SPEEDWAY MOTORSPORTS INC, 10-K filed on 3/7/2014
Annual Report
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Mar. 1, 2014
Jun. 30, 2013
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
SPEEDWAY MOTORSPORTS INC 
 
 
Document Type
10-K 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Common Stock, Shares Outstanding
 
41,383,904 
 
Entity Public Float
 
 
$ 213,097,887 
Amendment Flag
false 
 
 
Entity Central Index Key
0000934648 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Document Period End Date
Dec. 31, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Current Assets:
 
 
Cash and cash equivalents
$ 97,343 
$ 106,408 
Accounts and notes receivable, net
34,594 
36,382 
Prepaid and refundable income taxes
8,891 
6,125 
Inventories, net
8,605 
8,794 
Prepaid expenses
3,594 
3,552 
Deferred income taxes
49,181 
741 
Total Current Assets
202,208 
162,002 
Notes and Other Receivables:
 
 
Affiliates
3,294 
3,681 
Other
1,800 
1,493 
Other Assets
29,146 
27,830 
Property and Equipment, Net
1,105,177 
1,148,418 
Other Intangible Assets, Net
394,955 
394,972 
Goodwill (Note 2)
49,680 
138,717 
Total
1,786,260 
1,877,113 
Current Liabilities:
 
 
Current maturities of long-term debt
13,847 
17,709 
Accounts payable
10,519 
10,887 
Deferred race event and other income, net
57,888 
58,492 
Accrued interest
7,044 
6,231 
Accrued expenses and other current liabilities
21,656 
20,351 
Total Current Liabilities
110,954 
113,670 
Long-term Debt (Note 6)
453,142 
503,550 
Payable to Affiliate
2,594 
2,594 
Deferred Income, Net
6,932 
9,015 
Deferred Income Taxes
381,756 
385,736 
Other Liabilities
4,892 
4,672 
Total Liabilities
960,270 
1,019,237 
Commitments and Contingencies (Notes 2, 6, 7, 8, 10, and 11)
   
   
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 – 41,404,000 in 2013 and 41,433,000 in 2012
454 
453 
Additional Paid-in Capital
249,505 
246,978 
Retained Earnings
665,394 
696,727 
Treasury Stock at cost, shares – 3,999,000 in 2013 and 3,830,000 in 2012
(89,363)
(86,282)
Total Stockholders’ Equity
825,990 
857,876 
Total
$ 1,786,260 
$ 1,877,113 
Consolidated Balance Sheets (Parentheticals) (USD $)
Dec. 31, 2013
Dec. 31, 2012
Preferred stock par value (in Dollars per share)
$ 0.10 
$ 0.10 
Preferred stock, shares authorized
3,000,000 
3,000,000 
Preferred stock, shares issued
Common stock, par value (in Dollars per share)
$ 0.01 
$ 0.01 
Commons stock, shares authorized
200,000,000 
200,000,000 
Common Stock, shares issued
41,404,000 
41,433,000 
Common Stock, shares outstanding
41,404,000 
41,433,000 
Treasury Stock at cost, shares
3,999,000 
3,830,000 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Revenues:
 
 
 
Admissions
$ 106,050 
$ 116,034 
$ 130,239 
Event related revenue
145,749 
151,562 
163,621 
NASCAR broadcasting revenue
199,014 
192,662 
185,394 
Other operating revenue
29,836 
29,902 
26,591 
Total Revenues
480,649 
490,160 
505,845 
Expenses and Other:
 
 
 
Direct expense of events
99,500 
101,402 
106,204 
NASCAR purse and sanction fees
125,003 
122,950 
120,146 
Other direct operating expense
18,640 
18,908 
20,352 
General and administrative
91,676 
90,407 
89,384 
Depreciation and amortization
54,725 
55,499 
54,004 
Interest expense, net (Note 6)
31,871 
41,217 
42,112 
Impairment of goodwill (Note 2)
89,037 
 
48,609 
Loss on early debt redemption and refinancing (Note 6)
18,467 
 
7,456 
Other expense (income), net
293 
(3,908)
(342)
Total Expenses and Other
529,212 
426,475 
487,925 
(Loss) Income from Continuing Operations Before Income Taxes
(48,563)
63,685 
17,920 
Provision For Income Taxes (Note 8)
42,351 
(21,892)
(23,481)
(Loss) Income from Continuing Operations
(6,212)
41,793 
(5,561)
(Loss) Income from Discontinued Operation, Net of Taxes
(246)
326 
(883)
Net (Loss) Income
$ (6,458)
$ 42,119 
$ (6,444)
Basic (Loss) Earnings Per Share:
 
 
 
Continuing Operations (in Dollars per share)
$ (0.15)
$ 1.01 
$ (0.14)
Discontinued Operation (in Dollars per share)
$ (0.01)
$ 0.01 
$ (0.02)
Net (Loss) Income (in Dollars per share)
$ (0.16)
$ 1.02 
$ (0.16)
Weighted Average Shares Outstanding (in Shares)
41,405 
41,431 
41,524 
Diluted (Loss) Earnings Per Share:
 
 
 
Continuing Operations (in Dollars per share)
$ (0.15)
$ 1.01 
$ (0.14)
Discontinued Operation (in Dollars per share)
$ (0.01)
$ 0.01 
$ (0.02)
Net (Loss) Income (in Dollars per share)
$ (0.16)
$ 1.02 
$ (0.16)
Weighted Average Shares Outstanding (in Shares)
41,423 
41,437 
41,524 
Consolidated Statements Of Stockholders’ Equity (USD $)
In Thousands, except Share data
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Total
Balance at Dec. 31, 2010
$ 450 
$ 243,132 
$ 702,558 
$ (72)
$ (79,831)
$ 866,237 
Balance (in Shares) at Dec. 31, 2010
41,621,000 
 
 
 
 
 
Net income (loss)
 
 
(6,444)
 
 
(6,444)
Reduction for loss realization on marketable equity securities, net of tax (Note 1)
 
 
 
72 
 
72 
Share-based compensation
1,814 
 
 
 
1,815 
Share-based compensation (in Shares) (in Shares)
106,000 
 
 
 
 
 
Exercise of stock options (in Shares)
 
 
 
 
 
Cash dividends of common stock
 
 
(16,623)
 
 
(16,623)
Repurchases of common stock
 
 
 
 
(3,877)
(3,877)
Repurchases of common stock (in Shares) (in Shares)
(275,000)
 
 
 
 
 
Balance at Dec. 31, 2011
451 
244,946 
679,491 
 
(83,708)
841,180 
Balance (in Shares) at Dec. 31, 2011
41,452,000 
 
 
 
 
 
Net income (loss)
 
 
42,119 
 
 
42,119 
Share-based compensation
2,032 
 
 
 
2,034 
Share-based compensation (in Shares) (in Shares)
138,000 
 
 
 
 
 
Exercise of stock options (in Shares)
 
 
 
 
 
Cash dividends of common stock
 
 
(24,883)
 
 
(24,883)
Repurchases of common stock
 
 
 
 
(2,574)
(2,574)
Repurchases of common stock (in Shares) (in Shares)
(157,000)
 
 
 
 
 
Balance at Dec. 31, 2012
453 
246,978 
696,727 
 
(86,282)
857,876 
Balance (in Shares) at Dec. 31, 2012
41,433,000 
 
 
 
 
 
Net income (loss)
 
 
(6,458)
 
 
(6,458)
Share-based compensation
2,368 
 
 
 
2,369 
Share-based compensation (in Shares) (in Shares)
132,000 
 
 
 
 
 
Exercise of stock options
 
159 
 
 
 
159 
Exercise of stock options (in Shares)
8,000 
 
 
 
 
7,500 
Cash dividends of common stock
 
 
(24,875)
 
 
(24,875)
Repurchases of common stock
 
 
 
 
(3,081)
(3,081)
Repurchases of common stock (in Shares) (in Shares)
(169,000)
 
 
 
 
 
Balance at Dec. 31, 2013
$ 454 
$ 249,505 
$ 665,394 
 
$ (89,363)
$ 825,990 
Balance (in Shares) at Dec. 31, 2013
41,404,000 
 
 
 
 
 
Consolidated Statements Of Stockholders’ Equity (Parentheticals) (Common Stock [Member], USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Common Stock [Member]
 
 
 
Cash dividends, per share of common stock
$ 0.60 
$ 0.60 
$ 0.40 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Net (loss) income
$ (6,458,000)
$ 42,119,000 
$ (6,444,000)
Loss (income) from discontinued operation, net of tax
246,000 
(326,000)
883,000 
Cash (used) provided by operating activities of discontinued operation
(246,000)
326,000 
1,267,000 
Adjustments to reconcile income or loss from continuing operations to net cash provided by operating activities:
 
 
 
Impairment of goodwill
89,037,000 
 
48,609,000 
Loss on early debt redemption and refinancing, non-cash
6,386,000 
 
2,816,000 
Loss (gain) on disposals of property and equipment and other assets
62,000 
(3,145,000)
155,000 
Deferred loan cost amortization
2,386,000 
2,525,000 
2,499,000 
Interest expense accretion of debt discount and premium, net
5,000 
1,702,000 
1,860,000 
Depreciation and amortization
54,725,000 
55,499,000 
54,004,000 
Amortization of deferred income
(5,895,000)
(5,772,000)
(2,692,000)
Deferred income tax provision
(52,201,000)
24,119,000 
27,248,000 
Share-based compensation
2,224,000 
1,936,000 
1,885,000 
Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
797,000 
3,066,000 
1,802,000 
Prepaid, refundable and accrued income taxes
(2,766,000)
6,850,000 
(1,544,000)
Inventories
189,000 
(164,000)
752,000 
Prepaid expenses
144,000 
31,000 
331,000 
Accounts payable
118,000 
(1,227,000)
2,413,000 
Deferred race event and other income
2,545,000 
(4,685,000)
(5,618,000)
Accrued interest
813,000 
(29,000)
2,395,000 
Accrued expenses and other liabilities
1,595,000 
(1,419,000)
1,771,000 
Deferred income
393,000 
733,000 
4,113,000 
Other assets and liabilities
(276,000)
73,000 
(4,223,000)
Net Cash Provided By Operating Activities
93,823,000 
122,212,000 
134,282,000 
Borrowings under long-term debt
355,000,000 
 
