Financial Statements
 

STATEMENT OF ACCOUNTING POLICIES
For the year ended 30 June 2003

ENTITIES REPORTING

The financial statements presented are for the reporting entity SKYCITY Entertainment Group Limited (the parent company) and the consolidated financial statements of the group comprising SKYCITY Entertainment Group Limited, its subsidiaries, associates, and joint ventures.

STATUTORY BASE

SKYCITY Entertainment Group Limited is a company registered under the Companies Act 1993 and is an issuer in terms of the Securities Act 1978.

The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.

MEASUREMENT BASE

The financial statements have been prepared on the basis of historical cost with the exception of certain items for which specific accounting policies are identified.

ACCOUNTING POLICIES

The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The accounting policies that materially affect the measurement of financial performance, financial position, and cash flows are set out below.

Principles of consolidation
The consolidated financial statements include those of the parent company and its subsidiaries accounted for using the purchase method, and include the results of associates using the equity method. Subsidiaries are entities that are controlled, either directly or indirectly, by the parent. Associates are entities in which the parent, either directly or indirectly, has a significant but not controlling interest. All material intercompany transactions, balances and unrealised surpluses and deficits on transactions between group members have been eliminated on consolidation.

The results of subsidiaries or associates acquired or disposed of during the year are included in the consolidated Statements of Financial Performance from the date of acquisition or up to the date of disposal.

Operating revenue recognition
Revenues include casino, hotel, food and beverage, tower admissions, cinema admissions, and other revenues. Casino revenues represent the net win to the casino from gaming activities, being the difference between amounts wagered and amounts won by the casino patrons.

Revenues exclude the retail value of rooms, food,beverage and other promotional allowances provided on a complimentary basis to customers.

Income tax
The company follows the liability method of accounting for deferred taxation. The taxation charge against surplus for the year is the estimated liability in respect of that surplus after allowance for permanent differences between accounting and tax rules.

The impact of all timing differences between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred tax under the liability method. Timing differences relating to interest capitalised to buildings are determined on a net present value basis over the estimated life of the buildings.

A deferred tax asset, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised.

Foreign currencies
Transactions
Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rates in effect at the date of the transaction, except when forward currency contracts have been taken out to cover short-term forward currency commitments. Where short-term forward currency contracts have been taken out, the transaction is translated at the rate contained in the contract.

Foreign currency receivables and payables at balance date are translated at exchange rates current at balance date. Exchange gains and losses are brought to account in determining the surplus for the year, except where monetary liabilities are identified as a hedge against an independent foreign operation.

Foreign operations
Revenues and expenses of independent foreign operations are translated to New Zealand dollars at the exchange rates in effect at the date of the transaction, or at rates approximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date.
Exchange differences arising from the translation of independent foreign operations are recognised in the foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary liabilities that are identified as hedges against these operations.

Property, plant, and equipment
Initial recording
The cost of assets is the value of the consideration given to acquire the assets, and the value of other directly attributable costs, which have been incurred in bringing the assets to the location and condition necessary for their intended service. Funding costs incurred during the period of construction are capitalised as part of the total cost of the assets.

The cost of self-constructed assets includes the cost of all materials used in construction, direct labour on the project, costs of obtaining Resource Management Act consents, financing costs that are directly attributable to the project and an appropriate proportion of variable and fixed overheads. Costs cease to be capitalised as soon as the asset is ready for productive use and do not include any inefficiency costs.

Depreciation
As construction is completed and property, plant, and equipment are used in operations, depreciation is charged on a straight-line basis (other than freehold land) so as to write off the cost of the assets to their estimated residual value over their expected useful lives. Gains and losses on disposals of property, plant, and equipment are taken into account in determining the operating result for the year. The estimated economic lives are as follows:

Operator rights are expensed to earnings over the period of each management contract.

Leased assets operating leases
Leases under which the lessor effectively retains all the risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the periods of expected benefit.

Investments
The parent companys investment in the share of its subsidiaries are stated at cost in the Statements of Financial Position.

Joint ventures
When a member of the group participates in a joint venture arrangement, that member recognises its proportionate interest in the individual assets, liabilities, revenues and expenses of the joint venture. The liabilities recognised include its share of those for which it is jointly liable.

Intangible assets
Amortisation of casino licences acquired
Amortisation of casino licences is calculated on a straight-line basis so as to expense the cost of the licences over their legal lives. The directors review the carrying amounts annually and adjust the value of amortisation if impairment in value above normal amortisation has occurred.

