MISSION STATEMENT - Suffolk OTB · Regional Off-Track Betting Corporation as of December 31, 2002 and 2001, and the results of its operations and its cash flows ... and presentation

MISSION STATEMENT

“To provide our patrons with clean, comfortable, modern facilities, reliablke raacing transmission, data and friendly customer service”

“To maximize revenue and control expenses, increase our contribution to Suffolk County and all other required jurisdictions.”

Mea KnappPresident/CEO

Suffolk RegionalOff-Track Betting Corporation

Dominic BaranelloVice PresidentSuffolk RegionalOff-Track Betting Corporation

President’s MessageThe year 2002 was a good one for Suffolk Regional Off-

Track Betting Corporation. Handle improved from $186 million in 2001 to $205 million in 2002, marking the second highest handle year since we began operation twenty-eight years ago. More importantly, we increased our contribution to Suffolk County by $300,000. While these numbers are an important place to start, they are only part of the story of our success in 2002.

For the second year in a row, the New York State Racing and Wagering Board has sin-gled out Suffolk OTB as the “cleanest, most customer friendly OTB” in the state. Our cashiers and managers were challenged to provide our customers with the kind of service they would want to receive themselves, and they met those expectations. The Buildings and Grounds staff and attendant custodians are staying ahead of problems, allowing Suffolk OTB to present a community-friendly face. The new Route 110 Branch is a shining example of this philosophy. Opened in January, it replaced a dark, unappealing location with one that is brightly lit, has comfortable cushioned seating, a video wall and individual carrels with their own personal monitors. All of our branches are neat, bright and comfortable places to be. Our company owned branches go the “extra mile” with attractive facades and nicely landscaped exterior areas.

As a public benefi t corporation, Suffolk OTB remains very aware of our responsibili-ties under New York State law. Unlike any private entity, we are directly answerable to elected offi cials. Our goals remain as they were envisioned when off-track betting was fi rst legalized in New York State. While we have largely succeeded in eliminating illegal betting on horse racing, we remain vigilant in ensuring public confi dence in the integrity of our operation. The goal of providing revenues to continue the success of the racing industry in New York State is also well served. In 2002, Suffolk OTB delivered $2.5 million to the racing industry in New York State alone. Lastly, we continue to work hard to fund our local government. Since Suffolk OTB was created, Suffolk County has received a total of $177 million from OTB revenues.

We conclude the year 2002 as we started it, in a better place than we were before, but with many challenges to face. Like other government entities, costs are rising. We need new sources of revenue to continue to improve. Our efforts alone will not be enough. We need changes in state legislation to allow OTB to compete in a changing environment. Given the right tools, Suffolk OTB will remain a corporation that Suffolk residents will be proud to call their own.

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SUFFOLK REGIONAL OFF-TRACK BETTING CORPORATION(A Public Benefi t Corporation)

5 YEAR HANDLE COMPARISON

$205,247,268

$186,820,326$174,302,864$176,267,394

$167,081,320$159,290,621

$205,247,268

$186,820,326$174,302,864$176,267,394

$167,081,320$159,290,621

2002

2001

2000

1999

1998

1997

2002

2001

2000

1999

1998

1997

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SUFFOLK REGIONAL OFF-TRACK BETTING CORPORATION(A Public Benefi t Corporation)

2002 REVENUE ALLOCATION

Total Distribution: $27,379,807

SUFFOLK REGIONAL OFF-TRACK BETTING CORPORATIONMANAGEMENT’S DISCUSSION AND ANALYSIS

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A L B R E C H T, V I G G I A N O , Z U R E C K & C O M PA N Y, P. C . CERTIFIED PUBLIC ACCOUNTANTS

25 SUFFOLK COURT

HAUPPAUGE, NY 11788

(631) 434-9500

INDEPENDENT AUDITORS’ REPORT

Board of DirectorsSuffolk Regional Off-Track Betting CorporationHauppauge, New York

We have audited the accompanying balance sheets of Suffolk Regional Off-Track Betting Corporation (A Public Benefit Cor-poration), a component unit of the County of Suffolk, New York, as of December 31, 2002 and 2001, and the related statements of revenue, expenses and revenue allocation, undistributed net revenue payable to Suffolk County, and cash flows for the years then ended. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reason-able basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suffolk Regional Off-Track Betting Corporation as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in note 1, the Corporation has implemented a new financial reporting model, as required by the provisions of GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Gov-ernments, as of December 31, 2002.

The management’s discussion and analysis on pages 2 through 4 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiry of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.

Hauppauge, New YorkMarch 12, 2003


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Our discussion and analysis of Suffolk Regional Off-Track Betting Corporation’s (hereinafter referred to as “the Corporation”) financial performance provides an overview of the Corpora-tion’s financial activities for the year ended December 31, 2002. Please read it in conjunction with the independent auditors’ report and the Corporation’s financial statements.

Financial Highlights

The Corporation generated handle of $205.2 million, the second highest handle in the Corpora-tion’s 28-year history and an increase of $18.3 million over the prior year.

The Corporation produced revenues of $6,983,130 for the County of Suffolk, $2,524,203 for the State of New York, $17,424,268 for the racing industry and $1,234,582 for other local govern-ments. In total, these revenues were $1,803,168 or 7% greater than the prior year.

Of the $6,983,130 net revenue allocated to Suffolk County, $6,221,551 represented operating revenue which is paid to the County monthly, and $761,579 represented the net income of the Capital Asset Reserve Trust (CART), which is retained by the Corporation to be used for capital investments.

Operating expenses, of which a significant portion are a function of handle, increased approxi-mately $1,000,000, a 7.2% increase.

General and administrative expenses increased approximately $520,000, a 7.6% increase.

