british columbia lc)ttery corporation · the corporation has a defined benefit pension plan (ri...
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Audited Consolidated Financial Statements
BRITISH COLUMBIA LCCORPORATION
)TTERY
Year ended March 31. 2004
KPMG LLPChartered Accountants200 - 206 Seymour Street
Kamloops BC V2C 6P5
Canada
Telephone (250) 372-5581
Telefax (250) 828-2928
www.kpmg.ca
AUDITORS' REPORT
To the Directors of
British Columbia Lottery Corporation:
We have audited the consolidated balance sheet of BritishMarch 31, 2004 and the consolidated statements of income, a
Columbia, and cash flows for the year then ended. These finan<
the Corporation's management. Our responsibility is to ex
statements based on our audit.
Columbia Lottery Corporation as atmounts due to Government of British:ial statements are the responsibility ofpress an opinion on these financial
, accepted auditing standards. Thosein reasonable assurance whether thelit includes examining, on a test basis,ial statements. An audit also includes~tes made by management, as well as
We conducted our audit in accordance with Canadian generall)standards require that we plan and perform an audit to obtafinancial statements are free of material misstatement. An autevidence supporting the amounts and disclosures in the financassessing the accounting principles used and significant estim.evaluating the overall financial statement presentation.
,nt fairly, in all material respects, the
the results of its operations and cash
nerally accepted accounting principles.rt that. in our opinion, these principles
19 year.
In our opinion, these consolidated financial statements presefinancial position of the Corporation as at March 31, 2004 and
flows for the year then ended in accordance with Canadian gel
As required by the Company Act, (British Columbia), we repol
have been applied on a basis consistent with that of the precedil
Chartered Accountants
Kamloops, CanadaApril 16, 2004
KPMG UP, a c-diIn ~ IiIbiity ~ is the Can8li8nnlenlber rom) of KPMG fntematKmal, a Swiss coope.-ative
BRITISH COLUMBIA LOTTERY CORPORATIONConsolidated Balance Sheet
March 31, 2004, with comparative figures for 2003
(in thousands of dollars)
2004 2003
Assets
$ 93,970s 72,761Cash and short-term investments
44.032Acx:ounts receivable (note 3)
6,945Prepaid expenses
5.265Accrued pension plan asset (note 4)
55,106Property, plant and equipment (note 5)
$ 184.676--'- 184,109
Liabilities
$ 40,944 $ 55,113Prizes payable
54,789 55,439Accounts payable and accrued liabilities
16,163 13,807Acaued post retirement benefit obligation (note 4)
1,797Payable to Interprovincial Lottery Corporation
70,416 58,105Due to Government of British Columbia
$ $ 184.676184,109
See accompanying notes to consolidated financial statements.
~:~~~--('
~ Director
~L1~~~ Director
2
BRITISH COLUMBIA LOTTERY CORPORATIONConsolidated Statement of Income
Year ended March 31, 2004, with comparative figures for 2003
(in thousands of dollars)
20032004
$ 1.889,637 $ 1,792,411Revenues (note 6)
Direct expenses:Prizes 643,098 650,183
Commissions 356,777 321.744
Ticket printing and bingo paper 15.133 15,118. - - . .1.015,008 987,045
874.629 805,366Revenues less direct expenses
Operating expenses (note 14):Administrative expenses 90,597 83,031Special oPerating costs (note 7) 1,205 500
Amortization 24,724 20,905
Less: Interest and other income 1,316) (2,906115,210 101,530
759,419 703,836Income before special policing costs and GST expense
543Special policing costs (note 8)
32.89931,233GSTexpense
$ $ 670,93!727,643Net income
$ 659,8627,7673,308
$ 719,7317,912
Allocation of net income:
Govemment of British Columbia
Govemment of Canada (note 9)
Payments pursuant to ministerial direction (note 10)
$$ 727,643 670,937
Segmented information (note 14)
See accompanying notes to consolidated financial statements.
