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 the Quarter Ended December 31, 1998
_______________________________________
Commission Registrant; State of Organization; IRS Employer
File No. Address and Telephone Number Identification No.
- ---------- ---------------------------------- ------------------
1-14507 Boston Celtics Limited Partnership 04-3416346
(a Delaware limited partnership)
151 Merrimac Street, Boston, Massachusetts 02114
(617) 523-6050
1-9324 Boston Celtics Limited Partnership II 04-2936516
(a Delaware limited partnership)
151 Merrimac Street, Boston, Massachusetts 02114
(617) 523-6050
Indicate by checkmark whether the registrants (1) have 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) have been subject to such filing
requirements for the past 90 days. Yes X No ----- -----
As of December 31, 1998, there were 2,703,664 Units outstanding of Boston
Celtics Limited Partnership, and 2,703,664 units representing limited
partnership interests outstanding of Boston Celtics Limited Partnership II.
2
Part I - Financial Information
Item I - Financial Statements
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, June 30,
1998 1998
------------ --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 72,689,733 $ 8,468,286
Marketable securities 1,041,446
Other short-term investments 12,391,409 81,114,266
Prepaid expenses and other current assets 215,799 302,900
-----------------------------
TOTAL CURRENT ASSETS 85,296,941 90,926,898
PROPERTY AND EQUIPMENT, net of depreciation of $26,504 in
December and $21,957 in June 18,969 23,516
OTHER ASSETS 1,035,532 1,096,129
-----------------------------
$ 86,351,442 $ 92,046,543
=============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,731,401 $ 1,102,496
Due to related parties 3,036,184
Federal and state income taxes payable 1,051,205 733,800
Notes payable 17,538,780
-----------------------------
TOTAL CURRENT LIABILITIES 2,782,606 22,411,260
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK 50,000,000 30,000,000
SUBORDINATED DEBENTURES 33,184,133 32,984,700
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 34,237,885 29,865,364
3
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership -
General Partner 184,166 290,166
Limited Partners (44,725,834) (34,329,896)
-----------------------------
(44,541,668) (34,039,730)
Boston Celtics Limited Partnership II - General Partner 117,372 210,292
Celtics Limited Partnership - General Partner 218,827 262,554
Boston Celtics Communications Limited Partnership - General Partner 641,412 641,228
-----------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (43,564,057) (32,925,656)
-----------------------------
$ 86,351,442 $ 92,046,543
=============================
See notes to condensed consolidated financial statements.
4
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
For the Six For the Three
Months Ended Months Ended
December 31, 1998 December 31, 1998
---------------------------------------
Costs and expenses:
General and administrative $ 2,195,431 $ 1,145,116
Depreciation and amortization 28,104 14,052
----------------------------------
(2,223,535) (1,159,168)
Equity in loss of Celtics Basketball Holdings, L.P. (4,372,521) (3,182,782)
Interest expense (3,383,228) (1,648,411)
Interest income 2,392,332 1,145,870
Net realized gains on disposition of marketable securities and other
short-term investments 6,020
----------------------------------
Loss before income taxes and extraordinary charge (7,580,932) (4,844,491)
Provision for income taxes 900,000 400,000
----------------------------------
Loss before extraordinary charge (8,480,932) (5,244,491)
Extraordinary charge for early retirement of notes payable (2,255,540)
----------------------------------
Net loss (10,736,472) (5,244,491)
Net loss applicable to interests of General Partners (242,410) (128,815)
----------------------------------
Net loss applicable to interests of Limited Partners ($10,494,062) ($5,115,676)
==================================
Loss per unit before extraordinary charge ($3.06) ($1.89)
Net loss per unit ($3.88) ($1.89)
See notes to condensed consolidated financial statements.
5
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statement of Cash Flows
Unaudited
For the Six Months Ended December 31, 1998
CASH FLOWS USED IN OPERATING ACTIVITIES
General and administrative expenses $ (2,927,919)
Interest expense (1,732,385)
Interest income 2,707,162
Income taxes paid (582,595)
-------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (2,535,737)
-------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (246,982,754)
Proceeds from sales of marketable securities 1,000,000
Proceeds from sales of short-term investments 312,427,039
Other receipts (expenditures) 17,053
-------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES 66,461,338
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 20,000,000
Payment of notes payable (19,794,320)
Cash contributions from general partner 90,166
-------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 295,846
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 64,221,447
Cash and cash equivalents at beginning of period 8,468,286
-------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,689,733
=============
See notes to condensed consolidated financial statements.
6
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The condensed consolidated financial statements include the accounts
of Boston Celtics Limited Partnership ("BCLP," the "Partnership") and its
majority-owned and controlled subsidiaries and partnerships.
BCLP (formerly "Boston Celtics Limited Partnership II") is a Delaware limited
partnership that was formed on April 13, 1998 in connection with a
reorganization of Boston Celtics Limited Partnership II (formerly "Boston
Celtics Limited Partnership") ("BCLP II"). Pursuant to the reorganization of
BCLP II (the "Reorganization"), which was completed on June 30, 1998, BCLP owns
a 99% limited partnership interest in BCLP II.
BCLP held no material assets and was not engaged in operations from its date of
formation until the completion of the Reorganization on June 30, 1998. Upon
completion of the Reorganization, BCLP, through its subsidiaries, holds certain
investments, including a 48.3123% limited partnership investment in Celtics
Basketball Holdings, L.P. ("Celtics Basketball Holdings"), which, through
Celtics Basketball, L.P. ("Celtics Basketball"), its 99.999% subsidiary
partnership, owns and operates the Boston Celtics professional basketball team
(the "Boston Celtics") of the National Basketball Association (the "NBA").
BCLP's investment in Celtics Basketball Holdings is accounted for on the equity
method, and accordingly, the investment is carried at cost, effected by equity
in income or loss of Celtics Basketball Holdings and reduced by distributions
received.
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, 1998 and
the Form 10-Q for the quarter ended September 30, 1998.
