SummaryofBalanceSheets The following table presents the Lottery's assets, liabilities, and net assets (shown in millions of dollars): 2010 2009 2008 Current and other assets $ 18.0 $ 15.8 $ 17.1 Capital assets 8.3 0.5 0.4 Total assets $ 26.3 $ 16.3 $ 17.5 Current Liabilities $ 12.4 $ 13.2 $ 13.3 Net assets Invested in capital assets 8.3 0.5 0.4 Unrestricted 5.6 2.6 3.8 Total net assets 13.9 3.1 4.2 Total Liability and Net Assets $ 26.3 $ 16.3 $ 17.5 Current and other assets consist primarily of cash balances for operations, expanded lottery and prizes, accounts receivable from Lottery retailers for lottery tickets sales activity, and instant ticket inventory. During fiscal year 2010, current and other assets increased $2.2 million due to increases in cash balances of$1.5 million of which $0.7 million is attributable to the Expanded Lottery and an increase in accounts receivable of $0.7 million over the prior year. For fiscal year 2009, current and other assets decreased $1.3 million as cash balances decreased $0.7 million and the MUSL operating reserve receivable decreased $0.7 million from the prior year. Capital assets increased $7.8 million from 2009 as a result of recording contributed capital assets related to Expanded Lottery activities of $9.1 million less $1.2 million in current year depreciation. Additional detailed information on capital assets may be found in notes 1 and 3 to the notes to financial statements. Current liabilities consist of accounts payable and accrued liabilities, transfers due to the State of Kansas, and prize liabilities. The decrease in current liabilities from 2009 is attributable to a decrease in amounts due to the State of Kansas of $1.2 million which offset increases in accounts payable and accrued liabilities from 2009. For fiscal year 2009, current liabilities decreased $0.1 million from 2008 as accounts payable and accrued liabilities and amounts due to the State of Kansas decreased $1.0 million which offset the increase in prize liabilities of$0.8 million. 2 This is trial version www.adultpdf.com Summaryof Revenue, Expenses, and Changes in Net Assets The following table presents the Lottery's changes in net assets (shown in millions of dollars): Q>erating revenues: Net lottery game revenues Expanded lottery revenues Reimburserrents and other Total operating revenues Operating expenses: Lottery Expanded lottery Total operating expenses Operating income Nonoperating revenues (expenses): Lottery Expanded lottery Total nonoperating revenues (expenses) Income (loss) before contributions Capital contributions Change in net assets Net assets, beginning of )ear Net assets, end of year $ $ 235.4 20.7 2.4 258.5 166.0 17.9 183.9 74.6 (67.9) (5.0) (72.9) 1.7 9.1 10.8 3.1 13.9 $ $ 230.5 1.6 232.1 165.0 165.0 67.1 (68.2) (68.2) (1.1) (1.1) 4.2 3.1 $ $ 236.7 1.6 238.3 171.2 171.2 67.1 (70.0) (70.0) (2.9) (2.9) 7.1 4.2 The change in net assets between fiscal year 2010 and fiscal year 2009 represented an increase of$10.8 million. The increase is the result of the increase in sales revenues in excess of corresponding increases in operating expenses, as well as capital assets contributions related to Expanded Lottery activities. The change in net assets between fiscal year 2009 and fiscal year 2008 was a decrease of $1.1 million. The decrease is the result of the overall decrease in sales revenues during the fiscal year. 3 This is trial version www.adultpdf.com Lottery Game Revenues Presented in millions of dollars, the following table compares online and instant Lottery sales by game type between fiscal years 2010 and 2009: Type of Game 2010 2009 Difference Percentage Instant $ 114.5 $ 115.7 $ (1.2) -l.