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, 2002
[] 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 LLC Member 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 27 through 28 of this report.
Number of pages (including exhibits) in this filing: 62
PART I
FORWARD_LOOKING STATEMENTS
Certain information included in this Annual Report
contains or may contain forward-looking statements within the
meaning of Section 27A of the Securities Exchange Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The
Registrant cautions readers that forward-looking statements,
including, without limitation, those relating to the Registrant's
investment policies and objectives; the financial performance of
the Registrant; the ability of the Registrant to service its
debt; the competitive conditions which affect the Registrant's
business; and the Registrant's liquidity and capital resources,
are subject to certain risks and uncertanties. Actual results or
outcomes may differ materially from those described in the
forward-looking statements and will be affected by a variety of
risks and factors, including, without limitation, the
Registrant's future financial performance; the availability of
capital; general market conditions; national and local economic
conditions, particularly long-term interest rates; Federal, state
and local governmental regulations that affect the Registrant;
and the competitive environment in which the Registrant operates,
including, the availability of commercial space in the area where
the Registrant's property is located. The forward-looking
statements are made as of the date of this Annual Report and the
Registrant assumes no obligation to update the forward-looking
statements or to update the reasons actual results could differ
from those projected in such forward-looking statements.
Item 1. Business.
(a) General
Registrant was originally 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. On April 17, 2002, Registrant acquired
through a wholly owned limited liability company (Empire State
Land Associates L.L.C.), the fee title to the Building, and the
land thereunder (the "Land") (together, the "Real Estate"), at a
price of $57,500,000, and obtained a $60,500,000 first mortgage
with North Fork Bank (the "Mortgage") to finance the acquisition
and certain related costs.
The initial term of the master lease (the "Master
Lease")expired on January 5, 1992. On January 30, 1989,
Registrant exercised its first of four 21-year renewal options
contained in the Master Lease and extended the Master Lease
through January 5, 2013.
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Registrant does not operate the Real Estate. It
subleases the Real Estate 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, Anthony 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 limited liability company in
which Peter L. Malkin is a member, and pass-through entities
created by Peter L. Malkin for family members are beneficial
owners. All of the members in Registrant hold senior positions
at 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
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, 2002, the Building was 87.5%
occupied by approximately 859 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 Real
Estate.
(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 was required to pay annual basic rent (the
"Basic Rent") equal to $6,018,750 from January 1, 1992 through
January 4, 2013, and $5,895,625 from January 5, 2013 through the
expiration of all renewal terms. See Item 2. Sublessee is also
required to pay Registrant overage rent of 50% of Sublessee's net
operating profit, as defined in the sublease, in excess of
$1,000,000 for each lease year ending December 31("Overage
Rent").
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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 Real Estate. 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, 2002, 2001
and 2000. There was Overage Rent of $14,476,008 for the year
ended December 31, 2002.
(c) Competition
Pursuant to tenant space leases at the Building, the
average annual base rental payable to Sublessee is approximately
$31.46 per square foot (exclusive of electricity charges and
escalation). The asking rents for the building range from $39 to
$55 per square foot.
(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
operatinn leasehold on the Empire State Building, located at 350
Fifth Avenue, New York, New York. See Item 1 hereof. On April 17,
2002, Registrant acquired, through a wholly owned limited
liability company (Empire State Land Associates L.L.C.), the fee
title to the Building, and the land thereunder, at a price of
$57,500,000, and obtained a $60,500,000 first mortgage with North
Fork Bank to finance the acquisition and certain related costs.
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. -3-
The Real Estate is carried in the financial
statements at a total cost of $60,484,389, consisting of
$57,500,000 for the purchase price paid to the seller, $752,022
for acquisition costs, and $2,232,367 representing the
unamortized balance of the cost of the Master Lease on the date
the Real Estate was acquired. The cost of the Land is estimated
to be 35.63% of the total cost of the Real Estate, and the
Building, 64.37%. Under the terms of the contract of sale and the
deed, there is no merger of the fee estate and the leasehold,
although on a consolidated financial statement basis the
Registrant incurred no leasehold rent expense after acquiring the
Real Estate.
The Mortgage matures on May 1, 2012. Monthly payments
under the mortgage are interest only at a fixed rate of 6.5%
through maturity. Payments commenced on June 1, 2002, except that
short-term interest from the closing until April 30, 2002 was due
on May 1, 2002. The mortgage may be prepaid at any time after 24
months with the payment of a premium equal to the greater of (a)
1% of the amount prepaid and (b) an amount calculated pursuant to
a prepayment formula designed to preserve the Bank's yield to
maturity. The Mortgage loan is secured by a lien on the Real
Estate and Registrant's leasehold estate under the Master Lease
of the Real Estate.
The Building is being depreciated on a straight-line
basis using an estimated life of 39 years from April 17, 2002.
Mortgage financing costs, totaling $1,796,287, are being
amortized ratably over the term of the Mortgage.
Acquisition costs to acquire the Real Estate and
mortgage financing costs include payments totaling $103,587 and
$54,909, respectively, made to the firm of Wien & Malkin LLP, a
related party.
