FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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For the fiscal year ended Commission file number
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June 30, 1998 333-50367-02
Castle Creek Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 04-3416343
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Merrimac Street, Boston, Massachusetts 02114
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(Address of principal executive offices) (Zip Code)
(617) 523-6050
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X].
There is no determinable aggregate market value of the 879 Units held by
non-affiliates of Castle Creek Partners, L.P. as of September 18, 1998 as the
Units are not listed on any national securities exchange or quoted on any
inter-dealer quotation system of any registered national securities
association.
As of September 18, 1998, there were 26,800 Units outstanding.
CASTLE CREEK PARTNERS, L.P.
1998 FORM 10-K ANNUAL REPORT
INDEX
PART I
Page
----
Items 1.
and 2. Business and Properties 1
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 16
Item 12. Security Ownership of Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 18
Signatures 33
PART I
Items 1 and 2. Business and Properties
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General
Castle Creek Partners, L.P. ("Castle Creek" or the "Partnership") is a
Delaware limited partnership that was formed on April 13, 1998 in connection
with a reorganization of Boston Celtics Limited Partnership II ("BCLP II") (the
"Reorganization").
The Reorganization was completed on June 30, 1998 in response to changes
in the federal income tax law applicable to BCLP II, a publicly held limited
partnership. Prior to the Reorganization, BCLP II held investments and, through
Celtics Limited Partnership ("CLP"), its 99% subsidiary, owned and operated the
Boston Celtics professional basketball team of the National Basketball
Association (the "Boston Celtics"). In the Reorganization, BCLP II unitholders
were given an option of receiving a distribution of one limited partnership
interest in Castle Creek for each 100 BCLP II units, or, alternatively,
receiving a distribution of BCLP II's subordinated debentures and cash and
retaining units of interest in BCLP II, which were converted into units of
interest in Boston Celtics Limited Partnership ("BCLP") in the Reorganization.
In the election, holders of 51.68719% of BCLP II units elected to receive
Castle Creek interests as compared to those that elected to receive
subordinated debentures, cash and BCLP units (the "Proportionate Election").
Effective with the completion of the Reorganization on June 30, 1998, the
pre-Reorganization net assets of BCLP II, subject to certain adjustments, are
owned by Castle Creek and by BCLP II, either directly or through their
subsidiaries, in proportion to the Proportionate Election. Accordingly,
effective June 30, 1998, Castle Creek holds investments, including a 51.6867%
limited partnership interest in Celtics Basketball Holdings L.P. ("Celtics
Basketball Holdings"), which through Celtics Basketball, L.P. ("Celtics
Basketball"), its 99.999% owned subsidiary, owns and operates the Boston
Celtics. The remaining 48.3123% limited partnership interest in Celtics
Basketball Holdings is owned by Celtics Pride GP, an indirect subsidiary
general partnership of BCLP, and Boston Celtics Corporation ("BCC") owns a
0.001% general partnership interest in Celtics Basketball Holdings.
Each of Castle Creek, Celtics Basketball Holdings and Celtics Basketball
were formed in connection with the Reorganization. In anticipation of the
Reorganization, in which assets of BCLP II would be transferred to Castle Creek
in proportion to the Proportionate Election, certain investment assets were
contributed to Castle Creek in May 1998. On June 30, 1998, the assets and
liabilities of the Boston Celtics were contributed to Celtics Basketball.
Accordingly, from the date of its formation until June 30, 1998, the
Partnership's operating results consisted solely of investing activities. For
periods subsequent to June 30, 1998, the Partnership's operating results will
include its 51.6867% interest in the operations of the Boston Celtics.
The 1% general partner of Castle Creek is Castle Creek Partners GP, Inc.
("Castle Creek GP"), a wholly owned subsidiary of Celtics, Inc. Celtics, Inc.
is a Delaware corporation whose sole stockholder is Walcott Partners, L.P.
("Walcott"), an affiliate of Paul Gaston, Don Gaston (father of Paul Gaston)
and Paula Gaston (mother of Paul Gaston), each directors of Castle Creek GP.
Paul Gaston and Draycott, Inc., a corporation wholly owned by Paul Gaston, are
the general partners of Walcott.
In connection with the Reorganization, all assets and liabilities
relating to the business of owning and operating the Boston Celtics were
transferred from CLP to Celtics Basketball, an indirect subsidiary of Castle
Creek. Accordingly, all of CLP's rights with respect to the following assets
and liabilities, among others, were transferred to Celtics Basketball in the
Reorganization: the NBA franchise, agreements relating to local television,
cable and radio broadcasts, sponsorship agreements, rights to the name "Boston
Celtics" and the Boston Celtics logo (subject to the NBA's marketing and other
rights), player contracts, agreements with coaches and other team personnel,
leases and credit agreements.
Castle Creek Interests
Castle Creek is a privately held partnership subject to pass-through tax
treatment. There are 26,800 Castle Creek Interests outstanding at September 18,
1998 (of which 25,730 are beneficially held by directors of Castle Creek GP and
191 are held by other members of the Gaston family), held by approximately 290
unitholders.
A summary of certain provisions of the Castle Creek Partnership
Agreement follows. The Castle Creek Partnership Agreement is more fully
described in the Partnership's Registration Statement on Form S-4 (file No.
333-50367), filed with the Securities and Exchange Commission on April 17,
1998, as amended.
General Partner. Castle Creek GP has exclusive authority over all Castle
Creek affairs, other than those for which specific voting rights are given to
holders of Castle Creek Interests, or specific restrictions imposed, under the
Castle Creek Partnership Agreement. This authority extends to all aspects of
the day-to-day management, operation and control of Castle Creek.
No Public Market; Restrictions on Transfer. In order to assure
pass-through tax treatment of Castle Creek, Castle Creek Interests are subject
to severe transfer restrictions and have little liquidity. Castle Creek
Interests are not listed on any national securities exchange, and are subject
to substantial restrictions on transfer. Under the Castle Creek Partnership
Agreement, Castle Creek Interests may generally be transferred only once a
year on a prescribed date or with the prior approval of Castle Creek GP. In
addition, Castle Creek Interests are subject to certain NBA-imposed
restrictions.
Splits and Combinations. Castle Creek GP has the right to cause Castle
Creek to make distributions in units or limited partnership interests, or to
subdivide or combine outstanding units or limited partnership interests, so
long as the split or combination is made on a pro rata basis among all holders
of Castle Creek Interests. Castle Creek GP is authorized to subdivide or
combine outstanding Castle Creek Interests without issuing fractional units or
other interests. In addition, Castle Creek GP has the right to effect one or
more reverse splits of Castle Creek Interests until July 1, 1999 for the sole
purpose of remaining exempt from regulation as an investment company under the
Investment Company Act (by reducing the number of beneficial owners of Castle
Creek Interests to not more than 100). Any such reverse splits must be effected
at a price per Castle Creek Interest (the "Split Price") equal to one hundred
times the greater of (i) $21.23, representing the average of the high and low
prices of the BCLP II Units as reported on the New York Stock Exchange ("NYSE")
on the five trading days immediately preceding April 17, 1998 (the date on
which the Reorganization was announced) or (ii) the sum of (x) the average of
the high and low prices of the BCLP Units as reported on the NYSE on the five
trading days immediately preceding the date on which the reverse split is
announced and (y) average of the high and low prices of the Subordinated
Debentures as reported on the NYSE on the five trading days immediately
preceding the date on which the reverse split is announced. If any such reverse
split is effected, however, holders of Castle Creek Interests will be given the
opportunity to purchase, at the Split Price, a sufficient number of Castle
Creek Interests to enable each such holder to remain a holder of Castle Creek
Interests after the reverse split is effected.
Castle Creek intends to remain a non-publicly traded entity and to
maintain substantial transfer restrictions on Castle Creek Interests in order
to preserve pass-through treatment for tax purposes. In addition, Castle Creek
intends to remain exempt from investment company regulation. Therefore, because
Castle Creek has more than one hundred beneficial holders after the
Reorganization, Castle Creek GP is authorized to take, and is actively
considering, actions to reduce the number of its beneficial holders to qualify
for an exemption from investment company regulation. Such actions include
a reverse split of Castle Creek interests, which, under the Castle Creek
Partnership Agreement, is authorized (a) until July 1, 1999, on specified
terms described above, for the sole purpose of remaining exempt from regulation
as an investment company, or (b) at any time, in Castle Creek GP's discretion
and upon such terms and conditions as Castle Creek GP shall determine. Castle
Creek may also take other actions, such as redeeming or repurchasing Castle
Creek interests, to reduce the number of its beneficial holders. Castle Creek
currently intends to take some or all of such actions.
Because the number of holders of record of Castle Creek interests is less
than 300, any obligations Castle Creek otherwise may have to report under the
Securities Exchange Act of 1934, as amended, with respect to fiscal years after
the year ended June 30, 1998 are suspended. Castle Creek intends to make
appropriate filings relating to the suspension of its duty to file reports. As
a non-reporting entity, Castle Creek would not be obligated to provide detailed
information to holders of Castle Creek interests concerning, among other
matters, Castle Creek's business operations, financial statements and certain
relationships in related transactions, which information could better enable
investors to assess the financial operations and policies of Castle Creek.
Distributions. Under the terms of the Castle Creek Partnership Agreement,
distributions on Castle Creek Interests are in the sole discretion of the
general partner. There is no requirement for Castle Creek GP to declare
distributions. Distributions, if any, are made to the holders of Castle Creek
Interests pro rata in accordance with their proportionate interests in Castle
Creek.
Fees to General Partner. The Castle Creek Partnership Agreement provides
that management fees may be paid by Castle Creek to Castle Creek GP. Castle
Creek GP does not currently intend to collect management fees from Castle
Creek, but may begin to collect such fees at any time.
The Boston Celtics
Castle Creek's most significant operating asset is its indirect
investment in Celtics Basketball, which owns and operates the Boston Celtics.