()O!o Pull-Tabs 9.6 8.8 0.8 9.1% Powerball 41.0 40.0 1.0 2.5% Megt Mllions 3.9 3.9 2by2 1.7 1.7 0.0% Super Kansas Cash 14.8 14.8 0.0% Keno 26.6 28.4 (1.8) -6.3% Pick 3 6.1 6.0 0.1 1.7% Holiday Raffle 3.0 3.0 Hot Lotto 10.7 10.7 0.0% Kansas Hold'Em 3.5 4.4 (0.9) -20.5% Total $ 235.4 $ 230.5 $ 4.9 2.1% Revenues from the sale of online and instant lottery tickets for the fiscal year ended June 30, 2010 increased 2.1 % or $4.9 million compared to the previous year. Fiscal year 2010 sales were $235.4 million compared to $230.5 million in fiscal year 2009. Two new online games were added during fiscal year 2010 including the Mega Millions (a MUSL game) with $3.9 million in sales, and the Holiday Raffle game as a sell-out of $3.0 million. Powerball had increased sales of $1.0 million while Super Kansas Cash, Pick 3, and 2 by 2 had minor increases. Instant sales decreased $1.2 million from 2009. Increases in overall sales were accomplished by providing new games to the public as well as entering into partnerships with Bass Pro Shops, Cabela's, Buick LaCross, Kansas Speedway, Kansas State Fair, the 3i Show and other businesses, in special games promotions. Pulltab sales had an increase of $0.8 million. A third series of the Mid-West Millions with the State of Iowa was successfully completed. Increases in these games were offset by decreases in Keno of $1.8 million and Kansas Hold 'Em of$0.9 million, respectively. 4 This is trial version www.adultpdf.com Presented in millions of dollars, the following table compares online and instant Lottery sales by game type between fiscal years 2009 and 2008: Type of Garre 2009 2008 Difference Percentage Instant $ 115.7 $ 115.1 $ 0.6 0.5% Pull-Tabs 8.8 7.6 1.2 15.8% Powerball 40.0 43.0 (3.0) -7.0% 2by2 1.7 1.7 O'()o1o Super Kansas Cash 14.8 17.4 (2.6) -14.9% Keno 28.4 31.3 (2.9) -9.3% Pick 3 6.0 5.8 0.2 3.4% eScratch 1.0 (1.0) -100.0% Hot Lotto 10.7 9.2 1.5 16.3% Kansas Hold'Em 4.4 4.6 (0.2} -4.3% Total $ 230.5 $ 236.7 $ (6.2) -2.6% Revenues from the sale of online and instant lottery tickets for the fiscal year ended June 30, 2009 decreased 2.6% or $6.2 million compared to the previous year. Fiscal year 2009 sales were $230.5 million compared to $236.7 million in fiscal year 2008. Powerba1l, Super Kansas Cash, and Keno experienced decreases in sales during the fiscal year of $3.0 million, $2.6 million, and $2.9 million, respectively. Several games experienced increased sales including the instant scratch game whose sales increased $0.6 million compared to fiscal year 2008. The Lottery is continuing to provide new games to the public and continued to benefit from its partnerships with Kansas Speedway, 3i Show, Wichita River Festival, Kansas State Fair, and other businesses, in special games promotions. Pull-tabs and Hot Lotto experienced increased sales compared to fiscal year 2008 of $1.2 million and $1.5 million, respectively. The second series of the multi-state instant scratch game with the State of Iowa called Mid- West Millions was completed. Each state received the same number of tickets for sale, and with two drawings being held, one in each state for a top prize of $500,000 at each drawing. The eScratch game was discontinued January 1, 2008, with the partial year sales of $1.0 million. 5 This is trial version www.adultpdf.com Major Lottery Expenses The following table compares the lottery game-related expenses between fiscal year 2010 and fiscal year 2009. The expenses are shown in millions of dollars: Description 2010 2009 Difference Percentage Game Prizes $ 132.6 $ 130.9 $ 1.7 1.3% Retailer Commissions 13.7 13.5 0.2 1.5% On-line Games Service Bureau 5.6 5.3 0.3 5.7% Instant Ticket Printing Costs 3.8 4.8 __ ( > 1_.0J-) -20.8% Total $ 155.7 $ 154.5 $ 1.2 0.8% The overall increase in game prizes was the result of the increase in sales compared to those in fiscal year 2009. The online games service bureau costs increased as a result of more on- line sales. Instant ticket