SPEEDWAY MOTORSPORTS INC, 10-Q filed on 7/30/2015
Quarterly Report
Document And Entity Information
6 Months Ended
Jun. 30, 2015
Jul. 28, 2015
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
SPEEDWAY MOTORSPORTS INC 
 
Document Type
10-Q 
 
Current Fiscal Year End Date
--12-31 
 
Entity Common Stock, Shares Outstanding
 
41,288,403 
Amendment Flag
false 
 
Entity Central Index Key
0000934648 
 
Entity Current Reporting Status
Yes 
 
Entity Voluntary Filers
No 
 
Entity Filer Category
Accelerated Filer 
 
Entity Well-known Seasoned Issuer
No 
 
Document Period End Date
Jun. 30, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Current Assets:
 
 
Cash and cash equivalents
$ 98,096 
$ 110,046 
Accounts and notes receivable, net
51,324 
34,855 
Prepaid and refundable income taxes
7,645 
8,306 
Inventories, net
9,021 
8,350 
Prepaid expenses
3,755 
3,881 
Deferred income taxes
7,979 
23,786 
Total Current Assets
177,820 
189,224 
Notes and Other Receivables
1,480 
1,555 
Other Assets
30,269 
30,714 
Property and Equipment, Net
1,040,059 
1,052,153 
Other Intangible Assets, Net (Note 4)
298,411 
394,941 
Goodwill (Note 4)
47,342 
49,680 
Total
1,595,381 
1,718,267 
Current Liabilities:
 
 
Current maturities of long-term debt
8,235 
7,070 
Accounts payable
26,400 
11,166 
Deferred race event and other income, net
66,363 
55,209 
Accrued interest
4,421 
7,055 
Accrued expenses and other current liabilities
24,792 
25,131 
Total Current Liabilities
130,211 
105,631 
Long-term Debt (Note 5)
340,625 
397,747 
Deferred Income, Net
5,377 
4,822 
Deferred Income Taxes
332,816 
371,903 
Other Liabilities
7,195 
7,019 
Total Liabilities
816,224 
887,122 
Stockholders’ Equity:
 
 
Common Stock, $.01 par value, shares authorized – 200,000,000, issued and outstanding – 41,298,000 in 2015 and 41,340,000 in 2014
457 
456 
Additional Paid-in Capital
253,111 
252,571 
Retained Earnings
622,594 
671,648 
Treasury Stock at cost, shares – 4,368,000 in 2015 and 4,216,000 in 2014
(97,005)
(93,530)
Total Stockholders’ Equity
779,157 
831,145 
Total
$ 1,595,381 
$ 1,718,267 
Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
Jun. 30, 2015
Dec. 31, 2014
Preferred stock par value (in Dollars per share)
$ 0.10 
$ 0.10 
Preferred stock, shares authorized
3,000,000 
3,000,000 
Preferred stock, shares issued
Common Stock, par value (in Dollars per share)
$ 0.01 
$ 0.01 
Common Stock, shares authorized
200,000,000 
200,000,000 
Common Stock, shares issued
41,298,000 
41,340,000 
Common Stock, shares outstanding
41,298,000 
41,340,000 
Treasury Stock at cost, shares
4,368,000 
4,216,000 
Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Revenues:
 
 
 
 
Admissions
$ 31,904 
$ 31,084 
$ 50,656 
$ 52,335 
Event related revenue
52,979 
52,965 
75,249 
76,972 
NASCAR broadcasting revenue
86,479 
84,049 
122,798 
115,746 
Other operating revenue
7,959 
7,779 
15,892 
15,366 
Total Revenues
179,321 
175,877 
264,595 
260,419 
Expenses and Other:
 
 
 
 
Direct expense of events
34,598 
33,498 
49,468 
49,692 
NASCAR event management fees
51,004 
49,453 
72,623 
69,176 
Other direct operating expense
5,254 
5,150 
10,092 
9,879 
General and administrative
25,453 
25,615 
48,544 
48,651 
Depreciation and amortization
13,375 
15,359 
26,710 
28,911 
Interest expense, net
3,593 
5,326 
9,850 
10,927 
Impairment of other intangible assets and goodwill (Note 4)
98,868 
 
98,868 
 
Loss on early debt redemption and refinancing (Note 5)
 
 
8,372 
 
Other expense (income), net
57 
(1,097)
(333)
(2,358)
Total Expenses and Other
232,202 
133,304 
324,194 
214,878 
(Loss) Income Before Income Taxes
(52,881)
42,573 
(59,599)
45,541 
Provision for Income Taxes
20,657 
(15,374)
22,976 
(16,475)
Net (Loss) Income
$ (32,224)
$ 27,199 
$ (36,623)
$ 29,066 
Basic (Loss) Earnings Per Share (Note 6) (in Dollars per share)
$ (0.78)
$ 0.66 
$ (0.89)
$ 0.70 
Weighted Average Shares Outstanding (in Shares)
41,313 
41,411 
41,326 
41,407 
Diluted (Loss) Earnings Per Share (Note 6) (in Dollars per share)
$ (0.78)
$ 0.66 
$ (0.89)
$ 0.70 
Weighted Average Shares Outstanding (in Shares)
41,346 
41,431 
41,361 
41,430 
Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Total
Balance at Dec. 31, 2014
$ 456,000 
$ 252,571,000 
$ 671,648,000 
$ (93,530,000)
$ 831,145,000 
Balance (in Shares) at Dec. 31, 2014
41,340,000 
 
 
 
 
Net loss
 
 
(36,623,000)
 
(36,623,000)
Share-based compensation, net of windfall tax benefits adjustment (Note 9)
1,000 
(55,000)
 
 
(54,000)
Share-based compensation, net of windfall tax benefits adjustment (Note 9) (in Shares)
72,000 
 
 
 
 
Exercise of stock options
 
595,000 
 
 
595,000 
Exercise of stock options (in Shares)
38,000 
 
 
 
 
Quarterly cash dividends of $0.15 per share of common stock
 
 
(12,431,000)
 
(12,431,000)
Repurchases of common stock
 
 
 
(3,475,000)
(3,475,000)
Repurchases of common stock (in Shares)
(152,000)
 
 
 
 
Balance at Jun. 30, 2015
$ 457,000 
$ 253,111,000 
$ 622,594,000 
$ (97,005,000)
$ 779,157,000 
Balance (in Shares) at Jun. 30, 2015
41,298,000 
 
 
 
 
Consolidated Statement of Stockholders' Equity (Unaudited) (Parentheticals)
3 Months Ended 6 Months Ended
Sep. 30, 2015
Jun. 30, 2015
Mar. 31, 2015
Jun. 30, 2015
Cash dividends, per share of common stock
$ 0.15 
$ 0.15 
$ 0.15 
$ 0.15 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Cash Flows from Operating Activities:
 
 
Net (loss) income
$ (36,623)
$ 29,066 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
Impairment of other intangible assets and goodwill
98,868 
 
Deferred loan cost amortization
893 
801 
Gain on insurance recovery and disposal of property and equipment
(489)
(2,346)
Interest expense accretion of debt discount and premium, net
(132)
(325)
Depreciation and amortization
26,710 
28,911 
Amortization of deferred income
(1,323)
(1,427)
Deferred income tax provision
(24,971)
16,470 
Share-based compensation
1,651 
1,309 
Changes in operating assets and liabilities:
 
 
Accounts and notes receivable
(16,469)
(22,842)
Prepaid, refundable and accrued income taxes
661 
(780)
Inventories
(671)
(869)
Prepaid expenses
126 
(424)
Accounts payable
6,394 
4,678 
Deferred race event and other income
11,773 
6,435 
Accrued interest
(2,634)
(3)
Accrued expenses and other liabilities
(241)
1,463 
Deferred income
1,399 
195 
Other assets and liabilities
73 
158 
Net Cash Provided By Operating Activities
64,995 
60,470 
Cash Flows from Financing Activities:
 
 
Borrowings under long-term debt
250,000 
 
Principal payments on long-term debt
(302,625)
(40,750)
Payment of debt refinancing costs
(3,818)
 
Dividend payments on common stock
(12,431)
(12,455)
Exercise of common stock options
595 
47 
Repurchases of common stock
(3,475)
(1,678)
Net Cash Used By Financing Activities
(71,754)
(54,836)
Cash Flows from Investing Activities:
 
 
Payments for capital expenditures
(13,097)
(14,219)
Proceeds from insurance recovery and sales of property and equipment
505 
1,397 
Repayment of notes and other receivables
75 
173 
Net Cash Used By Investing Activities
(12,517)
(12,649)
Net Decrease in Cash and Cash Equivalents
(19,276)
(7,015)
Change in cash collected for and payable to third party, cash not provided or used by operating activities (Note 2)
7,326 
5,036 
Cash and Cash Equivalents at Beginning of Period
110,046 
97,343 
Cash and Cash Equivalents at End of Period
98,096 
95,364 
Supplemental Cash Flow Information:
 
