THE NEW YORK RACING ASSOCIATION, INC. (A Component Unit of the State of New York) Quarterly Financial Statements. March 31, 2015

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1 Quarterly Financial Statements March 31, 2015 (With Independent Auditors Report Thereon)

2 Table of Contents Page(s) Independent Auditors Report 1 2 Management s Discussion and Analysis 3 12 Condensed Basic Financial Statements: Condensed Statements of Net Position 13 Condensed Statements of Revenues, Expenses and Changes in Net Position 14 Condensed Statements of Cash Flows 15 Notes to Condensed Basic Financial Statements 16 22

3 KPMG LLP Suite Walt Whitman Road Melville, NY Independent Auditors Report Board of Directors The New York Racing Association, Inc. Report on the Financial Statements We have reviewed the accompanying condensed statements of net position of The New York Racing Association, Inc. (NYRA), a component unit of the State of New York, as of March 31, 2015, the related condensed statements of revenues, expenses, and changes in net position for the three-month periods ended March 31, 2015 and 2014, and the related condensed statements of cash flows for the three-month periods ended March 31, 2015 and Management s Responsibility NYRA s management is responsible for the preparation and fair presentation of the condensed interim financial information in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with U.S. generally accepted accounting principles. Auditors Responsibility Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion. Basis for Modification Based on information furnished to us by management and as more fully described in note 2 to the interim financial information, we believe that NYRA has not reported pension benefits provided through its defined benefit pension plans in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Conclusion Based on our review, with the exception of the matter described in the preceding paragraph, we are not aware of any material modifications that should be made to the accompanying condensed interim financial information for it to be in accordance with U.S. generally accepted accounting principles. Report on Condensed Statement of Net Position as of December 31, 2014 We have previously audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the statement of net position as of December 31, 2014, and the related statements of revenues, expenses and changes in net position, and cash flows for the year then ended (not presented herein); and we expressed an unmodified audit opinion on those audited basic financial statements in our report dated March 30, In our opinion, the accompanying condensed statement of net position of NYRA as of December 31, 2014, is consistent, in all material respects, with the audited basic financial statements from which it was derived. Melville, New York June 8,

5 Management s Discussion and Analysis Quarter ended March 31, 2015 The following Management s Discussion and Analysis (MD&A) of The New York Racing Association, Inc. (NYRA) provides an overview of NYRA s financial position and activities for the quarter ended March 31, Following this MD&A are the condensed basic financial statements of NYRA. The condensed basic financial statements are designed to provide readers with a broad overview of NYRA s finances in a manner similar to a private-sector business in that the economic resources measurement focus and accrual basis of accounting are applied. The condensed statements of net position present information on all of NYRA s assets and liabilities and deferred inflows and deferred outflows of resources, with the residual balance among the elements being reported as net position. The condensed statements of revenues, expenses and changes in net position present information showing how NYRA s net position changed during the fiscal year. The condensed basic financial statements also include notes that explain some of the information in the condensed financial statements and provide more detailed data. Financial Highlights March 31, December 31, Dollar Percentage change change (Dollars in thousands) Summary of net position Current assets $ 91,408 85,794 5,614 7% Capital assets, net 78,597 74,436 4,161 6 Other noncurrent assets 16,528 16, Deferred outflows of resources 9,043 9,043 Total assets and deferred outflows of resources $ 195, ,753 9,823 5% Current liabilities $ 75,520 65,955 9,565 15% Accrued pension liabilities 11,544 11,544 Accrued post-employment benefit obligations 31,511 30, Other noncurrent liabilities 4,479 4,644 (165) (4) Deferred inflows of resources 15,570 15,570 Total liabilities and deferred inflows of resources $ 138, ,620 10,004 8% Net position: Net investment in capital assets $ 73,108 68,853 4,255 6% Restricted 20,181 18,766 1,415 8 Unrestricted (36,337) (30,486) (5,851) 19 Total net position $ 56,952 57,133 (181) % Total assets and deferred outflows of resources increased $9.8 million (5%) primarily due to an $8.0 million increase in operating cash driven by a reduction of purses paid out in Q1 due to weather related cancellations of 3 (Continued)

