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 0-2670
60 EAST 42ND ST. ASSOCIATES L.L.C.
(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 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: 46
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 as a partnership 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"). On November 28, 2001, Registrant converted to a
limited liability company under New York law and is now known as 60
East 42nd St. 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's members are Peter L. Malkin, Anthony E. Malkin,
Scott D. Malkin, Thomas N. Keltner, Jr.,Jack K. Feirman, Mark
Labell, and Fred C. Posniak (individually, a "Member" and,
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collectively, the "Members"), each of whom also acts as an agent
for holders of participations in the Registrant ( individually, a
"Participant" and, collectively, "Participants"). Registrant
leases the Property to Lincoln Building Associates L.L.C.("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 limited liability company whose members
consist of, among others, entities for the benefit of members of
Peter L. Malkin's family. Six of the seven members in Registrant
are at 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, 2002, the Building was approximately
91% occupied by approximately 551 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 first 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.
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(v) A second mortgage loan with Emigrant Savings
Bank in the amount of $27,979,186 was closed on March 8, 2000 and
all proceeds have been advanced as of December 31, 2002. Monthly
payments of interest only at the rate of 8.21% per annum apply to
the advances of $7,000,000 made through September 30, 2000.
Amounts advanced from October 1, 2000 through September 30, 2002
in the amount of $20,979,186 are now at the fixed interest rate of
3.39% commencing with the November 2002 payment. 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 aggregate 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.)
(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
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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, pursuant to
the Lease, renders to Registrant a report on the operation of the
Property. Further Additional Rent for the lease year ended
September 30, 2002 was $6,944,789. After deducting fees of $16,480
relating to Registrant's conversion to a limited liability company
and payment of $692,831 to Supervisor as an additional payment for
supervisory services, the balance of $6,235,478 was distributed to
the Participants on November 29, 2002.
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 $33.82 per
square foot (exclusive of electricity charges and escalation) and
current deals range from $32 to $48.
(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 $40,000,000 at December 31, 2002. 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, 2002 and
Note 3 of the Notes thereto. The Building, erected in 1930, has 55
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.
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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
approximately 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 Registrant. Such
increase would extend the lease beyond 2083, based on the net
present benefit to Associates of the improvements made.
The Lessee is currently financing the Program and billing
Associates for the costs incurred. The Program (1) grants the
ownership of the improvements to Registrant 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.
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,
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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.
At its May 20, 2002 special meeting, Lessee approved by
the requisite vote the removal of Helmsley-Spear, Inc. as managing
and leasing agent and its replacement by one or a combination of
designated independent firms (Cushman & Wakefield, Insignia/ESG and
Newmark & Company Real Estate). On May 21, 2002, Peter L. Malkin
and Wien & Malkin LLP filed a court application to confirm the vote
and to set the final date for Helmsley-Spear, Inc's. termination.
Helmsley-Spear, Inc. filed objections. On September 10, 2002 the
court confirmed such votes and ruled that Helmsley-Spear, Inc. has
been discharged and must effect an orderly transition and departure
within 60 days. Helmsley-Spear, Inc.'s September 27, 2002 motion in
the Apellate Division to stay the court's ruling pending an appeal
was denied on October 31, 2002. Helmsley-Spear, Inc.'s appeal was
rejected by the Appellate Division in its February 20, 2003
decision, which affirmed the court's confirmation of the votes and
Helmsley-Spear, Inc.'s termination. Since November 20, 2002,
Helmsley-Spear, Inc. has not been the managing and leasing agent
and has been replaced by Newmark & Company Real Estate. Helmsley-
Spear, Inc. continues to pursue its appeal. In accord with the
Lessee's approval, the expenses for the preparation of the
solicitation statement, the solicitation of votes, and the
implementation of the new program are being paid by the Lessee.
Such payments have totaled $ 241,587 from inception to date
(including $ 72,052 plus disbursements of $6,850 to Wien & Malkin
LLP).
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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 the Registrant's Common Equity and Related
Security Holder Matters.