Basic Financial Statements

This annual report consists of a series of financial statements that have been audited by inde-pendent auditors. They have been prepared in compliance with generally accepted accounting principles for proprietary funds. A proprietary fund is used by governments to account for business-type activities engaged in for profit. Proprietary funds are required to use the full accrual method of accounting, which means that all revenues are recorded when earned and all expenses are recorded when they are incurred regardless of when they will be paid.The balance sheets are as of December 31, 2002 and 2001 and show the Corporation’s assets, liabilities and undistributed revenue. They show the resources available and the related obli-gations the Corporation must meet. Suffolk Regional Off-Track Betting Corporation is a public benefit corporation and as such, all income derived from operations is distributed to state and local governments. Therefore, the “equity” section consists of undistributed revenues payable to Suffolk County, the State of New York and other local governments. The statements of revenue, expenses and revenue allocation, otherwise known as the operating statements, show activity for the years ended December 31, 2002 and 2001. Revenues are classified by source. Expenses are classified into two categories: operating and administrative. The difference between revenues and expenses is the income before the revenue allocation. The statements of undistributed net revenue payable to Suffolk County are reconciliations of the beginning and ending revenue payable to the County.



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Basic Financial Statements (continued)

The statements of cash flows for the years ending December 31, 2002 and 2001 detail the receipt and disbursement of cash. They segregate cash received and disbursed into three groups; operating, investing and financing activities. The cash flow statements separately report cash received from and paid to bettors, cash received from other sources, cash paid out to suppliers and employees (salaries), and statutory payments. They also show cash paid for the purchase of fixed assets and payments made on mortgages. The end result is a reconciliation of beginning to ending cash.

The notes to the financial statements disclose the Corporation’s significant accounting policies and provide detail of the major assets and liabilities such as cash and investments, fixed assets, accounts payable and accrued expenses, and debt. The NYS Retirement System is described, as well as its funding policy and total cost. Also disclosed are future commitments of the Corporation, such as leases and major contracts. The notes include a definition of gross revenue and detail the allocation of such revenues to the racing industry, Suffolk County, New York State and other local governments.

Condensed Financial Information

(In 000’s):2002 2001 2000

Current Assets $ 5,690 $ 4,627 $ 4,819 Fixed Assets, net 13,955 14,178 11,895 Other Assets 8 8 8

Total Assets $ 19,653 $ 18,813 $ 16,722

Current Liabilities $ 4,872 $ 4,152 $ 4,854 Long-Term Liabilities 6,423 6,653 4,878

Total Liabilities 11,295 10,805 9,732 Undistributed Revenue 8,358 8,008 6,990 Total Liabilities and Undistributed Revenue $ 19,653 $ 18,813 $ 16,722

Total Revenue and Other Income $ 50,369 $ 47,045 $ 44,646 Total Expenses 22,203 20,682 21,056 Income before Revenue Allocation 28,166 26,363 23,590 Revenue Allocation:Racing Industry 17,424 15,950 14,682 New York State 2,524 2,287 2,149 Other Local Governments 1,235 1,241 1,298

Net Revenue Allocated to Suffolk County $ 6,983 $ 6,885 $ 5,461



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Overall Financial Position and Results of Operations

The Corporation’s handle reached $205,247,686, an increase of $18,346,086 or 10% over the prior year. Since the Corporation’s revenue primarily consists of commissions on bets and surcharges on winnings, there is a direct correlation between increased handle and increased revenue to the Corpora-tion.

This significant increase in handle was primarily due to the success of the Corporation’s flagship facility, The Suffolk Racing Forum, which opened in May, 2001. The Forum generated better than anticipated handle through an accomplished effort to attract big bettors to this beautifully appointed, customer-friendly branch, which provides bar and restaurant facilities, as well as track prices on all winning bets.

The combination of the Forum’s success, increased customer usage of the Corporation’s convenient Tel-a-Bet (telephone account) betting system, and the relocation of a declining branch in Amityville to a new location in Farmingdale, where it has prospered, led to the significant increase in the Corporation’s handle.

These key factors as well as increased branch cleanliness, technological updates and a program to increase customer satisfaction, all contributed to the Corporation’s improved financial performance.

Capital Asset Activity

During 2002, the Corporation expended $455,856 on capital assets. Significant additions included $130,908 paid for the renovation of a newly leased facility in Farmingdale, known as the Route 110 branch; final construction costs totaling $121,544 for the Racing Forum; machinery and equipment pur-chases of $110,494; and furniture and fixture costs of $12,079.

Current Economic Factors, Decisions and Conditions

The Corporation converted its last non-simulcast branch, located in Southampton, to a simulcast branch in mid-February. The ability to simulcast live racing, provide a greater number of tracks to bettors and increase the hours of operation will generate more handle for the Corporation.

On March 6, 2003, the Corporation sold its unused facility at 160 South Ocean Avenue, Patchogue for $1,370,000, thereby eliminating the security, insurance and financing costs associated with the building.

The New York State Comptroller, in a letter dated March 21, 2003, announced a new funding plan for the New York State Employees Retirement System. The plan, which will take effect immediately upon enactment, will require employers to make a minimum contribution of 4.5% of payroll every year. The rate the Corporation paid for 2002 was 1.2%. This will mean an increase in the annual required pension contribution of approximately $400,000.