 
Cash paid for interest, net of amounts capitalized
12,808 
11,018 
Cash paid for income taxes
599 
553 
Supplemental Non-Cash Investing and Financing Activities Information:
 
 
Increase in accounts payable for capital expenditures
$ 1,514 
$ 1,362 
Note 1 - Description of Business
Nature of Operations [Text Block]

1. DESCRIPTION OF BUSINESS


Basis of Presentation The consolidated financial statements include the accounts of Speedway Motorsports, Inc. and all of its wholly-owned and operating subsidiaries: Atlanta Motor Speedway LLC (AMS), Bristol Motor Speedway LLC (BMS), Charlotte Motor Speedway LLC (CMS), Kentucky Raceway LLC d/b/a Kentucky Speedway (KyS), Nevada Speedway LLC d/b/a Las Vegas Motor Speedway (LVMS), New Hampshire Motor Speedway, Inc. (NHMS), North Wilkesboro Speedway, Inc. (NWS), Speedway Sonoma LLC (Sonoma Raceway or SR), Texas Motor Speedway, Inc. (TMS), SMISC Holdings, Inc. d/b/a SMI Properties (SMI Properties), US Legend Cars International, Inc. (Legend Cars), Oil-Chem Research Corporation (Oil-Chem), SMI Trackside LLC (SMI Trackside), Speedway Funding LLC, Speedway Motorsports International Limited (BVI) and consolidated foreign entity (SMIL), Speedway Properties Company LLC a/k/a Performance Racing Network (PRN), Speedway Media LLC a/k/a Racing Country USA (RCU), and TSI Management Company LLC d/b/a The Source International LLC (TSI) (collectively, the Company, SMI, we, our or us). Hereafter, references to “the Company’s” or “eight” speedways exclude NWS, which presently has no significant operations and assets consist primarily of real estate which has no significant fair value. See Notes 1 and 2 to the Consolidated Financial Statements in the Company’s 2014 Annual Report on Form 10-K (2014 Annual Report) for further description of its business operations, properties and scheduled events.


Racing Events In 2015, we plan to hold 24 major annual racing events sanctioned by the National Association for Stock Car Auto Racing, Inc. (NASCAR), including 13 Sprint Cup and 11 Xfinity Series racing events. We also plan to hold eight NASCAR Camping World Truck Series, three NASCAR K&N Pro Series, four NASCAR Whelen Modified Tour, two IndyCar Series, six major National Hot Rod Association (NHRA), one Automobile Racing Club of America (ARCA) and three World of Outlaws (WOO) racing events. In 2014, we held 24 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 11 Xfinity Series racing events. We also held seven NASCAR Camping World Truck Series, three NASCAR K&N Pro Series, four NASCAR Whelen Modified Tour, two IndyCar Series, six major NHRA, one ARCA and three WOO racing events.


Note 2 - Significant Accounting Policies and Other Disclosures
Significant Accounting Policies [Text Block]

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER DISCLOSURES


These unaudited consolidated financial statements should be read in conjunction with the Company's consolidated financial statements included in its 2014 Annual Report. In management's opinion, these unaudited consolidated financial statements contain all adjustments necessary for their fair presentation at interim periods in accordance with accounting principles generally accepted in the United States. All such adjustments are of a normal recurring nature unless otherwise noted. The results of operations for interim periods are not necessarily indicative of operating results that may be expected for the entire year due to the seasonal nature of the Company's motorsports business. See Note 2 to the Consolidated Financial Statements in our 2014 Annual Report for further discussion of significant accounting policies.


Quarterly Reporting The Company recognizes revenues and operating expenses for all events in the calendar quarter in which conducted. Changes in race schedules at the Company's speedways from time to time, including speedway acquisitions, can lessen the comparability of operating results between quarterly financial statements of successive years and increase or decrease the seasonal nature of its motorsports business. The more significant racing schedule changes for the three and six months ended June 30, 2015 as compared to 2014 include:  


 

AMS held one NASCAR Sprint Cup and one Xfinity Series racing event in the first quarter 2015 that were held in the third quarter 2014, and one NASCAR Camping World Truck Series racing event (same day as the Xfinity event) in the first quarter 2015 that was not held in 2014

 

BMS held one NASCAR Sprint Cup and one Xfinity Series racing event in the second quarter 2015 that were held in the first quarter 2014 (poor weather resulted in delays in starting and completing the Sprint Cup race)

 

CMS held one major NHRA racing event in the first quarter 2015 that was held in the second quarter 2014

 

KyS held one NASCAR Sprint Cup, one Xfinity and one Camping World Truck Series racing event in the second quarter 2014 that are being held in the third quarter 2015

 

LVMS held one major NHRA racing event in the second quarter 2015 that was held in the first quarter 2014


Income Taxes – The Company provides for income taxes at the end of each interim period based on management’s best estimate of the annual estimated effective income tax rate. Cumulative adjustments to the Company’s annual estimated effective income tax rate are recorded in the interim period in which a change in the annual estimated effective income tax rate is determined. See Notes 2 and 8 to the Consolidated Financial Statements in our 2014 Annual Report for additional information on our accounting for income taxes.


The effective income tax rate for the three and six months ended June 30, 2015 was 39.1% and 38.6%, and reflects an approximate 2% increase associated with the current period intangible asset and goodwill impairment charges and adjustments to certain deferred tax assets. The effective income tax rate for the three and six months ended June 30, 2014 was 36.1 % and 36.2%, including derecognition of accrued interest and penalties for estimated income tax liabilities of $397,000. In the three and six months ended June 30, 2015 and 2014, current income taxes payable of approximately $15.8 million and $21.4 million were reduced by utilization of current deferred income tax assets described below.


Income tax liabilities for unrecognized tax benefits approximate $885,000 as of June 30, 2015 and December 31, 2014, respectively, and are included in other noncurrent liabilities, all of which would favorably impact the Company’s effective tax rate if recognized. As of June 30, 2015 and December 31, 2014, management believes $386,000 of unrecognized tax benefits will be recognized within the next twelve months. Interest and penalties associated with unrecognized tax benefits of $7,000 and $14,000 were recognized in the three and six months ended June 30, 2015, and $483,000 were derecognized in the three and six months ended June 30, 2014. As of June 30, 2015 and December 31, 2014, the Company had $342,000 and $328,000 accrued for the payment of interest and penalties on uncertain tax positions, which is included in other noncurrent liabilities. The tax years that remain open to examination include 2006 through 2014 by the California Franchise Tax Board, and 2011 through 2014 by all other taxing jurisdictions to which the Company is subject.


Anticipated Income Tax Benefit From Equity Interest Abandonment – On January 31, 2014, the Company abandoned its interest and rights in Motorsports Authentics (former 50% owned merchandising equity investment joint venture) to focus management resources in areas that may be profitable and more productive. The Company’s carrying value of the investment was reduced to $0 through sizable impairment charges prior to 2010 and MA’s historical operating results. The Company recognized no concurrent tax benefits as valuation allowances were provided against associated deferred tax assets. As a result of abandonment, the Company recognized a material income tax benefit of $49.3 million at December 31, 2013 for the reversal of previously recorded valuation allowances under applicable accounting guidance, and intends to recognize tax losses reported on its 2014 income tax returns. Management believes there is or will be sufficient taxable income in carryback or carryforward periods under tax law for full utilization of these tax losses.


The Company believes it is more likely than not that its filing position would be sustained based on its technical merits upon examination with taxing authorities that have full knowledge of all relevant information. The Company reached this conclusion based on the use of outside legal counsel and other tax consultants and the potential to utilize tax losses. Under applicable accounting guidance, tax positions are measured at the largest amount of benefit that is greater than 50 percent likely (or more-likely-than not) of being ultimately realized. As such, the full anticipated tax benefit was recognized because the Company believes that partial sustaining of its tax position by taxing authorities would be an unlikely outcome given the nature of the position. The Company believes it will fully utilize the associated tax losses. Should the Company’s tax position not be fully sustained if examined, a valuation allowance would be required to reduce or eliminate the associated deferred tax assets and material acceleration of income taxes then currently payable could occur. Any differences between the final tax outcome and amounts recorded would affect the Company’s income tax provision in the period in which such determination was made.


Taxes Collected from Customers – The Company reports sales, admission and other taxes collected from customers on both a gross and net basis in operations. Such taxes reported on a gross basis for the three months ended June 30, 2015 and 2014 were $2,514,000 and $1,373,000, and for the six months ended June 30, 2015 and 2014 were $2,991,000 and $2,338,000.


