<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
--------------------
Commission Registrant; State of Organization; IRS Employer
File No. Address and Telephone Number Identification No.
- ---------- ---------------------------------- ------------------
1-14507 Boston Celtics Limited Partnership 04-3416346
(a Delaware limited partnership)
151 Merrimac Street,
Boston, Massachusetts 02114
(617) 523-6050
1-9324 Boston Celtics Limited Partnership II 04-2936516
(a Delaware limited partnership)
151 Merrimac Street,
Boston, Massachusetts 02114
(617) 523-6050
Indicate by checkmark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No --------- ---------
As of September 30, 1998, there were 2,703,664 Units outstanding of Boston
Celtics Limited Partnership, and 2,703,664 units representing limited
partnership interests outstanding of Boston Celtics Limited Partnership II.
<PAGE> 2
Part I - Financial Information
Item I - Financial Statements
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---------------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,715,304 $ 8,468,286
Marketable securities 1,041,446
Other short-term investments 82,276,929 81,114,266
Prepaid expenses and other current assets 198,708 302,900
---------------------------
TOTAL CURRENT ASSETS 86,190,941 90,926,898
PROPERTY AND EQUIPMENT, net of depreciation
of $24,230 in September and $21,957 in June 21,243 23,516
OTHER ASSETS 1,068,978 1,096,129
---------------------------
$87,281,162 $92,046,543
===========================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,171,484 $ 1,102,496
Due to related parties 3,036,184
Federal and state income taxes payable 682,430 733,800
Notes payable 17,538,780
---------------------------
TOTAL CURRENT LIABILITIES 1,853,914 22,411,260
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK 50,000,000 30,000,000
SUBORDINATED DEBENTURES 33,084,267 32,984,700
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 31,055,103 29,865,364
<PAGE> 3
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership -
General Partner 235,839 290,166
Limited Partners (39,713,589) (34,329,896)
---------------------------
(39,477,750) (34,039,730)
Boston Celtics Limited Partnership II -
General Partner 162,775 210,292
Celtics Limited Partnership - General Partner 250,655 262,554
Boston Celtics Communications Limited
Partnership - General Partner 641,323 641,228
---------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (38,422,997) (32,925,656)
---------------------------
$87,281,162 $92,046,543
===========================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statement of Operations
Unaudited
For the Three Months Ended September 30, 1998
<TABLE>
<S> <C>
Costs and expenses:
General and administrative $ 1,050,315
Depreciation and amortization 14,052
-----------
(1,064,367)
Equity in loss of Celtics Basketball Holdings, L.P. (1,189,739)
Interest expense (1,734,817)
Interest income 1,246,462
Net realized gains on disposition of marketable securities
and other short-term investments 6,020
-----------
Loss from operations before income taxes and
extraordinary charge (2,736,441)
Provision for income taxes 500,000
-----------
Loss from operations before extraordinary charge (3,236,441)
Extraordinary charge for early retirement of notes payable (2,255,540)
-----------
Net loss (5,491,981)
Net loss applicable to interests of General Partners (113,594)
-----------
Net loss applicable to interests of Limited Partners $(5,378,387)
===========
Loss per unit from operations before extraordinary charge $(1.17)
Net loss per unit $(1.99)
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statement of Cash Flows
Unaudited
For the Three Months Ended September 30, 1998
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
General and administrative expenses $ (1,615,632)
Interest expense (1,008,238)
Interest income 1,051,449
Income taxes paid (551,370)
-------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (2,123,791)
-------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (175,036,184)
Proceeds from sales of marketable securities 1,000,000
Proceeds from sales of short-term investments 171,100,000
Other receipts (expenditures) 11,147
-------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (2,925,037)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 20,000,000
Payment of notes payable (19,794,320)
Cash contributions from general partner 90,166
-------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 295,846
-------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,752,982)
Cash and cash equivalents at beginning of period 8,468,286
-------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,715,304
=============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
Notes to Condensed Consolidated Financial Statements
- -------------------------------------------------------------------------------
BOSTON CELTICS LIMITED PARTNERSHIP AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Note 1 - The condensed consolidated financial statements include the accounts
of Boston Celtics Limited Partnership ("BCLP," the "Partnership") and its
majority-owned and controlled subsidiaries and partnerships.
BCLP (formerly "Boston Celtics Limited Partnership II") is a Delaware limited
partnership that was formed on April 13, 1998 in connection with a
reorganization of Boston Celtics Limited Partnership II (formerly "Boston
Celtics Limited Partnership") ("BCLP II"). Pursuant to the reorganization of
BCLP II (the "Reorganization"), which was completed on June 30, 1998, BCLP owns
a 99% limited partnership interest in BCLP II.
