<PAGE> 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 March 31, 1999
_______________________________________
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 March 31, 1999, 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.
<PAGE> 2
Part I - Financial Information
Item I - Financial Statements
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
--------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $87,845,369 $ 8,468,286
Marketable securities 1,041,446
Other short-term investments 250,000 81,114,266
Prepaid expenses and other current assets 797,306 302,900
----------------------------
TOTAL CURRENT ASSETS 88,892,675 90,926,898
PROPERTY AND EQUIPMENT, net of depreciation
of $28,778 in March and $21,957 in June 16,695 23,516
OTHER ASSETS 1,002,081 1,096,129
----------------------------
$89,911,451 $92,046,543
============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,558,108 $ 1,102,496
Due to related parties 3,036,184
Federal and state income taxes payable 951,204 733,800
Notes payable to bank - current portion 1,000,000
Notes payable 17,538,780
----------------------------
TOTAL CURRENT LIABILITIES 4,509,312 22,411,260
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK - noncurrent portion 50,000,000 30,000,000
SUBORDINATED DEBENTURES 33,284,301 32,984,700
INVESTMENT IN CAPITAL DEFICIENCY OF
CELTICS BASKETBALL HOLDINGS, L.P. 34,579,533 29,865,364
<PAGE> 3
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership -
General Partner 197,923 290,166
Limited Partners (43,363,933) (34,329,896)
----------------------------
(43,166,010) (34,039,730)
Boston Celtics Limited Partnership II -
General Partner 136,537 210,292
Celtics Limited Partnership -
General Partner 215,411 262,554
Boston Celtics Communications Limited
Partnership - General Partner 641,492 641,228
----------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (42,172,570) (32,925,656)
----------------------------
$89,911,451 $92,046,543
============================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
March 31, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
Costs and expenses:
General and administrative $ 3,118,072 $ 922,641
Depreciation and amortization 42,156 14,052
----------------------------
(3,160,228) (936,693)
Equity in income (loss) of Celtics
Basketball Holdings, L.P. (994,121) 3,378,400
Interest expense (5,004,961) (1,621,733)
Interest income 3,401,046 1,008,714
Net realized gains on disposition of
marketable securities and other
short-term investments 6,020
----------------------------
Income (loss) before income taxes and
extraordinary charge (5,752,244) 1,828,688
Provision for income taxes 1,300,000 400,000
----------------------------
Income (loss) before extraordinary charge (7,052,244) 1,428,688
Extraordinary charge for early retirement
of notes payable 2,255,540
----------------------------
Net income (loss) (9,307,784) 1,428,688
Net income (loss) applicable to interests
of General Partners (175,624) 66,786
----------------------------
Net income (loss) applicable to interests
of Limited Partners $(9,132,160) $1,361,902
============================
Income (loss) per unit before
extraordinary charge $ (2.56) $ 0.50
Net income (loss) per unit $ (3.38) $ 0.50
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statement of Cash Flows
Unaudited
For the Nine Months Ended March 31, 1999
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
General and administrative expenses $ (4,172,165)
Interest expense (2,456,150)
Interest income 3,651,138
Income taxes paid (1,082,596)
-------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (4,059,773)
-------------
CASH FLOWS FROM 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 324,427,039
Other receipts (expenditures) 13,914
-------------
NET CASH FLOWS FROM INVESTING ACTIVITIES 78,458,199
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 21,000,000
Payment of notes payable (19,794,320)
Cash distribution from Celtics Basketball Holdings, L.P. 3,682,811
Cash contributions from general partner 90,166
-------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 4,978,657
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 79,377,083
Cash and cash equivalents at beginning of period 8,468,286
-------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 87,845,369
=============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 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. All intercompany
transactions are eliminated in consolidation.