Registrant, a limited liability company, 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 2002, Registrant was advised of 56
transfers of Participations. In one instance, the indicated
purchase price was equal to 5.45 times the face amount of the
Participation transferred, i.e., $27,250 for a $5,000
participation. In one instance, the indicated purchase price was
equal to 4.8 times the face amount of the Participation
transferred. In two instances, the indicated purchase price was
equal to two times the face amount of the Participation
transferred. In all other cases, no consideration was indicated.
(b) As of December 31, 2002, there were 773 holders of
Participations of record.
(c) Registrant does not pay dividends. During each of
the years ended December 31, 2002 and 2001, Registrant made regular
monthly distributions of $124.57 for each $10,000 Participation.
On November 29, 2002 and November 30, 2001, Registrant made
additional distributions for each $10,000 Participation of
$8,907.83 and $10,359.89, respectively. Such distributions repre-
sents Further Additional Rent payable by Lessee in accordance with
the terms of the Lease after the Additional Payment to Supervisor
and fees to convert Registrant to a limited liability company. 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 on the ability of Lessee 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.
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[SELECTED FINANCIAL DATA]
Item 6.
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
SELECTED FINANCIAL DATA
Year ended December 31,
2002 2001 2000 1999 1998
Basic rent income $ 2,043,396 $ 1,545,186 $ 1,194,968 $ 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 6,944,789 8,057,690 6,173,375 3,091,366 1,529,651
Interest income 68,212 142,019 92,422 - 0 - - 0 -
Total revenues $10,110,197 $10,798,695 $ 8,514,565 $ 5,233,008 $ 3,671,293
Net income $ 6,557,108 $ 7,814,714 $ 6,296,724 $ 3,758,620 $ 2,390,776
Earnings per $10,000
participation unit, based
on 700 participation
units outstanding during
the year $ 9,367 $ 11,164 $ 8,995 $ 5,369 $ 3,415
Total assets $35,600,016 $22,040,811 $17,435,023 $ 8,510,184 $ 7,472,392
Long-term obligations $40,000,000 $25,020,814 $19,020,814 $12,020,814 $12,020,814
Distributions per $10,000
participation unit, based
on 700 participation
units outstanding during
the year:
Income $ 9,367 $ 11,164 $ 8,995 $ 5,369 $ 3,415
Return of capital 1,036 691 437 100 35
Total distributions$ 10,403 $ 11,855 $ 9,432 $ 5,469 $ 3,450
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Item 7.
60 EAST 42nd ST. 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 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,
2001 2001 2001 2001
Statement of Income Data:
Basic rent income $339,610 $372,834 $ 400,520 $432,222
Advance of additional
income 263,450 263,450 263,450 263,450
Further additional rent
income - - 8,057,690 -
Interest income 76,026 44,398 18,309 3,286
Total revenues 679,086 680,682 8,739,969 698,958
Interest on mortgages 409,636 411,232 412,829 429,508
Supervisory services 7,845 7,845 813,614 7,845
Amortization of mortgage
refinancing costs 66,020 66,020 66,021 66,021
Depreciation of building
improvements and
equipment 10,828 10,828 10,828 173,770
Professional fees - - 2,791 10,500
Total expenses 494,329 495,925 1,306,083 687,644
Net income $184,757 $184,757 $7,433,886 $11,314
Earnings per $10,000
participation unit, based
on 700 participation
units outstanding during
each period $ 264 $ 264 $ 10,620 $ 16
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Item 7.
60 EAST 42nd ST. 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
Statement of Income Data:
Basic rent income $468,261 $471,992 $ 542,095 $561,048
Advance of additional
income 263,450 263,450 263,450 263,450
Further additional rent
income - - 6,944,789 -
Interest income 2,226 731 25,906 39,349
Total revenues 733,937 736,173 7,776,240 863,847
Interest on mortgages 464,487 466,723 561,821 594,577
Supervisory services 7,845 7,845 700,676 7,845
Amortization of mortgage
refinancing costs 66,020 66,020 66,021 66,021
Depreciation of building
improvements and equipment 93,508 119,152 131,586 114,078
Professional fees - 325 1,892 16,647
Total expenses 631,860 660,065 1,461,996 799,168
Net income $102,077 $ 76,108 $6,314,244 $ 64,679
Earnings per $10,000
participation unit, based
on 700 participation
units outstanding during
each period $ 146 $ 109 $ 9,020 $ 92
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
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 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
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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 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.
