10-K 1 celt-10k.txt BODY OF 10-K 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 For the fiscal year ended June 30, 2000 -------------------- 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 Securities registered pursuant to Section 12(b) of the Act: -----------------------------------------------------------
Name of Exchange Registrant Title of Each Class On Which Registered ---------- ------------------- ------------------- Boston Celtics Units Representing Limited Partnership Interests New York Stock Exchange Limited Partnership Boston Stock Exchange Boston Celtics 6% Subordinated Debentures due 2038 New York Stock Exchange Limited Partnership II
Securities registered pursuant to Section 12(g) of the Act: ----------------------------------------------------------- None. Indicate by check mark whether the registrants (1) have 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) have 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 . ----- The aggregate market value of the 2,025,864 Units held by non-affiliates of Boston Celtics Limited Partnership as of August 25, 2000 was approximately $18,233,000, based on the closing price of the Units on the New York Stock Exchange on that date of $9.00 per Unit, and the aggregate market value of the 2,703,364 Subordinated Debentures held by non-affiliates of Boston Celtics Limited Partnership II as of August 25, 2000 was approximately $28,115,000, based on the closing price of the Subordinated Debentures on the New York Stock Exchange on that date of $10.40 per Debenture. As of August 25, 2000, 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. BOSTON CELTICS LIMITED PARTNERSHIP 2000 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 8 PART II Item 5. Market for Registrant's Common Equity and Related Security Holder Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8. Financial Statements and Supplementary Data 16 PART III Item 10. Directors and Executive Officers of the Registrant 17 Item 11. Executive Compensation 19 Item 12. Security Ownership of Certain Beneficial Owners and Management 21 Item 13. Certain Relationships and Related Transactions 22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 23 Signatures 70
This document contains the Annual Reports on Form 10-K for the fiscal year ended June 30, 2000 for each of Boston Celtics Limited Partnership and Boston Celtics Limited Partnership II. Information contained herein relating to an individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, Boston Celtics Limited Partnership II makes no representation as to information relating to Boston Celtics Limited Partnership or to any other entities affiliated with Boston Celtics Limited Partnership. PART I ------ Items 1 and 2. Business and Properties -------------- ----------------------- General Boston Celtics Limited Partnership ("BCLP" 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"), also a Delaware limited partnership. After the reorganization of BCLP II (the "Reorganization"), which was completed on June 30, 1998, BCLP owns a 99% limited partnership interest in BCLP II. References in this Form 10-K to "Units" with respect to Pre- Reorganization time periods means units representing limited partnership interests in BCLP II and, with respect to post-Reorganization time periods, means units representing limited partnership interests in BCLP. Pre-Reorganization Ownership Structure 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 investment assets. BCLP II owned 99% of Celtics Limited Partnership ("CLP"), which owned the Boston Celtics. BCLP II also wholly owned Celtics Investments, Inc. ("CII") and BCCLP Holding Corporation ("Holdings"), which in turn wholly owned Celtics Capital Corporation ("CCC"), which holds investments. The 1% general partner of BCLP II was Celtics, Inc., and the 1% general partner of CLP was Boston Celtics Corporation ("BCC"). Each of Celtics, Inc. and BCC is a Delaware corporation. Celtics, Inc.'s sole stockholders are Paul Gaston and Don Gaston (father of Paul Gaston) and BCC's sole stockholder is Walcott Partners, L.P. ("Walcott"), an affiliate of the Gaston family. Prior to the Reorganization, BCLP II's consolidated financial statements included the accounts of all of its majority-owned and controlled subsidiaries. In connection with the Reorganization, former Boston Celtics Limited Partnership changed its name to BCLP II. Post-Reorganization Ownership Structure After the Reorganization, BCLP owns a 99% limited partnership interest in BCLP II, which owns a 99% limited partnership interest in CLP. In addition, BCLP II wholly owns CII and Holdings, which wholly owns CCC. Together, CCC and CLP wholly own Celtics Pride GP. Celtics Pride GP owns a 48.3123% limited partnership interest in Celtics Basketball Holdings, L.P. ("Celtics Basketball Holdings"), which owns a 99.999% limited partnership interest in Celtics Basketball L.P. ("Celtics Basketball"), which in turn owns and operates the Boston Celtics. The remaining 51.6867% limited partnership interest in Celtics Basketball Holdings, L.P. is held by Castle Creek Partners, L.P. ("Castle Creek"). See "Item 12 - Security Ownership of Certain Beneficial Owners and Management" regarding ownership and control of Castle Creek. The 1% general partner of BCLP is BCLP GP, Inc. ("BCLP GP"), a Delaware corporation whose sole stockholder is Paul Gaston, and the 1% general partner of BCLP II is BCLP II GP, Inc. ("BCLP II GP"), a wholly owned subsidiary of Celtics, Inc. BCC is the 1% general partner of CLP and is also the 0.001% general partner of both Celtics Basketball Holdings and Celtics Basketball. 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 BCLP. 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. Subsequent to the Reorganization, BCLP, through its subsidiaries, holds investment assets and holds a minority interest in the assets and operations of the Boston Celtics. As a result of its indirect 48.3123% limited partnership interest in Celtics Basketball Holdings, BCLP accounts for its investment in the accounts of the Boston Celtics on the equity method subsequent to the Reorganization. Basketball Operations BCLP's most significant operating asset is its indirect investment in Celtics Basketball, which owns and operates the Boston Celtics. The following table summarizes the performance of the Boston Celtics during the past 15 basketball seasons:
Regular Regular Season Season Place of Finish Season Record in Division Playoff Results ------ ------- --------------- --------------- 1999-00 35-47 Fifth -- 1998-99 19-31 Fifth -- 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
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 NBA Players Association (the "NBPA") entered into a new collective bargaining agreement (the "New Collective Bargaining Agreement"), thereby ending the lockout. The New Collective Bargaining Agreement is to be in effect through June 30, 2004, and the NBA has an option to extend it for one year thereafter. 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. The impact of the lockout and the shortened NBA season had a materially adverse effect on BCLP'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, the licensing of television, cable network and radio rights, and promotional and novelty revenues. 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) ----------------------------------------------------------------------------------------- Year Ended Television, Cable June 30, Ticket Sales(1) and Radio(2) Other Sources Total Revenues ---------- --------------- ----------------- ------------- -------------- 2000 $39,394 $34,229 $7,626 $81,249 1999(3) 23,284 14,626 5,142 43,052 1998 39,108 28,002 8,570 75,680 (1) Includes proceeds from exhibition games. No ticket revenues were derived from exhibition games in the year ended June 30, 1999. (2) Includes the Boston Celtics' share of revenues under the NBA national television contracts. (3) The reduced amounts for the year ended June 30, 1999 are due to the shortened NBA season.
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. Ordinarily, 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 ordinarily 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 of 6%) 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. As a result of the lockout, the 1998-99 NBA regular season was shortened to 50 regular season games consisting of an equal number of home games and away games. In addition, upon resolution of the lockout, NBA teams, including the Boston Celtics, played two exhibition games for which tickets were issued at no charge. 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 1999-2000 season, approximately 12,000 season tickets were sold, as compared to 13,000 in the 1998-99 season and 14,000 in the 1997-98 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 share equally in these license fees. In addition, the Boston Celtics license the right to air all Boston Celtics home and away games to Sportschannel New England Limited Partnership (doing business as Fox Sports Net New England) (the "SNE agreement"). The Boston Celtics license 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 extend through the 2001-02 season. The SNE agreement extends through the 2002-03 season, with a right to an additional extension by Sportschannel New England Limited Partnership through the 2005-06 season. The ARS agreement extends through the 2000-01 season. There can be no assurance that Celtics Basketball or the NBA as agent for its members, 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 NBC agreement accounted for approximately 16% ($13,381,000) and 14% ($6,142,000) of Celtics Basketball's total revenues for the years ended June 30, 2000 and 1999, respectively, and the SNE agreement accounted for approximately 14% ($11,125,000) of Celtics Basketball's total revenues for the year ended June 30, 2000. BCLP's 48.3% interest in Celtics Basketball is reflected in its equity in income (loss) of Celtics Basketball Holdings. The NBC agreement accounted for approximately 15% ($11,439,000) of BCLP II's total revenues for the year ended June 30, 1998. No other agreement accounted for as much as 10% of BCLP's, BCLP II's or Celtics Basketball's total revenues during any of the years ended June 30, 2000, 1999 and 1998. 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 right of each team, including the Boston Celtics, to use its insignia and symbols in connection with the promotion of the team in its home territory and retail sales in its 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 August 25, 2000:
Last Season Name Position Years in NBA Under Contract ---- -------- ------------ -------------- Kenny Anderson Guard 9 2002-03 Tony Battie Forward/Center 3 2005-06 Mark Blount Center -- 2001-02 Randy Brown Guard 9 2002-03 Chris Carr Guard 5 2000-01 Calbert Cheaney Forward 7 2001-02 Adrian Griffin Guard 1 2000-01 Walter McCarty Forward 4 2001-02 Greg Minor Forward 6 2000-01 Robert Pack Guard 9 2000-01 Paul Pierce Forward 2 2001-02 Vitaly Potapenko Center 4 2004-05 Antoine Walker Forward 4 2004-05 Eric Williams Forward 5 2003-04 John Williams Center 14 2000-01
Compensation expense related to player salaries amounted to $41,734,000 during the 1999-00 season. During the 2000-01 season, the Boston Celtics are contractually required to make salary payments to its players totaling $46,987,000. 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 previously the Head Basketball Coach at the University of Kentucky (1989-1997), and served as the Head Coach of the New York Knickerbockers of the NBA (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 2001-02 season. Lester Conner has been an Assistant Coach of the Boston Celtics since July 1998. Mr. Conner was previously a scout for the Miami Heat of the NBA (1997), held several coaching positions since 1995, and played in the NBA from 1982 through 1995. Mr. Conner is under contract through the end of the 2000-01 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 2000-01 season. Andy Enfield has been an Assistant Coach of the Boston Celtics since August 1998. Mr. Enfield was previously a private coach for a number of NBA players, and was the shooting coach for the Milwaukee Bucks of the NBA (1994-96). Mr. Enfield is under contract through the end of the 2000-01 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). 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 2000-01 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 2002-03 season. Compensation expense for coaches, general manager and other Boston Celtics team personnel, including compensation payments to team personnel not under contract, amounted to $8,997,000 during the 1999-00 season. During the 2000-01 season, the Boston Celtics are contractually required to make salary payments to its coaches, general manager and other team personnel totaling $8,475,000. Collective Bargaining Agreement. NBA players, including those that play for the Boston Celtics, were previously covered by a collective bargaining agreement between the NBA and the NBPA that was to be in effect through June 30, 2001 (the "Collective Bargaining Agreement"). 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 of league revenues 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, less league-wide benefits, 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. 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. Given the fixed nature of many of its expenses, and given that the Boston Celtics' operating income is almost entirely dependent on the NBA season, the cancellation of 32 regular season games (of which 16 were home games) as a result of the lockout had a material adverse effect on the Partnership's financial condition and its results of operations for the fiscal year ended June 30, 1999. Celtics Basketball estimates that each canceled regular season home game resulted in a loss of ticket revenue of approximately $950,000, which includes refunds paid to season ticket holders as well as an estimate of lost ticket sales. Celtics Basketball's local television and radio broadcast rights agreements provide for the broadcast of a specified number of games at specified rights fees per game. In addition, the NBA, as agent for its members, licenses the national and international broadcast of games, and each of the NBA member teams shares equally in these license fees. Celtics Basketball estimates that each canceled regular season game resulted in a loss of television and radio broadcast rights fees of approximately $314,000. Celtics Basketball was only required to pay 50/82 of each player's salary with respect to the 1998-99 regular season, and, as a result, estimates that each canceled regular season game resulted in a reduction in player salaries of $370,000. The estimates of lost revenues and reduced expenses set forth in the preceding paragraph are based on historical experience and certain assumptions, including assumptions regarding ticket sales, amounts realized under broadcast agreements and composition of the Boston Celtics team roster. There can be no assurance as to the accuracy of these assumptions or that Celtics Basketball would have recognized the aforementioned per- game estimates of revenues and expenses had the games not been canceled, and such per-game estimates of revenues and expenses should not be relied upon as an indication of future revenues and expenses. Further, there can be no assurance that the NBA and NBPA will not experience labor relations difficulties in the future or that Celtics Basketball will not, notwithstanding the New Collective Bargaining Agreement, experience significantly increased player salaries, which could have a material adverse effect on the Partnership's financial condition or results of operations. 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, the Boston Celtics 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. Celtics Basketball does not pay rent to NBGC, and NBGC generally 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 commenced on the day that the FleetCenter was substantially completed and operational and expires on May 31, 2006. NBGC may, at its option, extend the term of the Lease Agreement for five additional basketball seasons (the "Extended Term"), provided NBGC gives notice on or before May 31, 2001 of its intention to exercise its option and subject to the NBGC making certain payments to Celtics Basketball, based on NBGC's 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 foot practice facility and wellness center in Waltham, Massachusetts. The facility also includes certain office space for Boston Celtics basketball operations personnel. Celtics Basketball does not pay rent under this lease agreement. 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. Celtics Basketball does not own any real property. 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 BCLP Units. Accordingly, a record owner of BCLP Units may not transfer ownership of his or her BCLP Units 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 August 25, 2000, the Boston Celtics have 47 full- time employees engaged in operating, marketing, advertising and administrative activities. In addition, the Partnership has 10 full-time employees engaged in operating and administrative activities. None of the Partnership's employees other than its players are covered by collective bargaining agreements. The Partnership considers its relations with its employees 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 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. BCLP II GP, Inc. is a wholly owned subsidiary of Celtics, Inc. The named plaintiffs, who each purported to bring their individual actions on behalf of themselves and others similarly situated, are Kenneth L. Rilander, Harbor Finance Partners, Maryann Kelly and Kathleen Kruse Perry. Each of the Complaints alleges, among other things, that the Reorganization was unfair to former BCLP II Unitholders, and seeks to recover an unspecified amount of damages, including attorneys' and experts' fees and expenses. The Partnership filed a Motion to Dismiss the Complaint filed by Mr. Rilander on July 29, 1998, and discovery in that case has been stayed by agreement of the parties. The Complaints have been consolidated. 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 consolidated 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 4. Submission of Matters to a Vote of Security Holders ------- --------------------------------------------------- None. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ------- --------------------------------------------------------------------- BCLP's Units are listed on the New York Stock Exchange and the Boston Stock Exchange and are traded under the symbol "BOS". BCLP's Subordinated Debentures trade on the New York Stock Exchange and provide for annual interest payments. The following table sets forth, for the periods indicated, the high and low sales prices per BCLP Unit on the New York Stock Exchange for the years ended June 30, 2000 and 1999.
