10-Q 1 bclp-q1.txt FORM 10-Q FOR SEPTEMBER 30, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2002 _______________________________________ Commission Registrant; State of Organization; IRS Employer File No. Address and Telephone Number Identification No. ---------- ---------------------------------- ------------------ 1-14507 Boston Celtics Limited Partnership 04-3416346 (a Delaware limited partnership) 151 Merrimac Street, Boston, Massachusetts 02114 (617) 523-6050 1-9324 Boston Celtics Limited Partnership II 04-2936516 (a Delaware limited partnership) 151 Merrimac Street, Boston, Massachusetts 02114 (617) 523-6050 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of September 30, 2002, there were 2,703,664 Units outstanding of Boston Celtics Limited Partnership, and 2,703,664 units representing limited partnership interests outstanding of Boston Celtics Limited Partnership II. Part I - Financial Information ITEM 1 - Financial Statements BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Condensed Consolidated Balance Sheets

See notes to condensed consolidated financial statements. 1 BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Condensed Consolidated Statements of Operations Unaudited

See notes to condensed consolidated financial statements. 2 BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Condensed Consolidated Statements of Cash Flows Unaudited

See notes to condensed consolidated financial statements. 3 BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Notes to Condensed Consolidated Financial Statements Note 1 - The condensed consolidated financial statements include the accounts of Boston Celtics Limited Partnership ("BCLP," the "Partnership") and its majority-owned and controlled subsidiaries and partnerships. BCLP 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"). 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. In addition, BCLP, through its subsidiaries, holds certain investments, including a 48.3123% limited partnership investment in Celtics Basketball Holdings, L.P., ("Celtics Basketball Holdings") which, through Celtics Basketball, L.P. ("Celtics Basketball"), its 99.999% subsidiary partnership, owns and operates the Boston Celtics professional basketball team (the "Boston Celtics") of the National Basketball Association (the "NBA"). BCLP's investment in Celtics Basketball Holdings is accounted for on the equity method and, accordingly, the investment is carried at cost, increased by equity in the earnings of Celtics Basketball Holdings and reduced by distributions received. Note 2 - The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included therein. Operating results for interim periods are not indicative of the results that may be expected for the full year. Such financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto of BCLP and its subsidiaries included in the annual report on Form 10-K for the year ended June 30, 2002. Note 3 - The components of comprehensive income (loss) are as follows:

Note 4 - BCLP, through its subsidiary partnerships and corporations, owns a 48.3123% limited partnership interest in Celtics Basketball Holdings. Celtics Basketball Holdings, through Celtics Basketball, owns and operates the Boston Celtics. BCLP's investment in Celtics Basketball Holdings is accounted for on the equity method. Summary statement of operations data for Celtics Basketball Holdings for the three months ended September 30, 2002 and 2001 is as follows:

Note 5 - On September 27, 2002, Celtics Basketball, the Partnership's 48.3% owned, indirect subsidiary, entered into an Asset Purchase and Sale Agreement with Lake Carnegie, LLC (the "Asset Purchase Agreement"), pursuant to which Lake Carnegie, LLC ("Lake Carnegie") will pay to Celtics Basketball an aggregate amount of $360 million in cash consideration for all assets relating to the Boston Celtics (of which $50 million will be used to repay outstanding bank borrowings) and will assume the liabilities relating to the Boston Celtics. The transaction is subject to National Basketball Association approval and customary closing conditions. The transaction is expected to close before December 31, 2002. 4 BOSTON CELTICS LIMITED PARTNERSHIP and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note 6 - In July and August 1998, four separate class action complaints (the "Complaints") were filed by Unitholders in the Court of Chancery of the State of Delaware in and for New Castle County against BCLP II, Celtics, Inc., Paul E. Gaston, Don F. Gaston, Paula B. Gaston, John H.M. Leithead and John B. Marsh III, each a director or former director of Celtics, Inc. The named plaintiffs, each of whom 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. BCLP II 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, BCLP II's Motion to Dismiss, and on September 3, 1999, the plaintiffs filed an amended consolidated Complaint. On October 1, 1999, BCLP II filed an answer to the Complaint. On October 2, 2002, a class action complaint (the "2002 Complaint") was filed by Unitholders in the Court of Chancery of the State of Delaware in and for New Castle County against BCLP, BCLP GP, Inc., Paul E. Gaston, Richard G. Pond, Don F. Gaston, Paula B. Gaston, John B. Marsh III, Tedmund W. Pryor and David A. Splaine, each a director or officer of BCLP GP, Inc. The named plaintiff, who purported to bring its individual action on behalf of itself and others similarly situated, is Breakwater Partners, LP. The 2002 Complaint alleges, among other things, that the proposed sale of assets and liabilities of the Boston Celtics as described in Note 5 above is structured in a manner that is unfair to BCLP Unitholders, and seeks to recover an unspecified amount of damages, including attorneys' and experts' fees and expenses, and to obtain appropriate injunctive or rescissionary relief. Although the ultimate outcome of the Complaint and the 2002 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. 5 BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Condensed Consolidated Balance Sheets

