TRK Speedway Motorsports Inc

1. DESCRIPTION OF BUSINESS

Basis of Presentation – The consolidated financial statements include the accounts of Speedway Motorsports, Inc. and all of its wholly-owned and operating subsidiaries: Atlanta Motor Speedway LLC (AMS), Bristol Motor Speedway LLC (BMS), Charlotte Motor Speedway LLC (CMS), Kentucky Raceway LLC d/b/a Kentucky Speedway (KyS), Nevada Speedway LLC d/b/a Las Vegas Motor Speedway (LVMS), New Hampshire Motor Speedway, Inc. (NHMS), North Wilkesboro Speedway, Inc. (NWS), Speedway Sonoma LLC (Sonoma Raceway or SR), Texas Motor Speedway, Inc. (TMS), SMISC Holdings LLC d/b/a SMI Properties (SMI Properties or SMIP), 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 “eight” speedways exclude NWS, which presently has no significant operations and assets consist primarily of real estate which has no significant fair value. See Notes 1 and 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018 (the 2018 Annual Report) for further description of our business operations, properties and scheduled events.

Recent Developments – On July 24, 2019, we announced that Sonic Financial Corporation, and a wholly owned acquisition subsidiary of Sonic Financial, entered into a definitive merger agreement for that subsidiary to acquire all of the outstanding shares of Company common stock for cash consideration of $19.75 per share as further described in Note 11.

Racing Events – In 2019, we plan to hold 24 major annual racing events sanctioned by the National Association for Stock Car Auto Racing, Inc. (NASCAR), including 13 Monster Energy Cup and 11 Xfinity Series racing events. We also plan to hold eight NASCAR Gander Outdoors Truck Series, six NASCAR K&N Pro Series, two NASCAR Whelen Modified Tour, one IndyCar Series, six major National Hot Rod Association (NHRA), one NASCAR Automobile Racing Club of America (ARCA) and three World of Outlaws (WOO) racing events. In 2018, we held 24 major annual racing events sanctioned by NASCAR, including 13 Monster Energy Cup and 11 Xfinity Series racing events. We also held eight NASCAR Gander Outdoors Truck Series, five NASCAR K&N Pro Series, three NASCAR Whelen Modified Tour, two IndyCar Series, six major NHRA, one NASCAR ARCA and three WOO racing events.

Seasonality and Quarterly Reporting – Our business has been, and is expected to remain, somewhat seasonal. We recognize revenues and operating expenses for all events in the calendar quarter in which conducted. Racing schedule changes, particularly for NASCAR Cup racing events, can lessen the comparability of operating results between quarters of successive years and increase or decrease the seasonal nature of our motorsports business, corresponding with the move of race dates between quarters. Such changes can also significantly impact our annual cash flow cycles because we sell many tickets and event related revenues in advance and certain NASCAR broadcasting revenue payments are received after events are held.

The more significant races affected by poor weather and other racing schedule changes for the three and six months ended June 30, 2019 as compared to 2018 include:

  2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER DISCLOSURES

These unaudited consolidated financial statements should be read in conjunction with our consolidated financial statements included in our 2018 Annual Report. In management's opinion, these unaudited consolidated financial statements contain all adjustments necessary for their fair statement at interim periods in accordance with accounting principles generally accepted in the United States. All such adjustments are of a normal recurring nature unless otherwise noted. The results of operations for interim periods are not necessarily indicative of operating results that may be expected for the entire year due to the seasonal nature of the Company's motorsports business. See Note 2 to the Consolidated Financial Statements in our 2018 Annual Report for further discussion of significant accounting policies.

Customer Revenues – As further described in Note 2 to the Consolidated Financial Statements in our 2018 Annual Report, we adopted Accounting Standards Update No. 2014-09 "Revenue from Contracts with Customers (Topic 606)” and associated amendments, using the modified retrospective method of adoption as of January 1, 2018 (descriptions of disaggregated revenues, contract balances and performance obligations, and associated required annual disclosures are not repeated here).