Sales Price --------------------- High Low ---- --- Year Ended June 30, 2000 First Quarter $12.0000 $11.0000 Second Quarter 11.0625 9.1250 Third Quarter 10.3750 9.6875 Fourth Quarter 10.3125 9.5000 Year Ended June 30, 1999 First Quarter $11.3750 $ 7.0000 Second Quarter 12.0000 7.2500 Third Quarter 17.5000 10.2500 Fourth Quarter 12.9375 11.5625 -------------------- As of August 25, 2000, the approximate number of registered holders of BCLP's Units was 61,716.
No cash distributions to Unitholders of BCLP were declared or paid during the years ended June 30, 2000 or 1999. Distributions may be declared from time to time in the sole discretion of BCLP GP as General Partner of the Partnership. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Item 6. Selected Consolidated Financial Data ------- ------------------------------------ The selected consolidated financial information set forth below represents the consolidated operating results and balance sheet data of BCLP and BCLP II as described in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Basis of Presentation." Amounts in thousands, except per unit amounts.
Consolidated Statement of Operations Data: Year Ended June 30 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Revenues: Equity in net income (loss) of Celtics Basketball Holdings, L.P.(1) $ 4,353 $ (205) Basketball regular season - Ticket sales $39,108 $ 31,813 $ 35,249 Television and radio broadcast rights fees 28,002 23,269 22,072 Other, principally promotional advertising 8,570 7,916 7,459 ------------------------------------------------------------ 4,353 (205) 75,680 62,998 64,780 Costs and expenses: Basketball regular season - Team 40,402 40,941 27,891 Game 2,820 2,386 2,606 General and administrative 3,943 3,837 13,465 13,914 15,053 Selling and promotional 4,819 4,680 2,974 Depreciation 10 9 208 189 141 Amortization of NBA franchise and other intangible assets 47 47 165 165 165 ------------------------------------------------------------ 4,000 3,893 61,879 62,275 48,830 ------------------------------------------------------------ 353 (4,098) 13,801 723 15,950 Interest income (expense), net (1,882) (2,151) 384 736 1,788 Net realized gains (losses) on disposition of marketable securities 6 (18) 361 (101) ------------------------------------------------------------ Income (loss) from continuing operations before income taxes and extraordinary charge (1,529) (6,243) 14,167 1,820 17,637 Provision for income taxes 1,800 1,600 1,900 1,400 1,850 ------------------------------------------------------------ Income (loss) from continuing operations before extraordinary charge (3,329) (7,843) 12,267 420 15,787 Extraordinary charge for early retirement of notes payable (2,256) Income from discontinued operations, net of taxes 83 Gain from disposal of discontinued operations, net of taxes 38,331 ------------------------------------------------------------ Net income (loss) $(3,329) $(10,099) $12,267 $ 420 $ 54,201 ============================================================ Income (loss) from continuing operations before extraordinary charge applicable to interests of Limited Partners $(3,330) $ (7,709) $11,961 $ 358 $ 15,437 Net income (loss) applicable to interests of Limited Partners $(3,330) $ (9,920) $11,961 $ 358 $ 52,910 Per unit: Income (loss) from continuing operations before extraordinary charge-basic $ (1.23) $ (2.85) $ 2.45 $ 0.07 $ 2.68 Income (loss) from continuing operations before extraordinary charge-diluted $ (1.23) $ (2.85) $ 2.17 $ 0.06 $ 2.59 Net income (loss)-basic $ (1.23) $ (3.67) $ 2.45 $ 0.07 $ 9.18 Net income (loss)-diluted $ (1.23) $ (3.67) $ 2.17 $ 0.06 $ 8.89 Distributions declared to Unitholders $ 2.00 $ 1.00 $ 1.50
Consolidated Balance Sheet Data: As of June 30 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Current assets $87,024 $ 86,045 $90,927 $103,801 $135,903 Current liabilities 11,489 3,351 22,411 39,139 40,289 Total assets 88,090 87,274 92,047 119,200 145,233 Deferred federal and state income taxes - noncurrent portion 9,711 9,711 9,711 20,100 20,100 Notes payable - noncurrent portion 50,000 50,000 30,000 47,500 50,000 Deferred compensation - noncurrent portion 10,380 11,750 Subordinated debentures 33,790 33,385 32,985 Investment in capital deficiency of Celtics Basketball Holdings, L.P.(1) 29,437 33,790 29,865 Other noncurrent liabilities 9,870 6,575 Partners' capital (deficit) (46,337) (42,963) (32,926) (7,790) 16,520 -------------------- (1) See consolidated financial statements of Celtics Basketball Holdings, L.P. contained elsewhere herein.
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 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, uncertainties regarding labor relations and the performance of certain investments by subsidiaries of the Partnership. Basis of Presentation As more fully described in "Item 1 - Business and Properties - General," BCLP II completed a Reorganization on June 30, 1998 pursuant to which 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, which is accounted for on the equity method. Celtics Basketball Holdings has a 99.999% limited partnership interest in Celtics Basketball, which owns and operates the Boston Celtics effective July 1, 1998. Because BCLP had not engaged in any business operations prior to June 30, 1998, the Selected Consolidated Statement of Operations Data presented in "Item 6" above and the following discussion compare the operating results of BCLP and its subsidiaries for the year ended June 30, 2000 with the year ended June 30, 1999 and compare the operating results of BCLP and its subsidiaries for the year ended June 30, 1999 with those of BCLP II and its subsidiaries for the year ended June 30, 1998. Due to the July 1, 1998 change in BCLP's and BCLP II's method of accounting for their investment in the accounts and operations of the Boston Celtics from consolidation to the equity method, BCLP's and BCLP II's results of operations in the fiscal year ended June 30, 1999 are materially different than those in the fiscal year ended June 30, 1998. Collective Bargaining Agreement NBA players, including those that play for the Boston Celtics, were previously covered by a collective bargaining agreement between the NBA and the NBPA that was to be in effect through June 30, 2001. Under the terms of the Collective Bargaining Agreement, the NBA had the right to terminate the Collective Bargaining Agreement after the 1997-98 season if it was determined that the aggregate salaries and benefits paid by all NBA teams for the 1997-98 season exceeded 51.8% of projected Basketball Related Income, as defined in the Collective Bargaining Agreement ("BRI"). In March 1998 the Board of Governors of the NBA voted to reopen the Collective Bargaining Agreement, as it had been determined that the aggregate salaries and benefits paid by the NBA teams for the 1997-98 season would exceed 51.8% of projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA players in support of its attempt to reach a new collective bargaining agreement. On January 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. NBA teams, including the Boston Celtics, refunded amounts paid by season ticket holders (plus interest at 6%) for a total of 18 home games (including two exhibition games) that were canceled as a result of the lockout. Refunds of approximately $11,632,000 (including interest of $185,000) were paid by Celtics Basketball for canceled games. In addition, certain season ticket holders elected to leave their refunds and interest on deposit for future games. Such refunds and interest amounted to approximately $571,000 at June 30, 1999 (including interest of approximately $12,000). No interest accrued on such amounts since January 31, 1999. General 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 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, 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 extends from late October or early November through late April. For financial reporting purposes the Boston Celtics recognize revenues and expenses on a game-by-game basis. Because the NBA regular season ordinarily begins in late October or early November, the first fiscal quarter, which ends on September 30, 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 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 recognizes its playoff revenue, if any, in the fourth fiscal quarter. Due to the lockout in the 1998-99 season, however, the operating results of the Boston Celtics for the year ended June 30, 1999 did not reflect historical seasonal trends. The consolidated statements of operations data include the results of operations of television station WFXT prior to its sale on July 7, 1995, as well as the gain on its disposal, as discontinued operations. Results of Operations Consolidated net loss for the year ended June 30, 2000 was $3,329,000 or $1.23 per unit compared with consolidated loss before extraordinary charge for the year ended June 30, 1999 of $7,843,000 or $2.85 per unit and consolidated net loss for the year ended June 30, 1999 of $10,099,000 or $3.67 per unit. BCLP II recorded consolidated net income of $12,267,000 or $2.45 per unit for the year ended June 30, 1998. The significant loss before extraordinary charge in fiscal 1999 is primarily a result of the lockout, the cancellation of 32 regular season games and the reduced number of games in the revised 1998-99 NBA schedule. 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. Equity in net income (loss) of Celtics Basketball Holdings, L.P. ("Celtics Basketball Holdings") represents BCLP's 48.3% interest in the income (loss) of the entity that indirectly owns and operates the Boston Celtics basketball team subsequent to the Reorganization. Prior to the Reorganization, the operating results of the Boston Celtics basketball team were consolidated with BCLP II's operating results. Celtics Basketball recognizes Boston Celtics team and game revenues and expenses on a game-by- game basis, and the NBA regular season ordinarily begins in late October or early November. As a result, BCLP II's operating results for the year ended June 30, 1998 included revenues from ticket sales, television and radio broadcast rights fees and promotional advertising, and included team, game and selling and promotional expenses. Had BCLP II accounted for a 48.3% interest of the Boston Celtics basketball team for the year ended June 30, 1998 using the equity method, BCLP II's pro forma equity in income of the Boston Celtics would have amounted to $8,940,000, reflecting, among other things, team and game revenues and expenses related to the 82 regular season games played by the Boston Celtics in the year ended June 30, 1998. Due to the cancellation of 32 regular season games in the 1998-99 season, the Boston Celtics did not commence their 1998-99 season until early February 1999, and the Boston Celtics played 50 regular season games in the year ended June 30, 1999. As a result, BCLP's equity in its interest in Celtics Basketball Holdings for the year ended June 30, 1999 reflected a net loss of $205,000, as net team and game income related to the 50 regular season games played were more than offset by general and administrative expenses, selling and promotional expenses, certain team expenses contractually related to the 32 canceled games and interest expense, net of interest income. The 1999-2000 NBA regular season began in early November 1999 and consisted of a full 82-game regular season schedule. As a result, BCLP's equity in its interest in Celtics Basketball Holdings resulted in income of $4,353,000 in the year ended June 30, 2000, as net team and game income from the full 82-game regular season schedule exceeded team and game expenses, general and administrative expenses, selling and promotional expenses, and interest expense, net of interest income. General and administrative expenses of $3,943,000 in fiscal 2000 increased by $106,000 compared to $3,837,000 in fiscal 1999 as a result of an increase in personnel expenses, partially offset by a decrease in professional expenses. General and administrative expenses of $3,837,000 in fiscal 1999 decreased by $9,628,000 compared to BCLP II's general and administrative expenses of $13,465,000 in fiscal 1998. General and administrative expenses in fiscal 1998 included general and administrative expenses related to the Boston Celtics basketball team of $5,709,000. Effective July 1, 1998, BCLP accounts for its 48.3% indirect interest in the Boston Celtics basketball team using the equity method, and, accordingly, general and administrative expenses related to the Boston Celtics basketball team in fiscal 2000 and 1999 are included in equity in income (loss) of Celtics Basketball Holdings. The balance of the decreases in general and administrative expenses in fiscal 1999 is a result of decreased personnel and other general and administrative expenses as a result of the Reorganization. Reorganization costs amounted to approximately $2,350,000, which consisted primarily of legal and professional expenses, costs of printing and distribution and filing fees. These costs were charged to operations by BCLP II in fiscal 1998. Depreciation expense of $10,000 in fiscal 2000 increased by $1,000 compared to $9,000 in fiscal 1999, and depreciation expense of $9,000 in fiscal 1999 decreased by $199,000 compared to BCLP II's depreciation expense of $208,000 in fiscal 1998. Depreciation expense in fiscal 1998 included $199,000 of depreciation expense related to the Boston Celtics basketball team. Amortization expense of $47,000 in fiscal 2000 and 1999 decreased by $118,000 compared to BCLP II's amortization expense of $165,000 in fiscal 1998. BCLP's amortization expense increased $43,000 in fiscal 1999 due to an increase in deferred financing costs, but this increase was offset by the fact that amortization expense in fiscal 1998 included $161,000 of amortization related to the Boston Celtics basketball team. Interest expense of $7,152,000 in fiscal 2000 increased by $1,103,000 compared to $6,649,000 in fiscal 1999 due to an increase in borrowings under BCLP's revolving credit agreement with its commercial bank combined with the effect of an increase in interest rates on those borrowings. Interest expense of $6,649,000 in fiscal 1999 increased $631,000 compared to $6,018,000 in fiscal 1998. The increase in fiscal 1999 is primarily attributable to interest of $3,644,000 related to the Subordinated Debentures issued by BCLP II in connection with the Reorganization (including amortization of the original issue discount on the Subordinated Debentures) and interest of $419,000 related to new borrowings under BCLP II's revolving credit agreement with its commercial bank. These increases were partially offset by the fact that interest expense in fiscal 1998 included $3,431,000 of interest expense related to the Boston Celtics basketball team. Interest income from other short-term investments of $5,270,000 in fiscal 2000 increased by $772,000 compared to $4,498,000 in fiscal 1999, primarily as a result of an increase in interest rates earned on invested balances in fiscal 2000. Interest income from other short-term investments of $4,498,000 in fiscal 1999 decreased $1,904,000 compared to $6,402,000 in fiscal 1998. The decrease in 1999 was attributable to a reduced amount of available funds for short-term investment as well as the effect of a decrease in interest rates in fiscal 1999 on those invested balances. BCLP's provision for income taxes of $1,800,000 in fiscal 2000, which relates to BCLP's subsidiary corporations, increased by $200,000 compared to $1,600,000 in fiscal 1999. The increase is primarily a result of an increase in income earned by BCLP's subsidiary corporations to $4,027,000 in fiscal 2000 compared to $3,553,000 in fiscal 1999. Liquidity and Capital Resources BCLP used approximately $6,792,000 and $7,700,000 in cash flows from operating activities in fiscal 2000 and 1999, respectively. BCLP II generated approximately $16,301,000 in cash from operating activities in 1998. The decrease in cash flows from operating activities in fiscal 2000 and 1999 is directly attributable to BCLP's accounting for its interest in the Boston Celtics on the equity method effective July 1, 1998. In addition, cash used in operating activities in fiscal 2000 and 1999 included annual interest due on the Subordinated Debentures in the amount of $3,244,000. Capital expenditures amounted to approximately $8,000 and $385,000 in 2000 and 1998, respectively. At June 30, 2000 the Partnership had approximately $3,394,000 of cash and cash equivalents and $83,100,000 of other short-term investments. In addition to these amounts, sources of funds available to the Partnership include funds generated by operations, unused portions of credit facilities with its commercial bank, and distributions from Celtics Basketball Holdings, which through a subsidiary owns and operates the Boston Celtics. These resources will be used to repay commercial bank borrowings and for general partnership purposes, working capital needs or possible investments and/or acquisitions. On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit agreement with its commercial bank, $20,000,000 of which was reserved for the repayment of notes payable related to redeemed BCLP II Units. Interest on advances under the revolving credit agreement accrues at BCLP II's option of either LIBOR plus 0.70% or the greater of the bank's Base Rate or the Federal Funds Effective Rate plus 0.50%. The revolving credit agreement expires on June 30, 2003 and is secured by a pledge of certain short-term investments of CCC, an indirect subsidiary of BCLP and BCLP II. On May 26, 1998, $30,000,000 was advanced under the revolving credit agreement in connection with the Reorganization, and on September 30, 1998, BCLP II borrowed the $20,000,000 reserved for the repayment of notes payable related to redeemed BCLP II Units and repaid the notes with the proceeds. On June 30, 1999, BCLP II $2,500,000 against the revolving line of credit for general working capital purposes, and during fiscal 2000, BCLP II borrowed the remaining $7,500,000 available under the revolving credit 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. 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 $33,789,695 at June 30, 2000. 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 or sinking fund requirements of the subordinated debentures. No cash distributions to unitholders of BCLP were declared or paid during the years ended June 30, 2000 or 1999. During the year ended June 30, 1998, a cash distribution of $1.00 per BCLP II unit was paid to BCLP II unitholders on January 14, 1998 (declared December 11, 1997 to unitholders of record on December 26, 1997). In addition, a cash distribution of $1.00 per unit was paid to BCLP II unitholders electing to receive subordinated debentures and BCLP units in connection with the Reorganization. Future distributions will be determined by BCLP GP 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 notes payable to 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 will provide adequate cash for the Partnership and its subsidiaries to meet their cash requirements through June 30, 2001. Market Risk ----------- At June 30, 2000, BCLP had invested approximately $83,100,000 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 --------- In prior filings, the Partnership discussed the nature and progress of its plans to become Year 2000 ready. 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. In late 1999, the Partnership completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Partnership experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. 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 not aware of any material problems resulting from Year 2000 issues, either with its internal systems or the products and services of third parties. The Partnership will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. 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 BCLP is BCLP GP, Inc., a Delaware corporation organized in 1998 ("BCLP GP"), and the General Partner of BCLP II is BCLP II GP, Inc., a Delaware corporation organized in 1998 ("BCLP II GP"). BCLP GP is wholly owned by Paul Gaston, and BCLP II GP is wholly owned by Celtics, Inc., which is wholly owned by Walcott Partners, L.P., a Gaston family partnership. BCLP's activities are managed and controlled by BCLP GP. The General Partner of each of CLP, Celtics Basketball Holdings and Celtics Basketball is Boston Celtics Corporation ("BCC"). Paul E. Gaston and Don F. Gaston (Paul Gaston's father) are the sole stockholders of BCC. The activities of CLP, Celtics Basketball Holdings and Celtics Basketball are managed and controlled by BCC. The General Partners of Celtics Pride GP are CLP and CCC, which is wholly owned by BCCLP Holdings, which in turn is wholly owned by BCLP II. The General Partner of BCCLP is Celtics Communications, Inc. ("CCI"). Paul E. Gaston and Don F. Gaston are the sole stockholders of CCI. Prior to their sale, the broadcast operations' activities were managed and controlled by CCI. BCC receives a base management fee of $750,000 per annum, subject to increases based on annual cash flows from basketball operations. Management fees of $935,000 and $750,000 were charged to Celtics Basketball's operations during the years ended June 30, 2000 and 1999, respectively, and management fees of $1,577,000 were charged to BCLP II's operations in the year ended June 30, 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 (excluding earnings of subsidiary corporate entities which are taxed directly). Directors and Executive Officers The following table sets forth, for each of the directors and executive officers of BCLP 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 Boston Celtics Limited Partnership, 151 Merrimac Street, Boston, Massachusetts 02114.