330,000,000 
Principal payments on long-term debt
(413,000,000)
(53,000,000)
(388,000,000)
Payments of debt refinancing, debt issuance and loan amendment costs
(5,899,000)
 
(6,707,000)
Exercise of common stock options
159,000 
 
 
Dividend payments on common stock
(24,875,000)
(24,883,000)
(16,623,000)
Repurchases of common stock
(3,081,000)
(2,574,000)
(3,877,000)
Net Cash Used By Financing Activities
(91,696,000)
(80,457,000)
(85,207,000)
Payments for capital expenditures
(12,036,000)
(26,787,000)
(59,321,000)
Payment for other non-current assets
 
(30,000)
 
Proceeds from sales of property and equipment
160,000 
3,571,000 
1,336,000 
Distributions of short-term investments
 
 
975,000 
Repayment of notes and other receivables
684,000 
531,000 
3,103,000 
Net Cash Used By Investing Activities
(11,192,000)
(22,715,000)
(53,907,000)
Net (Decrease) Increase In Cash and Cash Equivalents
(9,065,000)
19,040,000 
(4,832,000)
Cash and Cash Equivalents at Beginning of Year
106,408,000 
87,368,000 
92,200,000 
Cash and Cash Equivalents at End of Year
97,343,000 
106,408,000 
87,368,000 
Supplemental Cash Flow Information:
 
 
 
Cash paid for interest, net of amounts capitalized
31,426,000 
41,610,000 
40,019,000 
Cash paid for income taxes
14,302,000 
2,856,000 
2,475,000 
Supplemental Non-cash Investing and Financing Activities Information:
 
 
 
Decrease in accounts payable for capital expenditures
486,000 
1,591,000 
2,890,000 
Increase in deferred income for exchange of property and equipment
$ 110,000 
$ 1,247,000 
$ 5,960,000 
Note 1 - Basis of Presentation and Description Of Business
Nature of Operations [Text Block]

1. BASIS OF PRESENTATION AND 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 (Sonoma Raceway or SR) (formerly known as Infineon Raceway), 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. (Legend Cars) (formerly known as 600 Racing), Oil-Chem Research Corporation (Oil-Chem), SMI Trackside LLC (SMI Trackside), Speedway Funding LLC, Speedway Motorsports International Limited (BVI) and consolidated foreign entity (SMIL), Speedway Properties Company LLC a/k/a Performance Racing Network (PRN), Speedway Media LLC a/k/a Racing Country USA (RCU), and TSI Management Company LLC d/b/a The Source International LLC (TSI) (collectively, the Company, SMI, we, our or us). Hereafter, references to “the Company’s” or “eight” speedways exclude NWS, which presently has no significant operations and assets consist primarily of real estate which has no significant fair value.


Description of Business – The Company is a promoter, marketer and sponsor of motorsports activities in the United States. The Company principally owns and operates the following motorsports facilities: Atlanta Motor Speedway, Bristol Motor Speedway, Charlotte Motor Speedway, Kentucky Speedway, Las Vegas Motor Speedway, New Hampshire Motor Speedway, Sonoma Raceway, and Texas Motor Speedway. The Company also provides event and non-event souvenir merchandising and distribution services, and food, beverage and hospitality catering services under an outside management contract (see Note 2), through our SMI Properties subsidiaries; provides radio programming, production and distribution through PRN and RCU; manufactures and distributes smaller-scale, modified racing cars and parts through Legend Cars, and sells an environmentally-friendly micro-lubricant® through Oil-Chem. Before February 1, 2014, the Company also provided souvenir merchandising services through its Motorsports Authentics joint venture (see Note 2).


Racing Events – As further described in Note 2, the Company derives a substantial portion of its total revenues from admissions, event related and NASCAR broadcasting revenue. In 2013, the Company held 24 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 11 Nationwide Series racing events. The Company also held six NASCAR Camping World Truck Series, three NASCAR K&N Pro Series, four NASCAR Whelen Modified Tour, two IndyCar Series, six major National Hot Rod Association, one Automobile Racing Club of America and three World of Outlaws racing events. In 2012, the Company held 24 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 11 Nationwide Series racing events. The Company also held eight NASCAR Camping World Truck Series racing events, four NASCAR K&N Pro Series racing events, four NASCAR Whelen Modified Tour, two IndyCar Series racing events, six major NHRA racing events, and three WOO racing events. In 2011, the Company held 23 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 10 Nationwide Series racing events, nine NASCAR Camping World Truck Series, four NASCAR K&N Pro Series, five NASCAR Whelen Modified Tour, five IndyCar Series, six major NHRA, and three WOO racing events.


The more significant racing schedule changes during the last three years include:


 

In 2013, one NASCAR Sprint Cup and one Nationwide Series race at both CMS and KyS, and one NASCAR Sprint Cup Series race at SR, was delayed, rescheduled or shortened due to poor weather

 

AMS held one NASCAR Camping World Truck Series race in 2012 and 2011 that was not held in 2013

 

In 2011, one NASCAR Sprint Cup Series race at AMS was postponed and rescheduled due to poor weather

 

LVMS held one IndyCar Series race in 2011 that was not held in 2013 or 2012

 

KyS held one NASCAR Nationwide Series race in 2013 and 2012 that was not held in 2011, one ARCA race in 2013 that was not held in 2012 or 2011, one NASCAR Camping World Truck Series race in 2012 and 2011 that was not held in 2013, and one IndyCar Series race in 2011 that was not held in 2013 or 2012

 

NHMS held one NASCAR Camping World Truck Series race in 2011 that was not held in 2013 or 2012, and one IndyCar Series race in 2011 that was not held in 2013 or 2012


Comprehensive Income or Loss Presentation – The Company had no accumulated other comprehensive income or loss after December 31, 2011, and no components of other comprehensive income or loss separate from net income or loss, that require presentation either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company’s Consolidated Statement of Stockholder’s Equity for 2011 reflects recognized losses of $72,000 net of tax for management’s assessment that the declines in fair value of these securities were other than temporary. There were no remaining unrealized gains or losses, accumulated other comprehensive income or loss, or other items of comprehensive income or loss. Management believes those 2011 transactions are insignificant for separate presentation under applicable accounting standards.


Discontinued Oil and Gas Activities (Note 14) – In 2008, the Company discontinued its oil and gas operations primarily because of ongoing challenges and business risks in conducting these activities in foreign countries. Those operations are presented herein as discontinued operations and all note disclosures pertain to continuing operations unless otherwise indicated.


Note 2 - Significant Accounting Policies
Significant Accounting Policies [Text Block]

2. SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation – All significant intercompany accounts and transactions have been eliminated in consolidation.


Revenue and Expense Recognition – The Company classifies its revenues as admissions, event related revenue, NASCAR broadcasting revenue, and other operating revenue. “Admissions” includes ticket sales for all Company events. “Event related revenue” includes amounts received from sponsorships and naming rights fees (expired in 2012), luxury suite rentals, souvenir sales, commissions from food and beverage sales, advertising and other promotional revenues, hospitality revenues, track rentals, driving school revenues, camping and other non-admission access revenues, broadcasting rights other than NASCAR broadcasting revenue, and other event and speedway related revenues. “NASCAR broadcasting revenue” includes rights fees obtained for domestic television broadcasts of NASCAR-sanctioned events held at the Company’s speedways. “Other operating revenue” includes non-event merchandising revenues and Legend Cars and parts sales, The Speedway Club at CMS and The Speedway Club at TMS (together the “Speedway Clubs”) revenues, Oil-Chem revenues, TMS oil and gas mineral rights lease revenues, and industrial park and office tower rentals.


The Company classifies its expenses to include direct expense of events, NASCAR purse and sanction fees, and other direct operating expense, among other categories. “Direct expense of events” principally includes cost of souvenir sales, non-NASCAR race purses and sanctioning fees, property and event insurance, compensation of certain employees, advertising, sales and admission taxes, outside event support services, cost of driving school revenues, and event settlement payments to non-NASCAR sanctioning bodies. “NASCAR purse and sanction fees” includes payments to, and portions of broadcasting revenues retained by, NASCAR for associated events held at the Company’s speedways. “Other direct operating expense” includes the cost of certain SMI Properties and subsidiaries, Legend Cars, Speedway Clubs, Oil-Chem, and industrial park and office tower rental revenues.


