Best Practices in Rebound Orientation Larry Kubiak, Ph.D. Licensed Psychologist [email protected].
NEW MEXICO LOTTERY AUTHORITY FINANCIAL STATEMENTS … · Two new board members have been appointed...
Transcript of NEW MEXICO LOTTERY AUTHORITY FINANCIAL STATEMENTS … · Two new board members have been appointed...
NEWMEXICOLOTTERYAUTHORITY
FINANCIALSTATEMENTS
JUNE30,2013and2012
NewMexicoLotteryAuthority
OFFICIALROSTER
June30,2013
BOARDOFDIRECTORS
Vacant* Chairman
CliffordStroud,MBA** ViceChairman
DanSalzwedel Treasurer
AmyBailey Secretary
RetaJones,CPA** AssistantSecretary‐Treasurer
MarkKoson Member
SalvatoreBaragiola Member
*KenHoeksema’stermwastoendonJune30,2013.HeresignedhispositioninMay2013.
**‐ThetermofappointmentforCliffordStroudandRetaJonesendedonJune30,2013.Twonewboardmembershavebeenappointedinfiscalyear2014.TheyareJohnKubiak,CPA,andDr.PaulGuerin.
OFFICIALSOFTHENEWMEXICOLOTTERYAUTHORITY
TomRomero ChiefExecutiveOfficer
J.VinceTorrez ExecutiveVicePresidentofSecurity
SylviaAnnJaramillo,CPA DirectorofFinance
EvelynMcKnight DirectorofHumanResources
AdrianaBinns DirectorofMarketingandCommunications
DavidRamirez DirectorofMIS
PamPoteat DirectorofSales
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ORGANIZATIONALDIVISIONSOFTHENEWMEXICOLOTTERYAUTHORITY
AspertheNewMexicoLotteryAct,Chapter6,Article24NMSA1978,theNewMexicoLottery Authority (the Lottery) is governed by a seven‐member Board of Directors(BoardorDirectors),whoprovide theLotterywith theprivate‐sectorperspectiveofalargemarketingandsalesenterpriseinordertomaximizerevenuesfortheLegislativeLotteryScholarship.TheDirectorsareresidentsofNewMexicoappointedbytheGovernorwiththeadviceandconsentoftheSenate. TheDirectorsareprominentpersonsintheirbusinessesorprofessionsandgeographicallyrepresenttheStateofNewMexico. NomorethanfourDirectorsare fromanyonepoliticalparty. TheDirectorsreceivenocompensationfortheirservices,butarereimbursedforapprovedexpensesincurredintheconductoftheLottery’sbusiness.EachDirectorissubjecttoabackgroundcheckandinvestigationtodeterminehis/herfitnessfortheoffice.AtleastoneDirectorhasfiveyearsexperienceas a law enforcement officer, oneDirector is an attorney admitted to practice inNewMexico,andoneDirectorisaCertifiedPublicAccountantcertifiedinNewMexico.TheDirectorsserveforafive‐yearterm,butcanbereappointedbytheGovernor.TheBoardselects a Chairman, a Vice‐Chairman, a Secretary, a Treasurer, and an Assistant‐Secretary/Treasurereachfiscalyear.TheChairmanalsoappointsaChairmanandtwoDirectors for each of the two standing committees of the Board, the Finance/AuditCommittee and the Security/Operations Committee. The Directors appoint the ChiefExecutiveOfficer(CEO)andprescribehisqualifications,dutiesandsalary,andwiththerecommendation and assistance of the CEO, employ an Executive Vice President ofSecurity and an Internal Auditor. The Directorsmeet at least once each quarter, andmoreoftenasneeded.AttheirmeetingstheDirectors:
adopt, amend, or repeal rules, policies and procedures necessary for theoperationoftheLottery;
approve, disapprove, amend, or modify the original budget for the succeedingfiscalyearandanyrevisedbudgetduringafiscalyear;
reviewanddiscusscurrent financial informationandtheLottery’sperformancetotheapprovedbudgetforthefiscalyear;
approveordisapproveallprocurementsoverseventy‐fivethousanddollarsandtheresultingawardofcontracts;
approvethefinancialauditcontractafter(orpending)OfficeoftheStateAuditor(State Auditor) approval, hold an audit exit conference with the independentpublic accountants (IPA) at an executive session of the Board or in theFinance/Audit Committee, and in an openmeeting accept the fiscal year auditfollowingreleasebytheStateAuditorandpresentationbytheIPA;
listentoanddiscussLotteryupdatesonsales,games,issues,etc.; review,discuss,andacceptinternalauditreports;and discuss, andwhennecessary, approveordisapproveothermatters that should
properly comebefore theDirectors in their fiduciary duty for the efficient andeffectiveoperation,profitability,integrity,andsecurityoftheLottery.
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ORGANIZATIONALDIVISIONSOFTHENEWMEXICOLOTTERYAUTHORITY‐CONTINUED
The Executive Division, under the direction of the Chief Executive Officer, providesleadershipforallactivitiesoftheLotterytocarryoutitsobjectivesandoverallstatutorymission to maximize net revenues for the Lottery’s beneficiaries. The divisionestablishes and directs the organization’s day‐to‐day operating strategy and plan. Inaddition, the division performs as a liaison among the Board, the Governor, theLegislature, governmental entities, external providers of goods and services, retailers,thepublic andLotterydivisions and employees.Also,within theExecutiveDivision isProductDevelopment,whichmanagesandmonitorstheinstantproducts,includingsuchareas as game launches, game endings, and performance analysis using several keyperformancemeasures.The FinanceDivision, under the direction of theDirector of Finance, performs all theactivitiesassociatedwiththefinancialandaccountingfunctionsoftheLottery,includingthegeneral ledger;cashmanagement;retaileraccountsreceivableanddebtcollection;fixedassetaccounting;gameaccounting;payrollandbenefitaccounting,payment,andreview; and tax reporting and payment. In addition, the division provides financialreporting,disclosure,andcompliancewithgenerallyacceptedaccountingpracticesandbudgetcompilation,includingthequarterlyandannualfinancialreportingofrevenues,expenses,andnetrevenuestotheStateofNewMexico;thefinancialauditandrelatedcompilationoffinancialstatements,relatednotes,andtheManagement’sDiscussionandAnalysis (MDA) for the fiscalyear; thestatutorily requiredannualproposedoperatingbudget for theLottery for thesucceeding fiscalyearand the finalproposedbudgetbydivision forBoard of Directors’ approval. Furthermore, the division is responsible fortheprocurementofmaterialsandservices;claimscenterpaymentofprizesandsalesoftickets;andaccountspayable.TheHumanResourcesDivision,underthedirectionoftheDirectorofHumanResources,oversees thedevelopmentand implementationofhumanresourcespolicies,programsand services, including recruitment, selection, retention, legal compliance, employeebenefits,employee insurancereconciliation,employeerelations,employmentpracticesandprocedures,employeecommunicationsandemployeeevents.The Internal Audit Department, under the direction of the Internal Auditor, conductsandcoordinatescomprehensiveauditsforallaspectsoftheLotteryasspelledoutintheNewMexicoLotteryAct.AuditsarecarriedoutpursuanttoanannualauditplanthatisapprovedbytheBoardofDirectorsandasmayberequestedbytheCEO.The Marketing and Communications Division, under the direction of the Director ofMarketing and Communications, is responsible for implementing, managing andadministering the activities associated with marketing the Lottery and its products,including advertising, communications, television drawings, promotions and specialevents.Thisentailscreatingandproducingmulti‐mediaadvertisingcampaigns,in‐store
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ORGANIZATIONALDIVISIONSOFTHENEWMEXICOLOTTERYAUTHORITY‐CONTINUED
pointofsalematerialsandplayerandretailerpublications;aswellasnegotiatingandoverseeing the Lottery’s participation in a number of statewide promotions andspecial events. The division is also responsible for all aspects of corporatecommunicationsincludingcreatingnewsreleasesandannualreportsandrespondingtorequestsforinformationbythepublicandthemedia.The Management Information Systems (MIS) Division, under the direction of theDirector of MIS, performs all the activities associated with the systems and dataprocessing functions of the Lottery, including instant ticket transaction processing,back office functionality, order and distribution systems, financial applications,retailernetworksupport,gamemanagement,monitoringofgameactivitiesanddrawgamevendors,andprovidingdataandanalysistodivisions.The Sales Division, under the direction of the Director of Sales, is responsible fordeveloping and implementing all sales activities and programs for the Lottery,including retailer visits, customer relationshipmanagement, ticket sales, inventorymanagement, pointof salesmaterialdistribution, retailer installations, promotionalandeventparticipationandpreparation,aswellasmaximizingsalesinitiatives.TheSecurityDivision,underthedirectionoftheExecutiveVicePresidentofSecurity,statutorily as a law enforcement agency is responsible for administering, enforcingandensuringcompliancewiththesecurityprovisionsoftheNewMexicoLotteryAct.The division conducts backgrounds of all prospective employees, lottery retailers,lottery vendors and lottery contractors. It also supervises ticket verification andLotterydrawingsandconductsdrawingswhentheprizeamountismorethan$5,000.The division functions as liaison among the Attorney General’s Office, DistrictAttorneyOfficesand lawenforcementagencies ingeneral. It is also responsible forbuildingandemployeesecurityandsafety.ThewarehousecomponentoftheSecurityDivisionisresponsibleforthepackingandshipmentoftheLottery’sinstantscratcherticketsand for themaintenanceandshippingofLotterypremiumandpointof saleitems. The division is responsible for the management of building and groundsmaintenance.
TABLEOFCONTENTS
NEWMEXICOLOTTERYAUTHORITYREPORTOFINDEPENDENTAUDITORS....................................................................1‐3MANAGEMENT’SDISCUSSIONAND ANALYSIS(UNAUDITED).........................................................................................4‐22BASICFINANCIALSTATEMENTS
StatementsofNetPosition.........................................................................................23StatementsofRevenues,Expensesand ChangesinNetPosition...........................................................................................24StatementsofCashFlows....................................................................................25‐26StatementsofFiduciaryNetPosition...................................................................27StatementsofChangesinFiduciaryNetPosition..........................................28NotestoFinancialStatements...........................................................................29‐49
SUPPLEMENTARYINFORMATION BudgetaryComparisonStatements.......................................................................50
SchedulesofPercentageReturntotheStateofNewMexico...................................................................................................51
OTHERINFORMATION ExitConference................................................................................................................52
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REPORTOFINDEPENDENTAUDITORSBoardofDirectorsNewMexicoLotteryAuthorityReportontheFinancialStatementsWehaveaudited theaccompanying financial statementsof thebusiness‐typeactivities, and theaggregateremaining fund informationof theStateofNewMexicoLotteryAuthority(Lottery),acomponentunitoftheStateofNewMexico,asofandfortheyearsendedJune30,2013and2012,which collectively comprise the Lottery’s basic financial statements as listed in the table ofcontents. We have also audited the budgetary comparison statements and the schedules ofpercentage return to the State of NewMexico presented as supplementary information in theaccompanyingfinancialstatementsasofandfortheyearsendedJune30,2013and2012,aslistedinthetableofcontents.Management’sResponsibilityfortheFinancialStatementsManagementisresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludes the design, implementation, and maintenance of internal control relevant to thepreparation and fair presentation of financial statements that are free from materialmisstatement,whetherduetofraudorerror.Auditor’sResponsibilityOur responsibility is toexpressopinionson these financial statementsbasedonouraudits.Weconducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor’sjudgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of theLottery’sinternalcontrol.
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BoardofDirectorsNewMexicoLotteryAuthorityAccordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccounting policies used and the reasonableness of significant accounting estimates made bymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.
Webelieve that theaudit evidencewehaveobtained is sufficient andappropriate toprovideabasisforourauditopinions.Opinions
Inouropinion,thefinancialstatementsreferredtoabovepresentfairly, inallmaterialrespects,therespectivefinancialpositionofthebusiness‐typeactivities,andtheaggregateremainingfundinformationoftheLotteryasofJune30,2013and2012,andtherespectivechangesinfinancialpositionand,whereapplicable, cash flows thereof for theyears thenended inaccordancewithaccounting principles generally accepted in the United States of America. In addition, in ouropinion,thefinancialstatementsreferredtopreviouslypresentfairly,inallmaterialrespects,thebudgetarycomparisonstatementsandschedulesofpercentagereturntotheStateofNewMexicofor theyearsended June30,2013and2012 inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.OtherMatters
Accounting principles generally accepted in the United States of America require thatmanagement’sdiscussionandanalysis,onpages4 through22,bepresented to supplement thebasicfinancialstatements.Suchinformation,althoughnotapartofthebasicfinancialstatements,isrequiredbytheGovernmentalAccountingStandardsBoardwhoconsidersittobeanessentialpartoffinancialreportingforplacingthebasicfinancialstatementsinanappropriateoperational,economic, or historical context. We have applied certain limited procedures to the requiredsupplementary information in accordance with auditing standards generally accepted in theUnited States of America, which consisted of inquiries of management about the methods ofpreparing the information and comparing the information for consistency with management'sresponses to our inquiries, the basic financial statements, and other knowledge we obtainedduringourauditofthebasicfinancialstatements.Wedonotexpressanopinionorprovideanyassuranceon the informationbecause the limitedproceduresdo notprovideuswith sufficientevidencetoexpressanopinionorprovideanyassurance.