Note 3 - BCLP, through its subsidiary partnerships and corporations, owns a
48.3123% limited partnership interest in Celtics Basketball Holdings. Prior to
the completion of the Reorganization on June 30, 1998, Celtics Basketball
Holdings held no material assets and was not engaged in operations. Upon
completion of the Reorganization, Celtics Basketball Holdings, through Celtics
Basketball, owns and operates the Boston Celtics. BCLP's investment in Celtics
Basketball Holdings is accounted for on the equity method. Summary income
statement data for Celtics Basketball Holdings for the six and three months
ended December 31, 1998 is as follows:
7
For the Six For the Three
Months Ended Months Ended
December 31, December 31,
1998 1998
------------ -------------
Total costs and expenses ($7,650,867) ($1,819,138)
Interest expense, net (1,399,754) (643,487)
----------------------------
Net loss ($9,050,621) ($2,462,625)
============================
Note 4 - The following table sets forth the computation of loss per unit:
For the Six For the Three
Months Ended Months Ended
December 31, December 31,
1998 1998
------------ -------------
Numerator for loss per unit:
Loss before extraordinary charge:
Loss before extraordinary charge ($8,480,932) ($5,244,491)
Applicable to interests of General Partners of subsidiary partnerships (113,854) (77,142)
----------------------------
(8,367,078) (5,167,349)
Applicable to 1% General Partnership interest of BCLP (83,671) (51,673)
----------------------------
Applicable to interests of Limited Partners ($8,283,407) ($5,115,676)
============================
Net loss:
Net loss ($10,736,472) ($5,244,491)
Applicable to interests of General Partners of subsidiary partnerships (136,409) (77,142)
----------------------------
(10,600,063) (5,167,349)
Applicable to 1% General Partnership interest of BCLP (106,001) (51,673)
----------------------------
Applicable to interests of Limited Partners ($10,494,062) ($5,115,676)
============================
Denominator for loss per unit - weighted average units 2,703,664 2,703,664
============================
Loss per unit before extraordinary charge ($3.06) ($1.89)
============================
Net loss per unit ($3.88) ($1.89)
============================
8
Note 5 - The Partnership adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" ("Statement 130") effective July 1,
1998. Comprehensive income was not materially different from net loss for the
six and three months ended December 31, 1998.
Note 6 - NBA players, including those that play for the Boston Celtics, were
covered by a collective bargaining agreement between the NBA and the NBA
Players Association (the "NBPA") that was to be in effect through June 30, 2001
(the "Collective Bargaining Agreement"). Under the terms of the Collective
Bargaining Agreement, the NBA had the right to terminate the Collective
Bargaining Agreement after the 1997-98 season if it was determined that the
aggregate salaries and benefits paid by all NBA teams for the 1997-98 season
exceeded 51.8% of projected Basketball Related Income, as defined in the
Collective Bargaining Agreement ("BRI"). Effective June 30, 1998, the Board of
Governors of the NBA voted to exercise that right and reopen the Collective
Bargaining Agreement, as it had been determined that the aggregate salaries and
benefits paid by the NBA teams for the 1997-98 season would exceed 51.8% of
projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA
players in support of its attempt to reach a new collective bargaining
agreement.
On January 21, 1999, the NBA and the NBPA entered into a new collective
bargaining agreement (the "New Collective Bargaining Agreement"), thereby
ending the lockout. The New Collective Bargaining Agreement is to be in effect
through June 30, 2004, and the NBA has an option to extend it for one year
thereafter. The NBA and NBPA have agreed that the 1998-99 NBA regular season
will consist of 50 games per team (25 of which are home games) beginning in
early February 1999. Ordinarily, the NBA regular season consists of 82 games
per team (41 of which are home games), and generally begins in late October or
early November. Further, as provided under the terms of the New Collective
Bargaining Agreement, NBA teams are only required to pay 50/82 of each player's
salary with respect to the 1998-99 regular season. Previously, an independent
arbitrator ruled that NBA teams were not required to pay player salaries during
the lockout.
During the lockout, NBA teams refunded amounts paid by season ticket holders
(plus interest at 6%) for any home games that were canceled as a result of the
lockout. Such refunds were paid by Celtics Basketball on a monthly basis for
any games canceled in the preceding month.
Prior to the execution of the New Collective Bargaining Agreement, Celtics
Basketball refunded amounts paid by season ticket holders for a total of 16
home games (including two exhibition games) that were canceled due to the
lockout through December 31, 1998. These refunds amounted to approximately
$9,477,000 (including interest of approximately $149,000). Based on the revised
1998-99 NBA regular season schedule, Celtics Basketball is liable for refunding
amounts paid by season ticket holders for two additional home games (plus
interest at 6% through January 31, 1999). These additional refunds due to
season ticket holders amount to approximately $900,000 (including interest of
approximately $23,000). Season ticket holders have been given the option of
receiving a refund for these two additional games in February 1999 or leaving
the amount on deposit for future games (no interest will accrue on such amounts
after January 31, 1999).
9
All amounts paid by season ticket holders are recorded by Celtics Basketball as
deferred revenue and are subsequently recognized as revenue on a game-by-game
basis as regular season games are played. No revenues have been recognized with
respect to amounts paid by season ticket holders for canceled games. Amounts
refunded are recorded by Celtics Basketball as reductions in the deferred
revenue liability when paid.
Celtics Basketball ordinarily recognizes Boston Celtics team and game expenses
on a game-by-game basis as the 82 regular season games are played. Due to the
cancellation of 32 regular season games in the 1998-99 season, Celtics
Basketball will generally recognize Boston Celtics team and game expenses on a
game-by-game basis over the shortened 50-game season. However, certain team
expenses contractually relate to a full 82-game season. As a result, the
results of operations of Celtics Basketball for the six months ended December
31, 1998 include a charge of $3,550,000 representing the pro rata portion of
certain team costs relative to the 32 canceled regular season games in the
1998-99 season.
10
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, June 30,
1998 1998
------------ --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 72,652,005 $ 8,268,186
Marketable securities 1,041,446
Other short-term investments 12,391,409 81,114,266
Due from related parties 1,232,487
Prepaid expenses and other current assets 215,799 212,734
-----------------------------
TOTAL CURRENT ASSETS 86,491,700 90,636,632
PROPERTY AND EQUIPMENT, net of depreciation of $26,504 in
December and $21,957 in June 18,969 23,516
OTHER ASSETS 1,035,532 1,096,129
-----------------------------
$ 87,546,201 $ 91,756,277
=============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,853,307 $ 1,102,296
Due to related parties 3,036,184
Federal and state income taxes payable 1,051,205 733,800
Notes payable 17,538,780
-----------------------------
TOTAL CURRENT LIABILITIES 2,904,512 22,411,060
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK 50,000,000 30,000,000
SUBORDINATED DEBENTURES 33,184,133 32,984,700
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 34,237,885 29,865,364
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership II -
General Partner 117,372 210,292
Limited Partners (43,468,815) (34,329,796)
-----------------------------
(43,351,443) (34,119,504)
Celtics Limited Partnership - General Partner 218,827 262,554
Boston Celtics Communications Limited Partnership - General Partner 641,412 641,228
-----------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (42,491,204) (33,215,722)
-----------------------------
$ 87,546,201 $ 91,756,277
=============================
See notes to condensed consolidated financial statements.
