FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-827
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(Exact name of registrant as specified in its charter)
New York 13-6084254
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
$33,000,000 of Participations in Partnership Interests
Indicate by check mark 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 (or
for such shorter period that the registrant was required to file
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
The aggregate market of the voting stock held by non-affiliates of
the Registrant: Not applicable, but see Items 5 and 10 of this
report.
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. ___
An Exhibit Index is located on pages 40 through 41 of this report.
Number of pages (including exhibits) in this filing: 41
PART I
Item 1. Business.
(a) General
Registrant was organized on July 11, 1961 as a general
partnership. On October 1, 2001, Registrant converted from a
general partnership to a limited liability company under New York
law and is now known as Empire State Building Associates L.L.C.
The conversion does not change any aspect of the assets and
operations of Registrant other than to protect its participants
from any future liability to a third party. Registrant owns the
tenant's interest in a master operating leasehold (the "Master
Lease") on the Empire State Building (the "Building") and the land
thereunder, located at 350 Fifth Avenue, New York, New York
(collectively, the "Property"). The fee owner of the Property is
Trump Empire State Partners.
The master lease (the "Master Lease"), which commenced
on December 27, 1961, currently expires on January 5, 2013. The
Lease contains three 21-year renewal options, which have not been
exercised. If all of the options are exercised, the Lease will
expire on January 5, 2076. Registrant previously exercised an
option to renew the Lease for the term ending January 5, 2013.
Registrant does not operate the Property. It subleases
the Building to Empire State Building Company L.L.C. (the "Sublessee")
pursuant to a net operating sublease (the "Sublease") with a term
and renewal options essentially coextensive with those contained
in the Master Lease. On January 30, 1989, Sublessee elected to
renew the Sublease for a term commencing January 4, 1992 to
January 4, 2013.
Registrant's members are Peter L. Malkin, Anthone E. Malkin, and
Thomas N. Keltner, Jr. (collectively, the "Agents") each of whom also
acts as an agent for holders of participations in his respective member
interest in Registrant (the "Participants").
Sublessee is a New York partnership in which Peter L.
Malkin is a partner, and Trusts created by Peter L. Malkin for
family members are beneficial owners of an interest in the
Sublessee. Two of the Agents in Registrant are also members of
Wien & Malkin LLP, 60 East 42nd Street, New York, New York, which
provides supervisory and other services to Registrant and to
Sublessee (the "Supervisor"). See Items 10, 11, 12 and 13 hereof
for a description of the ongoing services rendered by, and
-1 -
compensation paid to, Supervisor and for a discussion of certain
relationships which may pose potential conflicts of interest among
Registrant, Sublessee and certain of their respective affiliates.
As of December 31, 2001, the Building was 91% occupied
by approximately 905 tenants who engage in various businesses,
including the Boy Scouts, the YMCA, the practice of law and
accounting, ladies' and men's apparel, and ladies' and men's
shoes. Registrant does not maintain a full-time staff. See Item
2 hereof for additional information concerning the Property.
(b) The Lease and Sublease
The annual rent payable by Registrant under the Lease is
$1,970,000 from January 5, 1992 through January 5, 2013 and
$1,723,750 annually during the term of each renewal period
thereafter.
Sublessee is required to pay annual basic rent (the
"Basic Rent") equal to $6,018,750 from January 5, 1992 through
January 4, 2013, and $5,895,625 from January 5, 2013 through the
expiration of all renewal terms. Sublessee is also required to
pay Registrant overage rent of 50% of Sublessee's net operating
profit in excess of $1,000,000 for each lease year ending December
31("Overage Rent").
Overage Rent income is recognized when earned from the
Sublessee, at the close of the year ending December 31; such
income is not determinable until the Sublessee, pursuant to the
Sublease, renders to Registrant a certified report on the
Sublessee's operation of the Property. The Sublease requires that
this report be delivered to Registrant annually within 60 days
after the end of each such fiscal year. Accordingly, all Overage
Rent income and certain supervisory services expense are reflected
in the fourth quarter of each year. The Sublease does not provide
for the Sublessee to render interim reports to Registrant. See
Note 3 of Notes to Financial Statements filed under Item 8 hereof
(the "Notes") regarding Overage Rent payments by Sublessee for the
fiscal years ended December 31, 2001, 2000 and 1999. There was
Overage Rent of $26,072,502 for the year ended December 31, 2001.
(c) Competition
Pursuant to tenant space leases at the Building, the
average annual base rental payable to Sublessee is approximately
$35.21 per square foot (exclusive of electricity charges and
escalation). The asking rents for the building range from $38 to
$55 per square foot.
-2-
(d) Tenant Leases
Sublessee operates the Building free from any federal,
state or local government restrictions involving rent control or
other similar rent regulations which may be imposed upon
residential real estate in Manhattan. Any increase or decrease in
the amount of rent payable by a tenant is governed by the
provisions of the tenant's lease.
Item 2. Property.
Registrant owns the tenant's interest in a master
operating leasehold on the Building known as the Empire State
Building and on the land thereunder located at 350 Fifth Avenue in
New York City. See Item 1 hereof. The Building, erected in 1931
and containing 102 stories, a concourse and a lower lobby,
occupies the entire blockfront from 33rd Street to 34th Street on
Fifth Avenue. The Building has 72 passenger elevators and 4
freight elevators and is equipped with air conditioning and
individual air handling units. The Building is subleased to
Sublessee under the Sublease which expires on January 4, 2013 and
contains three 21-year renewal options. See Item 1 hereof for a
description of the terms of the Lease and Sublease.
Item 3. Legal Proceedings.
The Property of Registrant is the subject of the
following pending litigation:
Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et.
al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed
an action in the Supreme Court of the State of New York, against
Helmsley-Spear, Inc. and Leona Helmsley concerning various
partnerships which own, lease or operate buildings managed by
Helmsley-Spear, Inc., including Registrant's property. In their
complaint, plaintiffs sought the removal of Helmsley-Spear, Inc.
as managing and leasing agent for all of the buildings.
Plaintiffs also sought an order precluding Leona Helmsley from
exercising any partner management powers in the partnerships. In
August, 1997, the Supreme Court directed that the foregoing claims
proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin
LLP filed an arbitration complaint against Helmsley-Spear, Inc.
and Mrs. Helmsley before the American Arbitration Association.
Helmsley-Spear, Inc. and Mrs. Helmsley served answers denying
liability and asserting various affirmative defenses and
counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply
denying the counterclaims. By agreement dated December 16, 1997,
Mr. Malkin and Wien & Malkin LLP (each for their own account and
not in any representative capacity) reached a settlement with Mrs.
-3-
Helmsley of the claims and counterclaims in the arbitration and
litigation between them. Mr. Malkin and Wien & Malkin LLP then
continued their prosecution of claims in the arbitration for
relief against Helmsley-Spear, Inc., including its termination as
the leasing and managing agent for various entities and
properties, including the Registrant's Lessee. The arbitration
hearings were concluded in June 2000, and the arbitrators issued
their decision on March 30, 2001, ordering that the termination of
Helmsley-Spear, Inc. would require a new vote by the partners in
the Lessee, setting forth procedures for such a vote, and denying
the other claims of all parties. Following the decision, Helmsley-
Spear, Inc. applied to the court for confirmation of the decision,
and Mr. Malkin and Wien & Malkin LLP applied to the court for an
order setting aside that part of the decision regarding the
procedure for partnership voting to terminate Helmsley-Spear, Inc.
and various other parts of the decision on legal grounds. The
court granted the motion to confirm the arbitrators' decision and
denied the application to set aside part of the arbitrators'
decision. Mr. Malkin and Wien & Malkin LLP have served notice of
appeal of the court's determination.