Advertising Expenses – Event specific advertising costs are expensed when an associated event is held and included principally in direct expense of events. Non-event related advertising costs are expensed as incurred and included principally in other direct operating expense. Advertising expense amounted to $5,540,000 and $5,914,000 for the three months ended June 30, 2015 and 2014, and $7,823,000 and $8,354,000 for the six months ended June 30, 2015 and 2014. There were no deferred direct-response advertising costs at June 30, 2015 or December 31, 2014.


Fair Value of Financial Instruments The Company follows applicable authoritative guidance which requires that financial and non-financial assets and liabilities measured and reported on a fair value basis be classified, disclosed and categorized as further described below. Fair value estimates are based on relevant market information and single broker quoted market prices where available at a specific point in time, and changes in assumptions or market conditions could significantly affect estimates. The carrying values of cash and cash equivalents, accounts and notes receivable, certain other assets and accounts payable approximate fair value because of the short maturity of these financial instruments. Cash surrender values are carried at fair value based on binding broker quoted market prices. Notes and other receivables and bank revolving credit facility and term loan borrowings are variable interest rate financial instruments and, therefore, carrying values approximate fair value. The fixed rate senior notes payable are publicly traded and estimated fair values are based on single broker quoted market prices. Other long-term debt is non-interest bearing and discounted based on estimated current cost of borrowings and, therefore, carrying values approximate market value. There have been no changes or transfers between category levels or classes.


The following table presents estimated fair values and categorization levels of the Company’s financial instruments (in thousands):


             

June 30, 2015

   

December 31, 2014

 
   

Level

 

Class

 

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 

Assets

                                         

Cash and cash equivalents

    1  

R

  $ 98,096     $ 98,096     $ 110,046     $ 110,046  

Cash surrender values

    2  

NR

    8,450       8,450       8,177       8,177  
                                           

Liabilities

                                         

Floating rate revolving Credit Facility, including Term Loan

    2  

NR

    148,125       148,125       150,000       150,000  

5.125% Senior Notes Payable due 2023

    2  

NR

    200,000       200,500              

6.75% Senior Notes Payable previously due 2019 (Note 5)

    2  

NR

                253,372       257,500  

Other long-term debt

    2  

NR

    735       735       1,445       1,445  

Level 1:

Quoted market prices in active markets for identical assets or liabilities.

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:

Unobservable inputs that are not corroborated by market data.

Class R:

Measured at fair value on recurring basis, subsequent to initial recognition.

Class NR:

Measured at fair value on nonrecurring basis, subsequent to initial recognition.


Land Conservation Easement - SR granted a “Perpetual Conservation Easement” for approximately 230 acres of land (the Grant) in favor of the Golden State Land Conservancy, a California nonprofit corporation, in the second quarter 2015. The Grant is under a long-term conservation project for wetland and habitat protection and associated changes in land use permits anticipated since major facility renovation many years ago. While the Grant contains specified restrictions and limitations, no significant changes in present SR use or access associated with the granted easement or any associated effect on our financial statements are anticipated at this time.


Property and Equipment – In the second quarter 2014, the Company recorded accelerated depreciation on certain damaged BMS assets of $651,000 and certain retired NHMS assets of $1,131,000. NHMS removed approximately 7,000 low demand seats and is using the area for premium hospitality and advertising. Also in the second quarter 2014, the Company reflected a gain from involuntary conversion of certain TMS property, increasing property and equipment and other income, net by approximately $985,000.


TMS Oil and Gas Mineral Rights Lease Receipts – TMS, in conjunction with the Fort Worth Sports Authority, has an oil and gas mineral rights lease agreement and a joint exploration agreement with the FWSA, which among other things, provides the lessee various defined property access and right-of-ways, exclusive exploration and extraction rights, and non-interference by TMS as extraction infrastructure construction and operations commence. TMS is required to coordinate directly with the lessee on roadway and pipeline logistics to prevent interference of TMS or lessee activities, and monitor regulatory and other contract compliance. The long-term lease remains enforceable as long as drilling or extraction related activities continue or certain prices levels are met. Under the lease agreement, TMS received and recognized royalty payments of $879,000 and $402,000 in the three months ended June 30, 2015 and 2014, and $2,135,000 and $1,464,000 in the six months ended June 30, 2015 and 2014.


An initial lease agreement was extended and oil and gas extraction commenced in 2014, entitling TMS to stipulated stand-alone and shared royalties. The lessee expanded production capacity in 2014, including an increased number of extraction wells. At this time, while extraction activities continue, management is unable to determine possible ongoing volumes of production if any or for how long, or if stipulated natural gas price levels will be maintained or adequate. The lease agreement stipulates the sharing of production revenues, and requires TMS to spend a portion of shared royalties on TMS facility and road infrastructure improvements, up to specified amounts. Any future production revenues or royalties are subject to production levels and market prices that can fluctuate significantly and rapidly, as well as other factors outside of TMS’s control. As such, management is unable to determine the amounts if any, or timing, of possible future royalty payments to TMS. As of June 30, 2015 and December 31, 2014, there was no deferred income associated with the expired or extended agreements.


Quicksilver Resources, Inc. (Quicksilver), the company with whom TMS and FWSA contracted for the exploration and extraction of natural gas, filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on March 17, 2015. On April 15, 2015, the Bankruptcy Court entered a final order approving Quicksilver’s motion to continue operating in the ordinary course by honoring obligations under its oil and gas contracts (such as the contracts with TMS and the FWSA) in Quicksilver’s business judgment. As such, at this time, the Company anticipates that Quicksilver will continue to perform under the contracts for the foreseeable future.


Deferred Income, Other Arrangements In late 2013, BMS announced plans to host a collegiate football game in September 2016. Under the similar accounting policy for event revenues and expenses described above, the Company plans to continue to defer advance revenues and direct expenses pertaining to this event until held.


Consolidated Statements of Cash Flows At times, the Company collects and temporarily holds cash on behalf of its third-party food and beverage concessionaire which is not remitted until after period end and is presented separately from cash flows from operating activities on the Consolidated Statements of Cash Flows. There are no specific limitations, restrictions or other holding requirements for such cash.


Recently Issued Accounting Standards – The FASB issued Accounting Standards Update No. 2014-09 "Revenue from Contracts with Customers: Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40)” which enhances comparability and clarifies principles of revenue recognition. The guidance includes the core principle that entities recognize revenue to depict transfers of promised goods or services to customers in amounts that reflect the consideration entities expect to be entitled in exchange for those goods or services. The FASB has approved deferral of this update for one year, and such guidance will now be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted as of the original issuance date. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


The FASB issued Accounting Standards Update No. 2014-12 "Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” which requires performance targets that affect vesting and could be achieved after requisite service periods be treated as performance conditions and reflected in estimating grant-date fair values of awards. Compensation cost should be recognized in the periods when achieving performance targets becomes probable, and should represent the compensation cost attributable to periods for which requisite services have already been rendered. If achieving performance targets becomes probable before the end of the requisite service periods, any remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. Among other things, the guidance applies to entities that grant employees share-based payments in which award terms provide that performance targets that affect vesting could be achieved after the requisite service periods. The guidance is effective for annual periods and interim periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the guidance either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


The FASB issued Accounting Standards Update No. 2015-03 "Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” which requires that debt issuance costs related to debt liabilities be presented in the balance sheet as a direct deduction from the associated carrying amount, similar to debt discounts. The guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


The FASB issued Accounting Standards Update No. 2015-11 "Inventory – Simplifying the Measurement of Inventory (Topic 330)” which requires measuring inventory at the lower of cost and net realizable value based on estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation (changed from the previous guidance of lower of cost or market). This update also clarified various other inventory measurement and disclosure requirements. The update does not apply to inventory measured using the LIFO or retail inventory methods. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and should be applied prospectively. Early application is permitted. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


Note 3 - Inventories
Inventory Disclosure [Text Block]

3. INVENTORIES


Inventories, net consist of the following components (in thousands):


   

June 30,

   

December 31,

 
   

2015

   

2014

 

Finished race cars, parts and accessories

  $ 4,982     $ 5,186  

Souvenirs and apparel

    3,178       2,472  

Micro-lubricant® and other

    861       692  

Total

  $ 9,021     $ 8,350  

Note 4 - Goodwill and Other Intangible Assets
Goodwill and Intangible Assets Disclosure [Text Block]

4. GOODWILL AND OTHER INTANGIBLE ASSETS


Annual Assessment The Company evaluates goodwill and other intangible assets for possible impairment annually in the second quarter, or when events or circumstances indicate possible impairment may have occurred. See Notes 2 and 5 to the Consolidated Financial Statements in our 2014 Annual Report for additional information on the Company’s goodwill and other intangible assets and assessment methodology and evaluation. The inputs for measuring fair value are considered "Level 3" or unobservable inputs that are not corroborated by market data under applicable fair value authoritative guidance, as quoted market prices are not available. Management's latest annual assessment in the second quarter 2015 was based predominately on management's best estimate of future discounted operating cash flows and profitability attributable to such assets for all individual reporting units. Management also considered that the estimated market value for comparable NASCAR race event sanction and renewal agreements (the Company has agreements with NASCAR to annually conduct thirteen Sprint Cup, eleven Xfinity and eight Camping World Truck Series races as of the evaluation date), combined with the estimated fair value for all other Company net assets, exceeds its current market capitalization. Management also considered recent market trading ranges of price to earnings and sales multiples, cash flow and other traditional valuation methods, control premiums, and other market information related to the Company’s common stock from historical and forward-looking perspectives.


