SPEEDWAY MOTORSPORTS INC, 10-Q filed on 8/3/2011
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2011
Aug. 2, 2011
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Jun. 30, 2011 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
TRK 
 
Entity Registrant Name
SPEEDWAY MOTORSPORTS INC 
 
Entity Central Index Key
0000934648 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
41,512,184 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
Current Assets:
 
 
Cash and cash equivalents
$ 90,376 
$ 92,200 
Short-term investments
975 
975 
Accounts and notes receivable, net
54,864 
42,509 
Prepaid income taxes
11,141 
11,431 
Inventories, net
10,363 
9,382 
Prepaid expenses
4,500 
4,317 
Deferred income taxes
291 
291 
Current assets of discontinued operation
 
2,150 
Total Current Assets
172,510 
163,255 
Notes and Other Receivables:
 
 
Affiliates
4,235 
4,412 
Other
4,468 
4,623 
Other Assets
30,377 
27,655 
Property and Equipment, Net
1,191,004 
1,169,281 
Other Intangible Assets, Net
394,966 
394,972 
Goodwill (Note 4)
138,717 
187,326 
Total
1,936,277 
1,951,524 
Current Liabilities:
 
 
Current maturities of long-term debt
2,459 
2,381 
Accounts payable
31,450 
14,182 
Deferred race event income, net
88,786 
67,084 
Accrued interest
6,266 
3,865 
Accrued expenses and other current liabilities
19,756 
19,619 
Total Current Liabilities
148,717 
107,131 
Long-term Debt
598,187 
626,316 
Payable to Affiliate
2,594 
2,594 
Deferred Income, Net
9,714 
6,587 
Deferred Income Taxes
345,278 
333,947 
Other Liabilities
4,692 
8,712 
Total Liabilities
1,109,182 
1,085,287 
Commitments and Contingencies (Notes 2, 5, 6, 8 and 11)
 
 
Stockholders' Equity:
 
 
Preferred Stock, $.10 par value, shares authorized - 3,000,000, no shares issued
 
 
Common Stock, $.01 par value, shares authorized - 200,000,000, issued and outstanding - 41,534,000 in 2011 and 41,621,000 in 2010
451 
450 
Additional Paid-in Capital
244,074 
243,132 
Retained Earnings
664,437 
702,558 
Accumulated Other Comprehensive Loss
(53)
(72)
Treasury stock at cost, shares - 3,530,000 in 2011 and 3,398,000 in 2010
(81,814)
(79,831)
Total Stockholders' Equity
827,095 
866,237 
Total
$ 1,936,277 
$ 1,951,524 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jun. 30, 2011
Dec. 31, 2010
Preferred Stock, par value
$ 0.10 
$ 0.10 
Preferred Stock, shares authorized
3,000,000 
3,000,000 
Preferred Stock, shares issued
Common Stock, par value
$ 0.01 
$ 0.01 
Common Stock, shares authorized
200,000,000 
200,000,000 
Common Stock, issued
41,534,000 
41,621,000 
Common Stock, outstanding
41,534,000 
41,621,000 
Treasury stock at cost, shares
3,530,000 
3,398,000 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Revenues:
 
 
 
 
Admissions
$ 31,282 
$ 41,115 
$ 55,858 
$ 78,241 
Event related revenue
51,904 
54,941 
78,529 
88,962 
NASCAR broadcasting revenue
62,401 
73,362 
90,827 
112,528 
Other operating revenue
7,492 
8,224 
14,540 
16,366 
Total Revenues
153,079 
177,642 
239,754 
296,097 
Expenses and Other:
 
 
 
 
Direct expense of events
28,948 
33,167 
44,500 
53,439 
NASCAR purse and sanction fees
37,684 
47,593 
55,977 
73,249 
Other direct operating expense
5,669 
6,516 
11,043 
12,657 
General and administrative
23,036 
23,664 
44,539 
45,491 
Depreciation and amortization
13,323 
13,689 
26,573 
27,336 
Interest expense, net
10,114 
13,027 
21,361 
26,575 
Impairment of goodwill (Note 4)
48,609 
 
48,609 
 
Loss on early debt redemption and refinancing
23 
 
7,456 
 
Other income, net
(12)
(507)
(32)
(387)
Total Expenses and Other
167,394 
137,149 
260,026 
238,360 
(Loss) Income from Continuing Operations Before Income Taxes
(14,315)
40,493 
(20,272)
57,737 
Provision for Income Taxes
(13,779)
(16,439)
(9,066)
(23,428)
(Loss) Income from Continuing Operations
(28,094)
24,054 
(29,338)
34,309 
Loss from Discontinued Operation, Net of Taxes (Note 11)
(179)
(1,034)
(453)
(2,311)
Net (Loss) Income
$ (28,273)
$ 23,020 
$ (29,791)
$ 31,998 
Basic (Loss) Earnings Per Share:
 
 
 
 
Continuing Operations
$ (0.68)
$ 0.57 
$ (0.71)
$ 0.81 
Discontinued Operation
 
$ (0.02)
$ (0.01)
$ (0.05)
Net (Loss) Income
$ (0.68)
$ 0.55 
$ (0.72)
$ 0.76 
Weighted Average Shares Outstanding
41,553 
42,026 
41,574 
42,106 
Diluted (Loss) Earnings Per Share:
 
 
 
 
Continuing Operations
$ (0.68)
$ 0.57 
$ (0.71)
$ 0.81 
Discontinued Operation
 
$ (0.02)
$ (0.01)
$ (0.05)
Net (Loss) Income
$ (0.68)
$ 0.55 
$ (0.72)
$ 0.76 
Weighted Average Shares Outstanding
41,553 
42,026 
41,574 
42,107 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS (USD $)
In Thousands
Total
Outstanding Common Stock
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock
Beginning Balance at Dec. 31, 2010
$ 866,237 
$ 450 
$ 243,132 
$ 702,558 
$ (72)
$ (79,831)
Beginning Balance (in shares) at Dec. 31, 2010
 
41,621 
 
 
 
 
Net loss
(29,791)
 
 
(29,791)
 
 
Change in net unrealized loss on marketable equity securities, net of tax
19 
 
 
 
19 
 
Comprehensive loss
(29,772)
 
 
 
 
 
Share-based compensation (in shares)
 
45 
 
 
 
 
Share-based compensation
943 
942 
 
 
 
Quarterly cash dividends of $0.10 per share of common stock
(8,330)
 
 
(8,330)
 
 
Repurchases of common stock at cost( in shares)
 
(132)
 
 
 
 
Repurchases of common stock at cost
(1,983)
 
 
 
 
(1,983)
Ending Balance at Jun. 30, 2011
$ 827,095 
$ 451 
$ 244,074 
$ 664,437 
$ (53)
$ (81,814)
Ending Balance (in shares) at Jun. 30, 2011
 
41,534 
 
 
 
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS (Parenthetical)
6 Months Ended
Jun. 30, 2011
Quarterly cash dividends, per share of common stock
$ 0.10 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
Cash Flows from Operating Activities:
 
 
Net (loss) income
$ (29,791)
$ 31,998 
Loss from discontinued operation, net of tax
453 
2,311 
Cash provided (used) by operating activities of discontinued operation
1,697 
(3,224)
Adjustments to reconcile income or loss from continuing operations to net cash provided by operating activities:
 
 
Impairment of goodwill
48,609 
 
Loss on early debt redemption and refinancing
7,456 
 
Deferred loan cost amortization
1,258 
1,934 
Interest expense accretion of debt discount
949 
 
Depreciation and amortization
26,573 
27,336 
Amortization of deferred income
(1,380)
(960)
Deferred income tax provision
11,331 
14,747 
Share-based compensation
943 
976 
Changes in operating assets and liabilities:
 
 
Accounts and notes receivable
(12,130)
(15,709)
Prepaid and accrued income taxes
290 
7,134 
Inventories
(981)
995 
Prepaid expenses
(183)
(248)
Accounts payable
7,099 
6,549 
Deferred race event income
20,632 
(3,918)
Accrued expenses and other liabilities
2,313 
2,022 
Deferred income
258 
188 
Other assets and liabilities
(4,105)
831 
Net Cash Provided By Operating Activities
81,291 
72,962 
Cash Flows from Financing Activities:
 
 
Borrowings under long-term debt
330,000 
 
Principal payments on long-term debt
(359,000)
(30,808)
Payment of debt redemption premium and debt issuance costs
(11,336)
 
Dividend payments on common stock
(8,330)
(8,424)
Repurchases of common stock
(1,983)
(5,752)
Net Cash Used By Financing Activities
(50,649)
(44,984)
Cash Flows from Investing Activities:
 
 
Payments for capital expenditures
(32,850)
(10,676)
Proceeds from sales of property and equipment
229 
 
Decrease in other non-current assets
 
1,500 
Repayment of notes and other receivables
155 
148 
Net Cash Used By Investing Activities
(32,466)
(9,028)
Net (Decrease) Increase In Cash and Cash Equivalents
(1,824)
18,950 
Cash and Cash Equivalents at Beginning of Period
92,200 
97,651 
Cash and Cash Equivalents at End of Period
90,376 
116,601 
Supplemental Cash Flow Information:
 
 
Cash paid for interest, net of amounts capitalized
19,127 
26,790 
Cash paid for income taxes
1,000 
1,390 
Supplemental Non-Cash Investing and Financing Activities Information:
 
 
Increase in accounts payable for capital expenditures
10,169 
1,461 
Increase in deferred income for exchange of property and equipment
$ 5,350 
 
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS

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 operated 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), Speedway Sonoma LLC a/k/a Infineon Raceway (IR), New Hampshire Motor Speedway, Inc. (NHMS), North Wilkesboro Speedway, Inc. (NWS), Texas Motor Speedway, Inc. (TMS), SMISC Holdings, Inc. d/b/a SMI Properties (SMI Properties), US Legend Cars International, Inc. (US Legend Cars), Oil-Chem Research Corp. (Oil-Chem), SMI Trackside LLC (SMI Trackside), Speedway Funding LLC, Speedway Motorsports International Limited (BVI) and consolidated foreign entities (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. All note disclosures pertain to continuing operations unless otherwise indicated. See Note 1 to the Consolidated Financial Statements in the Company’s 2010 Annual Report on Form 10-K for further description of its business operations, properties and scheduled events.