Castle Creek received its indirect interest in the Boston Celtics on June 30,
1998 as a part of the Reorganization, and, as a result, the accounts and
operations of the Boston Celtics will be reflected in the Castle Creek
consolidated financial statements for periods subsequent to June 30, 1998.
Following is a description of the business operations of the Boston Celtics:
Basketball Operations
The following table summarizes the performance of the Boston Celtics
during the past 15 basketball seasons:
<TABLE>
<CAPTION>
Regular Regular Season
Season Place of Finish
Season Record in Division Playoff Results
------- ------- --------------- ------------------------------------------
<S> <C> <C> <C>
1997-98 36-46 Sixth --
1996-97 15-67 Seventh --
1995-96 33-49 Fifth --
1994-95 35-47 Third Lost in First Round of Conference Playoffs
1993-94 32-50 Fifth --
1992-93 48-34 Second Lost in First Round of Conference Playoffs
1991-92 51-31 First Lost in Conference Semifinals
1990-91 56-26 First Lost in Conference Semifinals
1989-90 52-30 Second Lost in First Round of Conference Playoffs
1988-89 42-40 Third Lost in First Round of Conference Playoffs
1987-88 57-25 First Lost in Conference Finals
1986-87 59-23 First Lost in Championship Finals
1985-86 67-15 First NBA Champions
1984-85 63-19 First Lost in Championship Finals
1983-84 62-20 First NBA Champions
</TABLE>
Effective July 1, 1998, the NBA commenced a lockout of NBA players in
support of its attempt to reach a new collective bargaining agreement. If the
lockout extends into the 1998-99 basketball season, it would materially and
adversely affect Castle Creek's financial condition and results of operations.
See "Collective Bargaining Agreement."
Sources of Revenues. The Boston Celtics derive their revenues principally
from the sale of tickets to home games and the licensing of television, cable
network and radio rights. The following table shows the contribution to
revenues of the basketball operations from these sources and from miscellaneous
other sources for each of the last three fiscal years:
Contribution to Revenues
(in thousands)
<TABLE>
<CAPTION>
Year
Ended Total
June 30, Ticket Sales Television, Cable and Radio Other Sources Revenues
- -------- -------------------- --------------------------- ------------- --------
Regular Regular
Season(1) Playoffs Season(2) Playoffs
--------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1998 $39,108 $28,002 $8,570 $75,680
1997 31,813 23,269 7,916 62,998
1996 35,249 22,072 7,459 64,780
<FN>
- -------------------
<F1> Includes proceeds from exhibition games.
<F2> Includes the Boston Celtics' share of revenues under the NBA national
television contracts.
</FN>
</TABLE>
The operations and financial results of the Boston Celtics are seasonal.
See "Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations --General."
Ticket Sales. The Boston Celtics play an equal number of home games and
away games during the 82-game NBA regular season. In addition, the Boston
Celtics play eight exhibition games prior to the commencement of the regular
season. Under the NBA Constitution and By-laws, the Boston Celtics receive all
revenues from the sale of tickets to regular season home games (subject to the
NBA gate assessment) and no revenue from the sale of tickets to regular season
away games. Generally, the Boston Celtics retain all revenues from the sale of
tickets to home exhibition games played in Boston as well as certain ticket
revenues from home exhibition games played outside of Boston. Under certain
circumstances, the Boston Celtics pay appearance fees to the visiting team for
exhibition games, and likewise the team may receive appearance fees for
exhibition games played elsewhere.
Effective with the 1995-96 season, all Boston Celtics regular season
home games are played in the FleetCenter, an arena located in downtown Boston,
with a seating capacity of approximately 19,300. The policy of the Boston
Celtics during the last several years has been to limit the number of season
tickets so that some tickets are available on a per game basis. During the
1997-98 season, approximately 14,000 season tickets were sold, as compared to
13,000 in the 1996-97 season and 15,000 in 1995-96 season.
Television, Cable and Radio Broadcasting. The Boston Celtics and the NBA
license the television and radio broadcast rights to Boston Celtics basketball
games. The NBA, as agent for its members, licenses the national and
international broadcast of the games under agreements with NBC Sports, a
division of the National Broadcasting Company (the "NBC agreement"), and Turner
Network Television, Inc., an affiliate of Turner Broadcasting (the "TNT
agreement"). Each of the NBA member teams shares equally in these license fees.
In addition, the Boston Celtics previously licensed the local over the air
rights to broadcast away games under an agreement with Gillett Communications
of Boston, Inc. (subsequently assigned to Paramount Communications), licensee
of Television Station UPN 38, WSBK-TV (the "WSBK agreement") and licenses the
cable rights to broadcast home games to Sportschannel New England Limited
Partnership (subsequently renamed Fox Sports New England) (the "Sportschannel
agreement"). The Boston Celtics licenses the rights to broadcast all games on
radio under an agreement with American Radio Systems, Inc., licensee of Radio
Station WEEI - 850AM (the "ARS agreement"). The NBC and TNT agreements were
renewed subsequent to the 1997-98 season and extend through the 2001-02 season.
The Sportschannel agreement extends through the 1999-2000 season, with a right
to an additional extension by Fox Sports New England through the 2000-01
season. The ARS agreement extends through the 1999-2000 season. The WSBK
agreement expired at the end of the 1997-98 season and was not renewed. In
August 1998, Celtics Basketball entered into an agreement with Boston
University Communications, Inc., licensee of WABU-TV Boston ("WABU"), to
license the local over the air rights to broadcast away games (the "WABU
Agreement"). The WABU Agreement extends through the 2000-01 season. There can
be no assurance that Celtics Basketball or the NBA, upon expiration of the
aforementioned agreements, will be able to enter into new agreements on terms
as favorable as those in the current agreements.
Generally, these agreements provide for the broadcast of a specified
number of games (exhibition, regular season and playoff games) at specified
rights fees per game, which in some cases increase over the term of the
contract and in some cases provide for revenue sharing. The national agreements
provide that the licensee identify the games which it wishes to broadcast and
the local rights agreements provide for the preemption of games broadcast under
the national license agreements. The WABU agreement provides that WABU and the
Boston Celtics will jointly market and sell advertising spots for placement in
the broadcast of Boston Celtics road games. The WABU agreement further provides
that the proceeds from the sale of such spots will be shared, with the Boston
Celtics receiving 80% of the net revenue in excess of production costs. Celtics
Basketball's ability to recognize revenue under the WABU agreement will depend
on its ability to jointly market and sell advertising spots with WABU for
placement in the broadcast of Boston Celtics road games.
The NBC agreement accounted for approximately 15% ($11,439,000), 11%
($6,896,552) and 10% ($6,552,000) of the Boston Celtics' total revenues for the
years ended June 30, 1998, 1997 and 1996, respectively. No other agreement
accounted for as much as 10% of the Boston Celtics' total revenues for the
years ended June 30, 1998, 1997 and 1996.
Other Sources. Other sources of revenues for the basketball operations
include promotional and novelty revenues, including royalties from NBA
Properties, Inc. ("NBA Properties"). NBA Properties is a corporation organized
in 1967 to which each NBA member has assigned the exclusive rights to the
merchandising of its team name, insignia and other similar properties to the
extent such rights were not previously assigned to others prior to the
formation of NBA Properties. NBA Properties pays royalties to each NBA team in
consideration of the receipt of such rights. This assignment is subject to the
Boston Celtics' right to use their insignia and symbols in connection with the
promotion of the team in their home territory and retail sales in their home
arena. NBA Properties licenses other companies to manufacture and sell official
NBA items such as sneakers, basketballs, warm-up jackets and sweatshirts, as
well as certain non-sports items.
Basketball Team
Players. In general, the rules of the NBA permit each team to maintain an
active roster of 12 basketball players during each regular season and up to 20
players in the off-season. The By-laws of the NBA require each member team to
enter into a uniform player contract with each of its players. The following
table sets forth certain information concerning the players under contract with
the Boston Celtics as of September 18, 1998:
<TABLE>
<CAPTION>
Last Season
Name Position Years in NBA Under Contract
- ---------------- -------------- ------------ --------------
<S> <C> <C> <C>
Kenny Anderson Guard 7 2002-03
Dana Barros Guard 9 2000-01
Bruce Bowen Forward 2 1998-99
Andrew DeClercq Forward/Center 3 2001-02
Pervis Ellison Center 9 1999-00
Dontae Jones Forward 2 1998-99
Travis Knight Center 2 2003-04
Walter McCarty Forward 2 1998-99
Ron Mercer Guard 1 1999-00
Greg Minor Forward 4 2000-01
Antoine Walker Forward 2 1998-99
</TABLE>
Coaches, General Manager and other Team Personnel. The Head Coach of the
Boston Celtics, Rick Pitino, was appointed Head Coach, President and Director
of Basketball Operations following the 1996-97 season. Mr. Pitino was most
recently the Head Basketball Coach at the University of Kentucky since 1989,
and served as the Head Coach of the New York Knickerbockers (1987-1989), Head
Coach at Providence College (1985-1987), assistant coach of the New York
Knickerbockers (1983-1985) and Head Coach at Boston University (1978-1983). Mr.
Pitino is under contract with Celtics Basketball as President and Director of
Basketball Operations through May 6, 2007, and as Head Coach of the Boston
Celtics through the 2002-03 season.
James O'Brien has been an Associate Coach of the Boston Celtics since May
1997. Mr. O'Brien was previously an assistant coach at the University of
Kentucky (1994-1997), the Head Coach at the University of Dayton (1989-1994),
and an assistant coach of the New York Knickerbockers (1987-1989), prior to
which he held a variety of coaching positions from 1974 through 1987. Mr.
O'Brien is under contract through the end of the 1999-2000 season.
Lester Conner has been an Assistant Coach of the Boston Celtics since
July 1998. Mr. Conner was most recently a scout for the Miami Heat of the NBA
(1997) and has held several coaching positions since 1995. Previously, Mr.
