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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, 2000
[] 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 0-2670
60 EAST 42ND ST. ASSOCIATES
(Exact name of registrant as specified in its charter)
New York 13-6077181
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:
$7,000,000 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 34 through 36 of this Report.
Number of pages (including exhibits) in this filing: 52
PART I
Item 1. Business.
(a) General
Registrant is a partnership which was organized on
September 25, 1958. On October 1, 1958, Registrant acquired fee
title to the Lincoln Building (the "Building") and the land
thereunder, located at 60 East 42nd Street, New York, New York (the
"Property") Registrant's partners are Jack K. Feirman, Mark Labell,
Anthony E. Malkin, Scott D. Malkin, Thomas N. Keltner, Jr., Peter
L. Malkin, and Richard A. Shapiro (individually, a "Partner" and,
collectively, the "Partners"), each of whom also acts as an agent
for holders of participations in the Registrant (each holder of a
participation, individually, a "Participant" and, collectively, the
"Participants"). Registrant leases the Property to Lincoln
Building Associates (the "Lessee") under a long-term net operating
lease (the "Lease") the current term of which expires on September
30, 2008. There is one additional 25-year renewal term which, if
exercised, will extend the Lease until September 30, 2033. See Item
2 below in connection with the granting of additional lease
extensions.
Lessee is a partnership whose members consist of, among
others, Mr. Peter Malkin. Five of the seven Partners in Registrant
are current members of Wien & Malkin LLP, 60 East 42nd Street, New
York, New York, which provides supervisory and other services to
Registrant and to Lessee (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 actual or potential conflicts
of interest among Registrant, Lessee and certain of their
respective affiliates.
As of December 31, 2000, the Building was approximately
98% occupied by approximately 579 tenants who engage principally in
the practice of law, accounting, real estate, engineering and
advertising. Registrant does not maintain a full-time staff. See
Item 2 hereof for additional information concerning the Property.
(b) The Mortgages
A new mortgage loan on the Property was closed on October
6, 1994 (the "Mortgage Loan"). The material terms of the Mortgage
Loan are as follows:
(i) A principal amount of $12,020,814;
(ii) Annual charges of $1,063,842, payable in equal
monthly installments of $88,654, representing interest only at the
rate of 8.85% per annum;
(iii) A term of ten years; and
(iv) A maturity date of October 31, 2004. The Mortgage
Loan is prepayable in whole after October 6, 1995, with a penalty
providing certain interest protection to the mortgagee. The
Mortgage Loan is prepayable in whole without penalty during the
90-day period prior to its maturity date.
The refinancing costs were capitalized by Registrant and
are being expensed ratably during the period of the mortgage
extension from October 6, 1994 to October 31, 2004.
(v) A second mortgage loan with Emigrant Savings
Bank in the amount of $27,979,186 was closed on March 9, 2000 and
advances of $7,000,000 have been taken as of December 31, 2000.
Monthly payments of interest only at the rate of 8.21% per annum
apply to the advances made through September 30, 2000. Amounts
advanced from October 1, 2000 through September 30, 2002 and
amounts in excess of $7,000,000 are at interest only at the 30 day
LIBOR rate. Amounts advanced after October 1, 2002 require
interest only payments at 1.65 points in excess of the yield on
U.S. Treasury Securities. Maturity is October 31, 2004.
During the prepayment period, Borrower has the option to
prepay the second mortgage note in whole only, on the first day of
any month upon (i) prior written notice given by prepaid registered
or certified mail at least sixty (60) days prior to the date fixed
for prepayment and (ii) the payment of the prepayment premium plus
accrued interest. There shall be no prepayment premium after
October 1, 2004 to and including the Maturity Date.
(c) The Lease
The Lease, as modified March 1, 2000, provides that
Lessee is required to pay Registrant:
(i) annual basic rent (the "Basic Rent") equal to the
sum of $24,000 for supervisory services payable to Supervisor plus
the constant installment payments of interest and amortization
(excluding any balloon principal due at maturity) payable during
such year under all mortgages to which the Lease is subordinate,
provided that the agggregate principal balance of all mortgages now
or hereafter placed on the Property does not exceed $40,000,000
plus refinancing costs.
(ii) (A) additional rent (the "Additional Rent") equal to
the lesser of (x) Lessee's net operating income for the lease year
or (y) $1,053,800 and (B) further additional rent ("Further
Additional Rent") equal to 50% of any remaining balance of Lessee's
net operating income for such lease year. (Lessee has no
obligation to make any payment of Additional Rent or Further
Additional Rent until after Lessee has recouped any cumulative
operating loss accruing from and after September 30, 1977. There
is currently no accumulated operating loss against which to offset
payment of Additional Rent or Further Additional Rent.)
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(iii) An advance against Additional Rent equal to the
lesser of (x) Lessee's net operating income for the preceding lease
year or (y) $1,053,800, which, in the latter amount, will permit
basic distributions to Participants at an annual rate of
approximately 14.95% per annum on their remaining cash investment
in Registrant; provided, however, if such advances exceed Lessee's
net operating income for any Lease year, advances otherwise re-
quired during the subsequent lease year shall be reduced by an
amount equal to such excess until Lessee shall have recovered,
through retention of net operating income, the full amount of such
excess. After the participants have received distributions equal to
a return of 14% per annum, $7,380 is paid to Supervisor from the
advances against Additional Rent. Further Additional Rent income is
recognized when earned from the Lessee, at the close of the lease
year ending September 30. Such income is not determinable until the
Lessee, renders to Registrant a report on the operation of the
property. Further Additional Rent for the lease year ended
September 30, 2000 was $6,173,375. After the payment of $617,337 to
Supervisor as an additional payment for supervisory services, the
balance of $5,556,038 was distributed to the Participants on
November 30, 2000.
If the Mortgage is modified, the Basic Rent shall be
equal to the Wien & Malkin LLP annual supervisory fee of $24,000
plus an amount equal to the annual debt service payments under the
refinanced mortgage ( not including any balloon principal payment
due at maturity).