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BoardofDirectorsNewMexicoLotteryAuthorityOur auditwas conducted for the purpose of forming opinions on the financial statements thatcollectively comprise theLottery’s financial statements. Thebudgetary comparison statementsand schedules of percentage return to the State of NewMexico are presented for purposes ofadditionalanalysisandarenotarequiredpartofthefinancialstatements.The budgetary comparison statements and schedules of percentage return to the State ofNewMexico is the responsibility of management and was derived from and relates directly to theunderlying accounting and other records used to prepare the financial statements. Suchinformationhas been subjected to the auditingprocedures applied in the audit of the financialstatements and certain additional procedures, including comparing and reconciling suchinformationdirectlytotheunderlyingaccountingandotherrecordsusedtopreparethefinancialstatements or to the financial statements themselves, and other additional procedures inaccordancewith auditing standards generally accepted in the United States of America. In ouropinion,thebudgetarycomparisonstatementsandschedulesofpercentagereturntotheStateofNewMexicoarefairlystatedinallmaterialrespectsinrelationtothebasicfinancialstatementstakenasawhole.
Albuquerque,NewMexicoOctober29,2013
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)ThisManagement’sDiscussionandAnalysisof theNewMexicoLotteryAuthority (Lottery),offers readersof theLottery’s financial statementsanarrativeoverviewandanalysisof thefinancial activities of the Lottery for the fiscal years ended June 30, 2013 and 2012 withcomparativenumbers for the fiscal yearended June30,2011.Please read it in conjunctionwiththefinancialstatements,whichbeginonpage23.FINANCIALHIGHLIGHTS
Attheendoffiscalyears2013and2012,theLottery’stotalcurrentassetsincreasedby$2,677,330, or 23.0%, and $2,124,932, or 22.4%, respectively, in comparison toJune30thofeachpreviousfiscalyear.
Compared to the end of the two preceding fiscal years, the Lottery’s total liabilitiesincreasedby$3,001,125or25.2%attheendoffiscalyear2013andby$2,262,417or23.4%attheendoffiscalyear2012.
In fiscal year 2013, total net saleswere $141,758,522, an increase of $7,971,170, or6.0%fromthepriorfiscalyear.Infiscalyear2012,totalnetsaleswere$133,787,352,adecreaseof$1,753,682,(1.3)%,comparedtototalnetsalesof$135,541,034infiscalyear2011.
Fromthepriorfiscalyears,totalgameexpensesincreasedby$5,668,837,or6.5%,infiscalyear2013,whiletotalgameexpensesdecreasedby$1,913,734,(2.1)%,infiscalyear2012.
Totaloperatingexpensesdecreasedby1.3%or$66,197 in fiscalyear2013,whereasoperating expenses increased by 3.4% or $171,155 in fiscal year 2012, each incomparisontothepreviousfiscalyear.
Non‐operating incomedecreasedby$16,917or(26.5)%infiscalyear2013,while itincreased by $28,980 or 82.9% in fiscal year 2012, each year compared to theprecedingfiscalyear.
Net income in fiscalyear2013was$43,684,681,a$2,355,938or5.7%increaseoverthepreviousfiscalyear.NetIncomeinfiscalyear2012was$41,328,743,a$21,453or.1% increase compared to the previous fiscal year’s net income of $41,307,290.Beginning July 1, 2007, the Lotterywas required by the NewMexico Lottery Act totransmitatleasttwenty‐sevenpercentofitsgrossrevenuestotheStateofNewMexicoand then at least 30% beginning in January 2009. In fiscal year 2013, the Lotterytransmitted30.80%innetrevenuestotheState,whileinfiscalyear2012,theLotterytransmitted30.88%innetrevenuestotheState.IneachofthelasttwofiscalyearstheLottery surpassed the30% required gross revenue return eachmonth. The Lotteryhascontinued to transfer itsactualnet incomeatyearend, regardlessofwhetherornottheamountofnetincomeexceededthestatutoryrequirement.
IncludingthefinaltransferonJuly31,2013ofJune2013’snetrevenues(netincome);the Lottery has transferred $572,493,527 to the State of New Mexico since thecommencementofsalesinApril1996.
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUED
OVERVIEWOFTHEFINANCIALSTATEMENTSThe Lotterywas established in 1995 as a public body, politic and corporate, separate andapart from the State of NewMexico and constituting a governmental instrumentality and,therefore,isaccountedforassuch,reportingalloftheLottery’sassetsandliabilitiesusingtheaccrualbasisofaccounting,muchlikeanyprivate‐sectorbusinessentity.SincetheLotteryisacomponentunitoftheState,theLottery’sfinancialstatementsareincorporatedintotheStateofNewMexico’sComprehensiveAnnualFinancialReports.Thisreportconsistsoffourparts—theManagement’sDiscussionandAnalysis(thissection),the basic financial statements, including the notes to the financial statements; requiredsupplementary information, the Budgetary Comparison Statements, and supplementaryinformation,theSchedulesofPercentageReturntotheStateofNewMexico.Financial Statements. The Statements of Net Position on Page 23 and the Statements ofRevenues, Expenses, and Changes in Net Position on page 24 report the Lottery’s assets,liabilities, revenuesandexpenses incomparative format for fiscalyear2013and fiscalyear2012.TheStatementsofCashFlowsonpages25and26reportthesourcesandusesofcashfor fiscal years 2013 and 2012. The Statements of Fiduciary Net Position on page 27 andStatementsofChangesinFiduciaryNetPositiononpage28reportthebalancesandactivityoftheLottery’sRetirementPlanforfiscalyears2013and2012.NotestoFinancialStatements.TheNotestoFinancialStatementsonpages29to49provideadditionalinformationthatisessentialforafullunderstandingofthefinancialstatementsandprovidemoredetaileddata.Budgetary Comparison Statements. The Budgetary Comparison Statements on page 50showthevariancesbetweenthebudgetsandactualLotteryperformance.SchedulesofPercentageReturntotheStateofNewMexico.TheSchedulesofPercentageReturntotheStateofNewMexicoonpage51reportsthepercentagesofgrossrevenuesthatwerereturnedtotheStateofNewMexicoforfiscalyears2013and2012incompliancewiththeNewMexicoLotteryAct.ToassesstheLottery’sfinancialpositionandfinancialhealth,thereaderofthesestatementsshouldpayparticularattention tochanges in thecomponentsofassetsand liabilitiesassetforthintheStatementsofNetPosition;inchangesintotalrevenues,gameexpenses,operatingexpenses,non‐operating incomeandnet incomeasset forth in theStatementsofRevenues,Expenses,andChangesinNetPosition;andinthesourcesandusesofcashassetforthintheStatementsofCashFlows.
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSISTotalNetPositionAttheendoffiscalyears2013and2012,theLottery’stotalassetsandtotalliabilitieswereequalwith total net position reduced to zero. The Lottery has no reserve balances on itsbooks at fiscal yearend; transferring all its net revenues for the fiscal year to the LotteryTuitionFund.TotalAssets
Table1
TotalAssets
2013 2012 2011
Increase$Change2012to2013
Increase%Change2012to2013
Increase(Decrease)$Change2011to2012
Increase(Decrease)%Change2011to2012
Cashandcash
equivalents $9,340,237 $6,885,806 $5,561,825 $2,454,431 35.6% $1,323,981 23.8%
Accountsreceivable,
(netofallowancefor
doubtfulaccounts) 1,371,427 1,225,638 885,691 145,789 11.9 339,947 38.4
Reserveson
deposit 3,405,568 3,396,831 2,925,251 8,737 0.3 471,580 16.1
Inventory 36,964 33,077 11,334 3,887 11.8 21,743 191.8
Prepaidexpenses 145,172 80,686 113,005 64,486 79.9 (32,319) (28.6)
Totalcurrent
assets 14,299,368 11,622,038 9,497,106 2,677,330 23.0 2,124,932 22.4
Capitalassets,net 629,345 305,550 168,065 323,795 106.0 137,485 81.8
Totalassets $14,928,713 $11,927,588 $9,665,171 $3,001,125 25.2% $2,262,417 23.4%
Comparedtoeachprior fiscalyear, theLottery’scashandcashequivalents increasedat theend of fiscal year 2013 and 2012 by $2,454,431 or 35.6% and by $1,323,981 or 23.8%,respectively. Thechangesincashandcashequivalentsrelatemainlytochangesinaccountsreceivable,accountspayableandprizespayableattheendofeachfiscalyearcomparedtothepriorfiscalyear.AccountsreceivablefromtheLottery’sretailersarecollectedweeklyeachThursdaythroughelectronicbanktransfers.Receivablesareequaltosalesbyretailersnetofanyprizespaidbythe retailers and any commissions earned, less the allowance for bad debts and plus anymiscellaneousreceivablesfromanyothersource.Accountsreceivableincreasedby$145,789or11.9%attheendoffiscalyear2013.Thisincreasecanbeattributedtohavingeightdaysoftransactionsinaccountsreceivableatyearendcomparedtoonlysevenattheendofthe
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDTotalAssets‐Continuedpreviousfiscalyear.Accountsreceivableincreasedby$339,947or38.4%infiscalyear2012.Thisincreaseatyear‐endfromthepriorfiscalyearcanbeattributedtohavingsevendaysofsalesinreceivablescomparedtoonlyfivedaysinthepriorfiscalyear.TheLotteryhasamountsondepositwithMUSLcalledreservesondeposit,asrequiredbythePowerball®(Powerball),HotLotto®(HotLotto),andMegaMillions®(MegaMillions)gamerulesandanunreservedaccount forpaymentofexpensesandtorecordreceiptsof interestandotherincomeonthedeposits.Thechangesintheseaccountsinbothfiscalyears2013and2012of$8,737and$471,580,respectively,werecausedbythereceiptsofinterestearnedandother income on the depositswithMUSL; payments of game expenses; changes to theHotLottoreserveaccount,as requiredby theHotLottogamerules;and there‐balancingof thePowerball reserve accounts. In addition, in fiscal year 2013 the payment of the Lottery’sportion of intellectual property purchased for MUSL games was deducted from theunreserved account and in fiscal year 2012 the receipt of the Lottery’s portion of anunclaimed Powerball jackpot was added to the unreserved account. Additionally, in fiscalyear2010,areserveaccountforMegaMillionswasestablishedincompliancewiththeMegaMillionsgamerulesandinfiscalyears2013and2012,thisreserveaccountgrewby$123,669and$149,951,respectively.Theinventorybalanceattheendofbothfiscalyear2013and2012increasedby$3,887,an11.8% increase, and$21,743, a191.8% increase, respectively. TheLotteryhasagreementssigned inMarch2003and2010,with itsprimary instant ticketprinter,wherebytheticketsprintedareownedbythevendorwiththeLotteryhavinganobligationtopayfortheticketswhentheticketsaresold.Therefore,theseticketsarenotincludedintheLottery’sinventory.But, under anagreement signedwitha secondary instant ticket printer inMarch2010, theLottery began purchasing the instant tickets printed by this vendor. The Lottery hasaccounted for games printed under this agreement as ticket inventory using the specificidentificationmethodatthelowerofcostormarket.Attheendofeachofthetwofiscalyears2013and2012, theLotteryhadremaining inventoryof$9,633and$33,077 for2games ineach year purchased under this agreement. In addition at the end of fiscal year 2013, theLottery had inventory of $3,192 for a promotional game purchased and had merchandiseprizesof$24,139forasecondchancedrawingpromotionincludedininventory.Attheendoffiscalyears2012,therewerenomerchandiseprizesforsecondchancedrawingsincludedininventory.AspartoftheagreementwithINTRALOT,Inc.toprovideanupdatedon‐linegamingsystem,theLotteryinstalledandimplementedanewinternalcontrolsystem(ICS)infiscalyear2009.ThecostoftheICSisincludedinthefixedfeepaidtothevendorasapercentageofnetsales.
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDTotalAssets–Continued
TheLotteryhasaccountedforthistransactionasacapitalleaseand,therefore,theICScostof$43,600isreflectedincapitalassets.TherelatedliabilityfortheICSisincludedinthecurrentportionofcapitalleaseobligation($6,229and$6,228atJune30,2013and2012,respectively)andinthenoncurrentportionofcapitalleaseobligation($8,823and$15,052atJune30,2013and2012,respectively).
Aspartofthefacilityleaseagreementssignedin2002and2012,thelandlordpaidfor$29,975and$51,858 intenant improvements for theLottery’scorporatefacility in fiscalyears2013and2012,respectively. TheLotteryhascapitalized$72,543astenantimprovementswitharelated deferred liability, while the remaining purchases of tenant improvements totaling$9,290were expensed because the items purchased did notmeet the $5,000 threshold forcapitalization.Infiscalyear2013and2012,$7,835and$4,787,respectively,areincludedinthe current portion of capital lease obligation and $68,559 and $46,673, respectively, areincludedinthenoncurrentportionofcapitalleaseobligation.
Thechangesincapitalassetsinfiscalyears2013and2012areattributableto$463,188and$253,418incapitalassetpurchasesand$139,393and$115,933indepreciation,forthetwofiscalyears,respectively.