Impairment of Other Intangible Assets As previously reported in our 2014 Annual Report and first quarter 2015 Form 10-Q, our 2014 annual assessment found that the excess of estimated fair value over associated aggregate carrying values for material non-amortizable race date event sanctioning and renewal agreements associated with NHMS was relatively nominal, resulting in heightened sensitivity to management’s assumptions used in estimating future discounted cash flows and profitability and associated risk of failing impairment testing. Our 2015 annual assessment found the estimated fair value of each reporting unit and each indefinite-lived intangible asset substantially exceeded its associated carrying value except for those NHMS race date agreements. NHMS was acquired in 2008 largely before the severe economic recession, which has resulted in long-term operating challenges for many major sports. The 2015 evaluation reflects continuing lowered estimated future cash flows because the economic recovery has been slower and weaker than previous forecasts, and ongoing lower than anticipated revenues for various major racing events held at NHMS. The evaluation also reflects, similar to challenges faced by many major sports, reduced visibility on profit recovery due to factors such as changing demographics, evolving entertainment choices for fans and appealing “at-home viewing” experiences. As a result, the Company lowered its expectations for forcasted growth rates for certain revenues and profit recovery.  As such, a non-cash impairment charge of $96,530,000, before income tax benefits of $37,502,000, was reflected in the second quarter 2015 to reduce the race date intangible assets to estimated fair value.


Impairment of Goodwill – Our 2015 annual assessment indicated that goodwill associated with SMI Trackside, which conducts event souvenir merchandising at our and other third-party speedways, was impaired because of potentially unfavorable developments associated with NASCAR’s announced industry changes to the trackside merchandising business model. As such, a non-cash impairment charge of $2,338,000, before income tax benefits of $908,000, was reflected in the second quarter 2015 to reduce associated goodwill to an estimated fair value of $0.


These impairment charges are included in the Company's "motorsports event related" reporting segment (see Note 10). Management believes the methods used to determine fair value and evaluate impairment were appropriate, relevant, and represent methods customarily available and used for such purposes and are the best available estimate of fair value. Management also believes the Company’s operational and cash flow forecasts support its conclusions that no unrecognized impairment exists as of June 30, 2015. Different economic or industry conditions or assumptions, and changes in projected cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the impairment evaluation and the Company’s future financial condition or results of operations. The evaluations are subjective and based on conditions, trends and assumptions existing at the time of evaluation.


Other Information - At June 30, 2015, the carrying amounts for goodwill and other intangible assets include accumulated impairments of $148.6 million and $99.8 million, respectively. The gross carrying values and accumulated amortization by class of intangible asset are as follows (dollars in thousands):


   

June 30, 2015

   

December 31, 2014

         
   

Gross

Carrying

Value

    Accumulated Amortization     Net    

Gross

Carrying

Value

   

Accumulated

Amortization

    Net    

Estimated

Amortization

Period (Years)

 

Nonamortizable race event sanctioning and renewal agreements

  $ 298,383           $ 298,383     $ 394,913           $ 394,913        

Amortizable race event sanctioning and renewal agreements

    100     $ (72

)

    28       100     $ (72

)

    28       5-6  

Total

  $ 298,483     $ (72

)

  $ 298,411     $ 395,013     $ (72

)

  $ 394,941          

Changes in the gross carrying value of other intangible assets and goodwill during the six months ended June 30, 2015 are as follows (in thousands):


   

Other

Intangible

Assets

   

Goodwill

 

Balance, beginning of period

  $ 395,013     $ 49,680  

Increase from acquisitions

       

Decrease from impairment charges

    (96,530 )     (2,338 )

Balance, end of period

  $ 298,483     $ 47,342  

Note 5 - Long-term Debt
Long-term Debt [Text Block]

5. LONG-TERM DEBT


Bank Credit Facility The Company’s Credit Facility, as amended in December 2014, (the Credit Facility) among other things: (i) provides for a five-year $100,000,000 senior secured revolving credit facility, with separate sub-limits of $50,000,000 for standby letters of credit and $10,000,000 for swing line loans; (ii) provides for a five-year $150,000,000 senior secured term loan (which was fully drawn in December 2014) and a five-year delayed draw term loan of up to $50,000,000 (which was fully drawn in March 2015 and repaid in the second quarter 2015) (the Term Loan or Term Loans); (iii) matures in December 2019; (iv) contains an accordion feature allowing the Company to increase revolving commitments or establish a term loan up to an aggregate additional $100,000,000 or $200,000,000, respectively (or a combined aggregate additional amount of up to $250,000,000) with certain lender commitment conditions; (v) allows for annual aggregate payments of dividends and repurchases of SMI securities of up to $50,000,000, increasing up to $75,000,000 subject to maintaining certain financial covenants; and (vi) limits annual capital expenditures to $75,000,000 and provides for motor speedway acquisitions and related businesses. Term Loans require equal minimum quarterly principal payments of at least 5% of initial amounts drawn on an annualized basis (or $10,000,000 each twelve-month period based on initial draws of $200,000,000).


Interest is based, at the Company’s option, upon the Eurodollar Rate plus 1.25% to 2.00% or a base rate defined as the higher of Bank of America’s prime rate, the Federal Funds Rate plus 0.5% or the Eurodollar Rate plus 1%, plus 0.25% to 1.00%. The Credit Facility also contains a commitment fee ranging from 0.25% to 0.40% of unused amounts available for borrowing. The interest rate margins on borrowings and the commitment fee are adjustable periodically based upon certain consolidated total leverage ratios. The Credit Facility contains a number of affirmative and negative financial covenants, including requirements that the Company maintain certain consolidated total leverage ratios and consolidated interest coverage ratios.


During the first quarter 2015, the Company borrowed $50,000,000 under the Term Loan (for partial funding of the 2019 Senior Notes redemption as further described below). The Company repaid Term Loan borrowings of $51,875,000 during the three and six months ended June 30, 2015, and $30,000,000 and $40,000,000 during the three and six months ended June 30, 2014. At June 30, 2015 and December 31, 2014, outstanding borrowings under the Credit Facility were $148,125,000 and $150,000,000 (all Term Loan borrowings), and outstanding letters of credit amounted to $1,150,000 and $1,152,000. As of June 30, 2015, the Company had availability for borrowing up to an additional $98,850,000, including up to an additional $48,850,000 in letters of credit, under the revolving Credit Facility.


2015 Issuance of New Senior Notes – In January 2015, the Company completed a private placement of new 5.125% Senior Notes due 2023 in aggregate principal amount of $200,000,000 (the 2023 Senior Notes), issued at par value and net proceeds after commissions and fees approximated $196,816,000. The Company used net offering proceeds, Term Loan borrowings under the Credit Facility and cash on hand to fund the redemption of the Company’s 6.75% Senior Notes due in 2019 (the 2019 Senior Notes) in March 2015 as further described below. The Company completed an exchange offer for substantially identical 2023 Senior Notes registered under the Securities Act in the second quarter 2015. The 2023 Senior Notes mature in February 2023 and interest payments are due semi-annually on February 1 and August 1, commencing August 1, 2015.


The Company may redeem some or all of the 2023 Senior Notes at annually declining redemption premiums ranging from 103.844% of par in fiscal years beginning February 1, 2018 to par after February 1, 2021, and up to 35% of the 2023 Senior Notes before February 1, 2018 with proceeds from certain equity offerings at a redemption premium of 105.125% of par. The Company may also redeem some or all of the 2023 Senior Notes before February 1, 2018 at par plus a "make-whole" premium. In the event of a change of control, the Company must offer to repurchase the 2023 Senior Notes at 101% of par value. The 2023 Senior Notes rank equally in right of payment with all other Company existing and future unsubordinated debt, are senior in right of payment to any future subordinated debt and are effectively subordinated to all existing and future secured debt, including the Credit Facility. The Indenture governing the 2023 Senior Notes permits dividend payments each year of up to approximately $0.80 per share of common stock, increasable subject to meeting certain financial covenants. The 2023 Senior Notes contain specific requirements and restrictive financial covenants and limitations, guarantees and cross-default provisions generally similar to those of the 2019 Senior Notes.