6 Management s Discussion and Analysis Quarter ended March 31, 2015 race days. There was $17.9M in purses paid out during the quarter, of which $15.1M was funded from the VLT purse account. In addition, $2.1 million of the increase in cash is due to advanced ticket sales for the Belmont and Saratoga meets. Total liabilities and deferred inflows of resources increased $10.0 million (8%), primarily due to an $11.8 million increase in accrued stakes and purses driven by Q1 video lottery terminal (VLT) purse proceeds of $14.8 million. This increase is partially offset by a $1.9 million decrease in outstanding pari-mutuel tickets (due to a $1.9 million escheatment of uncashed pari-mutuel tickets as of December 31, 2014 to New York State) and a $1.3 million decrease in the horsemen s liability. Net position, the difference between total assets combined with deferred outflows of resources and total liabilities combined with deferred inflows of resources, decreased by $0.2 million from $57.1 million to $56.9 million. Net assets invested in capital assets increased 6% to $73.1 million. Restricted net assets (unexpended funds received for particular specified purposes) increased 8% to $20.2 million. Unrestricted net position (which can be used to finance operations without constraints established by debt covenants, enabling legislation, or other legal requirements) decreased $5.9 million or 19%. Three months ended March 31 Change Percentage change (Dollars in thousands) Summary of changes in net position: Operating revenues: Pari-mutuel and simulcasting revenue $ 29,682 36,417 (6,735) (18)% State of New York off-track betting 5,224 6,091 (867) (14) Other revenues 1,975 1, Total operating revenues 36,881 44,378 (7,497) (17) Operating expenses: Employee compensation and benefits 18,842 19,275 (433) (2) Stakes and purses 15,257 18,878 (3,621) (19) VLT purse expense 14,840 14, Statutory and contractual commissions 2,251 2,798 (547) (20) Professional fees 961 1,654 (693) (42) Facility operating expenses 10,986 11,986 (1,000) (8) 4 (Continued)

7 Management s Discussion and Analysis Quarter ended March 31, 2015 Three months ended March 31 Change Percentage change (Dollars in thousands) Pension expense $ 34 1,408 (1,374) (98)% Post-employment benefit expense 1,538 2,000 (462) (23) Depreciation 1,722 1, Total operating expenses 66,431 73,647 (7,216) (10) Operating loss (29,550) (29,269) (281) 1 Nonoperating items: VLT operating and support revenues 21,153 20, Interest (43) 43 (100) Income taxes (329) (77) Nonoperating revenue 21,252 20, Loss before capital contributions (8,298) (8,569) 271 (3) Capital contributions 8,117 7, Change in net position (181) (774) 593 (77) Total net position, beginning of year 57,133 27,251 29, Total net position, end of quarter $ 56,952 26,477 30, % Operating revenues decreased 17% from $44.4 million to $36.9 million. During the three months ended March 31, 2015, NYRA generated $322.6 million in total handle, a decrease of $89.7 million or 21.8% compared to $412.3 million in total handle generated during the same period last year. The decrease in revenue is primarily due to extreme weather conditions. Sixteen race days were canceled and six additional race days were severely impacted during the first quarter of Operating expenses decreased 10% from $73.6 million to $66.4 million. The decrease in operating expenses is primarily due to a $3.6 million decrease in stakes and purses which is a function of revenue earned. Under U.S. generally accepted accounting principles for governments prescribed by the Governmental Accounting Standards Board (GASB), VLT purse revenue is included in nonoperating revenue, while the associated VLT purse expense is included in operating expenses. This results in $15.1 million of additional operating loss to NYRA due to these required classifications. In order to evaluate the performance of racing operations internally, we exclude net VLT revenue and certain expenses (including taxes, depreciation, interest, pension and post-employment benefit expenses) to get to operating loss from racing operations of $11.2 million and $10.2 million for the three months ended March 31, 2015 and 2014, respectively. We believe that the measure of operating income or loss from racing 5 (Continued)

