Cinemark Holdings, Inc. - Quarter Report: 2011 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

Commission File Number: 001-33401

CINEMARK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-5490327
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		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

     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 Web site, 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 þ No 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.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     As of October 31, 2011, 114,202,804 shares of common stock were outstanding.

 

 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 (unaudited)			4
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010 (unaudited)			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)			6
Notes to Condensed Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			40
PART II. OTHER INFORMATION			41
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 6. Exhibits			42
SIGNATURES			43
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10Q include “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. Forward-looking statements can be identified by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the 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. For a description of the risk factors, please review the “Risk Factors” section or other sections in the Company’s Annual Report on Form 10-K filed March 1, 2011 and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such risk factors. 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.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)

		September 30,				December 31,
		2011				2010
Assets
Current assets
Cash and cash equivalents		$	511,395			$	464,997
Inventories			11,746				11,686
Accounts receivable			42,843				50,607
Income tax receivable			—				30,733
Current deferred tax asset			7,030				8,099
Prepaid expenses and other			10,560				10,931
Total current assets			583,574				577,053
Theatre properties and equipment			2,125,357				2,048,204
Less accumulated depreciation and amortization			916,603				832,758
Theatre properties and equipment — net			1,208,754				1,215,446
Other assets
Goodwill			1,154,225				1,122,971
Intangible assets — net			342,834				329,204
Investment in NCM			73,638				64,376
Investment in DCIP			10,171				10,838
Investment in marketable securities — RealD			11,433				27,993
Investments in and advances to affiliates			1,542				2,619
Deferred charges and other assets — net			72,017				70,978
Total other assets			1,665,860				1,628,979
Total assets		$	3,458,188			$	3,421,478
Liabilities and equity
Current liabilities
Current portion of long-term debt		$	11,467			$	10,836
Current portion of capital lease obligations			8,064				7,348
Income tax payable			1,368				—
Current liability for uncertain tax positions			463				1,948
Accounts payable and accrued expenses			240,015				251,808
Total current liabilities			261,377				271,940
Long-term liabilities
Long-term debt, less current portion			1,562,970				1,521,605
Capital lease obligations, less current portion			127,198				132,812
Deferred tax liability			134,955				129,293
Liability for uncertain tax positions			21,154				17,840
Deferred lease expenses			33,246				30,454
Deferred revenue — NCM			237,217				230,573
Other long-term liabilities			50,470				53,809
Total long-term liabilities			2,167,210				2,116,386
Commitments and contingencies (see Note 21)
Equity
Cinemark Holdings, Inc.’s stockholders’ equity:
Common stock, $0.001 par value: 300,000,000 shares authorized, 117,593,329 shares issued and 114,202,804 shares outstanding at September 30, 2011; and 117,110,703 shares issued and 113,750,844 shares outstanding at December 31, 2010			118				117
Additional paid-in-capital			1,044,670				1,037,586
Treasury stock, 3,390,525 and 3,359,859 shares, at cost, at September 30, 2011 and December 31, 2010, respectively			(45,219	)			(44,725	)
Retained earnings			40,317				388
Accumulated other comprehensive income (loss)			(21,665	)			28,181
Total Cinemark Holdings, Inc.’s stockholders’ equity			1,018,221				1,021,547
Noncontrolling interests			11,380				11,605
Total equity			1,029,601				1,033,152
Total liabilities and equity		$	3,458,188			$	3,421,478

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

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data, unaudited)

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Revenues
Admissions		$	417,088			$	367,662			$	1,134,697			$	1,063,737
Concession			194,794				170,130				530,828				488,464
Other			28,131				22,443				78,217				64,034
Total revenues			640,013				560,235				1,743,742				1,616,235
Cost of operations
Film rentals and advertising			225,431				200,495				613,204				582,864
Concession supplies			32,166				26,565				85,076				73,465
Salaries and wages			60,114				56,823				168,222				165,615
Facility lease expense			72,318				66,587				208,111				191,292
Utilities and other			72,679				64,310				198,082				177,179
General and administrative expenses			32,652				28,113				92,825				78,589
Depreciation and amortization			40,394				34,805				119,124				103,395
Amortization of favorable/unfavorable leases			148				179				455				595
Impairment of long-lived assets			992				1,022				3,601				6,057
Loss on sale of assets and other			1,809				7,548				7,975				11,906
Total cost of operations			538,703				486,447				1,496,675				1,390,957
Operating income			101,310				73,788				247,067				225,278
Other income (expense)
Interest expense			(32,249	)			(28,938	)			(91,316	)			(83,553	)
Interest income			2,955				1,807				6,448				4,240
Foreign currency exchange gain (loss)			(1,858	)			682				(512	)			762
Loss on early retirement of debt			—				—				(4,945	)			—
Distributions from NCM			5,108				4,263				16,530				15,541
Equity in income (loss) of affiliates			1,719				(1,842	)			2,353				(4,997	)
Total other expense			(24,325	)			(24,028	)			(71,442	)			(68,007	)
Income before income taxes			76,985				49,760				175,625				157,271
Income taxes			29,337				15,877				61,646				45,918
Net income		$	47,648			$	33,883			$	113,979			$	111,353
Less: Net income attributable to noncontrolling interests			728				551				1,685				3,246
Net income attributable to Cinemark Holdings, Inc.		$	46,920			$	33,332			$	112,294			$	108,107
Weighted average shares outstanding
Basic			112,817				112,179				112,709				111,317
Diluted			113,298				112,516				113,170				111,764
Earnings per share attributable to Cinemark Holdings, Inc.’s common stockholders
Basic		$	0.41			$	0.29			$	0.98			$	0.96
Diluted		$	0.41			$	0.29			$	0.98			$	0.96
Dividends declared per common share		$	0.21			$	0.18			$	0.63			$	0.54