Under the adopted guidance, certain event related revenue under contract should be recognized quarterly as performance obligations are satisfied, whereas under prior guidance revenue was recognized when fixed and determinable. While preparing our 2018 annual financial statements, we determined that the impact of adoption should have increased accounts receivable by $2,081,000 and retained earnings by $1,567,000 and increased deferred taxes by $398,000 and taxes payable by $116,000, as of January 1, 2018. We also determined that contracted direct expenses for track rentals and certain other events that are rebilled to customers should be presented gross rather than netted against revenues. These revisions to previously issued interim financial statements were reflected in our 2018 Annual Report, and increased event related revenues by $1,007,000 and $2,606,000 and direct expense of events by $2,568,000 and $3,647,000, and decreased the net income by $1,177,000 and $783,000, and basic and diluted loss per share by $0.03 and $0.02, respectively, for the three and six months ended June 30, 2018. The revisions were not material to any prior interim financial statements.

Disaggregated Revenues – Our disaggregated admission, NASCAR broadcasting, sponsorship and other event related revenues are reported in our Motorsports Event Related segment, and our souvenir and other merchandise and other revenues are reported in that segment and our All Other segment (see Note 10), and are comprised of the following (in thousands):

Unsatisfied Performance Obligations - We have contracted revenues representing unsatisfied performance obligations that are expected to be recognized in the future. These contracts contain initial terms typically ranging from one to five years, with some for ten-year periods, excluding renewal options. We anticipate recognizing unsatisfied performance obligations for the calendar year ending 2020 and beyond of approximately $114,046,000 at June 30, 2019. Such amount excludes NASCAR broadcasting revenues through 2024, with estimated total revenues approximating $225.6 million in 2019 and $234.6 million in 2020 (the last year of the current five-year NASCAR Event Management Agreements).

Deferred Event Expenses – Deferred event expenses pertain to scheduled events to be held in upcoming periods and are recognized, along with associated deferred event income, in the calendar quarter in which conducted. Deferred event expenses are reflected in other current assets, and amounted to $12,279,000 and $6,978,000 as of June 30, 2019 and December 31, 2018.

Contract Balances – Our contract assets are comprised of accounts receivable and deferred event expenses, and our contract liabilities are comprised of deferred event income and noncurrent deferred income. Costs to obtain and fulfill contracts (performance obligations) are comprised principally of such deferred event expenses. Changes in contract assets and liabilities result principally from recognition upon holding associated motorsport and non-motorsports events during the period. At June 30, 2019 and December 31, 2018, contract assets aggregated $12,279,000 and $6,978,000, and contract liabilities aggregated $61,074,000 and $36,225,000. For the six months ended June 30, 2019 and 2018, we recognized revenue associated with contract liabilities amounting to $20,969,000 and $28,150,000. At June 30, 2019 and December 31, 2018, our contract liabilities consist of current deferred revenue of $58,064,000 and $33,868,000, and noncurrent deferred revenue of $3,010,000 and $2,357,000, and we anticipate recognizing current amounts in the upcoming twelve-month period and noncurrent amounts thereafter.

Taxes Collected from Customers – We have elected to report sales, admission and other taxes collected from customers based on our applicable jurisdiction tax reporting requirements. As such, taxes are reported on both a gross and net basis in our operations, and those reported on a gross basis amounted to $1,525,000 and $2,094,000 in the three months ended June 30, 2019 and 2018, and $2,186,000 and $2,388,000 in the six months ended June 30, 2019 and 2018.

SMI Weather Guarantee - Effective August 2018, we announced “The SMI Weather Guarantee” for all NASCAR-sanctioned races held at our eight speedways. If inclement weather postpones a NASCAR race, and ticketholders are unable to attend on a rescheduled date, fans can obtain a credit toward future NASCAR races held at any SMI speedway. Unused paid race tickets may be exchanged for tickets of equal or lesser value within one calendar year of the original event date or for the same race in the following year, subject to certain restrictions and requirements. Cash refunds are not available and the guarantee does not apply to delayed or shortened races. Tickets honored under this program were not significant in the three or six months ended June 30, 2019.

Income Taxes – We provide for income taxes at the end of each interim period based on management’s best estimate of the annual estimated effective income tax rate. Cumulative adjustments to our annual estimated effective income tax rate are recorded in the interim period in which a change in the annual estimated effective income tax rate is determined. Cash paid for income taxes excludes any previous overpayments the Company may 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. See Notes 2 and 8 to the Consolidated Financial Statements in our 2018 Annual Report for additional information on our accounting for income taxes.