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, adjusted 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 Forms 10-Q for the quarters ended September 30, 1998 and December 31, 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. Since
completion of the Reorganization, Celtics Basketball Holdings, through Celtics
Basketball, has owned and operated 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 nine and three
months ended March 31, 1999 is as follows:
<PAGE> 7
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
March 31, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
Total revenues $ 26,288,000 $ 26,288,000
Total costs and expenses (27,142,891) (19,492,024)
Interest and other income (expense), net (1,202,837) 196,917
------------------------------
Net income (loss) $ (2,057,728) $ 6,992,893
==============================
</TABLE>
Note 4 - The following table sets forth the computation of income (loss) per
unit:
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
March 31, 1999 March 31, 1999
-------------- -------------
<S> <C> <C>
Numerator for income (loss) per unit:
Income (loss) before extraordinary charge:
Income (loss) before extraordinary charge $(7,052,244) $1,428,688
Applicable to interests of General Partners of subsidiary partnerships (60,825) 53,029
----------------------------
(6,991,419) 1,375,659
Applicable to 1% General Partnership interest of BCLP (69,914) 13,757
----------------------------
Applicable to interests of Limited Partners $(6,921,505) $1,361,902
============================
Net income (loss):
Net income (loss) $(9,307,784) $1,428,688
Applicable to interests of General Partners of subsidiary partnerships (83,380) 53,029
----------------------------
(9,224,404) 1,375,659
Applicable to 1% General Partnership interest of BCLP (92,244) 13,757
----------------------------
Applicable to interests of Limited Partners $(9,132,160) $1,361,902
============================
Denominator for income (loss) per unit - weighted average units 2,703,664 2,703,664
============================
Income (loss) per unit before extraordinary charge $ (2.56) $ 0.50
============================
Net income (loss) per unit $ (3.38) $ 0.50
============================
</TABLE>
<PAGE> 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
nine-month and three-month periods ended March 31, 1999.
Note 6 - NBA players, including those that play for the Boston Celtics, were
previously 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 agreed that the 1998-99 NBA regular season would
consist of 50 games per team (25 of which are home games), which began 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, including the Boston Celtics, were not
required to pay player salaries during the lockout.
NBA teams, including the Boston Celtics, refunded amounts paid by season ticket
holders (plus interest at 6%) for a total of 18 home games (including two
exhibition games) that were canceled as a result of the lockout. Such refunds,
which amounted to approximately $11,632,000 (including interest of $185,000),
were paid by Celtics Basketball on a monthly basis for any games canceled in
the preceding month. In addition, certain season ticket holders elected to
leave their refunds and interest on deposit for future games. Such refunds and
interest amounted to approximately $571,000 at March 31, 1999 (including
interest of approximately $12,000). No interest has accrued on such amounts
since 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 were recognized with
respect to amounts paid by season ticket holders for canceled games or for
refunds left on deposit for future games. Amounts refunded are recorded by
Celtics Basketball as reductions in the deferred revenue liability when paid.
<PAGE> 9
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 nine months ended March 31,
1999 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. This charge was recorded in the three months ended December 31,
1998.
<PAGE> 10
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
--------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 87,814,571 $ 8,268,186
Marketable securities 1,041,446
Other short-term investments 250,000 81,114,266
Due from related parties 2,032,087
Prepaid expenses and other current assets 364,098 212,734
------------------------------
TOTAL CURRENT ASSETS 90,460,756 90,636,632
PROPERTY AND EQUIPMENT, net of depreciation
of $28,778 in March and $21,957 in June 16,695 23,516
OTHER ASSETS 1,002,081 1,096,129
------------------------------
$ 91,479,532 $ 91,756,277
==============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,553,344 $ 1,102,296
Due to related parties 3,036,184
Federal and state income taxes payable 951,204 733,800
Notes payable to bank - current portion 1,000,000
Notes payable 17,538,780
------------------------------
TOTAL CURRENT LIABILITIES 4,504,548 22,411,060
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK - noncurrent portion 50,000,000 30,000,000
SUBORDINATED DEBENTURES 33,284,301 32,984,700
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 34,579,533 29,865,364
<PAGE> 11
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership II -
General Partner 136,537 210,292
Limited Partner (41,593,165) (34,329,796)
------------------------------
(41,456,628) (34,119,504)