Name Age Position ---- --- -------- Paul E. Gaston 43 Chairman of the Board of Directors Richard G. Pond 40 Executive Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer, and Secretary Don F. Gaston 66 Director Paula B. Gaston 66 Director John B. Marsh, III 43 Director David A. Splaine 41 Director
Paul E. Gaston became Chairman of the Board of BCLP GP in April 1998 and has been Chairman of the Board of Celtics, Inc. since December 1992 and Director since September 1992. Mr. Gaston has been Chairman of the Board of BCC since September 1993. 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. From inception in 1990 to June 1992 he was Co-chairman and since June 1992 has been Chairman of the Board of Directors of Celtics Communications, Inc., the general partner of Boston Celtics Communications Limited Partnership. Mr. Paul E. Gaston is the son of Don F. and Paula B. Gaston. Richard G. Pond was named Vice President, Controller and Secretary of Celtics, Inc. in December 1992. He has been employed by BCLP II since July 1992. From July 1981 to June 1992, he was with the international accounting firm of Ernst & Young LLP, most recently as a senior audit manager. Effective July 1, 1996, Mr. Pond assumed his responsibilities as Executive Vice President, Chief Financial Officer and Treasurer, and effective July 1, 1997, Mr. Pond assumed his responsibilities as Chief Operating Officer. Upon consummation of the Reorganization, Mr. Pond assumed similar responsibilities with BCLP GP. Don F. Gaston has served as a Director of the General Partners of BCLP II and CLP since his resignation as Chairman of the Board of BCLP II in December 1992 and CLP in September 1993. He was succeeded in each of these positions by his son, Paul E. Gaston. He became Chairman of the Board of Directors of Boston Celtics Incorporated in September 1983 when he, together with Alan C. Cohen and Paul R. Dupee, Jr., acquired the Boston Celtics franchise. He has served as a Director of the BCCLP General Partner since its inception in 1990. Mr. Gaston was Chairman of the Board of Providence Capitol, Ltd. from July 1982 until its liquidation in December 1986. From 1962 to June 1982, he was associated with Gulf & Western Industries, Inc. in various capacities, including Executive Vice President, director and member of the Executive Committee. Mr. Gaston is the husband and father respectively, of Paula B. Gaston and Paul E. Gaston. Paula B. Gaston became a Director of Celtics, Inc. in September 1992 and a Director of the General Partner of CLP in October 1992. She is a private investor and is the wife of Mr. Don F. Gaston and the mother of Paul E. Gaston. John B. Marsh became a director of Celtics, Inc. in September 1992. Mr. Marsh has been the managing partner of Corvus Capital, LLC, a strategic investment partnership where he is an investment banker, since 1998. From 1995 to 1998, he was Director of Trading and Sales with ABSA Securities, Inc., an investment banking firm. From 1991 to 1995, he was Chief Executive Officer and President of Saicor Ltd., an investment banking firm specializing in emerging markets. From 1988 to 1991 he was a Vice President at Deutsche Bank Capital Corporation where he headed an international arbitrage securities trading group. From 1985 to 1988 Mr. Marsh was a Vice President in the international arbitrage department of Merrill Lynch Pierce Fenner and Smith. David A. Splaine became a director of BCLP GP in January 2000. Mr. Splaine has been the Managing Director of Baldwin & Clarke Corporate Finance, Inc., an investment banking firm, since 1997. From 1986 to 1997, he was employed by Fleet Bank (and its predecessor, Shawmut Bank), most recently holding the position of Senior Vice President. Mr. Splaine is also a director of Juki Automation Systems Holding, Inc., a privately held distributor of automated assembly equipment, and Vested Development, Inc., a privately held software services provider. BCLP GP has an Audit Committee composed of Mr. Marsh and Mr. Splaine, each non-management directors. Mr. Paul Gaston resigned his position as a member of the Audit Committee, effective November 30, 1999. Non-management directors other than Don F. Gaston and Paula B. Gaston are reimbursed for their expenses, and receive directors' fees equal to $1,000 per month and $2,500 per meeting attended with respect to their services as directors of BCLP GP. Effective January 1, 2000, the monthly directors' fees payable to such non-management directors were increased to $2,000 per month. Mr. Marsh and Mr. Splaine received $20,500 and $14,500 in such directors' fees in fiscal 2000, respectively. Directors are named by the stockholders of BCLP GP and serve until their successors are named. Thus, holders of limited partnership units have no vote in the selection of directors of BCLP GP. BCLP GP's officers are appointed by, and serve at the discretion of, the Board of Directors. Section 16(a) Beneficial Ownership Reporting Compliance ------------------------------------------------------- Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, require executive officers and directors of BCLP GP, the general partner of BCLP, to file reports pertaining to their beneficial ownership of the Units of BCLP with the Securities and Exchange Commission and the New York Stock Exchange when they are first elected, and to report (with certain exceptions) subsequent changes in their beneficial ownership of Units. Executive officers, directors and 10% beneficial owners are required to furnish the Partnership with copies of all forms they file pursuant to Section 16(a). The Partnership believes that all filing requirements were complied with in a timely fashion during the year ended June 30, 2000. Item 11. Executive Compensation -------- ---------------------- The following Summary Compensation Table sets forth the compensation of each of the Chief Executive Officer and the most highly compensated executive officers of BCLP GP whose annual salary and bonus, if any, exceeded $100,000 for services in all capacities to BCLP (including predecessor entities) and its subsidiaries during the last three fiscal years. Only two of the Partnership's executive officers had an annual salary and bonus exceeding $100,000 for services to BCLP and its subsidiaries during the year ended June 30, 2000.
Summary Compensation Table -------------------------- Long Term Compensation Annual Compensation Awards ----------------------- ------------------------- Fiscal Securities Year Other Annual Restricted Underlying Ended Compensation Stock Options/ Name and Principal Position June 30, Salary($) Bonus($) ($) Awards($) SARs(#) --------------------------- -------- --------- -------- ------------ ---------- ---------- Paul E. Gaston 2000 $ 500,000 Chief Executive Officer 1999 and Chairman of the Board 1998 1,000,000 $324,596 Richard G. Pond 2000 360,000 250,000 Executive Vice President, 1999 360,000 250,000 Chief Operating Officer, 1998 400,000 250,000 Chief Financial Officer, Treasurer and Secretary
Neither BCLP nor BCLP II granted any options or appreciation rights during the year ended June 30, 2000. No options were exercised during the year ended June 30, 2000, and there are no options outstanding at June 30, 2000. Employment and Consulting Agreements The Partnership In August 1993, the Board of Directors of Celtics, Inc. approved compensation arrangements and an incentive plan for Paul E. Gaston, Chairman of the Board of Celtics, Inc., under which Mr. Gaston was to be employed on an at will basis, with compensation at the rate of $400,000 per annum. In June 1997, the Board of Directors of the General Partner of BCLP II approved an increase in Mr. Gaston's compensation to $1,000,000 per annum. The incentive plan, which is subject to annual review, provides that Mr. Gaston shall receive annual incentive payments, commencing with the fiscal year ending June 30, 1994, of 5% of the amount by which Consolidated Net Income before taxes on income of BCLP II for the related fiscal year exceeds $8,000,000, payable not later than 10 days after the issuance of audited financial statements of BCLP. Because of the lockout, Mr. Gaston voluntarily received no compensation from BCLP during the year ended June 30, 1999, and Mr. Gaston voluntarily elected to receive reduced compensation of $500,000 from BCLP during the year ended June 30, 2000. During the years ended June 30, 2000 and 1999, no annual incentive compensation payments were made to Mr. Gaston, and during the year ended June 30, 1998, Mr. Gaston was paid an annual incentive compensation payment of $324,596. The Basketball Operations 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 Mr. Marsh, a non-management director and member of the Audit Committee of the Board, performed the functions of a compensation committee during the year ended June 30, 2000. Mr. Marsh was not, during the year ended June 30, 2000 or previously, an officer or employee of the Partnership or any of its subsidiaries, and he did not have any affiliated relationship requiring disclosure. 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 August 25, 2000 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 BCLP GP, (iii) each executive named in the Summary Compensation Table and (iv) all directors and executive officers of BCLP GP as a group. All information with respect to beneficial ownership is based solely on information furnished by the respective Unitholders to the Partnership.
Percent of 5% Unitholders, Number of Outstanding Directors and Executive Officers Units Units(1) -------------------------------- --------- ----------- Don F. Gaston and Paula B. Gaston 200(2) * 33 East 63rd Street New York, New York 10021 Paul E. Gaston 677,600(3) 25.1% 33 East 63rd Street New York, New York 10021 John B. Marsh, III 500 * 33 East 63rd Street New York, New York 10021 David A. Splaine 0 * 151 Merrimac Street Boston, Massachusetts 02114 Richard G. Pond 0 * 151 Merrimac Street Boston, Massachusetts 02114 Castle Creek Partners, L.P. 677,500 25.1% 151 Merrimac Street Boston, Massachusetts 02114 David R. Murphey, III 244,700 9.1% Murphey Capital, Inc. P.O. Box 18065 Tampa, Florida 33681-8065 All directors and executive officers as a group (6 persons) 678,300 25.1% -------------------- * Less than one percent. (1) 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. (2) Includes 100 Units held by Brookwood Investments, L.P., a partnership owned by Don F. and Paula B. Gaston of which Don F. Gaston is the General Partner. Does not include 100 Units held by Walcott Partners, L. P. See Note (3) below. (3) Includes 100 Units held by Walcott Partners, L. P., a Gaston family partnership, and 677,500 Units held by Castle Creek Partners, L.P. The General Partners of Walcott Partners, L.P. are Paul E. Gaston and Draycott, Inc., of which Paul E. Gaston is the only stockholder, officer and director. The General Partner of Castle Creek Partners, L.P. is Castle Creek Partners GP, Inc., which is wholly owned by Celtics, Inc., which is wholly owned by Walcott Partners, L.P. In addition, 96.3% of Castle Creek's limited partnership interests are held by a limited partnership of which Walcott Partners, L.P. owns a majority of the limited partnership interests and Draycott, Inc. is the general partner. Castle Creek holds a 51.6867% limited partnership interest in Celtics Basketball Holdings. For the purpose of this table, Mr. Paul E. Gaston is deemed to be the beneficial owner of these Units. Unless otherwise indicated, all parties have both exclusive voting and investing power.
