CINEMARK USA INC /TX - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

Commission File Number: 033-47040

CINEMARK USA, INC.

(Exact name of registrant as specified in its charter)


Texas (State or other jurisdiction of incorporation or organization)		75-2206284 (I.R.S. Employer Identification No.)


3900 Dallas Parkway Suite 500 Plano, Texas (Address of principal executive offices)		75093 (Zip Code)

Registrant’s telephone number, including area code: (972) 665-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 5, 2004, 1,500 shares of Class A common stock and 182,648 shares of Class B common stock were outstanding.

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,
	2004			December 31,
	(Unaudited)			2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	98,465,153		$	107,319,285
Inventories		4,811,979			4,323,687
Accounts receivable		15,778,236			15,440,048
Income tax receivable		1,352,482			—
Prepaid expenses and other		3,651,808			5,476,066

Total current assets		124,059,658			132,559,086
THEATRE PROPERTIES AND EQUIPMENT		1,262,325,669			1,237,896,969
Less accumulated depreciation and amortization		(486,125,344	)		(462,016,911	)

Theatre properties and equipment - net		776,200,325			775,880,058
OTHER ASSETS
Goodwill		11,899,841			12,083,095
Intangible assets - net		7,598,681			7,865,294
Investments in and advances to affiliates		1,277,722			2,347,104
Deferred charges and other - net		38,296,806			30,011,763

Total other assets		59,073,050			52,307,256

TOTAL ASSETS	$	959,333,033		$	960,746,400

LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	7,130,230		$	6,744,842
Income tax payable		—			5,521,581
Accounts payable and accrued expenses		127,933,322			135,659,950

Total current liabilities		135,063,552			147,926,373
LONG-TERM LIABILITIES
Senior credit agreements		264,079,550			172,936,210
Senior subordinated notes		366,469,020			478,749,929
Deferred lease expenses		27,712,639			27,652,702
Deferred gain on sale leasebacks		3,823,740			4,006,700
Deferred income taxes		10,111,094			13,033,013
Deferred revenues and other long-term liabilities		5,278,910			5,665,863

Total long-term liabilities		677,474,953			702,044,417
COMMITMENTS AND CONTINGENCIES		—			—
MINORITY INTERESTS IN SUBSIDIARIES		35,492,658			33,932,183
SHAREHOLDER’S EQUITY
Class A common stock, $0.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding		15			15
Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and outstanding		49,543,427			49,543,427
Additional paid-in-capital		42,408,865			13,054,686
Retained earnings		136,316,459			125,022,611
Treasury stock, 57,245 Class B shares at cost		(24,232,890	)		(24,232,890	)
Accumulated other comprehensive loss		(92,734,006	)		(86,544,422	)

Total shareholder’s equity		111,301,870			76,843,427

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	959,333,033		$	960,746,400

The accompanying notes are an integral part of the condensed consolidated financial statements.

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
REVENUES
Admissions	$	174,199,063		$	156,352,473		$	323,887,009		$	284,064,040
Concession		89,197,568			78,933,162			162,471,438			142,872,608
Other		13,301,812			12,222,582			25,452,085			23,044,716

Total revenues		276,698,443			247,508,217			511,810,532			449,981,364
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising		94,925,913			88,340,516			173,898,300			155,218,081
Concession supplies		14,473,242			12,692,208			26,586,439			22,478,894
Salaries and wages		27,178,889			24,420,457			51,495,735			46,745,296
Facility lease expense		31,333,161			29,403,407			62,421,306			57,853,992
Utilities and other		28,988,844			27,875,793			55,568,583			52,949,196

Total cost of operations		196,900,049			182,732,381			369,970,363			335,245,459
General and administrative expenses		13,191,438			10,494,781			24,991,058			19,934,762
Stock option compensation and change of control expenses related to the Recapitalization		31,994,529			—			31,994,529			—
Depreciation and amortization		16,884,130			16,537,710			33,773,037			32,533,424
Asset impairment loss		—			2,060,845			1,000,000			2,060,845
Gain on sale of assets and other		(39,706	)		(374,590	)		(552,840	)		(991,019	)

Total costs and expenses		258,930,440			211,451,127			461,176,147			388,783,471

OPERATING INCOME		17,768,003			36,057,090			50,634,385			61,197,893
OTHER INCOME (EXPENSE)
Interest expense		(10,505,815	)		(14,218,719	)		(22,382,133	)		(27,514,327	)
Amortization of debt issue cost		(677,142	)		(587,330	)		(1,267,128	)		(1,170,950	)
Interest income		386,019			424,735			877,252			1,083,364
Foreign currency exchange gain		402,657			135,068			572,483			151,199
Loss on early retirement of debt		(5,576,935	)		(5,612,377	)		(5,576,935	)		(7,258,136	)
Equity in income (loss) of affiliates		(72,525	)		(46,832	)		(35,467	)		149,524
Minority interests in income of subsidiaries		(2,104,228	)		(1,506,280	)		(3,556,556	)		(2,276,485	)

Total other expenses		(18,147,969	)		(21,411,735	)		(31,368,484	)		(36,835,811	)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFIT)		(379,966	)		14,645,355			19,265,901			24,362,082
Income taxes (benefit)		(522,103	)		6,069,227			7,426,421			10,017,898

INCOME FROM CONTINUING OPERATIONS		142,137			8,576,128			11,839,480			14,344,184
Gain (loss) from discontinued operations, net of income tax benefit of $191,250 for the six months ended June 30, 2004		1,217,593			(194,034	)		(545,632	)		(509,164	)

NET INCOME	$	1,359,730		$	8,382,094		$	11,293,848		$	13,835,020

EARNINGS (LOSS) PER SHARE:
Basic and Diluted:
Income from continuing operations	$	0.77		$	46.57		$	64.29		$	77.89
Gain (loss) from discontinued operations		6.61			(1.05	)		(2.96	)		(2.76	)

Net income	$	7.38		$	45.52		$	61.33		$	75.13

The accompanying notes are an integral part of the condensed consolidated financial statements.

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2004			2003
OPERATING ACTIVITIES
Net income	$	11,293,848		$	13,835,020
Noncash items in net income:
Depreciation		33,449,523			32,208,079
Depreciation — assets held for sale		118,157			302,058
Amortization of intangible and other assets		323,514			325,345
Amortization of foreign advanced rents		879,894			865,123
Amortized compensation — stock options		145,021			548,595
Amortization of debt issue costs		1,267,128			1,170,950
Amortization of gain on sale leasebacks		(182,960	)		(182,960	)
Amortization of debt discount and premium		(754,526	)		(235,522	)
Amortization of deferred revenues		(165,258	)		(2,013,119	)
Loss on impairment of assets		1,000,000			2,060,845
Loss on disposal of UK theatres		565,501			—
Gain on sale of assets and other		(552,840	)		(991,019	)
Write-off unamortized debt issue costs and debt discount and premium related to the early retirement of debt		897,659			3,335,915
Write-off of unearned compensation related to the Recapitalization		1,595,234			—
Deferred lease expenses		59,937			759,004
Deferred income tax expenses		(2,921,919	)		548,051
Equity in (income) loss of affiliates		35,467			(149,524	)
Minority interests in income of subsidiaries		3,556,556			2,276,485
Cash provided by (used for) operating working capital:
Inventories		(488,292	)		(709,287	)
Accounts receivable		(338,188	)		(2,860,287	)
Prepaid expenses and other		1,824,258			(1,696,228	)
Other assets		(2,885,466	)		(3,386,690	)
Advances with affiliates		(125,122	)		302,966
Accounts payable and accrued expenses		(5,981,131	)		(13,742,782	)
Other long-term liabilities		(221,695	)		(116,763	)
Income tax receivable/payable		(6,874,063	)		7,818,636

Net cash provided by operating activities		35,520,237			40,272,891
INVESTING ACTIVITIES
Additions to theatre properties and equipment		(45,932,115	)		(17,976,259	)
Proceeds from sale of United Kingdom theatres		2,645,812			—
Proceeds from sale of other theatre properties and equipment		820,841			2,075,395
Proceeds from sale of equity investment		1,250,000			—
Investment in affiliates		—			(3,314	)
Dividends/capital returned from affiliates		127,500			228,000

Net cash used for investing activities		(41,087,962	)		(15,676,178	)
FINANCING ACTIVITIES
Capital contribution from parent		27,613,924			—
Issuance of senior subordinated notes		—			375,225,000
Retirement of senior subordinated notes		(111,915,000	)		(232,989,000	)
Increase in long-term debt		260,762,643			238,508,545
Decrease in long-term debt		(168,741,208	)		(408,827,678	)
Increase in debt issue cost		(7,637,446	)		(14,944,223	)
Increase in minority investment in subsidiaries		670,491			3,896,860
Decrease in minority investment in subsidiaries		(2,666,572	)		(275,304	)

Net cash used for financing activities		(1,913,168	)		(39,405,800	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(1,373,239	)		1,737,270

DECREASE IN CASH AND CASH EQUIVALENTS		(8,854,132	)		(13,071,817	)
CASH AND CASH EQUIVALENTS:
Beginning of period		107,319,285			63,718,515

End of period	$	98,465,153		$	50,646,698

The accompanying notes are an integral part of the condensed consolidated financial statements.

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. The Company and Basis of Presentation

Cinemark USA, Inc. and its subsidiaries (the “Company”) is one of the leaders in the motion picture exhibition industry in terms of both revenues and the number of screens in operation, with theatres in the United States (“U.S.”), Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia. The Company also managed additional theatres in the U.S., Canada, Brazil and Taiwan during the six months ended June 30, 2004.

The condensed consolidated financial statements have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these interim financial statements reflect all adjustments necessary to state fairly the financial position and results of operations as of, and for, the periods indicated. The condensed consolidated financial statements include the accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned subsidiaries that the Company controls are consolidated while those subsidiaries of which the Company owns between 20% and 50% and does not control are accounted for as affiliates under the equity method. Those subsidiaries of which the Company owns less than 20% are accounted for as affiliates under the cost method. The results of these subsidiaries and affiliates are included in the condensed consolidated financial statements effective with their formation or from their dates of acquisition. Significant intercompany balances and transactions are eliminated in consolidation. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2003, included in the Annual Report filed March 17, 2004 on Form 10-K by the Company under the Securities Exchange Act of 1934. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results to be achieved for the full year.

2. Recapitalization of Cinemark, Inc. and Refinancing of Certain Long-Term Debt

Recapitalization of Cinemark, Inc. - On March 12, 2004, the Company’s parent, Cinemark, Inc., entered into an agreement and plan of merger with a newly formed subsidiary of Madison Dearborn Partners, LLC (“Madison”). The transaction was completed on April 2, 2004, at which time the newly formed subsidiary of Madison was merged with and into Cinemark, Inc., with Cinemark, Inc. continuing as the surviving corporation. Simultaneously, an affiliate of Madison purchased shares of common stock of Cinemark, Inc. for approximately $518.3 million in cash and became the controlling stockholder of Cinemark, Inc., owning approximately 83% of Cinemark, Inc.’s capital stock. Lee Roy Mitchell, the Company’s Chief Executive Officer, and the Mitchell Special Trust collectively retained approximately 16% ownership of Cinemark, Inc.’s capital stock and certain members of management own the remaining 1%. As part of the transaction, Cinemark, Inc. paid change of control fees and other management compensation expenses of $15,749,259, which are included in general and administrative expense on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2004. Based on the terms of the transaction, including Mr. Mitchell’s ownership retention, the transaction was accounted for as a recapitalization, which resulted in Cinemark, Inc. and its subsidiaries retaining their historical book values.

On March 31, 2004, Cinemark, Inc. issued $577,173,000 aggregate principal amount at maturity of 9 3/4% senior discount notes due 2014. The gross proceeds at issuance of $360,000,115 were used to fund in part the Recapitalization. Interest on the notes accretes until March 15, 2009 up to the aggregate principal amount of $577,173,000. Cash interest will accrue and be payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009. Due to the holding company status of Cinemark, Inc., payments of principal and interest under these notes will be dependent on loans, dividends and other payments from the Company to Cinemark, Inc. The Company has no obligation, contingent or otherwise, to pay the amounts due under the 9 3/4% senior discount notes or to make funds available to pay those amounts. The 9 3/4% senior discount notes are general, unsecured senior obligations of Cinemark, Inc. that are effectively subordinated to indebtedness and other liabilities of the Company. Upon a change of control, Cinemark, Inc. would be required to make an offer to repurchase all of the 9 3/4% senior discount notes at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if any, through the date of purchase. As of June 30, 2004, the accreted principal balance of the notes was $368,763,903.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Upon consummation of the Recapitalization on April 2, 2004, all outstanding stock options of Cinemark, Inc. immediately vested and the majority were repurchased, resulting in compensation expense of $16,245,270 recorded by the Company. Compensation expense includes the write-off of the unamortized unearned compensation expense for options outstanding as of the date of the Recapitalization and the impact of the cash settlement of these options, and are included in general and administrative expense on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2004.

As a result of the Recapitalization, Cinemark, Inc. provided notice to its Brazilian partners (i) that its then existing stockholders no longer own more than 25% of Cinemark, Inc.’s common stock and (ii) that Lee Roy Mitchell has sold certain of his shares of Cinemark, Inc.’s common stock for cash. The Brazilian partners have exercised their option to cause Cinemark, Inc. or one of its designees to purchase shares of common stock of Cinemark Brasil S.A. owned by the Brazilian partners. The purchase price shall be determined through an appraisal process conducted by up to three approved investment banks. Cinemark, Inc. and the Brazilian partners have each received appraisals from investment banks and are currently negotiating the price per share for the common stock of Cinemark Brasil S.A. If Cinemark, Inc. and the Brazilian partners are unable to agree upon a price, a third investment bank will be retained to determine the price per share of the common stock of Cinemark Brasil S.A. The Company is unable to predict at this time what the purchase price will be. The Company expects that the purchase will be financed through additional borrowings or with available cash.