Goodwill
Goodwill represents the excess of purchase consideration over the fair value of the net identifiable assets held by a subsidiary at the time of acquisition of shares in that subsidiary. Goodwill is capitalised and amortised over the period of expected benefit, which may be up to twenty years from the time of acquisition. The directors review the carrying amount annually and adjust the value of goodwill if impairment in value above normal amortisation has occurred.

Impairment
Annually, the directors assess the carrying value of each asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the Statements of Financial Performance.

Inventories
Inventories, all of which are finished goods, are stated at the lower of cost and net realisable value determined on a first in, first out basis.

Accounts receivable
Accounts receivable are carried at estimated realisable value after providing against debts where collection is doubtful. Bad debts are written off during the year in which they are identified.

Financial instruments
Recognised
Financial instruments carried on the Statements of Financial Position include cash and bank balances, investments, receivables, trade creditors, and borrowings. These instruments are carried at their estimated fair value. For example, receivables are carried net of the estimated doubtful receivables. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

Where possible, financial assets are supported by collateral or other security. These arrangements are described in the individual policy statements associated with each item.

Unrecognised
The parent company and group are also parties to financial instruments that have not been recognised in the financial statements.These instruments reduce exposure to fluctuations in interest rates and include fixed rate borrowings, cross currency interest rate swaps, interest rate swap and forward rate agreements, which have been transacted. Any risks associated with these instruments are not recorded in the financial statements. The net differential paid or received is recognised as a component of interest expense over the period of the agreement.

Forward exchange contracts entered into as hedges of foreign exchange assets and liabilities are valued at exchange rates prevailing at period end. Any unrealised gains or losses are offset against foreign exchange gains and losses on the related asset or liability. Premiums paid on currency options are amortised over the period to maturity. Full disclosure of information about financial instruments to which the group is a party is provided in note 21.

Statements of Cash Flows
The following are definitions of the terms used in the consolidated and parent companys Statements of Cash Flows:

• Operating activities are those activities relating to the trading and management of the business and include all transaction and other events that are not investing or financing activities. Cash receipts from customers are net of complimentaries.
  
  
• Investing activities are those activities relating to the acquisition, holding, and disposal of fixed assets and of investments. Investments can include securities not falling within the definition of cash.
  
  
• Financing activities are those activities that result in changes in the size and composition of the capital structure of the group. This includes both equity and debt not falling within the definition of cash. Share issues, repurchases, and dividends paid in relation to the capital structure are included in financing activities.
  
  
• Cash is considered to be cash on hand including cash for use within the casino and current accounts in banks, net of bank overdrafts and short-term deposits.

Capital note interest
Interest on capital notes is expensed to earnings consistent with other interest costs and is included in funding expenses in the Statements of Financial Performance.

Share options
No remuneration expense is recognised in respect of share options issued pursuant to Executive and Non-executive Director Share Option Plans. When the options are exercised, the proceeds received are credited to share capital.

CHANGES IN ACCOUNTING POLICIES
During the year the Group and the Parent Company changed the following accounting policies.

Investment in associates
The board of directors has applied the requirements of Financial Reporting Standard No.38 Accounting for Investments in Associates in the preparation of these financial statements. As a consequence of adopting this financial reporting standard the following accounting policies have been changed:

Goodwill on acquisition
Under the new policy, goodwill attributable to the acquisition of an associate is recognised as part of the carrying amount of the investment and is not recognised separately in the Statements of Financial Position. Previously, such goodwill was separately recognised and classified as an intangible asset.
This change in accounting policy has resulted in the unamortised balance of goodwill on acquisition of associates amounting to $11,536,400 (30 June 2002:$13,253,683) being transferred from intangible assets to investments in associates in the Statements of Financial Position. The comparative figures have been adjusted to comply with the new policy.

Share of surpluses/(deficits) of associates
Under the new policy the groups share of the net surpluses of associates is recognised as part of operating surplus before income tax. Previously, the group recognised dividends received from associates in operating surplus before tax and recognised the groups share of retained surpluses of associates in net surplus.

This change in accounting policy has resulted in an increase in operating surplus before income tax of $246,066 (30 June 2002: $344,000). However, this change in accounting policy has had no effect on net surplus. Comparative figures have been adjusted to comply with the new policy.

There have been no other changes in accounting policies.


NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2003

1. SEGMENT INFORMATION

4. SHARE CAPITAL

Ordinary shares
As at 30 June 2003 there were 210,135,588 shares issued and fully paid (2002:207,593,422).All ordinary shares rank equally with one vote attached to each fully paid ordinary share.

Dividend Reinvestment Plan
Pursuant to the Dividend Reinvestment Plan approved by the board of directors on 15 August 2000,3,220,407 (2002: 4,323,582) shares were issued in lieu of cash dividend of $22,371,523 (2002:$23,227,334).The strike price was $6.95 per share (2002:2,364,674 at $5.167; 1,958,908 at $5.620). The Dividend Reinvestment Plan ceased in October 2002.

Executive Share Option Plan
1999 Plan
All options issued pursuant to the Executive Share Option Plan approved by shareholders at the Annual Meeting of the company held on 28 October 1999 are exercisable one year after the date of issue provided the terms and conditions of the Plan are met, and lapse if not exercised within five years of issue.The exercise price of the options issued under the 1999 Plan is the relevant base exercise price of the option (as defined in the Plan), adjusted for the companys estimated cost of equity and dividends between the issue date and the exercise date of the options.

Subsequent to the share split on 16 November 2001 all options exercised will receive two shares.

The 1999, 2000 and 2001 options all convert to two shares upon exercise. The 2002 options convert to one share upon exercise. The 2002 options include 2,338,530 options issued to the Managing Director as approved by shareholders by the 2002 Annual Meeting of the company. These options cannot be exercised prior to 10September 2005.

Non-Executive Directors Share Option Plan
Pursuant to the Non-Executive Directors Share Option Plan approved by shareholders at the Annual Meeting of the company held on 26 October 2000,150,175 options are on issue to non-executive directors as at 30 June 2003 (2002:85,365).

Options are exercisable one year after the date of issue provided the terms and conditions of the Plan are met, and lapse if not exercised within five years of issue.The exercise price of the options issued under this plan is the relevant base exercise price of the option (as defined in the Plan), adjusted for the companys estimated cost of equity and dividends between the issue date and the exercise date of the options.

Subsequent to the share split on 16 November 2001 all options exercised will receive two shares.

Movements in the number of share options outstanding under the Non-Executive Directors Share Option Plan are as follows:

Non-executive share options outstanding at the end of the year have the following terms:

Option valuation
The options are valued using the Black-Scholes model, as at the vesting date. The calculations were prepared by First NZ Capital Group Limited and Deloitte Touche Tomatsu, and were reviewed by PricewaterhouseCoopers as auditors. Under this calculation the value of all options issued during the year was $1,655,182 (2002:$796,519).

Repurchase and cancellation of shares
On 5 November 2002 SKYCITY Entertainment Group Limited announced that it would commence an on-market share buyback programme of up to $60 million of the companys shares. Details of the share buyback programme up until 30 June 2003 are detailed below.

Under the SKYCITY Performance Pay Incentive Plan, selected employees have been eligible for performance related bonuses in respect of the financial years ending 30 June 2000, 2001, 2002 and 2003. The employee share entitlement reserve represents the value of ordinary shares to be issued in respect of the Plan for the years ended 30 June 2000, 2001, 2002 and 2003.

Shares are issued in three equal installments,being one-third of the shares on the bonus declaration date, and provided eligibility criteria continue to be met, one-third on the next entitlement date (approximately 12 months later) and one-third on the final entitlement date (approximately 24 months later).

Shares are issued at the average closing price of SKYCITY Entertainment Group Limiteds shares on the New Zealand Exchange on the ten business days following the release to the New Zealand Exchange of the SKYCITY Entertainment Group Limiteds annual result for the relevant year of the Plan.

Shares issued have the same rights as existing ordinary shares and are issued as soon as possible after the tenth business day following the release of SKYCITY Entertainment Group Limiteds annual result to the New Zealand Exchange for the relevant year of the Plan.

6. RETAINED EARNINGS

7. DIVIDENDS

The dividends are fully imputed.

On 22 August 2003 the board of directors resolved to pay a final dividend of 26 cents per ordinary share, a total at that date of $54,635,000. The actual total dividend will differ as a result of shares issued under the employee bonus scheme, and through the buyback and cancellation of shares, subsequent to 22 August 2003. The dividend will be paid on 3 October 2003 to all shareholders on the companys share register at the close of business on Friday, 19 September 2003.