Our effective income tax rate for the three months ended June 30, 2019 and 2018 was 25.8% and 22.0%, and for the six months ended June 30, 2019 and 2018 was 25.9% and 21.4%, respectively. The 2018 tax rates reflect a second quarter non-recurring tax benefit of $1,110,000 resulting from certain state income tax law changes. We paid cash of $16,410,000 and $500,000 for income taxes in the six months ended June 30, 2019 and 2018.

Accounting for Uncertainty in Income Taxes – Income tax liabilities for unrecognized tax benefits approximate $11,711,000 at both June 30, 2019 and December 31, 2018, all of which relates to our previously discontinued operation. Of those amounts, $11,534,000 is included in noncurrent other liabilities, all of which would favorably impact our effective tax rate if recognized, and $177,000 is included in deferred tax liabilities at both June 30, 2019 and December 31, 2018. As of June 30, 2019 and December 31, 2018, management believes $201,000 of unrecognized tax benefits will be recognized within the next twelve months. Interest and penalties associated with unrecognized tax benefits were insignificant for the three and six months ended June 30, 2019 and 2018. As of June 30, 2019 and December 31, 2018, we had $1,161,000 and $789,000 accrued for the payment of interest and penalties on uncertain tax positions, which is included in other noncurrent liabilities. The tax years that remain open to examination include 2015 through 2017 by the Internal Revenue Service, and 2012 through 2017 by other state taxing jurisdictions to which we are subject. 

Income Tax Benefits – Applicable accounting guidance may 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. At June 30, 2019 and December 31, 2018, liabilities for unrecognized tax benefits totaled $11.7 million. Should those tax positions not be fully sustained if examined, an acceleration of material income taxes payable could occur. Where 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.

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 $3,215,000 and $4,695,000 for the three months ended June 30, 2019 and 2018, and $5,425,000 and $6,430,000 for the six months ended June 30, 2019 and 2018. There were no deferred direct-response advertising costs at June 30, 2019 or December 31, 2018.

TMS Mineral Rights Lease Receipts – We recognized royalty revenue of $246,000 and $347,000 in the three months ended June 30, 2019 and 2018, and $636,000 and $743,000 in the six months ended June 30, 2019 and 2018, under a natural gas mineral rights lease agreement and a joint exploration agreement entitling TMS to stipulated stand-alone and shared royalties. Such revenues can vary from associated volatility in natural gas price levels and common diminishing well production, as well as other factors outside of TMS’s control. 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 long-term lease remains enforceable as long as drilling or extraction related activities continue or certain price levels are met. The agreements stipulate that TMS distribute 25% of production royalty revenues to the lessee, and obligate TMS to spend amounts equal to royalties received on TMS facility and road infrastructure improvements beginning in 2018, up to specified cumulative amounts. At this time, management believes that our infrastructure spending will continue to exceed anticipated future royalties similar to 2018. As of June 30, 2019 and December 31, 2018, there was no deferred income associated with these agreements.

Fair Value of Financial Instruments – 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; 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 June 30, 2019 and December 31, 2018 (in thousands):

Property and Equipment – From time to time, we may decide to renovate various seating, suites and other areas at our speedways for modernizing our facilities, alternative marketing or development purposes such as offering expanded premium hospitality, RV camping and advertising areas, or wider seating and improved sight lines. When management decides on renovation and removal, accelerated depreciation is 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. Associated estimated costs of removal and disposal are also recorded at that time in “other expense”.

In 2019, we contracted and began removing certain seating at CMS, NHMS and LVMS for replacing every other seating row with drink rails in certain areas, offering our fans more legroom, easier mobility and expanded comfort for consuming food and beverages. As such, we recorded non-cash pre-tax charges for accelerated depreciation of $552,000 and $912,000, before income tax benefits of $143,000 and $237,000, in the three and six months ended June 30, 2019, respectively. These charges are included in our "motorsports event related" reporting segment (see Note 10).

Consolidated Statements of Cash Flows –  We revised the consolidated statements of cash flows for the six months ended June 30, 2018 to comport with full year classifications in our 2018 Annual Report. These revisions resulted in an immaterial decrease in net cash provided by operating activities and a corresponding decrease in net cash used by investing activities.