TotalLiabilities Table2
TotalLiabilities
2013 2012 2011
Increase$Change
2012to2013
Increase%Change2012to2013
Increase(Decrease)$Change
2011to2012
Increase(Decrease)%Change2011to2012
Accountspay‐
ableandother
currentliabilities $1,977,904 $1,955,328 $1,829,650 $22,576 1.2% $125,678 6.9%
Currentportion
ofcapitallease
obligation 14,064 11,015 6,228 3,049 27.7 4,787 76.9
Prizespayable 9,355,989 6,860,315 4,592,530 2,495,674 36.4 2,267,785 49.4
DuetoLottery
TuitionFund 3,503,374 3,039,205 3,215,482 464,169 15.3 (176,277) (5.5)
Totalcurrent
liabilities 14,851,331 11,865,863 9,643,890 2,985,468 25.2 2,221,973 23.0
Noncurrentpor‐
tionofcapital
leaseobligation 77,382 61,725 21,281 15,657 25.4 40,444 190.0
Totalliabilities $14,928,713 $11,927,588 $9,665,171 $3,001,125 25.2% $2,262,417 23.4%
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDTotalLiabilities‐ContinuedAccountspayableandothercurrentliabilitiesincreasedby$22,576or1.2%and$125,678or6.9%attheendoffiscalyears2013and2012,respectively.Inbothfiscalyears,thechangescompared to the prior fiscal year were mainly due to amounts owed to four vendors foradvertising,theon‐linegamingsystem,instantticketprintingfees,andthelottery’sshareofprizes payable to MUSL for Powerball, Hot Lotto, and Mega Millions. Sales amounts andadvertisingplacedduringthelastfewweeksofeachfiscalyearwillgenerallydeterminetheamounts owed at the end of each fiscal year to these vendors andwhether that amount ishigherorlowerthaninthepriorfiscalyear.Prizes payable is essentially comprised of amounts accrued based on the Lottery’s gamedesigns and prize structures for drawing game and instant game prizes, the relatedunremitted federalandstate taxeswithheldonprizesclaimed,andanyunclaimedprizes intheprize fund.At theendof fiscalyears2013and2012,prizes increasedby$2,495,674or36.4%and$2,267,785or49.4%.ThesedifferencesrelatetothechangesofprizespayableonindividualLotterygamesbetweenthefiscalyearsasaresultofsales ineachfiscalyearandprizesnotyetclaimed.At the end of fiscal years 2013 and 2012, $3,503,274 and $3,039,205, respectively, of netrevenues for the month of June were due to the Lottery Tuition Fund. These funds weretransferredtotheNewMexicoStateTreasurerbytheendofJulyofeachyear.
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NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDNetTicketSalesandPrizeExpense
Table3NetTicketSalesand
PrizeExpense
2013NetTicketSales
PrizeExpense
GrossMargin
Instantticket,netofprize,stolen,andpromotionaltickets $69,886,435 $40,283,399 $29,603,036
Powerball,netofspoiledandpromotionaltickets 46,734,439 23,332,651 23,401,788
MegaMillions,netofspoiledandpromotionaltickets 8,078,050 4,027,633 4,050,417
RoadrunnerCash,netofspoiledandpromotionaltickets 6,767,906 4,016,276 2,751,630
HotLotto,netofspoiledandpromotionaltickets 5,933,935 2,959,006 2,974,929
Pick3,netofspoiledandpromotionaltickets 3,492,915 1,973,715 1,519,200
Quicksters,netofspoiledandpromotionaltickets 864,842 475,878 388,964
Totalnetticketsales $141,758,522 $77,068,558 $64,689,964
2012NetTicketSales
PrizeExpense
GrossMargin
Instantticket,netofprize,stolen,andpromotionaltickets $68,736,331 $38,273,594 $30,462,737
Powerball,netofspoiledandpromotionaltickets 33,767,315 16,897,832 16,869,483
MegaMillions,netofspoiledandpromotionaltickets 14,255,730 7,230,117 7,025,613
RoadrunnerCash,netofspoiledandpromotionaltickets 7,509,592 4,586,920 2,922,672
HotLotto,netofspoiledandpromotionaltickets 5,430,132 2,723,879 2,706,253
Pick3,netofspoiledandpromotionaltickets 3,634,804 2,068,225 1,566,579
Quicksters,netofspoiledandpromotionaltickets 453,448 246,741 206,707
Totalnetticketsales $133,787,352 $72,027,308 $61,760,044
2011NetTicketSales
PrizeExpense
GrossMargin
Instantticket,netofprize,stolen,andpromotionaltickets $75,763,424 $42,313,901 $33,449,523
Powerball,netofspoiledandpromotionaltickets 29,080,968 14,519,181 14,561,787
MegaMillions,netofspoiledandpromotionaltickets 10,655,528 5,450,887 5,204,641
RoadrunnerCash,netofspoiledandpromotionaltickets 8,748,662 5,524,466 3,224,196
HotLotto,netofspoiledandpromotionaltickets 7,563,516 3,655,097 3,908,419
Pick3,netofspoiledandpromotionaltickets 3,728,936 2,149,805 1,579,131
Totalnetticketsales $135,541,034 $73,613,337 $61,927,697
$IncreasefromFY2012toFY2013 $7,971,170 $5,041,250 $2,929,920
%IncreasefromFY2012toFY2013 6.0% 7.0% 4.7%
$(Decrease)fromFY2011toFY2012 $(1,753,682) $(1,586,029) $(167,653)
%(Decrease)fromFY2011toFY2012 (1.3)% (2.2)% (0.3)%
11
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)‐CONTINUED
FINANCIALANALYSIS–CONTINUEDNetTicketSalesandPrizeExpense–ContinuedTable3comparesnetsales,prizeexpenseandgrossmargin(netsalesminusprizeexpense)foreachlotterygameforfiscalyears2013,2012,and2011.Infiscalyear2013netsales,prizeexpenseandgrossmarginincreasedforPowerball,HotLotto,andQuicksters,whilenetsales,prizeexpenseandgrossmargindecreasedforMegaMillions,RoadrunnerCash,andPick3.Infiscalyear2013,netsalesandprizeexpenseincreasedforinstantsales,butthegrossmarginfortheyeardecreasedincomparisontothepriorfiscalyear. Thisdecreaseingrossmarginforinstantsaleswastheduetoanincreaseintheoverallpayoutpercentageforinstantticketsfrom57.97%infiscalyear2012to58.94%infiscalyear2013,primarilytobringplayersbacktopurchasinginstantgamesandstopthedeclineofinstantsalesoverthelastsixyears.In fiscal year2012,Powerball andMegaMillionsnet sales,prizeexpenseandgrossmarginincreased, but net sales, prize expense, and gross margin decreased for instant tickets,Roadrunner Cash, Hot Lotto, and Pick 3. Quicksters were introduced in March 2012 andcontributed$206,707ingrossmargin.NetTicketSalesInbothfiscalyears2013and2012,theLotteryhascontinuedtousethecustomerrelationshipmanagement(CRM)systemforplacinginstantgameticketsatretailerlocations.TheLottery’scustomerservicerepresentativescontinuetoplacecallseachweektoeachretailer location,reviewtheinventoryateachlocationwiththeretailer,andplaceorderscontinuallyasneededbasedon the inventory turnoverateach location. In fiscalyear2013, forty‐fivenew instantticketgameswerelaunched‐16‐$1,10‐$2,6‐$3,9‐$5,3‐$10and1‐$20—1more$1,2less$3,1more$5and3more$10gamethaninfiscalyear2012.Infiscalyear2012,forty‐twonewinstantticketgameswerelaunched–15‐$1,10‐$2,8‐$3,8‐$5,and1‐$20—5less$1,1more$3,1less$5and1less$10gamethaninfiscalyear2011.Infiscalyear2013,the Lottery launched22 gameswith free (prize) tickets and23 gameswithout free tickets,while in fiscal year 2012, the Lottery launched 22 games with free tickets and 20 gameswithout free tickets. Instant ticketsales for7months(including the last fivemonthsof thefiscalyear)werehigherthanthecomparablemonthinfiscalyear2012. Instantticketsalesforeverymonthof fiscalyear2012were lowerthanthecomparablemonth inthepreviousfiscalyear.Sincefiscalyear2007,whennetinstantticketsaleswerearecord$91.37million,net instant ticket saleshavedecreasedby$21.48millionor anapproximate23.5%drop to$69.89millioninfiscalyear2013.InJanuary2012,thePowerballgamewaschangedfroma$1pricepointtoa$2pricepoint.Along with this price change, the jackpot now starts at $40 million, up from the previousstartingjackpotof$20million.Thematrixwaschangedfroma5of59and1of39gametoa5of59and1of35game.Twoprizelevelswerechanged;theMatch5+0prizelevelgoingfrom
12
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)‐CONTINUEDFINANCIALANALYSIS‐CONTINUEDNetTicketSalesandPrizeExpense‐ContinuedNetTicketSales–Continueda$200,000cashprizetoa$1millioncashprizeandtheMatch0+1goingfroma$3prizetoa$4prize.Theoveralloddsandthejackpotoddswereimproved.ThePowerplayoptionremainedinthegame,butthemultiplieroptionwasdiscontinuedandinsteadincreasedsetprizelevelsareincludedinthePowerPlayoption.Therolldownoptionwaseliminated.Although,Powerballsalesaregenerallydrivenbytheadvertisedjackpot,infiscalyears2013and2012,thechangeinthepricepointandthematrixalsoaffectedthesalesineachyear.Infiscalyear2013,thehighestjackpotfortheyearwas$590.5millionwithanotherjackpotof$587.5million closely following. Therewere alsoother jackpots that each reached$338.3,$337.0, $217.2, $202.1, and$131.5millionand ten jackpots thatwere$70.0millionor lesswhen they were won. Having a $2 price point for a full year and the four jackpots thatsurpassed the $300millionmark helped Powerball achieve net sales thatwere nearly $13millionhigherthaninfiscalyear2012.In fiscal year 2012, the highest jackpot for the year was $336.4 million with three otherjackpotsreaching$254.2,$241.0,and$228.9million,threesmallerjackpotsreaching$172.7,$128.8,and$108.8million,andsix jackpotsbeing$70millionor lesswhentheywerewon.Thechangeinthepricepointandthe levelof the jackpotshelpedto increasePowerballnetsalesbynearly$4.7millionoverthepreviousfiscalyear.Since fiscalyear2006whennetsaleswerearecord$54.1million,Powerballnetsaleshavedecreasedby$7.4million,adecreaseofapproximately13.7%,to$46.7millioninfiscalyear2013.MegaMillions’ salesarealsodrivenby the jackpotamount. In fiscalyear2013, thehighestjackpotwonwas$198.0millionfollowedbyanotherjackpotof$120.0million.Twelveotherjackpotswerewoninfiscalyear2013thatwere$89millionorless. WithPowerballhavingsuchlargejackpotsinfiscalyear2013andMegaMillionsstayingrelativelylow,MegaMillionsnetsalesdroppedbyover$6milliondollarsor43.3%.In fiscal year2012, thehighest jackpot reacheda record$656millionwithanother jackpotclimbing to $206 million and three smaller jackpots hitting $118, $113, and $105 millionwhentheywerewon. Six jackpotswerewonatamounts less than$100million. The$656millionjackpothelpedtoincreasesalesinMarch2012byoverfivemilliondollars.Although,MegaMillionshadahigherjackpotinfiscalyear2012thanPowerball,MegaMillionsaveragemonthlysales,withoutthe$656millionrun‐upspike,averagelessthan$800,000permonth,whilePowerball’saveragesales,withoutrun‐upspikes,areover$2.5millionpermonth.
13
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)‐CONTINUEDFINANCIALANALYSIS‐CONTINUEDNetTicketSalesandPrizeExpense–ContinuedNetTicketSales–ContinuedSimilartothePowerballandMegaMillionsgames,RoadrunnerCashsalesaredrivenbythejackpot(top)prizeamount.Infiscalyear2013,thejackpotroseto$320,000inAugust2012andto$430,000inDecember2012,plustwoothertimesduringtheyeartojackpotsgreaterthan$150,000.Sixteenotherjackpotswerelessthan$150,000beforebeingwonduringthefiscalyear.Infiscalyear2012,thejackpotroseseventimestomorethan$150,000climbingto$420,000and$550,000inAugust2011andinMarch2012,respectively.Thesedifferencesinthetopprizesreflectedonthenetsalesinthesetwofiscalyearswithfiscalyear2013’ssalebeinglowerthaninthepreviousfiscalyear—a9.9%declineinnetsales.TheMUSLgame,HotLotto, isanothersmallernational jackpotgameofferedbytheLottery.HotLottostarted fiscalyearwitha jackpotof justover$1millionandgrew to$1.4millionbeforebeingwoninJuly2012. Itthenclimbedto$9.4millioninJanuary,whenitwaswon.Thejackpotthencontinuedtorisefrom$1millionuntilyearendwhereitendedtheyearatnearly$6.9million.HotLottostartedfiscalyear2012at$1.1millionandcontinuedtoclimbto $7.5million inNovember 2011. It climbed again to $1.2million inNovember, to $2.61millioninJanuary,to$2.99millioninMarch,to$1.54millioninApril,andto$3.4millionthelastweekof June. Thesechanging jackpotsreflectonnetsalesduringeach fiscalyearwithfiscalyear2013showinga9.3%increaseinnetsales.Pick3netsales in fiscalyear2013decreasedby$141,889or3.9%. Pick3netsales in thefiscalyear2012decreasedby$94,132ora2.5%decrease.Pick3hasbecomeacoregamefortheLotterybringinginsteadymonthlynetsalesofnearly$300,000eachmonthwithnomajorsaleschangesfrommonth‐to‐month.Anewgame,Quicksters,wasstartedonMarch25,2012. Quickstersareinstant‐wingames,similartoinstantticketgames,butproducedbythesamelotterysalesterminalsasdrawinggameticketsandwithnoscratchingneededtorevealtheprizes.ThefirstgameofferedwasSuper7s.Thisgameprovided$453,448innetsalesforfiscalyear2012.Infiscalyear2013,fivenewQuickstergameswereaddedproducing$864,842innetsalesforthefiscalyear.PrizeExpensePrizeexpenseforthedrawinggamesofPowerball,MegaMillionsandHotLotto isbasedontheoverallprizepayoutperthegamedesign,whileprizeexpenseforRoadrunnerCash,Pick3andQuicksters isdeterminedbytheprizeswoneachmonthforeachdrawingorgame.Theprizesincludedintheprizestructureforeachinstantgameprinteddetermineprizeexpenseforinstantgames.Ingeneral,prizeexpenseincreasesordecreasesfromyear‐to‐yearrelativetotheincreasesordecreasesinsalesforeachLotteryproductandtheprizestructuresofthegames.
