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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2010
 
Commission File Number 001-33401
 
CINEMARK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
 
     
Delaware   20-5490327
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
3900 Dallas Parkway
Suite 500
Plano, Texas
 

75093
(Address of principal executive offices)   (Zip Code)
 
Registrant’s telephone number, including area code:
(972) 665-1000
 
Securities registered pursuant to Section 12(b) of the Act:
None
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.  Yes o     No þ
 
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 þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
                                                         (Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of the voting and non-voting common equity owned by non-affiliates of the registrant on June 30, 2010, computed by reference to the closing price for the registrant’s common stock on the New York Stock Exchange on such date was $814,952,327 (61,973,561 shares at a closing price per share of $13.15).
 
As of February 25, 2011, 113,780,799 shares of common stock were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Certain portions of the registrant’s definitive proxy statement, in connection with its 2011 Annual Meeting of Stockholders, to be filed within 120 days of December 31, 2010, are incorporated by reference into Part III, Items 10-14, of this annual report on Form 10-K.
 


 

 
Table of Contents
 
             
        Page
 
Cautionary Statement Regarding Forward-Looking Statements     1  
 
PART I
Item 1.   Business     2  
Item 1A.   Risk Factors     13  
Item 1B.   Unresolved Staff Comments     20  
Item 2.   Properties     20  
Item 3.   Legal Proceedings     20  
Item 4.   Reserved     21  
 
PART II
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     22  
Item 6.   Selected Financial Data     24  
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     26  
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk     44  
Item 8.   Financial Statements and Supplementary Data     45  
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     45  
Item 9A.   Controls and Procedures     45  
 
PART III
Item 10.   Directors, Executive Officers and Corporate Governance     48  
Item 11.   Executive Compensation     48  
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     48  
Item 13.   Certain Relationships and Related Transactions, and Director Independence     48  
Item 14.   Principal Accounting Fees and Services     48  
 
PART IV
Item 15.   Exhibits, Financial Statement Schedules     48  
SIGNATURES     49  
 EX-12
 EX-21
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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Cautionary Statement Regarding Forward-Looking Statements
 
This annual report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The “forward looking statements” include our current expectations, assumptions, estimates and projections about our business and our industry. They include statements relating to:
 
  •  future revenues, expenses and profitability;
 
  •  the future development and expected growth of our business;
 
  •  projected capital expenditures;
 
  •  attendance at movies generally or in any of the markets in which we operate;
 
  •  the number or diversity of popular movies released and our ability to successfully license and exhibit popular films;
 
  •  national and international growth in our industry;
 
  •  competition from other exhibitors and alternative forms of entertainment; and
 
  •  determinations in lawsuits in which we are defendants.
 
You can identify forward-looking statements by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions which are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. In evaluating forward-looking statements, you should carefully consider the risks and uncertainties described in the “Risk Factors” section in Item 1A of this Form 10-K and elsewhere in this Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained in this Form 10-K. Forward-looking statements contained in this Form 10-K reflect our view only as of the date of this Form 10-K. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Certain Definitions
 
Unless the context otherwise requires, all references to “we,” “our,” “us,” the “issuer” or “Cinemark” relate to Cinemark Holdings, Inc. and its consolidated subsidiaries. Unless otherwise specified, all operating and other statistical data for the U.S. include one theatre in Canada (that was sold during November 2010). All references to Latin America are to Brazil, Mexico, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. Unless otherwise specified, all operating and other statistical data are as of and for the year ended December 31, 2010.


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PART I
 
Item 1.   Business
 
Our Company
 
Cinemark Holdings, Inc. and subsidiaries, or the Company, is a leader in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Mexico, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. We also managed additional theatres in the U.S., Brazil and Colombia during the year ended December 31, 2010.
 
As of December 31, 2010, we managed our business under two reportable operating segments — U.S. markets and international markets. See Note 23 to the consolidated financial statements.
 
Cinemark Holdings, Inc. is a Delaware corporation incorporated on August 2, 2006. Our principal executive offices are at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Our telephone number is (972) 665-1000. We maintain a corporate website at www.cinemark.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments, are available on our website free of charge under the heading “Investor Relations — SEC Filings” as soon as practicable after such reports are filed or furnished electronically to the Securities and Exchange Commission.
 
Description of Business
 
We are a leader in the motion picture exhibition industry in terms of both attendance and the number of screens in operation. We operated 430 theatres and 4,945 screens in the U.S. and Latin America as of December 31, 2010, and approximately 241.2 million patrons attended our theatres worldwide during the year ended December 31, 2010. Our circuit is the third largest in the U.S. with 293 theatres and 3,832 screens in 39 states. We are the most geographically diverse circuit in Latin America with 137 theatres and 1,113 screens in 13 countries. Our modern theatre circuit features stadium seating in approximately 86% of our first-run auditoriums.
 
We selectively build or acquire new theatres in markets where we can establish and maintain a strong market position. We believe our portfolio of modern theatres provides a preferred destination for moviegoers and contributes to our significant cash flows from operating activities. Our significant presence in the U.S. and Latin America has made us an important distribution channel for movie studios, particularly as they look to capitalize on the expanding worldwide box office. Our market leadership is attributable in large part to our senior executives, whose years of industry experience range from 14 to 52 years and who have successfully navigated us through multiple industry and economic cycles.
 
Revenues, operating income and net income attributable to Cinemark Holdings, Inc. for the year ended December 31, 2010, were $2,141.1 million, $292.8 million and $146.1 million, respectively. At December 31, 2010 we had cash and cash equivalents of $465.0 million and long-term debt of $1,532.5 million. Approximately $422.8 million, or 27.6%, of our long-term debt accrues interest at variable rates and approximately $10.8 million of our long-term debt matures in 2011.
 
During 2009, we began converting our circuit from film based to digital projection technology. Digital projection technology gives us greater flexibility in programming and facilitates the exhibition of live and pre-recorded alternative entertainment. We also developed a premium experience auditorium concept utilizing large screens and the latest in digital projection and sound technologies, which we call our Cinemark XD Extreme Digital Cinema, or XD. The XD experience includes wall-to-wall and ceiling-to-floor screens, wrap-around sound and a maximum comfort entertainment environment for an intense sensory experience. We charge a premium price for the XD experience. The XD technology does not require special format movie prints, which allows us the flexibility to play any available digital print we choose, including 3-D content, in the XD auditorium. We currently have 47 XD auditoriums in our theatres and have plans to install 35 to 40 more XD auditoriums during 2011.
 
During late 2010, we introduced our NextGen concept, which features wall-to-wall and ceiling-to-floor screens and the latest digital projection and sound technologies in all of the auditoriums of a complex. These theatres generally also have an XD auditorium, which offers the wall-to-wall and ceiling-to-floor screen in a larger


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auditorium with enhanced sound and seating. Most of our future domestic theatres will incorporate this NextGen concept. We also plan to convert our six existing IMAX screens to digital technology and purchase two additional digital IMAX systems to convert two of our existing screens during 2011, in conjunction with our recent settlement with IMAX.
 
Motion Picture Exhibition Industry Overview
 
The motion picture exhibition industry began its transition to digital projection technology during 2009. Digital projection technology allows filmmakers the ability to showcase imaginative works of art exactly as they were intended, with incredible realism and detail and in a range of up to 35 trillion colors. Because digital features aren’t susceptible to scratching and fading, digital presentations will always remain clear and sharp every time they are shown. A digitally produced or digitally converted movie can be distributed to theatres via satellite, physical media, or fiber optic networks. The digitized movie is stored on a computer/server which “serves” it to a digital projector for each screening of the movie and due to its format, it enables us to more efficiently move films between auditoriums within a theatre as demand increases or decreases for each film.
 
Digital projection also allows the presentation of 3-D content and alternative entertainment such as live and pre-recorded concert events, the opera, sports programs and special live documentaries. Twenty-two films released wide during 2010 were available in 3-D format and at least 34 3-D films are expected to be released during 2011. Three-dimensional technology offers a premium experience with crisp, bright, ultra-realistic images that immerse the patron into a film. A premium is generally charged for a 3-D presentation.
 
Domestic Markets
 
The U.S. motion picture exhibition industry has a track record of long-term growth, with box office revenues growing at an estimated CAGR of 3.6% from 2000 to 2010. Against this background of steady long-term growth, the exhibition industry has experienced periodic short-term increases and decreases in attendance, and consequently box office revenues.
 
The following table represents the results of a survey by Motion Picture Association of America, or MPAA, published during February 2011, outlining the historical trends in U.S. box office performance for the ten year period from 2001 to 2010:
 
                         
    U.S. Box
      Average Ticket
Year
  Office Revenues   Attendance   Price
    ($ in billions)   (In billions)    
 
2001
  $ 8.1       1.43     $ 5.66  
2002
  $ 9.1       1.57     $ 5.81  
2003
  $ 9.2       1.52     $ 6.03  
2004
  $ 9.3       1.50     $ 6.21  
2005
  $ 8.8       1.38     $ 6.41  
2006
  $ 9.2       1.40     $ 6.55  
2007
  $ 9.6       1.40     $ 6.88  
2008
  $ 9.6       1.34     $ 7.18  
2009
  $ 10.6       1.42     $ 7.50  
2010
  $ 10.6       1.34     $ 7.89  
 
Films leading the box office during the year ended December 31, 2010 included the carryover of Avatar, which grossed approximately $475 million in U.S. box office revenues during 2010 and new releases such as Toy Story 3, Alice in Wonderland, Harry Potter and the Deathly Hallows: Part 1, Iron Man 2, The Twilight Saga: Eclipse, Inception, Despicable Me, How to Train Your Dragon, Shrek Forever After, Clash of the Titans, The Karate Kid, Tangled, Grown Ups, Megamind, Tron: Legacy, Little Fockers, The Fighter and True Grit.
 
The film slate for 2011 currently includes Rango, Fast Five, Thor, Pirates of the Caribbean: On Stranger Tides, Kung Fu Panda 2: The Kaboom of Doom, Cars 2, X Men: First Class, Transformers: Dark of the Moon, Harry Potter and the Deathly Hollows: Part 2, Twilight: Breaking Dawn, Captain America: The First Avenger, Cowboys and Aliens, Puss in Boots, Happy Feet 2, Sherlock Holmes 2 and Alvin and the Chipmunks: Chipwrecked, among other films.


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International Markets
 
International box office revenue continues to grow. According to MPAA, international box office revenues were $21.2 billion for the year ended December 31, 2010, which is a result of increasing acceptance of movie going as a popular form of entertainment throughout the world, ticket price increases and new theatre construction. According to MPAA, Latin American box office revenues were $2.1 billion for the year ended December 31, 2010, representing a 25% increase from 2009.
 
Growth in Latin America is expected to continue to be fueled by a combination of robust economies, growing populations, attractive demographics (i.e., a significant teenage population), substantial retail development, and quality product from Hollywood, including an increasing number of 3-D films. In many Latin American countries, particularly Mexico and Brazil, successful local film product can also provide incremental growth opportunities.
 
We believe many international markets for theatrical exhibition have historically been underserved and that certain of these markets, especially those in Latin America, will continue to experience growth as additional modern stadium-styled theatres are introduced and film product offerings continue to expand.
 
Drivers of Continued Industry Success
 
We believe the following market trends will drive the continued growth and strength of our industry:
 
Importance of Theatrical Success in Establishing Movie Brands and Subsequent Markets. Theatrical exhibition is the primary distribution channel for new motion picture releases. A successful theatrical release which “brands” a film is one of the major factors in determining its success in “downstream” markets, such as DVDs, network and syndicated television, video on-demand, pay-per-view television and the Internet.
 
Increased Importance of International Markets for Box Office Success.  International markets continue to be an increasingly important component of the overall box office revenues generated by Hollywood films, accounting for $21.2 billion, or approximately 67% of 2010 total worldwide box office revenues according to MPAA. With the continued growth of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America will become even more significant. Many of the top U.S. films released recently also performed exceptionally well in international markets. Such films included Avatar, which grossed approximately $1.5 billion in international markets and Harry Potter and the Deathly Hallows: Part 1, which grossed approximately $610 million in international markets.
 
Stable Long-Term Attendance Trends.  We believe that long-term trends in motion picture attendance in the U.S. will continue to benefit the industry. Even during the recent recessionary period, attendance levels remained stable as consumers selected the theatre as a preferred value for their discretionary income. Although domestic attendance declined slightly in 2010, patronage trends during 2010 reflected increasing demand for products unique to the exhibition industry such as 3-D. With the motion picture exhibition industry’s transition to digital projection technology, the products offered by motion picture exhibitors continue to expand, attracting a broader base of patrons.
 
Convenient and Affordable Form of Out-Of-Home Entertainment.  Movie going continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an estimated average ticket price in the U.S. of $7.89 in 2010. Average prices in 2010 for other forms of out-of-home entertainment in the U.S., including sporting events and theme parks, range from approximately $25.00 to $77.00 per ticket according to MPAA.
 
Innovation with Digital Technology.  Our industry began its conversion to digital projection technology during 2009, which has allowed exhibitors to expand their product offerings. Digital technology allows the presentation of 3-D content and alternative entertainment such as live and pre-recorded sports programs, the opera, concert events and special live documentaries. These additional programming alternatives may expand the industry’s customer base and increase patronage for exhibitors.


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Competitive Strengths
 
We believe the following strengths allow us to compete effectively:
 
Disciplined Operating Philosophy.  We generated operating income and net income attributable to Cinemark Holdings, Inc. of $292.8 million and $146.1 million, respectively, for the year ended December 31, 2010. Our solid operating performance is a result of our disciplined operating philosophy that centers on building high quality assets, while negotiating favorable theatre level economics, controlling operating costs and effectively reacting to economic and market changes.
 
Leading Position in Our U.S. Markets.  We have a leading market share in the U.S. metropolitan and suburban markets we serve. For the year ended December 31, 2010, we ranked either first or second based on box office revenues in 25 out of our top 30 U.S. markets, including the San Francisco Bay Area, Dallas, Houston and Salt Lake City.
 
Strategically Located in Heavily Populated Latin American Markets.  Since 1993, we have invested throughout Latin America in response to the continued growth of the region. We currently operate 137 theatres and 1,113 screens in 13 countries. Our international screens generated revenues of $564.2 million, or 26.4% of our total revenue, for the year ended December 31, 2010. We have successfully established a significant presence in major cities in the region, with theatres in twelve of the fifteen largest metropolitan areas. With a geographically diverse circuit, we are an important distribution channel to the movie studios. Approximately 84% of our international screens offer stadium seating. We are well-positioned with our modern, large-format theatres to take advantage of these factors for further growth and diversification of our revenues.
 
State-of-the-Art Theatre Circuit.  We offer state-of-the-art theatres, which we believe makes our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in approximately 86% of our first run auditoriums. During 2010, we increased the size of our circuit by adding 138 state-of-the-art screens worldwide. We currently have commitments to build 196 additional new screens over the next three years. We plan to install digital projection technology in 100% of our U.S. and international auditoriums of which 40-50% will be 3-D compatible. We also plan to convert our six existing IMAX screens to digital technology and purchase two additional digital IMAX systems to convert two of our existing screens during 2011. We currently have 47 XD auditoriums in our theatres and have plans to install 35 to 40 more XD auditoriums during 2011. Our new NextGen theatre concept provides further credence to our commitment to provide a continuing state-of-the-art movie-viewing experience to our patrons.
 
Solid Balance Sheet with Significant Cash Flow from Operating Activities.  We generate significant cash flow from operating activities as a result of several factors, including a geographically diverse and modern theatre circuit and management’s ability to control costs and effectively react to economic and market changes. Additionally, owning land and buildings for 42 of our theatres is a strategic advantage that enhances our cash flows. We believe our expected level of cash flow generation will provide us with the financial flexibility to continue to pursue growth opportunities, support our debt payments and continue to make dividend payments to our stockholders. In addition, as of December 31, 2010, we owned approximately 16.9 million shares of National CineMedia and had approximately 1.1 million options to purchase shares in Real D, both of which offer us an additional source of cash flows. As of December 31, 2010, we had cash and cash equivalents of $465.0 million.
 
Experienced Management.  Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Alan Stock, President; Chief Operating Officer Timothy Warner, Chief Financial Officer Robert Copple and President-International Valmir Fernandes, our management team has many years of theatre operating experience, ranging from 14 to 52 years, executing a focused strategy that has led to consistent operating results. This management team has successfully navigated us through many industry and economic cycles.


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Our Strategy
 
We believe our disciplined operating philosophy and experienced management team will enable us to continue to enhance our leading position in the motion picture exhibition industry. Key components of our strategy include:
 
Establish and Maintain Leading Market Positions.  We will continue to seek growth opportunities by building or acquiring modern theatres that meet our strategic, financial and demographic criteria. We focus on establishing and maintaining a leading position in the markets we currently serve. We also monitor economic and market trends to ensure we offer a broad range of products and prices that satisfy our patrons.
 
Continue to Focus on Operational Excellence.  We will continue to focus on achieving operational excellence by controlling theatre operating costs and adequately training our staff while continuing to provide leading customer service. Our margins reflect our track record of operating efficiency.
 
Selectively Build in Profitable, Strategic Latin American Markets.  Our continued international expansion will remain focused primarily on Latin America through construction of modern, state-of-the-art theatres in growing urban markets. We have commitments to build eight new theatres with 51 screens during 2011 and five new theatres with 34 screens subsequent to 2011, investing an additional $63 million in our Latin American markets. We also plan to install digital projection technology in all of our international auditoriums, which allows us to present 3-D and alternative content in these markets. We have also installed eight of our proprietary XD auditoriums in our international theatres and have plans to install approximately 20 to 25 additional XD auditoriums internationally during 2011.
 
Commitment to Digital Innovation.  Our commitment to technological innovation has resulted in us having 1,363 digital auditoriums in the U.S. as of December 31, 2010, 1,136 of which are 3-D compatible. We also had 201 digital auditoriums in our international markets as of December 31, 2010, all of which are 3-D compatible. See further discussion of our digital expansion at “Conversion to Digital Projection Technology”. We are planning to convert 100% of our worldwide circuit to digital projection technology, approximately 40-50% of which will be 3-D compatible. We also plan to expand our XD auditorium footprint in various markets throughout the U.S. and in select international markets, which offers our patrons a premium movie-viewing experience.
 
Theatre Operations
 
As of December 31, 2010, we operated 430 theatres and 4,945 screens in 39 states and 13 Latin American countries. Our theatres in the U.S. are primarily located in mid-sized U.S. markets, including suburbs of major metropolitan areas. We believe these markets are generally less competitive and generate high, stable margins. Our theatres in Latin America are primarily located in major metropolitan markets, which we believe are generally underscreened. The following tables summarize the geographic locations of our theatre circuit as of December 31, 2010.
 