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
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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. 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. The parts of the
decision under appeal were affirmed by the Appellate Division on
December 5, 2002, and were further appealed by Wien & Malkin LLP
and Mr. Malkin on January 13, 2003.
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 Registrant (representing 1/3300th of the interests in
Registrant) against Registrants' Agents, claiming that the Agents
had violated contractual and fiduciary duties and that the
consent of the Participants to Registrants' program for
acquisition and financing of the fee title to the Empire State
Building pursuant to the September 14, 2001 Solicitation was
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. The time for Mr. Schneider to perfect his appeal of the
court's dismissal has expired and the dismissal is now final.
-5-
In April 2002, Leona M. Helmsley, who is a 63.75%
member in Sublessee, brought litigation against Sublessee's
supervisor, Wien & Malkin LLP, and member, Peter L. Malkin,
claiming misconduct and seeking damages and disqualification from
performing services for Sublessee. In December 2002, Mrs.
Helmsley withdrew all her claims and this litigation was
dismissed.
Item 4. Submission of Matters to a Vote of Participants.
No matters were submitted to the Participants during
the period covered by this report.
PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters.
Registrant was originally organized as a general
partnership pursuant to a partnership agreement dated as of July
11, 1961. On October 1, 2001, Registrant converted from a general
partnership to a limited liability company under New York law.
-5-
Registrant has not issued any common stock. The
securities registered by it under the Securities Exchange Act of
1934, as amended, consist of participations in the Members
interests in Registrant (the "Participations") and are not shares
of common stock nor their equivalent. The Participations
represent each Participant's fractional share in a Member's
undivided interest in Registrant and are divided approximately
equally among the Members. 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 are neither 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 212 transfers. In one instance, 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 two instances, the indicated purchase price was
equal to 3.07 times the face amount of the Participation
transferred. In twelve instances, the indicated purchase price
was equal to three times the face amount of the Participation
transferred. In eight instances, the indicated purchase price was
equal to 2.7 times the face amount of the Participation
transferred. In eight instances, the indicated purchase price was
equal to 2.5 times the face amount of the Participation
transferred. In one instance, the indicated purchase price was
equal to 1.5 times the face amount of the participation
transferred. In one instance, the indicated purchase price was
equal to 1.34 times the face amount of the Participation
transferred. In all other cases, no consideration was indicated.
-6-
(b) As of December 31, 2002, there were 2,701 holders
of Participations of record.
(c) Registrant does not pay dividends. During the
year ended December 31, 2002, Registrant made regular monthly
distributions of $98.21 for each $10,000 Participation. There
was Overage Rent earned of $14,476,008 for the year ended
December 31, 2002 which enabled Registrant to make additional
distributions for each $10,000 Participation of $3,412 on March
5, 2003. 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.
-7-
[SELECTED FINANCIAL DATA]
Item 6.
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
SELECTED FINANCIAL DATA
Year ended December 31,
2002 2001 2000 1999 1998
Basic rent income $ 6,018,750 $ 6,018,750 $ 6,018,750 $ 6,018,750 $ 6,018,750
Overage rent income 14,476,008 26,072,502 14,583,762 7,582,109 4,109,852
Dividend and interest
income 152,081 248,948 256,963 144,690 84,615
Miscellaneous income -0- 1,660,904 -0- -0- -0-
Total revenues $20,646,839 $34,001,104 $20,859,475 $13,745,549 $10,213,217
Net income $15,397,298 $29,512,491 $17,315,601 $10,901,065 $ 7,507,228
Earnings per $10,000
participation unit,
based on 3,300
participation units
outstanding during
the year $ 4,666 $ 8,943 $ 5,247 $ 3,303 $ 2,275
Total assets $80,521,663 $32,347,669 $20,842,972 $13,253,481 $ 8,787,638
Long-term obligations $60,500,000 $ - 0 - $ - 0 - $ - 0- $ - 0 -
Distributions per $10,000
participation unit, based
on 3,300 participation
units outstanding
during the year:
Income $ 4,666 $ 5,182 $ 3,185 $ 2,033 $ 1,500
Return of capital 3,513 - 0 - - 0 - - 0 - - 0 -
Total distributions $ 8,179 $ 5,182 $ 3,185 $ 2,033 $ 1,500
-8-
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, 2002. The information
for each of these quarters is unaudited and has been prepared on the same basis
as the audited consolidated 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 consolidated 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,
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
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.
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,
2002 2002 2002 2002
Consolidated Income Data:
Minimum net, basic
rent income $1,504,687 $1,504,688 $1,504,688 $ 1,504,687
Additional rent
income - - - 14,476,008
Dividend and interest
income 99,407 19,296 17,730 15,648
Total revenues 1,604,094 1,523,984 1,522,418 15,996,343
Leasehold rent 492,500 111,387 - (21,889)
Interest on mortgage - 819,271 1,015,896 994,048
Supervisory services 39,854 39,854 39,855 758,520
Depreciation of building - 258,834 310,601 138,771
Amortization of financing
costs - 37,423 44,907 44,907
Amortization of
leasehold 52,117 8,686 - -
Fees and miscellaneous 38,199 15,576 (6,654) 16,878
Total expenses 622,670 1,291,031 1,404,605 1,931,235
Net income $ 981,424 $ 232,953 $ 117,813 $14,065,108
Earnings per $10,000
participation unit, based
on 3,300 participation
units outstanding during
each period $ 297 $ 71 $ 36 $ 4,262
-10-
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Cautionary Statement Identifying Important Factors That
Could Cause Registrant Actual Results to Differ From Those
Projected in Forward-Looking Statements.
