
Screens operated (at period end)
    835         869       912       965       965  
Total attendance(1)
    15,791         49,904       60,104       59,550       59,550  
Worldwide(4)(5)
                                         
Theatres operated (at period end)
    286         292       308       396       396  
Screens operated (at period end)
    3,097         3,172       3,329       4,488       4,488  
Total attendance(1)
    41,581         137,760       165,677       178,264       215,531  
 
 
(1) Statement of Operations Data (other than net income (loss)) and attendance data exclude the results of the two United Kingdom theatres and the eleven Interstate theatres for all periods presented as these theatres were sold during the period from April 2, 2004 through December 31, 2004. The results of operations for these theatres in the 2004 periods are presented as discontinued operations. See note 7 to our annual consolidated financial statements.
 
(2) Includes the cash portion of the Century acquisition purchase price of $531.2 million.
 
(3) Gives effect to a 2.9585-for-one stock split with respect to our common stock effected on April 9, 2007.
 
(4) The data excludes certain theatres operated by us in the U.S. pursuant to management agreements that are not part of our consolidated operations.
 
(5) The data excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations.

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RISK FACTORS
 
Before you invest in our common stock, you should understand the high degree of risk involved. You should consider carefully the following risks and all other information in this prospectus, including the financial statements and related notes. If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected.
 
Risks Related to Our Business and Industry
 
Our business depends on film production and performance.
 
Our business depends on both the availability of suitable films for exhibition in our theatres and the success of those pictures in our markets. Poor performance of films, the disruption in the production of films, or a reduction in the marketing efforts of the film distributors to promote their films could have an adverse effect on our business by resulting in fewer patrons and reduced revenues.
 
A deterioration in relationships with film distributors could adversely affect our ability to obtain commercially successful films.
 
We rely on the film distributors for the motion pictures shown in our theatres. The film distribution business is highly concentrated, with six major film distributors accounting for approximately 93% of U.S. box office revenues and 45 of the top 50 grossing films during 2006. 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. A deterioration in our relationship with any of the six major film distributors could adversely affect our ability to obtain commercially successful films and to negotiate favorable licensing terms for such films, both of which could adversely affect our business and operating results.
 
We face intense competition for patrons and film licensing which may adversely affect our business.
 
The motion picture industry is highly competitive. We compete against local, regional, national and international exhibitors. We compete for both patrons and licensing of motion pictures. 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. Some of our competitors have 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. If we are unable to license successful films, our business may be adversely affected.
 
The oversupply of screens in the motion picture exhibition industry and other factors may adversely affect the performance of some of our theatres.
 
During the period between 1996 and 2000, theatre exhibitor companies emphasized the development of large multiplexes. The strategy of aggressively building multiplexes was adopted throughout the industry and resulted in an oversupply of screens in the North American exhibition industry and negatively impacted many older multiplex theatres more than expected. Many of these theatres have long lease commitments making them financially burdensome to close prior to the expiration of the lease term, even theatres that are unprofitable. Where theatres have been closed, landlords have often made rent concessions to small independent or regional operators to keep the theatres open since theatre buildings are typically limited in alternative uses. As a result, some analysts believe that there continues to be an oversupply of screens in the North American exhibition industry, as screen counts have increased each year since 2003. If competitors build theatres in the markets we serve, the performance of some of our theatres could be adversely affected due to increased competition.


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An increase in the use of alternative or “downstream” film distribution channels and other competing forms of entertainment may drive down movie theatre attendance and limit ticket price growth.
 
We face competition for patrons from a number of alternative motion picture distribution channels, such as videocassettes, DVDs, network and syndicated television, video on-demand, satellite pay-per-view television and downloading utilizing the Internet. Based on our research, total home video spending, including video casettes and DVDs, increased from $17.1 billion in 2000 to $25.6 billion in 2005. 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. A significant increase in popularity of these alternative film distribution channels and competing forms of entertainment could have an adverse effect on our business and results of operations.
 
Our results of operations may be impacted by shrinking video release windows.
 
Over the last decade, the average video release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available on DVD, an important “downstream” market, has decreased from approximately six months to approximately four months. We cannot assure you that this release window, which is determined by the film studios, will not shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
 
We have substantial long-term lease and debt obligations, which may restrict our ability to fund current and future operations.
 
We have significant long-term debt service obligations and long-term lease obligations. As of December 31, 2006, we had $1,911.7 million in long-term debt obligations, $115.8 million in capital lease obligations and $2,004.2 million in long-term operating lease obligations. On a pro forma basis, we incurred $168.0 million of interest expense for the year ended December 31, 2006. On a pro forma basis, we incurred $207.0 million of rent expense for the year ended December 31, 2006 under operating leases (with terms, excluding renewal options, ranging from one to 30 years). Our substantial lease and debt obligations pose risk to you by:
 
  •  making it more difficult for us to satisfy our obligations;
 
  •  requiring us to dedicate a substantial portion of our cash flow to payments on our lease and debt obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other corporate requirements and to pay dividends;
 
  •  impeding our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;
 
  •  subjecting us to the risk of increased sensitivity to interest rate increases on our variable rate debt, including our borrowings under our new senior secured credit facility; and
 
  •  making us more vulnerable to a downturn in our business and competitive pressures and limiting our flexibility to plan for, or react to, changes in our business.
 
Our ability to make scheduled payments of principal and interest with respect to our indebtedness and service our lease obligations will depend on our ability to generate cash flow from our operations. To a certain extent, our ability to generate cash flow is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. We cannot assure you that we will continue to generate cash flow at current levels. If we fail to make any required payment under the agreements governing our indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default and our lenders would have the ability to require that we immediately repay our outstanding indebtedness. If we fail to make any required payment under our leases, we would be in default and our landlords would have the ability to terminate our leases and re-enter the premises. 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 our new senior secured credit facility and our


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93/4% senior discount notes, on or before maturity. However, we may not be able to refinance all or any of our indebtedness on commercially reasonable terms or at all.
 
We are subject to various covenants in our debt agreements that restrict our ability to enter into certain transactions.
 
The agreements governing our debt obligations contain various financial and operating covenants that limit our ability to engage in certain transactions, that require us not to allow specific events to occur or that require us to apply proceeds from certain transactions to reduce indebtedness. If we fail to make any required payment under the agreements governing our indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default, and our debt holders would have the ability to require that we immediately repay our outstanding indebtedness. Any such defaults could materially impair our financial condition and liquidity. We cannot assure you that we would be able to refinance our outstanding indebtedness if debt holders require repayments as a result of a default.
 
General political, social and economic conditions can adversely affect our attendance.
 
Our results of operations are dependent on general political, social and economic conditions, and the impact of such conditions on our theatre operating costs and on the willingness of consumers to spend money at movie theatres. If consumers’ discretionary income declines as a result of an economic downturn, our operations could be adversely affected. If theatre operating costs, such as utility costs, increase due to political or economic changes, our results of operations could be adversely affected. Political events, such as terrorist attacks, could cause people to avoid our theatres or other public places where large crowds are in attendance.
 
Our foreign operations are subject to adverse regulations and currency exchange risk.
 
We have 115 theatres with 965 screens in twelve countries in Latin America. Brazil and Mexico represented approximately 8.0% and 4.4% of our consolidated 2006 pro forma revenues, respectively. Governmental regulation of the motion picture industry in foreign markets differs from that in the United States. Regulations affecting prices, quota systems requiring the exhibition of locally-produced films 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, including risks of severe economic downturns and high inflation. We also face the additional risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange and transfers abroad, all of which could have an adverse effect on the results of our international operations.
 
We may not be able to generate additional revenues or realize expected value from our investment in NCM.
 
We, along with Regal and AMC, are founding members of NCM. After the completion of NCM, Inc.’s initial public offering, we continue to own a 14% interest in NCM. In connection with the NCM, Inc. initial public offering, we modified our Exhibitor Services Agreement to reflect a shift from circuit share expense under the prior exhibitor service agreement, which obligated NCM to pay us a percentage of revenue, to a monthly theatre access fee. The theatre access fee will significantly reduce the contractual amounts paid to us by NCM.
 
Cinema advertising is a small component of the U.S. advertising market. Accordingly, NCM competes with larger, established and well known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. NCM also competes with other cinema advertising companies and with hotels, conference centers, arenas, restaurants and convention facilities for its non-film related events to be shown in our auditorium. In-theatre advertising may not continue to attract major advertisers or NCM’s in-theatre advertising format may not be received favorably by the theatre-going public. If NCM is unable to generate expected sales of advertising, it may not maintain the level of profitability we hope to achieve, its results of operations may be adversely affected and our investment in and revenues from NCM may be adversely impacted.


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We are subject to uncertainties related to digital cinema, including potentially high costs of re-equipping theatres with projectors to show digital movies.
 
Digital cinema is still in an experimental stage in our industry. Some of our competitors have commenced a roll-out of digital equipment for exhibiting feature films. There are multiple parties vying for the position of being the primary generator of the digital projector roll-out for exhibiting feature films. However, significant obstacles exist that impact such a roll-out plan including the cost of digital projectors, the substantial investment in re-equipping theatres and determining who will be responsible for such costs. We cannot assure you that we will be able to obtain financing arrangements to fund our portion of the digital cinema roll-out nor that such financing will be available to us on acceptable terms, if at all.
 
On February 12, 2007, we, along with AMC and Regal entered into a joint venture known as Digital Cinema Implementation Partners LLC to explore the possibility of implementing digital cinema in our theatres and to establish agreements with major motion picture studios for the implementation and financing of digital cinema. In addition, DCIP has entered into a digital cinema services agreement with NCM for purposes of assisting DCIP in the development of digital cinema systems. Future digital cinema developments will be managed by DCIP, subject to certain approvals by us, AMC and Regal.
 
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 targeted worldwide theatre development and the Century acquisition. We will continue to pursue a strategy of expansion that will involve the development of new theatres and may involve acquisitions of existing theatres and theatre circuits both in the U.S. and internationally. There is significant competition for 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, existing theatres or theatre circuits on terms we consider acceptable. We cannot assure you that our expansion strategy will result in improvements to our business, financial condition or profitability. Further, our expansion programs may require financing above our existing borrowing capacity and internally generated funds. We cannot assure you that we will be able to obtain such financing nor that such financing will be available to us on acceptable terms.
 
If we do not comply with the Americans with Disabilities Act of 1990 and a consent order we entered into with the Department of Justice, 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. In March 1999, the Department of Justice, or DOJ, filed suit against us in Ohio alleging certain violations of the ADA relating to wheelchair seating arrangements in certain of our stadium-style theatres and seeking remedial action. We and the DOJ have resolved this lawsuit and a consent order was entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 15, 2004. Under the consent order, we are required to make modifications to wheelchair seating locations in fourteen stadium-style movie theatres and spacing and companion seating modifications in 67 auditoriums at other stadium-styled movie theatres. These modifications must be completed by November 2009. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.
 
We depend on key personnel for our current and future performance.
 
Our current and future performance depends to a significant degree upon the continued contributions of our senior management team and other key personnel. The loss or unavailability to us of any member of our senior


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management team or a key employee could significantly harm us. We cannot assure you that we would be able to locate or employ qualified replacements for senior management or key employees on acceptable terms.
 
We are subject to impairment losses due to potential declines in the fair value of our assets.
 
We review long-lived assets for impairment on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable.
 
We assess many factors when determining whether to impair individual theatre assets, including actual theatre level cash flows, future years budgeted theatre level cash flows, theatre property and equipment carrying values, theatre goodwill carrying values, the age of a recently built theatre, competitive theatres in the marketplace, 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. 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, which includes the probability of renewal periods, for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset with its estimated fair value. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluation performed as of December 31, 2006. When estimated fair value is determined to be lower than the carrying value of the long-lived asset, the asset is written down to its estimated fair value. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates are based on historical and projected operating performance as well as recent market transactions.
 
We also test goodwill and other intangible assets for impairment at least annually in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Goodwill and other intangible assets are tested for impairment at the reporting unit level at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered include significant underperformance relative to historical or projected business and significant negative industry or economic trends. Goodwill impairment is evaluated using a two-step approach requiring us to compute the fair value of a reporting unit (generally at the theatre level), and compare it with its carrying value. If the carrying value of the theatre exceeds its fair value, a second step would be performed to measure the potential goodwill impairment. Fair value is estimated based on a multiple of cash flows, which was eight times for the evaluation performed as of December 31, 2006. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates are based on historical and projected operating performance as well as recent market transactions.
 
We recorded asset impairment charges, including goodwill impairment charges, of $1.0 million, $36.7 million, $51.7 million and $28.5 million for the period January 1, 2004 to April 1, 2004, the period April 2, 2004 to December 31, 2004 and the year ended December 31, 2005 and 2006, respectively. During 2004, we recorded $620.5 million of goodwill as a result of the MDP Merger, and during 2006, we recorded $658.5 million of goodwill as a result of the Century acquisition. We record goodwill at the theatre level. This results in more volatile impairment charges on an annual basis due to changes in market conditions and box office performance and the resulting impact on individual theatres. We cannot assure you that additional impairment charges will not be required in the future, and such charges may have an adverse effect on our financial condition and results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres.
 
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres. The major film distributors generally release the films they anticipate will be most successful during the summer and holiday seasons. Consequently, we typically generate higher revenues during these periods. Due to the dependency on the success of films released from one period to the


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next, results of operations for one period may not be indicative of the results for the following period or the same period in the following year.
 
Risks Related to Our Corporate Structure
 
The interests of MDP may not be aligned with yours.
 
We are controlled by an affiliate of MDP. MDP will beneficially own approximately 47% of our common stock after the offering (approximately 45% of our common stock if the underwriters’ option to purchase additional shares is exercised in full). We expect that the stockholders agreement among our current stockholders will be terminated upon completion of the offering and replaced by a director nomination agreement pursuant to which MDP will be entitled to designate nominees for five members of our Board of Directors. However, MDP currently has the right to designate a majority of our Board of Directors and would continue to hold such right after the offering if the stockholders agreement is not terminated. Accordingly, we expect that MDP will influence and effectively control our corporate and management policies and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. MDP could take other actions that might be desirable to MDP but not to other stockholders.
 
Investors in this offering will experience immediate dilution.
 
Investors purchasing shares of our common stock in this offering will experience immediate dilution of $24.92 per share. You will suffer additional dilution if stock, restricted stock, stock options or other equity awards, whether currently outstanding or subsequently granted, are exercised.
 
Our ability to pay dividends may be limited or otherwise restricted.
 
We have never declared or paid any dividends on our common stock. Our ability to pay dividends is limited by our status as a holding company and the terms of our indentures, our new senior secured credit facility and certain of our other debt instruments, which restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay dividends, directly or indirectly, to us. Under our debt instruments, we may pay a cash dividend up to a specified amount, provided we have satisfied certain financial covenants in, and are not in default under, our debt instruments. Furthermore, certain of our foreign subsidiaries currently have a deficit in retained earnings which prevents them from declaring and paying dividends from those subsidiaries. The declaration of future dividends on our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements. We cannot assure you that any dividends will be paid in the anticipated amounts and frequency set forth in this prospectus, if at all.
 
Provisions in our corporate documents and certain agreements, as well as Delaware law, may hinder a change of control.
 
Provisions that will be in our amended and restated certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to acquire us, even though such proposals may be beneficial to you. These provisions include:
 
  •  authorization of our Board of Directors to issue shares of preferred stock without stockholder approval;
 
  •  a board of directors classified into three classes of directors with the directors of each class, subject to shorter initial terms for some directors, having staggered, three-year terms;
 
  •  provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; and
 
  •  provisions of Delaware law that restrict many business combinations and provide that directors serving on classified boards of directors, such as ours, may be removed only for cause.


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Certain provisions of the 93/4% senior discount notes indenture and the new senior secured credit facility may have the effect of delaying or preventing future transactions involving a “change of control.” A “change of control” would require us to make an offer to the holders of our 93/4% senior discount notes to repurchase all of the outstanding notes at a purchase price equal to 101% of the aggregate principal amount outstanding plus accrued unpaid interest to the date of the purchase. A “change of control” would also be an event of default under our new senior secured credit facility.
 
We will be subject to the requirements of Section 404 of the Sarbanes-Oxley Act and if we are unable to timely comply with Section 404, our profitability, stock price and results of operations and financial condition could be materially adversely affected.
 
We will be required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 as of December 31, 2007. Section 404 requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. This section also requires that our independent registered public accounting firm opine on those internal controls and management’s assessment of those controls as of December 31, 2008. We are currently evaluating our existing controls against the standards adopted by the Committee of Sponsoring Organizations of the Treadway Commission. During the course of our ongoing evaluation and integration of the internal control over financial reporting, we may identify areas requiring improvement, and we may have to design enhanced processes and controls to address issues identified through this review. We cannot be certain at this time that we will be able to successfully complete the procedures, certification and attestation requirements of Section 404. If we fail to comply with the requirements of Section 404 or if we or our auditors identify and report material weakness, the accuracy and timeliness of the filing of our annual and quarterly reports may be negatively affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
 
Risks Related to This Offering
 
The market price of our common stock may be volatile.
 
Prior to this offering, there has been no public market for our common stock, and there can be no assurance that an active trading market for our common stock will develop or continue upon completion of the offering. The securities markets have recently experienced extreme price and volume fluctuations and the market prices of the securities of companies have been particularly volatile. The initial price to the public of our common stock will be determined through our negotiations with the underwriters. This market volatility, as well as general economic or political conditions, could reduce the market price of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of investment analysts and investors and, in response, the market price of our common stock may decrease significantly and prevent investors from reselling their shares of our common stock at or above the offering price. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were the subject of securities class action litigation, it could result in substantial costs, liabilities and a diversion of management’s attention and resources.
 
Future sales of our common stock may adversely affect the prevailing market price.
 
If a large number of shares of our common stock is sold in the open market after this offering, or the perception that such sales will occur, the trading price of our common stock could decrease. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional common stock. After this offering, we will have an aggregate of 184,457,732 shares of our common stock authorized but unissued and not reserved for specific purposes. In general, we may issue all of these shares without any action or approval by our stockholders. We may issue shares of our common stock in connection with acquisitions.
 
Upon consummation of the offering, we will have 106,449,511 shares of our common stock outstanding. Of these shares, all shares sold in the offering, other than shares, if any, purchased by our affiliates, will be freely tradable. The remaining shares of our common stock will be “restricted securities” as that term is defined in Rule 144 under the Securities Act. Restricted securities may not be resold in a public distribution except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom, including the exemptions provided by Regulation S and Rule 144 promulgated under the Securities Act.


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We, all of our directors and executive officers, holders of more than 5% of our outstanding stock and the selling stockholders have entered into lock-up agreements and, with limited exceptions, have agreed not to, among other things, sell or otherwise dispose of our common stock for a period of 180 days after the date of this prospectus. After this lock-up period, certain of our existing stockholders will be able to sell their shares pursuant to registration rights we have granted to them. We cannot predict whether substantial amounts of our common stock will be sold in the open market in anticipation of, or following, any divestiture by any of our existing stockholders, our directors or executive officers of their shares of common stock.
 
Currently, there are 9,092,757 shares of our common stock reserved for issuance under our 2006 Long Term Incentive Plan, of which 6,915,591 shares of common stock are issuable upon exercise of options outstanding as of the date hereof, of which 4,398,380 are currently exercisable or will become exercisable within 60 days after March 31, 2007. The sale of shares issued upon the exercise of stock options could further dilute your investment in our common stock and adversely affect our stock price.


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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. They include statements relating to:
 
  •  future revenues, expenses and profitability;
 
  •  the future development and expected growth of our business;
 
  •  projected capital expenditures;
 
  •  attendance at movies generally or in any of the markets in which we operate;
 
  •  the number or diversity of popular movies released and our ability to successfully license and exhibit popular films;
 
  •  national and international growth in our industry;
 
  •  competition from other exhibitors and alternative forms of entertainment; and
 
  •  determinations in lawsuits in which we are defendants.
 
You can identify forward-looking statements by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions which are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. In evaluating forward-looking statements, you should carefully consider the risks and uncertainties described in “Risk Factors” and elsewhere in this prospectus. 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 in this prospectus. Forward-looking statements contained in this prospectus reflect our view only as of the date of this prospectus. Neither we nor the underwriters 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.


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USE OF PROCEEDS
 
We estimate that we will receive net proceeds from this offering of approximately $246.7 million after deducting underwriting discounts and commissions and estimated offering expenses of $17.2 million payable by us. We will not receive any of the net proceeds from the sale of shares by the selling stockholders.
 
We intend to use the net proceeds that we will receive to repurchase a portion of our outstanding 93/4% senior discount notes or repay debt outstanding under our new senior secured credit facility. Our 93/4% senior discount notes are not currently subject to repurchase at our option. Accordingly, if we are unable to repurchase our 93/4% senior discount notes at prices that are acceptable to us, we will use the net proceeds from this offering to repay term loan debt outstanding under our new senior credit facility.
 
Management will have significant flexibility in applying our net proceeds of this offering. Pending the application of the net proceeds, we expect to invest the proceeds in short-term, investment-grade marketable securities or money market obligations.
 
As of April 1, 2007, our outstanding principal balance under our new senior credit facility was $1,114.4 million in term loans and there were no amounts outstanding under the revolving credit line as of the date hereof. The term loan matures on October 5, 2013 and the revolving credit line matures on October 5, 2012, except that, under certain circumstances, both would mature on August 1, 2012. Our effective interest rate on the term loan was 7.4% as of December 31, 2006. The net proceeds of the term loan were used to finance a portion of the purchase price for the Century acquisition, repay in full the loans outstanding under our former senior secured credit facility, repay certain existing indebtedness of Century and to pay for related fees and expenses. The revolving credit line is used for our general corporate purposes. As of the date hereof, we had outstanding approximately $535.6 million aggregate principal amount at maturity of our 93/4% senior discount notes. Our 93/4% senior discount notes mature in 2014. For more information on our outstanding debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “— Recent Developments — Amendments to the New Senior Secured Credit Facility.”
 
Lehman Brothers Inc. acted as initial purchaser in connection with the offering of our 93/4% senior discount notes. An affiliate of Lehman Brothers Inc. was a joint lead arranger and is a lender and the administrative agent under our new senior secured credit facility. Morgan Stanley Senior Funding, Inc. was a joint lead arranger and is a lender and the syndication agent under our new senior secured credit facility. Lehman Brothers, Inc. acted as dealer manager and solicitation agent in connection with Cinemark USA, Inc.’s offer to purchase and related consent solicitation of its 9% senior subordinated notes.
 