Refinancing of Certain Long-Term Debt - On March 16, 2004, the Company initiated a tender offer for its then outstanding $105 million aggregate principal amount 8 1/2% senior subordinated notes due 2008 and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. On March 25, 2004, a supplemental indenture removing substantially all of the covenants was executed and became effective on the date of the Recapitalization. Additionally, on the date of the Recapitalization, the Company amended its senior secured credit facility to provide for a $260 million seven year term loan and a $100 million six and one-half year revolving credit line, which was left undrawn. The net proceeds from the amended senior secured credit facility were used to repay the term loan under the Company’s then existing senior secured credit facility of approximately $163.8 million and to redeem the approximately $94.2 million aggregate principal amount of the Company’s outstanding $105 million aggregate principal amount of 8 1/2% senior subordinated notes that were tendered pursuant to the tender offer. The tender offer was made at 104.5% of the principal amount of the notes tendered on or prior to the consent date and at 101.5% of the principal amount of the notes tendered subsequent to the consent date but prior to the expiration date. The unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees of $4,800,211 related to the retirement of the 8 1/2% notes were recorded as a loss on early retirement of debt on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2004.

Under the amended term loan, principal payments of $650,000 are due each calendar quarter through March 31, 2010 and increase to $61,100,000 each calendar quarter from June 30, 2010 to maturity at March 31, 2011. The amended term loan bears interest, at the Company’s option, at: (A) the base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.25% per annum, or (B) a “eurodollar rate” plus a margin of 2.25% per annum. After the completion of two fiscal quarters after the closing date, the margin under the term loan applicable to base rate loans ranges from 1.00% per annum to 1.25% per annum and the margin applicable to eurodollar rate loans ranges from 2.00% per annum to 2.25% per annum, and will be adjusted based upon the Company achieving certain performance targets.

Borrowings under the amended revolving credit line bear interest, at the Company’s option, at: (A) a base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.50% per annum, or (B) a “eurodollar rate” plus a margin of 2.50% per annum. After the completion of two fiscal quarters after the closing date, the margin under the revolving credit line applicable to base rate loans ranges from 1.00% per annum to 1.50% per annum and the margin applicable to eurodollar rate loans ranges from 2.00% per annum to 2.50% per annum, and will be adjusted based upon the Company achieving certain performance targets. The Company will also be required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the amended revolving credit line, payable quarterly in arrears.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

On April 6, 2004, as a result of the consummation of the Recapitalization and in accordance with the terms of the indenture governing the Company’s 9% senior subordinated notes due 2013, the Company made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, at the date of purchase. Approximately $17.8 million aggregate principal amount of the 9% senior subordinated notes were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004. Payment of the change of control price was made with available cash by the Company on June 1, 2004. The unamortized debt issue costs, tender offer repurchase costs, including premiums paid, and other fees of $776,724 related to the retirement of the 9% notes were recorded as a loss on early retirement of debt on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2004.

On July 28, 2004, the Company provided notice to the holders of its remaining outstanding 8 1/2% senior subordinated notes due 2008 that it has elected to redeem all outstanding notes on August 27, 2004 at a redemption price of 102.833% of the aggregate principal amount plus accrued interest.

3. Acquisitions and Divestitures

During 2003, the Company accounted for its 50% investment in Interstate Theatres, L.L.C. under the equity method of accounting. On December 31, 2003, the Company purchased the remaining 50% interest in Interstate Theatres, L.L.C, which owns 80% of Interstate Theatres II, L.L.C. The Company accounted for the purchase as a step acquisition. The total purchase price of $1,500,000 was allocated to theatre properties and equipment ($404,083), working capital ($65,515) and goodwill ($1,030,402). The Company’s condensed consolidated balance sheet at December 31, 2003 reflects the assets and liabilities of Interstate Theatres, L.L.C. and its subsidiary. Results of operations for Interstate Theatres, L.L.C. and its subsidiary are included in the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2004.

On December 31, 2003, the Company purchased Mitchell Theatres, Inc., which was 100% owned by members of Lee Roy Mitchell’s family (a related party to the Company). The total purchase price of $681,034 included the assumption of $156,000 in outstanding debt, which was immediately paid off at the time of purchase. The Company’s condensed consolidated balance sheet at December 31, 2003 reflects the assets and liabilities of Mitchell Theatres, Inc., which consisted of a working capital deficit of $137,511 and theatre property and equipment of $818,545. Results of operations for Mitchell Theatres, Inc. are included in the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2004.

In January 2004, the Company sold its 50% investment in Entertainment Amusement Enterprises, Inc. for $1,500,000. The Company received proceeds of $1,250,000 in cash and a three-year $250,000 note, resulting in a gain of $468,463. The note receivable is included in deferred charges and other assets on the Company’s condensed consolidated balance sheet. The gain is included in gain on sale of assets and other on the Company’s condensed consolidated statement of operations.

4. Discontinued Operations

As of March 31, 2004, the Company’s two United Kingdom theatres met the criteria of assets held for sale in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” On April 30, 2004, the Company sold its two United Kingdom theatres. The Company received $2,645,812 in proceeds upon closing of the transaction and recorded a receivable of $437,073. Prior to September 30, 2004, the Company anticipates collecting the receivable once a final working capital position is determined in accordance with the share purchase agreement. The sale resulted in a loss of $565,501, which is included in the loss from discontinued operations on the Company’s condensed consolidated statement of operations.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The results of operations for the United Kingdom theatres have been classified as discontinued operations for all periods presented. Amounts reported as discontinued operations in the Company’s condensed consolidated statements of operations include the following components:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
REVENUES
Admissions	$	413,319		$	942,957		$	1,589,115		$	1,912,527
Concession		168,921			405,543			659,446			839,337
Other		54,139			120,854			241,645			246,102

Total revenues		636,379			1,469,354			2,490,206			2,997,966
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising		110,678			408,134			572,953			779,776
Concession supplies		37,785			104,645			176,262			231,533
Salaries and wages		88,693			270,975			388,977			555,885
Facility lease expense		125,419			235,386			560,497			598,931
Utilities and other		11,306			366,762			347,157			772,486

Total cost of operations		373,881			1,385,902			2,045,846			2,938,611
General and administrative expenses		220,125			116,628			497,584			266,461
Depreciation and amortization		59,279			160,858			118,157			302,058
(Gain) loss on sale of assets and other		(1,234,499	)		—			565,501			—

Total costs and expenses		(581,214	)		1,663,388			3,227,088			3,507,130

OPERATING INCOME (LOSS)		1,217,593			(194,034	)		(736,882	)		(509,164	)
Income tax benefit		—			—			(191,250	)		—

Income (loss) from discontinued operations	$	1,217,593		$	(194,034	)	$	(545,632	)	$	(509,164	)

Amounts related to the United Kingdom theatres included in the Company’s condensed consolidated balance sheet at December 31, 2003 are as follows:


Current assets	$	1,262,892
Theatre properties and equipment, net		4,520,104
Current liabilities		(1,336,145	)

5. Earnings Per Share

Basic earnings per share is computed by dividing income by the weighted average number of shares of all classes of common stock outstanding during the period. Diluted earnings per share is computed by dividing income by the weighted average number of shares of common stock and potentially dilutive common equivalent shares outstanding determined under the treasury stock method. The weighted average number of shares of common stock outstanding for the three and six months ended June 30, 2004 and 2003 was 184,148. The Company does not have any options outstanding and its weighted average common and common equivalent shares outstanding for the three and six months ended June 30, 2004 and 2003 do not include options to purchase shares of Cinemark, Inc. common stock.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6. Stock Option Accounting

Although the Company did not have any options outstanding during the periods presented, compensation expense related to outstanding options of Cinemark, Inc. has been recorded in the Company’s condensed consolidated statements of operations. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for stock option plans. Had compensation costs been determined based on the fair value at the date of grant for awards under the plans, consistent with the method of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure”, the Company’s net income and earnings per share would have been reduced to the pro-forma amounts indicated below:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2004		2003			2004			2003
Net income as reported	$	1,359,730	$	8,382,094		$	11,293,848		$	13,835,020
Compensation expense included in reported net income, net of tax		—		164,579			88,463			331,900
Compensation expense under fair value method, net of tax		—		(339,417	)		(162,402	)		(678,831	)

Pro-forma net income	$	1,359,730	$	8,207,256		$	11,219,909		$	13,488,089

Basic and diluted earnings per share:
As reported	$	7.38	$	45.52		$	61.33		$	75.13
Pro-forma	$	7.38	$	44.57		$	60.93		$	73.25

The weighted average fair value per share of stock options granted by Cinemark, Inc. during 2003 was $12.76 (all of which had an exercise price equal to the market value at the date of grant). No options were issued by Cinemark, Inc. under the then existing plans during the three months ended March 31, 2004.

The fair value of each 2003 option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0 percent; an expected life of 6.5 years; expected volatility of approximately 39 percent; and a risk-free interest rate of 3.29 percent.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7. Goodwill and Other Intangible Assets

No additional goodwill was recorded during the three or six months ended June 30, 2004. The Company recorded foreign currency translation adjustments to goodwill for the six months ended June 30, 2004, which resulted in a net decrease to goodwill of $183,254.

Intangible assets consisted of the following:


	June 30,			December 31,
	2004			2003
Capitalized licensing fees	$	9,000,000		$	9,000,000
Other intangible assets		439,329			442,561
Less: Accumulated amortization		(1,856,811	)		(1,593,430	)

Amortized intangible assets		7,582,518			7,849,131
Unamortized intangible assets		16,163			16,163

Total	$	7,598,681		$	7,865,294

Aggregate amortization expense of $323,514 for the six months ended June 30, 2004 consisted of $263,381 of amortization of intangible assets and $60,133 of amortization of other assets. Estimated aggregate future amortization expense for intangible assets is as follows:


For the six months ended December 31, 2004	$	263,382
For the twelve months ended December 31, 2005		526,763
For the twelve months ended December 31, 2006		526,763
For the twelve months ended December 31, 2007		526,763
For the twelve months ended December 31, 2008		526,763
Thereafter		5,212,084

Total	$	7,582,518

8. Asset Impairment

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets for impairment on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable.

The Company considers actual theatre level cash flow, future years budgeted theatre level cash flow, theatre property and equipment values, goodwill values, the age of a recently built theatre, competitive theatres in the marketplace, the sharing of a market with other Company theatres, changes in foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal options and other factors in its assessment of impairment of individual theatre assets. Assets are evaluated for impairment on an individual theatre basis or a group of theatres that share the same marketplace, which the Company believes is the lowest applicable level for which there are identifiable cash flows. The evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover an asset’s carrying amount, the Company then compares the carrying value of the asset with its fair value, which is determined based on estimated undiscounted cash flows. When estimated fair value is determined to be lower than the carrying value of the asset, the asset is written down to its estimated fair value. During the six months ended June 30, 2004, the Company recorded an asset impairment charge of $1.0 million to write-down one theatre in the United States to its estimated fair value.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

9. Foreign Currency Translation

The accumulated other comprehensive loss account in shareholder’s equity of $92,734,006 and $86,544,422 at June 30, 2004 and December 31, 2003, respectively, primarily relates to the cumulative foreign currency adjustments from translating the financial statements of Cinemark Argentina, S.A., Cinemark Brasil S.A. and Cinemark de Mexico, S.A. de C.V. into U.S. dollars.

In 2003 and 2004, all foreign countries where the Company has operations, including Argentina, Brazil and Mexico were deemed non-highly inflationary. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account recorded as an increase in, or reduction of, shareholder’s equity.

On June 30, 2004, the exchange rate for the Brazilian real was 3.11 reais to the U.S. dollar (the exchange rate was 2.89 reais to the U.S. dollar at December 31, 2003). As a result, the effect of translating the June 30, 2004 Brazilian financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as a reduction of shareholder’s equity of $1,482,456. At June 30, 2004, the total assets of the Company’s Brazilian subsidiaries were U.S. $60,023,108.

On June 30, 2004, the exchange rate for the Mexican peso was 11.53 pesos to the U.S. dollar (the exchange rate was 11.20 pesos to the U.S. dollar at December 31, 2003). As a result, the effect of translating the June 30, 2004 Mexican financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as a reduction of shareholder’s equity of $2,136,630. At June 30, 2004, the total assets of the Company’s Mexican subsidiaries were U.S. $88,865,225.

10. Comprehensive Income (Loss)

SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. The Company’s comprehensive income (loss) was as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2004			2003		2004			2003
Net income	$	1,359,730		$	8,382,094	$	11,293,848		$	13,835,020
Foreign currency translation adjustment		(5,119,500	)		6,868,190		(5,113,901	)		7,713,869

Comprehensive income (loss)	$	(3,759,770	)	$	15,250,284	$	6,179,947		$	21,548,889

11. Supplemental Cash Flow Information

The following is provided as supplemental information to the condensed consolidated statements of cash flows:


	Six Months Ended
	June 30,
	2004		2003
Cash paid for interest	$	25,105,366	$	28,944,777
Cash paid for income taxes (net of refunds)	$	13,087,033	$	1,067,061

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

12. Financial Information About Geographic Areas

The Company operates in one business segment as a motion picture exhibitor. The Company has operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia, which are reflected in the condensed consolidated financial statements. Below is a breakdown of select financial information by geographic area:


	Six Months Ended
	June 30,
Revenues	2004			2003
U.S. and Canada	$	389,885,678		$	350,520,276
Brazil		44,047,819			35,563,541
Mexico		39,538,761			33,695,235
Other foreign countries⁽¹⁾		39,144,115			30,704,798
Eliminations		(805,841	)		(502,486	)

Total	$	511,810,532		$	449,981,364


	June 30,		December
Theatre Properties and Equipment, net	2004		31, 2003
U.S. and Canada	$	630,625,731	$	616,729,729
Mexico		57,117,978		61,893,971
Brazil		43,977,240		44,903,308
Other foreign countries⁽²⁾		44,479,376		52,353,050

Total	$	776,200,325	$	775,880,058

(1) Revenues for both periods do not include results of the United Kingdom theatres, as these theatres were classified as held for sale as of March 31, 2004 and sold on April 30, 2004 and the results of operations are included as discontinued operations for all periods presented.

(2) Amount at December 31, 2003 includes $4,520,104 for the two United Kingdom theatres that were sold on April 30, 2004.

13. New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities - - an Interpretation of ARB No. 51.” FIN 46 addresses consolidation by business enterprises of variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The Company adopted FIN 46 on January 1, 2004. The adoption of FIN 46 did not have a material impact on its condensed consolidated financial statements.

14. Related Party Transactions

The Company has paid certain fees and expenses on behalf of its parent, Cinemark, Inc., that are included in investments in and advances to affiliates on the Company’s condensed consolidated balance sheets. At June 30, 2004, the amount due from Cinemark, Inc. was $28,487. The Company also received capital contributions from Cinemark, Inc. totaling $27,613,924 during the six months ended June 30, 2004, primarily due to the Recapitalization.

