Basis of Presentation

– The consolidated financial statements include the accounts of Speedway Motorsports, Inc. and all of its wholly-owned and operating subsidiaries: Atlanta Motor Speedway LLC (AMS), Bristol Motor Speedway LLC (BMS), Charlotte Motor Speedway LLC (CMS), Kentucky Raceway LLC d/b/a Kentucky Speedway (KyS), Nevada Speedway LLC d/b/a Las Vegas Motor Speedway (LVMS), New Hampshire Motor Speedway, Inc. (NHMS), North Wilkesboro Speedway, Inc. (NWS), Speedway Sonoma LLC (Sonoma Raceway or SR), Texas Motor Speedway, Inc. (TMS), SMISC Holdings, Inc. d/b/a SMI Properties (SMI Properties), US Legend Cars International, Inc. (Legend Cars), Oil-Chem Research Corporation (Oil-Chem), SMI Trackside LLC (SMI Trackside), Speedway Funding LLC, Speedway 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 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

– We are a promoter, marketer and sponsor of motorsports activities in the United States. We principally own and operate 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. We also provide event and non-event souvenir merchandising and distribution services, and food, beverage and hospitality catering services under an outside management contract through our SMI Properties subsidiaries; provide radio programming, production and distribution through PRN and RCU; manufacture and distribute smaller-scale, modified racing cars and parts through Legend Cars, and sell an environmentally-friendly micro-lubricant

®

through Oil-Chem.

 

2017,

p Series became the Monster Energy NASCAR Cup Series

and that naming convention is used throughout this document.

Discontinued Oil and Gas Activities

– In we discontinued our oil and gas operations primarily because of ongoing challenges and business risks in conducting these activities in foreign countries. We have no remaining involvement or ownership interest, and there are no assets, liabilities, revenues or expenses (other than as described below), associated with the discontinued operation for any period presented herein. All note disclosures pertain to continuing operations unless otherwise indicated. We incurred insignificant legal fees and other costs in and associated with efforts to recover previously reserved receivables. In we recovered approximately million of previously reserved receivables through favorable settlements. There were no associated income tax benefits reflected in discontinued operations for any period presented (see Note

Racing Events

– As further described in Note we derive a substantial portion of our total revenues from admissions, event related and NASCAR broadcasting revenue. In

, we held major annual racing events sanctioned by NASCAR, including Monster Energy Cup and

Xfinity Series racing events. We also held NASCAR Camping World Truck Series, NASCAR K&N Pro Series, NASCAR Whelen Modified Tour, IndyCar Series, major National Hot Rod Association, Automobile Racing Club of America and

World of Outlaws racing events.

In we held major annual racing events sanctioned by NASCAR, including Monster Energy Cup and Xfinity Series racing events. We also held NASCAR Camping World Truck Series, NASCAR K&N Pro Series, NASCAR Whelen Modified Tour, IndyCar Series, major NHRA, ARCA and WOO events. In we held major annual racing events sanctioned by NASCAR, including Monster Energy Cup and Xfinity Series racing events. We also held NASCAR Camping World Truck Series, NASCAR K&N Pro Series, NASCAR Whelen Modified Tour, IndyCar Series, major NHRA, ARCA and WOO racing events.

The Battle at Bristol

–In BMS hosted collegiate football games, of which (the “Battle at Bristol”, including a large preceding concert) was substantially larger than the other due to team standings and public interest. Under the same accounting policy for our racing events described below, we previously deferred advance revenues and direct expenses pertaining to these events in current “deferred race event and other income, net”, all of which were recognized when held in These events had a material positive effect on our operating results, and associated revenues and direct expenses have been reflected in “other operating revenue” and “other direct operating expense” in our Consolidated Statements of Operations, and in our “all other” reporting segment (see Note Management believes reporting these results separate from our core business of motorsports operations is appropriate as we do not have additional football games scheduled at this time (nor have any been held before), and these results are not indicative of future results that can be expected or forecast.

three

Monster Energy NASCAR Cup, Xfinity and Camping World Truck Series Race Date Realignments to Las Vegas Motor Speedway –

one

annual Monster Energy Cup Series and annual Camping World Truck Series racing event from NHMS, and an annual Xfinity Series racing event from KyS, to LVMS beginning in  

We considered many factors, including the popularity, demand, alternative uses and revenues, and potential net increase in long-term future profitability from conducting additional annual NASCAR racing events in the LVMS market. 

Principles of Consolidation

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

Revenue and Expense Classification

– We classify our 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, 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 our 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 and related revenues, industrial park and office tower rentals, and for also includes revenues associated with the “Battle at Bristol” as further described in Note

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 event management 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, industrial park and office tower rental revenues, and for also includes expenses associated with the “Battle at Bristol” as further described in Note

 

Event

– We recognize 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 event management 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 our racing events and helps ensure comparability and consistency between our 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 or gift certificates for tickets, merchandise or other redemption use have not been significant.

second

2016

third

2016.