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

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

		Nine months ended September 30,
		2011				2010
Operating activities
Net income		$	113,979			$	111,353
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation			116,644				100,246
Amortization of intangible and other assets and unfavorable leases			2,935				3,744
Amortization of long-term prepaid rents			1,976				1,247
Amortization of debt issue costs			3,557				3,533
Amortization of deferred revenues, deferred lease incentives and other			(7,221	)			(4,844	)
Amortization of accumulated other comprehensive loss related to interest rate swap agreement			3,248				3,475
Fair value change in interest rate swap agreements not designated as hedges			(754	)			—
Amortization of bond discount			633				578
Impairment of long-lived assets			3,601				6,057
Share based awards compensation expense			7,132				5,179
Loss on sale of assets and other			6,937				9,873
Loss on contribution and sale of digital projection systems to DCIP			1,038				2,033
Loss on early retirement of debt			4,945				—
Deferred lease expenses			2,910				2,776
Deferred income tax expenses			10,536				(13,005	)
Equity in (income) loss of affiliates			(2,353	)			4,997
Tax benefit related to stock option exercises and restricted stock vesting			910				1,904
Distributions from equity investees			4,599				3,292
Changes in assets and liabilities			17,320				(88,563	)
Net cash provided by operating activities			292,572				153,875
Investing activities
Additions to theatre properties and equipment			(126,183	)			(88,256	)
Proceeds from sale of theatre properties and equipment			5,131				3,994
Acquisition of ten theatres in Argentina			(66,958	)			—
Investment in joint venture — DCIP and other			(1,268	)			(1,510	)
Net cash used for investing activities			(189,278	)			(85,772	)
Financing activities
Proceeds from stock option exercises			444				5,559
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings			(494	)			(416	)
Dividends paid to stockholders			(71,856	)			(60,671	)
Repayments of long-term debt			(164,587	)			(9,144	)
Proceeds from issuance of senior subordinated notes			200,000				—
Payment of debt issue costs			(4,539	)			(8,849	)
Payments on capital leases			(5,314	)			(5,422	)
Purchase of noncontrolling interest in Cinemark Chile			(1,443	)			—
Other			(1,211	)			(387	)
Net cash used for financing activities			(49,000	)			(79,330	)
Effect of exchange rate changes on cash and cash equivalents			(7,896	)			3,758
Increase (decrease) in cash and cash equivalents			46,398				(7,469	)
Cash and cash equivalents:
Beginning of period			464,997				437,936
End of period		$	511,395			$	430,467
Supplemental information (see Note 17)

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

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

1. The Company and Basis of Presentation

     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, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. The Company also managed additional theatres in the U.S., Brazil, and Colombia during the nine months ended September 30, 2011.

     The condensed consolidated financial statements have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these interim financial statements reflect all adjustments of a recurring nature necessary to state fairly the financial position and results of operations as of, and for, the periods indicated. 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 condensed consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.

     These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2010, included in the Annual Report on Form 10-K filed March 1, 2011 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be achieved for the full year.

2. New Accounting Pronouncements

     In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU No. 2011-04”). ASU No. 2011-04 provides guidance which is expected to result in common fair value measurement and disclosure requirements between U.S. GAAP and IFRS. It changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. It is not intended for this update to result in a change in the application of the requirements in Topic 820. The amendments in ASU No. 2011-04 are to be applied prospectively. ASU No. 2011-04 is effective for public companies for interim and annual periods beginning after December 15, 2011. Early application is not permitted. This update is not expected to have a material impact on the Company’s condensed consolidated financial statements.

     In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”). In ASU No. 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in ASU No. 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. They also do not change the presentation of related tax effects, before related tax effects, or the portrayal or calculation of earnings per share. The amendments in ASU No. 2011-05 should be applied retrospectively. The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company is evaluating the requirements of ASU No. 2011-05 and has not yet determined whether components of comprehensive income, the components of net income, and the components of other comprehensive income will be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements.

     In September 2011, the FASB issued ASU No. 2011-08, “Intangibles — Goodwill and Other (Topic 350)” (“ASU No. 2011-08”). In ASU No. 2011-08, an entity is permitted to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. The ASU’s objective is to simplify how an entity tests goodwill for impairment. The amendments in ASU No. 2011-08 are effective for annual and interim goodwill and impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company is evaluating the requirements of ASU No. 2011-08 and has not yet determined whether a revised approach to evaluation of goodwill impairment will be used in future assessments. The Company does not expect the adoption of ASU No. 2011-08 to have a material impact on its condensed consolidated financial statements.

3. Earnings Per Share

     The Company considers its unvested share based payment awards, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net income by the weighted average number of shares of common stock and unvested restricted stock outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock and unvested restricted stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two class method and the treasury stock method.

     The following table presents computations of basic and diluted earnings per share under the two class method:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Numerator:
Net income attributable to Cinemark Holdings, Inc.		$	46,920			$	33,332			$	112,294			$	108,107
Earnings allocated to participating share-based awards (1)			(569	)			(368	)			(1,218	)			(979	)
Net income attributable to common stockholders		$	46,351			$	32,964			$	111,076			$	107,128
Denominator (shares in thousands):
Basic weighted average common stock outstanding			112,817				112,179				112,709				111,317
Common equivalent shares for stock options			40				182				43				236
Common equivalent shares for restricted stock units			441				155				418				211
Diluted			113,298				112,516				113,170				111,764
Basic earnings per share attributable to common stockholders		$	0.41			$	0.29			$	0.98			$	0.96
Diluted earnings per share attributable to common stockholders		$	0.41			$	0.29			$	0.98			$	0.96

4. Long-Term Debt Activity

     Amendment and Extension of the Senior Secured Credit Facility

     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 $924,375 of the Company’s then remaining outstanding $1,083,600 term loan debt was extended from an original maturity date of October 2013 to a maturity date of April 2016. The then remaining term loan debt of $159,225 that was not extended continued to have a maturity date of October 2013.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     Issuance of Cinemark USA, Inc. 7.375% Senior Subordinated Notes Due 2021

     On June 3, 2011, Cinemark USA, Inc. issued $200,000 aggregate principal amount of 7.375% senior subordinated notes due 2021, at par value. The proceeds, after payment of fees, were primarily used to fund the prepayment of the remaining $157,235 of the Company’s unextended portion of term loan debt under its senior secured credit facility. Interest on the senior subordinated notes is payable on June 15 and December 15 of each year beginning on December 15, 2011. The senior subordinated notes mature on June 15, 2021. The Company incurred debt issue costs of approximately $4,500 in connection with the issuance.

     The senior subordinated notes are fully and unconditionally guaranteed on a joint and several senior subordinated unsecured basis by certain of the Company’s subsidiaries that guarantee, assume or become liable with respect to any of the Company’s or a guarantor’s other debt. The senior subordinated notes and the guarantees are senior subordinated unsecured obligations and rank equally in right of payment with all of the Company’s and a guarantor’s future senior subordinated indebtedness; are subordinate in right of payment to all of the Company’s and a guarantor’s existing and future senior indebtedness, whether secured or unsecured, including the Company’s obligations under its senior secured credit facility and its 8.625% senior notes; and structurally subordinate to all existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries.