8 Management s Discussion and Analysis Quarter ended March 31, 2015 operations is a key performance measure of the results of operations which enables management and financial statement readers to evaluate and compare from period to period our operating performance specific to the racing segment in a meaningful and consistent manner. Pension expense decreased by $1.4 million primarily due to higher asset values for plan investments translating to higher earnings and lower required contributions. Nonoperating revenue increased $0.5 million, primarily due a $0.6 million increase in VLT purse support payments, and $0.2 million increase in VLT operating support payments from Resorts World Casino. In Q1 2015, Resorts World Casino had a higher win per machine (WPM) of $451 per day with the number of machines averaging 5,003 as compared to Q WPM of $433 and an average number of machines of 5,004. NYRA also recorded $0.1 million of income tax benefit for the quarter ended March 31, 2015 as opposed to $0.4 million of income tax benefit for the quarter ended March 31, Capital contributions increased $0.3 million from $7.8 million to $8.1 million. Capital contributions are composed of the 4% VLT capital support payments received from Resorts World Casino that are restricted for use in maintaining and upgrading NYRA s racetracks. Those VLT capital contributions also increased due to higher WPM at Resorts World Casino. 6 (Continued)

9 Management s Discussion and Analysis Quarter ended March 31, 2015 Capital Spending Q Q (Dollars in thousands) Aqueduct: Guest area improvements $ 163 3,716 Barn area improvements Other Total Aqueduct spending 303 3,891 Belmont: Guest area improvements Barn area improvements 3, Other CAFO & storm water management 1 96 Total Belmont spending 3, Saratoga: Guest area improvements Other Barn area improvements Surveys and master planning Total Saratoga spending Information technology Fleet equipment NYRA TV Total $ 5,883 6,242 Quarter ended March 31, 2015 Capital spending highlights: Guest area improvements: $0.4 million was spent on guest area improvements at all three racetracks, including restroom upgrades and new awnings at Saratoga and airport seating and upgrades to the public announcement system at Aqueduct. Barn area improvements: $3.2 million was spent on barn area improvements at all three racetracks. Spending was most significant at Belmont, where five barns are being expanded in order to create more stall space. Other spending at Belmont included cottage and dorm upgrades and new stall flooring and walls. Saratoga improvements included dormitory renovations and storage pods. At Aqueduct, spending included the installation of security cameras. Information technology: $0.2 million was spent on information technology, including data storage and encoders to support video on the NYRA website. 7 (Continued)

10 Management s Discussion and Analysis Quarter ended March 31, 2015 Fleet and equipment: $0.6 million was spent on fleet and equipment, including a tractor trailer for horse transportation, a grader, a loader and other equipment to support facility maintenance. NYRA TV: $0.1 million was spent on television production equipment, including equipment to support HD video and equipment for the Longshots Simulcast Facility at Aqueduct. Other capital spending: Other significant capital expenditures included irrigation of the Mellon and Inner Turf Courses at Saratoga, upgrading the fire prevention sprinkler system and a hot water heater for the Grandstand at Belmont and master planning to comply with the State Environmental Quality Review Act (SEQR) at Saratoga. Handle Analysis Handle refers to amounts wagered at the track, on computers, by phone, by internet, and at simulcast centers. NYRA retains an average of 10% of handle as pari-mutuel commission reflected in operating revenues. The following table analyzes fluctuations in handle underlying operating revenue: Percentage Percentage Percentage Q share Q share 2015 vs (Unaudited, dollars in thousands) Aqueduct winter meet: Race days (24.1)% Live $ 31,665 10% $ 44,462 11% (28.8) Export 213, , (26.1) Import 77, , (1.9) Total handle $ 322, % $ 412, % (21.8)% Live handle Wagering on live NYRA races that originates from a NYRA facility (Aqueduct, Belmont, Saratoga, or NYRA Rewards). Export handle Wagering on live NYRA races that originates off-track. Export refers to the exporting of the NYRA race signal to outside entities. Examples of export locations include, but are not limited to, New York OTB s as well as race tracks and national Advanced Deposit Wagering sites (ADW s). Also included in Export handle is noncommingled international handle. Noncommingled handle refers to international handle that does not enter the NYRA pools and is not captured by NYRA s totalisator but is instead reported by the various international jurisdictions. Import handle Wagering on races run by entities other than NYRA or from a NYRA facility. Import refers to the importing of race signals from around the world. Examples of import locations are Gulfstream, Santa Anita, Churchill Downs, Finger Lakes, and Dubai. NYRA ran 41 race days during the three months ended March 31, 2015, thirteen less days compared to the same period last year. 8 (Continued)