DIVIDEND POLICY
 
We have never declared or paid any dividends on our common stock. Following this offering and subject to legally available funds, we intend to pay a quarterly cash dividend at an annual rate initially equal to $0.72 per share (or a quarterly rate initially equal to $0.18 per share) of common stock, commencing in the third quarter of 2007, which will be a partial dividend paid on a pro rata basis depending on the closing date of this offering. Our ability to pay dividends is limited by our status as a holding company and the terms of our indentures, our new senior secured credit facility and certain of our other debt instruments, which restrict our ability to pay dividends to our stockholders and the ability of certain of our subsidiaries to pay dividends, directly or indirectly, to us. Under our debt instruments, we may pay a cash dividend up to a specified amount, provided we have satisfied certain financial covenants in, and are not in default under, our debt instruments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for further discussion regarding the restrictions on our ability to pay dividends contained in our debt instruments. Furthermore, certain of our foreign subsidiaries currently have a deficit in retained earnings which prevents them from declaring and paying dividends from those subsidiaries. The declaration of future dividends on our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements. We cannot assure you that any dividends will be paid in the anticipated amounts and frequency set forth in this prospectus, if at all.


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CAPITALIZATION
 
The following table presents our cash and cash equivalents and capitalization as of December 31, 2006. Our cash and cash equivalents and capitalization is presented:
 
  •  on an actual basis;
 
  •  on an as adjusted basis to reflect (i) the repurchase of approximately $332.0 million of our 9% senior subordinated notes with the proceeds from the NCM transactions and (ii) our receipt of the estimated net proceeds from this offering and the application of those proceeds.
 
You should read this table in conjunction with the historical consolidated financial statements and related notes included elsewhere in this prospectus.
                 
    As of December 31, 2006  
    Actual     As Adjusted  
       (Unaudited)
 
    (In thousands)  
 
Cash and cash equivalents
  $ 147,099     $ 147,099  
                 
Long-term debt, including current maturities:
               
New Senior Secured Credit Facility(1)
    1,117,200       870,525  
93/4% Senior Discount Notes due 2014(1)
    434,073       434,073  
9% Senior Subordinated Notes due 2013(2)
    350,820       184  
Capital lease obligations
    115,827       115,827  
Other indebtedness
    9,560       9,560  
                 
Total debt
    2,027,480       1,430,169  
Minority interest in subsidiaries
    16,613       16,613  
Stockholders’ equity:
               
Common stock, $0.001 par value, authorized 300,000,000 shares and 92,560,622 actual shares and 106,449,511 as adjusted shares issued and outstanding(3)
    93       106  
Additional paid-in capital
    685,433       932,095  
Accumulated other comprehensive loss
    11,463       11,463  
Retained earnings (deficit)
    (7,692 )     (7,692 )
                 
Total stockholders’ equity
    689,297       935,972  
                 
Total capitalization
  $ 2,733,390     $ 2,382,754  
                 
 
 
(1) We intend to repurchase a portion of our outstanding 93/4% senior discount notes with the net proceeds from this offering. Our 93/4% senior discount notes are not currently subject to repurchase at our option. If we are unable to repurchase our 93/4% senior discount notes at prices that are acceptable to us, we will use the net proceeds from this offering to repay term loan debt outstanding under our senior secured credit facility. Accordingly, we have reflected the use of the net proceeds from this offering as a prepayment of such term loans under our senior secured credit facility.
 
(2) Actual amounts shown include unamortized debt premiums of approximately $18.6 million associated with the issuance of the 9% senior subordinated notes.
 
(3) The number of shares of common stock is based upon the number of shares of our common stock outstanding at December 31, 2006, giving effect to a 2.9585-for-one stock split effected on April 9, 2007.
 
The number of shares of our common stock shown in the table above does not include 6,915,591 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of approximately $7.63 per share or an aggregate of 2,177,166 shares of common stock reserved for future issuance under our 2006 Long Term Incentive Plan.


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DILUTION
 
Purchasers of common stock offered by this prospectus will suffer an immediate and substantial dilution in net tangible book value (deficit) per share. Our net tangible book value (deficit) as of December 31, 2006 was approximately $(876.9) million, or approximately $(9.47) per share of common stock. Net tangible book value (deficit) per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding.
 
Dilution in net tangible book value (deficit) per share represents the difference between the amount per share paid by purchasers of our common stock in this offering and the net tangible book value (deficit) per share of our common stock immediately after this offering. After giving effect to our sale of 13,888,889 shares of common stock in this offering and after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value (deficit) as of December 31, 2006 would have been approximately $(630.2) million, or $(5.92) per share. This represents an immediate increase in net tangible book value (deficit) of $3.55 per share of common stock to existing stockholders and an immediate dilution of $24.92 per share to purchasers of common stock in this offering.
 
                 
Initial public offering price per share of common stock
          $ 19.00  
Net tangible book value (deficit) per share as of December 31, 2006
  $ (9.47 )        
Increase per share attributable to new investors
  $ 3.55          
                 
Net tangible book value (deficit) per share after the offering
          $ (5.92 )
                 
Net tangible book value dilution per share to new investors
          $ 24.92  
                 
 
The following table sets forth, as of December 31, 2006, the total consideration paid and the average price per share paid by our existing stockholders and by new investors, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
                                         
                            Average
 
    Shares Purchased     Total Consideration     Price Per
 
    Number     Percent     Amount     Percent     Share  
 
Existing stockholders
    92,560,622       87.0 %   $ 682,744,000       72.1 %   $ 7.38  
New investors
    13,888,889       13.0 %   $ 263,888,891       27.9 %   $ 19.00  
                                         
Total
    106,449,511       100.0 %   $ 946,632,891       100.0 %        
                                         
 
As of December 31, 2006, there were outstanding options to purchase a total of 6,915,591 shares of our common stock at a weighted average exercise price of approximately $7.63 per share, which excludes 2,177,166 shares reserved for issuance under our 2006 Long Term Incentive Plan. If all of these options were exercised, the dilution to the new investors would be less by approximately $0.83 per share. The information discussed above is illustrative only.


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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
 
The following tables set forth our selected historical consolidated financial and operating information as of and for the periods indicated. The selected historical information for periods through April 1, 2004 are of Cinemark, Inc., the predecessor, and the selected historical information for all subsequent periods are of Cinemark Holdings, Inc., the successor. Our financial information for the period January 1, 2004 to April 1, 2004, the period April 2, 2004 to December 31, 2004 and the years ended December 31, 2005 and 2006 is derived from our audited consolidated financial statements appearing elsewhere in this prospectus. Our financial information for each of the years ended December 31, 2002 and 2003 is derived from our audited consolidated financial statements which are not included in this prospectus.
 
Our unaudited pro forma statement of operations information and other financial information for the year ended December 31, 2006 gives effect to the Century acquisition as if it had been consummated on January 1, 2006.
 
The unaudited pro forma condensed consolidated financial information does not purport to represent what our results of operations would have been had the transaction noted above actually occurred on the date specified, nor does it purport to project our results of operations for any future period or as of any future date. The unaudited pro forma condensed consolidated financial information is not comparable to our historical financial information due to the inclusion of the effects of the Century acquisition.
 
You should read the selected historical consolidated financial and operating information set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.
 
                                                           
    Cinemark, Inc.       Cinemark Holdings, Inc.  
    Predecessor       Successor  
                Period from
      Period from
                Pro Forma  
    Year Ended
    January 1,2004
      April 2, 2004
    Year Ended
    Year Ended
 
    December 31,     to
      to
    December 31,     December 31,
 
    2002     2003     April 1, 2004       December 31, 2004     2005     2006     2006  
    (Dollars in thousands, except per share data)  
Statement of Operations Data(1):
                                                         
Revenues:
                                                         
Admissions
  $ 595,287     $ 597,548     $ 149,134       $ 497,865     $ 641,240     $ 760,275     $ 1,029,881  
Concession
    291,807       300,568       72,480         249,141       320,072       375,798       487,416  
Other
    48,760       52,756       12,011         43,611       59,285       84,521       94,807  
                                                           
Total Revenue
  $ 935,854     $ 950,872     $ 233,625       $ 790,617     $ 1,020,597     $ 1,220,594     $ 1,612,104  
Operating Income
    130,443       135,563       556         73,620       63,501       127,369       175,579  
Income (loss) from continuing operations
    40,509       47,389       (9,068 )       (7,842 )     (25,408 )     841       (3,548 )
Net income (loss)
  $ 35,476     $ 44,649     $ (10,633 )     $ (3,687 )   $ (25,408 )   $ 841       (3,548 )
Net income (loss) per share(3):
                                                         
Basic
  $ 0.30     $ 0.37     $ (0.09 )     $ (0.05 )   $ (0.31 )   $ 0.01       (0.04 )
Diluted
  $ 0.30     $ 0.37     $ (0.09 )     $ (0.05 )   $ (0.31 )   $ 0.01       (0.04 )
Weighted average shares outstanding(3):
                                                         
Basic
    119,856       119,867       120,156         81,876       82,199       84,948       92,556  
Diluted
    120,190       120,692       120,156         81,876       82,199       86,618       92,556  
Other Financial Data:
                                                         
Cash flow provided by (used for):
                                                         
Operating activities
  $ 150,119     $ 135,522     $ 10,100       $ 112,986     $ 165,270     $ 155,662          
Investing activities
    (34,750 )     (47,151 )     (16,210 )       (100,737 )     (81,617 )     (631,747 )(2)        
Financing activities
    (96,140 )     (45,738 )     346,983         (361,426 )     (3,750 )     439,977          
Capital expenditures
    (38,032 )     (51,002 )     (17,850 )       (63,158 )     (75,605 )     (107,081 )        
 


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    Cinemark, Inc.       Cinemark Holdings, Inc.  
    Predecessor       Successor  
    As of December 31,  
    2002     2003       2004     2005     2006  
    (In thousands)  
                                 
Balance Sheet Data:
                                         
Cash and cash equivalents
  $ 63,719     $ 107,322       $ 100,248     $ 182,199     $ 147,099  
Theatre properties and equipment, net
    791,731       775,880         794,723       803,269       1,324,572  
Total assets
    916,814       960,736         1,831,855       1,864,852       3,171,582  
Total long-term debt and capital lease obligations, including current portion
    692,587       658,431         1,026,055       1,055,095       2,027,480  
Stockholders’ equity
    27,664       76,946         533,200       519,349       689,297  
 
                                                           
                                          Cinemark
 
    Cinemark, Inc.       Cinemark Holdings, Inc.     and
 
    Predecessor       Successor     Century
 
                Period From       Period From                 Combined  
    Year Ended
    January 1, 2004
      April 2, 2004
    Year Ended
    Year Ended
 
    December 31,     to
      to
    December 31,     December 31,
 
    2002     2003     April 1, 2004       December 31, 2004     2005     2006     2006  
    (Attendance in thousands)  
                                             
                                                           
Operating Data:
                                                         
United States(4)(6)
                                                         
Theatres operated (at period end)
    188       189       191         191       200       281       281  
Screens operated (at period end)
    2,215       2,244       2,262         2,303       2,417       3,523       3,523  
Total attendance(1)
    111,959       112,581       25,790         87,856       105,573       118,714       155,981  
International(5)
                                                         
Theatres operated (at period end)
    92       97       95         101       108       115       115  
Screens operated (at period end)
    816       852       835         869       912       965       965  
Total attendance(1)
    60,109       60,553       15,791         49,904       60,104       59,550       59,550  
Worldwide(4)(5)(6)
                                                         
Theatres operated (at period end)
    280       286       286         292       308       396       396  
Screens operated (at period end)
    3,031       3,096       3,097         3,172       3,329       4,488       4,488  
Total attendance(1)
    172,068       173,134       41,581         137,760       165,677       178,264       215,531  
 
 
(1) Statement of Operations Data (other than net income (loss)) and attendance data exclude the results of the two United Kingdom theatres and the eleven Interstate theatres for all periods presented as these theatres were sold during the period from April 2, 2004 to December 31, 2004. The results of operations for these theatres in the 2003 and 2004 periods are presented as discontinued operations. See note 7 to our annual consolidated financial statements.
 
(2) Includes the cash portion of the Century acquisition purchase price of $531.2 million.
 
(3) Gives effect to a 2.9585-for-one stock split with respect to our common stock effected on April 9, 2007.
 
(4) The data excludes certain theatres operated by us in the U.S. pursuant to management agreements that are not part of our consolidated operations.
 
(5) The data excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations.
 
(6) The data for 2003 excludes theatres, screens and attendance for eight theatres and 46 screens acquired on December 31, 2003, as the results of operations for these theatres are not included in our 2003 consolidated results of operations.

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
We prepared the following unaudited pro forma condensed consolidated financial information by applying pro forma adjustments to our historical consolidated financial statements. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2006 gives effect to the Century acquisition as if it had occurred on January 1, 2006. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2006 do not give effect to the repurchase of approximately $332,066 aggregate principal amount of Cinemark USA, Inc.’s 9% senior subordinated notes as discussed in Note 7 to the unaudited pro forma condensed consolidated financial information.
 
We based the unaudited pro forma adjustments upon available information and certain assumptions that we believe are reasonable under the circumstances. Assumptions underlying the unaudited pro forma adjustments are described in the accompanying notes. The unaudited pro forma information presented with respect to the Century acquisition, including allocations of purchase price, is based on preliminary estimates of the fair values of assets acquired and liabilities assumed, available information and assumptions and will be revised as requested information becomes available. The actual adjustments to our consolidated financial statements will differ from the unaudited pro forma adjustments, and the differences may be material.
 
We are providing the unaudited pro forma condensed consolidated financial information for informational purposes only. The unaudited pro forma condensed consolidated financial information does not purport to represent what our results of operations or financial condition would have been had the transactions described below actually occurred on the dates assumed, nor do they purport to project our results of operations or financial condition for any future period or as of any future date. You should read the unaudited pro forma condensed consolidated financial information in conjunction with our audited annual consolidated financial statements and related notes for the year ended December 31, 2006, and Century’s audited annual consolidated financial statements and related notes for its fiscal year ended September 28, 2006 included in this prospectus.
 
The Century Acquisition
 
On October 5, 2006, we completed the acquisition of Century, a national theatre chain with 77 theatres and 1,017 screens in 12 states. The purchase price was approximately $681 million and the assumption of approximately $360 million of debt. We incurred approximately $7 million of transaction fees and expenses that were capitalized as part of the acquisition. Cinemark USA, Inc., a wholly-owned subsidiary of Cinemark Holdings, Inc., acquired approximately 77% of the issued and outstanding capital stock of Century and Syufy Enterprises, LP, or Syufy, contributed the remaining shares of capital stock of Century to us in exchange for 10,024,776 shares of our common stock.
 
In connection with the closing of the Century acquisition, Cinemark USA, Inc. entered into a new senior secured credit facility, and used the proceeds of the $1,120 million new term loan to fund a portion of the purchase price, to pay off approximately $360 million under Century’s then existing credit facility and to repay in full all outstanding amounts under Cinemark USA, Inc.’s former senior secured credit facility of approximately $254 million. Cinemark USA, Inc. used approximately $53 million of its existing cash to fund the payment of the remaining portion of the purchase price and related transaction expenses. Additionally, Cinemark USA, Inc. advanced approximately $17 million of cash to Century to satisfy working capital obligations.
 
The Century acquisition is accounted for using purchase accounting. Under the purchase method of accounting, the total consideration paid is allocated to Century’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of the Century acquisition. As of the date hereof, we have not completed the valuation studies necessary to estimate the fair values of the assets acquired and liabilities assumed and the related allocation of purchase price. In presenting the unaudited pro forma financial information, we have allocated the purchase price to the assets acquired and liabilities assumed based on preliminary estimates of their fair values. A final determination of these fair values will reflect our consideration of valuations, assisted by third-party appraisers. These final valuations will be based on the actual net tangible and intangible assets that exist as of the closing date of the Century acquisition. Any final adjustments will change the allocations of the purchase price, which could affect the initial fair values


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assigned to the assets and liabilities and could result in changes to the unaudited pro forma condensed consolidated financial information, including a change to goodwill.
 
We have integrated the Century operations into our existing business. We have consolidated Century’s corporate office processes into our existing processes, resulting in a net elimination of personnel and general and administrative cost. Additionally, we have transitioned the Century theatres into our existing concession supply and screen advertising contracts. For purposes of the unaudited pro forma financial information, we have not made any pro forma adjustment to reflect synergies resulting from our integration efforts.
 
Century used a 52/53 week fiscal year ending with the last Thursday in September. For purposes of the unaudited pro forma financial information, Century’s historical financial information has been conformed to reflect the historical financial information on a calendar year basis, consistent with our fiscal year reporting.


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Cinemark Holdings, Inc.
 
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2006
 
                                         
                Century
    Adjustments
       
    Cinemark
    Century
    Stub
    to Reflect Century
       
    Historical(1)     Historical(2)     Period(3)     Acquisition     Pro Forma  
    (In thousands)        
 
                                         
REVENUES
                                       
Admissions
  $ 760,275     $ 264,902     $ 4,704     $     $ 1,029,881  
Concession
    375,798       109,641       1,977             487,416  
Other
    84,521       10,161       125             94,807  
                                         
Total revenues
    1,220,594       384,704       6,806             1,612,104  
COST OF OPERATIONS
                                       
Film rentals and advertising
    405,987       137,711       2,446             546,144  
Concession supplies
    59,020       16,043       296             75,359  
Salaries and wages
    118,616       41,216       857             160,689  
Facility lease expense
    161,374       44,733       843             206,950  
Utilities and other
    144,808       39,226       665             184,699  
General and administrative expenses
    67,768       32,271       252       (15,672 )(6)     84,619  
Depreciation and amortization
    95,821       36,200       795       4,929 (4)     137,745  
Amortization of net favorable leases
    3,649                   22 (5)     3,671  
Impairment of long-lived assets
    28,537       406                   28,943  
Loss on sale of assets and other
    7,645       61                   7,706  
                                         
Total cost of operations
    1,093,225       347,867       6,154       (10,721 )     1,436,525  
                                         
OPERATING INCOME
    127,369       36,837       652       10,721       175,579  
OTHER INCOME (EXPENSE)
                                       
Interest expense
    (105,986 )     (26,033 )     (617 )     (29,392 )(7)     (162,028 )
Amortization of debt issue costs
    (3,342 )     (454 )     (14 )     (2,213 )(7)     (6,023 )
Interest income
    7,040       567                   7,607  
Other income (expense)
    (11,555 )     (609 )     1             (12,163 )
                                         
Total other expenses
    (113,843 )     (26,529 )     (630 )     (31,605 )     (172,607 )
                                         
INCOME BEFORE INCOME TAXES
    13,526       10,308       22       (20,884 )     2,972  
Income taxes
    12,685       4,376             (10,541 )(8)     6,520  
                                         
NET INCOME (LOSS)
  $ 841     $ 5,932     $ 22     $ (10,343 )   $ (3,548 )
                                         
WEIGHTED AVERAGE SHARES OUTSTANDING(9)
                                       
Basic
    84,948                               92,556  
                                         
Diluted
    86,618                               92,556  
                                         
EARNINGS PER SHARE(9)
                                       
Basic earnings (loss) per share
  $ 0.01                             $ (0.04 )
                                         
Diluted earnings (loss) per share
  $ 0.01                             $ (0.04 )
                                         
 
See notes to unaudited proforma condensed consolidated financial information.


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Cinemark Holdings, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(Dollars in thousands)
 
 
(1) Cinemark historical results include the results of operations of Century Theatres from October 5, 2006 to December 31, 2006.
 
(2) Century historical results include the results of operations of Century Theatres from December 29, 2005 to September 28, 2006.
 
(3) Century stub period results include the results of operations of Century Theatres from September 29, 2006 to October 4, 2006 (the period prior to the Century Acquisition).
 
(4) Reflects the depreciation related to the increase in theatre property and equipment to fair value pursuant to purchase accounting for the Century acquisition.
 
(5) Reflects the amortization associated with intangible assets recorded pursuant to the purchase method of accounting for the Century acquisition as follows:
 
             
    Amount    
Amortization Period
 
Goodwill
  $ 602,695     Indefinite life
Tradenames
    136,000     Indefinite life
Net unfavorable leases
    (5,600 )   Remaining term of the lease commitments ranging from one to thirty years
 
Both goodwill and tradenames are indefinite-lived intangible assets. As a result, goodwill and tradenames will not be amortized but will be evaluated for impairment at least annually. Pro forma amortization expense for the net unfavorable leases is estimated at $22.
 
The unaudited pro forma condensed consolidated financial information reflect our preliminary allocation of the purchase price to tangible assets, liabilities, goodwill and other intangible assets. The final purchase price allocation may result in a different allocation for tangible and intangible assets than that presented in these unaudited pro forma condensed consolidated financial information. An increase or decrease in the amount of purchase price allocated to amortizable assets would impact the amount of annual amortization expense. Identifiable intangible assets have been amortized on a straight-line basis in the unaudited pro forma condensed consolidated statements of operation.
 
(6) To give effect to the elimination of change of control payments to Century’s management.
 
(7) Reflects interest expense and amortization of debt issuance costs resulting from the changes to our debt structure:
 
         
Interest expense recorded on the Cinemark USA, Inc.’s existing term loan
  $ (13,879 )
Interest expense recorded on Century’s existing credit facility
    (18,217 )
Interest expense on the new $1,120,000 term loan(a)
    61,488  
         
Interest expense
  $ 29,392  
         
 
  (a)  Reflects estimated interest rate of 7.32% (the initial LIBOR borrowing rate) on the new senior credit facility for the period January 1, 2006 to October 4, 2006, the period in 2006 during which the new senior secured credit facility was not in effect.
 
         
Amortization of debt issue costs on Cinemark USA, Inc.’s existing term loan
  $ (179 )
Amortization of debt issue costs on Century’s existing credit facility
    (454 )
Amortization of debt issue costs on the new $1,120,000 term loan(a)
    2,846  
         
Amortization of debt issue costs
  $ 2,213  
         
 
  (a)  Reflects debt issue costs on the new senior secured credit facility for the period January 1, 2006 to October 4, 2006, the period in 2006 during which the new senior secured credit facility was not in effect.
 
Subsequent to December 31, 2006, Cinemark USA, Inc. repurchased $332,066 aggregate principal amount of its 9% senior subordinated notes with the proceeds from the NCM transactions and cash on hand. As a result of the repurchase of the 9% senior subordinated notes, pro forma annual interest expense, which includes amortization of bond premiums, will be reduced by approximately $26,790 and pro forma amortization of debt issue costs will be reduced by approximately $138 on an annual basis. Pro forma net income (loss) would increase by approximately $16,426 and basic and diluted earnings (loss) per share would increase by approximately $0.18. The redemption of the 9% senior subordinated notes has not been reflected in the unaudited pro forma condensed consolidated statement of operations above.
(8) To reflect the tax effect of the pro forma adjustments at our statutory income tax rate of 39%.
(9) Gives effect to a 2.9585-for-one stock split with respect to our common stock effected on April 9, 2007.


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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 the financial statements and accompanying notes included in this prospectus.
 
Overview
 
On April 2, 2004, an affiliate of MDP acquired approximately 83% of the capital stock of Cinemark, Inc., pursuant to which a newly formed subsidiary owned by an affiliate of MDP was merged with and into Cinemark, Inc. with Cinemark, Inc. continuing as the surviving corporation. Management, including Lee Roy Mitchell, Chairman and then Chief Executive Officer, retained approximately 17% ownership interest in Cinemark, Inc. In December 2004, MDP sold approximately 10% of its stock in Cinemark, Inc., to outside investors and in July 2005, Cinemark, Inc. issued additional shares to another outside investor.
 
