C E RT I F I E D P U B L I C A C C O U N TA N T S

ARIZONA STATE LOTTERY

A Component Unit of the State of Arizona
FINANCIAL STATEMENTS
Year Ended June 30, 2011

ARIZONA STATE LOTTERY

TABLE OF CONTENTS

Page

Letter of Transmittal

i

Independent Auditors' Report

1

Management’s Discussion and Analysis

3

Statement of Net Assets

9

Statement of Revenues, Expenses and Changes in Net Assets

10

Statement of Cash Flows

11

Notes to Financial Statements

12

Supplemental Information
Supplementary Schedule of Gross Profit by Game

21

Report on Internal Control over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards
27

INDEPENDENT AUDITORS' REPORT

To the Commissioners of
Arizona State Lottery
Phoenix, Arizona

We have audited the accompanying financial statements of the The Arizona State Lottery (the
“Lottery”) of State of Arizona, as of and for the year ended June 30, 2011 (with comparative
totals as of June 30, 2010) as listed in the table of contents. These financial statements are the
responsibility of the Lottery’s management.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements present only the Lottery and do not purport to,
and do not, present fairly the financial position of the State of Arizona, as of June 30, 2011, and
the changes in its financial position, or, where applicable, its cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States of America.
In our opinion, such financial statements present fairly, in all material respects, the financial
position of the Lottery of State of Arizona as of June 30, 2011, and the changes in financial
position and cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying transmittal letter is not part of the required basic financial statements. Such
information is the responsibility of the Lottery’s management. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the methods of
measurement and presentation of the transmittal letter. However, we did not audit the
information and we do not express an opinion on it.

Tempe
2055 E. Warner Road
Suite 101
Tempe, AZ 85284-3487
(480) 839-4900
Fax (480) 839-1749

Scottsdale
7098 E. Cochise Road
Suite 100
Scottsdale, AZ 85253-4517
(480) 483-1170
Fax (480) 483-7126

Casa Grande
1115 E. Cottonwood Lane
Suite 100
Casa Grande, AZ 85122-2950
(520) 836-8201
Fax (520) 426-9432

w w w . h e n r y a n d h o r n e . c o m

The accompanying required supplementary information, management’s discussion and
analysis, is presented on pages 3 through 7 and is not a required part of the basic financial
statements, but is supplementary accounting information required by the Governmental
Accounting Standards Board. This supplementary information is the responsibility of the
Lottery’s management. We have applied certain limited procedures, which consisted principally
of inquiries of management regarding the methods of measurement and presentation of the
required supplementary information. However, we did not audit the information and we do not
express an opinion on it.
Our audit was conducted for the purpose of forming an opinion on the Lottery’s basic financial
statements. The accompanying supplemental schedule of Gross Profit by Game is presented
for purposes of additional analysis and is not a required part of the basic financial statements.
This supplemental schedule is the responsibility of the Lottery’s management. Such information
has been subjected to the auditing procedures applied by us in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
In accordance with Government Auditing Standards, we have also issued our report dated
November 16, 2011, on our consideration of the Lottery’s internal control over financial reporting
and our tests of its compliance and other matters. The purpose of that report is to describe the
scope of our testing, and not to provide an opinion on the internal control over financial reporting
or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards and should be read in conjunction with this report in
considering the results of our audit.

Casa Grande, Arizona
November 16, 2011

ARIZONA STATE LOTTERY,
A COMPONENT UNIT OF THE STATE OF ARIZONA
PROPRIETARY FUND — ENTERPRISE FUND
MANAGEMENT’S DISCUSSION AND ANALYSIS
AS OF AND FOR THE YEAR ENDED JUNE 30, 2011

This discussion and analysis of the Lottery’s financial statements is a required component of
financial reporting under Government Accounting Standards and was prepared by Arizona
Lottery Management. It provides an overview of financial activities as of and for the year ended
June 30, 2011, and should be read in conjunction with the Lottery’s financial statements and
notes to the financial statements.
This annual report consists of three types of financial statements and accompanying notes that
provide explanations and details of accounting policies, account balances and activities.
Account balances and activities are shown as of and for the year ended June 30, 2011, with
comparative totals for June 30, 2010. The statement of net assets; the statement of revenues,
expenses, and changes in Fund net assets; and the notes are presented using the accrual
method of accounting. Under this method, financial transactions are recorded when earned or
incurred regardless of when cash is received or disbursed. The statement of cash flows reflects
cash receipts and disbursements during the same 12-month periods.
The statement of net assets provides information about the assets and liabilities of the Lottery.
Assets consist of cash, substantially all held by the State Treasurer, amounts owed to the
Lottery from licensed Lottery retailers and other State agencies, ticket inventory, and property.
Liabilities represent amounts owed by the Lottery to vendors, to employees for wages and
benefits, to prize winners, and to other State funds. Fund net assets represent the portion of the
Lottery’s assets that are not encumbered by liabilities. It serves as an indicator of the net worth
of the Lottery.
A summary of the financial results of operations for the 12-month periods is presented in the
statement of revenues, expenses, and changes in net assets. Operating revenues include sales
of Lottery tickets, retailer licensing fees, and commissions earned on the sales of Lottery tickets
at Lottery offices, and special events. Direct costs and administrative expenses comprise the
operating expenses section of this statement. Direct costs are variable expenses that fluctuate
with the level of sales. Marketing and overhead costs are included in the administrative
expenses category.
Nonoperating revenues consist of interest earned on prize fund cash investments from the State
Treasurer, interest credited to the Lottery’s Multistate Lottery Association (MUSL) unreserved
account for interest earned on prize reserves at MUSL and income recognized from common
stock. The transfers category includes transfers to other state funds as required by Lottery
statutes.
The statement of cash flows includes cash receipts and disbursements from operating,
noncapital financing, and investment earnings. This statement also includes a reconciliation of
operating income presented on the accrual basis of accounting to net cash provided by
operating activities.