Event Revenues and Deferred Race Event Income, Net – The Company recognizes admissions, NASCAR broadcasting and event related revenues when an event is held. Event souvenir merchandise sales and commissions from food and beverage sales are recognized at time of sale. Advance revenues and certain related direct expenses pertaining to specific events are deferred until the event is held. Deferred expenses can include race purses and sanction fees remitted to or retained by NASCAR or other sanctioning bodies and sales and admission taxes and credit card processing fees on advance revenues. Deferred race event income relates to scheduled events to be held in upcoming periods. If circumstances prevent a race from being held during the racing season: (i) generally advance revenue is refundable and (ii) all deferred direct event expenses would be immediately recognized except for race purses and sanction fees which would be refundable from NASCAR or other sanctioning bodies, and for sales and admission taxes which would be refundable from taxing authorities. Management believes this accounting policy results in appropriate matching of revenues and expenses associated with the Company’s racing events and helps ensure comparability and consistency between its financial statements. Advance revenues, and certain related direct expenses, if any, for track rentals, driving schools and similar activities are deferred and recognized when the activities take place. Management believes its revenue recognition policies follow applicable authoritative guidance. Sales of gift cards for tickets, merchandise or other redemption use have not been significant.


NASCAR Broadcasting Revenues and NASCAR Purse and Sanction Fees – NASCAR contracts directly with certain television networks on broadcasting rights for all NASCAR-sanctioned Sprint Cup, Nationwide and Camping World Truck Series racing events. The Company receives television broadcasting revenues under annual contractual sanction agreements for each NASCAR-sanctioned race. The Company negotiates its sanction fees for individual races with NASCAR on an annual basis. Under the sanction agreements, NASCAR typically retains 10% of gross broadcasting revenues as a component of their sanction fees. NASCAR also retains 25% of gross broadcasting revenues for purses awarded to race participants for each race. The remainder represents additional annually negotiated purse and sanction fees paid to NASCAR by the Company for each race. These amounts retained by and paid to NASCAR are reflected in NASCAR purse and sanction fee expense.


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 when in place. These various marketing agreements can be event, speedway or period specific, or pertain to multiple events, speedways or years. Marketing agreements that are not event specific typically contain stated fiscal year periods. 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 on a straight-line basis as events are conducted each year in accordance with the respective agreement terms. Deferred revenue recognizable in each upcoming fiscal year is reflected as current liabilities in deferred race event and other income.The Company had one facility naming rights agreement that renamed Sears Point Raceway as Infineon Raceway, which expired in 2012. This naming rights agreement has provided significant contracted revenues over its ten-year term. However, the annual contracted revenue received by the Company under this agreement individually was not material. The facility has been renamed Sonoma Raceway, and associated costs were not significant.


Long-Term Food and Beverage Management Contract – Levy Premium Foodservice Limited Partnership, wholly-owned by Compass Group USA, Inc. (Levy), has exclusive rights to provide on-site food, beverage and hospitality catering services for essentially all Company speedway events and operations under a long-term food and beverage management contract. The contract commenced in 2002 and was renewed for an additional ten-year period through 2021. The long-term agreement provides for, among other items, specified annual fixed and periodic gross revenue based commission payments to the Company over the contract period. The Company’s commission-based net revenues associated with activities provided by Levy are reported in event related revenue and at times, to a lesser extent, other operating revenue depending on the venue.


Non-Event Souvenir Merchandise and Other Revenues – The Company recognizes revenue when products are shipped, title transfers to customers, right of return or cancellation provisions expire, sales prices are final and collection is probable. For products sold on consignment through various promotional activities, revenues are recognized upon product shipment by promoters to customers, or purchase by reseller customers, and expiration of any right of return or cancellation provisions. Product sold on consignment with right of return or cancellation provisions has not been significant.


Joint Venture Equity Investment – Before February 2014, the Company and International Speedway Corporation equally owned a joint venture (50% non-controlling interest) operating independently under the name Motorsports Authentics. MA’s operations consist principally of trackside and, to a lesser extent, wholesale and retail event souvenir merchandising as licensed and regulated under NASCAR Teams Licensing Trust (NASCAR Trust) agreements. From time to time, MA operations also include fulfillment and warehousing services for certain NASCAR Trust designated distributors. The NASCAR Trust has the ability to significantly influence MA’s future operations and results. On January 31, 2014, the Company abandoned its interest and rights in MA to focus management resources in areas that may be profitable and more productive. The Company’s investment in MA has been fully impaired for several years as further discussed below. The Company recognized an anticipated material tax benefit related to abandonment as of December 31, 2013 as further described in Note 8. There was no other impact on the Company’s December 31, 2013 consolidated financial statements.


The equity method has been used to account for this joint venture as the Company had equity ownership of 50%. MA has a November 30 fiscal year end that the Company adopted for reporting its share of MA’s operating results. The Company reflects its 50% share of MA’s net income or loss based on their most recent annual audited financial statements in “equity investee earnings or losses” for its fiscal year ended December 31 using the equity method as further described below. MA reports sales and other taxes collected from customers on a gross basis. All significant unrealized intercompany profits or losses pertain to unsold merchandise and have been eliminated in applying the equity method of accounting. No dividends have been declared or paid since formation of MA. The Company’s share of undistributed equity deficit from equity investee earnings and losses included in the Company’s retained earnings was approximately $133,974,000 at both December 31, 2013 and 2012. There were no significant differences in investor cost and underlying equity in the net assets of MA at acquisition.


MA Operating Results and Investment Impairment. MA results for each of the three years ended 2013 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. Also, MA’s 2012 results reflect gains from property and equipment sales, certain favorable settlements and recoveries and minimal positive net cash flows from operations. The carrying value of the Company’s equity investment in MA was reduced to $0 as of December 31, 2009 from sizable 2009 (and 2007) impairment charges and MA’s historical operating results. Because of uncertainty about MA’s ability to achieve sustained profitability (before abandonment), management continued to believe MA’s estimated fair value remained $0 under applicable authoritative impairment evaluation guidance. Under equity method accounting, the Company no longer recorded its 50% share of MA operating losses, if any, unless and until this carrying value was increased to the extent of future MA operating profits, if any. As such, the Company’s 2013, 2012 and 2011 results were not impacted by MA’s operations under the equity method, and no income tax benefits were recognized in these years other than related to aforementioned Company abandonment. These MA results, when recognized under the equity method, are included in the Company’s “motorsports event related” reporting segment (see Note 13).


The Company follows applicable authoritative guidance whereby declines in estimated investment fair value below carrying value assessed as other than temporary are recognized as a charge to earnings to reduce carrying value to estimated fair value. The inputs for measuring MA 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’s evaluation is subjective and based on conditions, trends and assumptions existing at the time of evaluation. MA is not considered significant for the three year periods ended 2013 under applicable SEC rules and the reports of the auditors on their financial statements for those periods are not included in this filing. The following table presents summarized financial information for MA as of November 30, 2013 and 2012 and for the three years ended November 30, 2013 (coinciding with MA’s fiscal years) (in thousands):


   

2013

   

2012

   

2011

 

Current assets

  $ 10,925     $ 13,195    

 

Noncurrent assets

    403       469    

 

Current liabilities

    4,154       6,733    

 

Noncurrent liabilities

    1,242       1,819    

 

Net sales

    30,510       34,041     $ 34,788  

Gross profit

    17,168       18,921       19,056  

Income (loss) income from continuing operations

    820       1,747       (1,019

)

Net income (loss)

    820       1,747       (1,019

)


Revenue Composition (Note 13) – The Company’s revenues are comprised of the following (in thousands):


   

2013

   

2012

   

2011

 

Admissions

  $ 106,050     $ 116,034     $ 130,239  

NASCAR broadcasting

    199,014       192,662       185,394  

Sponsorships

    54,832       57,633       63,378  

Other event related

    78,106       81,019       85,256  

Souvenir and other merchandise

    31,005       31,634       33,677  

Other

    11,642       11,178       7,901  

Total revenue

  $ 480,649     $ 490,160     $ 505,845  

Revenues described as “other event related” consist principally of commissions from food, beverage and souvenir sales, luxury suite rentals, advertising and other promotional revenues, hospitality revenues, track rentals, driving school revenues, camping and other non-admission access revenues, broadcasting rights other than NASCAR broadcasting revenue, and other event and speedway related revenues. “Souvenir and other merchandise revenue” consists of SMI Properties and SMI Trackside sales of owned souvenir merchandise during racing and non-racing events and in speedway gift shops (motorsports event related merchandise), certain SMI Properties sales of racing and other sports related souvenir merchandise and Legend Cars operations (non-event motorsports related merchandise), and Oil-Chem product sales (non-motorsports related merchandise). “Other revenue” consists principally of revenues from the Speedway Clubs, industrial park and office tower rentals, Legend Cars as the sanctioning body for Legend Cars circuit races, and TMS oil and gas mineral rights lease revenues.


Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires extensive use of management estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at financial statement dates, and reported amounts of revenues and expenses. Actual future results could differ from those estimates. Such significant estimates include (i) recoverability of property and equipment, goodwill and other intangible assets, and equity investments in associated entities, (ii) depreciable lives for property and equipment and amortization periods for intangible assets, (iii) accounting for income taxes, (iv) realization of receivables and inventories, (v) accruals for uninsured business risks, litigation, and other contingencies, and (vi) disclosures of stock-based compensation.


Cash and Cash Equivalents – The Company classifies as cash equivalents all highly liquid investments with original maturities of three months or less. Cash equivalents principally consist of variable rate, overnight sweep accounts of commercial paper, repurchase agreements, municipal bond and United States Treasury securities.