BCLP held no material assets and was not engaged in operations from its date of
formation until the completion of the Reorganization on June 30, 1998. Upon
completion of the Reorganization, BCLP, through its subsidiaries, holds certain
investments, including a 48.3123% limited partnership investment in Celtics
Basketball Holdings, L.P., ("Celtics Basketball Holdings") which, through
Celtics Basketball, L.P. ("Celtics Basketball"), its 99.999% subsidiary
partnership, owns and operates the Boston Celtics professional basketball team
(the "Boston Celtics") of the National Basketball Association (the "NBA").
BCLP's investment in Celtics Basketball Holdings is accounted for on the equity
method, and accordingly, the investment is carried at cost, effected by equity
in income or loss of Celtics Basketball Holdings and reduced by distributions
received.
Note 2 - The unaudited interim condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and with instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included therein. Operating results for interim periods are not indicative of
the results that may be expected for the full year. Such financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto of Boston Celtics Limited Partnership and Subsidiaries
included in the annual report on Form 10-K for the year ended June 30, 1998.
Note 3 - On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit
agreement with its commercial bank, $20,000,000 of which was reserved for the
repayment of notes payable related to BCLP II units that were redeemed from a
former principal unitholder in August 1995.
The notes payable to the former principal unitholder had an aggregate initial
face amount of $14,365,096. The notes, which were due and payable on July 1,
2000, also provided that the amounts to be paid to such unitholder were to be
increased by specified amounts on each July 1 during their term. If the
principal unitholder held the notes until July 1, 2000, he would have been
entitled to receive aggregate payments (excluding interest) in the amount of
$20,044,320. Each of the notes bore interest payable quarterly at the rate of
7.76% per annum. At September 30, 1998, the aggregate balance of the notes,
including scheduled increases in the note balances, amounted to $17,538,780.
<PAGE> 7
On September 30, 1998, BCLP II borrowed the $20,000,000 reserved under its
revolving credit agreement and used the proceeds to repay the notes payable
related to the redeemed BCLP II units. The $20,000,000 borrowing under the
revolving credit agreement bears interest at the rate of 5.695% through
September 30, 1999, after which it bears interest at the rate of LIBOR plus
0.70%. The notes payable to the former principal unitholder were repaid in the
amount of $19,794,320, resulting in an extraordinary charge of $2,255,540
related to early retirement of notes payable.
Note 4 - BCLP, through its subsidiary partnerships and corporations, owns a
48.3123% limited partnership interest in Celtics Basketball Holdings. Prior to
the completion of the Reorganization on June 30, 1998, Celtics Basketball
Holdings held no material assets and was not engaged in operations. Upon
completion of the Reorganization, Celtics Basketball Holdings, through Celtics
Basketball, owns and operates the Boston Celtics. BCLP's investment in Celtics
Basketball Holdings is accounted for on the equity method. Summary income
statement data for Celtics Basketball Holdings for the three months ended
September 30, 1998 is as follows:
<TABLE>
<S> <C>
Total costs and expenses $(1,819,138)
Interest income (expense), net (643,487)
-----------
Net loss $(2,462,625)
===========
</TABLE>
Note 5 - The following table sets forth the computation of loss per unit for
the three months ended September 30, 1998:
<TABLE>
<S> <C>
Numerator for loss per unit:
Loss from operations before extraordinary charge:
Loss from operations before extraordinary charge $(3,236,441)
Applicable to interests of General Partners of
subsidiary partnerships (36,712)
-----------
(3,199,729)
Applicable to 1% General Partnership interest of BCLP (31,997)
-----------
Applicable to interests of Limited Partners $(3,167,732)
===========
Net loss:
Net loss $(5,491,981)
Applicable to interests of General Partners of
subsidiary partnerships (59,267)
-----------
(5,432,714)
Applicable to 1% General Partnership interest of BCLP (54,327)
-----------
Applicable to interests of Limited Partners $(5,378,387)
===========
<PAGE> 8
Denominator for loss per unit - weighted average units 2,703,664
===========
Loss per unit from operations before extraordinary charge $ (1.17)
===========
Net loss per unit $ (1.99)
===========
</TABLE>
Note 6 - The Partnership adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" ("Statement 130") effective July 1,
1998. Comprehensive income was not materially different from net loss for the
three months ended September 30, 1998.