3

The notes to the financial statements present information on accounting policies, transfers and
statutory requirements, commitments, contingencies, and retirement benefits. These notes are
an integral part of the financial statements.
Sales Activities
Revenues from the sale of Lottery products for the fiscal year ended June 30, 2011 were higher
than Fiscal Year 2010. As shown in the financial statements, sales increased 5.8% from the
prior year, from $551.5 million in Fiscal Year 2010 to $583.5 million in the current year. The
increases in ScratchersSM, Arizona Raffle™ and a full year of Mega Millions ® sales more than
offset the decrease in The Pick, Pick 3™, Powerball®, Pick 5™, Cash 4, 2 by 2 and Fast Play™
sales. The Lottery also introduced Instant Tab tickets sold by charitable organizations that
produced $1.0 million in revenue.
The following table compares Lottery product sales between fiscal years. Sales are presented in
millions of dollars.
Product Sales
Scratchers
(including
development)
Instant Tabs
Powerball
Mega Millions
The Pick
Fantasy 5
Arizona Raffle
Pick 3
Cash 4
2 by 2
Fast Play
Total

FY 2011

FY 2010

Difference Percentage

$373.5
1.0
89.1
47.3
34.6
15.6
6.0
8.3
3.0
3.9
1.2

$336.9
0
118.8
6.8
44.4
16.5
5.3
8.6
5.4
6.5
2.3

$36.6
1.0
-29.7
40.5
-9.8
-0.9
0.7
-0.3
-2.4
-2.6
-1.1

10.8%
-25.0%
597.3%
-21.9%
-5.7%
13.1%
-8.5%
-44.1%
-40.5%
-47.5%

$583.5

$551.5

$32.0

5.8%

economic

Total Revenues
Nonoperating revenues for the year ended June 30, 2011, were $143,153 as compared to
$1,734,523 for the year ended June 30, 2010. Nonoperating revenue is comprised of interest
earned on invested cash, periodic recognition of commissions earned by the Lottery and income
from common stock.
Total revenues were $583.8 million for the year ended June 30, 2011, as compared to $551.8
million for the year ended June 30, 2010. As mentioned above, most of the increase was due to
an increase in sales revenues.

4

Major Expenses
$416.5 million of the Lottery’s total operating expenses of $439.1 million for the year ended
June 30, 2011 were incurred in direct support of the sales of Lottery games. These expenses
include prize expense, retailer commissions and incentives, purchases of Scratchers tickets,
compensation to the vendor for Scratchers ticket distribution, and compensation to the vendor
who maintains and supports the on-line gaming system.
In comparison, $387.6 million of the Lottery’s total operating expenses of $410.1 million for the
year ended June 30, 2010, were game-related expenses.
The following table compares the game-related expenses between fiscal years. All expenses
are presented in millions of dollars.
Game Related Expenses

FY 2011

FY 2010

Difference Percentage

Prize Expense
$360.5
Retailer Commissions
39.2
On-line System Expenses
7.8
Scratchers System and Distribution
Expenses
3.5
Tickets Purchased
5.5

$333.1
37.0
8.0

$27.4
2.2
-0.2

17.9%
13.8%
2.6%

4.0
5.5

-0.5
0

-13.0%
0%

Total

$387.6

$-2.0

16.1%

$416.5

The increase in prize expense and retailer commissions is reflective of the increase in product
sales. See the product sales schedule above. The decrease in tickets purchased is mostly
related to the inventory write-off that was included in last year’s results.
The pricing in the Lottery’s new contract with an outside vendor for scratch ticket system and
distribution expenses resulted in decreased costs of approximately $500 thousand over last
fiscal year.
Of the $22.5 million in Fiscal Year 2011 in other operating expenses, $14.9 million was used for
advertising and promotion and $5.7 million was used to compensate Lottery employees. In
comparison, of the $22.5 million in Fiscal Year 2010 other operating expenses, $14.5 million
was used for advertising and promotion and $6.1 million was used to compensate Lottery
employees.
Transfers to Other State Funds
Note 2 to the financial statements details the amounts transferred to other State Funds. In Fiscal
Year 2011 the Lottery transferred $146.3 million to other State Funds. In comparison, in Fiscal
Year 2010 the Lottery transferred $141.9 million to other State Funds.

5

Other Financial Information
Statement of Net Assets

FY 2011

FY 2010

Current Assets
Capital Assets
Other Assets — Deposits

$55.9
3.3
9.0

$47.2
3.5
9.7

Total Assets

68.2

60.4

Current Liabilities

57.7

48.4

Net Assets

$10.5

$12.0

The Lottery’s total assets at June 30, 2011 were $68.2 million. Assets consisted of cash held
substantially by the State Treasurer of $43.8 million, receivables from Lottery retailers for the
sale of Lottery products of $8.0 million, Scratchers ticket inventory of $4.1 million, net
investment in fixed assets of $3.3 million and a deposit with MUSL of $9.0 million.
Comparable figures at June 30, 2010, were $60.4 million in total assets, including $36.2 million
in cash held by the State Treasurer, $7.1 million in receivables from retailers, $3.9 million in
Scratchers ticket inventory, net investment in fixed assets of $3.5 million, a MUSL deposit of
$8.2 million and investment in common stock of $1.5 million.
Total liabilities at June 30, 2011, were $57.7 million, consisting of $3.4 million in accounts
payable and accrued expenses, prize liabilities of $29.2 million, and amounts due to other State
Funds of $25.1 million. All of the Lottery’s liabilities were current liabilities.
The Lottery’s total liabilities at June 30, 2010, were $48.4 million, which consisted of $4.7 million
of accounts payable and accrued expenses, prize liabilities of $26.6 million, and amounts due to
other State Funds of $17.1 million. All liabilities were current liabilities.
Total net assets at June 30, 2011, were $10.5 million, which is $1.5 million less than the amount
of total net assets at June 30, 2010. $7.3 million of the Lottery’s total net assets are unrestricted.
In the sixth special session of the State Legislature in 2010, amendments were made to the
Lottery statutes allowing the State to issue Lottery Revenue Bonds. These bonds provide
additional working capital to pay appropriated expenditures of the State’s General Fund. The
bonds are payable solely from and secured by pledged revenues consisting of, until July 1,
2012, amounts distributable to the State General Fund from the Lottery pursuant to Lottery law,
and from and after July 1, 2012 all Lottery revenues deposited to the Lottery fund net of Lottery
operating expenses. (See note 3 to the financial statements.)
BUDGETARY HIGHLIGHTS
The Lottery’s budget is set by the legislative appropriations process on a biennial basis. The
budgets for Fiscal Years 2011 and 2012 were set in the regular legislative session of 2010. The
Lottery’s Fiscal Year 2011 budget was amended in the regular legislative session of 2011. The
Lottery’s appropriation for sales-related expenditures is based on approved percentages of
projected revenues and is allowed to increase for these items without a supplemental
appropriations request if actual revenues exceed projected revenues. The appropriation does
not include an amount for prizes because Lottery statutes set this amount at “not less than 50%
of the total annual revenues accruing from the sale of Lottery tickets or shares.”