Conner played in the NBA from 1982-1995. Mr. Conner is under contract through
the end of the 1999-2000 season.
John Carroll has been an Assistant Coach of the Boston Celtics since June
1997. Mr. Carroll was previously the Advance Pro Scout for the Orlando Magic of
the NBA (1996-1997) and for the Portland Trail Blazers of the NBA (1995-1996),
the Head Coach at Duquesne University (1989-1995) and an assistant coach at
Seton Hall University (1982-1989). Mr. Carroll is under contract through the
end of the 1998-99 season.
Shaun Brown has been the Strength and Conditioning Coach of the Boston
Celtics since May 1997. Mr. Brown was previously the Strength and Conditioning
Coach at the University of Kentucky (1992-1997), the Strength and Conditioning
Coach at Providence College (1989-1992) and the Assistant Strength and
Conditioning Coach at Rutgers University (1987-1988). Mr. Brown is under
contract through the end of the 1998-99 season.
Chris Wallace has been the General Manager of the Boston Celtics since
May 1997. Mr. Wallace was previously the Director of Player Personnel
(1996-1997) and a scout (1992-1996) for the Miami Heat of the NBA, prior to
which he worked in various scouting capacities for the Portland Trail Blazers,
Denver Nuggets, Los Angeles Clippers and New York Knickerbockers of the NBA.
Mr. Wallace is under contract through the end of the 1999-2000 season.
Ed Lacerte is the Head Athletic Trainer and Physical Therapist of the
Boston Celtics and has served in that capacity since September 1987. Mr.
Lacerte is under contract through the end of the 1999-2000 season.
Under its contracts with its coaches, general manager and other team
personnel (including individuals formerly employed in these positions), the
Boston Celtics had compensation expense totaling $8,852,000 during the 1997-98
season. During the 1998-99 season, the Boston Celtics are required to make
salary payments to its coaches, general manager and other team personnel
(including individuals formerly employed in these positions) totaling
$8,914,000.
Collective Bargaining Agreement. A collective bargaining agreement (the
"Collective Bargaining Agreement") was ratified by the NBA and the National
Basketball Players' Association ("NBPA") on September 15, 1995 and executed by
the parties on July 11, 1996. The Collective Bargaining Agreement was to be in
effect through June 30, 2001. The Collective Bargaining Agreement provided for
maximum and minimum total team salaries to be paid to players. Both maximum and
minimum team salaries were determined based on estimates prior to the start of
each season. The maximum team salary (the "Salary Cap") for each team for a
particular season, subject to certain exceptions, was the greater of a
predetermined dollar amount or 48.04% of the projected Basketball-Related
Income (as defined in the Collective Bargaining Agreement) ("BRI") of all NBA
teams, divided by the number of NBA teams.
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 BRI. On March 23,
1998, the Board of Governors of the NBA voted to exercise that right and
reopen the Collective Bargaining Agreement effective as of June 30, 1998, 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. The NBA and the NBPA
have been engaged in negotiations regarding a new collective bargaining
agreement, but as of September 18, 1998, no agreement has been reached. In the
event that the lockout extends into the 1998-99 season, NBA teams, including
the Boston Celtics, will refund amounts paid by season ticket holders (plus
interest) for any games that are canceled as a result of the lockout. In
addition, as a result of the lockout, NBA teams have not made any payments due
to players under contracts for the 1998-99 season. The NBPA has disputed the
NBA's position on this matter, and both the NBA and the NBPA have presented
their cases to an independent arbitrator, who will make his ruling no later
than the middle of October 1998. As of September 18, 1998, the arbitrator has
not ruled on this matter. Prior to the lockout, the Boston Celtics had made
salary commitments to its players under contract for the 1998-99 season
totaling approximately $18,801,000.
There can be no assurance that the NBA and the NBPA will reach agreement
on a new collective bargaining agreement, and there can be no assurance that
NBA teams, including the Boston Celtics, will not have to make payments to
players under contract for the 1998-99 season and beyond during the lockout.
Given the fixed nature of many of its expenses, and given that the Boston
Celtics' operating revenues are almost entirely dependent on the NBA season,
any loss of games as a result of the absence of a collective bargaining
agreement or the continuation of the lockout will have a material adverse
effect on the Partnership's financial condition and its results of operations.
Further, if NBA teams, including the Boston Celtics, are required to honor the
player contracts for the 1998-99 season and beyond without agreeing to a new
collective bargaining agreement or without ending the lockout, which would
result in the loss of games, the Partnership's financial condition and results
of operations will be materially and adversely affected. Further, in the event
that the NBA and the NBPA agree to a new collective bargaining agreement or the
lockout ends, there can be no assurance that the NBA and NBPA will not
experience labor relations difficulties in the future or significantly
increased player salaries, which could have a material adverse effect on the
Partnership's financial condition or results of operations.
Basketball Facilities
Effective with the start of the 1995-96 basketball season, the Boston
Celtics play all home games at the FleetCenter located in Boston,
Massachusetts. On April 4, 1990, CLP entered into a License/Lease Agreement and
an Office Lease Agreement (collectively, the "Lease Agreement") with New Boston
Garden Corporation ("NBGC"), which was amended in certain respects and was
assigned to Celtics Basketball in connection with the Reorganization. NBGC,
which is not affiliated with the Boston Celtics, developed the new building and
sports entertainment facility which has a seating capacity of approximately
19,300 spectators. The FleetCenter opened on September 30, 1995.
Under the terms of the Lease Agreement, NBGC has granted to Celtics
Basketball a license to use the basketball facilities at the FleetCenter and
provides approximately 10,000 square feet of office space. NBGC is responsible
for maintaining the FleetCenter and providing administrative personnel such as
ushers, ticket takers, police and security personnel, announcers, scorers and
statisticians. At Celtics Basketball's request, NBGC is responsible for making
all box office ticket sales and remitting the proceeds to Celtics Basketball.
In general, NBGC receives only premium fee revenues generated from preferred
seating and executive boxes in the FleetCenter. Under the terms of the Lease
Agreement, Celtics Basketball does not share in revenue from food and beverage
concessions at the FleetCenter, but may sell programs at each game subject to
the payment of a commission to NBGC's concessionaires. NBGC is also licensed to
sell merchandise bearing the Boston Celtics' name, trademark and/or logo,
subject to prior approval by, and payment of a commission to, Celtics
Basketball.
The Lease Agreement provides that it commenced on the day that the
FleetCenter was substantially completed and operational and extends for 10 full
basketball seasons (from the 1995-96 season to the 2004-2005 season). NBGC may,
at its option, extend the term of the Lease Agreement for five additional
basketball seasons (the "Extended Term"), provided NBGC gives notice during a
specified period following the fifth anniversary of the commencement of the
term of the Lease Agreement of its intention to exercise its option and subject
to the NBGC making certain payments, based on its revenues, during the Extended
Term.
Celtics Basketball also leases approximately 16,000 square feet of space
at 151 Merrimac Street, Boston, Massachusetts. This facility houses the Boston
Celtics administrative offices. The term of this lease extends through December
2005, with an option to extend for one five-year renewal period. Under the
provisions of the Lease Agreement with NBGC, Celtics Basketball is reimbursed
for the cost of 10,000 square feet of office space during the 10-year term of
the Lease Agreement with NBGC.
On March 31, 1998, CLP entered into a lease agreement for the use of a
22,000 square feet practice facility and wellness center that is currently
under construction in Waltham, Massachusetts. The facility will also include
certain office space for Boston Celtics basketball operations personnel. The
term of the lease extends through June 30, 2010, with three three-year options
to extend. The lease agreement was assigned to Celtics Basketball in connection
with the Reorganization.
The NBA
The NBA is a joint venture, consisting of member teams, each of which
operates a professional basketball team in a major city of the United States or
Canada. NBA members operate under the rules and regulations established by the
NBA Constitution and By-laws. The NBA Constitution prohibits any NBA "owner"
(as defined in the NBA Constitution) or person with management authority over
an NBA member from (i) directly or indirectly exercising control over any other
NBA member, or (ii) holding a direct or indirect financial interest in another
NBA member, unless the financial interest does not exceed one percent of any
outstanding publicly traded class of securities or 75% of the Board of
Governors of the NBA approves the interest. The NBA Constitution also imposes
restrictions upon the transfer of interests in NBA members. The acquisition of
a 10% or greater interest in a member team must be approved by the Board of
Governors. The acquisition of an interest of less than 10% but more than 5%
must be approved by a committee appointed by the NBA Commissioner. In general,
the acquisition of a 5% or less interest must be approved by the NBA
Commissioner. However, the acquisition of less than a 5% interest in a team
that is owned by more than 500 persons is not restricted unless (i) the effect
of such acquisition is to change ownership of effective control of the NBA
member, (ii) the acquisition would result in any person or entity that has not
been approved by an NBA committee or the members holding directly or indirectly
more than a 5% interest or (iii) the acquisition would result in any person or
entity that has not been approved by the NBA members holding directly or
indirectly more than a 10% interest. Pursuant to applicable NBA rules, referees
and other employees of the NBA are not eligible to purchase or hold Castle
Creek Interests. Accordingly, a record owner of Castle Creek Interests may not
transfer ownership of his or her Castle Creek Interests to any person who is
not an "eligible holder" or who does not properly execute and deliver a
transfer application certifying that he or she (or that, to the best of his or
her knowledge, the person for whom he or she is acting as nominee) is an
"eligible holder."
Competition
The Boston Celtics are the only professional basketball team in the
Boston area. However, the Boston Celtics compete for spectator interest with
all forms of professional and amateur sports conducted in and near Boston.
During parts of the basketball season the Boston Celtics experience competition
from professional hockey (the Boston Bruins), professional football (the New
England Patriots), and professional baseball (the Boston Red Sox). In addition,
the colleges and universities in the Boston area, as well as public and private
schools, offer a full schedule of athletic events throughout the year. The
Boston Celtics also compete for attendance with the wide range of other
entertainment and recreational activities available in New England.