14
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)‐CONTINUEDFINANCIALANALYSIS–CONTINUEDNetTicketSalesandPrizeExpense–ContinuedPrizeExpense‐ContinuedInfiscalyears2013theprizepayoutincreasedbyapproximately.01%,whereasinfiscalyear2012theprizepayoutdecreasedbyapproximately.69%respectively,priortotheapplicationofunclaimedprizes.
Attheendoftheclaimperiodforeachgame,unclaimedprizesfortheLottery’sinstantgamesanddrawinggamesarepaidintothe“PrizeFund,”inaccordancewiththeNewMexicoLotteryAct.TheseunclaimedprizesfromtheLottery’sprizefundareusedtosupplementtheprizesininstantanddrawinggamesandforsecondchancedrawingsand,therefore,reducetheprizeexpense for Lottery products and help the Lottery to maximize its sales and its return toeducation.PrizeTicketsIn fiscal years 2013 and 2012, prize (free) tickets claimed for instant games decreased by$411,456or14.23%and$195,471or6.33%,respectively,incomparisontothepreviousfiscalyears. Prize tickets are placed in the prize structure of the game in lieu of the breakevenprizes.Prizeticketsgiveaplayeraprizeofanotherinstantgameticketofthesamepricepointas the instant ticket that had the winning prize ticket. The Lottery continues to study themarket to determine the optimum quantity of prize tickets to place each fiscal year in itsinstantticketgamesinordertooptimizeitsinstantticketsales.
15
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)‐CONTINUED
FINANCIALANALYSIS–CONTINUEDGameExpenses
2013 2012 2011
Increase(Decrease)$ Change
2012 to 2013
Increase(Decrease)% Change
2012 to 2013
Increase(Decrease)$ Change
2011 to 2012
Increase(Decrease)% Change
2011 to 2012
Prize expense 77,068,558$ 72,027,308$ 73,613,337$ 5,041,250$ 7.0% (1,586,029)$ (2.2)%
Retailer
commissions 9,153,204 8,696,851 8,859,206 456,353 5.2 (162,355) (1.8)
On-line vendor
fees 2,269,623 2,139,754 2,170,366 129,869 6.1 (30,612) (1.4)
Advertising 2,263,221 2,277,892 2,286,794 (14,671) (0.6) (8,902) (0.4)
Ticket vendor
fees 1,158,028 1,177,708 1,350,379 (19,680) (1.7) (172,671) (12.8)
Other game
expenses 1,136,751 1,061,035 1,014,200 75,716 7.1 46,835 4.6
Total game
expenses 93,049,385$ 87,380,548$ 89,294,282$ 5,668,837$ 6.5% (1,913,734)$ (2.1)%
Table 4
Game Expenses
Thechangesinretailercommissionsforfiscalyears2013and2012areconsistentwiththechangesingrossticketsalesforthetwoyearsandareequivalentto6.45%and6.50%ofgrossrevenuesforthetwoyears,respectively.RetailercommissionsarepaidtotheLottery’sretailersforsellingLotterytickets,cashingLotteryprizesandforsellingajackpot/grandprizeforPowerball,MegaMillionsorHotLotto,forsellingamatch5prizeforPowerballorMegaMillions,andforsellingajackpotprizeofmorethan$100,000forRoadrunnerCash.SinceNovember21,2008,theon‐linevendorfeehasbeenafixedpercentageofnetsales,plusapplicablegrossreceiptstaxes,withnoadditionalterminalfees.Theon‐linefeeincreasesordecreasesasdrawinggameandinstantticketnetsalesincreaseordecrease.Thechangesinthe on‐line vendor fees for the two fiscal years are consistentwith the changes in drawinggameandinstantticketnetsalesinfiscalyears2013and2012andareequivalentto1.60%ofgrossrevenuesforthetwoyears.AdvertisingisexpendedtomarkettheLotteryanditsproductstothepublicandtoinformthepublicaboutthegamesthatareavailable,thejackpotandtopprizeamountsforthedrawing
16
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDGameExpenses‐Continuedgames,toprovidesecuritytipsandgamblingawarenessforourplayersandbenefitmessagesto New Mexico students and their families, and to keep the lottery products fresh in thepublic’sminds,allinordertomaximizesales.Advertisingexpensewasapproximately1.60%and1.70%ofgrossrevenues,respectively,forfiscalyears2013and2012andstayedwithintheLotteryBoardapprovedbudgetsof$2,300,000foreachfiscalyear.In fiscal years 2010 and 2003, the Lottery signed contractswith its primary ticket printereffective in March of each respective year. Under these contracts, the instant tickets areownedbythevendorwiththeLotteryexpensingthecosttoticketvendorfeesandpayingfortheticketsasapercentageofsaleswhentheticketsaresold.Thecostfortheticketsunderthe2003contractalsoincludedthecostfortheCRMsystemusedbytheLottery.Inaddition,inMarch 2010, the Lottery signed a contract with a secondary printer, whereby the Lotterywouldbepurchasingtheticketsprinted.Theseticketsareincludedininventorywiththecostoftheticketsbeingrecordedasticketvendorfeesastheticketsareconsignedtoretailers.Infiscal year 2013 and 2012, the cost for any licensing fees or special printing costs are alsoincludedinticketvendorfees.Theticketvendorfeesforbothfiscalyear2013and2012areless due to the instant ticket sales in each year, but also as a result of payment of a lowerpercentageofnetsalestotheprimaryticketprintercomparedtopreviousfiscalyearswherethepercentagewashigherandwaspaidongrosssalesratherthannetsales.Thislowerfeeisreflectedinthelowerpercentagetogrossrevenuesforticketvendorfeesof .82%and.88%,comparedtothepreviousyear’s1.00%ofgrossrevenues.Included in other game expenses are promotions, shipping and postage, drawing game,responsible gaming, and game membership expenses. Fiscal years 2013 and 2012 reflectincreases of $75,716 or 7.1% and $46,835 or 4.6%, respectively. In fiscal year 2013, theincreasewaspartiallyduetothepurchaseoflotteryinformationcenterstoenabletheLotterytoreplacetheagingequipmentatsomeofthelottery’sretailersandanincreaseinshippingandpostageduetoshippingadditionalinstantticketstolotteryretailers,offsetbyadecreasein theamountsspent formarketingandsalespromotions, forpremiumitemsand forotherretailerequipment. In fiscalyear2012, thischangewasprimarilydue toan increase inTVandradiopromotionsandevents,offsetwithasavingsinshippingcoststodistributeinstantticketstotheLottery’sretailers.
17
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDOperatingExpenses
Table5OperatingExpenses
2013 2012 2011
Increase(Decrease)$Change
2012to2013
Increase(Decrease)%Change2012to2013
Increase(Decrease)$Change2011to2012
Increase(Decrease)%Change2011to2012
Salaries,wages,
andbenefits $3,614,032 $3,583,778 $3,456,748 $30,254 0.8% $127,030 3.7%
Leasesand
insurance 514,990 585,629 593,740 (70,639) (12.1) (8,111) (1.4)
Otheroperating
expenses 951,025 976,837 924,601 (25,812) (2.6) 52,236 5.6
Totaloperating
expenses $5,080,047 $5,146,244 $4,975,089 $(66,197) ‐1.3% $171,155 3.4%
Operating expenses aremade up of salaries,wages and benefits, leases and insurance, andother operating expenses, which include utilities and maintenance, depreciation andamortization,materials and supplies, professional fees, travel, and other expenses. In fiscalyear2013,theLotterydecreaseditsoperatingexpensesby$66,197or(1.3)%,whileinfiscalyear2012,theLotteryincreaseditstotaloperatingexpensesby$171,155or3.4%.
Thechangeinfiscalyear2013ismainlyduetoover$70,000,or12%,insavingsonleasesandinsurancefollowinganextensivetwo‐yearreviewofthefacilityandotheralternatesitesandthe final negotiation and acceptance of a new lease in June 2012; therewere also smallersavingsrealizedinprofessionalfees,materialsandsuppliesandtravel.Thesedecreaseswereoffsetwithanincreaseinsalaries,wages,andbenefitsmainlyduetonothavinganyoneleavetheemployoftheLotteryinthesecondhalfofthefiscalyearandhavingallbuttwopositionsontheLottery’sorganizationchartfilledplusanincreaseindepreciationandamortizationforreplacementequipmentthathasbeenrecentlypurchased.
The change in fiscal year 2012 ismainly due to increases in the cost of salary,wages andbenefits. In fiscal year 2012, the Lotterywas nearly fully staffedmost of the yearwith anaverageof55.5employeesduringtheyear,whileinthepriorfiscalyeartheLotteryemployedfewer employees all year at an average of 53 employeeswhen vacated positionswere notimmediately filled. In fiscal year 2012, the cost of health insurance for the Lottery alsoincreased by approximately twelve percent. In addition, replacement computer equipmentwas purchased and the cost for building and vehicle maintenance, gas, and legal feesincreased. Thesecostswereoffsetwithsavingson leaseand insurancecostsandasmalleramountofdepreciationandamortizationforcapitalizedassets.
18
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUEDFINANCIALANALYSIS–CONTINUEDNon‐OperatingIncome
Non‐operating incomedecreased in fiscal year 2013,while it increased in fiscal year 2012.Interestincomeincreasedslightlyin2013duetoasmallincreaseintheinterestrateearnedandhighercashdeposits,whereasinfiscalyear2012interestincomedecreasedmainlyduetothedecrease in interest rateson theLottery’sdeposits. For fiscal year2013,other incomedecreasedcompared to fiscal year2012,where liquidateddamageshadbeen receivedonaLotterycontract.
NetIncome
TotalOperatingRevenues NetIncome
FiscalYear2013 $141,767,097 $43,684,681
FiscalYear2012 $133,791,602 $41,328,743
FiscalYear2011 $135,541,708 $41,307,290
IncreasefromFY2012toFY2013 $7,975,495 $2,355,938
%IncreasefromFY2012toFY2013 6.0% 5.7%
Increase(Decrease)fromFY2011toFY2012 $(1,750,106) $21,453
%Increase(Decrease)fromFY2011toFY2012 (1.3)% 0.1%
Effective July 1, 2007, the NewMexico Lottery Act, Chapter 6, Article 24 NMSA 1978,waschangedtorequiretheLotterytotransmitatleasttwenty‐sevenpercentofitsgrossrevenuesto the State Treasurer until December 31, 2008 and at least thirty percent of its grossrevenues thereafter. In fiscal years 2012 and 2011, the Lottery transmitted its net income
19
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUED
FINANCIALANALYSIS–CONTINUEDNetIncome‐Continuedeach month, totaling $43,684,681 and $41,328,743, respectively. The gross revenuepercentagereturnforfiscalyear2013was30.80%,whileforfiscalyear2012,itwas30.88%.TheLotterywasabletomeetthe30%grossrevenuepercentagereturnseachmonthinbothfiscalyears.Thechangesinnetincomeforfiscalyears2013and2012wererelatedtothechangesinsalesfortheLottery’sgamesduringthetwoyearsnettedagainstsavingsinthecostoftheproductandoperatingexpensesduringthetwofiscalyears.Inadditiontothechangesthathadbeenmadeinfiscalyear2008ofreducingstaffing,retailerand sales staff incentives, advertising costs, and prize expense to meet the statutoryrequirement of 27% through December 2008 and 30% thereafter for gross revenuepercentagereturn;theLotteryalsocommencedanewon‐linesystemagreementinNovember2008, whereby the fee to the on‐line vendor was reduced, and separate terminalcommunicationfeesandvendingmachinefeesthathadpreviouslybeenpaidwereeliminated.This change has continued to provide a percentage reduction of the on‐line vendor fees togrossrevenuesofover3%inbothfiscalyear2013and2012comparedtofiscalyear2008.Inaddition, the Lottery has continued to realize a savings on instant ticket printing fees yearoveryearsince2010basedonthecontractthatwassignedwiththeprimaryvendorinthatyear.