     The indenture to the senior subordinated notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. Upon a change of control, as defined in the Indenture, the Company would be required to make an offer to repurchase the senior subordinated notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the senior subordinated 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.

     Prior to June 15, 2016, Cinemark USA, Inc. may redeem all or any part of the senior subordinated notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the senior subordinated notes to the date of redemption. After June 15, 2016, Cinemark USA, Inc. may redeem the senior subordinated notes in whole or in part at redemption prices specified in the indenture. In addition, prior to June 15, 2014, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the senior subordinated notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture.

     Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Securities and Exchange Commission (the “Commission”) on July 27, 2011 pursuant to which Cinemark USA, Inc. offered to exchange the senior subordinated notes for substantially similar registered senior subordinated notes. The registration statement became effective August 4, 2011, and approximately $199,500 of the notes were exchanged on September 7, 2011. The registered senior subordinated notes, issued in the exchange, do not have transfer restrictions. Approximately $500 of the notes were not exchanged as of September 30, 2011.

     Prepayment of Term Loan Debt

     On June 3, 2011, the Company prepaid the remaining $157,235 of its unextended term loan debt under its senior secured credit facility utilizing a portion of the proceeds from the issuance of the Cinemark USA, Inc. 7.375% senior subordinated notes discussed above. There were no prepayment penalties incurred upon the prepayment of the term loan debt. Subsequent to the prepayment, the quarterly payments due on the term loan will be approximately $2,311 per quarter through March 2016 with the remaining principal amount of approximately $866,602 due April 30, 2016. The prepayment did not impact the interest rate applicable to the remaining portion of the term loan debt nor did it impact the maturity of the Company’s revolving credit line.

     As a result of the prepayment, the Company wrote-off approximately $2,183 in unamortized debt issue costs related to the unextended portion of term loan debt that was prepaid. In addition, the Company determined that a portion of the quarterly interest payments hedged by two of its current interest rate swap agreements under cash flow hedges and the quarterly interest payments related to its previously terminated interest rate swap agreement were

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

probable not to occur and therefore reclassified approximately $2,760 of its accumulated other comprehensive loss related to these cash flow hedges to earnings, as a component of loss on early retirement of debt. The Company also recorded fees of $2 to loss on early retirement of debt during the nine months ended September 30, 2011.

     As of September 30, 2011, there was approximately $908,199 outstanding under the term loan and no borrowings outstanding under the revolving credit line.

     Fair Value of Long-Term Debt

     The Company estimates the fair value of its long-term debt primarily using quoted market prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35. The carrying value of the Company’s long-term debt was $1,574,437 and $1,532,441 as of September 30, 2011 and December 31, 2010, respectively. The fair value of the Company’s long-term debt was $1,577,994 and $1,581,963 as of September 30, 2011 and December 31, 2010, respectively.

5. Purchase of Noncontrolling Interests’ Share of Cinemark Chile

     During May 2011, the Company purchased its Chilean partners’ 2.6% share of Cinemark Chile S.A. (“Cinemark Chile”) for approximately $1,443 in cash. The increase in the Company’s ownership interest in its Chilean subsidiary was accounted for as an equity transaction in accordance with ASC Topic 810-10-45-23. The Company recorded a decrease in additional paid-in-capital of approximately $1,402, which represented the difference between the cash paid and the book value of the Chilean partners’ noncontrolling interest account, or approximately $917, plus the Chilean partners’ share of accumulated other comprehensive loss of approximately $485. As a result of this transaction, the Company owns 100% of the shares in Cinemark Chile.

6. Acquisition of Argentina Theatres

     On August 25, 2011, the Company acquired ten theatres with 95 screens from Hoyts General Cinema South America, Inc. in a stock purchase for approximately $66,958 in cash. The acquisition resulted in an expansion of the Company’s international theatre base. The Company incurred approximately $200 in transaction costs, which are reflected in general and administrative expenses on the condensed consolidated statements of income for the three and nine months ended September 30, 2011.

     The transaction was accounted for by applying the acquisition method. The following table represents the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date:

Theatre properties and equipment		$	19,932
Tradename			10,032
Favorable leases			7,745
Other intangible assets			908
Goodwill			43,072
Long-term debt			(5,993	)
Deferred tax liability			(7,189	)
Other liabilities, net of other assets			(1,549	)
Total		$	66,958

     The amounts listed above are provisional and will be updated by the Company upon completion of the valuation analyses necessary to properly allocate the purchase price. The acquisition is subject to review by the Argentina Comisión Nacional de Defensa de la Competencia (“CNDC”).

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

7. Equity

     Below is a summary of changes in stockholders’ equity attributable to Cinemark Holdings, Inc., noncontrolling interests and total equity for the nine months ended September 30, 2011 and 2010:

		Cinemark
		Holdings, Inc.
		Stockholders’				Noncontrolling				Total
		Equity				Interests				Equity
Balance at January 1, 2011		$	1,021,547			$	11,605			$	1,033,152
Purchase of noncontrolling interests’ share of Chile subsidiary			(917	)			(526	)			(1,443	)
Share based awards compensation expense			7,132				—				7,132
Stock withholdings related to restricted stock that vested during the nine months ended September 30, 2011			(494	)			—				(494	)
Exercise of stock options			445				—				445
Tax benefit related to stock option exercises and restricted stock vesting			910				—				910
Dividends paid to stockholders			(71,856	)			—				(71,856	)
Dividends accrued on unvested restricted stock unit awards			(509	)			—				(509	)
Dividends paid to noncontrolling interests			—				(1,211	)			(1,211	)
Write-off of accumulated other comprehensive loss related to cash flow hedges, net of taxes of $723			2,037				—				2,037
Comprehensive income:
Net income			112,294				1,685				113,979
Fair value adjustments on interest rate swap agreements designated as hedges, net of taxes of $4,180			(7,565	)			—				(7,565	)
Amortization of accumulated other comprehensive loss on terminated swap agreement			3,248				—				3,248
Fair value adjustments on available-for-sale securities, net of taxes of $7,485			(12,485	)			—				(12,485	)
Foreign currency translation adjustment			(35,566	)			(173	)			(35,739	)
Total comprehensive income			59,926				1,512				61,438
Balance at September 30, 2011		$	1,018,221			$	11,380			$	1,029,601