printing costs for fiscal year 2010 decreased due to the relative cost per ticket being less for the games issued during the year. Of the $10.3 million of fiscal year 2010 lottery operating expenses that were not game- related, $4.4 million, was for employees' salaries and wages, $2.9 million was spent for games and promotional advertising, and other administrative expenses accounted for $3.0 million. In fiscal year 2009, these same expenses totaled $10.5 million including $4.2 million for employees' salaries and wages, $3.3 million for games and promotional advertising, and $3.0 million for other administrative expenses. The following table compares the lottery game-related expenses between fiscal year 2009 and fiscal year 2008. The expenses are shown in millions of dollars: Description 2009 2008 Difference Percentage Game Prizes $130.9 $133.0 (2.1) -1.6% Retailer Commissions 13.5 13.8 (0.3) -2.2% On-line Games Service Bureau 5.3 5.6 (0.3) -5.4% Telecommunications Terminal Costs 0.0 2.0 (2.0) -100.0% Instant Ticket Printing Costs 4.8 4.5 0.3 6.7% Total $154.5 $158.9 (4.4) -2.8% 6 This is trial version www.adultpdf.com The overall decrease in Game Prizes was the result of the decrease in sales compared to fiscal year 2008. The Telecommunications Terminal Costs are no longer a separate charge in fiscal year 2009. The On-line Games Service Bureau costs decreased as a result of fewer on-line sales. Instant Ticket Printing Costs for fiscal year 2009 increased as instant ticket sales increased by .5%, and the strategy of ordering smaller quantities of each game was successfuL Of the $10.5 million of fiscal year 2009 lottery operating expenses that were not game- related, $4.2 million was for employees' salaries and wages, $3.3 million was spent for games and promotional advertising, and other administrative expenses accounted for $3.0 million. In fiscal year 2008, these same expenses totaled $12.3 million including $5.6 million for employees' salaries and wages, $3.1 million for games and promotional advertising, and $3.6 million for other administrative expenses. Kansas Lottery Graphs of Financial Highlights For the Fiscal Year Ended June 30, 2010 Percent of Sales Commissions 5.8% Prizes 56.3% To depict compliance with the 45% prize payment statute and the retailers' commissions rules. 7 This is trial version www.adultpdf.com Expenses as a Percent of Lottery Revenues Cost of Sales 66.1% 5.1 % Transfers to SGRF 28.8% The Cost of Sales category includes prizes, commissions, service bureau, auto-ship, and instant ticket printing. Transfers to the State Gaming Revenues Fund (SGRF) and State General Fund (SGF) Pursuant to the Lottery Act, the Director of Accounts and Reports of the State of Kansas shall transfer monies in the Lottery Operating Fund to the State Gaming Revenue Fund (SGRF), at least monthly, in an amount equal to the monies in such fund in excess of those needed for payment of Lottery expenses, payment of compensation to retailers and transfers to the Prize Payment Fund as certified by the Executive Director of the Lottery. Although all Lottery transfers are made to the SGRF, there is a $50.0 million cap. Therefore, any transfers in excess of $50.0 million are subsequently transferred to the State General Fund (SGF). Of the $50.0 million in the SGRF, the first $80,000 is transferred to the Problem Gambling Grant Fund (pGGF). Then, of the balance remaining, 85% is transferred to the Economic Development Initiatives Fund (EDIF), 10% to the Correctional Institutions Building Fund (CmF), and 5% to the Juvenile Detention Facilities Fund (JDFF). For fiscal year 2010 legislature again waived the percentage of sales SGRF requirement for a minimum transfer of $72.0 million originally with a minimum monthly transfer of $4.5 million. For 2010, transfers to the SGRF were $67.8 million, an increase of $0.5 million over 2009. The fiscal year 2009 transfer of $67.3 million was $2.7 million less than the fiscal year 2008 transfers. 