2002 2001ASSETS

Current AssetsCash and cash equivalents $ 4,388,983 $ 3,749,208 Due from other governments 833,314 424,283 Prepaid expenses and other current assets 467,806 453,370

Total Current Assets 5,690,103 4,626,861

Fixed Assets, (at cost)Property, plant, equipment, and leasehold improvements 21,247,783 22,557,617 Less: Accumulated depreciation and amortization (7,292,800) (8,379,343)

13,954,983 14,178,274

Other AssetsSecurity Deposits 8,114 8,114

$ 19,653,200 $ 18,813,249

LIABILITIESCurrent LiabilitiesAccounts payable and accrued expenses $ 2,734,615 $ 2,029,717 Notes payable 1,400,000 1,400,000 Mortgages payable 230,455 210,189 Due to New York State Retirement System 159,241 155,808 Outstanding tickets payable 66,610 75,713 Telephone betting customer accounts 281,073 280,655

Total Current Liabilities 4,871,994 4,152,082

Long Term LiabilitiesDue to New York State Retirement System 376,692 541,192 Compensated absences 1,335,312 1,170,349 Mortgages payable - net of current portion 4,711,258 4,941,706

6,423,262 6,653,247 11,295,256 10,805,329

CommitmentsUndistributed Net Revenue Payable toSuffolk County

Current (net of payments of:2002 - $6,655,577; 2001 - $5,939,321) 577,726 1,011,752

Noncurrent - Capital Acquisition Reserve Trust 7,032,217 6,270,638 New York State (net of payments of:

2002 - $2,476,613; 2001 - $2,219,492) 644,132 598,383 Other local governments (net of payments of:

2002 - $1,257,860; 2001 - $1,228,717) 103,869 127,147 8,357,944 8,007,920 $ 19,653,200 $ 18,813,249

SUFFOLK REGIONAL OFF-TRACK BETTING CORPORATION(A Public Benefit Corporation)

DECEMBER 31, 2002 & 2001 BALANCE SHEETS

See notes to financial statements.8

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STATEMENT OF REVENUE, EXPENSES AND REVENUE ALLOCATIONYears ended December 31, 2002 and 2001

2002 2001

REVENUECommissions - Pari-Mutuel Betting $ 41,045,375 $ 37,960,103 Retained Surcharge 1,259,202 1,317,066 Surcharge and surcharge breakage 3,853,278 3,824,097 Surcharge - Capital Acquisition Reserve Trust 692,364 697,122 Breakage 842,441 774,752 Estimated unclaimed winnings and refunds allocable to New York State 574,438 523,147

48,267,098 45,096,287

EXPENSESOperating 14,869,421 13,869,128 General and Administrative 7,333,830 6,813,315

22,203,251 20,682,443

Income From Operations 26,063,847 24,413,844

Other Income 2,102,337 1,949,171 Income Before Revenue Allocation 28,166,184 26,363,015

Revenue AllocationRacing Industry 17,424,268 15,949,707 New York State

-Pari-Mutuel tax and breakage 1,949,765 1,763,722 -Estimated unclaimed winnings and refunds 574,438 523,147

Other local governments 1,234,582 1,241,574 21,183,053 19,478,150

Net Revenue Allocated to Suffolk County $ 6,983,131 $ 6,884,865

See notes to financial statements.

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STATEMENTS OF UNDISTRIBUTED NET REVENUE PAYABLE TO SUFFOLK COUNTY

Years ended December 31, 2002 and 2001

2002 2001

Undistributed net revenue payable to Suffolk County - January 1 $ 7,282,390 $ 6,336,846

Net revenue for year allocable to Suffolk County: Surcharge and surcharge breakage 2,618,695 2,582,523 Operations 4,364,436 4,302,342

Net revenue available for distribution to Suffolk County 14,265,521 13,221,711

Less payments made during the year 6,655,577 5,939,321

Undistributed net revenue payable to Suffolk County - December 31 $ 7,609,944 $ 7,282,390


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STATEMENTS OF CASH FLOWYears ended December 31, 2002 and 2001

2002 2001Cash received from bettors $ 205,293,049 $ 186,936,949 Cash returned to bettors (156,991,114) (141,756,439)

48,301,935 45,180,510 Other Income Received:

Admission income 164,974 128,289 Lottery income 64,240 55,679 Concession income 61,869 62,667 Interest income 24,974 59,129 Miscellaneous income 1,371,107 1,822,519

Cash paid to suppliers and employees (21,585,523) (20,823,077)

Statutory Payments to:Racing Industry (16,726,103) (16,161,967)New York State (2,476,613) (2,219,492)Other Local Governments (1,257,860) (1,228,717)Suffolk County (6,655,578) (5,939,321)

Net Cash Provided by Operating Activities 1,287,422 936,219

Cash Flows From Investing ActivitiesPurchase of fixed assets (455,856) (2,854,280)Proceeds from the sale of fixed assets 18,391 5,400

Net Cash Used by Investing Activities (437,465) (2,848,880)

Cash Flows From Financing ActivitiesProceeds of loans -0- 2,022,320 Payments on mortgages payable (210,182) (154,010)Payments on capital lease -0- (11,007)

Net Cash Provided (Used) by Financing Activities (210,182) 1,857,303

Net Increase in Cash and Cash Equivalents 639,775 (55,358)Cash and Cash Equivalents - Beginning 3,749,208 3,804,566

Cash and Cash Equivalents - Ending $ 4,388,983 $ 3,749,208



NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001

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2002 2001Reconciliation of net income to net cash provided by operating activities:

Income before revenue allocation $ 28,166,184 $ 26,363,015 Non-cash items included in income before revenue allocation:Depreciation and amortization 665,847 560,916 (Gain) loss on disposition of fixed assets (5,091) 5,101 Estimated unclaimed tickets (1,841) (7,518)(Increase) decrease in:

Due from other governments (409,031) 251,026 Prepaid expenses (12,769) (110,055)Other current assets (1,667) (4,705)

Increase (decrease) in:Accounts payable and accrued expenses (38,630) (627,549)Script payable 45,363 35,349 Outstanding tickets payable (9,103) (24,882)Telephone betting customer accounts 418 81,274 Amount due to NYSERS (161,067) (163,835)Compensated absences 164,963 127,579

Net Cash Provided by Operating Activitiesbefore Revenue Distribution 28,403,576 26,485,716