6

7

8

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
STATEMENT OF NET ASSETS
June 30, 2011
(with comparative totals for June 30, 2010)
2011
ASSETS
CURRENT ASSETS
Cash - substantially all held by the State Treasurer
Accounts receivable - net of allowance for doubtful
accounts of $145,000 as of June 30, 2011 and 2010
Scratch ticket inventory
Pull tab inventory

$

$

36,193,820

8,018,310
3,942,775
131,120

7,090,214
3,927,375
-

55,935,299

47,211,409

1,268,695
3,648,272
2,361,824
76,348
(4,100,729)

1,268,695
3,648,272
2,271,713
83,580
(3,793,332)

3,254,410

3,478,928

9,048,732

1,528,410
8,203,374

TOTAL OTHER ASSETS

9,048,732

9,731,784

TOTAL ASSETS

68,238,441

60,422,121

2,774,277
674,168
29,217,211
25,056,404

4,363,723
328,970
26,648,369
17,071,082

57,722,060

48,412,144

3,254,410
7,261,971

3,478,928
8,531,049

TOTAL CURRENT ASSETS
CAPITAL ASSETS
Land and land improvements
Buildings
Furniture, fixtures and equipment
Construction in progress
Less accumulated depreciation
TOTAL CAPITAL ASSETS
OTHER ASSETS
Investments
Deposit - MUSL

LIABILITIES
CURRENT LIABILITIES
Accounts payable
Accrued expenses
Prize liability
Due to other state funds
TOTAL CURRENT LIABILITIES
NET ASSETS
Invested in capital assets
Unrestricted
TOTAL NET ASSETS

See accompanying notes.

43,843,094

2010

$

10,516,381

$

12,009,977

9

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
Year Ended June 30, 2011
(with comparative totals for the year ended June 30, 2010)
2011
OPERATING REVENUES
Ticket sales:
Scratchers
Powerball
The Pick
Fantasy 5
Pick 3
Mega Millions
2 By 2
Cash 4
Arizona Raffle
Economic development
Instant tab
Fast Play

$

TOTAL TICKET SALES

361,097,419
89,101,991
34,623,614
15,597,083
8,343,169
47,317,197
3,849,966
3,031,492
6,000,000
12,354,770
1,011,642
1,209,150

2010

$

313,175,361
118,802,400
44,354,631
16,541,074
8,563,207
6,785,931
6,466,860
5,425,860
5,307,060
23,766,275
2,303,042

583,537,493

551,491,701

224,147

321,640

583,761,640

551,813,341

360,491,232
39,247,401
7,735,726
3,529,021
5,514,726

333,105,221
36,995,955
7,991,552
3,974,913
5,545,973

416,518,106

387,613,614

14,859,476
5,735,458
365,916
307,397
1,282,770

14,454,016
6,077,733
422,473
352,766
1,149,630

439,069,123

410,070,232

144,692,517

141,743,109

143,153

1,734,523

INCOME BEFORE TRANSFERS

144,835,670

143,477,632

TRANSFERS TO OTHER STATE FUNDS

146,329,266

141,858,578

Other operating revenues
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Direct costs:
Prize expense
Retailer commissions and incentives
Online system expense
Scratcher system and distribution expenses
Tickets purchased
TOTAL DIRECT COSTS
Advertising and promotion
Wages and related expenses
Contract services
Depreciation
Administrative expenses
TOTAL OPERATING EXPENSES
OPERATING INCOME
NONOPERATING REVENUES - Investment income and other

CHANGE IN NET ASSETS
NET ASSETS - BEGINNING OF YEAR
NET ASSETS - END OF YEAR

See accompanying notes.

$

(1,493,596)

1,619,054

12,009,977

10,390,923

10,516,381

$

12,009,977

10

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
STATEMENT OF CASH FLOWS
Year Ended June 30, 2011
(with comparative totals for the year ended June 30, 2010)
2011
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from retailers-net of commissions and incentives $ 273,904,802
Cash received from other sources
62,416,807
Cash payments for prizes and related taxes
(151,598,498)
Cash payments to suppliers of goods or services
(34,520,303)
Cash payments to employees
(5,757,723)
NET CASH PROVIDED
BY OPERATING ACTIVITIES
CASH FLOWS USED BY NONCAPITAL FINANCING ACTIVITIES
Payments to beneficiaries per Arizona Statutes
CASH FLOWS USED BY CAPITAL FINANCING ACTIVITIES
Payments for acquisition of capital assets
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments
Receipts of interest
NET INCREASE IN CASH
CASH AT BEGINNING OF YEAR
CASH AT END OF YEAR

RECONCILIATION OF OPERATING INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Operating income

See accompanying notes.

$

263,951,121
10,691,153
(99,789,628)
(34,831,299)
(6,024,094)

144,445,085

133,997,253

(138,343,942)

(133,432,900)

(50,879)

(43,809)

1,528,410
70,600

135,457

7,649,274

656,001

36,193,820

35,537,819

$

43,843,094

$

36,193,820

$

144,692,517

$

141,743,109

Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation
(Increase) decrease in:
Accounts receivable
Ticket inventory
Deposit - MUSL
Increase (decrease) in:
Accounts payable and accrued expenses
Prizes payable
NET CASH PROVIDED BY
OPERATING ACTIVITIES

2010

307,397

$

352,766

(855,542)
(146,520)
(845,357)

(1,236,354)
(1,559,642)
126,202

(1,276,252)
2,568,842

(147,000)
(5,281,828)