8. IMPUTATION BALANCES

9. MINORITY INTERESTS

Mandatory Convertible Notes
As SKYCITY Leisure is part of the consolidated group,the Mandatory Convertible Notes (MCNs) are eliminated from the group financial statements on consolidation and are effectively represented by the assets and liabilities of the SKYCITY Leisure group as included in the consolidated Statements of Financial Position.

On 1 March 2002 the subsidiary company SKYCITY Leisure Limited issued 30,980,023 MCNs for every five ordinary shares held at an issue price of $1.00 per MCN. Each MCN converts to ordinary shares on the earlier of the maturity date (31 December 2006) and the date selected by SKYCITY Leisure Limited following an election by a holder to convert as a result of a take-over offer.At this date each MCN will convert to two ordinary shares or such a number that is equal in value to the principal amount of MCNs converted, whichever is greater. The value of the shares is determined on the basis of 95% of the weighted average sale price of an ordinary share on the New Zealand Exchange during the 20 days prior to maturity date.

Each MCN carries an interest coupon equivalent to (i) the amount of the dividend paid in respect of each ordinary share multiplied by (ii) the sum of ordinary shares which a note would convert to if conversion occurred on that interest payment date, including any bonus issue the holder might have been entitled to. This interest is payable at the option of SKYCITY Leisure Limited.

(i)  Bank loans

At balance date, a bank loan secured by a composite debenture over the assets and undertakings of certain members of the group was outstanding to the amount of $361,275,578 (2002:$344,533,654).The interest rate, inclusive of bank margin and hedging instruments, at 30 June 2003 was 7.38% on NZ borrowings (2002:7.26% on New Zealand borrowings and 7.31% on Australian borrowings).

A facility of NZ$493,615,645 (2002:NZ$513,262,176), secured by way of composite debenture, was available to the group as at 30 June 2003. The facility comprises:

• A fixed term facility of NZ$326,275,578 and a revolving credit facility of NZ$167,340,067 (2002: NZ$193,560,000 and NZ$100,000,000).
  
  
• The available fixed term facility reduces by NZ$15,000,000 every 31 March over the duration of the facility. The current maturity of the facility is November 2005.There is a one-year extension each anniversary at the option of the bank.
  
  
• The Australian dollar facility of A$130,930,000 was repaid during the year and replaced by an increased NZ$ facility. The 30 June 2002 balance of this facility was A$191,800,000 converted at 0.8730 to NZ$219,702,176, comprising a A$131,800,000 (NZ$150,973,654) fixed term facility and a revolving credit facility of A$60,000,000 (NZ$68,728,522).
  

  Queenstown Casinos Limited

" At balance date, Queenstown Casinos Limited had a bank facility of $5,500,000 (2002:$6,000,000), of which $3,000,000 was drawn down (2002:$3,000,000). The loan is secured by a debenture (floating charge) over the assets of the company. This facility expires on 31 December 2004.

Riverside Casino Limited
" At balance date, Riverside Casino Limited had a bank facility of $20,000,000 (2002:nil), of which $15,000,000 was drawn down (2002:nil). The loan is secured by a composite general security over the assets of the company and a mortgage over real property owned by the company. This facility expires on 16 September 2005.

SKYCITY Leisure Group
At balance date, SKYCITY Leisure Limited had four secured loans totalling $61,534,834 (2002: four secured loans totalling $61,706,850).
The loans are secured by a variety of registered mortgages or debentures over individual properties and the assets and undertakings of the SKYCITY Leisure group as follows:

• A bank term loan facility of $38,405,000 (2002:$40,000,000) secured by an assignment by way of security of SKYCITY Leisures interest in the New Zealand and Fiji cinema joint ventures, assignment by way of security of SKYCITY Leisures interest in Planet Hollywood (Civic Centre) Limited, a first registered mortgage over and assignment by way of security of all lease agreements of SKYCITY Metro, and a first registered mortgage over 82 Symonds Street, Auckland. The interest rate, inclusive of bank margin, at 30 June 2003 was 8.24% (2002: 8.09%). Reductions of $250,000 per quarter are made against the facility as well as half-yearly payments based on the net rental of SKYCITY Metro.
  
  
• A bank cash advance facility with a limit of $22,000,000, drawn to $22,000,000 as at 30 June 2003 (2002: $20,500,000). This facility has the same security as the bank term loan facility above. There are no scheduled amortisations and the interest rate, inclusive of bank margin, at 30 June 2003 was 7.19% (2002:7.57%).
  