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 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 is not
required to 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, 2002:
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(a) Total income decreased for the year ended December 31,
2002 as compared with the year ended December 31, 2001.
Such decrease is the net result of an increased amount of
basic rent income and a decreased amount of interest
income and Further Additional Rent received by Registrant
in 2002. Total income increased for the year ended
December 31, 2001 as compared with the year ended
December 31, 2000. Such increase is attributable to the
payment of an increased amount of Further Additional Rent
to Registrant in 2001 and interest income. See Note 4 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 an increase in
mortgage interest and depreciation of assets and a
decrease in the additional payment for supervisory
services payable with respect to Further Additional Rent
received by Registrant in 2002. Total expenses increased
for the year ended December 31, 2001 as compared with the
year ended December 31, 2000. Such increase resulted
from an increase in mortgage interest, additional payment
for supervisory services payable with respect to Further
Additional Rent received by Registrant in 2001,
amortization of second mortgage refinancing costs and
depreciation of assets placed in service in 2001.
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 New York City
economy and real estate rental market. It is difficult for
management to forecast the New York City real estate market.
Liquidity and Capital Resources
Registrant's liquidity has increased significantly due to
the receipt of $14,979,186 from the second mortgage at December 31,
2002 as compared to December 31, 2001. Costs relating to the
improvement program are funded from proceeds of a second mortgage
of $27,979,186, of which all has been drawn down at December 31,
2002. Registrant may from time to time establish a reserve for
contingent or unforeseen liabilities.
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
-13-
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 well
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.
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 J.H. Cohn LLP immediately following, are being filed in
response to this item.
Item 9. Disagreement on Accounting and Financial Disclosure.
Not applicable.
-14-
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 Member. 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 Member, 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
Member:
Nature Principal Date
of Family Occupation Individual
Relation- Business and became a
Name Age ship Experience Employment Member
Anthony E. Malkin 40 son of Real estate Senior Director 1997
Peter L. Supervision of Supervisory
Malkin, and Services of
brother management Wien & Malkin LLP
Scott D. and President of
Malkin W&M Properties, L.L.C.
Scott D. Malkin 44 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 50 None Real Estate Partner 1998
Supervision Wien & Malkin
LLP
Thomas N. Keltner,
Jr. 56 None Real Estate Partner 1996
Supervision Wien & Malkin
LLP
Jack K. Feirman 57 None Real Estate Partner 1998
Supervision Wien & Malkin
LLP
Peter L. Malkin 69 Father Real Estate Senior Partner 1970
of Supervision and Chairman
Anthony E. Wien & Malkin
and LLP
Scott D.
Malkin
Fred C. Posniak 57 None Real Estate Director 2001
Supervision W & M Properties,
L.L.C.
-15-
As stated above, six of the seven members hold senior
positions at 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 Regis-
trant, 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 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 a member in Empire State Building
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 Street
Associates L.L.C. and a member in Empire State Building
Associates L.L.C.
Thomas N. Keltner, Jr. is a member in Empire State
Building Associates L.L.C. and a general partner in
Navarre-500 Building Associates and Garment Capitol
Associates.
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 Members as
such. Registrant pays Supervisor for special services at hourly
rates and for supervisory services and disbursements. The
supervisory fees are $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, 2002, was equal to the
Participant's original cash investment of $7,000,000). Pursuant to
such fee arrangements, Registrant paid Supervisor a total of
$724,211 (consisting of $24,000 as an annual basic payment for
supervisory services and $700,211 as an additional payment for
supervisory services) during the fiscal year ended December 31,
2002. The supervisory services provided to Registrant by Supervisor
-16-
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 and conducting annual
supervisory review meetings, receipt of monthly rent from 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 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. As noted in Items 1
and 10 of this report, six of the seven members hold senior
positions at Supervisor.
Registrant also pays Supervisor for other services at
hourly rates.