Racing Events—In 2011, the Company plans to hold 23 major annual racing events sanctioned by the National Association for Stock Car Auto Racing, Inc. (NASCAR), including 13 Sprint Cup and 10 Nationwide Series racing events. The Company also plans to hold nine NASCAR Camping World Truck Series racing events, four NASCAR K&N Pro Series racing events, five IndyCar Series (IndyCar) racing events, six major National Hot Rod Association (NHRA) racing events, one US Legend Cars international circuit, and three World of Outlaws (WOO) racing events. In 2010, the Company held 23 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 10 Nationwide Series racing events, eight NASCAR Camping World Truck Series, three NASCAR K&N Pro Series, three IndyCar, six major NHRA, one US Legend Cars international circuit, three WOO, and one ARCA Series racing event.

Discontinuation of Oil and Gas Activities (Note 11)—In the fourth quarter 2008, the Company decided to discontinue its oil and gas operations primarily because of ongoing challenges and business risks in conducting these activities in foreign countries, particularly Russia. Those operations are presented herein as discontinued operations and all note disclosures pertain to continuing operations unless otherwise indicated.

SIGNIFICANT ACCOUNTING POLICIES AND OTHER DISCLOSURES
SIGNIFICANT ACCOUNTING POLICIES AND OTHER DISCLOSURES

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 our 2010 Annual Report on Form 10-K (2010 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 2010 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 six months ended June 30, 2011 as compared to 2010 include:

 

 

AMS held one NASCAR Sprint Cup Series racing event in the first quarter 2010 that was realigned and held at KyS in the third quarter 2011

 

 

NHMS held one NASCAR Sprint Cup and one NASCAR Nationwide Series racing event in the second quarter 2010 that was held in the third quarter 2011

 

 

KyS held one NASCAR Nationwide Series racing event in the second quarter 2010 that was held in the third quarter 2011

 

 

CMS held one major NHRA racing event in the second quarter 2011 that was held in the first quarter 2010

Marketing Agreements—The Company has various marketing agreements for sponsorships, on-site advertising, hospitality and other promotional activities. Sponsorships generally consist of event, official, exclusive and facility naming rights agreements. These various marketing agreements can be event, speedway or period specific, or pertain to multiple events, speedways or years. The Company receives payments based on contracted terms. Marketing customers and agreement terms change from time to time. The Company recognizes contracted fee revenues, and associated expenses, as events or activities are conducted each year in accordance with the respective agreement terms. The Company’s marketing agreements sometimes include multiple specified elements such as sponsorships, tickets, hospitality, suites or on-site advertising in varying combinations for one or more events or contract periods, although there is typically a predominant element. Contracted revenues are allocated between admissions and event related revenue financial statement categories based on the relative fair or retail value of the respective multiple elements as such events or activities are conducted each year in accordance with the respective agreement terms. Certain marketing agreements contain elements of purchased property and equipment exchanged for multi-year marketing and other promotional activities at one or more of our facilities. The associated assets and deferred revenue are initially recorded based on their estimated fair or retail values, with assets then depreciated over estimated useful lives and deferred revenue recognized into income over respective agreement terms on a straight-line basis. The Company presently has one facility naming rights agreement that renamed Sears Point Raceway as Infineon Raceway, which expires in early 2012.

Joint Venture Equity Investment—The Company and International Speedway Corporation (ISC) equally own a joint venture (50% non-controlling interest) that operates independently under the name Motorsports Authentics (MA). MA’s operations consist principally of trackside, and to a lesser extent wholesale and retail, event souvenir merchandising as licensed and regulated under certain NASCAR Teams Licensing Trust agreements. The NASCAR Trust has the ability to significantly influence MA’s future operating conditions and results. MA’s products include die-cast scaled replicas of motorsports vehicles, apparel (including tee-shirts, hats and jackets), gifts and other memorabilia.

As further described in Note 2 to the Consolidated Financial Statements in our 2010 Annual Report “Joint Venture Equity Investment Impairment”, the Company’s carrying value of its MA equity investment was $0 as of December 31, 2010 and June 30, 2011, reflecting sizable 2007 and 2009 impairment charges and MA’s historical operating results. Because of uncertainty about MA’s ability to achieve sustained profitability, management continues to believe MA’s estimated fair value is $0 under applicable authoritative impairment evaluation guidance. The Company’s share of undistributed equity deficit from equity investee losses included in the Company’s retained earnings was approximately $133,974,000 at both June 30, 2011 and December 31, 2010. There were no significant differences in investor cost and underlying equity in MA net assets at acquisition.

MA results for 2011 reflect that MA operations now consist principally of trackside event souvenir merchandising as licensed and regulated under the NASCAR Teams Licensing Trust formed in July 2010. MA results for 2011 and 2010 were negatively impacted by decreased attendance at motorsports racing events, recessionary conditions and reduced discretionary spending, and increased competition for products sold under non-exclusive MA licenses. Under equity method accounting, the Company no longer records its 50% share of MA operating losses, if any, unless and until this carrying value is increased from additional Company investments in MA or to the extent of future MA operating profits, if any. As such, the Company’s second quarter and year-to-date 2011 and 2010 results were not impacted by MA’s operations under the equity method.

SMI and ISC have contingently guaranteed an MA obligation associated with one NASCAR team licensor of MA, which is scheduled for periodic reduction and elimination by MA payments through January 2013. As of June 30, 2011 and December 31, 2010, the Company’s contingent guarantee approximated $2.5 million and $5.0 million. Should MA not have sufficient future financial resources and such obligation remains due, the Company could be required to fund part or all of the guarantee up to the obligation amount determined at that time. Although reasonably possible that some future obligation could arise, the amount, if any, is not reasonably estimable at this time. Management believes the fair value of this guarantee is presently insignificant and no obligation has been recorded. Although not expected at this time, the Company could be required to record a charge related to the Company’s contingent guarantee obligation, if funding was required.

The following summarized financial information on MA’s operating results is presented for informational purposes (in thousands):

 

     Second Quarter     Year-to-Date  
     2011      2010     2011     2010  

Net sales

   $ 10,858       $ 22,975      $ 16,698      $ 44,902   

Gross profit

     4,489         4,071        6,512        7,562   

Income (loss) from continuing operations

     493         (2,481     (1,256     (5,598

Net income (loss)

     493         (2,481     (1,256     (5,598

Effective Income Tax Rates—The Company’s effective income tax rate for the three and six months ended June 30, 2011 was 40.0%, excluding the negative impact of recording no tax benefit related to the goodwill impairment charge further described in Note 4, and positive impact of net decreases in income tax position liabilities of prior years. The Company’s effective income tax rate for both the three and six months ended June 30, 2010 was 40.6%. 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. The Company’s accounting for income taxes reflects management’s assessment of future tax liabilities based on assumptions and estimates for timing, likelihood of realization, and tax laws existing at the time of evaluation. The Company assesses the need for valuation allowances for deferred tax assets based on the sufficiency of estimated future taxable income and other relevant factors. Cash paid for income taxes as reflected on the consolidated statements of cash flows excludes any previous overpayments the Company may have elected to apply to income tax liabilities.