The Company manages one theatre for Laredo Theatre, Ltd. (“Laredo”). The Company is the sole general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres, Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr. David Roberts, Lee Roy Mitchell’s son-in-law. Under the agreement, management fees are paid by Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000,000 and 3% of annual theatre revenues in excess of $50,000,000. The Company recorded $84,552 of management fee revenues and received $300,000 of distributions from Laredo during the six months ended June 30, 2004. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company leases one theatre from Plitt Plaza Joint Venture (“Plitt Plaza”). Plitt Plaza is indirectly owned by Lee Roy Mitchell. Annual rent is approximately $118,000 plus certain taxes, maintenance expenses and insurance. The Company recorded $60,930 of facility lease expense payable to Plitt Plaza joint venture during the six months ended June 30, 2004.

The Company entered into an amended and restated profit participation agreement on March 12, 2004 with its President, Alan Stock, which became effective upon consummation of the Recapitalization and amends a profit participation agreement with Mr. Stock in effect since May 2002. Under the agreement, Mr. Stock receives a profit interest in two theatres once the Company has recovered its capital investment in these theatres plus its borrowing costs. Under this agreement, operating losses and disposition losses for any year are allocated 100% to the Company. Operating profits and disposition profits for these theatres for any fiscal year are allocated first to the Company to the extent of total operating losses and losses from any disposition of these theatres. Thereafter, net cash from operations from these theatres or from any disposition of these theatres is paid first to the Company until such payments equal the Company’s investment in these theatres, plus interest, and then 51% to the Company and 49% to Mr. Stock. During the six months ended June 30, 2004, the Company recorded $240,949 in profit participation expense payable to Mr. Stock, which is included in general and administrative expense on the Company’s condensed consolidated statement of operations. The Company has paid $48,949 of this amount to Mr. Stock as of June 30, 2004. In the event that Mr. Stock’s employment is terminated without cause, profits will be distributed according to this formula without first allowing the Company to recoup its investment plus interest thereon. Upon consummation of an initial public offering of Cinemark, Inc.’s common stock, the Company will have the option to purchase Mr. Stock’s interest in the theatres for a price equal to the greater of (i) stated price reduced by any payments received during the term and (ii) 49% of adjusted theatre level cash flow multiplied by seven. The Company does not intend to enter into similar arrangements with its executive officers in the future.

15. Litigation

DOJ Litigation - In March 1999, the Department of Justice (“DOJ”) filed suit in the U.S. District Court, Northern District of Ohio, Eastern Division, against the Company alleging certain violations of the Americans with Disabilities Act of 1990 (the “ADA”) relating to the Company’s wheelchair seating arrangements and seeking remedial action. An order granting summary judgment to the Company was issued in November 2001. The Department of Justice appealed the district court’s ruling with the Sixth Circuit Court of Appeals. On November 7, 2003, the Sixth Circuit Court of Appeals reversed the summary judgment and sent the case back to the district court for further review without deciding whether wheelchair seating at the Company’s theatres comply with the ADA. The Sixth Circuit Court of Appeals also stated that if the district court found that the theatres did not comply with the ADA, any remedial action should be prospective only. If the Company loses this litigation, the Company’s financial position, results of operations and cash flows may be materially and adversely affected. The Company is unable to predict the outcome of this litigation or the range of potential loss, however, management believes that based upon current precedent the Company’s potential liability with respect to such proceeding is not material in the aggregate to the Company’s financial position, results of operations and cash flows. Accordingly, the Company has not established a reserve for loss in connection with this proceeding.

To date, there have been three divergent opinions published by federal circuit courts addressing whether wheelchair seating locations in stadium-style movie theatres must comply with an alleged “viewing angle” requirement purportedly interpreted from the “lines of sight comparable” clause of Section 4.33.3 of the ADA Accessibility Guidelines.

On April 6, 2000, the Fifth Circuit Court of Appeals issued its decision in Lara v. Cinemark, in which it rejected an interpretation by the United States Department of Justice that Section 4.33.3 imposes a “viewing angle” requirement, and held that wheelchair seating locations in the sloped-floor areas of stadium-style movie theatres that provide unobstructed views of the movie screen comply with the “lines of sight comparable” language of Section 4.33.3 as a matter of law. Lara v. Cinemark USA, Inc., 207 F.3d 783, 788-89 (5th Cir. 2000). On August 13, 2003, the Ninth Circuit Court of Appeals issued its divided decision in Stewmon v. Regal, in which the majority deferred to an interpretation by the DOJ that Section 4.33.3 imposes a “viewing angle” requirement, and held that wheelchair seating locations in the sloped-floor areas of stadium-style movie theatres did not provide comparable “viewing angles” of the movie screen and thus were unlawful. Stewmon v. Regal Cinemas, Inc., 339 F.3d 1126, 1133 (9th Cir. 2003). On November 6, 2003, the Sixth Circuit Court of Appeals issued its opinion in United States v. Cinemark, in which it deferred in part to an interpretation by the DOJ that compliance with Section 4.33.3 includes a consideration of the quality of the “viewing angle” of the movie

CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

screen, but remanded the case to the district court to determine liability and remedies issues with dicta suggesting that any remedy should be given prospective application only. United States of America v. Cinemark USA, Inc., 348 F.3d 569, 579, 582-83 (6th Cir. 2003). These decisions have created three-way circuit conflicts on issues concerning interpreting federal accessibility law, deferring to the DOJ’s purported interpretations of federal accessibility law, and whether federal courts should retroactively apply such interpretations after construction of the subject facilities. Due to the circuit conflicts, the Company and Regal Cinemas filed petitions for certiorari with the United States Supreme Court, but these petitions were denied on June 28, 2004. The Company will continue to vigorously defend the Northern District of Ohio lawsuit.

Mission, Texas Litigation - In July 2001, Sonia Rivera-Garcia and Valley Association for Independent Living filed suit in the 93^rd Judicial District Court of Hidalgo County, Texas alleging certain violations of the Human Resources Code, the Texas Architectural Barriers Act, the Texas Accessibility Standards and the Deceptive Trade Practices Act relating to accessibility of movie theatres for patrons using wheelchairs at one theatre in the Mission, Texas market. The plaintiffs are seeking remedial action and unspecified damages. The Company has filed an answer denying the allegations and is vigorously defending this suit. The Company is unable to predict the outcome of this litigation or the range of potential loss, however, management believes that based upon current precedent the Company’s potential liability with respect to such proceeding is not material in the aggregate to the Company’s financial position, results of operations and cash flows. Accordingly, the Company has not established a reserve for loss in connection with this proceeding.

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

16. Condensed Consolidating Financial Statements of Subsidiary Guarantors

As of June 30, 2004, the Company had outstanding $10.8 million aggregate principal amount of 8 1/2% senior subordinated notes due 2008 and $342.3 million aggregate principal amount of 9% senior subordinated notes due 2013. These senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated unsecured basis by the following subsidiaries of Cinemark USA, Inc.:

Cinemark, L.L.C., Sunnymead Cinema Corp., Cinema Properties, Inc., Greeley Holdings, Inc. (formerly known as Cinemark Paradiso, Inc.), Trans Texas Cinema, Inc., Missouri City Central 6, Inc., Cinemark Mexico (USA), Inc., Cinemark Leasing Company, Cinemark Partners I, Inc., Multiplex Properties, Inc., Multiplex Services, Inc., CNMK Investments, Inc., CNMK Delaware Investments I, L.L.C., CNMK Delaware Investments II, L.L.C., CNMK Delaware Investments Properties, L.P., CNMK Texas Properties, Ltd., Laredo Theatre, Ltd. and Cinemark Investments Corporation.

The following supplemental condensed consolidating financial statements present:

1. Condensed consolidating balance sheets as of June 30, 2004 and December 31, 2003 and condensed consolidating statements of operations and cash flows for each of the six months ended June 30, 2004 and 2003.

2. Cinemark USA, Inc. (the “Parent” and “Issuer”), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method of accounting and therefore, the Parent column reflects the equity income (loss) of its Guarantor Subsidiaries and Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Guarantor Subsidiaries and Non-Guarantor Subsidiaries column. Additionally, the Guarantor Subsidiaries column reflects the equity income (loss) of its Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Non-Guarantor Subsidiaries column.

3. Elimination entries necessary to consolidate the Parent and all of its Subsidiaries.

SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 2004


	Parent		Subsidiary			Subsidiary
	Company		Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	21,647,474	$	13,761,395			63,056,284		$	—		$	98,465,153
Inventories		2,201,899		1,273,669			1,336,411			—			4,811,979
Accounts receivable		60,351,761		(23,255,371	)		7,754,558			(29,072,712	)		15,778,236
Income tax receivable		6,850,888		57,389			3,482,030			(9,037,825	)		1,352,482
Prepaid expenses and other		9,886,132		518,946			1,176,730			(7,930,000	)		3,651,808

Total current assets		100,938,154		(7,643,972	)		76,806,013			(46,040,537	)		124,059,658
THEATRE PROPERTIES AND EQUIPMENT - net		300,903,504		306,710,679			168,586,142			—			776,200,325
OTHER ASSETS
Goodwill		7,834,692		412,327			3,849,517			(196,695	)		11,899,841
Investments in and advances to affiliates		462,626,657		395,916,548			803,590			(858,069,073	)		1,277,722
Intangible assets, deferred charges and other - net		27,972,224		1,537,704			71,907,344			(55,521,785	)		45,895,487

Total other assets		498,433,573		397,866,579			76,560,451			(913,787,553	)		59,073,050

TOTAL ASSETS	$	900,275,231	$	696,933,286		$	321,952,606		$	(959,828,090	)	$	959,333,033

LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	2,655,629	$	—		$	4,474,601		$	—		$	7,130,230
Income tax payable		4,060,776		491,485			4,485,564			(9,037,825	)		—
Accounts payable and accrued expenses		73,966,990		40,513,284			42,375,277			(28,922,229	)		127,933,322

Total current liabilities		80,683,395		41,004,769			51,335,442			(37,960,054	)		135,063,552
LONG-TERM LIABILITIES
Long-term debt, less current portion		641,383,250		43,737,910			67,394,897			(121,967,487	)		630,548,570
Deferred income taxes		9,954,701		8,249,214			(8,092,821	)		—			10,111,094
Other long-term liabilities and deferrals		29,498,052		78,108,671			7,128,566			(77,920,000	)		36,815,289

Total long-term liabilities		680,836,003		130,095,795			66,430,642			(199,887,487	)		677,474,953
COMMITMENTS AND CONTINGENCIES		—		—			—			—			—
MINORITY INTERESTS IN SUBSIDIARIES		—		1,229,301			34,263,357			—			35,492,658
SHAREHOLDER’S EQUITY
Common stock		49,543,442		19,120			96,584,705			(96,603,825	)		49,543,442
Other shareholder’s equity		89,212,391		524,584,301			73,338,460			(625,376,724	)		61,758,428

Total shareholder’s equity		138,755,833		524,603,421			169,923,165			(721,980,549	)		111,301,870

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	900,275,231	$	696,933,286		$	321,952,606		$	(959,828,090	)	$	959,333,033

SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
SIX MONTHS ENDED JUNE 30, 2004


	Parent			Subsidiary			Subsidiary
	Company			Guarantors			Non-Guarantors			Eliminations			Consolidated
REVENUES	$	234,650,315		$	178,785,171		$	134,646,243		$	(36,271,197	)	$	511,810,532
COSTS AND EXPENSES
Cost of operations		200,304,617			109,578,270			96,586,558			(36,499,082	)		369,970,363
General and administrative expenses		6,863,003			42,882,788			7,011,911			227,885			56,985,587
Depreciation and amortization		10,597,093			11,308,487			11,867,457			—			33,773,037
Asset impairment loss		—			1,000,000			—			—			1,000,000
Gain on sale of assets and other		(419,219	)		—			(133,621	)		—			(552,840	)

Total costs and expenses		217,345,494			164,769,545			115,332,305			(36,271,197	)		461,176,147

OPERATING INCOME		17,304,821			14,015,626			19,313,938			—			50,634,385
OTHER INCOME (EXPENSE)
Interest expense		(22,240,750	)		(1,739,499	)		(3,384,059	)		4,982,175			(22,382,133	)
Amortization of debt issue cost		(1,249,407	)		—			(17,721	)		—			(1,267,128	)
Interest income		2,078,844			3,024,554			756,029			(4,982,175	)		877,252
Foreign currency exchange gain		—			—			572,483			—			572,483
Loss on early retirement of debt		(5,576,935	)		—			—			—			(5,576,935	)
Equity in income (loss) of affiliates		19,111,450			9,603,301			26,417			(28,776,635	)		(35,467	)
Minority interests in income of subsidiaries		—			(72,819	)		(3,483,737	)		—			(3,556,556	)

Total other income (expense)		(7,876,798	)		10,815,537			(5,530,588	)		(28,776,635	)		(31,368,484	)

INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (BENEFIT)		9,428,023			24,831,163			13,783,350			(28,776,635	)		19,265,901
Income taxes (benefit)		(1,715,779	)		6,411,307			2,730,893			—			7,426,421

INCOME (LOSS) FROM CONTINUING OPERATIONS		11,143,802			18,419,856			11,052,457			(28,776,635	)		11,839,480
Loss from discontinued operations, net of income tax
benefit of $191,250		—			—			(545,632	)		—			(545,632	)

NET INCOME (LOSS)	$	11,143,802		$	18,419,856		$	10,506,825		$	(28,776,635	)	$	11,293,848

SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2004


	Parent			Subsidiary			Subsidiary
	Company			Guarantors			Non-Guarantors			Eliminations			Consolidated
OPERATING ACTIVITIES
Net income (loss)	$	11,143,802		$	18,419,856			10,506,825		$	(28,776,635	)	$	11,293,848
Noncash items in net income (loss):
Depreciation and amortization		10,888,777			11,308,487			12,883,229			—			35,080,493
Loss on impairment of assets		—			1,000,000			—			—			1,000,000
Loss on assets held for sale		—			—			565,501			—			565,501
Gain on sale of assets and other		(419,219	)		—			(133,621	)		—			(552,840	)
Write-off unamortized debt issue costs and debt premium/discount		897,659			—			—			—			897,659
Write-off of unearned compensation related to Recapitalization		1,595,234			—			—			—			1,595,234
Deferred lease expenses		634,127			(6,123	)		(568,067	)		—			59,937
Deferred income tax expenses		(9,478,447	)		6,365,097			191,431			—			(2,921,919	)
Equity in (income) loss of affiliates		(19,111,450	)		(9,603,301	)		(26,417	)		28,776,635			35,467
Minority interests in income of subsidiaries		—			72,819			3,483,737			—			3,556,556
Cash provided by (used for) operating working capital		(52,388,839	)		40,748,059			1,380,152			(4,829,071	)		(15,089,699	)