Revenue Distributed to:New York State (2,476,613) (2,219,492)Racing Industry (16,726,103) (16,161,967)Suffolk County (6,655,578) (5,939,321)Other local governments (1,257,860) (1,228,717)

Net Cash Provided by Operating Activities $ 1,287,422 $ 936,219



STATEMENTS OF CASH FLOWYears ended December 31, 2002 and 2001



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Note 1 - Summary of Significant Accounting PoliciesSuffolk Regional Off-Track Betting Corporation was formed on October 7, 1974 pursuant to Section 172 of Article VIIA, of Chapter 346 of the Laws of 1973 and as amended by Chapter 573 of the Laws of the State of New York. Enabling legislation by the Suffolk County Legislature electing to participate in Off-Track Betting was enacted on July 23, 1974 by Local Law 22 of 1974. The governing body of the entity is the Board of Directors, which consists of three members who are appointed by the Suffolk County Legislature. The financial reporting entity consists of all activities and functions over which the Board of Directors exer-cises responsibility. Actual Off-Track Betting operations commenced on April 25, 1975. At the close of 2002 there were fifteen operational locations consisting of the Racing Forum and Tel-A-Bet at Hauppauge and thirteen other branch offices.

The Corporation provides off-track betting services for thoroughbred and harness racing. The geographic area covered by the Corporation’s locations is Suffolk County, New York.

The financial statements of Suffolk Regional Off-Track Betting Corporation have been prepared in con-formity with generally accepted accounting principles as applied to governmental units. The Government Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The Corporation did not elect to adopt Paragraph 7 of GASB Statement No. 20 and 29 which allows governmental proprietary funds to follow all FASB statements issued after November 30, 1989, that do not conflict with or contradict GASB pronouncements and that are developed for business enterprises.

In 1999, The Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Finan-cial Statements—and Management’s Discussion and Analysis—for State and Local Governments. Cer-tain of the significant changes in the Statement include the following:

For the first time the financial statements include:

• A Management Discussion and Analysis section providing an analysis of the Corporation’s overall financial position and results of operations.

• Cash Flow statements prepared using the direct method.

These and other changes are reflected in the accompanying financial statements. The Corporation was required to implement the general provisions of the Statement in the current year. The Corporation’s more significant accounting policies are described below.

Reporting Entity

The County of Suffolk is the 100% shareholder of Suffolk Regional Off-Track Betting Corporation. The County of Suffolk appoints the Corporation’s board, has the ability to impose its will, and is entitled to the Corporation’s resources. Accordingly, the Corporation has been determined to be a component unit of the County of Suffolk, New York.





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Note 1 - Summary of Significant Accounting Policies (continued)

Basis of Presentation

The accounts of the Corporation are organized as a proprietary fund. Proprietary funds are used to account for operations that are financed and operated in a manner similar to private business enterprises. The measurement focus is upon determination of net income, financial position, and changes in financial position.

Basis of Accounting/Measurement Focus

Basis of accounting refers to when revenues and expenses and the related assets and liabilities are rec-ognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus. Measurement focus is the determina-tion of what is measured, i.e. expenses.

Proprietary funds are accounted for on the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recorded when incurred. Fixed assets and long-term liabilities related to these activities are recorded within the fund.

Cash and Cash Equivalents

For purposes of reporting cash flow, cash equivalents are defined as short-term, highly liquid investments that are both readily convertible to known amounts of cash. At December 31, 2002, the Corporation’s investments consisted of short-term highly liquid certificates of deposit with original maturities of three months or less. The Statement of Cash Flows presented uses the direct method of reporting cash flows.

Fixed Assets

Fixed assets are recorded at cost. All depreciation and amortization is computed on the straight-line method and charged to operations over the assets’ estimated useful lives which range from two and one-half years for certain vehicles to forty years for buildings. Leasehold improvements are amortized over their estimated useful lives, or the remaining term of the leases exclusive of renewal options. No interest expense has been capitalized. The Corporation does not own any infrastructure-type assets.

Reclassification

Certain prior year amounts have been reclassified to conform with current year presentation.





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Note 1 - Summary of Significant Accounting Policies (continued)

Risk Management

The Corporation has adopted Governmental Accounting Standards Board Statement No. 10, Accounting and Reporting for Risk Financing and Related Insurance Issues. The Statement establishes standards for risk financing and insurance-related activities. It is the policy of the Corporation to purchase commercial insurance for risks of losses to which it is exposed except for unemployment insurance. The unemploy-ment expense for the years ended December 31, 2002 and 2001 was approximately $100 and $17,069, respectively.

Post Employment Benefits

In addition to providing pension benefits, the Corporation provides health insurance coverage and survivor benefits, in accordance with union contracts, to its retired employees and their survivors. The Corporation bears principally all costs associated with these benefits based upon the coverage selected. Substantially all of the Corporation’s full time employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation and have been employed by the Corporation for ten con-secutive years. Health care benefits and survivors benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. The Corporation recognizes the cost of providing benefits by recording its share of insurance premiums as an expense in the year paid.

During 2002 and 2001, the Corporation paid approximately $657,000 on behalf of 115 retirees and $610,000 on behalf of 106 retirees, respectively.

Note 2 - Cash and Investments

The Corporation’s investment policies are governed by state statutes. In addition, the Corporation has its own written investment policy. The Corporation’s monies must be deposited in insured commercial or savings banks or trust companies located within New York State. The Comptroller is authorized to use demand accounts, money market accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury and U.S. Agencies, repurchase agreements, and obligations of New York State or its localities.

Collateral is required for deposits not covered by federal deposit insurance. This collateral is required to be delivered to the Corporation or a custodial bank. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the state and its municipalities and school districts.