Accounting for Uncertainty in Income Taxes—The Company follows applicable authoritative guidance on accounting for uncertainty in income taxes which, among other things, prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, and disclosures. Evaluation of a tax position includes determining whether it is more likely than not a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position meets the more-likely-than-not recognition threshold, it is presumed the position will be examined by appropriate taxing authorities having full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

Income tax liabilities for unrecognized tax benefits approximate $552,000 and $2,879,000 as of June 30, 2011 and December 31, 2010, and are included in other noncurrent liabilities, all of which would favorably impact the Company’s effective tax rate if recognized. The Company reports interest expense and penalties related to income tax liabilities, when applicable, in income tax expense. Interest and penalties recognized on uncertain tax positions amounted to $20,000 and $107,000 for the three months ended June 30, 2011 and 2010, and $237,000 and $214,000 for the six months ended June 30, 2011 and 2010. As of June 30, 2011 and December 31, 2010, the Company had $660,000 and $2,324,000 accrued for the payment of interest and penalties on uncertain tax positions, which is included in other noncurrent liabilities. As of June 30, 2011, management was not aware of any significant tax positions where it appeared reasonably possible that unrecognized tax benefits might significantly increase within the next twelve months. The tax years that remain open to examination include 2006 through 2010 by the Georgia Department of Revenue and the California Franchise Tax Board, and 2007 through 2010 by all other taxing jurisdictions to which the Company is subject. A reconciliation of the change in the total unrecognized tax benefits and other information for the six months ended June 30, 2011 and 2010 is as follows (in thousands):

 

     2011     2010  

Beginning of period

   $ 2,879      $ 5,081   

Increases for tax positions of current year

     —          —     

Increases for tax positions of prior years

     358        —     

Decreases for tax positions of prior years

     (2,196     —     

Decreases for settlements with taxing authorities

     (489     —     

Reductions for lapse of applicable statute of limitations

     —          —     
  

 

 

   

 

 

 

End of period

   $ 552      $ 5,081   
  

 

 

   

 

 

 

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, 2011 and 2010 amounted to $1,754,000 and $1,873,000, and for the six months ended June 30, 2011 and 2010 amounted to $3,000,000 and $3,886,000.

Concentrations of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, accounts and notes receivable, marketable equity securities and interest rate swaps. Concentration of credit risk with respect to cash and cash equivalents, short-term investments and interest rate swaps is limited through placement with major high-credit qualified financial institutions. However, amounts placed often significantly exceed available insured limits. Concentrations of credit risk with respect to accounts receivable are limited due to the large numbers and wide variety of customers and customer industries and their broad geographical dispersion. Also, a significant portion of the Company’s accounts receivable typically pertain to advance revenues for specific events which are deferred until the event is held. As such, exposure to credit risk on such receivables that could adversely affect operating results is limited until recognition of the associated deferred race event income. The Company generally requires sufficient collateral equal to or exceeding note amounts, or accepts notes from high-credit quality entities or high net-worth individuals, limiting its exposure to credit risk. Amounts due from affiliates typically can be offset to the extent of amounts payable to affiliates, limiting the Company’s exposure to credit risk.

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, short-term investments, accounts and notes receivable, and accounts payable approximate fair value because of the short maturity of these financial instruments. Short-term investments, marketable debt and equity securities, and interest rate swaps are carried at fair value based on binding and non-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. Quoted market prices are not available for determining market value of the Company’s equity investment in an associated entity. For equity investments, the Company estimates fair value primarily using estimated discounted cash flows. See “Joint Venture Equity Investment” above for fair value information on a contingent guarantee obligation associated with MA.

The following table presents estimated fair values and categorization levels of the Company’s financial instruments as of June 30, 2011 and December 31, 2010 (in thousands):

 

                   June 30, 2011      December 31, 2010  
     Level      Class      Carrying
Value
     Fair Value      Carrying
Value
     Fair Value  

Assets

                 

Cash and cash equivalents

     1         R       $ 90,376       $ 90,376       $ 92,200       $ 92,200   

Short-term investments

     2         R         975         975         975         975   

Marketable equity securities

     1         R         44         44         12         12   

Floating rate notes receivable

     2         R         2,955         2,955         3,145         3,145   

Liabilities (Note 5)

                 

Floating rate revolving Credit Facility, including Term Loan

     2         R         172,500         172,500         20,000         20,000   

6 3/4% Senior Notes Payable due 2019

     1         NR         150,000         150,375         —           —     

8 3/4% Senior Notes payable due 2016

     1         NR         268,896         298,375         268,275         295,625   

6 3/4% Senior Subordinated Notes Payable previously due 2013

     1         NR         —           —           330,000         332,475   

Other long-term debt

     2         NR         9,250         9,250         10,422         10,422   

 

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.

Short-term investments consist principally of auction rate securities held in large, qualified financial institutional investment accounts. These investments are classified as “trading” securities and carried at fair value, and realized and unrealized gains or losses are included in the Company’s consolidated statements of operations. As of June 30, 2011 and December 31, 2010, the Company had $975,000 invested in auction rate securities, which approximates estimated fair value at this time. The municipality that issued these securities is experiencing significant financial difficulties and other challenges. Management has the ability and intends to hold these securities until the bond market recovers or prospects for less than full recovery become probable. Management believes that further declines, if any, in the market value of these short-term investments are not likely to result in a significant loss to the Company.

Other Contingencies—CMS’s property includes areas used as solid waste landfills for many years. Landfilling of general categories of municipal solid waste on the CMS property ceased in 1992, but CMS currently allows certain property to be used for land clearing and inert debris landfilling (LCID). Landfilling for construction and demolition debris (C&D) has ceased on the CMS property. Management believes the Company’s operations, including the landfills on its property, comply with all applicable federal, state and local environmental laws and regulations. Management is not aware of any situation related to landfill operations which would have a material adverse effect on the Company’s financial position, future results of operations or cash flows.

KyS held an inaugural NASCAR Sprint Cup race in the third quarter 2011. Because of various traffic congestion issues, the Company is offering to exchange race tickets meeting certain criteria for tickets to an upcoming NASCAR Sprint Cup race at any Company speedway in 2011 or KyS in 2012, and to KyS’s upcoming NASCAR Camping World Truck or Indy Car Series fourth quarter 2011 race events. Cash refunds have not been offered. Although processing has begun, because the exchange offer is open through November 30, 2011, the Company is presently unable to determine the number of tickets or which race events or future reporting periods may ultimately be affected. Management believes these ticket exchanges will not have a material adverse effect on the Company’s future financial condition, results of operations or cash flows.

Recently Issued Accounting Standards—The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements” which, among other things, amended the criteria in Subtopic 605 for separating consideration in multi-deliverable arrangements. This amendment: (1) provides updated guidance on whether multiple deliverables exist, on separating arrangement deliverables, and allocating consideration; (2) requires entities to allocate arrangement revenue using estimated selling prices of deliverables if a vendor does not have vendor specific objective evidence or third-party evidence of selling prices; (3) eliminates use of the residual method and requires entities to allocate revenue using the relative selling price method; and (4) expands disclosure requirements pertaining to a vendor’s multiple-deliverable revenue arrangements. The amended guidance is effective for fiscal years beginning on or after June 15, 2010, and adoption may be prospective or retrospectively applied. The Company’s adoption had no significant impact on its financial statements or disclosures, and the Company will apply this guidance if and when future applicable transactions occur.

 

The FASB issued Accounting Standards Update No. 2010-28 “Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” which, among other things, modifies Step 1 of goodwill impairment testing (where entities must assess whether reporting unit carrying amounts exceed fair value) for reporting units with zero or negative carrying amounts. For those reporting units, entities are required to perform Step 2 of the goodwill impairment test (additional testing to determine whether goodwill has been impaired and the amount of such impairment, if any) if it is more likely than not that goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether any adverse qualitative factors indicate that impairment may exist. These qualitative factors are consistent with the existing guidance which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendment does not provide guidance on how to determine carrying amounts or measure reporting unit fair value. Any resulting goodwill impairment upon adoption of this guidance should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company’s adoption had no impact on its financial statements or disclosures, and the Company will apply this guidance to future impairment assessments.

The FASB issued Accounting Standards Update No. 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” to improve the comparability, consistency and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity will be eliminated. All non-owner changes in stockholders’ equity will now require presentation either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and applied retrospectively. Early adoption is permitted. The Company is currently evaluating the potential impact that adoption will have on its financial position and results of operations.

INVENTORIES
INVENTORIES

3. INVENTORIES

Inventories consist of the following components (in thousands):

 

     June 30,
2011
     December 31,
2010
 

Souvenirs and apparel

   $ 4,419       $ 3,870   

Finished vehicles, parts and accessories

     5,231         4,760   

Micro-lubricant® and other

     713         752   
  

 

 

    

 

 

 

Total

   $ 10,363       $ 9,382   
  

 

 

    

 

 

 

All inventories are stated at the lower of cost or market with provisions for differences between cost and estimated market value based on assumptions about current and future demand, market conditions and trends that might adversely impact realization. At June 30, 2011 and December 31, 2010, inventories reflect provisions of $6,017,000 and $5,938,000.

GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL AND OTHER INTANGIBLE ASSETS

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and Other Intangible Assets represent the excess of business acquisition costs over the fair value of net assets acquired, and are all associated with the Company’s motorsports related activities and reporting units. Intangible assets consist predominately of goodwill and nonamortizable intangible assets for race event sanctioning and renewal agreements and, to a lesser extent, goodwill associated with event related motorsports merchandising. Acquired intangible assets are valued using the direct value method. The Company’s race event sanctioning and renewal agreements for each NASCAR-sanctioned racing event are awarded annually. The Company has evaluated each of its intangible assets for these agreements and determined that each will extend into the foreseeable future. The Company has never been unable to renew these race date agreements for any subsequent year and no such agreement has ever been cancelled. Based on these and other factors, such race date agreements are expected to be awarded to the Company in perpetuity. As such, these nonamortizable intangible assets for race event sanctioning and renewal agreements are considered to have indefinite useful lives because their renewal and cash flow generation are expected to continue indefinitely.