See notes to condensed consolidated financial statements. 6 BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Condensed Consolidated Statements of Operations Unaudited

See notes to condensed consolidated financial statements. 7 BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Condensed Consolidated Statements of Cash Flows Unaudited

See notes to condensed consolidated financial statements. 8 BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Notes to Condensed Consolidated Financial Statements Note 1 - The condensed consolidated financial statements include the accounts of Boston Celtics Limited Partnership II ("BCLP II," the "Partnership") and its majority-owned and controlled subsidiaries and partnerships. All intercompany transactions are eliminated in consolidation. Pursuant to a reorganization of its partnership structure that was completed on June 30, 1998 (the "Reorganization"), the Partnership's name was changed to Boston Celtics Limited Partnership II. As a result of the Reorganization, the Partnership's 99% limited partnership interest is owned by Boston Celtics Limited Partnership (a Delaware limited partnership). Prior to the Reorganization, BCLP II, through its subsidiaries, owned and operated the Boston Celtics professional basketball team (the "Boston Celtics") of the National Basketball Association (the "NBA") and held investments. The Boston Celtics were owned by Celtics Limited Partnership ("CLP"), in which BCLP II has a 99% limited partnership interest. Upon completion of the Reorganization, the Boston Celtics are owned and operated by Celtics Basketball, L.P. ("Celtics Basketball"), a 99.999% subsidiary of Celtics Basketball Holdings, L.P. ("Celtics Basketball Holdings"). BCLP II, through its subsidiaries, holds certain investments, including a 48.3123% limited partnership investment in Celtics Basketball Holdings. Accordingly, BCLP II's interest in the accounts and operations of the Boston Celtics is reflected in its investment in Celtics Basketball Holdings, which is accounted for on the equity method. Accordingly, the investment is carried at cost, increased by equity in the earnings of Celtics Basketball Holdings and reduced by distributions received. Note 2 - The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included therein. Operating results for interim periods are not indicative of the results that may be expected for the full year. Such financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto of BCLP II and Subsidiaries included in the annual report on Form 10-K for the year ended June 30, 2002. Note 3 - The components of comprehensive income (loss) are as follows:

Note 4 - BCLP II, through its subsidiary partnerships and corporations, owns a 48.3123% limited partnership interest in Celtics Basketball Holdings. Celtics Basketball Holdings, through Celtics Basketball, owns and operates the Boston Celtics. BCLP II's investment in Celtics Basketball Holdings is accounted for on the equity method. Summary statement of operations data for Celtics Basketball Holdings for the three months ended September 30, 2002 and 2001 is as follows:

9 BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note 5 - On September 27, 2002, Celtics Basketball, the Partnership's 48.3% owned, indirect subsidiary, entered into an Asset Purchase and Sale Agreement with Lake Carnegie, LLC (the "Asset Purchase Agreement"), pursuant to which Lake Carnegie, LLC ("Lake Carnegie") will pay to Celtics Basketball an aggregate amount of $360 million in cash consideration for all assets relating to the Boston Celtics (of which $50 million will be used to repay outstanding bank borrowings) and will assume the liabilities relating to the Boston Celtics. The transaction is subject to National Basketball Association approval and customary closing conditions. The transaction is expected to close before December 31, 2002. Note 6 - In July and August 1998, four separate class action complaints (the "Complaints") were filed by Unitholders in the Court of Chancery of the State of Delaware in and for New Castle County against BCLP II, Celtics, Inc., Paul E. Gaston, Don F. Gaston, Paula B. Gaston, John H.M. Leithead and John B. Marsh III, each a director or former director of Celtics, Inc. The named plaintiffs, each of whom 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. BCLP II 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, BCLP II's Motion to Dismiss, and on September 3, 1999, the plaintiffs