     Below is a summary of dividends paid to stockholders during the nine months ended September 30, 2011:

										Amount per
		Record								Share of				Total Amount
Declaration Date		Date				Date Paid				Common Stock				Paid
02/24/11		03/04/11				03/16/11				$	0.21			$	23,897
05/12/11		06/06/11				06/17/11				$	0.21				23,976
08/04/11		08/17/11				09/01/11				$	0.21				23,983
Total										$	0.63			$	71,856

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

		Cinemark
		Holdings, Inc.
		Stockholders’				Noncontrolling				Total
		Equity				Interests				Equity
Balance at January 1, 2010		$	899,832			$	14,796			$	914,628
Colombia Share Exchange			5,865				(5,865	)			—
Share based awards compensation expense			5,179				—				5,179
Stock withholdings related to restricted stock that vested during the nine months ended September 30, 2010			(299	)			—				(299	)
Exercise of stock options, net of stock withholdings			5,442				—				5,442
Tax benefit related to stock option exercises			1,904				—				1,904
Dividends paid to stockholders			(60,671	)			—				(60,671	)
Dividends accrued on unvested restricted stock unit awards			(264	)			—				(264	)
Dividends paid to noncontrolling interests			—				(387	)			(387	)
Comprehensive income:
Net income			108,107				3,246				111,353
Fair value adjustments on interest rate swap agreements, net of taxes of $137			(226	)			—				(226	)
Amortization of accumulated other comprehensive loss on terminated swap agreement			3,475				—				3,475
Fair value adjustments on available-for-sale securities			1,356				—				1,356
Foreign currency translation adjustment			13,694				208				13,902
Total comprehensive income			126,406				3,454				129,860
Balance at September 30, 2010		$	983,394			$	11,998			$	995,392

8. Investment in National CineMedia

     The Company has an investment in National CineMedia, LLC (“NCM”). NCM operates a digital in-theatre network in the U.S. for providing cinema advertising and non-film events. As described further in Note 6 to the Company’s financial statements as included in its 2010 Annual Report on Form 10-K, on February 13, 2007, National CineMedia, Inc. (“NCM, Inc.”), an entity that serves as the sole manager of NCM, completed an IPO of its common stock. In connection with the NCM Inc. initial public offering, the Company amended its operating agreement and the Exhibitor Services Agreement with NCM. Following the NCM, Inc. IPO, the Company does not recognize undistributed equity in the earnings on its original NCM membership units (referred to herein as the Company’s Tranche 1 Investment) until NCM’s future net earnings, less distributions received, surpass the amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor’s basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.

     Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, AMC Entertainment Inc. and Regal Entertainment Group, collectively referred to as its Founding Members, annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. To account for the receipt of additional common units under the Common Unit Adjustment Agreement, the Company follows the guidance in ASC 323-10-35-29 (formerly EITF 02-18, “Accounting for Subsequent Investments in an Investee after Suspension of Equity Loss Recognition”) by analogy, which also refers to AICPA Technical Practice Aid 2220.14, which indicates that if a subsequent investment is made in an equity method investee that has experienced significant losses, the investor must determine if the subsequent investment constitutes funding of prior losses. The Company concluded that the construction or acquisition of new theatres that has led to the common unit adjustments equates to making additional investments in NCM. The Company evaluated the receipt of the additional common units in NCM and the assets exchanged for these additional units and has determined that the right to use its incremental new screens would not be considered funding of prior losses. The Company accounts for these additional common units (referred to herein as its Tranche 2 Investment) as a separate investment than its Tranche 1 Investment. The common units

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

received are recorded at fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue. The deferred revenue is amortized over the remaining term of the Exhibitor Services Agreement. The Tranche 2 Investment is accounted for following the equity method. Therefore, undistributed equity earnings related to its Tranche 2 Investment are included as a component of earnings in equity in income (loss) of affiliates and distributions received related to its Tranche 2 Investment are recorded as a reduction of its investment basis. In the event that a common unit adjustment is determined to be a negative number, the Founding Member can elect to either transfer and surrender to NCM the number of common units equal to all or part of such Founding Member’s common unit adjustment or to pay to NCM an amount equal to such Founding Member’s common unit adjustment calculated in accordance with the Common Unit Adjustment Agreement. If the Company then elects to surrender common units as part of a negative common unit adjustment, the Company would record a reduction to deferred revenue at the then fair value of the common units surrendered and a reduction of the Company’s Tranche 2 investment at an amount equal to the weighted average cost for Tranche 2 common units, with the difference between the two values recorded as a gain or loss on sale of assets and other.

     Below is a summary of activity with NCM included in the Company’s condensed consolidated financial statements:

		Investment				Deferred				Distributions				Equity in				Other				Cash
		in NCM				Revenue				from NCM				Earnings				Revenue				Received
Balance as of December 31, 2010		$	64,376			$	(230,573	)
Receipt of common units due to annual common unit adjustment			9,302				(9,302	)		$	—			$	—			$	—			$	—
Revenues earned under exhibitor services agreement			—				—				—				—				(4,305	)			4,305
Receipt of excess cash distributions			(3,797	)			—				(12,392	)			—				—				16,189
Receipt under tax receivable agreement			(729	)			—				(4,138	)			—				—				4,867
Equity in earnings			4,486				—				—				(4,486	)			—				—
Amortization of deferred revenue			—				2,658				—				—				(2,658	)			—
Balance as of and for the period ended September 30, 2011		$	73,638			$	(237,217	)		$	(16,530	)		$	(4,486	)		$	(6,963	)		$	25,361

     During March 2011, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company received an additional 549,417 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock. The Company recorded the additional common units received at fair value as part of its Tranche 2 Investment with a corresponding adjustment to deferred revenue of approximately $9,302. The deferred revenue will be recognized under the units of revenue method over the remaining term of the Company’s Exhibitor Services Agreement with NCM, which is approximately 26 years. The common unit adjustment resulted in a change in the Company’s ownership percentage in NCM from approximately 15.3% to 15.8%.

     As of September 30, 2011, the Company owned a total of 17,495,920 common units of NCM. During the nine months ended September 30, 2011 and 2010, the Company recorded equity earnings of approximately $4,486 and $3,615, respectively.