11 Management s Discussion and Analysis Quarter ended March 31, 2015 Aqueduct Winter Meet (January 1 st through March 31st) Results from the 2015 Aqueduct winter meet through March 31, 2014 were impacted by extreme weather conditions that forced NYRA to cancel sixteen days of live racing at Aqueduct. There were a total of 363 races run through March 31st, a 26% decrease compared to the 492 races held during the same period last year. During the quarter, NYRA generated $322.6 million in total handle compared to $412.3 million last year. Statistical Handle Highlights Three months ending March 31 Change Dollar Percentage (Unaudited, dollars in thousands) On-track handle components: ADW (phone, internet & on-track) $ 53,121 58,224 (5,103) (8.8)% Aqueduct 46,026 52,025 (5,999) (11.5) Belmont 9,890 13,057 (3,167) (24.3) Total NYRA on-track handle 109, ,306 (14,269) (11.6) Off-track handle (export): NYOTB downstate 14,313 21,389 (7,076) (33.1) NYOTB upstate 7,601 10,802 (3,201) (29.6) NY inter-track wagering 5,366 7,303 (1,937) (26.5) Out-of-state 179, ,367 (62,701) (25.9) International separate pool 6,581 7,176 (595) (8.3) Total off-track (export) handle 213, ,037 (75,510) (26.1) Total handle $ 322, ,343 (89,779) (21.8)% During the three months ended March 31, 2015, NYRA generated $322.6 million in total handle, a decrease of $89.8 million or 21.8% compared to the same period last year. On-track handle of $109.0 million decreased $14.3 million or 11.6% compared to prior year, driven primarily by a decrease in race days due to inclement weather. There were thirteen fewer race days compared to the same period last year. Export handle of $213.5 million decreased $75.5 million or 26.1%, primarily due to thirteen less race days compared to the same period last year. 9 (Continued)

12 Management s Discussion and Analysis Quarter ended March 31, 2015 Industry Update NYRA management evaluates NYRA s position in the industry to ensure continued competitive positioning and high quality racing. The following table analyzes NYRA s position in relation to the industry. Three months ended March 31 Percentage Three month comparison variance Industry as provided by Equibase: Wagering on U.S. races* $ 2,423,645,328 2,555,948,225 (5.2)% U.S. purses 202,605, ,444,269 (6.0) U.S. race days (6.3) Handle yielded per purse dollar invested NYRA: Wagering on NYRA races* $ 238,611, ,322,920 (26.9) NYRA purses 17,126,565 22,573,640 (24.1) NYRA race days (24.1) Handle yielded per purse dollar invested (3.6) NYRA as Percentage of Industry: Wagering on U.S. races* 9.8% 12.8% U.S. purses U.S. race days * Equibase provides wagering information on commingled handle only and does not include noncommingled international handle. For purposes of this schedule, wagering on NYRA races only includes commingled handle. Based on information provided by Equibase, for the three months ended March 31, 2015, wagering on U.S. races decreased 5.2% compared to a 26.9% decrease in wagering on NYRA races resulting from severe weather conditions which forced NYRA to race thirteen less race days compared to the same period last year. NYRA contributed 4.5% of total industry race days, offered 8.5% of purses and generated 9.8% of thoroughbred handle across the United States. Every dollar invested in purses at NYRA during the three months ended March 31, 2015 yielded $13.93 in handle compared to $11.96 industry-wide. Factors Bearing on NYRA s Future The horse racing industry is impacted by a number of risk factors including, but not limited to, general economic conditions, legislative and regulatory oversight, gaming competition and consumer interest. The horse racing industry is heavily regulated by various agencies and heavily influenced by various governmental entities. Changes in regulations and political influences could materially impact NYRA s business. 10 (Continued)

