FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] 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)
A New York Partnership 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)
(212) 687-8700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
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
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ]. No [ ].
An Exhibit Index is located on Page 14 of this Report.
Number of pages (including exhibits) in this filing: 14
{*DPath}
2.
PART I. FINANCIAL INFORMATION
60 East 42nd St. Associates
Condensed Statements of Income
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Income:
Basic rent from a related
party (Note B) $ 271,961 $ 271,961 $ 815,881 $ 815,881
Additional rent from a related
party (Note B) 263,450 263,450 790,350 790,350
Further additional rent
income from a related
party (Note B) 2,110,080 2,051,475 2,110,080 2,051,475
---------- ---------- ---------- ----------
Total rent income 2,645,491 2,586,886 3,716,311 3,657,706
---------- ---------- ---------- ----------
Expenses:
Interest on mortgage (Note B) 265,961 265,961 797,881 797,881
Supervisory services, to a
related party (Note C) 214,099 212,993 229,789 228,683
Fees and Expenses 47,545 47,545
Amortization of mortgage
refinancing costs 6,194 6,194 18,582 18,582
---------- ---------- ---------- ----------
Total expenses 533,799 485,148 1,093,797 1,045,146
---------- ---------- ---------- ----------
Net income $2,111,692 $2,101,738 $2,622,514 $2,612,560
========== ========== ========== ==========
Earnings per $10,000 participa-
tion unit, based on 700 parti-
cipation units outstanding
during the year $3,016.70 $3,002.48 $3,746.45 $3,732.23
========= ========= ========= =========
Distributions per $10,000 parti-
cipation consisted of the
following:
Income $3,016.70 $3,002.48 $3,746.45 $3,732.23
Increase (Decrease) in
capital deficit (2,642.98) (2,628.76) (2,625.29) (2,611.07)
--------- --------- --------- ----------
Total distributions $ 373.72 $ 373.72 $1,121.16 $1,121.16
========= ========= ========= =========
At September 30, 1997 and 1996, there were $7,000,000 of participations
outstanding.
60 East 42nd St. Associates 3.
Condensed Balance Sheet
(Unaudited)
September 30, 1997 December 31, 1996
Assets
Current assets:
Cash $ 87,879 $ 87,879
Further Additional Rent Due
from a related party (Note B) 2,110,080 -0-
---------- ----------
Total current assets 2,197,959 87,879
Real estate
Land 7,240,000 7,240,000
Buildings and Building Improvements 18,534,135 18,534,135
Less, allowance for depreciation 18,534,135 18,534,135
----------- -----------
-0- -0-
Mortgage refinancing costs 249,522 249,522
Less, allowance for amortization 74,039 55,457
------------ ---------
175,483 194,065
----------- -----------
Total assets $ 9,613,442 $ 7,521,944
=========== ===========
Liabilities and Capital
Current Liabilities:
Accrued Supervisory fees, to
a related party (Note C) $ 206,254 -0-
Accrued Fees and Expenses 47,545 -0-
----------- -----------
Total Current Liabilities $ 253,799 -0-
Long-term debt $12,020,814 $12,020,814
Capital
Capital deficit, January 1, (4,498,870) (4,474,094)
Add, Net income:
January 1, 1997 through September 30, 1997 2,622,514 -0-
January 1, 1996 through December 31, 1996 -0- 2,867,971
----------- -----------
(1,876,356) (1,606,123)
----------- -----------
Less, Distributions:
Monthly distributions,
January 1, 1997 through September 30, 1997 784,815 -0-
January 1, 1996 through December 31, 1996 -0- 1,046,420
Distribution on November 30, 1996 of
Additional Rent for the lease year
ended September 30, 1996 -0- 1,846,327
----------- -----------
Total distributions 784,815 2,892,747
----------- -----------
Capital (deficit)
September 30, 1997 (2,661,171) -0-
December 31, 1996 -0- (4,498,870)
----------- -----------
Total liabilities and capital:
September 30, 1997 $ 9,613,442
December 31, 1996 =========== $ 7,521,944
===========
4.