filed an amended consolidated Complaint. On October 1, 1999, BCLP II filed an answer to the Complaint. On October 2, 2002, a class action complaint (the "2002 Complaint") was filed by Unitholders in the Court of Chancery of the State of Delaware in and for New Castle County against BCLP, BCLP GP, Inc., Paul E. Gaston, Richard G. Pond, Don F. Gaston, Paula B. Gaston, John B. Marsh III, Tedmund W. Pryor and David A. Splaine, each a director or officer of BCLP GP, Inc. The named plaintiff, who purported to bring its individual action on behalf of itself and others similarly situated, is Breakwater Partners, LP. The 2002 Complaint alleges, among other things, that the proposed sale of assets and liabilities of the Boston Celtics as described in Note 5 above is structured in a manner that is unfair to BCLP Unitholders, and seeks to recover an unspecified amount of damages, including attorneys' and experts' fees and expenses, and to obtain appropriate injunctive or rescissionary relief. Although the ultimate outcome of the Complaint and the 2002 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. 10 BOSTON CELTICS LIMITED PARTNERSHIP BOSTON CELTICS LIMITED PARTNERSHIP II and Subsidiaries ITEM 2 - 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 BCLP's and BCLP II's financial condition, results of operations, liquidity and capital resources, and statements relating to the transaction with Lake Carnegie, LLC described below, consummation of the transaction and the availability of net proceeds to BCLP and prospective cash benefits to BCLP unitholders. Such forward- looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of BCLP or BCLP II to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause BCLP's or BCLP II's financial condition, results of operations, liquidity and capital resources to differ materially include the competitive success of the Boston Celtics, uncertainties as to increases in players' salaries and team expenses, including the potential impact of the luxury tax and escrow system under the Collective Bargaining Agreement, the Boston Celtics' ability to attract and retain talented players and coaches, the risk of injuries to key players, uncertainties regarding media contracts, the performance of certain investments by subsidiaries of the Partnership, the extent to which the Partnership's subsidiaries generate, and are able to distribute, operating cash flow, general economic conditions and the impact of declining economic conditions on consumer spending for entertainment and leisure-oriented activities. Factors that could impact the timing and amount of net proceeds available to BCLP as a result of the transaction with Lake Carnegie, LLC include the satisfaction of conditions to the transaction, including National Basketball Association approval, payment of fees and expenses, payment of taxes and provision for other liabilities (including bank borrowings and the subordinated debentures), actual earnings and expenses of BCLP and its subsidiaries, and expectations, intentions and strategies regarding the future. Recent Developments On September 27, 2002, Celtics Basketball, L.P. ("Celtics Basketball," the Partnership's 48.3% owned, indirect subsidiary) entered into an Asset Purchase and Sale Agreement with Lake Carnegie, LLC (the "Asset Purchase Agreement"), pursuant to which Lake Carnegie, LLC ("Lake Carnegie") will pay to Celtics Basketball an aggregate amount of $360 million in cash consideration for all assets relating to the Boston Celtics (of which $50 million will be used to repay outstanding bank borrowings) and will assume the liabilities relating to the Boston Celtics. The transaction is subject to National Basketball Association approval and customary closing conditions. The transaction has been unanimously approved by the general partner and the limited partner of Celtics Basketball, and does not require the approval of the holders of BCLP limited partnership units. BCLP and its subsidiaries will cease using the Boston Celtics name after the transaction is consummated. In the event that the transaction is not consummated on or before November 30, 2002, Celtics Basketball is limited to recovering $5 million in liquidated damages from Lake Carnegie. Lake Carnegie may, however, in its discretion, extend the closing date to December 31, 2002, and, subject to certain conditions, further extend the closing date to January 31, 2003. If the closing date is extended and the transaction is not consummated on or before the extended closing date, Celtics Basketball is limited to recovering $7.5 million in liquidated damages from Lake Carnegie. Upon receipt of its 48.3% proportionate share of the net proceeds, the Partnership and its subsidiaries anticipate pursuing a course of action that, based on available information and assumptions regarding taxes, liabilities, claims and expenses, would result in an estimated cash benefit to BCLP unit holders of between $25.00 and $35.00 per limited partnership unit, after payment of taxes (including federal and state income taxes) and expenses, provision for other liabilities (including a reserve for contingent liabilities), and provision for approximately $54 million in outstanding aggregate principal amount of subordinated debentures due 2038 of Boston Celtics Limited Partnership II, a 99% owned subsidiary of BCLP. The timing of any such cash benefit to public unit holders has not yet been determined. General BCLP, through its subsidiaries, owns an indirect investment in Celtics Basketball, which owns and operates the Boston Celtics. BCLP does not directly own or control the Boston Celtics and therefore an investment in BCLP is not a direct investment in the Boston Celtics. However, a significant portion of BCLP's earnings and cash flows are derived from its indirect investment in the Boston Celtics. Therefore, many disclosures in this document regarding operating activities principally relate to the operations of the Boston Celtics. 