Deposits, including time deposits and money market accounts, at December 31, 2002 were entirely cov-ered by Federal depository insurance or by collateral held by the bank or a custodial bank.





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Note 2 - Cash and Investments (continued)

Deposits consisted of the following:

BankBank

BalanceFDIC

Insured

Collateral Held by Third Party Custodial Bank

Long Island Commercial Bank $ 2,803,092 $ 200,000 $ 4,666,569North Fork Bank 391,297 100,000 305,504Bank of New York 1,025,068 100,000 962,864

Note 3 - Changes in Fixed AssetsA summary of changes in Property, Plant, Equipment, and Leasehold Improvements for the year ended December 31, 2002 is as follows:

Balance1/1/02 Additions

Disposalsand other

TransactionsBalance12/31/02

Land, Buildings, andBuilding Improvements $ 8,221,595 $ 2,725 $ 895 $ 8,225,215Machinery and Equipment 4,126,954 110,494 (991,682) 3,245,766Furniture and Fixtures 413,510 12,079 425,589Leasehold Improvements 1,805,612 12,520 (760,992) 1,057,140CART Assets 7,989,946 318,038 (13,911) 8,294,073

$ 22,557,617 $ 455,856 ($ 1,765,690) $ 21,247,783

Depreciation and amortization expense for the years ended December 31, 2002 and 2001 totaled $665,847 and $560,916, respectively.

Note 4 - Accounts Payable and Accrued ExpensesAccounts payable and accrued expenses are comprised of the following:

2002 2001Supplies, Services, Rents, etc. $ 283,317 $ 317,945Wagering Services 185,308 172,954Payroll and Payroll Taxes 332,193 335,908Withheld Tax on Winning Tickets -0- 12,641Script Payable 224,635 179,272Track Settlement 175,461 73,920Additional Track Commissions 1,078,210 628,985Thoroughbred Associations 379,470 230,581Harness Associations 76,021 77,511

$ 2,734,615 $ 2,029,717

Additional track commissions consist of commissions on out-of-state races to be distributed to in-state tracks.





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Note 5 - Outstanding Tickets PayableIn 2002, the Corporation remitted $521,306 to New York State for 2001 winning and refundable uncashed tickets. As of February 28, 2003, the outstanding winning and refundable unclaimed tickets for 2002 amount to $574,438. It is anticipated that this amount will not be claimed and will, therefore, escheat to New York State. Ninety-five percent of this amount was paid by March 15, 2003, with the remaining bal-ance payable by April 10, 2003.

Outstanding tickets are presented as follows:

Total outstanding tickets payable at December 31 Less: Amounts classified as estimated unclaimed winnings and refunds allocable to New York State Net outstanding tickets payable at December 31

Note 6 - Debt

Short Term Debt

Unsecured loan; due in full March 23, 2003; bears interest at prime rate as published in Wall Street Journal. Proceeds were used to purchase a building.

Long Term Debt

Mortgages payable as of December 31, 2002 and 2001 consist of the following: Purchase money mortgage; payable in 180 monthly install-ments. The interest rate and monthly payment will adjust every five years to the current weekly average five year Treasury constant rate in effect 30 days prior to the adjust-ment date plus 2.75%. Currently the monthly installment is $8,278 including interest at 7.23%; final payment due August 2012; secured by real property.

Purchase money mortgage; payable in 240 monthly install-ments of $11,166 including interest at 6.48%; final payment due October 2018; secured by real property.

Construction loan; converted to a 15-year mortgage on May 15, 2001; interest only at prime until conversion; interest rate based on U.S. Treasury rates thereafter with a minimum rate of 7.75%; secured by real property.

2002 2001

$ 641,048 $ 598,860

574,438 523,147$ 66,610 $ 75,713

2002 2001

$1,400,000 $1,400,000

2002 2001

$ 686,999 $ 730,918

1,324,595 1,371,110

2,930,119 3,049,867$ 4,941,713 $ 5,151,895





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Note 6 – Debt (continued)

Other Long-Term Debt

Due to NYSERS (New York State Employees’ Retirement System) – Represents the liability to the state retirement system for retirement incentive programs.

Compensated Absences - Represents the value of the earned and unused portion of the liability for compensated absences.

The following is a summary of changes in debt and other long term liabilities for the year ended December 31, 2002:

Balance January 1,

2002New debt

issued Repayments

Other Increases

(Decreases)

Balance December 31, 2002

Notes Payable $ 1,400,000 $ 1,400,000Mortgages Payable 5,151,895 $ 210,182 4,941,713Due to NYSERS 697,000 161,067 535,933Compensated Absences 1,170,349 $ 164,963 1,335,312

Changes to Compensated Absences are shown net since it is impractical to determine the amounts separately.

Future minimum payments on mortgages payable are as follows:

Principal Interest2003 $ 230,455 $ 354,7802004 247,951 337,2832005 266,920 318,3142006 287,232 298,0022007 309,128 276,106

Thereafter 3,600,027 1,270,343 $ 4,941,713 $ 2,854,828

Total amount charged to interest expense for the years ending December 31, 2002 and 2001 was $435,975 and $393,346, respectively.

Note 7 - CommitmentsRental expense for real property under lease agreements was $999,681 and $1,432,926 for 2002 and 2001, respectively. Approximate minimum rentals under the terms of leases in effect at December 31, 2002 exclusive of renewal options and escalation clauses for real estate taxes and other costs are sum-marized as follows:

Year ending December 31, 2003 $ 714,2752004 548,9732005 284,6612006 226,1632007 165,134

$ 1,939,206





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Note 7 – Commitments (continued)

In addition to rental payments, certain leases provide for payments of real estate taxes and other costs.

Lease terms on the above minimum rental commitments range from a period of one to five years. Certain leases contain provisions for renewal options. The terms of the renewal options are based on the average fixed minimum rent escalated by an increase in the consumer price index.