Cinemark Holdings, Inc. was formed on August 2, 2006. On August 7, 2006, the Cinemark, Inc. stockholders entered into a share exchange agreement pursuant to which they agreed to exchange their shares of Class A common stock for an equal number of shares of common stock of Cinemark Holdings, Inc. The Cinemark Share Exchange and the Century Theatres, Inc. acquisition were completed on October 5, 2006. Prior to October 5, 2006, Cinemark Holdings, Inc. had no assets, liabilities or operations. On October 5, 2006, Cinemark, Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
 
As of December 31, 2006, MDP owned approximately 66% of our capital stock, Lee Roy Mitchell and the Mitchell Special Trust collectively owned approximately 14%, Syufy Enterprises, LP owned approximately 11%, outside investors owned approximately 8%, and certain members of management owned the remaining 1%.
 
For purposes of the financial presentation in this prospectus, the historical financial information reflects the change in reporting entity that occurred as a result of the Cinemark Share Exchange. Cinemark Holdings, Inc.’s consolidated financial information reflects the historical accounting basis of its stockholders for all periods presented. Accordingly, financial information for periods preceding the MDP Merger is presented as Predecessor and for the periods subsequent to the MDP Merger is presented as Successor. The Century acquisition is reflected in the historical financial information of Cinemark Holdings, Inc. from October 5, 2006. Because of the significance of the Century acquisition, we have included in this prospectus historical financial statements for Century as well as pro forma financial information giving effect to the Century acquisition as more fully described in “Unaudited Pro Forma Condensed Consolidated Financial Information.”
 
We have prepared our discussion and analysis of the results of operations for the year ended December 31, 2005 (successor) by comparing those results with the results of operations of the Predecessor for the period January 1, 2004 to April 1, 2004 combined with the results of operations of the Successor for the period April 2, 2004 to December 31, 2004. Although this combined presentation does not comply with GAAP we believe this presentation provides a meaningful method of comparison of the 2004 and 2005 results.
 
For financial reporting purposes at December 31, 2006, we have two reportable operating segments, our U.S. operations and our international operations.
 
Revenues and Expenses
 
We generate revenues primarily from box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as vendor marketing programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our investment in NCM has assisted us in expanding our offerings to advertisers, exploring ancillary revenue sources such as digital video monitor advertising, third party branding, and the use of theatres for non-film events. In addition, we are able to use theatres during non-peak hours for concerts, sporting events, and other cultural events. Successful films released during the year ended December 31, 2006 included Ice Age 2: The Meltdown, Pirates of the Caribbean: Dead Man’s Chest, The Da Vinci Code, X Men 3, Cars, Talladega Nights and Superman Returns.  Our revenues are affected by changes in attendance and average admissions and concession revenues per


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patron. Attendance is primarily affected by the quality and quantity of films released by motion picture studios. Films scheduled for release during 2007 include Spider-Man 3, Shrek the Third, Pirates of the Caribbean: At World’s End, and Harry Potter and the Order of the Phoenix.
 
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. Film rental costs can also vary based on the length of a film’s run. Generally, a film that runs for a longer period results in lower film rental costs as a percentage of revenues. Film rental rates are negotiated on a film-by-film and theatre-by-theatre basis. Advertising costs, which are expensed as incurred, are primarily fixed at the theatre level as daily movie directories placed in newspapers represent the largest component of advertising costs. The monthly cost of these advertisements is based on, among other things, the size of the directory and the frequency and size of the newspaper’s circulation.
 
Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain 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 most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to percentage rent only while others are subject to percentage rent in addition to their fixed monthly rent if a target annual revenue level is achieved. Facility lease expense as a percentage of revenues is also affected by the number of theatres under operating leases versus the number of theatres under capital leases and the number of fee-owned theatres.
 
Utilities and other costs include certain costs that are fixed such as property taxes, certain costs that 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 United States of America. As such, we are required to make certain estimates and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported consolidated financial results, include the following:
 
Revenue and Expense Recognition
 
Revenues are recognized when admissions and concession sales are received at the box office. Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre. We record proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognize admissions and concession revenue when a holder redeems the card or certificate. We recognize unredeemed gift cards and other advanced sale-type certificates as revenue only after such a period of time indicates, based on historical experience, the likelihood of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood of redemption, we consider the period outstanding, the level and frequency of activity, and the period of inactivity.
 
Film rental costs are accrued based on the applicable box office receipts and either the mutually agreed upon firm terms established prior to the opening of the picture or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the picture run, subject to the film licensing arrangement. Estimates are based on the expected success of a film over the length of its run in theatres. 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


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known at the time the estimate is made and the expected success of a film over the length of its run in theatres 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. We recognize advertising costs and any sharing arrangements with film distributors in the same accounting period. Our advertising costs are expensed as incurred.
 
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to monthly percentage rent only, which is accrued each month based on actual revenues. Certain of our other theatres require payment of percentage rent in addition to fixed monthly rent if a target annual revenue level is achieved. Percentage rent expense is recorded for these theatres on a monthly basis if the theatre’s historical performance or forecasted performance indicates that the annual target will be reached. The estimate of percentage rent expense recorded during the year is based on a trailing twelve months of revenues. Once annual revenues are known, which is generally at the end of the year, the percentage rent expense is adjusted based on actual revenues.
 
Theatre properties and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives of our theatre properties and equipment, we have relied upon our experience with such assets and our historical replacement period. We periodically evaluate these estimates and assumptions and adjust them as necessary. Adjustments to the expected lives of assets are accounted for on a prospective basis through depreciation expense.
 
Impairment of Long-Lived Assets
 
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 flows;
 
  •  future years budgeted theatre level cash flows;
 
  •  theatre property and equipment carrying values;
 
  •  goodwill carrying values;
 
  •  amortizing intangible asset carrying values;
 
  •  the age of a recently built theatre;
 
  •  competitive theatres in the marketplace;
 
  •  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.
 
Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest applicable level for which there are identifiable cash flows. The 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, which includes the possibility of renewal periods, for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset group (theatre) with its estimated fair value. Fair values are determined based on a multiple of undiscounted cash flows, which was seven times as of December 31, 2005 and eight times for the evaluation performed as of December 31, 2006. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair value.


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Significant judgment is involved in estimating cash flows and fair value. Management’s estimates are based on historical and projected operating performance as well as recent market transactions.
 
Impairment of Goodwill and Intangible Assets
 
We evaluate goodwill and tradename for impairment annually at fiscal year-end and any time events or circumstances indicate the carrying amount of the goodwill and intangible assets may not be fully recoverable. We evaluate goodwill for impairment at the reporting unit level (generally a theatre) and have allocated goodwill to the reporting unit based on an estimate of its relative fair value. The evaluation is a two-step approach requiring us to compute the fair value of a theatre and compare it with its carrying value. If the carrying value exceeds fair value, a second step is performed to measure the potential goodwill impairment. Fair value is determined based on a multiple of cash flows, which was seven times as of December 31, 2005 and eight times for the evaluation performed as of December 31, 2006. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates are based on historical and projected operating performance as well as recent market transactions.
 
Acquisitions
 
We account for acquisitions under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations”. The purchase method requires that we estimate the fair value of the assets acquired and liabilities assumed and allocate consideration paid accordingly. For significant acquisitions, we obtain independent third party valuation studies for certain of the assets acquired and liabilities assumed to assist us in determining fair value. The estimation of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the actual amounts recorded.
 
Income Taxes
 
We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not those assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The related tax accruals are recorded in accordance with SFAS No. 5, “Accounting for Contingencies”. To the extent contingencies are probable and estimable, an accrual is recorded within current liabilities in the consolidated balance sheet. To the extent tax accruals differ from actual payments or assessments, the accruals will be adjusted.
 
Recent Developments
 
National CineMedia
 
In March 2005, Regal and AMC formed NCM, and on July 15, 2005, we joined NCM, as one of the founding members. NCM operates the largest digital in-theatre network in the U.S. for cinema advertising and non-film events and combines the cinema advertising and non-film events businesses of the three largest motion picture exhibition companies in the U.S. On February 13, 2007, NCM, Inc., a newly formed entity that now serves as a member and the sole manager of NCM, completed an initial public offering of its common stock. In connection with the NCM, Inc. public offering, NCM, Inc. became a member and the sole manager of NCM, and we amended the operating agreement of NCM and the Exhibitor Services Agreement pursuant to which NCM provides advertising, promotion and event services to our theatres.
 
Prior to the initial public offering of NCM, Inc. common stock, our ownership interest in NCM was approximately 25% and subsequent to the completion of the offering we owned a 14% interest in NCM. Prior to pricing the initial public offering of NCM, Inc., NCM completed a recapitalization whereby (1) each issued and outstanding Class A unit of NCM was split into 44,291 Class A units, and (2) following such split of Class A Units, each issued and outstanding Class A Unit was recapitalized into one common unit and one


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preferred unit. As a result, we received 14,159,437 common units and 14,159,437 preferred units. All existing preferred units of NCM, or 55,850,951 preferred units, held by us, Regal and AMC were redeemed by NCM on a pro rata basis on February 13, 2007. NCM utilized the proceeds of its new $725.0 million term loan facility and a portion of the proceeds it received from NCM, Inc.’s initial public offering to redeem all of its outstanding preferred units. Each preferred unit was redeemed for $13.7782 and we received approximately $195.1 million as payment in full for redemption of all of our preferred units in NCM. Upon payment of such amount, each preferred unit was cancelled and the holders of the preferred units ceased to have any rights with respect to the preferred units.
 
NCM has also paid us a portion of the proceeds it received from NCM, Inc. in the initial public offering for agreeing to modify NCM’s payment obligation under the prior exhibitor services agreement. The modification agreed to by us reflects a shift from circuit share expense under the prior exhibitor service agreement, which obligated NCM to pay us a percentage of revenue, to the monthly theatre access fee described below. The theatre access fee will significantly reduce the contractual amounts paid to us by NCM. In exchange for our agreement to so modify the agreement, NCM paid us approximately $174 million upon execution of the Exhibitor Services Agreement on February 13, 2007. Regal and AMC similarly altered their exhibitor services arrangements with NCM.
 
At the closing of the initial public offering, the underwriters exercised their over-allotment option to purchase additional shares of common stock of NCM, Inc. at the initial public offering price, less underwriting discounts and commissions. In connection with the over-allotment option exercise, Regal, AMC and us each sold to NCM, Inc. common units of NCM on a pro rata basis at the initial public offering price, less underwriting discounts and expenses. We sold 1,014,088 common units to NCM, Inc. for proceeds of $19.9 million, and upon completion of this sale of common units, we owned 13,145,349 common units of NCM, or a 14% interest. In the future, we expect to receive mandatory quarterly distributions of excess cash from NCM.
 
In consideration for NCM’s exclusive access to our theatre attendees for on-screen advertising and use of off-screen locations within our theatres for the lobby entertainment network and lobby promotions, we will receive a monthly theatre access fee under the Exhibitor Services Agreement. The theatre access fee is composed of a fixed payment per patron, initially $0.07, and a fixed payment per digital screen, which may be adjusted for certain enumerated reasons. The payment per theatre patron will increase by 8% every five years, with the first such increase taking effect after 2011, and the payment per digital screen, initially $800 per digital screen per year, will increase annually by 5%, beginning after 2007. The theatre access fee paid in the aggregate to Regal, AMC and us will not be less than 12% of NCM’s Aggregate Advertising Revenue (as defined in the Exhibitor Services Agreement), or it will be adjusted upward to reach this minimum payment. Additionally, with respect to any on-screen advertising time provided to our beverage concessionaire, we are required to purchase such time from NCM at a negotiated rate. The Exhibitor Services Agreement has, except with respect to certain limited services, a term of 30 years.
 
We used the proceeds from the Exhibitor Services Agreement modification payment, the preferred unit redemption and the sale of common units to NCM, Inc. in connection with the exercise of the over-allotment option and cash on hand to purchase our 9% senior subordinated notes issued by Cinemark USA, Inc. pursuant to an offer to purchase and consent solicitation described below.
 
Digital Cinema Implementation Partners, LLC
 
On February 12, 2007, we, along with AMC and Regal, entered into a joint venture known as Digital Cinema Implementation Partners LLC, or DCIP, to explore the possibility of implementing digital cinema in our theatres and to establish agreements with major motion picture studios for the implementation and financing of digital cinema. In addition, DCIP has entered into a digital cinema services agreement with NCM for purposes of assisting DCIP in the development of digital cinema systems. Future digital cinema developments will be managed by DCIP, subject to approval by us, along with our partners AMC and Regal.


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Repurchase of 9% Senior Subordinated Notes
 
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all of its then outstanding $332.2 million aggregate principal amount of 9% senior subordinated notes. In connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed amendments to the indenture to remove substantially all restrictive covenants and certain events of default. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased $332.0 million aggregate principal amount of 9% senior subordinated notes and executed a supplemental indenture removing substantially all of the restrictive covenants and certain events of default. On April 3, 2007, we purchased $66,000 of the 9% senior subordinated notes tendered after the early settlement date. Approximately $184,000 aggregate principal amount of 9% senior subordinated notes remain outstanding. We used the proceeds from the NCM transactions and cash on hand to purchase the 9% senior subordinated notes tendered pursuant to the tender offer and consent solicitation.
 
Amendments to the New Senior Secured Credit Facility
 
On March 14, 2007, Cinemark USA, Inc. amended its new senior secured credit facility to, among other things, modify the interest rate on the term loans under the new senior secured credit facility, modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 1.75%, per annum. In each case, the margin is a function of the corporate credit rating applicable to the borrower. The interest rate on the revolving credit line was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding under the new senior secured credit facility in an amount equal to the amount of the net cash proceeds received from the NCM transactions or from excess cash flows, and imposed a 1% prepayment premium for one year on certain prepayments of the term loans.
 
Results of Operations
 
On October 5, 2006, we completed the Century acquisition for a purchase price of approximately $681 million and the assumption of approximately $360 million of debt of Century. Of the total purchase price, $150 million consisted of the issuance of 10,024,776 shares of our common stock. We also incurred approximately $7.4 million in transaction costs. Results of operations for the year ended December 31, 2006 reflect the inclusion of operations for the 77 Century theatres acquired beginning on the date of acquisition, October 5, 2006. See note 4 to our annual consolidated financial statements.


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The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items reflected in our consolidated statements of operations:
 
                         
    Year Ended December 31,  
    2004     2005     2006  
 
Operating data (in millions)(1):
                       
Revenues
                       
Admissions
  $ 647.0     $ 641.2     $ 760.3  
Concession
    321.6       320.1       375.8  
Other
    55.6       59.3       84.5  
     
     
Total revenues
  $ 1,024.2     $ 1,020.6     $ 1,220.6  
     
     
Theatre operating costs(2)(3)
                       
Film rentals and advertising
  $ 348.8     $ 347.7     $ 406.0  
Concession supplies
    53.8       52.5       59.0  
Salaries and wages
    103.1       101.5       118.6  
Facility lease expense
    128.7       138.5       161.4  
Utilities and other
    113.0       123.8       144.8  
     
     
Total theatre operating costs
  $ 747.4     $ 764.0     $ 889.8  
     
     
Operating data as a percentage of total revenues(1):
                       
Revenues
                       
Admissions
    63.2 %     62.8 %     62.3 %
Concession
    31.4       31.4       30.8 %
Other
    5.4       5.8       6.9 %
     
     
Total revenues
    100.0 %     100.0 %     100.0 %
     
     
Theatre operating costs(2)(3)
                       
Film rentals and advertising
    53.9 %     54.2 %     53.4 %
Concession supplies
    16.7       16.4       15.7  
Salaries and wages
    10.1       9.9       9.7  
Facility lease expense
    12.6       13.6       13.2  
Utilities and other
    11.0       12.1       11.9  
Total theatre operating costs
    73.0 %     74.9 %     72.9 %
     
     
Average screen count (month end average)(1)
    3,135       3,239       3,628  
     
     
Revenues per average screen(1)
  $ 326,664     $ 315,104     $ 336,437  
     
     
 
 
(1) Results exclude our two United Kingdom theatres and our eleven Interstate theatres sold during 2004. The results of operations for these theatres are presented as discontinued operations for 2004.
 
(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.
 
(3) Excludes depreciation and amortization expense.


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Comparison of Years Ended December 31, 2006 and December 31, 2005
 
Revenues.  Total revenues increased $200.0 million to $1,220.6 million for 2006 from $1,020.6 million for 2005, representing a 19.6% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
 
                                                                         
    U.S. Operating Segment           International Operating Segment           Consolidated        
    Year Ended
          Year Ended
          Year Ended
       
    December 31,           December 31,           December 31,        
    2005     2006     % Change     2005     2006     % Change     2005     2006     % Change  
 
Admissions revenues
(in millions)
  $ 472.0     $ 577.9       22.4 %   $ 169.2     $ 182.4       7.8 %   $ 641.2     $ 760.3       18.6 %
Concession revenues
(in millions)
  $ 248.7     $ 297.4       19.6 %   $ 71.4     $ 78.4       9.8 %   $ 320.1     $ 375.8       17.4 %
Other revenues
(in millions)(1)
  $ 35.6     $ 59.4       66.9 %   $ 23.7     $ 25.1       5.9 %   $ 59.3     $ 84.5       42.5 %
Total revenues (in millions)(1)
  $ 756.3     $ 934.7       23.6 %   $ 264.3     $ 285.9       8.2 %   $ 1,020.6     $ 1,220.6       19.6 %
                                                                         
Attendance
(in millions)
    105.6       118.7       12.4 %     60.1     $ 59.6       (1.0 )%     165.7       178.3       7.6 %
Revenues per screen(1)
  $ 321,833     $ 346,812       7.8 %   $ 297,316     $ 306,459       3.1 %   $ 315,104     $ 336,437       6.8 %
 
 
(1) U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See note 20 to our consolidated financial statements.
 
  •  Consolidated.  The increase in admissions revenues of $119.1 million was attributable to a 7.6% increase in attendance from 165.7 million patrons for 2005 to 178.3 million patrons for 2006, which contributed $57.2 million, and a 10.2% increase in average ticket price from $3.87 for 2005 to $4.26 for 2006, which contributed $61.9 million. This increase included additional admissions revenues for the 77 Century theatres acquired during the fourth quarter of 2006. The increase in concession revenues of $55.7 million was attributable to the 7.6% increase in attendance, which contributed $30.3 million, and a 9.1% increase in concession revenues per patron from $1.93 for 2005 to $2.11 for 2006, which contributed $25.4 million. This increase included additional concession revenues for the 77 Century theatres acquired during the fourth quarter. The increase in attendance was attributable to the additional attendance from the 77 Century theatres acquired, the solid slate of films released during 2006 and new theatre openings. The increases in average ticket price and concession revenues per patron were due to the higher ticket price structure at the 77 Century theatres acquired, price increases and favorable exchange rates in certain countries in which we operate. The 42.5% increase in other revenues was primarily attributable to incremental screen advertising revenues resulting from our participation in the NCM joint venture.
 
  •  U.S.  The increase in admissions revenues of $105.9 million was attributable to a 12.4% increase in attendance from 105.6 million patrons for 2005 to 118.7 million patrons for 2006, which contributed $58.7 million, and an 8.9% increase in average ticket price from $4.47 for 2005 to $4.87 for 2006, which contributed $47.2 million. This increase included additional admissions revenues for the 77 Century theatres acquired during the fourth quarter of 2006. The increase in concession revenues of $48.7 million was attributable to the 12.4% increase in attendance, which contributed $31.0 million, and a 6.3% increase in concession revenues per patron from $2.36 for 2005 to $2.51 for 2006, which contributed $17.7 million. This increase included additional concession revenues for the 77 Century theatres acquired during the fourth quarter. The increase in attendance was attributable to the additional attendance from the 77 Century theatres acquired, the solid slate of films released during 2006 and new theatre openings. The increases in average ticket price and concession revenues per patron were due to the higher ticket price structure at the 77 Century theatres acquired and price increases. The 66.9% increase in other revenues was primarily attributable to incremental screen advertising revenues resulting from our participation in the joint venture with NCM.


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  •  International.  The increase in admissions revenues of $13.2 million was attributable to an 8.8% increase in average ticket price from $2.82 for 2005 to $3.06 for 2006, which contributed $14.7 million, partially offset by a 1.0% decrease in attendance, which contributed $(1.5) million. The decrease in attendance was due to increased competition in certain markets. The increase in concession revenues of $7.0 million was attributable to a 10.9% increase in concession revenues per patron from $1.19 for 2005 to $1.32 for 2006, which contributed $7.7 million, partially offset by the 1.0% decrease in attendance, which contributed $(0.7) million. The increases in average ticket price and concession revenues per patron were due to price increases and favorable exchange rates in certain countries in which we operate.
 
Theatre Operating Costs (excludes depreciation and amortization expense).  Theatre operating costs were $889.8 million, or 72.9% of revenues, for 2006 compared to $764.0 million, or 74.9% of revenues, for 2005. The decrease, as a percentage of revenues, was primarily due to the increase in revenues and the fixed nature of some of our theatre operating costs, such as components of salaries and wages, facility lease expense, and utilities and other costs. The table below, presented by reportable operating segment, summarizes our year-over-year theatre operating costs.
 
                                                 
    U.S. Operating Segment     International Operating Segment     Consolidated  
    Year Ended
    Year Ended
    Year Ended
 
    December 31,     December 31,     December 31,  
    2005     2006     2005     2006     2005     2006  
 
Film rentals and advertising
  $ 263.7     $ 315.4     $ 84.0     $ 90.6     $ 347.7     $ 406.0  
Concession supplies
    34.5       38.7       18.0       20.3     $ 52.5     $ 59.0  
Salaries and wages
    80.8       95.8       20.7       22.8     $ 101.5     $ 118.6  
Facility lease expense
    97.7       117.0       40.8       44.4     $ 138.5     $ 161.4  
Utilities and other
    90.7       108.3       33.1       36.5     $ 123.8     $ 144.8  
                                                 
Total theatre operating costs
  $ 567.4     $ 675.2     $ 196.6     $ 214.6     $ 764.0     $ 889.8  
                                                 
 
  •  Consolidated.  Film rentals and advertising costs were $406.0 million, or 53.4% of admissions revenues, for 2006 compared to $347.7 million, or 54.2% of admissions revenues, for 2005. The increase in film rentals and advertising costs for 2006 of $58.3 million is due to increased admissions revenues, which contributed $65.7 million, and a decrease in our film rental and advertising rate, which contributed $(7.4) million. The decrease in film rentals and advertising costs as a percentage of admissions revenues was due to a more favorable mix of films resulting in lower average film rental rates in 2006 compared with 2005 which had certain blockbuster films with higher than average film rental rates. Concession supplies expense was $59.0 million, or 15.7% of concession revenues, for 2006 compared to $52.5 million, or 16.4% of concession revenues, for 2005. The increase in concession supplies expense of $6.5 million is primarily due to increased concession revenues, which contributed $8.5 million, and a decrease in our concession supplies rate, which contributed $(2.0) million. The decrease in concession supplies expense as a percentage of revenues was primarily due to concession sales price increases.
 