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 Member (see Item 10
hereof) beneficially owned, directly or indirectly, the following
Participations:
Name and Address Amount of Percent
of Beneficial Beneficial of
Title of Class Owners Ownership Class
Participations
Anthony E. Malkin $40,833 .583%
60 East 42nd Street
New York, NY 10165
Thomas N. Keltner, Jr. $ 2,500 .036%
60 East 42nd Street
New York, NY 10165
Scott D. Malkin $33,334 .476%
27 Hereford Square
SW7 4NB
London, England
-17-
At such date, certain of the Members (or their respective
spouses) held additional Participations as follows:
Peter L. Malkin owned of record as trustee or co-trustee
an aggregate of $55,714 of Participations. Peter L.
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 $107,500 of
Participations. Peter L. Malkin disclaims any beneficial
ownership of such Participations, except that related
trusts are required to complete scheduled payments to
him.
Anthony E. Malkin owned of record as co-trustee an
aggregate of $10,000 of Participations. Anthony E. Malkin
disclaims any beneficial ownership of such
Participations.
(c) Not applicable.
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 Posniak are the seven members in Registrant and also act
as agents for Participants in their respective membership interests
therein. Mr. Peter Malkin is also among the members in Lessee. As
a consequence of one of the seven members being a member in Lessee
and six of the seven members holding senior positions at 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 members 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
-18-
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, 2002, Mr. Peter Malkin owned a
member interest in Lessee. The respective interests, if any, of
the members 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 member interest in Lessee.
The members as such receive no extra or special benefit not shared
on a pro rata basis with all other Participants in Registrant or
members in Lessee. However, each of the six members who hold
senior positions at Supervisor, by reason of his interests in
Supervisor, may receive income attributable to supervisory 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.
The respective interests of the member in any remuneration paid or
given by Registrant to Supervisor arises solely from such member'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.
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.
-19-
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 3, 2003.
Balance Sheets at December 31, 2002 and at December 31,
2001 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 2002, 2001 and 2000. (Exhibit B).
Statement of Members' Deficiency for the fiscal year
ended December 31, 2002 (Exhibit C-1).
Statement of Members' Deficiency for the fiscal year
ended December 31, 2001 (Exhibit C-2).
Statement of Members' Deficiency for the fiscal year
ended December 31, 2000 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 2002, 2001 and 2000 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 2002, 2001 and 2000.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
2002 (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.
-20-
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 March 18, 1998, March 20, 1998
and May 14, 1998 (the "Power").
60 EAST 42ND ST. 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 by the undersigned 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.
-21-
CERTIFICATIONS
I, Stanley Katzman, certify that:
(1) I have reviewed this annual report on Form 10-K of 60 East
42nd St. 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 periods 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, 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
-22-
(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 60 East 42nd St.
Associates L.L.C.
-23-
CERTIFICATIONS
I, Stanley Katzman, certify that:
1. I have reviewed this annual report on Form 10-K of 60 East 42nd St.
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 periods 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, 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
-24-
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 60 East 42nd
St. Associates L.L.C.
-25-
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.
3(c) Registrant's Consent and Operating
Agreement dated as of November 28, 2001
3(d) Certificate of Conversion of Registrant
to a limited liability company dated November
28, 2001 filed with the New York Secretary of
State on December 3, 2001.
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.
-26-
Exhibit Index
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
-27-
Exhibit Index
Number Document Page*
year ended December 31, 1979, is incorporated by reference
as an exhibit hereto.
13(b) Letter to Participants, dated November 29,
2002 and accompanying financial reports for
the lease year ended September 30, 2002. 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.
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 a sequential numbering system.
-28-
Exhibit 99(1)
60 East 42nd St. 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 60 East 42nd St. 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)
60 East 42nd St. 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 60 East 42nd St.
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-
[J.H. COHN LLP]
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in 60 East 42nd St. Associates L.L.C.
(a Limited Liability Company)
New York, N. Y.
We have audited the accompanying balance sheets of 60 East 42nd St.