On November 29, 2001, an action entitled Irving
Schneider v. Peter L. Malkin et al. was brought in New York State
Supreme Court by the holder of a $10,000 original participation in
Associates (representing 1/3300th of the interests in Associates)
against Associates' Agents, claiming that the Agents had violated
contractual and fiduciary duties and that the consent of the
Participants to Associates' program for acquisition and financing
of the fee title to the Empire State Building pursuant to the
September 14, 2001 Solicitation is ineffective. On February 28,
2002, the Court granted an order dismissing all of Mr. Schneider's
claims. Mr. Schneider filed on March 8, 2002 a notice of appeal of
the order dismissing his claims.
Item 4. Submission of Matters to a Vote of Particpants.
On September 14, 2001, the Partners mailed to the
Participants a STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH
THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS (the ?Statement?)
requesting their authorization to acquire the fee title to the
Empire State Building. The details of the Agents Proposals are
provided in the Definitive Proxy Statement which was filed with
the Securities and Exchange Commission as Schedule 14-A on
September 14, 2001, and is incorporated by reference.
The required consents for the program were obtained prior
to December 31, 2001. On March 18, 2002, Associates signed both a
purchase contract to acquire the fee title at a price of $57.5
million (with a deposit of $1 million) and a $60.5 million
mortgage commitment to finance the acquisition and financing
costs.
-4-
PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters.
Registrant is a partnership organized pursuant to a
partnership agreement dated as of July 11, 1961.
Registrant has not issued any common stock. The securi-
ties registered by it under the Securities Exchange Act of 1934,
as amended, consist of participations in the partnership interests
of the Partners in Registrant (the "Participations") and are not
shares of common stock nor their equivalent. The Participations
represent each Participant's fractional share in a Partner's
undivided interest in Registrant and are divided approximately
equally among the Partners. A full unit of the Participations was
offered originally at a purchase price of $10,000; fractional
units were also offered at proportionate purchase prices.
Registrant has not repurchased Participations in the past and is
not likely to change that policy in the future.
(a) The Participations neither are traded on an
established securities market nor are readily tradable on a
secondary market or the substantial equivalent thereof. Based on
Registrant's transfer records, Participations are sold by the
holders thereof from time to time in privately negotiated
transactions and, in many instances, Registrant is not aware of
the prices at which such transactions occur. During the past year
there were 182 transfers. In seven instances, the indicated
purchase price was equal to 3.3 times the face amount of the
Participation transferred, i.e., $16,500 for a $5,000
Participation. In eighteen instances, the indicated purchase price
was equal to three times the face amount of the Participation
transferred. In one instance, the indicated purchase price was
equal to two times the face amount of the participation
transferred. In all other cases, no consideration was indicated.
(b) As of December 31, 2001, there were 2,669 holders
of Participations of record.
(c) Registrant does not pay dividends. During the year
ended December 31, 2001, Registrant made regular monthly
-5-
distributions of $98.21 for each $10,000 Participation. There was
Overage Rent payable of $26,072,502 for the year ended December
31, 2001 and Registrant made additional distributions for each
$10,000 Participation of $7,000.00 on March 6, 2002. See Item 1
hereof. There are no restrictions on Registrant's present or
future ability to make distributions; however, the amount of such
distributions, particularly distributions of Overage Rent, depends
solely on Sublessee's ability to make payments of Basic Rent and
Overage Rent to Registrant. See Item 1 hereof. Registrant
expects to make monthly distributions in the future so long as it
receives the payments provided for under the Sublease. See Item 7
hereof.
-6-
[SELECTED FINANCIAL DATA]
Item 6.
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
SELECTED FINANCIAL DATA
Year ended December 31,
2001 2000 1999 1998 1997
Basic rent income $ 6,018,750 $ 6,018,750 $ 6,018,750 $ 6,018,750 $6,018,750
Overage rent income 26,072,502 14,583,762 7,582,109 4,109,852 2,401,300
Dividend income 248,948 256,963 144,690 84,615 10,377
Miscellaneous income 1,660,904 - 0 - - 0 - - 0 - - 0 -
Total revenues $34,001,104 $20,859,475 $13,745,549 $10,213,217 $8,430,427
Net income $29,512,491 $17,315,601 $10,901,065 $ 7,507,228 $4,752,560
Earnings per $10,000
participation unit,
based on 3,300
participation units
outstanding during
the year $ 8,943 $ 5,247 $ 3,303 $ 2,275 $ 1,440
Total assets $32,347,669 $20,842,972 $13,253,481 $ 8,787,638 $5,930,702
Long-term obligations $ - 0 - $ - 0 - $ - 0- $ - 0 - $ -0-
Distributions per $10,000
participation unit, based
on 3,300 participation
units outstanding
during the year:
Income $ 5,182 $ 3,185 $ 2,033 $ 1,500 $ 1,179
Return of capital - 0 - - 0 - - 0 - - 0 - -0-
Total distributions $ 5,182 $ 3,185 $ 2,033 $ 1,500 $ 1,179
-7-
Item 7.
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's operating results for each of the
eight fiscal quarters in the period ended December 31, 2001. The information
for each of these quarters is unaudited and has been prepared on the same basis
as the audited financial statements included in this Annual Report on Form 10-K.
In the opinion of management, all necessary adjustments, which consist only of
normal and recurring accruals, have been included to present fairly the
unaudited quarterly results. This data should be read together with the
financial statements and the notes thereto included in this Annual Report on
Form 10-K.
Three Months Ended
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
Statement of Income Data:
Minimum net, basic
rent income $1,504,687 $1,504,688 $1,504,688 $ 1,504,687
Additional rent
income - - - 14,583,762
Dividend income 95,211 48,471 52,024 61,257
Total revenues 1,599,898 1,553,159 1,556,712 16,149,706
Leasehold rent 492,500 492,500 492,500 492,500
Supervisory services 39,854 39,854 39,854 883,165
Amortization of
leasehold 52,117 52,117 52,117 52,117
Professional fees - - - 362,679
Total expenses 584,471 584,471 584,471 1,790,461
Net income $1,015,427 $ 968,688 $ 972,241 $14,359,245
Earnings per $10,000
participation unit, based
on 3,300 participation
units outstanding during
each period $ 307 $ 294 $ 295 $ 4,351
-8-
Item 7.
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
QUARTERLY RESULTS OF OPERATIONS (Continued)
Three Months Ended
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
Statement of Income Data:
Minimum net, basic
rent income $1,504,687 $1,504,688 $1,504,688 $ 1,504,687
Additional rent
income - - - 26,072,502
Dividend income 157,165 38,193 23,094 30,496
Miscellaneous income - - 1,660,904 -
Total revenues 1,661,852 1,542,881 3,188,686 27,607,685
Leasehold rent 492,500 492,500 492,500 492,500
Supervisory services 39,854 39,854 39,855 1,514,322
Amortization of
leasehold 52,117 52,117 52,117 52,117
Professional fees 972 53,305 77,206 544,777
Total expenses 585,443 637,776 661,678 2,603,716
Net income $1,076,409 $ 905,105 $2,527,008 $25,003,969
Earnings per $10,000
participation unit, based
on 3,300 participation
units outstanding during
each period $ 326 $ 274 $ 766 $ 7,577
-9-
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Registrant was organized for the purposes of owning the
Property described in Item 2 hereof subject to the Sublease.
Registrant is required to pay from Basic Rent the amounts due for
supervisory services and to distribute the balance of such rental
payments to Participants. Registrant is required to pay from
Overage Rent additional amounts for supervisory services and then
to distribute the balance of such Overage Rent to the
Participants. Pursuant to the Sublease, Sublessee has assumed
sole responsibility for the condition, operation, repair,
maintenance and management of the Building. Registrant need not
maintain substantial reserves or otherwise maintain liquid assets
to defray any operating expenses of the Property.