(d) Competition
Pursuant to tenant space leases at the Building, the
average base rent payable to Lessee is approximately $33.33 per
square foot (exclusive of electricity charges and escalation) and
current deals range from $52 to $60.
(e) Tenant Leases
Lessee 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 New York City. Any increase or decrease in the amount of
rent payable by a tenant is governed by the provisions of the
tenant's lease, or, if a new tenant, by then existing trends in the
rental market for office space.
Item 2. Property.
Registrant owns the Building located at 60 East 42nd
Street, New York, New York, known as the "Lincoln Building," and
the land thereunder. See Item 1. Registrant's fee title to the
Property is encumbered by Mortgage Loans with an unpaid principal
balances of $19,020,814 at December 31, 2000. For a description of
the terms of the Mortgage Loans, see Item 1 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000 and
Note 3 of the Notes thereto. The Building, erected in 1930, has 55
-3-
floors, a concourse and a lower lobby. It is located diagonally
opposite Grand Central Terminal, on 42nd Street between Park Avenue
and Madison Avenue. The Building is net leased to Lessee. See
Item 1 hereof and Note 4 of the Notes for additional information
concerning the Lease.
In 1999, the participants of Associates and the Lessee
consented to a building improvements program (the "Program")
estimated to cost approximately $22,800,000 and expected to take
two to three years to complete.
The Lessee is currently financing the Program and billing
Associates for the costs incurred. The Program (1) grants the
ownership of the improvements to Associates and acknowledges its
intention to finance them through a fee mortgage increase, and (2)
allows for the increased mortgage charges to be paid by Associates
from an equivalent increase in the basic rent paid by the Lessee to
Associates. Since any overage rent will be decreased by one-half
of that amount, the net effect of the lease modification is to have
Associates and the Lessee share the costs of the Program equally,
assuming overage rent continues to be earned.
To induce the Lessee to approve the Program, Associates
agreed to grant to the Lessee, upon the completion of the Program,
an extension of the lease for an additional 50 years to 2083.
In January 2000, the participants of the Lessee were
asked to approve an increase to the Program from $22,800,000 to
approximately $28,000,000 under substantially the same conditions
as had previously been approved. The increased amount has been
previously authorized by the participants of Associates. Such
increase would extend the lease beyond 2083, based on the net
present benefit to Associates of the improvements made.
Item 3. Legal Proceedings.
The property of Registrant is the subject of the
following material 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.
-4-
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, 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, Mr. Malkin and Wien & Malkin LLP are evaluating with counsel
possible court review of the decision and other action.
Item 4. Submission of Matters to a Vote of Participants.
No matters were submitted to the Participants during the
last quarter of the period covered by this report.
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Security Holder Matters.
Registrant, a partnership, was organized on September 25,
1958.
The securities 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 or the
equivalent. The Participations represent each Participant's
fractional share in a Partner's undivided interest in Registrant.
One full unit of the Participations was offered at an original
purchase price of $10,000; fractional units were also offered for
proportionate purchase prices. Registrant has not repurchased
Participations in the past and is not likely to change its 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 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 2000, Registrant was advised of 58
transfers of Participations. In one instance, the indicated
purchase price was equal to 2.5 times the face amount of the
Participation transferred, i.e., $12,500 for a $5,000
participation. In two instances, the indicated purchase price was
equal to two times the face amount of the Participations
transferred. In another instance, the indicated purchase price was
equal to 2.3 times the face amount of the Participation
transferred. In all other cases, no consideration was indicated.
(b) As of December 31, 2000, there were 748 holders of
Participations of record.
(c) Registrant does not pay dividends. During each of
the years ended December 31, 2000 and 1999, Registrant made regular
monthly distributions of $124.57 for each $10,000 Participation.
On November 30, 2000 and November 30, 1999, Registrant made
additional distributions for each $10,000 Participation of
$7,937.20 and $3,974.61, respectively. Such distributions repre-
sented primarily Additional Rent and Further Additional Rent
payable by Lessee in accordance with the terms of the Lease. 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 Additional Rent
and Further Additional Rent, depends solely on Lessee's ability to
make payments of Basic Rent, Additional Rent and Further Additional
Rent to Registrant. See Item 1 hereof. Registrant expects to make
distributions so long as it receives the payments provided for
under the Lease. See Item 7 hereof.
-6-
Item 6.
60 EAST 42nd ST. ASSOCIATES
SELECTED FINANCIAL DATA
Year ended December 31,
2000 1999 1998 1997 1996
Basic rent income.......... $ 1,194,968 $ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,087,842
Advance of additional
rent income............... 1,053,800 1,053,800 1,053,800 1,053,800 1,053,800
Further additional
rent income............... 6,173,375 3,091,366 1,529,651 2,110,080 2,051,475
Interest income......... 92,422 - 0 - - 0 - 0 - - 0 -
Total revenues.......... $ 8,514,565 $ 5,233,008 $ 3,671,293 $ 4,251,722 $ 4,193,117
Net income................. $ 6,296,724 $ 3,758,620 $ 2,390,776 $ 2,877,925 $ 2,867,971
Earnings per $10,000
participation unit,
based on 700 participation
units outstanding during
the year.................. $ 8,995 $ 5,369 $ 3,415 $ 4,111 $ 4,097
Total assets............... $17,435,023 $ 8,510,184 $ 7,472,392 $ 7,497,168 $ 7,521,944
Long-term obligations..... $19,020,814 $12,020,814 $12,020,814 $12,020,814 $12,020,814
Distributions per $10,000
participation unit, based
on 700 participation
units outstanding during
the year:
Income.................. $ 8,995 $ 5,369 $ 3,415 $ 4,111 $ 4,097
Return of capital....... 437 100 35 35 35
Total distributions..... $ 9,432 $ 5,469 $ 3,450 $ 4,146 $ 4,132
-7-
Item 7.