20
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUED
FINANCIALANALYSIS–CONTINUED
BudgetaryComparison
2013
OriginalBudget
FinalBudget Actual
VariancewithFinalBudget
%VariancewithFinalBudget
Totaloperatingrevenues $135,000,000 $132,600,000 $141,767,097 $9,167,097 6.9%
Totalgameexpenses 88,742,000 87,350,000 93,049,385 5,699,385 6.5
Totaloperatingexpenses 5,763,000 5,339,000 5,080,047 (258,953) (4.9)
Operatingincome 40,495,000 39,911,000 43,637,665 3,726,665 9.3
Totalnon‐operatingincome 18,000 24,000 47,016 23,016 95.9
Netincomebefore
transfersto
LotteryTuitionFund $40,513,000 $39,935,000 $43,684,681 $3,749,681 9.4%
2012
OriginalBudget
FinalBudget Actual
VariancewithFinalBudget
%VariancewithFinalBudget
Totaloperatingrevenues $136,400,000 $134,143,000 $133,791,602 $(351,398) (0.3)%
Totalgameexpenses 89,964,000 88,173,000 87,380,548 (792,452) (0.9)
Totaloperatingexpenses 5,456,000 5,368,000 5,146,244 (221,756) (4.1)
Operatingincome 40,980,000 40,602,000 41,264,810 662,810 1.6
Totalnon‐operatingincome 80,000 42,000 63,933 21,933 52.2
Netincomebefore
transfersto
LotteryTuitionFund $41,060,000 $40,644,000 $41,328,743 $684,743 1.7%
21
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)‐CONTINUEDFINANCIALANALYSIS‐CONTINUEDBudgetaryComparison–ContinuedIn fiscal year 2013, the original budgetwas revisedbecausePowerball andHot Lotto saleswere performing better than expected, but Instant ticket,MegaMillions, Roadrunner Cash,Pick3andQuicksterswereunderperforming.Thesalesbudgetwasreducedby$3.0million,whichwasmadeupofanincreasetoPowerballof$5.0millionandtoHotLottoof$600,000offsetbyasalesreductiontoInstantticketsof$1.1million,toMegaMillionsof$4.3million,toRoadrunner Cash of $1.2million, to Pick 3 of $300,000, and to Quicksters of $1.7million.Prize ticketswerealso reducedby$500,000andspoiled, stolenandpromotional ticketsby$90,000,whileretailerfeeswereincreasedby$10,000.Withallthesechanges,totalrevenueswerereducedby$2.4million.Non‐operatingincomewasincreasedby$6,000.Intotal,grossrevenueswerereducedby$2,394,000.Relatedgameexpenseswerereducedby$1,392,000,operatingexpensesby$424,000andnetincomeby$578,000,butstillreturningover30%ofgrossrevenues.ActualnetsalesforInstanttickets,Powerball,MegaMillions,HotLotto,Pick3,andQuickstersall surpassed the projected net sales in the final budget with only Roadrunner Cash notmeetingthebudgetbylessthan$25,000.Actualnetsalesexceededthebudgetbynearly$9.2million anddue tohigher sales, related gameexpenseswere alsomore than thebudgetbynearly$5.7million. Therewasanadditionalcostsavings in theoperatingexpensesofover$250,000 and an additional amount earned in non‐operating income of $23,000 incomparisontothefinalbudget. TheLotteryendedtheyearwithnet incomesurpassingthefinalbudgetby$3,749,681;endingtheyearat109.39%ofthefinalbudget.Infiscalyear2012,theoriginalbudgetwasrevisedbecauseinstantticket,RoadrunnerCashandHotLottosaleswereunderperformingandPowerballandMegaMillionswerewellaheadoftheiroriginalbudgetedsalesamounts.Pick3wasalsorevisedupwardbyasmallamount.The new game, Quicksters, had originally been planned to start in late October or earlyNovember,butwasnot launcheduntiltheendofMarch,therefore,theQuickstersaleswerealsorevisedtoalowersalesamount.Thesalesbudgetwasdecreasedby$2.6million,whichwasmadeupofareductionininstantticketsalesof$8million,inRoadrunnerCashsalesof$2.2million, inHotLottosalesof$2.4million,and inQuickstersalesof$1.6millionandanincreaseof$7millionforPowerballsales,$4.5forMegaMillionssalesand$100,000forPick3sales. Prize ticketswerealso reducedby$300,000, spoiled, stolenandpromotional ticketsreduced by $40,000; and retailer fees increased by $3,000. All of these changes decreasedtotaloperatingrevenuesby$2,257,000.Non‐operatingincomewasreducedby$38,000duetocontinuingdecreasesininterestratesinthecurrentyearandlessotherincomeexpected.Intotal,grossrevenuesweredecreasedby$2,295,000.
22
NewMexicoLotteryAuthority
MANAGEMENT’SDISCUSSIONANDANALYSIS(UNAUDITED)–CONTINUED
FINANCIALANALYSIS‐CONTINUEDRelated game expenses for prize expense, retailer commissions, on‐line vendor fees, ticketvendorfees,andothergameexpenseswereadjustedinfiscalyear2012inaccordancetothechanges in saleswitha total adjustmentof $1,791,000 to gameexpenses. Each line item inoperatingexpenses,exceptforleasesandinsurancewasreducedforatotalreductionofBudgetaryComparison‐Continued$88,000 and net income was decreased by $416,000, still returning over 30% of grossrevenues.Actualnetsalesforfiscalyear2012didnotmeetthebudget,underperformingby$351,398.Withcostsavingsingameexpensesof$792,452andinoperatingexpensesof$221,756andadditionalnon‐operating incomeof$21,933, theLotterywasable to surpass the fiscal year2012revisedannualbudgetnetincomeby$684,743;endingthefiscalyearat101.68%oftherevisedbudget.RequestsforAdditionalFinancialInformationThisfinancialreportisdesignedtoprovidetheexecutiveandlegislativebranchesoftheStateof NewMexico, the public, the Lottery’s retailers, vendors, creditors, and other interestedpartieswithageneraloverviewofthefinancialpositionoftheLotteryasofJune30,2013and2012,andresultsofitsoperations,cashflows,variancesfrombudgets,andpercentagereturntothestatefortheyearsthenendedandtodemonstratetheLottery’saccountabilityfortherevenues it receives. If you have any questions about this report or need additionalinformation, contact theDirector of Finance at theNewMexico LotteryAuthority, P.O. Box93130,Albuquerque,NewMexico87199.
23
NewMexicoLotteryAuthority
STATEMENTSOFNETPOSITION
June30,2013and2012
2013 2012CURRENTASSETS
Cashandcashequivalents $9,340,237 $6,885,806 Accountsreceivable(netofallowance
fordoubtfulaccounts) 1,371,427 1,225,638Reservesondeposit 3,405,568 3,396,831Inventory 36,964 33,077Prepaidexpenses 145,172 80,686
Totalcurrentassets 14,299,368 11,622,038
CAPITALASSETS,NET 629,345 305,550
Totalassets $14,928,713 $11,927,588
CURRENTLIABILITIESAccountspayableandothercurrentliabilities $1,977,904 $1,955,328Currentportionofcapitalleaseobligation 14,064 11,015Prizespayable 9,355,989 6,860,315DuetoLotteryTuitionFund 3,503,374 3,039,205
Totalcurrentliabilities 14,851,331 11,865,863
LONG‐TERMLIABILITIESNoncurrentportionofcapitalleaseobligation 77,382 61,725
Totalliabilities $14,928,713 $11,927,588
NETPOSITION Netinvestmentincapitalassets $629,345 $305,550Unrestricted(deficit) (629,345) (305,550)
Totalnetposition $‐ $‐
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
24
NewMexicoLotteryAuthority
STATEMENTSOFREVENUES,EXPENSES,ANDCHANGESINNETPOSITION
YearsendedJune30,2013and20122013 2012
OPERATING REVENUES Instant ticket sales $ 72,397,663 $ 71,632,710 Powerball sales 46,767,095 33,795,664 Mega Millions sales 8,088,972 14,330,230 Roadrunner Cash sales 6,784,566 7,520,021 Hot Lotto sales 5,996,195 5,438,475 Pick 3 sales 3,496,279 3,638,558 Quickster sales 867,111 453,448 Less tickets provided as prizes (2,479,354) (2,890,810) Less spoiled, stolen, and promotional tickets (160,005) (130,944)
Net ticket sales 141,758,522 133,787,352
Retailer fees 20,575 16,250 Bad debts (12,000) (12,000)
Total operating revenues 141,767,097 133,791,602
GAME EXPENSES Prize expense 77,068,558 72,027,308 Retailer commissions 9,153,204 8,696,851 On-line vendor fees 2,269,623 2,139,754 Advertising 2,263,221 2,277,892 Ticket vendor fees 1,158,028 1,177,708 Promotions 437,704 381,179 Shipping and postage 428,532 410,422 Drawing game 116,081 116,532 Responsible gaming 87,400 87,400 Game membership 67,034 65,502
Total game expenses 93,049,385 87,380,548
OPERATING EXPENSES Salaries, wages, and benefits 3,614,032 3,583,778 Leases and insurance 514,990 585,629 Utilities and maintenance 439,041 431,189 Depreciation and amortization 139,393 115,933 Materials and supplies 125,050 153,867 Professional fees 112,893 150,651 Other 71,640 55,727 Travel 63,008 69,470
Total operating expenses 5,080,047 5,146,244
OPERATING INCOME 43,637,665 41,264,810
NON-OPERATING INCOME Other income 25,692 45,464 Interest income 21,324 18,469
Total non-operating income 47,016 63,933
Net income before transfers 43,684,681 41,328,743
Transfers to Lottery Tuition Fund 43,684,681 41,328,743
Change in net position - -
Net position at beginning of year - -
Net position at end of year $ - $ -
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
25
NewMexicoLotteryAuthority
STATEMENTSOFCASHFLOWS
YearsendedJune30,2013and2012
Increase(Decrease)inCashandCashEquivalents
2013 2012CashflowsfromoperatingactivitiesCashreceived:Fromretailers‐salesnetofcommissions,incentives,andprize,spoiled,andstolenticketcredits $132,472,895 $124,762,104
FromMUSL‐HotLottojackpot ‐ 1,153,023Cashpayments:
Toprizewinnersandrelatedtaxes
(58,375,753)
(57,149,803)
ToMUSL
(16,197,131)
(13,762,743)Tosuppliersofgoodsorservices (9,058,917) (9,200,911)Toemployeesforservicesandrelatedtaxes (2,880,565) (2,838,626)
Netcashprovidedbyoperatingactivities 45,960,529 42,963,044
CashflowsfrominvestingactivitiesReceiptsofinterest 10,254 7,861Other 367 23,971
Netcashprovidedbyinvestingactivities 10,621 31,832
Cashflowsfromnoncapitalfinancingactivities
TransferstoLotteryTuitionFund
(43,220,512)
(41,505,020)
CashflowsfromcapitalandrelatedfinancingactivitiesPurchasesofcapitalassets (284,938) (159,248)Principalpaymentsundercapitallease (11,269) (6,627)
Netcashusedbycapitalandrelatedfinancing (296,207) (165,875)activities
NETINCREASEINCASHANDCASHEQUIVALENTS 2,454,431 1,323,981
Cashandcashequivalentsatbeginningofyear 6,885,806 5,561,825
Cashandcashequivalentsatendofyear $9,340,237 $6,885,806
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
26
NewMexicoLotteryAuthority
STATEMENTSOFCASHFLOWS‐CONTINUED
YearsendedJune30,2013and2012
Increase(Decrease)inCashandCashEquivalents
2013 2012ReconciliationofoperatingincometonetcashprovidedbyoperatingactivitiesOperatingincome $43,637,665 $41,264,810AdjustmentstoreconcileoperatingincometonetcashprovidedbyoperatingactivitiesDepreciation 139,393 115,933Vendor'snon‐cashtransactions (119,759) (18,678)InterestonMUSLunreservedaccount 3,088 1,167
Netchangesinassetsandliabilities:Accountsreceivable (140,998) (332,647)Reservesondeposit (8,737) (471,580)Inventory (3,887) (21,743)Prepaidexpenses (64,486) 32,319Accountspayableandotherliabilities 22,576 125,678Prizespayable 2,495,674 2,267,785
Netcashprovidedbyoperatingactivities $45,960,529 $42,963,044
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
27
NewMexicoLotteryAuthority
STATEMENTSOFFIDUCIARYNETPOSITION
June30,2013and2012
2013 2012ASSETSCashandcashequivalents $500,847 $461,989Marketablesecuritiesandotherinvestments 4,259,724 3,599,443Contributionreceivable 8,121 6,931
Totalassets $4,768,692 $4,068,363
NETPOSITION
Pensionplanparticipants'benefits $4,768,692 $4,068,363
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
28
NewMexicoLotteryAuthority
STATEMENTSOFCHANGESINFIDUCIARYNETPOSITION
YearsendedJune30,2013and2012
2013 2012ADDITIONS
Investmentearnings $559,478 $739,810Employercontributions 344,578 335,375Otheractivity ‐ ‐
Totaladditions 904,056 1,075,185
DEDUCTIONSInvestmentlosses ‐ 776,116Distributionstoparticipants 203,727 341,313
Totaldeductions 203,727 1,117,429
Changeinnetposition 700,329 (42,244)
Netposition‐beginning 4,068,363 4,110,607
Netposition‐ending $4,768,692 $4,068,363
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
29
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES1. ReportingEntityThe financial reporting entity as defined by Governmental Accounting Standards Board(GASB) Statement 14 consists of the primary government, organizations for which theprimarygovernmentisfinanciallyaccountable,andotherorganizationsforwhichthenatureand significance of their relationshipwith the primary government are such that exclusionwouldcausethereportingentity’sfinancialstatementstobemisleading.Thisdefinitionofthereporting entity is based primarily on the notion of financial accountability as the“cornerstoneofallfinancialreportingingovernment.”WiththeenactmentoftheNewMexicoLotteryAct(theAct)onJuly1,1995,theNewMexicoLotteryAuthority(theLottery)wascreatedasapublicbody,politicandcorporate,separateandapart fromtheStateofNewMexicoandconstitutingagovernmental instrumentalityofthe state. The Lottery was created and organized for the purpose of establishing andconductingtheLotterytoproviderevenuesforthepublicpurposesdesignatedbytheAct.TheNewMexicoLotterywasorganizedasanindependentbusinessenterpriseseparatefromstategovernment,self‐sustainingandself‐funded,withoutneedforstaterevenuesorresourcesandsubjecttooversight,audit,andaccountabilitybypublicofficialsandagencies.However,sincethereisafinancialbenefittotheState’sinstitutionsofhighereducation,whicharepartoftheState,theLotteryisconsideredacomponentunitoftheStateofNewMexico.TheLotteryhasnocomponentunits.TheLotterycommencedsalesofinstantticketsonApril27,1996,andsalesofdrawinggameticketsonOctober20,1996.2. BasisofPresentationThefinancialstatementsarepreparedontheeconomicresourcesmeasurementfocusandtheaccrualbasisofaccountinginaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.InaccordancewithGovernmentalAccountingStandardsBoard(GASB)StatementNumber62,Codification ofAccounting and FinancialReportingGuidance Contained inPre‐November 30,1989 FASB and AICPA Pronouncements, the Lottery has elected to follow all GASBpronouncements, and as other accounting literature, post‐November 30, 1989 FASBpronouncementsthatdonotconflictwithorcontradictGASBpronouncements. IninstanceswhereGASBguidanceconflictswithprivatesectorprinciples,theLotteryconformstoGASB.