Note 7 - NBA players, including those that play for the Boston Celtics, were
covered by a collective bargaining agreement between the NBA and the NBA
Players Association (the "NBPA") that was to be in effect through June 30, 2001
(the "Collective Bargaining Agreement"). Under the terms of the Collective
Bargaining Agreement, the NBA had the right to terminate the Collective
Bargaining Agreement after the 1997-98 season if it was determined that the
aggregate salaries and benefits paid by all NBA teams for the 1997-98 season
exceeded 51.8% of projected Basketball Related Income, as defined in the
Collective Bargaining Agreement ("BRI"). Effective June 30, 1998, the Board of
Governors of the NBA voted to exercise that right and reopen the Collective
Bargaining Agreement, as it had been determined that the aggregate salaries and
benefits paid by the NBA teams for the 1997-98 season would exceed 51.8% of
projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA
players in support of its attempt to reach a new collective bargaining
agreement. The NBA and the NBPA have been engaged in negotiations regarding a
new collective bargaining agreement, but as of November 6, 1998, no agreement
has been reached. NBA teams, including the Boston Celtics, will refund amounts
paid by season ticket holders (plus interest at 6%) for any home games that are
canceled as a result of the lockout. Such refunds are to be paid on a monthly
basis for any games canceled in the preceding month. As of November 6, 1998, a
total of ten Boston Celtics home games through November 30, 1998 (two
exhibition games and eight regular season games) have been canceled due to the
lockout. In addition, as a result of the lockout, NBA teams are not required to
make any payments due to players with respect to the 1998-99 season.
Although the ultimate outcome of this matter cannot be determined at this time,
the 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.
<PAGE> 9
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---------------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,427,576 $ 8,268,186
Marketable securities 1,041,446
Other short-term investments 82,276,929 81,114,266
Due from related parties 646,972
Prepaid expenses and other current assets 198,708 212,734
---------------------------
TOTAL CURRENT ASSETS 86,550,185 90,636,632
PROPERTY AND EQUIPMENT, net of depreciation
of $24,230 in September and $21,957 in June 21,243 23,516
OTHER ASSETS 1,068,978 1,096,129
---------------------------
$87,640,406 $91,756,277
===========================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,108,612 $ 1,102,296
Due to related parties 3,036,184
Federal and state income taxes payable 682,430 733,800
Notes payable 17,538,780
---------------------------
TOTAL CURRENT LIABILITIES 1,791,042 22,411,060
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK 50,000,000 30,000,000
SUBORDINATED DEBENTURES 33,084,267 32,984,700
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 31,055,103 29,865,364
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership II -
General Partner 162,775 210,292
Limited Partners (39,055,634) (34,329,796)
---------------------------
(38,892,859) (34,119,504)
Celtics Limited Partnership - General Partner 250,655 262,554
Boston Celtics Communications Limited
Partnership - General Partner 641,323 641,228
---------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (38,000,881) (33,215,722)
---------------------------
$87,640,406 $91,756,277
===========================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 10
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
September 30, September 30,
1998 1997
------------------------------
<S> <C> <C>
Costs and expenses:
General and administrative $ 338,133 $ 2,877,083
Selling and promotional 497,021
Depreciation 2,274 48,053
Amortization of NBA franchise and other intangible assets 11,778 41,176
-----------------------------
(352,185) (3,463,333)
Equity in loss of Celtics Basketball Holdings, L.P. (1,189,739)
Interest expense (1,734,817) (1,479,028)
Interest income 1,246,462 1,566,690
Net realized gains on disposition of marketable securities
and other short-term investments 6,020 10,038
----------------------------
Loss from operations before income taxes and extraordinary charge (2,024,259) (3,365,633)
Provision for income taxes 500,000 500,000
----------------------------
Loss from operations before extraordinary charge (2,524,259) (3,865,633)
Extraordinary charge for early retirement of notes payable (2,255,540)
----------------------------
Net loss (4,779,799) (3,865,633)
Net loss applicable to interests of General Partners (59,267) (64,509)
----------------------------
Net loss applicable to interests of Limited Partners $(4,720,532) $(3,801,124)
============================
Loss per unit from operations before extraordinary charge $(0.92) $(0.71)
Net loss per unit $(1.75) $(0.71)
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 11
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
September 30, September 30,
1998 1997
------------------------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Receipts:
Basketball regular season receipts:
Ticket sales $ 23,488,716
Television and radio broadcast rights fees 1,705,500
Other, principally promotional advertising 498,319
-----------------------------
25,692,535
Costs and expenses:
Basketball regular season expenditures:
Team expenses 8,966,264
Game expenses 19,856
General and administrative expenses $ 1,613,094 4,713,619