60 EAST 42nd ST. ASSOCIATES
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, 2000. 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,
1999 1999 1999 1999
Statement of Income Data:
Basic rent income $271,960 $271,960 $ 271,961 $271,961
Advance of additional
income 263,450 263,450 263,450 263,450
Further additional rent
income - - 3,091,366 -
Total revenues 535,410 535,410 3,626,777 535,411
Interest on mortgages 265,960 265,960 265,961 265,961
Supervisory services 7,845 7,845 316,982 7,845
Amortization of mortgage
refinancing costs 6,194 6,194 6,194 6,194
Professional fees - - - 45,253
Total expenses 279,999 279,999 589,137 325,253
Net income $255,411 $255,411 $3,037,640 $210,158
Earnings per $10,000
participation unit, based
on 700 participation
units outstanding during
each period $ 365 $ 365 $ 4,339 $ 300
-8-
Item 7.
60 EAST 42nd ST. ASSOCIATES
QUARTERLY RESULTS OF OPERATIONS (Continued)
Three Months Ended
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
Statement of Income Data:
Basic rent income $277,433 $292,487 $ 297,571 $327,477
Advance of additional
income 263,450 263,450 263,450 263,450
Further additional rent
income - - 6,173,375 -
Interest income 53 - 1,019 91,350
Total revenues 540,936 555,937 6,735,415 682,277
Interest on mortgages 271,434 286,714 292,414 412,829
Supervisory services 7,845 7,845 625,182 7,845
Amortization of mortgage
refinancing costs 18,760 57,140 57,139 85,973
Professional fees 79,896 6,825 - -
Total expenses 377,935 358,524 974,735 506,647
Net income $163,001 $197,413 $5,760,680 $175,630
Earnings per $10,000
participation unit, based
on 700 participation
units outstanding during
each period $ 233 $ 282 $ 8,230 $ 250
-9-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Registrant was organized solely for the purpose of
acquiring the Property subject to a net operating lease held by
Lessee. Registrant is required to pay, from Basic Rent under the
Lease, mortgage charges and amounts for supervisory services.
Registrant is required to pay from Additional Rent and Further
Additional Rent additional amounts for supervisory services and
then to distribute the balance of such Additional Rent and Further
Additional Rent to the Participants. Under the Lease, Lessee has
assumed sole responsibility for the condition, operation, repair,
maintenance and management of the Property. Registrant need not
maintain substantial reserves or otherwise maintain liquid assets
to defray any operating expenses of the Property.
The following summarizes the material factors affecting
Registrant's results of operations for the three years ended
December 31, 2000:
(a) Total income increased for the year ended December 31,
2000 as compared with the year ended December 31, 1999.
Such increase is mainly attributable to the payment of an
increased amount of Further Additional Rent received by
Registrant in 2000 and interest income. Total income
increased for the year ended December 31, 1999 as
compared with the year ended December 31, 1998. Such
increase is attributable to the payment of an increased
amount of Further Additional Rent to Registrant in 1999.
See Note 4 of the Notes.
(b) Total expenses increased for the year ended December 31,
2000 as compared with the year ended December 31, 1999.
Such increase resulted from an increase in mortgage
interest, the additional payment for supervisory services
payable with respect to an increased amount of Further
Additional Rent received by Registrant in 2000,
amortization of second mortgage refinancing costs and
professional fees. Total expenses increased for the year
ended December 31, 1999 as compared with the year ended
December 31, 1998. Such increase resulted from an
increase in the additional payment for supervisory
services payable with respect to Further Additional Rent
received by Registrant in 1999 and professional fees.
Registrant's results of operations are affected primarily
by the amount of rent payable to it under the Lease. The amount of
Overage Rent payable to Registrant is affected by the cycles in the
New York City economy and real estate rental market. It is
difficult for management to forecast the New York City real estate
market over the next few years.
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Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the year ended December 31, 2000 as compared with the
year ended December 31, 1999.
No amortization payments are due under the Mortgages to
fully satisfy the outstanding principal balance at maturity, and
furthermore, Registrant does not maintain any reserve to cover the
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 Property continues to
generate an annual net profit in future years comparable to that in
past years, and assuming further that current real estate trends
continue in the geographic area in which the Property is located,
Registrant anticipates that the value of the Property would be in
excess of the amount of the Mortgage balance at maturity.
Registrant anticipates that funds for working capital for
the Property will be provided by rental payments received from
Lessee and, to the extent necessary, from additional capital
investment by the partners in Lessee and/or external financing.
However, as noted above, Registrant has no requirement to maintain
substantial reserves to defray any operating expenses of the
Property. Registrant foresees no need to make material commitments
for capital expenditures while the Lease is in effect.
Inflation
Inflationary trends in the economy do not directly affect
Registrant's operations since, as noted above, Registrant does not
actively engage in the operation of the Property. Inflation may
impact the operations of Lessee. Lessee is required to pay Basic
Rent, regardless of the results of its operations. Inflation and
other operating factors affect the amount of Additional Rent and
Further Additional Rent payable by Lessee, which is based on
Lessee's net operating profit.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying
report by, and the consent to the use thereof, of J.H. Cohn LLP
immediately following, are being filed in response to this item.
Item 9. Disagreement on Accounting and Financial Disclosure.
Not applicable.
-11-
PART III
Item 10. Directors and Executive Officers of the Registrant.
Registrant has no directors or officers or any other
centralization of management. There is no specific term of office
for any Partner. The table below sets forth as to each Partner as
of December 31, 2000 the following: name, age, nature of any
family relationship with any other Partner, 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 a
Partner:
Nature Principal Date
of Family Occupation Individual
Relation- Business and became
Name Age ship Experience Employment Partner
Anthony E. Malkin 38 son of President of President of 1997
Peter L. real estate W&M Properties,
Malkin, management Inc.
brother company
of
Scott D.
Malkin
Scott D. Malkin 42 son of Chairman and CEO of 1997
Peter L. CEO of real S.D. Malkin
Malkin, estate Properties,
brother development Inc.
of company
Anthony E.