11 BCLP accounts for its indirect investment in the accounts and operations of the Boston Celtics using the equity method and, accordingly, its equity in the net income (loss) of the Boston Celtics is reported on a single caption in its Condensed Consolidated Statements of Operations. Following is a general description of certain matters related to the operations of the Boston Celtics. The Boston Celtics derive revenues principally from the sale of tickets to home games and the licensing of television, cable network and radio rights. The most significant expenses of the Boston Celtics are player and coaching salaries. A large portion of the Boston Celtics' annual revenues and operating expenses is determinable at the commencement of each basketball season based on season ticket sales and the Boston Celtics' multi-year contracts with its players, coaches and broadcast organizations. On January 22, 2002, the NBA Board of Governors approved a six-year agreement to license the national broadcast of NBA games, beginning in the 2002-03 season. Each of the NBA member teams share equally in these license fees. Under the terms of the agreement, management anticipates that the Boston Celtics' national television and cable revenues will decrease by approximately $4,975,000 in the 2002-03 season. Based on BCLP's 48.3% indirect interest in the operations of the Boston Celtics, BCLP's equity in the net income of the Boston Celtics is expected to decrease by approximately $2,400,000 as a result of this agreement. Celtics Basketball licenses the right to air all Boston Celtics games to Sportschannel New England Limited Partnership ("SNE") (doing business as Fox Sports Net New England) (the "SNE Agreement"). In July 2002, Celtics Basketball and SNE entered into an agreement to extend the SNE Agreement through the 2016-17 NBA season (the "New SNE Agreement"). The New SNE Agreement provides for annual rights fees that increase ratably over the term of the agreement. Under the New SNE Agreement, SNE paid an initial fee of $30,000,000 (the "Initial Fee") in August 2002, which is refundable on a pro rata basis if SNE terminates the agreement upon a breach by Celtics Basketball of certain terms of the agreement. The Initial Fee will be recorded as revenue ratably in proportion to the annual rights fees over the term of the New SNE Agreement. Celtics Basketball does not have the right to terminate the New SNE Agreement except upon a material breach by SNE of the agreement. Under the terms of the New SNE Agreement, management anticipates that the Boston Celtics' local cable revenues will increase by approximately $2,828,000 in the 2002-03 season. Based on BCLP's 48.3% indirect interest in the operations of the Boston Celtics, BCLP's equity in the net income of the Boston Celtics is expected to increase by approximately $1,366,000 as a result of this agreement. The operations and financial results of the Boston Celtics are seasonal. On a cash flow basis, the Boston Celtics receive a substantial portion of their receipts from the advance sale of season tickets during the months of June through October, prior to the commencement of the NBA regular season. Cash receipts from playoff ticket sales are received in March of any year for which the team qualifies for league playoffs. Most of the Boston Celtics' operating expenses are incurred and paid during the regular season, which normally extends from late October or early November through late April. For financial reporting purposes the Boston Celtics recognize revenues and expenses on a game-by-game basis. Because the NBA regular season normally begins in late October or early November, the first fiscal quarter, which ends on September 30, generally includes limited or no revenue and reflects a net loss attributable to general and administrative expenses and selling and promotional expenses incurred in the quarter. Based on the standard NBA game schedule, the Boston Celtics historically recognize approximately one- third of its annual regular season revenue in the second fiscal quarter, approximately one-half of such revenue in the third fiscal quarter and the remainder in the fourth fiscal quarter, and recognize its playoff revenue, if any, in the fourth fiscal quarter. Accordingly, BCLP's and BCLP II's equity in the net income (loss) of Celtics Basketball Holdings, which indirectly owns and operates the Boston Celtics, will generally result in a loss in its first fiscal quarter, income in its second and third fiscal quarters and a loss in its fourth fiscal quarter unless there is significant income from playoff revenues. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements presented herein, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates and judgments that affect the reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ significantly from these estimates under different assumptions and conditions. 12 The Partnership's significant accounting policies are described in the notes to consolidated financial statements included in its annual report on Form 10-K for the year ended June 30, 2002. Not all of these significant accounting policies, however, require management to make difficult, complex or subjective judgments or estimates. Management believes that the Partnership's accounting policy related to its interest in Celtics Basketball Holdings as described below meets the definition of "critical accounting policies." The Partnership accounts for its 48.3% interest in Celtics Basketball Holdings using the equity method. Accordingly, the investment is carried at cost, increased by equity in earnings of Celtics Basketball Holdings and reduced by distributions received. The Partnership uses the equity method of accounting because it holds less than a controlling financial interest (50%) in Celtics Basketball Holdings, but its interest of 48.3% presumes the ability to exercise significant influence over operating and financial policies of Celtics Basketball Holdings. The Partnership's equity in earnings of Celtics Basketball Holdings is classified within the operating section of the Partnership's consolidated statements of operations due to the fact that a significant portion of the Partnership's earnings and cash flows are derived from its indirect investment in the Boston Celtics. Results of Operations The following discussion compares the operating results of BCLP and its subsidiaries for the three months ended September 30, 2002 with the three months ended September 30, 2001. General and administrative expenses of $716,000 in the three months ended September 30, 2002 increased by $106,000 compared to $610,000 in the three months ended September 30, 2001. The increase in 2002 was primarily attributable to professional expenses related to the transaction with Lake Carnegie described in "Recent Developments" above. Depreciation and amortization expense of $79,000 in the three months ended September 30, 2002 increased by $59,000 compared to $20,000 in the three months ended September 30, 2001. The increase in 2002 was primarily attributable to the write-off of deferred financing costs related to the Partnership's revolving credit agreement with its commercial bank. As described in "Liquidity and Capital Resources" below, BCLP II repaid all amounts advanced under this agreement in September 2002 and canceled the agreement. Equity in net loss of Celtics Basketball Holdings, L.P. represents BCLP's 48.3% interest in the net loss of the entity that indirectly owns and operates the Boston Celtics. The Boston Celtics recognize revenues and expenses on a game-by-game basis, and the NBA regular season normally begins in late October or early November. As a result, Celtics Basketball Holdings' first fiscal quarter, which ends on September 30, generally includes limited or no revenue and reflects a net loss attributable to general and administrative expenses and selling and promotional expenses incurred in the quarter. BCLP's equity in the net loss of Celtics Basketball Holdings of $1,370,000 in the three months ended September 30, 2002 decreased by $79,000 compared to $1,449,000 in the three months ended September 30, 2001. The decrease in the net loss is primarily a result of an increase in income from NBA-related partnerships. Interest expense of $1,001,000 in the three months ended September 30, 2002 decreased by $105,000 compared to $1,106,000 in the three months ended September 30, 2001. The decrease is primarily attributable to a decrease in borrowings under BCLP's revolving credit agreement with its commercial bank. As described in "Liquidity and Capital Resources" below, BCLP II repaid all amounts advanced under its revolving credit agreement with its commercial bank in September 2002. BCLP's interest income of $153,000 in the three months ended September 30, 2002 decreased by $167,000 compared to $320,000 in the three months ended September 30, 2001. The decrease is primarily as a result of a decrease in invested balances, combined with lower interest rates on investments. Liquidity and Capital Resources BCLP used approximately $618,000 in cash flows from operating activities in the three months ended September 30, 2002. At September 30, 2002, BCLP had approximately $11,812,000 of available cash and $28,600,000 of short-term investments. In addition to these amounts, sources of funds available to BCLP and BCLP II include funds generated by operations and distributions from Celtics Basketball Holdings, which through a subsidiary owns and operates the Boston Celtics. These resources may be used for general partnership purposes, working capital needs or for possible investments and/or acquisitions. 