Associates L.L.C. as of December 31, 2002 and 2001, and the related
statements of income, members' deficiency 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 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 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 3, 2003
-31-
EXHIBIT A
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
BALANCE SHEETS
A S S E T S
December 31,
2002 2001
Current Assets:
Cash in banks $ 120,904 $ 1,863,548
Cash in distribution account held
by Wien & Malkin LLP (Note 10) 87,202 87,202
TOTAL CURRENT ASSETS 208,106 1,950,750
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 and equipment 21,396,388 13,882,233
Less: Accumulated depreciation 2,238,713 19,157,675 1,780,389 12,101,844
Other Assets:
Cash segregated for payment of
building improvement costs 8,510,100 -
Mortgage refinancing costs, less
accumulated amortization of
$876,961 in 2002 and $612,879
in 2001 (Note 2b) 484,135 748,217
TOTAL ASSETS $35,600,016 $22,040,811
LIABILITIES AND MEMBERS' DEFICIENCY
Current Liabilities:
Due to lessee, a related
party (Note 12) $ 571,695 $ 2,372,779
Building improvement costs payable 1,050,193 55,030
Accrued expenses 110,730 -
TOTAL CURRENT LIABILITIES 1,732,618 2,427,809
Long-term Liabilities:
Bonds, mortgages and similar debt:
First and second mortgages
payable (Note 3) 40,000,000 25,020,814
TOTAL LIABILITIES 41,732,618 27,448,623
Commitments and contingencies
(Notes 11 and 12)
Members' Deficiency (Exhibit C) (6,132,602) (5,407,812)
TOTAL LIABILITIES AND
MEMBERS' DEFICIENCY $35,600,016 $22,040,811
See accompanying notes to financial statements.
-32-
EXHIBIT B
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENTS OF INCOME
Year ended December 31,
2002 2001 2000
Revenues:
Rent income, from a related party (Note 4) $10,041,985 $10,656,676 $8,422,143
Interest income 68,212 142,019 92,422
TOTAL REVENUES 10,110,197 10,798,695 8,514,565
Expenses:
Interest on mortgages (Note 3) 2,087,608 1,663,205 1,263,391
Supervisory services, to a related party
(Note 5) 724,211 837,149 648,717
Amortization of mortgage refinancing costs
(Note 2b) 264,082 264,082 219,012
Depreciation of building improvements and
equipment (Note 2a) 458,324 206,254 -
Professional fees, including amounts paid to
a related party (Note 6) 18,864 13,291 86,721
TOTAL EXPENSES 3,553,089 2,983,981 2,217,841
NET INCOME, CARRIED TO MEMBERS'
DEFICIENCY (NOTE 9) $6,557,108 $ 7,814,714 $6,296,724
Earnings per $10,000 participation unit, based
on 700 participation units outstanding during
each year $ 9,367 $ 11,164 $ 8,995
See accompanying notes to financial statements.
-33-
EXHIBIT C-3
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENT OF MEMBERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 2000
Members'
Members' deficiency
deficiency 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.
-34-
EXHIBIT C-1
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENT OF MEMBERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 2002
Members'
Members' deficiency
deficiency Share of December 31,
January 1, 2002 net income Distributions 2002
Jack Feirman Group.......... $ (772,545) $ 936,730 $1,040,271 $ (876,086)
Mark Labell Group........... (772,545) 936,730 1,040,271 (876,086)
Fred Posniak Group.... (772,544) 936,730 1,040,272 (876,086)
Anthony E. Malkin Group..... (772,544) 936,730 1,040,271 (876,085)
Peter L. Malkin Group....... (772,544) 936,729 1,040,271 (876,086)
Scott D. Malkin Group....... (772,545) 936,730 1,040,271 (876,086)
Thomas N. Keltner Jr. Group. (772,545) 936,729 1,040,271 (876,087)
$(5,407,812) $6,557,108 $7,281,898 $(6,132,602)
See accompanying notes to financial statements.
-35-
EXHIBIT C-2
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENT OF MEMBERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 2001
Members'
Members' deficiency
deficiency Share of December 31,
January 1, 2001 net income Distributions 2001
Jack Feirman Group.......... $ (703,455) $1,116,388 $1,185,478 $ (772,545)
Mark Labell Group........... (703,455) 1,116,388 1,185,478 (772,545)
Fred Posniak Group (formerly
Richard A. Shapiro Group). (703,455) 1,116,388 1,185,477 (772,544)
Anthony E. Malkin Group..... (703,455) 1,116,388 1,185,477 (772,544)
Peter L. Malkin Group....... (703,455) 1,116,388 1,185,477 (772,544)
Scott D. Malkin Group....... (703,455) 1,116,387 1,185,477 (772,545)
Thomas N. Keltner Jr. Group. (703,455) 1,116,387 1,185,477 (772,545)
$(4,924,185) $7,814,714 $8,298,341 $(5,407,812)
See accompanying notes to financial statements.