Recently Issued Accounting Standards   – The Financial Accounting Standards Board (FASB) issued ASU No. 2016-02 “Leases (Subtopic 842)” which replaces all current US GAAP guidance on this topic, and ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” which clarifies certain transitional and application guidance. Leases that meet the guidance criteria are to be recognized on an entity’s balance sheet as right-of-use assets and lease liabilities, and expanded disclosures are required. The accounting to be applied by lessors is largely unchanged from previous guidance. The FASB also issued ASU No. 2018-20 “Narrow-Scope Improvements for Lessors - Leases (Topic 842)” which, among other things, requires lessors to exclude certain lessor costs paid by lessees directly to third parties from revenue and variable payments in lease contract consideration. Costs paid by lessors and reimbursed by lessees will be recorded as costs and revenue, respectively. We implemented processes, internal controls and technology solutions to help enable proper accounting and accurate reporting of our leasing activities.

We adopted this new guidance as of January 1, 2019 using the modified retrospective transition method, with no restatement of prior periods. No cumulative-effect adjustment was recognized as the amount was not material, and adoption had an insignificant impact on our statement of operations and cash flows. All of our leases are operating leases under the new guidance. Adoption resulted in recording right-of-use assets and lease liabilities of $1,935,000 as of January 1, 2019. Our evaluation under the new lease accounting guidance, practical expedients and associated required disclosures are set forth below. All amounts and disclosures for our leasing activities before January 1, 2019 are based on previous accounting guidance.

The FASB issued ASU No. 2018-01 "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842" which, among other things, provides an optional transition practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under previous guidance. Once adopted, this Update should be applied prospectively to all new or modified land easements to determine whether any arrangements should be accounted for as a lease. We elected this practical expedient, including not reassessing existing land easements as lease contracts, and adoption of this new guidance as of January 1, 2019 had no significant impact on our financial statements.

Operating Leases – As lessee, our lease agreements are principally for office and warehouse space used in operations and equipment used in conducting racing and other events. As lessor, we lease various office, warehouse and industrial park space and certain other speedway facilities under operating leases to various entities largely involved in motorsports, and leases typically contain initial terms of one year or more and are noncancelable. Certain property and building lease agreements obligate us to pay real estate taxes, insurance and certain maintenance costs (non-lease components). Our lease agreements do not contain any significant residual value guarantees, buy-out options or variable costs, no significant lease costs are capitalized, and our sub-leases are not significant. Operating lease expense is generally recognized on a straight-line basis over the lease term, and recorded in our various expense categories based on the nature of the associated lease.

We elected the following practical expedients:

We also used the following considerations in applying the new lease accounting guidance:

We determined the present value of lease payments over the respective lease terms using an estimated weighted average incremental borrowing rate of 4% based on available information, and a weighted-average lease term of 2.5 years. Total lease cost amounted to $344,000 and $687,000 for the three and six months ended June 30, 2019. Operating lease right-of-use assets and associated lease liabilities as of June 30, 2019 are as follows (in thousands):

Lease revenue for operating leases, excluding TMS oil and gas mineral rights lease receipts that are not subject to the new lease guidance, amounted to $2,446,000 and $4,910,000 in the three and six months ended June 30, 2019. Future contracted annual lease payments, and minimum lease revenues, under operating leases with terms in excess of twelve months at June 30, 2019 were as follows (in thousands):

Disclosures under Previous Lease Accounting Guidance – The following disclosures are based on accounting guidance in effect prior to our January 1, 2019 adoption of the new lease accounting standards. At December 31, 2018, future annual minimum lease payments under operating leases amounted to $1,152,000 in 2019, $855,000 in 2020, $504,000 in 2021, $156,000 in 2022, $145,000 in 2023, and $200,000 thereafter. At December 31, 2018, future annual minimum lease revenues under operating leases amounted to $5,142,000 in 2019, $2,561,000 in 2020, $1,778,000 in 2021, $1,250,000 in 2022, $888,000 in 2023, and $37,000 thereafter.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Annual Impairment Assessment – We evaluate goodwill and other intangible assets for possible impairment annually in the second quarter, or when events or circumstances indicate possible impairment may have occurred. Other intangible assets are comprised of nonamortizable race event sanctioning and renewal agreements. See Notes 2 and 5 to the Consolidated Financial Statements in our 2018 Annual Report for additional information on our goodwill and other intangible assets, and the methods, assumptions and business factors used in our annual impairment assessment.