United States Theatres
 
                 
    Total
  Total
State
  Theatres   Screens
 
Texas
    79       1,030  
California
    61       740  
Ohio
    19       213  
Utah
    14       177  
Nevada
    10       154  
Illinois
    9       128  
Colorado
    8       127  
Arizona
    7       106  
Oregon
    7       102  
Kentucky
    7       87  
Pennsylvania
    6       89  
Oklahoma
    6       71  


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    Total
  Total
State
  Theatres   Screens
 
Florida
    5       98  
Louisiana
    5       74  
Indiana
    5       48  
New Mexico
    4       54  
Virginia
    4       52  
North Carolina
    4       41  
Mississippi
    3       41  
Iowa
    3       37  
Arkansas
    3       36  
Washington
    2       30  
Georgia
    2       27  
New York
    2       27  
South Dakota
    2       26  
South Carolina
    2       22  
West Virginia
    2       22  
Maryland
    1       24  
Kansas
    1       20  
Alaska
    1       16  
Michigan
    1       16  
New Jersey
    1       16  
Missouri
    1       15  
Tennessee
    1       14  
Wisconsin
    1       14  
Massachusetts
    1       12  
Delaware
    1       10  
Minnesota
    1       8  
Montana
    1       8  
                 
Total
    293       3,832  
                 
 
International Theatres
 
                 
    Total
  Total
Country
  Theatres   Screens
 
Brazil
    49       409  
Mexico
    31       296  
Central America(1)
    12       83  
Colombia
    12       68  
Chile
    11       87  
Argentina
    10       80  
Peru
    8       64  
Ecuador
    4       26  
                 
Total
    137       1,113  
                 
 
 
(1) Includes Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala.
 
We first entered Latin America when we began operating movie theatres in Chile in 1993 and Mexico in 1994. Since then, through our focused international strategy, we have developed into the most geographically diverse theatre circuit in the region. We have balanced our risk through a diversified international portfolio, currently operating theatres in twelve of the fifteen largest metropolitan areas in Latin America. In addition, we have achieved significant scale in Brazil and Mexico, the two largest Latin American economies, with 409 screens in Brazil and 296 screens in Mexico as of December 31, 2010.

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We believe that certain markets within Latin America continue to be underserved as penetration of movie screens per capita in Latin American markets is substantially lower than in the U.S. and European markets. We will continue to build and expand our presence in underserved international markets, with emphasis on Latin America, and fund our expansion primarily with cash flow generated in those markets. We are able to mitigate cash flow exposure to currency fluctuations by using local currencies to collect a majority of our revenues and fund a majority of the costs of our international operations. Our geographic diversity throughout Latin America has allowed us to maintain consistent revenue growth, notwithstanding currency and economic fluctuations that may affect any particular market. Our international revenues were approximately $564.2 million during 2010 compared to $421.8 million during 2009.
 
Film Licensing
 
In the domestic marketplace, the Company’s film department negotiates with film distributors, which are made up of the traditional major film companies, specialized and art divisions of some of these major film companies, and many other independent film distributors. The film distributors are responsible for determining film release dates, the related marketing campaigns and the expenditures related to marketing materials, television spots and other advertising outlets. The marketing campaign of each movie may include tours of the actors in the movies and coordination of articles and features about each movie. The Company is responsible for booking the films in negotiated film zones, which are either free zones or competitive zones. In free zones, movies can be booked without regard to the location of another exhibitor within that area. In competitive zones, the distributor allocates their movies to the exhibitors located in that area generally based on demographics and grossing potential of that particular area. We are the sole exhibitor in approximately 91% of the 247 film zones in which our first run U.S. theatres operate. In film zones where there is no direct competition from other theatres, we select those films that we believe will be the most successful from those offered to us by film distributors.
 
Internationally, our local film personnel negotiate with local offices of major film distributors as well as local film distributors to license films for our international theatres. In the international marketplace, films are not allocated to a single theatre in a geographic film zone, but played by competitive theatres simultaneously. Our theatre personnel focus on providing excellent customer service, and we provide a modern facility with the most up-to-date sound systems, comfortable stadium style seating and other amenities typical of modern American-style multiplexes, which we believe gives us a competitive advantage in markets where competing theatres play the same films. Of the 1,113 screens we operate in international markets, approximately 75% have no direct competition from other theatres.
 
Our film rental fees in the U.S. are generally based on a film’s box office receipts and either mutually agreed upon firm terms, a sliding scale formula, or a mutually agreed upon settlement, subject to the film licensing agreement. Under a firm terms formula, we pay the distributor a mutually agreed upon specified percentage of box office receipts. Under a sliding scale formula, we pay a percentage of box office revenues using a pre-determined matrix that is based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Internationally, our film rental fees are primarily based on mutually agreed upon firm terms that are based upon a specified percentage of box office receipts.
 
We regularly play art and independent films at many of our U.S. theatres, providing a variety of film choices to our patrons. Bringing art and independent films to our theatres allows us to benefit from the growth in the art and independent market driven by the more mature patron and increased interest in art, foreign and documentary films. High profile film festivals, such as the Sundance Film Festival, have contributed to interest in this genre. Recent hits such as The Kids are Alright, Black Swan, and The King’s Speech have demonstrated the box office potential of art and independent films.


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Food, Beverages and Amusements
 
Concession sales are our second largest revenue source, representing approximately 30% of total revenues for each of the years ended December 31, 2008, 2009 and 2010. Concession sales have a much higher margin than admissions sales. We have devoted considerable management effort to increase concession sales and improve operating margins. These efforts include implementation of the following strategies:
 
  •  Optimization of product mix.  We offer concession products that primarily include various sizes and types of popcorn, soft drinks, coffees, juices, candy and quickly-prepared food, such as hot dogs, nachos and ice cream. Different varieties and flavors of candy and drinks are offered at theatres based on preferences in that particular market. Our point of sale system allows us to monitor product sales and make changes to product mix when necessary, which also allows us to take advantage of national product launches. Specially priced combos and promotions are introduced on a regular basis to increase average concession purchases as well as to attract new buyers. We periodically offer our loyal patrons opportunities to receive a discount on certain products by offering reusable popcorn tubs and soft drink cups that can be refilled at a discount off the regular price.
 
  •  Staff training.  Employees are continually trained in “suggestive-selling” and “upselling” techniques. Consumer promotions conducted at the concession stand usually include a motivational element that rewards theatre staff for exceptional sales of certain promotional items.
 
  •  Theatre design.  Our theatres are designed to optimize efficiencies at the concession stands, which include multiple service stations throughout a theatre to facilitate serving more customers more quickly. We strategically place large concession stands within theatres to heighten visibility, reduce the length of concession lines, and improve traffic flow around the concession stands. We have self-service concession areas in many of our domestic theatres, which allow customers to select their own refreshments and proceed to the cash register when they are ready. This design allows for efficient service, enhanced choices and superior visibility of concession items. Concession designs in many of our new domestic theatres have incorporated the self-service model.
 
  •  Cost control.  We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates. Concession supplies are distributed through a national distribution network. The concession distributor supplies and distributes inventory to the theatres, who place orders directly with the vendors to replenish stock. We conduct a weekly inventory of all concession products at each theatre to ensure proper stock levels are maintained for business.
 
Pre-Feature Screen Advertising
 
In our domestic markets, our theatres are part of the in-theatre digital network operated by National CineMedia, LLC, or NCM. NCM’s primary activities that impact our theatres include: advertising through its branded “First Look” pre-feature entertainment program, lobby promotions and displays; live and pre-recorded networked and single-site meetings and events; and live and pre-recorded concerts, sporting events and other non-film entertainment programming. We believe that the reach, scope and digital delivery capability of NCM’s network provides an effective platform for national, regional and local advertisers to reach an engaged audience. We receive a monthly theatre access fee for participation in the NCM network. In addition, we are entitled to receive mandatory quarterly distributions of excess cash from NCM. As of December 31, 2010, we had an approximate 15% ownership interest in NCM. See Note 6 to the consolidated financial statements.
 
In many of our international markets, we outsource our screen advertising to local companies who have established relationships with local advertisers that provide similar benefits as NCM. The terms of our international screen advertising contracts vary by country. In some locations, we earn a percentage of the screen advertising revenues collected by our partners and in other locations we are paid a fixed annual fee for access to our screens.
 
Conversion to Digital Projection Technology
 
The motion picture exhibition industry began its conversion to digital projection technology during 2009.


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Participation in Digital Cinema Implementation Partners
 
During 2007, we, AMC Entertainment Inc., or AMC, and Regal Entertainment Group, or Regal, entered into a joint venture known as Digital Cinema Implementation Partners LLC, or DCIP, to facilitate the implementation of digital cinema in our U.S. theatres and to establish agreements with major motion picture studios for the financing of digital cinema. Digital cinema developments are managed by DCIP, subject to certain approvals by us, AMC and Regal with each of us having an equal voting interest in DCIP. DCIP’s wholly-owned subsidiary Kasima executed long-term deployment agreements with all of the major motion picture studios, under which Kasima receives a virtual print fee from such studios for each digital presentation. In accordance with these agreements, the digital projection systems deployed by Kasima comply with the technology and security specifications developed by the Digital Cinema Initiatives studio consortium. Kasima leases digital projection systems to us, AMC and Regal under master lease agreements that have an initial term of 12 years.
 
On March 10, 2010, we signed a master lease agreement and other related agreements (collectively the “agreements”) with Kasima. Upon signing these agreements, we contributed cash and our existing digital projection systems to DCIP. Subsequent to the contributions, we continue to have a 33% voting interest in DCIP and have a 24.3% economic interest in DCIP. As of December 31, 2010, we had 1,363 digital auditoriums in the U.S., 1,136 of which are capable of exhibiting 3-D content. We ultimately expect to install digital projection systems in all of our auditoriums, with approximately 40-50% being 3-D compatible.
 
International Markets
 
In our international markets, we continue to convert our auditoriums to digital projection technology. The digital projection systems we deploy are generally funded with operating cash flows generated by each international country. As of December 31, 2010, we had 201 digital auditoriums in our international markets, all of which are capable of exhibiting 3-D content. Similar to our domestic markets, we expect to install digital projection systems in all of our international auditoriums.
 
Marketing
 
In the U.S., we rely on Internet advertising and also newspaper directory film schedules. Radio and television advertising spots are used to promote certain motion pictures and special events. We exhibit previews of coming attractions and films we are currently playing as part of our pre-feature program. We offer patrons access to movie times, the ability to buy and print their tickets at home and purchase gift cards at our Web site www.cinemark.com. Customers subscribing to our weekly email receive targeted information about current and upcoming films at their preferred Cinemark theatre(s), including details about advanced tickets, special events, concerts and live broadcasts; as well as contests, promotions, and exclusive coupons for concession savings. We partner with film distributors to use monthly web contests to drive traffic to our Web site and to ensure that customers visit often. In addition, we work with all of the film distributors on a regular basis to promote their films with local, regional and national programs that are exclusive to our theatres. These programs may involve customer contests, cross-promotions with the media and third parties and other means to increase patronage for a particular film showing at one of our theatres. We are also developing an iPhone application in the U.S. that will allow patrons to check showtimes and purchase tickets.
 
Internationally, we exhibit upcoming and current film previews on screen, we partner with film distributors for certain promotions and advertise our new locations through various forms of media and events. We partner with large multi-national corporations in the large metropolitan areas in which we have theatres to promote our brand, our image and to increase attendance levels at our theatres. Our customers are encouraged to register on our Web site to receive weekly information by email for showtime information, invitations to special screenings, sponsored events and promotional information. In addition, our customers can request to receive showtime information on their cell phones. We also have loyalty programs in some of our international markets that allow customers to pay a nominal fee for a membership card that provides them with certain admissions and concession discounts. In addition, the Company has just introduced an iPhone application in Brazil ranking among the top ten downloads in Brazil’s local Apple stores. The application allows consumers to check showtimes and purchase tickets for our Brazil theatres.


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Our domestic and international marketing departments also focus on maximizing ancillary revenue, which includes the sale of our gift cards and our SuperSaver discount tickets. We market these programs to such business representatives as realtors, human resource managers, incentive program managers and hospital and pharmaceutical personnel. Gift cards can be purchased for certain of our locations at our theatres or online through our Web site, www.cinemark.com. SuperSavers are also sold online at www.cinemark.com or via phone, fax or email by our local corporate offices and are also available at certain retailers in the U.S.
 
Online Sales
 
Our patrons may purchase advance tickets for all of our domestic screens and approximately seventy-five percent of our international screens by accessing our corporate Web site at www.cinemark.com. Advance tickets may also be purchased for our domestic screens at www.fandango.com. Our iPhone application in Brazil currently offers, and the iPhone application we are developing in the U.S. will offer, patrons the ability to purchase tickets. Our Internet initiatives help improve customer satisfaction, allowing patrons who purchase tickets over the Internet to often bypass lines at the box office by printing their tickets at home or picking up their tickets at kiosks located at the theatre.
 
Point of Sale Systems
 
We have developed our own proprietary point of sale system to enhance our ability to maximize revenues, control costs and efficiently manage operations. The system is currently installed in all of our U.S. theatres. The point of sale system provides corporate management with real-time admissions and concession revenues data and reports to allow for timely changes to movie schedules, including extending film runs, increasing the number of screens on which successful movies are being played, or substituting films when gross receipts do not meet expectations. Real-time seating, as well as Reserved Seating, and box office information is available to box office personnel, preventing overselling of a particular film and providing faster and more accurate responses to customer inquiries regarding showtimes and available seating. The system tracks concession sales by product, provides in-theatre inventory reports for efficient inventory management and control, offers numerous ticket pricing options, connects with digital concession signage for real-time pricing modifications, integrates Internet ticket sales and processes credit card transactions. Barcode scanners, pole displays, touch screens, credit card readers and other equipment are integrated with the system to enhance its functions and provide print at home and mobile ticketing. In our international locations, we currently use other point of sale systems that have been developed by third parties, which have been certified as compliant with applicable governmental regulations and provide generally the same capabilities as our proprietary point of sale system.
 
Competition
 
We are a leader in the motion picture exhibition industry in terms of both attendance and the number of screens in operation. We compete against local, regional, national and international exhibitors with respect to attracting patrons, licensing films and developing new theatre sites.
 
We are the sole exhibitor in approximately 91% of the 247 film zones in which our first run U.S. theatres operate. In film zones where there is no direct competition from other theatres, we select those films that we believe will be the most successful from those offered to us by film distributors. Where there is competition, the distributor allocates their movies to the exhibitors located in that area generally based on demographics and grossing potential of that particular area. Of the 1,113 screens we operate outside of the U.S., approximately 75% of those screens have no direct competition from other theatres. In areas where we face direct competition, our success in attracting patrons depends on location, theatre capacity, quality of projection and sound equipment, film showtime availability, customer service quality, and ticket prices. The competition for film licensing in the U.S. is dependent upon factors such as the theatre’s location and its demographics, the condition, capacity and revenue potential of each theatre, and licensing terms.
 
We compete for new theatre sites with other movie theatre exhibitors as well as other entertainment venues, with securing a potential site being dependent upon factors such as committed investment and resources, theatre design and capacity, revenue and patron potential, and financial stability.


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We also face competition from a number of other motion picture exhibition delivery systems, such as DVDs, network and syndicated television, video on-demand, pay-per-view television and the Internet. We also face competition from other forms of entertainment competing for the public’s leisure time and disposable income, such as concerts, theme parks and sporting events.
 
Corporate Operations
 
Our corporate headquarters is located in Plano, Texas. Personnel at our corporate headquarters provide oversight for our domestic and international theatres. Domestic personnel at our corporate headquarters include our executive team and department heads in charge of film licensing, concessions, theatre operations, theatre construction and maintenance, real estate, human resources, legal, finance and accounting, audit, information systems support and marketing. Our U.S. operations are divided into sixteen regions, primarily organized geographically, each of which is headed by a region leader.
 
International personnel at our corporate headquarters include our President of Cinemark International, L.L.C. and department heads in charge of film licensing, concessions, theatre operations, theatre construction, real estate, legal, audit, information systems and accounting. We have eight regional offices in Latin America responsible for the local management of theatres in thirteen individual countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are operated out of one Central American regional office). Each regional office is headed by a general manager and includes personnel in film licensing, marketing, human resources, information systems, operations and accounting. We have a chief financial officer in both Brazil and Mexico, which are our two largest international markets. The regional offices are staffed with experienced personnel from the region to mitigate cultural and operational barriers.
 
Employees
 
We have approximately 14,600 employees in the U.S., approximately 10% of whom are full time employees and 90% of whom are part time employees. We have approximately 7,400 employees in our international markets, approximately 63% of whom are full time employees and approximately 37% of whom are part time employees. Some of our U.S. employees are represented by unions under collective bargaining agreements, and some of our international locations are subject to union regulations. We regard our relations with our employees to be satisfactory.
 
Regulations
 
The distribution of motion pictures is largely regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. The manner in which we can license films from certain major film distributors is subject to consent decrees resulting from these cases. Consent decrees bind certain major film distributors and require the films of such distributors to be offered and licensed to exhibitors, including us, on a theatre-by-theatre and film-by-film basis. Consequently, exhibitors cannot enter into long-term arrangements with major distributors, but must negotiate for licenses on a theatre-by-theatre and film-by-film basis.
 
We are subject to various general regulations applicable to our operations including the Americans with Disabilities Act of 1990, or the ADA. We develop new theatres to be accessible to the disabled and we believe we are substantially compliant with current regulations relating to accommodating the disabled. Although we believe that our theatres comply with the ADA, we have been a party to lawsuits which claim that our handicapped seating arrangements do not comply with the ADA or that we are required to provide captioning for patrons who are deaf or are severely hearing impaired.
 
Our theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship, health and sanitation requirements and licensing.
 
Financial Information About Geographic Areas
 
We currently have operations in the U.S., Brazil, Mexico, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are reflected in the consolidated


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financial statements. See Note 23 to the consolidated financial statements for segment information and financial information by geographic area.
 
Item 1A.   Risk Factors
 
Our business depends on film production and performance.
 
Our business depends on both the availability of suitable films for exhibition in our theatres and the success of those films in our markets. Poor performance of films, the disruption in the production of films due to events such as a strike by directors, writers or actors, a reduction in financing options for the film distributors, or a reduction in the marketing efforts of the film distributors to promote their films could have an adverse effect on our business by resulting in fewer patrons and reduced revenues.
 
A deterioration in relationships with film distributors could adversely affect our ability to obtain commercially successful films.
 
We rely on the film distributors to supply the films shown in our theatres. The film distribution business is highly concentrated, with six major film distributors accounting for approximately 82.7% of U.S. box office revenues and 47 of the top 50 grossing films during 2010. Numerous antitrust cases and consent decrees resulting from these antitrust cases impact the distribution of films. The consent decrees bind certain major film distributors to license films to exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a supply of films by entering into long-term arrangements with major distributors. We are therefore required to negotiate licenses for each film and for each theatre. A deterioration in our relationship with any of the six major film distributors could adversely affect our ability to obtain commercially successful films and to negotiate favorable licensing terms for such films, both of which could adversely affect our business and operating results.
 
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres.
 
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres. The major film distributors generally release the films they anticipate will be most successful during the summer and holiday seasons. Consequently, we typically generate higher revenues during these periods. Due to the dependency on the success of films released from one period to the next, results of operations for one period may not be indicative of the results for the following period or the same period in the following year.
 
We face intense competition for patrons and films which may adversely affect our business.
 
The motion picture industry is highly competitive. We compete against local, regional, national and international exhibitors. We compete for both patrons and licensing of films. The competition for patrons is dependent upon such factors as location, theatre capacity, quality of projection and sound equipment, film showtime availability, customer service quality, and ticket prices. The principal competitive factors with respect to film licensing include the theatre’s location and its demographics, the condition, capacity and revenue potential of each theatre and licensing terms. If we are unable to attract patrons or to license successful films, our business may be adversely affected.
 
An increase in the use of alternative or “downstream” film distribution channels and other competing forms of entertainment may reduce movie theatre attendance and limit revenue growth.
 
