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, 1999
_____________________
Commission Registrant; State of Organization; IRS Employer
File No. Address and Telephone Number Identification No.
- ---------- ---------------------------------- ------------------
1-14507 Boston Celtics Limited Partnership 04-3416346
(a Delaware limited partnership)
151 Merrimac Street,
Boston, Massachusetts 02114
(617) 523-6050
1-9324 Boston Celtics Limited Partnership II 04-2936516
(a Delaware limited partnership)
151 Merrimac Street,
Boston, Massachusetts 02114
(617) 523-6050
Indicate by checkmark whether the 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, 1999, there were 2,703,664 Units outstanding of Boston
Celtics Limited Partnership, and 2,703,664 units representing limited
partnership interests outstanding of Boston Celtics Limited Partnership II.
Part I - Financial Information
Item I - Financial Statements
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
----------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,419,197 $ 2,607,725
Other short-term investments 83,800,000 83,200,000
Prepaid expenses and other current assets 463,351 237,245
----------------------------
TOTAL CURRENT ASSETS 86,682,548 86,044,970
PROPERTY AND EQUIPMENT, net 12,148 14,422
OTHER ASSETS 1,175,251 1,214,314
----------------------------
$87,869,947 $87,273,706
============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and other current
liabilities $ 146,335 $ 99,893
Accrued interest 811,391
Federal and state income taxes payable 651,204 751,204
Notes payable to bank - current portion 4,000,000 2,500,000
----------------------------
TOTAL CURRENT LIABILITIES 5,608,930 3,351,097
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK - noncurrent portion 50,000,000 50,000,000
SUBORDINATED DEBENTURES 33,485,545 33,384,771
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 35,208,653 33,790,372
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership -
General Partner 158,564 189,968
Limited Partners (47,260,488) (44,151,483)
----------------------------
(47,101,924) (43,961,515)
Boston Celtics Limited
Partnership II - General Partner 107,093 133,234
Celtics Limited Partnership - General Partner 209,115 223,298
Boston Celtics Communications Limited
Partnership - General Partner 641,660 641,574
----------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (46,144,056) (42,963,409)
----------------------------
$87,869,947 $87,273,706
============================
</TABLE>
See notes to condensed consolidated financial statements.
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
September 30, September 30,
1999 1998
-------------------------------
<S> <C> <C>
Costs and expenses:
General and administrative $ (830,660) $(1,050,315)
Depreciation and amortization (14,052) (14,052)
-----------------------------
(844,712) (1,064,367)
Equity in loss of Celtics Basketball
Holdings, L.P. (1,418,281) (1,189,739)
Interest expense (1,682,581) (1,734,817)
Interest income 1,164,927 1,246,462
Net realized gains on disposition of marketable
securities and other short-term investments 6,020
-----------------------------
Loss before income taxes and extraordinary charge (2,780,647) (2,736,441)
Provision for income taxes 400,000 500,000
-----------------------------
Loss before extraordinary charge (3,180,647) (3,236,441)
Extraordinary charge for early retirement of notes payable (2,255,540)
-----------------------------
Net loss (3,180,647) (5,491,981)
Net loss applicable to interests of General Partners (71,642) (113,594)
-----------------------------
Net loss applicable to interests of Limited Partners $(3,109,005) $(5,378,387)
=============================
Loss per unit before extraordinary charge $ (1.15) $ (1.17)
Net loss per unit $ (1.15) $ (1.99)
</TABLE>
See notes to condensed consolidated financial statements.
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1999 1998
-------------------------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
General and administrative expenses $ (969,287) $ (1,615,632)
Interest expense (770,708) (1,008,238)
Interest income 1,147,719 1,051,449
Income taxes paid (500,000) (551,370)
-------------------------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (1,092,276) (2,123,791)
-------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (179,400,000) (175,036,184)
Proceeds from sales of marketable securities 1,000,000
Proceeds from sales of short-term investments 178,800,000 171,100,000
Other receipts (expenditures) 3,748 11,147
-------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (596,252) (2,925,037)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 1,500,000 20,000,000
Payment of notes payable (19,794,320)
Cash contributions from general partner 90,166
-------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,500,000 295,846
-------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (188,528) (4,752,982)
Cash and cash equivalents at beginning
of period 2,607,725 8,468,286
-------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,419,197 $ 3,715,304
===============================
</TABLE>
See notes to condensed consolidated financial statements.