Malkin
Mark Labell 48 None Real Estate Partner 1998
Supervision Wien & Malkin
and Law LLP,
Thomas N. Keltner,
Jr. 54 None Real Estate Partner 1996
Supervision Wien & Malkin
and Law LLP,
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Nature Principal Date
of Family Occupation Individual
Relation- Business and became
Name Age ship Experience Employment Partner
Jack K. Feirman 55 None Real Estate Partner 1998
Supervision Wien & Malkin
and Law LLP,
Peter L. Malkin 67 Father Real Estate Senior Partner 1970
of Supervision and Chairman
Anthony E. and Law Wien & Malkin
and LLP,
Scott D.
Malkin
Richard A. Shapiro 55 None Real Estate Partner 1996
Supervision Wien & Malkin
and Law LLP
As stated above, five of the Partners are current members
of Supervisor. See Items 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, Lessee 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:
Thomas N. Keltner, Jr. is a general partner in Empire
State Building Associates, Navarre-500 Building
Associates and Garment Capitol Associates.
Richard A. Shapiro is a general partner in Garment
Capitol Associates and Empire State Building Associates.
Anthony E. Malkin is a joint venturer in 250 West 57th
Street Associates.
Peter L. Malkin is a joint venturer in 250 West 57th St.
Associates; and a general partner in Empire State
Building Associates, Navarre-500 Building Associates and
Garment Capitol Associates.
-13-
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, 2000 by Registrant to any of the Partners as
such. Registrant pays Supervisor, for supervisory services and
disbursements, fees of $24,000 per annum plus an additional payment
of 10% of all distributions to Participants in Registrant in any
year in excess of the amount representing an annual return of 14%
on the Participants' remaining cash investment in Registrant (which
remaining cash investment, at December 31, 2000, was equal to the
Participant's original cash investment of $7,000,000). Pursuant to
such fee arrangements, Registrant paid Supervisor a total of
$648,717 (consisting of $24,000 as an annual basic payment for
supervisory services and $624,717 as an additional payment for
supervisory services) during the fiscal year ended December 31,
2000. The supervisory services provided to Registrant by Supervisor
include real estate supervisory, legal, administrative and
financial services. The services include, but are not limited to
providing or coordinating with counsel to Registrant, maintaining
all of its partnership and Participant records, performing physical
inspections of the Building, reviewing insurance coverage and
conducting annual partnership meetings. Financial services include
monthly receipt of 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.Out of its fees, Supervisor paid all
disbursements and costs of regular accounting services. As noted
in Items 1 and 10 of this report, five of the Partners are also
members of Supervisor.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities. See Item 5
hereof. At December 31, 2000, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 2000, the Partners (see Item 10
hereof) beneficially owned, directly or indirectly, the following
Participations:
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Name and Address Amount of Percent
of Beneficial Beneficial of
Title of Class Owners Ownership Class
Participations Thomas N. Keltner, Jr. $ 2,500 .036%
in Partnership 60 East 42nd Street
Interests New York, NY 10165
Anthony E. Malkin $25,833 .369%
60 East 42nd Street
New York, NY 10165
Scott D. Malkin $33,334 .476%
27 Hereford Square
SW7 4NB
London, England
At such date, certain of the Partners (or their
respective spouses) held additional Participations as follows:
Anthony E. Malkin owned of record as co-trustee an
aggregate of $5,000 of Participations. Mr. Anthony E.
Malkin disclaims any beneficial ownership of such
Participations.
Peter L. Malkin owned of record as trustee or co-trustee
an aggregate of $55,714 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
Richard A. Shapiro owned of record as custodian a $5,000
Participation. Mr. Shapiro disclaims any beneficial
ownership of such Participation.
Entities for the benefit of members of Peter L. Malkin's
family owned of record and beneficially $107,500 of
Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations, except that related
Trusts are required to complete scheduled payments to Mr.
Malkin.
In accordance with the provisions of the respective
participating agreements, Mark Labell, in his capacity as agent,
purchased from non-consenting Participants $5,000 of participations
for the benefit of consenting Participants, all on the terms
described in the Agents Consent Solicitation dated June 30, 1999.
Each such purchase may be revised at the discretion of the Agents
upon receipt of the consent from the applicable non-consenting
Participant. The buy-out was reversed on February 14, 2001.
(c) Not applicable.
-15-
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Items 1 and 10 hereof, Messrs. Feirman,
Keltner, Labell, Anthony E. Malkin, Peter L. Malkin, Scott D.
Malkin and Shapiro are the seven Partners in Registrant and also
act as agents for Participants in their respective partnership
interests therein. Mr. Peter Malkin is also among the partners in
Lessee. As a consequence of one of the seven Partners being a
partner in Lessee and five of the seven Partners being members of
Supervisor (which supervises Registrant and Lessee), certain actual
or 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 Partners act as agents for the Participants, certain
transactions require the prior consent from Participants owning a
specified interest under the Agreements in order for the agents to
act on the Participants' behalf. Such transactions, among others,
include modification and extension of the Lease or the Mortgage
Loan, or a sale or other disposition of the Property or
substantially all of Registrant's other assets.
See Items 1 and 2 hereof for a description of the terms
of the Lease. As of December 31, 2000, Mr. Peter Malkin owned a
partnership interest in Lessee. The respective interests, if any,
of the Partners in Registrant and Lessee arise solely from
ownership of their respective Participations, and, in the case of
Mr. Peter Malkin, his individual ownership of a partnership
interest in Lessee. The Partners receive no extra or special
benefit not shared on a pro rata basis with all other Participants
in Registrant or partners in Lessee. However, each of the five
Partners who is a partner in Supervisor, by reason of his respec-
tive interest in Supervisor, is entitled to receive his pro rata
share of any supervisory, service, legal or other remuneration paid
to Supervisor for services rendered to Registrant and Lessee. 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 five of the Partners are among the members. The
respective interests of each Partner in any remuneration paid or
given by Registrant to Supervisor arises solely from such Partner's
ownership of an 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.
-16-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of J. H. Cohn LLP, Certified Public Accountants,
dated February 19, 2001.
Accountant's Report of J. H. Cohn LLP, Certified Public
Accountants, dated February 15, 2001.