We face competition for patrons from a number of alternative film distribution channels, such as DVDs, network and syndicated television, video on-demand, pay-per-view television and the Internet. We also compete with other forms of entertainment, such as concerts, theme parks and sporting events, for our patrons’ leisure time and disposable income. A significant increase in popularity of these alternative film distribution channels or competing forms of entertainment could have an adverse effect on our business and results of operations.


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Our results of operations may be impacted by shrinking video release windows.
 
Over the last decade, the average video release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available on DVD, an important downstream market, has decreased from approximately six months to approximately three to four months. If patrons choose to wait for a DVD release rather than attend a theatre for viewing the film, it may adversely impact our business and results of operations, financial condition and cash flows. Film studios have announced their intention to offer consumers a premium video on demand option for certain films 60 days following the theatrical release, which would also cause the release window to shrink further. We cannot assure you that these release windows, which are determined by the film studios, will not shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
 
We have substantial long-term lease and debt obligations, which may restrict our ability to fund current and future operations and that restrict our ability to enter into certain transactions.
 
We have, and will continue to have, significant long-term debt service obligations and long-term lease obligations. As of December 31, 2010, we had $1,532.5 million in long-term debt obligations, $140.2 million in capital lease obligations and $1,795.2 million in long-term operating lease obligations. We incurred interest expense of $112.4 million for the year ended December 31, 2010. We incurred $255.7 million of facility lease expense under operating leases for the year ended December 31, 2010 (the terms under these operating leases, excluding optional renewal periods, range from one to 27 years). Our substantial lease and debt obligations pose risk to you by:
 
  •  making it more difficult for us to satisfy our obligations;
 
  •  requiring us to dedicate a substantial portion of our cash flows to payments on our lease and debt obligations, thereby reducing the availability of our cash flows from operations to fund working capital, capital expenditures, acquisitions and other corporate requirements and to pay dividends;
 
  •  impeding our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;
 
  •  subjecting us to the risk of increased sensitivity to interest rate increases on our variable rate debt, including our borrowings under our senior secured credit facility; and
 
  •  making us more vulnerable to a downturn in our business and competitive pressures and limiting our flexibility to plan for, or react to, changes in our industry or the economy.
 
Our ability to make scheduled payments of principal and interest with respect to our indebtedness will depend on our ability to generate positive cash flows and on our future financial results. Our ability to generate positive cash flows is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. We cannot assure you that we will continue to generate cash flows at current levels, or that future borrowings will be available under our senior secured credit facility, in an amount sufficient to enable us to pay our indebtedness. If our cash flows and capital resources are insufficient to fund our lease and debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations and these actions may be restricted under the terms of our existing or future debt agreements, including our senior secured credit facility. The senior secured credit facility restricts our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or the proceeds may not be adequate to meet our debt service obligations.
 
If we fail to make any required payment under the agreements governing our leases and indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default, and as a result, our debt holders would have the ability to require that we immediately repay our outstanding indebtedness and the lenders under our senior secured credit facility could terminate their commitments to lend us money and foreclose against the assets securing their borrowings. We could be forced into bankruptcy or liquidation, which could result in the loss of your investment. The acceleration of our indebtedness under one agreement may permit acceleration


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of indebtedness under other agreements that contain cross-default and cross-acceleration provisions. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our debt holders require immediate payment, we may not have sufficient assets to satisfy our obligations under our indebtedness.
 
General political, social and economic conditions can adversely affect our attendance.
 
Our results of operations are dependent on general political, social and economic conditions, and the impact of such conditions on our theatre operating costs and on the willingness of consumers to spend money at movie theatres. If consumers’ discretionary income declines as a result of an economic downturn, our operations could be adversely affected. If theatre operating costs, such as utility costs, increase due to political or economic changes, our results of operations could be adversely affected. Political events, such as terrorist attacks, and health-related epidemics, such as flu outbreaks, could cause people to avoid our theatres or other public places where large crowds are in attendance. In addition, a natural disaster, such as a hurricane or an earthquake, could impact our ability to operate certain of our theatres, which could adversely affect our results of operations.
 
Our foreign operations are subject to adverse regulations, economic instability and currency exchange risk.
 
We have 137 theatres with 1,113 screens in thirteen countries in Latin America. Brazil and Mexico represented approximately 14.8% and 3.3% of our consolidated 2010 revenues, respectively. Governmental regulation of the motion picture industry in foreign markets differs from that in the United States. Changes in regulations affecting prices, quota systems requiring the exhibition of locally-produced films and restrictions on ownership of property may adversely affect our international operations. Our international operations are subject to certain political, economic and other uncertainties not encountered by our domestic operations, including risks of severe economic downturns and high inflation. We also face risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange and transfers abroad, all of which could have an adverse effect on the results of our international operations.
 
We may not be able to generate additional revenues or continue to realize value from our investment in NCM.
 
In 2005, we joined Regal and AMC as founding members of NCM, a provider of digital advertising content and digital non-film event content. As of December 31, 2010, we had an ownership interest in NCM of approximately 15%. We receive a monthly theatre access fee under our Exhibitor Services Agreement with NCM and we are entitled to receive mandatory quarterly distributions of excess cash from NCM. During the years ended December 31, 2009 and 2010, the Company received approximately $5.7 million and $5.0 in other revenues from NCM, respectively, and $20.8 million and $23.4 million in cash distributions in excess of our investment in NCM, respectively. Cinema advertising is a small component of the U.S. advertising market and therefore, NCM competes with larger, established and well known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. NCM also competes with other cinema advertising companies and with hotels, conference centers, arenas, restaurants and convention facilities for its non-film related events to be shown or held in our auditoriums. In-theatre advertising may not continue to attract advertisers or NCM’s in-theatre advertising format may not continue to be received favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising revenues, its results of operations may be adversely affected and our investment in and distributions and revenues from NCM may be adversely impacted.
 
We are subject to uncertainties related to digital cinema, including insufficient financing to obtain digital projectors and insufficient supply of digital projectors.
 
We, along with some of our competitors, began a roll-out of digital projection equipment for exhibiting feature films during 2009 and plan to continue our domestic roll-out through our joint venture DCIP. However, significant obstacles may exist that impact such a roll-out plan including the cost of digital projectors and the supply of projectors by manufacturers. During 2010, DCIP completed its formation and a $660 million financing to facilitate


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the deployment of digital projectors in approximately 71% of our domestic theatres. We cannot assure you that DCIP will be able to obtain sufficient additional financing to be able to purchase and lease to us the number of digital projectors needed for our domestic roll-out or that the manufacturers will be able to supply the volume of projectors needed for our worldwide roll-out. As a result, our roll-out of digital equipment could be delayed. Additionally, there is no local financing available to finance the deployment of digital projectors for our international theatres. Accordingly, the cost of digital projection systems and manufacturer limitations may delay our international deployment.
 
We are subject to uncertainties relating to future expansion plans, including our ability to identify suitable acquisition candidates or site locations, and to obtain financing for such activities on favorable terms or at all.
 
We have greatly expanded our operations over the last decade through targeted worldwide theatre development and acquisitions. We will continue to pursue a strategy of expansion that will involve the development of new theatres and may involve acquisitions of existing theatres and theatre circuits both in the U.S. and internationally. There is significant competition for new site locations and for existing theatre and theatre circuit acquisition opportunities. As a result of such competition, we may not be able to acquire attractive site locations, existing theatres or theatre circuits on terms we consider acceptable. Acquisitions and expansion opportunities may divert a significant amount of management’s time away from the operation of our business. Growth by acquisition also involves risks relating to difficulties in integrating the operations and personnel of acquired companies and the potential loss of key employees of acquired companies. We cannot assure you that our expansion strategy will result in improvements to our business, financial condition, profitability, or cash flows. Further, our expansion programs may require financing above our existing borrowing capacity and operating cash flows. We cannot assure you that we will be able to obtain such financing or that such financing will be available to us on acceptable terms or at all.
 
If we do not comply with the Americans with Disabilities Act of 1990 and the safe harbor framework included in the consent order we entered into with the Department of Justice, or the DOJ, we could be subject to further litigation.
 
Our theatres must comply with Title III of the ADA and analogous state and local laws. Compliance with the ADA requires among other things that public facilities “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. In March 1999, the Department of Justice, or DOJ, filed suit against us in Ohio alleging certain violations of the ADA relating to wheelchair seating arrangements in certain of our stadium-style theatres and seeking remedial action. We and the DOJ have resolved this lawsuit and a consent order was entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 15, 2004. Under the consent order, we were required to make modifications to wheelchair seating locations in fourteen stadium-style movie theatres and spacing and companion seating modifications in 67 auditoriums at other stadium-styled movie theatres. These modifications were completed by November 2009. Upon completion of these modifications, these theatres comply with wheelchair seating requirements, and no further modifications will be required to our other stadium-style movie theatres in the United States existing on the date of the consent order. In addition, under the consent order, the DOJ approved the seating plans for nine stadium-styled movie theatres then under construction and also created a safe harbor framework for us to construct all of our future stadium-style movie theatres. The DOJ has stipulated that all theatres built in compliance with the consent order will comply with the wheelchair seating requirements of the ADA. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.
 
We depend on key personnel for our current and future performance.
 
Our current and future performance depends to a significant degree upon the continued contributions of our senior management team and other key personnel. The loss or unavailability to us of any member of our senior


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management team or a key employee could significantly harm us. We cannot assure you that we would be able to locate or employ qualified replacements for senior management or key employees on acceptable terms.
 
We are subject to impairment losses due to potential declines in the fair value of our assets.
 
We review long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We assess many factors when determining whether to impair individual theatre assets, including actual theatre level cash flows, future years budgeted theatre level cash flows, theatre property and equipment carrying values, amortizing intangible asset carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in our assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest applicable level for which there are identifiable cash flows. When estimated fair value is determined to be lower than the carrying value of the theatre assets, the theatre assets are written down to their estimated fair value. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during the first, second and third quarters of 2008 and six and a half times for the evaluation performed during the fourth quarter of 2008 and the evaluations performed during 2009 and 2010. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Since we evaluate long-lived assets for impairment at the theatre level, if a theatre is directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or condition of the areas surrounding the theatre, we may record impairment charges to reflect the decline in estimated fair value of that theatre.
 
We have a significant amount of goodwill. We evaluate goodwill for impairment at the reporting unit level at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be fully recoverable. Goodwill impairment is evaluated using a two-step approach requiring us to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its fair value, a second step would be performed to measure the potential goodwill impairment. Fair values are determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during 2008, 2009 and 2010. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Declines in our stock price or market capitalization, declines in our attendance due to increased competition in certain regions and/or countries or economic factors that lead to a decline in attendance in any given region or country could negatively affect our estimated fair values and could result in further impairments of goodwill. As of December 31, 2010, the carrying value of goodwill allocated to reporting units where the estimated fair value was less than 10% more than the carrying value was approximately $77 million.
 
We also have a significant amount of tradename intangible assets. Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. We estimate the fair value of our tradenames by applying an estimated market royalty rate that could be charged for the use of our tradename to forecasted future revenues, with an adjustment for the present value of such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to its estimated fair value. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected revenue performance and industry trends. As of December 31, 2010, the carrying value of tradename intangible assets where the estimated fair value was less than 10% more than the carrying value was approximately $136 million.


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We recorded asset impairment charges, including goodwill and intangible asset impairment charges, of $113.5 million, $11.8 million and $12.5 million for the years ended December 31, 2008, 2009 and 2010, respectively. We cannot assure you that additional impairment charges will not be required in the future, and such charges may have an adverse effect on our financial condition and results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 10 and 11 to the consolidated financial statements.
 
The impairment or insolvency of other financial institutions could adversely affect us.
 
We have exposure to different counterparties with regard to our interest rate swap agreements. These transactions expose us to credit risk in the event of a default by one or more of our counterparties to such agreements. We also have exposure to financial institutions used as depositories of our corporate cash balances. If our counterparties or financial institutions become impaired or insolvent, this could have an adverse impact on our results of operations or impair our ability to access our cash.
 
A credit market crisis may adversely affect our ability to raise capital and may materially impact our operations.
 
Severe dislocations and liquidity disruptions in the credit markets could materially impact our ability to obtain debt financing on reasonable terms or at all. The inability to access debt financing on reasonable terms could materially impact our ability to make acquisitions or significantly expand our business in the future.
 
We may be subject to liability under environmental laws and regulations.
 
We own and operate a large number of theatres and other properties within the United States and internationally, which may be subject to various foreign, federal, state and local laws and regulations relating to the protection of the environment or human health. Such environmental laws and regulations include those that impose liability for the investigation and remediation of spills or releases of hazardous materials. We may incur such liability, including for any currently or formerly owned, leased or operated property, or for any site, to which we may have disposed, or arranged for the disposal of, hazardous materials or wastes. Certain of these laws and regulations may impose liability, including on a joint and several liability, which can result in a liable party being obliged to pay for greater than its share, regardless of fault or the legality of the original disposal. Environmental conditions relating to our properties or operations could have an adverse effect on our business and results of operations and cash flows.
 
The interests of Madison Dearborn Capital Partners IV, L.P., or MDCP, may not be aligned with yours.
 
MDCP beneficially owns approximately 21% of our common stock and under a director nomination agreement, is entitled to designate nominees for five members of our board of directors. Accordingly, MDCP has influence and effectively controls our corporate and management policies and has significant influence over the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. MDCP could seek to take other actions that might be desirable to MDCP but that might not be desirable for other stockholders.
 
Our ability to pay dividends may be limited or otherwise restricted.
 
Our ability to pay dividends is limited by our status as a holding company and the terms of our senior notes indenture and our senior secured credit facility, which restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay dividends, directly or indirectly, to us. Under our debt instruments, we may pay a cash dividend up to a specified amount, provided we have satisfied certain financial covenants in, and are not in default under, our debt instruments. The declaration of future dividends on our common stock will be at the discretion of our board of directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements.


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Provisions in our corporate documents and certain agreements, as well as Delaware law, may hinder a change of control.
 
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to acquire us, even though such proposals may be beneficial to you. These provisions include:
 
  •  authorization of our board of directors to issue shares of preferred stock without stockholder approval;
 
  •  a board of directors classified into three classes of directors with the directors of each class, subject to shorter initial terms for some directors, having staggered, three-year terms;
 
  •  provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; and
 
  •  provisions of Delaware law that restrict many business combinations and provide that directors serving on classified boards of directors, such as ours, may be removed only for cause.
 
Certain provisions of our 8.625% senior notes indenture and our senior secured credit facility may have the effect of delaying or preventing future transactions involving a “change of control.” A “change of control” would require us to make an offer to the holders of our 8.625% senior notes to repurchase all of the outstanding notes at a purchase price equal to 101% of the aggregate principal amount outstanding plus accrued unpaid interest to the date of the purchase. A “change of control” would also be an event of default under our senior secured credit facility.
 
The market price of our common stock may be volatile.
 
There can be no assurance that an active trading market for our common stock will continue. The securities markets have experienced extreme price and volume fluctuations in recent years and the market prices of the securities of companies have been particularly volatile. This market volatility, as well as general economic or political conditions, could reduce the market price of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of investment analysts and investors and, in response, the market price of our common stock may decrease significantly and prevent investors from reselling their shares of our common stock at or above a market price that is favorable to other stockholders. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were the subject of securities class action litigation, it could result in substantial costs, liabilities and a diversion of management’s attention and resources.
 
Future sales of our common stock may adversely affect the prevailing market price.
 
If a large number of shares of our common stock is sold in the open market, or if there is a perception that such sales will occur, the trading price of our common stock could decrease. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional common stock. As of December 31, 2010, we had an aggregate of 182,889,297 shares of our common stock authorized but unissued and not reserved for specific purposes. In general, we may issue all of these shares without any action or approval by our stockholders. We may issue shares of our common stock in connection with acquisitions.
 
As of December 31, 2010, we had 113,750,844 shares of our common stock outstanding. Of these shares, approximately 75,573,390 shares were freely tradable. The remaining shares of our common stock were “restricted securities” as that term is defined in Rule 144 under the Securities Act. Restricted securities may not be resold in a public distribution except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom, including the exemptions provided by Regulation S and Rule 144 promulgated under the Securities Act.
 
We cannot predict whether substantial amounts of our common stock will be sold in the open market in anticipation of, or following, any divestiture by any of our existing stockholders, our directors or executive officers of their shares of common stock.
 
As of December 31, 2010, there were 9,786,673 shares of our common stock reserved for issuance under our Amended and Restated 2006 Long Term Incentive Plan, of which 140,356 shares of common stock were issuable


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upon exercise of options outstanding as of December 31, 2010. The sale of shares issued upon the exercise of stock options could further dilute your investment in our common stock and adversely affect our stock price.
 
Legislative or regulatory initiatives related to global warming/climate change concerns may negatively impact our business.
 
Recently, there has been an increasing focus and continuous debate on global climate change including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as yet unspecified array of environmental matters. Legislative, regulatory or other efforts in the United States to combat climate change could result in future increases in the cost of raw materials, taxes, transportation and utilities for our vendors and for us which would result in higher operating costs for the Company. Also, compliance of our theatres and accompanying real estate with new and revised environmental, zoning, land-use or building codes, laws, rules or regulations, could have a material and adverse effect on our business. However, we are unable to predict at this time, the potential effects, if any, that any future environmental initiatives may have on our business.
 
Item 1B.   Unresolved Staff Comments
 
None.
 
Item 2.   Properties
 
United States
 
As of December 31, 2010, in the U.S., we operated 251 theatres with 3,241 screens pursuant to leases and own the land and building for 42 theatres with 591 screens. Our leases are generally entered into on a long-term basis with terms, including optional renewal periods, generally ranging from 20 to 45 years. As of December 31, 2010, approximately 10% of our theatre leases in the U.S., covering 24 theatres with 198 screens, have remaining terms, including optional renewal periods, of less than six years. Approximately 10% of our theatre leases in the U.S., covering 24 theatres with 199 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 80% of our theatre leases in the U.S., covering 203 theatres with 2,844 screens, have remaining terms, including optional renewal periods, of more than 15 years. The leases generally provide for a fixed monthly minimum rent payment, with certain leases also subject to additional percentage rent if a target annual revenue level is achieved. We also lease an office building in Plano, Texas for our corporate headquarters.
 
International
 
As of December 31, 2010, internationally, we operated 137 theatres with 1,113 screens, all of which are leased. Our international leases are generally entered into on a long term basis with terms, including optional renewal periods, generally ranging from 5 to 40 years. The leases generally provide for contingent rental based upon operating results with an annual minimum. As of December 31, 2010, approximately 6% of our international theatre leases, covering eight theatres with 62 screens, have a remaining term, including optional renewal periods, of less than six years. Approximately 39% of our international theatre leases, covering 54 theatres and 446 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 55% of our international theatre leases, covering 75 theatres and 605 screens, have remaining terms, including optional renewal periods, of more than 15 years. We also lease office space in eight regions in Latin America for our local management.
 
See Note 22 to the consolidated financial statements for information regarding our minimum lease commitments. We periodically review the profitability of each of our theatres, particularly those whose lease terms are nearing expiration, to determine whether to continue its operations.
 
Item 3.   Legal Proceedings
 
On December 10, 2010, we were made a party to a putative class action claim in the United States District Court for the Northern District of California. The claim has been filed by a disability rights group and two individuals for injunctive relief, damages and attorney’s fees concerning captioning the movie exhibitions at our


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theatres in California. Monetary damages are also sought on behalf of all hearing-disabled patrons of our theatres in California. This case is in an early pretrial phase. We intend to vigorously defend this suit. We are currently unable to estimate a possible loss or range of loss related to this matter.
 