-36-
EXHIBIT D
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
STATEMENTS OF CASH FLOWS
Year ended December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $ 6,557,108 $7,814,714 $ 6,296,724
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of building improvements
and equipment 458,324 206,254 -
Amortization of mortgage refinancing costs 264,082 264,082 219,012
Change in accrued expenses 55,700 5,542 4,235
Change in due to lessee - - 93,791
Net cash provided by
operating activities 7,335,214 8,290,592 6,613,762
Cash flows from investing activities:
Purchase of building improvements and
equipment (6,463,962) (9,112,983) -
Cash segregated for payment of building
improvement costs (8,510,100) - -
Net cash used in investing
activities (14,974,062) (9,112,983) -
Cash flows from financing activities:
Proceeds from second mortgage loan 14,979,186 6,000,000 7,000,000
Payment of mortgage refinancing costs - - (1,111,574)
Cash distributions (7,281,898) (8,298,341) (6,602,458)
Change in amounts due to lessee (1,801,084) (916,127) -
Net cash provided by (used in)
financing activities 5,896,204 (3,214,468) (714,032)
Net change in cash (1,742,644) (4,036,859) 5,899,730
Cash, beginning of year 1,950,750 5,987,609 87,879
CASH, END OF YEAR $ 208,106 $1,950,750 $ 5,987,609
Supplemental disclosure of cash flow information:
2002 2001 2000
Cash paid for:
Interest $ 2,031,908 $1,657,663 $ 1,213,903
Supplemental disclosure of noncash
investing and financing activities:
In 2002 and 2000 Associates
purchased certain building improvements
by means of a financing agreement
with the lessee, as follows $ 1,050,193 $ - $ 2,132,547
See accompanying notes to financial statements.
-37-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
1. Business Activity And Reorganization
60 East 42nd St. Associates L.L.C. ("Associates") owns commercial property
situated at 60 East 42nd Street and 301 Madison Avenue, New York, New York.
The property, known as "The Lincoln Building", is net leased to Lincoln
Building Associates (the "Lessee").
Associates operated as a general partnership, 60 East 42nd Street
Associates, until November 28, 2001, when it converted to a limited
liability company and changed its 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 the
assets and liabilities carried over to the limited liability company.
2. Summary of Significant Accounting Policies
a. Real Estate and Depreciation:
Real estate, consisting of land, buildings and building improvements and
equipment, is stated at cost. The buildings, and building improvements
costing $1,574,135, have been fully depreciated, using a straight-line
method over their estimated useful lives ranging from 20 to 26 years.
In connection with the building improvements program which began in 1999
(see Note 12), costs totaling $19,822,253 have been incurred through
December 31, 2002 for new building improvements and equipment which have
been put into service. Depreciation of these assets is provided
primarily using the straight-line method over an estimated useful life
of 39 years for building improvements and 7 years for equipment.
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 financing of the second mortgage payable, 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. 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-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
2. Summary of Significant Accounting Policies (continued)
d. Revenue Recognition:
Basic rent and overage rent, which is based on the Lessee's annual net
income, as defined in the lease, are recognized when earned.
e. 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
charges on the first mortgage are $1,063,842, payable in equal monthly
installments, for interest only at the rate on the first mortgage of 8.85% per
annum. The first mortgage matures on October 31, 2004.
In connection with the building improvements program referred to in 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 were needed. The
first $7,000,000 was drawn down by September 30, 2000. The loan agreement
permitted additional advances to be made through September 1, 2002, and by
August 15, 2002 Associates had drawn all available funds against this loan.