3
:ORPORA TIC N.h Columbia
BRITISH COLUMBIA LOTTERY CConsolidated Statement of Amounts Due to Government of Briti~
Year ended March 31, 2004, with comparati\e figures for 2003
(in thousands of dollars)
2004 2003
$ $Balance, beginning of year
Net income58,105
727,643785,748
50,074
670,937721,011
Payments to Government of British Columbia
Allocation of income to Government of Canada655,139
7,767662,906
707,420
7,912715,332
.! 70,416 ~ 58.105Due to Government of British Columbia
See accompanying notes to consolidated financial statements.
4
:ORPORA TIONBRITISH COLUMBIA LOTTERY CConsolidated Statement of Cash Flows
Year ended March 31, 2004. with comparative figures for 2003
(in thousands of dollars)
2004 2003
Cash provided by (used in):
s$ 727.643 670.937
20 . 905691,842
Operations:Net incomeAdjustments for:__~ortization of property, plant and equipment 24,724
752.367
(9.269)743.098
13,653705.495
Changes in non-cash operating items
(655,139)(7,767)
(662,906)
Financing:Payments to Govemment of British Columbia
Allocation of income to Government of Canada
(707,420)(7,912)
(715,332)
(48.975) (29,592)Investments:
Additions to property, plant and equipment
(21,209) 12,997Increase (decrease) in cash
80.97393,970Cash, beginning of year
$ 72,761 $ ~Cash, end of year
See accompanying notes to consolidated financial statements.
5
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements
Years ended March 31, 2004 and 2003(in thousands of dollars)
1. Nature of the Corporation:
The British Columbia Lottery Corporation ("BCLCj is a Crown corporation. BCLC was incorporatedunder the Company Act of British Columbia on October 25. 1984. and is continued under theGaming Control Act (August 2002). As an agent of the Crown, the Province has designated the
Corporation as the authority to conduct, manage and operate lottery schemes on behalf of the
Province, including lottery. casino and bingo. BCLC is also the regional marketing organization for
national lottery games which are joint undertakings by the provinces acting through the
Interprovincial Lottery Corporation.
2. Significant accounting policies:
(a) Basis of presentation:
(i) The financial statements of the Corporation have been prepared in accordance withCanadian generally accepted accounting principles.
(ii) The consolidated financial statements include B.C. Lottotech International Inc., a whollyowned subsidiary of the British Columbia Lottery Corporation.
(b) Short-term investments
Short-term investments are valued at the lower of cost and market.
(c) Property, plant and equipment:
The Corporation's policy on capital purchases is that any major purchase which has a futureuseful life beyond the current year will be capitalized.
R
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements (continued)
Years ended March 31. 2004 and 2003
(in thousands of dollars)
2. Significant accounting policies (continued):
(c) Property, plant and equipment (continued):
The Corporation's property, plant and equipment are recorded at their original cost and areamortized on the straight-line basis over their estimated useful lives, as follows:
RateAsset
Building and leasehold improvements 5 years
Fumiture and equipment 5 years
Computer systems 3 years
On-line gaming terminals 3 yearsPull tab vending machines 3 years
Signs and fixtures:Computer 3 years
Non-computer 5 years
Bingo equipment 3 years
Casino equipment 3 years- -
Amortization is prorated in the year the assets are put in use.
(d) Employee future benefits:
The Corporation has defined benefit pension plans covering substantially all of its employees.The benefits are based on years of service and the highest 60 consecutive months ofpensionable earnings. The cost of this program is being funded currently by employee andemployer contributions.
The Corporation also sponsors post retirement benefit life insurance and health care plans forsubstantially all retirees. The Corporation measures the costs of its obligation based on itsbest estimate.
The Corporation accrues its obligations under employee benefit plans as the employees renderthe services necessary to eam the pension and other employee future benefits. TheCorporation has adopted the following policies:
The cost of pensions and other retirement benefits earned by employees is actuariallydetermined using the projected benefit method pro rated on service and management's best
estimate of expected plan investment performance, salary escalation, retirement ages and
expected health care costs.