From time to time, we are involved in other various legal proceedings arising from the ordinary course of our business operations, such as personal injury claims, employment matters, landlord-tenant disputes, patent claims and contractual disputes, some of which are covered by insurance or by indemnification from vendors. We believe our potential liability, with respect to these types of proceedings currently pending, is not material, individually or in the aggregate, to our financial position, results of operations and cash flows.
 
Item 4.   Reserved


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PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information and Holders of Our Common Stock
 
Our common equity consists of common stock, which has traded on the New York Stock Exchange since April 24, 2007 under the symbol “CNK.” The following table sets forth the historical high and low sales prices per share of our common stock as reported by the New York Stock Exchange for the fiscal periods indicated.
 
                                 
    Fiscal 2009   Fiscal 2010
    High   Low   High   Low
 
First Quarter (January 1 — March 31)
  $ 10.26     $ 6.75     $ 18.47     $ 14.08  
Second Quarter (April 1 — June 30)
  $ 11.49     $ 8.63     $ 19.80     $ 13.09  
Third Quarter (July 1 — September 30)
  $ 11.65     $ 9.50     $ 16.89     $ 12.73  
Fourth Quarter (October 1 — December 31)
  $ 14.85     $ 10.08     $ 18.81     $ 15.95  
 
On February 25, 2011, there were 117 stockholders of record of our common stock.
 
Dividend Policy
 
In August 2007, we initiated a quarterly dividend policy, which was amended in November 2010. Below is a summary of dividends paid for the fiscal periods indicated:
 
                 
            Amount per
   
Date
  Date of
  Date
  Common
  Total
Declared   Record   Paid   Share(1)   Dividends
 
02/13/09
  03/05/09   03/20/09   $0.18   $19.6 million
05/13/09
  06/02/09   06/18/09   $0.18   $19.7 million
07/29/09
  08/17/09   09/01/09   $0.18   $19.7 million
11/04/09
  11/25/09   12/10/09   $0.18   $19.7 million
02/25/10
  03/05/10   03/19/10   $0.18   $20.1 million
05/13/10
  06/04/10   06/18/10   $0.18   $20.2 million
07/29/10
  08/17/10   09/01/10   $0.18   $20.4 million
11/02/10
  11/22/10   12/07/10   $0.21   $23.8 million
 
 
(1) Beginning with the dividend declared on November 2, 2010, our board of directors raised the quarterly dividend to $0.21 per common share.
 
We, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterly dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions, future prospects for earnings and cash flows, as well as other relevant factors. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources — Financing Activities for a discussion of dividend restrictions under our debt agreements.
 
Performance Graph
 
The following graph compares the cumulative total stockholder return on our common stock for the period December 31, 2007 through December 31, 2010 (our fiscal year end) with the Standard and Poor’s Corporation Composite 500 Index and a self-determined peer group of two public companies engaged in the motion picture exhibition industry. The peer group consists of Regal Entertainment Group and Carmike Cinemas, Inc.


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CUMULATIVE TOTAL RETURN
Based upon initial investment of $100 on December 31, 2007
with dividends reinvested
 
(PERFORMANCE GRAPH)
 
Source: Yahoo! Finance & Company
 
                                                                                                                                   
      12/31/2007     3/31/2008     6/30/2008     9/30/2008     12/31/2008     3/31/2009     6/30/2009     9/30/2009     12/31/2009     3/31/2010     6/30/2010     9/30/2010     12/31/2010
Cinemark Holdings, Inc. 
    $ 100       $ 75       $ 77       $ 81       $ 44       $ 56       $ 68       $ 62       $ 86       $ 110       $ 79       $ 97       $ 104  
S&P © 500
      100         90         87         79         62         54         63         72         76         80         70         78         86  
Peer Group (2 Stocks)*
      100         105         84         78         56         65         89         92         91         80         79         91         81  
                                                                                                                                   
 
* The 2-Stock Peer Group consists of Regal Entertainment Group and Carmike Cinemas Inc.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
The following table provides information about the securities authorized for issuance under the Company’s equity compensation plans as of December 31, 2010:
 
                         
    Number of
    Weighted Average
    Number of Securities
 
    Securities to be
    Exercise
    Remaining Available for
 
    Issued upon
    Price of
    Future Issuance Under
 
    Exercise of
    Outstanding
    Equity Compensation Plans
 
    Outstanding
    Options, Warrants
    (Excluding Securities
 
    Options, Warrants
    and
    Reflected in the First
 
Plan Category
  and Rights     Rights     Column)  
 
Equity compensation plans approved by security holders
    140,356     $ 7.63       9,786,673  
Equity compensation plans not approved by security holders
                 
                         
Total
    140,356     $ 7.63       9,786,673  
                         


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Item 6.   Selected Financial Data
 
The following table provides our selected consolidated financial and operating data for the periods and at the dates indicated for each of the five most recent years ended December 31, 2010. On October 5, 2006, we completed our acquisition of Century Theatres, Inc., or Century. Results of operations reflect the inclusion of the Century theatres beginning on the date of acquisition. You should read the selected consolidated financial and operating data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes appearing elsewhere in this report.
 
                                         
    Year Ended December 31,  
    2006     2007     2008     2009     2010  
    (Dollars in thousands, except per share data)  
 
Statement of Operations Data:
                                       
Revenues:
                                       
Admissions
  $ 760,275     $ 1,087,480     $ 1,126,977     $ 1,293,378     $ 1,405,389  
Concession
    375,798       516,509       534,836       602,880       642,326  
Other
    84,521       78,852       80,474       80,242       93,429  
                                         
Total revenues
  $ 1,220,594     $ 1,682,841     $ 1,742,287     $ 1,976,500     $ 2,141,144  
Film rental and advertising
    405,987       589,717       612,248       708,160       769,698  
Concession supplies
    59,020       81,074       86,618       91,918       97,484  
Salaries and wages
    118,616       173,290       180,950       203,437       221,246  
Facility lease expense
    161,374       212,730       225,595       238,779       255,717  
Utilities and other
    144,808       191,279       205,814       222,660       239,470  
General and administrative expenses
    67,768       79,518       90,788       96,497       109,045  
Termination of profit participation agreement
          6,952                    
Total depreciation and amortization
    99,470       151,716       158,034       149,515       143,508  
Impairment of long-lived assets
    28,537       86,558       113,532       11,858       12,538  
(Gain) loss on sale of assets and other
    7,645       (2,953 )     8,488       3,202       (431 )
                                         
Total cost of operations
    1,093,225       1,569,881       1,682,067       1,726,026       1,848,275  
                                         
Operating income
  $ 127,369     $ 112,960     $ 60,220     $ 250,474     $ 292,869  
                                         
Interest expense
  $ 109,328     $ 145,596     $ 116,058     $ 102,505     $ 112,444  
                                         
Net income (loss)
  $ 2,310     $ 89,712     $ (44,430 )   $ 100,756     $ 149,663  
                                         
Net income (loss) attributable to Cinemark Holdings, Inc. 
  $ 841     $ 88,920     $ (48,325 )   $ 97,108     $ 146,120  
                                         
Net income (loss) attributable to Cinemark Holdings, Inc. per share:
                                       
Basic
  $ 0.01     $ 0.87     $ (0.45 )   $ 0.89     $ 1.30  
                                         
Diluted
  $ 0.01     $ 0.85     $ (0.45 )   $ 0.87     $ 1.29  
                                         
 


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    Year Ended December 31,
    2006   2007   2008   2009   2010
 
Other Financial Data:
                                       
Ratio of earnings to fixed charges(1)
    1.09 x     1.96 x           1.84 x     2.10 x
Cash flow provided by (used for):
                                       
Operating activities
  $ 155,662     $ 276,036     $ 257,294     $ 176,763     $ 264,751  
Investing activities(2)
    (631,747 )     93,178       (94,942 )     (183,130 )     (136,067 )
Financing activities
    439,977       (183,715 )     (135,091 )     78,299       (106,650 )
Capital expenditures
    (107,081 )     (146,304 )     (106,109 )     (124,797 )     (156,102 )
 
                                         
    As of December 31,
    2006   2007   2008   2009   2010
    (Dollars in thousands)
 
Balance Sheet Data:
                                       
Cash and cash equivalents
  $ 147,099     $ 338,043     $ 349,603     $ 437,936     $ 464,997  
Theatre properties and equipment, net
    1,324,572       1,314,066       1,208,283       1,219,588       1,215,446  
Total assets
    3,171,582       3,296,892       3,065,708       3,276,448       3,421,478  
Total long-term debt and capital lease obligations, including current portion
    2,027,480       1,644,915       1,632,174       1,684,073       1,672,601  
Equity
    705,910       1,035,385       824,227       914,628       1,033,152  
 
                                         
    Year Ended December 31,
    2006   2007   2008   2009   2010
 
Operating Data:
                                       
United States(3)
                                       
Theatres operated (at period end)
    281       287       293       294       293  
Screens operated (at period end)
    3,523       3,654       3,742       3,830       3,832  
Total attendance (in 000s)
    118,714       151,712       147,897       165,112       161,174  
International(4)
                                       
Theatres operated (at period end)
    115       121       127       130       137  
Screens operated (at period end)
    965       1,011       1,041       1,066       1,113  
Total attendance (in 000s)
    59,550       60,958       63,413       71,622       80,026  
Worldwide(3)(4)
                                       
Theatres operated (at period end)
    396       408       420       424       430  
Screens operated (at period end)
    4,488       4,665       4,783       4,896       4,945  
Total attendance (in 000s)
    178,264       212,670       211,310       236,734       241,200  
 
 
(1) For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before income taxes plus fixed charges excluding capitalized interest. Fixed charges consist of interest expense, capitalized interest, amortization of debt issue costs and that portion of rental expense which we believe to be representative of the interest factor. For the year ended December 31, 2008, earnings were insufficient to cover fixed charges by $27.1 million.
 
(2) Includes the cash portion of the Century acquisition purchase price of $531.2 million during the year ended December 31, 2006.
 
(3) The data excludes certain theatres operated by us in the U.S. pursuant to management agreements that are not part of our consolidated operations.
 
(4) The data excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes included in this report. This discussion contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties and risk associated with these statements.
 
Overview
 
As of December 31, 2010, we managed our business under two reportable operating segments — U.S. markets and international markets. See Note 23 to the consolidated financial statements.
 
Revenues and Expenses
 
We generate revenues primarily from box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as vendor marketing promotions and electronic video games located in some of our theatres. Our contracts with NCM have assisted us in expanding our offerings to domestic advertisers and broadening ancillary revenue sources such as digital video monitor advertising, third party branding, and the use of our domestic theatres for alternative entertainment, such as live and pre-recorded concert events, the opera, sports programs, and other cultural events. Films leading the box office during the year ended December 31, 2010 included the carryover of Avatar, which grossed approximately $475 million in U.S. box office revenues during 2010 and new releases such as Toy Story 3, Alice in Wonderland, Harry Potter and the Deathly Hallows: Part 1, Iron Man 2, The Twilight Saga: Eclipse, Inception, Despicable Me, How to Train Your Dragon, Shrek Forever After, Clash of the Titans, The Karate Kid, Tangled, Grown Ups, Megamind, Tron: Legacy, Little Fockers, The Fighter and True Grit. Our revenues are affected by changes in attendance and concession revenues per patron. Attendance is primarily affected by the quality and quantity of films released by motion picture studios. Films currently scheduled for release in 2011 include Rango, Fast Five, Thor, Pirates of the Caribbean: On Stranger Tides, Kung Fu Panda 2: The Kaboom of Doom, Cars 2, X Men: First Class, Transformers: Dark of the Moon, Harry Potter and the Deathly Hollows: Part 2, Twilight: Breaking Dawn, Captain America: The First Avenger, Cowboys and Aliens, Puss in Boots, Happy Feet 2, Sherlock Holmes 2 and Alvin and the Chipmunks: Chipwrecked, among other films.
 
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. Film rental costs can also vary based on the length of a film’s run. Film rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis. Advertising costs, which are expensed as incurred, are primarily fixed at the theatre level as daily movie directories placed in newspapers represent the largest component of advertising costs. The monthly cost of these advertisements is based on, among other things, the size of the directory and the frequency and size of the newspaper’s circulation.
 
Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume 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 respond to changes in attendance.
 
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to percentage rent only while others are subject to percentage rent in addition to their fixed monthly rent if a target annual revenue level is achieved. Facility lease expense as a percentage of revenues is also affected by the number of theatres under operating leases, the number of theatres under capital leases and the number of fee-owned theatres.
 
Utilities and other costs include certain costs that have both fixed and variable components such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.


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Critical Accounting Policies
 
We prepare our consolidated financial statements in conformity with U.S. GAAP. As such, we are required to make certain estimates and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported consolidated financial results, include the following:
 
Revenue and Expense Recognition
 
Revenues are recognized when admissions and concession sales are received at the box office. Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre. We record proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognize admissions and concession revenue when a holder redeems the card or certificate. We recognize unredeemed gift cards and other advanced sale-type certificates as revenue only after such a period of time indicates, based on historical experience, the likelihood of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood of redemption, we consider the period outstanding, the level and frequency of activity, and the period of inactivity.
 
Film rental costs are accrued based on the applicable box office receipts and either mutually agreed upon firm terms or a sliding scale formula, which are generally established prior to the opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula, we pay the distributor a mutually agreed upon specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Under a sliding scale formula, we pay a percentage of box office revenues using a pre-determined matrix that is based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Estimates are based on the expected success of a film. 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 can typically be estimated early in the film’s run. If actual settlements are different than those estimates, film rental costs are adjusted at that time. Our advertising costs are expensed as incurred.
 
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to monthly percentage rent only, which is accrued each month based on actual revenues. Certain of our other theatres require payment of percentage rent in addition to fixed monthly rent if a target annual revenue level is achieved. Percentage rent expense is recorded for these theatres on a monthly basis if the theatre’s historical performance or forecasted performance indicates that the annual target will be reached. The estimate of percentage rent expense recorded during the year is based on historical and forecasted annual revenues. Once annual revenues are known, which is generally at the end of the year, the percentage rent expense is adjusted based on actual revenues. We record the fixed minimum rent payments on a straight-line basis over the lease term.
 
Theatre properties and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives of our theatre properties and equipment, we have relied upon our experience with such assets and our historical replacement period. We periodically evaluate these estimates and assumptions and adjust them as necessary. Adjustments to the expected lives of assets are accounted for on a prospective basis through depreciation expense. Leasehold improvements for which we pay and to which we have title are amortized over the lease term.


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Impairment of Long-Lived Assets
 
We review long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We assess many factors including the following to determine whether to impair individual theatre assets:
 
  •  actual theatre level cash flows;
 
  •  future years budgeted theatre level cash flows;
 
  •  theatre property and equipment carrying values;
 
  •  amortizing intangible asset carrying values;
 
  •  the age of a recently built theatre;
 
  •  competitive theatres in the marketplace;
 
  •  the impact of recent ticket price changes;
 
  •  available lease renewal options; and
 
  •  other factors considered relevant in our assessment of impairment of individual theatre assets.
 
Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal periods for leased properties and a period of approximately twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset group (theatre) with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair value. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during the first, second and third quarters of 2008 and six and a half times for the evaluation performed during the fourth quarter of 2008 and the evaluations performed during 2009 and 2010. We reduced the multiple we used to determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted from a significant decrease in our stock price and the declines in our and our competitors’ market capitalizations that occurred during the fourth quarter of 2008. The long-lived asset impairment charges related to theatre properties recorded during each of the periods presented are specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre.
 
Impairment of Goodwill and Intangible Assets
 
We evaluate goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable. We evaluate goodwill for impairment at the reporting unit level and have allocated goodwill to the reporting unit based on an estimate of its relative fair value. Management considers the reporting unit to be each of our sixteen regions in the U.S. and each of our eight international countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are considered one reporting unit). The evaluation is a two-step approach requiring us to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during 2008, 2009


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and 2010. As of December 31, 2010, the carrying value of goodwill allocated to reporting units where the estimated fair value was less than 10% more than the carrying value was approximately $77 million. Declines in our stock price or market capitalization, declines in our attendance due to increased competition in certain regions and/or countries or economic factors that lead to a decline in attendance in any given region or country could negatively affect our estimated fair values and could result in further impairments of goodwill.
 
Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. We estimate the fair value of our tradenames by applying an estimated market royalty rate that could be charged for the use of our tradename to forecasted future revenues, with an adjustment for the present value of such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to its estimated fair value. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected revenue performance and industry trends. As of December 31, 2010, the carrying value of tradename intangible assets where the estimated fair value was less than 10% more than the carrying value was approximately $136 million.
 
Income Taxes
 
We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not 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. The evaluation of an uncertain tax position is a two-step process. The first step is recognition: We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements result in (1) a change in a liability for income taxes payable or (2) a change in an income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2). We accrue interest and penalties on uncertain tax positions.
 
Recent Developments
 
Dividend Declaration
 
On February 24, 2011 our board of directors declared a cash dividend in the amount of $0.21 per common share payable to stockholders of record on March 4, 2011. The dividend will be paid on March 16, 2011.


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Results of Operations
 
The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items reflected in our consolidated statements of operations:
 
                         
    Year Ended December 31,  
    2008     2009     2010  
 
Operating data (in millions):
                       
Revenues
                       
Admissions
  $ 1,127.0     $ 1,293.4     $ 1,405.4  
Concession
    534.8       602.9       642.3  
Other
    80.5       80.2       93.4  
                         
Total revenues
    1,742.3       1,976.5       2,141.1  
Cost of operations
                       
Film rentals and advertising
    612.2       708.2       769.7  
Concession supplies
    86.6       91.9       97.5  
Salaries and wages
    181.0       203.4       221.2  
Facility lease expense
    225.6       238.8       255.7  
Utilities and other
    205.8       222.7       239.5  
General and administrative expenses
    90.8       96.5       109.1  
Depreciation and amortization
    158.1       149.5       143.5  
Impairment of long-lived assets
    113.5       11.8       12.5  
(Gain) loss on sale of assets and other
    8.5       3.2       (0.4 )
                         
Total cost of operations
    1,682.1       1,726.0       1,848.3  
                         
Operating income
  $ 60.2     $ 250.5     $ 292.8  
                         
Operating data as a percentage of total revenues:
                       
Revenues
                       
Admissions
    64.7 %     65.4 %     65.6 %
Concession
    30.7 %     30.5 %     30.0 %
Other
    4.6 %     4.1 %     4.4 %
                         
Total revenues
    100.0 %     100.0 %     100.0 %
                         
Cost of operations(1)
                       
Film rentals and advertising
    54.3 %     54.8 %     54.8 %
Concession supplies
    16.2 %     15.2 %     15.2 %
Salaries and wages
    10.4 %     10.3 %     10.3 %
Facility lease expense
    12.9 %     12.1 %     11.9 %
Utilities and other
    11.8 %     11.3 %     11.2 %
General and administrative expenses
    5.2 %     4.9 %     5.1 %
Depreciation and amortization
    9.1 %     7.6 %     6.7 %
Impairment of long-lived assets
    6.5 %     0.6 %     0.6 %
(Gain) loss on sale of assets and other
    0.5 %     0.2 %     (0.0 )%
Total cost of operations
    96.5 %     87.3 %     86.3 %
Operating income
    3.5 %     12.7 %     13.7 %
                         
Average screen count (month end average)
    4,703       4,860       4,909  
                         
Revenues per average screen (dollars)
  $ 370,469     $ 406,681     $ 436,181  
                         
 
 
(1) All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues.