13 Management s Discussion and Analysis Quarter ended March 31, 2015 The New York off-track betting corporations represent a risk to NYRA s financial condition, with the NYC OTB bankruptcy in 2010 and Suffolk OTB bankruptcy in NYRA will continue to monitor the remaining OTBs operational viability. NYRA operates in a geographically concentrated region with many competitive gaming options, including state-sponsored lotteries, VLTs, other casinos in the state as well as in neighboring Connecticut, New Jersey, and Pennsylvania. Additionally, legalized internet-based interactive gaming and wagering is becoming increasingly competitive. NYRA has a significant dependence on unionized labor with approximately 62% of employees working under 25 collective bargaining agreements at March 31, Seven of those 25 contracts were expired as of March 31, 2015, representing 29% of the unionized work force, which could represent risk of labor disruption which could disrupt operations. All of our racetracks compete for horses with other racetracks that run live race meets at the same time as ours. Our ability to compete for horses is substantially dependent on our ability to offer and fund competitive purses as well as other regulations imposed that make NY State different from other states. The ability to offer races with full field sizes may result in less wagering on our races. Our ability to offer full fields depends on our ability to attract a sufficient number of horse owners and trainers, the overall horse population available, and our ability to offer competitive purses. Inclement weather conditions may affect our ability to conduct live racing. The number of live racing days we are able to offer directly affects our results of operations. A significant decrease in the number of live racing days could have a material, adverse impact on our business. Inclement weather conditions could also force races to be taken from turf to dirt. Dirt races typically attract lower fields and betting pools, which negatively impacts our financial results. Other risks include a general decline in attendance and wagering on live horse races at North American racetracks, competitive pressures from external ADW s, the inherently dangerous nature of the sport of horseracing, a dependence on totalisator services to accumulate wagers and payouts accurately and securely, success of marketing/sponsorship initiatives, success of other strategic initiatives, and the effect of price increases. 11 (Continued)

14 Management s Discussion and Analysis Quarter ended March 31, 2015 NYRA has identified a number of strategic initiatives for 2015 to enhance revenues and reduce expenses. On the revenue side, NYRA is launching improvements which will enhance our ADW technology and Customer Relationship Management platforms. NYRA is also seeking to increase sponsorship revenue, and selectively increase prices for admissions, box seats, parking and the fee charged for NYRA s simulcast signal. NYRA s strategy includes continuing to focus on developing key race days with a focus on building the strength of the New York Breeders and looking at changes to the racing calendar to improve field sizes and handle. In an effort to reduce operating expenses, NYRA plans to close Aqueduct s training center during months when there is no racing at the facility (five months), reduce costs related to NYRA s phone wagering operation, close the Belmont café on days in which NYRA is not conducting live racing, reduce overall labor expense and improve technological and process efficiencies throughout the organization. NYRA expects to invest in certain strategic hires and long term planning to allow for sustained growth in the future. Contact information for financial related requests can be found at 12