144,445,085

$

133,997,253

11

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

The Arizona State Lottery (the “Lottery”) was created by enactment of Title 5, Chapter 5 to the
Arizona Revised Statutes (ARS), which was an initiative measure approved by the voters of the
State of Arizona (the “State”) in 1980. The Lottery commenced operations in 1981. The Lottery
is a component unit of the State. The accompanying financial statements present information as
to the transactions of the Lottery.
The financial statements include prior-year comparative information, but the notes to the
financial statements omit prior-year information required for a presentation in conformity with
accounting principles generally accepted in the United States of America. Accordingly, such
prior-year information should be read in conjunction with the Lottery’s financial statements for
the year ended June 30, 2010, from which the information was derived.
For the period July 1, 2010 through June 30, 2011, the Lottery held 142 instant games (games
453, 619, 623, 626, 628-629, 634, 636, 638-641, 645, 647-652, 654-665, 667-765, 767, 769774, 780, 781, 787, 790, and 791), four of which were Economic Development games (games
636, 662, 707 and 724). During 2011, the Lottery continued the “Pick 3,” “Pick 5,” “The Pick,”
“Powerball,” “Fast Play,” “Mega Millions,” “2 By 2” and “Cash 4” online games, continued the
“Arizona Raffle” game, which was held one time in the fiscal year. As required, the Lottery has
deposits with “Powerball,” and “Mega Millions,” multistate online lottery games, of $9,048,732 at
June 30, 2011. The Lottery also sold instant tab lottery tickets to non-profit organizations.
These games are printed and sold by the Lottery, though are administered and paid out by the
purchasing non-profit organizations.
The Lottery prepares its financial statements in accordance with accounting principles generally
accepted in the United States of America.
State Lottery Fund
The State Lottery Fund (the “Fund”), which is a component unit of the State, accounts for
revenues received from the sale of lottery tickets and the receipt of license fees. The Fund is
operated in a manner similar to a private business enterprise where the governing body has
decided that periodic determination of revenues earned, expenses incurred, and net income is
appropriate for capital maintenance, management control, accountability or other purposes.
Activities accounted for in the proprietary fund follow all applicable Governmental Accounting
Standards Board pronouncements, as well as applicable Financial Accounting Standards Board
pronouncements issued on or before November 30, 1989. The Fund accounts for prize
payments, operational expenses, including consulting, promotional, and advertising expenses,
and transfers of monies to other State funds. Receipts from each type of lottery game are to be
allocated as follows:
•

Not less than 50% of the total annual revenue from Lottery ticket sales is apportioned for
the payment of prizes to the holders of winning tickets for the period July 1, 2010 to June
30, 2011.

12

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)

State Lottery Fund (Continued)
•

Not more than 18.5% is apportioned for payment of Lottery operating expenditures.
Legislation enacted in 2008 set this limit and also removed a 4% cap on advertising
expenditures.

In addition, State statute requires that 30% of all unclaimed prizes be transferred to the CourtAppointed Special Advocate Account, a fund within the State’s General Fund.
Cash
Substantially all the Lottery’s cash is held by the State Treasurer for pooled investment
purposes. Statutes require the State Treasurer to invest these pooled funds in obligations of the
U.S. government and are recorded at fair value.
Accounts Receivable
Retailers are billed weekly for tickets sold. Payments from retailers are mainly received through
electronic withdrawals from retailer accounts one week after the amounts are billed. Accounts
receivable represents amounts that have been billed but not yet collected. An allowance for
doubtful accounts is recorded in the amount of any balances that are not paid by retailers,
generally one week after amounts are billed.
Ticket Inventory
Ticket inventory is stated at cost, which represents the amount incurred by the Lottery for
purchasing the tickets.
Property and Equipment
Property and equipment of the Fund, which consists principally of buildings, land, land
improvements, and office furniture and equipment are stated at historical cost.
The costs of normal maintenance and repairs that do not add to the value of the asset or
materially extend assets’ lives are not capitalized. Expenditures for normal repairs and
maintenance are charged to operations as incurred, whereas expenditures for major renewals,
replacements, and betterments are capitalized and depreciated. Depreciation is provided for as
follows:
Estimated
Method
Useful Life
Buildings
Straight-line
40 years
Land improvements
Straight-line
20 years
Furniture, fixtures, and computer equipment
Straight-line
5–7 years

13

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)

Investments and Investment Income
Investments are reported at fair value on the Statement of Net Assets as determined by quoted
market prices with any realized or unrealized gains and losses reported in the Statement of
Revenues, Expenses and Changes in Net Assets.
Investment income from all investments is recognized by the Lottery in the period it is earned
and gains and losses are recognized as revenue in the period in which they occur. Investment
income also includes earnings on invested cash held by the State Treasurer and invested prize
reserves held by the Multistate Lottery Association (MUSL).
Ticket Sales and Revenue Recognition
Revenue is recognized and the related direct expenses of ticket sales, including prize expense,
are accrued based upon the known relationship of the amount of ticket sales to the amount of
prizes for each game. This method of measuring revenue is necessary in order to properly
match revenues and expenses.
Compensated Absences
Vacation leave vests with the employee as it is earned. Employees may carry forward only the
amount of vacation benefits equal to the maximum allowable accumulated credits for the
preceding calendar year. Accordingly, at June 30, 2011, the Fund’s accounts payable and
accrued expenses balance includes an accrual of vacation pay and related benefits of
$311,218. Upon termination or retirement, an employee will be compensated for accumulated
leave up to a maximum of 240 hours, dependent upon accumulated time and the individual’s
benefits associated with their rank as defined by State personnel rule #R2-5-403. Payment will
be based on the individual’s rate of pay at termination or retirement. Upon death, the same
benefits shall be paid to the employee’s beneficiary.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.