  
• A bank term loan facility of $1,062,334 (2002:$1,127,000) secured by first mortgage over the Fiji multiplex. The interest rate, inclusive of bank margin, at 30 June 2003 was 8.25% (2002:9.00%). The final repayment is to be made on 30 September 2003.
  
  
• A bank term loan facility to Village Rialto Cinemas Limited of $67,500 (2002:$80,000) secured by registered mortgage debenture over Village Rialto Cinemas Limited. Village SKYCITY Cinemas Limited provides a guarantee for 50% of the outstanding facility. The interest rate, inclusive of bank margin, at 30 June 2003 was 7.10% (2002:7.60%). The final payment is to be made on 30 September 2004.
  
  

The SKYCITY group has not provided any guarantees in relation to any of the SKYCITY Leisure group loans.

Weighted Average Interest Rate
The weighted average interest rate on banking facilities (inclusive of margin) on the groups NZ$ debt, incurred during the year ended 30 June 2003, was 7.38% (2002:7.20%). The weighted average interest rate (inclusive of margin) on the Australian debt incurred during the year ended 30 June 2003, was 7.10% (2002:7.13%).

(ii)  Convertible notes
Convertible notes were issued by subsidiary company Riverside Casino Limited as follows:

The amount appearing in the consolidated Statements of Financial Position ($13,365,000;2002:$9,315,000) represents the minority shareholders portion of the notes issued by Riverside Casino Limited.

A total of 9,000,000 convertible notes were issued during the year with an interest rate of 10%.

Interest payable on the convertible notes accrues from 1 October 2002. Accrued interest will be paid quarterly in arrears.During the year convertible noteholders approved a change in interest rate to 15% for the C and D convertible notes (2002:C notes 13.64%, D notes 10.71%).

The convertible notes have been issued on the basis that payments by note holders will be due at such time or times and in such installments as is determined from time to time by the board of directors of Riverside Casino Limited. The convertible notes are unsecured and rank without any preference among the classes and all classes are pari passu in all respects.

The convertible notes will be converted into ordinary shares on the maturity date 21 March 2010. Riverside Casino Limited may elect that all or some of the notes be converted at an earlier date.

The convertible notes do not carry any voting rights.Convertible notes are not entitled to any distributions made by Riverside Casino Limited in respect of its ordinary shares prior to the conversion date of the convertible notes.

iii) Capital notes

 

On 5 May 2000 SKYCITY Entertainment Group Limited issued a prospectus offering up to 150 million unsecured subordinated capital notes at an issue price of $1.00 per note. At 30 June 2000 60.072 million of capital notes had been issued. The offer closed on 28 July 2000, and 150 million capital notes had been issued at that date. The capital notes offer holders a fixed interest rate until the first election date, being 15 May 2005. Election dates will occur every five years after the first election date.

Prior to the election date,the company must notify holders of the proportion of their capital notes it will redeem (if any) and, if applicable, the new conditions (including as to interest rate, interest dates, new election date, and other modifications to the existing conditions) that will apply to the capital notes from the election date. Holders may then choose either to retain some or all of their capital notes on the new terms, and/or to convert some or all of their capital notes into SKYCITY Entertainment Group Limited ordinary shares. SKYCITY Entertainment Group Limited may elect to redeem or purchase some or all of the capital notes that holders have elected to convert, at an amount equal to the principal amount plus any accrued but unpaid interest.

If capital notes are converted, holders will receive ordinary shares equal in value to the aggregate of the principal amount of the notes plus any accrued but unpaid interest The value of the shares is determined on the basis of 95% of the weighted average sale price of an ordinary share on the New Zealand Exchange during the 15 days prior to the election date.

The capital notes do not carry voting rights. Capital note holders are not entitled to any distributions made by SKYCITY Entertainment Group Limited in respect of its ordinary shares prior to the conversion date of the capital notes, and do not participate in any change in value of the issued shares of SKYCITY Entertainment Group Limited.

11.DEFERRED TAX LIABILITY

12. INCOME TAX

The parent company, together with its New Zealand based wholly-owned subsidiary companies, excluding SKYCITY Management (Auckland) Limited, and SKYCITY Wellington Limited form a consolidated group for income tax purposes. Accordingly, income tax payments and imputation credit movements are generally reported on a consolidated basis and are available to shareholders through their shareholding in the parent company.

