<PAGE>
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, 1998
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 13 of this Report.
Number of pages (including exhibits) in this filing: 13 <PAGE>
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,
1998 1997 1998 1997
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) 1,529,651 2,110,080 1,529,651 2,110,080
---------- ---------- ---------- ----------
Total rent income 2,065,062 2,645,491 3,135,882 3,716,311
---------- ---------- ---------- ----------
Expenses:
Interest on mortgage
(Note B) 265,961 265,961 797,881 797,881
Supervisory services,
to a related party
(Note C) 160,810 214,099 176,500 229,789
Fees and Expenses -0- 47,545 -0- 47,545
Amortization of mortgage
refinancing costs 6,194 6,194 18,582 18,582
---------- ---------- ---------- ----------
Total expenses 432,965 533,799 992,963 1,093,797
---------- ---------- ---------- ----------
Net Income $1,632,097 $2,111,692 $2,142,919 $2,622,514
========== ========== ========== ==========
Earnings per $10,000
participation unit,
based on 700
participation units
outstanding during
the year $ 2,331.57 $ 3,016.70 $ 3,061.31 $ 3,746.45
========== ========== ========== ==========
Distributions per $10,000
participation consisted
of the following:
Income $ 2,331.57 $ 3,016.70 $ 3,061.31 $ 3,746.45
Increase (Decrease) in
capital deficit (1,957.85) (2,642.98) (1,940.15) (2,625.29)
---------- ---------- ---------- ----------
Total distributions $ 373.72 $ 373.72 $ 1,121.16 $ 1,121.16
========== ========== ========== ==========
At September 30, 1998 and 1997, there were $7,000,000 of participations
outstanding.<PAGE>
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
Assets September 30, 1998 December 31, 1997
Current assets:
Cash $ 87,879 $ 87,879
Further Additional Rent Due
from a related party (Note B) 1,529,651 -0-
----------- -----------
Total current assets 1,617,530 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 depreciation 98,815 80,233
----------- -----------
150,707 169,289
----------- -----------
Total assets $9,008,237 $ 7,497,168
========== ===========
Liabilities and Capital
Current Liabilities:
Accrued Supervisory fees, to a
related party (Note C) $ 152,965 $ -0-
----------- -----------
Total Current liabilities $ 152,965 $ -0-
Long-term debt $12,020,814 12,020,814
Capital
Capital deficit, January 1, (4,523,646) (4,498,870)
Add, Net income:
January 1, 1998 through
September 30, 1998 2,142,919 -0-
January 1, 1997 through
December 31, 1997 -0- 2,877,925
----------- -----------
(2,380,727) (1,620,945)
Less Distributions:
Monthly distributions,
January 1, 1998 through
September 30, 1998 784,815 -0-
January 1, 1997 through
December 31, 1997 -0- 1,046,420
Distribution on December 2, 1997 of
Additional Rent for the lease year
ended September 30, 1997 -0- 1,856,281
----------- -----------
Total distributions 784,815 2,902,701
----------- -----------
Capital (deficit)
September 30, 1998 (3,165,542) -0-
December 31, 1997 -0- (4,523,646)
Total liabilities and capital:
September 30, 1998 9,008,237
December 31, 1997 =========== 7,497,168
===========<PAGE>
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
January 1, 1998 January 1, 1997
through through
September 30, 1998 September 30, 1997
Cash flows from operating activities:
Net income $ 2,142,919 $2,622,514
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage
refinancing costs 18,582 18,582
Change in accrued expenses 152,965 253,799
Change in additional rent due (1,529,651) (2,110,080)
----------- ----------
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, 1998 January 1, 1997
through through
September 30, 1998 September 30, 1997
Cash paid for:
Interest $ 797,881 $ 797,881
=========== ==========
<PAGE>
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 partnership which was organized on September
25, 1958. On October 1, 1958, Registrant acquired fee title to the Lincoln
Building (the "Building") and the land thereunder, located at 60 East 42nd
Street, New York, New York (the "Property"). Registrant's partners are Peter
L. Malkin, Anthony E. Malkin, Scott D. Malkin, Thomas N. Keltner, Jr. and
Richard A. Shapiro, and as of April 15, 1998, Jack Feirman and Mark Labell, who
replaced Stanley Katzman and John L. Loehr, respectively (individually, a
"Partner" and, collectively, the "Partners"), each of whom also acts as an
agent for holders of participations in the Registrant (each holder of a
participation, individually, a "Participant" and, collectively,
"Participants").
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, Peter L. Malkin. Five of
the seven Partners in Registrant are current 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 operat-
ing 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.
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, 1998 was $1,529,651. After the payment
of $152,965 to Counsel as an additional payment for supervisory services, the
balance of $1,376,686 will be distributed to the Participants on November 30,
1998.
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,
1998, such remaining cash investment was $7,000,000 representing the original
cash investment of Participants in Registrant.