2015 Early Redemption of 2019 Senior Notes Effective March 13, 2015, the Company redeemed all outstanding 2019 Senior Notes in aggregate principal of $250,000,000 at 103.375% of par plus accrued interest. The notes were scheduled to mature in February 2019, with interest payments due February 1 and August 1, and had unamortized issuance premium of $3,372,000 at December 31, 2014. Net proceeds of the new 2023 Senior Notes, $50,000,000 of delayed draw Term Loan borrowings under the Credit Facility and cash on hand were used to fund the redemption, including redemption premium and transaction costs. The Company recognized a first quarter 2015 charge to earnings of $8,372,000, before income taxes of approximately $3,106,000, for associated redemption premium, unamortized net deferred loan costs of $3,134,000 and transaction costs, net of issuance premium of $3,200,000.


Other Notes Payable – Long-term debt includes a non-interest bearing debt obligation, payable in 60 monthly installments of $125,000 through December 2015, associated with the Company's acquisition of KyS. As of June 30, 2015 and December 31, 2014, the carrying values of $735,000 and $1,445,000 reflect discounts of $15,000 and $55,000, respectively, based on an effective interest rate of 7%.


Other Terms and Conditions – The Credit Facility and 2023 Senior Notes contain specific requirements and restrictive financial covenants and limits or prohibits various financial and transactional activities, and also contain cross-default provisions. The Company was in compliance with all applicable covenants under these debt agreements as of June 30, 2015. See Note 6 to the Consolidated Financial Statements included in the Company’s 2014 Annual Report for additional information on these debt agreements, including dividend, redemption, and right of payment provisions, pledged security and financial and restrictive covenants.


Subsidiary GuaranteesAmounts outstanding under the Credit Facility and 2023 Senior Notes are guaranteed by all of SMI’s material operative subsidiaries except for Oil-Chem and its subsidiaries (which are presently minor). These guarantees are full and unconditional and joint and several, with the 2023 Senior Notes on a senior unsecured basis. The parent company has no independent assets or operations. There are no restrictions on the subsidiaries’ ability to pay dividends or advance funds to the parent company.


Interest Expense, Net Interest expense, interest income and capitalized interest costs are summarized as follows (in thousands):


   

Three Months Ended

   

Six Months Ended

 
   

June 30:

   

June 30:

 
      2015       2014       2015       2014  

Gross interest costs

  $ 3,945     $ 5,483     $ 10,310     $ 11,214  

Less: capitalized interest costs

    (75

)

    (114

)

    (136

)

    (199

)

Interest expense

    3,870       5,369       10,174       11,015  

Interest income

    (277

)

    (43

)

    (324

)

    (88

)

Interest expense, net

  $ 3,593     $ 5,326     $ 9,850     $ 10,927  

Weighted-average interest rate on Credit Facility borrowings

    1.9

%

    2.2

%

    1.9

%

    2.2

%


During the first quarter 2015, the Company incurred net interest expense of $1,688,000 on the former 2019 Senior Notes between January 27, 2015 (issuance date of the new 2023 Senior Notes) and March 13, 2015 (redemption date of the 2019 Senior Notes). The new notes were issued before redemption of the former notes because of a favorable interest rate environment and required notice of redemption to 2019 Senior Note holders by the Company.


Note 6 - Per Share Data and Other Equity Information
Stockholders Equity And Earnings Per Share [Text Block]

6. PER SHARE AND OTHER EQUITY INFORMATION 


The following schedule reconciles basic and diluted income (loss) per share (where computations are anti-dilutive, reported basic and diluted per share amounts are the same) (in thousands except per share amounts):


   

Three Months Ended

   

Six Months Ended

 
   

June 30:

   

June 30:

 
      2015       2014       2015       2014  

(Loss) income applicable to common stockholders and assumed conversions

  $ (32,224

)

  $ 27,199     $ (36,623

)

  $ 29,066  
                                 

Weighted average common shares outstanding

    41,313       41,411       41,326       41,407  

Dilution effect of assumed conversions:

                               

Common stock equivalents—stock awards

    33       20       35       23  

Weighted average common shares outstanding and assumed conversions

    41,346       41,431       41,361       41,430  
                                 
                                 

Basic (loss) earnings per share

  $ (0.78

)

  $ 0.66     $ (0.89

)

  $ 0.70  

Diluted (loss) earnings per share

  $ (0.78

)

  $ 0.66     $ (0.89

)

  $ 0.70  

Anti-dilutive common stock equivalents excluded in computing diluted (loss) earnings per share

    171       643       167       612  

Stock Repurchase ProgramThe Company’s Board of Directors has approved a stock repurchase program authorizing SMI to repurchase up to an aggregate of 5,000,000 shares of the Company’s outstanding common stock from time to time, depending on market conditions, share price, applicable limitations under the Company’s debt agreements (see Note 5), and other factors the Board of Directors or its designees, in their sole discretion, may consider relevant. The purchases can be in the open market or private transactions. The stock repurchase program is presently funded using available cash and cash equivalents and may be suspended or discontinued at any time. During the three and six months ended June 30, 2015, the Company repurchased 63,000 and 124,000 shares of common stock for $1,452,000 and $2,832,000. As of June 30, 2015, the Company could repurchase up to an additional 822,000 shares under the current authorization. During the six months ended June 30, 2015, the Company repurchased approximately 28,000 shares of common stock for $643,000 from management employees to settle income taxes on 60,000 restricted shares that vested during the period. As of and through June 30, 2015, treasury stock includes 190,000 shares of common stock delivered to the Company for such purposes.


Declaration of Cash Dividends To date in 2015, the Company’s Board of Directors has approved the following quarterly cash dividends on common stock, which are being paid using available cash and cash equivalents on hand (in thousands except per share amounts):


Declaration date

 

February 11, 2015

   

April 15, 2015

   

July 15, 2015

 

Record date

 

March 2, 2015

   

May 15, 2015

   

August 14, 2015

 

Paid or payable to shareholders

 

March 13, 2015

   

June 5, 2015

   

September 4, 2015

 

Aggregate quarterly cash dividend

  $ 6,233     $ 6,198    

Approximately $6,200

 

Dividend per common share

  $ 0.15     $ 0.15     $ 0.15  

Note 9 - Stock Compensation Plans
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

9. STOCK COMPENSATION PLANS   


2013 Stock Incentive Plan – The 2013 Stock Incentive Plan (the 2013 Plan) allows the Company, among other things, to continue to provide equity-based incentives to, and continue to attract and retain, key employees, directors and other individuals providing services to the Company. Awards under the 2013 Plan may be in the form of incentive stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, restricted stock units or stock awards. To date, the Company has awarded restricted stock and restricted stock units under the 2013 Plan.


The Compensation Committee of the Company’s Board of Directors approved grants of 35,000 restricted stock units to the Company’s Chief Executive Officer and President (former Chief Operating Officer until February 2015) and 35,000 shares of restricted stock to the Company’s Vice Chairman and Chief Financial Officer in each of the six months ended June 30, 2015 and 2014. These grants are to be settled in shares of common stock, vest in equal installments over three years and are subject to reaching certain defined full year earnings targets established at the beginning of each year by the Compensation Committee. An additional 65,000 restricted stock units were granted to the Company’s Chief Executive Officer and President in the six months ended June 30, 2015 under the same conditions as described above except with a vesting period of five years. Forfeitures in any given year result from differences between the Company’s actual results for the previous year as compared to the defined full year earnings target.


The following is a summary of restricted stock and restricted stock units granted, vested and forfeited under the Incentive Compensation Plan for the indicated periods (shares in thousands):


   

Six Months Ended June 30:

 
   

2015

   

2014

 
                         
   

Restricted Stock

   

Restricted

Stock

Units

   

Restricted Stock

   

Restricted

Stock

Units

 

Outstanding, beginning of period

    64       64       59       59  

Granted

    35       100       35       35  

Vested

    (29

)

    (29

)

    (27

)

    (27

)

Forfeited

    (3

)

    (3

)

    (3

)

    (3

)

Outstanding, end of period

    67       132       64       64  

In the six months ended June 30, 2015 and 2014, the Company repurchased 28,000 and 26,000 shares of common stock for $630,000 and $523,000 from executive management employees to settle income taxes on 58,000 and 54,000 shares that vested during the period, respectively. Also, the Company awarded 4,500 shares of restricted stock to a non-executive management employee during the six months ended June 30, 2014 under the 2013 Plan which vest in equal installments over three years. The Company repurchased approximately 500 shares of common stock for $13,000 from the employee during the six months ended June 30, 2015 to settle income taxes on 1,500 shares that vested during the period.