The Boston Celtics also compete with other United States and foreign
basketball teams, professional and otherwise, for available players.
Insurance
The Boston Celtics maintain accidental death and dismemberment,
disability and life insurance policies on most key players and certain
coaches. These disability policies cover injuries which result in permanent and
total disability, as well as temporary disability for injuries which cause less
severe damage, but loss of player services for more than half a playing season.
These policies would generally reimburse Celtics Basketball for a substantial
percentage of the payments which it would be required to make to such player
under his contract. The waiting period for reimbursement under most temporary
disability policies is 41 games. This Key Man Disability Insurance Plan is
maintained by the NBA through a Master Policy Program, and underwritten by a
leading national insurance company.
The Boston Celtics participate in a workers' compensation policy and a
high limit comprehensive general liability and umbrella policy maintained by
the NBA. Included under that plan is protection for team sports participant's
liability covering claims which may result from, among other things, certain
injuries which may be incurred during player contests or exhibitions sponsored
by the Boston Celtics.
The NBA has established a Disaster Plan which permits a team suffering an
air or similar disaster to draft players from the other NBA teams subject to
specified procedures. The NBA maintains an insurance policy that provides
compensation to the team suffering the disaster, as well as those teams whose
players are selected in such special draft.
In addition to basketball-related insurance, the Partnership maintains
various types of business insurance, including general liability insurance and
umbrella insurance.
Employees
In addition to the players and coaches, see "Basketball Operations -
Basketball Team," as of September 18, 1998, the Boston Celtics had 45 full-time
employees engaged in operating, marketing, advertising and administrative
activities. None of the employees of the Boston Celtics other than its players
are covered by collective bargaining agreements. Castle Creek does not
currently have any employees. The Partnership considers its relations with the
employees of its subsidiaries to be good.
Item 3. Legal Proceedings
- --------------------------
As a member of the NBA, Celtics Basketball is a defendant along with the
other NBA members in various lawsuits incidental to the NBA's basketball
operations. Celtics Basketball will generally be liable, jointly and severally,
with all other members of the NBA for the costs of defending such lawsuits and
any liabilities of the NBA which might result from such lawsuits. From time to
time, the Partnership may become a party to legal proceedings arising in the
ordinary course of business.
In August 1998, a class action complaint (the "Complaint") was filed by
former BCLP II unitholders in the Court of Chancery of the State of Delaware in
and for New Castle County against, among others, BCLP II, Castle Creek and
Castle Creek GP. The named plaintiff, who purported to bring her individual
action on behalf of herself and others similarly situated, is Kathleen Kruse
Perry. The Complaint 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.
Although the ultimate outcome of this Complaint cannot be determined at
this time, management of the Partnership does not believe that the outcome of
the proceedings will have a material adverse effect on the Partnership's
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
- --------------------------------------------------------------------------
Castle Creek Interests are not traded on any established public trading
market or quoted on any inter-dealer quotation system of any registered
national securities association, and are subject to significant transfer
restrictions.
As of September 18, 1998, the approximate number of unitholders of Castle
Creek's Units was 290.
Distributions may be declared from time to time in the sole discretion of
Castle Creek GP as General Partner of the Partnership. No distributions have
been paid to date.
Item 6. Selected Consolidated Financial Data
- ---------------------------------------------
The selected consolidated financial information set forth below is
qualified in its entirety by, and should be read in conjunction with, the
Partnership's consolidated financial statements and notes thereto as of June
30, 1998 and for the period from April 13, 1998 (date of formation) to June 30,
1998.
Amounts in thousands, except per unit data.
<TABLE>
<CAPTION>
For the
Period from
April 13, 1998 to
June 30, 1998
-----------------
<S> <C>
Consolidated Income Statement Data:
Other income:
Interest income $216
Net income $216
Net income applicable to Limited Partners $214
Per unit:
Net income-basic $8.76
Net income-diluted $7.31
<CAPTION>
June 30, 1998
-----------------
<S> <C>
Consolidated Balance Sheet Data:
Current assets $ 51,103
Current liabilities 27,508
Total assets 96,356
Due to BCLP 10,389
Notes payable 50,000
Deferred compensation - noncurrent portion 8,962
Other noncurrent liabilities 600
Partners' capital (deficit) (1,102)
</TABLE>
Item 7. 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 revenues,
expenses (including player and other team costs), capital expenditures, tax
burdens, earnings and distributions, and expectations, intentions and
strategies regarding the future. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Factors that could cause the
Partnership's financial condition, results of operation, liquidity and capital
resources to differ materially include the Boston Celtics' competitive success,
uncertainties as to increases in players' salaries, the Boston Celtics' ability
to attract and retain talented players, uncertainties relating to labor
relations involving players and the lockout, the risk of injuries to key
players and uncertainties regarding media contracts.
Basis of Presentation
As more fully described in "Item 1 - Business and Properties - Overview
of the Reorganization", Castle Creek was formed on April 13, 1998 in connection
with a Reorganization of BCLP II, which was completed on June 30, 1998. In
anticipation of the Reorganization, certain investment assets were contributed
to Castle Creek in May 1998. On June 30, 1998, the assets and liabilities of
the Boston Celtics were contributed to Celtics Basketball, in which Castle
Creek indirectly owns a 51.6867% limited partnership interest. Accordingly,
from the date of its formation until June 30, 1998, Castle Creek's operating
results consisted solely of investing activities. For periods subsequent to
June 30, 1998, Castle Creek's operating results will include its 51.6867%
interest in the operations of the Boston Celtics.
Results of Operations
Interest income represents investment income earned on the approximately
$41 million in short-term investments received on May 22, 1998 in connection
with the Reorganization. The Partnership's short-term investments consist
primarily of private placement notes with a commercial bank with a maturity of
under one year.
Boston Celtics Basketball Operations
Effective June 30, 1998, the Partnership's operating results will include
its interest in the operations of the Boston Celtics. A summary of selected
financial data for the Boston Celtics for the three years in the period ended
June 30, 1998, which have been consolidated in the accounts and results of
operations of BCLP II for such periods, is as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income Statement Data:
Revenues $75,680 $62,998 $64,780
Costs and expenses: 54,110 53,732 39,474
Interest income (expense), net (3,067) (3,453) (4,085)
-----------------------------
Net income $18,503 $ 5,813 $21,221
=============================
<CAPTION>
June 30
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets $ 9,866 $ 8,039 $ 8,001
Current liabilities 27,508 22,786 20,182
Total assets 25,254 16,148 16,200
Notes payable - noncurrent portion 50,000 47,500 50,000
Deferred compensation - noncurrent portion 8,962 10,380 11,750
Other noncurrent liabilities 600 5,600 700
Partners' capital (deficit) (61,816) (70,118) (66,432)
</TABLE>
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 expense is
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.
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 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 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 begins in
late October or early November, the first fiscal quarter, which ends on
September 30, will generally include limited or no revenue and will reflect a
net loss attributable to general and administrative expenses incurred in the
quarter. Based on the present NBA game schedule, the Boston Celtics will
generally 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 it
will recognize its playoff revenue, if any, in the fourth fiscal quarter.
Collective Bargaining Agreement
As more fully described in "Item 1 - Business and Properties - Collective
Bargaining Agreement", in March 1998 the Board of Governors of the NBA voted to
reopen the Collective Bargaining Agreement and, effective July 1, 1998, the NBA
commenced a lockout of NBA players in support of its attempt to reach a new
collective bargaining agreement. The NBA and the NBPA have been engaged in
negotiations regarding a new collective bargaining agreement, but as of
September 18, 1998, no agreement has been reached. In the event that the
lockout extends into the 1998-99 season, NBA teams, including the Boston
Celtics, will refund amounts paid by season ticket holders (plus interest) for
any games that are canceled as a result of the lockout. In addition, as a
result of the lockout, NBA teams have not made any payments due to players with
respect to the 1998-99 season. The NBPA has disputed the NBA's position on this
matter, and both the NBA and the NBPA have presented their cases to an
independent arbitrator, who will make his ruling no later than the middle of
October 1998. As of September 18, 1998, the arbitrator has not ruled on this
matter. There can be no assurance that the NBA and the NBPA will reach
agreement on a new collective bargaining agreement, and there can be no
assurance that NBA teams, including the Boston Celtics, will not have to make
payments to players under contract for 1998-99 season and beyond during the
lockout. Given the fixed nature of many of its expenses, and given that the
Partnership's operating revenues are almost entirely dependent on the NBA
season, any loss of games as a result of the absence of a collective bargaining
agreement or the continuation of the lockout will have a material adverse
effect on the Partnership's financial condition and its results of operations.
Further, if NBA teams, including the Boston Celtics, are required to honor the
player contracts for the 1998-99 season and beyond without agreeing to a new
collective bargaining agreement or without ending the lockout, which would
result in the loss of games, the Partnership's financial condition and results
of operations will be materially and adversely affected. Further, in the event
that the NBA and the NBPA agree to a new collective bargaining agreement or the
lockout ends, there can be no assurance that the NBA and NBPA will not
experience labor relations difficulties in the future or significantly
increased player salaries, which could have a material adverse effect on the
Partnership's financial condition or results of operations.
Liquidity and Capital Resources
The Partnership generated approximately $65,000 in cash from continuing
operations for the period from April 13, 1998 (date of formation) to June 30,
1998. At June 30, 1998 the Partnership had approximately $6,602,000 of cash and
cash equivalents and $41,173,000 of other short-term investments, which were
received in connection with the Reorganization. In addition to these amounts,
sources of funds available to the Partnership include funds generated by
operations, capital contributions from partners and distributions from Celtics
Basketball Holdings, which through a subsidiary owns and operates the Boston
Celtics. These resources will be used for general partnership purposes, working
capital needs or for possible investments and/or acquisitions.