Net cash provided by (used for) operating activities		(56,238,356	)		68,304,894			28,282,770			(4,829,071	)		35,520,237
INVESTING ACTIVITIES
Additions to theatre properties and equipment		(12,170,743	)		(21,092,559	)		(12,668,813	)		—			(45,932,115	)
Proceeds from sale of United Kingdom theatres		—			—			2,645,812			—			2,645,812
Proceeds from sale of other theatre properties and equipment		—			—			820,841			—			820,841
Proceeds from sale of equity investment		1,250,000			—			—			—			1,250,000
Net transactions with affiliates		38,628,653			(42,899,360	)		960,914			3,437,293			127,500

Net cash provided by (used for) investing activities		27,707,910			(63,991,919	)		(8,241,246	)		3,437,293			(41,087,962	)
FINANCING ACTIVITIES
Capital contribution from parent		27,613,924			—			—			—			27,613,924
Retirement of senior subordinated notes		(111,915,000	)		—			—			—			(111,915,000	)
Increase in long-term debt		260,006,927			—			755,716			—			260,762,643
Decrease in long-term debt		(164,825,000	)		(55,629	)		(3,860,579	)		—			(168,741,208	)
Increase in debt issue cost		(7,622,222	)		—			(15,224	)		—			(7,637,446	)
Change in intercompany notes		—			81,309			(1,473,087	)		1,391,778			—
Increase in minority investment in subsidiaries		—			—			670,491			—			670,491
Decrease in minority investment in subsidiaries		—			(100,000	)		(2,566,572	)		—			(2,666,572	)

Net cash provided by (used for) financing activities		3,258,629			(74,320	)		(6,489,255	)		1,391,778			(1,913,168	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		—			—			(1,373,239	)		—			(1,373,239	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(25,271,817	)		4,238,655			12,179,030			—			(8,854,132	)
CASH AND CASH EQUIVALENTS:
Beginning of period		46,919,291			9,522,740			50,877,254			—			107,319,285

End of period	$	21,647,474		$	13,761,395		$	63,056,284		$	—		$	98,465,153

SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2003


	Parent		Subsidiary		Subsidiary
	Company		Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	46,919,291	$	9,522,740	$	50,877,254		$	—		$	107,319,285
Inventories		1,941,400		1,158,809		1,223,478			—			4,323,687
Accounts receivable		16,099,027		18,666,355		7,337,334			(26,662,668	)		15,440,048
Income tax receivable		661,332		43,600		—			(704,932	)		—
Prepaid expenses and other		6,605,385		2,089,981		1,802,389			(5,021,689	)		5,476,066

Total current assets		72,226,435		31,481,485		61,240,455			(32,389,289	)		132,559,086
THEATRE PROPERTIES AND EQUIPMENT — net		299,179,099		297,926,605		178,774,354			—			775,880,058
OTHER ASSETS
Goodwill		7,834,692		412,327		4,024,330			(188,254	)		12,083,095
Investments in and advances to affiliates		487,113,511		375,329,715		28,494,989			(888,591,111	)		2,347,104
Intangible assets, deferred charges and other — net		21,958,723		1,236,729		71,838,834			(57,157,229	)		37,877,057

Total other assets		516,906,926		376,978,771		104,358,153			(945,936,594	)		52,307,256

TOTAL ASSETS	$	888,312,460	$	706,386,861	$	344,372,962		$	(978,325,883	)	$	960,746,400

LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	1,705,629	$	—	$	5,039,213		$	—		$	6,744,842
Income tax payable		4,683,517		491,485		1,051,511			(704,932	)		5,521,581
Accounts payable and accrued expenses		77,572,911		47,276,056		39,022,470			(28,211,487	)		135,659,950

Total current liabilities		83,962,057		47,767,541		45,113,194			(28,916,419	)		147,926,373
LONG-TERM LIABILITIES
Long-term debt, less current portion		641,412,860		43,737,910		81,904,971			(115,369,602	)		651,686,139
Deferred income taxes		19,433,148		1,884,117		(8,284,252	)		—			13,033,013
Other long-term liabilities and deferrals		28,480,667		73,667,100		8,642,498			(73,465,000	)		37,325,265

Total long-term liabilities		689,326,675		119,289,127		82,263,217			(188,834,602	)		702,044,417
COMMITMENTS AND CONTINGENCIES		—		—		—			—			—
MINORITY INTERESTS IN SUBSIDIARIES		—		1,256,482		32,675,701			—			33,932,183
SHAREHOLDER’S EQUITY
Common stock		49,546,776		25,787		96,590,704			(96,619,825	)		49,543,442
Other shareholder’s equity		65,476,952		538,047,924		87,730,146			(663,955,037	)		27,299,985

Total shareholder’s equity		115,023,728		538,073,711		184,320,850			(760,574,862	)		76,843,427

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	888,312,460	$	706,386,861	$	344,372,962		$	(978,325,883	)	$	960,746,400

SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
SIX MONTHS ENDED JUNE 30, 2003


	Parent			Subsidiary			Subsidiary
	Company			Guarantors			Non-Guarantors			Eliminations			Consolidated
REVENUES	$	215,226,617		$	159,125,440		$	107,048,271		$	(31,418,964	)	$	449,981,364
COSTS AND EXPENSES
Cost of operations		186,959,288			100,941,196			79,025,735			(31,680,760	)		335,245,459
General and administrative expenses		1,752,786			11,967,292			5,952,888			261,796			19,934,762
Depreciation and amortization		10,725,108			10,952,463			10,855,853			—			32,533,424
Asset impairment loss		—			820,493			1,240,352			—			2,060,845
(Gain) loss on sale of assets and other		48,362			(1,040,239	)		858			—			(991,019	)

Total costs and expenses		199,485,544			123,641,205			97,075,686			(31,418,964	)		388,783,471

OPERATING INCOME		15,741,073			35,484,235			9,972,585			—			61,197,893
OTHER INCOME (EXPENSE)
Interest expense		(26,587,025	)		(2,902,912	)		(3,765,749	)		5,741,359			(27,514,327	)
Amortization of debt issue cost		(1,010,561	)		(130,329	)		(30,060	)		—			(1,170,950	)
Interest income		2,713,017			3,181,200			930,506			(5,741,359	)		1,083,364
Foreign currency exchange gain		—			—			151,199			—			151,199
Loss on early retirement of debt		(6,374,514	)		(883,622	)		—			—			(7,258,136	)
Equity in income (loss) of affiliates		31,973,164			2,740,921			170,915			(34,735,476	)		149,524
Minority interests in income of subsidiaries		—			(118,678	)		(2,157,807	)		—			(2,276,485	)

Total other income (expense)		714,081			1,886,580			(4,700,996	)		(34,735,476	)		(36,835,811	)

INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES		16,455,154			37,370,815			5,271,589			(34,735,476	)		24,362,082
Income taxes		2,245,134			5,751,236			2,021,528			—			10,017,898

INCOME (LOSS) FROM CONTINUING OPERATIONS		14,210,020			31,619,579			3,250,061			(34,735,476	)		14,344,184
Loss from discontinued operations, net of income tax benefit of $0		—			—			(509,164	)		—			(509,164	)

NET INCOME (LOSS)	$	14,210,020		$	31,619,579		$	2,740,897		$	(34,735,476	)	$	13,835,020

SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2003


	Parent			Subsidiary			Subsidiary
	Company			Guarantors			Non-Guarantors			Eliminations			Consolidated
OPERATING ACTIVITIES							$
Net income (loss)	$	14,210,020		$	31,619,579			2,740,897		$	(34,735,476	)	$	13,835,020
Noncash items in net income (loss):
Depreciation and amortization		9,852,662			11,082,793			12,053,094			—			32,988,549
Loss on impairment of assets		—			820,493			1,240,352			—			2,060,845
(Gain) loss on sale of assets and other		48,362			(1,040,239	)		858			—			(991,019	)
Write-off unamortized debt issue costs and debt premium/discount		2,452,293			883,622			—			—			3,335,915
Deferred lease expenses		8,375,193			(7,536,514	)		(79,675	)		—			759,004
Deferred income tax expenses		(211,732	)		184,883			574,900			—			548,051
Equity in (income) loss of affiliates		(31,973,164	)		(2,740,921	)		(170,915	)		34,735,476			(149,524	)
Minority interests in income of subsidiaries		—			118,678			2,157,807			—			2,276,485
Cash provided by (used for) operating working capital		(8,238,221	)		1,241,817			(1,989,457	)		(5,404,574	)		(14,390,435	)

Net cash provided by (used for) operating activities		(5,484,587	)		34,634,191			16,527,861			(5,404,574	)		40,272,891
INVESTING ACTIVITIES
Additions to theatre properties and equipment		(5,752,807	)		(3,771,948	)		(8,451,504	)		—			(17,976,259	)
Proceeds from sale of theatre properties and equipment		1,200			2,063,364			10,831			—			2,075,395
Net transactions with affiliates		(45,089,611	)		(1,901,467	)		(2,826,886	)		50,042,650			224,686

Net cash provided by (used for) investing activities		(50,841,218	)		(3,610,051	)		(11,267,559	)		50,042,650			(15,676,178	)
FINANCING ACTIVITIES
Issuance of senior subordinated notes		375,225,000			—			—			—			375,225,000
Retirement of senior subordinated notes		(232,989,000	)		—			—			—			(232,989,000	)
Increase in long-term debt		238,508,545			—			—			—			238,508,545
Decrease in long-term debt		(328,532,229	)		(74,335,900	)		(5,959,549	)		—			(408,827,678	)
Increase in debt issue cost		(14,944,223	)		—			—			—			(14,944,223	)
Change in intercompany notes		16,275,000			23,050,000			5,313,076			(44,638,076	)		—
Increase in minority investment in subsidiaries		—			—			3,896,860			—			3,896,860
Decrease in minority investment in subsidiaries		—			(125,000	)		(150,304	)		—			(275,304	)

Net cash provided by (used for) financing activities		53,543,093			(51,410,900	)		3,100,083			(44,638,076	)		(39,405,800	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		—			—			1,737,270			—			1,737,270

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(2,782,712	)		(20,386,760	)		10,097,655			—			(13,071,817	)
CASH AND CASH EQUIVALENTS:
Beginning of period		9,487,744			23,835,491			30,395,280			—			63,718,515

End of period	$	6,705,032		$	3,448,731		$	40,492,935		$	—		$	50,646,698

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.

We are one of the leaders in the motion picture exhibition industry, in terms of revenues and number of screens in operation, with theatres in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia. We generate revenues primarily from box office receipts and concession sales with additional revenues from screen advertising sales and other ancillary revenue streams, such as vendor marketing programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our revenues are affected by changes in attendance and average admissions and concession revenues per patron. Attendance is primarily affected by the quality and quantity of films released by motion picture studios. Film releases during the first half of 2004 included the blockbusters The Passion of the Christ and Shrek 2, which have each generated domestic box office receipts in excess of $350 million, and Harry Potter and the Prisoner of Azkaban, which has generated domestic box office receipts in excess of $200 million. The highly anticipated sequel Spider-Man 2 was released on June 30, 2004 and is also expected to exceed $350 million in domestic box office receipts. Films scheduled for release during the second half of 2004 include action movies such as I, Robot, The Bourne Supremacy and The Village; teen-oriented films such as Princess Diaries 2 and family movies such as A Shark Tale and The Incredibles.

Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which successful films are released. Film rental costs can also vary based on the length of a film’s run. Generally, a film that runs for a longer period results in lower film rental costs as a percentage of revenues. Film rental rates are negotiated on a film-by-film and theatre-by-theatre basis. Advertising costs borne by us, which are expensed as incurred, are primarily fixed at the theatre level as daily movie directories placed in newspapers represent the largest component of advertising costs. The monthly cost of these ads is based on, among other things, the size of the directory and the frequency and size of the newspaper’s circulation. The internet is quickly becoming the primary way to check movie times, replacing the traditional newspaper advertisements. Over time, the internet may allow us to reduce our advertising costs associated with newspaper directory advertisements.

Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain bulk rates.

Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to operate a theatre facility during non-peak periods), salaries and wages move in relation to revenues as theatre staffing is adjusted to handle changes in attendance.

Facility lease expense is primarily a fixed cost at the theatre level as our facility leases generally require a fixed monthly minimum rent payment. Certain leases are also subject to additional percentage rent if a target annual revenue level is achieved. Facility lease expense as a percentage of revenues is also affected by the number of leased versus fee owned facilities.

Utilities and other costs include certain costs that are fixed such as property taxes, certain costs which are variable such as liability insurance, and certain costs that possess both fixed and variable components such as utilities, repairs and maintenance and security services.

Critical Accounting Policies

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue and Expense Recognition

Revenues are recognized when admissions and concession sales are received at the box office and screen advertising is shown at the theatres. We record proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognize admissions and concession revenue when a holder redeems a gift card or other advanced sale-type certificate. We recognize unredeemed gift cards and other advanced sale-type certificates as other revenue only after such a period of time indicates, based on our historical experience, the likelihood of redemption is remote.

Film rental costs are accrued based on the applicable box office receipts and either the mutually agreed upon firm terms or estimates of the final settlement depending on the film licensing arrangement. Estimates are made based on the expected success of a film over the length of its run. The success of a film can typically be determined a few weeks after a film is released when initial box office performance of the film is known. Accordingly, final settlements typically approximate estimates since box office receipts are known at the time the estimate is made and the expected success of a film over the length of its run can typically be estimated early in the film’s run. The final film settlement amount is negotiated at the conclusion of the film’s run based upon how a film actually performs. If actual settlements are higher than those estimated, additional film rental costs are recorded at that time. When participating in co-operative advertising, we share the total advertising costs to promote a film with the film distributor on a negotiated basis and our advertising expenses are presented net of the portion of advertising costs reimbursed to us. We recognize advertising costs and any sharing arrangements with film distributors in the same accounting period. Advertising costs borne by us are expensed as incurred.