7
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003
(in thousands of dollars)
2. Significant accounting policies (continued):
(d) Employee future benefits (continued):
For the purpose of calculating expected return on plan assets, those assets are valued atfair market value.
Past service costs from plan amendments are amortized on a straight-line basis over the
average remaining service period of employees active at the date of the amendment.
An unfunded liability may be amortized over no more than 15 years through specialpayments as required under the Pension Benefits Standards Act. A funding excess may
be applied immediately to reduce required employer current service contributions, however,the reduction in contributions may not cause the funding excess to drop below 5% of the
pension plan benefit obligation. Further, the use of a funding excess must be amortized
over a minimum of 5 years.
(e) Revenue recognition:
Lottery games:
Revenue from the sale of lottery tickets and the associated selling costs and prize expensesare included in the statement of income in the period the ticket is sold.
Bingo games:
Revenue from the operation of paper. electronic, and linked Bingo and the associated sellingcosts and prize expenses are included in the statement of income in the same period the gameis played.
Casinos:
Revenues from casino slot machines and table games are recorded in the statement of income.
net of prizes paid. in the same period the game is played. Related operating costs are
recorded in the statement of income in the period they are incurred.
8
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003
(in thousands of dollars)
2. Significant accounting policies (continued):
(f) Prize expenses:
Lottery prize expenses are recorded based on the theoretical prize liability expected for each
game. The actual expense incurred each year will vary from this estimate based on the natureof games of chance. Over a long period of time, it is expected that the actual prize expense will
approximate the theoretical expense. Expired prize funds are to be paid out to the player in the
form of bonus prizes and/or bonus draw promotions.
(g) Software development costs:
Software development costs are deferred if they meet certain criteria specified by Canadiangenerally accepted accounting principles. otherwise they are expensed as incurred. At yearend, the Corporation has not deferred any software development costs.
(h) Estimates:
The preparation of financial statements in accordance with Canadian generally acceptedaccounting 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 revenues and expenses duringthe period. Significant areas of estimate include pension plan assets, liabilities and expenses,
prizes payable and expense, and GST liability and expense. Actual results could differ from
those estimates.
(i) Income taxes:
As the Corporation is an agent of the Crown it is not subject to federal or provincial corporate
income taxes or corporate capital taxes.
3. Accounts receivable:
2004 2003
$ 42,4071,625
$ 44,9633,654
Retail
Other
$ $44,032 48,617
9
:ORPORA TIONBRITISH COLUMBIA LOTTERY CNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003
(in thousands of dollars)
4.
PP) and a post retirement benefit lifeits employees.
as follows:
Employee future benefits:
The Corporation has a defined benefit pension plan (RIinsurance and health care plan covering substantially all of i
Information about the Corporation's defined benefit plans is ,
Post Retirement Benefit Plans2004 2003
Pension Plans2004 2003
$$ $ 34.901 $ 20,011 12,99140,589
1,172
Accrued benefit obligationBalance at beginning of yearAdjustment for supplementary
plan at October 1, 2003Adjustment for Early
Retirement ProgramCurrent service costInterest costEmployee contributionsBenefits paidActuarial loss (gain)
-919
1,038
(212)5.275
20,011
-1,5323.1391.361
(1.250)7,835
54.378
1,700
1,403
2,787
1,267
(1,469)
40,589
-1,0991,413
(298)3,061
25,286Balance at end of year
Plan assetsFair value at beginning of year 35,578
Annual retum on plan assets 8,324
Employer contributions 3,904
Employee contributions 1,361
Benefits paid (1,250)Balance at end of year 47,917