Celtics Basketball has a $60,000,000 credit facility dated December 15,
1997 with its commercial bank. The credit agreement, which was originally
entered into by CLP and contributed to Celtics Basketball on June 30, 1998,
consists of a $50,000,000 term loan bearing interest at 6.29% and a $10,000,000
revolving line of credit. As of June 30, 1998, no borrowings were outstanding
against the $10,000,000 revolving line of credit. Under the terms of the
$50,000,000 term loan agreement, interest is payable quarterly in arrears at a
fixed annual rate of 6.29% from December 15, 1997 through December 15, 2007.
Principal payments are due in equal quarterly installments of $2,500,000
commencing on January 1, 2003, with the final payment due on December 15, 2007,
the maturity date of the loan. The $10,000,000 revolving line of credit
agreement expires on December 15, 2000, with two automatic one-year extensions
cancelable at the option of the commercial bank. Interest on any borrowings
under the revolving line of credit accrues at the Partnership's option of
either LIBOR plus 0.70% or the greater of the bank's Base Rate or the Federal
Funds Effective Rate plus 0.50%. Borrowings under the term loan and revolving
line of credit are secured by all of the assets of and are the liability of
Celtics Basketball. The loan agreement contains certain restrictions and
various provisions and covenants customary in lending arrangements of this
type.
During the period from April 13, 1998 (date of formation) to June 30,
1998, no cash distributions were declared or paid to Castle Creek unitholders.
Future distributions will be determined by Castle Creek GP in its sole
discretion based, among other things, on available resources and the needs of
the Partnership and the ability of Castle Creek's subsidiaries to generate
sufficient operating cash flow. In addition, as described in "Items 1 and 2:
Business and Properties-Castle Creek Interests", the Partnership is authorized
to take, and is actively considering, certain actions in order to reduce the
number of its beneficial holders to ensure that it remains exempt from
investment company regulation. Such actions, which include a reverse split of
Castle Creek interests or redeeming or repurchasing Castle Creek interests,
would reduce the amounts available, if any, for future distributions to Castle
Creek unitholders.
Management believes that its cash, cash equivalents and other short-term
investments together with cash from operating activities, distributions from
subsidiaries and amounts available to Celtics Basketball under its credit
agreements with its commercial bank will provide adequate cash for the
Partnership and its subsidiaries to meet their cash requirements through June
30, 1999.
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.
The Partnership has assessed all of its hardware and software systems,
which are comprised solely of an internal personal computer network and
commercially available software products, and has begun to assess the embedded
systems contained in its leased properties, for Year 2000 issues. Based on this
assessment, which entailed a review of the Partnership's systems by its
internal information technology specialist, the Partnership believes that its
hardware and software systems are ready for the Year 2000. The Partnership is
uncertain whether the embedded systems contained in its leased properties are
ready for the Year 2000. The Partnership has also begun to assess potential
Year 2000 issues relating to third parties with which it deals, and is not
aware of any Year 2000 issues relating to third parties with which it has a
material relationship. There can be no assurance, however, that the systems of
third parties on which the Partnership or its systems rely will not present
Year 2000 problems that could have a material adverse effect on the
Partnership.
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.
The Partnership is uncertain regarding its most reasonably likely
worst-case Year 2000 scenario, and the impact of such a scenario on its
business, operations or financial condition. The Partnership intends to
consider such a scenario and develop a contingency plan to handle it during the
next 12 months.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
See Item 14.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
General Partner
The General Partner of Castle Creek is Castle Creek GP, a Delaware
corporation organized in 1998. Castle Creek GP is wholly owned by Celtics,
Inc., which is wholly owned by Walcott Partners, L.P., a Gaston family
partnership. Castle Creek's activities are managed and controlled by Castle
Creek GP.
The General Partner of Celtics Basketball Holdings and Celtics Basketball
is BCC. Paul E. Gaston and Don F. Gaston (Paul Gaston's father) are the sole
stockholders of BCC. The activities of Celtics Basketball Holdings and Celtics
Basketball are managed and controlled by BCC.
BCC receives a management fee of $750,000 per annum subject to annual
increases based on annual cash flows from basketball operations after June 30,
1989. Management fee obligations of $1,577,000, $820,000 and $1,555,000
applicable to BCC were charged to the operations of CLP, former owner of the
Boston Celtics, during the years ended June 30, 1998, 1997, and 1996,
respectively. Such management fees will be borne by Celtics Basketball
effective July 1, 1998.
In accordance with the partnerships' respective partnership agreements,
each item of income, gain, loss and deduction is allocated and distributions
are made to the partners and Unitholders in accordance with their respective
percentage interests.
Directors and Executive Officers
The following table sets forth, for each of the directors and executive
officers of Castle Creek GP, his or her principal occupation, age and business
experience during the past five years. All of the directors and officers are
U.S. citizens and the business address of each is c/o Castle Creek Partners,
L.P., 151 Merrimac Street, Boston, Massachusetts 02114.
<TABLE>
<CAPTION>
Name Age Position
- ---------------- --- --------
<S> <C> <C>
Paul E. Gaston 41 Chairman of the Board
Richard G. Pond 38 Executive Vice President, Chief Operating Officer,
Chief Financial Officer, Treasurer, and Secretary
Don F. Gaston 64 Director
Paula B. Gaston 64 Director
</TABLE>
There are no committees of the Board of Directors of Castle Creek GP, and
directors of Castle Creek GP receive no directors fees. Directors are named by
the stockholders of Castle Creek GP and serve until their successors are named.
Thus, holders of Castle Creek Interests have no vote in the selection of
directors of Castle Creek GP. Castle Creek GP's officers are appointed by, and
serve at the discretion of, the Board of Directors.
Mr. Paul E. Gaston was named Chairman of the Board of Castle Creek GP
upon its formation. Mr. Gaston is the Chairman of the Board of Celtics, Inc.,
BCLP GP, BCLP II GP and BCC. Upon its formation in November 1992, he became
Managing Director of Walcott Partners L.P., a Gaston family partnership whose
investments include limited partnership interests in the Partnership and
ownership of Celtics, Inc. Mr. Paul E. Gaston is the son of Don F. and Paula B.
Gaston.
Mr. Pond was named Executive Vice President, Chief Operating Officer,
Chief Financial Officer, Treasurer, and Secretary of Castle Creek GP upon its
formation. Upon consummation of the Reorganization, Mr. Pond assumed similar
responsibilities with BCLP GP. Mr. Pond has been employed by Celtics Inc. since
July 1992. He was named the Vice President, Controller and Secretary of
Celtics, Inc. in December 1992. Effective July 1, 1996, Mr. Pond assumed his
responsibilities as Executive Vice President, Chief Financial Officer and
Treasurer of Celtics, Inc., and effective July 1, 1997, he was named the
Executive Vice President, Chief Operating Officer, Chief Financial Officer
and, Treasurer, of Celtics Inc. From July 1981 to June 1992, he was with the
international accounting firm of Ernst & Young LLP, most recently as a senior
audit manager.
Mr. Don F. Gaston was named Director of Castle Creek GP upon its
formation. Mr. Gaston is a director of Celtics, Inc., BCLP GP, BCLP II GP and
BCC. He was Chairman of the Board of BCLP and CLP until his resignations in
December 1992 and September 1993, respectively, at which times he was succeeded
in each of these positions by his son, Paul E. Gaston. Mr. Gaston is the
husband and father respectively, of Paula B. Gaston and Paul E. Gaston.
Mrs. Paula B. Gaston became a Director of Castle Creek GP upon its
formation. Mrs. Gaston is a director of Celtics, Inc., BCLP GP, BCLP II GP and
BCC. She is a private investor and is the wife of Mr. Don F. Gaston and the
mother of Paul E. Gaston.
Item 11. Executive Compensation
- --------------------------------
There was no compensation awarded to, earned by or paid to any of the
executives or directors of Castle Creek GP, Castle Creek or its subsidiaries by
Castle Creek, nor were there any grants or exercises of options or appreciation
rights, during the period from April 13, 1998 (date of formation) to June 30,
1998.
Employment and Consulting Agreements-The Basketball Operations
Under an agreement dated as of March 13, 1981, as amended, Red Auerbach
has been retained to serve as a consultant to the Boston Celtics for the
remainder of his life. For such services, Mr. Auerbach will receive
compensation totaling $250,000 per year for his lifetime. In fiscal 1998, 1997
and 1996, Mr. Auerbach received bonus payments totaling $500,000, $600,000 and
$100,000, respectively. In the event of Mr. Auerbach's death, his wife shall
be entitled to receive for the balance of her life monthly payments equal to
those that would have otherwise been paid to Mr. Auerbach. Mr. Auerbach shall
advise the Boston Celtics with respect to, among other things, the team's
selections in the NBA college draft, evaluation of college and professional
players and the performance of the team and the players for as long as he is
physically able to perform such services.
Under an agreement dated May 6, 1997, Rick Pitino agreed to serve as
President and Director of Basketball Operations of CLP through May 6, 2007, and
as Head Coach of the team for the first six full NBA seasons of the agreement
(through the 2002-03 season). In connection with the Reorganization, this
contract was assigned to Celtics Basketball. Under the agreement, Mr. Pitino
will receive annual salaries of $6,750,000 through May 6, 2003 and $2,000,000
through May 6, 2007. Mr. Pitino was also granted a bonus in the amount of
$600,000, payable on the earlier of May 6, 2003 or upon a change in control of
CLP. In addition, in the event of a Change in Control as defined in the
agreement, Mr. Pitino will receive the lesser of $22,000,000 or any unpaid
amounts for the remainder of the term of the agreement. The Reorganization was
not a Change in Control as defined in Mr. Pitino's employment agreement.
Compensation Committee Interlocks and Insider Participation
The board of directors of Castle Creek GP has no compensation committee.