Balance Sheets at December 31, 2000 and at December 31,
1999 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 2000, 1999 and 1998. (Exhibit B).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 2000 (Exhibit C-1).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1999 (Exhibit C-2).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1998 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 2000, 1999 and 1998 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 2000, 1999 and 1998.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
2000 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) No report on Form 8-K was filed by Registrant during
the last quarter of the period covered by this
report.
-17-
[LETTERHEAD OF J.H. COHN
ACCOUNTANTS & CONSULTANTS]
February 19, 2001
60 East 42nd St. Associates
New York, N. Y.
We consent to the use of our independent accountants' report dated February 15,
2001 covering our audits of the accompanying financial statements of 60 East
42nd St. Associates in connection with and as part of your December 31, 2000
annual report (Form 10-K) to the Securities and Exchange Commission.
J.H. Cohn LLP
-18-
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in 60 East 42nd St. Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of 60 East 42nd St. Associates
as of December 31, 2000 and 1999, and the related statements of income,
partners' capital deficit and cash flows for each of the three years in the
period ended December 31, 2000, 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 the Company's 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 60 East 42nd St. Associates as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, 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.
February 15, 2001
-19-
EXHIBIT A
60 EAST 42nd ST. ASSOCIATES
BALANCE SHEETS
A S S E T S
December 31,
2000 1999
Current Assets:
Cash in banks........................ $5,900,407 $ 677
Cash in distribution account held
by Wien & Malkin LLP (Note 10)...... 87,202 87,202
TOTAL CURRENT ASSETS........... 5,987,609 87,879
Real Estate (Notes 2a, 3 and 12):
Land................................. 7,240,000 7,240,000
Buildings............................ $16,960,000 $16,960,000
Less: Accumulated depreciation..... 16,960,000 - 16,960,000 -
Building improvements................ 1,574,135 1,574,135
Less: Accumulated depreciation..... 1,574,135 - 1,574,135 -
Building improvements, construction
in progress......................... 3,195,115 1,062,568
Other Assets:
Mortgage refinancing costs, less
accumulated amortization of
$348,797 in 2000 and $129,785
in 1999 (Note 2b)................... 1,012,299 119,737
TOTAL ASSETS................... $17,435,023 $ 8,510,184
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Current Liabilities:
Due to lessee, a related
party (Note 12)..................... $ 3,288,906 $ 1,062,568
Accrued professional fees, to a
related party (Note 6).............. - 45,253
Accrued expenses 49,488 -
TOTAL CURRENT LIABILITIES...... 3,338,394 1,107,821
Long-term Liabilities:
Bonds, mortgages and similar debt:
First and second mortgages
payable (Note 3).... 19,020,814 12,020,814
TOTAL LIABILITIES.............. 22,359,208 13,128,635
Commitments and contingencies
(Notes 11 and 12).....................
Partners' Capital Deficit (Exhibit C).. (4,924,185) (4,618,451)
TOTAL LIABILITIES AND
PARTNERS' CAPITAL DEFICIT..... $17,435,023 $ 8,510,184
See accompanying notes to financial statements.
-20-
EXHIBIT B
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF INCOME
Year ended December 31,
2000 1999 1998
Revenues:
Rent income, from a related party (Note 4).... $ 8,422,143 $ 5,233,008 $ 3,671,293
Interest income 92,422 - -
TOTAL REVENUES 8,514,565 5,233,008 3,671,293
Expenses:
Interest on mortgages (Note 3)................ 1,263,391 1,063,842 1,063,842
Supervisory services, to a related party
(Note 5)..................................... 648,717 340,517 183,506
Amortization of mortgage refinancing costs
(Note 2b).................................... 219,012 24,776 24,776
Professional fees, primarily to a
related party (Note 6)....................... 86,721 45,253 8,393
TOTAL EXPENSES 2,217,841 1,474,388 1,280,517
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 9)........... $ 6,296,724 $ 3,758,620 $2,390,776
Earnings per $10,000 participation unit, based
on 700 participation units outstanding during
each year...................................... $ 8,995 $ 5,369 $ 3,415
See accompanying notes to financial statements.
-21-
EXHIBIT C-1
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 2000
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 2000 net income Distributions 2000
Jack Feirman Group.......... $ (659,779) $ 899,532 $ 943,208 $ (703,455)
Mark Labell Group........... (659,779) 899,532 943,208 (703,455)
Richard A. Shapiro Group.... (659,779) 899,532 943,208 (703,455)
Anthony E. Malkin Group..... (659,779) 899,532 943,208 (703,455)
Peter L. Malkin Group....... (659,778) 899,532 943,209 (703,455)
Scott D. Malkin Group....... (659,778) 899,532 943,209 (703,455)
Thomas N. Keltner Jr. Group. (659,779) 899,532 943,208 (703,455)
$(4,618,451) $6,296,724 $6,602,458 $(4,924,185)
See accompanying notes to financial statements.
-22-
EXHIBIT C-2
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1999
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1999 net income Distributions 1999
Jack Feirman Group.......... $ (649,774) $ 536,945 $ 546,950 $ (659,779)
Mark Labell Group........... (649,775) 536,946 546,950 (659,779)
Richard A. Shapiro Group.... (649,775) 536,946 546,950 (659,779)
Anthony E. Malkin Group..... (649,775) 536,946 546,950 (659,779)
Peter L. Malkin Group....... (649,774) 536,946 546,950 (659,778)
Scott D. Malkin Group....... (649,774) 536,946 546,950 (659,778)
Thomas N. Keltner Jr. Group. (649,775) 536,945 546,949 (659,779)
$(4,548,422) $3,758,620 $3,828,649 $(4,618,451)
See accompanying notes to financial statements.
-23-
EXHIBIT C-3
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1998
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1998 net income Distributions 1998
Jack Feirman Group
(formerly Stanley
Katzman Group)............ $ (646,235) $ 341,539 $ 345,078 $ (649,774)
Mark Labell Group
(formerly
John L. Loehr Group)...... (646,235) 341,539 345,079 (649,775)
Richard A. Shapiro Group.... (646,235) 341,539 345,079 (649,775)
Anthony E. Malkin Group..... (646,235) 341,539 345,079 (649,775)
Peter L. Malkin Group....... (646,235) 341,540 345,079 (649,774)
Scott D. Malkin Group....... (646,235) 341,540 345,079 (649,774)
Thomas N. Keltner Jr. Group. (646,236) 341,540 345,079 (649,775)
$(4,523,646) $2,390,776 $2,415,552 $(4,548,422)
See accompanying notes to financial statements.