Salaries and wages increased to $118.6 million for 2006 from $101.5 million for 2005 primarily due to the additional salaries and wages related to the 77 Century theatres, the increase in attendance and new theatre openings. Facility lease expense increased to $161.4 million for 2006 from $138.5 million for 2005 primarily due to the additional expense related to the 77 Century theatres, increased percentage rent related to the increased revenues and new theatre openings. Utilities and other costs increased to $144.8 million for 2006 from $123.8 million for 2005 primarily due to the additional costs related to the 77 Century theatres, higher utility and janitorial supplies costs at our existing theatres and new theatre openings.
 
  •  U.S.  Film rentals and advertising costs were $315.4 million, or 54.6% of admissions revenues, for 2006 compared to $263.7 million, or 55.9% of admissions revenues, for 2005. The increase in film rentals and advertising costs for 2006 of $51.7 million is due to increased admissions revenues, which


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  contributed $59.2 million, and a decrease in our film rentals and advertising rate, which contributed $(7.5) million. The decrease in film rentals and advertising costs as a percentage of admissions revenues was due to a more favorable mix of films resulting in lower average film rental rates in 2006 compared with 2005 which had certain blockbuster films with higher than average film rental rates. Concession supplies expense was $38.7 million, or 13.0% of concession revenues, for 2006 compared to $34.5 million, or 13.9% of concession revenues, for 2005. The increase in concession supplies expense of $4.2 million is due to increased concession revenues, which contributed $6.7 million, and a decrease in our concession supplies rate, which contributed $(2.5) million. The decrease in concession supplies expense as a percentage of revenues was primarily due to concession sales price increases.
 
Salaries and wages increased to $95.8 million for 2006 from $80.8 million for 2005 primarily due to the additional salaries and wages related to the 77 Century theatres, the increase in attendance and new theatre openings. Facility lease expense increased to $117.0 million for 2006 from $97.7 million for 2005 primarily due to the additional expense related to the 77 Century theatres, increased percentage rent related to increased revenues and new theatre openings. Utilities and other costs increased to $108.3 million for 2006 from $90.7 million for 2005 primarily due to additional costs related to the 77 Century theatres, higher utility and janitorial supplies costs at our existing theatres and new theatre openings.
 
  •  International.  Film rentals and advertising costs were $90.6 million, or 49.7% of admissions revenues, for 2006 compared to $84.0 million, or 49.6% of admissions revenues, for 2005. The increase in film rentals and advertising costs for 2006 is primarily due to increased admissions revenues. Concession supplies expense was $20.3 million, or 25.9% of concession revenues, for 2006 compared to $18.0 million, or 25.2% of concession revenues, for 2005. The increase in concession supplies expense of $2.3 million is due to increased concession revenues, which contributed $1.8 million, and an increase in our concession supplies rate, which contributed $0.5 million.
 
Salaries and wages increased to $22.8 million for 2006 from $20.7 million for 2005 primarily due to new theatre openings. Facility lease expense increased to $44.4 million for 2006 from $40.8 million for 2005 primarily due to increased percentage rent related to increased revenues and new theatre openings. Utilities and other costs increased to $36.5 million for 2006 from $33.1 million for 2005 primarily due to higher utility and janitorial supplies costs at our existing theatres and new theatre openings.
 
General and Administrative Expenses.  General and administrative expenses increased to $67.8 million for 2006 from $50.9 million for 2005 primarily due to a $3.7 million increase due to incentive compensation expense, a $3.0 million increase to salaries and wages, a $2.9 million increase to stock option compensation expense related to the adoption of SFAS No. 123 (R), and a $1.3 million increase in service charges related to increased credit card activity and additional overhead costs associated with the integration of the Century.
 
Depreciation and Amortization.  Depreciation and amortization expense, including amortization of favorable leases, was $99.5 million for 2006 compared to $86.1 million for 2005 primarily due to the Century acquisition and new theatre openings.
 
Impairment of Long-Lived Assets.  We recorded asset impairment charges on assets held and used of $28.5 million for 2006 compared to $51.7 million for 2005. Impairment charges for 2006 and 2005 included the write-down of theatres to their fair values. Impairment charges for 2006 consisted of $13.6 million of theatre properties, $13.6 million of goodwill associated with theatre properties and $1.3 million of intangible assets associated with theatre properties. Impairment charges for 2005 consisted of $6.4 million of theatre properties and $45.3 million of goodwill associated with theatre properties. We record goodwill at the theatre level, which results in more volatile impairment charges on an annual basis due to changes in market conditions and box office performance and the resulting impact on individual theatres. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates are based on historical and projected operating performance as well as recent market transactions. See notes 9 and 10 to our consolidated financial statements.


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Loss on Sale of Assets and Other.  We recorded a loss on sale of assets and other of $7.6 million during 2006 compared to $4.4 million during 2005. The loss recorded during 2006 primarily related to a loss on the exchange of a theatre in the United States with a third party, lease termination fees and asset write-offs incurred due to theatre closures and the replacement of certain theatre assets. The loss recorded during 2005 was primarily due to property damages sustained at three of our theatres due to hurricanes along the Gulf of Mexico coast and the write-off of some theatre equipment that was replaced.
 
Interest Expense.  Interest costs incurred, including amortization of debt issue costs, was $109.3 million for 2006 compared to $84.1 million for 2005. The increase was primarily due to the financing associated with the Century acquisition.
 
Loss on Early Retirement of Debt.  During 2006, we recorded a loss on early retirement of debt of $8.3 million which was a result of the refinancing associated with the Century acquisition, the repurchase of $10.0 million aggregate principal amount of Cinemark USA, Inc.’s 9% senior subordinated notes, and the repurchase of $39.8 million aggregate principal amount at maturity of our 93/4% senior discount notes, all of which resulted in the write-off of unamortized debt issue costs and the payment of fees and expenses. See notes 4 and 12 to our consolidated financial statements.
 
Income Taxes.  Income tax expense of $12.7 million was recorded for 2006 compared to $9.4 million recorded for 2005. The effective tax rate for 2006 reflects the impact of purchase accounting adjustments resulting from the Century acquisition. The effective tax rate for 2005 reflects the impact of purchase accounting adjustments and related goodwill impairment charges resulting from the MDP Merger. See note 18 to our consolidated financial statements.
 
Comparison of Years Ended December 31, 2005 and December 31, 2004
 
Revenues.  Total revenues for 2005 decreased to $1,020.6 million from $1,024.2 million for 2004, representing a 0.4% decrease. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
 
                                                                         
    U.S. Operating Segment           International Operating Segment           Consolidated        
    Year Ended December 31,     %
    Year Ended December 31,     %
    Year Ended December 31,     %
 
    2004     2005     Change     2004     2005     Change     2004     2005     Change  
 
Admissions revenues
(in millions)
  $ 489.0     $ 472.0       (3.5 )%   $ 158.0     $ 169.2       7.1 %   $ 647.0     $ 641.2       (0.9 )%
Concession revenues
(in millions)
  $ 255.9     $ 248.7       (2.8 )%   $ 65.7     $ 71.4       8.7 %   $ 321.6     $ 320.1       (0.5 )%
Other revenues
(in millions)(1)
  $ 37.1     $ 35.6       (4.0 )%   $ 18.5     $ 23.7       28.1 %   $ 55.6     $ 59.3       6.7 %
Total revenues
(in millions)(1)
  $ 782.0     $ 756.3       (3.3 )%   $ 242.2     $ 264.3       9.1 %   $ 1,024.2     $ 1,020.6       (0.4 )%
Attendance
(in millions)
    113.6       105.6       (7.1 )%     65.7       60.1       (8.5 )%     179.3       165.7       (7.6 )%
Revenues per screen(1)
  $ 341,747     $ 321,833       (5.8 )%   $ 286,364     $ 297,316       3.8 %   $ 326,664     $ 315,104       (3.5 )%
 
 
  (1)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See note 20 to our consolidated financial statements.
 
  •  Consolidated.  The decrease in admissions revenues of $5.8 million was due to the 7.6% decline in attendance, which contributed $(48.1) million, partially offset by the 7.3% increase in average ticket prices, which contributed $42.3 million. The decline in concession revenues of $1.5 million was also attributable to the decline in attendance, which contributed $(23.7) million, partially offset by the 7.7% increase in concession revenues per patron, which contributed $22.2 million. The decline in attendance for 2005 was primarily due to the decline in the quality of films released during 2005 compared to 2004. The increases in average ticket prices and concession revenues per patron were


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  primarily due to price increases and also due to favorable exchange rates in certain countries in which we operate.
 
  •  U.S.  The decrease in admissions revenues of $17.0 million was attributable to the 7.1% decrease in attendance from 113.6 million patrons for 2004 to 105.6 million patrons for 2005, which contributed $(34.7) million, partially offset by a 3.9% increase in average ticket price from $4.30 for 2004 to $4.47 for 2005, which contributed $17.7 million. The decline in concession revenues of $7.2 million was attributable to the 7.1% decrease in attendance, which contributed $(18.2) million, partially offset by a 4.6% increase in concession revenues per patron from $2.25 per patron for 2004 to $2.36 per patron for 2005, which contributed $11.0 million. The decline in attendance for 2005 was primarily due to the decline in the quality of films released during 2005 compared to 2004. The increases in average ticket prices and concession revenues per patron were primarily due to price increases.
 
  •  International.  The increase in admissions revenues of $11.2 million was attributable to a 17.1% increase in average ticket price from $2.40 for 2004 to $2.82 for 2005, which contributed $24.6 million, partially offset by the 8.5% decrease in attendance from 65.7 million patrons for 2004 to 60.1 million patrons for 2005, which contributed $(13.4) million. The increase in concession revenues of $5.7 million was attributable to an 18.6% increase in concession revenues per patron from $1.00 per patron for 2004 to $1.19 per patron for 2005, which contributed $11.2 million, partially offset by the 8.5% decrease in attendance, which contributed $(5.5) million. The decline in attendance for 2005 was primarily due to the decline in the quality of films released during 2005 compared to 2004. The increases in average ticket prices and concession revenues per patron were primarily due to price increases and also favorable exchange rates in certain countries in which we operate.
 
Theatre Operating Costs (excludes depreciation and amortization expense).  Theatre operating costs were $764.0 million, or 74.9% of revenues, for 2005 compared to $747.4 million, or 73.0% of revenues, for 2004. The increase, as percentage of revenues, was primarily due to the decrease in revenues and the fixed nature of some of our theatre operating costs, such as components of facility lease expense and utilities and other costs. The table below, presented by reportable operating segment, summarizes our year-over-year theatre operating costs.
 
                                                 
          International
    Consolidated
 
    U.S. Operating Segment
    Operating Segment
    Year Ended
 
    Year Ended December 31,     Year Ended December 31,     December 31,  
    2004     2005     2004     2005     2004     2005  
 
Film rentals and advertising
  $ 270.1     $ 263.7     $ 78.7     $ 84.0     $ 348.8     $ 347.7  
Concession supplies
    37.2       34.5       16.6       18.0     $ 53.8     $ 52.5  
Salaries and wages
    84.9       80.8       18.2       20.7     $ 103.1     $ 101.5  
Facility lease expense
    93.7       97.7       35.0       40.8     $ 128.7     $ 138.5  
Utilities and other
    85.2       90.7       27.8       33.1     $ 113.0     $ 123.8  
                                                 
Total theatre operating costs
  $ 571.1     $ 567.4     $ 176.3     $ 196.6     $ 747.4     $ 764.0  
                                                 
 
  •  Consolidated.  Film rentals and advertising costs were $347.7 million, or 54.2% of admissions revenues, for 2005 compared to $348.8 million, or 53.9% of admissions revenues, for 2004. The $1.1 million decrease in film rentals and advertising costs for 2005 is due to decreased admissions revenues, which contributed $(3.8) million, offset by an increase in our film rentals and advertising rate, which contributed $2.7 million. The increase in film rentals and advertising costs as a percentage of admissions revenues was primarily related to the high film rental costs associated with certain blockbuster films released during 2005. Concession supplies expense was $52.5 million, or 16.4% of concession revenues, for 2005 compared to $53.8 million, or 16.7% of concession revenues, for 2004. The decrease in concession supplies expense of $1.3 million is primarily due to a decrease in our concession supplies rate. The decrease in concession supplies expense as a percentage of concession revenues was primarily due to concession sales price increases and an increase in concession rebates received from certain vendors.


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  Salaries and wages decreased to $101.5 million for 2005 from $103.1 million for 2004 primarily due to strategic reductions in certain variable salaries and wages related to the decrease in attendance. Facility lease expense increased to $138.5 million for 2005 from $128.7 million for 2004 primarily due to new theatre openings. Utilities and other costs increased to $123.8 million for 2005 from $113.0 million for 2004 primarily due to higher utility costs and new theatre openings.
 
  •  U.S.  Film rentals and advertising costs were $263.7 million, or 55.9% of admissions revenues, for 2005 compared to $270.1 million, or 55.2% of admissions revenues, for 2004. The decrease of $6.4 million in film rentals and advertising costs for 2005 is due to decreased admissions revenues, which contributed $(9.4) million, offset by an increase in our film rentals and advertising rate, which contributed $3.0 million. The increase in film rentals and advertising costs as a percentage of admissions revenues was due to high film rental costs associated with certain blockbuster films released during 2005. Concession supplies expense was $34.5 million, or 13.9% of concession revenues, for 2005 compared to $37.2 million, or 14.5% of concession revenues, for 2004. The decrease in concession supplies expense of $2.7 million is due to decreased concession revenues, which contributed $(1.0) million, and a decrease in our concession supplies rate, which contributed $(1.7) million. The decrease in concession supplies expense as a percentage of revenues was primarily due to concession sales price increases.
 
Salaries and wages decreased to $80.8 million for 2005 from $84.9 million for 2004 primarily due to strategic reductions in certain variable salaries and wages related to the decrease in attendance. Facility lease expense increased to $97.7 million for 2005 from $93.7 million for 2004 primarily due to increased percentage rent related to increased revenues and new theatre openings. Utilities and other costs increased to $90.7 million for 2005 from $85.2 million for 2004 primarily due to higher utility and janitorial supplies costs at our existing theatres and new theatre openings.
 
 
  •  International.  Film rentals and advertising costs were $84.0 million, or 49.6% of admissions revenues, for 2005 compared to $78.7 million, or 49.8% of admissions revenues, for 2004. The increase in film rentals and advertising costs of $5.3 million for 2005 is primarily due to increased admissions revenues. Concession supplies expense was $18.0 million, or 25.2% of concession revenues, for 2005 compared to $16.6 million, or 25.3% of concession revenues, for 2004. The increase in concession supplies expense of $1.4 million is primarily due to increased concession revenues.
 
Salaries and wages increased to $20.7 million for 2005 from $18.2 million for 2004 primarily due to new theatre openings. Facility lease expense increased to $40.8 million for 2005 from $35.0 million for 2004 primarily due to increased percentage rent related to increased revenues and new theatre openings. Utilities and other costs increased to $33.1 million for 2005 from $27.8 million for 2004 primarily due to higher utility and janitorial supplies costs at our existing theatres and new theatre openings.
 
General and Administrative Expenses.  General and administrative expenses decreased to $50.9 million for 2005 from $51.7 million for 2004. The decrease was primarily due to a reduction in incentive compensation expense.
 
Stock Option Compensation and Change of Control Expenses related to the MDP Merger.  Stock option compensation expense of $16.3 million and change of control fees of $15.7 million were recorded during 2004 as a result of the MDP Merger. See note 3 to our consolidated financial statements.
 
Depreciation and Amortization.  Depreciation and amortization expense, including amortization of net favorable leases, was $86.1 million for 2005 compared to $78.2 million for 2004. The increase was primarily due to the amortization of intangible assets recorded during April 2004 as a result of the MDP Merger, new theatre openings during the latter part of 2004 and 2005 and amortization of intangible assets recorded as a result of the final purchase price allocations for the Brazil and Mexico acquisitions. See note 5 to our consolidated financial statements.
 
Impairment of Long-Lived Assets.  We recorded asset impairment charges on long-lived assets held and used of $51.7 million during 2005 and $37.7 million during 2004. Impairment charges for 2005 and 2004 included the write-down of certain theatres to their fair values. Impairment charges for 2005 consisted of


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$6.4 million of theatre properties and $45.3 million of goodwill associated with theatre properties. Impairment charges for 2004 consisted of $2.0 million of theatre properties and $35.7 million of goodwill associated with theatre properties. During 2004, we recorded $620.5 million of goodwill as a result of the MDP Merger. We record goodwill at the theatre level which results in more volatile impairment charges on an annual basis due to changes in market conditions and box office performance and the resulting impact on individual theatres. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates are based on historical and projected operating performance as well as recent market transactions. See notes 8 and 9 to our consolidated financial statements.
 
Loss on Sale of Assets and Other.  We recorded a loss on sale of assets and other of $4.4 million during 2005 and $3.1 million during 2004. The loss recorded during 2005 was primarily due to property damages sustained at certain of our theatres due to the recent hurricanes along the Gulf of Mexico coast and the write-off of theatre equipment that was replaced. The loss recorded during 2004 consisted of a loss on sale of a land parcel, the write-off of a license agreement that was terminated, the write-off of theatre equipment that was replaced, and the write-off of theatre equipment and goodwill associated with theatres that closed during the year.
 
Interest Expense.  Interest costs incurred, including amortization of debt issue costs, was $84.1 million for 2005 compared to $70.7 million for 2004. The increase in interest expense is due to the issuance of the 93/4% senior discount notes on March 31, 2004, the amortization of the related debt issue costs and an increase in average interest rates on our variable rate debt.
 
Interest Income.  Interest income of $6.6 million was recorded for 2005 compared to $2.0 million for 2004. The increase in interest income is due to increased cash balances and increased average interest rates earned on such balances.
 
Loss on Early Retirement of Debt.  During 2004, we recorded a loss on early retirement of debt of $3.3 million, which represented the write-off of unamortized debt issue costs, unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees associated with the repurchase and subsequent retirement of our 81/2% senior subordinated notes and a portion of our 9% senior subordinated notes related to the MDP Merger. See note 12 to our consolidated financial statements.
 
Income Taxes.  Income tax expense of $9.4 million was recorded for 2005 compared to $14.6 million recorded for 2004. The 2005 and 2004 effective tax rates reflect the impact of purchase accounting adjustments and related goodwill impairment charges resulting from the MDP Merger. See Note 18 to our consolidated financial statements.
 
Income from Discontinued Operations, Net of Taxes.  We recorded income from discontinued operations, net of taxes, of $2.6 million during 2004. The income for 2004 includes the results of operations of our two United Kingdom theatres that were sold on April 30, 2004, the loss on sale of the two United Kingdom theatres, the results of operations of the eleven Interstate theatres that were sold on December 23, 2004 and the gain on sale of the Interstate theatres. See note 7 to our consolidated financial statements.
 
Liquidity and Capital Resources
 
Operating Activities
 
We primarily collect our revenues in cash, mainly through box office receipts and the sale of concession supplies. In addition, a majority of our theatres provide the patron a choice of using a credit card, in place of cash, which we convert to cash over a range of one to six 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. Cash provided by operating activities amounted to $123.1 million, $165.3 million and $155.7 million for the years ended December 31, 2004, 2005 and 2006, respectively. The increase in cash provided by operating activities from 2004 to 2005 is primarily the result of an increase in our income tax payable balance of approximately $20.2 million at December 31, 2005 compared to December 31, 2004 related to the timing of our income tax payments. Our accounts payable and accrued liabilities also increased approximately $14.1 million at December 31, 2005 compared to December 31, 2004 primarily due


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to the increase in business and resulting expenses in December 2005 compared with December 2004 and the timing of our payments of such liabilities.
 
Since the issuance of the 93/4% senior discount notes on March 31, 2004, interest has accreted rather than been paid in cash, which has benefited our operating cash flows for the periods presented. Interest will be paid in cash commencing September 15, 2009, at which time our operating cash flows will be impacted by these cash payments.
 
We have experienced a net loss for two of the last three fiscal years, which is primarily a result of our increased interest expense related to our capital structure, increased goodwill impairment expense related to the 2004 MDP Merger and the Century acquisition in 2006 combined with our policy of recording goodwill at the theatre level, which results in more volatile impairment charges on an annual basis due to changes in market conditions and box office performance and the resulting impact on individual theatres. During 2004, we recorded $620.5 million of goodwill as a result of the MDP Merger and during 2006, we recorded $658.5 million of goodwill as a result of the Century acquisition. Impairment expense related to goodwill was $35.7 million, $45.3 million and $13.6 million for the years ended December 31, 2004, 2005 and 2006, respectively. Interest expense was $70.7 million, $84.1 million and $109.3 million for the years ended December 31, 2004, 2005 and 2006, respectively. The increase in interest expense from 2004 to 2005 is due to the issuance of the 93/4% senior discount notes on March 31, 2004 in connection with the MDP Merger, the amortization of the related debt issue costs and an increase in average interest rates on our variable rate debt. The increase in interest expense from 2005 to 2006 is primarily due to the financing associated with the Century acquisition on October 5, 2006. Upon completion of this offering, we plan to use a portion of the proceeds to prepay a portion of our long-term debt, which will result in lower interest expense.
 
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 $116.9 million, $81.6 million and $631.7 million for the years ended December 31, 2004, 2005 and 2006, respectively. The increase in cash used for investing activities for the year ended December 31, 2006 is primarily due to the cash portion of the Century acquisition purchase price of $531.2 million (See Note 4 to our consolidated financial statements) and increased capital expenditures.
 
Capital expenditures for the years ended December 31, 2004, 2005 and 2006 were as follows (in millions):
 
                         
    New
  Existing
   
Period
  Theatres   Theatres   Total
 
Year Ended December 31, 2004
  $ 61.5     $ 19.5     $ 81.0  
Year Ended December 31, 2005
  $ 50.3     $ 25.3     $ 75.6  
Year Ended December 31, 2006
  $ 68.8     $ 38.3     $ 107.1  
 
During August 2004, our Brazilian partners exercised their option to cause us to purchase all of their shares of common stock of Cinemark Brasil S.A., which represented 47.2% of total common stock of Cinemark Brasil S.A. We purchased the partners’ shares of Cinemark Brasil S.A. for approximately $45.0 million with available cash on August 18, 2004. See note 5 to our consolidated financial statements for further discussion of this acquisition.
 
During September 2004, we purchased shares of common stock of Cinemark Mexico USA, Inc. from our Mexican partners, increasing our ownership interest in this subsidiary from 95.0% to 99.4%. The purchase price was approximately $5.4 million and was funded with available cash and borrowings on our revolving credit line of our former senior secured credit facility. See note 5 to our consolidated financial statements for further discussion of this acquisition.