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Comparison of Years Ended December 31, 2010 and December 31, 2009
 
Revenues.  Total revenues increased $164.6 million to $2,141.1 million for 2010 from $1,976.5 million for 2009, representing an 8.3% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
 
                                                                         
    U.S. Operating
  International Operating
   
    Segment   Segment   Consolidated
    Year Ended
  Year Ended
  Year Ended
    December 31,   December 31,   December 31,
            %
          %
          %
    2010   2009   Change   2010   2009   Change   2010   2009   Change
 
Admissions revenues(1)
  $ 1,044.7     $ 1,025.9       1.8 %   $ 360.7     $ 267.5       34.8 %   $ 1,405.4     $ 1,293.4       8.7 %
Concession revenues(1)
  $ 487.9     $ 485.2       0.6 %   $ 154.4     $ 117.7       31.2 %   $ 642.3     $ 602.9       6.5 %
Other revenues(1)(2)
  $ 44.3     $ 43.6       1.6 %   $ 49.1     $ 36.6       34.2 %   $ 93.4     $ 80.2       16.5 %
Total revenues(1)(2)
  $ 1,576.9     $ 1,554.7       1.4 %   $ 564.2     $ 421.8       33.8 %   $ 2,141.1     $ 1,976.5       8.3 %
Attendance(1)
    161.2       165.1       (2.4 )%     80.0       71.6       11.7 %     241.2       236.7       1.9 %
Revenues per average screen(2)
  $ 411,708     $ 408,017       0.9 %   $ 523,078     $ 401,828       30.2 %   $ 436,181     $ 406,681       7.3 %
 
 
(1) Amounts in millions.
 
(2) U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 23 of our consolidated financial statements.
 
  •  Consolidated.  The increase in admissions revenues of $112.0 million was primarily attributable to a 1.9% increase in attendance and a 6.8% increase in average ticket price from $5.46 for 2009 to $5.83 for 2010. The increase in concession revenues of $39.4 million was primarily attributable to the 1.9% increase in attendance and a 4.3% increase in concession revenues per patron from $2.55 for 2009 to $2.66 for 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 16.5% increase in other revenues was primarily due to increases in ancillary revenue.
 
  •  U.S.  The increase in admissions revenues of $18.8 million was primarily attributable to a 4.3% increase in average ticket price from $6.21 for 2009 to $6.48 for 2010, partially offset by a 2.4% decrease in attendance for 2010. The increase in concession revenues of $2.7 million was primarily attributable to a 3.1% increase in concession revenues per patron from $2.94 for 2009 to $3.03 for 2010, partially offset by the 2.4% decrease in attendance for 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases, and the increase in concession revenues per patron was primarily due to price increases.
 
  •  International.  The increase in admissions revenues of $93.2 million was primarily attributable to an 11.7% increase in attendance and a 20.6% increase in average ticket price from $3.74 for 2009 to $4.51 for 2010. The increase in concession revenues of $36.7 million was primarily attributable to the 11.7% increase in attendance and a 17.7% increase in concession revenues per patron from $1.64 for 2009 to $1.93 for 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 34.2% increase in other revenues was primarily due to increases in ancillary revenue.


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Cost of Operations.  The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions).
 
                                                 
    U.S.
  International Operating
   
    Operating Segment   Segment   Consolidated
    Year Ended
  Year Ended
  Year Ended
    December 31,   December 31,   December 31,
    2010   2009   2010   2009   2010   2009
 
Film rentals and advertising
  $ 586.6     $ 572.3     $ 183.1     $ 135.9     $ 769.7     $ 708.2  
Concession supplies
    59.1       61.9       38.4       30.0       97.5       91.9  
Salaries and wages
    174.1       168.8       47.1       34.6       221.2       203.4  
Facility lease expense
    181.9       178.8       73.8       60.0       255.7       238.8  
Utilities and other
    161.5       163.5       78.0       59.2       239.5       222.7  
 
  •  Consolidated.  Film rentals and advertising costs were $769.7 million for 2010 compared to $708.2 million for 2009, both of which represented 54.8% of admissions revenues. The increase in film rentals and advertising costs of $61.5 million was primarily due to the $112.0 million increase in admissions revenues. Concession supplies expense was $97.5 million for 2010 compared to $91.9 million for 2009, both of which represent 15.2% of concession revenues. The increase in concession supplies expense of $5.6 million was primarily due to the $39.4 million increase in concession revenues.
 
Salaries and wages increased to $221.2 million for 2010 from $203.4 million for 2009 primarily due to increased minimum wages in both our U.S. and international segments, increased staffing levels to support the 1.9% increase in attendance, new theatre openings and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $255.7 million for 2010 from $238.8 million for 2009 primarily due to new theatres, increased percentage rent related to the 8.3% increase in revenues and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $239.5 million for 2010 from $222.7 million for 2009 primarily due to increased variable costs related to the 1.9% increase in attendance, increased costs related to new theatres, increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate.
 
  •  U.S.   Film rentals and advertising costs were $586.6 million, or 56.2% of admissions revenues, for 2010 compared to $572.3 million, or 55.8% of admissions revenues, for 2009. The increase in film rentals and advertising costs of $14.3 million was primarily due to the $18.8 million increase in admissions revenues and an increase in our film rentals and advertising rate. The increase in the film rentals and advertising rate was primarily due to higher film rental rates associated with certain blockbuster films released in 2010, including the carryover of Avatar. Concession supplies expense was $59.1 million, or 12.1% of concession revenues, for 2010, compared to $61.9 million, or 12.8% of concession revenues, for 2009. The decrease in concession supplies expense was primarily due to a decrease in the concession supplies rate due to favorable inventory procurement costs along with the successful implementation of sales price increases.
 
Salaries and wages increased to $174.1 million for 2010 from $168.8 million for 2009 primarily due to increased minimum wage rates and new theatre openings. Facility lease expense increased to $181.9 million for 2010 from $178.8 million for 2009 primarily due to new theatres. Utilities and other costs decreased to $161.5 million for 2010 from $163.5 million for 2009 primarily due to lower utility costs and property taxes, offset by increased 3-D equipment rental fees.
 
  •  International.  Film rentals and advertising costs were $183.1 million for 2010 compared to $135.9 million for 2009, both of which represented 50.8% of admissions revenues. The increase in film rentals and advertising costs of $47.2 million was primarily due to the $93.2 million increase in admissions revenues. Concession supplies expense was $38.4 million, or 24.9% of concession revenues, for 2010 compared to $30.0 million, or 25.5% of concession revenues, for 2009. The increase in concession supplies expense of $8.4 million was primarily due to the $36.7 million increase in concession revenues, partially offset by a lower concession supplies rate.


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Salaries and wages increased to $47.1 million for 2010 from $34.6 million for 2009 primarily due to increased staffing levels to support the 11.7% increase in attendance, increased minimum wage rates, new theatre openings and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $73.8 million for 2010 from $60.0 million for 2009 primarily due to new theatres, increased percentage rent related to the 33.8% increase in revenues and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $78.0 million for 2010 from $59.2 million for 2009 primarily due to increased variable costs related to the 11.7% increase in attendance, increased costs related to new theatres, increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate.
 
General and Administrative Expenses.  General and administrative expenses increased to $109.1 million for 2010 from $96.5 million for 2009. The increase was primarily due to increased service charges of $4.1 million related to increased credit card activity, increased share based awards compensation expense of $4.1 million, increased professional fees of $2.2 million and the impact of exchange rates in certain countries in which we operate.
 
Depreciation and Amortization.  Depreciation and amortization expense, including amortization of favorable/ unfavorable leases, was $143.5 million for 2010 compared to $149.5 million for 2009. The decrease was primarily due to a significant amount of the equipment acquired in the Century Acquisition becoming fully depreciated during the fourth quarter of 2009, partially offset by the impact of accelerated depreciation taken on our domestic 35 millimeter projection systems that will be replaced with digital projection systems. We recorded approximately $9.4 million of depreciation expense related to these 35 millimeter projection systems during 2010.
 
Impairment of Long-Lived Assets.  We recorded asset impairment charges on assets held and used of $12.5 million for 2010 compared to $11.8 million for 2009. Impairment charges for 2010 consisted of $10.8 million of theatre properties and $1.5 million of intangible assets, impacting eighteen of our twenty-four reporting units, and $0.2 million related to an equity investment that was written down to its estimated fair value. Impairment charges for 2009 consisted of $11.4 million of theatre properties and $0.3 million of intangible assets associated with theatre properties, impacting nineteen of our twenty-four reporting units, and $0.1 million related to an equity investment that was written down to its estimated fair value. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics, or adverse changes in the development or the conditions of the areas surrounding the theatre. See Notes 10 and 11 to our consolidated financial statements.
 
(Gain) Loss on Sale of Assets and Other.  We recorded a gain on sale of assets and other of $0.4 million during 2010 compared to a loss on sale of assets and other of $3.2 million during 2009. The gain recorded during 2010 included a gain of $7.0 million related to the sale of a theatre in Canada and a gain of $8.5 million related to the sale of our interest in a profit sharing agreement related to another previously sold property in Canada, which were partially offset by a loss of $5.8 million for the write-off of an intangible asset associated with a vendor contract in Mexico that was terminated, a loss of $2.3 million for the write-off of intangible assets associated with our original IMAX license agreement that was terminated, a loss of $2.0 million that was recorded upon the contribution and sale of digital projection systems to DCIP and a loss of $0.9 million related to storm damage to a U.S. theatre. See Note 7 to our consolidated financial statements for discussion of DCIP. The loss recorded during 2009 was primarily related to the write-off of theatre equipment that was replaced.
 
Interest Expense.  Interest costs incurred, including amortization of debt issue costs, were $112.4 million for 2010 compared to $102.5 million for 2009. The increase was primarily due to increases in interest rates on our variable rate debt related to the amendment and extension of our senior secured credit facility. See Note 13 to our consolidated financial statements for further discussion of our long-term debt.
 
Interest Income.  We recorded interest income of $6.1 million during 2010 compared to interest income of $4.9 million during 2009. The increase in interest income was primarily due to higher interest rates earned on our cash investments.
 
Loss on Early Retirement of Debt.  During 2009, we recorded a loss on early retirement of debt of $27.9 million as a result of the tender and call premiums paid and other fees related to the repurchase of


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approximately $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 93/4% senior discount notes and the write-off of unamortized debt issue costs associated with these notes. See Note 13 to our consolidated financial statements.
 
Distributions from NCM.  We recorded distributions received from NCM of $23.4 million during 2010 and $20.8 million during 2009, which were in excess of the carrying value of our investment. See Note 6 to our consolidated financial statements.
 
Equity in Loss of Affiliates.  We recorded equity in loss of affiliates of $3.4 million during 2010 compared to $0.9 million during 2009. The equity in loss of affiliates recorded during 2010 included a loss of approximately $7.9 million related to our equity investment in DCIP (see Note 7 to our consolidated financial statements) offset by income of approximately $4.5 million related to our equity investment in NCM (see Note 6 to our consolidated financial statements). The equity in loss of affiliates recorded during 2009 included a loss of approximately $2.8 million related to our equity investment in DCIP offset by income of approximately $1.9 million related to our equity investment in NCM.
 
Income Taxes.  Income tax expense of $57.8 million was recorded for 2010 compared to $44.8 million recorded for 2009. The effective tax rate for 2010 was 27.9%. The effective tax rate for 2009 was 30.8%. See Note 21 to our consolidated financial statements.
 
Comparison of Years Ended December 31, 2009 and December 31, 2008
 
Revenues.  Total revenues increased $234.2 million to $1,976.5 million for 2009 from $1,742.3 million for 2008, representing a 13.4% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
 
                                                                         
    U.S. Operating
  International Operating
   
    Segment   Segment   Consolidated
    Year Ended
  Year Ended
  Year Ended
    December 31,   December 31,   December 31,
            %
          %
          %
    2009   2008   Change   2009   2008   Change   2009   2008   Change
 
Admissions revenues(1)
  $ 1,025.9     $ 889.1       15.4 %   $ 267.5     $ 237.9       12.4 %   $ 1,293.4     $ 1,127.0       14.8 %
Concession revenues(1)
  $ 485.2     $ 426.5       13.8 %   $ 117.7     $ 108.3       8.7 %   $ 602.9     $ 534.8       12.7 %
Other revenues(1)(2)
  $ 43.6     $ 40.9       6.6 %   $ 36.6     $ 39.6       (7.6 )%   $ 80.2     $ 80.5       (0.4 )%
Total revenues(1)(2)
  $ 1,554.7     $ 1,356.5       14.6 %   $ 421.8     $ 385.8       9.3 %   $ 1,976.5     $ 1,742.3       13.4 %
Attendance(1)
    165.1       147.9       11.6 %     71.6       63.4       12.9 %     236.7       211.3       12.0 %
Revenues per average screen(2)
  $ 408,017     $ 368,313       10.8 %   $ 401,828     $ 378,252       6.2 %   $ 406,681     $ 370,469       9.8 %
 
 
(1) Amounts in millions.
 
(2) U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 23 of our consolidated financial statements.
 
  •  Consolidated.  The increase in admissions revenues of $166.4 million was primarily attributable to a 12.0% increase in attendance and a 2.4% increase in average ticket price from $5.33 for 2008 to $5.46 for 2009. The increase in concession revenues of $68.1 million was primarily attributable to the 12.0% increase in attendance and a 0.8% increase in concession revenues per patron from $2.53 for 2008 to $2.55 for 2009. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases, and the increase in concession revenues per patron was primarily due to price increases.
 
  •  U.S.  The increase in admissions revenues of $136.8 million was primarily attributable to an 11.6% increase in attendance and a 3.3% increase in average ticket price from $6.01 for 2008 to $6.21 for 2009. The increase in concession revenues of $58.7 million was primarily attributable to the 11.6% increase in attendance and a 2.1% increase in concession revenues per patron from $2.88 for 2008 to $2.94 for 2009. The


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  increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases, and the increase in concession revenues per patron was primarily due to price increases.
 
  •  International.  The increase in admissions revenues of $29.6 million was primarily attributable to a 12.9% increase in attendance, partially offset by a 0.3% decrease in average ticket price from $3.75 for 2008 to $3.74 for 2009. The increase in concession revenues of $9.4 million was primarily attributable to the 12.9% increase in attendance, partially offset by a 4.1% decrease in concession revenues per patron from $1.71 for 2008 to $1.64 for 2009. The decreases in average ticket price and concession revenues per patron were due to the unfavorable impact of exchange rates during most of the year in certain countries in which we operate. The 7.6% decrease in other revenues was primarily due to the unfavorable impact of exchange rates during most of the year in certain countries in which we operate.
 
Cost of Operations.  The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions).
 
                                                 
    U.S.
  International Operating
   
    Operating Segment   Segment   Consolidated
    Year Ended
  Year Ended
  Year Ended
    December 31,   December 31,   December 31,
    2009   2008   2009   2008   2009   2008
 
Film rentals and advertising
  $ 572.3     $ 494.6     $ 135.9     $ 117.6     $ 708.2     $ 612.2  
Concession supplies
    61.9       58.5       30.0       28.1       91.9       86.6  
Salaries and wages
    168.8       149.5       34.6       31.5       203.4       181.0  
Facility lease expense
    178.8       166.8       60.0       58.8       238.8       225.6  
Utilities and other
    163.5       151.8       59.2       54.0       222.7       205.8  
 
  •  Consolidated.  Film rentals and advertising costs were $708.2 million, or 54.8% of admissions revenues, for 2009 compared to $612.2 million, or 54.3% of admissions revenues, for 2008. The increase in film rentals and advertising costs of $96.0 million was primarily due to the $166.4 million increase in admissions revenues. The increase in the film rentals and advertising rate was primarily due to higher film rental rates associated with the increased number of blockbuster films released in 2009. Concession supplies expense was $91.9 million, or 15.2% of concession revenues, for 2009, compared to $86.6 million, or 16.2% of concession revenues, for 2008. The decrease in the concession supplies rate was primarily related to the benefit of our new U.S. beverage agreement that was effective at the beginning of 2009.
 
Salaries and wages increased to $203.4 million for 2009 from $181.0 million for 2008 primarily due to increased staffing levels to support the 12.0% increase in attendance, increased minimum wage rates and new theatre openings. Facility lease expense increased to $238.8 million for 2009 from $225.6 million for 2008 primarily due to new theatres and increased percentage rent related to the 13.4% increase in revenues. Utilities and other costs increased to $222.7 million for 2009 from $205.8 million for 2008 primarily due to increased variable costs related to the 12.0% increase in attendance, increased costs related to new theatres, increased repairs and maintenance expense and increased 3-D equipment rental fees.
 
  •  U.S.   Film rentals and advertising costs were $572.3 million, or 55.8% of admissions revenues, for 2009 compared to $494.6 million, or 55.6% of admissions revenues, for 2008. The increase in film rentals and advertising costs of $77.7 million was primarily due to the $136.8 million increase in admissions revenues. The increase in the film rentals and advertising rate was primarily due to higher film rental rates associated with the increased number of blockbuster films released in 2009. Concession supplies expense was $61.9 million, or 12.8% of concession revenues, for 2009, compared to $58.5 million, or 13.7% of concession revenues, for 2008. The decrease in the concession supplies rate was primarily related to the benefit of our new U.S. beverage agreement that was effective at the beginning of 2009.
 
Salaries and wages increased to $168.8 million for 2009 from $149.5 million for 2008 primarily due to increased staffing levels to support the 11.6% increase in attendance, increased minimum wage rates and new theatre openings. Facility lease expense increased to $178.8 million for 2009 from $166.8 million for 2008 primarily due to new theatres and increased percentage rent related to the 14.6% increase in revenues.


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Utilities and other costs increased to $163.5 million for 2009 from $151.8 million for 2008 primarily due to increased variable costs related to the 11.6% increase in attendance, increased costs related to new theatres, increased repairs and maintenance expense and increased 3-D equipment rental fees.
 
  •  International.  Film rentals and advertising costs were $135.9 million, or 50.8% of admissions revenues, for 2009 compared to $117.6 million, or 49.4% of admissions revenues, for 2008. The increase in the film rentals and advertising rate was primarily due to higher film rental rates associated with the increased number of blockbuster films released in 2009. Concession supplies expense was $30.0 million, or 25.5% of concession revenues, for 2009 compared to $28.1 million, or 25.9% of concession revenues, for 2008.
 
Salaries and wages increased to $34.6 million for 2009 from $31.5 million for 2008 primarily due to increased staffing levels to support the 12.9% increase in attendance, increases in minimum wage rates and new theatre openings. Facility lease expense increased to $60.0 million for 2009 from $58.8 million for 2008 primarily due to new theatres and increased percentage rent related to the 9.3% increase in revenues. Utilities and other costs increased to $59.2 million for 2009 from $54.0 million for 2008 primarily due to increased variable costs related to the 12.9% increase in attendance, increased costs related to new theatres, increased repairs and maintenance expense and increased 3-D equipment rental fees.
 
General and Administrative Expenses.  General and administrative expenses increased to $96.5 million for 2009 from $90.8 million for 2008. The increase was primarily due to increased salaries and incentive compensation expense of $4.3 million and increased service charges of $1.7 million related to increased credit card activity.
 