At 30 June 2003 the group has income tax receivable of $315,071 (2002:pre-paid tax of $13,290,711).

During the year the New Zealand Inland Revenue Department advised that it would allow the income tax credit claimed in relation to the Harrahs contract termination fee. This resulted in use of money interest of $2,045,920 being transferred to pre-paid income tax.

13. PAYABLES AND ACCRUALS

14. PROPERTY, PLANT, AND EQUIPMENT

Borrowing costs in relation to the funding of the SKYCITY Grand Hotel,convention and exhibition centre and the gaming expansion have been capitalised to these projects, $1,172,706 (2002:nil). Total capitalised interest and facility fees included in the cost of land and buildings at 30 June 2003 is $34,147,706 (2002:$32,975,000).

A memorandum of encumbrance is registered against the title of land for Auckland casino in favour of Auckland City Council. Auckland City Council requires prior written consent before any transfer, assignment or disposition of the land. The intent of the covenant is to protect the councils rights under the resource consent, relating to the provision of the bus terminus,public car park and the provision of public footpaths around the complex.

A further encumbrance records the councils interest in relation to the sub-soil areas under Federal and Hobson Streets used by SKYCITY as carparking and a vehicle tunnel. The encumbrance is to notify any transferee of councils interest as lessor of the sub-soil areas.

Part of the Riverside Casino (Hamilton) property (an area of airspace over the land) is held on trust for Perry Developments Limited. This area may be used for strata title apartments to be held by Perry Developments Limited. Drainage rights have been granted over parts of the land appurtenant to Lot 2 Plan 5.23789 (CT22C/1428). There is also a right of way granted over part of Lot 1 and part of Lot 2 DP580554.

The Riverside Casino site is also subject to the normal rights that the Crown reserves in respect of minerals and mining in relation to the sub-soil areas. Furthermore, the land title is subject to Section 27B of the State Owned Enterprises Act 1986 which does not provide for the owner of the land to be heard in relation to any recommendations of the Waitangi Tribunal for the resumption of the land. At balance date the company was not aware of any matters pertaining to the land under the State Owned Enterprises Act 1986.

15. COMMITMENTS

The following amounts have been committed to by the Group or Parent, but not recognised in the financial statements.

The above capital expenditure relates to purchases of plant and equipment for the Auckland,Adelaide and Queenstown complexes and construction and fit-out costs associated with the SKYCITY Grand Hotel, convention and exhibition centre and the gaming expansion.

16. INVESTMENTS IN SUBSIDIARIES

The Parent companys investment in subsidiaries comprises shares at cost. Significant subsidiaries comprise:

All wholly owned subsidiary companies and significant partly-owned subsidiaries have balance dates of 30 June.

Riverside Casino Construction Limited is a wholly owned subsidiary of Riverside Casino Limited.SKYCITY Leisure Holdings Limited and SKYCITY Cinemas Limited are wholly owned subsidiaries of SKYCITY Leisure Limited. SKYCITY Metro Limited and Planet Hollywood (Civic Centre) Limited are wholly owned subsidiaries of SKYCITY Leisure Holdings Limited. SKYCITY Cinemas (Fiji) Limited is a wholly owned subsidiary of SKYCITY Cinemas Limited.

SKYCITY Entertainment Group Limited holds a 60% share in Queenstown Casinos Limited, which is the holder of a casino premises licence in Queenstown.

17. INVESTMENTS IN ASSOCIATES

Details of associates

Significant associates comprise:

Canbet Limited is incorporated in Australia and Village Cinemas SA is incorporated in Argentina.

All entities have balance dates of 30 June with the exception of Vista Entertainment Solutions Limited, which has a 31 December balance date. The directors are not aware of any significant events or transactions since Vista Entertainment Solutions Limiteds balance date.

On 11 August 2000, SKYCITY International ApS acquired 6.58% of the shares in Canbet Limited (a public company listed on the Australia Stock Exchange) .This shareholding was increased to 21.58% on 7 February 2001, and further increased to 32.63% on 8 March 2002.

As a result of acquiring the shares in SKYCITY Leisure Limited on 20 March 2001, the SKYCITY Entertainment Group indirectly acquired holdings in associated companies being Village Cinemas SA and Vista Entertainment Solutions Limited.