Annual Assessment, Impairment of Goodwill. The Company follows applicable authoritative guidance on accounting for goodwill and other intangible assets which specifies, among other things, nonamortization of goodwill and requires testing of intangible assets with indefinite useful lives for possible impairment at least annually. 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. Management considers each speedway and motorsports and non-motorsports merchandising subsidiary an operating segment and separate reporting unit principally because that is the lowest level for which discrete financial information is available to the Company’s segment managers and chief operating decision maker. No reporting units are aggregated for purposes of evaluating intangible assets for possible impairment. Despite ongoing domestic and global economic challenges, management believes there has been no fundamental change in the Company’s core motorsports business. 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. See Notes 2 and 5 to the Consolidated Financial Statements in our 2010 Annual Report for additional information on the Company’s assessment methodology and evaluation.

Management’s latest annual assessment of goodwill and other intangible assets in the second quarter 2011 indicated the estimated fair value of each reporting unit and each indefinite-lived intangible asset exceeded its associated carrying value except for one reporting unit, NHMS. The impairment evaluation was based predominately on management’s best estimate of future discounted operating cash flows and profitability for all reporting units, and considered the approved realignment of an annual NASCAR Sprint Cup racing event from AMS to KyS beginning in the third quarter 2011. Realignment of the race date from AMS to KyS resulted in no impairment of intangible or other long-lived assets. However, the evaluation indicated the carrying values for NHMS exceeded estimated fair value. As such, a non-cash impairment charge of $48,609,000 (with no income tax benefit) was reflected in the second quarter 2011 to reduce goodwill related to NHMS to estimated fair value. The Company previously reported that last year’s annual evaluation found the estimated fair value for this reporting unit exceeded carrying values by a relatively nominal amount. This year’s annual evaluation reflects lowered estimated future cash flows principally because of the severity and length of the recession extending beyond the Company’s previous forecast, reducing visibility on profitability recovery. The goodwill originated upon recording deferred tax liabilities associated with race date intangibles of $127.4 million established under purchase method accounting rules over and above NHMS’s net cash purchase price of $330.1 million paid in 2008. Those accounting rules required establishing such deferred tax liabilities assuming the Company would ultimately sell NHMS assets, and not stock, for tax reporting purposes. Those accounting rules prohibit elimination or adjustment notwithstanding such ultimate payment of taxes was, and still is, believed unlikely and that no sale is being contemplated. The impairment does not pertain to or affect the underlying value of the Company’s race date intangibles. The evaluation did not consider the possibility that management may realign one or more other NASCAR Sprint Cup Series racing events among its speedway facilities, which could result in net higher or improved future projected cash flows.

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. The Company 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 as of June 30, 2011. The charge and associated operations are included in the Company’s “motorsports event related” reporting segment (see Note 10). Management believes the Company’s market capitalization decline below its consolidated shareholder’s equity is temporary and not an indicator of further impairment. Management’s latest annual impairment assessment indicated no other impairment of goodwill or other intangible assets has occurred through and as of June 30, 2011, and there has since been no other events or circumstances which indicate possible unrecognized impairment as of June 30, 2011.

 

As of June 30, 2011 and December 31, 2010, gross carrying values and accumulated amortization by class of intangible asset are as follows (dollars in thousands):

 

     June 30, 2011      December 31, 2010      Estimated
Amortization
Period
(Years)
 
     Gross
Carrying
Value
     Accumulated
Amortization
    Net      Gross
Carrying
Value
     Accumulated
Amortization
    Net     

Nonamortizable race event sanctioning and renewal agreements

   $ 394,913         —        $ 394,913       $ 394,913         —        $ 394,913         —     

Amortizable race event sanctioning and renewal agreements

     70       $ (17     53         70       $ (11     59         6   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

Total

   $ 394,983       $ (17   $ 394,966       $ 394,983       $ (11   $ 394,972      
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

There were no other changes in the gross carrying value of other intangible assets and goodwill during the six months ended June 30, 2011.

LONG-TERM DEBT
LONG-TERM DEBT

5. LONG-TERM DEBT

As further described below, the Company amended its Credit Facility, issued new senior notes and redeemed all outstanding senior subordinated notes in the first quarter 2011.

2011 Bank Credit Facility Amendment—In January 2011, the Company’s Credit Facility was amended and restated (the 2011 Credit Facility) which: (i) provides for a four-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 four-year $150,000,000 senior secured term loan (the Term Loan); (iii) matures in January 2015; (iv) allows the Company to increase revolving commitments or establish a term loan (or a combination of the two) up to an aggregate additional $50,000,000 with certain lender commitment conditions; (v) provides that Credit Facility borrowings must be used solely for refinancing existing indebtedness, working capital and other general corporate needs, capital expenditures and permitted investments; (vi) allows the acquisition of additional motor speedways and related businesses subject to specified limitations; (vii) permits other investments not specifically referenced of up to $5,000,000 each year with unrestricted subsidiaries; (viii) allows 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 (ix) limits annual capital expenditures to $75,000,000. The Term Loan requires quarterly principal payments of at least $3,750,000.

Revolving loans under the 2011 Credit Facility may be borrowed, repaid and reborrowed, from time to time, subject to certain conditions on the date borrowed. Interest is based, at the Company’s option, upon LIBOR plus 1.75% to 2.75% or the greater of Bank of America’s prime rate, Federal Funds rate plus 0.5% or LIBOR plus 1.0%, plus 0.75% to 1.75%. The 2011 Credit Facility also contains a commitment fee ranging from 0.35% to 0.55% 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 2011 Credit Facility contains a number of affirmative and negative financial covenants, including requirements that the Company maintain certain ratios of funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA), earnings before interest and taxes (EBIT) to interest expense, and minimum net worth. Negative covenants restrict, among other things, the incurrence and existence of liens, specified types of investments, restricted payments, dividends, equity and debt security repurchases, capital expenditures, transactions with affiliates, acquisitions, disposition of property, entering into new lines of business and incurring other debt. Indebtedness under the 2011 Credit Facility is guaranteed by all material operative Company subsidiaries except Oil-Chem and its subsidiaries (the Guarantors), and is secured by a pledge of all capital stock and limited liability company interests of the Guarantors.

Prior to the Credit Facility amendment, interest was based at the Company’s option, upon LIBOR plus 2.50% to 3.75% or the greater of Bank of America’s prime rate, the Federal Funds rate plus 0.5% or the Eurodollar rate plus 1.0%, plus 1.5% to 2.75%. The 2009 Credit Facility also contained a commitment fee ranging from 0.35% to 0.60% of unused amounts available for borrowing.

 

During the six months ended June 30, 2011, the Company borrowed $30,000,000 under the revolving credit facility and $150,000,000 under the Term Loan to fund the tender offer and early redemption of the senior subordinated notes further described below, and repaid $20,000,000 of revolving credit facility and $7,500,000 of Term Loan borrowings. At June 30, 2011 and December 31, 2010, outstanding borrowings under the Credit Facility were $30,000,000 and $20,000,000, and under the Term Loan were $142,500,000 and $0, respectively. As of June 30, 2011, outstanding letters of credit amounted to $745,000.

Issuance of New Senior Notes—In February 2011, the Company completed a private placement of new 6 3/4% Senior Notes in aggregate principal amount of $150,000,000 (the 2011 Senior Notes). These 2011 Senior Notes were issued at par value, and net proceeds, after commissions and fees, approximated $147,075,000. Net offering proceeds, along with new Term Loan borrowings of $150,000,000 under the 2011 Credit Facility and cash on hand, were used to redeem and retire all tendered outstanding senior subordinated notes as further discussed below. The Company completed an exchange offer for substantially identical notes registered under the Securities Act in May 2011.

The 2011 Senior Notes mature in February 2019, and interest payments are due semi-annually on February 1 and August 1 commencing August 1, 2011. The Company may redeem some or all of the 2011 Senior Notes at annually declining redemption premiums ranging from 103.375% of par in fiscal years beginning February 1, 2015 to par after February 1, 2017, and up to 35% of the 2011 Senior Notes before February 1, 2014 with proceeds from certain equity offerings at a redemption premium of 106.75% of par. The Company may also redeem some or all of the 2011 Senior Notes before February 1, 2015 at par plus a “make-whole” premium. In the event of a change of control, the Company must offer to repurchase the 2011 Senior Notes at 101% of par value. The 2011 Senior Notes are guaranteed by all material operative Company subsidiaries, except Oil-Chem and its subsidiaries, on a joint and several, senior unsecured basis, rank equally in right of payment with all other Company existing and future senior debt, are senior in right of payment to any subordinated debt and are effectively subordinated to all secured debt, including the Company’s 2011 Credit Facility. The Indenture governing the 2011 Senior Notes permits dividend payments each year of up to approximately $0.48 per share of common stock, increasable subject to meeting certain financial covenants.