Asset Impairment Loss

We review long-lived assets for impairment on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We assess many factors including the following to determine whether to impair individual theatre assets:

• actual theatre level cash flow;

• future years budgeted theatre level cash flow;

• theatre property and equipment values;

• goodwill values;

• the age of a recently built theatre;

• competitive theatres in the marketplace;

• the sharing of a market with our other theatres;

• changes in foreign currency exchange rates;

• the impact of recent ticket price changes;

• available lease renewal options; and

• other factors considered relevant in our assessment of impairment of individual theatre assets.

Assets are evaluated for impairment on an individual theatre basis or a group of theatres that share the same marketplace, which we believe is the lowest applicable level for which there are identifiable cash flows. The evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover an asset’s carrying amount, we then compare the carrying value of the asset with its fair value, which is determined based on estimated cash flows. When estimated fair value is determined to be lower than the carrying value of the asset, the asset is written down to its estimated fair value.

Income Taxes

We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the bases of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments and the related tax accruals are in the condensed consolidated balance sheets. To the extent tax accruals differ from actual payments or assessments, the accruals will be adjusted.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items reflected in our condensed consolidated statements of operations:


	% of Revenues						% of Revenues
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Revenues
Admissions		63.0	%		63.2	%		63.3	%		63.1	%
Concession		32.2			31.9			31.7			31.8
Other		4.8			4.9			5.0			5.1

Total revenues		100.0	%		100.0	%		100.0	%		100.0	%

Cost of operations		71.2	%		73.8	%		72.3	%		74.5	%
General and administrative expenses		4.8			4.2			4.9			4.4
Stock option compensation and change of control expenses		11.5			—			6.3			—
Depreciation and amortization		6.1			6.7			6.5			7.2
Asset impairment loss		—			0.8			0.2			0.5
Gain on sale of assets and other		—			(0.1	)		(0.1	)		(0.2	)

Total costs and expenses		93.6	%		85.4	%		90.1	%		86.4	%

Operating income		6.4	%		14.6	%		9.9	%		13.6	%

Three months ended June 30, 2004 and 2003

Revenues

Revenues for the three months ended June 30, 2004 increased to $276.7 million from $247.5 million for the three months ended June 30, 2003, representing an 11.8% increase. Attendance increased 9.0% from 44.7 million patrons for the second quarter of 2003 to 48.8 million patrons for the second quarter of 2004. The increase in attendance for the second quarter of 2004 was primarily due to quality film product, including the second quarter releases of Shrek 2, Harry Potter and the Prisoner of Azkaban, and The Day After Tomorrow and the continued success of The Passion of the Christ which was released during the first quarter. Our average ticket price was $3.57 for the second quarter of 2004 compared to $3.50 for the second quarter of 2003, an increase of 2.2%. Concession revenues per patron were $1.83 for the second quarter of 2004 compared to $1.76 for the second quarter of 2003, an increase of 3.7%. Revenues per screen increased 5.6% to $86,617 for the second quarter of 2004 from $82,011 for the second quarter of 2003.

Cost of Operations

Cost of operations, as a percentage of revenues, decreased to 71.2% for the second quarter of 2004 from 73.8% for the second quarter of 2003. The decrease was primarily due to the 11.8% increase in revenues and the fixed nature of some of our theatre operating costs, such as components of salaries and wages expense, facility lease expense, and utilities and other costs.

Film rentals and advertising costs decreased to 54.5% of admissions revenues for the second quarter of 2004 from 56.5% for the second quarter of 2003, in part due to the increase in international business, which generally has lower film rental rates, and also due to the long successful run of certain high-grossing films during the second quarter of 2004. Concession supplies expense increased to 16.2% of concession revenues for the second quarter of 2004 from 16.1% for the second quarter of 2003, primarily related to increased costs on certain domestic concession products and the increase in international business, which generally has higher concession supplies costs.

Salaries and wages increased to $27.2 million for the second quarter of 2004 from $24.4 million for the second quarter of 2003 primarily due to the increase in attendance. Facility lease expense increased to $31.3 million for the second quarter of 2004 from $29.4 million for the second quarter of 2003 primarily due to new theatre openings and increased percentage rent expense. Utilities and other costs increased to $29.0 million for the second quarter of 2004 from $27.9 million for the second quarter of 2003 primarily due to increased utility rates in certain regions in which we operate.

General and Administrative Expenses

General and administrative expenses, excluding the stock option compensation and change of control expenses related to the Recapitalization, increased to $13.2 million for the second quarter of 2004 from $10.5 million for the second quarter of 2003. The increase was primarily due to increases in salary expense, incentive bonus expense and legal fees.

Stock option compensation expense of $16.3 million and change of control fees of $15.7 million were recorded during the second quarter of 2004 as a result of the Recapitalization. See Note 2 to the condensed consolidated financial statements.

Depreciation and Amortization

Depreciation and amortization expense was $16.9 million for the second quarter of 2004 compared to $16.5 million for the second quarter of 2003. The increase is primarily due to an increase in our asset base due to new theatre development.

Asset Impairment Loss

During the second quarter of 2003, we wrote down the long-lived assets of one theatre located in Mexico and one theatre located in the U.S. to their estimated fair values, which resulted in asset impairment charges of $2.1 million.

Interest Expense

Interest costs incurred, including amortization of debt issue costs, was $11.2 million for the second quarter of 2004 compared to $14.8 million for the second quarter of 2003. The decrease is primarily due to a decrease in average outstanding debt and a reduction in average interest rates due to the refinancing transactions related to the Recapitalization. See Note 2 to the condensed consolidated financial statements.

Loss on Early Retirement of Debt

During the second quarter of 2004, we recorded a loss on early retirement of debt of $5.6 million, which represented the write-off of unamortized debt issue costs, unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees associated with the repurchase and subsequent retirement of a portion of our 8 1/2% senior subordinated notes and a portion of our 9% senior subordinated notes related to the Recapitalization. During the second quarter of 2003, we recorded a loss on early retirement of debt of $5.6 million, which represented the write-off of unamortized debt issue costs, unamortized bond premiums/discounts, tender offer repurchase costs, including premiums paid, and other fees associated with the repurchase and subsequent retirement of a portion of our former 9 5/8% senior subordinated notes.

Income Taxes (Benefit)

An income tax benefit of $0.5 million was recorded for the second quarter of 2004 compared to income tax expense of $6.1 million recorded for the second quarter of 2003.

Gain (Loss) from Discontinued Operations

We recorded a gain from discontinued operations of $1.2 million during the second quarter of 2004 and a loss of $0.2 million during the second quarter of 2003. The gain recorded during the second quarter of 2004 includes the results of operations for the United Kingdom theatres and a gain on sale of the theatres, which includes the realization of approximately $1.0 in cumulative foreign currency translation adjustments that were carried as a component of shareholder’s equity prior to the sale. The loss recorded for the second quarter of 2003 represents the results of operations for the United Kingdom theatres. See Note 4 to the condensed consolidated financial statements.

Six months ended June 30, 2004 and 2003

Revenues

Revenues for the six months ended June 30, 2004 (the “2004 period”) increased to $511.8 million from $450.0 million for the six months ended June 30, 2003 (the “2003 period”), representing a 13.7% increase. Attendance increased 9.9% from 82.7 million patrons for the 2003 period to 90.9 million patrons for the 2004 period. The increase in attendance for the 2004 period is primarily due to quality film product, including the successful release of the blockbusters The Passion of the Christ, Shrek 2 and Harry Potter and the Prisoner of Azkaban during the 2004 period. Our average ticket price was $3.56 for the 2004 period compared to $3.43 for the 2003 period, an increase of 3.8%. Concession revenues per patron were $1.79 for the 2004 period compared to $1.73 for the 2003 period, an increase of 3.5%. Revenues per screen increased 8.6% to $162,185 for the 2004 period from $149,283 for the 2003 period.

Cost of Operations

Cost of operations, as a percentage of revenues, decreased to 72.3% for the 2004 period from 74.5% for the 2003 period. The decrease was primarily due to the 13.7% increase in revenues and the fixed nature of some of our theatre operating costs, such as components of salaries and wages expense, facility lease expense, and utilities and other costs.

Film rentals and advertising costs decreased to 53.7% of admissions revenues for the 2004 period from 54.6% for the 2003 period, in part due to the increase in international business, which generally has lower film rental rates, and also due to the long successful run of certain high-grossing films during 2004. Concession supplies expense increased to 16.4% of concession revenues for the 2004 period from 15.7% for the 2003 period, primarily related to increased costs on certain domestic concession products and the increase in international business, which generally has higher concession supplies costs.

Salaries and wages increased to $51.5 million for the 2004 period from $46.7 million for the 2003 period primarily due to the increase in attendance. Facility lease expense increased to $62.4 million for the 2004 period from $57.9 million for the 2003 period primarily due to new theatre openings and increased percentage rent expense. Utilities and other costs increased to $55.6 million for the 2004 period from $52.9 million for the 2003 period primarily due to increased utility rates in certain regions in which we operate.

General and Administrative Expenses

General and administrative expenses, excluding the stock option compensation and change of control expenses related to the Recapitalization, increased to $25.0 million for the 2004 period from $19.9 million for the 2003 period. The increase was primarily due to increases in salary expense, incentive bonus expense, and legal fees.

Stock option compensation expense of $16.3 million and change of control fees of $15.7 million were recorded during the 2004 period as a result of the Recapitalization. See Note 2 to the condensed consolidated financial statements.

Depreciation and Amortization

Depreciation and amortization expense was $33.8 million for the 2004 period compared to $32.5 million for the 2003 period. The increase is primarily due to an increase in our asset base due to new theatre development.

Asset Impairment Loss

During the 2004 period, we wrote down the long-lived assets of one theatre located in the U.S. to its estimated fair value, which resulted in an asset impairment charge of $1.0 million. During the 2003 period, we wrote down the long-lived assets of one theatre located in Mexico and one theatre located in the U.S. to their estimated fair values, which resulted in asset impairment charges of $2.1 million.

Interest Expense

Interest costs incurred, including amortization of debt issue costs, was $23.6 million for the 2004 period compared to $28.7 million for the 2003 period. The decrease is primarily due to a decrease in average outstanding debt and a reduction in average interest rates due to the refinancing transactions related to the Recapitalization. See Note 2 to the condensed consolidated financial statements.

Loss on Early Retirement of Debt

During the 2004 period, we recorded a loss on early retirement of debt of $5.6 million, which represented the write-off of unamortized debt issue costs, unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees associated with the repurchase and subsequent retirement of a portion of our 8 1/2% senior subordinated notes and a portion of our 9% senior subordinated notes related to the Recapitalization. During the 2003 period, we recorded a loss on early retirement of debt of $7.3 million, which related to the write-off of unamortized debt issue costs, unamortized bond premiums/discounts and tender offer repurchase costs, including premiums paid, and other fees associated with the retirement of certain debt agreements, including a portion of our former 9 5/8% senior subordinated notes, and the refinancing of our then existing credit facility.

Income Taxes

Income tax expense of $7.4 million was recorded for the 2004 period compared to income tax expense of $10.0 million recorded for the 2003 period. Our effective tax rate for the 2004 period was 38.5% compared to 41.1% for the 2003 period.

Gain (Loss) from Discontinued Operations

We recorded a loss from discontinued operations, net of income tax benefit, of $0.5 million during the 2004 period and $0.5 million during the 2003 period. The losses recorded for both periods reflect results of operations for our two United Kingdom theatres for the respective periods. Included in the loss recorded during 2004, is a loss on sale of these theatres of $0.6 million. See Note 4 to the condensed consolidated financial statements.

Liquidity and Capital Resources

Operating Activities

We primarily collect our revenues in cash, mainly through box office receipts and the sale of concession supplies. We also continue to expand the number of theatres that provide the patron a choice of using a credit card, in place of cash, which we convert to cash in approximately three to four days. Because our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not required traditional working capital financing. We typically operate with a negative working capital position for our ongoing theatre operations throughout the year, primarily because of the lack of significant inventory and accounts receivable. Cash provided by operating activities, as reflected in the condensed consolidated statements of cash flows, amounted to $35.5 million for the six months ended June 30, 2004 compared to $40.3 million for the six months ended June 30, 2003.

Investing Activities

Our investing activities have been principally related to the development and acquisition of additional theatres. New theatre openings and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our senior secured credit facility. Cash used for investing activities, as reflected in the condensed consolidated statements of cash flows, amounted to $41.1 million for the six months ended June 30, 2004 compared to $15.7 million for the six months ended June 30, 2003. The increase in cash used for investing activities is primarily due to an increase in capital expenditures during 2004.

We are continuing to expand our U.S. theatre circuit. We opened nine new theatres with 98 screens and added four screens to two existing theatres during the six months ended June 30, 2004, bringing our total domestic screen count to 2,389 screens (12 of which are in Canada). At June 30, 2004, we had signed commitments to open three new theatres with 42 screens in domestic markets by the end of 2004 and open seven new theatres with 78 screens in domestic markets subsequent to 2004. We estimate the remaining capital expenditures for the development of these 120 screens will be approximately $37 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

We are also continuing to expand our international theatre circuit. We opened two new theatres with 13 screens during the six months ended June 30, 2004, bringing our total international screen count to 848 screens. We had signed commitments to open five new theatres with 35 screens in international markets by the end of 2004 and open seven new theatres with 59 screens in international markets subsequent to 2004. We estimate the remaining capital expenditures for the development of these 94 screens in international markets will be approximately $43 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

We plan to fund capital expenditures for our continued development from cash flow from operations, borrowings under our senior secured credit facility, subordinated note borrowings, proceeds from sale leaseback transactions and/or sales of excess real estate. Additionally, we may from time to time, subject to compliance with our debt instruments, purchase on the open market or call our debt securities depending upon the availability and prices of such securities.

Financing Activities

Cash used for financing activities, as reflected in the condensed consolidated statements of cash flows, amounted to $1.9 million for the six months ended June 30, 2004 compared to $39.4 million for the six months ended June 30, 2003. As of June 30, 2004, our long-term debt obligations, future minimum lease obligations under non-cancelable operating leases, outstanding letters of credit, obligations under employment agreements and purchase commitments for each period indicated are summarized as follows:


	Payments Due by Period
	(in millions)
			Less Than						After
Contractual Obligations	Total		One Year		1- 3 Years		4-5 Years		5 Years
Long-term debt	$	637.7	$	7.1	$	11.1	$	17.4	$	602.1
Operating lease obligations		1,439.0		108.0		223.3		217.2		890.5
Letters of credit		0.1		0.1		—		—		—
Employment agreements		8.4		2.8		5.6		—		—
Purchase commitments ¹		84.5		49.6		34.9		—		—

Total obligations	$	2,169.7	$	167.6	$	274.9	$	234.6	$	1,492.6

¹Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as
of June 30, 2004.