Celtics Limited Partnership -
General Partner 215,411 262,554
Boston Celtics Communications Limited
Partnership - General Partner 641,492 641,228
------------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (40,599,725) (33,215,722)
------------------------------
$ 91,479,532 $ 91,756,277
==============================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 12
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
-------------------------- -------------------------
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Basketball regular season -
Ticket sales $32,906,000 $20,109,000
Television and radio broadcast rights fees 24,030,000 14,685,000
Other, principally promotional advertising 8,009,000 4,877,000
--------------------------------------------------------------
64,945,000 39,671,000
--------------------------------------------------------------
Costs and expenses:
Basketball regular season -
Team 35,803,000 21,457,000
Game 2,344,000 1,432,000
General and administrative $ 1,255,161 8,176,676 $ 422,649 3,111,170
Selling and promotional 2,973,892 1,251,947
Depreciation 6,821 154,767 2,274 52,960
Amortization of NBA franchise and other
intangible assets 35,335 121,783 11,778 39,432
--------------------------------------------------------------
1,297,317 49,574,118 436,701 27,344,509
--------------------------------------------------------------
(1,297,317) 15,370,882 (436,701) 12,326,491
Equity in income (loss) of Celtics Basketball
Holdings, L.P. (994,121) 3,378,400
Interest expense (5,004,961) (4,389,111) (1,621,733) (1,439,243)
Interest income 3,401,046 4,847,509 1,008,714 1,551,256
Net realized gains on disposition of marketable
securities and other short-term investments 6,020 (8,805) (7,759)
--------------------------------------------------------------
Income (loss) before income taxes and
extraordinary charge (3,889,333) 15,820,475 2,328,680 12,430,745
Provision for income taxes 1,300,000 1,400,000 400,000 500,000
--------------------------------------------------------------
Income (loss) before extraordinary charge (5,189,333) 14,420,475 1,928,680 11,930,745
Extraordinary charge for early retirement of
notes payable 2,255,540
--------------------------------------------------------------
Net income (loss) (7,444,873) 14,420,475 1,928,680 11,930,745
Net income (loss) applicable to interests of
General Partners (83,380) 322,608 53,029 254,263
--------------------------------------------------------------
<PAGE> 13
Net income (loss) applicable to interests of
Limited Partners $(7,361,493) $14,097,867 $1,875,651 $11,676,482
==============================================================
Income (loss) per unit before extraordinary
charge $ (1.90) $ 0.69
Net income (loss) per unit - basic $ (2.72) $ 2.90 $ 0.69 $ 2.40
Net income (loss) per unit - diluted $ (2.72) $ 2.56 $ 0.69 $ 2.13
Distributions declared per unit $ 1.00
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 14
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Receipts:
Basketball regular season receipts:
Ticket sales $ 32,819,142
Television and radio broadcast rights fees 18,339,004
Other, principally promotional advertising 7,273,256
-----------------------------
58,431,402
Costs and expenses:
Basketball regular season expenditures:
Team expenses 30,453,919
Game expenses 2,239,188
General and administrative expenses $ 3,912,697 11,110,257
Selling and promotional expenses 3,067,845
-----------------------------
3,912,697 46,871,209
-----------------------------
(3,912,697) 11,560,193
Interest expense (2,456,150) (2,586,176)
Interest income 3,651,138 5,001,335
Income taxes refunded (paid) (1,082,596) (233,306)
Payment of deferred compensation (1,299,282)
-----------------------------
NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES (3,800,305) 12,442,764
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Marketable securities (41,399,070)
Short-term investments (246,982,754) (557,767,039)
Proceeds from sales of:
Marketable securities 1,000,000 54,870,332
Short-term investments 324,427,039 555,432,400
Capital expenditures (364,146)
Other receipts (expenditures) 13,914 51,994
-----------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES 78,458,199 10,824,471
-----------------------------
NET CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES 74,657,894 23,267,235
<PAGE> 15
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from bank borrowings 21,000,000 50,000,000
Payment of bank borrowings (50,000,000)
Payment of notes payable (19,794,320)
Cash distribution from Celtics Basketball Holdings, L.P. 3,682,811
Cash distribution to limited partners of Boston Celtics
Limited Partnership II (5,400,522)
-----------------------------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 4,888,491 (5,400,522)
-----------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 79,546,385 17,866,713
Cash and cash equivalents at beginning of period 8,268,186 6,498,739
-----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $87,814,571 $ 24,365,452
=============================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 16
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, adjusted 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 Forms 10-Q for the quarters ended September 30, 1998 and December 31, 1998.