39,117 - -(5,162) - -1,825 ~ 2121,267 - -
(1,469) (298) (212)35,578 - -
(6.461) (5,011) (25,286) (20,011)Funded status - surplus (deficit)
Unamortized past service cost 1.113
6.204Unamortized net actuarial loss (gain) 10,613 8,894 9.123
Accrued pension plan benefitasset (liability) $ 5,265 !. 3,883 $ (16.163) .! (13,807)
10
BRITISH COLUMBIA LOTTERY CNotes to Consolidated Financial Statements (continued)
ORPORA TION
Years ended March 31, 2004 and 2003
(in thousands of dollars)
4. Employee future benefits (continued):
Every three years an actuarial valuation is performed to ass.plan. An actuarial valuation was made as of April 1. 2003 byfirm of consulting actuaries and then extrapolated to March 3a valuation completed as of March 31, 2006. The signifi,measuring the Corporation's accrued benefit obligations are
ess the financial position of the pensionMercer Human Resource Consulting, a11,2004. The Corporation will be havingcant actuarial assumptions adopted Inas follows:
Post Retirement Benefit Plans
2004 2003
Pension Plans2004 2003
At beginning of period:
7.5%7.0%5.0%
7.5%7.0%5.0%
7.5% 7.5%
6.17%4.21 %
2010
5.10%
4.10%
2005
Discount rate
Expected rate of return on plan assets
Rate of compensation increase
Health care cost trend rate:
2004/2003
Ultimate
Year ultimate reached
At end ~ period:
7.5%6.5%~~~% for RPP
7.5%
5.0%
6.5%Discount rate
Rate of compensation increase
The Corporation's net benefit plan expense is as follows:
Post Retirement Benefit Plans
2004 2003Pension Plans
2004 2003
1,532
3.139
(2,553)345
59
$ 1,403
2,787
(2,786)
$ 1,0991,413
142
$ 919
1,038
Current service cost, net ofemployees' contributions (includingprovision for plan expenses) $
Interest costExpected return on plan assetsAmortization of net actuarial loss (gain)Amortization of past service cost
Net benefit plan expense ~ ~ 1.404 .! ~ $ ~
11
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003
(in thousands of dollars)
5. Property, plant and equipment:
2004 2003Accumulated
amortizationCost Net Net
$ $ $ 700s 700 700
23,4,
33,47,
21,897
4,151
24,730
40,960
1.818
5559.0456.966
2,390679
1,7833,040
Land
Building and leasehold
improvementsFurniture and equipment
Computer systemsOn-line gaming terminals
Pull tab vendingmachines
Signs and fixtures
Bingo equipmentCasino equipment
8,3459,540
22,83486,577
8,1317,260
18,83157,052
214
2,280
4,003
29,525
347
1,890
4,687
15,339
$ $ 183.012 $ 55,106 $ 30,855238,118
12
715
706
775
926
:ORPORA TIONBRITISH COLUMBIA LOTTERY CNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003
(in thousands of dollars)
6. Revenues:
2004 2003
s sLottery:
Keno
Scratch & Win
Lotto 6/49
Lotto Super 7
Pull Tab
Extra
BC/49
Sports Action
Living Large LotteryDaily 3Chaser
Special Event
221,219185,255161,000119,66287,61170,55160,98833,6928,7054,2623,0654,421
960,431
226,335183,321171,682111,15694,43372,18464 ,65630 , 3847,9894,3932,076
968,609
Bingo:Bingo paper retail
Starship BingoSuperstar Gold
Handheld Bingo
107,497
64,8521 0,226
13,146195,721
116.21455.81611,86711,781
195.678
Casino - net win:
Slot machines
Table games
463.547269.938733.485
373,627
254,497628,124
$ 1,889,637 $ 1,792,411Total revenues
7. Special operating costs:
Special operating costs relate to the estimated resCorporation's Core Services Review. Included in the coretirement costs and other costs related to the restructurin~
tructuring costs associated with the
sts are employee severance and early
, of the business.
13
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003
(in thousands of dollars)
8. Special policing costs:
In February 2003, based on direction from the provincial government, the Integrated Illegal Gaming
Enforcement team (IIGET) was established. The financial resources required to operate the IIGET
are provided by British Columbia Lottery Corporation pursuant to a Sponsoring Agreement with the
Province. IIGET is a specialized division of the Royal Canadian Mounted Police that works
cooperatively with Gaming Policy and Enforcement Branch to provide a comprehensive and
integrated approach to the investigation and enforcement of the criminal code as it relates to illegalgaming activities in British Columbia.
