1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1997 Commission File No. 19324
Boston Celtics Limited Partnership
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(Exact name of registrant as specified in its charter)
Delaware 04-2936516
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
151 Merrimac Street, Boston, MA 02114
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(Address of principal executive offices) (Zip code)
(617) 523-6050
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(Registrant's telephone number including area code)
Indicate by checkmark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
The number of Units outstanding as of December 31, 1997 was 5,346,164 of
Limited Partnership Interest.
2
Part I - Financial Information
Item I - Financial Statements
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, June 30,
1997 1997
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,142,146 $ 6,498,739
Marketable securities 29,251,018 42,572,683
Other short-term investments 73,368,911 49,671,153
Accounts receivable 18,893 2,667,438
Deferred game costs 2,334,963
Prepaid income taxes 432,895
Prepaid expenses 1,556,693 1,958,238
------------------------------
TOTAL CURRENT ASSETS 113,672,624 103,801,146
PROPERTY AND EQUIPMENT, net of depreciation of $817,600 in December
and $715,793 in June 1,139,727 909,416
NATIONAL BASKETBALL ASSOCIATION FRANCHISE, net of amortization of
$2,236,479 in December and $2,159,360 in June 3,933,102 4,010,221
OTHER INTANGIBLE ASSETS, net of amortization of $52,315 in December
and $47,083 in June 902,232 903,477
OTHER ASSETS 9,290,911 9,575,396
------------------------------
$ 128,938,596 $ 119,199,656
==============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 10,475,833 $ 12,877,723
Distribution payable 5,400,522
Deferred game revenues 18,252,391 5,584,848
Federal and state income taxes payable 233,799
Notes payable to bank - current portion 2,500,000
Notes payable 16,974,198 16,409,617
Deferred compensation - current portion 1,994,360 1,767,263
------------------------------
TOTAL CURRENT LIABILITIES 53,331,103 39,139,451
DEFERRED FEDERAL AND STATE INCOME TAXES 20,100,000 20,100,000
NOTES PAYABLE TO BANK - noncurrent portion 50,000,000 47,500,000
DEFERRED COMPENSATION - noncurrent portion 9,814,081 10,380,296
OTHER NON-CURRENT LIABILITIES 6,372,500 9,870,000
3
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership -
General Partner 197,136 226,817
Limited Partners (11,431,130) (8,527,928)
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(11,233,994) (8,301,111)
Celtics Limited Partnership - General Partner (86,147) (129,866)
Boston Celtics Communications Limited Partnership - General Partner 641,053 640,886
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TOTAL PARTNERS' CAPITAL (DEFICIT) (10,679,088) (7,790,091)
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$ 128,938,596 $ 119,199,656
==============================
See notes to condensed consolidated financial statements.
4
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statements of Income
Unaudited
Six Months Ended Three Months Ended
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December 31, December 31, December 31, December 31,
1997 1996 1997 1996
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Revenues:
Basketball regular season -
Ticket sales $ 12,797,000 $ 10,663,000 $ 12,797,000 $ 10,663,000
Television and radio broadcast rights fees 9,345,000 7,074,000 9,345,000 7,074,000
Other, principally promotional advertising 3,132,000 2,893,000 3,132,000 2,893,000
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25,274,000 20,630,000 25,274,000 20,630,000
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Costs and expenses:
Basketball regular season -
Team 14,346,000 11,245,000 14,346,000 11,245,000
Game 912,000 713,000 912,000 713,000
General and administrative 5,065,506 5,898,944 2,188,423 3,346,139
Selling and promotional 1,721,945 1,474,495 1,224,924 1,047,118
Depreciation 101,807 96,970 53,754 48,755
Amortization of NBA franchise and other intangible assets 82,351 82,352 41,175 41,176
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22,229,609 19,510,761 18,766,276 16,441,188
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3,044,391 1,119,239 6,507,724 4,188,812
Interest expense (2,949,868) (3,041,773) (1,470,840) (1,433,226)
Interest income 3,296,253 3,663,429 1,729,563 1,825,866
Net realized gains (losses) on disposition of marketable securities
and other short-term investments (1,046) 395,356 (11,084) 262,287
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Income before income taxes 3,389,730 2,136,251 6,755,363 4,843,739
Provision for income taxes 900,000 800,000 400,000 300,000
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Net income 2,489,730 1,336,251 6,355,363 4,543,739
Net income applicable to interests of General Partners 68,344 42,515 132,854 99,757
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Net income applicable to interests of Limited Partners $ 2,421,386 $ 1,293,736 $ 6,222,509 $ 4,443,982
============================================================
Net income per unit - basic $ 0.50 $ 0.23 $ 1.28 $ 0.83
Net income per unit - assuming dilution $ 0.44 $ 0.22 $ 1.13 $ 0.76
Distributions declared per unit $ 1.00 $ 1.00 $ 1.00 $ 1.00
See notes to condensed consolidated financial statements.