The Company has offered to honor unused tickets through exchange for race tickets to TMS’s upcoming Monster Energy NASCAR Cup race in or IndyCar race in The exchange offer expires in and cash refunds were not offered. We are presently unable to determine the ultimate number of tickets or which race events or future reporting periods that be affected by ticket exchanges or redemption. As of we have deferred race event income of for unredeemed tickets associated with TMS’s IndyCar race. Management believes the matter will not materially affect our future financial condition, results of operations or cash flows.

NASCAR Broadcasting Revenues and NASCAR Event Management (formerly Purse and San

– NASCAR contracts directly with certain television networks on broadcasting rights for all NASCAR-sanctioned Monster Energy Cup, Xfinity and Camping World Truck Series racing events. We receive television broadcasting revenues under contractual sanction agreements for each NASCAR-sanctioned race. The Company periodically negotiates its sanction fees for individual races with NASCAR. In SMI entered into separate -year Event Management Agreements with NASCAR, under which our speedways will conduct Monster Energy NASCAR Cup, Xfinity and Camping World Truck Series and the All-Star Race events beginning in and through These agreements are substantially similar in form, substance and relative allocation of broadcast rights revenue to previous sanction agreements between SMI and NASCAR, except agreement duration increased from to years and annual increases in broadcast rights revenue and event management fees of to percent annually over the new -year agreement term were established. Under the sanction agreements, NASCAR typically retains of gross broadcasting revenues as a component of their sanction fees. NASCAR also retains of gross broadcasting revenues for purses awarded to race participants for each race. The remainder represents additional annually negotiated event management fees paid to NASCAR by the Company for each race. These amounts retained by and paid to NASCAR are reflected in NASCAR event management fee expense.

Marketing Agreem

– We have various marketing agreements for sponsorships, on-site advertising, hospitality and other promotional activities. Sponsorships generally consist of event and official sponsorship agreements. 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. We receive payments based on contracted terms. Marketing customers and agreement terms change from time to time. We recognize contracted fee revenues, and associated expenses, as events or activities are conducted each year in accordance with the respective agreement terms. Our marketing agreements sometimes include multiple specified elements such as sponsorships, tickets, hospitality, suites or on-site advertising in varying combinations for 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.

g agreements contain elements of purchased property and equipment exchanged for multi-year marketing and other promotional activities at 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 revenues recognizable in each upcoming fiscal year are reflected as current liabilities in deferred race event and other income.

Long-Term Food and Beverage Management Contract

– Levy Premium Foodservice Limited Partnership, wholly-owned by Compass Group USA, Inc., 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 through 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. Our 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

– We recognize revenue when products are shipped, title transfers to customers, right of return or cancellation provisions expire, sales prices are final and collection is probable. We use these same methods and timing of revenue recognition for products sold through e-commerce or our websites, which has not been significant. 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.

 

Revenue Composition

 – Our revenues are comprised of the following (in thousands):

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 and related revenues, and for also includes all revenues associated with the “Battle at Bristol”.

 

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, (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 certain business taxes, uninsured business risks, litigation, and other contingencies, and (vi) deferred compensation obligations and disclosures of stock-based compensation.

Consolidated Statements of Cash Flows

We classify as cash equivalents all highly liquid investments with original maturities of 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.

 

December

31,

2016,

cash we collected and temporarily held on behalf of our -party food and beverage concessionaire, and not remitted until after period end, was presented separately from cash flows from operating activities on the Consolidated Statements of Cash Flows. At such amounts are now included in c

ash flows from operating activities on the Consolidated Statements of Cash Flows. The change decreased cash flow from operations, and the change in accounts payable, for and for which management believes is not significant. There was no impact on the Consolidated Balance Sheets or Statements of Operations.

Accounts Receivable

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

Deferred Financing Costs

are amortized into interest expense over the associated debt terms or remaining terms for loan amendment costs. Deferred financing costs reflected in other noncurrent assets below are associated with our revolving Credit Facility, and are reported net of accumulated amortization of and at and Deferred financing costs associated with our Senior Notes and bank Term Loan are reflected as a reduction of long-term debt, and are reported net of accumulated amortization of and at and  See "Recently Issued Accounting Standards" for related guidance adopted in and Note for information on charges associated with previously deferred financing costs.

Other Noncurrent Assets

as of and consist of (in thousands):

12).

evaluates these assets for recovery when events or circumstances indicate possible impairment have occurred. As of there have been no events or circumstances which might indicate possible recoverability concerns or impairment.

Original

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

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.

may

rred, 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 management decides to repurpose and remove grandstand seating and suites as part of managing facility capacity or other speedway facility assets, depreciation is accelerated and recorded prospectively over shortened estimated remaining useful lives of the assets, and accounted for as a change in estimate, beginning when management contracts and begins removal. Gains or losses on property and equipment disposals are recognized when disposed. Recording accelerated depreciation, gain or loss on disposal or impairment losses related to property and equipment is based on assessment of the associated facts and circumstances. Also, assets are classified as held for sale when management determines that sale is probable within year.

1997,

ngements with the Fort Worth Sports Authority (FWSA), 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 FWSA. The Company, which has the right to reacquire the facility, operates the speedway facility under a -year arrangement with the FWSA. 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.