14

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 2

CASH AND INVESTMENTS HELD BY THE STATE TREASURER

All cash is deposited or invested with the Arizona State Treasurer (Treasurer). The Treasurer is
part of the State’s financial reporting entity and issues a separately published Annual Financial
Report. A copy of the Treasurer’s Annual Financial Report can be obtained from its Web site at
www.aztreasury.gov or by contacting the Treasurer’s Office at 1700 West Washington St., 1st
Floor, Phoenix, AZ, 85007-2812.
A.R.S. requires state agencies’ monies to be deposited with the Treasurer, and further requires
those deposits to be invested in various pooled funds. Cash and investments held by the
Treasurer represent the Board’s portion of those monies. The Treasurer invests idle monies of
the state agencies in an internal investment pool (Pool 3) and distributes interest to the
participants. Interest earned from these invested monies is allocated monthly based on the
average daily balance. Participant shares in the pool are purchased and sold based on the net
asset value of the shares, and a participant’s portion of the pool is not identified with specific
investments. Accordingly, the Board’s portion of these deposits and investments approximates
the Board’s value of pool shares.
The Treasurer’s internal investment Pool 3 is not required to be registered (and is not
registered) with the Securities and Exchange Commission under the Investment Company Act
of 1940. In accordance with A.R.S. §35-311, the State Board of Investments reviews the
activities and performance of the pool monthly.
At June 30, 2011, the Lottery’s deposits with the Treasurer were as follows:

Cash
Investment-Pool 3

NOTE 3

$ 30,769,123
13,073,971
$ 43,843,094

TRANSFERS AND STATUTORY REQUIREMENTS

As required by ARS Section 5-505, the Lottery made transfers during the year ended June 30,
2011, as follows:

Commerce Authority Arizona Competes Fund
Court-appointed special advocate fund
Department of gaming
Economic Security Homeless Services
Heritage fund
General Fund
Healthy Arizona fund
University Bond Fund

$

3,203,600
2,381,451
300,000
1,000,000
10,000,000
104,668,300
18,812,000
5,963,915

Total transfers to other State funds

$ 146,329,266

These transactions met the minimum percentage requirements imposed upon the Lottery by
statute.

15

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 4

PLEDGED REVENUES (GASB 48)

The Lottery has pledged portions of its gross revenues towards the payment of debt service on
the State Lottery Revenue Bonds Series 2010A issued by the State. These bonds provide
additional working capital to the State to pay appropriated expenditures of the State’s General
Fund. The bonds are payable solely from and secured by pledged revenues consisting of, until
July 1, 2012, amounts distributable to the State General Fund from the Lottery pursuant to
Lottery law, and from and after July 1, 2012, all Lottery revenues deposited to the Lottery Fund
net of operating expenses of the Lottery. At June 30, 2011, pledged revenues totaled
approximately $96,200,000, of which $21,630,000 was required to be transferred to cover debt
service. Future pledged revenues required to be transferred to pay all remaining debt service
for the bonds through final maturity of July 1, 2029 is approximately $656,000,000.

NOTE 5

CAPITAL ASSETS

Capital asset activity for the year ended June 30, 2011 is as follows:
Beginning
Balance
Capital assets:
Land
Land improvements
Buildings
Furniture, fixtures and
equipment
Construction in progress
Total capital assets
Less accumulated
depreciation for:
Land improvements
Buildings
Furniture, fixtures and
equipment
Total accumulated
depreciation
Total capital assets, net

$

937,830
330,865
3,648,272

Increases
$

-

Ending
Balance

Decreases Transfers
$

-

$

-

$

937,830
330,865
3,648,272

2,271,713
83,580

50,879
32,000

-

39,232
(39,232)

2,361,824
76,348

7,272,260

82,879

-

-

7,355,139

(330,865)
(1,705,693)

(86,983)

-

-

(330,865)
(1,792,676)

(1,756,775)

(220,413)

-

-

(1,977,188)

(3,793,333)

(307,396)

-

-

(4,100,729)

$ 3,478,927

$ (224,517)

$

-

$

-

$ 3,254,410

16

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 6

INVESTMENTS

During the year ended June 30, 2010, the Lottery was notified that they owned common stock in
publicly traded companies with a fair value of $1,528,410. These stocks were issued to the
Lottery as incentives for purchasing annuity contracts for prize payouts. The Lottery liquidated
these investments during the year ended June 30, 2011.

NOTE 7

PRIZE LIABILITY

Prize liability activity for the year ended June 30, 2010, was as follows:

Beginning
Balance
Prize liability

NOTE 8

$

26,648,369

Increases

Decreases

$ 363,004,319

$ (360,435,477)

Ending
Balance
$

29,217,211

COMMITMENTS

The Lottery enters into various contracts for goods and services during the normal course of its
business. All contacts and purchasing activity are subject to the Arizona State Procurement
Code and the rules of the Arizona State Procurement Office. All contracts have incorporated
into them the “Standard Terms and Conditions” as required by the Arizona State Procurement
Office. These terms and conditions in all the contracts allow for cancellation for lack of funding
in the current fiscal year or next fiscal year. The contract may also be terminated for the
Lottery’s convenience at any time with no penalty when it is in the best interest of the State.
Effective September 1, 2006, the Lottery entered into a five-year contract with G-Tech Services,
Inc. for computer processing services at a base contract rate of 3.8012% of online sales.

NOTE 9

CONTINGENCIES

Annuities are purchased for all prizes over $400,000 for which winners will receive the jackpot in
annual installments for The Pick online game. These annuities are purchased from qualifying
insurance companies, which have the highest ratings from among A.M. Best Company,
Standard & Poor’s, Moody’s, Duff & Phelps or Weiss. The Lottery may incur future liabilities on
these annuities. Aggregate future payments to prize winners on existing annuities totaled
$63,973,686 at June 30, 2011. Approximately $46,845,976 of the total aggregate future
payments at June 30, 2011, relate to annuities purchased from five separate insurance
companies, of which $12,016,972 relates to a single insurance company.
Tort claims against the Lottery, its agents, officers, and employees who are acting in the scope
and course of their employment with the Lottery are covered pursuant to the State Risk
Management statute, ARS § 41-621. There is no limit to that coverage. Therefore, as to any
claims based on tort, there is no contingent liability to the budget of the Lottery.

17

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
June 30, 2011

NOTE 9

CONTINGENCIES (Continued)

The Lottery is involved in various legal proceedings, which arose in the normal course of
business. Management of the Lottery does not believe that the ultimate resolution of these
matters will have a material effect on the financial position, results of operations, or cash flows
of the Lottery.