As of June 30, 2004, we were in full compliance with all agreements governing our outstanding debt.

Recapitalization of Cinemark, Inc.

On March 12, 2004, our parent, Cinemark, Inc., entered into an agreement and plan of merger with a newly formed subsidiary of Madison Dearborn Partners, LLC (“Madison”). The transaction was completed on April 2, 2004, at which time the newly formed subsidiary of Madison was merged with and into Cinemark, Inc., with Cinemark, Inc. continuing as the surviving corporation. Simultaneously, an affiliate of Madison purchased shares of common stock of Cinemark, Inc. for approximately $518.3 million in cash and became the controlling stockholder of Cinemark, Inc., owning approximately 83% of Cinemark, Inc.’s capital stock. Lee Roy Mitchell, the Company’s Chief Executive Officer, and the Mitchell Special Trust collectively retained approximately 16% ownership of Cinemark, Inc.’s capital stock and certain members of management own the remaining 1%.

On March 31, 2004, Cinemark, Inc. issued $577,173,000 aggregate principal amount at maturity of 9 ¾% senior discount notes due 2014. The gross proceeds at issuance of $360,000,115 were used to fund in part the Recapitalization. Interest on the notes accretes until March 15, 2009 up to the aggregate principal amount of $577,173,000. Cash interest will accrue and be payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009. Due to the holding company status of Cinemark, Inc., payments of principal and interest under these notes will be dependent on loans, dividends and other payments from us to Cinemark, Inc. We have no obligation, contingent or otherwise, to pay the amounts due under the 9 ¾% senior discount notes or to make funds available to pay those amounts. The 9 ¾% senior discount notes are general, unsecured senior obligations of Cinemark, Inc. that are effectively subordinated to indebtedness and other liabilities of ours. Upon a change of control, Cinemark, Inc. would be required to make an offer to repurchase all of the 9 ¾% senior discount notes at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if any, through the date of purchase. At June 30, 2004, the accreted principal balance of the notes was $368,763,903.

Senior Subordinated Notes

On March 16, 2004, we initiated a tender offer for our then outstanding $105 million aggregate principal amount 8 1/2% senior subordinated notes due 2008 and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. On March 25, 2004, a supplemental indenture removing substantially all of the covenants was executed and became effective on the date of the Recapitalization. On April 2, 2004, in conjunction with the Recapitalization, we redeemed $94.1 million aggregate principal amount of 8 1/2% senior subordinated notes that were tendered, pursuant to the tender offer, utilizing a portion of the proceeds from our amended senior secured credit facility.

On April 14, 2004, after the expiration of the tender offer, we redeemed an additional $50,000 aggregate principal amount of 8 1/2% senior subordinated notes that were tendered. After the expiration of the tender offer, we had outstanding $10.8 million aggregate principal amount of 8 1/2% senior subordinated notes.

On April 6, 2004, as a result of the consummation of the Recapitalization and in accordance with the terms of the indenture governing our 9% senior subordinated notes due 2013, we made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, at the date of purchase. Approximately $17.8 million in aggregate principal amount of the 9% senior subordinated notes were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004. Payment of the change of control price was made with available cash by us on June 1, 2004. After the expiration of the change of control offer, we had outstanding $342.3 million aggregate principal amount of 9% senior subordinated notes.

As of June 30, 2004, we had two issues of senior subordinated notes outstanding: (1) $10.8 million aggregate principal amount of 8 1/2% senior subordinated notes due 2008; and (2) $342.3 million aggregate principal amount of 9% senior subordinated notes due 2013. Interest on each issue is payable on February 1 and August 1 of each year.

The senior subordinated notes are general, unsecured obligations and are subordinated in right of payment to the senior secured credit facility or other senior indebtedness. The notes are guaranteed by certain of our domestic subsidiaries. The guarantees are subordinated to the senior debt of the subsidiary guarantors and rank pari passu with the senior subordinated debt of our guarantor subsidiaries. The notes are effectively subordinated to the indebtedness and other liabilities of our non-guarantor subsidiaries.

The indentures governing the senior subordinated notes contain covenants that limit, among other things, dividends, transactions with affiliates, investments, sale of assets, mergers, repurchases of our capital stock, liens and additional indebtedness. Upon a change of control, we would be required to make an offer to repurchase the senior subordinated notes at a price equal to 101% of the principal amount outstanding plus accrued and unpaid interest through the date of repurchase. The indentures governing the senior subordinated notes allow us to incur additional indebtedness if we satisfy the coverage ratio specified in each indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.

On July 28, 2004, we provided notice to the holders of our remaining outstanding 8 1/2% senior subordinated notes due 2008 that we have elected to redeem all outstanding notes on August 27, 2004 at a redemption price of 102.833% of the aggregate principal amount plus accrued interest.

Senior Secured Credit Facility

On February 14, 2003, we entered into a new senior secured credit facility consisting of a $75 million five year revolving credit line and a $125 million term loan with Lehman Commercial Paper, Inc. for itself and as administrative agent for a syndicate of lenders. The net proceeds from the senior secured credit facility were used to repay, in full, certain debt agreements, including our then existing credit facility.

On August 18, 2003, we amended the senior secured credit facility to provide a $165 million term loan expiring on March 31, 2008. The net proceeds of the $165 million term loan and additional borrowings under the $75 million five year revolving credit line were used to (i) repay $124.7 million of term loans outstanding under our senior secured credit facility entered into February 14, 2003 and (ii) redeem the remaining $42 million aggregate principal amount of our then outstanding 9 5/8% senior subordinated notes on September 18, 2003.

On April 2, 2004, we amended our senior secured credit facility in connection with the Recapitalization. The amended senior secured credit facility provides for a $260 million seven year term loan and a $100 million six and one-half year revolving credit line. The net proceeds from the amended senior secured credit facility were used to repay the existing term loan of approximately $163.8 million and to redeem the approximately $94.2 million aggregate principal amount of our outstanding $105 million aggregate principal amount 8 1/2% senior subordinated notes due 2008 that were tendered pursuant to the tender offer.

Under the amended term loan, principal payments of $650,000 are due each calendar quarter through March 31, 2010 and increase to $61,100,000 each calendar quarter from June 30, 2010 to maturity at March 31, 2011. The amended term loan bears interest, at our option, at: (A) the base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.25% per annum, or (B) a “eurodollar rate” plus a margin of 2.25% per annum. After the completion of two fiscal quarters after the closing date, the margin under the term loan applicable to base rate loans ranges from 1.00% per annum to 1.25% per annum and the margin applicable to eurodollar rate loans ranges from 2.00% per annum to 2.25% per annum, and will be adjusted based upon our achieving certain performance targets.

Borrowings under the amended revolving credit line bear interest, at our option, at: (A) a base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.50% per annum, or (B) a “eurodollar rate” plus a margin of 2.50% per annum. After the completion of two fiscal quarters after the closing date, the margin under the revolving credit line applicable to base rate loans ranges from 1.00% per annum to 1.50% per annum and the margin applicable to eurodollar rate loans ranges from 2.00% per annum to 2.50% per annum, and will be adjusted based upon our achieving certain performance targets. We will also be required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the amended revolving credit line, payable quarterly in arrears.

Our obligations under the amended senior secured credit facility are guaranteed by Cinemark, Inc., CNMK Holding, Inc. and certain of our subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of our personal and intangible property, including without limitation, pledges of all of our capital stock, all of the capital stock of CNMK Holding, Inc. and certain of our domestic subsidiaries and 65% of the voting stock of certain of our foreign subsidiaries.

At June 30, 2004, there was approximately $259.4 million outstanding under the term loan and no outstanding revolver borrowings. Approximately $99.9 million was available for borrowing under the revolving credit line, giving effect to a $0.1 million letter of credit outstanding. The effective interest rate on outstanding borrowings under the senior secured credit facility at June 30, 2004 was 3.6% per annum.

Cinemark Brasil Notes Payable

As of June 30, 2004, Cinemark Brasil S.A. had four main types of funding sources executed as follows:

(1) Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”, the Brazilian National Development Bank) credit line in the U.S. dollar equivalent in Brazilian reais of US$3.8 million executed in October 1999 with a maturity date of September 2004. Interest accrues at a BNDES basket rate, which is a multiple currency rate based on the rate at which the bank borrows, plus a spread amounting to 14.5%. At June 30, 2004, there was approximately US$0.7 million outstanding under this credit line.

(2) BNDES credit line in the U.S. dollar equivalent in Brazilian reais of US$1.9 million executed in November 2001 with a maturity date of October 2006. Interest accrues at a BNDES basket rate plus a spread amounting to 13.8%. At June 30, 2004, there was approximately US$1.1 million outstanding under this credit line.

(3) Project developer financing executed with two engineering companies in September 2000 in the amount of US$1.8 million with a maturity date of September 2005. Interest accrues at a rate of TJLP+5% (Taxa de Juros de Longo Prazo (a long-term interest rate published by the Brazilian government)). At June 30, 2004, there was approximately US$0.5 million outstanding under this financing arrangement.

(4) Project developer financing executed with a mall developer in February 2004 in the amount of US$0.7 million with a maturity date of February 2009. Interest accrues at a rate of TJLP + 5.5% (Taxa de Juros de Longo Prazo (a long-term interest rate published by the Brazilian government)). At June 30, 2004, there was approximately US$0.7 million outstanding under this financing arrangement.

These sources are secured by a variety of instruments, including comfort letters from Cinemark International, L.L.C., promissory notes for up to 130% of the value, a revenue reserve account and equipment collateral. As of June 30, 2004, an aggregate of US$3.0 million was outstanding.

Cinemark Chile Note Payable

On March 26, 2002, Cinemark Chile S.A. entered into a Debt Acknowledgment, Rescheduling and Joint Guarantee and Co-Debt Agreement with Scotiabank Sud Americano and three local banks. Under this agreement, Cinemark Chile S.A. borrowed the U.S. dollar equivalent of approximately $10.6 million in Chilean pesos (adjusted for inflation pursuant to the Unidades de Fomento). Cinemark Chile S.A. is required to make 24 equal quarterly installments of principal plus accrued and unpaid interest, commencing March 27, 2002. The indebtedness is secured by a first priority commercial pledge of the shares of Cinemark Chile S.A., a chattel mortgage over Cinemark Chile’s personal property and by a guarantee issued by Cinemark International, L.L.C. The agreement requires Cinemark Chile S.A. to maintain certain financial ratios and contains other restrictive covenants typical for agreements of this type such as a limitation on dividends. Funds borrowed under this agreement bear interest at the 90 day TAB Banking rate (360 day TAB Banking rate with respect to one of the four banks) as published by the Association of Banks and Financial Institutions Act plus 2%. At June 30, 2004, US$6.7 million was outstanding under this agreement.

Cinemark Brasil Purchase

As a result of the Recapitalization, Cinemark, Inc. provided notice to its Brazilian partners (i) that its then existing stockholders no longer own more than 25% of Cinemark, Inc.’s common stock and (ii) that Lee Roy Mitchell has sold certain of his shares of Cinemark, Inc.’s common stock for cash. The Brazilian partners have exercised their option to cause Cinemark, Inc. or one of its designees to purchase shares of common stock of Cinemark Brasil S.A. owned by the Brazilian partners. The purchase price shall be determined through an appraisal process conducted by up to three approved investment banks. Cinemark, Inc. and the Brazilian partners have each received appraisals from investment banks and are currently negotiating the price per share for the common stock of Cinemark Brasil S.A. If Cinemark, Inc. and the Brazilian partners are unable to agree upon a price, a third investment bank will be retained to determine the price per share of the common stock of Cinemark Brasil S.A. We are unable to predict at this time what the purchase price will be. We expect that the purchase will be financed through additional borrowings or with available cash.

Seasonality

Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during the summer, extending from Memorial Day to Labor Day, and during the holiday season, extending from Thanksgiving through year-end. The unexpected emergence of a hit film during other periods can alter this seasonality trend. The timing of such film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report on Form 10-Q includes “forward-looking statements” based on our current expectations, assumptions, estimates, and projections about our and our subsidiaries’ business and industry. We intend that this quarterly report be governed by the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995 (the “PSLR Act”) with respect to statements that may be deemed to be forward-looking statements under the PSLR Act. They include statements relating to:

• future revenues, expenses and profitability;

• the future development and expected growth of our business;

• projected capital expenditures;

• attendance at movies generally, or in any of the markets in which we operate;

• the number or diversity of popular movies released;

• our ability to successfully license and exhibit popular films;

• competition from other exhibitors; and

• determinations in lawsuits in which we are a defendant.

You can identify forward-looking statements by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions which are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to

predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. In evaluating these forward-looking statements, you should carefully consider the risks and uncertainties described in this report. These forward-looking statements reflect our view only as of the date of this report. Actual results could differ materially from those indicated by such forward-looking statements due to a number of factors. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. We undertake no current obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.

Interest Rate Risk

An increase or decrease in interest rates would affect interest costs relating to our variable rate debt facilities. We and our subsidiaries are currently parties to variable rate debt facilities. At June 30, 2004, we had an aggregate of $271.1 million of variable rate debt outstanding under these facilities. Based on the interest rate levels in effect on the variable rate debt outstanding at June 30, 2004, a 100 basis point increase in market interest rates would not increase our annual interest expense by a material amount. Changes in interest rates do not have a direct impact on interest expense relating to the remaining fixed rate debt facilities.