Readers of this discussion are advised that the
discussion should be read in conjunction with the consolidated
financial statements of Registrant (including related notes
thereto) appearing elsewhere in this Form 10-K. Certain
statements in this discussion may constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements reflect
Registrant's current expectations regarding future results of
operations, economic performance, financial condition and
achievements of Registrant, and do not relate strictly to
historical or current facts. Registrant has tried, wherever
possible, to identify these forward-looking statements by using
words such as "believe", "expect", "anticipate", "intend",
"plan", "estimate" or words of similar meaning.
Although Registrant believes that the expectations
reflected in such forward-looking statements are based on
reasonable assumptions, such statements are subject to risks and
uncertainties, which may cause the actual results to differ
materially from those projected. Such factors include, but are
not limited to, the following: general economic and business
conditions, which will, among other things, affect demand for
rental space, the availability of prospective tenants, lease
rents and the availability of financing; adverse changes in
Registrant's real estate market, including, among other things,
competition with other real estate owners, risks of real estate
development and acquisitions; governmental actions and
initiatives; and environmental/safety requirements.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The Securities and Exchange Commission ("SEC") recently
issued disclosure guidance for "Critical Accounting Policies".
The SEC defines Critical Accounting Policies as those that
require the application of Management's most difficult,
subjective, or complex judgments, often because of the need to
make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.
The discussion and analysis of Registrant's financial
condition and results of operations are based upon its financial
statements, the preparation of which takes into account estimates
based on judgments and assumptions that affect certain amounts
and disclosures. Accordingly, actual results could differ from
these estimates. The accounting policies and estimates used and
outlined in Note 2 to Registrant's financial statements, which
are presented elsewhere in this annual report, have been applied
consistently as at December 31, 2002 and 2001, and for the years
ended December 31, 2002, 2001 and 2000. Registrant's
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representatives who are involved in the preparation of its
financial statements and this report believe that the following
accounting policies or estimates require the application of
Management's most difficult, subjective, or complex judgments:
Valuation of Long-Lived Assets: Registrant periodically
assesses the carrying value of long-lived assets
whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. When
Registrant determines that the carrying value of long-
lived assets may be impaired, the measurement of any
impairment is based on a projected discounted cash
flows method determined by Registrant's advisers. While
Registrant's representatives who are involved in the
preparation of its financial statements and this report
believe that such discounted cash flow methods are
reasonable, different assumptions regarding such cash
flows may significantly affect the measurement of
impairment.
-12-
Revenue Recognition: Basic rent and additional rent,
which is based on the lessee's annual net income as
defined in the lease, are recognized when earned.
Before Registrant can recognize revenue, it is required
to assess, among other things, its collectibility. If
the collectibility of revenue is incorrectly
determined, Registrant's net income and assets could be
overstated.
Registrant was organized for the initial purpose of
acquiring the Master Lease of the Real Estate 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 and other
accumulated interest and dividend income 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
Real Estate.
The supervisory services provided to Registrant by
Supervisor include, but are not limited to, providing or
coordinating counsel services 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 Sublessee, 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 Sublessee 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 pays Supervisor for other services at hourly
rates.
-13-
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 market.
As compared with the prior year, a decrease in Overage
Rent earned in any year reduces the distributions made to the
Participants in the following year 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 8 of the Notes.
The following summarizes the material factors affecting
Registrant's results of operations for the three preceding years:
(a) Total income decreased for the year ended December 31, 2002
as compared with the year ended December 31, 2001. Such
decrease was the result of a decrease in Overage Rent
received by Registrant in 2002 and a decrease in dividend
and interest income earned as compared with the year ended
December 31, 2001. Total income increased for the year
ended December 31, 2001 as compared with the year ended
December 31, 2000. Such increase was the net result of an
increase in Overage Rent in the year 2001 and a decrease in
dividend and interest income earned as compared with the
year ended December 31, 2000. All years were affected by
the receipt of miscellaneous income only in the year 2001.
See Note 3 of the Notes.
(b) Total expenses increased for the year ended December 31,
2002 as compared with the year ended December 31, 2001.
Such increase is the net result of the incurrence of
interest expense on the mortgage, depreciation on the
building and amortization of financing costs and a decrease
in additional payment for supervisory services and
professional fees as compared with the year ended December
31, 2001. Total expenses increased for the year ended
December 31, 2001 as compared with the year ended December
31, 2000. 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.
During the twelve months ended December 31, 2002,
previously accrued fees of $118,500 were paid to the firm of Wien
& Malkin LLP, a related party.
During 2002, fees of $13,964 were paid to the firm of
Wien & Malkin LLP, a related party.
During 2001 Registrant received from the Sublessee and
reflected in its financial statements as miscellaneous income,
$1,660,904 as a reimbursement for fees and disbursements
previously incurred.