30
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED2. BasisofPresentation–ContinuedAFiduciaryFundisusedtoaccountforassetsheldinatrusteecapacityforLotteryemployees.TheLottery’sonlyfiduciaryfundisapensiontrustfund.ThepensiontrustfundperStatementsofFiduciaryNetPositionandStatementsofChangesinFiduciaryNetPositionandNoteDreflectstheactivitiesoftheNewMexicoLotteryAuthorityRetirementPlan(Plan)pursuanttoatrustagreementwithanationalbank.Thebankholds,investsanddistributestheassetsofthePlanforthebenefitofthePlanparticipants,subjecttotheoveralldirectionoftheLotteryinitscapacityasplanadministrator.The Lottery distinguishes operating revenues and expenses from non‐operating items.Operating revenues and expenses generally result from providing goods and services inconnectionwiththeLottery’sprincipalongoingoperations.Theprincipaloperatingrevenuesof the Lottery are sales of instant and drawing game tickets. The Lottery also recognizesretailer fees for connecting new retailers to the system as operating revenues. Operatingexpensesincludethecostsrelatedtosales,administrativeexpensesrequiredtomanageandoperate the Lottery, and depreciation on capital assets. All revenues and expenses notmeetingthisdefinitionarereportedasnon‐operatingrevenuesandexpenses.When an expense is incurred that can be paid using either restricted or unrestrictedresources,theLottery’spolicyistofirstapplytheexpensetowardunrestrictedresourcesandthen toward restricted resources. At the end of fiscal years 2013 and 2012 therewere norestrictedresources.3. BudgetsandBudgetaryAccountingEachyearLotterymanagementpreparesabudgetinconformitywithGAAPforthesucceedingfiscal year. The Lottery’s budget is not legally binding. The budget is presented bymanagementtotheLottery’sboardofdirectorsforreview,amendment,andapprovalpriortothebeginningof thenext fiscalyear.Anyrevisionsto thisbudgetduringthe fiscalyearareapprovedbytheLottery’sboardofdirectors.TheLottery’sfinancialstatementsarereviewedateachregularboardofdirectors’meeting.Performanceinrelationtothebudgetispresentedanddiscussedduringthesemeetings.4. CashandCashEquivalentsFor the purposes of the Statements of Cash Flows, the Lottery considers cash and cashequivalentstobecashonhand,demanddeposits,timedepositswithanoriginalmaturityofninetydaysorless,andovernightrepurchaseagreements.
31
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES–CONTINUED5. AccountsReceivable
Accounts receivable represent the unremitted receipts on ticket sales, net of retailercommissionsandprizespaidbytheretailers.ReceiptsaretransferredweeklyfromretailerbankaccountstotheLottery.Creditlossesrelatingtocontractedretailershavebeenwithinmanagementexpectations.Generally,collateralisnotrequiredonreceivables.AtJune30,2013and2012,anallowancefordoubtfulaccountsof$36,165and$29,688,respectively,hasbeenprovidedtorecognizefutureuncollectiblebillings.Infiscalyears2013and2012,tenretailcustomers(477and481retailerlocations)represented58%and55%ofsalesforeach year, respectively, and 59% and 52% of accounts receivable for each year,respectively.6. ReservesonDeposit
The Lottery is amember of theMulti‐State Lottery Association (MUSL), which operatesgames on behalf of participating lotteries. MUSL currently operates the POWERBALL®(Powerball), Hot Lotto® (Hot Lotto) andMegaMillions® (MegaMillions) games for theLottery.TheLotterysellsPowerball,HotLottoandMegaMillionsgameticketsthroughitsretailersandmakesweeklywiretransferstoMUSLinanamountequivalenttothememberlottery’sshareoftheestimatedgrandprizeliabilityforeachgame.Lesserprizesarepaiddirectly to thewinnersbyeachmember lottery.Theprizepools for the threegamesare50%ofeachgame’sdrawingperiod’ssalesaftertheprizereserveaccountsarefundedtotheamountssetbytheMUSLproductgroup.
MUSLhasestablishedprizereserveaccountsforthegamesitoperates.TheseprizereserveaccountsarefundedoutoftheprizepoolsforthegamesuntiltheaccountsreachamountssetbytheMUSLproductgroupsforeachgame.Oncetheprizereservefundsexceedthesedesignatedmaximums,theexcessbecomespartofthegrandprizepool.Theprizereservefunds serve as contingency reserves to protect MUSL and the party lotteries fromunforeseenprizeliabilities. ThemoneyinthesereservefundsisusedatthediscretionoftheMUSLBoardofDirectors.TheprizereservefundsarerefundabletoMUSLmembersifMUSL disbands, amember leavesMUSL, or a game is discontinued. In these instances,membersmustwait one year before receiving their remaining share, if any, of the prizereserve funds. Theprizereserveaccountsmayalsobecarriedforwardtoareplacementgame’s prize reserve account. MUSL included 2% of the Lottery’s Powerball drawingperiod’s sales in twoprize reserveaccounts, thePowerballPrizeReserveAccount (PRA)and theSetPrizeReserveAccount (SPRA),until theLottery’s share inboth thePRAandSPRA were fully funded. The maximum amounts designated by the MUSL Powerballproductgroup for thePRA is$80millionand for theSPRA is$40million forallmemberlotteries. At June 30, 2013 and 2012, the Lottery’s share in the Powerball PRA was$1,150,604 and $1,430,961, respectively, and in the SPRA was $554,595 and $440,966,respectively.BothPowerballreservefundsarefullyfunded.
32
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012
NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED6. ReservesonDeposit‐ContinuedMUSLincludesfrom1%to3%oftheLottery’sHotLottodrawingperiod’ssales,dependingontheannuitizedvalueoftheGrandPrize,intoaPrizeReserveAccount(PRA).TheMUSLproductgrouphasset themaximumHotLottoPRAbalanceatninemilliondollars forallparty lotteries. At June30,2013and2012, theLottery’sshare in theHotLottoPRAwas$735,241and$696,149,respectively.TheLottery’sremainingHotLottoprizereservebuy‐inamountwas$0.00and$70,645,respectively,asofJune30,2013and2012.
TheLotterycommencedsalesofMegaMillionsticketsonJanuary31,2010.MUSLincludesanadditionalamountupto5%oftheLottery’sMegaMillionsdrawingperiod’ssalesandincluded 4.9338682%until September 13, 2010 and then 1.5801572%of theMegapliersalesintothePrizeReserveAccount(PRA).AsofMarch22,2013,theMUSLproductgroupsetthemaximumMegaMillionsPRAbalanceat$45millionforallpartylotteries.AtJune30, 2013 and 2012, the Lottery’s share in the Mega Millions PRA was $409,688 and$286,019, respectively. The Lottery’s remaining Mega Millions prize reserve buy‐inamountwas$114,165asofJune30,2013.
TheLotteryalsohasanunreserved fundwithMUSL. Interestearnedon theMUSL fundsand any unclaimed grand prizes may be deposited into the unreserved fund and gamemembershipfeesandotherMUSLcostsmaybepaidfromthisfund.AtJune30,2013and2012,theLottery’sshareoftheunreservedfundwas$555,440and$542,736,respectively.
AwinnerofaPowerballgrandprizeorMegaMillionsgrandprizemayselectthattheprizebepaidatthecashvalueoftheprizeorasanannuity.APowerballgrandprizeannuityispaidout in30annual installmentsover29yearsandaMegaMillionsgrandprize ispaidoutin26annualinstallmentsover25years.Governmentsecuritiesatthediscountedvalueof the grand prize annuity are purchased to fund all future installments and are held intrust. Maturities are staggered in order to provide adequate cash flow for each annualinstallment.TheseassetsandrelatedliabilitiesarereflectedinMUSL’sfinancialstatementsand thereforearenotreflected in theLottery’s financial statements.MUSL is responsiblefortransferringthecashortheannuityinstallmentamountstothememberlotterypriortothe payment to any grand prize winner. Currently, the Lottery is not paying any prizewinneranyannuityprizepayments.
AsofMay12,2013, theHotLottoadvertisedgrandprize ispaidasawithholdings taxespaidsingle,cashpaymentprizewheretheestimatedadvertisedgrandprizeisgrossedupto include federalandstate taxwithholdingsand theprizewinnerreceives thenetprizeaftertaxwithholdings.PriortoMay12,2013,aHotLottograndprizewaspaidoutatthecashvalueoftheprizeorasanannuitypaidoutin25annualinstallments.
33
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED7. InventoryInMarch2003andthenagaininMarch2010,theLotteryenteredintoagreementswithitsprimary instant ticket printers, whereby the printers retain title to the instant ticketinventoryuntiltheinstantticketsaresold.UndertheMarch2003agreement,theLotterypays the vendor a fee based on a fixed percentage of the instant tickets sold. Under theMarch2010agreement, theLotterypaysthevendora feebasedona fixedpercentageofthe net instant tickets sold; net instant tickets representing instant tickets less prize,spoiled,stolen,andpromotionaltickets.Inaddition,inMarch2010,theLotterysignedanagreement with a secondary instant ticket printer, whereby the Lottery purchases andownstheticketsprinted.Theseticketsarecarriedatthelowerofcostormarketusingthespecificidentificationmethod.At theendof fiscalyear2013, theLotterywasdistributinggamesprintedunder the twoMarch2010agreements;whileattheendoffiscalyear2012,theLotterywasdistributinggamesprintedundertheMarch2003agreementandthetwoMarch2010agreements.As of June 30, 2013 and 2012, $12,825 and $33,077, respectively, of instant tickets areincluded in inventory. Foreachyearrespectively,$24,139and$0ofmerchandiseprizesforsecondchancedrawingsarealsoincludedininventory.8. CapitalAssetsCapital assets, which include data processing software and hardware, tenantimprovements, vehicles, furniture and fixtures, intellectual property, and equipment, arestatedatcostnetofaccumulateddepreciation.TheLotterycapitalizesallassetsthathaveacostgreater than$5,000andanexpecteduseful lifeofmore thanoneyear.Depreciationandamortizationare computedusing the straight‐linemethodover theestimatedusefullives of 2 to 5 years, except for tenant improvements, which are amortized over theirexpecteduseful livesor the lease term,whichever is shorter.Whenassets are retiredorotherwisedisposed,thecostandrelatedaccumulateddepreciationareremovedfromtheaccounts and any resulting gainor loss is reflected in the results fromoperations in theperiodofdisposal.
34
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED9. RevenueandAccountsReceivableRecognitionLottery games are sold to the public by contracted retailers and directly by the Lottery.Revenuesandaccountsreceivableforinstantticketsarerecognizedwhenpacksaresettledand retailers arebilled for the tickets.Revenues and accounts receivable for all drawinggamesarerecognizedwhendrawingsareheld,exceptforQuicksters,wheretherevenuesand accounts receivable are recognized at the time the tickets are sold. Accountsreceivablearestatedattheirnetrealizablevalueandtheirpastduestatus isbaseduponcontractualterms.10. PrizesPrizeexpenseforinstant,Powerball,MegaMillions,andHotLottogamesisrecordedbasedon an estimate of the predetermined prize structure for each game. Prize expense forRoadrunnerCash,Pick3,andQuickstergamesisrecordedbasedontheactualprizeswonforeachgame.11. CommissionsRetailersreceiveacommissionof6%ongrossticketsalesanda1%cashingcommissiononwinningticketvalidationsforprizesupto$600.12. AdvertisingCostsAdvertisingcostsareexpensedasincurred.13. IncomeTaxesThe Lottery is exempt from Federal and New Mexico income taxes. Accordingly, noprovisionforincometaxeshasbeenmade.
35
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED14. CustodialCreditRiskandInterestRateRiskAtJune30,2013,theLotterymaintaineditscashbalancesinonefinancialinstitution,whileatJune30,2012,theLotterymaintaineditscashbalancesintwofinancialinstitutions.ThebalancesfordemanddepositswereinsuredbytheFederalDepositInsuranceCorporationupto$250,000atthesefinancialinstitutions.Custodialcreditrisk–Deposits.Inthecaseofdeposits,thisistheriskthatintheeventofabankfailure,theLottery’sdepositsmaynotbereturnedtoit.TheLotterydoesnothaveadepositpolicyforcustodialcreditrisk.TheLotterylimitsitscustodialriskforitscashandrequirescollateralinanamountgreaterthanorequalto50%ofanydepositnotinsuredbyFederal Insuring Agencies. A greater amount of collateral is required when the Lotterydetermines it is prudent. Collateral must meet State of New Mexico “Security of PublicMoney”standardsandbeheldinthethirdpartysafekeeping.Custodialcreditrisk–Investments.Foraninvestment,custodialcreditriskistheriskthatin theeventof the failureof thecounterparty, theLotterywillnotbeable torecoverthevalue of its investments or collateral securities that are in the possession of an outsideparty. Mutual funds, external investment pools, and securities underlying reverserepurchaseagreementsarenotexposedtocustodialcreditrisk.TheLotterydoesnothaveaninvestmentpolicyforcustodialcreditrisk.TheLottery’scustodialriskforinvestmentsis inaccordancewithArticle10,NMSA,1978Compilation. The Lottery’s investments are made in overnight repurchase agreements.Investmentsaremade througha local financial institutionandareheld insafekeepingattheFederalReserveBank.RepurchaseagreementsarecollateralizedbytheGovernment
36
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED14. CustodialCreditRiskandInterestRateRisk‐Continued
Securitieswithamarketvalueofatleast102%oftheprincipalandareusedforovernightinvestment only. Collateral must meet State of New Mexico “Security of Public Money”standards and be held in third party safekeeping. As of June 30, 2013 and 2012, theLottery’s bank balances of $9,523,952 and $7,027,864, respectively, were exposed tocustodialcreditriskasfollows:
2013 2012 Uninsuredanduncollateralized $ ‐ $ ‐
Collateralheldbythepledging bank’strustdepartmentin theBank’sname ‐ ‐ Collateralheldbythepledging bank’strustdepartmentin theLottery’sname 9,523,952 7,027,864 $ 9,523,952 $ 7,027,864InterestRateRisk–Investments.Interestrateriskistheriskthatchangesininterestrateswilladverselyaffect the fairvalueofan investment.TheLotterydoesnothaveaspecificpolicytolimititsexposuretointerestraterisk.At June30,2013and2012, theLotteryhadovernightyield repurchaseagreementswithone‐daymaturities.