As a result of adopting Financial Reporting Standard No.38 Accounting for Investments in Associates goodwill on acquisition of associates is now included in the carrying value of the investment in associate, previously included in intangible assets (refer change in accounting policy note). The 2002 figures have been restated to comply with the new policy and show goodwill on acquisition of associates of $13,254,000.

18. JOINT VENTURES

Hard Rock joint venture
In December 2000 the group entered into a joint venture to operate the Hard Rock Cafe in Queenstown, New Zealand. The group has a 50% interest. The financial statements of the joint venture are unaudited. The joint venture has a balance date of 30 June. The Hard Rock joint venture results are not significant to the group result.

SKYCITY Leisure joint ventures
As a result of acquiring shares in SKYCITY Leisure Limited on 20 March 2001, the SKYCITY group acquired the following indirect joint venture interests:

All the above joint ventures have been audited.

19. INTANGIBLE ASSETS

Casino licence
SKYCITY Entertainment Group Limited acquired the Adelaide Casino licence on 30 June 2000 as a result of the acquisition of 100% of the shares in SKYCITY Adelaide Pty Limited,through its wholly-owned subsidiary SKYCITY Australia Pty Limited on that date. The cost of the casino licence and other assets and liabilities of SKYCITY Adelaide Pty Limited have been determined by the directors applying fair value assessments to all assets (including the casino licence) and liabilities acquired as part of the acquisition of SKYCITY Adelaide Pty Limited. The casino licence is being amortised over 85 years, being the length of the licence.

20. ACCOUNTS RECEIVABLE

21. FINANCIAL INSTRUMENTS

Currency risk
Payments to overseas suppliers are made using the currency conversion rate as at the date of payment. The value of such transactions has been and will continue to be at a relatively low level.

For certain more significant committed expenditure it is the groups policy to enter into foreign exchange forward contracts to manage the exposure to fluctuations in currency rates. Foreign exchange contracts as at 30 June 2003 were US$121,610 and AU$771,390 (2002:US$nil,AU$nil).

The currency risk and interest rate risk associated with net Australian dollar investments is partially hedged through utilisation of cross currency interest rate swaps and interest rate swap contracts within the parameters set out in the group treasury policy. At 30 June 2003 there was AU$75,000,000 (2002:AU$nil) of cross currency interest rate swaps and AU$75,000,000 (2002:AU$120,000,000) of interest rate swaps.

There were no foreign exchange contracts utilised to hedge the translation risk of funds advanced to overseas subsidiaries as at 30 June 2003 (2002:AU$15,900,000).

Interest rate risk
Short-term deposits were at call as at 30 June 2003. Deposits are held with major banking institutions.

Interest rates on borrowings are a mix of fixed and floating. As at 30 June 2003 75% (2002:81%) of total bank borrowings were hedged via long-term (exceeding 12 months) interest rate swap agreements with major banking institutions.

A number of short-term (less than 12 months) interest rate swap agreements of varying maturities, with major banks, were in place over 9% (2002:10%) of the balance of the total borrowing.

Fixed versus floating interest rate bank facility
At 30 June 2003, SKYCITY group had total bank borrowings of $440,810,413 (2002:$409,240,654), tructured as below:

Rates shown above are inclusive of bank margin and hedging costs.

Maturities
The interest swap maturities are at various dates through to June 2013.

The long term interest rate swap maturities occur between eighteen months and ten years from balance date.

Interest rate swap values mark to market
The swaps and forward rate agreements in place as at 30 June 2003 have been valued by the groups bankers, and on a mark to market basis, is a loss of $18,595,093 (2002:loss of $5,389,101).

Credit risk
Financial assets, which potentially subject the group and parent company to concentrations of credit risk, consist principally of cash, short-term deposits, trade receivables, interest rate swaps, cross currency interest rate swaps and foreign currency contracts.The parent companys and groups cash equivalents and short-term deposits are placed with high credit quality financial institutions. Trade receivables are presented net of the allowance for estimated doubtful receivables. Credit risk with respect to trade receivables is limited due to the relatively low value of receivables at any given time as the nature of the business is cash-oriented. Accordingly, the directors believe the group has no significant concentration of credit risk.

Fair values

Methods and assumptions
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash at bank, bank overdraft, term deposits, loans issued, receivables and trade creditors
The carrying values of these items are equivalent to their fair value. As such, they have been excluded from the table below.

Borrowings
Borrowings are based on discounted cash flows using the borrowing rate the directors expect would be available to the group for debt of similar maturity at balance date.