Accounts and Notes Receivable are reported net of allowance for doubtful accounts summarized as follows (in thousands):


   

2013

   

2012

   

2011

 

Balance, beginning of year

  $ 1,270     $ 1,345     $ 1,588  

Bad debt expense

    253       189       276  

Actual write-offs, net of specific accounts recovered

    (250

)

    (264

)

    (519

)

Balance, end of year

  $ 1,273     $ 1,270     $ 1,345  

Other Noncurrent Assets as of December 31, 2013 and 2012 consist of (in thousands):


   

2013

   

2012

 

Deferred financing costs, net

  $ 9,162     $ 8,613  

Land held for development

    12,265       12,265  

Other

    7,719       6,952  

Total

  $ 29,146     $ 27,830  

Noncurrent assets are generally reported at cost except for cash surrender values of life insurance policies which are reported at fair value. Management evaluates these assets for recovery when events or circumstances indicate possible impairment may have occurred. As of December 31, 2013, there have been no events or circumstances which might indicate possible recoverability concerns or impairment.


Deferred Financing Costs are amortized into interest expense over the associated debt terms of approximately five to six years (or remaining terms for loan amendment costs), and are reported net of accumulated amortization of $6,850,000 and $8,021,000 at December 31, 2013 and 2012. See Note 6 for information on 2013 and 2011 charges associated with previously deferred financing costs.


Original Debt Issuance Discount or Premium is amortized into interest expense over the associated debt terms using the effective interest method.


Land Held For Development represents property adjacent to a regional outlet mall in the Charlotte metropolitan area which management plans to develop and market or possibly sell in suitable market conditions.


Property and Equipment (Note 4) are recorded at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements pertain primarily to industrial park, office and warehouse facilities, and are amortized using the straight-line method over the lesser of associated lease terms or estimated useful lives. Constructed assets, including construction in progress, include all direct costs and capitalized interest until placed into service. Expenditures for repairs and maintenance are charged to expense when incurred, unless useful asset lives are extended or assets improved. When events or circumstances indicate possible impairment may have occurred, the Company evaluates long-lived assets, including tangible assets and intangible assets subject to amortization, for possible impairment based on expected future undiscounted operating cash flows attributable to such assets using applicable authoritative guidance. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of other assets and liabilities when assessing impairment. When improvement projects produce a higher economic yield and require demolition of a component of a speedway facility, capitalization of demolition, construction and historical component costs are limited to the revised estimated value of the project. Also, assets are classified as held for sale when management determines that sale is probable within one year. Management believes no impairment of long-lived assets used in continuing operations exists at December 31, 2013.


In connection with the development and completed construction of TMS in 1997, the Company entered into arrangements with the FW Sports Authority, a non-profit corporate instrumentality of the City of Fort Worth, Texas, whereby the Company conveyed the speedway facility, excluding its on-site condominiums and office and entertainment complex, to the FW Sports Authority. The Company, which has the right to reacquire the facility, operates the speedway facility under a 30-year arrangement with the FW Sports Authority. Because of the Company’s responsibilities, including associated risks, rewards and obligations, under these arrangements, the speedway facility and related liabilities are included in the accompanying consolidated balance sheets.


Goodwill and Other Intangible Assets (Note 5) 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. No direct costs for agreement renewal or extension have been incurred or capitalized. However, we are obligated to conduct events in the manner stipulated under the terms and conditions of the annual sanctioning agreements. 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.


Annual Impairment Assessment. The Company evaluates goodwill and other intangible assets for possible impairment annually in the second quarter, or when events or circumstances indicate possible impairment may have occurred. Management considers each speedway and motorsports and non-motorsports merchandising subsidiary a separate reporting unit principally because that is the lowest level for which discrete financial information is available to the Company’s managers and chief operating decision maker. No reporting units are aggregated for purposes of evaluating intangible assets for possible impairment. The Company evaluates intangible assets for possible impairment based predominately on management’s best estimate of future discounted operating cash flows and profitability attributable to such assets (using the fair value assessment provisions of applicable authoritative guidance) for all individual reporting units.


The evaluation is supported by quoted market prices or comparable transactions where available or applicable. Management considered that the estimated market value for comparable NASCAR race event sanction and renewal agreements based on historical sales transactions (the Company had agreements to annually conduct thirteen NASCAR Sprint Cup, eleven NASCAR Nationwide, and six NASCAR Camping World Truck Series races as of the evaluation date), combined with the estimated fair value for all other Company net assets, exceeds its current market capitalization. Management also considered recent market trading ranges of price to earnings and sales multiples, cash flow and other traditional valuation methods, control premiums, and other market information related to the Company’s common stock from historical and forward-looking perspectives. Such information was also compared to available market information for certain motorsports industry peers. Weighting of evaluation results was not required as none of the methods, individually or collectively, indicated possible impairment. Despite ongoing domestic and global economic challenges, management believes there has been no fundamental change in the Company’s core motorsports business. The inputs for measuring fair value are considered “Level 3” or unobservable inputs that are not corroborated by market data under applicable fair value authoritative guidance, as quoted market prices are not available.


Management’s latest annual impairment assessment was performed in the second quarter 2013, and there have since been no events or circumstances that indicate possible unrecognized impairment as of December 31, 2013. Management believes the methods used to determine fair value and evaluate impairment were appropriate, relevant, and represent methods customarily available and used for such purposes and are the best available estimate of fair value. Also, management believes the Company’s operational and cash flow forecasts support its conclusions. 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.


2013 Impairment of Goodwill. Management's 2013 annual impairment assessment indicated the estimated fair value of each reporting unit and each indefinite-lived intangible asset substantially exceeded its associated carrying value except for two reporting units. Among other factors, the assessment assumes economic and industry condition improvements, and projected cash flow and profitability recovery, to pre-recession levels through modest annual growth rates for periods of approximately eight years depending on the associated projected revenue stream, and strategic amounts of planned capital expenditures. Management also assumed that increases in contracted NASCAR television broadcasting rights revenues after 2014 would approximate those reflected in the recently negotiated multi-year contracts beginning in 2015. The Company previously reported its 2012 annual evaluation had found that estimated fair values for NHMS and KyS reporting units exceeded their carrying values with associated risk of failing step one of impairment testing. The 2013 annual evaluation found the carrying values for NHMS and KyS exceeded estimated fair value reflecting lowered estimated future cash flows because the economic recovery has been slower and weaker than previous forecasts, and lower than anticipated revenues for certain 2013 major racing events at NHMS and KyS, further reducing visibility on profitability recovery. As such, a non-cash impairment charge of $89,037,000, before income tax benefits of $2,341,000, was reflected in 2013 to reduce goodwill related to NHMS and KyS to estimated fair value of $0. Of that charge, goodwill for NHMS of $82,725,000 originated upon recording deferred tax liabilities associated with race date intangibles established under purchase method accounting rules over and above NHMS’s net cash purchase price as further described below.


2011 Impairment of Goodwill. Management’s 2011 annual impairment assessment considered the approved realignment of an annual NASCAR Sprint Cup racing event from AMS to KyS beginning in 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 2011 to reduce goodwill related to NHMS to estimated fair value. The Company previously reported its 2010 annual evaluation had found the estimated fair value for this reporting unit exceeded carrying values. The 2011 annual evaluation reflected 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 NHMS goodwill discussed above 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. These impairments do not pertain to or affect the underlying value of the Company’s race date intangibles. The 2013 and 2011 charges and associated operations are included in the Company’s "motorsports event related" reporting segment (see Note 13).


Deferred Income, Net (noncurrent) as of December 31, 2013 and 2012 consists of (in thousands):


   

2013

   

2012

 

Preferred Seat License fees, net

  $ 3,635     $ 4,076  

Multi-year marketing and other arrangements, and deferred membership income

    3,297       4,939  

Total

  $ 6,932     $ 9,015  

Preferred Seat License Fees, Net. KyS and TMS offer Preferred Seat License (PSL) agreements whereby licensees are entitled to purchase annual season-ticket packages for sanctioned racing events under specified terms and conditions. Among other items, licensees are required to purchase all season ticket packages when and as offered each year. License agreements automatically terminate without refund should licensees not purchase any offered ticket and are transferable once each year subject to certain terms and conditions. Also, licensees are not entitled to refunds for postponement or cancellation of events due to weather or certain other conditions. Net PSL fees are deferred when received and amortized into income over the estimated useful life of those facilities or recognized upon license agreement termination.


Deferred Speedway Club Membership Income. The CMS and TMS Speedway Clubs sell memberships that entitle members to certain dining, other club and racing event seating privileges, and require upfront fees and monthly assessments. Net membership revenues are deferred when billed and amortized into income over an estimated average membership term of ten years.


TMS Oil and Gas Mineral Rights Lease Receipts. TMS, in conjunction with the Fort Worth Sports Authority, has an oil and gas mineral rights lease agreement which, among other things, provides the lessee various defined property access and right-of-ways, exclusive exploration and extraction rights, and non-interference by TMS should extraction infrastructure construction and operations commence. TMS is required to coordinate directly with the lessee on roadway and pipeline logistics to prevent interference of TMS or lessee activities, and monitor regulatory and other contract compliance. An upfront cash payment received in December 2011 has been accreted into other operating revenue over the initial two-year agreement term on a straight-line basis. Amounts recognized were $3,117,000 in 2013, $3,210,000 in 2012 and in 2011 were not significant. As of December 31, 2013 and 2012, associated deferred income was $0 and $3,117,000, and was reflected in deferred race event and other income. Although the initial agreement term expired in December 2013, the lessee initiated drilling activities prior to expiration, resulting in the lease remaining enforceable as long as drilling or extraction related activities continue. Through a combination of this lease and other agreements, including a joint exploration agreement, with the Fort Worth Sports Authority, if and when oil and gas extraction commences or upon meeting certain price levels, this lease agreement can be extended and TMS entitled to stipulated stand-alone and shared royalties. At this time, although extraction is expected to commence in 2014, management is unable to determine possible volumes of production if any or if stipulated price levels will be met.