-14-
Sublessee was liable for New York State Utility Tax for
periods after December 31, 1992 through 1997. The State has
settled all utility taxes for the years 1993 through 1997 with a
payment of $243,270 plus accrued interest of approximately
$183,613 through December 31, 2001. Payment of $428,883 in
connection with the foregoing was made by Sublessee on February
1, 2002. A final payment of $2,129 was made on March 15, 2002.
Liquidity and Capital Resources
Registrant's liquidity has decreased at December 31,
2002 as compared to December 31, 2001 as a result of a decrease
in the amount of overage rent earned in 2002. Registrant may from
time to time establish a reserve for contingent or unforeseen
liabilities.
No amortization payments are due under the Mortgage to
reduce the outstanding principal balance prior to maturity.
Furthermore, Registrant does not maintain any reserve to cover
the principal payment of such Mortgage indebtedness at maturity.
Therefore, repayment of the Mortgage will depend on Registrant's
ability to arrange a refinancing. Assuming that the Real Estate
continues to generate an annual net profit in future years
comparable to that in past years, Registrant anticipates that the
value of the Master Lease and Real Estate would be well in excess
of the amount of the Mortgage balance at maturity.
Registrant anticipates that funds for working capital
will be generated by operations of the Building by Sublessee,
which entity in turn is required to make payments of Basic Rent
and Overage Rent under the Sublease and, to the extent necessary,
from additional capital investment by the members of the
Sublessee and/or external financing.
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 Real Estate.
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 is to maintain the Building as a high-
class office building as required by the terms of the Sublease.
Based on Sublessee's review of the need for upgrades
and improvements to the property, it is projected by Sublessee
that improvement costs of approximately $8,000,000 will be
incurred in 2003.
The Sublessee anticipates that the costs of
improvements to be incurred will reduce Overage Rent during the
year 2003 but should have no effect on the payment of Basic Rent.
-15-
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the
accompanying reports 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.
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
Member as of December 31, 2002 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 69 Father of Real Estate Senior Partner 1961
Anthony E. Supervision and Chairman
Malkin Wien & Malkin
LLP
Thomas N. Keltner,
Jr. 56 None Real Estate Partner 1998
Supervision Wien & Malkin
LLP
Anthony E. Malkin 40 Son of Real estate Senior Director 2001
Peter L. Supervision of Supervisory Services
Malkin and of Wien & Malkin LLP
Management and President of W&M
Properties, L.L.C.
As stated above, all of the members hold senior
positions at 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.
-16-
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 Members are either a director, member
or general partner are as follows:
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, 2002 by Registrant to any of the Agents as
such. Registrant pays Supervisor, for supervisory services and
disbursements, fees of $159,417 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 incurred Supervisory fees during
2002 totaling $878,083 (consisting of $159,417 as an annual basic
payment for supervisory services and $718,666 as an additional
payment for supervisory services) for supervisory services
rendered during the fiscal year ended December 31, 2002. See
Item 7 hereof. As noted in Items 1 and 10 of this report, all of
the Agents hold senior positions at Supervisor.
-17-
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities. See Item 5
hereof. At December 31, 2002, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 2002, 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, $252,500 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
$562,916 of Participations. Peter L. Malkin disclaims
any beneficial ownership of such Participations, except
that related Trusts are required to complete scheduled
payments to Peter L. 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.
-18-
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 member interests. Mr. Peter L. Malkin is
also a member in Sublessee. As a consequence of one of the three
members being a member in Sublessee, and all of the members
holding senior positions at 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 Agents
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 Peter
L. Malkin, his family entities' ownership of member interests in
Sublessee. The Members receive no extra or special benefit not
shared on a pro rata basis with all other Participants of
Registrant or members in Sublessee. However, all of the members
hold senior positions at Supervisor (which supervises Registrant
and Sublessee) and by reason of their position at Supervisor, may
receive income attributable to supervisory 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 all of the Agents 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.
-19-
Item 14. Evaluation of Disclosure Controls and Internal
Control Procedures.
(a) Evaluation of disclosure controls and procedures.
Our Supervisor, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as
of a date (the "Evaluation Date") within 90 days before the
filing date of this annual report, has concluded that, as of the
Evaluation Date, our disclosure controls and procedures were
adequate and designed to ensure that information required to be
disclosed in the reports filed or submitted by us under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the required time periods.
(b) Changes in internal controls. There were no
significant changes in our internal controls or in other factors
that could significantly affect our internal controls subsequent
to the date of their evaluation.
-20-
PART IV
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 10-K.
(a)(1) Financial Statements:
Independent Accountant's Report of J.H. Cohn LLP,
dated March 19, 2003.
Consolidated Balance Sheets at December 31, 2002 and at
December 31, 2001 (Exhibit A).
Consolidated Statements of Income for the fiscal years
ended December 31, 2002, 2001, and 2000 (Exhibit B).
Consolidated Statement of Members' Equity for the
fiscal year ended December 31, 2002 (Exhibit C-1).
Consolidated Statement of Members' Equity for the
fiscal year ended December 31, 2001 (Exhibit C-2).