13 On May 20, 1998, BCLP II entered into a $60,000,000 revolving credit agreement with its commercial bank. Interest on advances under the revolving credit agreement accrued 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 was secured by a pledge of certain short-term investments of Celtics Capital Corporation ("CCC"), an indirect subsidiary of BCLP. BCLP II borrowed $30,000,000 under the revolving credit agreement in fiscal 1998, and borrowed an additional $22,500,000 in fiscal 1999 and $7,500,000 in fiscal 2000. On October 31, 2000, in order to achieve certain efficiencies, BCLP II distributed to BCLP all of the outstanding capital stock of BCCLP Holding Corporation ("BCCLP Holdings"), and BCLP assumed all of BCLP II's liability for borrowings under its revolving credit agreement aggregating $50,000,000. As a result, effective October 31, 2000, BCCLP Holdings is a direct subsidiary of BCLP. In December 2000, BCCLP Holdings, through CCC, liquidated $50,000,000 of short-term investments and distributed the proceeds to BCLP. BCLP used those proceeds to repay the $50,000,000 of borrowings under the revolving credit agreement that were assumed from BCLP II. In connection with this distribution, BCLP II issued a note payable to BCLP II GP, Inc., its general partner, in the amount of $361,882, representing its 1% share of the fair value of the distribution. The note accrued interest at 7% annually, and was paid in full on June 26, 2001. On May 10, 2001, the revolving credit agreement was amended to reduce the amount of borrowings available under the agreement to $10,000,000, all of which was outstanding on June 30, 2002. The agreement was scheduled to mature on June 30, 2003, but BCLP II repaid all amounts advanced under the revolving credit agreement and canceled the agreement in September 2002. BCLP II has outstanding 6% subordinated debentures due on June 30, 2038. 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 $34,743,612 at September 30, 2002. The subordinated debentures bear interest at the rate of 6% per annum, payable annually on June 30, and mature on June 30, 2038 at an aggregate principal amount of $54,073,280. There is no mandatory redemption or sinking fund requirements of the subordinated debentures. In the three months ended September 30, 2002, BCLP and its subsidiaries received distributions from Celtics Basketball Holdings aggregating $19,324,000 representing BCLP's proportionate share of a discretionary distribution of available funds by Celtics Basketball, primarily the $30,000,000 Initial Fee under the New SNE Agreement described above. On October 23, 2002, BCLP and its subsidiaries received distributions from Celtics Basketball Holdings aggregating $2,695,000. Future distributions from Celtics Basketball Holdings will be determined by Boston Celtics Corporation, the general partner of Celtics Basketball Holdings, in its sole discretion subject to applicable credit agreements and the Asset Purchase Agreement and based, among other things, on available resources and the needs of Celtics Basketball Holdings and Celtics Basketball, the ability of Celtics Basketball Holdings and Celtics Basketball to generate sufficient operating cash flow, and the funds available after payments relating to the subordinated debentures. No cash distributions to unitholders of BCLP were declared or paid during the three months ended September 30, 2002 and 2001. Future distributions will be determined by BCLP GP, Inc., the general partner of BCLP, in its sole discretion based, among other things, on available resources and the needs of BCLP, the ability of BCLP's subsidiaries to generate sufficient operating cash flow, and the funds available after debt service payments related to the revolving credit agreement with its commercial bank and the subordinated debentures. Management believes that BCLP's cash, cash equivalents and short-term investments together with cash from operating activities and distributions from Celtics Basketball Holdings will provide adequate cash for BCLP and its subsidiaries to meet their cash requirements through September 30, 2003. ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk At September 30, 2002, BCLP had invested approximately $28,600,000 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. At September 30, 2002, BCLP II's debt portfolio included 6% Subordinated Debentures with a carrying value of $34,744,000. The Subordinated Debentures bear interest at a fixed rate of 6% per annum and, as a result, fluctuations in 14 market interest rates will have no effect on interest expense, or on the earnings or cash flows of BCLP II. A hypothetical 10% increase in market interest rates would not have a material effect on the fair value of the Subordinated Debentures. At September 30, 2002, Celtics Basketball Holdings, through its subsidiary, had outstanding a note payable to a bank in the amount of $50,000,000. The note payable bears interest at a fixed annual rate of 6.29% and, as a result, fluctuations in market interest rates will have no effect on interest expense, or on the earnings or cash flows of Celtics Basketball Holdings. A hypothetical 10% increase in market interest rates would not have a material effect on the fair value of the note payable. Neither BCLP nor its subsidiaries are exposed to foreign currency risk. Currently, BCLP does not use interest rate derivative instruments to manage its exposure