Other Intangible Assets

represent the excess of business acquisition costs over the fair value of net assets acquired, and are all associated with our 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. Our race event sanctioning and renewal agreements for each NASCAR-sanctioned racing event are awarded annually. We have evaluated each of our intangible assets for these agreements and determined that each will extend into the foreseeable future. We have 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. We follow 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.

Impairment Assessment Methodology.

We evaluate goodwill and other intangible assets for possible impairment annually in the quarter, or when events or circumstances indicate possible impairment 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 our managers and chief operating decision maker. No reporting units are aggregated, and no intangible assets are allocated or transferred between reporting units, for purposes of evaluating intangible assets for possible impairment. We evaluate 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). The inputs for measuring fair value are considered "Level or unobservable inputs that are not corroborated by market data under applicable fair value authoritative guidance, as quoted market prices are not available. Our annual impairment assessment did not consider the possibility that management realign or more other Monster Energy NASCAR Cup Series racing events among its speedway facilities, which could result in net higher or improved future projected cash flows. 

Such information was also compared to available market information for certain motorsports industry peers. 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 our common stock from historical and forward-looking perspectives. No weighting of evaluation results was believed necessary. Despite ongoing domestic and global economic and market challenges, management believes there has been no fundamental change in our core motorsports business. Impairment charges and associated operations are included in our "motorsports event related" reportable segment (see Note

Annual Impairment Assessment

. Management's latest annual assessment in the quarter was based predominately on management's best estimate of future discounted operating cash flows and profitability attributable to such assets for all individual reporting units. Management also considered that the estimated market value for comparable NASCAR race event sanction and renewal agreements (we had agreements with NASCAR to annually conduct Monster Energy Cup, Xfinity and Camping World Truck Series races as of the evaluation date), combined with the estimated fair value for all other Company net assets, substantially exceeds its current market capitalization. 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. Among other factors, the latest assessment assumes projected cash flow and profitability recovery, using modest annual inflationary growth rates for projected revenue streams and operating costs (other than NASCAR broadcasting revenues and event management fees),and strategic amounts of planned capital expenditures. Management projected annual increases in contracted NASCAR broadcasting rights revenues, and associated NASCAR event management fees, based on historical and anticipated rates which are supported by recently negotiated multi-year contracts. NASCAR event management fees for years after have not been negotiated, and future annual fees could differ substantially from those assumed in management’s impairment assessment.

annual assessment found the estimated fair value of each reporting unit and each indefinite-lived race-date intangible asset substantially exceeded its associated carrying value except for NHMS and TMS race date agreements. As of the carrying values of non-amortizable race date event sanctioning and renewal agreements associated with NHMS and TMS were approximately million and million. The estimated excess of fair value of identified intangible assets associated with NHMS and TMS, while more than nominal at this time, have heightened sensitivity to management’s assumptions used in estimating future discounted cash flows and profitability and associated risk of failing impairment testing. Management’s assumptions considered the following factors and conditions, the majority of which also contributed to our impairment charge described below. NHMS was acquired in largely before the severe economic recession, which has resulted in long-term operating challenges for many major sports. The (and evaluation reflects continuing lowered estimated future cash flows because the economic recovery has been slower and weaker than previous forecasts, and ongoing lower than anticipated revenues for various major racing events. The evaluation also reflects, similar to challenges faced by many major sports, reduced visibility on profit recovery due to factors such as changing demographics, evolving entertainment choices for fans, appealing “at-home viewing” experiences and retirement of popular long-standing “megastars”. We have lowered our expectations for forecasted growth rates for certain revenues and profit recovery. However, those expectations and forecasts are based on many factors out of our control, and could be found unachievable. Such ultimate outcome could adversely impact our estimates of fair values, particularly for NHMS and TMS race date intangible assets.

 

December

31,

2016.

 

Impairment of Other Intangible Assets

In we recorded sizable non-cash impairment charges to reduce the carrying value of non-amortizable race date event sanctioning and renewal agreements associated with NHMS, and goodwill associated with certain event souvenir merchandising activities. These charges resulted from our annual impairment assessment which found the carrying values for these sanctioning and renewal agreements associated with NHMS exceeded their estimated fair value. The various factors considered in this assessment (described above and not repeated here) resulted in lowering our expectations for forecasted growth rates for certain revenues and profit recovery. As such, a non-cash impairment charge of before income tax benefits of was reflected in to reduce the race date intangible assets to estimated fair value. Our annual assessment also indicated that goodwill associated with SMI Trackside, which conducts event souvenir merchandising at our and other -party speedways, was impaired because of potentially unfavorable developments associated with NASCAR’s announced industry changes to the trackside merchandising business model. As such, a non-cash impairment charge of before income tax benefits of was reflected in to reduce associated goodwill to an estimated fair value of

Deferred Income, Net

(noncurrent) as of and consists of (in thousands):

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 years.

