BRITISH COLUMBIA LC)TTERY CORPORATION · The Corporation has a defined benefit pension plan (RI insurance and health care plan covering substantially all of i Information about the

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


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)


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


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


4

:ORPORA TIONBRITISH COLUMBIA LOTTERY CConsolidated Statement of Cash Flows

Year ended March 31, 2004. with comparative figures for 2003


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


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


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


Years ended March 31, 2004 and 2003



(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





(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)



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



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




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)



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




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


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


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

Documents

BRITISH COLUMBIA LC)TTERY CORPORATION · The Corporation has a defined benefit pension plan (RI insurance and health care plan covering substantially all of i Information about the