Management's latest annual assessment in the second quarter 2019 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. The impairment evaluation considered NASCAR’s approved realignment of one annual Monster Energy Cup Series and one annual Gander Outdoors Truck Series racing event from NHMS, and an annual Xfinity Series racing event from KyS, to LVMS beginning in September 2018, and anticipated associated net increases in future long-term cash flows and operating profits. Among other factors, the latest assessment assumes projected cash flow and profitability using minimal or modest annual 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. The assessment also reflects anticipated lower cash federal income taxes under the Tax Cuts and Jobs Act. 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 current negotiated multi-year contracts. NASCAR event management fees for years after 2020 have not been negotiated, and future annual fees could differ substantially from those assumed in management’s impairment assessment.

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 thirteen Monster Energy Cup, eleven Xfinity and eight Gander Outdoors 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 also considered the proposed financial terms of the definitive merger agreement described in Note 11, and control premiums and other market information related to our common stock from historical and forward-looking perspectives. 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 believes the methods used to determine fair value and evaluate impairment were appropriate, relevant, and represent methods customarily available and used for such purposes and are the best available estimate of fair value.

Management's assessment found the estimated fair value of each reporting unit and each indefinite-lived race date intangible asset exceeded its associated carrying value except for three race date agreements. We recorded sizable impairment charges in 2015 and earlier years to reduce the carrying values for two of those race date agreements to then estimated fair values. These charges resulted in nominal excess fair value over adjusted carrying values for future impairment assessments and are reflected in our current evaluation. As of June 30, 2019 and December 31, 2018, the aggregate carrying value for those non-amortizable race date event sanctioning and renewal agreements was approximately $298.4 million. The estimated excess of fair value of these identified intangible assets is relatively nominal at this time, heightening sensitivity to management’s assumptions used in estimating future discounted cash flows and profitability and associated risk of failing impairment testing. The evaluation 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 race driver “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 those three race date intangible assets.

There have been no triggering events that indicate possible impairment, and management believes our operational and cash flow forecasts support our conclusions that no unrecognized impairment exists as of June 30, 2019. Our future profitability or success associated with any current or future NASCAR race realignments could significantly differ from management expectations and estimates, and are subject to numerous factors, conditions and assumptions, many of which are beyond our control. 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 our future financial condition or results of operations. The evaluations are subjective and based on conditions, trends and assumptions existing at the time of evaluation.

Other Information – There were no changes in the gross carrying value of other intangible assets or goodwill during the six months ended June 30, 2019. Those carrying amounts include accumulated impairments of $100.0 million for other intangible assets and $149.7 million for goodwill at both June 30, 2019 and December 31, 2018. There is no accumulated amortization for either asset class.

5. LONG-TERM DEBT

Bank Credit Facility – Our Amended and Restated Credit Agreement, dated December 29, 2014 (the Credit Facility), among other things: (i) provides for a five-year $100,000,000 senior secured revolving credit facility, with separate sub-limits of $50,000,000 for standby letters of credit and $10,000,000 for swing line loans; (ii) provides for a five-year $150,000,000 senior secured term loan (which was fully drawn and repaid) and a five-year delayed draw term loan of up to $50,000,000 (which was fully drawn and repaid) (the Term Loan or Term Loans); (iii) matures in December 2019; (iv) contains an accordion feature allowing the Company to increase revolving commitments or establish a term loan up to an aggregate additional $100,000,000 or $200,000,000, respectively (or a combined aggregate additional amount of up to $250,000,000) with certain lender commitment conditions; (v) allows for annual aggregate payments of dividends and repurchases of SMI securities of up to $50,000,000, increasing up to $75,000,000 subject to maintaining certain financial covenants; and (vi) limits annual capital expenditures to $75,000,000 and provides for motor speedway acquisitions and related businesses. Term Loans require equal minimum quarterly principal payments of at least 5% of initial amounts drawn on an annualized basis.