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The condensed consolidated financial statements include the
accounts of Boston Celtics Limited Partnership ("BCLP," the "Partnership")
and its majority-owned and controlled subsidiaries and partnerships.
BCLP (formerly "Boston Celtics Limited Partnership II") is a Delaware
limited partnership that was formed on April 13, 1998 in connection with a
reorganization of Boston Celtics Limited Partnership II (formerly "Boston
Celtics Limited Partnership") ("BCLP II"). Pursuant to the reorganization
of BCLP II (the "Reorganization"), which was completed on June 30, 1998,
BCLP owns a 99% limited partnership interest in BCLP II.
BCLP held no material assets and was not engaged in operations from its date
of formation until the completion of the Reorganization on June 30, 1998.
Upon completion of the Reorganization, BCLP, through its subsidiaries, holds
certain investments, including a 48.3123% limited partnership investment in
Celtics Basketball Holdings, L.P., ("Celtics Basketball Holdings") which,
through Celtics Basketball, L.P. ("Celtics Basketball"), its 99.999%
subsidiary partnership, owns and operates the Boston Celtics professional
basketball team (the "Boston Celtics") of the National Basketball
Association (the "NBA"). BCLP's investment in Celtics Basketball Holdings
is accounted for on the equity method, and accordingly, the investment is
carried at cost, effected by equity in income or loss of Celtics Basketball
Holdings and reduced by distributions received.
Note 2 - The unaudited interim condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) necessary for a
fair presentation have been included therein. Operating results for interim
periods are not indicative of the results that may be expected for the full
year. Such financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto of Boston Celtics
Limited Partnership and Subsidiaries included in the annual report on Form
10-K for the year ended June 30, 1999.
Note 3 - BCLP, through its subsidiary partnerships and corporations, owns a
48.3123% limited partnership interest in Celtics Basketball Holdings. Prior
to the completion of the Reorganization on June 30, 1998, Celtics Basketball
Holdings held no material assets and was not engaged in operations. Upon
completion of the Reorganization, Celtics Basketball Holdings, through
Celtics Basketball, owns and operates the Boston Celtics. BCLP's investment
in Celtics Basketball Holdings is accounted for on the equity method.
Summary income statement data for Celtics Basketball Holdings for the three
months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
-----------------------------
<S> <C> <C>
Total costs and expenses $(2,078,681) $(1,819,138)
Interest income (expense), net (857,000) (643,487)
-----------------------------
Net loss $(2,935,681) $(2,462,625)
=============================
</TABLE>
BOSTON CELTICS LIMITED PARTNERSHIP
and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note 4 - The following table sets forth the computation of loss per unit for
the three months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
September 30, September 30,
1999 1998
------------------------------
<S> <C> <C>
Numerator for loss per unit:
Loss before extraordinary charge:
Loss before extraordinary charge $(3,180,647) $(3,236,441)
Applicable to interests of General Partners of
subsidiary partnerships (40,238) (36,712)
-----------------------------
(3,140,409) (3,199,729)
Applicable to 1% General Partnership interest of BCLP (31,404) (31,997)
-----------------------------
Applicable to interests of Limited Partners $(3,109,005) $(3,167,732)
=============================
Net loss:
Net loss $(3,180,647) $(5,491,981)
Applicable to interests of General Partners of
subsidiary partnerships (40,238) (59,267)
-----------------------------
(3,140,409) (5,432,714)
Applicable to 1% General Partnership interest of BCLP (31,404) (54,327)
=============================
Applicable to interests of Limited Partners $(3,109,005) $(5,378,387)
=============================
Denominator for loss per unit - weighted average units 2,703,664 2,703,664
=============================
Loss per unit before extraordinary charge $ (1.15) $ (1.17)
=============================
Net loss per unit $ (1.15) $ (1.99)
=============================
</TABLE>
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