Selling and promotional expenses 910,613
-----------------------------
1,613,094 14,610,352
-----------------------------
(1,613,094) 11,082,183
Interest expense (1,008,238) (1,132,352)
Interest income 1,051,449 1,701,788
Income taxes refunded (paid) (551,370) 166,694
Payment of deferred compensation (128,184)
-----------------------------
NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES (2,121,253) 11,690,129
-----------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of:
Marketable securities (27,330,855)
Short-term investments (175,036,184) (166,600,000)
Proceeds from sales of:
Marketable securities 1,000,000 19,905,165
Short-term investments 171,100,000 168,092,400
Capital expenditures (221,199)
Other receipts (expenditures) 11,147 (699,976)
-----------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (2,925,037) (6,854,465)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 20,000,000
Payment of notes payable (19,794,320)
-----------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 205,680
-----------------------------
<PAGE> 12
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,840,610) 4,835,664
Cash and cash equivalents at beginning of period 8,268,186 6,498,739
-----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,427,576 $11,334,403
=============================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 13
Notes to Condensed Consolidated Financial Statements
- -------------------------------------------------------------------------------
BOSTON CELTICS LIMITED PARTNERSHIP II AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Note 1 - The condensed consolidated financial statements include the accounts
of Boston Celtics Limited Partnership II ("BCLP II," the "Partnership") and its
majority-owned and controlled subsidiaries and partnerships. All intercompany
transactions are eliminated in consolidation.
Pursuant to a reorganization of its partnership structure that was completed on
June 30, 1998 (the "Reorganization"), the Partnership's name was changed to
Boston Celtics Limited Partnership II. As a result of the Reorganization, the
Partnership's 99% limited partnership interest is owned by Boston Celtics
Limited Partnership (a Delaware limited partnership formed in April 1998).
Prior to the Reorganization, BCLP II, through its subsidiaries, owned and
operated the Boston Celtics professional basketball team (the "Boston Celtics")
of the National Basketball Association (the "NBA") and held investments. The
Boston Celtics were owned by Celtics Limited Partnership ("CLP"), in which BCLP
II has a 99% limited partnership interest.
Upon completion of the Reorganization, the Boston Celtics are owned and
operated by Celtics Basketball, L.P. ("Celtics Basketball"), a 99.999%
subsidiary of Celtics Basketball Holdings, L.P. ("Celtics Basketball
Holdings"). BCLP II, through its subsidiaries, holds certain investments,
including a 48.3123% limited partnership investment in Celtics Basketball
Holdings.
Accordingly, the operating results of the Boston Celtics are consolidated in
the accompanying financial statements for periods prior to the Reorganization.
Effective June 30, 1998, BCLP II's interest in the accounts and operations of
the Boston Celtics is reflected in its investment in Celtics Basketball
Holdings, which is accounted for on the equity method, and accordingly, the
investment is carried at cost, effected by equity in income or loss of Celtics
Basketball Holdings and reduced by distributions received.
Note 2 - The unaudited interim condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and with instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included therein. Operating results for interim periods are not indicative of
the results that may be expected for the full year. Such financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto of Boston Celtics Limited Partnership II and Subsidiaries
included in the annual report on Form 10-K for the year ended June 30, 1998.
Note 3 - On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit
agreement with its commercial bank, $20,000,000 of which was reserved for the
repayment of notes payable related to BCLP II units that were redeemed from a
former principal unitholder in August 1995.
<PAGE> 14
The notes payable to the former principal unitholder had an aggregate initial
face amount of $14,365,096. The notes, which were due and payable on July 1,
2000, also provided that the amounts to be paid to such unitholder were to be
increased by specified amounts on each July 1 during their term. If the
principal unitholder held the notes until July 1, 2000, he would have been
entitled to receive aggregate payments (excluding interest) in the amount of
$20,044,320. Each of the notes bore interest payable quarterly at the rate of
7.76% per annum. At September 30, 1998, the aggregate balance of the notes,
including scheduled increases in the note balances, amounted to $17,538,780.
On September 30, 1998, BCLP II borrowed the $20,000,000 reserved under its
revolving credit agreement and used the proceeds to repay the notes payable
related to the redeemed BCLP II units. The $20,000,000 borrowing under the
revolving credit agreement bears interest at the rate of 5.695% through
September 30, 1999, after which it bears interest at the rate of LIBOR plus
0.70%. The notes payable to the former principal unitholder were repaid in the
amount of $19,794,320, resulting in an extraordinary charge of $2,255,540
related to early retirement of notes payable.