Deferred Income, Other Arrangements. In late 2013, BMS announced plans to host a collegiate football game in September 2016. As of December 31, 2013, advance revenues and associated direct expenses were insignificant. Under the similar accounting policy for event revenues and expenses described above, the Company plans to continue to defer advance revenues and direct expenses pertaining to this event until held.


Advertising Expenses – Event specific advertising costs are expensed when an associated event is held and included principally in direct expense of events. Non-event related advertising costs are expensed as incurred and included principally in other direct operating expense. Advertising expense amounted to $17,461,000 in 2013, $18,644,000 in 2012 and $18,438,000 in 2011. There were no deferred direct-response advertising costs at December 31, 2013 or 2012.


Operating Leases – The Company has various operating leases principally for office and warehouse space and for equipment used in conducting racing events and other operations. These operating leases typically have initial terms of less than one year or are cancelable with minimal notice, although certain operating equipment leases include multi-year terms. Rent expense for operating leases amounted to $5,923,000 in 2013, $6,124,000 in 2012 and $5,999,000 in 2011. Various office and warehouse facilities leased from an affiliate (see Note 9) are cancelable with minimal notice; however, such lease arrangements will likely be renewed annually through specific contract periods. The Company leases various office, warehouse and industrial park space under operating leases to various entities largely involved in motorsports. These operating leases typically have initial terms of one year or more and are noncancelable. Lease revenue for operating leases, excluding the TMS oil and gas mineral rights lease receipts discussed above, amounted to $4,835,000 in 2013, $4,482,000 in 2012 and $4,275,000 in 2011.


Future annual minimum lease payments (where initial terms are one year or more and assuming renewal through contracted periods), and contracted future annual minimum lease revenues, under operating leases at December 31, 2013 are as follows (in thousands):


   

Lease

Payments

   

Lease

Revenues

 

2014

  $ 1,493     $ 3,894  

2015

    800       2,849  

2016

    484       2,018  

2017

    424       1,550  

2018

    249       857  

Thereafter

    800       253  

Total

  $ 4,250     $ 11,421  

Other Expense (Income), Net consists of (in thousands):


   

2013

   

2012

   

2011

 

(Income) loss associated with property sales and other assets

 

    $ (3,152

)

  $ 109  

Net loss on abandonment and disposals of property and equipment

  $ 62       7       46  

Other

    231       (763

)

    (497

)

Total

  $ 293     $ (3,908

)

  $ (342

)


Income Taxes (Note 8) – The Company recognizes deferred tax assets and liabilities for the future income tax effect of temporary differences between financial and income tax bases of assets and liabilities. Income taxes are provided using the liability method whereby estimated deferred income taxes, and significant items giving rise to deferred tax assets and liabilities, reflect management’s assessment of future taxes likely to be paid, including timing, probability of realization and other relevant factors. 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. The Company reports interest expense and penalties related to income tax liabilities, when applicable, in income tax expense. 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.


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.


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 amounted to $5,455,000 in 2013, $5,721,000 in 2012 and $6,498,000 in 2011.


Fair Value of Financial Instruments – The Company follows applicable authoritative guidance which requires that financial and non-financial assets and liabilities measured and reported on a fair value basis be classified, disclosed and categorized as further described below. Fair value estimates are based on relevant market information and single broker quoted market prices where available at a specific point in time, and changes in assumptions or market conditions could significantly affect estimates. The carrying values of cash and cash equivalents, accounts and notes receivable, certain other assets and accounts payable approximate fair value because of the short maturity of these financial instruments. Cash surrender values are carried at fair value based on binding broker quoted market prices. Notes and other receivables and bank revolving credit facility and term loan borrowings are variable interest rate financial instruments and, therefore, carrying values approximate fair value. The fixed rate senior notes payable are publicly traded and estimated fair values are based on single broker quoted market prices. Other long-term debt is non-interest bearing and discounted based on estimated current cost of borrowings and, therefore, carrying values approximate market value. Quoted market prices are not available for determining market value of the Company’s equity investment in an associated entity. There have been no changes or transfers between category levels or classes.


The following table presents estimated fair values and categorization levels of the Company’s financial instruments as of December 31, 2013 and 2012 (in thousands):


             

December 31, 2013

   

December 31, 2012

 
   

Level

 

Class

 

Carrying

Value

   

Fair Value

   

Carrying

Value

   

Fair Value

 

Assets

                                         

Cash and cash equivalents

    1  

R

  $ 97,343     $ 97,343     $ 106,408     $ 106,408  

Floating rate notes receivable

    2  

NR

    2,005       2,005       2,385       2,385  

Cash surrender values

    2  

NR

    4,937       4,937       4,621       4,621  

Liabilities

                                         

Floating rate revolving Credit Facility, including Term Loan

    2  

NR

    210,000       210,000       95,000       95,000  

63/4% Senior Notes due 2019

    1  

NR

    254,197       265,000       150,000       159,000  

83/4% Senior Notes previously due 2016 (Note 6)

    1  

NR

 

   

      270,758       292,875  

Other long-term debt

    2  

NR

    2,792       2,792       5,501       5,501  

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.


Concentrations of Credit Risk – Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, accounts and notes receivable, and cash surrender values. Concentration of credit risk with respect to cash and cash equivalents and cash surrender values is limited through placement with major high-credit qualified financial institutions and insurance carriers, respectively. 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.


Loss and Other Contingencies and Financial Guarantees – The Company accrues a liability for contingencies if the likelihood of an adverse outcome is probable and the amount is estimable. Legal and other costs associated with loss contingencies are expensed as incurred. The Company accounts for financial guarantees using applicable authoritative guidance which requires, among other things, that guarantors recognize a liability for the fair value of obligations undertaken by issuing a guarantee.


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. Landfilling for construction and demolition debris 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.


Recently Issued Accounting Standards – The FASB issued Accounting Standards Update No. 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” whereby an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent those three items are not available at the reporting date under tax law of applicable jurisdictions to settle additional income taxes that would result from the disallowance of a tax position or such tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. The assessment of whether deferred tax assets are available is based on unrecognized tax benefits and deferred tax assets existing at the reporting date, and should be made presuming disallowance of associated tax positions at that date. The guidance is effective for fiscal years and interim periods beginning after December 15, 2013, applies prospectively to all unrecognized tax benefits existing at the effective date, and does not require new recurring disclosures. Early and retrospective adoption is permitted. The Company is currently evaluating the potential impact that adoption may have on its financial statements.


Note 3 - Inventories
Inventory Disclosure [Text Block]

3. INVENTORIES


Inventory costs consist of: (i) souvenirs and 5/8-scale and similar small-scale finished race cars determined on a first-in, first-out basis; and (ii) souvenirs and apparel, micro-lubricant®, and parts and accessories product costs determined on an average current cost basis. No general and administrative costs are included in inventory costs. Cost of sales are charged using the same inventory cost bases. Inventories as of December 31, 2013 and 2012 consist of (in thousands):


   

2013

   

2012

 

Finished race cars, parts and accessories

  $ 5,372     $ 5,591  

Souvenirs and apparel

    2,409       2,599  

Micro-lubricant® and other

    824       604  

Total

  $ 8,605     $ 8,794  

All inventories are stated at the lower of cost or market value 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. Inventories are reflected net of provisions summarized as follows (in thousands):


   

2013

   

2012

   

2011

 

Balance, beginning of year

  $ 4,757     $ 5,765     $ 5,938  

Current year provision

    53       216       344  

Current year sales and write-offs

    (727

)

    (1,224

)

    (517

)

Balance, end of year

  $ 4,083     $ 4,757     $ 5,765  

Note 4 - Property and Equipment
Property, Plant and Equipment Disclosure [Text Block]

4. PROPERTY AND EQUIPMENT


Property and equipment as of December 31, 2013 and 2012 is summarized as follows (dollars in thousands):


   

Estimated

Useful Lives

   

2013

   

2012

 

Land and land improvements

  5 - 25     $ 457,179     $ 454,828  

Racetracks and grandstands

  5 - 45       749,510       747,613  

Buildings and luxury suites

  5 - 40       450,495       449,105  

Machinery and equipment

  3 - 20       44,175       45,147  

Furniture and fixtures

  5 - 20       35,072       33,962  

Autos and trucks

  3 - 10       11,899       11,811  

Construction in progress

              4,768       1,578  

Total

              1,753,098       1,744,044  

Less accumulated depreciation

              (647,921

)

    (595,626

)

Net

            $ 1,105,177     $ 1,148,418  

Other Information – Depreciation expense amounted to $54,671,000 in 2013, $55,444,000 in 2012 and $53,956,000 in 2011. As of December 31, 2013, the Company had contractual obligations for capital expenditures of approximately $6.5 million for facility improvements at our various speedways, including TMS’s high-definition video board.