-------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,411,267 $ 2,597,546
Other short-term investments 83,800,000 83,200,000
Due from related parties 2,575,762 2,049,516
Prepaid expenses and other current assets 417,515 217,162
-------------------------------
TOTAL CURRENT ASSETS 89,204,544 88,064,224
PROPERTY AND EQUIPMENT, net 12,148 14,422
OTHER ASSETS 1,175,251 1,214,314
-------------------------------
$ 90,391,943 $ 89,292,960
===============================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 117,941 $ 99,488
Accrued interest 811,391
Federal and state income taxes payable 651,204 751,204
Notes payable to bank - current portion 4,000,000 2,500,000
-------------------------------
TOTAL CURRENT LIABILITIES 5,580,536 3,350,692
DEFERRED FEDERAL AND STATE INCOME TAXES 9,710,875 9,710,875
NOTES PAYABLE TO BANK - noncurrent portion 50,000,000 50,000,000
SUBORDINATED DEBENTURES 33,485,545 33,384,771
INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS
BASKETBALL HOLDINGS, L.P. 35,208,653 33,790,372
PARTNERS' CAPITAL (DEFICIT)
Boston Celtics Limited Partnership II -
General Partner 107,093 133,234
Limited Partners (44,551,534) (41,941,856)
-------------------------------
(44,444,441) (41,808,622)
Celtics Limited Partnership - General Partner 209,115 223,298
Boston Celtics Communications Limited
Partnership - General Partner 641,660 641,574
-------------------------------
TOTAL PARTNERS' CAPITAL (DEFICIT) (43,593,666) (40,943,750)
-------------------------------
$ 90,391,943 $ 89,292,960
===============================
</TABLE>
See notes to condensed consolidated financial statements.
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
-----------------------------
<S> <C> <C>
Costs and expenses:
General and administrative $ (302,203) $(340,407)
Amortization (11,778) (11,778)
-----------------------------
(313,981) (352,185)
Equity in loss of Celtics
Basketball Holdings, L.P. (1,418,281) (1,189,739)
Interest expense (1,682,581) (1,734,817)
Interest income 1,164,927 1,246,462
Net realized gains on disposition of marketable
securities and other short-term investments 6,020
-----------------------------
Loss before income taxes and extraordinary
charge (2,249,916) (2,024,259)
Provision for income taxes 400,000 500,000
-----------------------------
Loss before extraordinary charge (2,649,916) (2,524,259)
Extraordinary charge for early retirement of
notes payable (2,255,540)
-----------------------------
Net loss (2,649,916) (4,779,799)
Net loss applicable to interests of General
Partners (40,238) (59,267)
-----------------------------
Net loss applicable to interests of Limited
Partners $(2,609,678) $(4,720,532)
=============================
</TABLE>
See notes to condensed consolidated financial statements.
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
September 30, September 30,
1999 1998
--------------------------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
General and administrative expenses $ (967,038) $(1,613,094)
Interest expense (770,708) (1,008,238)
Interest income 1,147,719 1,051,449
Income taxes paid (500,000) (551,370)
--------------------------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (1,090,027) (2,121,253)
-------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (179,400,000) (175,036,184)
Proceeds from sales of short-term investments 178,800,000 171,100,000
Proceeds from sales of marketable securities 1,000,000
Other receipts (expenditures) 3,748 11,147
-------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (596,252) (2,925,037)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 1,500,000 20,000,000
Payment of notes payable (19,794,320)
-------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,500,000 205,680
-------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (186,279) (4,840,610)
Cash and cash equivalents at beginning of period 2,597,546 8,268,186
-------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,411,267 $ 3,427,576
===============================
</TABLE>
See notes to condensed consolidated financial statements.
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The condensed consolidated financial statements include the
accounts of Boston Celtics Limited Partnership II ("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, 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.
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, 1999.