The supervisory services provided to Registrant by
Supervisor include, but are not limited to, providing or
coordinating with counsel to Registrant, maintaining all of its
entity and Participant records, performing physical inspections of
the Building, reviewing insurance coverage and conducting annual
supervisory review meetings, receipt of monthly rent from Net
Lessee, payment of monthly and additional distributions to the
Participants, payment of all other disbursements, confirmation of
the payment of real estate taxes, and active review of financial
statements submitted to Registrant by Net Lessee and financial
statements audited by and tax information prepared by Registrants'
independent certified public accountant, and distribution of such
materials to the Participants. Supervisor also prepares quarterly,
annual and other periodic filings with the Securities and Exchange
Commission and applicable state authorities.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Sublease.
The amount of Overage Rent payable to Registrant is affected by
the New York City economy and real estate rental market. It is
difficult for management to forecast the New York City economy and
real estate market.
As compared with the prior year, a decrease in Overage
Rent in any year reduces the distributions made to the
Participants and the expenditure for supervisory services.
Reductions in the amount of Overage Rent paid to Registrant in the
future will not have any other impact on Registrant. See
paragraph 1 of Item 7 hereof and Notes 3, 4, 5, and 7 of the
Notes.
The following summarizes the material factors affecting
Registrant's results of operations for the three preceding years:
-10-
(a) Total income increased for the year ended December 31, 2001
as compared with the year ended December 31, 2000. Such
increase resulted from an increase in Overage Rent in the
year 2001 and an increase in dividend income earned as
compared with the year ended December 31, 2000. Total income
increased for the year ended December 31, 2000 as compared
with the year ended December 31, 1999. Such increase
resulted from an increase in Overage Rent in the year 2000
and an increase in dividend income earned as compared with
the year ended December 31, 1999. See Note 3 of the Notes.
(b) Total expenses increased for the year ended December 31, 2001
as compared with the year ended December 31, 2000. Such
increase is the result of an increase in additional payment
for supervisory services and an increase in professional
fees. Total expenses increased for the year ended December
31, 2000 as compared with the year ended December 31, 1999.
Such increase was the result of an increase in additional
payment for supervisory services and an increase in
professional fees. See Notes 3, 5 and 11 of the Notes.
Sublessee was liable for New York State Utility Tax for
periods after December 31, 1992 through 1997. The State settled
all utility taxes for the years 1993 through 1997 with a payment
of $243,270 plus accrued interest of $185,613 through December 31,
2001. Payment of $428,883 in connection with the foregoing was
made by Sublessee on February 1, 2002.
Note D -Professional Fees and Miscellaneous Income
During the twelve months ended December 31, 2001, fees,
previously accrued, of $1,854,565 were paid to the firm of Wien &
Malkin LLP, a related party. Service fees of $676,260 for the
twelve months ended December 31, 2001, included $512,818 to Wien &
Malkin LLP for fees and disbursements relating to the
consent solicitation for the purchase of the fee title, the LLC
conversion and litigation; $292,069 was paid during 2001 and the
balance of $220,749 is accrued at December 31, 2001.
In September 2001 Registrant received from the lessee
and reflected in its financial statements as miscellaneous
income, $1,660,904 as a reimbursement for fees and disbursements
previously incurred.
-11-
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity or capital resources for the fiscal year ended December
31, 2001 as compared with the fiscal year ended December 31, 2000,
and Registrant may from time to time establish a reserve for
contingent or unforeseen liabilities.
Inflation
Inflationary trends in the economy do not directly
impact Registrant's operations. As noted above, Registrant does
not actively engage in the operation of the Property. Inflation
may impact the operations of the Sublessee. The Sublessee is
required to pay the Basic Rent regardless of the results of its
operations. Inflation and other operating factors affect the
amount of Overage Rent payable by the Sublessee, which is based on
the Sublessee's net operating profit.
Other Information
The Sublessee maintains the Building as a high-class
office building as required by the terms of the Sublease.
In 1990, the Sublessee commenced its latest improvement
program which is estimated to be completed at a total cost of
approximately $68,000,000. Under this program, approximately
6,400 windows are being replaced and this portion of the program
is completed. In addition, the elevators have been upgraded
through installation of a computerized control system and the
replacement of all electrical and mechanical equipment. The
elevator modernization program has increased elevator speed from
800 to 950 feet per minute to 1200 feet per minute. Also included
is waterproofing the Building's exterior, resetting and repairing
the limestone facade, upgrading the Building's security system,
upgrading and replacing the Building's fire safety system and
making substantial further improvement to the air-conditioning,
domestic pump and water systems, waterproofing the mooring mast
and installing a new observation deck ticket office.
The Sublessee anticipates that the costs of improvements
to be incurred will reduce Overage Rent during the year 2002 but
should have no effect on the payment of Basic Rent.
-12-
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying
reports by, and the consents to the use thereof by J.H. Cohn LLP
and McGrath, Doyle & Phair, immediately following, are being filed
in response to this item.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
-11-
PART III
Item 10. Directors and Executive Officers of Registrant.
Registrant has no directors or officers or any other
centralization of management. There is no specific term of office
for any Agent. The table below sets forth as to each Partner as
of December 31, 2001 the following: name, age, nature of any
family relationship with any other Agent, business experience
during the past five years and principal occupation and employment
during such period, including the name and principal business of
any corporation or any organization in which such occupation and
employment was carried on and the date such individual became an
Agent:
Principal Date
Nature of Occupation Individual
Family Business and became an
Name Age Relationship Experience Employment Agent
Peter L. Malkin 67 None Real Estate Senior Partner 1961
Supervision and Chairman
Wien & Malkin
LLP
Thomas N. Keltner,
Jr. 55 None Real Estate Partner 1998
Supervision Wien & Malkin
LLP
Anthony E. Malkin 39 Son of President Senior Director 2001
Peter L. of real estate of Supervisory
Malkin management Services of Wien
& Malkin LLP and
President of W&M
Properties L.L.C.
As stated above, two of the members are partners in
Supervisor. See Items 1, 11, 12 and 13 hereof for a description
of the services rendered by, and the compensation paid to,
Supervisor and for a discussion of certain relationships which may
pose actual or potential conflicts of interest among Registrant,
Sublessee and certain of their respective affiliates.
The names of entities which have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or are subject to the requirements of Section 15(d) of
that Act, and in which the Partners are either a director, joint
venturer or general partner are as follows:
-12-
Peter L. Malkin is a member in 250 West 57th St.
Associates L.L.C. and 60 East 42nd St. Associates L.L.C.
and a general partner in Navarre-500 Building Associates
and Garment Capitol Associates.
Thomas N. Keltner, Jr. is a member in 60 East 42nd St.
Associates L.L.C. and a general partner in Navarre-500
Building Associates and Garment Capitol Associates.
Anthony E. Malkin is a member in 250 West 57th St.
Associates L.L.C. and 60 East 42nd St. Associates L.L.C.
Item 11. Executive Compensation.
As stated in Item 10 hereof, Registrant has no directors
or officers or any other centralization of management.
No remuneration was paid during the current fiscal year
ended December 31, 2001 by Registrant to any of the Agents as
such. Registrant pays Supervisor, for supervisory services and
disbursements, fees of $100,000 per annum plus 6% of all sums
distributed to the Participants in excess of 9% per annum on their
original cash investment. Pursuant to such arrangements described
herein, Registrant paid Supervisor a total of $1,574,468
(consisting of $100,000 as an annual basic payment for supervisory
services and $1,474,468 as an additional payment for supervisory
services) for supervisory services rendered during the fiscal year
ended December 31, 2001. The supervisory services provided to
Registrant by Supervisor include, but are not limited to,
providing or coordinating with counsel to Registrant, maintaining
all of its entity and Participant records, performing physical
inspections of the Building, reviewing insurance coverage,
conducting annual supervisory review meetings, receipt of monthly
rent from Net Lessee, payment of monthly and additional
distributions to the Participants, payment of all other
disbursements, confirmation of the payment of real estate taxes,
and active review of financial statements submitted to Registrant
by Net Lessee and financial statements audited by and tax
information prepared by Registrant's independent certified public
accountant, and distribution of such materials to the
Participants. Supervisor also prepares quarterly, annual and
other periodic filings with the Securities and Exchange Commission
and applicable state authorities. See Item 7 hereof. As noted in
Items 1 and 10 of this report, two of the Agents are also members
of Supervisor.