5
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
For the Six Months Ended
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December 31, December 31,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Receipts:
Basketball regular season receipts:
Ticket sales $ 30,728,370 $ 25,023,087
Television and radio broadcast rights fees 7,724,116 6,148,244
Other, principally promotional advertising 1,921,689 1,999,677
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40,374,175 33,171,008
Costs and expenses:
Basketball regular season expenditures:
Team expenses 18,341,611 15,115,111
Game expenses 950,407 816,816
General and administrative expenses 7,783,736 10,316,217
Selling and promotional expenses 2,175,533 1,907,677
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29,251,287 28,155,821
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11,122,888 5,015,187
Interest expense (2,125,435) (2,223,407)
Interest income 3,300,002 3,288,426
Payment of income taxes (233,306) (1,872,220)
Payment of deferred compensation (418,148) (2,807,430)
----------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 11,646,001 1,400,556
CASH FLOWS (USED BY) FROM INVESTING ACTIVITIES
Purchases of:
Marketable securities (37,394,187) (24,380,826)
Short-term investments (409,694,599) (388,300,000)
Proceeds from sales of:
Marketable securities 28,100,888 27,051,250
Short-term investments 408,382,400 419,000,000
Capital expenditures (332,118) (44,558)
Other receipts (expenditures) (64,978) (366,048)
----------------------------
NET CASH FLOWS (USED BY) FROM INVESTING ACTIVITIES (11,002,594) 32,959,818
----------------------------
NET CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES 643,407 34,360,374
6
CASH FLOWS USED BY FINANCING ACTIVITIES
Proceeds from bank borrowings 50,000,000
Payment of bank borrowings (50,000,000)
Purchase of Boston Celtics Limited Partnership units (22,880,000)
Cash distributions to limited partners
of Boston Celtics Limited Partnership (5,935,876)
----------------------------
NET CASH FLOWS USED BY FINANCING ACTIVITIES (28,815,876)
----------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 643,407 5,544,498
Cash and cash equivalents at beginning of period 6,498,739 5,982,128
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,142,146 $ 11,526,626
============================
NON-CASH FINANCING ACTIVITIES
Distributions declared to limited partners of Boston Celtics
Limited Partnership 5,400,522
See notes to condensed consolidated financial statements.
7
Notes to Condensed Consolidated Financial Statements
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BOSTON CELTICS LIMITED PARTNERSHIP AND SUBSIDIARIES
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Note 1 - The condensed consolidated financial statements include the accounts
of the Boston Celtics Limited Partnership ("BCLP," the "Partnership") and its
majority-owned and controlled subsidiaries and partnerships. BCLP, through its
subsidiaries, owns and operates the Boston Celtics professional basketball team
of the National Basketball Association and holds investments. All intercompany
transactions are eliminated in consolidation. Certain amounts in 1996 have been
reclassified to permit comparison.
Note 2 - The unaudited interim condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and with instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included therein. Operating results for interim periods are not indicative of
the results that may be expected for the full year. Such financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto of Boston Celtics Limited Partnership and Subsidiaries
included in the annual report on Form 10-K for the year ended June 30, 1997 and
the Form 10-Q for the quarter ended September 30, 1997.
Note 3 - Revenues and costs applicable to the regular season are recognized in
income proportionately over the 82 games played in the regular season. The
excess of revenue received or costs incurred over amounts recognized in income
are included in deferred game costs or deferred game revenues on the condensed
consolidated balance sheets.
Note 4 - On December 15, 1997, Celtics Limited Partnership ("CLP"), the
Partnership's 99%-owned limited partnership which owns and operates the Boston
Celtics basketball team, entered into a $60,000,000 credit facility with its
commercial bank, consisting of a $50,000,000 term loan and a $10,000,000
revolving line of credit. As of December 31, 1997, no borrowings were
outstanding against the $10,000,000 revolving line of credit. The proceeds from
the $50,000,000 term loan were used to repay a separate $50,000,000 loan from a
commercial bank.