8 This is trial version www.adultpdf.com Expanded Lottery The 2007 Legislature passed Senate Bill 66, the Expanded Lottery Act. The Act provides for the Kansas Lottery to own and operate electronic gaming machines at Kansas horse and dog racetracks, if the facilities are established upon the County's voter approvaL Currently there are no active horse and dog racetracks in the State. The Expanded Lottery Act also allows for the Lottery, upon county voter approval, to operate lottery gaming facilities in four specific gaming zones. The Expanded Lottery Act establishes the distribution requirements of net gaming revenues. Expanded Lottery Revenues and Expenses The Boot Hill Casino and Resort represents the State's first casino which opened Mid- December 2009. The net revenue and related expenses are as follows (shown in millions of dollars): Net Revenue Expenses: State of Kansas Problem Gaming Zone City and County Management Fees $ $ $ 2010 20.7 4.6 0.4 0.6 15.1 20.7 Expanded Lottery Distributions Management Fees 73% State of Kansas 22% Problem Gambling 2% Zone City/County 3% To depict the distribution of net revenue as set forth in the 2007 Legislature enacting the Expanded Lottery Act. 9 This is trial version www.adultpdf.com Contacting the Lottery's Financial Management This management's discussion and analysis report is designed to provide Kansas citizens, Kansas government officials, players, retailers and other interested parties with a general overview of the Lottery's financial activity for the fiscal years ended June 30, 2010 and 2009 and to demonstrate the Lottery's accountability for the monies it received from its lottery ticket sales activity. Questions or comments about this report may be addressed to Carolyn Brock, Director of Finance or Wayne Regnier, Fiscal Manager at 128 N. Kansas Avenue, Topeka, KS 66603. 10 This is trial version www.adultpdf.com KANSAS LOTTERY (A COMPONENT UNIT OF THE STATE OF KANSAS) BALANCESHEETS JUNE 30, 2010 and 2009 2010 ASSETS Current Assets: Cash: Operating fund $ 5,533,496 Prize payment fund 895,529 Accounts receivable, net of allowance for doubtful accounts of $618,583 and $480,163 at 2010 and 2009, respectively 3,507,672 Accounts receivable - unbilled 5,897,136 Other receivable 153,378 Instant ticket game inventory 2,014,378 Total current assets 18,001,589 Capital assets, net of depreciati9n: Property and equipment - Lottery 442,494 Property and equipment - Expanded Lottery 7,889,090 Total capital assets 8,331,584 Total assets $ 26,333,173 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable and accrued liabilities $ 2,481,796 Due to the State of Kansas 4,567,697 Prize liability 5,358,996 Total current liabilities 12,408,489 Net assets: Invested in capital assets 8,331,584 Unrestricted 5,593,100 Total net assets 13,924,684 Total liabilities and net assets $ 26,333,173 See accompanying notes to financial statements. 11 2009 $ 3,944,668 991,212 2,912,262 5,748,353 212,576 2,008,267 15,817,338 464,742 464,742 $ 16,282,080 $ 1,606,719 5,750,000 5,794,238 13,150,957 464,742 2,666,381 3,131,123 $ 16,282,080 This is trial version www.adultpdf.com . Summary of Balance Sheets The following table presents the Lottery's assets, liabilities, and net assets (shown in millions of dollars): 2010 2009 2008. amounts due to the State of Kansas decreased $1.0 million which offset the increase in prize liabilities of$ 0.8 million. 2 This is trial version www.adultpdf.com Summary of Revenue, Expenses,. increase of $0.8 million. A third series of the Mid-West Millions with the State of Iowa was successfully completed. Increases in these games were offset by decreases in Keno of $1.8