11
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
Six Months Ended Three Months Ended
-------------------------------------------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenues:
Basketball regular season -
Ticket sales $12,797,000 $12,797,000
Television and radio broadcast rights fees 9,345,000 9,345,000
Other, principally promotional advertising 3,132,000 3,132,000
------------------------------------------------------------
25,274,000 25,274,000
------------------------------------------------------------
Costs and expenses:
Basketball regular season -
Team 14,346,000 14,346,000
Game 912,000 912,000
General and administrative $ 832,512 5,065,506 $ 494,379 2,188,423
Selling and promotional 1,721,945 1,224,924
Depreciation 4,547 101,807 2,273 53,754
Amortization of NBA franchise and other
intangible assets 23,557 82,351 11,779 41,175
------------------------------------------------------------
860,616 22,229,609 508,431 18,766,276
------------------------------------------------------------
(860,616) 3,044,391 (508,431) 6,507,724
Equity in loss of Celtics Basketball Holdings, L.P. (4,372,521) (3,182,782)
Interest expense (3,383,228) (2,949,868) (1,648,411) (1,470,840)
Interest income 2,392,332 3,296,253 1,145,870 1,729,563
Net realized gains on disposition of marketable
securities and other short-term investments 6,020 (1,046) (11,084)
------------------------------------------------------------
Income (loss) before income taxes and
extraordinary charge (6,218,013) 3,389,730 (4,193,754) 6,755,363
Provision for income taxes 900,000 900,000 400,000 400,000
------------------------------------------------------------
Income (loss) before extraordinary charge (7,118,013) 2,489,730 (4,593,754) 6,355,363
Extraordinary charge for early retirement of notes
payable (2,255,540)
------------------------------------------------------------
Net income (loss) (9,373,553) 2,489,730 (4,593,754) 6,355,363
Net income (loss) applicable to interests of
General Partners (136,409) 68,344 (77,142) 132,854
------------------------------------------------------------
12
Net income (loss) applicable to interests of
Limited Partners ($9,237,144) $ 2,421,386 ($4,516,612) $ 6,222,509
============================================================
Income (loss) per unit before extraordinary charge ($2.59) $0.50 ($1.67) $1.28
Net income (loss) per unit - basic ($3.42) $0.50 ($1.67) $1.28
Net income (loss) per unit - diluted ($3.42) $0.44 ($1.67) $1.13
Distributions declared per unit $1.00 $1.00
See notes to condensed consolidated financial statements.
13
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
For the Six Months Ended
-------------------------------
December 31, December 31,
1998 1997
------------ ------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Receipts:
Basketball regular season receipts:
Ticket sales $ 30,728,370
Television and radio broadcast rights fees 7,724,116
Other, principally promotional advertising 1,921,689
--------------------------------
40,374,175
Costs and expenses:
Basketball regular season expenditures:
Team expenses 18,341,611
Game expenses 950,407
General and administrative expenses $ 2,675,381 7,783,736
Selling and promotional expenses 2,175,533
--------------------------------
2,675,381 29,251,287
--------------------------------
(2,675,381) 11,122,888
Interest expense (1,732,385) (2,125,435)
Interest income 2,707,162 3,300,002
Income taxes refunded (paid) (582,595) (233,306)
Payment of deferred compensation (418,148)
--------------------------------
NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES (2,283,199) 11,646,001
--------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchases of:
Marketable securities (37,394,187)
Short-term investments (246,982,754) (409,694,599)
Proceeds from sales of:
Marketable securities 1,000,000 28,100,888
Short-term investments 312,427,039 408,382,400
Capital expenditures (332,118)
Other receipts (expenditures) 17,053 (64,978)
--------------------------------
NET CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES 66,461,338 (11,002,594)
--------------------------------
NET CASH FLOWS FROM OPERATING AND INVESTING
ACTIVITIES 64,178,139 643,407
14
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 20,000,000 50,000,000
Payment of bank borrowings (50,000,000)
Payment of notes payable (19,794,320)
--------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 205,680
--------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 64,383,819 643,407
Cash and cash equivalents at beginning of period 8,268,186 6,498,739
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,652,005 $ 7,142,146
================================
NON-CASH FINANCING ACTIVITIES
Distributions declared to limited partners of Boston Celtics Limited
Partnership 5,400,522
See notes to condensed consolidated financial statements.
15
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The condensed consolidated financial statements include the accounts
of Boston Celtics Limited Partnership II (formerly "Boston Celtics Limited
Partnership") ("BCLP II," the "Partnership") and its majority-owned and
controlled subsidiaries and partnerships. All intercompany transactions are
eliminated in consolidation.
Pursuant to a reorganization of its partnership structure that was completed on
June 30, 1998 (the "Reorganization"), the Partnership's name was changed to
Boston Celtics Limited Partnership II. As a result of the Reorganization, the
Partnership's 99% limited partnership interest is owned by Boston Celtics
Limited Partnership (a Delaware limited partnership formed in April 1998).
Prior to the Reorganization, BCLP II, through its subsidiaries, owned and
operated the Boston Celtics professional basketball team (the "Boston Celtics")
of the National Basketball Association (the "NBA") and held investments. The
Boston Celtics were owned by Celtics Limited Partnership ("CLP"), in which BCLP
II has a 99% limited partnership interest.
Upon completion of the Reorganization, the Boston Celtics are owned and
operated by Celtics Basketball, L.P. ("Celtics Basketball"), a 99.999%
subsidiary of Celtics Basketball Holdings, L.P. ("Celtics Basketball
Holdings"). BCLP II, through its subsidiaries, holds certain investments,
including a 48.3123% limited partnership investment in Celtics Basketball
Holdings.
Accordingly, the operating results of the Boston Celtics are consolidated in
the accompanying financial statements for periods prior to the Reorganization.
Effective June 30, 1998, BCLP II's interest in the accounts and operations of
the Boston Celtics is reflected in its investment in Celtics Basketball
Holdings, which is accounted for on the equity method, and accordingly, the
investment is carried at cost, effected by equity in income or loss of Celtics
Basketball Holdings and reduced by distributions received.
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 II and Subsidiaries
included in the annual report on Form 10-K for the year ended June 30, 1998 and
the Form 10-Q for the quarter ended September 30, 1998.