-24-
EXHIBIT D
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF CASH FLOWS
Year ended December 31,
2000 1999 1998
Cash flows from operating activities:
Net income...................................... $ 6,296,724 $ 3,758,620 $ 2,390,776
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of mortgage refinancing costs... 219,012 24,776 24,776
Change in accrued expenses............ 4,235 45,253 -
Change in due to lessee................. 93,791 - -
Net cash provided by
operating activities................ 6,613,762 3,828,649 2,415,552
Cash flows from financing activities:
Proceeds from second mortgage loan 7,000,000 - -
Payment of mortgage refinancing costs (1,111,574) - -
Cash distributions.............................. (6,602,458) (3,828,649) (2,415,552)
Net cash used in financing
activities.......................... (714,032) (3,828,649) (2,415,552)
Net change in cash................... 5,899,730 - -
Cash, beginning of year........................... 87,879 87,879 87,879
CASH, END OF YEAR.................... $ 5,987,609 $ 87,879 $ 87,879
Supplemental disclosure of cash flow information:
2000 1999 1998
Cash paid for:
Interest..................................... $ 1,213,903 $ 1,063,842 $ 1,063,842
Supplemental disclosure of noncash
investing and financing activities:
In 2000 and 1999 the Partnership
purchased certain building improvements
by means of a financing agreement
with the lessee, as follows................. $ 2,132,547 $ 1,062,568 -
See accompanying notes to financial statements.
-25-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
60 East 42nd St. Associates ("Associates") is a general partnership which
owns commercial property situated at 60 East 42nd Street and 301 Madison Avenue,
New York, New York. The property is net leased to Lincoln Building Associates
(the "Lessee").
2. Summary of Significant Accounting Policies
a. Real Estate and Depreciation:
Real estate, consisting of land, buildings and building improvements, is
stated at cost. The buildings and building improvements are fully
depreciated.
In 1999 Associates began a building improvement program (see Note 12).
Through December 31, 2000 and 1999 cumulative costs of $3,195,115 and
$1,062,568, respectively, have been incurred for new building improvements,
construction in progress which have not yet been put into service. It is
Associates' policy to depreciate such improvements when placed in service.
b. Mortgage Refinancing Costs, Amortization and Related Party Transactions:
Mortgage refinancing costs of $249,522, incurred in connection with the
October 6, 1994 refinancing of the first mortgage payable (see Note 3), are
being charged to income ratably over the 10 year and 26 day term of the
mortgage, from October 6, 1994 through October 31, 2004.
Mortgage refinancing costs of $1,111,574, incurred in connection with
the March 8, 2000 refinancing of the second mortgage payable (see Note 3), are
being charged to income ratably over the term of the mortgage, from March 8,
2000 through October 31, 2004.
Included in the refinancing costs applicable to the second mortgage are
payments of $70,071 made to the firm of Wien & Malkin LLP, a related party.
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. First and Second Mortgages Payable
On October 6, 1994, a first mortgage was placed on the property with Morgan
Guaranty Trust Company of New York, as trustee of a pension trust, to refinance
an existing first mortgage in the amount of $12,020,814. Annual mortgage
charges are $1,063,842, payable in equal monthly installments, for interest
only at the rate of 8.85% per annum. The first mortgage matures on October
31, 2004.
-26-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. First and Second Mortgages Payable (continued)
In connection with the building improvements program (see Note 12), a second
mortgage loan was placed on the property on March 8, 2000, with Emigrant
Savings Bank. The principal amount of the second mortgage note is $27,979,186,
to be drawn down as payments for the building improvements are needed. Through
September 30, 2000 Associates had drawn down advances of $7,000,000 against
this loan. The loan agreement permits additional advances to be made through
September 1, 2002 in amounts of not less than $1,000,000 each, provided that no
more than six advances may be made during any twelve consecutive calendar month
period.
The second mortgage provides that the first $7,000,000 of loan proceeds advanced
through September 30, 2000 shall bear interest at the rate of 8.21% per annum
through the term of the loan. All loan proceeds advanced after September 30,
2000 or in excess of $7,000,000 (in the aggregate) shall bear interest at a
Floating Rate, defined to be either the prime rate, a U.S. Treasury based rate
or a LIBO- based rate, as selected by Associates. Monthly payments for debt
service on the loan are interest only. The second mortgage also matures on
October 31, 2004.
On October 1, 2002, the interest rate on the second mortgage will be converted
to a Fixed Rate. The Fixed Rate is equal to 1.65% per annum in excess of the
yield on U.S. Treasury Securities having the closest maturity to October 31,
2004, as last published prior to October 1, 2002 by the Federal Reserve Board.
The real estate is pledged as collateral for the first and second mortgages.
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 2000, 1999 and 1998, totaling
$8,422,143, $5,233,008 and $3,671,293, respectively, as provided under an
operating lease with the Lessee dated October 1, 1958, as modified, consisted of
the following:
2000 1999 1998
Basic rent income............. $1,194,968 $1,087,842 $1,087,842
Advance of additional rent.... 1,053,800 1,053,800 1,053,800
Further additional rent....... 6,173,375 3,091,366 1,529,651
$8,422,143 $5,233,008 $3,671,293
The lease, as modified, provides for an annual basic rent equal to the sum of
the constant annual mortgage charges on all mortgages, plus $24,000.
The modified lease also provides for payments of additional rent, as follows:
1. Advances of additional rent are payable in equal monthly installments
totaling an amount equal to the lesser of $1,053,800 or the defined
net operating income of the Lessee during the preceding fiscal year
ended September 30th (the "lease year"); and
2. Further additional rent is payable in an amount equal to 50% of the
Lessee's remaining net operating income, as defined, in each lease
year.