Depreciation and Amortization.  Depreciation and amortization expense, including amortization of favorable/ unfavorable leases, was $149.5 million for 2009 compared to $158.1 million for 2008. The decrease was primarily due to a reduction in the depreciable basis of certain of our U.S. assets in 2009 due to a significant amount of the equipment acquired in the Century Acquisition becoming fully depreciated in 2009, the impact on current depreciation from prior impairment charges and the impact of exchange rates in certain countries in which we operate.
 
Impairment of Long-Lived Assets.  We recorded asset impairment charges on assets held and used of $11.8 million for 2009 compared to $113.5 million for 2008. Impairment charges for 2009 consisted of $11.4 million of theatre properties and $0.3 million of intangible assets associated with theatre properties, impacting nineteen of our twenty-four reporting units, and $0.1 million related to an equity investment that was written down to estimated fair value. Impairment charges for 2008 consisted of $34.6 million of theatre properties, $78.6 million of goodwill associated with theatre properties, and $0.3 million of intangible assets associated with theatre properties, impacting twenty of our twenty-four reporting units. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics, or adverse changes in the development or the conditions of the areas surrounding the theatre. The goodwill impairment charges taken during the year ended December 31, 2008 were primarily a result of our determination that the multiple used to estimate the fair value of our reporting units should be reduced to reflect the dramatic decline in the market value of our stock price and the declines in our and our competitors’ market capitalizations that occurred during the fourth quarter of 2008. We reduced the multiple from eight times cash flows to six and a half times cash flows, which significantly reduced our estimated fair values. See Notes 10 and 11 to our consolidated financial statements.
 
Loss on Sale of Assets and Other.  We recorded a loss on sale of assets and other of $3.2 million during 2009 compared to $8.5 million during 2008. The loss recorded during 2009 was primarily related to the write-off of theatre equipment that was replaced. The loss recorded during 2008 was primarily related to the write-off of theatre equipment that was replaced, the write-off of prepaid rent for an international theatre, and damages to certain of our theatres in Texas related to Hurricane Ike.
 
Interest Expense.  Interest costs incurred, including amortization of debt issue costs, were $102.5 million for 2009 compared to $116.1 million for 2008. The decrease was primarily due to decreases in interest rates on our debt. See Note 13 to our consolidated financial statements for further discussion of our long term debt. In addition, during the 2008 period, we recorded a gain of approximately $5.4 million as a component of interest expense related to the


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change in fair value of one of our interest rate swap agreements that was deemed not highly effective. See Note 14 to our consolidated financial statements for further discussion of our interest rate swap agreements.
 
Interest Income.  We recorded interest income of $4.9 million during 2009 compared to interest income of $13.3 million during 2008. The decrease in interest income was primarily due to lower interest rates earned on our cash investments.
 
(Gain) Loss on Early Retirement of Debt.  During 2009, we recorded a loss on early retirement of debt of $27.9 million as a result of the tender and call premiums paid and other fees related to the repurchase of approximately $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 93/4% senior discount notes and the write-off of unamortized debt issue costs associated with these notes. During 2008, we recorded a gain on early retirement of debt of $1.7 million as a result of the repurchase of $47.0 million aggregate principal amount at maturity of Cinemark, Inc.’s 93/4% senior discount notes partially offset by the write-off of unamortized debt issue costs. See Note 13 to our consolidated financial statements.
 
Distributions from NCM.  We recorded distributions received from NCM of $20.8 million during 2009 and $18.8 million during 2008, which were in excess of the carrying value of our investment. See Note 6 to our consolidated financial statements.
 
Income Taxes.  Income tax expense of $44.8 million was recorded for 2009 compared to $21.1 million recorded for 2008. The effective tax rate for 2009 was 30.8%, which reflects the benefit of a capital loss. The effective tax rate of (90.1)% for 2008 reflects the impact of our 2008 goodwill impairment charges, which are not deductible for income tax purposes. The effective tax rate in 2008 net of the impact from the goodwill impairment charges would have been approximately 41.0%. See Note 21 to our consolidated financial statements.
 
Liquidity and Capital Resources
 
Operating Activities
 
We primarily collect our revenues in cash, mainly through box office receipts and the sale of concessions. In addition, a majority of our theatres provide the patron a choice of using a credit card or debit card in place of cash. Because our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not required traditional working capital financing. Cash provided by operating activities amounted to $257.3 million, $176.8 million and $264.8 million for the years ended December 31, 2008, 2009 and 2010, respectively. The decrease in the level of cash provided by operating activities for the year ended December 31, 2009 was primarily due to the repurchase of approximately $419.4 million of our 93/4% senior discount notes, which included payment of $158.3 million of interest that had accreted on the senior discount notes since issuance during 2004. The principal portion of the repurchase is reflected as a financing activity.
 
Investing Activities
 
We plan to fund capital expenditures for our continued development with cash flow from operations, borrowings under our senior secured credit facility, and proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.
 
Our investing activities have been principally related to the development and acquisition of 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 amounted to $94.9 million, $183.1 million and $136.1 million for the years ended December 31, 2008, 2009 and 2010, respectively. The increase in cash used for investing activities for the year ended December 31, 2009 was primarily due to the acquisition of four theatres in the U.S. for approximately $49.0 million (see Note 5 to the consolidated financial statements) and the acquisition of one theatre in Brazil for approximately $9.1 million.


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Capital expenditures for the years ended December 31, 2008, 2009 and 2010 were as follows (in millions):
 
                         
    New
  Existing
   
Period
  Theatres   Theatres   Total
 
Year Ended December 31, 2008
  $ 69.9     $ 36.2     $ 106.1  
Year Ended December 31, 2009
  $ 36.5     $ 88.3     $ 124.8  
Year Ended December 31, 2010
  $ 54.5     $ 101.6     $ 156.1  
 
We continue to invest in our U.S. theatre circuit. We built five new theatres and 63 screens, acquired one theatre with eight screens and closed seven theatres with 69 screens during the year ended December 31, 2010, bringing our total domestic screen count to 3,832. At December 31, 2010, we had signed commitments to open four new theatres and 51 screens in domestic markets during 2011 and open four new theatres with 60 screens subsequent to 2011. We estimate the remaining capital expenditures for the development of these 111 domestic screens will be approximately $48 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
 
We also continue to expand our international theatre circuit. We built nine new theatres and 67 screens and closed two theatres and 20 screens during the year ended December 31, 2010, bringing our total international screen count to 1,113. At December 31, 2010, we had signed commitments to open eight new theatres with 51 screens in international markets during 2011 and open five new theatres with 34 screens subsequent to 2011. We estimate the remaining capital expenditures for the development of these 85 international screens will be approximately $63 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
 
Financing Activities
 
Cash provided by (used for) financing activities was $(135.1) million, $78.3 million and $(106.7) million during the years ended December 31, 2008, 2009 and 2010, respectively. Cash provided by financing activities for the year ended December 31, 2009 includes the net proceeds of $458.5 million from the issuance of our $470 million 8.625% senior notes, partially offset by $261.1 million used for the repurchase of approximately $419.4 million of our 93/4% senior discount notes. The accreted interest portion of the repurchase of $158.3 million is reflected as an operating activity.
 
Below is a summary of dividends paid during 2008, 2009 and 2010:
 
                 
    Date of
  Date
  Amount per
  Total
Date Declared
  Record   Paid   Common Share(1)   Dividends
 
02/26/08
  03/06/08   03/14/08   $0.18   $19.3 million
05/09/08
  05/30/08   06/12/08   $0.18   $19.3 million
08/07/08
  08/25/08   09/12/08   $0.18   $19.3 million
11/06/08
  11/26/08   12/11/08   $0.18   $19.6 million
02/13/09
  03/05/09   03/20/09   $0.18   $19.6 million
05/13/09
  06/02/09   06/18/09   $0.18   $19.7 million
07/29/09
  08/17/09   09/01/09   $0.18   $19.7 million
11/04/09
  11/25/09   12/10/09   $0.18   $19.7 million
02/25/10
  03/05/10   03/19/10   $0.18   $20.1 million
05/13/10
  06/04/10   06/18/10   $0.18   $20.2 million
07/29/10
  08/17/10   09/01/10   $0.18   $20.4 million
11/02/10
  11/22/10   12/07/10   $0.21   $23.8 million
 
 
(1) Beginning with the dividend declared on November 2, 2010, the Company’s board of directors raised the quarterly dividend to $0.21 per common share.
 
We, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterly dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our


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then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions, future prospects for earnings and cash flows, as well as other relevant factors.
 
We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities. Long-term debt consisted of the following as of December 31, 2009 and 2010:
 
                 
    December 31, 2009     December 31, 2010  
 
Cinemark USA, Inc. term loan
  $ 1,083.6     $ 1,072.8  
Cinemark USA, Inc. 85/8% senior notes due 2019(1)
    458.9       459.7  
Cinemark USA, Inc. 9% senior subordinated notes due 2013
    0.2        
Other long-term debt
    1.0        
                 
Total long-term debt
  $ 1,543.7     $ 1,532.5  
Less current portion
    12.2       10.8  
                 
Long-term debt, less current portion
  $ 1,531.5     $ 1,521.7  
                 
 
 
(1) Includes the $470.0 million aggregate principal amount of the 8.625% senior notes net of the original issue discount, which was $11.1 million and $10.3 million as of December 31, 2009 and 2010, respectively.
 
As of December 31, 2010, we had $150.0 million in available borrowing capacity on our revolving credit line.
 
As of December 31, 2010, our long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled interest payments under capital leases and other obligations for each period indicated are summarized as follows:
 
                                         
    Payments Due by Period  
          Less than
                After
 
Contractual Obligations
  Total     One Year     1 - 3 Years     4 - 5 Years     5 Years  
                (In millions)              
 
Long-term debt(1)
  $ 1,542.8     $ 10.8     $ 174.6     $ 18.4     $ 1,339.0  
Scheduled interest payments on long-term debt(2)
    580.7       91.4       175.8       164.7       148.8  
Operating lease obligations
    1,795.2       200.1       396.5       370.9       827.7  
Capital lease obligations
    140.2       7.3       17.6       22.5       92.8  
Scheduled interest payments on capital leases
    100.4       13.9       25.3       21.3       39.9  
Employment agreements
    11.4       3.8       7.6              
Purchase commitments(3)
    121.8       44.8       75.1       0.5       1.4  
Current liability for uncertain tax positions(4)
    1.9       1.9                    
                                         
Total obligations
  $ 4,294.4     $ 374.0     $ 872.5     $ 598.3     $ 2,449.6  
                                         
 
 
(1) Includes the 8.625% senior notes in the aggregate principal amount of $470.0 million excluding the discount of $10.3 million.
 
(2) Amounts include scheduled interest payments on fixed rate and variable rate debt agreements. Estimates for the variable rate interest payments were based on interest rates in effect on December 31, 2010. The average interest rates in effect on our fixed rate and variable rate debt are 7.0% and 3.1%, respectively, as of December 31, 2010.
 
(3) Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as of December 31, 2010.
 
(4) The contractual obligations table excludes the long-term portion of our liability for uncertain tax positions of $17.8 million because we cannot make a reliable estimate of the timing of the related cash payments.


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Cinemark USA, Inc. Senior Secured Credit Facility
 
On October 5, 2006, in connection with the Century Acquisition, Cinemark USA, Inc. entered into a senior secured credit facility that provided for a $1.12 billion term loan and a $150 million revolving credit line. On March 2, 2010, Cinemark USA, Inc. completed an amendment and extension to the senior secured credit facility to primarily extend the maturities of the facility and make certain other modifications. Approximately $924.4 million of Cinemark USA, Inc.’s then remaining outstanding $1,083.6 million term loan debt was extended from an original maturity date of October 2013 to a maturity date of April 2016. The remaining term loan debt of $159.2 million that was not extended matures on the original maturity date of October 2013. Payments on the extended amount are due in equal quarterly installments of approximately $2.3 million beginning March 31, 2010 through March 31, 2016 with the remaining principal amount of approximately $866.6 million due April 30, 2016. Payments on the original amount that was not extended are due in equal quarterly installments of approximately $0.4 million beginning March 31, 2010 through September 30, 2012 and increase to $37.4 million each calendar quarter from December 31, 2012 to June 30, 2013, with one final payment of approximately $42.6 million due at maturity on October 5, 2013. The amendment also imposed a 1.0% prepayment premium for one year on certain prepayments of the extended portion of the term loan debt.
 
The interest rate on the original term loan debt that was not extended accrues interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50% (the “base rate”), plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 1.75%, per annum. The margin of the original term loan debt that was not extended is determined by the applicable corporate credit rating. The interest rate on the extended portion of the term loan debt accrues interest, at Cinemark USA, Inc.’s option at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a 2.25% margin per annum, or (B) a “eurodollar rate” plus a 3.25% margin per annum.
 
The maturity date of $73.5 million of Cinemark USA, Inc.’s $150.0 million revolving credit line was extended from October 2012 to March 2015. The maturity date of the remaining $76.5 million of Cinemark USA, Inc.’s revolving credit line did not change and remains October 2012. The interest rate on the original revolving credit line accrues interest, at Cinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 2.00% per annum. The interest rate on the extended revolving credit line accrues interest, at Cinemark USA, Inc.’s option at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 1.75% to 2.0% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 2.75% to 3.0% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the credit agreement.
 
At December 31, 2010, there was $1,072.8 million outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $150.0 million in available borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan borrowings under the senior secured credit facility at December 31, 2010 was approximately 4.8% per annum.
 
Cinemark USA, Inc.’s obligations under the senior secured credit facility are guaranteed by Cinemark Holdings, Inc., and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.
 
The senior secured credit facility contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and Cinemark Holdings, Inc.’s ability, to consolidate or merge or liquidate; wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay


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dividends and repurchase stock; and make capital expenditures and investments. The senior secured credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the senior secured credit facility.
 
The dividend restriction contained in the senior secured credit facility prevents us and any of our subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) we are not in default, and the distribution would not cause us to be in default, under the senior secured credit facility; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since October 5, 2006, including dividends declared by the board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since October 5, 2006, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the senior secured credit facility, since October 1, 2006, (c) $150 million and (d) certain other amounts specified in the senior secured credit facility, subject to certain adjustments specified in the senior secured credit facility. The dividend restriction is subject to certain exceptions specified in the senior secured credit facility.
 
The senior secured credit facility also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain types of change of control, material money judgments and failure to maintain subsidiary guarantees. If an event of default occurs, all commitments under the senior secured credit facility may be terminated and all obligations under the senior secured credit facility could be accelerated by the lenders, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable.
 
See discussion of interest rate swap agreements under Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
Cinemark USA, Inc. 85/8% Senior Notes
 
On June 29, 2009, Cinemark USA, Inc. issued $470.0 million aggregate principal amount of 8.625% senior notes due 2019 with an original issue discount of approximately $11.5 million, resulting in proceeds of approximately $458.5 million. The proceeds were primarily used to fund the repurchase of the remaining $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 93/4% senior discount notes discussed below. Interest is payable on June 15 and December 15 of each year. The senior notes mature on June 15, 2019. As of December 31, 2010, the carrying value of the senior notes was approximately $459.7 million.
 
Cinemark USA, Inc. filed a registration statement with the Securities and Exchange Commission on September 24, 2009 pursuant to which it offered to exchange the senior notes for substantially similar registered senior notes. The registration statement became effective on December 17, 2009. The exchanged registered senior notes do not have transfer restrictions.
 
The senior notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of our subsidiaries that guarantee, assume or become liable with respect to any of our or our guarantor’s debt. The senior notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of our and our guarantor’s existing and future senior unsecured debt and senior in right of payment to all of our and our guarantor’s existing and future subordinated debt. The senior notes and the guarantees are effectively subordinated to all of our and our guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under our senior secured credit facility. The senior notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of our subsidiaries that do not guarantee the senior notes.
 
The indenture to the senior notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) consummate specified asset sales, (2) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (3) incur additional indebtedness and issue preferred stock, (4) enter into transactions with affiliates, (5) enter new lines of business, (6) merge or consolidate with, or sell all or substantially all of its assets to another person and (7) create liens. Upon a change of control of Cinemark Holdings, Inc. or Cinemark USA, Inc., Cinemark


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USA, Inc. would be required to make an offer to repurchase the senior notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest through the date of repurchase. Certain asset dispositions are considered triggering events that may require Cinemark USA, Inc. to use the proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase if such proceeds are not otherwise used within 365 days as described in the indenture. The indenture governing the senior notes allows Cinemark USA, Inc. to incur additional indebtedness if we satisfy the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2010 was 5.04 to 1.
 
Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the senior notes at its option at 100% of the principal amount plus a make-whole premium. After June 15, 2014, Cinemark USA, Inc. may redeem the senior notes in whole or in part at redemption prices described in the senior notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the senior notes from the net proceeds of certain equity offerings at the redemption price set forth in the senior notes.
 
Cinemark, Inc. 93/4% Senior Discount Notes
 
On March 31, 2004, Cinemark, Inc. issued approximately $577,173 aggregate principal amount at maturity of 93/4% senior discount notes due 2014. Interest on the notes accreted until March 15, 2009 up to their aggregate principal amount. Subsequently, cash interest accrued and was payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009.
 
Prior to 2008, Cinemark, Inc. repurchased on the open market $110,770 aggregate principal amount at maturity of its 93/4% senior discount notes for approximately $96,741 including accreted interest of $22,147 and cash premiums of $5,380. Cinemark, Inc. funded these repurchases with available cash from its operations and with proceeds from our initial public offering.
 
During 2008, in ten open market purchases, Cinemark, Inc. repurchased $47,000 aggregate principal amount at maturity of its 93/4% senior discount notes for approximately $42,208, including accreted interest of $15,186 and a discount of $2,537. Cinemark, Inc. funded the transactions with proceeds from our initial public offering.
 
On June 15, 2009, Cinemark, Inc. commenced a cash tender offer for any and all of its 93/4% senior discount notes due 2014, of which $419,403 aggregate principal amount at maturity remained outstanding. In connection with the tender offer, Cinemark, Inc. solicited consents to adopt proposed amendments to the indenture to eliminate substantially all restrictive covenants and certain events of default provisions. On June 29, 2009, approximately $402,459 aggregate principal amount at maturity of the 93/4% senior discount notes were tendered and repurchased by Cinemark, Inc. for approximately $433,415, including accrued interest of $11,336 and tender premiums paid of $19,620. Cinemark, Inc. funded the repurchase with the proceeds from the issuance of the Cinemark USA, Inc. senior notes discussed above. On August 3, 2009, Cinemark, Inc. delivered to the Bank of New York Trust Company N.A., as trustee, a notice to redeem the $16,944 aggregate principal amount at maturity of its 93/4% senior discount notes remaining outstanding. The notice specified September 8, 2009 as the redemption date, at which time Cinemark, Inc. paid approximately $18,564, consisting of a redemption price of 104.875% of the face amount of the discount notes remaining outstanding plus accrued and unpaid interest to, but not including, the redemption date. Cinemark, Inc. funded the redemption with proceeds from the issuance of the Cinemark USA, Inc. senior notes discussed above.
 
Cinemark USA, Inc. 9% Senior Subordinated Notes
 
On February 11, 2003, Cinemark USA, Inc. issued $150 million aggregate principal amount of 9% senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210 million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred to as the 9% senior subordinated notes. Interest was payable on February 1 and August 1 of each year.
 
Prior to 2009, Cinemark USA, Inc. repurchased a total of $359.8 million aggregate principal amount of its 9% senior subordinated notes. The transactions were funded by Cinemark USA, Inc. with proceeds from its sale of a


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portion of its investment in NCM during 2007 and available cash from operations. Cinemark USA, Inc. also executed a supplemental indenture removing substantially all of the restrictive covenants and certain events of default.
 