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

At June 30, 2019 and December 31, 2018, there were no outstanding borrowings under the Credit Facility, and outstanding letters of credit amounted to $587,000 at both dates. During the three and six months ended June 30, 2018, the Company repaid $20,000,000 and $23,000,000 of Term Loan borrowings. As of June 30, 2019, we had availability for borrowing up to an additional $99,413,000, including up to an additional $49,413,000 in letters of credit, under the revolving Credit Facility.

2023 Senior Notes – We completed a private placement of 5.125% Senior Notes due 2023 in aggregate principal amount of $200.0 million in January 2015 (the 2023 Senior Notes), and an exchange offer for substantially identical 2023 Senior Notes registered under the Securities Act in the second quarter 2015. The 2023 Senior Notes were issued at par, and net proceeds were used to redeem a portion of our former 2019 Senior Notes as further described in Note 6 to the Consolidated Financial Statements in our 2018 Annual Report. The 2023 Senior Notes mature in February 2023 and interest payments are due semi-annually on February 1 and August 1.

Other Notes Payable – At June 30, 2019 and December 31, 2018, long-term debt includes a 3% interest bearing debt obligation of $720,000 and $887,000 associated with the 2016 purchase of real property at BMS, payable in eight annual installments of $194,000.

Deferred Financing Costs – Deferred financing costs associated with our revolving Credit Facility are reported in other noncurrent assets, and those associated with our 2023 Senior Notes and bank Term Loan are reflected as a reduction of long-term debt. As of June 30, 2019 and December 31, 2018, long-term debt reflects deferred financing costs, net of accumulated amortization, of $2,110,000 and $2,718,000.  

Other General Terms and Conditions – The Credit Facility and 2023 Senior Notes contain specific requirements and restrictive financial covenants and limits or prohibits various financial and transactional activities, and also contain cross-default and change of control provisions. We were in compliance with all applicable covenants under these debt agreements as of June 30, 2019. See Note 6 to the Consolidated Financial Statements included in our 2018 Annual Report for additional information on these debt agreements, including dividend, redemption, and right of payment provisions, pledged security and financial and restrictive covenants. 

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

Stock Repurchase Program  – Our Board of Directors previously approved a stock repurchase program authorizing SMI to repurchase up to an aggregate of 6,000,000 shares of our outstanding common stock from time to time, depending on market conditions, share price, applicable limitations under our debt agreements, 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 has been funded using available cash and cash equivalents. We suspended our stock repurchase program on April 24, 2019 (see Note 11). There can be no assurance that we will resume repurchases under the program.

During the three and six months ended June 30, 2019, we repurchased 18,000 and 79,000 shares of common stock for $258,000 and $1,272,000. During the three and six months ended June 30, 2018, we repurchased 63,000 and 122,000 shares of common stock for $1,109,000 and $2,257,000. As of June 30, 2019, we could repurchase up to an additional 866,000 shares under the current authorization. During the six months ended June 30, 2019, we also repurchased 28,000 shares of common stock for $468,000 from management employees to settle income taxes on 62,000 restricted shares that vested during the period. As of and through June 30, 2019, treasury stock includes 409,000 shares of common stock delivered to the Company for such purposes.

Declaration of Cash Dividends – On February 12, 2019, our Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock aggregating $6,198,000, which was paid on March 15, 2019 to shareholders of record as of March 1, 2019. On April 23, 2019, our Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock aggregating $6,125,000, which was paid on June 5, 2019 to shareholders of record as of May 15, 2019. On July 23, 2019, our Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock aggregating approximately $6.1 million payable on September 6, 2019 to shareholders of record as of August 15, 2019. These quarterly cash dividends are being paid using available cash and cash equivalents on hand.

7. RELATED PARTY TRANSACTIONS

The Company and Sonic Financial Corporation (Sonic Financial), a Company affiliate through common ownership by our Executive Chairman and our Chief Executive Officer, and by a member of our Board of Directors, share various expenses in the ordinary course of business under a shared services agreement. We incurred expenses of $329,000 and $460,000 in the three months ended June 30, 2019 and 2018, and $736,000 and $735,000 in the six months ended June 30, 2019 and 2018 under the shared services agreement. No amounts were due from or payable to Sonic Financial at June 30, 2019 and December 31, 2018.