There was no compensation awarded to, earned by or paid to any of the
executives or directors of Castle Creek GP, Castle Creek or its subsidiaries
by Castle Creek, nor were there any grants or exercises of options or
appreciation rights, during the period from April 13, 1998 (date of formation)
to June 30, 1998, and there were no material deliberations of the board of
directors of Castle Creek GP regarding executive compensation. Other than
Paul E. Gaston, who is an officer of Castle Creek GP, none of the directors
was, during the period from April 13, 1998 (date of formation) to June 30, 1998
or previously, an officer or employee of the Partnership or any of its
subsidiaries or had any affiliated relationship requiring disclosure other than
described above.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth certain information regarding the
Partnership's Units beneficially owned on September 18, 1998 by (i) each person
who is known by the Partnership to beneficially own more than five percent (5%)
of the outstanding Units, (ii) each director of the General Partner, and (iii)
all directors and executive officers of the General Partner as a group. All
information with respect to beneficial ownership has been furnished by the
respective Unitholders to the Partnership.
<TABLE>
<CAPTION>
Percent of
5% Unitholders, Number of Outstanding
Directors and Executive Officers Units Units(1)
- ------------------------------------ --------- -----------
<S> <C> <C>
Don F. Gaston and Paula B. Gaston 7,237(2) 27.0%
33 East 63rd Street
New York, New York 10021
Paul E. Gaston 18,493(3) 69.0
33 East 63rd Street
New York, New York 10021
All directors and executive officers
as a group (3 persons) 25,730 96.0
<FN>
- -------------------
<F1> Percent of Outstanding Units for a particular Unitholder will be greater
than such Unitholder's percentage interest in the Partnership, due to the
1% interest in the Partnership held by the General Partner.
<F2> Includes 3,199 Units held by Brookwood Investments Limited Partnership, a
partnership owned by Don F. and Paula B. Gaston of which Don F. Gaston is
the General Partner. Does not include 13,199 Units held by Walcott
Partners L. P. See Note (3) below.
<F3> Includes 13,199 Units held by Walcott Partners L. P., a Gaston family
partnership. The General Partner of Walcott Partners L.P. is Draycott,
Inc., wholly-owned by Paul E. Gaston who is the only officer and
director. For the purpose of this table, Mr. Paul E. Gaston is deemed to
be the beneficial owner of these Units. Also includes 30 Units held by
Mr. Gaston as custodian for his minor children, 30 Units held directly
held by Mr. Gaston's minor children, and 375 Units held by BCC, over
which Mr. Gaston has investment authority. Also includes 4,849 restricted
units (the "Restricted Units"), 2,349 of which vest on June 28, 2006 and
2,500 of which vest on June 30, 2007. The Restricted Units contain
certain significant restrictions as to transferability, but are
entitled to receive distributions with respect to such Units.
</FN>
</TABLE>
Unless otherwise indicated, all parties have both exclusive voting and
investing power.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
On June 30, 1998, Castle Creek entered into a management services
agreement by and between Celtics Basketball Holdings, Celtics Basketball and
BCLP and its subsidiaries, BCLP II, CLP, Celtics Pride GP, Celtics Capital
Corporation and BCCLP Holding Corporation. The agreement provides that Celtics
Basketball will provide certain management and corporate services on behalf of
the other entities, and will charge a fee to the other entities for these
services based on the actual cost of the services to Celtics Basketball.
Although no such services were provided and no fees were charged under this
agreement for the period from April 13, 1998 (date of formation) to June 30,
1998, it is anticipated that certain services will be provided and fees will be
paid by the Partnership under this agreement commencing July 1, 1998.
PART IV
Item 14. Exhibits, and Reports on Form 8-K
- -------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements:
The financial statements listed in the accompanying List of Financial
Statements and Financial Statement Schedules are filed as part of this report.
2. Exhibits:
The Exhibits listed below are filed as part of this report.
(3) (a) -- Certificate of Limited Partnership of Castle
Creek Partners, L.P.7
(b) -- Agreement of Limited Partnership of Castle Creek
Partners, L.P.7
(c) -- Certificate of Incorporation of Castle Creek
Partners GP, Inc.7
(d) -- By-laws of Castle Creek Partners GP, Inc.7
(10) (a) -- Joint Venture Agreement by and among NBA member
organizations.1
(b) -- Constitution and By-laws of the National
Basketball Association.1
(c) -- Collective bargaining agreement, dated as of
November 1, 1988, between the NBA and the
National Basketball Players Association.3
(d) -- License/Lease Agreement dated April 4, 1990
between Boston Celtics Limited Partnership and
New Boston Garden Corporation (confidential
treatment previously granted).2
(e) -- Office Lease Agreement dated April 4, 1990
between Boston Celtics Limited Partnership and
New Boston Garden Corporation (confidential
treatment previously granted).2
(f) -- Letter Agreement dated April 4, 1990 between the
Boston Celtics Limited Partnership and New Boston
Garden Corporation (confidential treatment
granted).2
(g) -- Restricted Unit Agreement dated June 28, 1996
between Boston Celtics Limited Partnership and
Paul E. Gaston.4
(h) -- Letter from Paul Gaston electing to accept all
incentive compensation for 1996 in restricted
units.4
(i) -- Letter Agreement dated June 30, 1997 between
Boston Celtics Limited Partnership and Paul E.
Gaston pertaining to the election to exchange
options to purchase Limited Partnership Units for
Restricted Units.5
(j) -- Credit Agreement dated as of December 15, 1997 by
and between Celtics Limited Partnership as the
Borrower, Boston Celtics Limited Partnership and
Citizens Bank of Massachusetts as the Lender.6
(k) -- Amended and Restated Agreement and Plan of
Reorganization, dated as of June 5, 1998, among
Boston Celtics Limited Partnership, Boston
Celtics Limited Partnership II, Castle Creek
Partners, L.P., Celtics Limited Partnership,
Celtics, Inc., BCLP II GP, Inc., Castle Creek
Partners GP, Inc., Boston Celtics Corporation,
and Celtics Capital Corporation.7
(l) -- Agreement and Plan of Merger of BCLP Merger,
Inc., Boston Celtics Limited Partnership and
Boston Celtics Limited Partnership II, dated as
of June 29, 1998.7
(27) Financial Data Schedule
1 Incorporated by reference from the exhibits filed with BCLP II's
registration statement on Form S-1 filed under the Securities Act
of 1933 (File No. 33-9796).
2 Incorporated by reference from the exhibits filed with BCLP II's
Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended June 30, 1990.
3 Incorporated by reference from exhibits filed with BCLP II's report
on Form 10-K filed with the Securities and Exchange Commission for
the year ended June 30, 1989.
4 Incorporated by reference to the exhibits filed with BCLP II's
report on Form 10-K filed with the Securities and Exchange
Commission on September 27, 1996 (File No. 0-19324).
5 Incorporated by reference to the exhibits filed with BCLP II's
report on Form 10-K filed with the Securities and Exchange
Commission on September 26, 1997 (File No. 0-19324).
6 Incorporated by reference to the exhibits filed with BCLP II's
report on Form 10-Q filed with the Securities and Exchange
Commission on February 6, 1998 (File No. 0-19324).
7 Incorporated by reference from the exhibits filed with the report
on Form S-4 filed with the Securities and Exchange Commission on
April 17, 1998, as amended (File No. 333-50367).
(b) Reports on Form 8-K filed in the fourth quarter of 1998 - Form 8-K
dated June 30, 1998, reporting, in response to Item 5, on the consummation of
the Reorganization.
(c) Exhibits - The response to this portion of Item 14 is filed as a
part of this report.
(d) Financial Statement Schedules - The response to this portion of
Item 14 is filed as part of this report.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2)(c) and (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
CERTAIN EXHIBITS
YEAR ENDED JUNE 30, 1998
CASTLE CREEK PARTNERS, L.P.
BOSTON, MASSACHUSETTS
FORM 10-K -- ITEM 14(a)(1) and (2)
CASTLE CREEK PARTNERS, L.P.
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
Consolidated Balance Sheet at June 30, 1998.
Consolidated Statement of Income for the period from April 13, 1998
(date of formation) to June 30, 1998.
Consolidated Statement of Partners' Capital (Deficit) for the period
from April 13, 1998 (date of formation) to June 30, 1998.
Consolidated Statement of Cash Flows for the period from April 13,
1998 (date of formation) to June 30, 1998.
Notes to Consolidated Financial Statements.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been
omitted.
Report of Independent Auditors
To the General Partner
Castle Creek Partners, L.P.
We have audited the accompanying consolidated balance sheet of Castle Creek
Partners, L.P. and Subsidiaries as of June 30, 1998, and the related
consolidated statements of income, partners' capital (deficit) and cash
flows for the period from April 13, 1998 (date of formation) to June 30,
1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Castle Creek Partners, L.P. and Subsidiaries at June 30, 1998,
and the consolidated results of their operations and their cash flows for
the period from April 13, 1998 (date of formation) to June 30, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Boston, Massachusetts
September 18, 1998
CASTLE CREEK PARTNERS, L.P.
and Subsidiaries
Consolidated Balance Sheet
June 30, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,601,978
Other short-term investments 41,172,668
Accounts receivable 2,875,246
Prepaid expenses and other current assets 453,212
-----------
TOTAL CURRENT ASSETS 51,103,104
MINORITY INTEREST IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 29,865,364
PROPERTY AND EQUIPMENT, net 1,062,659
NATIONAL BASKETBALL ASSOCIATION FRANCHISE, net of
amortization of $2,313,599 3,855,982
NOTE RECEIVABLE 6,610,017
OTHER ASSETS 3,859,287
-----------
$96,356,413
===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $19,466,235
Deferred game revenues 6,484,338
Deferred compensation - current portion 1,557,030
-----------
TOTAL CURRENT LIABILITIES 27,507,603
NOTES PAYABLE TO BANK 50,000,000
DEFERRED COMPENSATION - noncurrent portion 8,961,591
DUE TO BOSTON CELTICS LIMITED PARTNERSHIP 10,389,125
OTHER NON-CURRENT LIABILITIES 600,000
PARTNERS' CAPITAL (DEFICIT), issued and outstanding 29,300 units
of limited partnership interest
Castle Creek Partners, L.P. -
General Partner 22,535
Limited Partners 1,911,543
-----------
1,934,078
Celtics Basketball Holdings, L.P. - General Partner 1,000
Celtics Basketball, L.P. - General Partner 1,000
Partners' capital contribution receivable (3,037,984)
-----------
TOTAL PARTNERS' CAPITAL (DEFICIT) (1,101,906)
-----------
$96,356,413
===========
</TABLE>
See notes to consolidated financial statements.