Item 13. Certain Relationships and Related Transactions -------- ---------------------------------------------- In 2000, BCLP II reimbursed Conanicut Aircraft, Inc. ("Conanicut") approximately $22,000 for the business use in the fiscal year ended June 30, 2000 of an aircraft based on standard charter rates for comparable aircraft. Conanicut is wholly owned by Walcott Partners, L.P. The General Partners of Walcott Partners, L.P. are Paul E. Gaston and Draycott, Inc., of which Paul E. Gaston is the only stockholder, officer and director. The reimbursement was reviewed and approved by the Audit Committee of the Board of Directors of BCLP GP. BCC receives a base management fee of $750,000 per annum, subject to increases based on annual cash flows from basketball operations. Management fees of $935,000 and $750,000 were charged to Celtics Basketball's operations during the years ended June 30, 2000 and 1999, respectively, and management fees of $1,577,000 were charged to BCLP II's operations in the year ended June 30, 1998. On June 30, 1998, BCLP entered into a management services agreement by and between BCLP II, CLP, Celtics Pride G.P., Celtics Capital Corporation, BCCLP Holding Corporation, Castle Creek, Celtics Basketball Holdings and Celtics Basketball. The agreement provides that these entities will provide certain management and corporate services on behalf of the other entities, and will charge a fee for these services based on the cost of the actual services. BCLP II received reimbursements from Celtics Basketball and Castle Creek in the amounts of $687,000 and $903,000, respectively, in the fiscal year ended June 30, 2000, and $702,000 and $1,259,000, respectively, in the fiscal year ended June 30, 1999 for services provided under this agreement. See "Item 12 - Security Ownership of Certain Beneficial Owners and Management" regarding ownership and control of Castle Creek. 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 Boston Celtics Limited Partnership II, as amended.(1) (b) -- Agreement of Limited Partnership of Boston Celtics Limited Partnership II.(1) (c) -- Certificate of Limited Partnership of Boston Celtics Limited Partnership.(10) (d) -- Agreement of Limited Partnership of Boston Celtics Limited Partnership.(9) (e) -- First Amendment to Amended and Restated Agreement of Limited Partnership of Boston Celtics Limited Partnership II.(2) (f) -- Certificate of Amendment of Certificate of Limited Partnership of Boston Celtics Limited Partnership, changing the name of Boston Celtics Limited Partnership II from its former name of "Boston Celtics Limited Partnership."(10) (g) -- Certificate of Amendment of Certificate of Limited Partnership of Boston Celtics Limited Partnership II, changing the name of Boston Celtics Limited Partnership from its former name of "Boston Celtics Limited Partnership II."(10) (h) -- Certificate of Incorporation of BCLP GP, Inc., dated April 13, 1998.(8) (i) -- By-Laws of BCLP GP, Inc.(8) (j) -- Certificate of Amendment, dated June 29, 1998, changing the name of BCLP GP, Inc. from its former name of "BCLP II GP, Inc."(10) (k) -- Certificate of Incorporation of BCLP II GP, Inc., dated April 13, 1998.(8) (l) -- By-Laws of BCLP II GP, Inc.(8) (m) -- Certificate of Amendment, dated June 29, 1998, changing the name of BCLP II GP, Inc. from its former name of "BCLP GP, Inc."(10) (4) (a) -- Form of Unit Certificate Representing Limited Partnership Interest of BCLP.(1) (b) -- Form of Indenture between Boston Celtics Limited Partnership and Chase Manhattan Bank, as Trustee, dated as of June 30, 1998.(8) (10) (a) -- Joint Venture Agreement by and among NBA member organizations.(1) (b) -- Constitution and By-laws of the National Basketball Association.(1) (c) -- License/Lease Agreement dated April 4, 1990 between Boston Celtics Limited Partnership and New Boston Garden Corporation (confidential treatment previously granted).(2) (d) -- Office Lease Agreement dated April 4, 1990 between Boston Celtics Limited Partnership and New Boston Garden Corporation (confidential treatment previously granted).(2) (e) -- Letter Agreement dated April 4, 1990 between the Boston Celtics Limited Partnership and New Boston Garden Corporation (confidential treatment granted).(2) (f) -- Unit Option Agreement dated December 31, 1993 by and between Boston Celtics Limited Partnership and Paul E. Gaston.(3) (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.(8) (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.(8) (m) -- Credit Agreement between Boston Celtics Limited Partnership and Citizens Bank of Massachusetts, dated as of May 20, 1998.(7) (n) -- Second Amendment to Credit Agreement dated as of July 30, 1999 among Celtics Limited Partnership, Boston Celtics Limited Partnership II, Boston Celtics Limited Partnership, Celtics Basketball, L.P., Celtics Basketball Holdings, L.P., Celtics Pride, G.P. and Citizens Bank of Massachusetts.(11) (o) -- Second Amendment to Credit Agreement dated as of July 30, 1999 among Boston Celtics Limited Partnership II, the Borrower, and The Royal Bank of Scotland plc, the Lender, and Citizens Bank of Massachusetts, the Agent.(11) (27) Financial Data Schedule [FN] (1) Incorporated by reference from the exhibits filed with the Partnership'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 the Report on Form 10-K of the Registrant filed with the Securities and Exchange Commission for the year ended June 30, 1990. (3) Incorporated by reference to the exhibits filed with the report on Form 10-Q filed with the Securities and Exchange Commission on February 14, 1994 (File No. 0-19324). (4) Incorporated by reference to the exhibits filed with the 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 the 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 the 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 Schedule 13E-3 filed by Boston Celtics Limited Partnership (File No. 5-37799). (8) 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). (9) Incorporated by reference to the exhibits filed with the report on Form 8-K filed with the Securities and Exchange Commission on June 30, 1998 (File No. 0-19324). (10) Incorporated by reference to the exhibits filed with the report on Form 10-K filed with the Securities and Exchange Commission on September 25, 1998 (File No. 0-19324). (11) Incorporated by reference to the exhibits filed with the report on Form 10-K filed with the Securities and Exchange Commission on September 17, 1999 (File No. 0-19324). (b) Reports on Form 8-K filed in the fourth quarter of 2000 - None. (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, 2000 BOSTON CELTICS LIMITED PARTNERSHIP BOSTON, MASSACHUSETTS FORM 10-K -- ITEM 14(a)(1) and (2) BOSTON CELTICS LIMITED PARTNERSHIP LIST OF CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements are included in Item 8: Boston Celtics Limited Partnership and Subsidiaries Consolidated Balance Sheets at June 30, 2000 and 1999. Consolidated Statements of Operations for the years ended June 30, 2000 and 1999. Consolidated Statements of Partners' Capital (Deficit) for the years ended June 30, 2000 and 1999. Consolidated Statements of Cash Flows for the years ended June 30, 2000 and 1999. Notes to Consolidated Financial Statements. Boston Celtics Limited Partnership II and Subsidiaries Consolidated Balance Sheets at June 30, 2000 and 1999. Consolidated Statements of Operations for each of the three years in the period ended June 30, 2000. Consolidated Statements of Partners' Capital (Deficit) for each of the three years in the period ended June 30, 2000. Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2000. Notes to Consolidated Financial Statements. Celtics Basketball Holdings, L.P. and Subsidiary Consolidated Balance Sheets at June 30, 2000 and 1999. Consolidated Statements of Operations for the years ended June 30, 2000 and 1999. Consolidated Statements of Partners' Capital (Deficit) for the years ended June 30, 2000 and 1999. Consolidated Statements of Cash Flows for the years ended June 30, 2000 and 1999. 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 Boston Celtics Limited Partnership We have audited the accompanying consolidated balance sheets of Boston Celtics Limited Partnership and Subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for the years then ended. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boston Celtics Limited Partnership and Subsidiaries at June 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP --------------------- Boston, Massachusetts August 29, 2000 BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Consolidated Balance Sheets
June 30, June 30, 2000 1999 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,393,509 $ 2,607,725 Other short-term investments 83,100,000 83,200,000 Prepaid expenses and other current assets 530,771 237,245 --------------------------- TOTAL CURRENT ASSETS 87,024,280 86,044,970 PROPERTY AND EQUIPMENT, net 11,734 14,422 OTHER ASSETS 1,053,843 1,214,314 --------------------------- $88,089,857 $87,273,706 =========================== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued expenses $ 611,360 $ 99,893 Federal and state income taxes payable 877,350 751,204 Notes payable to bank - current portion 10,000,000 2,500,000 --------------------------- TOTAL CURRENT LIABILITIES 11,488,710 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 33,789,695 33,384,771 INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS BASKETBALL HOLDINGS, L.P. 29,437,209 33,790,372 PARTNERS' CAPITAL (DEFICIT), authorized 25,000,000 units of limited partnership interest, issued and outstanding 2,703,664 units Boston Celtics Limited Partnership - General Partner 156,332 189,968 Limited Partners (47,481,412) (44,151,483) --------------------------- (47,325,080) (43,961,515) Boston Celtics Limited Partnership II - General Partner 79,705 133,234 Celtics Limited Partnership - General Partner 266,789 223,298 Boston Celtics Communications Limited Partnership - General Partner 641,954 641,574 --------------------------- TOTAL PARTNERS' CAPITAL (DEFICIT) (46,336,632) (42,963,409) --------------------------- $88,089,857 $87,273,706 ===========================
See notes to consolidated financial statements. BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Consolidated Statements of Operations
For the Year Ended --------------------------- June 30, June 30, 2000 1999 -------- -------- Equity in net income (loss) of Celtics Basketball Holdings, L.P. $ 4,353,162 $ (204,960) Costs and expenses: General and administrative 3,943,285 3,837,185 Depreciation 10,376 9,095 Amortization 47,114 47,114 --------------------------- 4,000,775 3,893,394 --------------------------- 352,387 (4,098,354) Interest expense (7,151,884) (6,649,201) Interest income 5,270,020 4,498,452 Net realized gains on disposition of marketable securities 6,020 --------------------------- Loss before income taxes and extraordinary charge (1,529,477) (6,243,083) Provision for income taxes 1,800,000 1,600,000 --------------------------- Loss before extraordinary charge (3,329,477) (7,843,083) Extraordinary charge for early retirement of notes payable 2,255,540 --------------------------- Net loss (3,329,477) (10,098,623) Net income (loss) applicable to interests of General Partners 452 (178,912) --------------------------- Net loss applicable to interests of Limited Partners $(3,329,929) $(9,919,711) =========================== Loss per unit before extraordinary charge $ (1.23) $ (2.85) Net loss per unit $ (1.23) $ (3.67)
See notes to consolidated financial statements. BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Consolidated Statements of Partners' Capital (Deficit)
Limited Partners --------------------------- Total Units Amount ----- ----- ------ BALANCE AT JUNE 30, 1998 $(32,925,656) 2,703,664 $(34,329,896) Net income (loss) for the year ended June 30, 1999 (10,098,623) (9,919,711) Cash distribution from Castle Creek Partners, L.P. 103,430 103,430 Cash distribution paid by Celtics Limited Partnership to Boston Celtics Corporation (General Partner's share) (37,200) Unrealized loss on marketable securities (5,360) (5,306) -------------------------------------------- BALANCE AT JUNE 30, 1999 (42,963,409) 2,703,664 (44,151,483) Net income (loss) for the year ended June 30, 2000 (3,329,477) (3,329,929) Cash distribution by Boston Celtics Limited Partnership II to BCLP II GP, Inc. (General Partner's share) (43,746) -------------------------------------------- BALANCE AT JUNE 30, 2000 $(46,336,632) 2,703,664 $(47,481,412) ============================================
See notes to consolidated financial statements.
General Partners ----------------------------------------------------------------------------------- Boston Celtics Boston Celtics Boston Celtics Celtics Communications Limited Limited Limited Limited Total Partnership Partnership II Partnership Partnership ----------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1998 $1,404,240 $ 290,166 $210,292 $262,554 $641,228 Net income (loss) for the year ended June 30, 1999 (178,912) (100,198) (77,004) (2,056) 346 Cash distribution from Castle Creek Partners, L.P. Cash distribution paid by Celtics Limited Partnership to Boston Celtics Corporation (General Partner's share) (37,200) (37,200) Unrealized loss on marketable securities (54) (54) -------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1999 1,188,074 189,968 133,234 223,298 641,574 Net income (loss) for the year ended June 30, 2000 452 (33,636) (9,783) 43,491 380 Cash distribution by Boston Celtics Limited Partnership II to BCLP II GP, Inc. (General Partner's share) (43,746) (43,746) -------------------------------------------------------------------------------- BALANCE AT JUNE 30, 2000 $1,144,780 $ 156,332 $ 79,705 $266,789 $641,954 ================================================================================
BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Consolidated Statements of Cash Flows
For the Year Ended ------------------------------- June 30, June 30, 2000 1999 -------- -------- CASH FLOWS USED IN OPERATING ACTIVITIES General and administrative expenses $ (3,342,822) $ (4,523,674) Interest expense (6,746,681) (6,432,925) Interest income 4,970,912 4,839,294 Income taxes paid (1,673,854) (1,582,595) ------------------------------ NET CASH FLOWS USED IN OPERATING ACTIVITIES (6,792,445) (7,699,900) CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Purchases of short-term investments (648,600,000) (437,446,570) Proceeds from sales of marketable securities 1,000,000 Proceeds from sales of short-term investments 648,700,000 434,727,039 Payment of due to related parties (3,036,184) Capital expenditures (7,688) Other receipts (expenditures) 20,778 12,967 ------------------------------ NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 113,090 (4,742,748) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank borrowings 7,500,000 23,500,000 Payment of bank borrowings (1,000,000) Payment of notes payable (19,794,320) Cash distribution to BCLP II GP, Inc. (34,861) Cash distribution from Celtics Basketball Holdings, L.P. 3,682,811 Cash distribution from Castle Creek Partners, L.P. 103,430 Cash contributions from General Partner 90,166 ------------------------------ NET CASH FLOWS FROM FINANCING ACTIVITIES 7,465,139 6,582,087 ------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 785,784 (5,860,561) Cash and cash equivalents at beginning of year 2,607,725 8,468,286 ------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,393,509 $ 2,607,725 ============================== NON-CASH INVESTING AND FINANCING ACTIVITIES: Amortization of original issue discount on Subordinated Debentures $ 404,923 $ 400,071 Accrued distribution to BCLP II GP, Inc. $ 8,885
See notes to consolidated financial statements. BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Notes to Consolidated Financial Statements Note A - Basis of Presentation Principles of Consolidation: The consolidated financial statements include the accounts of Boston Celtics Limited Partnership ("BCLP," the "Partnership") and its majority-owned and controlled subsidiaries and partnerships. All intercompany transactions are eliminated in consolidation. BCLP (formerly "Boston Celtics Limited Partnership II") is a Delaware limited partnership that was formed on April 13, 1998 in connection with a reorganization of Boston Celtics Limited Partnership II (formerly "Boston Celtics Limited Partnership") ("BCLP II"). Pursuant to the reorganization of BCLP II (the "Reorganization"), which was completed on June 30, 1998, BCLP owns a 99% limited partnership interest in BCLP II. The 1% general partner of BCLP is BCLP GP, Inc., and its 99% limited partnership interest is comprised of 2,703,664 publicly held units. 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 a 99.999% subsidiary partnership, owns and operates the Boston Celtics professional basketball team of the National Basketball Association ("NBA"). BCLP's investment in Celtics Basketball Holdings is accounted for on the equity method, and accordingly, the investment is carried at cost, increased by equity in earnings of Celtics Basketball Holdings and reduced by distributions received. 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. Marketable securities represent investments with maturities greater than three months. 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 marketable securities. The Partnership's cash equivalents, short-term investments and marketable securities represent investments with relatively short maturities in the securities of highly rated financial institutions and United States government entities. Marketable Securities and Other Short-Term Investments: The Partnership accounts for marketable securities and 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: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), which is required to be adopted in years beginning after June 15, 2000. The Statement will require that all derivatives be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of the hedged assets, liabilities or firm commitments will either be immediately recognized in earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Because of the Partnership's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Partnership. In September 1999, in order to fix the interest rate on the debt described in Note F, BCLP II entered into an interest rate cap agreement with a notional amount of $50,000,0000, expiring in October 2000. The fixed interest rate on this contract is 6.49%. The interest rate differential is recognized as an adjustment to interest expense. The carrying value of financial instruments such as cash equivalents, short-term investments 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. The interest rate swap agreement has a fair value of approximately $32,000 at June 30, 2000 based upon a quote from the issuer, which represents the estimated amount that the Partnership would pay if the agreement was terminated. Property and Equipment: Property and equipment is stated at cost and is being depreciated over estimated useful lives of five years using the straight-line method of depreciation. Income Taxes: BCLP is a partnership that is taxed as a corporation. BCLP and its subsidiary corporations report their income tax provision, including the income (losses) of subsidiary partnerships, using the liability method in accordance with Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using tax rates and laws that will be in effect when the differences are expected to reverse. Comprehensive Income: The Partnership adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" in the fiscal year ended June 30, 1999. The Partnership's comprehensive income is comprised of net income (loss) and unrealized gains and losses on marketable securities held as available-for-sale investments. Comprehensive loss of approximately $3,329,000 and $10,104,000 for the fiscal years ended June 30, 2000 and 1999, respectively, were not significantly different from reported net loss. 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 units of limited partnership interest in Castle Creek Partners, L.P. ("Castle Creek"), a privately held partnership formed in connection with the Reorganization, on a 100-for-one basis. BCLP II then contributed 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 received limited partnership interests in Castle Creek, which were subsequently distributed 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 was paid to Castle Creek in July 1998. Note D - Investment in Capital Deficiency of Celtics Basketball Holdings, L.P. 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, L.P. ("Celtics Basketball"), its 99.999% subsidiary partnership, owns and operates the Boston Celtics professional basketball team of the National Basketball Association. BCLP's investment in Celtics Basketball Holdings is accounted for on the equity method. Summary balance sheet and statement of operations data for Celtics Basketball Holdings is as follows (amounts in thousands):