<PAGE> 17
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 nine and three
months ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
March 31, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
Total revenues $ 26,288,000 $ 26,288,000
Total costs and expenses (27,142,891) (19,492,024)
Interest and other income (expense), net (1,202,837) 196,917
-------------------------------
Net income (loss) $ (2,057,728) $ 6,992,893
===============================
</TABLE>
<PAGE> 18
Note 4 - The following table sets forth the computation of income (loss) per
unit:
<TABLE>
<CAPTION>
Nine Months Ended March 31, Three Months Ended March 31,
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for income (loss) per unit:
Income (loss) before extraordinary charge:
Income (loss) before extraordinary charge $(5,189,333) $14,420,475 $1,928,680 $11,930,745
Applicable to interests of General Partners
of subsidiary partnerships (9,679) 180,205 33,864 136,319
-------------------------------------------------------------
(5,179,654) 14,240,270 1,894,816 11,794,426
Applicable to 1% General Partnership interest
of BCLP II (51,146) 142,403 19,165 117,944
-------------------------------------------------------------
Applicable to interests of Limited Partners $(5,128,508) $14,097,867 $1,875,651 $11,676,482
==============================================================
Net income (loss):
Net income (loss) $(7,444,873) $14,420,475 $1,928,680 $11,930,745
Applicable to interests of General Partners
of subsidiary partnerships (9,679) 180,205 33,864 136,319
-------------------------------------------------------------
(7,435,194) 14,240,270 1,894,816 11,794,426
Applicable to 1% General Partnership interest
of BCLP II (73,701) 142,403 19,165 117,944
-------------------------------------------------------------
Applicable to interests of Limited Partners $(7,361,493) $14,097,867 $1,875,651 $11,676,482
==============================================================
Denominator:
Denominator for basic earnings per unit -
weighted average units 2,703,664 4,861,278 2,703,664 4,861,278
Effect of dilutive securities:
Options to purchase units of Partnership
interest 165,721 143,439
Restricted stock 484,886 484,886
-------------------------------------------------------------
Denominator for income (loss) per unit -
weighted average units 2,703,664 5,511,885 2,703,664 5,489,603
==============================================================
Income (loss) per unit before extraordinary charge $ (1.90) $ 2.90 $ 0.69 $ 2.40
==============================================================
Net income (loss) per unit - basic $ (2.72) $ 2.90 $ 0.69 $ 2.40
==============================================================
Net income (loss) per unit - diluted $ (2.72) $ 2.56 $ 0.69 $ 2.13
==============================================================
</TABLE>
<PAGE> 19
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
nine-month and three-month periods ended March 31, 1999.
Note 6 - NBA players, including those that play for the Boston Celtics, were
previously 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 agreed that the 1998-99 NBA regular season would
consist of 50 games per team (25 of which are home games), which began 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, including the Boston Celtics, were not
required to pay player salaries during the lockout.
NBA teams, including the Boston Celtics, refunded amounts paid by season ticket
holders (plus interest at 6%) for a total of 18 home games (including two
exhibition games) that were canceled as a result of the lockout. Such refunds,
which amounted to approximately $11,632,000 (including interest of $185,000),
were paid by Celtics Basketball on a monthly basis for any games canceled in
the preceding month. In addition, certain season ticket holders elected to
leave their refunds and interest on deposit for future games. Such refunds and
interest amounted to approximately $571,000 at March 31, 1999 (including
interest of approximately $12,000). No interest has accrued on such amounts
since 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 were recognized with
respect to amounts paid by season ticket holders for canceled games or for
refunds left on deposit for future games. Amounts refunded are recorded by
Celtics Basketball as reductions in the deferred revenue liability when paid.
<PAGE> 20
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 nine months ended March 31,
1999 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. This charge was recorded in the three months ended December 31,
1998.
<PAGE> 21
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 Boston Celtics Limited Partnership
("BCLP," 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 competitive success
of the Boston Celtics professional basketball team (the "Boston Celtics") of
the National Basketball Association (the "NBA"), 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.