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 in in and in There were no deferred direct-response advertising costs at or

Operating Leases

– We have 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 year or are cancelable with minimal notice, although certain operating equipment leases include multi-year terms. Rent expense for operating leases amounted to in in and in Various office and warehouse facilities leased from an affiliate (see Note are cancelable with minimal notice; however, such lease arrangements will likely be renewed annually through specific contract periods. We lease 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 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 in in and in

one

renewal through contracted periods), and contracted future annual minimum lease revenues, under operating leases at are as follows (in thousands):

Other

consists of (in thousands):

 

 

Income Taxes (Note

– We recognize 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. Our 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. We assess the need for valuation allowances for deferred tax assets based on the sufficiency of estimated future taxable income and other relevant factors. We report interest expense and penalties related to income tax liabilities, when applicable, in income tax expense. Cash Paid for Income Taxes excludes any previous overpayments the Company have elected to apply to income tax liabilities. The Company has no undistributed foreign earnings or cash or cash equivalents held outside of the US.

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 percent likely of being realized upon ultimate settlement.

TMS Mineral Rights Lease Receipts

–

TMS, in conjunction with the Fort Worth Sports Authority, has a natural gas mineral rights lease agreement and a joint exploration 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 as extraction infrastructure construction and operations commence. TMS is required to coordinate directly with the lessee on roadway and pipeline logistics to prevent interference of TMS or lessee activities, and monitor regulatory and other contract compliance. The long-term lease remains enforceable as long as drilling or extraction related activities continue or certain prices levels are met. Under the lease agreement, TMS received and recognized royalty payments of in in and in

2014,

. The lessee expanded production capacity in including an increased number of extraction wells. Such revenues have declined from associated market declines and volatility in natural gas price levels. At this time, while extraction activities continue, no new wells are being explored, and management is unable to determine ongoing volumes of production if any or for how long (including common diminishing well production over time), or if natural gas price levels will further decline, remain steady, or adequate. The agreements stipulate the sharing of production revenues, and obligate TMS to spend amounts equal to royalties received on TMS facility and road infrastructure improvements beginning in up to specified cumulative amounts. There are no stipulated annual or specific period spending requirements, and TMS will continue to receive royalties, and is not obligated to return or refund such royalties, should infrastructure spending not exceed amounts received. TMS infrastructure spending has historically exceeded royalties received each year and on a cumulative basis, which management believes will continue throughout the remaining terms of the agreements. Any future production revenues or royalties are subject to production levels and market prices that can deteriorate or fluctuate significantly and rapidly, as well as other factors outside of TMS’s control. As such, management is unable to determine the amounts, if any, or timing of possible future royalty payments to TMS or obligated spending on infrastructure by TMS.

2017

2016,

As of and there were no receivables (not since collected) or deferred income associated with the expired or extended agreements.

Taxes Collected from Customers

– We report 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 in in and in

Fair Value of Financial In

– We follow 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 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 receivable 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 bears interest approximating market rates or where non-interest bearing is discounted based on estimated current cost of borrowings; therefore, carrying values approximate market value. There have been no changes or transfers between category levels or classes. The following table presents estimated fair values and categorization levels of our financial instruments as of and (in thousands):

 

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 our 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. We generally require sufficient collateral equal to or exceeding note amounts, or accept notes from high-credit quality entities or high net-worth individuals, limiting our exposure to credit risk. Amounts due from affiliates typically can be offset to the extent of amounts payable to affiliates, limiting our exposure to credit risk.

Loss and Other Contingencies and Financial Guarantees

– We accrue 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. We account 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.

’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 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 our financial position, future results of operations or cash flows.

Recently Issued Accounting Standards

– The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. - "Revenue from Contracts with Customers (Topic Section A - Summary and Amendments That Create Revenue from Contracts with Customers and Other Assets and Deferred Costs - Contracts with Customers (Subtopic - which enhances comparability and clarifies principles of revenue recognition arising from contracts with customers that supersedes most current revenue recognition guidance. The guidance includes the core principle that entities recognize revenue to depict transfers of promised goods or services to customers in amounts that reflect the consideration entities expect to be entitled in exchange for those goods or services, and expands required financial statement disclosures regarding revenue recognition. The FASB has recently issued several amendments to the new standard, including Update No. - "Revenue from Contracts with Customers (Topic - Principal versus Agent Considerations" clarifying implementation guidance for those considerations in Update No. - and Update No. - "Revenue from Contracts with Customers (Topic  - Identifying Performance Obligations and Licensing" amending the guidance in Update No. - related to those items. The FASB issued Update No. - approving deferral of Update No. - for year, with such guidance now effective for annual reporting periods beginning after including interim periods within that reporting period. Early application is permitted as of annual reporting periods beginning after including interim reporting periods within that reporting period. The guidance be applied retrospectively to each prior period presented or retrospectively with cumulative effects recognized as of the date of adoption. The Company plans to adopt this new guidance in the quarter The Company has begun preliminary evaluation of the potential impact that adoption have on its financial statements, as well as expected method of adoption, including associated accounting policies, processes, and system requirements to enable timely and accurate reporting.  