Note 4 - BCLP II, through its subsidiary partnerships and corporations, owns a
48.3123% limited partnership interest in Celtics Basketball Holdings. Prior to
the completion of the Reorganization on June 30, 1998, Celtics Basketball
Holdings held no material assets and was not engaged in operations. Upon
completion of the Reorganization, Celtics Basketball Holdings, through Celtics
Basketball, owns and operates the Boston Celtics. BCLP II's investment in
Celtics Basketball Holdings is accounted for on the equity method. Summary
income statement data for Celtics Basketball Holdings for the three months
ended September 30, 1998 is as follows:
<TABLE>
<S> <C>
Total costs and expenses $(1,819,138)
Interest income (expense), net (643,487)
-----------
Net loss $(2,462,625)
===========
</TABLE>
<PAGE> 15
Note 5 - The following table sets forth the computation of loss per unit:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
--------------------------------
<S> <C> <C>
Numerator for loss per unit:
Loss from operations before extraordinary charge:
Loss from operations before extraordinary charge $(2,524,259) $(3,865,633)
Applicable to interests of General Partners of
subsidiary partnerships (11,804) (26,114)
---------------------------
(2,512,455) (3,839,519)
Applicable to 1% General Partnership interest of BCLP II (24,908) (38,395)
---------------------------
Applicable to interests of Limited Partners $(2,487,547) $(3,801,124)
===========================
Net loss:
Net loss $(4,779,799) $(3,865,633)
Applicable to interests of General Partners of
subsidiary partnerships (11,804) (26,114)
---------------------------
(4,767,995) (3,839,519)
Applicable to 1% General Partnership interest of BCLP II (47,463) (38,395)
---------------------------
Applicable to interests of Limited Partners $(4,720,532) $(3,801,124)
===========================
Denominator for loss per unit - weighted average units 2,703,664 5,346,164
===========================
Loss per unit from operations before extraordinary charge $ (0.92) $ (0.71)
===========================
Net loss per unit $ (1.75) $ (0.71)
===========================
</TABLE>
Note 6 - The Partnership adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" ("Statement 130") effective July 1,
1998. Comprehensive income was not materially different from net loss for the
three months ended September 30, 1998.
<PAGE> 16
Note 7 - NBA players, including those that play for the Boston Celtics, were
covered by a collective bargaining agreement between the NBA and the NBA
Players Association (the "NBPA") that was to be in effect through June 30, 2001
(the "Collective Bargaining Agreement"). Under the terms of the Collective
Bargaining Agreement, the NBA had the right to terminate the Collective
Bargaining Agreement after the 1997-98 season if it was determined that the
aggregate salaries and benefits paid by all NBA teams for the 1997-98 season
exceeded 51.8% of projected Basketball Related Income, as defined in the
Collective Bargaining Agreement ("BRI"). Effective June 30, 1998, the Board of
Governors of the NBA voted to exercise that right and reopen the Collective
Bargaining Agreement, as it had been determined that the aggregate salaries and
benefits paid by the NBA teams for the 1997-98 season would exceed 51.8% of
projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA
players in support of its attempt to reach a new collective bargaining
agreement. The NBA and the NBPA have been engaged in negotiations regarding a
new collective bargaining agreement, but as of November 6, 1998, no agreement
has been reached. NBA teams, including the Boston Celtics, will refund amounts
paid by season ticket holders (plus interest at 6%) for any home games that are
canceled as a result of the lockout. Such refunds are to be paid on a monthly
basis for any games canceled in the preceding month. As of November 6, 1998, a
total of ten Boston Celtics home games through November 30, 1998 (two
exhibition games and eight regular season games) have been canceled due to the
lockout. In addition, as a result of the lockout, NBA teams are not required to
make any payments due to players with respect to the 1998-99 season.
Although the ultimate outcome of this matter cannot be determined at this time,
the 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.
<PAGE> 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -------------------------------------------------------------------------------
BOSTON CELTICS LIMITED PARTNERSHIP
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
- -------------------------------------------------------------------------------
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 uncertainties regarding labor relations,
the player lockout and related negotiations, the continuation of, and the
extent to which games are canceled as a result of, the lockout, the extent to
which the Boston Celtics are obligated to make payments to coaches and third
parties notwithstanding the lockout, the impact of the lockout on television
and other revenues, the Boston Celtics' competitive success, uncertainties as
to increases in players' salaries, the Boston Celtics' ability to attract and
retain talented players, the risk of injuries to key players and uncertainties
regarding media contracts.