16
Note 3 - BCLP II, through its subsidiary partnerships and corporations, owns a
48.3123% limited partnership interest in Celtics Basketball Holdings. Prior to
the completion of the Reorganization on June 30, 1998, Celtics Basketball
Holdings held no material assets and was not engaged in operations. Upon
completion of the Reorganization, Celtics Basketball Holdings, through Celtics
Basketball, owns and operates the Boston Celtics. BCLP II's investment in
Celtics Basketball Holdings is accounted for on the equity method. Summary
income statement data for Celtics Basketball Holdings for the six and three
months ended December 31, 1998 is as follows:
For the Six For the Three
Months Ended Months Ended
December 31, December 31,
1998 1998
------------ -------------
Total costs and expenses ($7,650,867) ($1,819,138)
Interest expense, net (1,399,754) (643,487)
-----------------------------
Net loss ($9,050,621) ($2,462,625)
=============================
Note 4 - The following table sets forth the computation of income (loss) per
unit:
Six Months Ended December 31, Three Months Ended December 31,
1998 1997 1998 1997
---- ---- ---- ----
Numerator for income (loss) per unit:
Income (loss) before extraordinary charge:
Income (loss) before extraordinary charge ($7,118,013) $2,489,730 ($4,593,754) $6,355,363
Applicable to interests of General Partners of
subsidiary partnerships (43,543) 43,886 (31,739) 70,000
----------------------------------------------------------------
(7,074,470) 2,445,844 (4,562,015) 6,285,363
Applicable to 1% General Partnership interest
of BCLP II (70,311) 24,458 (45,403) 62,854
----------------------------------------------------------------
Applicable to interests of Limited Partners ($7,004,159) $2,421,386 ($4,516,612) $6,222,509
================================================================
17
Net income (loss):
Net income (loss): ($9,373,553) $2,489,730 ($4,593,754) $6,355,363
Applicable to interests of General Partners of
subsidiary partnerships (43,543) 43,886 (31,739) 70,000
----------------------------------------------------------------
(9,330,010) 2,445,844 (4,562,015) 6,285,363
Applicable to 1% General Partnership interest
of BCLP II (92,866) 24,458 (45,403) 62,854
----------------------------------------------------------------
Applicable to interests of Limited Partners ($9,237,144) $2,421,386 ($4,516,612) $6,222,509
================================================================
Denominator:
Denominator for basic earnings per unit -
weighted average shares 2,703,664 4,861,278 2,703,664 4,861,278
Effect of dilutive securities:
Options to purchase units of Partnership
interest 180,966 178,474
Restricted stock 484,886 484,886
----------------------------------------------------------------
Denominator for income (loss) per unit -
weighted average units 2,703,664 5,527,130 2,703,664 5,524,638
================================================================
Income (loss) per unit before extraordinary charge ($2.59) $0.50 ($1.67) $1.28
================================================================
Net income (loss) per unit - basic ($3.42) $0.50 ($1.67) $1.28
================================================================
Net income (loss) per unit - diluted ($3.42) $0.44 ($1.67) $1.13
================================================================
Note 5 - The Partnership adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" ("Statement 130") effective July 1,
1998. Comprehensive income was not materially different from net loss for the
six and three months ended December 31, 1998.
Note 6 - NBA players, including those that play for the Boston Celtics, were
covered by a collective bargaining agreement between the NBA and the NBA
Players Association (the "NBPA") that was to be in effect through June 30, 2001
(the "Collective Bargaining Agreement"). Under the terms of the Collective
Bargaining Agreement, the NBA had the right to terminate the Collective
Bargaining Agreement after the 1997-98 season if it was determined that the
aggregate salaries and benefits paid by all NBA teams for the 1997-98 season
exceeded 51.8% of projected Basketball Related Income, as defined in the
Collective Bargaining Agreement ("BRI"). Effective June 30, 1998, the Board of
Governors of the NBA voted to exercise that right and reopen the Collective
Bargaining Agreement, as it had been determined that the aggregate salaries and
benefits paid by the NBA teams for the 1997-98 season would exceed 51.8% of
projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA
players in support of its attempt to reach a new collective bargaining
agreement.
18
On January 21, 1999, the NBA and the NBPA entered into a new collective
bargaining agreement (the "New Collective Bargaining Agreement"), thereby
ending the lockout. The New Collective Bargaining Agreement is to be in effect
through June 30, 2004, and the NBA has an option to extend it for one year
thereafter. The NBA and NBPA have agreed that the 1998-99 NBA regular season
will consist of 50 games per team (25 of which are home games) beginning in
early February 1999. Ordinarily, the NBA regular season consists of 82 games
per team (41 of which are home games), and generally begins in late October or
early November. Further, as provided under the terms of the New Collective
Bargaining Agreement, NBA teams are only required to pay 50/82 of each player's
salary with respect to the 1998-99 regular season. Previously, an independent
arbitrator ruled that NBA teams were not required to pay player salaries during
the lockout.
During the lockout, NBA teams refunded amounts paid by season ticket holders
(plus interest at 6%) for any home games that were canceled as a result of the
lockout. Such refunds were paid by Celtics Basketball on a monthly basis for
any games canceled in the preceding month.
Prior to the execution of the New Collective Bargaining Agreement, Celtics
Basketball refunded amounts paid by season ticket holders for a total of 16
home games (including two exhibition games) that were canceled due to the
lockout through December 31, 1998. These refunds amounted to approximately
$9,477,000 (including interest of approximately $149,000). Based on the revised
1998-99 NBA regular season schedule, Celtics Basketball is liable for refunding
amounts paid by season ticket holders for two additional home games (plus
interest at 6% through January 31, 1999). These additional refunds due to
season ticket holders amount to approximately $900,000 (including interest of
approximately $23,000). Season ticket holders have been given the option of
receiving a refund for these two additional games in February 1999 or leaving
the amount on deposit for future games (no interest will accrue on such amounts
after January 31, 1999).
All amounts paid by season ticket holders are recorded by Celtics Basketball as
deferred revenue and are subsequently recognized as revenue on a game-by-game
basis as regular season games are played. No revenues have been recognized with
respect to amounts paid by season ticket holders for canceled games. Amounts
refunded are recorded by Celtics Basketball as reductions in the deferred
revenue liability when paid.