On October 14, 2010, Cinemark USA, Inc. redeemed all of its remaining outstanding 9% senior subordinated notes for approximately $0.2 million, including accrued interest and premiums.
 
Covenant Compliance
 
As of December 31, 2010, we are in full compliance with all agreements, including all related covenants, governing our outstanding debt.
 
Ratings
 
We are rated by nationally recognized rating agencies. The significance of individual ratings varies from agency to agency. However, companies’ assigned ratings at the top end of the range have, in the opinion of certain rating agencies, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capability. Ratings are always subject to change and there can be no assurance that our current ratings will continue for any given period of time. A downgrade of our debt ratings, depending on the extent, could increase the cost to borrow funds. Below are our latest ratings per category, which were current as of February 28, 2011.
 
         
Category
  Moody’s   Standard and Poor’s
 
Cinemark USA, Inc. 8.625% Senior Notes
  B3   B-
Cinemark USA, Inc. Senior Secured Credit Facility
  Ba3   BB-
 
New Accounting Pronouncements
 
In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-17,Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU No. 2009-17”). This update changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU No. 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity is required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU No. 2009-17 is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. We adopted ASU No. 2009-17 as of January 1, 2010, and its application had no impact on our consolidated financial statements.
 
In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”), which amends FASB ASC Topic 820-10,Fair Value Measurements and Disclosures”. This update requires additional disclosures for transfers in and out of Levels 1 and 2 and for activity in Level 3 and clarifies certain other existing disclosure requirements. We adopted ASU No. 2010-06 beginning January 1, 2010. This update did not have a significant impact on our disclosures.
 
In August 2010, the FASB issued ASU No. 2010-21,Accounting for Technical Amendments to Various SEC Rules and Schedules” (“ASU No. 2010-21”). This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final Rule, “Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies”. The adoption of ASU No. 2010-21 did not affect our consolidated financial statements.
 
In August 2010, the FASB issued ASU No. 2010-22,Accounting for Various Topics” (“ASU No. 2010-22”), which amends various SEC paragraphs based on external comments received and the issuance of Staff Accounting Bulletin (“SAB”) 112. SAB 112 was issued to bring existing SEC guidance into conformity with ASC Topic 805,


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Business Combinations” and ASC Topic 810 “Consolidation”. The adoption of ASU No. 2010-22 did not affect our consolidated financial statements.
 
Seasonality
 
Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during the summer, extending from May to mid-August, and during the holiday season, extending from early November 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.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
We have exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.
 
Interest Rate Risk
 
We are currently party to variable rate debt facilities. An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt facilities. At December 31, 2010, there was an aggregate of approximately $422.8 million of variable rate debt outstanding under these facilities, which excludes $650.0 million of Cinemark USA, Inc.’s term loan debt that is hedged with the Company’s interest rate swap agreements as discussed below. Based on the interest rates in effect on the variable rate debt outstanding at December 31, 2010, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $4.2 million.
 
Our current interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on our consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of accumulated other comprehensive income (loss) and the ineffective portion reported in earnings.
 
Below is a summary of our current interest rate swap agreements:
 
                         
Amount Hedged
    Effective Date   Pay Rate     Receive Rate   Expiration Date
 
$ 125,000     August 2007     4.9220 %   3-month LIBOR   August 2012
$ 100,000     November 2008     3.6300 %   1-month LIBOR   November 2011
$ 75,000     November 2008     3.6300 %   1-month LIBOR   November 2012
$ 175,000     December 2010     1.3975 %   1-month LIBOR   September 2015
$ 175,000     December 2010     1.4000 %   1-month LIBOR   September 2015
 
The table below provides information about our fixed rate and variable rate long-term debt agreements as of December 31, 2010:
 
                                                                         
                                                    Average
 
    Expected Maturity for the Twelve-Month Periods Ending December 31,     Interest
 
    2011     2012     2013     2014     2015     Thereafter     Total     Fair Value     Rate  
    (In millions)  
 
Fixed rate(1)(2)
  $     $     $     $     $     $ 1,120.0     $ 1,120.0     $ 1,159.2       7.0 %
Variable rate
    10.8       47.9       126.7       9.2       9.2       219.0       422.8       422.8       3.1 %
                                                                         
Total debt
  $ 10.8     $ 47.9     $ 126.7     $ 9.2     $ 9.2     $ 1,339.0     $ 1,542.8     $ 1,582.0          
                                                                         
 
 
(1) Includes $650.0 million of the Cinemark USA, Inc. term loan, which represents the debt currently hedged with the Company’s interest rate swap agreements.
 
(2) Includes the 8.625% senior notes in the aggregate principal amount of $470.0 million, excluding the discount of $10.3 million.


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Foreign Currency Exchange Rate Risk
 
We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our international operations. Generally, we export from the U.S. certain of the equipment and construction interior finish items and other operating supplies used by our international subsidiaries. A majority of the revenues and operating expenses of our international subsidiaries are transacted in the country’s local currency. Generally accepted accounting principles in the U.S., or U.S. GAAP, 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, U.S. GAAP requires that the U.S. dollar be used as the functional currency for the subsidiary. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based upon our equity ownership in our international subsidiaries as of December 31, 2010, holding everything else constant, a 10% immediate, simultaneous, unfavorable change in all of the foreign currency exchange rates to which we are exposed, would decrease the aggregate net book value of our investments in our international subsidiaries by approximately $47 million and would decrease the aggregate net income of our international subsidiaries for the years ended December 31, 2009 and 2010 by approximately $4 million and $8 million, respectively.
 
Item 8.   Financial Statements and Supplementary Data
 
The financial statements and supplementary data are listed on the Index on page F-1 of this Form 10-K. Such financial statements and supplementary data are included herein beginning on page F-3.
 
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.   Controls and Procedures
 
Evaluation of the Effectiveness of Disclosure Controls and Procedures
 
As of December 31, 2010, under the supervision and with the participation of our principal executive officer and principal financial officer, we carried out an evaluation required by the Securities Exchange Act of 1934, as amended, or the 1934 Act, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the 1934 Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2010, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
 
Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the 1934 Act. The Company’s internal control framework and processes are designed to provide reasonable assurance to management and the board of directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with the accounting principles generally accepted in the United States of America. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2010 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control — Integrated Framework. As a result of this assessment, management concluded that, as of December 31, 2010, our internal control over financial reporting was effective.
 
Certifications of our Chief Executive Officer and our Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Annual Report. This “Controls and


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Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
 
The Company’s independent auditors, Deloitte & Touche LLP, with direct access to the Company’s board of directors through its Audit Committee, have audited the consolidated financial statements prepared by the Company. Their report on the consolidated financial statements is included in Part II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP has issued an attestation report on the Company’s internal control over financial reporting. Deloitte & Touche LLP’s report on the Company’s internal control over financial reporting is included herein.
 
Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended December 31, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Limitations on Controls
 
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors of
Cinemark Holdings, Inc.
Plano, Texas
 
We have audited the internal control over financial reporting of Cinemark Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2010 of the Company and our report dated February 28, 2011 expressed an unqualified opinion on those financial statements and financial statement schedule.
 
/s/  Deloitte & Touche LLP
 
Dallas, Texas
February 28, 2011


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PART III
 
Item 10.   Directors, Executive Officers and Corporate Governance
 
Incorporated by reference to the Company’s Proxy Statement for its Annual Stockholders Meeting (under the headings “Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance” and “Executive Officers”) to be held on May 12, 2011 and to be filed with the Securities and Exchange Commission within 120 days after December 31, 2010.
 
Item 11.   Executive Compensation
 
Incorporated by reference to the Company’s Proxy Statement for its Annual Stockholders Meeting (under the heading “Executive Compensation”) to be held on May 12, 2011 and to be filed with the Securities and Exchange Commission within 120 days after December 31, 2010.
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Incorporated by reference to the Company’s Proxy Statement for its Annual Stockholders Meeting (under the headings “Security Ownership of Certain Beneficial Owners and Management”) to be held on May 12, 2011 and to be filed with the Securities and Exchange Commission within 120 days after December 31, 2010.
 
Item 13.   Certain Relationships and Related Transactions, and Director Independence
 
Incorporated by reference to the Company’s Proxy Statement for its Annual Stockholders Meeting (under the heading “Certain Relationships and Related Party Transactions” and “Corporate Governance”) to be held on May 12, 2011 and to be filed with the Securities and Exchange Commission within 120 days after December 31, 2010.
 
Item 14.   Principal Accounting Fees and Services
 
Incorporated by reference to the Company’s Proxy Statement for its Annual Stockholders Meeting (under the heading “Board Committees — Audit Committee — Fees Paid to Independent Registered Public Accounting Firm”) to be held on May 12, 2011 and to be filed with the Securities and Exchange Commission within 120 days after December 31, 2010.
 
PART IV
 
Item 15.   Exhibits, Financial Statement Schedules
 
(a)   Documents Filed as Part of this Report
 
1. The financial statement schedules and related data listed in the accompanying Index beginning on page F-1 are filed as a part of this report.
 
2. The exhibits listed in the accompanying Index beginning on page E-1 are filed as a part of this report.
 
(b)   Exhibits
 
See the accompanying Index beginning on page E-1.
 
(c)   Financial Statement Schedules
 
Schedule I — Condensed Financial Information of Registrant beginning on page F-46.
 
All schedules not identified above have been omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes contained in this report.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: February 28, 2011
 
CINEMARK HOLDINGS, INC.
 
  BY: 
/s/  Alan W. Stock
Alan W. Stock
Chief Executive Officer
 
  BY: 
/s/  Robert Copple
Robert Copple
Chief Financial Officer and
Principal Accounting Officer
 
POWER OF ATTORNEY
 
Each person whose signature appears below hereby severally constitutes and appoints Alan W. Stock and Robert Copple his true and lawful attorney-in-fact and agent, each with the power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with accompanying exhibits and other related documents, with the Securities and Exchange Commission, and ratify and confirm all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue of said appointment.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
             
Name
 
Title
 
Date
 
         
/s/  Lee Roy Mitchell

Lee Roy Mitchell
  Chairman of the Board of Directors and Director   February 28, 2011
         
/s/  Alan W. Stock

Alan W. Stock
  Chief Executive Officer
(principal executive officer)
  February 28, 2011
         
/s/  Robert Copple

Robert Copple
  Executive Vice President; Treasurer and Chief Financial Officer (principal financial and accounting officer)   February 28, 2011
         
/s/  Benjamin D. Chereskin

Benjamin D. Chereskin
  Director   February 28, 2011
         
/s/  Vahe A. Dombalagian

Vahe A. Dombalagian
  Director   February 28, 2011


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Name
 
Title
 
Date
 
         
/s/  Peter R. Ezersky

Peter R. Ezersky
  Director   February 28, 2011
         
/s/  Enrique F. Senior

Enrique F. Senior
  Director   February 28, 2011
         
/s/  Raymond W. Syufy

Raymond W. Syufy
  Director   February 28, 2011
         
/s/  Carlos M. Sepulveda

Carlos M. Sepulveda
  Director   February 28, 2011
         
/s/  Roger T. Staubach

Roger T. Staubach
  Director   February 28, 2011
         
/s/  Donald G. Soderquist

Donald G. Soderquist
  Director   February 28, 2011
         
/s/  Steven Rosenberg

Steven Rosenberg
  Director   February 28, 2011


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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
 
No annual report or proxy material has been sent to our stockholders. An annual report and proxy material may be sent to our stockholders subsequent to the filing of this Form 10-K. We shall furnish to the Securities and Exchange Commission copies of any annual report or proxy material that is sent to our stockholders.


51


 

 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
         
    Page
 
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
       
    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-7  
    F-46  


F-1


Table of Contents

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors of
Cinemark Holdings, Inc.
Plano, Texas
 
We have audited the accompanying consolidated balance sheets of Cinemark Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2010, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cinemark Holdings, Inc. and subsidiaries as of December 31, 2009 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
/s/ Deloitte & Touche LLP
 
Dallas, Texas
February 28, 2011


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Table of Contents

 
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    December 31,
 
    2009     2010  
    (In thousands, except share data)  
 
ASSETS
Current assets
               
Cash and cash equivalents
  $ 437,936     $ 464,997  
Inventories
    9,854       11,686  
Accounts receivable
    33,110       50,607  
Income tax receivable
    13,025       30,733  
Deferred tax asset
    3,321       8,099  
Prepaid expenses and other
    10,051       10,931  
                 
Total current assets
    507,297       577,053  
Theatre properties and equipment
               
Land
    94,879       91,678  
Buildings
    394,654       396,158  
Property under capital lease
    204,881       212,314  
Theatre furniture and equipment
    639,538       677,710  
Leasehold interests and improvements
    602,583       670,344  
                 
Total
    1,936,535       2,048,204  
Less accumulated depreciation and amortization
    716,947       832,758  
                 
Theatre properties and equipment, net
    1,219,588       1,215,446  
Other assets
               
Goodwill
    1,116,302       1,122,971  
Intangible assets — net
    342,998       329,204  
Investment in NCM
    34,232       64,376  
Investment in DCIP
    640       10,838  
Investment in Real D
          27,993  
Investments in and advances to affiliates
    2,889       2,619  
Deferred charges and other assets — net
    52,502       70,978  
                 
Total other assets
    1,549,563       1,628,979  
                 
Total assets
  $ 3,276,448     $ 3,421,478  
                 
LIABILITIES AND EQUITY
Current liabilities
               
Current portion of long-term debt
  $ 12,227     $ 10,836  
Current portion of capital lease obligations
    7,340       7,348  
Current liability for uncertain tax positions
    13,229       1,948  
Accounts payable
    53,709       64,132  
Accrued film rentals
    69,216       53,255  
Accrued interest
    6,411       5,138  
Accrued payroll
    29,928       31,191  
Accrued property taxes
    22,913       23,778  
Accrued other current liabilities
    65,859       74,314  
                 
Total current liabilities
    280,832       271,940  
Long-term liabilities
               
Long-term debt, less current portion
    1,531,478       1,521,605  
Capital lease obligations, less current portion
    133,028       132,812  
Deferred tax liability
    124,823       129,293  
Liability for uncertain tax positions
    18,432       17,840  
Deferred lease expenses
    27,698       30,454  
Deferred revenue — NCM
    203,006       230,573  
Other long-term liabilities
    42,523       53,809  
                 
Total long-term liabilities
    2,080,988       2,116,386  
Commitments and contingencies (see Note 22)
               
Equity
               
Cinemark Holdings, Inc.’s stockholders’ equity
               
Common stock, $0.001 par value: 300,000,000 shares authorized; 114,222,523 shares issued and 110,917,105 shares outstanding at December 31, 2009; and 117,110,703 shares issued and 113,750,844 shares outstanding at December 31, 2010
    114       117  
Additional paid-in-capital
    1,011,667       1,037,586  
Treasury stock, 3,305,418 and 3,359,859 common shares at cost at December 31, 2009 and 2010, respectively
    (43,895 )     (44,725 )
Retained earnings (deficit)
    (60,595 )     388  
Accumulated other comprehensive income (loss)
    (7,459 )     28,181  
                 
Total Cinemark Holdings, Inc.’s stockholders’ equity
    899,832       1,021,547  
Noncontrolling interests
    14,796       11,605  
                 
Total equity
    914,628       1,033,152  
                 
Total liabilities and equity
  $ 3,276,448     $ 3,421,478  
                 
 
The accompanying notes are an integral part of the consolidated financial statements.


F-3


Table of Contents

 
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 
                         
    December 31,
    December 31,
    December 31,
 
    2008     2009     2010  
    (In thousands, except per share data)  
 
Revenues
                       
Admissions
  $ 1,126,977     $ 1,293,378     $ 1,405,389  
Concession
    534,836       602,880       642,326  
Other
    80,474       80,242       93,429  
                         
Total revenues
    1,742,287       1,976,500       2,141,144  
Cost of operations
                       
Film rentals and advertising
    612,248       708,160       769,698  
Concession supplies
    86,618       91,918       97,484  
Salaries and wages
    180,950       203,437       221,246  
Facility lease expense
    225,595       238,779       255,717  
Utilities and other
    205,814       222,660       239,470  
General and administrative expenses
    90,788       96,497       109,045  
Depreciation and amortization
    155,326       148,264       142,731  
Amortization of favorable/unfavorable leases
    2,708       1,251       777  
Impairment of long-lived assets
    113,532       11,858       12,538  
(Gain) loss on sale of assets and other
    8,488       3,202       (431 )
                         
Total cost of operations
    1,682,067       1,726,026       1,848,275  
                         
Operating income
    60,220       250,474       292,869  
Other income (expense)
                       
Interest expense
    (116,058 )     (102,505 )     (112,444 )
Interest income
    13,265       4,909       6,105  
Foreign currency exchange gain
    986       635       1,054  
Gain (loss) on early retirement of debt
    1,698       (27,878 )     (3 )
Distributions from NCM
    18,838       20,822       23,358  
Dividend income
    49       51        
Equity in loss of affiliates
    (2,373 )     (907 )     (3,438 )
                         
Total other expense
    (83,595 )     (104,873 )     (85,368 )
                         
Income (loss) before income taxes
    (23,375 )     145,601       207,501  
Income taxes
    21,055       44,845       57,838  
                         
Net income (loss)
    (44,430 )     100,756       149,663  
Less: Net income attributable to noncontrolling interests
    3,895       3,648       3,543  
                         
Net income (loss) attributable to Cinemark Holdings, Inc. 
  $ (48,325 )   $ 97,108     $ 146,120  
                         
Weighted average shares outstanding
                       
Basic
    107,341       108,563       111,565  
                         
Diluted
    107,341       110,255       112,151  
                         
Earnings (loss) per share attributable to Cinemark Holdings, Inc.’s common stockholders:
                       
Basic
  $ (0.45 )   $ 0.89     $ 1.30  
                         
Diluted
  $ (0.45 )   $ 0.87     $ 1.29  
                         
 
The accompanying notes are an integral part of the consolidated financial statements.