June 30, ------------------- 2000 1999 ---- ---- Current assets $21,378 $ 5,241 Current liabilities 34,961 25,905 Total assets 31,111 14,264 Notes payable to bank - noncurrent portion 50,000 50,000 Deferred compensation - noncurrent portion 6,370 7,626 Other noncurrent liabilities 708 672 Partners' capital (deficit) (60,928) (69,939)
For the Year Ended ------------------------------ June 30, 2000 June 30, 1999 ------------- ------------- Total revenues $81,249 $43,052 Total costs and expenses (69,390) (41,458) Interest and other income (expense), net (2,848) (2,018) ------------------------ Net income (loss) $ 9,011 $ (424) ========================
Note E - Marketable Securities and Other Short-Term Investments The Partnership held no marketable securities at June 30, 2000. There were no realized gains or losses from marketable securities in the fiscal year ended June 30, 2000. Gross realized gains from available-for-sale U.S. government securities amounted to $6,020 in the fiscal year ended June 30, 1999. Other short-term investments, which consist primarily of private placement notes with a commercial bank with a maturity of under one year, are classified as held-to-maturity and are carried at amortized cost, which approximates market value. There were no realized or unrealized gains or losses in any of these investments in the fiscal years ended June 30, 2000 and 1999. Note F - Notes Payable In 1995, BCLP II issued two notes in exchange for 668,144 limited partnership units. The two notes payable had an aggregate initial face amount of $14,365,096 equal to $21.50 per unit for each unit acquired. The two notes, which were due and payable on July 1, 2000, also provided that the amounts to be paid pursuant to the terms of the notes were to be increased by specified amounts on each July 1 during their term. If the unitholder held the two notes until July 1, 2000, he would have been entitled to receive aggregate payments (excluding interest) in the amount of $20,044,320 equal to $30.00 per unit for each unit acquired from him. Each of the notes accrued interest payable quarterly at the rate of 7.76% per annum. On September 30, 1998, the notes payable had an aggregate balance, including scheduled increases, 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 ($0.82 per unit) related to early retirement of notes payable. Interest expense of $343,000 related to these notes was charged to operations in 1999. 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 the redeemed BCLP II Units described in the preceding paragraph. 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% (7.54% at June 30, 2000). 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. As of June 30, 2000, $60,000,000 was outstanding under the revolving credit agreement, $10,000,000 of which is payable on September 30, 2000 and $50,000,000 of which is payable upon maturity of the agreement. 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. The revolving credit agreement contains certain restrictions and various provisions and covenants customary in lending arrangements of this type. Interest charged to operations in connection with borrowings under the revolving credit agreement amounted to $3,503,000 and $2,662,000 in the fiscal years ended June 30, 2000 and 1999, respectively. Note G - Subordinated Debentures 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 BCLP II unit with respect to which a BCLP II Unitholder elected to receive Subordinated Debentures. In the Reorganization, BCLP II Unitholders elected to receive Subordinated Debentures with respect to 2,703,664 former BCLP II 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 Subordinated Debentures using the interest method and, accordingly, the Subordinated Debentures are valued at $33,789,695 at June 30, 2000. 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 or sinking fund requirements of the Subordinated Debentures. Interest charged to operations in connection with the Subordinated Debentures, including amortization of the original issue discount, amounted to $3,649,000 and $3,644,000 in the fiscal years ended June 30, 2000 and 1999, respectively. Note H - Related Party Transactions Boston Celtics Corporation, the general partner of CLP and Celtics Basketball, receives a base management fee of $750,000 per annum, subject to increases based on annual cash flows from basketball operations. Management fees of $935,000 and $750,000 were charged to Celtics Basketball's operations in the years ended June 30, 2000 and 1999, respectively. Note I - Commitments and Contingencies 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, its former general partner (Celtics, Inc.), and certain directors or former directors of Celtics, Inc. 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 one of the complaints 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. Effective June 30, 1998, the Board of Governors of the NBA voted to reopen the collective bargaining agreement ("Collective Bargaining Agreement") between the NBA and the NBA Players Association (the "NBPA"). 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 (the "New Collective Bargaining Agreement"), thereby ending the lockout. As a result of the lockout, the 1998-99 NBA regular season consisted of 50 games per team, beginning in early February 1999. Ordinarily, the NBA regular season consists of 82 games per team and generally begins in late October or early November. NBA teams, including the Boston Celtics, refunded amounts paid by season ticket holders (plus interest at 6%) for a total of 18 home games (including two exhibition games) that were canceled as a result of the lockout. Refunds of approximately $11,632,000 (including interest of $185,000) were paid by Celtics Basketball for canceled games. In addition, certain season ticket holders elected to leave their refunds and interest on deposit for future games. Such refunds amounted to approximately $571,000 at June 30, 1999 (including interest of approximately $12,000). No interest has accrued on such amounts since January 31, 1999. All amounts paid by season ticket holders are recorded by Celtics Basketball as deferred revenue and are subsequently recognized as revenue on a game-by-game basis as regular season games are played. No revenues were recognized with respect to amounts paid by season ticket holders for canceled games in the 1998-99 regular season. Amounts refunded are recorded by Celtics Basketball as reductions in the deferred revenue liability when paid. Celtics Basketball is committed under noncancelable, long-term operating leases for certain of its facilities and equipment. These leases were assigned to Celtics Basketball by CLP effective June 30, 1998 pursuant to the Reorganization. Celtics Basketball does not pay rent under its lease agreements related to the FleetCenter (where the Boston Celtics play all of their home games), which expires after the 2005-06 NBA season, or the practice facility and wellness center, which also includes certain office space, and which expires in 2010. Under the terms of its lease agreement related to the FleetCenter, Celtics Basketball does not share in revenue from food and beverage concessions. Note J - Benefit Plans Certain of the Partnership's subsidiaries have defined contribution plans 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. Costs of the plans charged to operations amounted to $44,000 and $41,000 in the fiscal years ended June 30, 2000 and 1999, respectively. Note K - Cash Flows Reconciliations of net loss to net cash flows used in operating activities are as follows:
Year Ended June 30, ------------------------------ 2000 1999 ---- ---- Net loss $(3,329,477) $(10,098,623) Items not affecting cash flows used in operating activities: Depreciation 10,376 9,095 Amortization 47,114 47,114 Extraordinary charge for early retirement of notes payable 2,255,540 Amortization of original issue discount on Subordinated Debentures 404,923 400,071 Net realized losses on disposition of marketable securities and other short-term investments (6,020) Equity in net (income) loss of Celtics Basketball Holdings, L.P. (4,353,162) 204,960 Changes in: Accrued interest receivable (303,197) 304,384 Accounts receivable 18,122 192,657 Accounts payable and accrued expenses 712,856 (1,009,078) ----------------------------- Net cash flows used in operating activities $(6,792,445) $ (7,699,900) =============================
Note L - Quarterly Results (Unaudited) A summary of operating results, net income (loss) per unit based on the average units outstanding throughout each year calculated for financial statement purposes only, and cash distributions for the quarterly periods in the two years ended June 30, 2000 and 1999 is set forth below (000's omitted, except for per unit amounts):
Quarter Ended --------------------------------------------------------- September 30, December 31, March 31, June 30, 1999 1999 2000 2000 Total ------------- ------------ --------- -------- ----- Year Ended June 30, 2000: Net income (loss) $(3,181) $ (657) $1,983 $(1,474) $(3,329) Net income (loss) applicable to Limited Partners (3,109) (663) 1,904 (1,462) (3,330) Net income (loss) per unit $ (1.15) $ (0.25) $ 0.70 $ (0.53) $ (1.23) Quarter Ended --------------------------------------------------------- September 30, December 31, March 31, June 30, 1998 1998 1999 1999 Total ------------- ------------ --------- -------- ----- Year Ended June 30, 1999: Income (loss) before extraordinary charge $(3,236) $(5,244) $1,429 $ (792) $(7,843) Extraordinary charge for early retirement of notes payable (2,256) (2,256) Net income (loss) (5,492) (5,244) 1,429 (792) (10,099) Net income (loss) applicable to Limited Partners (5,378) (5,116) 1,362 (788) (9,920) Net income (loss) per unit before extraordinary charge $ (1.17) $(1.89) $ 0.50 $ (0.29) $ (2.85) Net income (loss) per unit $ (1.99) $(1.89) $ 0.50 $ (0.29) $ (3.67)
BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Notes to Consolidated Financial Statements Note M - Income Taxes BCLP is a partnership that is taxed as a corporation. The consolidated financial statements include the accounts and operating results of wholly owned subsidiary corporations that file tax returns separate from those of BCLP. As a result, income of those subsidiary corporations can not be offset by losses of BCLP. Aggregate pre-tax income of BCLP's wholly owned taxable subsidiary corporations amounted to $4,027,000 and $3,553,000 in the years ended June 30, 2000 and 1999, respectively. Components of deferred tax assets and liabilities and assets at June 30, 2000 and 1999 are as follows (000's omitted):
June 30 --------------------- 2000 1999 ---- ---- Deferred tax assets: Difference between tax and financial statement bases of the assets and liabilities of BCLP and subsidiaries related to: Step-up in basis in connection with Unit redemptions $ 24,020 $ 25,368 Difference between tax and financial statement basis of investment in Celtics Basketball Holdings, L.P. 11,601 11,037 Intangible assets 396 396 Original issue discount 276 137 Net operating loss carryforward 8,332 5,519 --------------------- 44,625 42,457 Less valuation allowance (44,625) (42,457) --------------------- Net deferred tax assets 0 0 --------------------- Deferred tax liabilities: Financial statement basis in excess of tax basis of assets related to restructuring of BCCLP completed in 1996 $ 20,100 $ 20,100 Less amount assumed by Castle Creek Partners, L.P. as a result of indemnities in the Merger Agreement of the Reorganization (10,389) (10,389) --------------------- Net deferred tax liabilities 9,711 9,711 --------------------- Total deferred tax liabilities $ 9,711 $ 9,711 =====================
At June 30, 2000, the Partnership has net operating loss carryforwards of $20,785,000 for income tax purposes that expire beginning in fiscal 2014. The net deferred tax liabilities represent the tax-effected difference between the tax and financial statement bases of the net assets of BCCLP Holding Corporation ("Holdings") and Celtics Investments, Inc. ("CII"), and relate to Holdings or subsidiary partnerships Boston Celtics Communications Limited Partnership ("BCCLP") and Boston Celtics Broadcasting Limited Partnership ("BCBLP"). The net deferred tax assets are attributable to different entities in the consolidated group. As a result, the deferred tax assets and liabilities do not necessarily offset and are evaluated separately. Because of the uncertainty of realization, a valuation allowance has been established for the deferred tax assets. The provision for income taxes included in the consolidated statement of operations consists of the following (000's omitted):
Year Ended June 30, ------------------- 2000 1999 ---- ---- Current: Federal $1,369 $1,200 State 431 400 ----------------- $1,800 $1,600 =================
The following table reconciles taxes at the statutory federal income tax rate to the tax provision (000's omitted):
Year Ended June 30, ------------------- 2000 1999 ---- ---- Tax (benefit) at statutory federal income tax rate (34%) $ (520) $(2,123) Increase in valuation allowance on deferred tax assets 2,168 3,899 State income taxes (benefit), net of federal tax benefit (99) (394) Other 251 218 ------------------- Tax provision $1,800 $ 1,600 ===================
Note N - Net Income Per Unit The following table sets forth the computation of basic and diluted earnings per unit for each of the periods indicated:
Year Ended June 30, ------------------------------ 2000 1999 ---- ---- Numerator for loss per unit: Loss before extraordinary charge: Loss before extraordinary charge $(3,329,477) $ (7,843,083) Applicable to interests of General Partners of subsidiary partnerships 34,088 (56,158) ----------------------------- (3,363,565) (7,786,925) Applicable to 1% General Partnership interest of BCLP (33,636) (77,869) ----------------------------- Applicable to interests of Limited Partners $(3,329,929) $ (7,709,056) ============================= Net loss: Net loss $(3,329,477) $(10,098,623) Applicable to interests of General Partners of subsidiary partnerships 34,088 (78,714) ----------------------------- (3,363,565) (10,019,909) Applicable to 1% General Partnership interest of BCLP (33,636) (100,198) ----------------------------- Applicable to interests of Limited Partners $(3,329,929) $ (9,919,711) ============================= Denominator for loss per unit - weighted average units 2,703,664 2,703,664 ============================= Loss per unit before extraordinary charge $ (1.23) $ (2.85) ============================= Net loss per unit $ (1.23) $ (3.67) =============================
Report of Independent Auditors To the General Partner Boston Celtics Limited Partnership II We have audited the accompanying consolidated balance sheets of Boston Celtics Limited Partnership II (formerly Boston Celtics Limited Partnership) and Subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended June 30, 2000. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boston Celtics Limited Partnership II and Subsidiaries at June 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP --------------------- Boston, Massachusetts August 29, 2000 BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Consolidated Balance Sheets
June 30, June 30, 2000 1999 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,389,400 $ 2,597,546 Other short-term investments 83,100,000 83,200,000 Due from related parties 6,323 2,049,516 Prepaid expenses and other current assets 522,005 217,162 --------------------------- TOTAL CURRENT ASSETS 87,017,728 88,064,224 PROPERTY AND EQUIPMENT, net 11,734 14,422 OTHER ASSETS 1,053,843 1,214,314 --------------------------- $88,083,305 $89,292,960 --------------------------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued expenses $ 607,654 $ 99,488 Federal and state income taxes payable 877,350 751,204 Notes payable to bank - current portion 10,000,000 2,500,000 --------------------------- TOTAL CURRENT LIABILITIES 11,485,004 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 33,789,695 33,384,771 INVESTMENT IN CAPITAL DEFICIENCY OF CELTICS BASKETBALL HOLDINGS, L.P. 29,437,209 33,790,372 PARTNERS' CAPITAL (DEFICIT), authorized 25,000,000 units of limited partnership interest, issued and outstanding 2,703,664 units Boston Celtics Limited Partnership II - General Partner 79,705 133,234 Limited Partners (47,327,926) (41,941,856) --------------------------- (47,248,221) (41,808,622) Celtics Limited Partnership - General Partner 266,789 223,298 Boston Celtics Communications Limited Partnership - General Partner 641,954 641,574 --------------------------- TOTAL PARTNERS' CAPITAL (DEFICIT) (46,339,478) (40,943,750) --------------------------- $88,083,305 $89,292,960 ===========================
See notes to consolidated financial statements. BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Consolidated Statements of Operations