Consolidated Statement of Members' Equity for the
fiscal year ended December 31, 2000 (Exhibit C-3).
Consolidated Statements of Cash Flows for the fiscal
years ended December 31, 2002, 2001 and 2000 (Exhibit
D).
Notes to Consolidated Financial Statements for the
fiscal years ended December 31, 2002, 2001 and 2000.
Consent of McGrath, Doyle & Phair, Certified Public
Accountants, dated March 19, 2003.
Accountant's Comparative Combined Statement of Income
(Sublessee) of McGrath, Doyle & Phair, Certified Public
Accountants, dated March 19, 2003.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation -
December 31, 2002 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) Registrant filed a Form 8-K on May 8, 2002.
-21-
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
Members 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, 2003
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 Members in Registrant,
pursuant to the Power, on behalf of Registrant and as a Member in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 15, 2003
_________________________________
* Mr. Katzman supervises accounting functions for Registrant.
-22-
CERTIFICATIONS
I, Stanley Katzman, certify that:
(1) I have reviewed this annual report on Form 10-K of
Empire State Building Associates L.L.C.;
(2) Based on my knowledge, this annual 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 annual report;
(3) Based on my knowledge, the financial statements, and
other financial information included in this annual
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the period
presented in this annual report;
(4) The registrant's 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 registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities
particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing
the equivalent functions):
-23-
(a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's 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 registrant's internal controls; and
(6) The registrant's other certifying officers and I have
indicated in this annual report whether 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: April 15, 2003
By /s/ Stanley Katzman
Name: Stanley Katzman
Title: Member of Wien & Malkin
LLP, Supervisor of Empire State
Building Associates L.L.C.
-24-
CERTIFICATIONS
I, Stanley Katzman, certify that:
(1) I have reviewed this annual report on Form 10-K of Empire
State Building Associates L.L.C.;
(2) Based on my knowledge, this annual 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 annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the period presented in this annual report;
(4) The registrant's 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 registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities
particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
(c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
25-
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
(6) The registrant's other certifying officers and I have
indicated in this annual report whether 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: April 15, 2003
By /s/ Stanley Katzman
Name: Stanley Katzman
Title: Senior Member of
Financial/Accounting Staff of Wien
& Malkin LLP, Supervisor of Empire
State Building Associates L.L.C.
-26-
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.
3(c) Registrant's Consent and Operating
Agreement dated as of September 30, 2001
3(d) Certificate of Conversion of Registrant
to a limited liability company dated October
1, 2001 filed with the New York Secretary of
State on October 3, 2001.
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
-27-
EXHIBIT INDEX (cont.)
Number Document Page*
to Registrant's Form 10-K for the fiscal year
ended December 31, 1980, is incorporated by
reference as an exhibit hereto.
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, 1999 between the Partners of
Registrant and Stanley Katzman and
Richard A. Shapiro which was filed as
Exhibit 24 to Registrant's 10-Q for the
quarter ended June 30, 1999 and is
incorporated herein by reference.
99 (1) Chief Executive Officer Certification pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002
99 (2) Chief Financial Officer Certification pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002
____________________________________________
* Page references are based on sequential numbering
system.
-28-
Exhibit 99(1)
Empire State Building Associates L.L.C.
Chief Executive Officer Certification
Pursuant to Section 906
of Sarbanes - Oxley Act of 2002
The undersigned, Stanley Katzman, is signing this Chief
Executive Officer certification as a member of Wien & Malkin LLP,
the supervisor * of Empire State Building Associates
L.L.C.("Registrant") to certify that:
(1) the Annual Report on Form 10-K of Registrant for the period
ended December 31, 2002(the "Report") fully complies with
the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934(15 U.S.C.78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of Registrant.
Dated: April 15, 2003
By /s/ Stanley Katzman
Stanley Katzman
Wien & Malkin LLP, Supervisor
*Registrant's organizational documents do not provide for a Chief
Executive Officer or other officer with equivalent rights and
duties. As described in the Report, Registrant is a limited
liability company which is supervised by Wien & Malkin LLP.
Accordingly, this Chief Executive Officer certification is being
signed by a member of Registrant's supervisor.
-29-
Exhibit 99(2)
Empire State Building Associates L.L.C.
Chief Financial Officer Certification
Pursuant to Section 906
of Sarbanes - Oxley Act of 2002
The undersigned, Stanley Katzman, is signing this Chief
Financial Officer certification as a senior member of the
financial/accounting staff of Wien & Malkin LLP, the supervisor*
of Empire State Building Associates L.L.C.("Registrant"), to
certify that:
(1) the Annual Report on Form 10-K of Registrant for the period
ended December 31, 2002(the "Report") fully complies with
the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934(15 U.S.C.78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of Registrant.
Dated: April 15, 2003
By /s/ Stanley Katzman
Stanley Katzman
Wien & Malkin LLP, Supervisor
*Registrant's organizational documents do not provide for a Chief
Financial Officer or other officer with equivalent rights and
duties. As described in the Report, Registrant is a limited
liability company which is supervised by Wien & Malkin LLP.