2009 Senior Notes—In 2009, the Company completed a private placement, and a subsequent exchange offer for substantially identical notes registered under the Securities Act, of 8 3/4% senior notes (the 2009 Senior Notes) in aggregate principal amount of $275,000,000. These 2009 Senior Notes were issued at 96.8% of par value and net proceeds were used to reduce outstanding borrowings under the Credit Facility. Original debt issuance discount and deferred financing costs are being amortized over the associated seven-year note term. As of June 30, 2011 and December 31, 2010, the 2009 Senior Notes carrying value of $268,896,000 and $268,275,000 is reported net of unamortized issuance discount of $6,104,000 and $6,725,000, respectively.

The 2009 Senior Notes mature in 2016 and interest payments are due semi-annually on June 1 and December 1. The 2009 Senior Notes Indenture permits annual dividend payments of up to approximately $0.48 per share of common stock, increasable subject to meeting certain financial covenants. The Company may redeem some or all of the 2009 Senior Notes at annually declining redemption premiums ranging from 104.375% of par in the twelve month periods beginning June 1, 2013 to par after June 1, 2015, and up to 35% of the 2009 Senior Notes on or before June 1, 2012 with proceeds from certain equity offerings at a redemption premium. In the event of a change of control, the Company must offer to repurchase the 2009 Senior Notes at 101% of par value plus accrued and unpaid interest.

Early Redemption of Senior Subordinated Notes—In the first quarter 2011, the Company completed a tender offer and redeemed $298,331,000 and $31,669,000 in aggregate principal amount of outstanding 6 3/4% Senior Subordinated Notes (Senior Subordinated Notes) at 101.375% and 101.25% of par, respectively, with proceeds from the 2011 Senior Notes issuance, Term Loan borrowings of $150,000,000 and cash on hand. The Senior Subordinated Notes were previously scheduled to mature in September 2013, guaranteed by all operative Company subsidiaries except Oil-Chem and its subsidiaries, and interest payments were due semi-annually on June 1 and December 1. Cash on hand aggregating approximately $11.3 million was also used to fund the redemption premium, settlement payments and transaction costs for all associated debt transactions.

The 2011 loss on early debt redemption and refinancing represents a first quarter (and nominal second quarter) charge to earnings for tender offer redemption premium, associated unamortized net deferred loan costs, settlement payment and transaction costs, all associated with the former debt arrangements, and aggregating approximately $7.5 million, before income taxes of $2.9 million.

The 2011 Credit Facility, 2009 Senior Notes and 2011 Senior Notes contain certain requirements and restrictive financial covenants and limitations on capital expenditures, acquisitions, dividends, repurchase or issuance of SMI securities, and other limitations or prohibitions on incurring other indebtedness, pledges of assets to any third party, consolidation, mergers, transactions with affiliates, guarantees, asset sales, investments, distributions, redemptions and disposition of property. The 2011 Credit Facility agreement, 2009 Senior Notes Indenture and 2011 Senior Notes Indenture also contain cross-default provisions. The Company was in compliance with all applicable covenants under the 2011 Credit Facility, 2009 Senior Notes and 2011 Senior Notes as of June 30, 2011.

Other Notes Payable—Long-term debt includes a non-interest bearing debt obligation associated with the Company’s December 2008 acquisition of Kentucky Speedway, payable in 60 monthly installments of $125,000 beginning in January 2009. As of June 30, 2011 and December 31, 2010, the obligation’s carrying value of $3,474,000 and $4,109,000, reflects a $276,000 and $391,000 discount, respectively, based on a 6% effective interest rate. Other long-term debt also includes a non-interest bearing debt obligation for additional purchase consideration, recorded in the fourth quarter 2010 upon satisfaction of certain triggering contingent conditions, associated with the Company’s purchase of KyS. The obligation is payable in 60 monthly installments of $125,000 beginning in January 2011. As of June 30, 2011 and December 31, 2010, the obligation’s carrying value of $5,776,000 and $6,313,000 reflects discounts of $974,000 and $1,187,000, respectively, based on a 7% effective interest rate.

Subsidiary Guarantees—Amounts outstanding under the 2011 Credit Facility, 2009 Senior Notes and 2011 Senior Notes are guaranteed by all of SMI’s material operative subsidiaries except for Oil-Chem and its subsidiaries. These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. There are no restrictions on the subsidiaries’ ability to pay dividends or advance funds to SMI.

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

 

     Three Months Ended
June 30:
    Six Months Ended
June 30:
 
     2011     2010     2011     2010  

Gross interest costs

   $ 11,036      $ 13,284      $ 23,153      $ 26,992   

Less: capitalized interest costs

     (840     (152     (1,625     (204
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     10,196        13,132        21,528        26,788   

Interest income

     (82     (105     (167     (213
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 10,114      $ 13,027      $ 21,361      $ 26,575   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average interest rate on borrowings under bank Credit Facility

     2.7     3.8     3.0     3.8
PER SHARE AND OTHER EQUITY INFORMATION
PER SHARE AND OTHER EQUITY INFORMATION

 

6. PER SHARE AND OTHER EQUITY INFORMATION

 

The following schedule reconciles basic and diluted earnings or loss per share from continuing operations (in thousands except per share amounts):

 

  

   

     Three Months Ended
June 30:
    Six Months Ended
June 30:
 
     2011     2010     2011     2010  

(Loss) income from continuing operations applicable to common stockholders and assumed conversions

   $ (28,094   $ 24,054      $ (29,338 )   $ 34,309   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     41,553        42,026        41,574        42,106   

Dilution effect of assumed conversions:

        

Common stock equivalents—stock awards

     —          —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding and assumed conversions

     41,553        42,026        41,574        42,107   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) earnings per share

   $ (0.68   $ 0.57      $ (0.71   $ 0.81   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted (loss) earnings per share

   $ (0.68   $ 0.57      $ (0.71   $ 0.81   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     1,397        1,621        1,397        1,620   

 

Stock Repurchase Program—The Company’s Board of Directors approved a stock repurchase program authorizing SMI to repurchase up to an aggregate of 4,000,000 shares of the Company’s outstanding common stock from time to time, depending on market conditions, share price, applicable limitations under the 2011 Credit Facility, 2009 Senior Notes and 2011 Senior Notes (see Note 5), and other factors the Board of Directors or their 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, 2011, the Company repurchased 62,000 and 130,000 shares of common stock for $917,000 and $1,947,000, respectively. As of June 30, 2011, the Company could repurchase up to an additional 493,000 shares under the current authorization.

Declaration of Cash Dividends—To date in 2011, the Company’s Board of Directors has approved the following quarterly cash dividends on common stock (in thousands except per share amounts):

 

Declaration date

     February 16, 2011         April 20, 2011         July 20, 2011   

Record date

     March 1, 2011         May 20, 2011         August 19, 2011   

Paid or payable to shareholders

     March 15, 2011         June 10, 2011         September 9, 2011   

Aggregate quarterly cash dividend

   $ 4,173       $ 4,156         Approximately $4,200   

Dividend per common share

   $ 0.10       $ 0.10       $ 0.10   

These quarterly cash dividends were or are expected to be paid using available cash and cash equivalents on hand.

RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

7. RELATED PARTY TRANSACTIONS

Before July 30, 2002, the Company made loans to, and paid certain expenses on behalf of, Sonic Financial Corporation (Sonic Financial), a Company affiliate through common ownership by the Company’s Chairman and Chief Executive Officer, for various corporate purposes. Also, the Company and Sonic Financial currently share various expenses in the ordinary course of business. Notes and other receivables from affiliate at June 30, 2011 and December 31, 2010 include $4,235,000 and $4,412,000 due from Sonic Financial. The amount due bears interest at 1% over prime, is payable on demand, and because the Company does not require repayment before June 30, 2012, is classified as a noncurrent asset in the accompanying consolidated balance sheet. Changes in the amount due from December 31, 2010 primarily reflect increases for accrued interest on outstanding balances and decreases from shared expenses with the affiliate. The amounts due were reduced from shared expenses and repayments, if any, net of accrued interest by $89,000 and $85,000 in the three months ended June 30, 2011 and 2010, and $177,000 and $169,000 in the six months ended June 30, 2011 and 2010. Any increases pertain to agreements in place before July 30, 2002.

Amounts payable to affiliate at June 30, 2011 and December 31, 2010 consist of $2,594,000 for acquisition and other expenses paid on behalf of AMS by Sonic Financial prior to 1996. Of this amount, approximately $1,800,000 bears interest at 3.83% and the remainder at prime plus 1%. The entire amount is classified as long-term because repayment is not required before June 30, 2012.

US Legend Cars, SMI Properties and Oil-Chem each lease office and warehouse facilities from Chartown, a Company affiliate through common ownership by the Company’s Chairman and Chief Executive Officer, under annually renewable lease agreements. For the three months ended June 30, 2011, rent expense amounted to $61,000 for US Legend Cars, $61,000 for SMI Properties and $16,000 for Oil-Chem. For the three months ended June 30, 2010, rent expense amounted to $62,000 for US Legend Cars, $61,000 for SMI Properties and $24,000 for Oil-Chem. For the six months ended June 30, 2011, rent expense amounted to $122,000 for US Legend Cars, $121,000 for SMI Properties and $37,000 for Oil-Chem. For the six months ended June 30, 2010, rent expense amounted to $123,000 for US Legend Cars, $121,000 for SMI Properties and $48,000 for Oil-Chem. At June 30, 2011 and December 31, 2010, amounts owed to Chartown were not significant.