Note 5 - Goodwill and Other Intangible Assets
Goodwill and Intangible Assets Disclosure [Text Block]

5. GOODWILL AND OTHER INTANGIBLE ASSETS


The composition and accounting for intangible assets are further described in Note 2. As of December 31, 2013 and 2012, gross carrying values and accumulated amortization by class of intangible asset are as follows (dollars in thousands):


   

2013

   

2012

         
   

Gross

Carrying

Value

   

Accumulated

Amortization

   

Net

   

Gross

Carrying

Value

   

Accumulated

Amortization

   

Net

   

Estimated

Amortization

Period

(Years)

Nonamortizable race event sanctioning and renewal agreements

  $ 394,913    

    $ 394,913     $ 394,913    

    $ 394,913    

Amortizable race event sanctioning and renewal agreements

    100     $ (58

)

    42       100     $ (41

)

    59     5 - 6

Total

  $ 395,013     $ (58

)

  $ 394,955     $ 395,013     $ (41

)

  $ 394,972          

Changes in the gross carrying value of other intangible assets and goodwill are as follows (in thousands):


   

Other Intangible Assets

   

Goodwill

 
   

2013

   

2012

   

2013

   

2012

 

Balance, beginning of year

  $ 395,013     $ 394,983     $ 138,717     $ 138,717  

Increase from acquisitions

 

      30    

   

 

Decrease from impairment charges

 

   

      (89,037

)

 

 

Balance, end of year

  $ 395,013     $ 395,013     $ 49,680     $ 138,717  

For 2012, the increase in amortizable other intangible assets represents event sanctioning and renewal agreements for certain annual minor racing events to be held for five years commencing in 2012. For 2013, the decrease in goodwill reflects an impairment charge to reduce goodwill related to NHMS and KyS to estimated fair value as further described in Note 2.


At December 31, 2013 and 2012, the carrying amounts for goodwill and other intangible assets include accumulated impairments of $146.2 million and $57.2 million, respectively. Amortization expense on other intangible assets amounted to $18,000 in 2013, $18,000 in 2012 and $12,000 in 2011. Estimated annual amortization expense for each of the next five years is not significant.


Note 6 - Long-term Debt
Long-term Debt [Text Block]

6. LONG-TERM DEBT


As further described below, the Company amended its Credit Facility and issued additional 2019 Senior Notes in the first quarter 2013, and redeemed all outstanding 2016 Senior Notes in the second quarter 2013. Long-term debt at December 31, 2013 and 2012 consists of (in thousands):


   

2013

   

2012

 

Credit facility, all term loan

  $ 210,000     $ 95,000  

2019 Senior Notes

    254,197       150,000  

2016 Senior Notes

 

      270,758  

Other notes payable

    2,792       5,501  

Total

    466,989       521,259  

Less current maturities

    (13,847

)

    (17,709

)

Long-term debt, excluding current maturities

  $ 453,142     $ 503,550  

Annual maturities of long-term debt at December 31, 2013 are as follows (in thousands):


2014

  $ 13,847  

2015

    13,945  

2016

    12,500  

2017

    12,500  

2018

    160,000  

Thereafter

    254,197  

Total

  $ 466,989  

2013 Amendment of Bank Credit Facility In February 2013, the Company’s Credit Facility was amended (the 2013 Credit Facility or Credit Facility) which, among other things: (i) provides for a five-year $100,000,000 senior secured revolving credit facility, with separate sub-limits of $50,000,000 for standby letters of credit and $10,000,000 for swing line loans; (ii) provides for a five-year $250,000,000 senior secured term loan (the Term Loan); (iii) matures in February 2018; (iv) allows the Company to increase revolving commitments or establish a term loan (or a combination of the two) up to an aggregate additional $100,000,000 with certain lender commitment conditions; (v) allows for annual aggregate payments of dividends and repurchases of SMI securities of up to $50,000,000, increasing up to $75,000,000 subject to maintaining certain financial covenants; and (vi) limits annual capital expenditures to $75,000,000. The amended Term Loan requires minimum quarterly principal payments of at least 5% of the initial amount drawn on an annualized basis (or $12,500,000 in a twelve month period based on an initial draw of $250,000,000).


As further discussed below, the Company repaid $95,000,000 of Term Loan borrowings with proceeds from the add-on offering of 2019 Senior Notes in the first quarter 2013, and borrowed $250,000,000 under the Term Loan to fund the redemption of the 2016 Senior Notes in the second quarter 2013. In 2013, the Company also repaid an additional $40,000,000 of Term Loan borrowings. In 2012, the Company repaid $50,000,000 of Credit Facility borrowings, including Term Loan borrowings of $40,000,000. In 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 $40,000,000 of revolving credit facility and $15,000,000 of Term Loan borrowings. At December 31, 2013 and 2012, outstanding borrowings under the Credit Facility were $210,000,000 and $95,000,000 (all Term Loan borrowings). At December 31, 2013, outstanding letters of credit amounted to $887,000.


Interest is based, at the Company’s option, upon LIBOR plus 1.25% to 2.00% or Bank of America’s base rate plus 0.25% to 1.00%. The 2013 Credit Facility also contains a commitment fee ranging from 0.25% to 0.40% of unused amounts available for borrowing. The interest rate margins on borrowings and the commitment fee are adjustable periodically based upon certain consolidated total leverage ratios. The 2013 Credit Facility requires that the Company maintain certain ratios of funded debt to EBITDA and EBIT. The amended Credit Facility also contains other affirmative and negative financial covenants and restrictions, and indebtedness is secured by a pledge of all capital stock and limited liability company interests of the Guarantors, generally on the same terms and conditions as before amendment. Prior to 2013 amendment, interest was based on 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%, and the commitment fee ranged from 0.35% to 0.55% of unused amounts available for borrowing.


2019 Senior Notes and Add-on Offering in 2013 – In 2011, the Company completed a private placement offering of 63/4% senior notes (the 2019 Senior Notes) in aggregate principal amount of $150,000,000 issued at par, and a subsequent exchange offer for substantially identical notes registered under the Securities Act. Net offering proceeds, along with new Term Loan borrowings of $150,000,000 under the Credit Facility and cash on hand, were used to redeem and retire all tendered outstanding senior subordinated notes as further discussed below. In January 2013, the Company completed a private placement add-on offering to the existing 2019 Senior Notes in aggregate principal amount of $100,000,000 issued at 105% of par, and net proceeds after commissions and fees approximated $103,408,000. The proceeds were used to repay $95,000,000 of Credit Facility borrowings, representing all facility borrowings then outstanding, with the remainder used for general corporate purposes. The Company completed an exchange offer for substantially identical notes registered under the Securities Act in the second quarter 2013. The add-on notes are identical to the existing 2019 Senior Notes with the same terms and conditions, and governed by the same indenture. The 2019 Senior Notes mature in February 2019, and interest payments are due semi-annually on February 1 and August 1. Debt issuance premium and associated deferred loan costs are being amortized over the remaining note term through February 2019. As of December 31, 2013, the 2019 Senior Notes carrying value of $254,197,000 includes unamortized issuance premium of $4,197,000. The Company may redeem some or all of the 2019 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. The Company may also redeem some or all of the 2019 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 2019 Senior Notes at 101% of par value. The Indenture governing the 2019 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.


2013 Early Redemption of 2016 Senior Notes – Effective June 1, 2013, the Company redeemed all outstanding 83/4% senior notes (the 2016 Senior Notes) in aggregate principal amount of $275,000,000 at 104.375% of par plus accrued interest. The 2016 Senior Notes originally issued at 96.8% of par were scheduled to mature in June 2016, with interest payments due June 1 and December 1, and had unamortized issuance discount of $4,242,000 at December 31, 2012. The Company used Term Loan borrowings of $250,000,000 and cash on hand of $37,081,000 to fund the redemption, including redemption premium and transaction costs. The 2013 loss on early debt redemption and refinancing represents a charge to earnings of $18,467,000, before income taxes of approximately $6.8 million, for associated redemption premium, unamortized net deferred loan costs and issuance discount, and transaction costs.


2011 Early Redemption of Senior Subordinated Notes – In 2011, the Company completed a tender offer and redeemed $330,000,000 in aggregate principal amount of outstanding 63/4% Senior Subordinated Notes (Senior Subordinated Notes) at 101.25% to 101.375% of par, with proceeds from the original 2019 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. The 2011 loss on early debt redemption and refinancing represents a charge to earnings for tender offer redemption premium, 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.


Other Notes Payable – At December 31, 2013, long-term debt includes a non-interest bearing debt obligation associated with the Company's acquisition of KyS. A similar obligation existing at December 31, 2012 was fully repaid in 2013. Each obligation has been payable in 60 monthly installments of $125,000. As of December 31, 2013 and 2012, their combined carrying values of $2,792,000 and $5,501,000 reflect discounts of $208,000 and $499,000, respectively, based on effective interest rates of 6% (prior to payoff) and 7%.


Other General Terms and Conditions – The 2013 Credit Facility and 2019 Senior Notes contain certain requirements and restrictive financial covenants and limitations on capital expenditures, speedway or other acquisitions, dividends, repurchase or issuance of SMI securities, restricted payments, equity and debt security repurchases, limitations or prohibitions on incurring other indebtedness, liens or pledging assets to third parties, consolidation, mergers, transactions with affiliates, guarantees, asset sales, specific types of investments, distributions, redemptions and disposition of property, and entering into new lines of business. The 2013 Credit Facility and 2019 Senior Notes Indenture also contain cross-default provisions. The Company was in compliance with all applicable covenants under these debt agreements as of December 31, 2013.


Subsidiary Guarantees – Amounts outstanding under the 2013 Credit Facility and 2019 Senior Notes are guaranteed by all of SMI’s material operative subsidiaries except for Oil-Chem and its subsidiaries (which are presently non-material). These guarantees are full and unconditional and joint and several, with the 2019 Senior Notes on a senior unsecured basis. The parent company has no independent assets or operations. There are no restrictions on the subsidiaries’ ability to pay dividends or advance funds to the parent company.


