CASE 4-5 CELTICS Boston Celtics Limited Partnership II and Subsidiaries presente

Question

CASE 4-5 CELTICS Boston Celtics Limited Partnership II and Subsidiaries presented the following consolidated statements of income for 1998, 1997, and 1996. BOSTON CELTICS LIMITED PARTNERSHIP II AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Year Ended June 30, 1998 June 30 1996 une 1997 Revenues: $39,107,960 $31,813,019 $35,249,625 28,002,469 23,269,159 22,071,992 7,915,626 Basketball regular season Ticket sales Television and radio broadcast rights fees 8,569,485 7,458,651 Other, principally promotional advertising 75,679914 62,997,804 64,780,268 Costs and expenses Basketball regular season 40,401,643 40,941,156 27,891,264 2,386,042 13,464,566 13,913,893 15,053,333 Team 2,820,107 2,606,218 Game General and administrative Selling and promotional Depreciation Amortization of NBA franchise and other 4,819,478 208,162 2,973,488 140,894 4,680,168 165,035 61,878,991 13,800,923 189,324 164,702 722,519 164,703 48,829,900 15,950,368 intangible assets 62,275,285 Interest expense Interest income Net realized gains (losses) on disposition of (6,017,737) (5,872,805) (6,387,598) 6,609,541 6,402,366 8,175,184 marketable securities and other short-term investments (18,235) 361,051 (101,138) Income from continuing operations before Provision for income taxes Income from continuing operations 17,636,816 14,167,317 1,900,000 12,267,317 1,820,306 1,400,000 income taxes 1,850,000 420,306 15,786,816 (continued)

Explanation / Answer

a Comment on Amortization of NBA Franchise and other Intangible assets Amortization refers to the cost of intangible assets which are amortised based on straight line method or other method over the useful life of these intangibles NBA Franchise and others are intangible assets of the companies whose cost os recognised through Profit or loss, in the same when fixed assets are bought and its cost is depreciated to the profit and loss account based on the useful life of the assets b Would the discountinued operations be included in projecting the future? Comment The discountinued operations would not be included in projecting the future, the operations is already discountinued in 1996 and these operations would not help to predict the future Since there is no operating income, they will not be considered for projecting the future c The costs and expenses include team costs and expenses. Speculate on the major reasons for the increase in this expense between 1996 and 1997 This could be because of new upcoming matches and due to which the company would had to hire new players through contract, this could be due to further expectation in sales for the company. Hence the team costs and expenses would have increase d What were the major reasons for the increase in income from continuing operations between 1997 and 1998 The major reasons for increase in income from continuing operation was due to increase in ticket sales, television and radio broadcast rights fees in 1998 The revenue increase by 20.13%. Also there was reduction in cost and expense by 0.64% in 1998 e Speculate on why distributions declared were higher in 1998 than 1996 The major reason for increase in income from continuing operations was due to gain from disposal of discountionued operations which was one type income The company might have not distributed this income or didn’t want to distribute this income as distributions or dividend Hence inspite of higher income in 1996 than 1998, the distributions declared were higher in 1998

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