     Pursuant to the terms of the Exhibitor Services Agreement, the Company recorded other revenues, excluding the amortization of deferred revenue, of approximately $4,305 and $3,666 during the nine months ended September 30, 2011 and 2010, respectively. These amounts include the per patron and per digital advertising screen theatre access fee and theatre rental revenue, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of $8,305 and $7,806, respectively.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     Below is summary unaudited financial information for NCM for the six months ended June 30, 2011 (financial information was not yet available for the nine months ended September 30, 2011).

		Six Months
		Ended
		June 30, 2011
Gross revenues		$	184,785
Operating income		$	65,159
Net earnings		$	42,632

9. Investment in Digital Cinema Implementation Partners

     On February 12, 2007, the Company, AMC Entertainment Inc. and Regal Entertainment Group entered into a joint venture known as Digital Cinema Implementation Partners LLC (“DCIP”) to facilitate the implementation of digital cinema in the Company’s theatres and to establish agreements with major motion picture studios for the financing of digital cinema.

     On March 10, 2010, the Company signed a master equipment lease agreement and other related agreements (collectively the “agreements”) with Kasima LLC (“Kasima”), which is an indirect subsidiary of DCIP and a related party to the Company. Upon signing the agreements, the Company contributed digital projection systems at a fair value of $16,380 to DCIP (collectively the “contributions”), which DCIP then contributed to Kasima. The net book value of the contributed equipment was approximately $18,090. On April 24, 2010, the Company sold digital projection systems with a net book value of approximately $1,520 to Kasima for approximately $1,197. The contribution and sale of these digital projection systems resulted in an aggregate loss of approximately $2,033, which is reflected in loss on sale of assets and other on the condensed consolidated statement of income for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, the Company sold digital projection systems with a net book value of approximately $3,777 to Kasima for approximately $2,739, resulting in a loss of approximately $1,038, which is reflected in loss on sale of assets and other on the condensed consolidated statement of income for the nine months ended September 30, 2011. As of September 30, 2011, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP.

     The Company has a variable interest in Kasima through the terms of its master equipment lease agreement; however, the Company has determined that it is not the primary beneficiary of Kasima, as the Company does not have the ability to direct the activities of Kasima that most significantly impact Kasima’s economic performance. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting. During the nine months ended September 30, 2011 and 2010, the Company recorded equity losses of $1,927 and $8,644, respectively, relating to this investment. Below is a summary of activity with DCIP for the nine months ended September 30, 2011:

		Investment in
		DCIP
Balance as of December 31, 2010		$	10,838
Cash contributions to DCIP			1,260
Equity in loss			(1,927	)
Balance as of September 30, 2011		$	10,171

     The Company continues to roll out digital projection systems to a majority of its first run U.S. theatres. The digital projection systems are leased from Kasima under an operating lease with an initial term of twelve years that contains ten one-year fair value renewal options. The equipment lease agreement also contains a fair value purchase option. Under the equipment lease agreement, the Company pays minimum annual rent of one thousand dollars per digital projection system for the first six and a half years from the effective date of the agreement and minimum annual rent of three thousand dollars per digital projection system beginning at six and a half years from the effective date through the end of the lease term. The Company is also subject to various types of other rent if such digital projection systems do not meet minimum performance requirements as outlined in the agreements. Certain of the other rent payments are subject to either a monthly or an annual maximum. As of September 30, 2011, the Company had 3,075 digital projection systems being leased under the master equipment lease agreement with Kasima. The

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

Company recorded equipment lease expense of approximately $3,684 and $685 during the nine months ended September 30, 2011 and 2010, respectively, which is included in utilities and other costs on the condensed consolidated statements of income.

     The digital projection systems leased from Kasima have replaced a majority of the Company’s 35 millimeter projection systems in its U.S. theatres. Therefore, upon signing the agreements, the Company began accelerating the depreciation of its 35 millimeter projection systems, based on the estimated replacement timeframe. The Company recorded depreciation expense of approximately $10,604 and $5,981 on its domestic 35 millimeter projectors during the nine months ended September 30, 2011 and 2010, respectively. The Company’s domestic 35 millimeter projection systems have been fully depreciated as of September 30, 2011.

10. Investment in Marketable Securities — RealD

     Under its license agreement with RealD, a publicly traded company from whom the Company licenses its 3-D systems, the Company earned options to purchase shares of common stock upon installation of a certain number of 3-D systems as outlined in the license agreement. During 2010, the Company earned a total of 1,085,828 options to purchase shares of common stock in RealD. Upon vesting in these options, the Company recorded a total investment in RealD of approximately $18,909, which represented the estimated aggregate fair value of the options, with an offset to deferred lease incentive liability.

     During the nine months ended September 30, 2011, the Company vested in an additional 136,952 RealD options by reaching the final target level, as outlined in the license agreement. Upon vesting in these additional options, the Company recorded an increase in its investment in RealD and its deferred lease incentive liability of approximately $3,402, which represented the estimated fair value of the RealD options. The fair value measurements were based upon RealD’s closing stock prices on the dates of vesting. These fair value measurements fall under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. The deferred lease incentive liability, which is reflected in other long-term liabilities on the condensed consolidated balance sheets, is being amortized over the term of the license agreement, which is approximately seven and one-half years.

     During March 2011, the Company exercised all of its options to purchase shares of common stock in RealD for $0.00667 per share. The Company accounts for its investment in RealD as a marketable security. The Company has determined that its RealD shares are available-for-sale securities in accordance with ASC Topic 320-10-35-1, therefore unrealized holding gains and losses are reported as a component of accumulated other comprehensive income (loss) until realized.

     As of September 30, 2011, the Company owned 1,222,780 shares in RealD, with an estimated fair value of $11,433. The fair value of the RealD shares as of September 30, 2011 was determined based upon the closing price of RealD’s common stock on that date, which falls under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the nine months ended September 30, 2011, the Company recorded an unrealized holding loss of approximately $19,970, before taxes, as a component of accumulated other comprehensive income (loss) on the condensed consolidated balance sheet.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

11. Treasury Stock and Share Based Awards

     Treasury Stock — Treasury stock represents shares of common stock repurchased or withheld by the Company and not yet retired. The Company has applied the cost method in recording its treasury shares.