On August 29, 2002 the Corporation entered into an amended agreement for the leasing of an automated wagering system and various interface services. In accordance with the terms of the agreement, the Corporation exercised its option to renew the contract and lease until May 6, 2009. The Corporation also has an agreement for simulcasting services through December 31, 2003.

Based on a $205 million handle for the Corporation, the minimum lease commitments would be as fol-lows:

2003 $ 1,178,0002004 1,025,0002005 1,025,0002006 341,667

$ 3,569,667

Note 8 - Retirement System

Plan Description

The Corporation participates in the New York State and Local Employees’ Retirement System (ERS), which is a cost-sharing multiple-employer retirement system. The System provides a wide range of plans and benefits that are related to years of service and final average salary, vesting of retirement benefits, death and disability benefits. Obligation of employers and employees to contribute and bene-fits to employees are governed by the New York State Retirement and Social Security Law (NYSRSSL). As set forth in the NYSRSSL, the Comptroller of the State of New York (Comptroller) serves as sole trustee and administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for the administration and transaction of the business of the System and for the custody and control of their funds. The System issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the New York State and Local Retirement Systems, Gov. Alfred E. Smith State Office Building, Albany, NY 12244.





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Note 8 - Retirement System (continued)

Funding Policy

The System is non-contributory except for employees who joined the New York State and Local Employees’ Retirement System after July 27, 1976, and who have less than ten years of membership and less than ten years of credited service with a retirement system under the provisions of article fourteen or fifteen of the NYSRSSL, who contribute 3% of their salary. Prior to October 1, 2000, all employees who joined the System after July 27, 1976 were required to contribute 3% of their salary. Under the authority of the NYSRSSL, the Comptroller shall certify annually the rates expressed as pro-portions of payroll of members, which shall be used in computing the contributions required to be made by employers to the pension accumulation fund.

The Corporation is required to contribute at an actuarially determined rate. The required contributions for the current year and two preceding years were:

Annual Required Contribution Early Retirement Incentives, §803 Costs, & OtherAmount

% of CoveredPayroll

TotalPayment

2002 $ 110,474 1.2% $ 540,323 $ 650,7972001 57,740 0.6% 564,716 622,4562000 18,615 0.2% 494,728 513,343

The Corporation’s contribution to the System was equal to 100 percent of the contributions required for each year.

Since 1989, the System’s billings have been based on Chapter 62 of the Laws of 1989 of the State of New York. This legislation requires participating employers to make payments on a current basis, while amortizing existing unpaid amounts relating to the System’s fiscal years ending March 31, 1988 and 1989 (which otherwise were to have been paid on June 30, 1989 and 1990, respectively) over a 17-year period, with an 8.75% interest factor added. Participants were given the option to prepay this liability. The total unpaid liability at the end of the year was $249,848.

Pursuant to Chapter 41 of the Laws of 1997, Chapter 47 of the Laws of 1998, Chapter 70 of the Laws of 1999, and Chapter 86 of the Laws of 2000, the State Legislature authorized participating employers to make available retirement incentive programs with estimated costs (excluding interest) of $258,002, $178,186, $200,634, and $315,358 respectively. The cost of each of the programs are being billed and paid over five years beginning December 15, 1998, 1999, 2000, and 2001 respectively, and payments include interest ranging from 8 to 8.5%. A total of $221,679 including interest was paid and charged to expense in 2002. The Corporation also paid $122,876 including interest related to costs of retroactive membership in the retirement system as required by Section 803 of the Retirement and Social Security Law. The total unpaid liability related to Section 803 costs at December 31, 2002 was $286,085.





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Note 9 - Net HandleNet handle for years ended December 31, 2002 and 2001 were $205,247,268 and $186,820,326, respectively.

Note 10 - Gross RevenuesGross revenues earned on handle range from 14% to 20% of the total amount of applicable regular wagers handled, 16% to 26% of the total amount of applicable multiple wagers handled, and 20% to 30% of applicable exotic wagers handled. A multiple wager is defined as a “single bet or wager on two horses, evidenced by a single ticket and representing an interest in a single betting pool.” An exotic wager is defined as a “single bet or wager on three or more horses, evidenced by a single ticket and representing an interest in a single betting pool.”

Breakage

Revenue from breakage was shared as follows:

2002 Breakage fromHarness Racing

Thoroughbred Racing

2002 Total

2001 Total

New York State $ 2,593 $ 14,822 $ 17,415 $ 13,149Suffolk County 129,652 712,789 842,441 774,752Totals $ 132,245 $ 727,611 $ 859,856 $ 787,901

Surcharge and Surcharge Breakage

Section 532 of the Racing, Pari-Mutuel Wagering and Breeding Law of the State of New York (“Section 532”) imposes a surcharge of 5% on pari-mutuel winnings distributable to persons having placed bets at off-track betting facilities, with the exception of The Racing Forum.

Surcharge and Surcharge Breakage Revenues were shared as follows:

Community 2002 2001Suffolk County $ 2,618,695 $ 2,582,523Nassau OTB for Nassau County 288,218 277,457Sullivan County 54,993 52,273New York City OTB for City of New York 597,266 611,799City of Yonkers 90,817 90,203Saratoga County 180,294 184,212Ontario County 7,557 8,991Oneida County 8,201 9,443Onandaga County 668 -0-Western OTB for Buffalo 6,569 7,196Totals $ 3,853,278 $ 3,824,097

Revenue is payable to participating tracks at rates ranging from 1.5% to 5.75% on the total amount of the applicable regular and multiple wagers handled, and 2% and 8.85% of the applicable exotic wagers handled.