 

Various SMI subsidiaries purchased, and had maintenance performed on, new and used vehicles for operations and employee use from certain subsidiary dealerships of Sonic Automotive, Inc. (SAI), an entity in which the Company’s Chairman and Chief Executive Officer is a controlling stockholder, for an aggregate of $139,000 and $97,000 in the three months ended June 30, 2011 and 2010, and $275,000 and $97,000 in the six months ended June 30, 2011 and 2010. There were no vehicles sold to SAI in the three and six months ended June 30, 2011 or 2010. Also, SMI Properties sold merchandise to SAI totaling $170,000 and $354,000 in the three months ended June 30, 2011 and 2010, and $312,000 and $354,000 in the six months ended June 30, 2011 and 2010. Amounts due from SAI for these sales totaled $57,000 at June 30, 2011 and $157,000 at December 31, 2010.

Oil-Chem sold zMAX micro-lubricant® product to certain dealerships of SAI for resale to service customers of the dealerships in the ordinary course of business. Total purchases from Oil-Chem by SAI dealerships approximated $427,000 and $401,000 for the three months ended June 30, 2011 and 2010, and $816,000 and $765,000 for the six months ended June 30, 2011 and 2010. At June 30, 2011 and December 31, 2010, approximately $196,000 and $114,000 was due from SAI to Oil-Chem. These amounts are reflected in current assets.

SMI Properties and, to a lesser extent, other SMI subsidiaries purchased and sold motorsports merchandise, and received commissions for merchandise sold during Company events from Motorsports Authentics. In the three months ended June 30, 2011 and 2010, merchandise purchases approximated $94,000 and $249,000, and merchandise sales and event related commissions approximated $676,000 and $1,016,000, respectively. In the six months ended June 30, 2011 and 2010, merchandise purchases approximated $375,000 and $950,000, and merchandise sales and event related commissions approximated $1,485,000 and $2,823,000, respectively. At June 30, 2011 and December 31, 2010, net amounts due from MA approximated $57,000 and $157,000, and are reflected in current assets and current liabilities as applicable.

The foregoing related party balances as of June 30, 2011 and December 31, 2010, and transactions for the three and six months ended June 30, 2011 and 2010, are summarized below (in thousands):

 

Decembern31, Decembern31, Decembern31, Decembern31,
                   June 30,
2011
     December 31,
2010
 

Notes and other receivables

         $ 4,545       $ 4,736   

Amounts payable to affiliates

           2,594         2,673   
     Three Months Ended
June 30:
     Six Months Ended
June 30:
 
     2011      2010      2011      2010  

Merchandise and vehicle purchases

   $ 233       $ 346       $ 650       $ 1,047   

Merchandise and vehicle sales and event related commissions, and reimbursed shared expenses

     1,368         1,866         2,803         4,132   

Rent expense

     138         147         280         292   

Interest income

     32         36         64         72   

Interest expense

     26         26         51         51
LEGAL PROCEEDINGS AND CONTINGENCIES
LEGAL PROCEEDINGS AND CONTINGENCIES

8. LEGAL PROCEEDINGS AND CONTINGENCIES

The Company is involved in various lawsuits in the normal course of business, some of which involve material claims. Management does not currently believe the outcome of these lawsuits or incidents will have a material adverse effect on the Company’s future financial position, results of operations or cash flows.

On April 22, 2008, SMIL filed a complaint in the Superior Court of North Carolina sitting in Mecklenburg County (the Complaint) against Bronwen Energy Trading, Ltd. (Bronwen), Bronwen Energy Trading UK, Ltd. (Bronwen UK), Dr. Patrick DenyefaNdiomu (Dr. Ndiomu), BNP Paribas (Suisse) SA (BNP Suisse), BNP Paribas S.A. (BNP France), Swift Aviation Group, Inc. (SAG), Swift Air, LLC (SA), and Swift Aviation Group, LLC (Swift Aviation). On May 29, 2008, SMIL filed an amended complaint (the Amended Complaint) adding Swift Transportation Company, Inc. (Swift Transportation). SAG, SA, Swift Aviation and Swift Transportation are collectively referred to as the “Swift Defendants”. SMIL is seeking recovery of $12,000,000 it alleges was wrongfully drawn from its bank account by BNP Suisse and BNP France in connection with obligations SMIL contends are owed by Bronwen, Bronwen UK, Dr. Ndiomu, and the Swift Defendants for petroleum product purchases utilizing credit extended by BNP France. SMIL is also seeking to recover contractual amounts it alleges are owed by Bronwen, BronwenUK, Dr. Ndiomu, and the Swift Defendants under the terms of various contracts regarding the petroleum product purchases. Additionally, SMIL is seeking treble damages, attorneys’ fees and costs. In the litigation, SMIL has asserted claims for breach of contract, wrongful honor on a guarantee demand, conversion, fraud, negligent misrepresentation, equitable subrogation, alter ego, unfair and deceptive trade practices, and has sought an accounting. On July 23, 2008, SMIL obtained an entry of default against Bronwen due to its failure to timely file a responsive pleading. On September 12, 2008, SMIL obtained entries of default against BronwenUK and Dr. Ndiomu due to their failure to timely file a responsive pleading. On December 15, 2010, SMIL reached a negotiated settlement with the Swift Defendants, as a result of which SMIL dismissed its claims against only the Swift Defendants on December 29, 2010. The settlement did not have a material impact on the Company’s financial position, results of operations or cash flows. On August 18, 2008, BNP France filed a motion to dismiss the claims against it alleging: 1) the North Carolina court does not possess personal jurisdiction over BNP France; 2) that Geneva, Switzerland is the appropriate forum for disputes about the guarantees; and 3) that SMIL is unable to state claims for relief against BNP France. On September 30, 2008, BNP France filed a revised motion to dismiss, withdrawing its challenge to personal jurisdiction, but maintaining allegations that Geneva, Switzerland is the appropriate forum for disputes about the guarantees and that SMIL is unable to state claims for relief against BNP France. On January 21, 2009, the trial court denied BNP France’s motion to dismiss based upon its contention that SMIL’s claims against it should be heard in Geneva, Switzerland, and further denied its motion to dismiss for failure to state a claim for relief as to all of SMIL’s claims, except for SMIL’s breach of contract claim against BNP France. On February 10, 2009, BNP France served notice it was appealing the trial court’s ruling with respect to its contention that SMIL’s claims against it should be heard in Geneva, Switzerland. On February 15, 2011, the North Carolina Court of Appeals filed its opinion affirming the trial court’s ruling denying BNP France’s motion to dismiss. On March 22, 2011, BNP France filed a Petition for Discretionary Review with the North Carolina Supreme Court seeking to have the Supreme Court review the decision of the North Carolina Court of Appeals that affirmed the trial court’s ruling denying BNP France’s motion to dismiss. SMIL filed its response to the petition on April 4, 2011. The North Carolina Supreme Court has not ruled on the petition. On August 4, 2008, BNP Suisse filed a motion to dismiss the claims against it alleging the North Carolina court does not possess personal jurisdiction over BNP Suisse, which motion was denied by the trial court on July 14, 2009. On August 11, 2009, BNP Suisse served notice it was appealing the trial court’s ruling. On February 15, 2011, the North Carolina Court of Appeals filed its opinion which reversed the trial court, holding that BNP Suisse was not subject to personal jurisdiction in North Carolina. On March 22, 2011, SMIL filed a Petition for Discretionary Review with the North Carolina Supreme Court seeking to have the Supreme Court review the decision of the North Carolina Court of Appeals which reversed the trial court, holding that BNP Suisse was not subject to personal jurisdiction in North Carolina. BNP Suisse filed its response to the petition on April 4, 2011. The North Carolina Supreme Court has not ruled on the petition.

On May 9, 2008, Stephen Courey, Holand Leasing (1995) Ltd, and TAF Majestic Holdings S.A. (collectively, the Courey Plaintiffs) filed a personal injury lawsuit against Jim Russell Racing School (Russell), a former Company subsidiary, Tom Dyer (Mr. Dyer), a Russell instructor, and Emotive Experiential Performance, Inc. (Emotive), in the Superior Court of California, County of Sonoma. The Courey Plaintiffs allege that they have suffered personal injuries and property damage from an incident at IR on May 12, 2006. They allege negligence against Mr. Dyer and vicarious liability against Russell and Emotive. IR sold 100% of the stock of Russell to Emotive on December 10, 2006, eight months after the incident that allegedly caused Mr. Courey’s injuries. On April 27, 2009, IR received an indemnity demand from Emotive, Jim Russell Group, Inc. and Mr. Dyer seeking to have IR indemnify Russell, Emotive and Mr. Dyer with respect to the lawsuit filed by the Courey Plaintiffs. IR accepted Emotive’s indemnity tender in July 2009. The insurance company for Grand American Road Racing Association accepted the defense and indemnity of this matter on behalf of Mr. Dyer and Russell. IR continued to defend and indemnify Emotive until October 15, 2010, when the Courey Plaintiffs dismissed Emotive without prejudice. The trial for this matter commenced on March 25, 2011. Prior to the conclusion of the trial, a settlement was reached between the parties for an amount that did not have a material impact on the Company’s financial position, results of operations or cash flows. The settlement agreement for this matter was executed on April 14, 2011, and the case was dismissed with prejudice on May 4, 2011.