37
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED15. BankAccountsAtJune30,2013:
BalanceDescription Bank perBankOperatingaccount‐overnightrepurchaseAgreement WellsFargoBank,NA $9,523,952Operatingaccount–checking WellsFargoBank,NA ‐Totalamountdepositedinbank 9,523,952Less:FDICcoverage ‐*Totaluninsuredfunds–depositsandovernightrepurchaseagreement $9,523,952
102%pledgedcollateralrequirementperstatuteforrepurchaseagreement $9,714,431
*Totalpledgedsecurity
(9,714,432)
Amountunder(over)requirementatJune30,2013 $(1)*WellsFargoBank,NA securitiesareheld in safekeepingat theFederalReserveBank inSanFrancisco,CA. Presentedat fairvalue,CUSIPNumber3128MJSN1(fairmarketvalue$9,691,268),maturesMarch 01, 2043. The repurchase agreement is collateralizedwithsecuritiesheldinthenameoftheNewMexicoLotteryAuthority.CashandcashequivalentsperbankatJune30,2013 $9,523,952Lessreconcilingitems‐‐outstandingchecks (191,420)
ReconciledcashinbankatJune30,2013
9,332,532
Cashinvault
7,705
TotalcashandcashequivalentsperStatementsofNetPosition $9,340,237
38
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED15. BankAccounts‐ContinuedAtJune30,2012:
BalanceDescription Bank perBankOperatingaccount–overnightrepurchase Agreement WellsFargoBank,NA $6,864,002Operatingaccount–checking WellsFargoBank,NA ‐Operatingaccount‐overnightrepurchaseAgreement USBank 163,862Operatingaccount–checking USBank ‐Totalamountdepositedinbank 7,027,864Less:FDICcoverage ‐*Totaluninsuredfunds–depositsandovernightrepurchaseagreement $7,027,864
102%pledgedcollateralrequirementperstatuteforrepurchaseagreement $7,168,421*Totalpledgedsecurity (7,168,423)
Amountunder(over)requirementatJune30,2012 $(2)*WellsFargoBank,NASecuritiesareheld in safekeepingat theFederalReserveBank inSanFrancisco,CA.Presentedatfairvalue,CUSIPNumbers31292LE35(fairmarketvalue$7,001,283),maturesMarch 01, 2042. The repurchase agreement is collateralizedwithsecuritiesheldinthenameoftheNewMexicoLotteryAuthority.*USBanksecuritiesareheldinsafekeepingattheFederalReserveBankinCleveland,OH.Presentedatfairvalue,CUSIPNumber3128DFAU2(fairmarketvalue$167,140),maturesOctober 1, 2035. The repurchase agreement is collateralizedwith securities held in thenameoftheNewMexicoLotteryAuthority.
39
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES–CONTINUED15. BankAccounts‐ContinuedCashandcashequivalentsperbankatJune30,2012 $7,027,864Lessreconcilingitems‐‐outstandingchecks (156,979)
ReconciledcashinbankatJune30,2012 6,870,885
Cashinvault 14,921
TotalcashandcashequivalentsperStatementsofNetPosition $6,885,80616. RiskManagementTheLotteryisexposedtovariousrisksoflossrelatedtotorts;theftof,damageto,andthedestructionof assets; errors andomissions; injuries toemployees; andnaturaldisasters.TheLotterypurchasescommercialinsurancetocovertheserisks.Theamountofcoveragehasnotbeenexceededbyclaimsinthelastthreeyears.17. ShippingandHandlingCostsShipping and handling costs associated with inventory distribution are expensed asincurredandincludedingameexpenses.
40
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES–CONTINUED18. NetPositionNet position represents the difference between all other elements in a statement offinancial position and should be displayed in the applicable components of netinvestmentincapitalassets,restrictedandunrestricted.Net Investment in Capital Assets – consists of capital assets, net of accumulateddepreciation, reduced by outstanding balances of bonds, mortgages, notes, or otherborrowings that are attributable to the acquisition, constructions, or improvement ofthoseassets.Restricted–consists of restricted assets reduced by liabilities and deferred inflows ofresourcesrelatedtothoseassets.TheLotterydoesnothavearestrictedcomponentofnetposition.Unrestricted – consists of the net amount of assets, deferred outflows of resources,liabilities,anddeferredinflowsofresourcesthatarenotincludedinthedeterminationofnetinvestmentincapitalassetsortherestrictedcomponentofnetposition.19. UnclaimedPrizesThe Act requires that prizes not claimed within the time period established by theLottery are forfeited and shall be paid into the prize fund (unclaimed prize liabilityaccounts).Unclaimedprizesareappliedagainstprizeexpensetosupplementprizes intheLottery’sgames.20. UseofEstimatesinPreparationofFinancialStatementsThe preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimatesandassumptionsthataffectthereportedamountofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthe reported amounts of revenues and expenses during the reporting period. Actualresultscoulddifferfromthoseestimates.
41
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED21. CompensatedAbsencesPayableAnnualleaveandsickleaveareaccruedatratesspecifiedbytheLottery’sLeavePolicy.Annual leave is awarded based on the employee’s years of service, leave status, andemployment status (full‐time or part‐time) and sick leave is awarded at 3.7 hoursbiweekly for full‐timeemployees.Themaximumnumberofannual leavethat full‐timeemployeesmaycarryoverandretainintheirannualleavebankvariesfrom80hoursforan employeewith less than 5 years of service up to amaximum of 320 hours for anemployee with fifteen or more years of service. The maximum number of sick leavehours that a full‐time employeemay carry over fromyear‐to‐year is 480 hours. Part‐timeemployeesreceiveleaveandcarry‐overandretainleaveintheirleavebanksbasedon their percentage of employment.Upon separation from service, employeeswith atleast one year of service will be compensated for their annual leave balance, not toexceed themaximumannual leave bank based on their years of service. Accrued sickleavehourswillnotbepaid toanemployeeuponseparation fromservice.During theyears ended June 30, 2013 and 2012, the following changes occurred in thecompensatedabsencesliabilities:
BalanceJuly1,2012 Increase Decrease
BalanceJune30,2013
$212,919 $23,898 $(9,108) $227,709
BalanceJuly1,2011 Increase Decrease
BalanceJune30,2012
$193,831 $30,259 $(11,171) $212,919
ThebalancesofcompensatedabsencespayablearereportedontheStatementsofNetPosition in accounts payable and other current liabilities. The Lottery estimates allcompensatedabsencesareduewithinoneyear.
42
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEA‐SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES‐CONTINUED22. Long‐termLiabilities‐CapitalLeaseObligationsDuringtheyearsendedJune30,2013and2012,thefollowingchangesoccurredinthecapitalleaseobligations:
BalanceJuly1,2012 Increase Decrease
BalanceJune30,2013
AmountsDueWithinOneYear
$72,740 $29,975 $(11,269) $91,446 $14,064
BalanceJuly1,2011 Increase Decrease
BalanceJune30,2012
AmountsDueWithinOneYear
$27,509 $51,858 $(6,627) $72,740 $11,015
23. AccountsPayableandOtherCurrentLiabilitiesAccountspayableandothercurrentliabilitiesarecomprisedofthefollowingatJune30:
2013 2012
Accountspayable $1,478,280 $1,458,049 Accruedliabilities,vendors* 115,042 142,146 Accruedliabilities,retailers* 28,000 30,500 Accruedpayroll,andpayroll taxesandbenefits 128,873 111,714 Compensatedabsences 227,709 212,919 $1,977,904 $1,955,328*TheLotteryhasaccruedanestimatedamountofservicesdeliveredbyitsvendorsanddepositsforitsretailersasofJune30,2013and2012,respectively.
43
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS‐CONTINUED
June30,2013and2012NOTEB–CAPITALASSETSCapitalassetsatJune30,2013consistedof:
BeginningBalance
Reclass‐ification Increases Decreases
EndingBalance
Dataprocessingsoftware $2,418,935 $(7,407) $‐ $‐ $2,411,528
Dataprocessingequipment 852,857 (23,179) 850 ‐ 830,528
Equipment‐Securityand
disasterrecovery 639,604 (42,374) 38,577 ‐ 635,807
Vehicles 432,500 ‐ 193,006 (132,226) 493,280
Tenantimprovements 374,168 ‐ 51,682 ‐ 425,850
Furnitureandfixtures 233,172 (2,405) ‐ ‐ 230,767
Intellectualproperty ‐ ‐ 179,073 ‐ 179,073
Equipment‐communications 118,635 ‐ ‐ ‐ 118,635
Equipment‐drawing 116,478 ‐ ‐ ‐ 116,478
Equipment‐warehouse 71,174 ‐ ‐ ‐ 71,174
Equipment‐office 49,508 ‐ ‐ ‐ 49,508
Obsoletecapitalassets 901,871 75,365 ‐ (762,452) 214,784
Capitalassets 6,208,902 ‐ 463,188 (894,678) 5,777,412
Dataprocessingsoftware (2,418,935) 7,407 ‐ ‐ (2,411,528)
Dataprocessingequipment (738,476) 23,179 (38,232) ‐ (753,529)
Equipment‐Securityand
disasterrecovery (541,966) 42,374 (19,635) ‐ (519,227)
Vehicles (395,031) ‐ (54,585) 132,226 (317,390)
Tenantimprovements (325,141) ‐ (12,049) ‐ (337,190)
Furnitureandfixtures (233,172) 2,405 ‐ ‐ (230,767)
Intellectualproperty ‐ ‐ (12,350) ‐ (12,350)
Equipment‐communications (118,635) ‐ ‐ ‐ (118,635)
Equipment‐drawing (115,522) ‐ (956) ‐ (116,478)
Equipment‐warehouse (65,095) ‐ (1,586) ‐ (66,681)
Equipment‐office (49,508) ‐ ‐ ‐ (49,508)
Obsoletecapitalassets (901,871) (75,365) ‐ 762,452 (214,784)
Accumulateddepreciation (5,903,352) ‐ (139,393) 894,678 (5,148,067)
Capitalassets,net $305,550 $‐ $323,795 $‐ $629,345Included indataprocessingsoftware,dataprocessingequipment,andtenant improvementsare$116,143and$86,167inassetsreportedascapitalleasesatJune30,2013and2012,respectively.Foreachfiscalyear,therewere$11,269and$6,627,respectively,inrelatedamortizationontheseassets.
44
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS–CONTINUED
June30,2013and2012NOTEB–CAPITALASSETS‐CONTINUEDCapitalassetsatJune30,2012consistedof:
BeginningBalance
Reclass‐ification Increases Decreases
EndingBalance
Dataprocessingsoftware $2,503,323 $(84,388) $‐ $‐ $2,418,935
Dataprocessingequipment 1,281,648 (530,259) 101,468 ‐ 852,857
Equipment‐Securityand
disasterrecovery 572,479 (25,908) 94,170 (1,137) 639,604
Vehicles 432,500 ‐ ‐ ‐ 432,500
Tenantimprovements 339,670 (16,939) 51,437 ‐ 374,168
Furnitureandfixtures 233,172 ‐ ‐ ‐ 233,172
Intellectualproperty ‐ ‐ ‐ ‐ ‐
Equipment‐communications 116,260 2,375 ‐ ‐ 118,635
Equipment‐drawing 116,478 ‐ ‐ ‐ 116,478
Equipment‐warehouse 69,831 ‐ 6,343 (5,000) 71,174
Equipment‐office 50,837 (1,329) ‐ ‐ 49,508
Obsoletecapitalassets 780,733 656,448 ‐ (535,310) 901,871
Capitalassets 6,496,931 ‐ 253,418 (541,447) 6,208,902
Dataprocessingsoftware (2,485,425) 84,388 (17,898) ‐ (2,418,935)
Dataprocessingequipment (1,257,806) 530,259 (10,929) ‐ (738,476)
Equipment‐Securityand
disasterrecovery (566,399) 25,908 (2,612) 1,137 (541,966)
Vehicles (318,944) ‐ (76,087) ‐ (395,031)
Tenantimprovements (339,670) 16,939 (2,410) ‐ (325,141)
Furnitureandfixtures (233,172) ‐ ‐ ‐ (233,172)
Intellectualproperty ‐ ‐ ‐ ‐ ‐
Equipment‐communications (116,260) (2,375) ‐ ‐ (118,635)
Equipment‐drawing (109,789) ‐ (5,733) ‐ (115,522)
Equipment‐warehouse (69,831) ‐ (264) 5,000 (65,095)
Equipment‐office (50,837) 1,329 ‐ ‐ (49,508)
Obsoletecapitalassets (780,733) (656,448) ‐ 535,310 (901,871)
Accumulateddepreciation (6,328,866) ‐ (115,933) 541,447 (5,903,352)
Capitalassets,net $168,065 $‐ $137,485 $‐ $305,550
45
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS–CONTINUED
June30,2013and2012
NOTEC‐ALLOCATIONOFNETINCOME/TRANSFERSTOLOTTERYTUITIONFUND
NetIncome
DuetoLotteryTuitionFund
NetPosition
BalanceatJune30,
2012 $3,039,205 $3,039,205 $‐
Currentyearnet
income 43,684,681 43,684,681 ‐
Currentyear
transfers (43,220,512) (43,220,512) ‐
BalanceatJune30,
2013 $3,503,374 $3,503,374 $‐
InaccordancewiththeLotteryAct,nolaterthanthelastbusinessdayofeachmonth,theLotteryshalltransmitatleastthirtypercentofthegrossrevenueofthepreviousmonth,tothe New Mexico State Treasurer, who shall deposit it into state agency number 950,NewMexicoHigherEducationDepartment,theLotteryTuitionFund,SHAREfundnumber63700. As of July 31, 2013 and 2012, the Lottery has transferred $43,684,681 and$41,328,743,respectively,fortheyearsendedJune30,2013and2012totheNewMexicoStateTreasurer.