<PAGE> 22
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 nine-month and three-month periods ended March 31, 1999
with the operating results of BCLP II and its subsidiaries for the nine-month
and three-month periods ended March 31, 1998. 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
nine-month and three-month periods ended March 31, 1999 from those in the
nine-month and three-month periods ended March 31, 1998.
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
NBA players, including those that play for the Boston Celtics, were previously
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 agreed that the 1998-99 NBA regular season would
consist of 50 games per team (25 of which are home games), which began 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, including the Boston Celtics, were not
required to pay player salaries during the lockout.
NBA teams, including the Boston Celtics, refunded amounts paid by season ticket
holders (plus interest at 6%) for a total of 18 home games (including two
exhibition games) that were canceled as a result of the lockout. Such refunds,
which amounted to approximately $11,632,000 (including interest of $185,000),
were paid by Celtics Basketball on a monthly basis for any games canceled in
the preceding month. In addition, certain season ticket holders elected to
leave their refunds and interest on deposit for future games. Such refunds and
interest amounted to approximately $571,000 at March 31, 1999 (including
interest of approximately $12,000). No interest has accrued on such amounts
since January 31, 1999.
<PAGE> 23
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 were recognized with
respect to amounts paid by season ticket holders for canceled games or for
refunds left on deposit for future 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 nine months ended March 31,
1999 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. This charge was recorded in the three months ended December 31,
1998.
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 nine-month period ended March
31, 1999, and will have a material adverse effect for the fiscal year ended
June 30, 1999. 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 the
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.
<PAGE> 24
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 1998-99 season, such determinations
were not 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 from
playoff ticket sales is 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, Celtics Basketball recognizes Boston Celtics
team and game 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, Celtics Basketball ordinarily recognizes
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 recognizes 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, Celtics Basketball
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 resulted in losses in the first and second fiscal
quarters of the fiscal year ending June 30, 1999 and income in the third fiscal
quarter 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 fourth fiscal quarter of the fiscal year ending June 30, 1999,
and beyond.
<PAGE> 25
Results of Operations
BCLP's general and administrative expenses of $3,118,000 in the nine-month
period ended March 31, 1999 decreased by $5,059,000 compared to BCLP II's
general and administrative expenses of $8,177,000 in the nine-month period
ended March 31, 1998, and BCLP's general and administrative expenses of
$923,000 in the three-month period ended March 31, 1999 decreased by $2,188,000
compared to BCLP II's general and administrative expenses of $3,111,000 in the
three-month period ended March 31, 1998. General and administrative expenses in
the nine-month and three-month periods ended March 31, 1998 included general
and administrative expenses related to the Boston Celtics basketball team of
$3,210,000 and $1,051,000, 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 nine-month and three-month periods
ended March 31, 1999 are included in equity in income (loss) of Celtics
Basketball Holdings. The balance of the decreases in general and administrative
expenses in the nine-month and three-month periods ended March 31, 1999 is a
result of decreased personnel and other general and administrative expenses as
a result of the Reorganization.
Selling and promotional expenses of $2,974,000 and $1,252,000 in the nine-
month and three-month periods ended March 31, 1998, 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 nine-month and three-month
periods ended March 31, 1999 are included in equity in income (loss) of Celtics
Basketball Holdings.
Equity in income (loss) of Celtics Basketball Holdings, L.P. of $994,000
represents BCLP's 48.3% interest in the income (loss) of the entity that
indirectly owns and operates the Boston Celtics basketball team subsequent to
the Reorganization. Prior to the Reorganization, the operating results of the
Boston Celtics basketball team were consolidated with BCLP II's operating
results. Celtics Basketball recognizes Boston Celtics team and game 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 nine-month and three-month periods ended March 31, 1998
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
nine months ended March 31, 1998 using the equity method, BCLP II's pro forma
equity in income of the Boston Celtics would have amounted to $8,693,000,
reflecting, among other things, team and game revenues and expenses related to
the 72 regular season games played by the Boston Celtics in the nine-month
period ended March 31, 1998. 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, and the Boston Celtics played just 29 regular season
games in the nine-month period ended March 31, 1999. As a result, the results
of operations of Celtics Basketball for the nine-month period ended March 31,
1999 reflected a net loss, as net team and game income related to the 29
regular season games played was more than offset by general and administrative
expenses, selling and promotional expenses, certain team expenses contractually
related to the 32 canceled games and interest expense, net of interest income.