For the Year Ended -------------------------------------------- June 30, June 30, June 30, 2000 1999 1998 -------- -------- -------- Revenues: Basketball regular season - Ticket sales $39,107,960 Television and radio broadcast rights fees 28,002,469 Other, principally promotional advertising 8,569,485 Equity in net income (loss) of Celtics Basketball Holdings, L.P. $ 4,353,162 $ (204,960) -------------------------------------------- 4,353,162 (204,960) 75,679,914 -------------------------------------------- Costs and expenses: Basketball regular season - Team 40,401,643 Game 2,820,107 General and administrative 1,645,329 1,536,555 13,464,566 Selling and promotional 4,819,478 Depreciation 208,162 Amortization of NBA franchise and other intangible assets 47,114 47,114 165,035 -------------------------------------------- 1,692,443 1,583,669 61,878,991 -------------------------------------------- 2,660,719 (1,788,629) 13,800,923 Interest expense (7,151,884) (6,649,201) (6,017,737) Interest income 5,270,020 4,498,452 6,402,366 Net realized gains (losses) on disposition of marketable securities 6,020 (18,235) -------------------------------------------- Income (loss) before income taxes and extraordinary charge 778,855 (3,933,358) 14,167,317 Provision for income taxes 1,800,000 1,600,000 1,900,000 -------------------------------------------- Income (loss) before extraordinary charge (1,021,145) (5,533,358) 12,267,317 Extraordinary charge for early retirement of notes payable 2,255,540 -------------------------------------------- Net income (loss) (1,021,145) (7,788,898) 12,267,317 Net income (loss) applicable to interests of General Partners 34,088 (78,714) 306,216 -------------------------------------------- Net income (loss) applicable to interests of Limited Partners $(1,055,233) $(7,710,184) $11,961,101 ============================================ Per unit: Income before extraordinary charge-basic $ 2.45 Income before extraordinary charge-diluted $ 2.17 Net income-basic $ 2.45 Net income-diluted $ 2.17 Distributions declared $ 2.00
See notes to consolidated financial statements. BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Consolidated Statements of Partners' Capital (Deficit)
Limited Partners ---------------------------- Total Units Amount ----- ----- ------ BALANCE AT JUNE 30, 1997 $ (7,790,091) $5,346,164 $ (8,527,928) Net income for the year ended June 30, 1998 12,267,317 11,961,101 Exercise of options to purchase units of Partnership interest 5,156,250 250,000 5,156,250 Distributions: Subordinated Debentures to unitholders (32,984,700) (32,984,700) Cash to unitholders - $2.00 per unit (8,104,186) (8,049,828) Cash by Celtics Limited Partnership to Boston Celtics Corporation (General Partner's Share) (105,000) Investment in Celtics Basketball Holdings by Celtics Limited Partnership to Boston Celtics Corporation 319,513 Investment in Castle Creek Partners, G.P. to Celtics, Inc. (83,682) Units of interest in Castle Creek Partners, L.P. to unitholders pursuant to Reorganization and cancellation of related units (12,342,790) (2,892,500) (12,342,790) Contribution from BCLP Merger, Inc. 100 100 Assumption of deferred tax liability by Castle Creek Partners, L.P. 10,389,125 10,389,125 Purchase of units for the treasury (7,147) Unrealized gain on marketable securities 69,569 68,874 --------------------------------------------- BALANCE AT JUNE 30, 1998 (33,215,722) 2,703,664 (34,329,796) Net income (loss) for the year ended June 30, 1999 (7,788,898) (7,710,184) Cash distribution from Castle Creek Partners, L.P. 103,430 103,430 Cash distribution paid by Celtics Limited Partnership to Boston Celtics Corporation (General Partner's share) (37,200) Unrealized loss on marketable securities (5,360) (5,306) --------------------------------------------- BALANCE AT JUNE 30, 1999 (40,943,750) 2,703,664 (41,941,856) Net income (loss) for the year ended June 30, 2000 (1,021,145) (1,055,233) Distribution of receivable to Boston Celtics Limited Partnership (4,330,837) (4,330,837) Cash distribution by Boston Celtics Limited Partnership II to BCLP II GP, Inc. (General Partner's share) (43,746) --------------------------------------------- BALANCE AT JUNE 30, 2000 $(46,339,478) 2,703,664 $(47,327,926) =============================================
See notes to consolidated financial statements.
General Partners' Interests ------------------------------------------------------------------- Boston Celtics Boston Celtics Communications Limited Celtics Limited Limited Total Partnership II Partnership Partnership ----- -------------- --------------- -------------- BALANCE AT JUNE 30, 1997 $ 737,837 $226,817 $(129,866) $640,886 Net income for the year ended June 30, 1998 306,216 120,820 185,054 342 Exercise of options to purchase units of Partnership interest Distributions: Subordinated Debentures to unitholders Cash to unitholders - $2.00 per unit (54,358) (54,358) Cash by Celtics Limited Partnership to Boston Celtics Corporation (General Partner's Share) (105,000) (105,000) Investment in Celtics Basketball Holdings by Celtics Limited Partnership to Boston Celtics Corporation 319,513 319,513 Investment in Castle Creek Partners, G.P. to Celtics, Inc. (83,682) (83,682) Units of interest in Castle Creek Partners, L.P. to unitholders pursuant to Reorganization and cancellation of related units Contribution from BCLP Merger, Inc. Assumption of deferred tax liability by Castle Creek Partners, L.P. Purchase of units for the treasury (7,147) (7,147) Unrealized gain on marketable securities 695 695 ---------------------------------------------------------------- BALANCE AT JUNE 30, 1998 1,114,074 210,292 262,554 641,228 Net income (loss) for the year ended June 30, 1999 (78,714) (77,004) (2,056) 346 Cash distribution from Castle Creek Partners, L.P. Cash distribution paid by Celtics Limited Partnership to Boston Celtics Corporation (General Partner's share) (37,200) (37,200) Unrealized loss on marketable securities (54) (54) ---------------------------------------------------------------- BALANCE AT JUNE 30, 1999 998,106 133,234 223,298 641,574 Net income (loss) for the year ended June 30, 2000 34,088 (9,783) 43,491 380 Distribution of receivable to Boston Celtics Limited Partnership Cash distribution by Boston Celtics Limited Partnership II to BCLP II GP, Inc. (General Partner's share) (43,746) (43,746) ---------------------------------------------------------------- BALANCE AT JUNE 30, 2000 $ 988,448 $ 79,705 $ 266,789 $641,954 ================================================================
BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Consolidated Statements of Cash Flows
For the Year Ended ----------------------------------------------- June 30, June 30, June 30, 2000 1999 1998 -------- -------- -------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Receipts: Basketball regular season receipts: Ticket sales $ 40,147,616 Television and radio broadcast rights fees 26,195,503 Other, principally promotional advertising 9,068,435 ------------- 75,411,554 Costs and expenses: Basketball regular season expenditures: Team expenses 37,476,899 Game expenses 2,706,673 General and administrative expenses $ 3,336,752 $ 4,243,587 13,442,475 Selling and promotional expenses 4,974,501 ----------------------------------------------- 3,336,752 4,243,587 58,600,548 ----------------------------------------------- (3,336,752) (4,243,587) 16,811,006 Interest expense (6,746,681) (6,432,925) (4,484,886) Interest income 4,970,912 4,839,294 6,459,967 Income taxes paid (1,673,854) (1,582,595) (733,306) Payment of deferred compensation (1,751,746) ----------------------------------------------- NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES (6,786,375) (7,419,813) 16,301,035 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Purchases of: Marketable securities (41,399,070) Short-term investments (648,600,000) (437,446,570) (747,722,322) Proceeds from sales of: Marketable securities 1,000,000 59,895,502 Short-term investments 648,700,000 434,727,039 697,787,584 Payment of due to related parties (3,036,184) Capital expenditures (7,688) (384,921) Other receipts (expenditures) 20,778 12,967 (116,172) ----------------------------------------------- NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 113,090 (4,742,748) (31,939,399) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank borrowings $ 7,500,000 $ 23,500,000 $ 80,000,000 Payment of bank borrowings (1,000,000) (50,000,000) Payment of notes payable (19,794,320) Purchase of Boston Celtics Limited Partnership units (7,147) Proceeds from exercise of options to purchase limited partnership units 2,125,000 Cash distributions: From Celtics Basketball Holdings, L.P. 3,682,811 From Castle Creek Partners, L.P. 103,430 To Celtics Basketball, L.P. from Celtics Limited Partnership (6,536,134) To limited partners of Boston Celtics Limited Partnership (8,068,908) To General Partners (34,861) (105,000) ----------------------------------------------- NET CASH FLOWS FROM FINANCING ACTIVITIES 7,465,139 6,491,921 17,407,811 ----------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 791,854 (5,670,640) 1,769,447 Cash and cash equivalents at beginning of year 2,597,546 8,268,186 6,498,739 ----------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,389,400 $ 2,597,546 $ 8,268,186 =============================================== NON-CASH INVESTING AND FINANCING ACTIVITIES: Amortization of original issue discount on Subordinated Debentures $ 404,923 $ 400,071 Distribution of amount due from related party to Boston Celtics Limited Partnership $ 4,330,837 Accrued distribution to BCLP II GP, Inc. $ 8,885 Contribution of net capital deficiency of Celtics Limited Partnership to Celtics Basketball L.P. in exchange for limited partnership interest in Celtics Basketball L.P. $ 31,631,779 Contribution of short-term investments to Castle Creek Partners, L.P. in exchange for units of limited partnership interest in Castle Creek Partners, L.P. $ 43,617,669 Contribution payable to Castle Creek Partners, G.P., Inc. in exchange for investment in Castle Creek Partners, G.P., Inc. $ 440,583 Contribution of limited partnership interest in Celtics Basketball L.P. and investment asset to Celtics Basketball Holdings L.P. in exchange for limited partnership interest in Celtics Basketball Holdings L.P. $ 38,241,796 Distribution by Celtics Limited Partnership of investment in Celtics Basketball Holdings to Boston Celtics Corporation $ 319,513 Distribution of investment in Celtics Basketball Holdings to Castle Creek Partners, L.P. in exchange for units of limited partnership interest in Castle Creek Partners, L.P. $ 31,315,462 Distribution of investment in Celtics Basketball Holdings to Castle Creek Partners, G.P., Inc. in exchange for units of limited partnership interest in Castle Creek Partners, G.P., Inc. $ 316,318 Distribution of investment in Castle Creek Partners, G.P., Inc. to Celtics, Inc. $ 83,682 Distribution of units of partnership interest in Castle Creek Partners, L.P. to unitholders and subsequent cancellation of related Boston Celtics Limited Partnership II units $ 12,342,790 Assumption of deferred tax liability by Castle Creek Partners, L.P. $ 10,389,125 Distribution of Subordinated Debentures to unitholders $ 32,984,700
See notes to consolidated financial statements. BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Notes to Consolidated Financial Statements Note A - Basis of Presentation Principles of Consolidation: The 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. BCLP II is a Delaware limited partnership formed in 1986 as Boston Celtics Limited Partnership. Its general partner was Celtics, Inc. 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, and its general partner became BCLP II GP, Inc. ("BCLP II GP"), a wholly owned subsidiary of Celtics, Inc. 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 of the National Basketball Association (the "Boston Celtics") 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 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, increased by equity in the earnings of Celtics Basketball Holdings and reduced by distributions received. Note B - Significant Accounting Policies Cash Equivalents: Cash equivalents represent short-term investments with maturities at date of purchase of three months or less. Marketable securities represent investments with maturities greater than three months. 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, marketable securities and accounts receivable. The Partnership's cash equivalents, short-term investments and marketable securities represent investments with relatively short maturities in the securities of highly rated financial institutions and United States government entities. 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. Marketable Securities and Other Short-Term Investments: The Partnership accounts for marketable securities and 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. Property and Equipment: Property and equipment is stated at cost and is being depreciated over estimated useful lives from three to ten years using straight line or accelerated methods of depreciation as appropriate. Financial Instruments: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement will require that all derivatives be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of the hedged assets, liabilities or firm commitments will either be immediately recognized in earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Because of the Partnership's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Partnership. In September 1999, in order to fix the interest rate on the debt described in Note F, BCLP II entered into an interest rate cap agreement with a notional amount of $50,000,0000, expiring in October 2000. The fixed interest rate on this contract is 6.49%. The interest rate differential is recognized as an adjustment to interest expense. The carrying value of financial instruments such as cash equivalents, short-term investments, 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. The interest rate swap agreement has a fair value of approximately $32,000 at June 30, 2000 based upon a quote from the issuer, which represents the estimated amount that the Partnership would pay if the agreement was terminated. Basketball Operations: The Boston Celtics generally record its revenues, principally ticket sales and television and radio broadcasting fees, 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 by the Boston Celtics 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. Stock Options: The Partnership accounts for stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Partnership has adopted the disclosure provisions only of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123). The adoption of Statement 123 did not have a material impact on the Partnership's financial statements. 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. Celtics Capital Corporation ("CCC"), BCCLP Holding Corporation ("Holdings") and Celtics Investments, Inc. ("CII"), wholly-owned subsidiary corporations of the Partnership, are subject to income taxes and report their income tax provision, including the income (losses) of Boston Celtics Communications Limited Partnership ("BCCLP"), a subsidiary partnership, using the liability method in accordance with Financial Accounting Standards Board Statement 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using tax rates and laws that will be in effect when the differences are expected to reverse. Comprehensive Income: The Partnership adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" in the fiscal year ended June 30, 1999. The Partnership's comprehensive income is comprised of net income (loss) and unrealized gains and losses on marketable securities held as available-for-sale investments. Comprehensive income (loss) of approximately ($1,021,000), ($7,794,000) and $12,337,000 for the fiscal years ended June 30, 2000, 1999 and 1998, respectively, was not significantly different from reported net income (loss). Note C - Reorganization In connection with the Reorganization, unitholders were given an option of exchanging their units of interest in BCLP II for units of limited partnership interest in Castle Creek Partners, L.P. ("Castle Creek"), a privately held partnership formed in connection with the Reorganization, on a 100-for-one basis. The Partnership then contributed to Castle Creek the percentage of its net assets, subject to certain adjustments, corresponding to the percentage of unitholders that elected to receive Castle Creek interests (the "Proportionate Election"). The Partnership'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, the Partnership received limited partnership interests in Castle Creek, which they subsequently distributed to BCLP II unitholders electing to receive Castle Creek interests in the Reorganization. In anticipation of the contribution of assets to Castle Creek, the Partnership 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 the Partnership needed to contribute an additional $3,036,184 of assets to Castle Creek to reflect the Proportionate Election. This amount was paid to Castle Creek in July 1998. Note D - Investment in Capital Deficiency of Celtics Basketball Holdings, L.P. BCLP II, through its subsidiary partnerships and corporations, owns a 48.3% 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, its 99.999% subsidiary partnership, owns and operates the Boston Celtics professional basketball team of the National Basketball Association. BCLP II's investment in Celtics Basketball Holdings is accounted for on the equity method. Summary balance sheet and statement of operations data for Celtics Basketball Holdings is as follows (amounts in thousands):
June 30, ------------------- 2000 1999 ---- ---- Current assets $21,378 $ 5,241 Current liabilities 34,961 25,905 Total assets 31,111 14,264 Notes payable to bank - noncurrent portion 50,000 50,000 Deferred compensation - noncurrent portion 6,370 7,626 Other noncurrent liabilities 708 672 Partners' capital (deficit) (60,928) (69,939)
Year Ended ------------------------------ June 30, 2000 June 30, 1999 ------------- ------------- Total revenues $81,249 $43,052 Total costs and expenses (69,390) (41,458) Interest and other income (expense), net (2,848) (2,018) ------------------------ Net income (loss) $ 9,011 $ (424) ========================