Note 3 - BCLP II, through its subsidiary partnerships and corporations, owns
a 48.3123% limited partnership interest in Celtics Basketball Holdings.
Prior to the completion of the Reorganization on June 30, 1998, Celtics
Basketball Holdings held no material assets and was not engaged in
operations. Upon completion of the Reorganization, Celtics Basketball
Holdings, through Celtics Basketball, owns and operates the Boston Celtics.
BCLP II's investment in Celtics Basketball Holdings is accounted for on the
equity method. Summary income statement data for Celtics Basketball
Holdings for the three months ended September 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
-----------------------------
<S> <C> <C>
Total costs and expenses ($2,078,681) ($1,819,138)
Interest income (expense), net (857,000) (643,487)
-----------------------------
Net loss ($2,935,681) ($2,462,625)
=============================
</TABLE>
BOSTON CELTICS LIMITED PARTNERSHIP
BOSTON CELTICS LIMITED PARTNERSHIP II
and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
Certain statements and information included herein are "forward-looking
statements" within the meaning of the federal Private Securities Litigation
Reform Act of 1995, including statements relating to prospective game,
broadcast and other revenues, expenses (including player and other team
costs), estimates of future impacts of the player lockout, capital
expenditures, tax burdens, earnings and distributions, and expectations,
intentions and strategies regarding the future. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Partnership to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Factors that could cause the Partnership's financial condition, results of
operation, liquidity and capital resources to differ materially include the
continuing effects of the player lockout and cancellation of 32 regular
season games in the 1998-99 season as a result of the lockout, the impact of
the lockout on television and other revenues, the competitive success of the
Boston Celtics, uncertainties as to increases in players' salaries, the
Boston Celtics' ability to attract and retain talented players, the risk of
injuries to key players, uncertainties regarding media contracts and the
performance of certain investments by subsidiaries of the Partnership.
Collective Bargaining Agreement
In March 1998 the Board of Governors of the National Basketball Association
("NBA") exercised its right to terminate the collective bargaining agreement
between the NBA and the NBA Players Association ("NBPA"), 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.
On January 20, 1999, the NBA and the NBPA entered into a New Collective
Bargaining Agreement, thereby ending the lockout. The New Collective
Bargaining Agreement is to be in effect through June 30, 2004, and the NBA
has an option to extend it for one year thereafter. As a result of the
lockout, the 1998-99 NBA regular season consisted of 50 games per team (25
of which were home games), beginning in early February 1999. Ordinarily,
the NBA regular season consists of 82 games per team (41 of which are home
games), and generally begins in late October or early November. Further, as
provided under the terms of the New Collective Bargaining Agreement, NBA
teams were only required to pay 50/82 of each player's salary with respect
to the 1998-99 regular season. Previously, an independent arbitrator ruled
that NBA teams, including the Boston Celtics, were not required to pay
player salaries during the lockout.
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.
The most significant expenses of the Boston Celtics are player and coaching
salaries. 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, coaches 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
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, the cancellation of 32 regular season games and
the reduced number of games in the revised 1998-99 NBA schedule, Celtics
Basketball recognized approximately 61% of its 1998-99 regular season
revenue in the third fiscal quarter and approximately 39% of such revenue in
the fourth fiscal quarter. Accordingly, BCLP's and BCLP II's equity in the
income (loss) of Celtics Basketball Holdings resulted in losses in the first
and second fiscal quarters of the fiscal year ending June 30, 1999 and
income in the third and fourth fiscal quarters of the fiscal year ending
June 30, 1999. Given the uncertainty of the impact on revenue and expenses
of the lockout, canceled games and the shortened 1998-99 NBA season, there
can be no assurance that BCLP's and BCLP II's equity in the income (loss) of
Celtics Basketball Holdings will not result in further losses in the fiscal
year ending June 30, 2000, and beyond.
Results of Operations
The following discussion compares the operating results of BCLP and its
subsidiaries for the three months ended September 30, 1999 with the three
months ended September 30, 1998.