2008 Formula Restricted Stock Plan, Amended and Restated as of April 17, 2012 – The 2008 Formula Restricted Stock Plan (the 2008 Formula Plan) is for the benefit of the Company’s outside directors, and is scheduled to terminate in February 2018. Vesting is subject to continued service as a director through scheduled vesting dates. The Company awarded 3,204 shares of restricted stock to each of the Company’s four non-employee directors in April 2015. An aggregate of 16,112 shares granted to non-employee directors in April 2014 vested in April 2015, and 16,668 shares granted in April 2013 vested in April 2014. All restricted stock awards were granted and vested in accordance with plan provisions.


Share-Based Payments – The Company generally records share-based compensation cost for stock option, restricted stock and restricted stock unit awards on either the accelerated method using a graded vesting schedule or the straight-line method over the requisite service period, depending on the vesting schedule of the awards. The Company’s practice has been to issue new shares upon option exercise; however, repurchases of shares in the open market are permitted. There were no significant changes in the characteristics of restricted stock or restricted stock units granted in 2015 or 2014 as compared to prior grants and no modifications of the terms of any share-based payment arrangements. There were no significant changes in estimates, assumptions or valuation methods used to estimate the fair value of share-based payment awards. No stock options were granted under any of the Company’s stock compensation plans during the six months ended June 30, 2015 or 2014. A total of 38,000 and 3,000 stock options previously granted under the 2004 Stock Incentive Plan (which terminated in February 2014) (the 2004 Plan) were exercised in the six months ended June 30, 2015 and 2014, respectively, at an exercise price of $15.83.


Share-based compensation cost for the three months ended June 30, 2015 and 2014 totaled $855,000 and $670,000, before income taxes of $317,000 and $249,000, and for the six months ended June 30, 2015 and 2014 totaled $1,651,000 and $1,309,000, before income taxes of $613,000 and $486,000, respectively, and is included in general and administrative expense. There were no capitalized share-based compensation costs at June 30, 2015 or December 31, 2014. The Company’s consolidated financial statements for the six months ended June 30, 2015 reflect a reduction of additional paid-in capital of $1,705,000 and deferred tax assets of approximately $1,874,000 and an increase in income tax expense of $169,000 for windfall tax benefits associated with share-based compensation. Although the adjustment pertains to previous reporting periods, the Company believes the impact was not material to prior or current periods. As of June 30, 2015, there was approximately $4,645,000 of total unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the 2013 Plan, the 2004 Plan and the 2008 Formula Plan that is expected to be recognized over a weighted average period of 1.3 years. As of June 30, 2015, all stock options were vested and there was no unrecognized compensation cost related to stock options granted under any of the Company’s stock compensation plans.


See Note 11 to the Consolidated Financial Statements in our 2014 Annual Report for additional information and terms of the Company’s stock compensation plans.


Note 10 - Segment Disclosures
Segment Reporting Disclosure [Text Block]

10. SEGMENT DISCLOSURES


The Company’s operations are predominately comprised of promoting, marketing and sponsoring motorsports racing events, merchandising and other related activities conducted at its various major speedway facilities located in the United States. The Company’s business activities, including those of its subsidiaries, are further described in Notes 1 and 2 to the Consolidated Financial Statements in our 2014 Annual Report. The Company’s “motorsports event related” segment consists of revenues and expenses associated with all admissions, event related, NASCAR broadcasting and event motorsports merchandising activities. The segment includes motorsports related events and operations for all Company speedways, NASCAR broadcasting and ancillary media rights, PRN and RCU motorsports radio programming, and SMI Properties and SMI Trackside motorsports merchandising at Company and non-Company speedways. These operating segments have been aggregated into the motorsports related reporting segment as each share similar types and classes of customers, similar methods for providing or distributing motorsports related services, souvenirs and other merchandise, and other similar economic characteristics. The Company’s “all other” operations consist of SMIP subsidiary non-event motorsports and non-motorsports merchandising, Legend Cars non-event merchandising and sanctioning body activities, Oil-Chem micro-lubricant activities, TMS oil and gas mineral rights lease and related revenues, and office rentals at certain Company speedways. All segment information below pertains to continuing operations. 


Segment information as presented below comports with information the Company’s chief operating decision maker and management use and focus on when assessing segment performance and allocating resources. Segment operating income or loss excludes interest, taxes, other income or expense and specified non-recurring items, if any, and corporate general and administrative and depreciation costs are allocated to operating segments based on their respective revenues relative to consolidated revenues. The following tables present the Company’s segment information (in thousands):


   

Three Months Ended June 30:

 
    2015     2014  
   

Motorsports

Event

Related

   

All

Other

    Consolidated    

Motorsports

Event

Related

   

All

Other

    Consolidated  

Revenues

  $ 176,047     $ 3,274     $ 179,321     $ 171,037     $ 4,840     $ 175,877  

Depreciation and amortization

    13,336       39       13,375       15,312       47       15,359  

Impairment of other intangible assets and goodwill (Note 4)

    98,868           98,868              

Segment operating (loss) income

    (48,573

)

    (658

)

    (49,231

)

    45,912       890       46,802  
Capital expenditures     -       -       -       -       -       -  

   

Six Months Ended June 30:

 
   

2015

   

2014

 
   

Motorsports

Event

Related

   

All

Other

   

Consolidated

   

Motorsports

Event

Related

   

All

Other

   

Consolidated

 

Revenues

  $ 255,547     $ 9,048     $ 264,595     $ 251,141     $ 9,278     $ 260,419  

Depreciation and amortization

    26,626       84       26,710       28,814       97       28,911  

Impairment of other intangible assets and goodwill (Note 4)

    98,868           98,868              

Segment operating (loss) income

    (42,928

)

    1,218       (41,710

)

    52,927       1,183       54,110  

Capital expenditures

    13,066       31       13,097       14,187       32       14,219  

   

June 30, 2015

   

December 31, 2014

 

Other intangibles

  $ 298,411    

 

    $ 298,411     $ 394,941    

 

    $ 394,941  

Goodwill

    47,342    

 

      47,342       49,680    

 

      49,680  

Total assets

    1,570,512     $ 24,869       1,595,381       1,694,103     $ 24,164       1,718,267  

The following table reconciles segment operating income or loss above to consolidated income or loss before income taxes for the periods indicated (in thousands):


   

Three Months Ended

   

Six Months Ended

 
   

June 30:

   

June 30:

 
   

2015

   

2014

   

2015

   

2014

 

Total segment operating (loss) income

  $ (49,231

)

  $ 46,802     $ (41,710

)

  $ 54,110  

Adjusted for:

                               

Interest expense, net

    (3,593

)

    (5,326

)

    (9,850

)

    (10,927

)

Loss on early debt redemption and refinancing (Note 5)

 

 

   

 

      (8,372

)

 

 

 

Other income (expense), net

    (57

)

    1,097       333       2,358  

Consolidated (loss) income before income taxes

  $ (52,881

)

  $ 42,573     $ (59,599

)

  $ 45,541  

Accounting Policies, by Policy (Policies)

Quarterly Reporting The Company recognizes revenues and operating expenses for all events in the calendar quarter in which conducted. Changes in race schedules at the Company's speedways from time to time, including speedway acquisitions, can lessen the comparability of operating results between quarterly financial statements of successive years and increase or decrease the seasonal nature of its motorsports business. The more significant racing schedule changes for the three and six months ended June 30, 2015 as compared to 2014 include:  


 

AMS held one NASCAR Sprint Cup and one Xfinity Series racing event in the first quarter 2015 that were held in the third quarter 2014, and one NASCAR Camping World Truck Series racing event (same day as the Xfinity event) in the first quarter 2015 that was not held in 2014

 

BMS held one NASCAR Sprint Cup and one Xfinity Series racing event in the second quarter 2015 that were held in the first quarter 2014 (poor weather resulted in delays in starting and completing the Sprint Cup race)

 

CMS held one major NHRA racing event in the first quarter 2015 that was held in the second quarter 2014

 

KyS held one NASCAR Sprint Cup, one Xfinity and one Camping World Truck Series racing event in the second quarter 2014 that are being held in the third quarter 2015

 

LVMS held one major NHRA racing event in the second quarter 2015 that was held in the first quarter 2014

Income Taxes – The Company provides for income taxes at the end of each interim period based on management’s best estimate of the annual estimated effective income tax rate. Cumulative adjustments to the Company’s annual estimated effective income tax rate are recorded in the interim period in which a change in the annual estimated effective income tax rate is determined. See Notes 2 and 8 to the Consolidated Financial Statements in our 2014 Annual Report for additional information on our accounting for income taxes.


The effective income tax rate for the three and six months ended June 30, 2015 was 39.1% and 38.6%, and reflects an approximate 2% increase associated with the current period intangible asset and goodwill impairment charges and adjustments to certain deferred tax assets. The effective income tax rate for the three and six months ended June 30, 2014 was 36.1 % and 36.2%, including derecognition of accrued interest and penalties for estimated income tax liabilities of $397,000. In the three and six months ended June 30, 2015 and 2014, current income taxes payable of approximately $15.8 million and $21.4 million were reduced by utilization of current deferred income tax assets described below.