     Below is a summary of the Company’s treasury stock activity for the nine months ended September 30, 2011:

		Number of
		Treasury
		Shares				Cost
Balance at December 31, 2010			3,359,859			$	44,725
Restricted stock forfeitures (1)			853				—
Restricted stock withholdings (2)			25,200				494
Restricted stock awards canceled (1)			4,613				—
Balance at September 30, 2011			3,390,525			$	45,219

     Stock Options — A summary of stock option activity and related information for the nine months ended September 30, 2011 is as follows:

										Weighted Average
		Number of				Weighted Average				Grant Date Fair				Aggregate Intrinsic
		Options				Exercise Price				Value				Value
Outstanding at December 31, 2010			140,356			$	7.63			$	3.51
Exercised			(58,190	)		$	7.63			$	3.51
Outstanding at September 30, 2011			82,166			$	7.63			$	3.51			$	924
Options exercisable at September 30, 2011			82,166			$	7.63			$	3.51			$	924

     The total intrinsic value of options exercised during the nine months ended September 30, 2011 was $699. The Company recognized a tax benefit of approximately $238 during the nine months ended September 30, 2011 related to these option exercises.

     As of September 30, 2011, there was no remaining unrecognized compensation expense related to outstanding stock options as all outstanding options fully vested on April 2, 2009. Options outstanding at September 30, 2011 have an average remaining contractual life of approximately three years.

     Restricted Stock - During the nine months ended September 30, 2011, the Company granted 424,436 shares of restricted stock to directors and employees of the Company. The fair values of the restricted stock granted was determined based on the market values of the Company’s common stock on the dates of grant, which ranged from $19.35 to $20.71 per share. The Company assumed forfeiture rates ranging from 0% to 5% for the restricted stock awards. The restricted stock granted to directors vests over one year based on continued service. The restricted stock granted to employees vests over four years based on continued service. The recipients of restricted stock are entitled to receive dividends and to vote their respective shares, however the sale and transfer of the restricted shares is prohibited during the restriction period.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     Below is a summary of restricted stock activity for the nine months ended September 30, 2011:

		Shares of				Weighted Average
		Restricted				Grant Date
		Stock				Fair Value
Outstanding at December 31, 2010			1,254,691			$	14.60
Granted			424,436			$	19.45
Forfeited			(853	)		$	12.89
Vested			(288,204	)		$	10.84
Canceled			(4,613	)		$	18.35
Outstanding at September 30, 2011			1,385,457			$	16.85
Unvested restricted stock at September 30, 2011			1,385,457			$	16.52

     The Company recorded compensation expense of $4,832 and $3,507 related to restricted stock awards during the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, the remaining unrecognized compensation expense related to restricted stock awards was $15,447 and the weighted average period over which this remaining compensation expense will be recognized is approximately three years. Upon vesting, the Company receives an income tax deduction. The total fair value of shares that vested during the nine months ended September 30, 2011 was $5,658. The Company recognized a tax benefit of approximately $2,188 during the nine months ended September 30, 2011 related to these vested shares.

     Restricted Stock Units — During the nine months ended September 30, 2011, the Company granted restricted stock units representing 153,727 hypothetical shares of common stock to employees of the Company. The restricted stock units vest based on a combination of financial performance factors and continued service. The financial performance factors are based on an implied equity value concept that determines an internal rate of return (“IRR”) during the three fiscal year period ending December 31, 2013 based on a formula utilizing a multiple of Adjusted EBITDA subject to certain specified adjustments (as defined in the restricted stock unit award agreement). The financial performance factors for the restricted stock units have a threshold, target and maximum level of payment opportunity. If the IRR for the three year period is at least 8.5%, which is the threshold, one-third of the restricted stock units vest. If the IRR for the three year period is at least 10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the three year period is at least 12.5%, which is the maximum, 100% of the restricted stock units vest. Grantees are eligible to receive a ratable portion of the common stock issuable if the IRR is within the targets previously noted. All payouts of restricted stock units that vest will be subject to an additional service requirement and will be paid in the form of common stock if the participant continues to provide services through March 31, 2015, which is the fourth anniversary of the grant date. Restricted stock unit award participants are eligible to receive dividend equivalent payments if and at the time the restricted stock unit awards vest.

     Below is a table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the nine months ended September 30, 2011 at each of the three target levels of financial performance (excluding forfeiture assumptions):

		Number of
		Shares				Value at
		Vesting				Grant
at IRR of at least 8.5%			51,239			$	991
at IRR of at least 10.5%			102,488			$	1,983
at IRR of at least 12.5%			153,727			$	2,975

     Due to the fact that the IRR for the three year performance period could not be determined at the time of grant, the Company estimated that the most likely outcome is the achievement of the mid-point IRR level. The fair value of the restricted stock unit awards was determined based on the market value of the Company’s common stock on the date of grant, which was $19.35 per share. The Company assumed a forfeiture rate of 5% for the restricted stock unit awards. If during the service period, additional information becomes available to lead the Company to believe a different IRR level will be achieved for the three year performance period, the Company will reassess the number of

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

units that will vest for the grant and adjust its compensation expense accordingly on a prospective basis over the remaining service period.

     No restricted stock unit awards have vested. There were no forfeitures of restricted stock unit awards during the nine months ended September 30, 2011. The Company recorded compensation expense of $2,300 and $1,672 related to restricted stock unit awards during the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, the remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $6,014. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. As of September 30, 2011, the Company had restricted stock units outstanding that represented a total of 1,037,770 hypothetical shares of common stock, net of actual cumulative forfeitures of 19,918 units, assuming the maximum IRR of at least 12.5% is achieved for all of the grants.

12. Interest Rate Swap Agreements

     The Company is currently a party to five interest rate swap agreements that qualify for cash flow hedge accounting. No premium or discount was incurred upon the Company entering into any of its interest rate swap agreements because the pay rates and receive rates on the interest rate swap agreements represented prevailing rates for each counterparty at the time each of the interest rate swap agreements was consummated. The fair values of the interest rate swaps are recorded on the Company’s 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.

     The valuation technique used to determine fair value is the income approach and under this approach, the Company uses projected future interest rates as provided by counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35. There were no changes in valuation techniques during the period and no transfers in or out of Level 3. See Note 15 for a summary of unrealized gains or losses recorded in accumulated other comprehensive income (loss) and earnings.