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During July 2005, we purchased a 20.7% interest in NCM for approximately $7.3 million. Under the terms of the Exhibitor Services Agreement with NCM, we installed digital distribution technology for advertising and other non-film content in certain of our domestic theatres, which resulted in capital expenditures of $9.7 million during the year ended December 31, 2005 and $11.3 million during the year ended December 31, 2006. As a result of the Century acquisition, we owned approximately 25% of NCM and committed to install digital distribution technology in the majority of the theatres acquired, which we estimate will result in capital expenditures of approximately $6.6 million of which as of December 31, 2006, we had spent approximately $3.8 million. We expect to complete the installation of digital technology in our theatres for advertising and other non-film content at a cost of $2.8 million during the first quarter of 2007. See note 6 to our consolidated financial statements for further discussion of the NCM joint venture.
 
During October 2006, we completed the Century acquisition for a purchase price of approximately $681 million and the assumption of approximately $360 million of debt of Century. Of the total purchase price, $150 million consisted of the issuance of 10,024,776 shares of our common stock. We also incurred approximately $7.4 million in transaction costs. See note 4 to our consolidated financial statements for further discussion of this acquisition.
 
We continue to expand our U.S. theatre circuit. We opened 14 new theatres with 179 screens and acquired one theatre with 12 screens in an exchange for one of our theatres during the year ended December 31, 2006. We also completed the acquisition of Century with 77 theatres and 1,017 screens. At December 31, 2006, our total domestic screen count was 3,523 screens (12 of which are in Canada). At December 31, 2006, we had signed commitments to open 13 new theatres with 200 screens in domestic markets during 2007 and open eight new theatres with 126 screens subsequent to 2007. We estimate the remaining capital expenditures for the development of all of the 326 domestic screens will be approximately $123.0 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
 
We also continue to expand our international theatre circuit. We opened seven new theatres with 53 screens during the year ended December 31, 2006, bringing our total international screen count to 965 screens. At December 31, 2006, we had signed commitments to open four new theatres with 27 screens in international markets during 2007 and open three new theatres with 29 screens subsequent to 2007. We estimate the remaining capital expenditures for the development of all of the 56 international screens will be approximately $32.0 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 with cash flow from operations, borrowings under our new senior secured credit facility, subordinated note borrowings, proceeds from sale leaseback transactions and/or sales of excess real estate.
 
Financing Activities
 
Cash provided by (used for) financing activities, as reflected in the consolidated statements of cash flows, amounted to $(14.4) million, $(3.8) million and $440.0 million during the years ended December 31, 2004, 2005 and 2006, respectively. We may from time to time, subject to compliance with our debt instruments, purchase on the open market our debt securities depending upon the availability and prices of such securities.


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Long-term debt consisted of the following as of December 31, 2005 and 2006:
 
                 
    December 31, 2005     December 31, 2006  
 
Cinemark, Inc. 93/4% senior discount notes due 2014
  $ 423,978     $ 434,073  
Cinemark USA, Inc. 9% senior subordinated notes due 2013
    364,170       350,820  
Cinemark USA, Inc. term loan
    255,450       1,117,200  
Other long-term debt
    11,497       9,560  
                 
Total long-term debt
    1,055,095       1,911,653  
Less current portion
    6,871       14,259  
                 
Long-term debt, less current portion
  $ 1,048,224     $ 1,897,394  
                 
 
As of December 31, 2006, we had borrowings of $1,117.2 million outstanding on the term loan under our new senior secured credit facility, $434.1 million accreted amount at December 31, 2006 outstanding under our 93/4% senior discount notes and approximately $332.2 million aggregate principal amount outstanding under the 9% senior subordinated notes, respectively, and had $149.9 million in available borrowing capacity under our revolving credit facility. On a pro forma basis, we incurred $168.0 million of interest expense for the year ended December 31, 2006. We were in full compliance with all agreements governing our outstanding debt at December 31, 2006.
 
On March 30, 2007, we entered into interest rate swap agreements with five year terms with respect to a total of $500 million of our variable rate indebtedness. Under the terms of the interest rate swap agreements, we will pay interest at fixed rates of 4.918% and 4.922% and will receive interest at a variable rate based on 3-month LIBOR. The interest rate swap qualifies for cash flow hedge accounting treatment in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and, as such, we have effectively hedged our exposure to variability in the future cash flows attributable to the 3-month LIBOR on $500 million of our indebtedness.
 
As of December 31, 2006, our long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled interest payments under capital leases, outstanding letters of credit, obligations under employment agreements and purchase commitments for each period indicated are summarized as follows:
 
                                         
    Payments Due by Period
        Less Than
          After
    Total   One Year   1-3 Years   4-5 Years   5 Years
    (In millions)
 
Long-term debt(1)(2)
  $ 2,013.2     $ 14.3     $ 27.7     $ 23.6     $ 1,947.6  
Scheduled interest payments on long-term debt(3)
    953.4       112.6       237.2       322.6       281.0  
Operating lease obligations
    2,004.2       163.7       334.7       320.1       1,185.7  
Capital lease obligations
    115.8       3.6       8.7       10.4       93.1  
Scheduled interest payments on capital leases
    119.0       12.4       23.5       21.4       61.7  
Letters of credit
    0.1       0.1                    
Employment agreements
    9.3       3.1       6.2              
Purchase commitments(4)
    162.7       78.1       71.6       12.5       0.5  
                                         
Total
  $ 5,377.7     $ 387.9     $ 709.6     $ 710.6     $ 3,569.6  
                                         
 
 
(1) Includes the 93/4% senior discount notes in the aggregate principal amount at maturity of $535.6 million.
 
(2) On April 3, 2007, we completed a tender offer for approximately $332.0 million aggregate principal amount of our 9% senior subordinated notes. See note 26 of our consolidated financial statements.


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(3) Amounts include scheduled interest payments on fixed rate and variable rate debt agreements. Estimates for the variable rate interest payments were based on interest rates in effect on December 31, 2006. The average interest rates on our fixed rate and variable rate debt were 9.5% and 7.4%, respectively, as of December 31, 2006.
 
(4) Includes estimated remaining capital expenditures associated with the construction of new theatres to which we were committed as of December 31, 2006.
 
Cinemark, Inc. 93/4% Senior Discount Notes
 
On March 31, 2004, Cinemark, Inc. issued approximately $577.2 million aggregate principal amount at maturity of 93/4% senior discount notes due 2014. The gross proceeds at issuance of approximately $360.0 million were used to fund in part the MDP Merger. Interest on the notes accretes until March 15, 2009 up to their aggregate principal amount. Cash interest will accrue and be payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009. Due to Cinemark, Inc.’s holding company status, payments of principal and interest under these notes will be dependent on loans, dividends and other payments from its subsidiaries. Cinemark, Inc. may redeem all or part of the 93/4% senior discount notes on or after March 15, 2009.
 
On September 22, 2005, Cinemark, Inc. repurchased $1.8 million aggregate principal amount at maturity of its 93/4% senior discount notes as part of an open market purchase for approximately $1.3 million, including accreted interest. During May 2006, as part of four open market purchases, Cinemark, Inc. repurchased $39.8 million aggregate principal amount at maturity of its 93/4% senior discount notes for approximately $31.7 million, including accreted interest of $5.4 million. Cinemark, Inc. funded these transactions with available cash from its operations. As of December 31, 2006, the accreted principal balance of the notes was approximately $434.1 million and the aggregate principal amount at maturity will be approximately $535.6 million. The open market repurchase costs, including premiums paid and a portion of the unamortized debt issue costs of $0.1 million and $2.4 million related to the repurchase of the 93/4% senior discount notes, were recorded as a loss on early retirement of debt in our consolidated statements of operations for the years ended December 31, 2005 and 2006, respectively.
 
The indenture governing the 93/4% senior discount notes contains covenants that limit, among other things, dividends, transactions with affiliates, investments, sales of assets, mergers, repurchases of our capital stock, liens and additional indebtedness. The dividend restriction contained in the indenture prevents Cinemark, Inc. from paying a dividend or otherwise distributing cash to its stockholders unless (1) it is not in default, and the distribution would not cause it to be in default, under the indenture; (2) it would be able to incur at least $1.00 more of indebtedness without the ratio of its consolidated cash flow to its fixed charges (each as defined in the indenture, and calculated on a pro forma basis for the most recently ended four full fiscal quarters for which internal financial statements are available, using certain assumptions and modifications specified in the indenture, and including the additional indebtedness then being incurred) falling below two to one (the “senior notes debt incurrence ratio test”); and (3) the aggregate amount of distributions made since March 31, 2004, including the distribution proposed, is less than the sum of (a) half of its consolidated net income (as defined in the indenture) since February 11, 2003, (b) the net proceeds to it from the issuance of stock since April 2, 2004, and (c) certain other amounts specified in the indenture, subject to certain adjustments specified in the indenture. The dividend restriction is subject to certain exceptions specified in the indenture.
 
Upon certain specified types of change of control of Cinemark, Inc., Cinemark, Inc. would be required under the indenture to make an offer to repurchase all of the 93/4% senior discount notes at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if any, through the date of repurchase. This initial public offering is not considered a change of control under the indenture.
 
Cinemark USA, Inc. 9% Senior Subordinated Notes
 
On February 11, 2003, Cinemark USA, Inc. issued $150 million principal amount of 9% senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210 million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred to as the 9% senior


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subordinated notes. Interest is payable on February 1 and August 1 of each year. On April 6, 2004, as a result of the MDP Merger and in accordance with the terms of the indenture governing the 9% senior subordinated notes, Cinemark USA, Inc. made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount. Approximately $17.8 million aggregate principal amount of the 9% senior subordinated notes were tendered. The payment of the change of control price was funded with available cash by Cinemark USA, Inc. on June 1, 2004. The unamortized bond premiums paid, and other fees of $1.0 million related to the retirement of the 9% notes were recorded as a gain on early retirement of debt in our consolidated statements of operations for the period from April 2, 2004 to December 31, 2004.
 
During May 2006, as part of three open market purchases, Cinemark USA, Inc. repurchased $10.0 million aggregate principal amount of its 9% senior subordinated notes for approximately $11.0 million, including accrued and unpaid interest. The transactions were funded by Cinemark USA, Inc. with available cash from operations. As a result of the transactions, we recorded a loss on early retirement of debt of $0.1 million during the year ended December 31, 2006, which included the write-off of unamortized debt issue costs and unamortized bond premium related to the retired subordinated notes.
 
As of December 31, 2006, Cinemark USA, Inc. had outstanding approximately $332.2 million aggregate principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining 9% senior subordinated notes on or after February 1, 2008.
 
The 9% senior subordinated notes are general, unsecured obligations and are subordinated in right of payment to the new senior secured credit facility and other senior indebtedness. The notes are guaranteed by certain of Cinemark USA, Inc.’s domestic subsidiaries. The guarantees are subordinated to the senior indebtedness of the subsidiary guarantors, including their guarantees of the new senior secured credit facility. The notes are effectively subordinated to the indebtedness and other liabilities of Cinemark USA, Inc.’s nonguarantor subsidiaries.
 
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all of its then outstanding $332.2 million aggregate principal amount of 9% senior subordinated notes. In connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed amendments to the indenture to remove substantially all restrictive covenants and certain events of default. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased $332.0 million aggregate principal amount of 9% senior subordinated notes and executed a supplemental indenture removing substantially all of the restrictive covenants and certain events of default. On April 3, 2007, we purchased $66,000 of the 9% senior subordinated notes tendered after the early settlement date. Approximately $184,000 aggregate principal amount of 9% senior subordinated notes remain outstanding. We used the proceeds from the NCM transactions and cash on hand to purchase the 9% senior subordinated notes tendered pursuant to the tender offer and consent solicitation.
 
Other Debt Transactions in Connection with MDP Merger
 
On March 16, 2004, in connection with the MDP Merger, Cinemark USA, Inc. initiated a tender offer for its then outstanding $105 million aggregate principal amount 81/2% senior subordinated notes due 2008 and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. On March 25, 2004, a supplemental indenture removing substantially all of the covenants was executed and became effective on the date of the MDP Merger. In April 2004, Cinemark USA, Inc. redeemed approximately $94.2 million aggregate principal amount of 81/2% senior subordinated notes that were tendered, pursuant to the tender offer, utilizing a portion of the proceeds from its former senior secured credit facility. On April 14, 2004, after the expiration of the tender offer, Cinemark USA, Inc. redeemed an additional $50,000 aggregate principal amount of 81/2% senior subordinated notes that were tendered, leaving outstanding approximately $10.8 million aggregate principal amount of 81/2% senior subordinated notes. The unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees of $4.4 million related to the retirement of the 81/2% notes were recorded as a loss on early retirement of debt in our consolidated statements of operations for the period from April 2, 2004 to December 31, 2004.


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On April 6, 2004, as a result of the consummation of the MDP Merger and in accordance with the terms of the indenture governing its 9% senior subordinated notes, Cinemark USA, Inc. made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, at the date of purchase. Approximately $17.8 million in aggregate principal amount of the 9% senior subordinated notes were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004. Cinemark USA, Inc. paid the change of control price with available cash on June 1, 2004.
 
On July 28, 2004, Cinemark USA, Inc. provided notice to the holders of its remaining outstanding 81/2% senior subordinated notes due 2008 of its election to redeem all outstanding notes at a redemption price of 102.833% of the aggregate principal amount plus accrued interest. On August 27, 2004, Cinemark USA, Inc. redeemed the remaining $10.8 million aggregate principal amount of notes utilizing available cash and borrowings under its former revolving credit line. The unamortized bond premium, tender offer repurchase costs, including premiums paid, and other fees of $0.1 million related to the retirement of the 81/2% notes were recorded as a gain on early retirement of debt in our consolidated statements of operations for the period from April 2, 2004 to December 31, 2004.
 
New Senior Secured Credit Facility
 
On October 5, 2006, in connection with the Century acquisition, Cinemark USA, Inc., entered into a new senior secured credit facility. The new senior secured credit facility provides for a seven year term loan of $1.12 billion and a $150 million revolving credit line that matures in six years unless its 9% senior subordinated notes have not been refinanced by August 1, 2012 with indebtedness that matures no earlier than seven and one-half years after the closing date of the new senior secured credit facility, in which case the maturity date of the revolving credit line becomes August 1, 2012. The net proceeds of the term loan were used to finance a portion of the $531.2 million cash portion of the Century acquisition, repay in full the $253.5 million outstanding under the former senior secured credit facility, repay $360.0 million of existing indebtedness of Century and to pay for related fees and expenses. The revolving credit line was left undrawn at closing. The revolving credit line is used for our general corporate purposes.
 
At December 31, 2006, there was $1,117.2 million outstanding under the new term loan and no borrowings outstanding under the new revolving credit line. Approximately $149.9 million was available for borrowing under the new revolving credit line, giving effect to a $69,000 letter of credit outstanding. The average interest rate on outstanding borrowings under the new senior secured credit facility at December 31, 2006 was 7.4% per annum.
 
Under the term loan, principal payments of $2.8 million are due each calendar quarter beginning December 31, 2006 through September 30, 2012 and increase to $263.2 million each calendar quarter from December 31, 2012 to maturity at October 5, 2013. Prior to the amendment to the senior secured credit facility discussed below, the term loan accrued interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.75% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.75% to 2.00% per annum, in each case as adjusted pursuant to Cinemark USA, Inc.’s corporate credit rating. Borrowings under the revolving credit line bear interest, at Cinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 2.00% per annum, in each case as adjusted pursuant to Cinemark USA, Inc.’s consolidated net senior secured leverage ratio as defined in the credit agreement. Cinemark USA, Inc. is required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the new revolving credit line, payable quarterly in arrears, which rate decreases to 0.375% per annum for any fiscal quarter in which Cinemark USA, Inc.’s consolidated net senior secured leverage ratio on the last day of such fiscal quarter is less than 2.25 to 1.0.


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On March 14, 2007, Cinemark USA, Inc. amended its new senior secured credit facility to, among other things, modify the interest rate on the term loans under the new senior secured credit facility, modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 1.75%, per annum. In each case, the margin is a function of the corporate credit rating applicable to the borrower. The interest rate on the revolving credit line was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding under the new senior secured credit facility in an amount equal to the amount of the net cash proceeds received from the NCM transactions or from excess cash flows, and imposed a 1% prepayment premium for one year on certain prepayments of the term loans.
 
Cinemark USA, Inc.’s obligations under the new senior secured credit facility are guaranteed by Cinemark Holdings, Inc., Cinemark, Inc., CNMK Holding, Inc., and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of Cinemark, Inc., CNMK Holding, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.
 
The new senior secured credit facility contains usual and customary negative covenants for transactions of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and Cinemark Holdings, Inc.’s, Cinemark, Inc.’s and CNMK Holding, Inc.’s ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends, repurchase stock and voluntarily repurchase or redeem the 93/4% senior discount notes; and make capital expenditures and investments. The new senior secured credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the new senior secured credit facility. The dividend restriction contained in the new senior secured credit facility prevents us and any of our subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) we are not in default, and the distribution would not cause us to be in default, under the new senior secured credit facility; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since October 5, 2006, including the distribution currently proposed, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since October 5, 2006, (b) Cinemark USA, Inc.’s consolidated EBITDA minus two times its consolidated interest expense, each as defined in the new senior secured credit facility, since October 1, 2006, (c) $150,000,000 and (d) certain other amounts specified in the new senior secured credit facility, subject to certain adjustments specified in the new senior secured credit facility. The dividend restriction is subject to certain exceptions specified in the new senior secured credit facility.
 
The new senior secured credit facility also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain types of change of control, material money judgments and failure to maintain subsidiary guarantees. If an event of default occurs, all commitments under the new senior secured credit facility may be terminated and all obligations under the new senior secured credit facility could be accelerated by the lenders, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable. This initial public offering is not considered a change of control under the new senior secured credit facility.
 
Former Senior Secured Credit Facility
 
On April 2, 2004, Cinemark USA, Inc. amended its then existing senior secured credit facility in connection with the MDP Merger. The former senior secured credit facility provided for a $260 million seven year term loan and a $100 million six and one-half year revolving credit line. The net proceeds from the


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former senior secured credit facility were used to repay the term loan under its then existing senior secured credit facility of approximately $163.8 million and to redeem the approximately $94.2 million aggregate principal amount of its then outstanding $105 million aggregate principal amount 81/2% senior subordinated notes due 2008 that were tendered pursuant to the tender offer.
 
On October 5, 2006, in connection with the Century acquisition, the $253.5 million outstanding under the former senior secured credit facility was repaid in full with a portion of the proceeds from the new senior secured credit facility. The unamortized debt issue costs of $5.8 million related to the former senior secured credit facility that was repaid in full were recorded as a loss on early retirement of debt in our consolidated statements of operations for the year ended December 31, 2006.
 
Covenant Compliance
 
As of December 31, 2006, we are in full compliance with all agreements, including related covenants, governing our outstanding debt.
 
The indenture governing the 93/4% senior discount notes requires Cinemark, Inc. to have a fixed charge coverage ratio (as determined under the indenture) of at least 2.0 to 1.0 in order to incur additional indebtedness, issue preferred stock or make certain restricted payments, including dividends to us. Fixed charge coverage ratio is defined as the ratio of consolidated cash flow of Cinemark, Inc. and its subsidiaries to their fixed charges for the four most recent fiscal quarters, giving pro forma effect to certain events as specified in the indenture. Fixed charges is defined as consolidated interest expense of Cinemark, Inc. and its subsidiaries, subject to certain adjustments as provided in the indenture. Cinemark, Inc.’s failure to meet the fixed charge coverage ratio described above could restrict its ability to incur debt or make dividend payments. Cinemark, Inc.’s fixed charge coverage ratio under the indenture was 2.24 as of December 31, 2006, which was in excess of the 2.0 to 1.0 requirement described above.
 
We believe we will continue to be in compliance with the fixed charge coverage ratio as our interest expense is expected to decrease as a result of the repurchase of approximately $332 million aggregate principal amount of our 9% senior subordinated notes on March 20, 2007. In addition, upon completion of this offering, we plan to use a portion of the proceeds to prepay a portion of our remaining long-term debt, which will result in lower interest expense.
 
Ratings
 
We are rated by nationally recognized rating agencies. The significance of individual ratings varies from agency to agency. However, companies’ assigned ratings at the top end of the range have, in the opinion of certain rating agencies, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capability. Ratings are always subject to change and there can be no assurance that our current ratings will continue for any given period of time. A downgrade of our debt ratings, depending on the extent, could increase the cost to borrow funds. Below are our latest ratings per category, which were current as of April 1, 2007.
 
                 
Category
  Moody’s     Standard and Poor’s  
 
Corporate Rating
    B1       B  
Cinemark, Inc. 93/4% Senior Discount Notes
    B3       CCC+  
Cinemark USA, Inc. Senior Secured Credit Facility
    Ba3       B  
 
New Accounting Pronouncements
 
On May 18, 2006, the State of Texas passed a bill to replace the current franchise tax with a new margin tax to be effective January 1, 2008. We estimate the new margin tax will not have a significant impact on our income tax expense or its deferred tax assets and liabilities.
 
In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes an Interpretation of FASB No. 109” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with SFAS No. 109 “Accounting for


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Income Taxes”, and recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step is recognition: The enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in (1) an increase in a liability for income taxes payable or (2) a reduction of an income tax refund receivable or a reduction in a deferred tax asset or an increase in a deferred tax liability or both (1) and (2). The Company will adopt FIN 48 in the first quarter of 2007. The Company is currently evaluating the impact the interpretation may have on its consolidated financial position, cash flows and results of operations.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” Among other requirements, this statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are evaluating the impact of SFAS No. 157 on our consolidated financial statements.
 
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which provides interpretive guidance regarding the consideration given to prior year misstatements when determining materiality in current year financial statements. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB No. 108 did not have a significant impact on our consolidated financial statements.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating the impact of the adoption of this statement on our consolidated financial statements.
 
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.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.
 
Interest Rate Risk
 
An increase or decrease in interest rates would affect interest costs relating to our variable rate debt facilities. We and our subsidiaries are currently parties to variable rate debt facilities. At December 31, 2006,


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there was an aggregate of approximately $1,126.7 million of variable rate debt outstanding under these facilities. Based on the interest rates in effect on the variable rate debt outstanding at December 31, 2006, a 1% increase in market interest rates would increase our annual interest expense by approximately $11 million.
 
On March 30, 2007, we entered into interest rate swap agreements with five year terms with respect to a total of $500 million of our variable rate indebtedness. Under the terms of the interest rate swap agreements, we will pay interest at fixed rates of 4.918% and 4.922% and will receive interest at a variable rate based on 3-month LIBOR. The interest rate swap qualifies for cash flow hedge accounting treatment in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and, as such, we have effectively hedged our exposure to variability in the future cash flows attributable to the 3-month LIBOR on $500 million of our indebtedness.
 