CASTLE CREEK PARTNERS, L.P.
and Subsidiaries
Consolidated Statement of Income
For the Period From April 13, 1998 (date of formation)
to June 30, 1998
<TABLE>
<S> <C>
Other income:
Interest income $216,245
--------
Net income 216,245
Net income applicable to interests of General Partners 2,162
--------
Net income applicable to interests of Limited Partners $214,083
========
Per unit:
Net income-basic $ 8.76
Net income-diluted $ 7.31
</TABLE>
See notes to consolidated financial statements.
CASTLE CREEK PARTNERS, L.P.
and Subsidiaries
Consolidated Statement of Partners' Capital (deficit)
For the Period From April 13, 1998 (date of formation)
to June 30, 1998
<TABLE>
<CAPTION>
Limited Partners General Partners' Interests
------------------- ---------------------------------------- Partners'
Celtics Celtics Capital
Castle Creek Basketball Basketball Contribution
Total Units Amount Partners, L.P. Holdings, L.P. L.P. Receivable
----- ----- ------ -------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Contribution of short-term investments from
Boston Celtics Limited Partnership II $ 41,022,067 $ 41,022,067
Cash contributions from partners 200 $ 100 $ 100
Contributions receivable 2,595,602 $ 440,582 900 900 ($3,037,984)
Contribution of interest in Celtics
Basketball Holdings, L.P. (31,631,780) (31,315,462) (316,318)
Assumption of deferred tax liability (10,389,125) (10,285,234) (103,891)
Issuance of units of limited partnership
interest 28,925
Issuance of units to Boston Celtics
Corporation in exchange for interests in
Celtics Basketball Holdings, L.P. (319,513) 375 (319,513)
Net income for the period from April 13,
1998 (date of formation) to June 30, 1998 216,245 214,083 2,162
-------------------------------------------------------------------------------------
Balance at June 30, 1998 $(1,101,906) 29,300 $ 1,911,543 $ 22,535 $1,000 $1,000 ($3,037,984)
=====================================================================================
</TABLE>
See notes to consolidated financial statements.
CASTLE CREEK PARTNERS, L.P.
and Subsidiaries
Consolidated Statement of Cash Flows
For the Period From April 13, 1998 (date of formation)
to June 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 216,245
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in prepaid expenses and other current assets (150,601)
------------
Net cash provided by operating activities 65,644
Cash flows from investing activities:
Purchases of short-term investments (20,000,000)
Proceeds from sales of short-term investments 20,000,000
------------
Net cash provided by investing activities 0
------------
Cash flows from financing activities:
Contributions from general partners 200
Contribution to Celtics Basketball, L.P. from Celtics Limited Partnership 6,536,134
------------
Net cash provided by financing activities 6,536,334
------------
Cash at end of period $ 6,601,978
============
Non cash investing and financing activities:
Contribution of short-term investments by Boston Celtics Limited
Partnership II in exchange for units of limited partnership interest $ 41,022,067
Contribution of interest in Celtics Basketball Holdings, L.P. $(31,631,780)
Distribution of units to Boston Celtics Corporation $(319,513)
</TABLE>
See notes to consolidated financial statements.
CASTLE CREEK PARTNERS, L.P.
and Subsidiaries
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
Principles of Consolidation: Castle Creek Partners, L.P. ("Castle Creek",
the "Partnership") is a Delaware limited partnership formed on April 13,
1998. The Partnership holds investments, including a 51.7% limited
partnership interest in Celtics Basketball Holdings L.P. ("Celtics
Basketball Holdings"), which through Celtics Basketball, L.P. ("Celtics
Basketball") its 99.999% owned subsidiary, owns and operates the Boston
Celtics professional basketball team of the National Basketball Association
(the "Boston Celtics"). The consolidated financial statements include the
accounts of Castle Creek, Celtics Basketball Holdings and Celtics
Basketball. All intercompany transactions are eliminated in consolidation.
Castle Creek, Celtics Basketball Holdings and Celtics Basketball were formed
in connection with a reorganization of Boston Celtics Limited Partnership II
("BCLP II") (the "Reorganization"). In connection with the Reorganization,
certain investment assets were contributed to Castle Creek in May 1998, and
the assets and liabilities of the Boston Celtics were contributed to Celtics
Basketball on June 30, 1998. Accordingly, from the date of its formation
until June 30, 1998, the Partnership's operating results consisted solely of
investing activities. For periods subsequent to June 30, 1998, the
Partnership's operating results will include its 51.7% interest in the
operations of the Boston Celtics.
The general partner of Castle Creek is Castle Creek Partners GP, Inc.
Note B - Significant Accounting Policies
Cash Equivalents: Cash equivalents represent short-term investments with
maturities at the date of purchase of three months or less.
Estimates and Assumptions: The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Concentration of Credit Risk: Financial instruments which potentially
subject the Partnership to credit risk consist principally of cash
equivalents, short-term investments and accounts receivable. The
Partnership's cash equivalents and short-term investments represent
investments with relatively short maturities in the securities of highly
rated financial institutions. The Partnership performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. Credit losses have been consistently within
management's expectations.
Other Short Term Investments: The Partnership accounts for other short-term
investments in accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
which established the accounting and reporting requirements for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. All affected investment securities are
classified as securities to be held to maturity, for trading, or available-
for-sale.
Financial Instruments: The carrying value of financial instruments such as
cash equivalents, accounts receivable and accounts payable approximate their
fair values based on the short-term maturities of these instruments. The
carrying value of long-term debt approximates its fair value based on
references to similar instruments and the variable interest rate.
Franchise and Other Intangible Assets: These assets, consisting principally
of the National Basketball Association franchise and other intangible assets
are being amortized primarily on a straight-line basis over 40 years.
Property and Equipment: Property and equipment is stated at cost and is
being depreciated over estimated useful lives of from five to fifteen years
using straight line or accelerated methods of depreciation as appropriate.
Leasehold improvements are depreciated over the lesser of the remaining
lives of the leases or the assets.
Basketball Operations: Revenues, principally ticket sales and television
and radio broadcasting fees, generally are recorded as revenues at the time
the game to which such proceeds relate is played. Team expenses,
principally player and coaches salaries, related fringe benefits and
insurance, and game and playoff expenses, principally National Basketball
Association attendance assessments and travel, are recorded as expense on
the same basis. Accordingly, advance ticket sales and payments on
television and radio broadcasting contracts and payments for team and game
expenses not earned or incurred are recorded as deferred revenues and
deferred expenses, respectively, and amortized ratably as regular season
games are played. General and administrative and selling and promotional
expenses are charged to operations as incurred.
Income Taxes: No provision for income taxes is required by the Partnership
as its income and expenses are taxable to or deductible by its partners.
Comprehensive Income: In June 1997, the Financial Accounting Standards
Board issued Statement No. 130, "Reporting Comprehensive Income" ("Statement
130"). Statement 130 is effective for fiscal years beginning after December
15, 1997. The Partnership believes that the adoption of Statement 130 will
not have a material impact on the Partnership's consolidated financial
statements.
Note C - Reorganization of Boston Celtics Limited Partnership II
In connection with the Reorganization, BCLP II unitholders were given an
option of exchanging their units of interest in BCLP II for Castle Creek
interests on a 100-for-one basis. BCLP II would then contribute
to Castle Creek the percentage of its net assets, subject to certain
adjustments, corresponding to the percentage of BCLP II unitholders that
elected to receive Castle Creek interests (the "Proportionate Election").
BCLP II's net assets consisted primarily of investment assets and, through a
subsidiary, the assets of the Boston Celtics. In exchange for the
contribution of assets to Castle Creek, BCLP II was to receive limited
partnership interests in Castle Creek, which they subsequently would
distribute to BCLP II unitholders electing to receive Castle Creek interests
in the Reorganization.
In anticipation of the contribution of assets to Castle Creek, BCLP II
contributed $41,022,067 of investment assets to Castle Creek in May 1998
based on an estimate of the Proportionate Election. When the Reorganization
election was complete on June 30, 1998 and the Proportionate Election was
finalized at 51.68719%, it was determined that BCLP II needed to contribute
an additional $3,036,184 of assets to Castle Creek to reflect the
Proportionate Election. This amount has been classified as partners'
capital contribution receivable on the consolidated balance sheet.
In addition, Castle Creek agreed to indemnify and reimburse Boston Celtics
Limited Partnership ("BCLP"), the 99% limited partner of BCLP II, for its
pro rata share, as determined by the Percentage Election, of taxes imposed
on BCLP and its subsidiaries attributable to periods prior to the
Reorganization. Accordingly, the amount due to BCLP of $10,389,125
represents Castle Creek's assumed 51.68719% share of BCLP's deferred tax
liability immediately prior to the Reorganization.
Note D - Minority Interest in Capital Deficiency of Celtics Basketball
Holdings, L.P.
The Partnership owns a 51.6867% 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, L.P., owns and operates the
Boston Celtics. Celtics Basketball Holdings has a partners' capital
deficiency of approximately $61,816,000, and, accordingly, the 48.3123%
minority interest in the partners' capital deficiency of Celtics Basketball
Holdings is reported as an asset on Castle Creek's balance sheet.
Note E - Other Short Term Investments and Notes Receivable
Other short term investments, which consist primarily of private placement
notes with a commercial bank with maturities of less than one year, are
classified as held-to-maturity and are carried at amortized cost, which
approximates market value.