The tables below provide information about our fixed rate and variable rate long-term debt agreements as of June 30, 2004 and December 31, 2003:

Expected Maturity As of June 30, 2004
(in millions)


	June 30,
																	Average
															Fair		Interest
	2005		2006		2007		2008		2009		Thereafter		Total		Value		Rate
Fixed rate	$	—	$	0.1	$	—	$	—	$	10.8	$	355.7	$	366.6	$	368.9		9.0	%
Variable rate		7.1		5.9		5.1		3.9		2.7		246.4		271.1		270.8		3.8	%

Total debt	$	7.1	$	6.0	$	5.1	$	3.9	$	13.5	$	602.1	$	637.7	$	639.7

Expected Maturity As of December 31, 2003
(in millions)


	December 31,
																	Average
															Fair		Interest
	2004		2005		2006		2007		2008		Thereafter		Total		Value		Rate
Fixed rate	$	0.1	$	—	$	0.1	$	—	$	104.5	$	374.2	$	478.9	$	474.4		8.9	%
Variable rate		6.6		6.9		4.4		121.8		39.8		—		179.5		179.2		4.1	%

Total debt	$	6.7	$	6.9	$	4.5	$	121.8	$	144.3	$	374.2	$	658.4	$	653.6

Foreign Currency Exchange Rate Risk

We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our international operations. Generally accepted accounting principles in the U.S. require that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If our subsidiaries operate in a highly inflationary economy, generally accepted accounting principles in the U.S. require that the U.S. dollar be used as the functional currency for the subsidiary. Currency fluctuations result in us reporting exchange gains (losses) or foreign currency translation adjustments relating to our international subsidiaries depending on the inflationary environment of the country in which we operate. Generally, we export from the U.S. certain of the equipment and construction interior finish items and other operating supplies used by our international subsidiaries. Principally all the revenues and operating

expenses of our international subsidiaries are transacted in the country’s local currency. Based upon our equity ownership in our international subsidiaries as of June 30, 2004, holding everything else constant, a 10% immediate unfavorable change in each of the foreign currency exchange rates to which we are exposed would decrease the net fair value of our investments in our international subsidiaries by approximately $7 million.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established a system of controls and other procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures have been evaluated under the direction of our Chief Executive Officer and Chief Financial Officer for the period covered by this report. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective in alerting them in a timely basis to material information relating to the Company and its consolidated subsidiaries required to be included in our reports filed or submitted under the Exchange Act.

Changes in Internal Controls

There have been no significant changes in our system of internal controls or in other factors that could significantly affect internal controls within the period covered by this report or subsequent to the evaluation by the Chief Executive Officer and Chief Financial Officer.

CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2004
(Unaudited)


	Restricted			Unrestricted
	Group			Group			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	65,190,339		$	33,274,814		$	—		$	98,465,153
Inventories		4,055,790			756,189			—			4,811,979
Accounts receivable		12,285,426			4,088,342			(595,532	)		15,778,236
Income tax receivable		433,901			918,581			—			1,352,482
Prepaid expenses and other		2,860,680			791,128			—			3,651,808

Total current assets		84,826,136			39,829,054			(595,532	)		124,059,658
THEATRE PROPERTIES AND EQUIPMENT - net		700,983,591			75,216,734			—			776,200,325
OTHER ASSETS
Goodwill		8,050,324			3,849,517			—			11,899,841
Investments in and advances to affiliates		145,545,709			806,169			(145,074,156	)		1,277,722
Intangible assets, deferred charges and other - net		38,676,135			7,219,352			—			45,895,487

Total other assets		192,272,168			11,875,038			(145,074,156	)		59,073,050

TOTAL ASSETS	$	978,081,895		$	126,920,826		$	(145,669,688	)	$	959,333,033

LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	2,840,871		$	4,289,359		$	—		$	7,130,230
Accounts payable and accrued expenses		110,174,627			18,328,685			(569,990	)		127,933,322

Total current liabilities		113,015,498			22,618,044			(569,990	)		135,063,552
LONG-TERM LIABILITIES
Senior credit agreements		257,136,627			6,942,923			—			264,079,550
Senior subordinated notes		366,469,020			—			—			366,469,020
Deferred lease expenses		25,828,719			1,883,920			—			27,712,639
Deferred gain on sale leasebacks		3,823,740			—			—			3,823,740
Deferred income taxes		10,156,707			(45,613	)		—			10,111,094
Deferred revenues and other long-term liabilities		762,222			4,516,688			—			5,278,910

Total long-term liabilities		664,177,035			13,297,918			—			677,474,953
COMMITMENTS AND CONTINGENCIES		—			—			—			—
MINORITY INTERESTS IN SUBSIDIARIES		11,518,437			23,974,221			—			35,492,658
SHAREHOLDER’S EQUITY
Class A common stock, $.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding		15			2,000			(2,000	)		15
Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and outstanding		49,543,427			—			—			49,543,427
Additional paid-in-capital		42,408,865			145,097,698			(145,097,698	)		42,408,865
Retained earnings		177,815,319			(41,498,860	)		—			136,316,459
Treasury stock, 57,245 Class B shares at cost		(24,232,890	)		—			—			(24,232,890	)
Accumulated other comprehensive loss		(56,163,811	)		(36,570,195	)		—			(92,734,006	)

Total shareholder’s equity		189,370,925			67,030,643			(145,099,698	)		111,301,870

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	978,081,895		$	126,920,826		$	(145,669,688	)	$	959,333,033

Note: “Restricted Group” and “Unrestricted Group” are defined in the Indentures for the Senior Subordinated Notes.

CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)


	Restricted			Unrestricted
	Group			Group			Eliminations			Consolidated
REVENUES	$	437,902,895		$	74,554,076		$	(646,439	)	$	511,810,532
COSTS AND EXPENSES
Cost of operations		314,718,859			55,897,943			(646,439	)		369,970,363
General and administrative expenses		52,247,126			4,738,461			—			56,985,587
Depreciation and amortization		27,226,918			6,546,119			—			33,773,037
Asset impairment loss		1,000,000			—			—			1,000,000
Gain on sale of assets and other		(339,173	)		(213,667	)		—			(552,840	)

Total costs and expenses		394,853,730			66,968,856			(646,439	)		461,176,147

OPERATING INCOME		43,049,165			7,585,220			—			50,634,385
OTHER INCOME (EXPENSE)
Interest expense		(21,857,501	)		(524,632	)		—			(22,382,133	)
Amortization of debt issue cost		(1,256,546	)		(10,582	)		—			(1,267,128	)
Interest income		423,651			453,601			—			877,252
Foreign currency exchange gain		466,529			105,954			—			572,483
Loss on early retirement of debt		(5,576,935	)		—			—			(5,576,935	)
Equity in income (loss) of affiliates		(61,884	)		26,417			—			(35,467	)
Minority interests in income of subsidiaries		(1,018,577	)		(2,537,979	)		—			(3,556,556	)

Total other expenses		(28,881,263	)		(2,487,221	)		—			(31,368,484	)

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		14,167,902			5,097,999			—			19,265,901
Income taxes		6,123,980			1,302,441			—			7,426,421

INCOME FROM CONTINUING OPERATIONS		8,043,922			3,795,558			—			11,839,480
Loss from discontinued operations, net of income tax benefit of $191,250		(545,632	)		—			—			(545,632	)

NET INCOME	$	7,498,290		$	3,795,558		$	—		$	11,293,848

Note: “Restricted Group” and “Unrestricted Group” are defined in the Indentures for the Senior Subordinated Notes.

CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)


	Restricted			Unrestricted
	Group			Group				Eliminations		Consolidated
OPERATING ACTIVITIES
Net income	$	7,498,290		$	3,795,558			$	—	$	11,293,848
Noncash items in net income:
Depreciation		26,936,652			6,512,871				—		33,449,523
Depreciation — assets held for sale		118,157			—				—		118,157
Amortization of intangible and other assets		290,266			33,248				—		323,514
Amortization of foreign advanced rents		495,763			384,131				—		879,894
Amortized compensation — stock options		145,021			—				—		145,021
Amortization of debt issue costs		1,256,546			10,582				—		1,267,128
Amortization of gain on sale leasebacks		(182,960	)		—				—		(182,960	)
Amortization of debt discount and premium		(754,526	)		—				—		(754,526	)
Amortization of deferred revenues		(165,258	)		—				—		(165,258	)
Loss on impairment of assets		1,000,000			—				—		1,000,000
Loss on assets held for sale		565,501			—				—		565,501
Gain on sale of assets and other		(339,174	)		(213,666	)			—		(552,840	)
Write-off unamortized debt issue costs and debt discount and premium related to the early retirement of debt		897,659			—				—		897,659
Write-off of unearned compensation related to the Recapitalization		1,595,234			—				—		1,595,234
Deferred lease expenses		561,473			(501,536	)			—		59,937
Deferred income tax expenses		(3,108,994	)		187,075				—		(2,921,919	)
Equity in (income) loss of affiliates		61,884			(26,417	)			—		35,467
Minority interests in income of subsidiaries		1,018,577			2,537,979				—		3,556,556
Cash provided by (used for) operating working capital		(18,438,025	)		3,348,326		—				(15,089,699	)

Net cash provided by operating activities		19,452,086			16,068,151				—		35,520,237
INVESTING ACTIVITIES
Additions to theatre properties and equipment		(37,122,538	)		(8,809,577	)			—		(45,932,115	)
Proceeds from sale of United Kingdom theatres		2,645,812			—				—		2,645,812
Proceeds from sale of other theatre properties and equipment		290,957			529,884				—		820,841
Proceeds from sale of equity investment		1,250,000			—				—		1,250,000
Dividends/capital returned from affiliates		127,500			—				—		127,500

Net cash used for investing activities		(32,808,269	)		(8,279,693	)			—		(41,087,962	)
FINANCING ACTIVITIES
Capital contribution from parent		27,613,924			—				—		27,613,924
Retirement of senior subordinated notes		(111,915,000	)		—				—		(111,915,000	)
Increase in long-term debt		260,006,927			755,716				—		260,762,643
Decrease in long-term debt		(166,354,243	)		(2,386,965	)			—		(168,741,208	)
Increase in debt issue cost		(7,622,222	)		(15,224	)			—		(7,637,446	)
Increase in minority investment in subsidiaries		610,647			59,844				—		670,491
Decrease in minority investment in subsidiaries		(365,259	)		(2,301,313	)			—		(2,666,572	)

Net cash provided by (used for) financing activities		1,974,774			(3,887,942	)			—		(1,913,168	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(546,614	)		(826,625	)			—		(1,373,239	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(11,928,023	)		3,073,891				—		(8,854,132	)
CASH AND CASH EQUIVALENTS:
Beginning of period		77,118,362			30,200,923				—		107,319,285

End of period	$	65,190,339		$	33,274,814			$	—	$	98,465,153

Note: “Restricted Group” and “Unrestricted Group” are defined in the Indentures for the Senior Subordinated Notes.

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits


2		Share Exchange Agreement dated as of May 17, 2002 by and among Cinemark, Inc., Cinemark USA, Inc. and the shareholders signature thereto incorporated by reference from Amendment 2 to Cinemark Inc.’s Registration Statement on Forms S-1 (File No. 333-88618) filed June 28, 2002.

3.1		Amended and Restated Articles of Incorporation of the Company filed with the Texas Secretary of State on June 3, 1992 (incorporated by reference to Exhibit 3.1(a) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

3.2(a)		Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 033-47040) filed April 9, 1992).

3.2(b)		Amendment to Bylaws of the Company dated March 12, 1996 (incorporated by reference to Exhibit 3.2(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 6, 1997).

4.2(a)		Indenture dated January 14, 1998 between the Company and U.S. Trust Company of Texas, N.A. governing the 8 1/2% Senior Subordinated Notes issued thereunder (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4 (File No. 333-45417) filed February 2, 1998).

4.2(b)		First Supplemental Indenture dated as of February 11, 2003 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company of Florida, N.A., as successor trustee to U.S. Trust Company of Texas, N.A. (incorporated by reference to Exhibit 4.2 (g) to the Company’s Registration Statement on Form S-4 (File No. 333-104940) filed May 2, 2003).

4.2(c)		Second Supplemental Indenture dated as of March 25, 2004 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.2(c) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

4.2(d)		Indenture dated February 11, 2003 between the Company and The Bank of New York Trust Company of Florida, N.A. governing the 9% Senior Subordinated Notes issued thereunder (incorporated by reference to Exhibit 10.2(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 19, 2003).

4.2(e)		First Supplemental Indenture dated as of May 7, 2003 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company of Florida, N.A. (incorporated by reference to Exhibit 4.2(i) to the Company’s Registration Statement on Form S-4 (File No. 333-104940) filed May 28, 2003).

4.2(f)		Form of 8 1/2% Note (contained in the Indenture listed as Exhibit 4.2(f) above) (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4 (File No. 333-45417) filed February 2, 1998).

4.2(g)		Form of 9% Note (contained in the Indenture listed as Exhibit 4.2(h) above) (incorporated by reference to Exhibit 10.2(b) to the Company’s Annual Report on Form 10-K (File 033-47040) filed March 19, 2003).

10.1(a)		Management Agreement, dated as of July 28, 1993, between the Company and Cinemark Mexico (USA) (incorporated by reference to Exhibit 10.1(a) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed May 17, 2002).

10.1(b)		Management Agreement, dated as of September 10, 1992, between Cinemark USA, Inc. and Cinemark de Mexico (incorporated by reference to Exhibit 10.8 to Cinemark Mexico (USA)’s Registration Statement on Form S-4 (File No. 033-72114) filed on November 24, 1994).

10.1(c)		Management Agreement, dated December 10, 1993, between Laredo Theatre, Ltd. and the Company (incorporated by reference to Exhibit 10.14(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1994).

10.1(d)		First Amendment to Management Agreement of Laredo Theatre, Ltd. effective as of December 10, 2003, between CNMK Texas Properties, Ltd. (successor in interest to Cinemark USA, Inc.) and Laredo Theatre Ltd. (incorporated by reference to Exhibit 10.1(d) to Cinemark, Inc’s Registration Statement on Form S-4 (File No. 333-116292) filed June 8, 2004).

10.1(e)		Management Agreement, dated September 1, 1994, between Cinemark Partners II, Ltd. and the Company (incorporated by reference to Exhibit 10.4(i) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 29, 1995).

10.1(f)		First Amendment to Management Agreement of Cinemark Partners II, Ltd. dated as of January 5, 1998 by and between Cinemark USA, Inc. and Cinemark Partners II, Ltd. (incorporated by reference to Exhibit 10.1(f) to Cinemark, Inc.’s Registration Statement on Form S-4 (File No. 333-116292) filed June 8, 2004.

10.1(g)		Management Services Agreement dated April 10, 2003 between Greeley Partners L.P. and CNMK Texas Properties, Ltd. (incorporated by reference to Exhibit 10.1(g) to Cinemark, Inc.’s Registration Statement on Form S-4 (File No. 333-116292) filed June 8, 2004).

10.2		Amended and Restated Agreement to Participate in Profits and Losses, dated as of March 12, 2004, between Cinemark USA, Inc. and Alan W. Stock (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.3(a)		License Agreement, dated December 10, 1993, between Laredo Joint Venture and the Company (incorporated by reference to Exhibit 10.14(c) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1994).