-27-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income (continued)
The modified lease further provides for changes to be made in the basic rent
paid in the event of a refinancing of the first mortgage (Note 3). In such case,
unless there is an increase in the mortgage balance, the annual basic rent will
be modified and will be equal to the sum of $24,000 plus an amount equal to the
revised mortgage charges. In the event such mortgage refinancing results in an
increase in the amount of outstanding principal balance of the mortgage, the
basic rent shall be equal to the sum of $24,000 plus an amount equal to the
product of the new debt service percentage rate under the refinanced mortgage
multiplied by the principal balance of the mortgage immediately prior to the
refinancing.
Additional rent is billed to and advanced by the Lessee in equal monthly
installments of $87,817. While it is not practicable to estimate that portion
of additional rent for the lease year ending on the ensuing September 30th
which would be allocable to the current three month period ending December
31st, Associates' policy is to include in its income each year the advances
of additional rent income received from October 1st to December 31st.
No other additional rent is accrued by Associates for the period between the
end of the Lessee's lease year ending September 30th and the end of Associates'
fiscal year ending December 31st.
The lease had an initial term expiring on September 30, 1983, with renewal
options for two additional periods of 25 years each. In 1982, the first lease
renewal option was exercised for the period from October 1, 1983 through
September 30, 2008.
The Lessee may surrender the lease at the end of any month, upon sixty days'
prior written notice; the liability of the Lessee will end on the effective
date of such surrender.
See Note 12.
A partner in Associates is also a partner in the Lessee.
5. Related Party Transactions - Supervisory Services
Fees for supervisory services (including disbursements and costs of accounting
services) for the years ended December 31, 2000, 1999 and 1998, totaling
$648,717, $340,517 and $183,506, respectively, were paid to the firm of Wien &
Malkin LLP. Some members of that firm are partners 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 of Associates
each year.
6. Related Party Transactions - Professional Fees
Professional fees for the years ended December 31, 2000, 1999 and 1998,
totaling $70,054, $39,226 and $8,393, respectively, including disbursements,
were paid or accrued to the firm of Wien & Malkin LLP, a related party.
-28-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
7. Number of Participants
There were approximately 745 participants in the participating groups at
December 31, 2000, 1999 and 1998.
8. Determination of Distributions to Participants
Distributions to participants during each year represent the excess of
rent income over the mortgage requirements and cash expenses.
9. Distributions and Amount of Income per $10,000 Participation Unit
Distributions and amount of income per $10,000 participation unit during
the years ended December 31, 2000, 1999 and 1998, based on 700 participation
units outstanding during each year, consisted of the following:
Year ended December 31,
2000 1999 1998
Income........................ $8,995 $5,369 $3,415
Return of capital............. 437 100 35
TOTAL DISTRIBUTIONS..... $9,432 $5,469 $3,450
Net income is computed without regard to income tax expense since Associates
does not pay a tax on its income; instead, any such taxes are paid by the
participants in their individual capacities.
10. Concentration of Credit Risk
Associates maintains cash balances in two banks and in a distribution
account held by Wien & Malkin LLP. The bank balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 each, and at December 31, 2000
approximately $5,649,000 was not insured. The distribution account held by Wien
& Malkin LLP is not insured. The funds held in the distribution account were
paid to the participants on January 1, 2001.
11. Contingencies
Wien & Malkin LLP and Peter L. Malkin, a partner in Associates, are engaged
in a dispute with Helmsley-Spear, Inc., the managing agent of Associates' real
property, concerning the management, leasing and supervision of the property
net leased to the Lessee. In this connection, certain legal and professional
fees and other expenses have been paid and incurred and additional costs are
expected to be incurred. Associates' allocable share of such costs cannot as
yet be determined. Accordingly, Associates has not provided for the expense
and related liability with respect to such costs in the accompanying financial
statements.
-29-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
12. Building Improvements Program
In 1999 the participants of Associates and the Lessee consented to a
building improvements program (the "Program") estimated to cost approximately
$22,800,000 and expected to take two to three years to complete. In 2000 the
participants of the Lessee approved an increase to the Program from $22,800,000
to approximately $28,000,000 under substantially the same conditions as had
previously been approved. The increased amount had previously been authorized
by the participants of Associates.
The Lessee is currently financing the Program and billing Associates for the
costs incurred. The Program (1) grants the ownership of the improvements to
Associates and acknowledges its intention to finance them through an increase in
the fee mortgage (Note 3), and (2) allows for the increased mortgage charges to
be paid by Associates from an equivalent increase in the basic rent paid by the
Lessee to Associates. Since any overage rent will be decreased by one-half of
that amount, the net effect of the lease modification is to have Associates and
the Lessee share the costs of the Program equally, assuming overage rent
continues to be earned.
To induce the Lessee to approve the Program, Associates agreed to grant to
the Lessee, upon the completion of the Program, an extension of the lease (Note
4) for an additional 50 years to 2083.
13. Receipt of Warrants and Stock in Telecommunications Companies
In 2000, Associates received 8,914 shares of common stock of Broadband
Office, Inc., and warrants to acquire 22,920 shares and 16,200 shares of common
stock of Gillette Global Network, Inc. ("Gillette") and ENN Providers, Inc.
("Narrowcast"), respectively, (each of the aforementioned companies
collectively referred to as the "Companies"). The stock and warrants were
provided to Associates for allowing the Companies, at little or no cost to
Associates, to wire the building to provide high speed internet access and
other telecommunications services, the installation of monitors in the
building's elevator cabs to display current news and weather reports,
advertisements and building information messages. The Lessee received an equal
amount of shares and warrants. In addition, the Lessee will receive from 5% to
10% of the revenues generated by such services from advertising and
subscriptions with tenants of the building. No income from these sources was
earned in 2000. The warrants are exercisable, generally, following an initial
public offering ("IPO") of each of the Companies. There is no expectation that
such an IPO will occur at anytime soon. The Gillette and Narrowcast warrants
expire on August 29, 2003 and August 17, 2005, respectively. There are
restrictions as to the transfer of stock and there is no current market for the
warrants or the stock. Since they did not have an ascertainable value as of the
date they were granted or at December 31, 2000, no amounts have been recorded in
the accompanying financial statements for such warrants or stock.