2015

03

– Imputation of Interest (Subtopic - Simplifying the Presentation of Debt Issuance Costs” which requires that debt issuance costs related to debt liabilities be presented in the balance sheet as a direct deduction from the associated carrying amount, similar to debt discounts. In the FASB issued Update No. - “Imputation of Interest (Subtopic - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” which provides guidance on presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements, and indicating the SEC staff would not object to entities deferring and presenting debt issuance costs as an asset and subsequently amortizing deferred debt issuance costs ratably over line-of-credit arrangement terms even if there are no outstanding borrowings.

eriods presented (see Note Deferred financing costs associated with the Company's revolving Credit Facility are reported in other noncurrent assets, and those associated with the Senior Notes and bank Term Loan are reflected as a reduction of long-term debt. Retroactive application resulted in reclassifying deferred financing costs of net of accumulated amortization of from other non-current assets to a reduction in long-term debt as of Adoption had no impact on the Company's operating results or cash flows. 

2015

11

330):

December

15,

2016,

2016

02

842)”

’s initial direct costs. Lease liabilities will equal the present value of lease payments. Assets will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases typically result in straight-line expense, while finance leases similar to front-loaded expense pattern. Classification will be based on criteria largely similar to those applied in current lease accounting. The guidance is effective for fiscal years beginning after and interim periods within those fiscal years. Early adoption is permitted. The guidance is required to be applied using the modified retrospective approach for all leases existing as of the effective date, requires application at the beginning of the earliest comparative period presented, and provides for certain practical expedients. The Company is currently evaluating the potential impact that adoption have on its financial statements.

2016

09

Compensation - Stock Compensation (Topic Improvements to Employee Share-Based Payment Accounting” which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. Under previous guidance, excess tax benefits and deficiencies from stock-based compensation arrangements were reflected in equity when awards vested or were settled. The new guidance requires prospective recognition of excess tax benefits and deficiencies in income tax expense, among other things. Also i

 

The new guidance is effective for years beginning after with early adoption permitted. The Company elected to adopt this new guidance early as of and applied it prospectively to its financial statements and note disclosures (see Note Adoption had an insignificant impact on the Company's financial statements.

2016

15

23)

” which provides specific guidance on cash flow classification issues. The guidance is effective for fiscal years beginning after and interim periods within those fiscal years, and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, and any amendments must be adopted in the same period. At this time, the Company believes adoption will have no significant impact on its financial statements, and plans to apply this guidance to future classifications when applicable.

2017

04

– Goodwill and Other (Topic Simplifying the Test of Goodwill Impairment” which simplifies

how an entity is required to test goodwill for impairment by eliminating Step (measuring goodwill impairment loss by comparing implied fair value of a reporting unit’s goodwill to the carrying amount of that goodwill) from the impairment test. Under this update, entities should perform goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The same impairment assessment applies to all reporting units, and entities still have the option to perform qualitative assessment for a reporting unit to determine if quantitative impairment testing is necessary. This update modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Entities will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The Company is to adopt this guidance for its annual or any interim goodwill impairment tests in fiscal years beginning after and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after The Company is currently evaluating the potential impact that adoption have on its impairment testing and financial statements.

 souvenirs and apparel, -scale and similar small-scale finished race cars and parts and accessories determined on a -in, -out basis; and (ii) micro-lubricant

®

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 and consist of (in thousands):

ion. Inventories are reflected net of lower of cost or market value provisions summarized as follows (in thousands):

4.

December

31,

2016

2015

(dollars in thousands):

Other Information

– From time to time, we remove or reduce certain low demand seating areas or suites for managing facility capacity, offering wider seating and improved sight lines or other marketing or alternative development purposes such as premium hospitality, RV camping and advertising areas. In we recorded non-cash, pre-tax charges for accelerated depreciation aggregating associated with removal of certain low demand seating at CMS and LVMS, retired leaderboard assets at certain speedways, and a decline in estimated fair value of certain real property. In we recorded non-cash, pre-tax charges for accelerated depreciation aggregating associated with removal of certain low demand seating and suites at AMS, CMS and NHMS, and certain damaged speedway assets. In we recorded pre-tax accelerated depreciation of associated with removal of certain TMS assets.

Costs of removal are included in Other Expense, Net (see Note charges are included in our "motorsports event related" reporting segment (see Note

in in and in As of we had no significant contractual obligations for capital expenditures. In we reflected a gain from involuntary conversion of certain TMS property, increasing property and equipment and other income, net by approximately

5.

e further described in Note As of and gross carrying values and accumulated amortization by class of intangible asset are as follows (dollars in thousands):

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

2015

carrying amounts for goodwill and other intangible assets include accumulated impairments of million and million at and Amortization expense on other intangible assets amounted to in in and in Estimated annual amortization expense for each of the next years is not significant.

December

31,

2016

2015

December

31,

2016

 

Bank Credit Facility

– Our Credit Facility, as amended in among other things: (i) provides for a -year senior secured revolving credit facility, with separate sub-limits of for standby letters of credit and for swing line loans; (ii) provides for a -year senior secured term loan (which was fully drawn in and a -year delayed draw term loan of up to (which was fully drawn in and repaid in the quarter (the Term Loan or Term Loans); (iii) matures in (iv) contains an accordion feature allowing the Company to increase revolving commitments or establish a term loan up to an aggregate additional or respectively (or a combined aggregate additional amount of up to with certain lender commitment conditions; (v) allows for annual aggregate payments of dividends and repurchases of SMI securities of up to increasing up to subject to maintaining certain financial covenants; and (vi) limits annual capital expenditures to and provides for motor speedway acquisitions and related businesses. Term Loans require equal minimum quarterly principal payments of at least of initial amounts drawn on an annualized basis for fiscal

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

2016,

$54,000,000.