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


   

2013

   

2012

   

2011

 

Gross interest costs

  $ 32,408     $ 42,155     $ 44,700  

Less capitalized interest costs

    (168

)

    (574

)

    (2,286

)

Interest expense

    32,240       41,581       42,414  

Interest income

    (369

)

    (364

)

    (302

)

Interest expense, net

  $ 31,871     $ 41,217     $ 42,112  

Weighted average interest rate on borrowings under bank Credit Facility

    2.2

%

    2.7

%

    2.8

%


Note 7 - Capital Structure, Per Share Data and Other Equity Information
Stockholders' Equity Note Disclosure [Text Block]

7. CAPITAL STRUCTURE, PER SHARE DATA AND OTHER EQUITY INFORMATION


Preferred Stock – At December 31, 2013, SMI has authorized 3,000,000 shares of preferred stock with a par value of $.10 per share. Shares of preferred stock may be issued in one or more series with rights and restrictions as may be determined by the Company’s Board of Directors. No preferred shares were issued or outstanding at December 31, 2013 or 2012.


Per Share Data – The following schedule reconciles basic and diluted earnings or loss per share from continuing operations (where computations are anti-dilutive, reported basic and diluted per share amounts are the same) (in thousands except per share amounts):


   

2013

   

2012

   

2011

 

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

  $ (6,212

)

  $ 41,793     $ (5,561

)

Weighted average common shares outstanding

    41,405       41,431       41,524  

Dilution effect of assumed conversions, common stock equivalents – stock awards

    18       6    

 

Weighted average common shares outstanding and assumed conversions

    41,423       41,437       41,524  

Basic (loss) earnings per share

  $ (0.15

)

  $ 1.01     $ (0.14

)

Diluted (loss) earnings per share

  $ (0.15

)

  $ 1.01     $ (0.14

)

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

    794       1,057       1,237  

Declaration of Cash Dividends – The Company’s Board of Directors approved aggregate dividends on common stock as follows (in thousands except per share amounts):


   

2013

   

2012

   

2011

 

Cash dividends paid

  $ 24,875     $ 24,883     $ 16,623  

Dividends per common share

  $ 0.60     $ 0.60     $ 0.40  

Quarterly dividends were declared in each period and all declaration, record and payment dates were in the same fiscal periods. See Note 6 for annual limitations on dividend payments under the Company’s debt agreements. On February 12, 2014, the Company’s Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock aggregating approximately $6.2 million payable on March 14, 2014 to shareholders of record as of February 28, 2014. These quarterly cash dividends are being paid using available cash and cash equivalents on hand.


Stock Repurchase Program – The Company’s Board of Directors has approved a stock repurchase program authorizing SMI to repurchase up to an aggregate of 5,000,000 shares (increased from 4,000,000 shares with Board of Director approval on February 12, 2014) of the Company’s outstanding common stock from time to time, depending on market conditions, share price, applicable limitations under the Company’s debt agreements (see Note 6), and other factors the Board of Directors or its designees, in their sole discretion, may consider relevant. The purchases can be in the open market or private transactions. The stock repurchase program is presently funded using available cash and cash equivalents and may be suspended or discontinued at any time.


The Company repurchased 126,000, 124,000 and 255,000 shares of common stock for $2,291,000 in 2013, $2,039,000 in 2012 and $3,597,000 in 2011, respectively. As of December 31, 2013, the Company could repurchase up to an additional 118,000 shares (1,104,000 shares as of February 12, 2014) under authorization then in effect. As of and through December 31, 2013 and 2012, treasury stock includes 117,000 and 74,000 of common stock shares delivered to the Company in satisfaction of tax withholding obligations of holders of vested restricted shares issued under our equity compensation plans.


Note 8 - Income Taxes
Income Tax Disclosure [Text Block]

8. INCOME TAXES


Components of the provision for income taxes are as follows (in thousands):


   

2013

   

2012

   

2011

 

Current:

                       

Federal

  $ 9,756     $ (2,247

)

  $ (1,051

)

State

    227       (47

)

    (2,743

)

      9,983       (2,294

)

    (3,794

)

Deferred:

                       

Federal

    (42,015

)

    24,521       17,612  

State

    (10,319

)

    (335

)

    9,663  
      (52,334

)

    24,186       27,275  

Total

  $ (42,351

)

  $ 21,892     $ 23,481  

The reconciliation of statutory federal and effective income tax rates is as follows:


   

2013

   

2012

   

2011

 

Statutory federal tax rate

    35.0

%

    35.0

%

    35.0

%

State and local income taxes, net of federal income tax effect

    8.7       (0.2

)

    16.8  

Non-deductible impairment of goodwill

    (59.6

)

 

      94.9  

Change in valuation allowances, primarily related to losses on equity investees

    101.6       (0.1

)

    2.4  

Change in uncertain tax positions, including income tax liabilities for settlements with taxing authorities

    (0.1

)

    0.1       (12.6

)

Other, net

    1.6       (0.4

)

    (5.5

)

Total

    87.2

%

    34.4

%

    131.0

%


Tax effects of temporary differences resulting in deferred income taxes are as follows (in thousands):


   

2013

   

2012

 

Deferred tax liabilities:

               

Property and equipment

  $ 256,966     $ 260,458  

Goodwill and other intangible assets

    143,245       144,814  

Expenses deducted for tax purposes and other

    3,581       3,863  

Subtotal

    403,792       409,135  

Deferred tax assets:

               

Income previously recognized for tax purposes

    (14,618

)

    (16,330

)

Stock option and other deferred compensation expense

    (4,389

)

    (4,228

)

PSL and other deferred income recognized for tax purposes

    (1,683

)

    (1,984

)

State and federal net operating loss carryforwards

    (3,945

)

    (3,660

)

Basis difference for equity investment and subsidiary

    (61,450

)

    (63,841

)

Subtotal

    (86,085

)

    (90,043

)

Less: Valuation allowance

    14,868       65,903  

Net deferred tax assets

    (71,217

)

    (24,140

)

Total net deferred tax liabilities

    332,575       384,995  

Net current deferred tax assets

    49,181       741  

Net non-current deferred tax liabilities

  $ 381,756     $ 385,736  

Income Tax Benefit in 2013 From Equity Interest Abandonment (Note 2) – On January 31, 2014, the Company abandoned its interest and rights in Motorsports Authentics (its 50% owned merchandising equity investment joint venture) to focus management resources in areas that may be profitable and more productive. As further described in Note 2, the Company’s carrying value of the investment was reduced to $0 through sizable impairment charges prior to 2010 and MA’s historical operating results. The Company recognized no concurrent tax benefits as valuation allowances were provided against associated deferred tax assets. As a result of abandonment, the Company intends to recognize tax losses that will be reported on its 2014 income tax returns. Management believes there is or will be sufficient taxable income in carryback or carryforward periods under tax law to fully utilize these tax losses. As such, the Company recognized a material income tax benefit of $49.3 million at December 31, 2013 for the reversal of previously recorded valuation allowances under applicable accounting guidance further described in Note 2.


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


Effective Tax Rate Comparison for 2011 through 2013 – The Company’s effective income tax rate for 2013 was 87.2%, for 2012 was 34.4% and for 2011 was 131.0%. The higher 2013 tax rate results primarily from the tax benefit related to the equity interest abandonment discussed above, and partially offset by a goodwill impairment charge for which a significant portion had no tax benefit as further discussed in Note 2. The 2013 rate also reflects tax benefits of $5,547,000 resulting from certain state income tax law changes and strategic state tax restructuring. Excluding those items, the 2013 effective income tax rate would have been 36.8%. The lower 2012 tax rate reflects favorable recoveries and settlements with certain taxing authorities, and lower effective state income tax rates. The higher 2011 tax rate results primarily from a goodwill impairment charge for which no benefit was recorded. Excluding the non-deductible goodwill impairment charge, the 2011 effective income tax rate would have been 36.1%.


At December 31, 2013, the Company has approximately $43,000 of federal net operating loss carryforwards expiring in 2025 through 2027, and $107,160,000 of state net operating loss carryforwards expiring in 2014 through 2033. At December 31, 2013 and 2012, valuation allowances of $14,868,000 and $65,903,000 have been provided against deferred tax assets because management has determined that ultimate realization is not more likely than not for certain deferred tax assets and state net operating loss carryforwards.


Accounting for Uncertainty in Income Taxes – Income tax liabilities for unrecognized tax benefits approximate $1,004,000 as of December 31, 2013 and 2012, respectively, and are included in other noncurrent liabilities, all of which would favorably impact the Company’s effective tax rate if recognized. Interest and penalties recognized on uncertain tax positions amounted to $73,000 in 2013, $74,000 in 2012 and $270,000 in 2011. As of December 30, 2013 and 2012, the Company had $844,000 and $771,000 accrued for the payment of interest and penalties on uncertain tax positions, which is included in other noncurrent liabilities. As of December 31, 2013, 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 2013 by the California Franchise Tax Board, and 2009 through 2013 by all other taxing jurisdictions to which the Company is subject. The Internal Revenue Service’s examination of the Company’s 2011 federal income tax return is final with no material adjustments. The Company has been notified by the Kentucky Department of Revenue of an examination of its 2009, 2010, 2011 and 2012 state tax returns. The examination has not begun. However, the Company does not anticipate material adjustments resulting from examination.