Note 11 - Revenue Allocated to the Racing Industry

Revenue Allocated to the Racing Industry was shared as follows:

2002 Allocation toHarness Racing

Thoroughbred Racing

2002Total

2001Total

Track Commissions $ 2,879,615 $ 11,668,218 $ 14,547,833 $ 13,528,859Simulcast Fees 124,500 1,189,103 1,313,603 1,014,456Breeding and Development

Fund Commissions 819,495 368,395 1,187,890 1,061,446Breeding and Development

Fund Breakage 187,471 187,471 374,942 344,946 $ 4,011,081 $ 13,413,187 $ 17,424,268 $ 15,949,707

Note 12 - Capital Acquisition Reserve Trust

Section 532 of the Racing, Pari-Mutuel Wagering and Breeding Law of New York State, created a 1% sup-plemental surcharge on winning multiple, exotic and super exotic wagers for the purpose of financing the acquisition, construction or equipping of offices, facilities or premises of the Corporation. The proceeds of this additional surcharge are recognized in the year earned. This revenue is distributed to Suffolk County in accordance with a schedule of depreciation deductions that would be allowed for Federal and New York State income tax purposes. All purchases are subject to the approval of a “trustee” approved by the New York State Racing and Wagering Board. The New York State Racing and Wagering Board is currently in the process of establishing rules and regulations for the administration of this law.

In July 1989, Section 509-a of the Racing, Pari-Mutuel Wagering and Breeding Law of New York State was enacted which allows the Corporation to contribute additional net revenues to the Fund. The revenues contributed are subject to the following limitations:

a) Amounts may not exceed 1% of the total pari-mutuel wagering pools for the quarter in which the contribution is made, and

b) Amounts may not exceed 50% of quarterly net revenues, exclusive of surcharge revenue, and

c) The unexpended balance of the fund resulting from the contributions of net wagering pools shall not exceed the lesser of 1% of total pari-mutuel wagering pools for the previous year or the un-depreciated value of the Corporation offices, facilities and premises.

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Note 12 - Capital Acquisition Reserve Trust (continued)

As of December 31, 2002 and 2001, the Corporation retained $400,000 and $400,000, respectively, of regular benefits as allowed under Section 509-a of the Racing, Pari-Mutuel Wagering and Breeding Law of New York State to meet the capital needs of the Corporation. The Corporation was in compliance with the limitations set forth in Section 509-a of the Racing, Pari-Mutuel Wagering and Breeding Law of New York State as of December 31, 2002 and 2001.

The amount payable to Suffolk County for the Capital Acquisition Reserve Trust (CART) at December 31, 2002 is as follows:

Amount payable - January 1, 2002 $ 6,270,638Revenues from CART Surcharge 692,364Less: CART depreciation remitted ( 330,785)Add: Section 509-a contribution 400,000

Amount payable - December 31, 2002 $ 7,032,217

The assets in the Capital Acquisition Reserve Trust (CART) at December 31, 2002 are as follows:

Cash $ 817,035

Fixed Assets 8,294,073Accumulated Depreciation 2,078,891Net Fixed Assets 6,215,182

Total Assets $ 7,032,217

Note 13 – Subsequent Event

The sale of the Patchogue building took place March 6, 2003. The unsecured loan for $1,400,000 was paid off March 11, 2003 with proceeds from the sale.

SROTB PRESENTS A CHECK FOR OVERSIX MILLION DOLLARS TO SUFFOLK COUNTY

FOR YEAR ENDING DECEMBER 2002

Suffolk Regional Off-Track Betting Offi cials presenta check for $6,221,551.00 to Suffolk County Executive Robert Gaffney.

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SROTB HONORS SUFFOLK COUNTY VOLUNTEER FIRE DEPARTMENTS

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In the Region/Long IslandOTB and Storage Operators Bet on Classier LooksNew betting facility evokes the atmosphere of Saratoga Springs.

By CAROLE PAQUETTE

TWO industries -- off-track betting and self-storage -- known for their purely functional and nondescript

buildings are seeking to improve their images by upscaling the décor of their facilities and adding amenities.

The new looks have brought in more customers, especially women who appre-ciate not only the less industrial-strength design but also the upgraded comforts, according to those in the industries.

“I can’t overstate the importance of an upscale architectural image; it meets the existing needs of customers and brings in more,’’ said Mea Knapp, president of Suffolk Regional Off-Track Betting, which has opened a new $3.8 million betting facility in Hauppauge designed in the style of the venerable Saratoga Race Course in Saratoga Springs, north of Albany.

“The new building, because of the way it looks, has brought in more customers and has nearly doubled business,’’ she said. “It’s lovely and is attracting more women.’’

In a similar way, owners of self-storage facilities say their industry has had a growth spurt after they designed their properties in a way that would make them appear safer and more appealing to women.

Suffolk OTB’s new 14,468-square-foot facility, called the Suffolk Racing Forum, is one of seven such “teletheaters’’ permitted in the state and is the only one on Long Island. Teletheater customers pay a $2 fee to enter, but their winnings are not subject to a surcharge. This attracts large bettors, according to William A. Majuk, director of facilities development.

By comparison, at the small traditional one-room betting offi ces, often located in neighborhood shopping centers, there is

no entry fee but a 6 percent surcharge is imposed on winnings.

The surcharge and a percentage of the money bet are used for OTB’s operating expenses and for payments to numerous agencies, including the counties, the state and the New York Racing Association.

Unlike Suffolk’s 15 betting offi ces, the teletheater offers amenities that include a full-service bar, a 2,300-square-foot restaurant, and a 1,300-square-foot pri-vate room for high-stakes bettors, which accommodates 15 people at a time. To gain access to the high bettors’ room, a patron must maintain an average daily wager of $1,000.