Celtics Basketball ordinarily recognizes Boston Celtics team and game expenses
on a game-by-game basis as the 82 regular season games are played. Due to the
cancellation of 32 regular season games in the 1998-99 season, Celtics
Basketball will generally recognize Boston Celtics team and game expenses on a
game-by-game basis over the shortened 50-game season. However, certain team
expenses contractually relate to a full 82-game season. As a result, the
results of operations of Celtics Basketball for the six months ended December
31, 1998 include a charge of $3,550,000 representing the pro rata portion of
certain team costs relative to the 32 canceled regular season games in the
1998-99 season.
19
BOSTON CELTICS LIMITED PARTNERSHIP
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
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 game,
broadcast and other revenues, expenses (including player and other team costs),
estimates of future impacts of the player lockout, 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 continuing effects of the player
lockout and cancellation of 32 regular season games in the 1998-99 season as a
result of the lockout, the impact of the lockout on television and other
revenues, the Boston Celtics' competitive success, uncertainties as to
increases in players' salaries, the Boston Celtics' ability to attract and
retain talented players, the risk of injuries to key players, uncertainties
regarding media contracts, uncertainties regarding labor relations and the
performance of certain investments by subsidiaries of the Partnership.
Basis of Presentation
Boston Celtics Limited Partnership II ("BCLP II") completed a Reorganization on
June 30, 1998 pursuant to which Boston Celtics Limited Partnership ("BCLP") was
formed as a holding entity for BCLP II. From its date of formation until the
completion of the Reorganization, BCLP had no material assets and was not
engaged in any business operations. Prior to the Reorganization, BCLP II,
through its subsidiaries, owned and operated the Boston Celtics. Accordingly,
the operating results of the Boston Celtics are consolidated in BCLP II's
financial statements for periods prior to the Reorganization. Upon completion
of the Reorganization, effective June 30, 1998, BCLP's and BCLP II's interest
in the accounts and operations of the Boston Celtics is reflected in their
indirect 48.3% investment in Celtics Basketball Holdings, L.P. ("Celtics
Basketball Holdings"), which is accounted for on the equity method. Celtics
Basketball Holdings has a 99.999% limited partnership interest in Celtics
Basketball, L.P. ("Celtics Basketball"), which owns and operates the Boston
Celtics effective July 1, 1998.
Because BCLP had not engaged in any business operations prior to June 30, 1998,
the following discussion compares the operating results of BCLP and its
subsidiaries for the six-month and three-month periods ended December 31, 1998
with the operating results of BCLP II and its subsidiaries for the six-month
and three-month periods ended December 31, 1997. Due to the July 1, 1998 change
in BCLP's and BCLP II's method of accounting for their investment in the
accounts and operations of the Boston Celtics from consolidation to the equity
method, BCLP's and BCLP II's results of operations are materially different in
the six-month and three-month periods ended December 31, 1998 from those in the
six-month and three-month periods ended December 31, 1997.
20
Reorganization costs amounted to approximately $2,350,000, which consisted
primarily of legal and professional expenses, costs of printing and
distribution and filing fees. These costs were charged to operations by BCLP II
prior to June 30, 1998.
Collective Bargaining Agreement
National Basketball Association ("NBA") players, including those that play for
the Boston Celtics, were covered by a collective bargaining agreement between
the NBA and the NBA Players Association (the "NBPA") that was to be in effect
through June 30, 2001 (the "Collective Bargaining Agreement"). Under the terms
of the Collective Bargaining Agreement, the NBA had the right to terminate the
Collective Bargaining Agreement after the 1997-98 season if it was determined
that the aggregate salaries and benefits paid by all NBA teams for the 1997-98
season exceeded 51.8% of projected Basketball Related Income, as defined in the
Collective Bargaining Agreement ("BRI"). In March 1998 the Board of Governors
of the NBA voted to reopen the Collective Bargaining Agreement, as it had been
determined that the aggregate salaries and benefits paid by the NBA teams for
the 1997-98 season would exceed 51.8% of projected BRI. Effective July 1, 1998,
the NBA commenced a lockout of NBA players in support of its attempt to reach a
new collective bargaining agreement.
On January 21, 1999, the NBA and the NBPA entered into a new collective
bargaining agreement (the "New Collective Bargaining Agreement"), thereby
ending the lockout. The New Collective Bargaining Agreement is to be in effect
through June 30, 2004, and the NBA has an option to extend it for one year
thereafter. The NBA and NBPA have agreed that the 1998-99 NBA regular season
will consist of 50 games per team (25 of which are home games) beginning in
early February 1999. Ordinarily, the NBA regular season consists of 82 games
per team (41 of which are home games), and generally begins in late October or
early November. Further, as provided under the terms of the New Collective
Bargaining Agreement, NBA teams are only required to pay 50/82 of each player's
salary with respect to the 1998-99 regular season. Previously, an independent
arbitrator ruled that NBA teams were not required to pay player salaries during
the lockout.
During the lockout, NBA teams refunded amounts paid by season ticket holders
(plus interest at 6%) for any home games that were canceled as a result of the
lockout. Such refunds were paid by Celtics Basketball on a monthly basis for
any games canceled in the preceding month.
Prior to the execution of the New Collective Bargaining Agreement, Celtics
Basketball refunded amounts paid by season ticket holders for a total of 16
home games (including two exhibition games) that were canceled due to the
lockout through December 31, 1998. These refunds amounted to approximately
$9,477,000 (including interest of approximately $149,000). Based on the revised
1998-99 NBA regular season schedule, Celtics Basketball is liable for refunding
amounts paid by season ticket holders for two additional home games (plus
interest at 6% through January 31, 1999). These additional refunds due to
season ticket holders amount to approximately $900,000 (including interest of
approximately $23,000). Season ticket holders have been given the option of
receiving a refund for these two additional games in February 1999 or leaving
the amount on deposit for future games (no interest will accrue on such amounts
after January 31, 1999).
21
All amounts paid by season ticket holders are recorded by Celtics Basketball as
deferred revenue and are subsequently recognized as revenue on a game-by-game
basis as regular season games are played. No revenues have been recognized with
respect to amounts paid by season ticket holders for canceled games. Amounts
refunded are recorded by Celtics Basketball as reductions in the deferred
revenue liability when paid.
Celtics Basketball ordinarily recognizes Boston Celtics team and game expenses
on a game-by-game basis as the 82 regular season games are played. Due to the
cancellation of 32 regular season games in the 1998-99 season, Celtics
Basketball will generally recognize Boston Celtics team and game expenses on a
game-by-game basis over the shortened 50-game season. However, certain team
expenses contractually relate to a full 82-game season. As a result, the
results of operations of Celtics Basketball for the six months ended December
31, 1998 include a charge of $3,550,000 representing the pro rata portion of
certain team costs relative to the 32 canceled regular season games in the
1998-99 season.