No remuneration was paid during the nine month period ended
September 30, 1998 by Registrant to any of the Partners as such. Pursuant to
the fee arrangements described herein, Registrant paid Counsel $18,000 of the
Basic Payment and $5,535 on account of the Additional Payment, for supervisory
services for the nine month period ended September 30, 1998. 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, 1998, Peter L. 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 Peter L. 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, is entitled to receive his 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, 1998, the Partners owned of record and
beneficially an aggregate $119,167 of participations in Registrant,
representing 1.70% of the currently outstanding participations therein.
In addition, as of September 30, 1998, 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 $45,714 of Participations. Mr. Malkin disclaims
any beneficial ownership of such Participations.
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 nine month period
ended September 30, 1998, 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 November 30, 1998, Registrant will make an additional
distribution of $1,966.69 for each $10,000 participation. Such distribution
represents Further Additional Rent paid by the Lessee in accordance with the
terms of the Lease after the 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 the cycles in the New York City economy
and real estate rental market. It is difficult for management to forecast the
New York City real estate market over the next few years. 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 decreased for the three and nine month periods ended
September 30, 1998, as compared with the three and nine month periods
ended September 30, 1997. Such decrease resulted from a decrease in
Further Additional Rent payable by the Lessee for the lease year ended
September 30, 1998. See Note B.
Total expenses decreased for the three and nine month periods ended
September 30, 1998, as compared with the three and nine month periods
ended September 30, 1997. Such decrease was the result of a decrease
in the Additional Payment for supervisory services to be made to
Counsel based on Further Additional Rent for the lease year ended
September 30, 1998, as compared with payments for supervisory services
with respect to Further Additional Rent for the lease year ended
September 30, 1997.
See Note B.
Liquidity and Capital Resources
There has been no significant change in Registrant's liquidity
for the nine month period ended September 30, 1998, as compared with the nine
month period ended September 30, 1997.
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.
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, 1997, 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, against Helmsley-Spear, Inc. and Leona
Helmsley concerning various partnerships which own, lease or operate buildings
managed by Helmsley-Spear, Inc., including Registrant's property. In their
complaint, plaintiffs sought the removal of Helmsley-Spear, Inc. as managing
and leasing agent for all of the buildings. Plaintiffs also sought an order
precluding Leona Helmsley from exercising any partner management powers in the
partnerships. In August, 1997, the Supreme Court directed that the foregoing
claims proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin LLP
filed an arbitration complaint against Helmsley-Spear, Inc. and Mrs. Helmsley
before the American Arbitration Association. Helmsley-Spear, Inc. and Mrs.
Helmsley served answers denying liability and asserting various affirmative
defenses and counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply
denying the counterclaims. By agreement dated December 16, 1997, Mr. Malkin
and Wien & Malkin LLP (each for their own account and not in any representative
capacity) reached a settlement with Mrs. Helmsley of the claims and
counterclaims in the arbitration and litigation between them. Mr. Malkin and
Wien & Malkin LLP are continuing 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits hereto are being incorporated by reference.
(b) Registrant has not filed any report on Form 8-K during
the quarter for which this report is being filed.
<PAGE>
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 Partners in Registrant,
pursuant to Powers of Attorney, dated March 18, 1998, March 20, 1998 and May
14, 1998 (the "Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Dated: November , 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the undersigned as Attorney-in-Fact for
the Partners in Registrant pursuant to the Power, on behalf of Registrant on
the date indicated.
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Dated: November , 1998
__________________________
* Mr. Katzman supervises accounting functions for Registrant.
<PAGE>
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, and 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, was filed as Exhibit
3(b) to Registrant's 10-Q for the
quarter ended March 31, 1998, and is
incorporated by reference as an
exhibit hereto.
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 were filed
as Exhibit 24 to Registrant's 10-Q
for the quarter ended March 31, 1998
and is incorporated by reference as
an exhibit hereto.
__________________________
* Page references are based on sequential numbering system.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of September 30, 1998 and the Statement Of Income
for the year ended September 30, 1998, and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 87,879
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,617,530
<PP&E> 25,774,135
<DEPRECIATION> 18,534,135
<TOTAL-ASSETS> 9,008,237<F1>
<CURRENT-LIABILITIES> 152,965
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (3,165,542)
<TOTAL-LIABILITY-AND-EQUITY> 9,008,237
<SALES> 3,135,882<F2>
<TOTAL-REVENUES> 3,135,882
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 195,082<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 797,881
<INCOME-PRETAX> 2,142,919
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,142,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,142,919
<EPS-PRIMARY> 3,061.31<F4>
<EPS-DILUTED> 3,061.31<F4>
<FN>
<F1>Includes unamortized mortgage refinance costs
<F2>Rental income
<F3>Supervisory fees and amortization of mortgage refinancing costs
<F4>Earnings per $10,000 participation unit, based on 700 participation
units outstanding during the period
</FN>
</TABLE>