-13-
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities. See Item
5 hereof. At December 31, 2001, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 2001, the Agents (see Item 10
hereof) beneficially owned, directly or indirectly, the following
Participations:
Name & Address Amount of
of Beneficial Beneficial Percent
Title of Class Owners Ownership of Class
Participations Thomas N. Keltner, Jr. $ 5,000 .0152%
in Partnership 60 East 42nd Street
Interests New York, NY 10165
Anthony E. Malkin $ 23,333 .07071%
60 East 42nd Street
New York, NY 10165
At such date, certain of the Agents (or their respective
spouses) held additional Participations as follows:
Peter L. Malkin owned of record as trustee or co-trustee
but not beneficially, $232,500 of Participations. Mr.
Malkin disclaims any beneficial ownership of such
Participations.
Entities for the benefit of members of Peter L. Malkin's
family owned of record and beneficially $546,250 of
Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations, except that related
Trusts are required to complete scheduled payments to
Mr. Malkin.
Anthony E. Malkin owned of record as trustee or co-
trustee but not beneficially, $35,833 of Participations.
Anthony E. Malkin disclaims any beneficial ownership of
such Participations.
(c) Not applicable.
-14-
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Item 1 hereof, Mr. Peter L.
Malkin, Mr. Keltner and Mr. Anthony E. Malkin are the three
members in Registrant and also act as agents for the Participants
in their respective partnership interests. Mr. Peter L. Malkin is
also a partner in Sublessee. As a consequence of one of the three
members being a partner in Sublessee, and two of the members being
current members of Supervisor (which supervises Registrant and
Sublessee), certain actual and potential conflicts of interest may
arise with respect to the management and administration of the
business of Registrant. However, under the respective
participating agreements pursuant to which the members act for the
Participants, certain transactions require the prior consent from
Participants owning a specified interest under the agreement in
order for the agents to act on their behalf. Such transactions
include modifications and extensions of the Sublease, or a sale or
other disposition of the Property or substantially all of
Registrant's other assets.
Reference is made to Items 1 and 2 hereof for a
description of the terms of the Sublease between Registrant and
Sublessee. The respective interests of the members in Registrant
and in the Sublease arise solely from ownership of their
respective participations in Registrant and, in the case of Mr.
Malkin, his ownership of a partnership interest in Sublessee. The
members as such receive no extra or special benefit not shared on
a pro rata basis with all other security holders of Registrant or
partners in Sublessee. However, two of the members, by reason of
their respective interest in Supervisor, are entitled to receive
their pro rata share of any supervisory, service, legal or other
remuneration paid to Supervisor for services rendered to
Registrant and Sublessee. See Item 11 hereof for a description of
the remuneration arrangements between Registrant and Supervisor
relating to supervisory services provided by Supervisor.
Reference is also made to Items 1 and 10 hereof for
a description of the relationship between Registrant and
Supervisor, of which two of the members are among the members.
The interest of each Agent in any remuneration paid or given by
Registrant to Supervisor arise solely from the ownership of such
member's interest in Supervisor. See Item 11 hereof for a
description of the remuneration arrangements between Registrant
and Supervisor relating to supervisory services provided by
Supervisor.
(b) Reference is made to Paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
-15-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 10-K.
(a)(1) Financial Statements:
Consent of J.H. Cohn LLP, Certified Public Accountants,
dated March 27, 2002.
Accountant's Report of J.H. Cohn LLP, Certified Public
Accountants, dated March 27, 2002.
Balance Sheets at December 31, 2001 and at December 31,
2000 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 2001, 2000, and 1999 (Exhibit B).
Statement of Members' Equity for the fiscal year ended
December 31, 2001 (Exhibit C-1).
Statement of Members' Equity for the fiscal year ended
December 31, 2000 (Exhibit C-2).
Statement of Members' Equity for the fiscal year ended
December 31, 1999 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 2001, 2000 and 1999 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 2001, 2000 and 1999.
Consent of McGrath, Doyle & Phair, Certified Public
Accountants, dated March 19, 2002.
Accountant's Comparative Combined Statement of Income
(Sublessee) of McGrath, Doyle & Phair, Certified Public
Accountants, dated March 19, 2002.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December
31, 2001 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) No Form 8-K was filed by Registrant for the final
quarter of 2001.
-16-
[J.H. COHN LLP
ACCOUNTANTS & CONSULTANTS]
March 27,2002
Empire State Building Associates L.L.C.
New York, N. Y.
We consent to the use of our independent accountants' report dated March
27, 2002 covering our audits of the accompanying financial statements of
Empire State Building Associates L.L.C. in connection with and as part
of your December 31, 2001 annual report (Form 10-K) to the Securities
and Exchange Commission.
J.H. Cohn LLP
New York, N.Y.
-17 -
[J.H. COHN LLP
ACCOUNTANTS & CONSULTANTS]
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Empire State Building Associates L.L.C.
(a Limited Liability Company)
New York, N. Y.
We have audited the accompanying balance sheets of Empire State Building
Associates L.L.C. ("Associates") as of December 31, 2001 and 2000, and
the related statements of income, members' equity and cash flows for
each of the three years in the period ended December 31, 2001, and the
supporting financial statement schedule as contained in Item 14(a)(2) of
this Form 10-K. These financial statements and schedule are the
responsibility of Associates' management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 financial position of Empire State
Building Associates L.L.C. as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years
in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America, and the
related financial statement schedule, when considered in relation to the
basic financial statements, presents fairly, in all material respects,
the information set forth therein.
J.H. Cohn LLP
New York, N. Y.
March 27, 2002
-18-
EXHIBIT A
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
BALANCE SHEETS
A S S E T S
December 31,
2001 2000
Current assets:
Cash and cash equivalents (Note 14):
JPMorgan Chase Bank $ 3,739 $ 1,418
Distribution account held by
Wien & Malkin LLP 324,111 324,111
Fidelity U.S. Treasury Income Portfolio 29,520,266 15,408,212
29,848,116 15,733,741
Additional rent due from Empire State
Building Company L.L.C., a related party 72,502 2,583,762
Prepaid rent 23,831 23,831
TOTAL CURRENT ASSETS 29,944,449 18,341,334
Deferred charges 110,050 -
Real estate (Note 2):
Leasehold on Empire State Building,
350 Fifth Avenue, New York, N. Y 39,000,000 39,000,000
Less: Accumulated amortization 36,706,830 36,498,362
2,293,170 2,501,638
TOTAL ASSETS $32,347,669 $20,842,972
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accrued professional fees, including amounts due
to a related party (Note 11) $ 316,804 $ 1,854,565
Accrued supervisory services, to a
related party (Note 5) 1,474,468 843,310
TOTAL LIABILITIES 1,791,272 2,697,875
Contingencies (Notes 10 and 12)
Members' equity (Exhibit C) 30,556,397 18,145,097
TOTAL LIABILITIES AND MEMBERS' EQUITY $32,347,669 $20,842,972
See accompanying notes to financial statements.