Collective Bargaining Agreement
National Basketball Association ("NBA") players, including those that play for
the Boston Celtics, were covered by a collective bargaining agreement between
the NBA and the NBA Players Association (the "NBPA") that was to be in effect
through June 30, 2001 (the "Collective Bargaining Agreement"). Under the terms
of the Collective Bargaining Agreement, the NBA had the right to terminate the
Collective Bargaining Agreement after the 1997-98 season if it was determined
that the aggregate salaries and benefits paid by all NBA teams for the 1997-98
season exceeded 51.8% of projected Basketball Related Income, as defined in the
Collective Bargaining Agreement ("BRI"). In March 1998 the Board of Governors
of the NBA voted to reopen the Collective Bargaining Agreement, as it had been
determined that the aggregate salaries and benefits paid by the NBA teams for
the 1997-98 season would exceed 51.8% of projected BRI. Effective July 1,
1998, the NBA commenced a lockout of NBA players in support of its attempt to
reach a new collective bargaining agreement. The NBA and the NBPA have been
engaged in negotiations regarding a new collective bargaining agreement,
but as of November 6, 1998, no agreement has been reached. NBA teams, including
the Boston Celtics, will refund amounts paid by season ticket holders (plus
interest at 6%) for any home games that are canceled as a result of the
lockout. Such refunds are to be paid on a monthly basis for any games canceled
in the preceding month. As of November 6, 1998, a total of ten Boston Celtics
home games through November 30, 1998 (two exhibition games and eight regular
season games) have been canceled due to 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.
<PAGE> 18
There can be no assurance that the NBA and the NBPA will reach agreement on a
new collective bargaining agreement or, if agreement is reached, as to the
timing of such agreement. Given the fixed nature of many of its expenses, and
given that the Partnership's operating income is almost entirely dependent
on the NBA season, the 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, 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.
Basis of Presentation
Boston Celtics Limited Partnership II ("BCLP II") completed a Reorganization on
June 30, 1998 pursuant to which Boston Celtics Limited Partnership ("BCLP") was
formed as a holding entity for BCLP II. From its date of formation until the
completion of the Reorganization, BCLP had no material assets and was not
engaged in any business operations. Prior to the Reorganization, BCLP II,
through its subsidiaries, owned and operated the Boston Celtics. Accordingly,
the operating results of the Boston Celtics are consolidated in BCLP II's
financial statements for periods prior to the Reorganization. Upon completion
of the Reorganization, effective June 30, 1998, BCLP's and BCLP II's interest
in the accounts and operations of the Boston Celtics is reflected in their
indirect 48.3% investment in Celtics Basketball Holdings, L.P. ("Celtics
Basketball Holdings"), which is accounted for on the equity method.
Because BCLP had not engaged in any business operations prior to June 30, 1998,
the following discussion compares the operating results of BCLP and its
subsidiaries for the three months ended September 30, 1998 with the operating
results of BCLP II and its subsidiaries for the three months ended September
30, 1997. Due to the July 1, 1998 change in BCLP's and BCLP II's method of
accounting for their investment in the accounts and operations of the Boston
Celtics from consolidation to the equity method, BCLP's and BCLP II's results
of operations are materially different in the three months ended September 30,
1998 from those in the three months ended September 30, 1997.
General
BCLP accounts for its indirect investment in the accounts and operations of the
Boston Celtics using the equity method, and accordingly, its equity in the
income (loss) of the Boston Celtics is reported on a single line item in its
Condensed Consolidated Statement of Operations. Following is a general
description of certain matters related to the operations of the Boston Celtics.
The Boston Celtics derive revenues principally from the sale of tickets to home
games and the licensing of television, cable network and radio rights. A large
portion of the Boston Celtics' annual revenues and operating expenses is
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.
<PAGE> 19
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
normally 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 normally
begins in late October or early November, the first fiscal quarter, which ends
on September 30, generally includes limited or no revenue and reflects a net
loss attributable to general and administrative expenses and selling and
promotional expenses incurred in the quarter. Based on the standard NBA game
schedule, the Boston Celtics historically recognize approximately one- third
of its annual regular season revenue in the second fiscal quarter,
approximately one-half of such revenue in the third fiscal quarter and the
remainder in the fourth fiscal quarter, and recognize its playoff revenue, if
any, in the fourth fiscal quarter. Accordingly, BCLP's and BCLP II's equity in
the income (loss) of Celtics Basketball Holdings, which indirectly owns and
operates the Boston Celtics, will generally result in a loss in its first
fiscal quarter, income in its second and third fiscal quarters and a loss in
its fourth fiscal quarter unless there is significant income from playoff
revenues.