Given the fixed nature of many of BCLP's expenses, and given that BCLP's
operating income is almost entirely dependent on the NBA season, the
cancellation of 32 regular season games (of which 16 were home games) as a
result of the lockout has had a material adverse effect on BCLP's financial
condition and its results of operations for the six-month period ended December
31, 1998, and is likely to have a material adverse effect for the fiscal year
ended June 30, 1998. Celtics Basketball estimates that each canceled regular
season home game resulted in a loss of ticket revenue of approximately
$950,000. Celtics Basketball's local television and radio broadcast rights
agreements provide for the broadcast of a specified number of games at
specified rights fees per game. Celtics Basketball estimates that each canceled
regular season game resulted in a loss of television and radio broadcast rights
fees of approximately $115,000. The NBA, as agent for its members, licenses the
national and international broadcast of games, and each of the NBA member teams
shares equally in these license fees. The impact of the cancellation of 32
regular season games on Celtics Basketball's television rights fees under its
national and international broadcast agreements can not be determined at this
time. Celtics Basketball is only required to pay 50/82 of each player's salary
with respect to the 1998-99 regular season, and, as a result, estimates that
each canceled regular season game resulted in a reduction in player salaries of
$370,000.
The estimates of lost revenues and reduced expenses set forth in the preceding
paragraph are based on historical experience and certain assumptions, including
assumptions regarding ticket sales, amounts realized under broadcast agreements
and composition of the Boston Celtics team roster. There can be no assurance as
to the accuracy of these assumptions or that Celtics Basketball would have
recognized the aforementioned per-game estimates of revenues and expenses had
the games not been canceled, and such per-game estimates of revenues and
expenses should not be relied upon as an indication of future revenues and
expenses. Further, there can be no assurance that the NBA and NBPA will not
experience labor relations difficulties in the future or that Celtics
Basketball will not, notwithstanding the New Collective Bargaining Agreement,
experience significantly increased player salaries, which could have a material
adverse effect on the Partnership's financial condition or results of
operations.
22
General
BCLP accounts for its indirect investment in the accounts and operations of the
Boston Celtics using the equity method, and accordingly, its equity in the
income (loss) of the Boston Celtics is reported on a single line item in its
Condensed Consolidated Statement of Operations. Following is a general
description of certain matters related to the operations of the Boston Celtics.
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 is
ordinarily determinable at the commencement of each basketball season based on
season ticket sales and the Boston Celtics' multi-year contracts with its
players and broadcast organizations. In the six-month period ended December 31,
1998, such determinations have not been possible due to the player lockout and
related disruption of game and broadcast schedules.
The operations and financial results of the Boston Celtics are seasonal. On a
cash flow basis, the Boston Celtics receive a substantial portion of their
receipts from the advance sale of season tickets during the months of June
through October, prior to the commencement of the NBA regular season. Cash
receipts from playoff ticket sales are ordinarily received in March of any year
for which the team qualifies for league playoffs. Most of the Boston Celtics'
operating expenses are incurred and paid during the regular season, which
ordinarily extends from late October or early November through late April.
For financial reporting purposes, the Boston Celtics recognize revenues and
expenses on a game-by-game basis. Because the NBA regular season ordinarily
begins in late October or early November, the first fiscal quarter, which ends
on September 30, generally includes limited or no revenue and reflects a net
loss attributable to general and administrative expenses and selling and
promotional expenses incurred in the quarter. Based on the standard NBA game
schedule, the Boston Celtics ordinarily recognize approximately one-third of
its annual regular season revenue in the second fiscal quarter, approximately
one-half of such revenue in the third fiscal quarter and the remainder in the
fourth fiscal quarter, and recognize its playoff revenue, if any, in the fourth
fiscal quarter. Accordingly, BCLP's and BCLP II's equity in the income (loss)
of Celtics Basketball Holdings, which indirectly owns and operates the Boston
Celtics, will ordinarily result in a loss in its first fiscal quarter, income
in its second and third fiscal quarters and a loss in its fourth fiscal quarter
unless there is significant income from playoff revenues.
However, given the lockout, the cancellation of 32 regular season games and the
reduced number of games in the revised 1998-99 NBA schedule, the Boston Celtics
will recognize approximately 58% of its 1998-99 regular season revenue in the
third fiscal quarter and approximately 42% of such revenue in the fourth fiscal
quarter. Accordingly, BCLP's and BCLP II's equity in the income (loss) of
Celtics Basketball Holdings has resulted in losses in the first and second
fiscal quarters of the fiscal year ending June 30, 1999. Given the uncertainty
of the impact on revenue and expenses of the lockout, canceled games and the
shortened 1998-99 NBA season, there can be no assurance that BCLP's and BCLP
II's equity in the income (loss) of Celtics Basketball Holdings will not result
in further losses in the third and fourth fiscal quarters of the fiscal year
ending June 30, 1999, and beyond.
23
Results of Operations
BCLP's general and administrative expenses of $2,195,000 in the six-month
period ended December 31, 1998 decreased by $2,871,000 compared to BCLP II's
general and administrative expenses of $5,066,000 in the six-month period ended
December 31, 1997, and BCLP's general and administrative expenses of $1,145,000
in the three-month period ended December 31, 1998 decreased by $1,043,000
compared to BCLP II's general and administrative expenses of $2,188,000 in the
three-month period ended December 31, 1997. General and administrative expenses
in the six-month and three-month periods ended December 31, 1997 included
general and administrative expenses related to the Boston Celtics basketball
team of $2,159,000 and $920,000, respectively. Effective July 1, 1998, BCLP
accounts for its 48.3% indirect interest in the Boston Celtics basketball team
using the equity method, and, accordingly, general and administrative expenses
related to the Boston Celtics basketball team in the six-month and three-month
periods ended December 31, 1998 are included in equity in loss of Celtics
Basketball Holdings, L.P. The balance of the decreases in general and
administrative expenses in the six-month and three-month periods ended December
31, 1998 is a result of decreased personnel and other general and
administrative expenses as a result of the Reorganization.
Selling and promotional expenses of $1,722,000 and $1,225,000 in the six-month
and three-month periods ended December 31, 1997, respectively, related entirely
to the Boston Celtics basketball team. Effective July 1, 1998, BCLP accounts
for its 48.3% indirect interest in the Boston Celtics basketball team using the
equity method, and, accordingly, selling and promotional expenses related to
the Boston Celtics basketball team in the six-month and three-month periods
ended December 31, 1998 are included in equity in loss of Celtics Basketball
Holdings, L.P.