15 Condensed Statements of Net Position (Dollars in thousands) Assets and Deferred Outflows of Resources March 31, 2015 December 31, 2014 Current assets: Cash and cash equivalents $ 23,031 15,355 Restricted cash: Horsemen s account and NYRA Rewards account 22,737 24,001 VLT capital expenditure fund 19,446 18,031 Other 6,747 6,590 Receivables, net of allowance for doubtful accounts of $3,770 in 2015 and $3,770 in ,082 15,641 Deferred tax asset, current 2,430 2,426 Prepaid and other current assets 3,935 3,750 Total current assets 91,408 85,794 Noncurrent assets: Capital assets, net 78,597 74,436 Deferred tax asset, non current 15,241 15,249 Other assets 1,287 1,231 Total noncurrent assets 95,125 90,916 Total assets 186, ,710 Deferred outflows related to changes in net pension liabilities 9,043 9,043 Total assets and deferred outflows of resources $ 195, ,753 Liabilities, Deferred Inflows of Resources and Net Position Current liabilities: Horsemen s liability $ 19,141 20,479 NYRA Rewards liability 3,596 3,522 Unearned income 5,494 2,790 Stakes and purses 18,156 6,327 Accounts payable and other accrued expenses 26,316 27,391 Outstanding pari-mutuel tickets 285 2,164 Other 2,532 3,282 Total current liabilities 75,520 65,955 Noncurrent liabilities: Accrued pension liabilities 11,544 11,544 Accrued post-employment benefit obligations 31,511 30,907 Other 4,479 4,644 Total noncurrent liabilities 47,534 47,095 Total liabilities 123, ,050 Deferred inflows related to changes in net pension liabilities 15,570 15,570 Total liabilities and deferred inflows of resources 138, ,620 Net position: Net investment in capital assets 73,108 68,853 Restricted for capital expenditures and other 20,181 18,766 Unrestricted (36,337) (30,486) Total net position 56,952 57,133 Total liabilities, deferred inflows of resources and net position $ 195, ,753 See accompanying notes to basic financial statements. 13

16 Condensed Statements of Revenues, Expenses and Changes in Net Position (Dollars in thousands) Three Months ended March 31, Operating revenues: Gross pari-mutuel commission and breakage $ 17,133 19,645 State of New York off-track betting 5,224 6,091 On-track racing related revenues Intrastate simulcasting Interstate simulcasting 11,610 15,502 International simulcasting Other revenues 1,408 1,403 Total operating revenues 36,881 44,378 Operating expenses: Employee compensation and benefits 18,842 19,275 Stakes and purses 15,257 18,878 VLT purse expense 14,840 14,469 Statutory and contractual commissions 2,251 2,798 Professional fees 961 1,654 Facility operating expenses 10,986 11,986 Pension expense 34 1,408 Other post employment benefit expense 1,538 2,000 Depreciation 1,722 1,179 Total operating expenses 66,431 73,647 Operating loss (29,550) (29,269) Nonoperating revenues (expenses): VLT operating support payments 6,087 5,846 VLT purse support payments 15,066 14,469 Interest (43) Income taxes Net nonoperating revenues 21,252 20,700 Loss before capital contributions (8,298) (8,569) Capital contributions: VLT capital support payments 8,117 7,795 Total capital contributions 8,117 7,795 Change in net position (181) (774) Total net position beginning of period 57,133 27,251 Total net position end of period $ 56,952 26,477 See accompanying notes to basic financial statements. 14

17 Condensed Statement of Cash Flows (Dollars in thousands) Three months ended March 31, Cash flows from operating activities: Cash receipts from: Customers $ 41,018 44,884 Cash payments for: Statutory commissions and purses (6,818) (14,192) VLT purse funding (14,840) (14,469) Vendors (12,639) (11,809) Employees (19,993) (21,279) Taxes (2,250) Net cash used in operating activities (15,522) (16,865) Cash flows from non-capital financing activities: Cash receipts from VLT operating support 6,131 5,729 Cash receipts from VLT purse support 15,176 14,084 Principal payments of loan payable (3,400) Payments for interest (43) Net cash provided by non-capital financing activities 21,307 16,370 Cash flows from capital and related financing activities: Cash receipts from VLT capital support 8,176 7,640 Purchase of capital assets (5,883) (3,777) Payments of capital lease obligations (94) (19) Net cash provided by capital and related financing activities 2,199 3,844 Cash flows from investing activities: Equity investments (11) Net cash used in investing activities (11) 7,984 3,338 Cash and cash equivalents and restricted cash, beginning of the period 63,977 51,912 Cash and cash equivalents and restricted cash, end of the period $ 71,961 55,250 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (29,550) (29,269) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 1,722 1,179 (Income)/Loss from equity method investments, net of cash received (56) 5 Unearned revenue from concession agreement (165) Income taxes (2,250) Changes in assets and liabilities: Receivables, net 2,346 1,168 Prepaid and other assets 1,028 1,609 Horsemen's liability (1,338) (2,973) NYRA Rewards liability 74 (113) Unearned income 2, Stakes and purses 11,829 10,771 Accounts payable and other accrued expenses 65 (1,006) Accrued environmental liability (30) Accrued pension costs and postretirement obligations including deferrals Outstanding pari-mutuel tickets (1,879) (1,289) Other liabilities (47) 1,949 Net cash used in operating activities $ (15,522) (16,865) For the three months ended March 31, 2014, capital expenditures on the statement of cash flows excludes $2,465 of capital asset additions provided by a service vendor and none for the three months ended March 31, See accompanying notes to basic financial statements. 15