Under the terms of the $50,000,000 term loan agreement, interest is payable
quarterly in arrears at a fixed annual rate of 6.29% from December 15, 1997
through December 15, 2007. Principal payments are due in equal quarterly
installments of $2,500,000 commencing on January 1, 2003, with the final
payment due on December 15, 2007, the maturity date of the loan.
The $10,000,000 revolving line of credit agreement expires on December 15,
2000, with two automatic one-year extensions cancelable at the option of the
commercial bank. Interest on any borrowings under the revolving line of credit
accrues at the Partnership's option of either LIBOR plus 0.70% or the greater
of the bank's Base Rate or the Federal Funds Effective Rate plus 0.50%.
8
Borrowings under the term loan and revolving line of credit are secured by all
of the assets of and are the liability of CLP. The loan agreement contains
certain restrictions and various provisions and covenants customary in lending
arrangements of this type, including limitations on distributions to
partners of CLP.
Note 5 - In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share ("Statement 128"). The Partnership
adopted Statement 128 on December 31, 1997. All prior period earnings per unit
amounts have been restated to conform with the provisions of Statement 128. The
adoption of Statement 128 increased basic net income per unit for the six and
three months ended December 31, 1996 by $0.01 and $0.07, respectively.
The following table sets forth the computation of basic and diluted earnings
per unit:
Six Months Ended Three Months Ended
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December 31, December 31, December 31, December 31,
1997 1996 1997 1996
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Numerator for basic and diluted earnings per unit:
Net income before interests of General Partners $ 2,489,730 $ 1,336,251 $ 6,355,363 $ 4,543,739
Applicable to interests of General Partners of subsidiary
partnerships 43,886 29,447 70,000 54,868
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2,445,844 1,306,804 6,285,363 4,488,871
Applicable to 1% General Partnership interest of BCLP 24,458 13,068 62,854 44,889
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Applicable to interests of Limited Partners $ 2,421,386 $ 1,293,736 $ 6,222,509 $ 4,443,982
===========================================================
Denominator:
Denominator for basic earnings per unit - weighted average
shares 4,861,278 5,505,626 4,861,278 5,369,974
Effect of dilutive securities:
Options to purchase units of Partnership interest 180,966 239,651 178,474 241,843
Restricted stock 484,886 234,886 484,886 234,886
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Denominator for diluted earnings per unit 5,527,130 5,980,163 5,524,638 5,846,703
===========================================================
Basic earnings per unit $ 0.50 $ 0.23 $ 1.28 $ 0.83
===========================================================
Diluted earnings per unit $ 0.44 $ 0.22 $ 1.13 $ 0.76
===========================================================
Note 6 - In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income" ("Statement 130").
Statement 130 is effective for fiscal years beginning after December 15, 1997.
The Partnership believes that the adoption of Statement 130 will not have a
material impact on the Partnership's condensed consolidated financial
statements.
9
Management's Discussion and Analysis of Financial
Condition and Results of Operations
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BOSTON CELTICS LIMITED PARTNERSHIP AND SUBSIDIARIES
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Certain statements and information included herein are "forward-looking
statements" within the meaning of the federal Private Securities Litigation
Reform Act of 1995, including statements relating to prospective revenues,
expenses (including player and other team costs), capital expenditures, tax
burdens, earnings and distributions, and expectations, intentions and
strategies regarding the future. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Partnership to be materially
different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Factors that could cause the
Partnership's financial condition, results of operation, liquidity and capital
resources to differ materially include the team's competitive success,
uncertainties as to increases in players' salaries, the team's ability to
attract and retain talented players, uncertainties relating to labor relations
involving players, the risk of injuries to key players, uncertainties regarding
media contracts and uncertainties relating to possible changes in structure as
a result of tax law changes referred to below.
General
The Partnership had consolidated net income of $2,490,000, or $0.50 per
unit ($0.44 assuming dilution), on revenues of $25,274,000 in the six months
ended December 31, 1997, compared with consolidated net income of $1,336,000,
or $0.23 per unit ($0.22 assuming dilution), on revenues of $20,630,000 in the
six months ended December 31, 1996. The Partnership had consolidated net
income of $6,355,000, or $1.28 per unit ($1.13 assuming dilution), on revenues
of $25,274,000 in the three months ended December 31, 1997, compared with
consolidated net income of $4,544,000, or $0.83 per unit ($0.76 assuming
dilution), on revenues of $20,630,000 in the three months ended December 31,
1996. The Partnership had consolidated cash flows from operating activities
of $11,646,000 in the six months ended December 31, 1997 compared with
consolidated cash flows from operating activities of $1,401,000 in the six
months ended December 31, 1996.