-30-
60 EAST 42nd ST. ASSOCIATES
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.
-31-
60 EAST 42nd ST. ASSOCIATES SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 2000
Column
A Description Land, buildings, building improvements
and building improvements, construction
in progress situated at 60 East 42nd Street
and 301 Madison Avenue, New York, N.Y.
B Encumbrances - Morgan Guaranty Trust Company of New York,
as trustee of a pension trust
Balance at December 31, 2000................................... $12,020,814
Emigrant Savings Bank
Balance at December 31, 2000................................... $ 7,000,000
C Initial cost to company
Land........................................................... $ 7,240,000
Buildings...................................................... $16,960,000
D Cost capitalized subsequent to acquisition
Building improvements.......................................... $ 1,574,135
Building improvements, construction in progress................ $ 3,195,115
Carrying costs................................................. $ None
E Gross amount at which carried at
close of period
Land........................................................... $ 7,240,000
Buildings, building improvements and building
improvements, construction in progress 21,729,250
Total.......................................................... $28,969,250(a)
F Accumulated depreciation....................................... $18,534,135(b)
G Date of construction 1930
H Date acquired October 1, 1958
I Life on which depreciation in latest
income statements is computed Not applicable
(a) The carrying values of all real estate, other than building
improvements, construction in progress, for the years ended December 31, 2000,
1999 and 1998 was $25,774,135. For the years ended December 31, 1999 and 2000
Associates engaged in a building improvements program (see Note 12) and
incurred building improvements, construction in progress costs in those years
of $1,062,568 and $2,132,547, respectively. No depreciation has been taken on
the building improvements, construction in progress since these improvements
have yet to be put into service. The costs for federal income tax purposes
are the same as for financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 1998 $18,534,135
Depreciation:
F/Y/E 12/31/98 None
12/31/99 None
12/31/00 None None
Balance at December 31, 2000 $18,534,135
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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
March 18, 1998, March 20, 1998 and May 14, 1998 (the "Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 16, 2001
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned 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 16, 2001
________________________
* Mr. Katzman supervises accounting functions for Registrant.
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Exhibit Index
Number Document Page*
3(a) Partnership Agreement, dated September
25, 1958, which was filed by letter
dated March 31, 1981 (Commission File
No. 0-2670) as Exhibit No. 3 to
Registrant's Form 10-K for the fiscal
year ended December 31, 1980, is
incorporated by reference as an exhibit
hereto.
3(b) Amended Business Certificate of
Registrant filed with the Clerk of New
York County on November 28, 1997,
reflecting a change in the Partners of
Registrant, which was filed as Exhibit
3(b) to Registrant's 10-Q for the period
ended March 31, 1998 and is incorporated
by reference as an exhibit hereto.
4 Form of Participating Agreement, which
was filed as Exhibit No. 4 to
Registrant's Form S-1 Registration
Statement, as amended (the "Registration
Statement") by letter dated June 28,
1954 and assigned File No. 2-10981, is
incorporated by reference as an exhibit
hereto.
10(a) Deed of Lincoln Building to WLKP Realty
Corp., which was filed as Exhibit No.
5 to Registrant's Registration
Statement by letter dated June 28,
1954 and assigned File No. 2-10981, is
incorporated by reference as an
exhibit hereto.
_______________________
* Page references are based on a sequential numbering system.
-34-
Number Document Page*
10(b) First Mortgage evidenced by a
Modification, Extension & Consolidation
Agreement, dated March 31, 1954,
between WLKP Realty Corp. and The
Prudential Insurance Company of America
("Prudential"), which was filed as
Exhibit No. 6 to Registrant's
Registration Statement by letter dated
June 28, 1954 and assigned File No.
2-10981, is incorporated by reference
as an exhibit hereto.
10(c) Form of Net Lease between Registrant
and Lincoln Building Associates, which
was filed as Exhibit No. 9 to
Registrant's Registration Statement by
letter dated June 28, 1954 and assigned
File No. 2-10981, is incorporated by
reference as an exhibit hereto.
10(d) Deed from Lincoln Building Associates
to Registrant, dated October 1, 1958,
which was filed by letter dated March
31, 1981 (Commission File No. 0-2670)
as Exhibit No. 10(d) to Registrant's
Form 10-K for the fiscal year ended
December 31, 1980, is incorporated by
reference, as an exhibit hereto.
10(e) Second Modification of Lease Agreement,
dated January 1, 1977, which was filed
by letter dated March 28, 1980
(Commission File No. 0-2670) as Exhibit
II under Item 10(b) of Registrant's
Form 10-K for the fiscal year ended
December 31, 1979, is incorporated by
reference as an exhibit hereto.
10(f) Third Modification of Lease Agreement,
which was filed by letter dated March
28, 1980 (Commission File No. 0-2670)
as Exhibit II under Item 10(b) of
Registrant's Form 10-K for the fiscal
year ended December 31, 1979, is
incorporated by reference as an exhibit
hereto.
_______________________
* Page references are based on a sequential numbering system.
-35-
Number Document Page*
13(a) Letter to Participants, dated March 2,
2001 and supplementary financial
reports for the fiscal year ended
December 31, 2000. The foregoing
material shall not be deemed to be
"filed" with the Commission or
otherwise subject to the liabilities of
Section 18 of the Securities Exchange
Act of 1934.
13(b) Letter to Participants, dated November 30,
2000 and accompanying financial reports
for the lease year ended September 30,
2000. The foregoing material shall not
be deemed to be "filed" with the
Commission or otherwise subject to the
liabilities of Section 18 of the
Securities Exchange Act of 1934.
24 Powers of Attorney dated March 18,
1998, March 20, 1998 and May 14, 1998
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 period ended
March 31, 1998 and is incorporated by
reference as an exhibit hereto.
_______________________
* Page references are based on a sequential numbering system.
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