NOTE 10 RETIREMENT AND PENSION PLAN
Permanent, full-time employees of the Lottery are covered by the Arizona State Retirement Plan
(the “Plan”), a retirement plan administered by the Arizona State Retirement System (ASRS),
which is a multiple-employer, cost-sharing pension plan.
The Comprehensive Annual Financial Report of the ASRS can be obtained by accessing
www.azasrs.gov . The Plan was established by the State to provide benefits for employees of
the State and employees of participating political subdivisions and school districts. The Plan
became effective on July 1, 1971. By actuarial computation, employee member contributions to
the Plan were fixed at 9.6%, 9.0%, and 8.95% of their compensation for the years ended June
30, 2011, 2010, and 2009, with the contributions made through payroll deduction. Employee
contributions vest immediately. Total contributions to the Plan for the years ended June 30,
2011, 2010, and 2009; by the Lottery’s covered employees were $382,812, $381,883, and
$384,476, respectively.
Matching employer member contributions were actuarially determined and fixed at 9.0%, 8.95%,
and 9.10% of the compensation of all employee members for the years ended June 30, 2011,
2010, and 2009. Total matching contributions to the Plan for the years ended June 30, 2011,
2010, and 2009 by the Lottery were $382,812, $381,883, and $384,476. In the event the Plan’s
actuary determines that additional contributions are needed in order to amortize an unfunded
accrued liability, every employer member will be required to contribute the revised contribution
percentage that is set by the Plan.
All full-time employees of the Lottery are required to become members of the Plan. The
Lottery’s total payroll for employees covered by this Plan for the years ended June 30, 2011,
2010, and 2009, was $3,996,101, $4,334,699, and $4,410,518, respectively. Contributions to
the Plan by the Lottery for its covered employees become fully vested immediately after
membership in the Plan. All required employer contributions were made to the Plan within 30
days after June 30, 2011.

18

SUPPLEMENTAL INFORMATION

19

20

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
SUPPLEMENTAL SCHEDULE OF GROSS PROFIT BY GAME
FOR GAMES EXPIRING DURING THE YEAR
Year Ended June 30, 2011
We Got Your Ticket
Game 453
TICKET SALES

$

220,444

100%

DIRECT EXPENSES:
Commissions

14,329

Prizes - low tier
Prizes - high tier
Total prizes
Ticket purchases
Total direct expenses
GROSS PROFIT BY GAME

$

Vegas VIP
Game 619
$

449,400

100%

2,872,642

100%

6.50%

29,211

6.50%

186,722

6.50%

114,631
16,800

52.00%
7.62%

179,760
157,050

40.00%
34.95%

1,407,595
455,400

49.00%
15.85%

131,431

59.62%

336,810

74.95%

1,862,995

64.85%

26,611

12.07%

60,631

13.49%

43,794

1.52%

172,371

78.19%

426,652

94.94%

2,093,511

72.88%

48,073

21.81%

22,748

5.06%

779,131

27.12%

$

$

1,108,879

100%

DIRECT EXPENSES:
Commissions

72,078

Prizes - low tier
Prizes - high tier
Total prizes
Ticket purchases
Total direct expenses
GROSS PROFIT BY GAME

$

$

$

100%

9,912,650

100%

6.50%

152,763

6.50%

644,322

6.50%

559,985
126,300

50.50%
11.39%

1,139,849
375,980

48.50%
16.00%

5,451,958
996,429

55.00%
10.05%

686,285

61.89%

1,515,829

64.50%

6,448,387

65.05%

38,208

3.45%

46,883

1.99%

113,705

1.15%

796,571

71.84%

1,715,475

72.99%

7,206,414

72.70%

312,308

28.16%

634,729

27.01%

2,706,236

27.30%

$

100%

DIRECT EXPENSES:
Commissions

88,121

Prizes - low tier
Prizes - high tier
Total prizes

Total direct expenses
GROSS PROFIT BY GAME

$

$

$

4s Galore
Game 640

1,355,693

Ticket purchases

$

Red Hot 7s
Game 634

2,350,204

Wild $$ Doubler
Game 639
TICKET SALES

$

Flying Aces
Game 629

Money Jar
Game 628
TICKET SALES

2X the Money
Game 626

$

Cactus Cash
Game 641

2,070,434

100%

6.50%

134,578

664,290
175,860

49.00%
12.97%

840,150

1,037,934

100%

6.50%

67,466

6.50%

993,808
346,900

48.00%
16.75%

493,019
182,260

47.50%
17.56%

61.97%

1,340,708

64.75%

675,279

65.06%

38,208

2.82%

43,789

2.11%

46,879

4.52%

966,479

71.29%

1,519,075

73.37%

789,624

76.08%

389,214

28.71%

551,359

26.63%

248,310

23.92%

$

$

$

21

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
SUPPLEMENTAL SCHEDULE OF GROSS PROFIT BY GAME
FOR GAMES EXPIRING DURING THE YEAR
Year Ended June 30, 2011
Roll the Dice
Game 645
TICKET SALES