60 East 42nd St. Associates
Condensed Statements of Cash Flows
(Unaudited)
January 1, 1997 January 1, 1996
through through
September 30, 1997 September 30, 1996
Cash flows from operating activities:
Net income $2,622,514 $2,612,560
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage refinancing
costs 18,582 18,582
Change in accrued expenses 253,799 55,148
Change in additional rent due (2,110,080) (1,901,475)
---------- ----------
Net cash provided by operating
activities 784,815 784,815
---------- ----------
Cash flows from financing activities:
Cash distributions (784,815) (784,815)
---------- ----------
Net cash used in financing
activities (784,815) (784,815)
---------- ----------
Net increase (decrease) in cash -0- -0-
Cash, beginning of quarter 87,879 87,879
---------- ----------
Cash, end of quarter $ 87,879 $ 87,879
========== ==========
January 1, 1997 January 1, 1996
through through
September 30, 1997 September 30, 1996
Cash paid for:
Interest $ 797,881 $ 797,881
========== ==========
60 East 42nd St. Associates 5.
September 30, 1997
Notes to Condensed Financial Statements (Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q and therefore do not include all information and
footnotes necessary for a fair presentation of financial position,
results of operations and statement of cash flows in conformity
with generally accepted accounting principles. The accompanying
unaudited condensed financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of the partners in Registrant, necessary for a fair
statement of the results for such interim periods. The partners
in Registrant believe that the accompanying unaudited condensed
financial statements and the notes thereto fairly disclose the
financial condition and results of Registrant's operations for the
periods indicated and are adequate to make the information
presented therein not misleading.
Note B - Interim Period Reporting
The results for the interim periods are not necessarily
indicative of the results to be expected for a full year.
Registrant is a New York partnership which was organized
on September 25, 1958 and which owns fee title to the Lincoln
Building and the land thereunder, located at 60 East 42nd Street,
New York, New York 10165 (the "Property"). Registrant's partners
are Stanley Katzman, Peter L. Malkin, John L. Loehr, Thomas N.
Keltner, Jr. and Richard A. Shapiro (collectively, the
"Partners"), each of whom also acts as an agent for holders of
participations (the "Participants") in their respective part-
nership interests in Registrant. The current partners were also
acting as trustees for the benefit of agents in the two groups
formerly represented by former partners Donald A. Bettex and
Ralph W. Felsten (the "Former Partners"). Their replacements were
awaiting the results of a consent solicitation requesting, among
other things, the appointment of additional successor agents. On
September 4, 1997, the Partners mailed to the Participants a
STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE SOLICITATION
OF CONSENTS OF THE PARTICIPANTS (the "Statement") requesting their
authorization concerning certain governance issues, including the
designation of additional successor agents. The details of the
Partners' proposal are provided in the Definitive Proxy Statement
which was filed with the Securities and Exchange Commission as
Schedule 14-A on September 4, 1997, and is incorporated herein by
reference. Subsequently, on September 25, 1997, the Partners
mailed to the non-responding Participants a request for a response
to the solicitation of consent. On October 31, 1997 the Partners
60 East 42nd St. Associates 6.
September 30, 1997
mailed a notification that the required consents for the Agent
succession had been received but other matters were still pending
requiring a response. These letters were filed as additional
material with the Securities and Exchange Commission on Schedule
A-14A on September 25, 1997 and October 31, 1997, respectively,
and are incorporated herein by reference. The Partners have
received the requisite number of consents, and the appointment of
Anthony E. Malkin and Scott D. Malkin as successor partners in
place of Messrs. Bettex and Felsten is effective as of November 2,
1997. See Item 4.
Registrant leases the Property to Lincoln Building Associates
("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 term which, if exercised, will extend the
Lease until September 30, 2033.) Lessee is a partnership whose
partners consist of, among others, Mr. Malkin. The Partners in
Registrant are current members and the Former Partners are
retired, former members of the law firm of Wien & Malkin LLP,
60 East 42nd Street, New York, New York, counsel to Registrant and
Lessee ("Counsel"). See Note C of this Item 1 ("Note C").
The Lease, as modified, provides that Lessee is required
to pay Registrant:
(i) An annual basic rent of $1,087,842 (the "Basic
Rent"), which is equal to the sum of $1,063,842, the constant
annual charges on the first mortgage calculated in accordance with
the terms of the Lease, plus $24,000 for supervisory services
payable to Counsel.
(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
required 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.
60 East 42nd St. Associates 7.
September 30, 1997
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 certified report on
the operation of the Property. Further Additional Rent for the
lease year ended September 30, 1997 was $2,110,080. After the
payment of $47,545 for fees and expenses in connection with the
September 4, 1997 Consent Solicitation Program and $206,254 to
Counsel as an additional payment for supervisory services, the
balance of $1,856,281 will be distributed to the Participants on
December 2, 1997.
A refinancing of the existing first mortgage loan on the
Property in the original principal amount of $12,020,814 was
closed on October 6, 1994 (the "Mortgage"). Annual Mortgage
charges are $1,063,842, payable in equal monthly installments of
$88,654, representing interest only at the rate of 8.85% per
annum. The Mortgage will mature on October 31, 2004 and is
prepayable in whole after October 6, 1995 with a penalty providing
interest protection to the mortgagee. The Mortgage 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.