Accordingly, this Chief Financial Officer certification is being
signed by a senior member of the financial/accounting staff of
Registrant's supervisor.
`` -30-
[LETTERHEAD OF J.H. COHN LLP]
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 consolidated balance sheets of Empire
State Building Associates L.L.C. ("Associates") as of December 31, 2002
and 2001, and the related consolidated statements of income, members'
equity and cash flows for each of the three years in the period ended
December 31, 2002, and the supporting financial statement schedule as
contained in Item 15(a)(2) of this Form 10-K. These consolidated
financial statements and schedule are the responsibility of Associates'
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated 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, 2002 and
2001, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2002 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 19, 2003
-31-
EXHIBIT A
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31,
2002 2001
Current assets:
Cash and cash equivalents (Note 14):
JPMorgan Chase Bank $ 34,526 $ 3,739
North Fork Bank 883,620 -
Distribution account held by
Wien & Malkin LLP 324,111 324,111
Fidelity U.S. Treasury Income Portfolio 16,358,165 29,520,266
17,600,422 29,848,116
Additional rent due from Empire State
Building Company L.L.C., a related party 1,476,008 72,502
Prepaid rent - 23,831
TOTAL CURRENT ASSETS 19,076,430 29,944,449
Real estate (Notes 2b and 6):
Leasehold on Empire State Building,
350 Fifth Avenue, New York, N.Y. - 39,000,000
Less: Accumulated amortization - 36,706,830
- 2,293,170
Building:
Empire State Building,
350 Fifth Avenue, New York, N. Y 38,933,801 -
Less: Accumulated depreciation 708,206 -
38,225,595 -
Land 21,550,588 -
TOTAL REAL ESTATE 59,776,183 2,293,170
Other assets:
Deferred charges - 110,050
Mortgage financing costs (Note 2c) 1,796,287 -
Less: accumulated amortization 127,237 -
TOTAL OTHER ASSETS 1,669,050 110,050
TOTAL ASSETS $80,521,663 $32,347,669
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accrued professional fees, including amounts due
to a related party (Note 11) $ - $ 316,804
Accrued supervisory services, to a
related party (Note 5) 718,669 1,474,468
Accrued mortgage interest 338,632 -
TOTAL CURRENT LIABILITIES 1,057,301 1,791,272
Long-term liabilities:
Bonds, mortgages and similar debt:
First mortgage payable (Note 6) 60,500,000 -
TOTAL LIABILITIES 61,557,301 1,791,272
Contingencies (Notes 10 and 12)
Members' equity (Exhibit C) 18,964,362 30,556,397
TOTAL LIABILITIES AND MEMBERS' EQUITY $80,521,663 $32,347,669
See accompanying notes to consolidated financial statements.
-32-
EXHIBIT B
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
2002 2001 2000
Revenues:
Rent income, from a related party
(Note 3) $20,494,758 $32,091,252 $20,602,512
Miscellaneous income (Note 11) - 1,660,904 -
Dividend and interest income 152,081 248,948 256,963
20,646,839 34,001,104 20,859,475
Expenses:
Leasehold rent (Note 4) 581,998 1,970,000 1,970,000
Interest on mortgage (Note 6) 2,829,215 - -
Supervisory services, to a related
party (Note 5) 878,083 1,633,885 1,002,727
Depreciation of building 708,206 - -
Professional fees and miscellaneous,
including amounts to a related
party (Note 11) 63,999 676,260 362,679
Amortization of financing costs 127,237 - -
Amortization of leasehold (Note 2b) 60,803 208,468 208,468
Total expenses 5,249,541 4,488,613 3,543,874
NET INCOME, CARRIED TO MEMBERS'
EQUITY (NOTE 9) $15,397,298 $29,512,491 $17,315,601
Earnings per $10,000 participation unit, based
on 3,300 participation units outstanding
during each year $ 4,666 $ 8,943 $ 5,247
See accompanying notes to consolidated financial statements.
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EXHIBIT C-1
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 2002
Members' Members'
Equity Equity
January 1, Share of December 31,
2002 net income Distributions 2002
Anthony E. Malkin Group $10,185,466 $ 5,132,433 $ 8,996,444 $ 6,321,455
Thomas N. Keltner,
Jr. Group 10,185,465 5,132,433 8,996,444 6,321,454
Peter L. Malkin Group 10,185,466 5,132,432 8,996,445 6,321,453
$30,556,397 $15,397,298 $26,989,333 $18,964,362
See accompanying notes to consolidated financial statements.
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EXHIBIT C-2
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
CONSOLIDATED 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 consolidated financial statements.
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EXHIBIT C-3
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
CONSOLIDATED 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 consolidated financial statements.