Notes receivable represents a convertible note due from an unrelated company
which has been classified as held-to-maturity and is carried at amortized
cost, which approximates market value. This note, which is comprised of
$6,000,000 face value and accrued interest of $610,017, bears interest at
LIBOR plus 1%, with quarterly interest payments beginning in May 1999 and
quarterly payments of principal plus interest beginning February 2002
through the maturity of the note in January 2007. The note is secured by
substantially all of the assets of this company.
There were no unrealized gains or losses on these investments at June 30,
1998.
Note F - Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements $1,301,671
Furniture and fixtures 662,986
----------
1,964,657
Less: accumulated depreciation (901,998)
----------
Net property and equipment $1,062,659
==========
</TABLE>
Note G - Deferred Compensation
Certain player contracts provide for guaranteed compensation payments which
are deferred until a future date. Operations are charged amounts equal to
the present value of future guaranteed payments in the period in which the
compensation is earned. The present value of payments due under these
agreements is as follows:
<TABLE>
<S> <C>
Years ending June 30, 1999 $ 1,557,000
2000 1,300,000
2001 1,194,000
2002 1,115,000
2003 1,094,000
2004 and thereafter 4,259,000
-----------
$10,519,000
===========
</TABLE>
Note H - Notes Payable
Notes payable to bank represents outstanding borrowings under a $60,000,000
credit facility dated December 15, 1997 between Celtics Basketball and its
commercial bank. The credit agreement was originally entered into by
Celtics Limited Partnership ("CLP"), which owned and operated the Boston
Celtics prior to the Reorganization, and was contributed to Celtics Basketball
on June 30, 1998. The credit agreement consists of a $50,000,000 term loan
bearing interest at 6.29% and a $10,000,000 revolving line of credit. As of
June 30, 1998, no borrowings were outstanding against the $10,000,000 revolving
line of credit.
Under the terms of the $50,000,000 term loan agreement, interest is payable
quarterly in arrears at a fixed annual rate of 6.29% from December 15, 1997
through December 15, 2007. Principal payments are due in equal quarterly
installments of $2,500,000 commencing on January 1, 2003, with the final
payment due on December 15, 2007, the maturity date of the loan.
The $10,000,000 revolving line of credit agreement expires on December 15,
2000, with two automatic one-year extensions cancelable at the option of the
commercial bank. Interest on any borrowings under the revolving line of
credit accrues at the Partnership's option of either LIBOR plus 0.70% or the
greater of the bank's Base Rate or the Federal Funds Effective Rate plus
0.50%.
Borrowings under the term loan and revolving line of credit are secured by
all of the assets of and are the liability of Celtics Basketball. The loan
agreement contains certain restrictions and various provisions and covenants
customary in lending arrangements of this type.
Note I - Commitments and Contingencies
National Basketball Association ("NBA") players, including those that play for
the Boston Celtics, are 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 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. The NBA and the NBPA
have been engaged in negotiations regarding a new collective bargaining
agreement, but as of September 18, 1998, no agreement has been reached. In the
event that the lockout extends into the 1998-99 season, NBA teams, including
the Boston Celtics, will refund amounts paid by season ticket holders (plus
interest) for any games that are canceled as a result of the lockout. In
addition, as a result of the lockout, NBA teams have not made any payments due
to players under contracts for the 1998-99 season. The NBPA has disputed the
NBA's position on this matter, and both the NBA and the NBPA have presented
their cases to an independent arbitrator, who will make his ruling no later
than the middle of October 1998. As of September 18, 1998, the arbitrator
has not ruled on this matter.
Although the ultimate outcome of this matter cannot be determined at this
time, any loss of games as a result of the absence of a collective
bargaining agreement or the continuation of the lockout will have a material
adverse effect on the Partnership's financial condition and its results of
operations. Further, if NBA teams, including the Boston Celtics, are
required to honor the player contracts for the 1998-99 season and beyond
without agreeing to a new collective bargaining agreement or without ending
the lockout, which would result in the loss of games, the Partnership's
financial condition and results of operations will be materially and
adversely affected.
Celtics Basketball has employment agreements with certain officers, coaches
and players of the Boston Celtics. Certain of the contracts provide for
guaranteed payments which must be paid even if the employee is injured or
terminated. Amounts required to be paid under such contracts in effect as
of September 18, 1998, including option years and $8,100,000 included in
accrued expenses at June 30, 1998, but excluding deferred compensation
commitments disclosed in Note G - Deferred Compensation, are as follows:
<TABLE>
<S> <C>
Years ending June 30, 1999 $32,715,000
2000 33,828,000
2001 27,284,000
2002 20,860,000
2003 19,585,000
2004 and thereafter 10,800,000
</TABLE>
Commitments for the year ended June 30, 1999 include payments due to players
under contracts for the 1998-99 season in the amount of $18,801,000 which are
currently not being paid as a result of the lockout described above.
Celtics Basketball maintains disability and life insurance policies on most
of its key players. The level of insurance coverage maintained is based on
management's determination of the insurance proceeds which would be required
to meet its guaranteed obligations in the event of permanent or total
disability of its key players.
The Partnership and its subsidiaries are also committed under noncancelable,
long-term operating leases, substantially all of which are related to
Celtics Basketball, for certain of its facilities and equipment. Minimum
annual payments, including renewable option periods, required by these
operating leases are as follows:
<TABLE>
<S> <C>
Years ending June 30, 1999 $304,000
2000 319,000
2001 334,000
2002 350,000
2003 367,000
2004 and thereafter 994,000
</TABLE>
Note J - Benefit Plans
Celtics Basketball has a defined contribution plan covering substantially
all employees who meet certain eligibility requirements. Participants may
make contributions to the plans up to 15% of their compensation (as
defined). Contributions to these plans are matched by the Partnership and
its subsidiaries 100% on the first 7% of compensation contributed by each
participant. Contributions are fully vested after three years of service.
Players, coaches, trainers and the general manager of the basketball
operation are covered by multiemployer defined benefit pension plans
administered by the National Basketball Association.
Note K - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include accrued compensation to
players and coaches of $17,397,000 at June 30, 1998.
Note L - Net Income Per Unit
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully-diluted earnings per unit with basic and
diluted earnings per unit. Unlike primary earnings per unit, basic earnings
per unit excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per unit is similar to the Partnership's
previously reported primary earnings per unit.
The following table sets forth the computation of basic and diluted earnings
per unit for the period from April 13, 1998 (date of formation) to June 30,
1998:
<TABLE>
<S> <C>
Numerator for basic and diluted earnings per unit:
Net income:
Net income before interests of General Partners $216,245
Applicable to 1% General Partnership interest of Castle Creek 2,162
--------
Net income applicable to interests of Limited Partners $214,083
========
Denominator:
Denominator for basic earnings per unit - weighted average units 24,451
Effect of dilutive securities:
Restricted stock 4,849
--------
Denominator for diluted earnings per unit 29,300
========
Net income per unit - basic $ 8.76
========
Net income per unit - diluted $ 7.31
========
</TABLE>
Note M - Subsequent Event
In connection with the Reorganization, the Partnership has an agreement with
one of its unitholders under which the Partnership held a call option with
respect to the 2,500 Castle Creek interests owned by this unitholder (the
"Call"). The Castle Creek interests were acquired by this unitholder in the
Reorganization pursuant to an agreement whereby he exercised BCLP II options
to purchase 250,000 BCLP II units on June 1, 1998, elected to receive 2,500
Castle Creek interests in exchange for the BCLP II units in the
Reorganization, and granted BCLP II the Call.
The Call was exercisable until March 31, 1999 for a purchase price consisting
of (i) payable on the date of exercise of the Call, the fair market value of
250,000 BCLP II units on June 1, 1998 ($5,162,250), plus (ii) payable on
January 15, 2004, cash in an amount equal to (x) the aggregate amount of
interest paid by BCLP II from April 14, 1998 until January 10, 2004 with
respect to $5,000,000 in aggregate principal amount of its 6% Subordinated
Debentures and (y) the aggregate amount of distributions paid by BCLP II
from April 14, 1998 until January 10, 2004 with respect to 250,000 BCLP II
Units.
On July 24, 1998, the Partnership exercised the Call and paid the unitholder
$5,156,250, representing the fair market value of 250,000 BCLP II units on
June 1, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CASTLE CREEK PARTNERS, L.P.
By: Castle Creek Partners GP, Inc., General Partner
-----------------------------------------------
Date: September 25, 1998 By: /s/ PAUL E. GASTON
-------------------------------------------
Paul E. Gaston
Chairman of the Board and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title* Date
- --------- ------ ----
<S> <C> <C>
/s/ DON F. GASTON Director September 25, 1998
- --------------------
Don F. Gaston
/s/ PAULA B. GASTON Director September 25, 1998
- --------------------
Paula B. Gaston
/s/ RICHARD G. POND Executive Vice President, September 25, 1998
- -------------------- Chief Financial Officer and
Richard G. Pond Chief Accounting Officer
<F*> Title indicates position with General Partner.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF CASTLE CREEK PARTNERS, L.P. AND ITS SUBSIDIARIES
AS OF JUNE 30, 1998 AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,602
<SECURITIES> 41,173
<RECEIVABLES> 2,885
<ALLOWANCES> 10
<INVENTORY> 0
<CURRENT-ASSETS> 54,103
<PP&E> 1,965
<DEPRECIATION> 902
<TOTAL-ASSETS> 99,356
<CURRENT-LIABILITIES> 27,508
<BONDS> 50,000
0
0
<COMMON> 0
<OTHER-SE> (1,102)
<TOTAL-LIABILITY-AND-EQUITY> 99,356
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 216
<INCOME-TAX> 0
<INCOME-CONTINUING> 216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216
<EPS-PRIMARY> 8.76
<EPS-DILUTED> 7.31
</TABLE>