If the Mortgage is modified, upon the first refinancing
which would result in an increase in the amount of the outstanding
principal balance of the mortgage, the Basic Rent shall be equal
to the Wien & Malkin LLP annual supervisory fee 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 such refinancing. If
there are subsequent refinancings which result in an increase in
the amount of the outstanding principal balance of the mortgage,
the principal balance referred to above shall be reduced by the
amount of the mortgage amortization payable from Basic Rent
subsequent to the first refinancing.
Note C - Supervisory Services
Registrant pays Counsel for supervisory services and
disbursements $24,000 per annum (the "Basic Payment"), plus an
additional payment of 10% of all distributions to Participants in
Registrant in any year in excess of the amount representing a
return at the rate of 14% per annum on their remaining cash
investment (the "Additional Payment"). At September 30, 1997,
such remaining cash investment was $7,000,000 representing the
original cash investment of Participants in Registrant.
60 East 42nd St. Associates 8.
September 30, 1997
No remuneration was paid during the three and nine month
periods ended September 30, 1997 by Registrant to any of the
Partners as such. Pursuant to the fee arrangements described
herein, Registrant paid Counsel $6,000 and $18,000, respectively,
of the Basic Payment and $1,845 and $5,535 respectively, on
account of the Additional Payment, for supervisory services for
the three and nine month periods ended September 30, 1997. The
supervisory services provided to Registrant by Counsel include
legal, administrative and financial services. The legal and
administrative services include acting as general counsel to
Registrant, maintaining all of its partnership records, performing
physical inspections of the Building, reviewing insurance coverage
and conducting annual partnership meetings. Financial services
include monthly receipt of 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, active review of financial statements submitted to
Registrant by the Lessee and financial statements audited by and
tax information prepared by Registrants' independent certified
public accountant, and distribution of such materials to the
Participants. Counsel also prepares quarterly, annual and other
periodic filings with the Securities and Exchange Commission and
applicable state authorities.
Reference is made to Note B of Item 1 ("Note B") for a
description of the terms of the Lease between Registrant and
Lessee. As of September 30, 1997, Mr. 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 in Registrant and, in the case of
Mr. 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 currently a member of Counsel, by reason of their
respective partnership interests in Counsel, are entitled to
receive their share of any legal fees or other remuneration paid
to Counsel for legal and supervisory services rendered to
Registrant and Lessee.
As of September 30, 1997, the Partners and Former
Partners owned of record and beneficially an aggregate $53,333 of
participations in Registrant, representing less than 1% of the
currently outstanding participations therein.
In addition, as of September 30, 1997, certain of the
Partners in Registrant (or their respective spouses) held
additional Participations in Registrant as follows:
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.
60 East 42nd St. Associates 9.
September 30, 1997
Isabel Malkin, the wife of Peter L. Malkin, individually
and beneficially, owned $35,000 of Participations.
Mr. Malkin disclaims any beneficial ownership of such
Participations.
Richard A. Shapiro owned of record as custodian, but not
beneficially, a $5,000 Participation. Mr. Shapiro
disclaims any beneficial ownership of such
Participation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
As stated in Note B, 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 the annual mortgage charges due under the Mortgage and the
Basic Payment to Counsel for supervisory services. The balance of
such Basic Rent is distributed to the Participants. Additional
Rent and Further Additional Rent are distributed to the
Participants after the Additional Payment to Counsel. See Note C
of Item 1 above. 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.
Registrant does not pay dividends. During the three and
nine month periods ended September 30, 1997, Registrant made
regular monthly distributions of $124.57 for each $10,000
participation ($1,494.89 per annum for each $10,000
participation). There are no restrictions on Registrant's present
or future ability to make distributions; however, the amount of
such distributions depends solely on the ability of Lessee to make
payments of Basic Rent, Additional Rent and Further Additional
Rent to Registrant in accordance with the terms of the Lease.
Registrant expects to make distributions so long as it receives
the payments provided for under the Lease.
On December 2, 1997, Registrant will make an additional
distribution of $2,651.83 for each $10,000 participation. Such
distribution represents Further Additional Rent paid by the Lessee
in accordance with the terms of the Lease after payment of fees
and expenses for the consent solicitation and Additional Payment
to counsel. See Notes B and C.
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
(i) the cycles in the New York City economy and real estate rental
market and (ii) the cost of the Property improvement program
60 East 42nd St. Associates 10.
September 30, 1997
described herein under Item 4 of Other Information. It is
difficult for management to forecast the New York City real estate
market over the next few years.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Lease.
The following summarizes, with respect to the current period and
the corresponding period of the previous year, the material
factors regarding Registrant's results of operations for such
periods:
Total income increased for the three and nine month
periods ended September 30, 1997, as compared with the
three and nine month periods ended September 30, 1996.