Income tax liabilities for unrecognized tax benefits approximate $885,000 as of June 30, 2015 and December 31, 2014, respectively, and are included in other noncurrent liabilities, all of which would favorably impact the Company’s effective tax rate if recognized. As of June 30, 2015 and December 31, 2014, management believes $386,000 of unrecognized tax benefits will be recognized within the next twelve months. Interest and penalties associated with unrecognized tax benefits of $7,000 and $14,000 were recognized in the three and six months ended June 30, 2015, and $483,000 were derecognized in the three and six months ended June 30, 2014. As of June 30, 2015 and December 31, 2014, the Company had $342,000 and $328,000 accrued for the payment of interest and penalties on uncertain tax positions, which is included in other noncurrent liabilities. The tax years that remain open to examination include 2006 through 2014 by the California Franchise Tax Board, and 2011 through 2014 by all other taxing jurisdictions to which the Company is subject.


Anticipated Income Tax Benefit From Equity Interest Abandonment – On January 31, 2014, the Company abandoned its interest and rights in Motorsports Authentics (former 50% owned merchandising equity investment joint venture) to focus management resources in areas that may be profitable and more productive. The Company’s carrying value of the investment was reduced to $0 through sizable impairment charges prior to 2010 and MA’s historical operating results. The Company recognized no concurrent tax benefits as valuation allowances were provided against associated deferred tax assets. As a result of abandonment, the Company recognized a material income tax benefit of $49.3 million at December 31, 2013 for the reversal of previously recorded valuation allowances under applicable accounting guidance, and intends to recognize tax losses reported on its 2014 income tax returns. Management believes there is or will be sufficient taxable income in carryback or carryforward periods under tax law for full utilization of these tax losses.


The Company believes it is more likely than not that its filing position would be sustained based on its technical merits upon examination with taxing authorities that have full knowledge of all relevant information. The Company reached this conclusion based on the use of outside legal counsel and other tax consultants and the potential to utilize tax losses. Under applicable accounting guidance, tax positions are measured at the largest amount of benefit that is greater than 50 percent likely (or more-likely-than not) of being ultimately realized. As such, the full anticipated tax benefit was recognized because the Company believes that partial sustaining of its tax position by taxing authorities would be an unlikely outcome given the nature of the position. The Company believes it will fully utilize the associated tax losses. Should the Company’s tax position not be fully sustained if examined, a valuation allowance would be required to reduce or eliminate the associated deferred tax assets and material acceleration of income taxes then currently payable could occur. Any differences between the final tax outcome and amounts recorded would affect the Company’s income tax provision in the period in which such determination was made.

Taxes Collected from Customers – The Company reports sales, admission and other taxes collected from customers on both a gross and net basis in operations. Such taxes reported on a gross basis for the three months ended June 30, 2015 and 2014 were $2,514,000 and $1,373,000, and for the six months ended June 30, 2015 and 2014 were $2,991,000 and $2,338,000.

Advertising Expenses – Event specific advertising costs are expensed when an associated event is held and included principally in direct expense of events. Non-event related advertising costs are expensed as incurred and included principally in other direct operating expense. Advertising expense amounted to $5,540,000 and $5,914,000 for the three months ended June 30, 2015 and 2014, and $7,823,000 and $8,354,000 for the six months ended June 30, 2015 and 2014. There were no deferred direct-response advertising costs at June 30, 2015 or December 31, 2014.

Fair Value of Financial Instruments The Company follows applicable authoritative guidance which requires that financial and non-financial assets and liabilities measured and reported on a fair value basis be classified, disclosed and categorized as further described below. Fair value estimates are based on relevant market information and single broker quoted market prices where available at a specific point in time, and changes in assumptions or market conditions could significantly affect estimates. The carrying values of cash and cash equivalents, accounts and notes receivable, certain other assets and accounts payable approximate fair value because of the short maturity of these financial instruments. Cash surrender values are carried at fair value based on binding broker quoted market prices. Notes and other receivables and bank revolving credit facility and term loan borrowings are variable interest rate financial instruments and, therefore, carrying values approximate fair value. The fixed rate senior notes payable are publicly traded and estimated fair values are based on single broker quoted market prices. Other long-term debt is non-interest bearing and discounted based on estimated current cost of borrowings and, therefore, carrying values approximate market value. There have been no changes or transfers between category levels or classes.


The following table presents estimated fair values and categorization levels of the Company’s financial instruments (in thousands):


             

June 30, 2015

   

December 31, 2014

 
   

Level

 

Class

 

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 

Assets

                                         

Cash and cash equivalents

    1  

R

  $ 98,096     $ 98,096     $ 110,046     $ 110,046  

Cash surrender values

    2  

NR

    8,450       8,450       8,177       8,177  
                                           

Liabilities

                                         

Floating rate revolving Credit Facility, including Term Loan

    2  

NR

    148,125       148,125       150,000       150,000  

5.125% Senior Notes Payable due 2023

    2  

NR

    200,000       200,500              

6.75% Senior Notes Payable previously due 2019 (Note 5)

    2  

NR

                253,372       257,500  

Other long-term debt

    2  

NR

    735       735       1,445       1,445  

Level 1:

Quoted market prices in active markets for identical assets or liabilities.

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:

Unobservable inputs that are not corroborated by market data.

Class R:

Measured at fair value on recurring basis, subsequent to initial recognition.

Land Conservation Easement - SR granted a “Perpetual Conservation Easement” for approximately 230 acres of land (the Grant) in favor of the Golden State Land Conservancy, a California nonprofit corporation, in the second quarter 2015. The Grant is under a long-term conservation project for wetland and habitat protection and associated changes in land use permits anticipated since major facility renovation many years ago. While the Grant contains specified restrictions and limitations, no significant changes in present SR use or access associated with the granted easement or any associated effect on our financial statements are anticipated at this time.

Property and Equipment – In the second quarter 2014, the Company recorded accelerated depreciation on certain damaged BMS assets of $651,000 and certain retired NHMS assets of $1,131,000. NHMS removed approximately 7,000 low demand seats and is using the area for premium hospitality and advertising. Also in the second quarter 2014, the Company reflected a gain from involuntary conversion of certain TMS property, increasing property and equipment and other income, net by approximately $985,000.

TMS Oil and Gas Mineral Rights Lease Receipts – TMS, in conjunction with the Fort Worth Sports Authority, has an oil and gas mineral rights lease agreement and a joint exploration agreement with the FWSA, which among other things, provides the lessee various defined property access and right-of-ways, exclusive exploration and extraction rights, and non-interference by TMS as extraction infrastructure construction and operations commence. TMS is required to coordinate directly with the lessee on roadway and pipeline logistics to prevent interference of TMS or lessee activities, and monitor regulatory and other contract compliance. The long-term lease remains enforceable as long as drilling or extraction related activities continue or certain prices levels are met. Under the lease agreement, TMS received and recognized royalty payments of $879,000 and $402,000 in the three months ended June 30, 2015 and 2014, and $2,135,000 and $1,464,000 in the six months ended June 30, 2015 and 2014.


An initial lease agreement was extended and oil and gas extraction commenced in 2014, entitling TMS to stipulated stand-alone and shared royalties. The lessee expanded production capacity in 2014, including an increased number of extraction wells. At this time, while extraction activities continue, management is unable to determine possible ongoing volumes of production if any or for how long, or if stipulated natural gas price levels will be maintained or adequate. The lease agreement stipulates the sharing of production revenues, and requires TMS to spend a portion of shared royalties on TMS facility and road infrastructure improvements, up to specified amounts. Any future production revenues or royalties are subject to production levels and market prices that can fluctuate significantly and rapidly, as well as other factors outside of TMS’s control. As such, management is unable to determine the amounts if any, or timing, of possible future royalty payments to TMS. As of June 30, 2015 and December 31, 2014, there was no deferred income associated with the expired or extended agreements.


Quicksilver Resources, Inc. (Quicksilver), the company with whom TMS and FWSA contracted for the exploration and extraction of natural gas, filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on March 17, 2015. On April 15, 2015, the Bankruptcy Court entered a final order approving Quicksilver’s motion to continue operating in the ordinary course by honoring obligations under its oil and gas contracts (such as the contracts with TMS and the FWSA) in Quicksilver’s business judgment. As such, at this time, the Company anticipates that Quicksilver will continue to perform under the contracts for the foreseeable future.

Deferred Income, Other Arrangements In late 2013, BMS announced plans to host a collegiate football game in September 2016. Under the similar accounting policy for event revenues and expenses described above, the Company plans to continue to defer advance revenues and direct expenses pertaining to this event until held.