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EXHIBIT D
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
CONSOLDIATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $ 15,397,298 $ 29,512,491 $ 17,315,601
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of leasehold 60,803 208,468 208,468
Amortization of financing costs 127,237 - -
Depreciation of building 708,206 - -
Changes in operating assets and liabilities:
Additional rent due from Empire State
Building Company L.L.C., a related party (1,403,506) 2,511,260 (1,601,653)
Deferred charges 110,050 (110,050) -
Accrued supervisory services,
to a related party (755,799) 631,158 420,744
Accrued professional fees,
to a related party (316,804) (1,537,761) 362,679
Accrued mortgage interest 338,632 - -
Prepaid rent 23,831 - -
Net cash provided by
operating activities 14,289,948 31,215,566 16,705,839
Cash flows from investing activities:
Purchase of real estate (58,252,022) - -
Net cash used in
investing activities (58,252,022) - -
Cash flows from financing activities:
Proceeds from mortgage payable 60,500,000 - -
Payment of mortgage financing costs (1,796,287) - -
Cash distributions (26,989,333) (17,101,191) (10,509,533)
Net cash provided by (used in)
financing activities 31,714,380 (17,101,191) (10,509,533)
Net increase (decrease)in cash
and cash equivalents (12,247,694) 14,114,375 6,196,306
Cash and cash equivalents, beginning of year 29,848,116 15,733,741 9,537,435
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 17,600,422 $29,848,116 $15,733,741
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,490,583 - -
See accompanying notes to consolidated financial statements.
-37-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Activity, Purchase of Real Estate and Reorganization
Through April 16, 2002, Empire State Building Associates L.L.C. ("Associates")
owned the tenant's interest in a master operating leasehold (the "Master
Lease") on the Empire State Building (the "Building"), located at 350 Fifth
Avenue, New York, New York. Associates subleases the property to Empire State
Building Company L.L.C. ("Company"). On April 17, 2002 Associates acquired,
through a wholly-owned limited liability company, the fee title to the Building
and to the land thereunder (the "Land"), (together, the "Real Estate"). The
consolidated financial statements include the accounts of Empire State
Building Associates L.L.C. and, effective April 17, 2002,its wholly-owned
limited liability company, Empire State Land Associates L.L.C. All
intercompany accounts and transactions have been eliminated in consolidation.
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, Leasehold Amortization and Depreciation of Building
The Real Estate is stated at cost. Amortization of the leasehold was being
computed through its first renewal term by the straight-line method over its
estimated useful life of 25 years. Amortization for 2002 was taken until the
date of the purchase of the building (Note 1). The Real Estate is carried in
the financial statements at a total cost of $60,484,389, consisting of
$57,500,000 for the purchase price, $752,022 for acquisition costs and
$2,232,367 representing the unamortized balance of the cost of the Master Lease
on the date the Real Estate was acquired. Based on an appraisal of the Real
Estate and the opinion of counsel, the cost of the Real Estate was allocated
to Land ($21,550,588), 35.63%, and Building ($38,933,801), 64.37%. Under the
terms of the contract of sale, the deed contains language to avoid the merger
of the fee estate and the leasehold, although on a consolidated financial
statement basis Associates incurred no leasehold rent expense after acquiring
the Real Estate.
The Building is being depreciated on a straight-line basis using an estimated
life of 39 years from April 17, 2002.
c. Mortgage Financing Costs and Amortization
Mortgage financing costs, totaling $1,796,287 are being amortized ratably over
the life of the mortgage (see Note 6).
d. Valuation of Long-Lived Assets
Associates periodically assesses the carrying value of long-lived assets
whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable. When Associates determines that the carrying value of
long-lived assets may be impaired, the measurement of any impairment is based
on a projected discounted cash flows method.
-38-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Summary of Significant Accounting Policies (continued)
e. Revenue Recognition
Minimum basic rent and additional rent, which is based on the sublessee's
annual net income, as defined in the sublease, are recognized when earned.
f. 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, 2002, 2001 and 2000 totaling
$20,494,758, $32,091,252 and $20,602,512, 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,
2002 2001 2000
Minimum net basic rent $ 6,018,750 $ 6,018,750 $ 6,018,750
Additional rent earned 14,476,008 26,072,502 14,583,762
$20,494,758 $32,091,252 $20,602,512
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.
Some members in Associates are also members in the Sublessee.
4. Leasehold Rent
The initial term of the Master Lease expired on January 5, 1992. On January 30,
1989, Registrant exercised its first of four 21-year renewal options contained
in the Master Lease and extended the Master Lease through January 5, 2013. The
annual rent payable under the Master Lease was $1,970,000 through January 5,
2013 and $1,723,750 annually during the term of each renewal period thereafter.
Prior to the acquisition of the Real Estate in April 2002, the value of the
Master Lease was stated at cost and amortized using the straight-line method
over its lease term. Since the unamortized cost of the Master Lease is included
as part of the cost of the Real Estate as of April 17, 2002, no amortization has
been taken since that date.
-39-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular accounting
services) during the years ended December 31, 2002, 2001 and 2000, totaling
$878,083, $1,633,885 and $1,002,727, 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. First Mortgage Payable
To finance the acquisition of the fee title to the Building and certain related
costs Associates obtained a $60,500,000 first mortgage with North Fork Bank.
The mortgage matures on May 1, 2012. Monthly payments under the mortgage are
interest only at a fixed rate 6.5% through maturity. Payments commenced on
June 1, 2002, except that short-term interest from the closing until April 30,
2002 was due on May 1, 2002. The mortgage may be prepaid at any time after 24
months with the payment of a premium equal to the greater of (a) 1% of the
amount paid and (b) an amount calculated pursuant to a prepayment formula
designed to preserve the bank's yield to maturity.