to interest rate changes, and management does not intend to utilize derivative instruments in the future. ITEM 4 - Controls and Procedures Within the 90 days before the date of this report, BCLP and BCLP II carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer and the Chief Operating Officer, of the effectiveness of the design and operation of disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer and Chief Operating Officer concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to BCLP and BCLP II required to be included in periodic filings with the Securities Exchange Commission. There have been no significant changes in internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 15 Part II - Other Information ITEM 1 - Legal Proceedings On October 2, 2002, a class action complaint (the "2002 Complaint") was filed by Unitholders in the Court of Chancery of the State of Delaware in and for New Castle County against BCLP, BCLP GP, Inc., Paul E. Gaston, Richard G. Pond, Don F. Gaston, Paula B. Gaston, John B. Marsh III, Tedmund W. Pryor and David A. Splaine, each a director or officer of BCLP GP, Inc. The named plaintiff, who purported to bring its individual action on behalf of itself and others similarly situated, is Breakwater Partners, LP. The 2002 Complaint alleges, among other things, that the proposed sale of assets and liabilities of the Boston Celtics as described in Part I, Item 2 above is structured in a manner that is unfair to BCLP Unitholders, and seeks to recover an unspecified amount of damages, including attorneys' and experts' fees and expenses, and to obtain appropriate injunctive or rescissionary relief. Although the ultimate outcome of the 2002 Complaint cannot be determined at this time, management of the Partnership does not believe that the outcome of these proceedings will have a material adverse effect on the Partnership's financial position or results of operations. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits - None. (b) Reports on Form 8-K - Form 8-K, dated October 7, 2002, regarding the Asset Purchase Agreement between Celtics Basketball, L.P. and Lake Carnegie, LLC. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOSTON CELTICS LIMITED PARTNERSHIP (Registrant) By: BCLP GP, Inc., its General Partner Dated: November 1, 2002 By: /s/ Richard G. Pond ---------------------------------- Richard G. Pond Executive Vice President Chief Financial Officer and Chief Operating Officer Dated: November 1, 2002 BOSTON CELTICS LIMITED PARTNERSHIP II (Registrant) By: BCLP II GP, Inc., its General Partner By: /s/ Richard G. Pond Richard G. Pond Executive Vice President Chief Financial Officer and Chief Operating Officer 17 CERTIFICATIONS Each of the undersigned, in his capacity as the Chief Executive Officer and Chief Financial Officer, respectively, of the general partners of Boston Celtics Limited Partnership and Boston Celtics Limited Partnership II (collectively, the "Registrants"), for purposes of 18 U.S.C. Section 1350 provides the following certification required by 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and 17 C.F.R.ss.240.13a-14. Certification of Chief Executive Officer: I, Paul E. Gaston, certify that: 1. I have reviewed this quarterly report on Form 10-Q of the Registrants; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrants as of, and for, the periods presented in this quarterly report; 4. The Registrants' other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrants and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrants' disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrants' other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrants' auditors and the respective audit committees of the Registrants' board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrants' ability to record, process, summarize and report financial data and have identified for the Registrants' auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants' internal controls; and 6. The Registrants' other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 1, 2002 /s/ Paul E. Gaston ------------------------------------ Paul E. Gaston Chief Executive Officer 18 Certification of Chief Financial Officer: I, Richard G. Pond, certify that: 1. I have reviewed this quarterly report on Form 10-Q of the Registrants; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrants as of, and for, the periods presented in this quarterly report; 4. The Registrants' other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrants and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrants' disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrants' other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrants' auditors and the respective audit committees of the Registrants' board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrants' ability to record, process, summarize and report financial data and have identified for the Registrants' auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants' internal controls; and 6. The Registrants' other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 1, 2002 /s/ Richard G. Pond ------------------------------------ Richard G. Pond Chief Financial Officer 19

BOSTON CELTICS LIMITED PARTNERSHIP II /DE/ 10-Q