Since the facility opened on May 31, 2001, business has increased 40 percent, Ms. Knapp said, compared with the facility it replaced, Tel-A-Race, which was in a nondescript 13,000-square-foot building a mile and a half away in the Hauppauge Industrial Park, where it paid rent of $40,000 a month, Mr. Majuk said.

The more visible Forum is on 2.7 acres on Vanderbilt Motor Parkway. Its handle was $45,104,904 in the year that ended on May 31, compared with Tel-A-Race’s total of $32,177,780 the previous year, according to Ms. Knapp.

The new building was constructed “to attract new customers,’’ Mr. Majuk said. “We needed to change our face, bring in a comfortable interior and beautiful exterior, make the environment more like a living room.’’

The Forum is a complete turnaround from the “functional OTB offi ce with tile fl oors and fl uorescent lights,’’ he said.

The new building features a gray-green shingled roof with copper fi nials and cupolas that evoke the Victorian designs of the Saratoga area, said Philip Monastero,

a principal in the Ronkonkoma-based Baldassano Architectural Group, which designed the building. A combination of stones were used on the exterior for the Adirondack look.

“The building is a modern expression of the Victorian Age,’’ he said. “It was a challenge, because we wanted to design something that didn’t look Disney-ish. We didn’t want to duplicate Saratoga and make it like a theme park. We needed a subtle design because Motor Parkway is in an industrial area. We had to make it fi t in.’’

The interior is “more upscale and elegant,’’ said Susan Hanley, the interior designer. The colors are hunter green and burgundy with copper touches, “reminis-cent of that era, and low-level lighting to create a casino feel.’’

SINCE the Forum opened, OTB has “lost some patronage from its nearby betting offi ces,’’ but the

increase at the Forum has more than offset declines elsewhere, Mr. Majuk said.

As part of a fi ve-year capital program, the Suffolk corporation will be examining some new locations. “We are much into the new OTB image,’’ he said. “We are now trying to relocate some branches and enhance them.’’

OTB offi cials throughout the state have visited the Hauppauge teletheater, which is inspiring similar refurbishing elsewhere, Ms. Knapp said.

In Nassau County, the 14 betting offi ces are being updated, and the betting corporation is looking to add a new facility similar to Suffolk’s Forum, according to Larry Aaronson, president of Nassau Regional Off-Track Betting.

Because it is the home of Belmont Park in Elmont, Nassau is not permitted to have a surcharge-free teletheater, but it can expand a betting offi ce to include a restau-rant and bar, Mr. Aaronson said.

Currently, Nassau is planning two proj-ects: an approximately 10,000-square-foot “state-of-the-art Forum-type facility’’ and a betting offi ce in Carle Place with a theme based on Roosevelt Raceway, which oper-ated in nearby Westbury until 1988.

2002 SUFFOLK REGIONALOFF-TRACK BETTING CORPORATION’S

BOARD OF DIRECTORS

Richard J. KrumholzChairman

Dominick P. FeeneyVice Chairman

John J. Toomey Jr.Board Member

Herbert G. HemendingerBoard Member

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Jack LuquerDirector-Buildings

& Grounds

Mea KnappPresident/CEO

Dominic BaranelloVice President

Steve FeigExecutive Director

Toni Rettaliata-TepeExecutive Director

Jeanne O’RourkeAssociate Counsel

Christina CapobiancoComptroller

Paul EdelsteinDirector-Customer Service

William MajukDirector-Facilities

DevelopmentArlene Samos

Director-Corporate Marketing & Public Relations


PERSONNEL

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SUFFOLK OTB RACING FORUM

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SUFFOLK REGIONAL OFF-TRACK BETTINGBRANCH LOCATIONS

Branch # Name of Branch Branch # Name of Branch

253 Huntington Branch 255 Ronkonkoma Branch321 W. Jericho Turnpike 136 Portion Road

Huntington, NY 11743 Ronkonkoma, NY 11779 2 lights west of Rte. 110 Next to Bank of New York

256 Centereach Branch 257 Riverhead Branch 1937 Middle Country Rd. 1071 Old Country Road Centereach, NY 11720 Riverhead, NY 11901 1⁄2 mile west of Nichols Rd. Aid Auto Shopping Center

259 Commack Branch 260 Shirley Branch 6230F Jericho Turnpike 6 Northern Boulevard Commack, NY 11725 Shirley, NY 11967 1⁄2 mile west of Commack Rd. Nthn Bl & Wm Floyd Pkwy

261 Deer Park Branch 262 Route 110 Branch 532-34 Commack Road 1741A Broadhollow Road Deer Park, NY 11729 E. Farmingdale, NY 11735 1 block north of R/R tracks North of R/R trestle, east side

264 Hauppauge Branch 265 Southampton Branch 536 Route 347 829-31 N. Highway (Rte 27) Hauppauge, NY 11787 Southampton, NY 11960 NE corner of Rte 111 & Rte 347 Across from Hess Station

273 Patchogue Branch 280 The Racing Forum 350 E. Main Street 690 Motor Parkway Patchogue, NY 11772 Hauppauge, NY 11788 Just east of Rte. 112 Just west of Exit 55 of LIE

281 Airport Branch 282 Sunrise Branch 300 Knickerbocker Ave. 1375 Sunrise Highway Bohemia, NY 11716 Bay Shore, NY 11706 2 blocks south of MacArthur On North Service Road

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Riverhead Branch

Shirley Branch

Southampton Branch

Ronkonkoma Branch

Hauppauge Branch


FACILITIES


FACILITIES

Patchogue Branch

Huntington Branch

Centereach Branch

Deer Park Branch

Commack Branch

Suffolk Off-Track Betting Corporation5 Davids Drive

Hauppauge, NY 11788

Documents

MISSION STATEMENT - Suffolk OTB · Regional Off-Track Betting Corporation as of December 31, 2002 and 2001, and the results of its operations and its cash flows ... and presentation