     Below is a summary of the Company’s current interest rate swap agreements designated as hedge agreements as of September 30, 2011:

																										Estimated
Amount Designated																		Current Liability				Long-Term Liability				Total Fair Value at
as a Hedge				Effective Date		Pay Rate				Receive Rate				Expiration Date				(1)				(2)				September 30, 2011
$	106,632	(3)		August 2007			4.9220	%		3-Month LIBOR				August 2012				$	4,864			$	—			$	4,864
$	149,285	(4)		November 2008			3.6300	%		1-Month LIBOR					(5)				2,792				401				3,193
$	175,000			December 2010			1.4000	%		1-Month LIBOR				September 2015					1,713				1,798				3,511
$	175,000			December 2010			1.3975	%		1-Month LIBOR				September 2015					1,709				1,865				3,574
$	100,000			November 2011			1.7150	%		1-Month LIBOR				April 2016					1,248				1,616				2,864
$	705,917																	$	12,326			$	5,680			$	18,006

     During June 2011, the Company prepaid the remaining unextended portion of its term loan debt under its senior secured credit facility (see Note 4). As a result, the Company determined that a portion of the quarterly interest payments hedged by two of its current interest rate swap agreements and the quarterly interest payments related to its previously terminated interest rate swap agreement were probable not to occur and therefore reclassified approximately $2,760 of its accumulated other comprehensive loss related to these cash flow hedges to earnings, as a component of loss on early retirement of debt, during the nine months ended September 30, 2011.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     The Company amortized approximately $3,248 and $3,475 to interest expense during the nine months ended September 30, 2011 and 2010, respectively, related to a previously terminated interest rate swap agreement. The Company will amortize approximately $3,953 to interest expense for this terminated interest rate swap agreement over the next twelve months. See Note 15 for additional information about the Company’s fair value measurements related to its interest rate swap agreements.

13. Goodwill and Other Intangible Assets

     The Company’s goodwill was as follows:

		U.S.				International
		Operating				Operating
		Segment				Segment				Total
Balance at December 31, 2010 (1)		$	948,026			$	174,945			$	1,122,971
Acquisition of ten theatres in Argentina (see Note 6)			—				43,072				43,072
Foreign currency translation adjustments			—				(11,818	)			(11,818	)
Balance at September 30, 2011 (1)		$	948,026			$	206,199			$	1,154,225

     The Company evaluates goodwill for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill might exceed its estimated fair value.

     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. The Company considers the reporting unit to be each of its sixteen regions in the U.S. and each of its eight countries internationally (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 the 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 evaluation performed during the fourth quarter of 2010. No events or changes in circumstances occurred during the nine months ended September 30, 2011 that indicated that the carrying value of goodwill might exceed its estimated fair value.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     Intangible assets consisted of the following:

														Foreign
														Currency
		Balance at												Translation				Balance at
		December 31,												Adjustments				September 30,
		2010				Acquisitions (3)				Amortization				and Other(1)				2011
Intangible assets with finite lives:
Gross carrying amount (2)		$	64,319			$	18,685			$	—			$	(3,746	)		$	79,258
Accumulated amortization			(46,185	)			—				(3,132	)			2,791				(46,526	)
Total net intangible assets with finite lives		$	18,134			$	18,685			$	(3,132	)		$	(955	)		$	32,732
Intangible assets with indefinite lives:
Tradename			311,070				—				—				(968	)			310,102
Total intangible assets — net		$	329,204			$	18,685			$	(3,132	)		$	(1,923	)		$	342,834

     Estimated aggregate future amortization expense for intangible assets is as follows:

For the three months ended December 31, 2011		$	1,445
For the twelve months ended December 31, 2012			5,340
For the twelve months ended December 31, 2013			5,063
For the twelve months ended December 31, 2014			4,528
For the twelve months ended December 31, 2015			4,181
Thereafter			12,175
Total		$	32,732

14. Impairment of Long-Lived Assets

     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 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 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 the nine months ended September 30, 2010 and 2011. As of September 30, 2011, the estimated aggregate fair value of the long-lived assets impaired during the three months ended September 30, 2011 was approximately $151.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     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.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
United States theatre properties		$	303			$	424			$	1,367			$	3,265
International theatre properties			689				598				2,234				1,661
Subtotal		$	992			$	1,022			$	3,601			$	4,926
Intangible assets			—				—				—				1,131
Impairment of long-lived assets		$	992			$	1,022			$	3,601			$	6,057

15. Fair Value Measurements

     The Company determines fair value measurements in accordance with FASB ASC Topic 820, which establishes a fair value hierarchy under which an asset or liability is categorized based on the lowest level of input significant to its fair value measurement. The levels of input defined by FASB ASC Topic 820 are as follows:

Level 1 — quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date;

Level 2 — other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 — unobservable and should be used to measure fair value to the extent that observable inputs are not available.

     Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of September 30, 2011:

		Carrying				Fair Value
Description		Value				Level 1				Level 2				Level 3
Interest rate swap liabilities — current (see Note 12)		$	(12,326	)		$	—			$	—			$	(12,326	)
Interest rate swap liabilities — long term (see Note 12)		$	(5,680	)		$	—			$	—			$	(5,680	)
Investment in RealD (see Note 10)		$	11,433			$	11,433			$	—			$	—

     Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of December 31, 2010:

		Carrying				Fair Value
Description		Value				Level 1				Level 2				Level 3
Interest rate swap liabilities — current (see Note 12)		$	(2,928	)		$	—			$	—			$	(2,928	)
Interest rate swap liabilities — long term (see Note 12)		$	(13,042	)		$	—			$	—			$	(13,042	)
Interest rate swap assets — long term (see Note 12)		$	8,955			$	—			$	—			$	8,955
Investment in RealD (see Note 10)		$	27,993			$	—			$	27,993			$	—

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     Below is a reconciliation of the beginning and ending balance for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

		Liabilities								Assets
		2011				2010				2011				2010
Beginning balances — January 1		$	(15,970	)		$	(18,524	)		$	8,955			$	—
Total loss included in accumulated other comprehensive income (loss)			(2,790	)			(363	)			(8,955	)			—
Total gain included in earnings			754				—				—				—
Ending balances — September 30		$	(18,006	)		$	(18,887	)		$	—			$	—

     There were no changes in valuation techniques during the period. The fair value measurement for the Company’s investment in RealD transferred from Level 2 to Level 1 during the nine months ended September 30, 2011. Previous fair value estimates for the investment were based on RealD’s stock price, discounted to reflect the impact of a lock-up period to which the Company was subject. The lock-up period expired during January 2011; therefore, the fair value estimates for the investment subsequent to January 2011 were based on RealD’s stock price with no adjustments. There were no transfers in or out of Level 3 during the nine months ended September 30, 2011.