However, given the lockout and cancellation of games described above in
"Collective Bargaining Agreement", there can be no assurance that the Boston
Celtics will recognize any income in the 1998-99 season and beyond.
Results of Operations
BCLP's general and administrative expenses of $1,050,000 in the three months
ended September 30, 1998 decreased by $1,827,000 compared to BCLP II's general
and administrative expenses of $2,877,000 in the three months ended September
30, 1997. The decrease in 1998 was primarily attributable to general and
administrative expenses related to the Boston Celtics basketball team of
$1,239,000, of which BCLP accounts for its 48.3% share using the equity method
effective July 1, 1998. The balance of the decrease is a result of decreased
personnel and other general and administrative expenses as a result of the
Reorganization.
Selling and promotional expenses of $497,000 in the three months ended
September 30, 1997 related entirely to the Boston Celtics basketball team, of
which BCLP accounts for its 48.3% share using the equity method effective July
1, 1998.
Equity in loss of Celtics Basketball Holdings, L.P. represents BCLP's 48.3%
interest in the loss of the entity that indirectly owns and operates the Boston
Celtics. The Boston Celtics recognize revenues and expenses on a game-by-game
basis, and the NBA regular season normally begins in late October or early
November. As a result, Celtics Basketball Holdings' first fiscal quarter, which
ends on September 30, generally includes limited or no revenue and reflects a
net loss attributable to general and administrative expenses and selling and
promotional expenses incurred in the quarter.
<PAGE> 20
BCLP's interest expense of $1,735,000 in the three months ended September 30,
1998 increased by $256,000 compared to BCLP II's interest expense of $1,479,000
in the three months ended September 30, 1997. The increase is primarily
attributable to interest related to the subordinated debentures issued in
connection with the Reorganization ($911,000) and interest related to new
borrowings of $30,000,000 under BCLP II's revolving credit agreement with its
commercial bank ($481,000), also in connection with the Reorganization. These
increases were partially offset by interest expense in the three months ended
September 30, 1997 related to the Boston Celtics basketball team of $876,000,
of which BCLP accounts for its 48.3% share using the equity method effective
July 1, 1998.
BCLP's interest income of $1,246,000 in the three months ended September 30,
1998 decreased by $321,000 compared to BCLP II's interest income of $1,567,000
in the three months ended September 30, 1997. The decrease is primarily
attributable to interest income related to Celtics Basketball Holdings, L.P. of
$190,000, of which BCLP accounts for its 48.3% share using the equity method
effective July 1, 1998. The balance of the decrease is attributable to a
reduction in funds available for investment.
BCLP II recorded an extraordinary charge in the three months ended September
30, 1998 related to the early retirement of notes payable to a former principal
unitholder relating to redeemed BCLP II units. The notes payable to the former
principal unitholder had an aggregate initial face amount of $14,365,096. The
notes, which were due and payable on July 1, 2000, also provided that the
amounts to be paid to such unitholder were to be increased by specified amounts
on each July 1 during their term. If the principal unitholder held the notes
until July 1, 2000, he would have been entitled to receive aggregate payments
(excluding interest) in the amount of $20,044,320. Each of the notes bore
interest payable quarterly at the rate of 7.76% per annum. At September 30,
1998, BCLP II repaid the notes payable, which had an aggregate balance,
including scheduled increases in the note balances, of $17,538,780. The notes
payable were repaid in the amount of $19,794,320, resulting in an extraordinary
charge of $2,255,540 related to early retirement of notes payable.
BCLP's provision for income taxes of $500,000 relates to BCLP's subsidiary
corporations.
Liquidity and Capital Resources
BCLP used approximately $2,124,000 in cash flows from operations in the three
months ended September 30, 1998. At September 30, 1998 the Partnership had
approximately $3,715,000 of available cash and $82,277,000 of other short-term
investments. In addition to these amounts, sources of funds available to the
Partnership include funds generated by operations, capital contributions from
partners, unused portions of credit facilities with its commercial bank, and
distributions from Celtics Basketball Holdings, which through a subsidiary owns
and operates the Boston Celtics. These resources will be used to repay
commercial bank borrowings and for general partnership purposes, working
capital needs or for possible investments and/or acquisitions.