-19-
EXHIBIT B
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENTS OF INCOME
Year ended December 31,
2001 2000 1999
Revenues:
Rent income, from a related party (Note 3) $32,091,252 $20,602,512 $13,600,859
Miscellaneous income (Note 11) 1,660,904 - -
Dividend income 248,948 256,963 144,690
34,001,104 20,859,475 13,745,549
Expenses:
Leasehold rent (Note 4) 1,970,000 1,970,000 1,970,000
Supervisory services, to a related
party (Note 5) 1,633,885 1,002,727 581,983
Professional fees, including amounts due
to a related party (Note 11) 676,260 362,679 84,033
Amortization of leasehold (Note 2) 208,468 208,468 208,468
4,488,613 3,543,874 2,844,484
NET INCOME, CARRIED TO MEMBERS'
EQUITY (NOTE 8) $29,512,491 $17,315,601 $10,901,065
Earnings per $10,000 participation unit, based
on 3,300 participation units outstanding
during each year $ 8,943 $ 5,247 $ 3,303
See accompanying notes to financial statements.
-20-
EXHIBIT C-3
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENT OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1999
Members' Members'
Equity Equity
January 1, Share of December 31,
1999 net income Distributions 1999
Richard A. Shapiro Group $2,382,433 $ 3,633,688 $2,236,444 $ 3,779,677
Thomas N. Keltner, Jr. Group 2,382,432 3,633,689 2,236,445 3,779,676
Peter L. Malkin Group 2,382,432 3,633,688 2,236,444 3,779,676
$7,147,297 $10,901,065 $6,709,333 $11,339,029
See accompanying notes to financial statements.
-21-
EXHIBIT C-1
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENT OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 2001
Members' Members'
Equity Equity
January 1, Share of December 31,
2001 net income Distributions 2001
Anthony E. Malkin Group
(formerly Richard A.
Shapiro Group) $ 6,048,366 $ 9,837,497 $ 5,700,397 $10,185,466
Thomas N. Keltner, Jr. Group 6,048,365 9,837,497 5,700,397 10,185,465
Peter L. Malkin Group 6,048,366 9,837,497 5,700,397 10,185,466
$18,145,097 $29,512,491 $17,101,191 $30,556,397
See accompanying notes to financial statements.
-22-
EXHIBIT C-2
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENT OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 2000
Members' Members'
Equity Equity
January 1, Share of December 31,
2000 net income Distributions 2000
Richard A. Shapiro Group $ 3,779,677 $ 5,771,867 $3,503,178 $ 6,048,366
Thomas N. Keltner, Jr. Group 3,779,676 5,771,867 3,503,178 6,048,365
Peter L. Malkin Group 3,779,676 5,771,867 3,503,177 6,048,366
$11,339,029 $17,315,601 $10,509,533 $18,145,097
See accompanying notes to financial statements.
-23-
EXHIBIT D
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENTS OF CASH FLOWS
Year ended December 31,
2001 2000 1999
Cash flows from operating activities:
Net income $ 29,512,491 $ 17,315,601 $10,901,065
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of leasehold 208,468 208,468 208,468
Changes in operating assets and liabilities:
Additional rent due from Empire State
Building Company L.L.C., a related party 2,511,260 (1,601,653) (372,257)
Deferred charges (110,050) - -
Accrued supervisory services,
to a related party 631,158 420,744 242,566
Accrued professional fees,
to a related party (1,537,761) 362,679 31,545
Net cash provided by
operating activities 31,215,566 16,705,839 11,011,387
Cash flows from financing activities:
Cash distributions (17,101,191) (10,509,533) (6,709,333)
Net cash used in financing
activities (17,101,191) (10,509,533) (6,709,333)
Net increase in cash
and cash equivalents 14,114,375 6,196,306 4,302,054
Cash and cash equivalents, beginning of year 15,733,741 9,537,435 5,235,381
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 29,848,116 $ 15,733,741 $ 9,537,435
See accompanying notes to financial statements.
-24-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
1. Business Activity and Reorganization
Empire State Building Associates L.L.C. ("Associates") holds the tenant's
position in the master leasehold of the Empire State Building (the "Building"),
located at 350 Fifth Avenue, New York City. Associates subleases the property
to Empire State Building Company L.L.C.("Company").
Associates operated as a general partnership, Empire State Building Associates,
until October 1, 2001, when it converted to a limited liability company and
changed to its current name. Ownership percentages in Associates were unchanged
by the conversion. Associates continues to be treated as a partnership for
tax purposes, and the partnership's income tax basis of its assets and
liabilities carried over to the limited liability company.
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include investments in money market funds and all
highly liquid debt instruments purchased with a maturity of three months or
less.
b. Real Estate and Amortization of Leasehold:
Real estate, consisting of a leasehold, is stated at cost. Amortization of the
leasehold is being computed through its first renewal term by the straight-line
method over its estimated useful life of 25 years, from January 1, 1988 to
January 5, 2013.
c. Use of Estimates:
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 2001, 2000 and 1999 totaling
$32,091,252, $20,602,512 and $13,600,859, respectively, consists of the minimum
annual rent plus additional rent under an operating sublease dated December
27, 1961, as modified February 15, 1965, with Company (the "Sublessee"), as
follows:
Year ended December 31,
2001 2000 1999
Minimum net basic rent $ 6,018,750 $ 6,018,750 $ 6,018,750
Additional rent earned 26,072,502 14,583,762 7,582,109
$32,091,252 $20,602,512 $13,600,859
-25-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Related Party Transactions - Rent Income (continued)
The sublease provides for the same initial term and renewal options as the
leasehold (see Note 4), less one day. In January 1989, the Sublessee exercised
its option to renew the sublease for the first renewal period from January 4,
1992 to January 4, 2013. The annual minimum net basic rent during the first
renewal term was reduced to $6,018,750, and is to be further reduced to
$5,895,625 during each of three remaining renewal terms.
Additional rent earned is equal to fifty percent of the Sublessee's annual
net income (as defined in the sublease) in excess of $1,000,000.
A member in Associates is also a member in the Sublessee.
4. Leasehold Rent
Leasehold rent represents the net basic rent of $1,970,000 per annum under an
operating lease dated December 27, 1961, as modified February 15, 1965, with
The Prudential Insurance Company of America ("Prudential"). Associates exercised
its first renewal option in 1988, and the current leasehold rent remains
unchanged throughout the first renewal term of the lease, which ends on
January 5, 2013.
The lease contains options for Associates to renew the leasehold for an
additional 3 successive periods of 21 years each. The basic rent is to be
further reduced to $1,723,750 per annum during each of the remaining three
renewal terms.
On November 27, 1991, Prudential sold the property to E.G. Holding Co., Inc.
which, through merger and conveyance, transferred its interest as lessor to
Trump Empire State Partners. Associates' rights under the master leasehold
remain unchanged.
See Note 9.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular accounting
services) during the years ended December 31, 2001, 2000 and 1999, totaling
$1,633,885, $1,002,727 and $581,983, respectively, represent fees incurred
by the firm of Wien & Malkin LLP. Some members of that firm are members in
Associates.
Fees for supervisory services are paid pursuant to an agreement, which amount
is based on a rate of return of investment achieved by the participants in
Associates each year.
6. Number of Participants
There were approximately 2,640 participants in the participating groups at
December 31, 2001, 2000 and 1999.
-26-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. Determination of Distributions to Participants
Distributions to participants in 2001, 2000 and 1999 of $17,101,191, $10,509,533
and $6,709,333, respectively, represented the following:
2001 2000 1999
Minimum annual rent $ 6,018,750 $ 6,018,750 $ 6,018,750
Additional rent,
earned in
previous year,
distributed in
current year 14,583,762 7,582,109 4,109,852
Dividend income
earned in previous
year, distributed
in current year 256,963 144,690 84,615
20,859,475 13,745,549 10,213,217
Less:
Leasehold rent
expense $1,970,000 $1,970,000 $1,970,000
Supervisory services
incurred in
previous year 1,002,727 581,983 339,417
Professional fees
incurred in
previous year 362,679 84,033 188,104
Amount held in
reserve to fund
payment of accrued
legal fees 422,878 600,000 1,006,363
3,758,284 3,236,016 3,503,884
Distributions
to participants $17,101,191 $10,509,533 $ 6,709,333
8. Distributions and Amount of Income per $10,000 Participation Unit
Distributions per $10,000 participation unit during the years 2001, 2000 and
1999 based on 3,300 participation units outstanding during each year, consisted
of the following:
Year ended December 31,
2001 2000 1999
Income $5,182 $3,185 $2,033
Return of capital - - -
TOTAL DISTRIBUTIONS $5,182 $3,185 $2,033
Net income is computed without regard to income tax expense since Associates
does not itself pay a tax on its income; instead, any such taxes are paid by
the participants in their individual capacities.