Equity in loss of Celtics Basketball Holdings, L.P. of $4,373,000 represents
BCLP's 48.3% interest in the loss of the entity that indirectly owns and
operates the Boston Celtics basketball team subsequent to the June 30, 1998
Reorganization. Prior to the Reorganization, the operating results of the
Boston Celtics basketball team were consolidated with BCLP II's operating
results. The Boston Celtics recognize revenues and expenses on a game-by-game
basis, and the NBA regular season ordinarily begins in late October or early
November. As a result, BCLP II's operating results for the six-month and
three-month periods ended December 31, 1997 included revenues from ticket
sales, television and radio broadcast rights fees and promotional advertising,
and included team and game expenses. Had BCLP II accounted for a 48.3% interest
of the Boston Celtics basketball team for the six months ended December 31,
1997 using the equity method, BCLP II's pro forma equity in income of the
Boston Celtics would have amounted to $2,119,000. However, due to the
cancellation of 32 regular season games in the 1998-99 season, the Boston
Celtics did not commence their 1998-99 season until early February 1999. As a
result, Celtics Basketball recorded no revenues and no game expenses in the
six-month period ended December 31, 1998, and its results of operations for the
six-month period ended December 31, 1998 reflect net losses attributable to
general and administrative expenses, selling and promotional expenses, certain
team expenses contractually related to a full 82-game season, and interest
expense, net of interest income.
24
BCLP's interest expense of $3,383,000 in the six-month period ended December
31, 1998 increased by $433,000 compared to BCLP II's interest expense of
$2,950,000 in the six-month period ended December 31, 1997, and BCLP's interest
expense of $1,648,000 in the three-month period ended December 31, 1998
increased by $177,000 compared to BCLP II's interest expense of $1,471,000 in
the three-month period ended December 31, 1997. The increases are primarily
attributable to interest related to the subordinated debentures issued in
connection with the Reorganization ($1,822,000 and $911,000 in the six-month
and three-month periods ended December 31, 1998, respectively) and interest
related to new borrowings of $50,000,000 under BCLP II's revolving credit
agreement with its commercial bank ($361,000 and $140,000 in the six-month and
three-month periods ended December 31, 1998, respectively). These increases
were partially offset by the fact that interest expense in the six-month and
three-month periods ended December 31, 1997 included interest expense related
to the Boston Celtics basketball team of $1,750,000 and $874,000, respectively.
Effective July 1, 1998, BCLP accounts for its 48.3% indirect interest in the
Boston Celtics basketball team using the equity method, and, accordingly,
interest expense related to the Boston Celtics basketball team in the six-month
and three-month periods ended December 31, 1998 is included in equity in loss
of Celtics Basketball Holdings, L.P.
BCLP's interest income of $2,392,000 in the six-month period ended December 31,
1998 decreased by $904,000 compared to BCLP II's interest income of $3,296,000
in the six-month period ended December 31, 1997, and BCLP's interest income of
$1,146,000 in the three-month period ended December 31, 1998 decreased by
$584,000 compared to BCLP II's interest income of $1,730,000 in the three-month
period ended December 31, 1997. The decreases are primarily attributable to a
reduction in funds available for investment. In addition, interest income in
the six-month and three-month periods ended December 31, 1997 included interest
income related to the Boston Celtics basketball team of $166,000 and $87,000,
respectively. Effective July 1, 1998, BCLP accounts for its 48.3% indirect
interest in the Boston Celtics basketball team using the equity method, and,
accordingly, interest income related to the Boston Celtics basketball team in
the six-month and three-month periods ended December 31, 1998 is included in
equity in loss of Celtics Basketball Holdings, L.P.
BCLP II recorded an extraordinary charge in the three months ended September
30, 1998 related to the early retirement of notes payable to a former principal
unitholder relating to redeemed BCLP II units. The notes payable to the former
principal unitholder had an aggregate initial face amount of $14,365,096. The
notes, which were due and payable on July 1, 2000, also provided that the
amounts to be paid to such unitholder were to be increased by specified amounts
on each July 1 during their term. If the principal unitholder held the notes
until July 1, 2000, he would have been entitled to receive aggregate payments
(excluding interest) in the amount of $20,044,320. Each of the notes bore
interest payable quarterly at the rate of 7.76% per annum. At September 30,
1998, BCLP II repaid the notes payable, which had an aggregate balance,
including scheduled increases in the note balances, of $17,538,780. The notes
payable were repaid in the amount of $19,794,320, resulting in an extraordinary
charge of $2,255,540 related to early retirement of notes payable.
BCLP's provision for income taxes of $900,000 relates to BCLP's subsidiary
corporations.
25
Liquidity and Capital Resources
BCLP used approximately $2,536,000 in cash flows from operations in the six
months ended December 31, 1998. At December 31, 1998 the Partnership had
approximately $72,690,000 of available cash and cash equivalents and
$12,391,000 of other short-term investments. In addition to these amounts,
sources of funds available to the Partnership include funds generated by
operations, unused portions of credit facilities with its commercial bank, and
distributions from Celtics Basketball Holdings, which through a subsidiary
owns and operates the Boston Celtics. These resources will be used to repay
commercial bank borrowings and for general partnership purposes, working
capital needs or for possible investments and/or acquisitions.
On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit agreement
with its commercial bank, $20,000,000 of which was reserved until the repayment
of notes payable related to redeemed BCLP II Units. Interest on advances under
the revolving credit agreement accrues at BCLP II'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%. The revolving credit agreement expires on June 30, 2003 and is
secured by a pledge of certain assets of Celtics Capital Corporation, an
indirect subsidiary of BCLP and BCLP II. On May 26, 1998, $30,000,000 was
advanced under the revolving credit agreement in connection with the
Reorganization, and on September 30, 1998, BCLP II borrowed the $20,000,000
reserved for the repayment of notes payable related to redeemed BCLP II Units
and repaid the notes with the proceeds. Management anticipates that amounts
advanced under the revolving credit agreement will be repaid by BCLP II out of
operating cash flow.
In connection with the Reorganization, BCLP II distributed 6% subordinated
debentures to certain former holders of BCLP II units. One $20 face value
subordinated debenture was distributed for each of the 2,703,664 BCLP II units
with respect to which a BCLP II Unitholder elected to receive subordinated
debentures, cash and BCLP units. The subordinated debentures were recorded at
$12.20 per debenture, the fair market value at date of issue, or $32,984,700.