A reconciliation of the change in the total unrecognized tax benefits and other information for the three years ended December 31, 2013 is as follows (in thousands):


   

2013

   

2012

   

2011

 

Beginning of period

  $ 1,004     $ 1,004     $ 2,879  

Increases (decreases) for tax positions of current year

 

   

   

 

Increases for tax positions of prior years

 

   

      358  

Decreases for tax positions of prior years

 

   

      (1,744

)

Reductions for lapse of applicable statute of limitations

 

   

   

 

Increases (decreases) for settlements with taxing authorities

 

   

      (489

)

End of period

  $ 1,004     $ 1,004     $ 1,004  

Note 11 - Stock Compensation Plans
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. STOCK COMPENSATION PLANS


2004 Stock Incentive Plan, Amended and Restated as of February 10, 2009 – The 2004 Stock Incentive Plan (the 2004 Plan) provides equity-based incentives for attracting and retaining key employees, directors and other individuals providing services to the Company. The 2004 Plan expired by its terms on February 18, 2014 and no further grants can be made under that plan. See below for a description of the 2013 Stock Incentive Plan adopted by the Company’s Board of Directors in February 2013 and approved by stockholders at the 2013 Annual Meeting. Approval of the 2013 Stock Incentive Plan and termination of the 2004 Plan did not adversely affect rights under any outstanding awards previously granted under the 2004 Plan.


Awards under the 2004 Plan may consist of incentive stock options, non-statutory stock options, restricted stock units or restricted stock. The 2004 Plan is administered by the Compensation Committee of the Board of Directors who has full authority to determine recipients, types, purchase prices, and amounts of awards granted and amend the terms, restrictions and conditions of awards. Factors considered, among others, include achievement of financial, business and performance objectives, the occurrence of specific events, time periods of continued service or other time-based restrictions. Under the 2004 Plan, 2,500,000 shares of SMI’s common stock were reserved for issuance, subject to various restrictions and adjustments including: (i) if shares subject to award under the 2004 Plan are forfeited, or the award otherwise terminates or is canceled for any reason without the issuance of such shares, those shares will be available for future awards; (ii) no individual may be granted options aggregating more than 100,000 shares of common stock during any calendar year; and (iii) in the case of restricted stock or restricted stock unit 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. 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. At December 31, 2013, approximately 1,253,000 shares were available for future grant. No additional grants were made prior to the 2004 Plan’s expiration on February 18, 2014.


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, 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. 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. Awards of restricted stock or restricted stock units are generally subject to forfeiture and restrictions on transferability until vested. If restricted stock and restricted stock unit award recipients cease to perform services for the Company, all shares of common stock and restricted stock units still subject to restrictions generally will be forfeited unless waived by the Compensation Committee. Recipients of restricted stock generally will have certain rights and privileges of a stockholder, including the right to vote such shares and receive dividends, if any. Recipients of restricted stock units generally will not have the rights and privileges of a stockholder, except they may be entitled to receive dividend equivalents, if so specified in the award agreements and dividends are declared.


Under the Company’s performance-based Incentive Compensation Plan, the Compensation Committee of the Company’s Board of Directors approved grants of 35,000 shares of restricted stock 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 in 2013. Both grants are under the 2004 Plan, are to be settled in shares of common stock, vest in equal installments over three years and are subject to reaching certain defined full year earnings targets established at the beginning of each year by the Compensation Committee. In 2013, 24,267 shares of both restricted stock and restricted stock units vested, and 11,667 of both shares and units were forfeited in accordance with the terms of the Incentive Compensation Plan. Forfeitures in any given year result from differences between the Company’s actual results for the previous year as compared to the defined full year earnings target. Once the vesting period expires, common stock is issued in settlement of the restricted stock units and all vested shares are no longer subject to forfeiture or restrictions on transferability. As of December 31, 2013, 59,422 restricted stock shares and 59,422 restricted stock units were outstanding under the Incentive Compensation Plan.


In 2013, the Company also granted to non-executive management employees 70,000 shares of restricted stock that vest in equal installments over three years, and repurchased 18,650 shares of common stock from such employees for $373,000 related to settlement of income taxes on 60,731 shares that vested under the 2004 Plan. In 2013, the Company also repurchased 24,264 shares of common stock for $418,000 from executive management employees to settle income taxes on 48,534 shares that vested under the Incentive Compensation Plan. Repurchases of common stock related to settlement of income taxes upon restricted stock vesting are reflected as financing activities in the statement of cash flows.


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 Company 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, 250,000 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, each standing non-employee director receives a grant of restricted stock consisting of the number of shares equaling $75,000 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 2013, restricted stock awards granted to non-employee directors totaled 16,668 and 17,200 restricted stock awards vested during the year. All restricted stock awards were granted and vested in accordance with plan provisions. At December 31, 2013, approximately 157,000 shares are available for future grant.


New 2013 Stock Incentive Plan – In February 2013, the Company’s Board of Directors adopted the 2013 Stock Incentive Plan (the 2013 Plan) which was approved by stockholders at the 2013 Annual Meeting. The 2013 Plan allows the Company, among other things, to continue to provide equity-based incentives to, and continue to attract and retain, key employees, directors and other individuals providing services to the Company. Awards under the 2013 Plan may be in the form of incentive stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, restricted stock units or stock awards. Approval of the 2013 Plan did not amend or modify the 2004 Plan and the Company could continue to grant awards under the 2004 Plan until its expiration.


Under the 2013 Plan, 3,500,000 shares of SMI’s common stock are reserved for issuance, subject to various restrictions and adjustments including the following: (i) if shares subject to award under the 2013 Plan are forfeited, or the award otherwise terminates or is canceled for any reason without the issuance of such shares, those shares will be available for future awards; (ii) no individual may be granted options or SARs aggregating more than 300,000 shares of common stock during any calendar year; (iii) in the case of awards other than options or SARs that are intended to be “performance-based compensation”, no individual may be granted an aggregate of more than 100,000 shares of common stock during any calendar year; and (iv) with respect to any cash-based stock award that is intended to be a performance award, the maximum cash payment that may be paid during any one calendar year to an individual is $10,000,000. No awards were granted under this plan in 2013.


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.


Formula Stock Option Plan for Directors – The Formula Stock Option Plan was suspended in December 2007 and terminated in February 2008, and the 2008 Formula Plan described above was approved by stockholders at the 2008 Annual Meeting. Prior to plan suspension and termination, before February 1 each year, individual outside 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 – The SMI Employee Stock Purchase Plan (the ESPP) is intended to provide employees the opportunity to acquire stock ownership in the Company. The authorized number of shares of common stock issuable under the ESPP is 800,000. At December 31, 2013, approximately 439,000 shares are available for future grant. Prior to each January 1, the Compensation Committee of the Board of Directors determines whether participating eligible employees will be granted the right to purchase shares of common stock for the upcoming calendar year and the number of shares available for purchase. All employee grants contain the same number of shares and grant date. No participant can be granted the right to purchase more than 500 shares in any calendar year. The stock purchase price is 90% of the lesser of fair market value at grant date or exercise date. Unexercised grants expire at each calendar year end. No shares were granted to employees under the ESPP for calendar years 2013, 2012 or 2011.


Share-Based Payment – 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 generally records share-based compensation cost for stock option, restricted stock and restricted stock unit awards on either the accelerated method using a graded vesting schedule or the straight-line method over the requisite service period, depending on the vesting schedule of the awards. The Company’s practice has been to issue new shares upon option exercise; however, repurchases of shares in the open market are permitted.


Share-based compensation cost totaled $2,224,000 in 2013, $1,936,000 in 2012 and $1,885,000 in 2011, before income taxes of $818,000, $666,000 and $680,000, respectively, and is included in general and administrative expense. There were no capitalized share-based compensation costs at December 31, 2013 or 2012. No stock options were granted under the 1994 Stock Option Plan, 2004 Stock Incentive Plan and Formula Stock Option Plan in 2013, 2012 or 2011. When stock options are granted, the Company estimates the fair value of stock option grants on grant date using the Black-Scholes option-pricing model based on the following factors and assumptions. Expected volatility is based on implied volatilities from historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercises, forfeitures and employee terminations within the pricing model. Employee groups have similar historical exercise experience and are combined for valuation purposes. The expected term of granted options is estimated based on historical exercise experience and represents the time period that granted options are expected to be outstanding. Risk-free interest rates for periods within the expected life of options are based on the US Treasury yield curve in effect at the time of grant.


There were no significant changes in the characteristics of restricted stock or restricted stock units granted during 2011 through 2013 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. All stock options previously granted under the 1994 Plan and the 2004 Plan have an exercise price equal to the market value of the underlying common stock at grant date, and under the Formula Stock Option Plan for Directors have an exercise price equal to the average fair market value per share for the ten-day period prior to award. The Company believes the pricing model and approach utilized to develop the underlying assumptions are appropriate for estimating the fair values of share-based awards. These fair value and other estimates are not intended to predict future events or value ultimately realizable by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of original estimates.


The following is a summary of stock option activity regarding the 1994 Plan, 2004 Plan and Formula Stock Option Plan for 2013 (shares and aggregate intrinsic value in thousands):


   

1994 Stock Option Plan

   

2004 Stock Incentive Plan

   

Formula Stock Option Plan

 

Stock

Options

 

Shares

   

Weighted

Average

Exercise

Price Per

Share

   

Weighted

Average

Remaining

Contractual

Term (Yrs)

   

Aggregate

Intrinsic

Value

   

Shares

   

Weighted

Average

Exercise

Price Per

Share

   

Weighted

Average

Remaining

Contractual

Term (Yrs)

   

Aggregate

Intrinsic

Value

   

Shares

   

Weighted

Average

Exercise

Price Per

Share

   

Weighted

Average

Remaining

Contractual

Term (Yrs)

   

Aggregate

Intrinsic

Value

 

Outstanding, January 1, 2013

    305     $ 33.30                       602     $ 29.56                       180     $ 33.94                  

Granted

    -       -                       -       -                       -       -                  

Exercised

    -       -                       (7

)

    15.83                       -       -                  

Forfeited

    (20

)

    29.64                       (50

)

    38.25                       -       -