-27-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. Proposal to Acquire Fee Title to Empire State Building and Subsequent Event
On September 14, 2001, Associates' Agents filed a proxy statment with the
Securities and Exchange Commission in connection with the Solicitation of
Consents of Associates' Participants for a program (a) to acquire the fee
title to the Empire State Building for a price not to exceed $57.5 million,
and for total acquisition and financing costs not to exceed $60.5 million;
(b) to mortgage the fee title and leasehold to finance such total costs; and
(c) to effect such acquisition and financing alone or with the operating
sublessee or any third party on terms the Agents believe beneficial for
Associates. The required consents for the program were obtained prior to
December 31, 2001. On March 18, 2002, Associates signed both a purchase
contract to acquire the fee title at a price of $57.5 million (with a deposit
of $1 million) and a $60.5 million mortgage commitment to finance the
acquisition and financing costs.
10. Litigation and Subsequent Events
On November 29, 2001, an action entitled Irving Schneider v. Peter L. Malkin et
al. was brought in New York State Supreme Court by the holder of a $10,000
original participation in Associates (representing 1/3300th of the interests
in Associates) against Associates' Agents, claiming that the Agents had
violated contractual and fiduciary duties and that the consent of the
Participants to Associates' program for acquisition and financing of the fee
title to the Empire State Building pursuant to the September 14, 2001
Solicitation (Note 9) is ineffective. On February 28, 2002, the Court granted
an order dismissing all of Mr. Schneider's claims. Mr. Schneider filed on
March 8, 2002 a notice of appeal of the order dismissing his claims.
Associates has paid the defense costs in this action for professional fees and
disbursements, of which $122,442 has been incurred through December 31, 2001.
Counsel for Associates' Agents has advised that Mr. Schneider's claims are
without merit. It is not possible at this time to determine the potential loss,
if any, which might result from this action. No provision for liability has
been made in the accompanying financial statements. Associates established a
reserve of $500,000 as of March 11, 2002 for future defense costs in any appeal
or other proceedings related to this matter.
11. Related Party Transactions - Professional Fees and Miscellaneous Income
The accompanying statements of income reflect legal fees paid or owed to Wien &
Malkin LLP, a related party (Note 5), as follows:
2001 2000 1999
Reimbursement owing to Agents
of their legal and accounting
expenses relating to suit
by Julien Studley $120,009 $219,386 $39,670
Other payments made or accrued 392,809 143,293 44,363
$512,818 $362,679 $84,033
-28-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. Related Party Transactions - Professional Fees and Miscellaneous Income
(continued)
Accrued professional fees, at December 31, 2002 and 2001 include $220,749 and
$1,854,565, respectively, owed to Wien & Malkin LLP.
Miscellaneous income of $1,660,904 in 2001 consists of a reimbursement by
Company of litigation costs and disbursements expensed by Associates in 2001
and prior years. The litigation costs and disbursements had been incurred in
Associates' successful defense of dismissed claims by Julien Studley, a
holder of a $20,000 original participation in Associates, against Agents for
Associates.
12. Contingencies
Wien & Malkin LLP and Peter L. Malkin are engaged in a dispute with Company's
managing agent, Helmsley-Spear, Inc., concerning the management, leasing, and
supervision of the property that is subject to the net sublease to the
operating sublessee. In this connection, certain legal and professional fees
and other expenses have been paid and incurred by Wien & Malkin LLP and Mr.
Malkin, and additional costs are expected to be incurred. Wien & Malkin LLP
and Mr. Malkin have represented that such costs will be recovered only to the
extent that (a) competent tribunal authorizes payment by Associates or (b) a
participant voluntarily agrees that his or her proportionate share be paid.
Accordingly, Associates' allocable share of such costs is as yet undetermined,
and Associates has not provided for the expense and related liability with
respect to such costs in these financial statements.
The original action commenced in June 1997 and was referred to arbitration.
The March 30, 2001 decision of the arbitrators, which was confirmed by the
court, (i) reaffirms the right of the partners in the lessee to vote to
terminate Helmsley-Spear, Inc. without cause, (ii) dismisses Helmsley-Spear,
Inc.'s claims against Wien & Malkin LLP, and (iii) rejects the termination of
Helmsley-Spear, Inc. for cause. Parts of the decision of the court are under
appeal.
13. Receipt of Warrants and Stock in Telecommunications Companies
In 2000, Associates received shares of common stock and warrants from certain
unrelated companies in exchange for permission for those companies to provide
high-speed internet access and other telecommunication services to the Building.
The Sublessee received an equal number of shares and warrants. There are
restrictions as to the transfer of the stock, and neither the warrants nor
the stock has an ascertainable value since their issuance. Accordingly, the
accompanying financial statements do not reflect any value for these securities.
14. Concentration of Credit Risk
Associates maintains cash balances in a bank, money market funds (Fidelity U.S.
Treasury Income Portfolio) and a distribution account held by Wien & Malkin LLP.
The bank balance is insured by the Federal Deposit Insurance Corporation up to
$100,000, and at December 31, 2001 was completely insured. The cash in the money
market funds and the account held by Wien & Malkin LLP are not insured. The
funds held in the distribution account were paid to the participants on January
1, 2002.
15. Reclassifications
As a result of the reorganization in 2001 (Note 1), certain accounts in prior
year financial statements have been reclassified to conform with the
presentation in the financial statements for 2001.
-29-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the present
instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
-30-
SCHEDULE III
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
Real Estate and Accumulated Depreciation
December 31, 2001
Column
A Description Leasehold on Empire State Building
located at 350 Fifth Avenue,
New York, New York.
B Encumbrances............................................. None
C Initial cost to company
Leasehold.............................................. $39,000,000
D Cost capitalized subsequent to acquisition............... None
E Gross amount at which carried at
close of period
Leasehold............................................. $39,000,000(a)
F Accumulated amortization................................. $36,706,830(b)
G Date of construction 1931
H Date acquired December 27, 1961
I Life on which leasehold amortization in
latest income statements is computed 25 years from January 1, 1988
(see Note 2 of Notes to
Financial Statements).
(a) There have been no changes in the carrying values of real estate for the
years ended December 31, 2001, December 31, 2000 and December 31, 1999. The
costs for federal income tax purposes are the same as for financial statement
purposes.
(b) Accumulated amortization
Balance at January 1, 1999 $36,081,426
Amortization:
F/Y/E 12/31/99 $208,468
12/31/00 208,468
12/31/01 208,468 625,404
Balance at December 31, 2001 $36,706,830
-31-
EMPIRE STATE BUILDING AND OBSERVATORY
COMPARATIVE COMBINED STATEMENT OF INCOME
YEARS ENDED
DECEMBER 31, 2001
AND
DECEMBER 31, 2000
Dated:
New York, NY
-32-
[LETTERHEAD OF MCGRATH, DOYLE & PHAIR
CERTIFIED PUBLIC ACCOUNTANTS]
March 19, 2002
Empire State Building Company L.L.C.