The Company and certain SMI subsidiaries lease office and warehouse facilities from companies affiliated through common ownership by our Executive Chairman and Chief Executive Officer, and by a member of our Board of Directors, under annually renewable lease agreements. Rent expense amounted to $181,000 and $180,000 in the three months ended June 30, 2019 and 2018, and $364,000 and $362,000 in the six months ended June 30, 2019 and 2018. Amounts owed to these affiliated companies at June 30, 2019 or December 31, 2018 were not significant.

Various SMI subsidiaries purchased new and used vehicles for operations and employee use from certain subsidiary dealerships of Sonic Automotive, Inc., an entity in which our Executive Chairman is a controlling stockholder, and our Chief Executive Officer and a member of our Board of Directors are affiliated through common ownership, for an aggregate of $19,000 and $26,000 in the three months ended June 30, 2019 and 2018, and $184,000 and $185,000 in the six months ended June 30, 2019 and 2018. There were no vehicles sold to SAI in the three or six months ended June 30, 2019 and 2018. Also, SMI sold through certain speedways and its SMIP merchandising subsidiary various event related inventory and merchandise to SAI totaling $167,000 and $231,000 in the three months ended June 30, 2019 and 2018, and $451,000 and $452,000 in the six months ended June 30, 2019 and 2018. At June 30, 2019 and December 31, 2018, approximately $167,000 and $142,000 was due from SAI and is reflected in current assets.

Oil-Chem sold zMAX micro-lubricant ^® 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 were $422,000 and $392,000 in the three months ended June 30, 2019 and 2018, and $769,000 and $830,000 in the six months ended June 30, 2019 and 2018. At June 30, 2019 and December 31, 2018, approximately $123,000 and $217,000 was due from SAI and is reflected in current assets.

The foregoing related party balances as of June 30, 2019 and December 31, 2018, and transactions for the three months ended June 30, 2019 and 2018, are summarized below (in thousands):

8. LEGAL PROCEEDINGS AND CONTINGENCIES

From time to time, we are party to routine litigation incidental to our business. 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.

9. STOCK COMPENSATION PLANS    

See Note 11 to the Consolidated Financial Statements in our 2018 Annual Report for additional information and terms of the Company’s stock compensation plans.

2013 Stock Incentive Plan, Amended and Restated as of April 19, 2017 – The Compensation Committee of the Company’s Board of Directors approved grants of 35,000 restricted stock units to the Company’s Chief Executive Officer and President and 35,000 shares of restricted stock to the Company’s Vice Chairman and Chief Financial Officer in each of the six months ended June 30, 2019 and 2018. These grants are to be settled in shares of common stock, vest in equal installments over three years and are subject to reaching certain defined full year earnings targets established at the beginning of each year by the Compensation Committee. Forfeitures in any given year result from differences between the Company’s actual results for the previous year as compared to the defined full year earnings target.

The following is a summary of restricted stock and restricted stock units granted, vested and forfeited under the 2013 Stock Incentive Plan for the indicated periods (shares in thousands):

During each of the six months ended June 30, 2019 and 2018, the Company repurchased 28,000 shares of common stock for $468,000 and $540,000, respectively, from executive management employees to settle income taxes on 62,000 shares that vested in each respective period.

2018 Formula Restricted Stock Plan – In March 2018, our Board of Directors adopted the 2018 Formula Restricted Stock Plan which was approved by our stockholders at the 2018 Annual Meeting. The Company awarded 5,286 shares of restricted stock to each of the Company’s five non-employee directors in April 2019 under this plan. The Company awarded an aggregate of 16,904 shares of restricted stock to the Company’s non-employee directors in April 2018, all of which vested in April 2019, and 4,459 shares of restricted stock to a non-employee director appointed to the Board of Directors in October 2018, under this plan. All restricted stock awards were granted and vested in accordance with plan provisions.

2008 Formula Restricted Stock Plan, Amended and Restated as of April 17, 2012 – The 2008 Formula Restricted Stock Plan expired by its terms in February 2018 (see the 2018 Formula Restricted Stock Plan above). An aggregate of 15,572 shares granted under this plan in April 2017 vested in April 2018. No further shares can be granted under this plan.