The mortgage loan is secured by a lien on the Real Estate and Associates'
leasehold estate under the Master Lease of the Real Estate.
The estimated fair value of Associates' mortgage debt, based on available
market information or other appropriate valuation methodologies, was
$64,700,000 at December 31, 2002.
7. Number of Participants
There were approximately 2,675 participants in the participating groups at
December 31, 2002, 2001 and 2000.
8. Determination of Distributions to Participants
Distributions to participants during each year generally reflect the excess
of the current year's minimum annual rent income, plus additional rent income
and dividend income earned in the prior year, over the cash expenses and
mortgage requirements of the current year, adjusted for those cash reserves
management judges to be suitable under the circumstances.
-40-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Distributions and Amount of Income per $10,000 Participation Unit
Distributions per $10,000 participation unit during the years 2002, 2001
and 2000 based on 3,300 participation units outstanding during each
year, consisted of the following:
Year ended December 31,
2002 2001 2000
Income $4,666 $5,182 $3,185
Return of capital 3,513 - -
TOTAL DISTRIBUTIONS $8,179 $5,182 $3,185
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.
10. Litigation
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 members of Empire State Building Associates L.L.C. who
act as agents for the participant investors (the "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 a September 14, 2001
solicitation of participants, 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. The time for Mr. Schneider to perfect his appeal of the Court's
dismissal has expired and the dismissal is now final.
Associates has paid the defense costs in this action for professional fees and
disbursements, of which $157,863 has been incurred through December 31, 2002.
In April 2002, Leona M. Helmsley, who is a 63.75% member in Company, brought
litigation against Company's supervisor, Wien & Malkin, and member, Peter L.
Malkin, claiming misconduct and seeking damages and disqualification from
performing services for the sublessee. In December 2002 Mrs. Helmsley
withdrew all her claims and this litigation was dismissed.
-41-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. Related Party Transactions - Miscellaneous Income and Professional Fees
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 the Agents of Empire
State Building Associates L.L.C.
The accompanying statements of income reflect legal fees paid or owed to Wien
& Malkin LLP, a related party (Note 5), as follows:
2002 2001 2000
Reimbursement owing to Agents
of their legal and accounting
expenses relating to suit
by Julien Studley $ - $120,009 $219,386
Other payments made or accrued 14,935 392,809 143,293
$ 14,935 $512,818 $362,679
Accrued professional fees at December 31, 2001 include $220,749 owed to Wien
& Malkin.
12. Contingencies
Wien & Malkin and Peter L. Malkin, a member in Company, have been engaged in a
proceeding with Company's managing agent, Helmsley-Spear, Inc. commenced in
1997, 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 and Mr. Malkin, and additional costs are expected to
be incurred. Wien & Malkin and Mr. Malkin have represented that such costs will
be recovered only to the extent that (a) competent tribunal authorizes payment
or (b) an investor 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 consolidated 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 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. The parts of the decision under appeal were affirmed by the
Appellate Division on December 5, 2002, and were further appealed by Wien &
Malkin and Mr. Malkin on January 13, 2003.
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 consolidated financial statements do not
reflect any value for these securities.
-42-
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. Concentration of Credit Risk
Associates maintains cash balances in two banks, money market funds (Fidelity
U.S. Treasury Income Portfolio) and a distribution account held by Wien &
Malkin LLP. The balance in each bank is insured by the Federal Deposit
Insurance Corporation up to $100,000, and at December 31, 2002 there was an
uninsured balance of $784,000. The cash in the money market funds and the
distribution account held by Wien & Malkin are not insured. The funds held
in the distribution account were paid to the participants on January 1, 2003.
15. Reclassifications
As a result of the conversion of Associates in 2001 to a limited liability
company (Note 1), certain accounts in the 2000 financial statements have
been reclassified to conform with subsequent year presentation.
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.
-43-
SCHEDULE III
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(A Limited Liability Company)
Real Estate and Accumulated Depreciation
December 31, 2002
Column
A Description Land and building situated
at 350 Fifth Avenue, New York, New York.
B Encumbrances -
North Fork Bank
Balance at December 31, 2002 $60,500,000
C Initial cost to company
Land and building.......................................$60,484,389
D Cost capitalized subsequent to acquisition................ None
E Gross amount at which carried at
close of period (See Note 2 of Notes to Consolidated Financials
Statements)
Land........................................... $21,550,588
Building 38,933,801
Total $60,484,389(a)
F Accumulated depreciation .............................. $ 708,206(b)
G Date of construction 1931
H Date acquired April 17, 2002
I Life on which depreciation of building in
latest income statements is computed 39 years
(a) Gross amount of real estate
Balance at January 1, 2002 $ -
Purchase of real estate:
F/Y/E 12/31/02 60,484,389
Balance at December 31, 2002 $60,484,389
The costs for federal income tax purposes are the same
as for financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 2002 $ -
Depreciation:
F/Y/E 12/31/02 708,206
Balance at December 31, 2002 $ 708,206
-44-