In we borrowed under the Term Loan (for partial funding of the Senior Notes redemption as further described below), and repaid Term Loan borrowings of In we repaid and borrowed under the Term Loan (including repayment and borrowing in amending the Credit Facility), for a net repayment of At and outstanding borrowings under the Credit Facility were and (all Term Loan borrowings), and outstanding letters of credit amounted to and As of we had availability for borrowing up to an additional including up to an additional in letters of credit, under the revolving Credit Facility, and under the delayed draw term loan provision.

Senior Notes

– We completed a private placement of new Senior Notes due in aggregate principal amount of in (the Senior Notes). The Senior Notes were issued at par, and net proceeds after commissions and fees of approximately were used to fund a portion of the redemption of Senior Notes as described below. We completed an exchange offer for substantially identical Senior Notes registered under the Securities Act in the quarter The Senior Notes mature in and interest payments are due semi-annually on   and  

These Senior Notes contain various specified redemption and change of control provisions. The Senior Notes rank equally in right of payment with all other Company existing and future unsubordinated debt, are senior in right of payment to any future subordinated debt and are effectively subordinated to all existing and future secured debt, including the Credit Facility. The Indenture governing the Senior Notes permits dividend payments each year of up to approximately per share of common stock, increasable subject to meeting certain financial covenants. The Senior Notes contain specific requirements and restrictive financial covenants and limitations, redemption and change of control provisions and premiums, guarantees and cross-default provisions.

Early Redemption of Senior Notes

– We redeemed all outstanding Senior Notes due in in aggregate principal of (the Senior Notes) at of par plus accrued interest in The Senior Notes were scheduled to mature in We used net proceeds of the Senior Notes, of delayed draw Term Loan borrowings under the Credit Facility and cash on hand to fund the redemption, including redemption premium and transaction costs. We recognized a charge to earnings of before income taxes of for associated redemption premium, unamortized net deferred loan costs and transaction costs of net of issuance premium of

 

Other Notes Payable

– At and long-term debt includes a interest bearing debt obligation of and associated with the purchase of real property at BMS, payable in annual installments of beginning

 

O

– The Credit Facility and Senior Notes contain specific 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 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 Credit Facility and Senior Notes Indenture also contain cross-default provisions. We were in compliance with all applicable financial covenants under these debt agreements as of

Subsidiary Guarantees

Amounts outstanding under the Credit Facility and Senior Notes are guaranteed by all of SMI’s material operative subsidiaries except for Oil-Chem and its subsidiaries (which are presently minor). These guarantees are full and unconditional and joint and several, with the 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 Expen

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

first

2015,

$1,688,000

2019

January

27,

2015

2023

March

13,

2015

2019

2019

Preferred Stock

– At SMI has authorized shares of preferred stock with a par value of per share. Shares of preferred stock be issued in or more series with rights and restrictions as be determined by our Board of Directors. preferred shares were issued or outstanding at or

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):

 

Declaration of Cash Dividends

– Our Board of Directors approved aggregate dividends on common stock as follows (in thousands except per share amounts):

fiscal periods. See Note for annual limitations on dividend payments under our debt agreements. On   our Board of Directors declared a quarterly cash dividend of per share of common stock aggregating approximately million payable on   to shareholders of record as of These quarterly cash dividends are being paid using available cash and cash equivalents on hand.

Stock Repurchase Program

– Our Board of Directors has approved a stock repurchase program authorizing SMI to repurchase up to an aggregate of shares of our outstanding common stock from time to time, depending on market conditions, share price, applicable limitations under our debt agreements (see Note and other factors the Board of Directors or its designees, in their sole discretion, 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 be suspended or discontinued at any time.

252,000,

252,000

172,000

$4,667,000

2016,

$5,375,000

2015

$3,236,000

2014,

December

31,

2016,

442,000

hares under the current authorization. In and we repurchased approximately and shares of common stock for and from management employees to settle income taxes on and restricted shares that vested during the period, respectively. As of and through and treasury stock includes and shares of common stock delivered to the Company for such purposes.

 

 for income taxes are as follows (in thousands):

 

income tax rates is as follows:

follows (in thousands):

Effective Tax Rate Comparison for

– The Company’s effective income tax rate for was for was and for was Our effective tax rate reflects non-recurring tax benefits of resulting from certain state income tax law changes. Our tax rate reflects reductions of valuation allowances on deferred tax assets associated with our discontinued operation. This reduction was largely offset by an increase in tax reserves for deferred tax assets, resulting in a net tax impact of million associated with the discontinued operation (see Note Our tax rate also reflects lower effective state income tax rates, adjustments associated with the intangible asset and goodwill impairment charges and certain deferred tax assets, and a non-recurring tax benefit of resulting from certain state income tax law changes enacted in Our provision for income taxes reflects elimination of previously recorded income tax expense of million associated with the million favorable settlement for our discontinued operation. Such income tax was previously reflected in continuing operations under applicable authoritative guidance. Our tax rate also reflects the positive impact of net decreases in uncertain tax position liabilities of prior years and lower effective state income tax rates.