On June 16, 2009, Melissa Jenks, as guardian for Roderick Jenks, and individually, filed a lawsuit against New Hampshire Motor Speedway, Inc. (NHMS) and an employee, in the United States District Court for the District of New Hampshire. The lawsuit alleges that Mr. Jenks suffered a traumatic head injury after falling from a golf cart being driven by an NHMS employee, and asserts claims of negligence, vicarious liability, and loss of consortium. The lawsuit claims past medical expenses for Mr. Jenks in excess of $515,000, likely future medical and life skills expenses of approximately $3,000,000, lost wages of approximately $500,000, damages for pain and suffering of $7,500,000 and damages for loss of consortium of $1,000,000. NHMS denied all claims in its answer as filed with the court, and it continues to vigorously defend against the allegations. NHMS filed a motion for summary judgment on November 11, 2009, which was denied by the District Court on March 3, 2010. On September 28, 2010, the District Court allowed NHMS’ motion to add additional parties to the lawsuit responsible for distribution of the cart involved in the accident. NHMS has served those additional complaints and is pursuing possible contribution and indemnity via cross-claims and third-party claims. Discovery and motions practice is ongoing in this matter. This matter has been scheduled to begin trial on March 20, 2012.

STOCK COMPENSATION PLANS
STOCK COMPENSATION PLANS

9. STOCK COMPENSATION PLANS

2004 Stock Incentive Plan, Amended and Restated as of February 10, 2009—Awards under the 2004 Stock Incentive Plan (the 2004 Plan) may consist of incentive stock options, non-statutory stock options, restricted stock units or restricted stock. Exercise prices for awarded stock options generally may not be less than the fair or trading value of the Company’s common stock at, and exercise periods may not exceed ten years from, the option grant date. The 2004 Plan is scheduled to terminate in February 2014. No individual may be granted options aggregating more than 100,000 shares of common stock during any calendar year. In the case of restricted stock awards that are designated as performance awards, no individual may be granted an aggregate of more than 35,000 shares of common stock during any calendar year. To date, all stock options granted under the 2004 Plan have an exercise price equal to the market value of the underlying common stock at grant date. To date, stock options expire ten years from grant date and vest immediately or in equal installments over three years, and restricted stock and restricted stock units vest three years from grant date or in equal installments over three years.

The amendment and restatement of the 2004 Plan was adopted by the Board of Directors on February 10, 2009, and approved by stockholders at the 2009 Annual Meeting. The material amendments incorporated in the 2004 Plan include (a) provisions to allow the grant of restricted stock units; (b) eliminating the 1,000,000 share limit on the number of shares of common stock available under the 2004 Plan with respect to awards other than stock options; (c) changes to the provisions for performance-based awards consistent with similar provisions under the Company’s Incentive Compensation Plan, including additions to the permissible performance goals that can be used and how the goals can be designed; and (d) provisions in connection with Section 409A of the Internal Revenue Code. Restricted stock units are non-voting units of measurement that represent the contingent right to receive shares of common stock or the value of shares of common stock in the future, but no shares are actually awarded to recipients on the grant date. Once applicable restrictions lapse or have been satisfied, restricted stock units may be payable in cash, shares of common stock or a combination, as specified in the award agreement.

In the six months ended June 30, 2011, the Compensation Committee of the Company’s Board of Directors approved a grant of 35,000 shares of restricted stock under the Company’s performance-based Incentive Compensation Plan to the Company’s Vice Chairman and Chief Financial Officer, and 35,000 restricted stock units to the Company’s President and Chief Operating Officer, both subject to reaching certain defined full year 2011 earnings targets. As provided in the 2004 Plan, awards of restricted stock or restricted stock units generally remain subject to forfeiture and restrictions on transferability until vested. The vesting period expired during the six months ended June 30, 2011 for 19,824 shares issued under the performance-based Incentive Compensation Plan in 2008, and the Company repurchased 2,300 shares of common stock from a former executive-management employee for $36,000 related to settlement of income taxes on these shares. Cash flows associated with “cash-less” exercises are reflected as financing activities in the statement of cash flows.

In the six months ended June 30, 2010, the Compensation Committee approved a grant of 35,000 shares of restricted stock under the Company’s performance-based Incentive Compensation Plan to the Company’s Vice Chairman and Chief Financial Officer, and 35,000 restricted stock units to the Company’s President and Chief Operating Officer, both subject to reaching certain defined full year 2010 earnings targets. The performance period for these awards ended during the six months ended June 30, 2011 resulting in the forfeiture of 12,133 shares or units, as applicable, by each recipient. Also, the vesting period expired during the six months ended June 30, 2011 for one-third of the shares or units, as applicable, retained by each recipient resulting in the issuance of 7,622 shares of common stock to the Company’s President and Chief Operating Officer in settlement of restricted stock units. These shares, along with 7,622 shares of restricted stock held by the Company’s Vice Chairman and Chief Financial Officer, are no longer subject to forfeiture or restrictions on transferability.

Terminated 1994 Stock Option Plan—The 1994 Stock Option Plan (the 1994 Plan) expired by its terms on December 21, 2004 and no further options can be granted under that plan. Adoption of the 2004 Plan described above, and termination of the 1994 Plan, did not adversely affect rights under any outstanding stock options previously granted under the 1994 Plan. All options granted to purchase shares under the 1994 Plan are fully vested and generally expire ten years from grant date. The exercise price of all stock options granted under the 1994 Plan was the fair or trading value of the Company’s common stock at grant date.

2008 Formula Restricted Stock Plan—The 2008 Formula Restricted Stock Plan (the 2008 Formula Plan) is intended to promote the interests of the Company and its stockholders by providing non-employee directors with Company ownership interests to more closely align their interests with the Company’s stockholders and to enhance the Company’s ability to attract and retain highly qualified non-employee directors. The 2008 Formula Plan is intended to constitute a “formula plan” within the meaning of SEC Rule 16b-3 of the Exchange Act. Approval of the 2008 Formula Plan, and termination of the Formula Stock Option Plan, did not adversely affect the rights of any outstanding stock options previously granted under the Formula Stock Option Plan. The 2008 Formula Plan is administered by the Board of Directors, excluding non-employee directors, and expires by its terms in February 2018. The Board of Directors, excluding non-employee directors, may amend, suspend or terminate the 2008 Formula Plan in whole or in part, provided that no such amendment, suspension or termination adversely affects previously granted awards without the consent of the award recipient. Any such amendment, suspension or termination may be subject to stockholder approval.

Under the 2008 Formula Plan, 100,000 shares of SMI’s common stock are reserved for issuance and awards are in the form of restricted stock. On the first business day following each annual meeting, beginning with the Company’s 2008 Annual Meeting, each non-employee director who is then a member of the Board shall receive a grant of restricted stock consisting of the number of shares equaling $60,000 divided by the average closing sale price for the twenty days immediately preceding the grant date, rounded up to the nearest whole share. Grants of restricted stock fully vest on the earlier of (i) the first grant date anniversary or (ii) the day before the Company’s next annual meeting following the grant date. Vesting is subject to continued service as a director through scheduled vesting dates. In the six months ended June 30, 2011 and 2010, the Company awarded a total of 15,556 and 15,120 shares of restricted stock to non-employee directors, and a total of 15,120 and 19,168 shares previously granted to non-employee directors vested during these periods and are no longer subject to forfeiture or restrictions on transferability. All restricted stock awards were granted and vested in accordance with plan provisions.

Terminated Formula Stock Option Plan for Directors—The Formula Stock Option Plan, which was for the benefit of the Company’s non-employee directors, was suspended in December 2007 and a new plan, as further described above, was approved by stockholders at the 2008 Annual Meeting. The Formula Stock Option Plan was terminated upon approval of the new plan. Prior to plan suspension and termination, before February 1 each year, individual non-employee directors were awarded an option to purchase 10,000 shares of common stock at an exercise price equal to the average fair market value per share for the ten-day period prior to award. Termination of the Formula Stock Option Plan did not adversely affect rights under any outstanding stock options previously granted. All options granted under this plan generally vested in six months, and expired ten years, from grant date.

Employee Stock Purchase Plan—No shares were granted to employees under the Employee Stock Purchase Plan for calendar years 2011 or 2010.

Share-Based Payments—The Company follows applicable authoritative guidance which generally requires recognizing compensation cost for the estimated grant-date fair value of stock options and other equity-based compensation over the requisite service period, and applies to all awards granted, modified, vesting, repurchased or cancelled after January 1, 2006. The Company’s practice has been to issue new shares upon option exercise; however, repurchases of shares in the open market are permitted. 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.