The tables below provide information about our long-term fixed rate and variable rate debt agreements as of December 31, 2005 and 2006:
 
                                                                         
    Expected Maturity as of December 31, 2006  
                                                    Average
 
                                              Fair
    Interest
 
    2007     2008     2009     2010     2011     Thereafter     Total     Value     Rate  
 
Fixed rate
  $ 0.1     $     $     $     $     $ 886.4     $ 886.5     $ 812.1       9.5 %
Variable rate
    14.2       14.9       12.8       12.4       11.2       1,061.2       1,126.7       1,146.8       7.4 %
                                                                         
Total debt
  $ 14.3     $ 14.9     $ 12.8     $ 12.4     $ 11.2     $ 1,947.6     $ 2,013.2     $ 1,958.9          
                                                                         
 
                                                                         
    Expected Maturity as of December 31, 2005  
                                                    Average
 
                                              Fair
    Interest
 
    2006     2007     2008     2009     2010     Thereafter     Total     Value     Rate  
 
Fixed rate
  $ 0.1     $     $     $     $     $ 939.5     $ 939.6     $ 792.8       9.5 %
Variable rate
    6.8       5.5       4.3       4.1       185.1       61.1       266.9       268.4       6.6 %
                                                                         
Total debt
  $ 6.9     $ 5.5     $ 4.3     $ 4.1     $ 185.1     $ 1,000.6     $ 1,206.5     $ 1,061.2          
                                                                         
 
Foreign Currency Exchange Rate Risk
 
We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our international operations. Generally, we export from the U.S. certain of the equipment and construction interior finish items and other operating supplies used by our international subsidiaries. Principally all the revenues and operating expenses of our international subsidiaries are transacted in the country’s local currency. Generally accepted accounting principles in the U.S. require that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If our subsidiaries operate in a highly inflationary economy, generally accepted accounting principles in the U.S. require that the U.S. dollar be used as the functional currency for the subsidiary. Currency fluctuations result in us reporting exchange gains (losses) or foreign currency translation adjustments relating to our international subsidiaries depending on the inflationary environment of the country in which we operate. As of December 31, 2006, none of the international countries in which we operate were considered highly inflationary. Based upon our equity ownership in our international subsidiaries as of December 31, 2006, 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 $30 million.


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BUSINESS
 
Our Company
 
We are a leader in the motion picture exhibition industry with 396 theatres and 4,488 screens in the U.S. and Latin America. Our circuit is the third largest in the U.S. with 281 theatres and 3,523 screens in 37 states. We are the most geographically diverse circuit in Latin America with 115 theatres and 965 screens in 12 countries. During the year ended December 31, 2006, over 215 million patrons attended our theatres, when giving effect to the Century acquisition as of the beginning of the year. Our modern theatre circuit features stadium seating for approximately 73% of our screens.
 
We selectively build or acquire new theatres in markets where we can establish and maintain a strong market position. We believe our portfolio of modern theatres provides a preferred destination for moviegoers and contributes to our significant cash flows from operating activities. Our significant presence in the U.S. and Latin America has made us an important distribution channel for movie studios, particularly as they look to increase revenues generated in Latin America. Our market leadership is attributable in large part to our senior executives, who average approximately 32 years of industry experience and have successfully navigated us through multiple business cycles.
 
We grew our total revenue per patron at the highest CAGR during the last three fiscal years among the three largest motion picture exhibitors in the U.S. Revenues, operating income and net income for the year ended December 31, 2006 were $1,220.6 million, $127.4 million and $0.8 million, respectively. On a pro forma basis for the Century acquisition, revenues, operating income and net loss for the year ended December 31, 2006 were $1,612.1 million, $175.6 million and $(3.5) million, respectively. At December 31, 2006, we had cash and cash equivalents of $147.1 million and long-term debt, excluding capital leases, of $1,911.7 million. Approximately $1,126.7 million, or 59%, of our total long-term debt accrues interest at variable rates.
 
On April 2, 2004, an affiliate of MDP acquired approximately 83% of the capital stock of Cinemark, Inc., pursuant to which a newly formed subsidiary owned by an affiliate of MDP was merged with and into Cinemark, Inc. with Cinemark, Inc. continuing as the surviving corporation. Simultaneously with the merger, MDP purchased shares of common stock of Cinemark, Inc. for approximately $518.2 million in cash. Management, including Lee Roy Mitchell, Chairman and then Chief Executive Officer, retained approximately 17% ownership interest in Cinemark, Inc. Concurrently with the closing of the MDP Merger, we entered into a number of financing transactions, which significantly increased our indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
 
In December 2004, MDP sold approximately 10% of its stock in Cinemark, Inc., to outside investors and in July 2005, Cinemark, Inc. issued additional shares to another outside investor.
 
Cinemark Holdings, Inc. was formed on August 2, 2006. On August 7, 2006, the Cinemark, Inc. stockholders entered into a share exchange agreement pursuant to which they agreed to exchange their shares of Class A common stock for an equal number of shares of common stock of Cinemark Holdings, Inc. The Cinemark Share Exchange and the Century Theatres, Inc. acquisition were completed on October 5, 2006. Prior to October 5, 2006, Cinemark Holdings, Inc. had no assets, liabilities or operations. On October 5, 2006, Cinemark, Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
 
As of December 31, 2006, MDP owned approximately 66% of our capital stock, Lee Roy Mitchell and the Mitchell Special Trust collectively owned approximately 14%, Syufy Enterprises, LP owned approximately 11%, outside investors owned approximately 8%, and certain members of management owned the remaining 1%.
 
Acquisition of Century Theatres, Inc.
 
On October 5, 2006, we completed the acquisition of Century, a national theatre chain headquartered in San Rafael, California with 77 theatres and 1,017 screens in 12 states, for a purchase price of approximately $681 million and the assumption of approximately $360 million of Century debt. The acquisition of Century


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combines two family founded companies with common operating philosophies and cultures, strong operating performances and complementary geographic footprints. The key strategic benefits of the acquisition include:
 
High Quality Theatres with Strong Operating Performance.  Century’s theatre circuit is among the most modern in the U.S. based on 77% of their screens featuring stadium seating. Prior to the Century acquisition, Century achieved strong performance with revenues of $516.0 million, operating income of $59.9 million and net income of $18.1 million for its fiscal year ended September 28, 2006. These results are due in part to Century’s operating philosophy which is similar to Cinemark’s.
 
Strengthens Our Geographic Footprint.  The Century acquisition enhances our geographic diversity, strengthens our presence in key large- and medium-sized metropolitan and suburban markets such as Las Vegas, the San Francisco Bay Area and Tucson, and complements our existing footprint. The increased number of theatres and markets diversifies our revenues and broadens the composition of our overall portfolio.
 
Leading Share in Attractive Markets.  With the Century acquisition, we have a leading market share in a large number of attractive metropolitan and suburban markets. For the year ended December 31, 2006, on a pro forma basis, we ranked either first or second by box office revenues in 28 out of our top 30 U.S. markets, including Chicago, Dallas, Houston, Las Vegas, Salt Lake City and the San Francisco Bay Area.
 
Participation in National CineMedia
 
In March 2005, Regal and AMC formed NCM and on July 15, 2005, we joined NCM as one of the founding members. NCM operates the largest in-theatre network in the U.S. which delivers digital advertising content and digital non-film event content to the screens and lobbies of the three largest motion picture companies in the country. The digital projectors currently used to display advertising will not be used to exhibit digital film content or digital cinema. NCM’s primary activities that impact us include the following activities:
 
  •  Advertising:  NCM develops, produces, sells and distributes a branded, pre-feature entertainment and advertising program called “FirstLook,” along with an advertising program for its LEN and various marketing and promotional products in theatre lobbies;
 
  •  CineMeetings:  NCM provides live and pre-recorded networked and single-site meetings and events in the theatres throughout its network; and
 
  •  Digital Programming Events:  NCM distributes live and pre-recorded concerts, sporting events and other non-film entertainment programming to theatres across its digital network.
 
We believe that the reach, scope and digital delivery capability of NCM’s network provides an effective platform for national, regional and local advertisers to reach a young, affluent and engaged audience on a highly targeted and measurable basis.
 
On February 13, 2007, we received $389.0 million in connection with NCM, Inc.’s initial public offering and related transactions. As a result of these transactions, we will no longer receive a percentage of NCM’s revenue but rather a monthly theatre access fee which we expect will reduce the contractual amounts required to be paid to us by NCM. In addition, we expect to receive mandatory quarterly distributions of excess cash from NCM. Prior to the initial public offering of NCM, Inc. common stock, our ownership interest in NCM was approximately 25% and subsequent to the completion of the offering we owned a 14% interest in NCM.
 
In our international markets, we generally outsource our screen advertising to local companies who have established relationships with local advertisers that provide similar benefits as NCM.
 
Motion Picture Industry Overview
 
Domestic Markets
 
The U.S. motion picture exhibition industry has a track record of long-term growth, with box office revenues growing at a CAGR of 5.7% over the last 35 years. Against this background of steady long-term growth, the exhibition industry has experienced periodic short-term increases and decreases in attendance and


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consequently box office revenues. In 2006 the motion picture exhibition industry experienced a marked improvement over 2005 with box office revenue increasing 5.5%, after a decrease of 5.7% in 2005 over the prior year. Strong revenue and attendance growth has been driven by a steadily growing number of movie releases, which, according to MPAA, reached an all-time high of 607 in 2006, up 11%. We believe this trend will continue into 2007 with a strong slate of franchise films, such as Spider-Man 3, Shrek the Third, Pirates of the Caribbean: At World’s End and Harry Potter and the Order of the Phoenix.
 
The following table represents the results of a survey by MPAA Worldwide Market Research outlining the historical trends in U.S. box office revenues for the ten year period from 1996 to 2006.
 
                         
    U.S. Box
          Average
 
    Office
          Ticket
 
Year
  Revenues     Attendance     Price  
    ($ in millions)     (in millions)        
 
1996
  $ 5,912       1,339     $ 4.42  
1997
  $ 6,366       1,388     $ 4.59  
1998
  $ 6,949       1,481     $ 4.69  
1999
  $ 7,448       1,465     $ 5.08  
2000
  $ 7,661       1,421     $ 5.39  
2001
  $ 8,413       1,487     $ 5.66  
2002
  $ 9,520       1,639     $ 5.81  
2003
  $ 9,489       1,574     $ 6.03  
2004
  $ 9,539       1,536     $ 6.21  
2005
  $ 8,991       1,403     $ 6.41  
2006
  $ 9,488       1,449     $ 6.55  
 
International Markets
 
International growth has also been strong. According to MPAA, global box office revenues grew steadily at a CAGR of 8.2% from 2003 to 2006 as 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 PwC, Latin America’s estimated box office revenue CAGR was 8.4% over the same period.
 
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 revitalized the local film industry and, in Mexico, Brazil and Argentina, successful local film product often provides incremental growth opportunities.
 
We believe many international markets for theatrical exhibition have historically been underserved and that certain of these markets, especially those in Latin America, will continue to experience growth as additional modern stadium-styled theatres are introduced.
 
Drivers of Continued Industry Success
 
We believe the following market trends will drive the continued growth and strength of our industry:
 
Importance of Theatrical Success in Establishing Movie Brands and Subsequent Markets.  Theatrical exhibition is the primary distribution channel for new motion picture releases. A successful theatrical release which “brands” a film is one of the major factors in determining its success in “downstream” markets, such as home video, DVD, and network, syndicated and pay-per-view television.
 
Increased Importance of International Markets for Box Office Success.  International markets are becoming an increasingly important component of the overall box office revenues generated by Hollywood films, accounting for $16 billion, or 63% of 2006 total worldwide box office revenues according to MPAA


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with many international blockbusters such as Pirates of the Caribbean: Dead Man’s Chest, The Da Vinci Code, Ice Age: The Meltdown, and Mission Impossible III. With continued growth of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America will become even more significant.
 
Increased Investment in Production and Marketing of Films by Distributors.  As a result of the additional revenues generated by domestic, international and “downstream” markets, studios have increased production and marketing expenditures at a CAGR of 5.5% and 6.3%, respectively, since 1995. Over the last three years, third party funding sources such as hedge funds have also provided over $5 billion of incremental capital to fund new film content production. This has led to an increase in “blockbuster” features, which attract larger audiences to theatres.
 
Stable Long-term Attendance Trends.  We believe that long-term trends in motion picture attendance in the U.S. will continue to benefit the industry. Despite historical economic and industry cycles, attendance has grown at a 1.6% CAGR over the last 35 years to 1.45 billion patrons in 2006. As reported by MPAA, 80% of moviegoers stated their overall theatre experience in 2006 was time and money well spent. Additionally, younger moviegoers in the U.S. continue to be the most frequent patrons.
 
Reduced Seasonality of Revenues.  Box office revenues have historically been highly seasonal, with a majority of blockbusters being released during the summer and year-end holiday season. In recent years, the seasonality of motion picture exhibition has become less pronounced as studios have begun to release films more evenly throughout the year. This benefits exhibitors by allowing more effective allocation of the fixed cost base throughout the year.
 
Convenient and Affordable Form of Out-Of-Home Entertainment.  Moviegoing continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an estimated average ticket price in the U.S. of $6.55 in 2006. Average prices in 2006 for other forms of out-of-home entertainment in the U.S., including sporting events and theme parks, range from approximately $22.40 to $61.60 per ticket according to MPAA. Movie ticket prices have risen at approximately the rate of inflation, while ticket prices for other forms of out-of-home entertainment have increased at higher rates.
 
Competitive Strengths
 
We believe the following strengths allow us to compete effectively.
 
Strong Operating Performance and Discipline.  We generated operating income and net income of $127.4 million and $0.8 million, respectively, for the year ended December 31, 2006. Our strong operating performance is a result of our financial discipline, such as negotiating favorable theatre level economics and controlling theatre operating costs. We believe the Century acquisition will result in additional revenues and cost efficiencies to further improve our operating performance.
 
Leading Position in Our U.S. Markets.  We have a leading share in the U.S. metropolitan and suburban markets we serve. For the year ended December 31, 2006, on a pro forma basis we ranked either first or second based on box office revenues in 28 out of our top 30 U.S. markets, including Chicago, Dallas, Houston, Las Vegas, Salt Lake City and the San Francisco Bay Area. On average, the population in over 80% of our domestic markets, including Dallas, Las Vegas and Phoenix, is expected to grow 61% faster than the average growth rate of the U.S. population over the next five years, as reported by BIAfn and U.S. census data.
 
Strategically Located in Heavily Populated Latin American Markets.  Since 1993, we have invested throughout Latin America due to the growth potential of the region. We operate 115 theatres and 965 screens in 12 countries, generating revenues of $285.9 million for the year ended December 31, 2006. We have successfully established a significant presence in major cities in the region, with theatres in twelve of the fifteen largest metropolitan areas. With the most geographically diverse circuit in Latin America, we are an important distribution channel to the movie studios. The region’s improved economic climate and rising disposable income are also a source for growth. Over the last three years, the CAGR of our international revenue has been greater than that of our U.S. operations. We are well-positioned with our modern, large-


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format theatres and new screens to take advantage of this favorable economic environment for further growth and diversification of our revenues.
 
Modern Theatre Circuit.  We have one of the most modern theatre circuits in the industry which we believe makes our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in 79% of our first run auditoriums, the highest percentage among the three largest U.S. exhibitors, and 81% of our international screens also feature stadium seating. During 2006, we continued our organic expansion by building 210 screens. We currently have commitments to build 382 additional screens over the next four years.
 
Strong Balance Sheet with Significant Cash Flow from Operating Activities.  We generate significant cash flow from operating activities as a result of several factors, including management’s ability to contain costs, predictable revenues and a geographically diverse, modern theatre circuit requiring limited maintenance capital expenditures. Additionally, a strategic advantage, which enhances our cash flows, is our ownership of land and buildings. We own 45 properties with an aggregate value in excess of $350 million. For the year ended December 31, 2006, as adjusted to give effect to our repurchase of approximately $332 million of our 9% senior subordinated notes and this offering, our net debt is approximately $1,283.1 million. We believe our expected level of cash flow generation will provide us with the strategic and financial flexibility to pursue growth opportunities, support our debt payments and make dividend payments to our stockholders.
 
Strong Management with Focused Operating Philosophy.  Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Alan Stock, President and Chief Operating Officer Timothy Warner and Chief Financial Officer Robert Copple, our management team has an average of approximately 32 years of theatre operating experience executing a focused strategy which has led to strong operating results. Our operating philosophy has centered on providing a superior viewing experience and selecting less competitive markets or clustering in strategic metropolitan and suburban markets in order to generate a high return on invested capital. This focused strategy includes strategic site selection, building appropriately-sized theatres for each of our markets, and managing our properties to maximize profitability. As a result, we grew our admissions and concessions revenues per patron at the highest CAGR during the last three fiscal years among the three largest motion picture exhibitors in the U.S.
 
Our Strategy
 
We believe our operating philosophy and management team will enable us to continue to enhance our leading position in the motion picture exhibition industry. Key components of our strategy include:
 
Establish and Maintain Leading Market Positions.  We will continue to seek growth opportunities by building or acquiring modern theatres that meet our strategic, financial and demographic criteria. We will continue to focus on establishing and maintaining a leading position in the markets we serve.
 
Continue to Focus on Operational Excellence.  We will continue to focus on achieving operational excellence by controlling theatre operating costs. Our margins reflect our track record of operating efficiency.
 
Selectively Build in Profitable, Strategic Latin American Markets.  Our international expansion will continue to focus primarily on Latin America through construction of American-style, state-of-the-art theatres in major urban markets.
 
Recent Developments
 
National CineMedia
 
In March 2005, Regal and AMC formed NCM, and on July 15, 2005, we joined NCM, as one of the founding members. NCM operates the largest digital in-theatre network in the U.S. for cinema advertising and non-film events and combines the cinema advertising and non-film events businesses of the three largest motion picture exhibition companies in the country. On February 13, 2007, NCM, Inc., a newly formed entity that now serves as a member and the sole manager of NCM, completed an initial public offering of its common stock. In connection with the NCM, Inc. public offering, NCM, Inc. became a member and the sole manager of NCM, and we amended the operating agreement of NCM and the Exhibitor Services Agreement pursuant to which NCM provides advertising, promotion and event services to our theatres.


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Prior to the initial public offering of NCM, Inc. common stock, our ownership interest in NCM was approximately 25% and subsequent to the completion of the offering we owned a 14% interest in NCM. Prior to pricing the initial public offering of NCM, Inc., NCM completed a recapitalization whereby (1) each issued and outstanding Class A unit of NCM was split into 44,291 Class A units, and (2) following such split of Class A Units, each issued and outstanding Class A Unit was recapitalized into one common unit and one preferred unit. As a result, we received 14,159,437 common units and 14,159,437 preferred units. All existing preferred units of NCM, or 55,850,951 preferred units, held by us, Regal, AMC were redeemed on a pro rata basis on February 13, 2007. NCM utilized the proceeds of its new $725.0 million term loan facility and a portion of the proceeds it received from NCM, Inc. from the initial public offering to redeem all of its outstanding preferred units. Each preferred unit was redeemed by NCM for $13.7782 and we received approximately $195.1 million as payment in full for redemption of all of our preferred units in NCM. Upon payment of such amount, each preferred unit was cancelled and the holders of the preferred units ceased to have any rights with respect to the preferred units.
 
NCM has also paid us a portion of the proceeds it received from NCM, Inc. in the initial public offering for agreeing to modify NCM’s payment obligation under the prior exhibitor services agreement. The modification agreed to by us reflects a shift from circuit share expense under the prior exhibitor service agreement, which obligated NCM to pay us a percentage of revenue, to the monthly theatre access fee described below. The theatre access fee will significantly reduce the contractual amounts paid to us by NCM. In exchange for our agreement to so modify the agreement, NCM paid us approximately $174 million upon execution of the Exhibitor Services Agreement on February 13, 2007. Regal and AMC similarly altered their exhibitor services arrangements with NCM.
 
At the closing of the initial public offering, the underwriters exercised their over-allotment option to purchase additional shares of common stock of NCM, Inc. at the initial public offering price, less underwriting discounts and commissions. In connection with the over-allotment option exercise, Regal, AMC and us each sold to NCM, Inc. common units of NCM on a pro rata basis at the initial public offering price, less underwriting discounts and expenses. We sold 1,014,088 common units to NCM, Inc. for proceeds of $19.9 million, and upon completion of this sale of common units, we owned 13,145,349 common units of NCM, or a 14% interest. In the future, we expect to receive mandatory quarterly distributions of excess cash from NCM.
 
In consideration for NCM’s exclusive access to our theatre attendees for on-screen advertising and use of off-screen locations within our theatres for the lobby entertainment network and lobby promotions, we will receive a monthly theatre access fee under the Exhibitor Services Agreement. The theatre access fee is composed of a fixed payment per patron, initially $0.07, and a fixed payment per digital screen, which may be adjusted for certain enumerated reasons. The payment per theatre patron will increase by 8% every five years, with the first such increase taking effect after 2011, and the payment per digital screen, initially $800 per digital screen per year, will increase annually by 5%, beginning after 2007. The theatre access fee paid in the aggregate to Regal, AMC and us will not be less than 12% of NCM’s Aggregate Advertising Revenue (as defined in the Exhibitor Services Agreement), or it will be adjusted upward to reach this minimum payment. Additionally, with respect to any on-screen advertising time provided to our beverage concessionaire, we are required to purchase such time from NCM at a negotiated rate. The Exhibitor Services Agreement has, except with respect to certain limited services, a term of 30 years.
 
We used the proceeds from the Exhibitor Services Agreement modification payment, the preferred unit redemption and the sale of common units to NCM, Inc. in connection with the exercise of the over-allotment option and cash on hand to purchase our 9% senior subordinated notes issued by Cinemark USA, Inc. pursuant to an offer to purchase and consent solicitation.
 
Digital Cinema Implementation Partners LLC
 
On February 12, 2007, we, along with AMC and Regal, entered into a joint venture known as Digital Cinema Implementation Partners LLC to explore the possibility of implementing digital cinema in our theatres and to establish agreements with major motion picture studios for the implementation and financing of digital cinema. In addition, DCIP has entered into a digital cinema services agreement with NCM for purposes of


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assisting DCIP in the development of digital cinema systems. Future digital cinema developments will be managed by DCIP, subject to certain approvals by us, AMC and Regal.
 
Theatre Operations
 
As of December 31, 2006, we operated 396 theatres and 4,488 screens in 37 states, one Canadian province and 12 Latin American countries. Our theatres in the U.S. are primarily located in mid-sized U.S. markets, including suburbs of major metropolitan areas. We believe these markets are generally less competitive and generate high, stable margins. Our theatres in Latin America are primarily located in major metropolitan markets, which we believe are generally underscreened. The following tables summarize the geographic locations of our theatre circuit as of December 31, 2006.
 