Such increase resulted from an increase in Further
Additional Rent payable by the Lessee for the lease
year ended September 30, 1997. See Note B.
Total expenses increased for the three and nine month
periods ended September 30, 1997, as compared to the
three and nine month periods ended September 30, 1996.
Such increase was the result of an increase in the
Additional Payment for supervisory services to be made
to Counsel based on Further Additional Rent for the
lease year ended September 30, 1997, as compared with
payments for supervisory services with respect to
Further Additional Rent for the lease year ended
September 30, 1996, and fees and expenses in
connection with the September 4, 1997 consent
solicitation program. See Note B.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the three and nine month periods ended September 30,
1997, as compared with the three and nine month periods ended
September 30, 1996.
No amortization payments are due under the Mortgage 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.
60 East 42nd St. Associates 11.
September 30, 1997
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
Registrant has been advised that there has been no
material change in the impact of inflation on its operations since
the filing of its report on Form 10-K for the year ended December
31, 1996, which report and all exhibits thereto are incorporated
herein by reference and made a part hereof.
PART II. OTHER INFORMATION
Item 1. 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, on behalf
of themselves and various partnerships, including Registrant,
against Helmsley-Spear, Inc. and Leona Helmsley. The filing of
the action was accompanied by a motion for a Temporary Restraining
Order and a Preliminary Injunction by which the plaintiffs sought
the return of over $5,000,000 in Empire State Building Company
funds which were being wrongfully held by Helmsley-Spear, Inc., an
order preventing Leona Helmsley from further violations of the
partnership agreements of the partnerships, and expedited
discovery of Helmsley-Spear, Inc. and Leona Helmsley regarding the
financial status of Helmsley-Spear, Inc. In their complaint,
plaintiffs sought the same relief requested in the motion for a
Temporary Restraining Order and Preliminary Injunction, as well as
the removal of Helmsley-Spear, Inc. as managing and leasing agent
for all of the buildings owned by the partnerships on whose behalf
the action was brought. 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 disputes proceed to arbitration. As a
result, Mr. Malkin and Wien & Malkin LLP have filed an arbitration
complaint seeking such relief against Helmsley-Spear, Inc. and
Mrs. Helmsley before The American Arbitration Association.
Helmsley-Spear, Inc. and Mrs. Helmsley have served answers denying
liability and asserting various affirmative defenses and
counterclaims. Mr. Malkin and Wien & Malkin LLP intend to file a
reply denying the counterclaims; the reply is scheduled for
December, 1997.
60 East 42nd St. Associates 12.
September 30, 1997
Item 4. Submission of Matters to a Vote of Participants.
On September 4, 1997 the consent of the Participants was
sought to approve certain governance proposals, including the
designation of additional Successor Agents, as described in the
Statement. Subsequently, on September 25, 1997, the Partners
mailed to the non-responding Participants a request for a response
to the solicitation of consents; and on October 31, 1997, the
Partners mailed notification that the required consents for the
Agent succession had been received and that the other matters were
still pending. See Item 1(a).
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits hereto are being incorporated by
reference.
(b) Registrant filed a Form 8-K on July 1, 1997
reporting the commencement of a suit against Helmsely-Spear, Inc.
and Leona M. Helmsley. See Item 1.
60 East 42nd St. Associates 13.
September 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the 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
current and Former Partners in Registrant as of September 30,
1997, pursuant to a Power of Attorney, dated August 6, 1996 (the
"Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Dated: November 25, 1997
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 current and Former Partners in
Registrant as of September 30, 1997, 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*
Dated: November 25, 1997
______________________
* Mr. Katzman supervises accounting functions for
Registrant.
60 East 42nd St. Associates 14.
September 30, 1997
EXHIBIT INDEX
Number Document Page*
2(a) Proxy Statement issued by the
Partners in connection with the
solicitation of consents of the
Participants, which was filed
on Schedule 14-A by Registrant
on September 4, 1997 and is
incorporated herein by
reference.
2(b) Letter to Non-Responding
Participants dated September
25, 1997 which was filed on
Schedule A-14A by Registrant on
September 25, 1997 and is
incorporated herein by
reference.
2(c) Letter to Non-Responding
Participants dated October
31, 1997 which was filed on
Schedule A-14A by Registrant on
October 30, 1997 and is
incorporated herein by
reference.
25 Power of Attorney dated
August 6, 1996 which was
filed as Exhibit 25 to
Registrant's Quarterly Report
on Form 10-Q for the period
ended June 30, 1996 and is
incorporated by reference as an
exhibit hereto.
______________________
*Page references are based on a sequential numbering system.