December

31,

2016,

$217,827,000

2017

2036.

At and valuation allowances of and 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. The valuation allowances for deferred tax assets increased by in decreased by in and decreased by in

 

Income Tax Benefit From Equity Interest Abandonment

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

 through by utilization of deferred income tax assets, including net operating losses, related to abandonment.

Under applicable accounting guidance, tax positions are measured at the largest amount of benefit that is greater than percent likely (or more likely than not) of being ultimately realized. As such, the full 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 upon examination,

reestablishment of material income tax liabilitiesand acceleration of cash income taxes payable could occur. Any differences between the final tax outcome and amounts recorded would affect the Company’s income tax provision in the period in which such determination was made.

 

Other Income Tax Benefits

– As reflected above, applicable accounting guidance require establishing valuation allowances for certain deferred tax assets or income tax liabilities for unrecognized tax benefits, notwithstanding management believes associated tax filing positions are sustainable and are or will be reflected in its tax filings. Should those tax positions not be fully sustained if examined, an acceleration of material income taxes payable could occur. Because no net income tax benefit had been previously reflected because of providing a valuation allowance on related deferred tax assets, our future results of operations might not be significantly impacted. However, resulting cash required for payments of income taxes could be material in the period in which such determination is made.

Accounting for Uncertainty in Income Taxes

– Income tax liabilities for

unrecognized tax benefits approximate and at and of which relates to the Company’s discontinued operation. Of those amounts, and is included in noncurrent other liabilities, all of which would favorably impact the Company’s effective tax rate if recognized and and is included in deferred tax liabilities, at and respectively. The reclassification of amounts from deferred tax liabilities at to noncurrent other liabilities at is due to current period utilization of net operating loss carryforwards that were previously available to offset any unfavorable adjustments related to the Company’s discontinued operation.

As of and management believes and of unrecognized tax benefits will be recognized within the next months. Interest and penalties associated with uncertain tax positions amounted to in in and in and derecognized amounts were in in and in As of and the Company had and accrued for the payment of interest and penalties on uncertain tax positions, which is included in other noncurrent liabilities. The tax years that remain open to examination include through and through by the California Franchise Tax Board, through by the Internal Revenue Service, and through by most, and through  by other, state taxing jurisdictions to which the Company is subject. The Company’s federal income tax return is under examination by the Internal Revenue Service, which began in

 

three

December

31,

2016

services agreement. We incurred expenses under the shared services agreement of in and in amounts were due from or payable to Sonic Financial at and Before   we made loans to, and paid certain expenses on behalf of, Sonic Financial for various corporate purposes. In we used owed to Sonic Financial (for acquisition and other expenses paid on behalf of AMS by Sonic Financial prior to to settle and repay amounts due from Sonic Financial. Excluding the repayment and settlement, amounts due were reduced by shared expenses, net of accrued interest, of in

es affiliated through common ownership by our Executive Chairman and Chief Executive Officer, under annually renewable lease agreements.

Rent expense amounted to in in and in Amounts owed to these affiliated companies at   and were not significant.

employee use from certain subsidiary dealerships of Sonic Automotive, Inc. (SAI), an entity in which our Executive Chairman is a controlling stockholder, for an aggregate of approximately in in and in Vehicles sold to SAI in or were not significant. Also, SMI sold through certain speedways and its SMIP merchandising subsidiary various event related inventory and merchandise to SAI totaling approximately in in and in At and and was due from SAI and is reflected in current assets.

®

product to certain SAI dealerships for resale to service customers of the dealerships in the ordinary course of business. Total purchases from Oil-Chem by SAI dealerships approximated in in and in At   and and was due from SAI and is reflected in current assets.

Properties and, to a lesser extent, other SMI subsidiaries purchased and sold motorsports merchandise, and received commissions from MA for merchandise sold during our events. As further described in Note the Company abandoned its interest in MA on after which MA is no longer a related party. For the month ended merchandise purchases approximated and merchandise sales and event related commissions approximated

es as of and and transactions for the years ended are summarized below (in thousands):

 We believe that the resolution of any or all of such litigation will not have a material effect on our financial condition, results of operations or cash flows.

Stock Incentive Plan

– The Stock Incentive Plan (the Plan) allows the Company, among other things, 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 Plan be in the form of incentive stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, restricted stock units or stock awards. To date, we have awarded restricted stock and restricted stock units under the Plan.

2013

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 Plan, 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 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 be granted options or SARs aggregating more than 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 be granted an aggregate of more than 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 be paid during any calendar year to an individual is Exercise prices for awarded stock options generally not be less than the fair or trading value of the Company’s common stock at, and exercise periods not exceed years from, the option grant date. At approximately shares were available for future grant.

over years or cliff vest after years. Once applicable restrictions lapse or have been satisfied, restricted stock units 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 be entitled to receive dividend equivalents, if so specified in the award agreements and dividends are declared.