Note E - Marketable Securities and Other Short-Term Investments The Partnership held no marketable securities at June 30, 2000. There were no realized gains or losses from marketable securities in the fiscal year ended June 30, 2000. Gross realized gains from available-for-sale U.S. government securities amounted to $6,020 in the fiscal year ended June 30, 1999. Other short-term investments, which consist primarily of private placement notes with a commercial bank with a maturity of under one year, are classified as held-to-maturity and are carried at amortized cost, which approximates market value. There were no realized or unrealized gains or losses in any of these investments in the fiscal years ended June 30, 2000 and 1999. Note F - Notes Payable In 1995, the Partnership issued two notes in exchange for 668,144 limited partnership units. The two notes payable had an aggregate initial face amount of $14,365,096, equal to $21.50 per unit for each unit acquired. The two notes, which were due and payable on July 1, 2000, also provided that the amounts to be paid pursuant to the terms of the notes were to be increased by specified amounts on each July 1 during their term. If the unitholder held the two notes until July 1, 2000, he would have been entitled to receive aggregate payments (excluding interest) in the amount of $20,044,320 equal to $30.00 per unit for each unit acquired from him. Each of the notes accrued interest payable quarterly at the rate of 7.76% per annum. On September 30, 1998, the notes payable had an aggregate balance, including scheduled increases, 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 ($0.82 per unit) related to early retirement of notes payable. Interest of $343,000 and $2,403,000 related to these notes was charged to operations in 1999 and 1998, respectively. On May 20, 1998, the Partnership 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 the redeemed BCLP II Units described in the preceding paragraph. Interest on advances under the revolving credit agreement 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% (7.54% at June 30, 2000). On May 26, 1998, $30,000,000 was advanced under the revolving credit agreement in connection with the Reorganization, and on September 30, 1998, the Partnership 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. As of June 30, 2000, $60,000,000 was outstanding under the revolving credit agreement, $10,000,000 of which is payable on September 30, 2000 and $50,000,000 of which is payable upon maturity of the agreement. The revolving credit agreement expires on June 30, 2003 and is secured by a pledge of certain short-term investments of Celtics Capital Corporation ("CCC"), an indirect subsidiary of BCLP II. The revolving credit agreement contains certain restrictions and various provisions and covenants customary in lending arrangements of this type. On December 15, 1997, Celtics Limited Partnership ("CLP"), the Partnership's 99%-owned limited partnership which owned and operated the Boston Celtics basketball team prior to the June 30, 1998 Reorganization, entered into a $60,000,000 credit facility with its commercial bank, consisting of a $50,000,000 term loan bearing interest at 6.29% and a $10,000,000 revolving line of credit. The proceeds from the $50,000,000 term loan were used to repay a separate $50,000,000 loan from a commercial bank that bore interest at 6.35%. Pursuant to the Reorganization, the $60,000,000 credit facility was assigned to Celtics Basketball on June 30, 1998. Interest charged to operations in connection with borrowings under the revolving credit agreement amounted to $3,503,000, $2,662,000, and $3,212,000 in the years ended June 30, 2000, 1999 and 1998, respectively. Note G - Subordinated Debentures 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 BCLP II unit with respect to which a BCLP II Unitholder elected to receive Subordinated Debentures. In the Reorganization, BCLP II Unitholders elected to receive Subordinated Debentures with respect to 2,703,664 former BCLP II 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 Subordinated Debentures using the interest method and, accordingly, the Subordinated Debentures are valued at $33,789,695 at June 30, 2000. 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 or sinking fund requirements of the Subordinated Debentures. Interest charged to operations in connection with the Subordinated Debentures, including amortization of the original issue discount, amounted to $3,649,000 and $3,644,000 in the fiscal years ended June 30, 2000 and 1999, respectively. Note H - Related Party Transactions Boston Celtics Corporation, the general partner of CLP and Celtics Basketball, receives a base management fee of $750,000 per annum, subject to increases based on annual cash flows from basketball operations. Management fees of $935,000 and $750,000 were charged to Celtics Basketball's operations in the years ended June 30, 2000 and 1999, respectively, and management fees of $1,577,000 were charged to BCLP II's operations during the year ended June 30, 1998. Note I - Commitments and Contingencies 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, its former general partner (Celtics, Inc.), and certain directors or former directors of Celtics, Inc. 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 one of the complaints 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. Effective June 30, 1998, the Board of Governors of the NBA voted to reopen the collective bargaining agreement ("Collective Bargaining Agreement") between the NBA and the NBA Players Association (the "NBPA"). 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 (the "New Collective Bargaining Agreement"), thereby ending the lockout. As a result of the lockout, the 1998-99 NBA regular season consisted of 50 games per team, beginning in early February 1999. Ordinarily, the NBA regular season consists of 82 games per team and generally begins in late October or early November. NBA teams, including the Boston Celtics, refunded amounts paid by season ticket holders (plus interest at 6%) for a total of 18 home games (including two exhibition games) that were canceled as a result of the lockout. Refunds of approximately $11,632,000 (including interest of $185,000) were paid by Celtics Basketball for canceled games. In addition, certain season ticket holders elected to leave their refunds and interest on deposit for future games. Such refunds amounted to approximately $571,000 at June 30, 1999 (including interest of approximately $12,000). No interest has accrued on such amounts since January 31, 1999. All amounts paid by season ticket holders are recorded by Celtics Basketball as deferred revenue and are subsequently recognized as revenue on a game-by-game basis as regular season games are played. No revenues were recognized with respect to amounts paid by season ticket holders for canceled games in the 1998-99 regular season. Amounts refunded are recorded by Celtics Basketball as reductions in the deferred revenue liability when paid. Celtics Basketball is committed under noncancelable, long-term operating leases for certain of its facilities and equipment. These leases were assigned to Celtics Basketball by CLP effective June 30, 1998 pursuant to the Reorganization. Rent expense charged to operations during the year ended June 30, 1998 amounted to $410,000. Celtics Basketball does not pay rent under its lease agreements related to the FleetCenter (where the Boston Celtics play all of their home games), which expires after the 2005- 06 NBA season, or the practice facility and wellness center, which also includes certain office space, and which expires in 2010. Under the terms of its lease agreement related to the FleetCenter, Celtics Basketball does not share in revenue from food and beverage concessions. Note J - Options to Acquire Units of Partnership Interest In November 1997, one of the Partnership's option holders exercised his Unit Appreciation Rights with respect to his 30,000 options, and in June 1998, the remaining option holder exercised his 250,000 options, resulting in proceeds to the Partnership of $2,125,000. As a result, there are no outstanding options to purchase units of partnership interest. The compensation element of the options consisted of income of $805,000 in the year ended June 30, 1998. Note K - Benefit Plans Certain of the Partnership's subsidiaries have defined contribution plans 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. Costs of the plans charged to operations amounted to $44,000, $41,000 and $232,000 during the years ended June 30, 2000, 1999 and 1998, respectively. In addition, costs of these plans charged to Celtics Basketball amounted to $144,000 and $159,000 in the years ended June 30, 2000 and 1999. Note L - Cash Flows Reconciliations of net income (loss) to net cash flows from (used in) operating activities are as follows:
Year Ended June 30, ------------------------------------------- 2000 1999 1998 ---- ---- ---- Net income (loss) $(1,021,145) $(7,788,898) $12,267,317 Items not affecting cash flows from (used in) operating activities: Depreciation 208,162 Amortization 47,114 47,114 165,035 Increase in note issued on redemption of Partnership interest 1,129,163 Extraordinary charge for early retirement of notes payable 2,255,540 Amortization of original issue discount on Subordinated Debentures 404,923 400,071 Net realized gains (losses) on disposition of marketable securities and other short-term investments (6,020) 18,235 Equity in net (income) loss of Celtics Basketball Holdings, L.P. (4,353,162) 204,960 Changes in: Accrued interest receivable (303,197) 316,384 140,330 Accounts receivable (2,280,838) (1,836,775) 43,331 Notes receivable 85,772 Accounts payable and accrued expenses 719,930 (1,012,189) 11,426,790 Deferred compensation (1,628,938) Deferred revenues 899,490 Other non-current liabilities (9,270,000) Other 816,348 ------------------------------------------- Net cash flows from (used in) operating activities $(6,786,375) $(7,419,813) $16,301,035 ===========================================
Note M - Quarterly Results (Unaudited) A summary of operating results, net income (loss) per unit based on the average units outstanding throughout each year calculated for financial statement purposes only, and cash distributions for the quarterly periods in the fiscal years ended June 30, 2000 and 1999 is set forth below (000's omitted, except for per unit amounts):
Quarter Ended ------------------------------------------------------ September 30, December 31, March 31, June 30, 1999 1999 2000 2000 Total ------------- ------------ --------- -------- ----- Year Ended June 30, 2000: Net income (loss) $(2,650) $ (220) $2,440 $(591) $(1,021) Net income (loss) applicable to Limited Partners (2,610) (232) 2,380 (593) (1,055) Quarter Ended ------------------------------------------------------ September 30, December 31, March 31, June 30, 1998 1998 1999 1999 Total ------------- ------------ --------- -------- ----- Year Ended June 30, 1999: Income (loss) before extraordinary charge $(2,524) $(4,594) $1,929 $(344) $(5,533) Extraordinary charge for early retirement of notes payable (2,256) (2,256) Net income (loss) (4,780) (4,594) 1,929 (344) (7,789) Net income (loss) applicable to Limited Partners (4,721) (4,517) 1,876 (348) (7,710)
Note N - Income Taxes Components of deferred tax liabilities and assets at June 30 are as follows (000's omitted):
June 30 -------------------------------- 2000 1999 1998 ---- ---- ---- Deferred tax liabilities: Financial basis in excess of tax basis of assets related to restructuring of BCCLP completed in 1996 $ 20,100 $ 20,100 $ 20,100 Less amount assumed by Castle Creek Partners, L.P. as a result of indemnities in the Merger Agreement of the Reorganization (10,389) (10,389) (10,389) -------------------------------- Total deferred tax liabilities $ 9,711 $ 9,711 $ 9,711 ================================
The deferred tax liabilities at June 30, 2000, 1999 and 1998 represent the tax-effected difference between the tax and financial statement bases of the net assets of BCCLP Holding Corporation ("Holdings") and Celtics Investments, Inc. ("CII"), and relate to Holdings or subsidiary partnerships Boston Celtics Communications Limited Partnership ("BCCLP") and Boston Celtics Broadcasting Limited Partnership ("BCBLP"). At June 30, 2000, the tax bases of the assets and liabilities of BCLP II and its subsidiaries exceeded their financial statement bases by approximately $90,732,000, consisting primarily of a step-up in basis in connection with Unit redemptions ($60,049,000), difference between tax and financial statement basis of the investment in Celtics Basketball Holdings ($29,003,000), intangible assets ($990,000) and original issue discount on the Subordinated Debentures ($690,000). No deferred tax asset has been provided for these differences because BCLP II and its subsidiary partnerships are not subject to income taxes. The provision for income taxes included in the consolidated statements of operations consists of the following (000's omitted):
2000 1999 1998 ---- ---- ---- Current: Federal $1,369 $1,200 $1,460 State 431 400 440 ---------------------------- $1,800 $1,600 $1,900 ============================
A reconciliation of the statutory federal income tax rate applied to reported pre-tax earnings of CII, CCC, Holdings and BCCLP ($4,027,000 in 2000, $3,553,000 in 1999 and $4,240,000 in 1998) to the effective tax rate of the provision is:
2000 1999 1998 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal tax benefit 6.2 6.2 6.2 Other 4.5 4.8 4.6 ---------------------- Effective tax rate 44.7% 45.0% 44.8% ======================
Note O - Net Income Per Unit The following table sets forth the computation of basic and diluted earnings per unit for the year ended June 30, 1998: Numerator for basic and diluted earnings per unit: Income before extraordinary charge: Income before extraordinary charge before interests of General Partners $12,267,317 Applicable to interests of General Partners of subsidiary partnerships 185,397 ----------- 12,081,920 Applicable to 1% General Partnership interest of BCLP II 120,819 ----------- Applicable to interests of Limited Partners $11,961,101 =========== Net income: Net income before interests of General Partners $12,267,317 Applicable to interests of General Partners of subsidiary partnerships 185,397 ----------- 12,081,920 Applicable to 1% General Partnership interest of BCLP II 120,819 ----------- Applicable to interests of Limited Partners $11,961,101 =========== Denominator: Denominator for basic earnings per unit - weighted average units 4,881,826 Effect of dilutive securities: Options to purchase units of Partnership interest 147,762 Restricted stock 484,886 ----------- Denominator for diluted earnings per unit 5,514,474 =========== Income per unit before extraordinary charge - basic $ 2.45 =========== Income per unit before extraordinary charge - diluted $ 2.17 =========== Net income per unit - basic $ 2.45 =========== Net income per unit - diluted $ 2.17 ===========
Report of Independent Auditors To the General Partner Celtics Basketball Holdings, L.P. We have audited the accompanying consolidated balance sheets of Celtics Basketball Holdings, L.P. and Subsidiary as of June 30, 2000 and 1999, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for the years then ended. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Celtics Basketball Holdings, L.P. and Subsidiary at June 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP --------------------- Boston, Massachusetts August 29, 2000 CELTICS BASKETBALL HOLDINGS, L.P. and Subsidiary Consolidated Balance Sheets
June 30, June 30, 2000 1999 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 14,941,632 $ 3,274,513 Accounts receivable 5,799,898 1,445,063 Prepaid expenses and other current assets 636,551 521,058 ---------------------------- TOTAL CURRENT ASSETS 21,378,081 5,240,634 PROPERTY AND EQUIPMENT, net 1,144,785 1,347,715 NATIONAL BASKETBALL ASSOCIATION FRANCHISE, net of amortization of $2,622,078 in 2000 and $2,467,839 in 1999 3,547,503 3,701,742 INVESTMENT IN NBA MEDIA VENTURES, LLC 4,263,420 3,154,057 OTHER ASSETS 776,815 819,641 ---------------------------- $ 31,110,604 $ 14,263,789 ============================ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued expenses $ 24,478,303 $ 14,141,822 Deferred game revenues 9,204,607 10,415,589 Deferred compensation - current portion 1,278,410 1,347,616 ---------------------------- TOTAL CURRENT LIABILITIES 34,961,320 25,905,027 NOTES PAYABLE TO BANK 50,000,000 50,000,000 DEFERRED COMPENSATION - noncurrent portion 6,369,646 7,625,674 OTHER NON-CURRENT LIABILITIES 708,000 672,000 PARTNERS' CAPITAL (DEFICIT) Celtics Basketball Holdings, L.P. - General Partner 1,008 918 Celtics Pride GP - Limited Partner (29,437,209) (33,790,372) Castle Creek Partners, L.P. - Limited Partner (31,493,235) (36,150,442) ---------------------------- (60,929,436) (69,939,896) Celtics Basketball, L.P. - General Partner 1,074 984 ---------------------------- TOTAL PARTNERS' CAPITAL (DEFICIT) (60,928,362) (69,938,912) ---------------------------- $ 31,110,604 $ 14,263,789 ============================
See notes to consolidated financial statements. CELTICS BASKETBALL HOLDINGS, L.P. and Subsidiary Consolidated Statements of Operations
For the Year Ended -------------------------- June 30, June 30, 2000 1999 -------- -------- Revenues: Basketball regular season - Ticket sales $39,393,990 $23,283,661 Television and radio broadcast rights fees 34,229,293 14,626,632 Other, principally promotional advertising 7,625,721 5,142,031 -------------------------- 81,249,004 43,052,324 -------------------------- Costs and expenses: Basketball regular season - Team 56,664,039 30,171,482 Game 2,673,269 1,526,202 General and administrative 5,119,684 5,002,103 Selling and promotional 4,427,810 4,328,740 Depreciation 347,471 271,796 Amortization of NBA franchise and other intangible assets 157,727 157,727 -------------------------- 69,390,000 41,458,050 -------------------------- 11,859,004 1,594,274 Interest expense (3,393,910) (3,583,980) Interest income 545,456 628,434 Other income 937,017 -------------------------- Net income (loss) 9,010,550 (424,255) Net income (loss) applicable to interests of General Partners 180 (21) -------------------------- Net income (loss) applicable to interests of Limited Partners $ 9,010,370 $ (424,234) ==========================
See notes to consolidated financial statements. CELTICS BASKETBALL HOLDINGS, L.P. and Subsidiary Consolidated Statements of Partners' Capital (Deficit)
Limited Partners --------------------------------------------------- Castle Creek Total Total Celtics Pride GP Partners, L.P. ----- ----- ---------------- -------------- BALANCE AT JUNE 30, 1998 $(61,814,657) $(61,816,657) $(29,865,364) $(31,951,293) Net loss for the year ended June 30, 1999 (424,255) (424,234) (204,960) (219,274) Distributions to partners (7,700,000) (7,699,923) (3,720,048) (3,979,875) ------------------------------------------------------------------ BALANCE AT JUNE 30, 1999 (69,938,912) (69,940,814) (33,790,372) (36,150,442) Net income for the year ended June 30, 2000 9,010,550 9,010,370 4,353,163 4,657,207 ------------------------------------------------------------------ BALANCE AT JUNE 30, 2000 $(60,928,362) $(60,930,444) $(29,437,209) $(31,493,235) ==================================================================
See notes to consolidated financial statements.