The second mortgage calls for the first $7,000,000 of loan proceeds advanced
through September 30, 2000 to bear interest at the rate of 8.21% per annum
through the term of the loan. All loan proceeds advanced after September 30,
2000 initially bore 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. At December 31, 2001 the Floating Rate interest on $6,000,000 of
second mortgage debt, drawn down since September 30, 2000, was calculated at a
rate of approximately 3.7%. On October 1, 2002, in accordance with the terms
of the mortgage, the Floating Rate interest on the second mortgage was
converted to a fixed rate of 3.39%. Monthly payments for debt service on the
second mortgage loan are for interest only. The second mortgage also matures
on October 31, 2004.
As of December 31, 2002 Associates had set aside approximately $8,500,000 of
loan proceeds from the second mortgage loan to pay for the Program.
-39-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
3. First and Second Mortgages Payable (continued)
The real estate is pledged as collateral for the first and second mortgages.
The estimated fair value of Associates' mortgage debt, based on available
market information or other appropriate valuation methodologies, was
$41,300,000 and $26,000,000 at December 31, 2002 and 2001, respectively,
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 2002, 2001 and 2000, totaling
$10,041,985, $10,656,676 and $8,422,143, respectively, as provided under an
operating lease with the Lessee dated October 1, 1958, as modified, consisted
of the following:
2002 2001 2000
Basic rent income.............$ 2,043,396 $ 1,545,186 $1,194,968
Advance of additional rent.... 1,053,800 1,053,800 1,053,800
Further additional rent. 6,944,789 8,057,690 6,173,375
$10,041,985 $10,656,676 $8,422,143
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.
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.
-40-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income (continued)
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.
Peter L. Malkin, a member of Wien & Malkin LLP, is a member in Associates.
Beneficial interests in the Lessee are held by one or more persons at Wien &
Malkin LLP (see Note 5), their family members, and/or trusts, limited
liability companies, or similar entities owned for their family members.
5. Related Party Transactions - Supervisory Services
Fees for supervisory services (including disbursements and costs of accounting
services) for the years ended December 31, 2002, 2001 and 2000, totaling
$724,211, $837,149 and $648,717, respectively, were paid to the firm of Wien &
Malkin LLP. Some members of that firm are members in Associates.
Basic fees for supervisory services are $24,000 per annum. Wien & Malkin LLP
receives an additional supervisory fee each year equal to 10% of distributions
to participants for any year in excess of 14% of their cash investment of
$7,000,000.
6. Related Party Transactions - Professional Fees
Professional fees for the years ended December 31, 2002, 2001 and 2000 include
$17,222, $2,791 and $70,054, respectively, inclusive of disbursements, paid or
accrued to the firm of Wien & Malkin LLP, a related party.
-41-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
7. Number of Participants
There were approximately 760 participants in the participating groups at
December 31, 2002, 2001 and 2000.
8. Determination of Distributions to Participants
Distributions to participants during each year represent mainly 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, 2002, 2001 and 2000, based on 700 participation units
outstanding during each year, consisted of the following:
Year ended December 31,
2002 2001 2000
Income........................ $ 9,367 $11,164 $8,995
Return of capital............. 1,036 691 437
TOTAL DISTRIBUTIONS..... $10,403 $11,855 $9,432
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, 2002
approximately $8,431,000 was not insured. The distribution account held by
Wien & Malkin is not insured. The funds held in the distribution account were
paid to the participants on January 1, 2003.
11. Contingencies
Wien & Malkin LLP and Peter L. Malkin, a member in Associates, have been
engaged in a dispute proceeding with Helmsley-Spear, Inc. commenced in 1997
concerning the management, leasing and supervision of the property subject to
the net lease, in which Wien & Malkin and Mr. Malkin have sought an order
removing Helmsley-Spear. In this connection, certain costs for 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) 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 financial statements.
-42-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
11. Contingencies (continued)
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 investors in the Lessee
to vote to terminate Helmsley-Spear without cause, (ii) dismisses Helmsley-
Spear's claims against Wien & Malkin and Peter L. Malkin, and (iii) rejects
the termination of Helmsley-Spear 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.