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Table of Contents

 
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 
                                                                                                         
                                        Accumulated
    Total Cinemark
                Comprehensive Income (Loss)  
    Common Stock     Treasury Stock     Additional
    Retained
    Other
    Holdings, Inc.’s
                      Attributable to:
       
    Shares
          Shares
          Paid-in-
    Earnings
    Comprehensive
    Stockholders’
    Noncontrolling
    Total
    Cinemark
    Noncontrolling
       
    Issued     Amount     Issued     Amount     Capital     (Deficit)     Income (Loss)     Equity     Interests     Equity     Holdings, Inc.     Interests     Total  
    (In thousands)  
 
Balance at January 1, 2008
    106,984     $ 107           $     $ 939,327     $ 47,074     $ 32,695     $ 1,019,203     $ 16,182     $ 1,035,385     $     $     $  
Issuance of restricted stock, net of restricted stock forfeitures
    385                                                                          
Exercise of stock options
    169                         1,292                   1,292             1,292                    
Share based awards compensation expense
                            5,113                   5,113             5,113                    
Tax benefit related to stock option exercises
                            474                   474             474                    
Issuance of shares as a result of Central America share exchange
    903       1                   12,948                   12,949       (3,245 )     9,704                    
Issuance of shares as a result of Ecuador share exchange
    394       1                   3,199                   3,200       (1,574 )     1,626                    
Dividends paid to stockholders
                                  (77,534 )           (77,534 )           (77,534 )                  
Dividends accrued on unvested restricted stock unit awards
                                  (74 )           (74 )           (74 )                  
Contribution by noncontrolling interest
                                                    585       585                    
Dividends paid to noncontrolling interests
                                                    (1,353 )     (1,353 )                  
Comprehensive income (loss):
                                                                                                       
Net income (loss)
                                  (48,325 )           (48,325 )     3,895       (44,430 )     (48,325 )     3,895       (44,430 )
Fair value adjustments on interest rate swap agreements, net of taxes of $2,442
                                        (22,063 )     (22,063 )           (22,063 )     (22,063 )           (22,063 )
Amortization of accumulated other comprehensive loss on terminated swap agreement
                                        1,351       1,351             1,351       1,351             1,351  
Foreign currency translation adjustment
                                        (84,330 )     (84,330 )     (1,519 )     (85,849 )     (84,330 )     (1,519 )     (85,849 )
                                                                                                         
Balance at December 31, 2008
    108,835     $ 109           $     $ 962,353     $ (78,859 )   $ (72,347 )   $ 811,256     $ 12,971     $ 824,227     $ (153,367 )   $ 2,376     $ (150,991 )
                                                                                                         
Issuance of restricted stock, net of restricted stock forfeitures
    479             (30 )                                                            
Exercise of stock options, net of stock withholdings
    4,908       5       (3,275 )     (43,895 )     37,442                   (6,448 )           (6,448 )                  
Share based awards compensation expense
                            4,304                   4,304             4,304                    
Tax benefit related to stock option exercises
                            7,545                   7,545             7,545                    
Dividends paid to stockholders
                                  (78,643 )           (78,643 )           (78,643 )                  
Dividends accrued on unvested restricted stock unit awards
                                  (201 )           (201 )           (201 )                  
Purchase of noncontrolling interest share of an Argentina subsidiary
                            23                   23       (117 )     (94 )                  
Dividends paid to noncontrolling interests
                                                    (2,322 )     (2,322 )                  
Comprehensive income:
                                                                                                       
Net income
                                  97,108             97,108       3,648       100,756       97,108       3,648       100,756  
Fair value adjustments on interest rate swap agreements, net of taxes of $2,359
                                        3,898       3,898             3,898       3,898             3,898  
Amortization of accumulated other comprehensive loss on terminated swap agreement
                                        4,633       4,633             4,633       4,633             4,633  
Foreign currency translation adjustment
                                        56,357       56,357       616       56,973       56,357       616       56,973  
                                                                                                         
Balance at December 31, 2009
    114,222     $ 114       (3,305 )   $ (43,895 )   $ 1,011,667     $ (60,595 )   $ (7,459 )   $ 899,832     $ 14,796     $ 914,628     $ 161,996     $ 4,264     $ 166,260  
                                                                                                         
Colombia share exchange (see Note 9)
    1,113       1                   6,950             (1,086 )     5,865       (5,865 )                        
Share based awards compensation expense
                            8,352                   8,352             8,352                    
Issuance of restricted stock, net of restricted stock forfeitures
    684       1                                     1             1                    
Stock repurchases related to restricted stock that vested during the year ended December 31, 2010
                (20 )     (299 )                       (299 )           (299 )                  
Exercise of stock options, net of stock withholdings
    1,092       1       (35 )     (531 )     8,327                   7,797             7,797                    
Tax benefit related to stock option exercises
                            2,680                   2,680             2,680                    
Dividends paid to stockholders
                                  (84,502 )           (84,502 )           (84,502 )                  
Dividends accrued on unvested restricted stock unit awards
                                  (635 )           (635 )           (635 )                  
Purchase of noncontrolling interest share of Panama subsidiary
                            (390 )                 (390 )     (498 )     (888 )                  
Dividends paid to noncontrolling interests
                                                    (539 )     (539 )                  
Comprehensive income:
                                                                                                       
Net income
                                  146,120             146,120       3,543       149,663       146,120       3,543       149,663  
Fair value adjustments on interest rate swap agreements, net of taxes of $4,339
                                        7,170       7,170             7,170       7,170             7,170  
Amortization of accumulated other comprehensive loss on terminated swap agreement
                                        4,633       4,633             4,633       4,633             4,633  
Fair value adjustments on available-for-sale securities, net of taxes of $3,424
                                        5,659       5,659             5,659       5,659             5,659  
Foreign currency translation adjustment
                                        19,264       19,264       168       19,432       19,264       168       19,432  
                                                                                                         
Balance at December 31, 2010
    117,111     $ 117       (3,360 )   $ (44,725 )   $ 1,037,586     $ 388     $ 28,181     $ 1,021,547     $ 11,605     $ 1,033,152     $ 182,846     $ 3,711     $ 186,557  
                                                                                                         
 
The accompanying notes are an integral part of the consolidated financial statements.


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Table of Contents

 
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 
                         
    2008     2009     2010  
    (In thousands)  
 
Operating activities
                       
Net income (loss)
  $ (44,430 )   $ 100,756     $ 149,663  
Adjustments to reconcile net income (loss) to cash provided by operating activities:
                       
Depreciation
    151,425       144,055       138,637  
Amortization of intangible and other assets and unfavorable leases
    6,609       5,460       4,871  
Amortization of long-term prepaid rents
    1,717       1,389       1,786  
Amortization of debt issue costs
    4,696       4,775       4,716  
Amortization of deferred revenues, deferred lease incentives and other
    (3,735 )     (4,810 )     (6,968 )
Amortization of bond discount
          365       780  
Amortization of accumulated other comprehensive loss related to interest rate swap agreement
    1,351       4,633       4,633  
Impairment of long-lived assets
    113,532       11,858       12,538  
Share based awards compensation expense
    5,113       4,304       8,352  
(Gain) loss on sale of assets and other
    8,488       3,202       (2,464 )
Loss on contribution and sale of digital projection systems to DCIP
                2,033  
Gain on change in fair value of interest rate swap agreement
    (5,422 )            
Write-off unamortized debt issue costs related to the early retirement of debt
    839       6,337        
Accretion of interest on senior discount notes
    40,294       8,085        
Deferred lease expenses
    4,350       3,960       3,940  
Deferred income tax expenses
    (25,975 )     (12,614 )     (8,603 )
Equity in loss of affiliates
    2,373       907       3,438  
Interest paid on repurchased senior discount notes
    (15,186 )     (158,349 )      
Tax benefit related to stock option exercises
    474       7,545       2,680  
Increase in deferred revenue related to new U.S. beverage agreement
          6,550        
Distributions from equity investees
    644       2,699       5,486  
Changes in other assets and liabilities
    10,137       35,656       (60,767 )
                         
Net cash provided by operating activities
    257,294       176,763       264,751  
Investing activities
                       
Additions to theatre properties and equipment
    (106,109 )     (124,797 )     (156,102 )
Proceeds from sale of theatre properties and equipment and other
    2,539       2,178       21,791  
Increase in escrow deposit due to like-kind exchange
    (2,089 )            
Return of escrow deposits
    24,828              
Acquisition of theatres in the U.S. 
    (5,011 )     (48,950 )      
Acquisition of theatres in Brazil
    (5,100 )     (9,061 )      
Investment in joint venture — DCIP, net of cash distributions
    (4,000 )     (2,500 )     (1,756 )
                         
Net cash used for investing activities
    (94,942 )     (183,130 )     (136,067 )
Financing activities
                       
Proceeds from stock option exercises
    1,292       2,524       7,914  
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings
          (8,972 )     (416 )
Dividends paid to stockholders
    (77,534 )     (78,643 )     (84,502 )
Retirement of senior discount notes
    (29,559 )     (261,054 )      
Retirement of senior subordinated notes
    (3 )           (181 )
Proceeds from issuance of senior notes
          458,532        
Payment of debt issue costs
          (13,003 )     (8,858 )
Repayments of other long-term debt
    (10,430 )     (12,605 )     (11,853 )
Payments on capital leases
    (4,901 )     (6,064 )     (7,327 )
Termination of interest rate swap agreement
    (12,725 )            
Purchase of non-controlling interest in Panama
                (888 )
Other
    (1,231 )     (2,416 )     (539 )
                         
Net cash provided by (used for) financing activities
    (135,091 )     78,299       (106,650 )
Effect of exchange rates on cash and cash equivalents
    (15,701 )     16,401       5,027  
                         
Increase in cash and cash equivalents
    11,560       88,333       27,061  
Cash and cash equivalents:
                       
Beginning of year
    338,043       349,603       437,936  
                         
End of year
  $ 349,603     $ 437,936     $ 464,997  
                         
 
Supplemental information (see Note 20)
 
The accompanying notes are an integral part of the consolidated financial statements.


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Table of Contents

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
 
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Business — Cinemark Holdings, Inc. and subsidiaries (the “Company”) is a leader in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Mexico, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. The Company also managed additional theatres in the U.S., Brazil, and Colombia during the year ended December 31, 2010.
 
Basis of Presentation — On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of Cinemark, Inc. On April 24, 2007, Cinemark Holdings, Inc. completed an initial public offering of its common stock. Effective December 11, 2009, Cinemark, Inc. was merged into Cinemark Holdings, Inc. and Cinemark Holdings, Inc. became the holding company of Cinemark USA, Inc.
 
Principles of Consolidation — The consolidated financial statements include the accounts of Cinemark Holdings, Inc., its subsidiaries and its affiliates. Majority-owned subsidiaries that the Company has control of are consolidated while those affiliates of which the Company owns between 20% and 50% and does not control are accounted for under the equity method. Those affiliates of which the Company owns less than 20% are generally accounted for under the cost method, unless the Company is deemed to have the ability to exercise significant influence over the affiliate, in which case the Company would account for its investment under the equity method. The results of these subsidiaries and affiliates are included in the consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.
 
Cash and Cash Equivalents — Cash and cash equivalents consist of operating funds held in financial institutions, petty cash held by the theatres and highly liquid investments with remaining maturities of three months or less when purchased. At December 31, 2010, cash investments were primarily in money market funds or other similar funds.
 
Inventories — Concession and theatre supplies inventories are stated at the lower of cost (first-in, first-out method) or market.
 
Theatre Properties and Equipment — Theatre properties and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:
 
     
Category
 
Useful Life
 
Buildings on owned land
  40 years
Buildings on leased land
  Lesser of lease term or useful life
Buildings under capital lease
  Lesser of lease term or useful life
Theatre furniture and equipment
  5 to 15 years
Leasehold improvements
  Lesser of lease term or useful life
 
The Company reviews long-lived assets for impairment indicators 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 flows, future years budgeted theatre level cash flows, theatre property and equipment carrying values, amortizing intangible asset carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in its assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the Company believes is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal


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Table of Contents

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
periods for leased properties and a period of approximately twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, the Company then compares the carrying value of the asset group (theatre) with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair value. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820-10-35, are based on historical and projected operating performance, recent market transactions, and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during the first, second and third quarters of 2008 and six and a half times for the evaluation performed during the fourth quarter of 2008 and the evaluations performed during 2009 and 2010. The Company reduced the multiple it used to determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted from a significant decrease in its stock price and the declines in the market capitalizations of the Company and its competitors that occurred during the fourth quarter of 2008. The long-lived asset impairment charges recorded during each of the periods presented are specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. See Note 11.
 
Goodwill and Other Intangible Assets — Goodwill is the excess of cost over fair value of theatre businesses acquired. Goodwill is evaluated for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be fully recoverable. The Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to the reporting unit based on an estimate of its relative fair value. Management considers the reporting unit to be each of its sixteen regions in the U.S. and each of its eight international countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are considered one reporting unit). Goodwill impairment is evaluated using a two-step approach requiring the Company to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions, and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during 2008, 2009 and 2010. See Notes 10 and 11.
 
Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. The Company estimates the fair value of its tradenames by applying an estimated market royalty rate that could be charged for the use of the Company’s tradename to forecasted future revenues, with an adjustment for the present value of such royalties. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected revenue performance and industry trends. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to its estimated fair value.


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Table of Contents

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The table below summarizes the Company’s intangible assets and the amortization method used for each type of intangible asset:
 
     
Intangible Asset
 
Amortization Method
 
Goodwill
  Indefinite-lived
Tradename
  Indefinite-lived
Vendor contracts
  Straight-line method over the terms of the underlying contracts. The remaining terms of the underlying contracts range from 1 to 12 years.
Favorable/unfavorable leases
  Based on the pattern in which the economic benefits are realized over the terms of the lease agreements. The remaining terms of the lease agreements range from 1 to 27 years.
Other intangible assets
  Straight-line method over the terms of the underlying agreement. The remaining term of the underlying agreements range from 4 to 10 years.
 
Deferred Charges and Other Assets — Deferred charges and other assets consist of debt issue costs, long-term prepaid rents, construction advances and other deposits, equipment to be placed in service, interest rate swap assets and other assets. Debt issue costs are amortized using the straight-line method (which approximates the effective interest method) over the primary financing terms of the related debt agreement. Long-term prepaid rents represent advance rental payments on operating leases. These payments are recognized to facility lease expense over the period for which the rent was paid in advance as outlined in the lease agreements. The amortization periods generally range from 1 to 10 years. See Note 14 for discussion of interest rate swap agreements.
 
Lease Accounting — The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line basis over the lease term. The Company determines the straight-line rent expense impact of an operating lease upon inception of the lease. The landlord is typically responsible for constructing a theatre using guidelines and specifications agreed to by the Company and assumes substantially all of the risk of construction. If the Company concludes that it has substantially all of the construction period risks, it records a construction asset and related liability for the amount of total project costs incurred during the construction period. At the end of the construction period, the Company determines if the transaction qualifies for sale-leaseback accounting treatment in regards to lease classification.
 
Deferred Revenues — Advances collected on long-term screen advertising, concession and other contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on such contracts are recognized during the period in which the advances are earned, which may differ from the period in which the advances are collected. Revenues related to these advances are recognized on either a straight-line basis over the term of the contracts or as such revenues are earned in accordance with the terms of the contracts.
 
Casualty Insurance — The Company is self-insured for general liability claims up to $250 per occurrence with an annual cap of approximately $2,650 per policy year and is self-insured for medical claims up to $125 per occurrence. The Company is fully insured for workers compensation claims. As of December 31, 2009 and 2010, the Company maintained insurance reserves of $8,022 and $7,447, respectively, which is reflected in accrued other current liabilities in the consolidated balance sheets.
 
Revenue and Expense Recognition — Revenues are recognized when admissions and concession sales are received at the box office. Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre. The Company records


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Table of Contents

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions and concession revenue when a holder redeems the card or certificate. The Company recognizes unredeemed gift cards and other advanced sale-type certificates as revenue only after such a period of time indicates, based on historical experience, the likelihood of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood of redemption, the Company considers the period outstanding, the level and frequency of activity, and the period of inactivity. The Company recognized unredeemed gift cards and other advance sale-type certificates as revenues in the amount of $7,629, $7,162 and $7,073 during the years ended December 31, 2008, 2009 and 2010, respectively.
 
Film rental costs are accrued based on the applicable box office receipts and either mutually agreed upon firm terms or a sliding scale formula, which are generally established prior to the opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula, the Company pays the distributor a mutually agreed upon specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Under the sliding scale formula, film rental is paid as a percentage of box office revenues using a pre-determined matrix based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Estimates are based on the expected success of a film. 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 can typically be estimated early in the film’s run. If actual settlements are different than those estimates, film rental costs are adjusted at that time. Advertising costs are expensed as incurred and the Company expensed $16,839, $15,104 and $16,147, respectively for the years ended December 31, 2008, 2009 and 2010.
 
Accounting for Share Based Awards — The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The grant date fair value is estimated using either an option-pricing model, consistent with the terms of the award, or a market observed price, if such a price exists. Such costs are recognized over the period during which an employee is required to provide service in exchange for the award (which is usually the vesting period). The Company also estimates the number of instruments that will ultimately be forfeited, rather than accounting for forfeitures as they occur. See Note 19 for discussion of the Company’s share based awards and related compensation expense.
 
Income Taxes — The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not 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. The evaluation of a tax position is a two-step process. The first step is recognition: The Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company should presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements result in (1) a change in a liability for income taxes payable or (2) a change in an income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2). The Company accrues interest and penalties on its uncertain tax positions.


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Table of Contents

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Segments — As of December 31, 2010, the Company managed its business under two reportable operating segments, U.S. markets and international markets. See Note 23.
 
Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that 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 Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.
 
Foreign Currency Translations — The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in the consolidated balance sheets in accumulated other comprehensive income (loss). The Company recognizes foreign currency transaction gains and losses when changes in exchange rates impact transactions, other than intercompany transactions of a long-term investment nature, that have been denominated in a currency other than the functional currency.
 
Fair Value Measurements — The Company has interest rate swap agreements that are adjusted to fair value on a recurring basis (quarterly). The Company uses the income approach to determine the fair value of its interest rate swap agreements and under this approach, the Company uses projected future interest rates as provided by the counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. According to authoritative guidance, inputs used in fair value measurements fall into three different categories; Level 1, Level 2 and Level 3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3. There were no changes in valuation techniques during the period, no transfers in or out of Level 3 and no gains or losses included in earnings that were attributable to the change in unrealized gains or losses related to the Company’s current interest rate swap agreements. See Note 14 for further discussion of the Company’s interest rate swap agreements and Note 15 for further discussion of the Company’s fair value measurements.
 
Acquisitions — The Company accounts for acquisitions under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and changes thereafter reflected in income. For significant acquisitions, the Company obtains independent third party valuation studies for certain of the assets acquired and liabilities assumed to assist the Company in determining fair value. The estimation of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the actual amounts recorded. The Company provides the assumptions, including both quantitative and qualitative information, about the specified asset or liability to the third party valuation firms. The Company primarily utilizes the third parties to accumulate comparative data from multiple sources and assemble a report that summarizes the information obtained. The Company then uses the information to determine fair value. The third party valuation firms are supervised by Company personnel who are knowledgeable about valuations and fair value. The Company evaluates the appropriateness of the valuation methodology utilized by the third party valuation firm.
 
2.   NEW ACCOUNTING PRONOUNCEMENTS
 
In December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-17,Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU No. 2009-17”). This update changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of


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Table of Contents

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU No. 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity is required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU No. 2009-17 is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. The Company adopted ASU No. 2009-17 as of January 1, 2010, and its application had no impact on the Company’s consolidated financial statements.
 
In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”), which amends FASB ASC Topic 820-10,Fair Value Measurements and Disclosures”. This update requires additional disclosures for transfers in and out of Levels 1 and 2 and for activity in Level 3 and clarifies certain other existing disclosure requirements. The Company adopted ASU No. 2010-06 beginning January 1, 2010. This update did not have a significant impact on the Company’s disclosures.
 
In August 2010, the FASB issued ASU No. 2010-21,Accounting for Technical Amendments to Various SEC Rules and Schedules” (“ASU No. 2010-21”). This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final Rule, “Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies”. The adoption of ASU No. 2010-21 did not affect the Company’s consolidated financial statements.
 
In August 2010, the FASB issued ASU No. 2010-22,Accounting for Various Topics” (“ASU No. 2010-22”), which amends various SEC paragraphs based on external comments received and the issuance of Staff Accounting Bulletin (“SAB”) 112. SAB 112 was issued to bring existing SEC guidance into conformity with ASC Topic 805, “Business Combinations” and ASC Topic 810 “Consolidation.” The adoption of ASU No. 2010-22 did not affect the Company’s consolidated financial statements.
 
3.   EARNINGS PER SHAR