 

35,000

February

2015)

35,000

to our Vice Chairman and Chief Financial Officer in Both grants are under the Plan, are to be settled in shares of common stock, vest in equal installments over years and are subject to reaching certain defined full year earnings targets established at the beginning of each year by the Compensation Committee. In shares of both performance-based restricted stock and restricted stock units vested, and restricted stock shares and restricted stock units were forfeited. Forfeitures in any given year result from differences between our 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 restricted stock shares and restricted stock units (both performance-based) were outstanding.

2016,

to non-executive management employees shares of restricted stock that vest in equal installments over years, and repurchased shares of common stock from such employees for related to settlement of income taxes on shares that vested under the Plan and the Plan. In we also repurchased shares of common stock for from executive management employees to settle income taxes on performance-based shares that vested under the  Plan and the 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.

February

2017,

2013

2017

r in any of the award limits under the Stock Incentive Plan at this time. The primary changes reflected in the amended and restated Stock Incentive Plan include: (a) additions to the permissible criteria upon which performance goals for performance-based compensation can be based, including various cash flow and profit measures and objective measures of personal targets, goals or completion of projects; and (b) revisions and additions to the types of items and events that be used for adjustments in determining whether an objective performance goal for performance-based compensation has been met. The amendment and restatement also includes additional changes in connection with updates to relevant accounting rules and other minor revisions.

Formula Restricted Stock Plan, Amended and Restated as of

– The Formula Restricted Stock Plan (the 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 our stockholders and to enhance our ability to attract and retain highly qualified non-employee directors. The Formula Plan is intended to constitute a “formula plan” within the meaning of SEC Rule - of the Exchange Act. Approval of the 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 Formula Plan is administered by the Board of Directors, excluding non-employee directors, and expires by its terms in The Board of Directors, excluding non-employee directors, amend, suspend or terminate the 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 be subject to stockholder approval.

2008

250,000

’s common stock are reserved for issuance and awards are in the form of restricted stock. On the business day following each annual meeting, each standing non-employee director receives a grant of restricted stock consisting of the number of shares equaling divided by the average closing sale price for the 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 grant date anniversary or (ii) the day before our next annual meeting following the grant date. Vesting is subject to continued service as a director through scheduled vesting dates. In restricted stock awards granted to non-employee directors totaled and restricted stock awards vested during the year. All restricted stock awards were granted and vested in accordance with plan provisions. At approximately shares were available for future grant.

Stock Incentive Plan, Amended and Restated as of

The Stock Incentive Plan (the Plan), which provided equity-based incentives for attracting and retaining key employees, directors and others providing services to the Company, terminated by its terms in and no further awards can be granted under the plan. Previously granted awards under the Plan consisted of incentive stock options, non-statutory stock options, restricted stock units or restricted stock. All stock options granted under the Plan had an exercise price equal to the market value of the underlying common stock at grant date, expire years from grant date and vested immediately or in equal installments over years, and restricted stock and restricted stock units vested years from grant date or in equal installments over years. Once applicable restrictions lapsed or were satisfied, restricted stock units were payable in cash, shares of common stock or a combination, as specified in the award agreement. Termination of the Plan did not adversely affect rights under any outstanding awards previously granted under the plan and all awards granted under the Plan have now vested.

Formula Stock Option Plan for Directors

– The Formula Stock Option Plan was suspended in and terminated in and the Formula Plan described above was approved by stockholders at the Annual Meeting. Prior to plan suspension and termination, before   each year, individual outside directors were awarded an option to purchase shares of common stock at an exercise price equal to the average fair market value per share for the -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 months, and expired 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 At approximately shares were available for future grant. Prior to each   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 shares in any calendar year. The stock purchase price is 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 or

Share-Based Payment

– We follow 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   We generally record 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. Our practice has been to issue new shares upon option exercise; however, repurchases of shares in the open market are permitted.

 

$3,405,000

2016,

$3,383,000

2015

$2,610,000

2014,

of and respectively, and is included in general and administrative expense. For compensation cost excludes associated tax benefits of which are reflected separately in operating activities on the Consolidated Statements of Cash Flows. Similar amounts for and were insignificant. There were no capitalized share-based compensation costs at or

We believe our year-end taxable income position will ultimately benefit from additional paid-in capital net operating losses accumulated in and that relate to share-based compensation.

 As such, our consolidated financial statements reflect reduced income taxes payable, and increased retained earnings, of for windfall tax benefits associated with share-based compensation. 

Our consolidated financial statements for the year ended reflect a reduction of additional paid-in capital of and deferred tax assets of approximately and an increase in income tax expense of for windfall tax benefits associated with share-based compensation. As of there was approximately of total unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the Plan and the Formula Plan that is expected to be recognized over a weighted average period of years.

2016,

2015

2014.

ptions are granted, we estimate 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 our stock and other factors. We use 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.

 

2014

2016

rms 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. We believe 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.

201

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