10.3(b)		License Agreement, dated September 1, 1994, between Cinemark Partners II, Ltd. and the Company (incorporated by reference to Exhibit 10.10(c) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 29, 1995).

10.4(a)		Tax Sharing Agreement, between the Company and Cinemark International, L.L.C. (f/k/a Cinemark II, Inc. ), dated as of June 10, 1992 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).


10.4(b)		Tax Sharing Agreement, dated as of July 28, 1993, between the Company and Cinemark Mexico (USA) (incorporated by reference to Exhibit 10.10 to Cinemark Mexico (USA)’s Registration Statement on Form S-4 (File No. 033-72114) filed on November 24, 1993).

10.5(a)		Indemnification Agreement, between the Company and Lee Roy Mitchell, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(a) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(b)		Indemnification Agreement, between the Company and Tandy Mitchell, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(c)		Indemnification Agreement, between the Company and Alan Stock, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(d) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(d)		Indemnification Agreement, between the Company and W. Bryce Anderson, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(f) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(e)		Indemnification Agreement, between the Company and Sheldon I. Stein, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(g) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(f)		Indemnification Agreement, between the Company and Heriberto Guerra, dated as of December 3, 1993 (incorporated by reference to Exhibit 10.23(f) to the Company’s Annual Report on Form 10-K (File No. 033-11895) filed September 13, 1996).

10.7(a)		Senior Secured Credit Agreement dated December 4, 1995 among Cinemark International, L.L.C. (f/k/a Cinemark II, Inc., Cinemark Mexico (USA) and Cinemark de Mexico (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed April 1, 1996).

10.7(b)		First Amendment to Senior Secured Credit Agreement, dated as of September 30, 1996, by and among Cinemark II, Inc., Cinemark Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V. (incorporated by reference to Exhibit 10.11(b) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed on May 17, 2002).

10.7(c)		Second Amendment to Senior Secured Credit Agreement, dated as of September 28, 2000, by and among Cinemark II, Inc., Cinemark Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V. (incorporated by reference to Exhibit 10.11(c) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed on May 17, 2002).

10.14(a)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Lee Roy Mitchell (incorporated by reference to Exhibit 10.14(a) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(b)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Alan Stock (incorporated by reference to Exhibit 10.14(b) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(c)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Tim Warner (incorporated by reference to Exhibit 10.14(c) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(d)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Robert Copple (incorporated by reference to Exhibit 10.14(d) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(e)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Rob Carmony (incorporated by reference to Exhibit 10.14(e) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(f)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Tandy Mitchell (incorporated by reference to Exhibit 10.14(f) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).


10.15		Amended and Restated Credit Agreement, dated April 2, 2004, among Cinemark, Inc., CNMK Holdings, Inc., the Company, the several lenders from time to time parties thereto, Lehman Brothers Inc. and Goldman Sachs Credit Partners LP, as Joint Legal Arrangers, Goldman Sachs Credit Partners LP, as Syndication Agent, Deutsche Bank Securities, Inc., The Bank of New York, General Electric Capital Corporation and CIBC Inc. as Documentation Agents and Lehman Commercial Paper Inc. as Administrative Agent (incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.16		Amended and Restated Guaranty and Collateral Agreement, dated April 2, 2004, among Cinemark, Inc., CNMK Holdings Inc., the Company and certain of it subsidiaries in favor of Lehman Commercial Paper, Inc., as administrative agent (incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

*31.1		Certification of Chief Executive Officer of Cinemark USA, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Chief Financial Officer of Cinemark USA, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of the Chief Executive Officer of Cinemark USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification of the Chief Financial Officer of Cinemark USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* filed herewith.

b) Reports on Form 8-K

On April 15, 2004, the Company filed on Form 8-K, reporting under Item 9, a press release announcing it has accepted for purchase and payment the remainder of the $105 million aggregate principal amount of the 8 1/2% Senior Subordinated Notes due 2008 that were tendered and not withdrawn pursuant to the tender offer.

On May 19, 2004, the Company filed on Form 8-K, reporting under Item 7 and Item 9, a press release announcing our operating results for the thee months ended March 31, 2004.

On May 28, 2004, the Company filed on Form 8-K, reporting under Item 9, a press release announcing its acceptance for purchase and payment, pursuant to the change of control offer, any and all outstanding 9% Senior Subordinated Notes due 2013 that were tendered and not withdrawn.

On August 2, 2004, the Company filed on Form 8-K, reporting under Item 9, a press release announcing the redemption of its remaining outstanding 8 1/2% Senior Subordinated Notes due 2008.

On August 5, 2004, the Company filed on Form 8-K, reporting under Item 7 and Item 9, a press release announcing our operating results for the three and six months ended June 30, 2004.

EXHIBIT INDEX


2		Share Exchange Agreement dated as of May 17, 2002 by and among Cinemark, Inc., Cinemark USA, Inc. and the shareholders signature thereto incorporated by reference from Amendment 2 to Cinemark Inc.’s Registration Statement on Forms S-1 (File No. 333-88618) filed June 28, 2002.

3.1		Amended and Restated Articles of Incorporation of the Company filed with the Texas Secretary of State on June 3, 1992 (incorporated by reference to Exhibit 3.1(a) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

3.2(a)		Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 033-47040) filed April 9, 1992).

3.2(b)		Amendment to Bylaws of the Company dated March 12, 1996 (incorporated by reference to Exhibit 3.2(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 6, 1997).

4.2(a)		Indenture dated January 14, 1998 between the Company and U.S. Trust Company of Texas, N.A. governing the 8 1/2% Senior Subordinated Notes issued thereunder (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4 (File No. 333-45417) filed February 2, 1998).

4.2(b)		First Supplemental Indenture dated as of February 11, 2003 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company of Florida, N.A., as successor trustee to U.S. Trust Company of Texas, N.A. (incorporated by reference to Exhibit 4.2 (g) to the Company’s Registration Statement on Form S-4 (File No. 333-104940) filed May 2, 2003).

4.2(c)		Second Supplemental Indenture dated as of March 25, 2004 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.2(c) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

4.2(d)		Indenture dated February 11, 2003 between the Company and The Bank of New York Trust Company of Florida, N.A. governing the 9% Senior Subordinated Notes issued thereunder (incorporated by reference to Exhibit 10.2(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 19, 2003).

4.2(e)		First Supplemental Indenture dated as of May 7, 2003 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company of Florida, N.A. (incorporated by reference to Exhibit 4.2(i) to the Company’s Registration Statement on Form S-4 (File No. 333-104940) filed May 28, 2003).

4.2(f)		Form of 8 1/2% Note (contained in the Indenture listed as Exhibit 4.2(f) above) (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4 (File No. 333-45417) filed February 2, 1998).

4.2(g)		Form of 9% Note (contained in the Indenture listed as Exhibit 4.2(h) above) (incorporated by reference to Exhibit 10.2(b) to the Company’s Annual Report on Form 10-K (File 033-47040) filed March 19, 2003).

10.1(a)		Management Agreement, dated as of July 28, 1993, between the Company and Cinemark Mexico (USA) (incorporated by reference to Exhibit 10.1(a) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed May 17, 2002).

10.1(b)		Management Agreement, dated as of September 10, 1992, between Cinemark USA, Inc. and Cinemark de Mexico (incorporated by reference to Exhibit 10.8 to Cinemark Mexico (USA)’s Registration Statement on Form S-4 (File No. 033-72114) filed on November 24, 1994).

10.1(c)		Management Agreement, dated December 10, 1993, between Laredo Theatre, Ltd. and the Company (incorporated by reference to Exhibit 10.14(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1994).

10.1(d)		First Amendment to Management Agreement of Laredo Theatre, Ltd. effective as of December 10, 2003, between CNMK Texas Properties, Ltd. (successor in interest to Cinemark USA, Inc.) and Laredo Theatre Ltd. (incorporated by reference to Exhibit 10.1(d) to Cinemark, Inc’s Registration Statement on Form S-4 (File No. 333-116292) filed June 8, 2004).

10.1(e)		Management Agreement, dated September 1, 1994, between Cinemark Partners II, Ltd. and the Company (incorporated by reference to Exhibit 10.4(i) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 29, 1995).

10.1(f)		First Amendment to Management Agreement of Cinemark Partners II, Ltd. dated as of January 5, 1998 by and between Cinemark USA, Inc. and Cinemark Partners II, Ltd. (incorporated by reference to Exhibit 10.1(f) to Cinemark, Inc.’s Registration Statement on Form S-4 (File No. 333-116292) filed June 8, 2004.

10.1(g)		Management Services Agreement dated April 10, 2003 between Greeley Partners L.P. and CNMK Texas Properties, Ltd. (incorporated by reference to Exhibit 10.1(g) to Cinemark, Inc.’s Registration Statement on Form S-4 (File No. 333-116292) filed June 8, 2004).

10.2		Amended and Restated Agreement to Participate in Profits and Losses, dated as of March 12, 2004, between Cinemark USA, Inc. and Alan W. Stock (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.3(a)		License Agreement, dated December 10, 1993, between Laredo Joint Venture and the Company (incorporated by reference to Exhibit 10.14(c) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1994).

10.3(b)		License Agreement, dated September 1, 1994, between Cinemark Partners II, Ltd. and the Company (incorporated by reference to Exhibit 10.10(c) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 29, 1995).

10.4(a)		Tax Sharing Agreement, between the Company and Cinemark International, L.L.C. (f/k/a Cinemark II, Inc. ), dated as of June 10, 1992 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).


10.4(b)		Tax Sharing Agreement, dated as of July 28, 1993, between the Company and Cinemark Mexico (USA) (incorporated by reference to Exhibit 10.10 to Cinemark Mexico (USA)’s Registration Statement on Form S-4 (File No. 033-72114) filed on November 24, 1993).

10.5(a)		Indemnification Agreement, between the Company and Lee Roy Mitchell, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(a) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(b)		Indemnification Agreement, between the Company and Tandy Mitchell, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(c)		Indemnification Agreement, between the Company and Alan Stock, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(d) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(d)		Indemnification Agreement, between the Company and W. Bryce Anderson, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(f) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(e)		Indemnification Agreement, between the Company and Sheldon I. Stein, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(g) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 31, 1993).

10.5(f)		Indemnification Agreement, between the Company and Heriberto Guerra, dated as of December 3, 1993 (incorporated by reference to Exhibit 10.23(f) to the Company’s Annual Report on Form 10-K (File No. 033-11895) filed September 13, 1996).

10.7(a)		Senior Secured Credit Agreement dated December 4, 1995 among Cinemark International, L.L.C. (f/k/a Cinemark II, Inc., Cinemark Mexico (USA) and Cinemark de Mexico (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed April 1, 1996).

10.7(b)		First Amendment to Senior Secured Credit Agreement, dated as of September 30, 1996, by and among Cinemark II, Inc., Cinemark Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V. (incorporated by reference to Exhibit 10.11(b) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed on May 17, 2002).

10.7(c)		Second Amendment to Senior Secured Credit Agreement, dated as of September 28, 2000, by and among Cinemark II, Inc., Cinemark Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V. (incorporated by reference to Exhibit 10.11(c) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed on May 17, 2002).

10.14(a)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Lee Roy Mitchell (incorporated by reference to Exhibit 10.14(a) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(b)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Alan Stock (incorporated by reference to Exhibit 10.14(b) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(c)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Tim Warner (incorporated by reference to Exhibit 10.14(c) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(d)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Robert Copple (incorporated by reference to Exhibit 10.14(d) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(e)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Rob Carmony (incorporated by reference to Exhibit 10.14(e) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.14(f)		Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Tandy Mitchell (incorporated by reference to Exhibit 10.14(f) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).


10.15		Amended and Restated Credit Agreement, dated April 2, 2004, among Cinemark, Inc., CNMK Holdings, Inc., the Company, the several lenders from time to time parties thereto, Lehman Brothers Inc. and Goldman Sachs Credit Partners LP, as Joint Legal Arrangers, Goldman Sachs Credit Partners LP, as Syndication Agent, Deutsche Bank Securities, Inc., The Bank of New York, General Electric Capital Corporation and CIBC Inc. as Documentation Agents and Lehman Commercial Paper Inc. as Administrative Agent (incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

10.16		Amended and Restated Guaranty and Collateral Agreement, dated April 2, 2004, among Cinemark, Inc., CNMK Holdings Inc., the Company and certain of it subsidiaries in favor of Lehman Commercial Paper, Inc., as administrative agent (incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004).

*31.1		Certification of Chief Executive Officer of Cinemark USA, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Chief Financial Officer of Cinemark USA, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of the Chief Executive Officer of Cinemark USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification of the Chief Financial Officer of Cinemark USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* filed herewith.


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


	Page
Supplemental Schedules specified by the senior subordinated notes Indenture:
Condensed Consolidating Balance Sheets (unaudited) as of June 30, 2004		36
Condensed Consolidating Statements of Operations (unaudited) for the six months ended June 30, 2004		37
Condensed Consolidating Statements of Cash Flows (unaudited) for the six months ended June 30, 2004		38

(1)		Revenues for both periods do not include results of the United Kingdom theatres, as these theatres were classified as held for sale as of March 31, 2004 and sold on April 30, 2004 and the results of operations are included as discontinued operations for all periods presented.

(2)		Amount at December 31, 2003 includes $4,520,104 for the two United Kingdom theatres that were sold on April 30, 2004.

•		actual theatre level cash flow;

•		future years budgeted theatre level cash flow;

•		theatre property and equipment values;

•		goodwill values;

•		the age of a recently built theatre;

•		competitive theatres in the marketplace;

•		the sharing of a market with our other theatres;

•		changes in foreign currency exchange rates;

•		the impact of recent ticket price changes;

•		available lease renewal options; and

•		other factors considered relevant in our assessment of impairment of individual theatre assets.

•		future revenues, expenses and profitability;

•		the future development and expected growth of our business;

•		projected capital expenditures;

•		attendance at movies generally, or in any of the markets in which we operate;

•		the number or diversity of popular movies released;

•		our ability to successfully license and exhibit popular films;

•		competition from other exhibitors; and

•		determinations in lawsuits in which we are a defendant.


		CINEMARK USA, INC.
		Registrant
DATE: August 5, 2004
		/s/Alan W. Stock
		Alan W. Stock
		President

		/s/ Robert Copple
		Robert Copple Chief Financial Officer