The original issue discount of $21,088,580 is being amortized over the 40-year
life of the debentures using the interest method. The subordinated debentures
bear interest at the rate of 6% per annum, payable annually commencing June 30,
1999. The subordinated debentures mature on June 30, 2038. There is no
mandatory redemption of the subordinated debentures, and they are not entitled
to any sinking fund.
No cash distributions to unitholders of BCLP were declared or paid during the
six months ended 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).
Future distributions will be determined by the General Partner based, among
other things, on available resources and the needs of the Partnership.
Management believes that its cash, cash equivalents and other short-term
investments together with cash from operating activities will provide adequate
cash for the Partnership and its subsidiaries to meet their cash requirements
through December 31, 1999.
26
Year 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As
the Year 2000 approaches, such systems may be unable to accurately process
certain date-based information. As used by the Partnership, "Year 2000 ready"
means that a system will function in the year 2000 without modification or
adjustment, or with a one-time manual adjustment.
State of Readiness
The Partnership has established a Year 2000 Committee and an action plan for
addressing Year 2000 issues. The Partnership's action plan for addressing Year
2000 issues in its information technology ("IT") and non-IT systems covers four
phases: (i) identification of all IT and non-IT systems; (ii) assessment of
Year 2000 issues; (iii) repair of IT and non-IT systems, if necessary and
testing and integration of repaired systems; and (iv) creation of a contingency
plan to address any potential Year 2000 failures. The Partnership is also
contacting third parties with which it deals (such as customers and suppliers)
to evaluate their Year 2000 readiness and determine whether any Year 2000
failure will affect their ability to perform as the Year 2000 approaches and
arrives.
As of December 31, 1998, the Partnership has completed the first three phases
of its Year 2000 action plan with respect to its IT systems. The Partnership
has identified all of its IT systems (which are comprised solely of an internal
personal computer network and commercially available software products),
assessed the Year 2000 readiness of these systems (which involved review and
testing by the Partnership's internal information technology specialists) and
made necessary repairs. As of December 31, 1998, the Partnership has completed
the first phase of its Year 2000 action plan, and has begun the second phase,
with respect to its non-IT systems. The Partnership has identified all of its
non-IT systems (which are comprised of embedded systems contained in its leased
properties) and has assessed the Year 2000 readiness of approximately 25% of
these systems through review and testing. The Partnership is scheduled to
complete all four phases of its Year 2000 initiative with respect to both IT
and non-IT systems no later than June 30, 1999.
The Partnership has received assurances from a majority of its suppliers and
third parties with which it interacts that they have addressed their Year 2000
issues. The Partnership is evaluating these assurances for their adequacy and
accuracy and, in cases where the Partnership has not received assurances from
third parties, is initiating further mail or phone correspondence. As a general
matter, the Partnership is vulnerable to failures by third parties to address
their own Year 2000 issues. The Partnership relies heavily upon third parties
for ticketing, producing and broadcasting basketball games, and for
transporting the Team to and from basketball games. There can be no assurance
that the Partnership's suppliers and third parties will adequately address
their Year 2000 issues, and any such issues could have a material adverse
affect upon the Partnership's financial condition and results of operations.
Costs to Address the Year 2000 Issue
The Partnership has not spent a material amount to remediate Year 2000 problems
and does not anticipate that it will spend a material amount to remediate Year
2000 problems in the future.
27
Risks Presented by the Year 2000 Issue
Until it has fully completed the first two phases of its Year 2000 action plan
with respect to both IT and non-IT systems, the Partnership cannot accurately
estimate the risks of its Year 2000 issue. To date, the Partnership has not
identified any IT system or non-IT system that presents a material risk of not
being ready for the Year 2000. The Partnership's Year 2000 action plan may,
however, identify systems that present a risk of Year 2000 related disruption.
Any such disruption could have a material adverse effect upon the Partnership's
financial condition and results of operations. In addition, the failure to
address Year 2000 issues by the Partnership's suppliers and other third parties
with which it interacts could have a material adverse effect upon the
Partnership's financial condition and results of operations.
Contingency Plans
The Partnership's Year 2000 action plan calls for the Partnership to develop a
Year 2000 contingency plan. Because the Partnership has not fully assessed its
possible risks from Year 2000 failures, it has not yet developed a Year 2000
contingency plan. The Partnership will develop such a plan if the results of
its Year 2000 action plan identify risks of a Year 2000 failure.
28
Part II - Other Information
ITEM 1
In July and August 1998, four separate class action complaints (the
"Complaints") were filed by Unitholders in the Court of Chancery of the State
of Delaware in and for New Castle County against BCLP II, Celtics, Inc., Paul
E. Gaston, Don F. Gaston, Paula B. Gaston, John H.M. Leithead and John B. Marsh
III, each directors of Celtics, Inc. BCLP GP, Inc. is a wholly owned subsidiary
of Celtics, Inc. The named plaintiffs, who each purported to bring their
individual actions on behalf of themselves and others similarly situated, are
Kenneth L. Rilander, Harbor Finance Partners, Maryann Kelly and Kathleen Kruse
Perry. Each of the Complaints alleges, among other things, that the
Reorganization was unfair to former BCLP II Unitholders, and seeks to recover
an unspecified amount of damages, including attorneys' and experts' fees and
expenses. The Partnership filed a Motion to Dismiss the complaint filed by Mr.
Rilander on July 29, 1998, and discovery in that case has been stayed by
agreement of the parties. The Complaints have been consolidated.
Although the ultimate outcome of these Complaints cannot be determined at this
time, management of the Partnership does not believe that the outcome of these
proceedings will have a material adverse effect on the Partnership's financial
position or results of operations.
In addition, as a result of the lockout, NBA teams did not make any payments
due to players with respect to the 1998-99 season. The NBPA disputed the NBA's
position on this matter, and an independent arbitrator ruled in favor of the
NBA in October 1998. Further, as provided under the terms of the New Collective
Bargaining Agreement between the NBA and NBPA, NBA teams are only required to
pay 50/82 of each player's salary with respect to the 1998-99 regular season.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit (27) - Financial data schedule.
(b) Reports on Form 8-K -
None.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrants have duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BOSTON CELTICS LIMITED PARTNERSHIP
----------------------------------
(Registrant)
By: BCLP GP, Inc., its General Partner
Dated: February 12, 1999 By: /s/ Richard G. Pond
---------------------------------
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
Dated: February 12, 1999 BOSTON CELTICS LIMITED PARTNERSHIP II
-------------------------------------
(Registrant)
By: BCLP II GP, Inc., its General Partner
By: /s/ Richard G. Pond
---------------------------------
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
30