<PAGE> 26
BCLP's interest expense of $5,005,000 in the nine-month period ended March 31,
1999 increased by $616,000 compared to BCLP II's interest expense of $4,389,000
in the nine-month period ended March 31, 1998, and BCLP's interest expense of
$1,622,000 in the three-month period ended March 31, 1999 increased by $183,000
compared to BCLP II's interest expense of $1,439,000 in the three-month period
ended March 31, 1998. The increases are primarily attributable to interest
related to the subordinated debentures issued by BCLP II in connection with the
Reorganization ($2,733,000 and $911,000 in the nine-month and three-month
periods ended March 31, 1999, respectively) and interest related to new
borrowings of $50,000,000 under BCLP II's revolving credit agreement with its
commercial bank ($469,000 and $114,000 in the nine-month and three-month
periods ended March 31, 1999, respectively). These increases were partially
offset by the fact that interest expense in the nine-month and three-month
periods ended March 31, 1998 included interest expense related to the Boston
Celtics basketball team of $2,586,000 and $836,000, 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 nine-month and
three-month periods ended March 31, 1999 is included in equity in income (loss)
of Celtics Basketball Holdings.
BCLP's interest income of $3,401,000 in the nine-month period ended March 31,
1999 decreased by $1,447,000 compared to BCLP II's interest income of
$4,848,000 in the nine-month period ended March 31, 1998, and BCLP's interest
income of $1,009,000 in the three-month period ended March 31, 1999 decreased
by $542,000 compared to BCLP II's interest income of $1,551,000 in the
three-month period ended March 31, 1998. The decreases are primarily
attributable to a reduction in funds available for investment. In addition,
interest income in the nine-month and three-month periods ended March 31, 1998
included interest income related to the Boston Celtics basketball team of
$237,000 and $71,000, 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 nine-month and three-month periods ended March 31, 1999
is included in equity in income (loss) of Celtics Basketball Holdings.
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 $1,300,000 relates to BCLP's subsidiary
corporations.
<PAGE> 27
Liquidity and Capital Resources
BCLP used approximately $4,060,000 in cash flows from operations in the nine
months ended March 31, 1999. At March 31, 1999 the Partnership had
approximately $87,845,000 of available cash and cash equivalents and $250,000
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
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 for 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. On February 1, 1999, BCLP II borrowed
$1,000,000 against the revolving credit agreement for general working capital
purposes. This amount was repaid on April 6, 1999. 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
nine months ended March 31, 1999. 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 March 31, 2000.
<PAGE> 28
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 March 31, 1999, 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 March 31, 1999, 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 50% 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 Boston Celtics' players, coaches and equipment 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 effect 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.
<PAGE> 29
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.
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, during 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, NBA teams are only required to pay 50/82 of each player's
salary with respect to the 1998-99 regular season.
<PAGE> 30
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit (27) - Financial data schedule.
(b) Reports on Form 8-K -
None.
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: May 7, 1999 By: /s/ Richard G. Pond
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
Dated: May 7, 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
<PAGE> 31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF BOSTON CELTICS LIMITED PARTNERSHIP AND ITS
SUBSIDIARIES AS OF MARCH 31, 1999 AND THE RELATED CONSOLIDATED STATEMENT OF
INCOME FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 87,845
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,893
<PP&E> 45
<DEPRECIATION> 28
<TOTAL-ASSETS> 89,911
<CURRENT-LIABILITIES> 4,509
<BONDS> 83,284
0
0
<COMMON> 0
<OTHER-SE> (42,173)
<TOTAL-LIABILITY-AND-EQUITY> 89,911
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,005
<INCOME-PRETAX> (5,752)
<INCOME-TAX> 1,300
<INCOME-CONTINUING> (7,052)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,256)
<CHANGES> 0
<NET-INCOME> (9,308)
<EPS-PRIMARY> (3.38)
<EPS-DILUTED> (3.38)
</TABLE>