The Boston Celtics derive revenues principally from the sale of tickets
to home games and the licensing of television, cable network and radio rights.
A large portion of the Boston Celtics' annual revenues and operating expenses
are determinable early in each basketball season based on season ticket sales
and the Boston Celtics' multi-year contracts with its players and broadcast
organizations.
10
For financial reporting purposes, the Boston Celtics recognize revenues
and expenses on a game-by-game basis. Because the National Basketball
Association ("NBA") regular season begins in late October or early November,
the Partnership's first fiscal quarter, which ends on September 30th, will
generally include limited or no revenue and will reflect a loss attributable to
general and administrative and selling and promotional expenses incurred in the
quarter. Based on the present NBA game schedule, the Partnership will generally
recognize approximately one-third of its annual regular season revenue in the
second quarter, approximately one-half of such revenue in the third quarter and
the remainder in the fourth quarter, and it will recognize any playoff revenue
in the fourth quarter.
Results of Operations
The following discussion compares results of continuing operations of the
Partnership and its subsidiaries for the six-month and three-month periods
ended December 31, 1997 with the six-month and three-month periods ended
December 31, 1996.
The Boston Celtics recognize revenues and direct expenses for the
basketball operations ratably over the regular season games played.
Revenues from ticket sales recognized in income increased $2,134,000 or
20% in the six-month and three-month periods ended December 31, 1997, compared
to the same periods in 1996, as a result of increased ticket sales ($1,677,000)
as well as the result of the team having played one more game in the period
ended December 31, 1997 than in 1996 ($457,000).
Television and radio revenues increased $2,271,000 or 32% in the
six-month and three-month periods ended December 31, 1997, compared to the same
periods in 1996 as a result of an increase in revenue from the national network
and cable television rights agreements ($1,937,000) as well as the result of
the team having played one more game in the period ended December 31, 1997 than
in 1996 ($334,000).
Other regular season revenues increased $239,000 or 8% in the six-month
and three-month periods ended December 31, 1997 compared to the same periods in
1996 as a result of increased promotional and novelty income ($127,000) as well
as the result of the team having played one more game in the period ended
December 31, 1997 than in 1996 ($112,000).
Team expenses increased $3,101,000 or 28% in the six-month and
three-month periods ended December 31, 1997 compared to the same periods in
1996 primarily as a result of a net increases in player and coaching staff
compensation ($2,437,000) and other team expenses ($152,000) as well as the
result of the team having played one more game in the period ended December 31,
1997 than in 1996 ($512,000).
Game expenses increased $199,000 or 28% in the six-month and three-month
periods ended December 31, 1997 compared to the same periods in 1996, primarily
as a result of an increase in league assessments on ticket sales ($84,000) and
other game expenses ($82,000) as well as the team having played one more game
in the period ended December 31, 1997 than in 1996 ($33,000).
11
General and administrative expenses decreased $833,000 or 14% in the
six-month period ended December 31, 1997 and $1,158,000 or 35% in the
three-month period ended December 31, 1997 as compared to the same periods in
1996 primarily as a result of a decrease in option expense ($1,472,000 in the
six-month period and $1,640,000 in the three-month period). These decreases
were partially offset by increases in professional expenses ($293,000 in the
six-month period and $260,000 in the three-month period) and personnel costs
($256,000 in the six-month period and $359,000 in the three-month period).
Selling and promotional expenses increased $247,000 or 17% in the
six-month period ended December 31, 1997 and $178,000 or 17% in the three-month
period ended December 31, 1997 as compared to the same periods in 1996 due to
increases in salaries and other costs related to marketing and ticket sales
($163,000 in the six-month period and $24,000 in the three-month period),
increased sponsorship costs ($65,000 in the six-month period and $66,000 in the
three-month period) and increases in promotional and other general marketing
expenses ($19,000 in the six-month period and $88,000 in the three-month
period).
Depreciation and amortization expenses increased $5,000 or 3% in the
six-month period ended December 31, 1997 as compared to the same period in 1996
as a result of additions to property and equipment and leasehold improvements
in leased office space and at the FleetCenter.