$

Super Cash Crossword
Game 648

Crossword Clues
Game 647

1,326,702

100%

$ 24,401,625

100%

$ 11,163,930

100%

DIRECT EXPENSES:
Commissions

86,237

6.50%

1,586,107

6.50%

725,655

6.50%

Prizes - low tier
Prizes - high tier

696,521
122,640

52.50%
9.24%

9,763,092
7,711,870

40.01%
31.60%

3,936,402
3,787,900

35.26%
33.93%

Total prizes

819,161

61.74%

17,474,962

71.61%

7,724,302

69.19%

40,908

3.08%

275,738

1.13%

120,308

1.08%

946,306

71.33%

19,336,807

79.24%

8,570,265

76.77%

380,396

28.67%

5,064,818

20.76%

2,593,665

23.23%

Ticket purchases
Total direct expenses
GROSS PROFIT BY GAME

$

$

Trump Card
Game 651
TICKET SALES

$

Sizzlin' Red 7s
Game 652

4,357,140

100%

283,216

Prizes - low tier
Prizes - high tier
Total prizes

DIRECT EXPENSES:
Commissions

Ticket purchases
Total direct expenses
GROSS PROFIT BY GAME

$

$

$

Blackjack
Game 654

5,926,480

100%

1,395,819

100%

6.50%

385,222

6.50%

90,729

6.50%

1,960,713
1,135,300

45.00%
26.06%

2,815,277
1,343,050

47.50%
22.66%

715,359
136,960

51.25%
9.81%

3,096,013

71.06%

4,158,327

70.17%

852,319

61.06%

78,826

1.81%

83,850

1.41%

44,820

3.21%

3,458,055

79.37%

4,627,399

78.08%

987,868

70.77%

899,085

20.63%

1,299,081

21.92%

407,951

29.23%

$

Sparkling 7s
Game 657
TICKET SALES

$

$

$

Bingo
Game 660

Crossword
Game 661

1,728,926

100%

$ 20,019,366

100%

$ 20,791,204

100%

DIRECT EXPENSES:
Commissions

112,382

6.50%

1,301,259

6.50%

1,351,428

6.50%

Prizes - low tier
Prizes - high tier

847,174
219,520

49.00%
12.70%

10,710,361
2,113,910

53.50%
10.56%

10,395,602
3,029,800

50.00%
14.57%

1,066,694

61.70%

12,824,271

64.06%

13,425,402

64.57%

92,621

5.36%

398,656

1.99%

412,560

1.98%

1,271,697

73.55%

14,524,186

72.55%

15,189,390

73.06%

457,229

26.45%

5,495,180

27.45%

5,601,814

26.94%

Total prizes
Ticket purchases
Total direct expenses
GROSS PROFIT BY GAME

$

$

$

22

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
SUPPLEMENTAL SCHEDULE OF GROSS PROFIT BY GAME
FOR GAMES EXPIRING DURING THE YEAR
Year Ended June 30, 2011
Jackpot
Game 663
TICKET SALES

$

Super Jackpot
Game 664

1,199,156

100%

DIRECT EXPENSES:
Commissions

77,946

Prizes - low tier
Prizes - high tier
Total prizes
Ticket purchases
Total direct expenses
GROSS PROFIT BY GAME

$

$

2,240,288

100%

4,895,000

100%

6.50%

145,619

6.50%

318,176

6.50%

608,574
135,350

50.75%
11.29%

1,052,935
404,050

47.00%
18.04%

2,141,564
1,345,100

43.75%
27.48%

743,924

62.04%

1,456,985

65.04%

3,486,664

71.23%

47,354

3.95%

48,545

2.17%

66,144

1.35%

869,224

72.49%

1,651,149

73.70%

3,870,984

79.08%

329,932

27.51%

589,139

26.30%

1,024,016

20.92%

$

Super 7s
Game 667
TICKET SALES

$

100%

DIRECT EXPENSES:
Commissions

94,321

Prizes - low tier
Prizes - high tier
Total prizes

Total direct expenses
GROSS PROFIT BY GAME

$

$

1,329,208

100%

$

6.50%

86,400

812,604
87,300

56.00%
6.02%

899,904

6.50%

84,981

6.50%

657,960
161,720

49.50%
12.17%

647,153
160,700

49.50%
12.29%

62.02%

819,680

61.67%

807,853

61.79%

37,482

2.58%

40,257

3.03%

40,241

3.08%

1,031,707

71.10%

946,337

71.20%

933,075

71.37%

419,371

28.90%

382,871

28.80%

374,301

28.63%

$

585,439

Prizes - low tier
Prizes - high tier
Total prizes

$

GROSS PROFIT BY GAME

$

$

Snow Dough
Game 675

5,311,135

100%

1,349,977

100%

6.50%

345,227

6.50%

87,750

6.50%

3,602,994
2,818,265

40.00%
31.29%

2,655,568
1,190,700

50.00%
22.42%

674,989
149,880

50.00%
11.10%

6,421,259

71.29%

3,846,268

72.42%

824,869

61.10%

216,369

2.40%

77,988

1.47%

46,307

3.43%

-

0.00%

45,415

3.36%

4,269,483

80.39%

1,004,341

74.40%

1,041,652

19.61%

345,636

25.60%

Advertising
Total direct expenses

$

Fantastic 5s
Game 674
100%

Ticket purchases

Fast Cash
Game 669
100%

9,006,730

DIRECT EXPENSES:
Commissions

$

1,307,376

Blackout Bingo
Game 673
TICKET SALES

$

What's Your Number
Game 668

1,451,078

Ticket purchases

Jumbo Jackpot
Game 665

7,223,067

80.20%

1,783,663

19.80%

$

$

$

23

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
SUPPLEMENTAL SCHEDULE OF GROSS PROFIT BY GAME
FOR GAMES EXPIRING DURING THE YEAR
Year Ended June 30, 2011
Holiday Crossword
Game 677