18 Notes to Condensed Basic Financial Statements Quarterly ended March 31, 2015 (Unaudited, dollars in thousands except as noted) (1) Summary of Significant Accounting Policies (a) Basis of Presentation The New York Racing Association, Inc. (NYRA) is considered a governmental entity engaged only in business type activities. Accordingly, except as disclosed in note 2, the accompanying condensed basic financial statements of NYRA have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for governments. Such principles are prescribed by the Governmental Accounting Standards Board (GASB), which is the standard setting body for establishing governmental accounting and financial reporting principles in the United States of America. NYRA follows the economic resources measurement focus and the accrual basis of accounting for revenues and expenses whereby revenues are recognized when earned and expenses are recognized when obligations are incurred. The financial information as of March 31, 2015 and for the three month periods ended March 31, 2015 and 2014 is unaudited. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the statement of net position, the statements of revenues, expenses and changes in net position and the statements of cash flows for the periods presented have been made on a consistent basis. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with NYRA s audited financial statements for the year ended December 31, NYRA s earnings are seasonal in nature. For instance, the majority of live racing occurs during the second and third quarters with the Belmont Stakes Day and Saratoga meet. Therefore, the results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, (b) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The most significant estimates relate to allowance for doubtful accounts, pensions and post-employment benefit liabilities, and judgments regarding the realizability of deferred tax assets. 16

19 Notes to Condensed Basic Financial Statements Quarterly ended March 31, 2015 (Unaudited, dollars in thousands except as noted) (2) Defined Benefit Pension Plans NYRA sponsors five Defined Benefit Pension Plans (DBPPs) covering its union and administrative employees and the obligations of contributing sponsor under the Employee Retirement Income Security Act (ERISA). This includes the obligation to make required minimum funding contributions pursuant to the DBPPs and ERISA. Some of the DBPP benefits are based on years of credited service and employee compensation. NYRA s policy is to fund, at a minimum, amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the requirements of ERISA. Assets of the plans are administered by an independent trustee and are invested principally in common collective trusts, registered investment companies, equity securities and immediate participation guarantee contracts. For the three months ended March 31, 2015 and 2014, employer contributions paid by NYRA totaled $0.6 million and $1.4 million, respectively. For the full year ended December 31, 2015, NYRA expects total employer contributions to be approximately $4.8 million (compared to $8.1 million of actual contributions in 2014). GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, establishes standards for the measurement, recognition, and reporting of NYRA s DBPPs. For purposes of these condensed interim financial statements, NYRA estimated its pension expense for the three months ended March 31, 2015 and 2014 of $0.0 million and $1.4 million, respectively, using actuarial and other assumptions that were consistent with those used to prepare NYRA s audited financial statements for the year ended December 31, However, all the necessary adjustments required by GASB Statement No. 68 were not calculated or recorded. NYRA does not believe that this departure from GAAP has a material impact on the condensed interim financial statements. (3) Other Post-Employment Benefits (OPEB) Obligation NYRA sponsors certain other post-employment benefits (OPEB) plans. The OPEB plans include postemployment benefit plans (PRPs), post-employment healthcare, as well as other forms of post-employment benefits such as life insurance provided separately from a pension plan. GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, establishes standards for the measurement, recognition, and reporting of the OPEB plans. Annual OPEB costs are equal to NYRA s annual required contribution to the plans, with certain adjustments for past contributions. The PRPs are contributory and contain cost-sharing features such as deductibles and co payments. NYRA s policy is to fund the costs of these benefits as the costs are incurred. For the three months ended March 31, 2015 and 2014, employer contributions paid by NYRA totaled $0.9 million and $1.2 million, respectively. For the full year ended December 31, 2015, NYRA expects total employer contributions to be approximately $4.8 million. For the three months ended March 31, 2015 and 2014, OPEB expense was $1.5 million and $2.0 million, respectively. 17