9. Payments to Government of Canada:
The Interprovincial Lottery Corporation (I.L.C.) makes inflation-adjusted payments to the Govemment
of Canada as a result of an agreement between the provincial govemments and the Government of
Canada on the withdrawal of the Govemment of Canada from the lottery field. The Corporation
remits British Columbia's share of the above payments to I.L.C. Payments under this agreement
are estimated to be $8,200 for the next fiscal year ending March 31, 2005.
10. Payments pursuant to ministerial direction
Pursuant to Section 22 of the Financial Administration Act, in fiscal 2002/03. the Corporation wasdirected to pay expenditures for the Problem Gambling Program.
11. Interprovincial Lottery Corporation expenses and interest revenue:
The Corporation's share of the Interprovincial Lottery Corporation (I.L.C.) prize and ticket printing
costs for national games is recognized in the appropriate category of direct expenses. The
Corporation's share of the I.L.C.'s interest income less operating expenses is included in interestand other income.
12. Lease obligations:
The Corporation is committed to payments under operating leases for premises.
Minimum annual rental payments for the next five years are approximately as follows:
20052006200720082009
$ 1,7301,456
466239145
14
BRITISH COLUMBIA LOTTERY CORPORATIONNotes to Consolidated Financial Statements (continued)
Years ended March 31, 2004 and 2003(in thousands of dollars)
13. Financial instruments:
The carrying value of accounts receivable, prizes payable, accounts payable and accrued liabilities,
and the payable to the Interprovincial Lottery Corporation are recorded at cost, which approximates
fair value.
14. Segmented Information:
Year ended March 31, 2004
Bingos ConsolidatedLotteries CasinosSector of activity
S 1,889.637$ 960,431 $ 733,485 $ 195,721Revenues
Direct expenses:Prizes 524,527 - 118,571 643,098
Commissions 64.954 252,293 39.530 356.mTicket printing and bingo paper 13,075 - 2,058 15,133. - - . .
602,556 252,293 160.159 1,015.008
874,629357,875 481,192 35,562Revenue less direct expenses
Operating expenses:Administrative expenses 55,171 28,633 6,793 90,597Special operating costs 421 710 74 1,205
Amortization 4,978 16,102 3,644 24,724Less: Interest and other income 3,203 1,576 311 1,316
57,367 47,021 10,822 115,210
Income before special policingcosts and GST expense 300.508 434.171 24,740 759,419
543190 319 34Special policing costs
11.394 15.524 4.315 31,233GST expense
$$ 288,924 $ 418.328 $ 20.391 727,643Net income
15
BRITISH COLUMBIA LOTTERY CNotes to Consolidated Financial Statements (continued)
:ORPORA TION
Years ended March 31. 2004 and 2003
(in thousands of dollars)
14. Segmented information (continued):
Year ended March 31, 2003
Sector of activity Lotteries Bingos Consolidated.c.
$ 968.609 $ 628,124 $ 195.678 $ 1,792,411Revenues
Direct expenses:
Prizes
Commissions
Ticket printing and bingo paper
650,183321,74415,118
987,045
532,016
65,404
12,856610,276
-!18,328
!18,328
118.16738.0122.262
158.441
358.333 ~09,796 37.237 805,366Revenue less direct expenses
25,365 6,646 83,031275 34 500
11,687 4.204 20.905(121) 55 (2,906)
37,206 10,939 101,530
Operating expenses:Administrative expenses
Special operating costs
Amortization
Less: Interest and other income
51,020191
5,014
(2,840)53 , 385
Income before GST expense 304,948 372,590 26,298 703.836
GST expense 11,402 17,966 3.531 32,899
$ .! $ $Net income 293.546 ~1624 22.767 670,937
16