Interest expense decreased $92,000 or 3% in the six months ended December
31, 1997 as compared to the same period in 1996. The decrease is primarily a
result of a decrease in the deferred compensation liability.
Interest income decreased $367,000 or 10% in the six-month period ended
December 31, 1997 as compared to the same period in 1996. The decrease is
attributable to a reduced amount of available funds for short-term investment.
Liquidity and Capital Resources
The Partnership generated approximately $11,646,000 and $1,401,000 in
cash from operating activities in the six months ended December 31, 1997 and
1996, respectively. Capital expenditures amounted to approximately $332,000 and
$45,000 in the six months ended December 31, 1997 and 1996, respectively. At
December 31, 1997 the Partnership had approximately $7,000,000 of available
cash, $29,000,000 of marketable securities and $73,000,000 of other short term
investments. In addition to these amounts, sources of funds available to the
Partnership include funds generated by operations and capital contributions
from partners. These resources will be used to repay commercial bank borrowings
and notes payable related to redeemed partnership units and for general
partnership purposes, working capital needs or for possible investments or
acquisitions.
12
On December 15, 1997, Celtics Limited Partnership ("CLP"), the
Partnership's 99%-owned limited partnership which owns and operates the Boston
Celtics basketball team, entered into a $60,000,000 credit facility with its
commercial bank, consisting of a $50,000,000 term loan and a $10,000,000
revolving line of credit. As of December 31, 1997, no borrowings were
outstanding against the $10,000,000 revolving line of credit. The proceeds from
the $50,000,000 term loan were used to repay a separate $50,000,000 loan from a
commercial bank. Principal payments on the term loan agreement are due in equal
quarterly installments of $2,500,000 commencing on January 1, 2003, with the
final payment due on December 15, 2007, the maturity date of the loan. The
$10,000,000 revolving line of credit agreement expires on December 15, 2000,
with two automatic one-year extensions cancelable at the option of the
commercial bank. Borrowings under the term loan and revolving line of credit
are secured by all of the assets of and are the liability of CLP. The loan
agreement contains certain restrictions and various provisions and covenants
customary in lending arrangements of this type, including limitations on
distributions to partners of CLP.
Management of the Partnership from time to time reviews and evaluates
investment and acquisition opportunities on behalf of the Partnership and
investments or acquisitions may be made or consummated by the General Partner,
on behalf of the Partnership, at such times and upon such prices and other
terms as the General Partner deems to be in the best interests of the
Partnership and all of its Unitholders. Management believes that its cash, cash
equivalents and marketable securities together with cash from operations and
available amounts under its revolving line of credit will provide adequate cash
for the Partnership and its subsidiaries to meet their cash requirements
through December 31, 1998.
A cash distribution of $1.00 per unit was paid to unitholders of Boston
Celtics Limited Partnership on January 14, 1998 (declared December 11, 1997 to
unitholders of record on December 26, 1997). During the six months ended
December 31, 1996, a cash distribution of $1.00 per unit was paid to
unitholders of Boston Celtics Limited Partnership on December 16, 1996
(declared November 18, 1996 to unitholders of record on November 29, 1996).
Future distributions will be determined by the General Partner based, among
other things, on available resources and the needs of the Partnership.
Tax Law Changes
Under provisions of the Internal Revenue Code applicable to public
limited partnerships, the Partnership will be taxable as a corporation
commencing on July 1, 1998. Alternatively, pursuant to recent tax legislation,
the Partnership could maintain partnership tax status by electing to pay a tax
of 3.5% of gross income. In response to these prospective changes in the tax
treatment of the Partnership, management is evaluating structural and other
alternatives.
13
Part II - Other Information
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BOSTON CELTICS LIMITED PARTNERSHIP AND SUBSIDIARIES
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ITEM 6 - Exhibits and Reports on Form 8-K
Exhibits
Exhibit (10) - Credit Agreement dated as of December 15, 1997 by
and between Celtics Limited Partnership as the
Borrower, Boston Celtics Limited Partnership and
Citizens Bank of Massachusetts as the Lender.
Exhibit (27) - Financial data schedule.
Reports on Form 8-K
None.
14
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BOSTON CELTICS LIMITED PARTNERSHIP
---------------------------------------
(Registrant)
By: Celtics, Inc., its General Partner
Dated: February 6, 1998 By: /s/ Richard G. Pond
---------------------------------------
Richard G. Pond
Executive Vice President
and Chief Financial Officer