  United States Theatres
 
                 
    Total
    Total
 
State
  Theatres     Screens  
 
Texas
    75       969  
California
    64       729  
Ohio
    19       207  
Utah
    12       155  
Nevada
    9       138  
Colorado
    7       111  
Illinois
    8       106  
Arizona
    7       98  
Kentucky
    7       83  
Oregon
    6       82  
Pennsylvania
    5       73  
Louisiana
    5       68  
Oklahoma
    6       67  
New Mexico
    4       54  
Virginia
    4       52  
Michigan
    3       50  
Indiana
    5       46  
North Carolina
    4       41  
Mississippi
    3       41  
Florida
    2       40  
Iowa
    4       39  
Arkansas
    3       30  
Georgia
    2       27  
New York
    2       27  
South Carolina
    2       22  
Kansas
    1       20  
Alaska
    1       16  
New Jersey
    1       16  
Missouri
    1       14  
South Dakota
    1       14  
Tennessee
    1       14  
Wisconsin
    1       14  
Massachusetts
    1       12  
Delaware
    1       10  


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    Total
    Total
 
State
  Theatres     Screens  
 
West Virginia
    1       10  
Minnesota
    1       8  
Montana
    1       8  
                 
Total United States
    280       3,511  
Canada
    1       12  
                 
Total
    281       3,523  
                 
 
  International Theatres
 
                 
    Total
    Total
 
Country
  Theatres     Screens  
 
Brazil
    36       311  
Mexico
    30       293  
Chile
    12       91  
Central America(1)
    12       80  
Argentina
    9       77  
Colombia
    8       50  
Ecuador
    4       26  
Peru
    4       37  
                 
Total
    115       965  
                 
 
 
(1) Includes Honduras, El Salvador, Nicaragua, Costa Rica and Panama.
 
We first entered Latin America with the opening of theatres in Chile in 1993 and Mexico in 1994. Since 1993, through our focused international strategy, we have developed into the most geographically diverse circuit in Latin America. We presently have theatres in twelve of the fifteen largest metropolitan areas in Latin America. We have balanced our risk through a diversified international portfolio with operations in twelve countries in Latin America. In addition, we have achieved significant scale in Mexico and Brazil, the two largest Latin American economies.
 
We believe that certain markets within Latin America continue to be underserved and penetration of movie screens per capita in Latin American markets is substantially lower than in the U.S. and European markets. We will continue to build and expand our presence in underserved international markets, with emphasis on Latin America, and fund our expansion primarily with cash flow generated in those markets. We are able to mitigate exposure in the costs of our international operations to currency fluctuations by using local currencies to fund substantially all aspects of our operations, including film and facility lease expense. Our geographic diversity throughout Latin America has allowed us to maintain consistent revenue growth notwithstanding currency fluctuations that may affect any particular market.
 
Film Licensing
 
In the U.S., we license films 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 revenues potential of a particular market or region. A film zone can range from a radius of two to five miles in major metropolitan and suburban areas to up to fifteen miles in small towns. We currently operate theatres in 228 first run film zones in the U.S. New film releases are licensed at the discretion of the film distributors. As the sole exhibitor in approximately 84% of the first run film zones in which we operate, we have maximum access to film product, which allows us to select those pictures we believe will be the most

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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.
 
In the international markets in which we operate, distributors do not allocate film to a single theatre in a geographic film zone, but allow competitive theatres to play the same films simultaneously. In these markets, films are still licensed on a theatre-by-theatre and film-by-film basis. 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 competing theatres play the same films. Of the 965 screens we operate in international markets approximately 86% have no direct competition from other theatres.
 
Our film rental licenses in the U.S. 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% to 70% of box office receipts, 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. Internationally, our film rental licenses are based on mutually agreed upon firm terms established prior to the opening of the picture. The film rental percentages paid by our international locations are generally lower than in the U.S. markets and gradually decline over a period of several weeks.
 
With the Century acquisition, we now operate nine art theatres with 36 screens operated under the Cine-Arts brand. Cine-Arts will allow us to take advantage of the growth in the art and independent market driven by the more mature patron. There has been an increased interest in art, foreign and documentary films. High profile film festivals, such as the Sundance festival, have contributed to growth and interest in this genre. Recent hits such as Brokeback Mountain and Little Miss Sunshine have demonstrated the box office potential of art and independent films.
 
Concessions
 
Concession sales are our second largest revenue source, representing approximately 31% of total pro forma revenues for the year ended December 31, 2006. 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 combos are launched on a regular basis to increase average concession purchases as well as to attract new buyers. Kids’ meals are also offered and packaged towards younger patrons.
 
  •  Staff training.  Employees are continually trained in “suggestive-selling” and “upselling” techniques. This training occurs on-the-job. Consumer promotions conducted at the concession stand always include a motivational element which rewards theatre staff for exceptional combo sales during the period.
 
A formalized crew program is in place to reward front line employees who excel in delivering rapid service. The Speed of Service (SOS) program is held annually to kick off peak business periods and refresh training and the importance of speed at the front line.
 
Also, a year-round crew incentive called Pour More & Score is in place. All concession programs include a points-earning opportunity designed to primarily drive sales of drinks and popcorn. Theatres compete against their own prior year performance in an effort to win staff prizes.


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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. Century’s concession areas are designed as individual stations which allow customers to select their choice of refreshments and proceed to the cash register. This design permits efficient service, enhanced choice and superior visibility of concession items. As we continue to integrate Century into our operations, we will evaluate this concession design against our historical design to determine the most optimum layout.
 
  •  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 warehousing and delivery of concession goods on a weekly basis.
 
Marketing
 
In the U.S., we rely on newspaper display advertisements, substantially paid for by film distributors, newspaper directory film schedules, generally paid for by us, and Internet advertising, which has emerged as a strong media source to inform patrons of film titles and showtimes. 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. We have successfully used the Internet to provide patrons access to movie times, the ability to buy and print their tickets at home and purchase gift cards and other advanced sale-type certificates. The Internet is becoming a popular way to check movie showtimes and may, over time, replace the traditional newspaper advertisements. Many newspapers add an Internet component to their advertising and add movie showtimes to their Internet sites. We use monthly web contests with film distributor partners to drive traffic to our website and ensure that customers visit often. Over time, the Internet may allow us to reduce our advertising costs associated with newspaper directory advertisements. In addition, we work on a regular basis with all of the film distributors to promote their films with local, regional and national programs that are exclusive to our theatres. These may involve customer contests, cross-promotions with third parties, media on-air tie-ins and other means to increase traffic to a particular film showing at one of our theatres.
 
Internationally, we partner with large multi-national corporations, in the larger metropolitan areas in which we have theatres, to promote our brand, our image and to increase attendance levels at our theatres. Our customers are encouraged to register on our website to receive weekly information via e-mail for showtime information, invitations to special screenings, sponsored events and promotional information. In addition, some of our customers request to receive showtime information via their cellular phones.
 
Our marketing department also focuses on maximizing ancillary revenue generating opportunities, which include the following: sale of our gift cards, gift certificates and discount tickets, which are called SuperSavers. We market these programs to such business representatives as realtors, human resource managers, incentive program managers and hospital and pharmaceutical personnel. Gift cards and gift certificates can be purchased at our theatres. Gift cards, gift certificates and SuperSavers are also sold online, via phone, fax, email and regular mail and fulfilled in-house from the local corporate office.
 
Online Sales
 
Our patrons may purchase advance tickets for all of our domestic screens and 302 of our international screens by accessing our corporate website at www.cinemark.com or www.fandango.com. Our Internet initiatives help improve customer satisfaction, allowing patrons who purchase tickets over the Internet to often bypass lines at the box office by printing their tickets at home or picking up their tickets at kiosks in the theatre lobby.


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Point of Sale Systems
 
We developed our own proprietary point of sale system to further enhance our ability to maximize revenues, control costs and efficiently manage operations. The system, which is installed in all of our U.S. theatres and some of our international theatres, provides corporate management with real-time admissions and concession revenues reports that allow managers to make timely changes to movie schedules, including extending film runs, increasing the number of screens on which successful movies are being played, or substituting films when gross receipts do not meet expectations. Real-time seating and box office information is available to box office personnel, preventing overselling of a particular film and providing faster and more accurate responses to customer inquiries regarding showtimes and available seating. The system tracks concession sales, provides in-theatre inventory reports allowing for efficient inventory management and control, has multiple language capabilities, offers numerous ticket pricing options, integrates Internet ticket sales and processes credit card transactions. Barcode scanners, pole displays, touch screens, credit card readers and other equipment can be integrated with the system to enhance its functions. In some of our international locations, we use point of sale systems that have been developed by third parties for the motion picture industry, which have been certified as compliant with applicable governmental regulations.
 
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, regional, national and international exhibitors with respect to attracting patrons, licensing films and developing new theatre sites.
 
We are the sole exhibitor in approximately 84% of the 228 first run film zones in which our first run U.S. theatres operate. In film zones where there is no direct competition from other theatres, we select those films we believe will be the most successful from among those offered to us by film distributors. Where there is competition, we usually license films based on an allocation process. Of the 965 screens we operate outside of the U.S., approximately 86% of those screens have no direct competition from other theatres. The principal competitive factors with respect to film licensing are:
 
  •  location, accessibility and capacity 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 ticket prices at first run and discount theatres are competitive with ticket prices of competing theatres.
 
We also face competition from a number of other motion picture exhibition delivery systems, such as DVD, network and syndicated television, video on-demand, pay-per-view television and downloading utilizing the Internet. We do not believe that these additional distribution channels have adversely affected theatre attendance; however, we can give no assurance that these or other alternative delivery systems will not have an adverse impact on attendance in the future. We also face competition from other forms of entertainment competing for the public’s leisure time and disposable income, such as concerts, theme parks and sporting events.
 
Corporate Operations
 
We maintain a corporate office in Plano, Texas that provides oversight for our domestic and international theatres. Domestic operations include 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 U.S. operations are divided into sixteen regions, each of which is headed by a region leader.
 
International personnel in the corporate office include our President of Cinemark International, L.L.C. and directors/vice presidents in charge of film licensing, marketing, concessions, theatre operations support,


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theatre maintenance and construction, real estate, legal, operational audit, information systems and accounting. We have a chief financial officer in both Brazil and Mexico, which are our two largest international markets. 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, human resources, operations and accounting. 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.
 
Employees
 
We have approximately 13,600 employees in the U.S., approximately 10% of whom are full time employees and 90% of whom are part time employees. We have approximately 5,100 employees in our international markets, approximately 47% of whom are full time employees and approximately 53% of whom are part time employees. Nineteen U.S. employees are represented by unions under collective bargaining agreements. Some of our international locations are subject to union regulations. We regard our relations with our employees to be 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 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 a supply of films by entering long-term arrangements with major distributors, but must negotiate for licenses on a theatre-by-theatre and film-by-film basis.
 
We are subject to various general regulations applicable to our operations including the ADA. We develop new theatres to be accessible to the disabled and we believe we are in substantial compliance with current regulations relating to accommodating the disabled. Although we believe that our theatres comply with the ADA, we have been a party to lawsuits which claim that our handicapped seating arrangements do not comply with the ADA or that we are required to provide captioning for patrons who are deaf or are severely hearing impaired.
 
Our theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship, health and sanitation requirements and licensing.
 
Financial Information About Geographic Areas
 
We have operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia, which are reflected in the consolidated financial statements. Below is a breakdown of select financial information by geographic area:
 
                                   
    Period from
      Period from
             
    January 1, 2004
      April 2, 2004
    Year Ended
    Year Ended
 
    to
      to
    December 31,
    December 31,
 
    April 1, 2004
      December 31, 2004
    2005
    2006
 
    (Predecessor)       (Successor)     (Successor)     (Successor)  
Revenues(1)
                                 
U.S. and Canada
  $ 175,563       $ 607,831     $ 757,902     $ 936,684  
Mexico
    17,801         58,347       74,919       71,589  
Brazil
    21,775         69,097       112,182       128,555  
Other foreign countries
    18,889         56,311       77,213       85,710  
Eliminations
    (403 )       (969 )     (1,619 )     (1,944 )
                                   
Total
  $ 233,625       $ 790,617     $ 1,020,597     $ 1,220,594  
                                   
 
                                 
 


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    December 31,
    December 31,
 
    2005
    2006
 
    (Successor)     (Successor)  
 
Theatre properties and equipment, net
               
U.S. and Canada
  $ 646,841     $ 1,169,456  
Mexico
    55,366       51,272  
Brazil
    52,371       55,749  
Other foreign countries
    48,691       48,095  
                 
Total
  $ 803,269     $ 1,324,572  
                 
 
 
(1) Revenues for all periods do not include results of the two United Kingdom theatres or the eleven Interstate theatres, which were sold during 2004, as the results of operations for these theatres are included as discontinued operations.
 
Properties
 
United States
 
As of December 31, 2006, we operated 236 theatres, with 2,882 screens, pursuant to leases and own the land and building for 45 theatres, with 641 screens, in the U.S. During the year ended December 31, 2006, we opened 14 new theatres with 179 screens and acquired one theatre with 12 screens in an exchange for one of our theatres. As part of the Century acquisition, on October 5, 2006, we acquired 77 theatres, with 1,017 screens, in 12 states. Our leases are generally entered into on a long-term basis with terms, including renewal options, generally ranging from 20 to 45 years. As of December 31, 2006, approximately 9% of our theatre leases in the U.S., covering 21 theatres with 158 screens, have remaining terms, including optional renewal periods, of less than five years and approximately 72% of our theatre leases in the U.S., covering 190 theatres with 2,543 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.
 
International
 
As of December 31, 2006, internationally, we operated 115 theatres, with 965 screens, all of which are leased pursuant to ground or building leases. During the year ended December 31, 2006, we opened seven new theatres with 53 screens in Latin America. Our international leases are generally entered into on a long term basis with terms generally ranging from 10 to 20 years. The leases generally provide for contingent rental based upon operating results (some of which are subject to an annual minimum). Generally, these leases include renewal options for various periods at stipulated rates. One international theatre with eight screens has a remaining term, including optional renewal periods, of less than five years. Approximately 29% of our international theatre leases, covering 33 theatres and 279 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 70% of our international theatre leases, covering 81 theatres and 678 screens, have remaining terms, including optional renewal periods, of more than 15 years.
 
See note 19 to our annual consolidated financial statements for information regarding our domestic and international lease commitments. We periodically review the profitability of each of our theatres, particularly those whose lease terms are nearing expiration, to determine whether to continue its operations.
 
Legal Proceedings
 
We resolved a lawsuit filed by the DOJ in March 1999 which alleged certain violations of the ADA relating to wheelchair seating arrangements in certain of our stadium-style theatres. We and the DOJ agreed to a consent order which was entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 15, 2004. Under the consent order, we are required to make modifications to wheelchair seating locations in fourteen stadium-style movie theatres in California, Kentucky, Michigan, Ohio,

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Oregon and Tennessee, and spacing and companion seating modifications in 67 auditoriums at other stadium-styled movie theatres in Illinois, Kansas, Missouri, New York and Utah. These modifications must be completed by November 2009. We are currently in compliance with the consent order. Upon completion of these modifications, these theatres will comply with wheelchair seating requirements, and no further modifications will be required to our other existing stadium-style movie theatres in the United States. In addition, under the consent order, the DOJ approved the seating plans for nine stadium-styled movie theatres then under construction and also created a safe harbor framework for us to construct all of our future stadium-style movie theatres. The DOJ has stipulated that all theatres built in compliance with the consent order will comply with the wheelchair seating requirements of the ADA. We do not believe that our requirements under the consent order will materially affect our business or financial condition.
 
From time to time, we are involved in various other legal proceedings arising from the ordinary course of our business operations, such as personal injury claims, employment matters, landlord-tenant disputes 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 the name, age, position and a brief account of the business experience of our executive officers and directors:
 
             
Name
 
Age
 
Position
 
Lee Roy Mitchell
  70   Chairman of the Board; Director
Alan W. Stock
  46   Chief Executive Officer
Timothy Warner
  62   President; Chief Operating Officer
Tandy Mitchell
  56   Executive Vice President; Assistant Secretary
Robert Copple
  48   Executive Vice President; Treasurer; Chief Financial Officer; Assistant Secretary
Robert Carmony
  49   Senior Vice President-Operations
Michael Cavalier
  40   Senior Vice President-General Counsel; Secretary
Walter Hebert, III
  61   Senior Vice President-Purchasing
Tom Owens
  50   Senior Vice President-Real Estate
John Lundin
  57   Vice President-Film Licensing
Don Harton
  49   Vice President-Construction
Terrell Falk
  56   Vice President-Marketing and Communications
Benjamin D. Chereskin(1)
  48   Director
James N. Perry, Jr.(1)
  46   Director
Robin P. Selati(1)
  41   Director
Vahe A. Dombalagian(1)
  33   Director
Enrique F. Senior(1)
  63   Director
Peter R. Ezersky(1)
  46   Director
Raymond W. Syufy
  44   Director
Joseph E. Syufy
  41   Director
 
 
(1) We have determined that each of these directors satisfies the independence requirements of current SEC rules and the listing standards of the New York Stock Exchange except that Messrs. Chereskin, Perry, Selati and Dombalagian are not deemed independent under applicable SEC rules for the purposes of serving on our audit committee.
 
Lee Roy Mitchell has served as Chairman of the board since March 1996 and as a Director since our inception in 1987. Mr. Mitchell served as our Chief Executive Officer since our inception until December 2006. Mr. Mitchell was Vice Chairman of the Board of Directors from March 1993 until March 1996 and was President from our inception in 1987 until March 1993. From 1985 until 1987, Mr. Mitchell served as President and Chief Executive Officer of a predecessor corporation. Since June 1999, Mr. Mitchell serves as a director of Texas Capital Bancshares, Inc., a bank holding company. Mr. Mitchell also serves on the Board of Directors of the National Association of Theatre Owners, National CineMedia, Inc., Champions for Life and Dallas County Community College. Mr. Mitchell has been engaged in the motion picture exhibition business for over 50 years. Mr. Mitchell is the husband of Tandy Mitchell.
 
Alan W. Stock has served as Chief Executive Officer since December 2006. Mr. Stock served as President from March 1993 until December 2006 and as Chief Operating Officer from March 1992 until December 2006. Mr. Stock also served as a Director from April 1992 until April 2004. Mr. Stock was Senior Vice President from June 1989 until March 1993.


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Timothy Warner has served as President and Chief Operating Officer since December 2006. Mr. Warner served as Senior Vice President from May 2002 until December 2006 and President of Cinemark International, L.L.C. from August 1996 until December 2006.
 
Tandy Mitchell has served as Executive Vice President since June 1989 and Assistant Secretary since December 2003. Mrs. Mitchell also served as Vice Chairman of the board from March 1996 until April 2004. Mrs. Mitchell is the wife of Lee Roy Mitchell and sister of Walter Hebert, III.
 
Robert Copple has served as Executive Vice President since January 2007 and as Senior Vice President, Treasurer, Chief Financial Officer and Assistant Secretary since August 2000 and also served as a Director from September 2001 until April 2004. Mr. Copple was acting Chief Financial Officer from March 2000 until August 2000. From August 1997 until March 2000, Mr. Copple was President of PBA Development, Inc., an investment management and venture capital company controlled by Mr. Mitchell. From June 1993 until July 1997, Mr. Copple was Director of Finance of our company. Prior to joining our company, Mr. Copple was a Senior Manager with Deloitte & Touche, LLP where he was employed from 1982 until 1993.
 
Robert Carmony has served as Senior Vice President-Operations since July 1997, as Vice President — Operations from March 1996 until July 1997 and as Director of Operations from June 1988 until March 1996.
 
Michael Cavalier has served as Senior Vice President-General Counsel since January 2006, as Vice President-General Counsel since August 1999, as Assistant Secretary from May 2001 until December 2003 and as Secretary since December 2003. From July 1997 until July 1999, Mr. Cavalier was General Counsel of our company and from July 1993 until July 1997 was Associate General Counsel.
 
Walter Hebert, III has served as Senior Vice President — Purchasing since January 2007 and as Vice President — Purchasing and Special Projects 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. Mr. Hebert is the brother of Tandy Mitchell.
 
Tom Owens has served as Senior Vice President — Real Estate since January 2007 and as Vice President-Development since December 2003 and as Director of Real Estate since April 2002. From 1998 until April 2001, Mr. Owens was President of NRE, a company he founded that specialized in the development and financing of motion picture theatres. From 1996 until 1998, Mr. Owens served as President of Silver Cinemas International, Inc., a motion picture exhibitor. From 1993 until 1996, Mr. Owens served as our Vice President — Development.
 
John Lundin has served as Vice President-Film Licensing since September 2000 and as Head Film Buyer from September 1997 until September 2000 and was a film buyer from September 1994 until September 1997.
 
Don Harton has served as Vice President-Construction since July 1997. From August 1996 until July 1997, Mr. Harton was Director of Construction.
 
Terrell Falk has served as Vice President-Marketing and Communications since April 2001. From March 1998 until May 2001, Ms. Falk was Director of Large Format Theatres, overseeing the marketing and operations of our IMAX theatres.
 
Benjamin D. Chereskin has served as a Director since April 2004. Mr. Chereskin is a Managing Director of MDP and co-founded the firm in 1993. Previously, Mr. Chereskin was with First Chicago Venture Capital for nine years. Mr. Chereskin currently serves on the Board of Directors of Tuesday Morning Corporation.
 
James N. Perry, Jr. has served as a Director since April 2004. Mr. Perry is a Managing Director of MDP and co-founded the firm in 1993. Previously, Mr. Perry was with First Chicago Venture Capital for eight years. Mr. Perry currently serves on the Board of Directors of Cbeyond Communications, Inc., Univision Communications Inc., Sorenson Communications Inc., Intelsat Holdings, Ltd. and MetroPCS Communications, Inc.
 
Robin P. Selati has served as a Director since April 2004. Mr. Selati is a Managing Director of MDP and co-founded the firm in 1993. Previously, Mr. Selati was with Alex. Brown & Sons Incorporated, an investment


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bank. Mr. Selati currently serves on the Board of Directors of Tuesday Morning Corporation, Carrols Restaurant Group, Inc., Ruth’s Chris Steak House, Inc. and Pierre Holding Corp.
 
Vahe A. Dombalagian has served as a Director since April 2004. Mr. Dombalagian is a Director of MDP and has been employed by the firm since July 2001. From 1997 to 1999, Mr. Dombalagian was an Associate with Texas Pacific Group, a private equity firm.
 
Enrique F. Senior has served as a Director since July 2005. Mr. Senior is a Managing Director of Allen & Company LLC, formerly Allen & Company Incorporated, and has been employed by the firm since 1973. Previously Mr. Senior was with White, Weld & Company for three years. Mr. Senior currently serves on the Board of Directors of Grupo Televisa S.A. de C.V. and Coca Cola FEMSA S.A. de C.V.
 
Peter R. Ezersky has served as a Director since April 2005. Mr. Ezersky is a Managing Principal of Quadrangle Group LLC and co-founded the firm in 2000. Previously, Mr. Ezersky was with Lazard Freres & Co. for ten years and The First Boston Corporation for four years. Mr. Ezersky currently serves on the Board of Directors of MGM Holdings, Dice Holdings and Publishing Group of America.
 