16. Foreign Currency Translation

     The accumulated other comprehensive income (loss) account in stockholders’ equity of $28,181 and $(21,665) at December 31, 2010 and September 30, 2011, respectively, includes the cumulative foreign currency adjustments of $34,248 and $(833), respectively, from translating the financial statements of the Company’s international subsidiaries, and also includes the change in fair values of the Company’s interest rate swap agreements and the change in fair value of the Company’s available-for-sale securities.

     In 2010 and 2011, all foreign countries where the Company has operations were deemed non-highly inflationary and the local currency is the same as the functional currency in all of the locations. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment recorded to accumulated other comprehensive income (loss).

     On September 30, 2011, the exchange rate for the Brazilian real was 1.83 reais to the U.S. dollar (the exchange rate was 1.67 reais to the U.S. dollar at December 31, 2010). As a result, the effect of translating the September 30, 2011 Brazilian financial statements into U.S. dollars is reflected as a foreign currency translation adjustment to the accumulated other comprehensive income (loss) account as a decrease in stockholders’ equity of $23,144. At September 30, 2011, the total assets of the Company’s Brazilian subsidiaries were U.S. $316,880.

     On September 30, 2011, the exchange rate for the Mexican peso was 13.55 pesos to the U.S. dollar (the exchange rate was 12.39 pesos to the U.S. dollar at December 31, 2010). As a result, the effect of translating the September 30, 2011 Mexican financial statements into U.S. dollars is reflected as a foreign currency translation adjustment to the accumulated other comprehensive income (loss) account as a decrease in stockholders’ equity of $7,722. At September 30, 2011, the total assets of the Company’s Mexican subsidiaries were U.S. $128,395.

     On September 30, 2011, the exchange rate for the Chilean peso was 514.40 pesos to the U.S. dollar (the exchange rate was 473.20 pesos to the U.S. dollar at December 31, 2010). As a result, the effect of translating the September 30, 2011 Chilean financial statements into U.S. dollars is reflected as a foreign currency translation adjustment to the accumulated other comprehensive income (loss) account as a decrease in stockholders’ equity of $2,913. At September 30, 2011, the total assets of the Company’s Chilean subsidiaries were U.S. $39,287.

     The effect of translating the September 30, 2011 financial statements of the Company’s other international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a foreign currency translation adjustment to the accumulated other comprehensive income (loss) account as a decrease in stockholders’ equity of $1,787.

     During May 2011, the Company’s ownership in its Chilean subsidiary increased from 97.4% to 100% as a result of the Company’s purchase of the noncontrolling interests’ shares of Cinemark Chile. As part of this transaction, the Company recorded the amount of accumulated other comprehensive loss previously allocated to the noncontrolling

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

interest of $485, related to the translation of the Chilean financial statements into U.S. dollars, as an increase to accumulated other comprehensive income (loss) with an offsetting decrease to additional paid-in-capital. See Note 5.

17. Supplemental Cash Flow Information

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

		Nine Months Ended
		September 30,
		2011				2010
Cash paid for interest		$	69,273			$	66,857
Cash paid for income taxes, net of refunds received		$	15,902			$	70,762
Noncash investing and financing activities:
Change in accounts payable and accrued expenses for the acquisition of theatre properties and equipment (1)		$	1,138			$	1,748
Theatre properties acquired under capital lease		$	535			$	2,191
Change in fair market values of interest rate swap agreements, net of taxes		$	(7,565	)		$	(226	)
Investment in NCM — receipt of common units (see Note 8)		$	9,302			$	30,683
Investment in NCM — change of interest gain		$	—			$	271
Equipment contributed to DCIP (see Note 9)		$	—			$	18,090
Dividends accrued on unvested restricted stock unit awards		$	(509	)		$	(264	)
Shares issued upon non-cash stock option exercises, at exercise price of $7.63 per share		$	—			$	413
Investment in RealD (see Note 10)		$	3,402			$	14,638
Change in fair market value of available-for-sale securities, net of taxes (see Note 10)		$	(12,485	)		$	1,356
Issuance of shares as a result of Colombia Share Exchange		$	—			$	6,951

18. Segments

     The Company manages its international market and its U.S. market as separate reportable operating segments. The international segment consists of operations in Brazil, Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. The U.S. segment includes U.S. and Canada operations (note that the Company’s only Canadian theatre was sold during November 2010.) Each segment’s revenue is derived from admissions and concession sales and other ancillary revenues, primarily screen advertising. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not report asset information by segment because that information is not used to evaluate the performance of or allocate resources between segments.

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data

     Below is a breakdown of selected financial information by reportable operating segment:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenues
U.S.		$	441,334			$	400,277			$	1,216,679			$	1,199,856
International			201,637				161,492				534,828				420,404
Eliminations			(2,958	)			(1,534	)			(7,765	)			(4,025	)
Total revenues		$	640,013			$	560,235			$	1,743,742			$	1,616,235
Adjusted EBITDA
U.S.		$	110,285			$	87,778			$	289,091			$	273,731
International			43,988				37,299				117,679				98,243
Total Adjusted EBITDA		$	154,273			$	125,077			$	406,770			$	371,974
Capital expenditures
U.S.		$	17,871			$	11,564			$	57,316			$	47,571
International			23,010				19,733				68,867				40,685
Total capital expenditures		$	40,881			$	31,297			$	126,183			$	88,256

     The following table sets forth a reconciliation of net income to Adjusted EBITDA:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income		$	47,648			$	33,883			$	113,979			$	111,353
Add (deduct):
Income taxes			29,337				15,877				61,646				45,918
Interest expense (1)			32,249				28,938				91,316				83,553
Loss on early retirement of debt			—				—				4,945				—
Other income (2)			(2,816	)			(647	)			(8,289	)			(5	)
Depreciation and amortization(3)			40,542				34,984				119,579				103,990
Impairment of long-lived assets			992				1,022				3,601				6,057
Loss on sale of assets and other			1,809				7,548				7,975				11,906
Deferred lease expenses			1,260				1,079				2,910				2,776
Amortization of long-term prepaid rents			692				468				1,976				1,247
Share based awards compensation expense			2,560				1,925				7,132				5,179
Adjusted EBITDA		$	154,273			$	125,077			$	406,770			$	371,974