NOTED‐RETIREMENTPLAN
PlanDescription
All of the Lottery’s eligible employees participate in a plan provided by the LotterypursuanttotheNewMexicoLotteryAct(Chapter6,Article24NMSA1978).TheLotteryisthe administrator of the Plan,which is a defined contributionmoney purchase pensionplan. Employees become eligible to participate for the purposes of money purchasecontributionswhentheyhavecompletedsixmonthsofservice.Contributionsstartonthefirstdayofthequartercoincidingwithornextfollowingthedateinwhichtheemployeesatisfiedtheeligibilityrequirement. TheNewMexicoLotteryAuthorityRetirementPlanprovides for retirement benefits to planmembers and their beneficiaries. The balancesand activity of the Plan as of and for the years ended June 30, 2013 and 2012 arepresented in the Statements of Fiduciary Net Position and Statements of Changes inFiduciaryNetPosition.Thereareno separately issued financial statementsavailable fortheNewMexicoLotteryAuthorityRetirementPlan.
46
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS–CONTINUED
June30,2013and2012NOTED‐RETIREMENTPLAN‐CONTINUED
FundingPolicyThe Lottery contributes 13.25% of compensation for eligible employees to the Plan.Lottery contributions are 100% vested when deposited monthly. For the years endedJune30, 2013 and 2012, the Lottery recognized $344,578 and $335,375 of pensionexpenseforthePlanoneligiblecompensationof$2,600,589and$2,531,132,respectively.Therewere no forfeitures of employee balances for the years ended June 30, 2013 and2012, respectively. The entire pension amounts applicable to all compensation paidduringtherespectivefiscalyearshavebeenpaidtothePlanbyJune30,2013and2012,respectively. For the years ended June 30, 2013 and 2012, the Lottery recognized acontribution liability of $8,121 and $6,931, respectively, for contributions due oncompensationearned,butnotpaid,forthelastfewdaysofeachfiscalyear.
NOTEE‐CREDITAGREEMENT
In July 2012, the Lottery entered into an agreement with Wells Fargo Bank effectiveMay15,2012foranautomaticunsecuredoverdraftlineofcreditsweepintheamountof$4,000,000withavariable interestrate,whichwas3.25%asof June30,2013.This linematuredonMay14,2013andwasrenewedforanotheryearunderthesametermsandconditions.InJuly2005,theLotteryhadenteredanagreementwithFirstCommunityBank(USBank)effectiveMay15,2005 foranautomaticunsecuredoverdraft lineof credit sweep in theamountof$1,000,000withafixedinterestrateattheWallStreetJournalinterestrateless.500percentagepoints.ThislinematuredonMay14,2008,May14,2010,andfinallyonMay14,2012,withnofurtherextension.FortheyearsendedJune30,2013and2012,theLotteryhadnooutstandingborrowingsagainsteitherlineofcredit.
47
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS–CONTINUED
June30,2013and2012NOTEF‐LEASES
In1996 theLotteryentered intooperating leases for therentalofofficeandwarehousespace fora termof tenyears. InSeptember2002, theLottery renegotiated these leases.TheleaseswereextendeduntilMarch31,2013atthesameleaseamountsthatweretobepaidinthefinalyearoftheoriginalleasewithnofurtheryearlyescalationsofthemonthlyleaseamounts.In June 2012, the Lottery executed a new lease for its corporate office andwarehousespace. The new lease commenced on July 1, 2012 and cancelled the remaining ninemonths of the 2002 lease extension. The new lease is for ten years and ninemonths,endingonMarch31,2023. TheLotteryhas theoption to extend thenew lease for fiveadditionalyearsuntilMarch31,2028.Rentexpensewas$391,495and$465,653 for theyears ended June30,2013and2012,respectively.Futureminimumrentalpaymentsontheseleaseswithoriginaltermsofoneyearormorearescheduledasfollows:
Year
Amount
2014 $280,165 2015 280,165 2016 280,165 2017 280,165 2018 281,664 2019‐2023 1,359,282 $2,761,606
Following is a schedule of the composition of net rental expense for all long‐termoperatingleasesfortheyearsendedJune30:
2013 2012
Minimumrentals $ 368,813 $ 431,087
Less:Subleases ‐ ‐
$ 368,813 $ 431,087
48
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS–CONTINUED
June30,2013and2012NOTEF‐LEASES–CONTINUED
As part of the agreementwith INTRALOT, Inc., to provide an updated on‐line gamingsystem, the Lottery installed and implemented a new internal control system (ICS) infiscalyear2009.ThecostfortheICSisincludedinthefixedfeepaidtothevendorasapercentageofnetsales.TheLotteryhasaccountedforthistransactionasacapitallease.TheICScostwasprojectedoverthe initial termofthecontractofsevenyearsandhasbeen capitalized on the books of the Lottery at the present value of this cost, asdeterminedwithadiscountrateof4%.
YearsendingJune30:
2014 $8,2382015 8,2372016 3,432Totalminimumpayments 19,907
Lesstheamountrepresentinginterest (4,855)Presentvalueofnetminimumpayments $15,052
Aspartofthe2002leaseextensionwithNMLB,LLC,theLotteryreceived$50,000in2012tobeusedfortenantimprovementstothefacility.Inaddition,aspartofthe2012lease,the Lottery received $1,858 in 2012 and $29,975 in fiscal year 2013 for tenantimprovements to the facility. The Lottery has recorded the $81,833 as tenantimprovementswitharelateddeferred liability tobeamortizedover the lifeof the leaseusingthestraight‐linemethod.
YearsendingJune30: 2014 $7,835 2015 7,836 2016 7,835 2017 7,835 2018 7,835 2019‐2023 37,218 Totalminimumpayments $76,394
49
NewMexicoLotteryAuthority
NOTESTOFINANCIALSTATEMENTS–CONTINUED
June30,2013and2012NOTEG‐COMMITMENT
EffectiveonNovember15,2007,theLotteryenteredintoanagreementwithINTRALOT,Inc.,aGeorgia‐basedcompany,toprovideanupdatedon‐linegamingsystemforatotalofseven years with the option of three additional one year periods or any combinationthereof.Thesystemincludesthesupply,installation,maintenance,service,andoperationofacommunicationnetwork,lotteryterminalsandperipheralequipmentfortheLottery’sexisting and future retailers, ticket scanners to enable players to check their tickets forprizes, self service ticket vending machines that sell both instant and drawing gametickets, a disaster recovery and business continuity facility, and various employees tooperatethesystemandprovidesalesandmarketingsupporttotheLottery.Thetransitiontothisnewon‐linegamingsystemtookplaceonNovember16,2008.SinceNovember21,2008,theon‐linevendorfeehasbeenfixedat1.5%ofnetsales,plustheapplicablegrossreceiptstax.
NOTEH‐OTHEREXPENSES
OtherexpensesatJune30consistedof:
2013 2012
Registrationsandmemberships $30,044 $25,712
Training 20,250 15,982Other 17,404 10,723Publicationsandsubscriptions 3,942 3,310
$71,640 $55,727
50
NewMexicoLotteryAuthority
BUDGETARYCOMPARISONSTATEMENTS
YearsendedJune30,2013and20122013 2012
Original Final Variance with Original Final Variance with
Budget Budget Actual Final Budget Budget Budget Actual Final Budget
Operating revenues
Instant ticket sales $ 71,100,000 $ 70,000,000 $ 72,397,663 $ 2,397,663 $ 80,000,000 $ 72,000,000 $ 71,632,710 $ (367,290)
Powerball sales 36,000,000 41,000,000 46,767,095 5,767,095 27,000,000 34,000,000 33,795,664 (204,336)
Mega Millions sales 12,000,000 7,700,000 8,088,972 388,972 9,500,000 14,000,000 14,330,230 330,230
Roadrunner Cash sales 8,000,000 6,800,000 6,784,566 (15,434) 10,000,000 7,800,000 7,520,021 (279,979)
Hot Lotto sales 5,000,000 5,600,000 5,996,195 396,195 8,000,000 5,600,000 5,438,475 (161,525)
Pick 3 sales 3,700,000 3,400,000 3,496,279 96,279 3,600,000 3,700,000 3,638,558 (61,442)
Quickster sales 2,500,000 800,000 867,111 67,111 1,900,000 300,000 453,448 153,448
Less tickets provided as prizes (3,000,000) (2,500,000) (2,479,354) 20,646 (3,400,000) (3,100,000) (2,890,810) 209,190
Less spoiled, stolen,
and promotional tickets (287,000) (197,000) (160,005) 36,995 (187,000) (147,000) (130,944) 16,056
Net ticket sales 135,013,000 132,603,000 141,758,522 9,155,522 136,413,000 134,153,000 133,787,352 (365,648)
Retailer fees 11,000 21,000 20,575 (425) 11,000 14,000 16,250 2,250
Bad debts (24,000) (24,000) (12,000) 12,000 (24,000) (24,000) (12,000) 12,000
Total operating revenues 135,000,000 132,600,000 141,767,097 9,167,097 136,400,000 134,143,000 133,791,602 (351,398)
Total game expenses 88,742,000 87,350,000 93,049,385 5,699,385 89,964,000 88,173,000 87,380,548 (792,452)
Total operating expenses 5,763,000 5,339,000 5,080,047 (258,953) 5,456,000 5,368,000 5,146,244 (221,756)
Operating income 40,495,000 39,911,000 43,637,665 3,726,665 40,980,000 40,602,000 41,264,810 662,810
Total non-operating income 18,000 24,000 47,016 23,016 80,000 42,000 63,933 21,933
Net income before transfers
to Lottery Tuition Fund $ 40,513,000 $ 39,935,000 $ 43,684,681 $ 3,749,681 $ 41,060,000 $ 40,644,000 $ 41,328,743 $ 684,743
51
NewMexicoLotteryAuthority
SCHEDULESOFPERCENTAGERETURNTOTHESTATEOFNEWMEXICO
YearsendedJune30,2013and2012
2013 2012 OPERATING REVENUES
Instant ticket sales $ 72,397,663 $ 71,632,710 Powerball sales 46,767,095 33,795,664 Mega Millions sales 8,088,972 14,330,230 Roadrunner Cash sales 6,784,566 7,520,021 Hot Lotto sales 5,996,195 5,438,475 Pick 3 sales 3,496,279 3,638,558 Quickster sales 867,111 453,448 Less tickets provided as prizes (2,479,354) (2,890,810) Less spoiled, stolen, and promotional tickets (160,005) (130,944)
Net ticket sales 141,758,522 133,787,352
Retailer fees 20,575 16,250 Bad debts (12,000) (12,000)
Total operating revenues 141,767,097 133,791,602
NON-OPERATING INCOME Other income 25,692 45,464 Interest income 21,324 18,469
Total non-operating income 47,016 63,933
GROSS REVENUES 141,814,113 133,855,535
GAME EXPENSES Prize expense 77,068,558 72,027,308 Retailer commissions 9,153,204 8,696,851 On-line vendor fees 2,269,623 2,139,754 Advertising 2,263,221 2,277,892 Ticket vendor fees 1,158,028 1,177,708 Promotions 437,704 381,179 Shipping and postage 428,532 410,422 Drawing game 116,081 116,532 Responsible gaming 87,400 87,400 Game membership 67,034 65,502
Total game expenses 93,049,385 87,380,548
OPERATING EXPENSES Salaries, wages, and benefits 3,614,032 3,583,778 Leases and insurance 514,990 585,629 Utilities and maintenance 439,041 431,189 Depreciation and amortization 139,393 115,933 Materials and supplies 125,050 153,867 Professional fees 112,893 150,651 Other 71,640 55,727 Travel 63,008 69,470
Total operating expenses 5,080,047 5,146,244
OPERATING INCOME 43,637,665 41,264,810
NET INCOME $ 43,684,681 $ 41,328,743
GROSS REVENUE PERCENTAGE RETURN 30.80% 30.88%
52
NewMexicoLotteryAuthority
EXITCONFERENCE
FortheYearEndedJune30,2013Anexitconferencewasheldat theNewMexicoLotteryAuthorityonOctober14,2013.Thefollowingindividualsparticipated:
Name TitleNewMexicoLotteryAuthorityFinance/AuditCommitteeDanSalzwedelMarkKosonNewMexicoLotteryAuthorityEmployeesTomRomeroSylviaAnnJaramillo,CPADavidRamirezMichaelBoland,CPA
BoardChairBoardVice‐ChairChiefExecutiveOfficerDirectorofFinanceDirectorofMISInternalAuditor
MossAdamsLLPScottEliason,CPACorrineZajac‐ClarksonJaimeRumbaoa
AuditPartnerAuditin‐chargeITSeniorManager
FinancialStatementPreparationTheNewMexicoLotteryAuthority’sfinancialstatements,notes,andmanagement’sdiscussionandanalysishavebeenpreparedbytheNewMexicoLotteryAuthority’saccountants.