Share-Based Payments – There were no significant changes in the characteristics of restricted stock or restricted stock units granted in 2019 or 2018 as compared to prior grants and no modifications of the terms of any share-based payment arrangements. There were no significant changes in estimates, assumptions or valuation methods used to estimate the fair value of share-based payment awards. No stock options were granted under any of the Company’s stock compensation plans during the six months ended June 30, 2019 or 2018. A total of 16,500 stock options previously granted under the 2004 Plan were exercised in the six months ended June 30, 2019 at an exercise price of $15.83. No stock options were exercised in the six months ended June 30, 2018.

Share-based compensation cost for the three months ended June 30, 2019 and 2018 totaled $838,000 and $865,000, before income taxes of $216,000 and $191,000, and for the six months ended June 30, 2019 and 2018 totaled $1,627,000 and $1,712,000, before income taxes of $421,000 and $368,000, respectively, and is included in general and administrative expense. There were no capitalized share-based compensation costs at June 30, 2019 or December 31, 2018. As of June 30, 2019, there was approximately $3,300,000 of total unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the Company's stock compensation plans that is expected to be recognized over a weighted average period of 0.8 year. As of June 30, 2019, all stock options were vested and there was no unrecognized compensation cost related to stock options granted under any of the Company’s stock compensation plans.

10. SEGMENT DISCLOSURES

Our operations are predominately comprised of promoting, marketing and sponsoring motorsports racing events, merchandising and other related activities conducted at our various major speedway facilities located in the United States. Our business activities, including those of our subsidiaries, are further described in Notes 1 and 2 to the Consolidated Financial Statements in our 2018 Annual Report. All Company assets are located in the United States. Our “motorsports event related” segment consists of revenues and expenses associated with all admissions, event related, NASCAR broadcasting and event motorsports merchandising activities. The segment includes motorsports related events and operations for all Company speedways, NASCAR broadcasting and ancillary media rights, PRN and RCU motorsports radio programming, and SMI Properties and SMI Trackside motorsports merchandising at Company and non-Company speedways. These operating segments have been aggregated into the motorsports related reportable segment as each share similar types and classes of customers, similar methods for providing or distributing motorsports related services, souvenirs and other merchandise, and other similar economic characteristics. Our “all other” operations consist of SMIP subsidiary non-event motorsports and non-motorsports merchandising, Legend Cars non-event merchandising and sanctioning body activities, Oil-Chem micro-lubricant activities, TMS natural gas mineral rights lease and related revenues, and office rentals at certain Company speedways.

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

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

11. SUBSEQUENT EVENT

On July 24, 2019, we announced that Sonic Financial Corporation, and a wholly owned acquisition subsidiary of Sonic Financial, entered into a definitive merger agreement (the Merger Agreement) for that subsidiary to acquire all of the outstanding shares of Company common stock for cash consideration of $19.75 per share. Sonic Financial, O. Bruton Smith, his family and related entities (the "Smith Group") beneficially own, directly or indirectly, approximately 29 million shares of the Company, and control over 71% of the voting power of the Company. The Merger Agreement was unanimously approved by the Company’s Board of Directors upon the unanimous recommendation of the Special Committee comprised solely of independent and disinterested members of the Company’s Board of Directors. Sonic Financial’s subsidiary will, pursuant to the terms of the Merger Agreement, commence a tender offer to acquire all of the outstanding shares of the Company’s common stock at a price of $19.75 per share in cash. The closing of the tender offer will be subject to several conditions, including tender by more than 50% of the outstanding shares not held by the Smith Group and certain other related parties and other customary conditions.

After completion of the tender offer, Sonic Financial will acquire all remaining shares of Company stock not held by Sonic Financial or its subsidiary for $19.75 per share through a statutory merger of Sonic Financial’s subsidiary and the Company in which the Company will be the surviving corporation and will become a wholly owned subsidiary of Sonic Financial. Under Delaware law, stockholders are not required to approve this statutory merger. The closing of the tender offer and merger transaction is expected to take place in the third quarter 2019. As further described in the Merger Agreement, if that agreement is terminated or abandoned (i) by Sonic Financial, the Company could be required to pay Sonic Financial a termination fee of $24,000,000, or (ii) by the Company, Sonic Financial could be required to pay the Company a termination fee of $40,000,000. There can be no assurance that the tender offer or merger will be consummated. The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement, which was filed July 24, 2019 as Exhibit 2.1 to the Company’s Current Report on Form 8-K.