General and administrative expenses of $831,000 in the three months ended
September 30, 1999 decreased by $219,000 compared to $1,050,000 in the three
months ended September 30, 1998. The decrease in 1999 was primarily
attributable to decreased professional expenses.
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.
BCLP's equity in the loss of Celtics Basketball Holdings of $1,418,000 in
the three months ended September 30, 1999 increased $228,000 compared to
$1,190,000 in the three months ended September 30, 1998. The increase is
primarily a result of increased selling and promotional expenses and
decreased interest income in the three months ended September 30, 1999.
Interest expense of $1,683,000 in the three months ended September 30, 1999
decreased by $52,000 compared to $1,735,000 in the three months ended
September 30, 1998. The decrease is primarily attributable to the September
30, 1998 repayment of notes payable to a former principal unitholder. The
notes were repaid with proceeds from BCLP II's revolving credit agreement
with its commercial bank, which accrues interest at a lower effective rate.
Interest income of $1,165,000 in the three months ended September 30, 1999
decreased by $81,000 compared to $1,246,000 in the three months ended
September 30, 1998. The decrease is primarily 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 $400,000 relates to BCLP's subsidiary
corporations.
Liquidity and Capital Resources
BCLP used approximately $1,092,000 in cash flows from operating activities
in the three months ended September 30, 1999. At September 30, 1999 the
Partnership had approximately $2,419,000 of available cash and $83,800,000
of other short-term investments. In addition to these amounts, sources of
funds available to the Partnership include funds generated by operations,
unused portions of credit facilities with its commercial bank, and
distributions from Celtics Basketball Holdings, which through a subsidiary
owns and operates the Boston Celtics. These resources may be used to repay
commercial bank borrowings and for general partnership purposes, working
capital needs or for possible investments and/or acquisitions.
On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit
agreement with its commercial bank. 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 short-term investments of Celtics
Capital Corporation, an indirect subsidiary of BCLP and BCLP II. At
September 30, 1999, $54,000,000 was outstanding under the revolving credit
agreement, $4,000,000 of which is payable on December 30, 1999 and
$50,000,000 of which is payable upon the maturity of the agreement.
Management anticipates that amounts advanced under the revolving credit
agreement will be repaid by BCLP II out of cash flows, principally
distributions from Celtics Basketball Holdings.
In connection with the Reorganization, BCLP II distributed 6% subordinated
debentures to certain former holders of BCLP II units. One $20 face value
subordinated debenture was distributed for each of the 2,703,664 BCLP II
units with respect to which a BCLP II Unitholder elected to receive
subordinated debentures, cash and BCLP units in the Reorganization. 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 and, accordingly, the subordinated debentures are
carried on the balance sheet at $33,485,545 at September 30, 1999. The
subordinated debentures bear interest at the rate of 6% per annum, payable
annually commencing June 30, 1999, and 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, 1999 and 1998. Future distributions will
be determined by BCLP GP, Inc., the general partner of BCLP, in its sole
discretion based, among other things, on available resources and the needs
of the Partnership, the ability of BCLP's subsidiaries to generate
sufficient operating cash flow, and the funds available after debt service
payments related to the revolving credit agreement with its commercial bank
and the subordinated debentures.
Management believes that BCLP's cash, cash equivalents and other short-term
investments together with cash from operating activities, distributions from
Celtics Basketball Holdings and unused portions of credit facilities will
provide adequate cash for the Partnership and its subsidiaries to meet their
cash requirements through September 30, 2000.
Market Risk
At September 30, 1999, BCLP had invested approximately $83,800,000 in loan
participations issued by a commercial bank with maturities of less than
ninety days. Due to their short maturities and applicable transfer
restrictions, management believes that the loan participations are not
exposed to market risk. Management further believes that the partnership
has no other assets that are subject to market risk.
Year 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue.
As the Year 2000 approaches, such systems may be unable to accurately
process certain date-based information. As used by the Partnership, "Year
2000 ready" means that a system will function in the year 2000 without
modification or adjustment, or with a one-time manual adjustment.