Raymond W. Syufy has served as a Director since October 2006. Mr. Syufy began working for Century in 1977 and held positions in each of the major departments within Century. In 1994, Mr. Syufy was named President of Century and was later appointed Chief Executive Officer and Chairman of the Board of Century. Mr. Syufy resigned as an officer and director of Century upon the consummation of the Century acquisition. Mr. Syufy currently serves as Chairman of the Board of the National Association of Theatre Owners of California and Nevada and as a director on the Board of Fandango, Inc. Mr. Syufy is the brother of Joseph Syufy.
 
Joseph E. Syufy has served as a Director since October 2006. Mr. Syufy began working for Century in 1981 and worked in various departments within Century. In 1998, Mr. Syufy was named President of Century and was later appointed Chief Executive Officer and then Vice Chairman of the Board of Century. Mr. Syufy resigned as an officer and director of Century upon the consummation of the Century acquisition. Mr. Syufy is the brother of Raymond Syufy.
 
Our Board of Directors and Committees
 
Board of Directors.  Our amended and restated certificate of incorporation authorizes the Board of Directors to determine the number of directors on our Board of Directors. We expect that, upon completion of this offering, our Board of Directors will consist of nine members and will be divided into three classes that serve staggered three-year terms, provided that the initial term for certain classes of directors will be one or two years depending on the class.
 
Newly elected directors and any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
 
The stockholders agreement currently contains a voting agreement pursuant to which the parties will vote their securities, and will take all other reasonably necessary or desirable actions, to elect and continue in office fourteen members of our Board of Directors, composed of two persons designated by Lee Roy Mitchell and the Mitchell Special Trust, or the Mitchell investors, nine persons designated by MDP, one person designated by Quadrangle Capital Partners LP, Quadrangle Select Partners LP, Quadrangle (Cinemark) Capital Partners LP and Quadrangle Capital Partners A LP, or Quadrangle, and two persons designated by Syufy. Our Board of Directors currently has five vacancies. We expect that the stockholders agreement will be terminated upon completion of this offering and replaced by a director nomination agreement pursuant to which the Mitchell investors would be entitled to designate two nominees for our Board of Directors, MDP would be entitled to designate five nominees for our Board of Directors, Quadrangle would be entitled to designate one nominee for our Board of Directors and Syufy would be entitled to designate one nominee for our Board of Directors. We expect that the director nomination agreement will additionally designate the applicable class of director for each designated nominee. If the director nomination agreement is not entered into, the stockholders agreement will remain in place after the offering.


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Upon completion of this offering, a majority of the members of our Board of Directors will satisfy the independence requirements of the listing standards of the New York Stock Exchange.
 
Audit Committee.  Upon completion of this offering, our audit committee will be composed of Messrs. Chereskin, Dombalagian and Ezersky. Currently, only Mr. Ezersky satisfies the independence requirements of current SEC rules and the listing standards of the New York Stock Exchange to serve on the audit committee. Within 90 days after completion of this offering, we expect that a majority of the members of our audit committee will satisfy the independence requirements of current SEC rules and the listing standards of the New York Stock Exchange. In addition, within one year after completion of the offering, we expect that our audit committee will be composed of three members who will satisfy the independence requirements of current SEC rules and the listing standards of the New York Stock Exchange. We also expect that one of the members of the audit committee will qualify as an audit committee financial expert as defined under these rules and listing standards, and the other members of our audit committee will satisfy the financial literacy standards for audit committee members under these rules and listing standards.
 
The functions of the audit committee will include the following:
 
  •  assist the Board of Directors in its oversight responsibilities regarding (1) the integrity of our financial statements, (2) our risk management compliance with legal and regulatory requirements, (3) our system of internal controls regarding finance and accounting and (4) our accounting, auditing and financial reporting processes generally, including the qualifications, independence and performance of the independent auditor;
 
  •  prepare the report required by the SEC for inclusion in our annual proxy or information statement;
 
  •  appoint, retain, compensate, evaluate and terminate our independent accountants;
 
  •  approve audit and non-audit services to be performed by the independent accountants;
 
  •  establish procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and
 
  •  perform such other functions as the Board of Directors may from time to time assign to the audit committee.
 
The specific functions and responsibilities of the audit committee are set forth in an audit committee charter.
 
Compensation Committee.  Upon completion of this offering, our compensation committee will be composed of Messrs. Chereskin and Dombalagian and each of them will qualify as “outside directors” under Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and non-employee directors under Rule 16b-3 of the Exchange Act and will satisfy the independence requirements of the listing standards of the New York Stock Exchange. The compensation committee has a written charter setting forth the compensation committee’s purpose and responsibilities. The principal responsibilities of the compensation committee will be to review and approve corporate goals and objectives relevant to the compensation of our officers, evaluate their performance in light of these goals, determine and approve our executive officers’ compensation based on such evaluation, establish policies, and periodically determine matters involving compensation of officers, recommend changes in employee benefit programs, grant or recommend the grant of stock options and stock awards under our incentive plans and review the disclosures in the Compensation Discussion and Analysis and produce a committee report for inclusion in our proxy statement, information statement or annual report on Form 10-K, as required by the SEC.
 
Nominating and Corporate Governance Committee.  Upon completion of this offering, our nominating and corporate governance committee will consist of Messrs. Chereskin and Dombalagian and each of them will satisfy the independence requirements of the listing standards of the New York Stock Exchange. The nominating and corporate governance committee has a written charter setting forth the nominating and corporate governance committee’s purpose and responsibilities. Subject to the rights of certain stockholders to nominate directors pursuant to the contemplated director nomination agreement, the principal responsibilities of the nominating and corporate governance committee will be to assist our Board of Directors in identifying individuals qualified to


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serve as members of our Board of Directors, make recommendations to our Board of Directors concerning committee appointments, develop and recommend to our Board of Directors a set of corporate governance principles for our company and oversee our Board of Director’s annual self-evaluation process and our Board of Director’s evaluation of management.
 
Other Committees.  Pursuant to our bylaws, our Board of Directors may, from time to time, establish other committees to facilitate the management of our business and operations.
 
Compensation Committee Interlocks and Insider Participation
 
None of our executive officers served as a member of the Board of Directors or the compensation committee of any entity that has one or more executive officers serving on our Board of Directors or on the compensation committee of our Board of Directors. Mr. Chereskin served as the only member of our compensation committee during the last completed fiscal year.
 
Executive Compensation
 
Compensation Discussion and Analysis
 
The compensation committee is responsible for establishing the compensation for the company’s chief executive officer and other senior executives, including all executive vice presidents. The compensation committee also establishes executive compensation policies, incentive compensation policies, employee benefit plans and determines cash and equity awards thereunder. In so doing, the compensation committee has the responsibility to develop, implement, and manage compensation policies and programs that seek to enhance our long term competitive advantage and sustainable profitability, thereby contributing to the value of our stockholders’ investment. Our Board of Directors has adopted a written charter for the compensation committee setting forth the compensation committee’s purpose and responsibilities.
 
Overview of Compensation Program
 
Our compensation programs are designed to attract, retain, and motivate key executive personnel who possess the skills and qualities necessary to successfully perform in this industry. Elements of compensation for our executives include: annual salary, stock option awards and cash bonus awards. In making compensation decisions with respect to each of these elements, the compensation committee considers the competitive market for executives and compensation levels provided by comparable companies. The compensation committee intends to review the compensation practices of companies in our peer group and companies of comparable size and financial performance with whom we compete for talent.
 
Components of Compensation
 
Base Salary
 
The compensation committee seeks to keep base salary competitive. Base salaries for the Chief Executive Officer and the other executive officers are determined by the compensation committee based on a variety of factors. These factors include the nature and responsibility of the position, the expertise of the individual executive, the competitiveness of the market for the executive’s services and, except in the case of his own compensation, the recommendations of the chief executive officer. The compensation committee may also consider other judgmental factors deemed relevant by the compensation committee in determining base salary.
 
Annual Performance-Based Cash Incentive Compensation
 
In setting compensation, the compensation committee considers annual cash incentives based on company performance to be an important tool in motivating and rewarding the performance of our executive officers. Performance-based cash incentive compensation is paid to our executive officers pursuant to our incentive bonus program.


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Performance-based cash incentive compensation payouts to participants under our incentive bonus program are dependent upon our performance relative to Adjusted EBITDA target levels which are established in the discretion of our board of directors at the beginning of each year. This plan provides named executive officers with a bonus of 20% of the executive’s annual base salary if the minimum Adjusted EBITDA threshold is met and up to 80% of the executive’s annual base salary if Adjusted EBITDA reaches the “stretch” goal. If our performance is between the minimum and maximum Adjusted EBITDA targets, such executives will receive a prorated bonus between 20% and 80% of his annual base salary. If the Adjusted EBITDA targets are met, the appropriate bonuses are paid. There are no discretionary components to the payments under our incentive bonus program. In 2005, the minimum Adjusted EBITDA target was not met and no plan participant received a bonus under our incentive bonus program. In 2006, the minimum Adjusted EBITDA target was met and plan participants qualified for a bonus paid in 2007.
 
Long Term Equity Incentive Compensation
 
We believe that long-term performance is achieved through an ownership culture that encourages such performance by our executive officers through the use of stock and stock-based awards. In November 2006, our Board of Directors and the majority of our stockholders approved the 2006 Long Term Incentive Plan, or 2006 Plan, under which 9,097,360 shares of common stock were available for issuance to our selected employees, directors and consultants. The following awards may be granted under the 2006 Plan: (1) options intended to qualify as incentive stock options under Section 422 of the Code, (2) non-qualified stock options not specifically authorized or qualified for favorable federal income tax consequences, and (3) restricted stock awards consisting of shares of common stock that are subject to a substantial risk of forfeiture (vesting) restriction for some period of time. Our 2006 Plan was established to provide certain of our employees, including our executive officers, with incentives to help align those employees’ interests with the interests of stockholders. The compensation committee, in consultation with our board of directors and the Chief Executive Officer, has the discretion to recommend the grant of options to purchase our common stock or restricted stock awards to eligible participants under the 2006 Plan. The compensation committee believes that the use of stock and stock-based awards offers the best approach to achieving our compensation goals.
 
The 2006 Plan is substantially similar to the 2004 Long Term Incentive Plan, or 2004 Plan, created by Cinemark, Inc. The 2004 Plan was approved by Cinemark, Inc.’s Board of Directors and the majority of its stockholders on September 30, 2004. Under the 2004 Plan, Cinemark, Inc. made grants of options on two occasions. On September 30, 2004, options to purchase 6,986,731 shares were granted with 9.9% vesting on the grant date and the remainder vesting daily on a pro rata basis through April 2, 2009. On January 28, 2005, more options to purchase 12,055 shares were granted, which vest daily on a pro rata basis over five years. All options expire ten years after the date granted. In connection with the Century acquisition, we assumed the obligations of Cinemark, Inc. under the 2004 Plan to assure that stock acquired on exercise of an option issued under the 2004 Plan will be common stock of Cinemark Holdings, Inc. The terms of the option agreements entered into under the 2004 Plan will continue to govern the options. The option will otherwise be subject to the provisions in our 2006 Plan.
 
Perquisites
 
With limited exceptions, the compensation committee’s policy is to provide benefits and perquisites to our executives that are substantially the same as those offered to our other employees at or above the level of vice president. The benefits and perquisites that may be available in addition to those available to our other employees include life insurance premiums and long term disability.
 
Summary of Compensation for our Named Executive Officers
 
Lee Roy Mitchell
 
For his service as our Chairman of the Board of Directors and Chief Executive Officer, Mr. Mitchell received a base salary of $763,958 during 2006. Mr. Mitchell’s base salary is subject to annual review for increase (but not decrease) each year by our Board of Directors or committee or delegate thereof. In addition,


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Mr. Mitchell is eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by our Board of Directors or the compensation committee, as described above. Mr. Mitchell qualifies for our 401(k) matching program, pursuant to which he received $11,550 in company contributions in 2006. 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. Upon Mr. Mitchell’s termination of employment, he is entitled to severance payments, the amount of which depends upon the reason for the termination of employment. In any case, Mr. Mitchell will receive all accrued compensation and benefits as well as any vested stock options. If his employment is terminated without cause or he resigns for good reason, Mr. Mitchell will also receive his annual base salary for a period of twelve months and an amount equal to the most recent annual bonus he received prior to the date of termination.
 
Alan W. Stock, Timothy Warner, Robert Copple and Robert Carmony
 
For their service as officers, Alan W. Stock, Timothy Warner, Robert Copple and Robert Carmony received a base salary during 2006 of $452,097, $366,616, $330,118 and $318,247, respectively. The base salary of each of Messrs. Stock, Warner, Copple and Carmony 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 employees is eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by our Board of Directors or the compensation committee, as described above. Messrs. Stock, Warner, Copple and Carmony each qualify for our 401(k) matching program, pursuant to which they each received $11,550 in company contributions in 2006. Each of Messrs. Stock, Warner, Copple and Carmony is also entitled to certain additional benefits including life insurance and disability benefits.
 
Profit Participation
 
We entered into an amended and restated profit participation agreement on March 12, 2004 with Mr. Stock, which became effective April 2, 2004 and amends an amended and restated profit participation agreement with Mr. Stock effective May 19, 2002. Under the agreement, Mr. Stock receives a profit interest in two theatres. Mr. Stock received payments totaling $618,837 during the year ended December 31, 2006 under the profit participation agreement. Upon consummation of the offering, we intend to exercise an option to purchase Mr. Stock’s interest in the theatres for a price equal to the greater of (1) stated price reduced by any payments received by Mr. Stock during the term and (2) 49% of adjusted theatre level cash flow multiplied by seven, plus cash and value of inventory associated with the two theatres, minus necessary reserves, minus accrued liabilities and accounts payable associated with the two theatres. As of the date of this prospectus, the price is expected to be approximately $6.9 million. We do not intend for arrangements such as this to be part of our compensation program following the completion of this offering and, as a result, we do not intend to enter into similar arrangements with our executive officers in the future.
 
Compensation Committee
 
Upon completion of this offering, our compensation committee will consist of at least two or more members. The principal responsibilities of the compensation committee will be to review and approve corporate goals and objectives relevant to the compensation of our executive officers, evaluate their performance in light of these goals, determine and approve our executive officers compensation based on such evaluation and establish policies including with respect to the following:
 
  •  the allocation between long-term and currently paid out compensation;
 
  •  the allocation between cash and non-cash compensation, and among different forms of non-cash compensation;
 
  •  the allocation among each different form of long-term award;


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  •  how the determination is made as to when awards are granted, including awards of equity-based compensation such as options; and
 
  •  stock ownership guidelines and any policies regarding hedging the economic risk of such ownership.
 
Tax Implications of Executive Compensation Policy
 
Under Section 162(m) of the Internal Revenue Code, a public company generally may not deduct compensation in excess of $1,000,000 paid to its chief executive officer and the four other most highly compensated executive officers unless certain performance and other requirements are met. Our intent generally is to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation paid to our executive officers, and we believe that a substantial portion of our current executive compensation program (including the stock options and other awards that may be granted to our named executive officers as described above) satisfies the requirements for exemption from the $1,000,000 deduction limitation. However, our compensation committee will have the authority to award performance based compensation that is not deductible and we cannot guarantee that it will only award deductible compensation to our executive officers. We reserve the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. The compensation committee will continue to monitor the tax and other consequences of our executive compensation program as part of its primary objective of ensuring that compensation paid to our executive officers is reasonable, performance-based and consistent with our goals.
 
Summary Compensation
 
The following table contains summary information concerning the total compensation earned during 2006 by our Chief Executive Officer, chief financial officer and our three other most highly compensated executive officers serving in this capacity as of December 31, 2006, whose total compensation exceeded $100,000 for the fiscal year ended December 31, 2006.
 
Summary Compensation Table for the Fiscal Year Ended December 31, 2006
 
                                                 
                      Non-Equity
             
                      Incentive Plan
    All Other
       
          Salary
    Option Awards
    Compensation
    Compensation
    Total
 
Name and Principal Position
  Year     ($)     ($)(1)     ($)(2)     ($)     ($)  
 
Lee Roy Mitchell
    2006     $ 763,958     $     $ 385,773     $ 24,701 (4)   $ 1,174,432  
Chairman of the Board(3)
                                               
Alan W. Stock
    2006       452,097       415,761       227,698       634,180 (5)     1,729,736  
Chief Executive Officer(3)
                                               
Timothy Warner
    2006       366,616       415,761       184,645       14,772 (6)     981,794  
President and Chief Operating Officer(3)
                                               
Robert Copple
    2006       330,118       415,761       166,263       16,631 (7)     928,773  
Executive Vice President and Chief Financial Officer
                                               
Robert Carmony
    2006       318,247       270,244       160,284       15,578 (8)     764,353  
Senior Vice President — Operations
                                               
 
 
(1) These amounts represent the dollar amount of compensation cost we recognized during 2006 for awards granted during 2004 based on the grant date fair value of the named executive officer’s option awards in accordance with SFAS 123(R). See note 10 to our consolidated financial statements for assumptions used in determining compensation expense on options granted in accordance with SFAS 123R.
 
(2) Bonuses were earned in 2006 and paid in March 2007.


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(3) Effective December 12, 2006, Mr. Mitchell stepped down as our Chief Executive Officer. Mr. Stock was elected to replace Mr. Mitchell as our Chief Executive Officer. Mr. Mitchell will continue to serve as our Chairman of the Board of Directors. Mr. Stock had previously served as our President since March 1993 and as Chief Operating Officer since March 1992. Effective December 12, 2006, Mr. Warner was elected to replace Mr. Stock as our President and Chief Operating Officer. Mr. Warner had previously served as our Senior Vice President since May 2002 and President of Cinemark International, L.L.C. since August 1996.
 
(4) Represents an $11,550 annual matching contribution to Mr. Mitchell’s 401(k) savings plan, $10,250 representing the value of the use of a company vehicle for one year and $2,901 of life insurance premiums and disability insurance paid by us for the benefit of Mr. Mitchell.
 
(5) Represents an $11,550 annual matching contribution to Mr. Stock’s 401(k) savings plan, $3,793 of life insurance premiums and disability insurance paid by us for the benefit of Mr. Stock and payments of $618,837 under Mr. Stock’s profit participation agreement for certain of our theatres.
 
(6) Represents an $11,550 annual matching contribution to Mr. Warner’s 401(k) savings plan and $3,222 of life insurance premiums and disability insurance paid by us for the benefit of Mr. Warner.
 
(7) Represents an $11,550 annual matching contribution to Mr. Copple’s 401(k) savings plan and $5,081 of life insurance premiums and disability insurance paid by us for the benefit of Mr. Copple.
 
(8) Represents an $11,550 annual matching contribution to Mr. Carmony’s 401(k) savings plan and $4,028 of life insurance premiums and disability insurance paid by us for the benefit of Mr. Carmony.
 
Grants of Plan-Based Awards
 
There were no stock option grants or awards to the named executive officers during the fiscal year ended December 31, 2006.
 
Employment Agreements
 
General
 
In connection with the MDP Merger, the merger agreement provided that certain employment agreements be executed by Lee Roy Mitchell, Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier as a condition to MDP’s closing of the MDP Merger. The terms of the employment agreements, including the events that trigger any payments upon termination of employment, were negotiated directly between the executives and MDP and the forms of the employment agreements were agreed upon in connection with the MDP Merger.
 
Lee Roy Mitchell
 
We entered into an employment agreement with Lee Roy Mitchell pursuant to which Mr. Mitchell served as our Chief Executive Officer. The employment agreement became effective upon the consummation of the MDP Merger. Effective December 12, 2006, Mr. Mitchell stepped down as our Chief Executive Officer and will continue to serve as our Chairman of the Board of Directors, and his employment agreement was amended to reflect the change in duties. The initial term of the employment agreement is three years, ending on April 2, 2007, subject to an automatic extension for a one-year period, unless the employment agreement is terminated. Mr. Mitchell received a base salary of $763,958 during 2006, 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 our Board of Directors 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.
 
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 Alan Stock, Timothy Warner, Tandy Mitchell, Robert Copple, Robert Carmony, Michael Cavalier and John Lundin pursuant to which Mr. Stock, Mr. Warner, Mrs. Mitchell and Messrs. Copple, Carmony, Cavalier and Lundin serve, respectively, as our Chief Executive Officer, President, Executive Vice President, Senior Vice President and Chief Financial Officer, Senior Vice President of Operations, Senior Vice President-General Counsel and Vice President of Film Licensing. The employment agreements became effective upon the consummation of the MDP Merger. Effective December 12, 2006, Mr. Stock was elected to replace Mr. Mitchell as our Chief Executive Officer, Mr. Warner was elected to replace Mr. Stock as our President and Chief Operating Officer and their employment agreements were amended to reflect the change in duties. Effective January 25, 2006, Mr. Copple was promoted to Executive Vice President and his employment agreement was amended to reflect this change. The initial term of each employment agreement is three years, ending on April 2, 2007, 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 our Board of Directors or the compensation committee for the fiscal year.
 
Our Board of Directors has adopted a stock option plan and granted 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.


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The employment agreement with each executive provides for severance payments on substantially the same terms as the employment agreement for Mr. Mitchell and an amount equal to the most recent annual bonus he or she received prior to the date of termination and a pro rata portion of any annual bonus earned during the fiscal year in which termination occurred based upon the number of days worked in such year.
 
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.
 
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 Code ($15,000 in 2006 and $15,500 for 2007). We may make an annual discretionary matching contribution. For plan years beginning in 2002, our discretionary matching contributions immediately vest.
 
2006 Long Term Incentive Plan
 
Cinemark Holdings, Inc. was formed on August 2, 2006 in connection with the planned acquisition pursuant to a stock purchase agreement, dated August 7, 2006, of Century by Cinemark USA, Inc. The Century acquisition was completed on October 5, 2006. On October 5, 2006, pursuant a Contribution and Exchange Agreement, dated August 7, 2006, among the then stockholders of Cinemark, Inc., the parties exchanged their shares of Class A common stock of Cinemark, Inc. for shares of common stock of Cinemark Holdings, Inc. In connection with the Century acquisition, we assumed the obligations of Cinemark, Inc. under the 2004 Plan to assure that stock acquired on exercise of an option issued under the 2004 Plan will be common stock of Cinemark Holdings, Inc. The terms of the option agreements entered into under the 2004 Plan will continue to govern the options. The options will otherwise be subject to the provisions in our 2006 Plan described below.
 
In November 2006, our Board of Directors and the majority of our stockholders approved the 2006 Plan under which 9,097,360 shares of common stock were available for issuance to our selected employees, directors and consultants. There are currently options to purchase 6,915,591 shares of common stock outstanding under the 2006 Plan with a weighted average exercise price of $7.63 per share. The board of Cinemark, Inc. has amended the 2004 Plan to provide that no additional awards may be granted under the 2004 Plan. The 2006 Plan is substantially similar to the 2004 Plan.
 
Types of Awards.  The following awards may be granted under the 2006 Plan: (1) options intended to qualify as incentive stock options under Section 422 of the Code, (2) non-qualified stock options not specifically authorized or qualified for favorable federal income tax consequences, and (3) restricted stock awards consisting of shares of common stock that are subject to a substantial risk of forfeiture (vesting) restriction for some period of time.