20 Notes to Condensed Basic Financial Statements Quarterly ended March 31, 2015 (Unaudited, dollars in thousands except as noted) (4) Income Taxes NYRA is subject to Federal income tax and foreign withholding taxes. Under its agreement with New York State, NYRA is not subject to NYS or NYC corporate income tax; however, it is subject to other nonincome taxes, which are included in statutory and contractual commissions in the accompanying condensed statements of revenues, expenses, and changes in net position. Although NYRA s operations were located solely in New York during 2015, NYRA does hold an interest in certain pass-through entities doing business in Kentucky and therefore, is subject to Kentucky income taxes. NYRA had a net income tax benefit of $0.1 million and $0.4 million for the three months ended March 31, 2015, and 2014, respectively. At March 31, 2015 and December 31, 2014, NYRA had net deferred tax assets of $17.7 million. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, primarily related to pension and post-employment obligations, allowances for doubtful accounts, accrued expenses, and tax attribute carry forwards. In assessing the realizability of deferred tax assets, management considers all positive and negative evidence as to whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, or prior to expiration of carry forward items. Management considers the expected reversal of deferred tax liabilities, expected levels of future taxable income and tax planning strategies in making this assessment. Based on these considerations, management believes it is more likely than not that NYRA will realize the benefits of its deferred tax assets. NYRA s effective income tax rate is different from the U.S. federal statutory tax rate of 35% primarily due to certain nondeductible items. 18

21 Notes to Condensed Basic Financial Statements Quarterly ended March 31, 2015 (Unaudited, dollars in thousands except as noted) (5) Capital Assets Capital asset activities for the three month period ended March 31, 2015 are summarized as follows: Three months ended Beginning Ending March 31, 2015 balance Additions Disposals Transfers balance (Dollars in thousands) Nondepreciable assets: Construction in progress $ 10,565 5,041 (587) 15,019 Depreciable assets: Leasehold improvements 47, ,702 Machinery and equipment 30, ,181 Vehicles 4, ,003 Computer equipment Computer software 1, ,679 Total depreciable assets 85, ,534 Accumulated depreciation: Leasehold improvements 4, ,942 Machinery and equipment 12, ,454 Vehicles 3, ,446 Computer equipment Computer software Total accumulated depreciation 21,234 1,722 22,956 Capital assets, net $ 74,436 4,161 78,597 (6) Noncurrent Liabilities Noncurrent liability activity for the three month period ended March 31, 2015 includes the following: Beginning Ending balance Additions Reductions balance (Dollars in thousands) Unearned concession fee revenue 3,846 (165) 3,681 Workers compensation collateral $ 4,644 (165) 4,479 19

22 Notes to Condensed Basic Financial Statements Quarterly ended March 31, 2015 (Unaudited, dollars in thousands except as noted) (7) Commitments and Contingencies (a) Litigation In the normal course of business, NYRA is involved in legal proceedings, including environmental, labor and collective bargaining, safety, liability and insurance matters. NYRA accrues a liability, if any, for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. NYRA believes it has meritorious defenses to these proceedings and intends to vigorously defend them. As such, NYRA believes any liability with respect to these actions will not materially adversely affect its statement of net position, statement of revenues, expenses, and changes in net position or statement of cash flows. (b) Governmental Review In the normal course of business NYRA is subject to regulatory oversight including, but not limited to, industry and government. Although the outcome of proceedings and reviews cannot be predicted with certainty, NYRA believes that there are no existing proceedings likely that would have a material adverse effect on its financial position, operations or cash flows. 20