State of Readiness
The Partnership has established a Year 2000 Committee and an action plan for
addressing Year 2000 issues. The Partnership's action plan for addressing
Year 2000 issues in its information technology ("IT") and non-IT systems
covers four phases: (i) identification of all IT and non-IT systems; (ii)
assessment of Year 2000 issues; (iii) repair of IT and non-IT systems, if
necessary, and testing and integration of repaired systems; and (iv)
creation of a contingency plan to address any potential Year 2000 failures.
The Partnership is also contacting third parties with which it deals (such
as customers and suppliers) to evaluate their Year 2000 readiness and
determine whether any Year 2000 failure will affect their ability to perform
as the Year 2000 approaches and arrives. As of September 30, 1999, the
Partnership has completed all four phases of its Year 2000 action plan.
The Partnership has received assurances from all of its significant
suppliers and third parties with which it interacts that they have addressed
their Year 2000 issues. The Partnership has evaluated these assurances for
their adequacy and accuracy and, in cases where the Partnership has not
received assurances from third parties, is initiating further mail or phone
correspondence. As a general matter, the Partnership is vulnerable to
failures by third parties to address their own Year 2000 issues. The
Partnership relies heavily upon third parties for ticketing, producing and
broadcasting basketball games and for transporting the Boston Celtics'
players, coaches and equipment to and from basketball games. There can be
no assurance that the Partnership's suppliers and third parties will
adequately address their Year 2000 issues, and any such issues could have a
material adverse effect upon the Partnership's financial condition and
results of operations.
Costs to Address the Year 2000 Issue
The Partnership has not spent a material amount to remediate Year 2000
problems and does not anticipate that it will spend a material amount to
remediate Year 2000 problems in the future.
Risks Presented by the Year 2000 Issue
To date, the Partnership has not identified any IT system or non-IT system
that presents a material risk of not being ready for the Year 2000. While
the Partnership believes that it has achieved Year 2000 compliance, certain
unforeseen circumstances could occur that could cause Year 2000 related
disruption, and any such disruption could have a material adverse effect
upon the Partnership's financial condition and results of operations. In
addition, the failure to address Year 2000 issues by the Partnership's
suppliers and other third parties with which it interacts could have a
material adverse effect upon the Partnership's financial condition and
results of operations.
Contingency Plans
The Partnership has developed and documented a Year 2000 contingency plan.
The plan identifies business critical applications and systems, and
describes strategies for resuming functionality in the event of a Year 2000-
related disruption.
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 a director or former director of Celtics, Inc. The
named plaintiffs, who each purported to bring their individual actions on
behalf of themselves and others similarly situated, are Kenneth L. Rilander,
Harbor Finance Partners, Maryann Kelly and Kathleen Kruse Perry. Each of
the Complaints alleges, among other things, that the Reorganization was
unfair to former BCLP II Unitholders, and seeks to recover an unspecified
amount of damages, including attorneys' and experts' fees and expenses. The
Partnership filed a Motion to Dismiss the complaint filed by Mr. Rilander on
July 29, 1998, and discovery in that case has been stayed by agreement of
the parties. The Complaints have been consolidated. On August 6, 1999, the
Court of Chancery issued an opinion granting in part, and denying in part,
the Partnership's Motion to Dismiss, and on September 3, 1999, the
plaintiffs filed an amended Complaint. On October 1, 1999, the Partnership
filed an answer to the Complaint.
Although the ultimate outcome of the Complaint 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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit (27) - Financial data schedule.
(b) Reports on Form 8-K -
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrants have duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BOSTON CELTICS LIMITED PARTNERSHIP
----------------------------------
(Registrant)
By: BCLP GP, Inc.,
its General Partner
Dated: November 5, 1999 By: /s/ Richard G. Pond
--------------------
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
Dated: November 5, 1999 BOSTON CELTICS LIMITED PARTNERSHIP II
-------------------------------------
(Registrant)
By: BCLP II GP, Inc.,
its General Partner
By: /s/ Richard G. Pond
------------------------
Richard G. Pond
Executive Vice President
Chief Financial Officer
and Chief Operating Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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