Betty Boop Christmas
Game 676
TICKET SALES

1,783,764

100%

DIRECT EXPENSES:
Commissions

$

115,945

Prizes - low tier
Prizes - high tier

2,374,806

100%

6.50%

154,362

874,044
272,720

49.00%
15.29%

1,146,764

Ticket purchases
Advertising

Total prizes

Total direct expenses
GROSS PROFIT BY GAME

$

$

3,941,500

100%

6.50%

256,200

6.50%

1,163,655
375,550

49.00%
15.81%

1,872,215
967,150

47.50%
24.54%

64.29%

1,539,205

64.81%

2,839,365

72.04%

86,793

4.87%

80,496

3.39%

139,723

3.54%

45,415

2.55%

45,415

1.91%

45,415

1.15%

1,394,917

78.20%

1,819,478

76.62%

3,280,703

83.23%

388,847

21.80%

555,328

23.38%

660,797

16.77%

$

Holiday Riches
Game 679
TICKET SALES

$

100%

100%

307,041

6.50%

483,544

Prizes - low tier
Prizes - high tier

1,908,383
1,299,950

40.40%
27.52%

Total prizes

3,208,333

Ticket purchases
Advertising

GROSS PROFIT BY GAME

$

$

1,768,418

100%

6.50%

114,947

6.50%

2,603,690
2,693,985

35.00%
36.21%

866,525
291,980

49.00%
16.51%

67.92%

5,297,675

71.21%

1,158,505

65.51%

88,712

1.88%

131,366

1.77%

88,077

4.98%

45,415

0.96%

-

0.00%

-

0.00%

3,649,501

77.26%

5,912,585

79.48%

1,361,529

76.99%

1,074,209

22.74%

1,526,530

20.52%

406,889

23.01%

$

Triple Cash Crossword
Game 683
TICKET SALES

$

100%

$ 14,243,060

100%

776,367

6.50%

925,799

6.50%

Prizes - low tier
Prizes - high tier

5,156,263
2,428,720

43.17%
20.33%

3,888,355
6,112,900

27.30%
42.92%

Total prizes

7,584,983

63.50%

10,001,255

70.22%

182,464

1.53%

78,010

0.55%

-

0.00%

40,053

0.28%

8,543,814

71.53%

11,045,117

77.55%

3,400,263

28.47%

3,197,943

22.45%

Ticket purchases
Advertising
Total direct expenses
GROSS PROFIT BY GAME

$

$

$

Extreme Cash
Game 685

11,944,077

DIRECT EXPENSES:
Commissions

$

Betty Boop - Valentines
Game 681

7,439,115

Total direct expenses

$

Slingo Trio
Game 680

4,723,710

DIRECT EXPENSES:
Commissions

Merry Money
Game 678

$

24

ARIZONA STATE LOTTERY, A COMPONENT UNIT OF THE STATE OF ARIZONA
SUPPLEMENTAL SCHEDULE OF GROSS PROFIT BY GAME
FOR GAMES EXPIRING DURING THE YEAR
Year Ended June 30, 2011
Pick/Pick Extra Drawings
January 1, 2010 to
December 31, 2010
TICKET SALES

$

DIRECT EXPENSES:
Commissions
Total prizes
Online system expenses
Advertising
Total direct expenses
GROSS PROFIT BY GAME

$

41,492,659

100.00%

2,697,091
21,084,829
1,533,989
1,047,110

Pick 5/Pick 5 Extra Drawings

Powerball Drawings

January 1, 2010 to
December 31, 2010

January 1, 2010 to
December 31, 2010

$

16,540,551

100.00%

6.50%
50.82%
3.70%
2.52%

1,075,202
8,412,993
611,527
-

26,363,019

63.54%

15,129,640

36.46%

$

Pick 3 Drawings
January 1, 2010 to
December 31, 2010
TICKET SALES

$

8,386,169

100.00%

545,128
4,193,085
310,007
-

$

$

99,993,976

100.00%

6.50%
50.86%
3.70%
0.00%

6,499,461
49,995,488
3,695,797
2,534,025

6.50%
50.00%
3.70%
2.53%

10,099,722

61.06%

62,724,771

62.73%

6,440,829

38.94%

37,269,205

37.27%

$

Arizona Raffle Drawings

Fast Play Drawings

January 1, 2010 to
December 31, 2010

January 1, 2010 to
December 31, 2010

5,968,440

100.00%

6.50%
50.00%
3.70%
0.00%

387,949
3,023,699
219,505
1,748,974

5,048,220

60.20%

3,337,949

39.80%

$

2,025,861

100.00%

6.50%
50.66%
3.68%
29.30%

130,833
1,185,099
74,889
-

6.46%
58.50%
3.70%
0.00%

5,380,127

90.14%

1,390,821

68.65%

588,313

9.86%

635,040

31.35%

DIRECT EXPENSES:
Commissions
Total prizes
Online system expenses
Advertising
Total direct expenses
GROSS PROFIT BY GAME

$

$

Cash 4 Drawings
January 1, 2010 to
December 31, 2010
TICKET SALES

$

DIRECT EXPENSES:
Commissions
Total prizes
Online system expenses
Advertising
Total direct expenses
GROSS PROFIT BY GAME

$

3,036,194

100.00%

197,353
1,521,133
115,412
751,355

$

2 By 2

Mega Millions

January 1, 2010 to
December 31, 2010

January 1, 2010 to
December 31, 2010

4,865,104

100.00%

6.50%
50.10%
3.80%
24.75%

316,232
2,520,122
179,785
30,148

2,585,253

85.15%

450,941

14.85%

$

$

$

26,405,725

100.00%

6.50%
51.80%
3.70%
0.62%

1,716,366
13,442,302
977,012
2,500,625

6.50%
50.91%
3.70%
9.47%

3,046,287

62.62%

18,636,305

70.58%

1,818,817

37.38%

7,769,420

29.42%

$

NOTE: After the announced completion of ticket sales for each game, customers have a 180-day period in
which they can redeem their winning tickets. The above gross profit information includes games in which
the 180-day grace period expired during the fiscal year ended June 30, 2011.
Economic Development games are denoted with (*)

25

26

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING
STANDARDS

The Commissioners
Arizona State Lottery

We have audited the financial statements of the Arizona State Lottery (the “Lottery”), as of and
for the year ended June 30, 2011, and have issued our report thereon dated November 16,
2011. We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Lottery’s internal control over financial
reporting as a basis for designing our auditing procedures for the purpose of expressing our
opinions on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Lottery’s internal control over financial reporting. Accordingly, we do not
express an opinion on the effectiveness of the Lottery’s internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the entity’s financial statements will not be prevented,
or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and was not designed to identify all deficiencies
in internal control over financial reporting that might be deficiencies, significant deficiencies, or
material weaknesses. We did not identify any deficiencies in internal control over financial
reporting that we consider to be material weaknesses, as defined above.

Tempe
2055 E. Warner Road
Suite 101
Tempe, AZ 85284-3487
(480) 839-4900
Fax (480) 839-1749

Scottsdale
7098 E. Cochise Road
Suite 100
Scottsdale, AZ 85253-4517
(480) 483-1170
Fax (480) 483-7126

Casa Grande
1115 E. Cottonwood Lane
Suite 100
Casa Grande, AZ 85122-2950
(520) 836-8201
Fax (520) 426-9432

w w w . h e n r y a n d h o r n e . c o m

Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Lottery’s financial statements are
free of material misstatement, we performed tests of its compliance with certain provisions of
laws, regulations, contracts, and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit, and
accordingly, we do not express such an opinion. The results of our tests disclosed no instances
of noncompliance or other matters that are required to be reported under Government Auditing
Standards.
This report is intended solely for the information and use of the Lottery Commissioners,
management, federal awarding agencies and pass-through entities and is not intended to be
and should not be used by anyone other than these specified parties.

Casa Grande, Arizona
November 16, 2011