BALANCE AT JUNE 30, 1998 $2,000 $1,000 $1,000 Net loss for the year ended June 30, 1999 (21) (5) (16) Distributions to partners (77) (77) --------------------------------------- BALANCE AT JUNE 30, 1999 1,902 918 984 Net income for the year ended June 30, 2000 180 90 90 --------------------------------------- BALANCE AT JUNE 30, 2000 $2,082 $1,008 $1,074 =======================================
CELTICS BASKETBALL HOLDINGS, L.P. and Subsidiary Consolidated Statements of Cash Flows
For the Year Ended -------------------------- June 30, June 30, 2000 1999 -------- -------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Receipts: Basketball regular season receipts: Ticket sales $37,851,382 $30,865,500 Television and radio broadcast rights fees 28,073,853 21,074,883 Other, principally promotional advertising 8,308,425 5,623,785 -------------------------- 74,233,660 57,564,168 Costs and expenses: Basketball regular season expenditures: Team expenses 46,886,860 35,609,280 Game expenses 2,672,159 1,524,846 General and administrative expenses 5,048,493 6,081,954 Selling and promotional expenses 4,059,498 3,533,091 -------------------------- 58,667,010 46,749,171 -------------------------- 15,566,650 10,814,997 Interest expense (3,293,740) (2,637,022) Interest income 515,456 601,538 Ticket refunds paid (9,290,577) Payment of deferred compensation (1,286,370) (1,517,774) -------------------------- NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES 11,501,996 (2,028,838) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of note receivable 7,850,000 Capital expenditures (144,541) (556,852) Other receipts (expenditures) 309,664 (827,931) -------------------------- NET CASH FLOWS FROM INVESTING ACTIVITIES 165,123 6,465,217 CASH FLOWS USED IN FINANCING ACTIVITIES Proceeds from bank borrowings 7,000,000 3,000,000 Payment of bank borrowings (7,000,000) (3,000,000) Cash distribution to Boston Celtics Corporation (77) Cash distribution to Castle Creek Partners, L.P. (3,979,875) Cash distribution to Celtics Pride G.P. (3,720,048) Cash contributions from General Partner 1,800 -------------------------- NET CASH FLOWS USED IN FINANCING ACTIVITIES -- (7,698,200) -------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,667,119 (3,261,821) Cash and cash equivalents at beginning of year 3,274,513 6,536,334 -------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $14,941,632 $ 3,274,513 ==========================
See notes to consolidated financial statements. CELTICS BASKETBALL HOLDINGS, L.P. and Subsidiary Notes to Consolidated Financial Statements Note A - Basis of Presentation Principles of Consolidation: Celtics Basketball Holdings, L.P. ("Celtics Basketball Holdings," the "Partnership"), a Delaware limited partnership, 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 Celtics Basketball Holdings and Celtics Basketball. All intercompany transactions are eliminated in consolidation. Celtics Basketball Holdings and Celtics Basketball held no material assets and were not engaged in operations from April 13, 1998, their date of formation, until June 30, 1998. On June 30, 1998, Celtics Limited Partnership ("CLP"), which formerly owned and operated the Boston Celtics, contributed the assets and liabilities of the Boston Celtics to Celtics Basketball in exchange for a 99.999% limited partnership interest in Celtics Basketball. Subsequently on June 30, 1998, CLP contributed its 99.999% limited partnership interest in Celtics Basketball to Celtics Basketball Holdings in exchange for a 99.999% limited partnership interest in Celtics Basketball Holdings. The general partner of both Celtics Basketball Holdings and Celtics Basketball is Boston Celtics Corporation. 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 and accounts receivable. The Partnership's cash equivalents represent investments with relatively short maturities in the securities of highly rated financial institutions and United States government entities. 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. 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. 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 ten 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 Celtics Basketball Holdings as its income and expenses are taxable to or deductible by its partners. Accounting for Derivatives and Hedging Activities: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which is required to be adopted in years beginning after June 15, 2000. Because of the Partnership's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Partnership. Note C - Notes Receivable On March 18, 1999, a convertible note due from an unrelated company was redeemed for cash in the amount of $7,850,000. The balance of the note on that date, including accrued interest, was $6,912,983. The $937,017 gain on the note was classified as other income in the consolidated statements of operations. Note D - Property and Equipment Property and equipment are summarized as follows:
June 30, ------------------------- 2000 1999 ---- ---- Leasehold improvements $1,445,069 $1,413,357 Furniture, fixtures and equipment 1,220,981 1,108,152 ------------------------- 2,666,050 2,521,509 Less accumulated depreciation 1,521,265 1,173,794 ------------------------- Net property and equipment $1,144,785 $1,347,715 =========================
Note E - Investment in NBA Media Ventures, LLC Celtics Basketball has a 3.45% interest in NBA Media Ventures, LLC ("NBA Media Ventures"), which is owned equally by the 29 NBA men's member clubs (the "members"). NBA Media Ventures pools all of the fees that its members are entitled to receive under their respective market extension agreements. In addition, NBA Media Ventures is engaged in the sale of nationally syndicated radio broadcast rights of NBA games, licenses direct broadcast satellite services and operates the NBA's retail store. Celtics Basketball's investment in NBA Media Ventures is accounted for on the equity method. Note F - 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: Years ending June 30, 2001 $1,278,000 2002 1,187,000 2003 1,161,000 2004 1,139,000 2005 937,000 2006 and thereafter 1,946,000 ---------- $7,648,000 ==========
Note G - 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, which was originally entered into by CLP and contributed to Celtics Basketball on June 30, 1998, consists of a $50,000,000 term loan and a $10,000,000 revolving line of credit. As of June 30, 2000, 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, 2002, 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% (7.54% at June 30, 2000). Interest charged to operations in connection with the term loan and revolving line of credit amounted to $3,294,000 and $3,247,000 in the years ended June 30, 2000 and 1999, respectively. 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 H - Related Party Transactions Boston Celtics Corporation, the general partner of CLP, Celtics Basketball Holdings and Celtics Basketball, receives a base management fee of $750,000 per annum, subject to increases based on annual cash flows from basketball operations. Management fees of $935,000 and $750,000 were charged to Celtics Basketball's operations in the years ended June 30, 2000 and 1999, respectively. Note I - Commitments and Contingencies Effective June 30, 1998, the Board of Governors of the NBA voted to reopen the collective bargaining agreement ("Collective Bargaining Agreement") between the NBA and the NBA Players Association (the "NBPA"). 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 (the "New Collective Bargaining Agreement"), thereby ending the lockout. As a result of the lockout, the 1998-99 NBA regular season consisted of 50 games per team, beginning in early February 1999. Ordinarily, the NBA regular season consists of 82 games per team and generally begins in late October or early November. NBA teams, including the Boston Celtics, refunded amounts paid by season ticket holders (plus interest at 6%) for a total of 18 home games (including two exhibition games) that were canceled as a result of the lockout. Refunds of approximately $11,632,000 (including interest of $185,000) were paid by Celtics Basketball for canceled games. In addition, certain season ticket holders elected to leave their refunds and interest on deposit for future games. Such refunds amounted to approximately $571,000 at June 30, 1999 (including interest of approximately $12,000). No interest has accrued on such amounts since January 31, 1999. All amounts paid by season ticket holders are recorded by Celtics Basketball as deferred revenue and are subsequently recognized as revenue on a game-by-game basis as regular season games are played. No revenues were recognized with respect to amounts paid by season ticket holders for canceled games in the 1998-99 regular season. Amounts refunded were recorded by Celtics Basketball as reductions in the deferred revenue liability when paid. Celtics Basketball has employment agreements with officers, coaches and players of the Boston Celtics basketball team. 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 August 25, 2000, including option years but excluding payments due on deferred compensation arrangements as disclosed in Note F - Deferred Compensation, are as follows: Years ending June 30, 2001 $55,462,000 2002 50,403,000 2003 45,088,000 2004 31,155,000 2005 27,616,000 Thereafter 7,600,000
Commitments for the year ended June 30, 2001 include payments due to players under contracts for the 2000-01 season in the amount of $46,987,000. 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. Celtics Basketball is committed under noncancelable, long-term operating leases for certain of its facilities and equipment. These leases were assigned to Celtics Basketball by CLP effective June 30, 1998 pursuant to the Reorganization. Rent expense charged to operations amounted to $293,000 and $299,000 in the years ended June 30, 2000 and 1999, respectively. Celtics Basketball does not pay rent under its lease agreements related to the FleetCenter (where the Boston Celtics play all of their home games), which expires after the 2005-06 NBA season, or the practice facility and wellness center, which also includes certain office space, and which expires in 2010. Under the terms of its lease agreement related to the FleetCenter, Celtics Basketball does not share in revenue from food and beverage concessions. Minimum annual payments, including renewable option periods, required under operating leases are as follows: Years ending June 30, 2001 $385,000 2002 404,000 2003 423,000 2004 444,000 2005 465,000 Thereafter 238,000
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. Costs of these plans charged to operations amounted to $144,000 and $159,000 in the years ended June 30, 2000 and 1999, respectively. 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. Costs of these plans charged to operations amounted to $859,000 and $689,000 in the years ended June 30, 2000 and 1999, respectively. Note K - Accounts Payable and Accrued Expenses Accounts payable and accrued expenses include accrued compensation to players and coaches of $20,221,000 and $12,473,000 at June 30, 2000 and 1999, respectively. Note L - Cash Flows Reconciliations of net income (loss) to net cash flows from (used in) operating activities are as follows:
Year Ended June 30, -------------------------- 2000 1999 ---- ---- Net income (loss) $ 9,010,550 $ (424,255) Items not affecting cash flows from (used in) operating activities: Depreciation 347,471 271,796 Amortization 157,727 157,727 Net realized gains on disposition of note receivable (937,017) Changes in: Accounts receivable (4,354,835) 1,430,183 Accounts payable and accrued expenses 10,336,481 (5,324,413) Deferred compensation (1,325,234) (1,545,331) Deferred revenues (1,210,982) 3,931,251 Other non-current liabilities 36,000 72,000 Other (1,495,182) 339,221 -------------------------- Net cash flows from (used in) operating activities $11,501,996 $(2,028,838) ==========================
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. BOSTON CELTICS LIMITED PARTNERSHIP By: BCLP GP, Inc., General Partner ------------------------------- Date: September 15, 2000 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. Signature Title* Date --------- ------ ---- /s/ Don F. Gaston Director September 15, 2000 ---------------------- Don F. Gaston /s/ Paula B. Gaston Director September 15, 2000 ---------------------- Paula B. Gaston /s/ John B. Marsh, III Director September 15, 2000 ---------------------- John B. Marsh, III /s/ David A. Splaine Director September 15, 2000 ---------------------- David A. Splaine /s/ Richard G. Pond Executive Vice President, September 15, 2000 ---------------------- Chief Financial Officer and Richard G. Pond Chief Accounting Officer [FN] * Title indicates position with General Partner.