There were no significant changes in the characteristics of stock options or restricted stock granted during 2011 or 2010 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.

Share-based compensation cost for the three months ended June 30, 2011 and 2010 totaled $486,000 and $538,000, before income taxes of $194,000 and $218,000, and for the six months ended June 30, 2011 and 2010 totaled $943,000 and $976,000, before income taxes of $377,000 and $396,000, respectively, and is included in general and administrative expense. There were no capitalized share-based compensation costs at June 30, 2011 or December 31, 2010. As of June 30, 2011, there was approximately $223,000 of unrecognized compensation cost related to non-vested stock options granted under the 2004 Plan that is expected to be recognized over a weighted average period of 0.7 year, and none related to the 1994 Plan or the Formula Stock Option Plan. As of June 30, 2011, there was approximately $1,697,000 of total unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the 2004 Plan and the 2008 Formula Plan that is expected to be recognized over a weighted average period of 0.9 year.

See Note 11 to the Consolidated Financial Statements in our 2010 Annual Report for additional information and terms of the Company’s stock incentive, stock option, restricted stock and employee stock purchase plans.

SEGMENT DISCLOSURES
SEGMENT DISCLOSURES

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 and joint venture equity investee, are further described in Note 1 to the Consolidated Financial Statements in our 2010 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, and joint venture equity investee earnings or losses associated with motorsports merchandising. 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, SMI Trackside and MA joint venture 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 TSI non-event motorsports and non-motorsports merchandising, US Legend Cars non-event merchandising and sanctioning body activities, Oil-Chem micro-lubricant activities, and office rentals at certain Company speedways. As further described in Note 11, oil and gas activities are located in foreign countries and are accounted for as discontinued operations. All segment information below pertains to continuing operations, and excludes oil and gas discontinued operations, for all periods presented.

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 and other expense (income) and specified unusual 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 segment information on continuing operations is for the three and six months ended June 30, 2011 and 2010, and as of June 30, 2011 and December 31, 2010 (in thousands):

 

$0,000,000 $0,000,000 $0,000,000 $0,000,000 $0,000,000 $0,000,000
     Three Months Ended June 30:  
     2011     2010  
     Motorsports
Event
Related
    All
Other
     Consolidated     Motorsports
Event
Related
     All
Other
     Consolidated  

Revenues

   $ 148,142      $ 4,937       $ 153,079      $ 172,272       $ 5,370       $ 177,642   

Depreciation and amortization

     13,258        65         13,323        13,617         72         13,689   

Impairment of goodwill (Note 4)

     48,609        —           48,609        —           —           —     

Operating (loss) income

     (4,681 )     491         (4,190 )     52,705         308         53,013   

Capital expenditures

     23,723        133         23,856        7,535         5         7,540   
     Six Months Ended June 30:  
     2011     2010  
     Motorsports
Event
Related
    All
Other
     Consolidated     Motorsports
Event
Related
     All
Other
     Consolidated  

Revenues

   $ 230,093      $ 9,661       $ 239,754      $ 285,869       $  10,228       $ 296,097   

Depreciation and amortization

     26,440        133         26,573        27,190         146         27,336   

Impairment of goodwill (Note 4)

     48,609        —           48,609        —           —           —     

Operating income

     7,710        803         8,513        83,551         374         83,925   

Capital expenditures

     53,049        137         53,186        10,636         40         10,676   
     June 30, 2011     December 31, 2010  

Other intangibles

   $ 394,966      $ —         $ 394,966      $ 394,972       $ —         $ 394,972   

Goodwill intangibles

     138,717        —           138,717        187,326         —           187,326   

Total assets

     1,910,131        26,146         1,936,277        1,926,124         25,400         1,951,524   

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

 

$0,000,000 $0,000,000 $0,000,000 $0,000,000
     Three Months Ended
June 30:
    Six Months Ended
June  30:
 
     2011     2010     2011     2010  

Total segment operating (loss) income from continuing operations

   $ (4,190   $ 53,013      $ 8,513      $ 83,925   

Adjusted for:

        

Interest expense, net

     (10,114     (13,027     (21,361     (26,575

Loss on early debt redemption and refinancing (Note 5)

     (23     —          (7,456     —     

Other income, net

     12        507        32        387   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated (loss) income from continuing operations before income taxes

   $ (14,315   $ 40,493      $ (20,272 )   $ 57,737   
  

 

 

   

 

 

   

 

 

   

 

 

 
DISCONTINUED OIL AND GAS OPERATIONS
DISCONTINUED OIL AND GAS OPERATIONS

11. DISCONTINUED OIL AND GAS OPERATIONS

In the fourth quarter 2008, the Company decided to discontinue its oil and gas operations primarily because of ongoing challenges and business risks in conducting these activities in foreign countries, particularly Russia. These oil and gas operations have involved business, credit and other risks different from the Company’s motorsports operations, and the ability to invest and compete successfully and profitably has been subject to many factors outside management’s control. Many of the operating risks and challenges have involved difficult or restrictive governmental situations when attempting to conduct business, access or transfer assets or funds, or facilitate production and similar activities in Russia and other foreign countries. The net assets and operating results for these oil and gas activities are presented as discontinued operations in these consolidated financial statements for all periods using applicable authoritative guidance for discontinued operations and assets held for sale. Management believes these operations and assets meet the “held for sale” criteria under such guidance. Also, management believes these oil and gas activities continue to meet the criteria for “discontinued operations” because the Company plans to have no significant continuing involvement or retention of ownership interests after disposal.

SMIL presently owns an interest in one foreign entity owning certain oil and gas mineral rights in Russia, and significant uncertainties continue about its economic viability and ultimate recovery. In the second quarter 2010, SMIL sold its interest in one foreign entity to a third party owned by a former contracted service provider. These investments were reflected as fully impaired as of December 31, 2009 and through June 30, 2011. Sales consideration was based on the Company’s right to receive a specified portion of future profits (as defined), and the Company will receive a specified percentage of any gross sales price or prior year profits (as defined) should the interest be resold to another third party. No gain or loss from this sale was reflected because the Company has no remaining investment or liabilities. Also, because of uncertainty regarding recoverability, future gains, if any, would be recognized only if proceeds are received by the Company. At this time, the Company anticipates sale or transfer of the remaining foreign interest in 2011.

During the three and six months ended June 30, 2011, the Company incurred legal fees and other costs associated with efforts to sell its remaining foreign investment interest. Remaining estimated costs to sell or dispose, if any, have not yet been determined. During the three and six months ended June 30, 2010, the Company incurred costs primarily for legal and management fees associated with efforts to maximize and preserve remaining investment realizable value, if any, and recovery of previously reserved receivables through favorable settlements. There were no revenues generated from oil and gas activities in the three and six months ended June 30, 2011 or 2010. No interest expense, corporate general and administrative expense, transaction or transition service costs or continuing costs have been allocated to the discontinued operation for any period presented. There were no associated income tax benefits for the three and six months ended June 30, 2011 or 2010. At December 31, 2010, current assets represented a receivable related to a favorable settlement received in January 2011. These costs, fees and assets are associated with and reflected in the discontinued oil and gas operations. At June 30, 2011, the Company had no outstanding standby letters of credit associated with oil and gas activities.

As of June 30, 2011 and December 31, 2010, all receivables associated with oil and gas activities are fully reserved except for a favorable settlement recorded as of December 31, 2010 and received by the Company in January 2011. The Company recorded receivables of approximately $46,000 and $705,000 for the three months ended June 30, 2011 and 2010, and $145,000 and $1,531,000 for the six months ended June 30, 2011 and 2010, under its profit and loss sharing arrangement with Oasis Trading Group LLC (a US entity which provided oil and gas management and operational services to the Company), for that entity’s reimbursable share of these costs. Oasis’s ability to repay the Company this or any future amount is largely dependent on sufficient profitability and recovery from future oil and gas activities no longer Company owned, as described above, or from legal proceedings. As such, uncertainty exists regarding recoverability and the Company has recorded allowances to fully reserve these possibly uncollectible amounts as of June 30, 2011 and December 31, 2010, which are reflected as a component of loss from discontinued operation. See Note 8 for information on legal proceedings associated with oil and gas activities.

In discontinuing these operations, and prior to sale of the Company’s remaining interest, the Company may spend, depending on perceived possibilities, or be required to spend certain additional amounts or take legal action to protect or preserve its interests in order to maintain or maximize the potential recovery value, and to protect other aspects of the Company’s oil and gas investments. Such additional expenditures, although presently undeterminable, could become material depending on the facts, circumstances and ultimate outcome of any attempted recovery or resolution. Those costs, if significant, could have a material adverse effect on the Company’s future financial position, results of operations or cash flows. All future expenditures will likely be expensed and included in the results of discontinued operations.

See Note 14 to the Consolidated Financial Statements in our 2010 Annual Report for additional information on historical activities, accounting policies, and uncertainty involving recovery of fully impaired consolidated foreign investments and fully reserved receivables related to oil and gas activities.