Consolidated Statements of Cash Flows At times, the Company collects and temporarily holds cash on behalf of its third-party food and beverage concessionaire which is not remitted until after period end and is presented separately from cash flows from operating activities on the Consolidated Statements of Cash Flows. There are no specific limitations, restrictions or other holding requirements for such cash.

Recently Issued Accounting Standards – The FASB issued Accounting Standards Update No. 2014-09 "Revenue from Contracts with Customers: Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40)” which enhances comparability and clarifies principles of revenue recognition. The guidance includes the core principle that entities recognize revenue to depict transfers of promised goods or services to customers in amounts that reflect the consideration entities expect to be entitled in exchange for those goods or services. The FASB has approved deferral of this update for one year, and such guidance will now be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted as of the original issuance date. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


The FASB issued Accounting Standards Update No. 2014-12 "Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” which requires performance targets that affect vesting and could be achieved after requisite service periods be treated as performance conditions and reflected in estimating grant-date fair values of awards. Compensation cost should be recognized in the periods when achieving performance targets becomes probable, and should represent the compensation cost attributable to periods for which requisite services have already been rendered. If achieving performance targets becomes probable before the end of the requisite service periods, any remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. Among other things, the guidance applies to entities that grant employees share-based payments in which award terms provide that performance targets that affect vesting could be achieved after the requisite service periods. The guidance is effective for annual periods and interim periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the guidance either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


The FASB issued Accounting Standards Update No. 2015-03 "Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” which requires that debt issuance costs related to debt liabilities be presented in the balance sheet as a direct deduction from the associated carrying amount, similar to debt discounts. The guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


The FASB issued Accounting Standards Update No. 2015-11 "Inventory – Simplifying the Measurement of Inventory (Topic 330)” which requires measuring inventory at the lower of cost and net realizable value based on estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation (changed from the previous guidance of lower of cost or market). This update also clarified various other inventory measurement and disclosure requirements. The update does not apply to inventory measured using the LIFO or retail inventory methods. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and should be applied prospectively. Early application is permitted. The Company is currently evaluating the potential impact that adoption may have on its financial statements.

Note 2 - Significant Accounting Policies and Other Disclosures (Tables)
Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]
             

June 30, 2015

   

December 31, 2014

 
   

Level

 

Class

 

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 

Assets

                                         

Cash and cash equivalents

    1  

R

  $ 98,096     $ 98,096     $ 110,046     $ 110,046  

Cash surrender values

    2  

NR

    8,450       8,450       8,177       8,177  
                                           

Liabilities

                                         

Floating rate revolving Credit Facility, including Term Loan

    2  

NR

    148,125       148,125       150,000       150,000  

5.125% Senior Notes Payable due 2023

    2  

NR

    200,000       200,500              

6.75% Senior Notes Payable previously due 2019 (Note 5)

    2  

NR

                253,372       257,500  

Other long-term debt

    2  

NR

    735       735       1,445       1,445  
Note 3 - Inventories (Tables)
Schedule of Inventory, Current [Table Text Block]
   

June 30,

   

December 31,

 
   

2015

   

2014

 

Finished race cars, parts and accessories

  $ 4,982     $ 5,186  

Souvenirs and apparel

    3,178       2,472  

Micro-lubricant® and other

    861       692  

Total

  $ 9,021     $ 8,350  
Note 4 - Goodwill and Other Intangible Assets (Tables)
   

June 30, 2015

   

December 31, 2014

         
   

Gross

Carrying

Value

    Accumulated Amortization     Net    

Gross

Carrying

Value

   

Accumulated

Amortization

    Net    

Estimated

Amortization

Period (Years)

 

Nonamortizable race event sanctioning and renewal agreements

  $ 298,383           $ 298,383     $ 394,913           $ 394,913        

Amortizable race event sanctioning and renewal agreements

    100     $ (72

)

    28       100     $ (72

)

    28       5-6  

Total

  $ 298,483     $ (72

)

  $ 298,411     $ 395,013     $ (72

)

  $ 394,941          
   

Other

Intangible

Assets

   

Goodwill

 

Balance, beginning of period

  $ 395,013     $ 49,680  

Increase from acquisitions

       

Decrease from impairment charges

    (96,530 )     (2,338 )

Balance, end of period

  $ 298,483     $ 47,342  
Note 5 - Long-term Debt (Tables)
Interest Income and Interest Expense Disclosure [Table Text Block]
   

Three Months Ended

   

Six Months Ended

 
   

June 30:

   

June 30:

 
      2015       2014       2015       2014  

Gross interest costs

  $ 3,945     $ 5,483     $ 10,310     $ 11,214  

Less: capitalized interest costs

    (75

)

    (114

)

    (136

)

    (199

)

Interest expense

    3,870       5,369       10,174       11,015  

Interest income

    (277

)

    (43

)

    (324

)

    (88

)

Interest expense, net

  $ 3,593     $ 5,326     $ 9,850     $ 10,927  

Weighted-average interest rate on Credit Facility borrowings

    1.9

%

    2.2

%

    1.9

%

    2.2

%

Note 6 - Per Share Data and Other Equity Information (Tables)
   

Three Months Ended

   

Six Months Ended

 
   

June 30:

   

June 30:

 
      2015       2014       2015       2014  

(Loss) income applicable to common stockholders and assumed conversions

  $ (32,224

)

  $ 27,199     $ (36,623

)

  $ 29,066  
                                 

Weighted average common shares outstanding

    41,313       41,411       41,326       41,407  

Dilution effect of assumed conversions:

                               

Common stock equivalents—stock awards

    33       20       35       23  

Weighted average common shares outstanding and assumed conversions

    41,346       41,431       41,361       41,430  
                                 
                                 

Basic (loss) earnings per share

  $ (0.78

)

  $ 0.66     $ (0.89

)

  $ 0.70  

Diluted (loss) earnings per share

  $ (0.78

)

  $ 0.66     $ (0.89

)

  $ 0.70  

Anti-dilutive common stock equivalents excluded in computing diluted (loss) earnings per share

    171       643       167       612  

Declaration date

 

February 11, 2015

   

April 15, 2015

   

July 15, 2015

 

Record date

 

March 2, 2015

   

May 15, 2015

   

August 14, 2015

 

Paid or payable to shareholders

 

March 13, 2015

   

June 5, 2015

   

September 4, 2015

 

Aggregate quarterly cash dividend

  $ 6,233     $ 6,198    

Approximately $6,200

 

Dividend per common share

  $ 0.15     $ 0.15     $ 0.15  
Note 9 - Stock Compensation Plans (Tables)
Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]
   

Six Months Ended June 30:

 
   

2015

   

2014

 
                         
   

Restricted Stock

   

Restricted

Stock

Units

   

Restricted Stock

   

Restricted

Stock

Units

 

Outstanding, beginning of period

    64       64       59       59  

Granted

    35       100       35       35  

Vested

    (29

)

    (29

)

    (27

)

    (27

)

Forfeited

    (3

)

    (3

)

    (3

)

    (3

)

Outstanding, end of period

    67       132       64       64  
Note 10 - Segment Disclosures (Tables)
   

Three Months Ended June 30:

 
    2015     2014  
   

Motorsports

Event

Related

   

All

Other

    Consolidated    

Motorsports

Event

Related

   

All

Other

    Consolidated  

Revenues

  $ 176,047     $ 3,274     $ 179,321     $ 171,037     $ 4,840     $ 175,877  

Depreciation and amortization

    13,336       39       13,375       15,312       47       15,359  

Impairment of other intangible assets and goodwill (Note 4)

    98,868           98,868              

Segment operating (loss) income

    (48,573

)

    (658

)

    (49,231

)

    45,912       890       46,802  
Capital expenditures     -       -       -       -       -       -  
   

Six Months Ended June 30:

 
   

2015

   

2014

 
   

Motorsports

Event

Related

   

All

Other

   

Consolidated

   

Motorsports

Event

Related

   

All

Other

   

Consolidated

 

Revenues

  $ 255,547     $ 9,048     $ 264,595     $ 251,141     $ 9,278     $ 260,419  

Depreciation and amortization

    26,626       84       26,710       28,814       97       28,911  

Impairment of other intangible assets and goodwill (Note 4)

    98,868           98,868              

Segment operating (loss) income

    (42,928

)

    1,218       (41,710

)

    52,927       1,183       54,110  

Capital expenditures

    13,066       31       13,097       14,187       32       14,219  
   

Three Months Ended

   

Six Months Ended

 
   

June 30:

   

June 30:

 
   

2015

   

2014

   

2015

   

2014

 

Total segment operating (loss) income

  $ (49,231

)

  $ 46,802     $ (41,710

)

  $ 54,110  

Adjusted for:

                               

Interest expense, net

    (3,593

)

    (5,326

)

    (9,850

)

    (10,927

)

Loss on early debt redemption and refinancing (Note 5)

 

 

   

 

      (8,372

)

 

 

 

Other income (expense), net

    (57