In January 1998, Irving Schneider, who is one of the controlling principals of
Helmsley-Spear and has no record or beneficial interest in Associates or the
Lessee, brought litigation against Associates' supervisor, Wien & Malkin and
Peter L. Malkin (or his affiliate), claiming misconduct and seeking damages
and disqualification from performing services for the Lessee. In March 2002,
the court dismissed Mr. Schneider's claims. Mr. Schneider has appealed this
dismissal. Wien & Malkin and Mr. Malkin are defending against these claims.
At the Lessee's May 20, 2002 special meeting, a vote of the investors was
conducted on proposals for the removal without cause of Helmsley-Spear as
managing and leasing agent and its replacement by one or a combination of
designated independent firms (Cushman & Wakefield, Insignia/ESG, and Newmark
Realty), including payment by the Lessee of the expenses for the preparation
of the solicitation statement, the solicitation of votes, and the
implementation of the new program. On May 21, 2002, the proponents of the
proposals, Peter L. Malkin and Wien & Malkin, filed a court application to
determine and confirm all investors' votes for removal without cause and
replacement and to set the final date for Helmsley-Spear's termination.
Helmsley-Spear filed objections, and on September 10, 2002 the court confirmed
such votes and ruled that Helmsley-Spear has been discharged and must effect
an orderly transition and departure within 60 days. As of November 20, 2002,
Helmsley-Spear is no longer the managing and leasing agent and has been
replaced by Newmark & Company. Helmsley-Spear continues to pursue its appeal.
In accordance with the Lessee's May 20, 2002 vote, the expenses for the
preparation of the solicitation statement, the solicitation of votes and the
implementation of the new program are being paid by the Lessee. Such payments
have totaled $241,587 to December 31, 2002, including $72,052 to Wien & Malkin
plus disbursements of $6,850.
12. Building Improvements Program and Agreement to Extend 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. 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.
-43-
60 EAST 42nd ST. ASSOCIATES L.L.C.
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
12. Building Improvements Program and Agreement to Extend Lease (continued)
The Lessee is 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.
The 1999 consent authorized the members of 60 East 42nd St. Associates L.L.C.
who act as agents for the participant investors (the "Agents") to give
additional extension rights to the Lessee beyond the September 30, 2033
expiration date (Note 4) to September 30, 2083 upon completion of the
Program, and to later date(s) for consideration and upon such terms as the
Agents deem appropriate for the benefit of Associates.
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
buildings. The Lessee received an equal amount of shares and warrants.
There are restrictions as to the transfer of stock, and neither the warrants
nor the stock have an ascertainable value as of either balance sheet date.
Accordingly, the accompanying financial statements do not reflect any value
for these securities.
14. 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 for comparative purposes to conform with subsequent year
presentation.
-44-
60 EAST 42nd ST. 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.
-45-
60 EAST 42nd ST. ASSOCIATES L.L.C. SCHEDULE III
(A Limited Liability Company)
Real Estate and Accumulated Depreciation
December 31, 2002
Column
A Description Land, buildings and building improvements
and equipment 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, 2002 $12,020,814
Emigrant Savings Bank
Balance at December 31, 2002 $27,979,186
C Initial cost to company
Land $ 7,240,000
Buildings $16,960,000
D Cost capitalized subsequent to acquisition
Building improvements and equipment $21,396,388
Carrying costs $ None
E Gross amount at which carried at
close of period
Land $ 7,240,000
Buildings, building improvements and equipment 38,356,388
Total $45,596,388(a)
F Accumulated depreciation $19,198,713(b)
G Date of construction 1930
H Date acquired October 1, 1958
I Life on which depreciation in latest income
statements is computed 39 years for building improvements
and 7 years for equipment
(a) Gross amount of real estate
Balance at January 1, 2000 $26,836,703
Purchase of building improvements and equipment
and construction in progress (expenditures
advanced by Lessee, a related party, and recorded
by Associates):
F/Y/E 12/31/00 $ 2,132,547
12/31/01 9,112,983
12/31/02 7,514,155 18,759,685
Balance at December 31, 2002 $45,596,388
The costs for federal income tax purposes are the same as for
financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 2000 $18,534,135
Depreciation:
F/Y/E 12/31/00 None
12/31/01 206,254
12/31/02 458,324 664,578
lance at December 31, 2002 $19,198,713
-46-