<PAGE> 21
On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit agreement
with its commercial bank, $20,000,000 of which was reserved until the repayment
of notes payable related to redeemed BCLP II Units. Interest on advances under
the revolving credit agreement accrues at BCLP II's option of either LIBOR plus
0.70% or the greater of the bank's Base Rate or the Federal Funds Effective
Rate plus 0.50%. The revolving credit agreement expires on June 30, 2003 and is
secured by a pledge of certain assets of Celtics Capital Corporation, an
indirect subsidiary of BCLP and BCLP II. On May 26, 1998, $30,000,000 was
advanced under the revolving credit agreement in connection with the
Reorganization, and on September 30, 1998, BCLP II borrowed the $20,000,000
reserved for the repayment of notes payable related to redeemed BCLP II Units
and repaid the notes with the proceeds. Management anticipates that amounts
advanced under the revolving credit agreement will be repaid by BCLP II out of
operating cash flow.
In connection with the Reorganization, BCLP II distributed 6% subordinated
debentures to certain former holders of BCLP II units. One $20 face value
subordinated debenture was distributed for each of the 2,703,664 BCLP II units
with respect to which a BCLP II Unitholder elected to receive subordinated
debentures and BCLP units. The subordinated debentures were recorded at $12.20
per debenture, the fair market value at date of issue, or $32,984,700. The
original issue discount of $21,088,580 is being amortized over the 40-year life
of the debentures using the interest method. The subordinated debentures bear
interest at the rate of 6% per annum, payable annually commencing June 30,
1999. The subordinated debentures mature on June 30, 2038. There is no
mandatory redemption of the subordinated debentures, and they are not entitled
to any sinking fund.
No cash distributions to unitholders of BCLP were declared or paid during the
quarters ended September 30, 1998 and 1997. Future distributions will be
determined by the General Partner based, among other things, on available
resources and the needs of the Partnership.
Management believes that its cash, cash equivalents and other short-term
investments together with cash from operating activities will provide adequate
cash for the Partnership and its subsidiaries to meet their cash requirements
through September 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.
<PAGE> 22
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 is in the process of performing an
assessment of 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 current fiscal
year.
<PAGE> 23
Part II - Other Information
ITEM 1
In July and August 1998, four separate class action complaints (the
"Complaints") were filed by Unitholders in the Court of Chancery of the State
of Delaware in and for New Castle County against BCLP II, Celtics, Inc., Paul
E. Gaston, Don F. Gaston, Paula B. Gaston, John H.M. Leithead and John B. Marsh
III, each directors of Celtics, Inc. BCLP GP, Inc. is a wholly owned subsidiary
of Celtics, Inc. The named plaintiffs, who each purported to bring their
individual actions on behalf of themselves and others similarly situated, are
Kenneth L. Rilander, Harbor Finance Partners, Maryann Kelly and Kathleen Kruse
Perry. Each of the Complaints alleges, among other things, that the
Reorganization was unfair to former BCLP II Unitholders, and seeks to recover
an unspecified amount of damages, including attorneys' and experts' fees and
expenses. The Partnership filed a Motion to Dismiss the complaint filed by Mr.
Rilander on July 29, 1998, and discovery in that case has been stayed by
agreement of the parties. The Partnership is seeking to consolidate the
Complaints.
Although the ultimate outcome of these Complaints cannot be determined at this
time, management of the Partnership does not believe that the outcome of these
proceedings will have a material adverse effect on the Partnership's financial
position or results of operations.
ITEM 5
Effective October 1, 1998, John H.M. Leithead resigned his position as director
of BCLP GP, Inc., general partner of BCLP, and as director of BCLP II GP, Inc.,
general partner of BCLP II. Mr. Leithead's resignations were not the result of
any disagreement with BCLP or BCLP II.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit (27) - Financial data schedule.
(b) Reports on Form 8-K -
None.
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrants have duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BOSTON CELTICS LIMITED PARTNERSHIP
-------------------------------------
(Registrant)
By: BCLP GP, Inc., its General Partner
Dated: November 12, 1998 By: /s/ Richard G. Pond
---------------------------------
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
Dated: November 12, 1998 BOSTON CELTICS LIMITED PARTNERSHIP II
-------------------------------------
(Registrant)
By: BCLP II GP, Inc., its General Partner
By: /s/ Richard G. Pond
---------------------------------
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
<PAGE> 25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF BOSTON CELTICS LIMITED PARTNERSHIP AND ITS
SUBSIDIARIES AS OF SEPTEMBER 30, 1998 AND THE RELATED CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<PERIOD-END> SEP-30-1998
<CASH> 3,715
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 86,191
<PP&E> 45
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0
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