60 East 42nd Street
New York, NY 10165
We have audited the accompanying Comparative Combined Statement of
Income of Empire State Building and Observatory for the years ended December
31, 2001 and 2000 for the purpose of determining "Net Operating Profit" and
"Overage Rent" as those terms are defined in Section 2.05 of Agreement of
Sublease dated December 27, 1961. During the years ended December 31, 2001
and 2000, the entire building, with the exception of the Observatory, was
operated by Empire State Building Company L.L.C. and the Observatory was
operated by Empire State Building, Inc. The Combined Statement of Income is
the responsibility of the management of Empire State Building Company L.L.C.
and Empire State Building, Inc. Our responsibility is to express an opinion
on the Combined Statement of Income based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Combined Statement of Income is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Combined Statement of Income. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the accompanying Comparative Combined Statement of
Income of Empire State Building and Observatory presents fairly, in all
material respects, the Net Operating Profit and Overage Rent for the years
ended December 31, 2001 and 2000, in conformity with Section 2.05 of the
aforementioned Agreement dated December 27, 1961.
As discussed in Note 3 to the Combined Statement of Income, Empire
State Building Company L.L.C. and other related parties have been named as
defendants in legal actions. All defendants have denied all material
allegations. It is not possible at this time to predict the outcome or
range of potential loss, if any, which might result from those actions. No
provision for any loss has been made in the accompanying Combined Statement
of Income.
New York, NY
March 19, 2002
-33-
Empire State Building and Observatory
COMPARATIVE COMBINED STATEMENT OF INCOME
Increase
2001 2000 (Decrease)
INCOME
Rent, including electricity $78,273,477 $69,461,218 $8,812,259
Observatory admissions 21,108,995 23,654,368 (2,545,373)
Other observatory income 3,769,522 2,624,108 1,145,414
Antenna rent 5,077,548 5,077,548 -
Net real estate tax refund (Note 5) 19,001,383 - 19,001,383
Lease cancellation 104,779 67,760 37,019
Percentage rent - 328,434 (328,434)
Utility tax reduction (Note 6) - 602,434 (602,434)
Other 1,025,230 1,033,768 (8,538)
Total income 128,360,934 02,849,638 25,511,296
OPERATING EXPENSES
Rent 6,018,750 6,018,750 -
Real estate taxes 18,517,172 19,523,532 (1,006,360)
Wages, contract cleaning and
protection service 13,603,615 13,165,323 438,292
Electricity 7,193,645 7,029,324 164,321
Tenants' and building alterations,
repairs and supplies 10,317,180 6,823,452 3,493,728
Management fees and leasing
commissions (Note 1) 2,005,574 4,687,457 (2,681,883)
Observatory:
Wages 2,587,102 2,278,651 308,451
Contracted labor 2,066,353 2,145,304 (78,951)
Advertising and public relations 367,470 402,858 (35,388)
Payroll taxes and other labor cost 809,567 810,417 (850)
Other taxes and expenses 539,948 348,276 191,672
Steam 1,558,714 1,545,921 12,793
Professional fees (Note 2) 3,130,969 1,502,321 1,628,648
Payroll taxes and other labor costs 3,859,169 3,792,167 67,002
Insurance 733,344 408,345 324,999
Water and sewer 287,154 464,299 (177,145)
Rubbish removal 115,638 175,057 (59,419)
Advertising 894,885 678,149 216,736
Telephone 97,158 113,263 (16,105)
Sprinkler alarm service 127,435 93,662 33,773
Directory service 12,432 25,934 (13,502)
Interest on NYS utility tax 60,619 6,953 53,666
Sales and use tax - 158,601 (158,601)
Interest on sales and use tax - 72,655 (72,655)
Paging and other intercommunication 136,270 137,704 (1,434)"
Dues 31,988 48,691 (16,703)
Utility tax (refund) (129,319) (55,467) (73,852)
Other expenses 273,097 280,516 (7,419)
Total expenses before overage rent 75,215,929 72,682,115 2,533,814
NET OPERATING PROFIT $53,145,005 $30,167,523 $22,977,482
OVERAGE RENT, 50% OF NET OPERATING PROFIT
IN EXCESS OF $1,000,000 $26,072,502 $14,583,762 $11,488,741
-34-
Empire State Building and Observatory
NOTES TO COMBINED STATEMENT OF INCOME
NOTE
1. During 2001, a leasing commission in the amount of $300,000 was paid
to Helmsley-Noyes, Inc., a company in which a member in Empire State Building
Company L.L.C. ("Company") has a controlling interest.
2. Professional fees include payments to Wien & Malkin LLP. A partner in
Wien & Malkin LLP is a member in Company.
3. Litigation
(a) Company is a defendant in an action instituted in the Supreme Court
of the State of New York, County of New York, entitled Magnifique Parfumes
And Cosmetics, Inc. d/b/a Perfumania v. Empire State Building, Inc.
This is an action commenced on or about October 15, 1998 against Company
(incorrectly named in the action as "Empire State Building, Inc.").
This lawsuit which is brought by a tenant in the building seeks at least
$700,000 in damages. In its complaint, plaintiff-tenant alleges that the
Company breached its lease with plaintiff by, among other things, charging
plaintiff for electricity on a submetering basis at a rate which far exceeds
the rate permissable under the lease.
On or about February 2, 1999, the Company served an answer to the
complaint. The answer denied the material allegations of the complaint and
asserted eight affirmative defenses.
On or about February 22, 1999, the Company served an amended answer
and counterclaim. The amended answer denied the material allegations of
the complaint and asserted nine affirmative defenses.
The counterclaim against plaintiff and Perfumania, Inc. (as guarantor)
alleges that plaintiff breached certain obligations under the lease to pay
certain rent, electricity and operating expense charges and owes the Company
$37,312.11 in arrears under the lease.
In or about the Fall of 1999, the parties exchanged discovery demands.
Thereafter, the parties began engaging in settlement discussions and it was
agreed to hold discovery in abeyance. The settlement discussions were never
concluded and nothing further has occurred in the case to date.
In the event plaintiff revives this matter, Company intends to contest
the case vigorously while continuing settlement negotiations.
-35-
Empire State Building and Observatory
NOTES TO COMBINED STATEMENT OF INCOME
NOTE
3. Litigation - Continued
(b) Company was a defendant in an action instituted in the Supreme Court of
the State of New York, County of New York, entitled Duane Reade v. Walgreen
Co. and Empire State Building. This was an action which was brought by a
tenant in the building and commenced on February 14, 2000. Plaintiff alleged,
among other things, that Company misled plaintiff in negotiations for a
renewal of its lease that expired on April 30, 2000, and wrongfully entered
into a lease with Walgreen for the space occupied by plaintiff.
The complaint sought no money damages, but instead sought a judgment
declaring that the lease between Walgreen and Company be deemed a renewal of
the lease between Company and plaintiff, and that plaintiff be substituted
for Walgreen as the tenant under the Walgreen lease. Alternatively, the
complaint sought a judgment declaring that the Walgreen lease is a graft
upon plaintiff's existing lease for its use and benefit and that plaintiff
have all rights of the tenant under the Walgreen lease.
On March 20, 2000, Company and Walgreen each moved to dismiss the
Supreme Court Action as against them. While that motion was pending, on May
2, 2000, Company commenced a holdover proceeding against plaintiff in the
Civil Court of the City of New York, County of New York, seeking, among other
things, a judgment of possession of the premises and the issuance of a warrant
to remove plaintiff (the "Holdover Proceeding").
By Settlement and Surrender Agreement dated as of November 7, 2001,
Company and Duane Reade agreed to settle their claims against one another in
the Supreme Court Action and the Holdover Proceeding on the following terms,
among others; (1) Duane Reade would pay Company $175,000 for Company's legal
fees and expenses; (2) Duane Reade would surrender the premises on January 6,
2002; and (3) the parties' claims against one another in the two actions
would be dismissed with prejudice. That settlement is now final and complete.
(c) NNT Group, Inc. ("NNT") was a purported sub-tenant occupying certain
premises (the "Premises") of the Empire State Building. NNT was evicted
from the Premises and the locks on the Premises were changed pursuant to an
order of eviction. Following the eviction, NNT filed a suit against Company
to recover its property remaining in the Premises. On December 21, 2001, the
court entered an order granting NNT a judgment of possession for the limited
purpose of accessing the Premises to retrieve its personal belongings. At
the time the judge issued the order, NNT threatened to bring an action
against the Company for treble damages and attorneys' fees based on an
allegedly unlawful eviction.
Pursuant to the court's order, Company permitted NNT to retrieve its
personal belongings from the Premises. Subsequently, NNT attempted to gain
access to the Premises and use the Premises to continue operating its
business, without the Company's knowledge or consent. Upon discovering
NNT's attempted and continued unlawful occupation of the Premises, the
Company demanded that NNT vacate the Premises and remove all remaining
property therein, which it did. To date, NNT has not filed any action for
damages or attorneys' fees against the Company. Should it file any such
action, the Company will vigorously defend against it.
-36-
Empire State Building and Observatory
NOTES TO COMBINED STATEMENT OF INCOME
NOTE
4. Liabilities
(a) Company and New York State agreed to a settlement of utility taxes
for the years 1993 through 1997 by payment to the State of tax of
$243,270 plus interest through December 31, 2001 of $185,613, or a total
of $428,883.
(b) The City of New York had asserted a utility tax deficiency in the
amount of $277,125 against Company, through December 31, 1994, in
connection with water, steam and non-metered electricity rent inclusion
charges to tenants, plus accrued interest or approximately $345,603
through April 30, 2000. Company was also liable for an undetermined
amount of additional New York City Utility Tax for periods after
December 31, 1994. Under a settlement reached with New York City,
Company settled all of its utility tax liability for all years by
agreeing to pay any additional Tax for only the year 1997. The City
reviewed the records of Company for 1997 and determined that no
additional utility tax was payable. Accordingly, the prior proposed
assessment of $277,125 plus interest thereon has been cancelled.
The imposition of both New York State and New York City utility taxes
on non-metered electricity rent inclusion charges was repealed effective
January 1, 1998.
(c) Wien & Malkin LLP and Peter L. Malkin, a member in Company, are
engaged in a dispute with Helmsley-Spear, Inc. concerning the management,
leasing and supervision of Company's property. In this connection,
certain legal and professional fees and other expenses have been paid
and incurred by Wien & Malkin LLP and Mr. Malkin and additional costs
are expected to be incurred. Wien & Malkin LLP and Mr. Malkin have
represented that such costs will be recovered only to the extent that
( a ) a competent tribunal authorizes payment by Company or ( b ) a
member voluntarily agrees that his or her proportionate share be paid.
Accordingly, Company has not provided for the expense and related
liability with respect to such costs in these financial statements.
The original action was commenced in June 1997 and was referred to
arbitration. The March 30, 2001 decision of the Arbitrators, which was
confirmed by the court, (i) reaffirms the right of the members to vote
to terminate Helmsley-Spear, Inc. without cause, (ii) dismisses Helmsley
-Spear, Inc.'s claims against Wien & Malkin LLP and Peter L. Malkin,
and (iii) rejects the termination of Helmsley-Spear, Inc. for cause.
Parts of the decision of the court are under appeal.
Irving Schneider, who is one of the controlling principals of Helmsley-
Spear, Inc. and has no record or beneficial interest in Company, has
brought litigation against Company's supervisor, Wien & Malkin LLP, and
member, Mr. Malkin, claiming misconduct and seeking damages and
disqualification from performing services for Company. Wien & Malkin LLP
and Mr. Malkin are defending against these claims.
-37-
Empire State Building and Observatory
NOTES TO COMBINED STATEMENT OF INCOME
NOTE
5. Net real estate tax refund
Company concluded a real estate tax settlement with New York City covering
the period July 1, 1992 through June 30, 2001 resulting in a total savings
of $28,344,576, of which $26,004,965 was refunded in May 2001, and the
balance, $2,339,611, will reduce assessments to be phased in over the next
five years. Expenses attributable to the settlement amounted to $2,393,221,
of which $2,327,062 was for legal fees, and the balance, $66,159, was for
appraisal, accounting, filing fees and miscellaneous disbursements. Wien &
Malkin LLP, received $1,163,531 of the total legal fees paid. A partner in
Wien & Malkin LLP is a member in Company. Other required offsets to the
refund were for tenant credits, and for overage rent adjustments for 1995
and 1996, resulting in net real estate tax refund of $19,001,383 for
overage rent purposes.
6. Utility tax reduction
The reduction in utility tax of $602,434 represents the difference between
the amount of New York State utility tax that had been accrued as opposed
to the actual tax for the years 1993 through 1997 in accordance with a
settlement reached with New York State (See footnote 4).
7. Warrants and Stock
In 2000, Company received shares of common stock and warrants from certain
unrelated companies in exchange for permission for those companies to provide
high speed internet access and other telecommunication services to the
building. Company's lessor received an equal amount of shares and warrants.
Company will receive from 5% to 10% of the revenues generated by such
services from advertising and subscriptions with tenants of the building.
There are restrictions as to the transfer of the stock, and neither the
warrants nor the stock have an ascertainable value as of December 31, 2000
and 2001. Accordingly, these transactions are not reflected in the
accompanying comparative statement of income.
-38-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to Powers of Attorney, dated
August 6, 1996 and May 14, 1998 (collectively, the "Power").
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(Registrant)
By /s/Stanley Katzman
Stanley Katzman, Attorney-in-Fact
Date: April 15, 2002
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
person as Attorney-in-Fact for each of the Partners in Registrant,
pursuant to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 15, 2002
_________________________________
* Mr. Katzman supervises accounting functions for Registrant.
-39-
EXHIBIT INDEX
Number Document Page*
3(a) Registrant's Partnership Agreement dated July
11, 1961, filed as Exhibit No. 1 to
Registrant's Registration Statement on Form
S-1 as amended (the "Registration Statement")
by letter dated August 8, 1962 and assigned
File No. 2-18741, is incorporated by reference
as an exhibit hereto.
3(b) Amended Business Certificate of Registrant
filed with the Clerk of New York County on
August 7, 1998 reflecting a change in the
Partners of Registrant which was filed as
Exhibit 3(b) to Registrant's 10-Q-A for the
quarter ended September 30, 1998 and is
incorporated by reference as an exhibit
hereto.
4 Registrant's form of Participating Agreement,
filed as Exhibit No. 6 to the Registration
Statement by letter dated August 8, 1962 and
assigned File No. 2-18741, is incorporated by
reference as an exhibit hereto.
10(a) Mortgage dated December 21, 1951 from Imperium
Corporation to Prudential Insurance Company of
America ("Prudential"), filed by letter dated
March 31, 1981 (Commission File No. 0-827) as
Exhibit 10(a) to Registrant's Form 10-K for
the fiscal year ended December 31, 1980, is
incorporated by reference as an exhibit
hereto.
10(b) Modification of Indenture of Lease dated
December 27, 1961 between Prudential and
Registrant filed by letter dated March 31,
1981 (Commission File No. 0-827) as Exhibit
10(b) to Registrant's Form 10-K for the fiscal
year ended December 31, 1980, is incorporated
by reference as an exhibit hereto.
____________________________________________
* Page references are based on sequential numbering
system.
-40-
10(e) Modification and Extension Agreement, dated
October 26, 1964 between The Bowery Savings
Bank and Celeritas Realty Corp., filed by
letter dated March 31, 1981 (Commission File
No. 0-827) as Exhibit 10(e) to Registrant's
Form 10-K for the fiscal year ended December
31, 1980, is incorporated by reference as an
exhibit hereto.
24 Powers of Attorney dated August 6,1996 and May
14, 1998, between the Partners of Registrant
and Richard A. Shapiro and Stanley Katzman,
filed as Exhibit 24 to Registrant's 10-Q for
the quarter ended March 31, 1998 and is
incorporated by reference as an exhibit
hereto.
____________________________________________
* Page references are based on sequential numbering
system.
-41-