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 March 31, 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 require-
ments 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 <PAGE>
2.
PART I. FINANCIAL INFORMATION
60 East 42nd St. Associates
Condensed Statements of Income
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
Rent Income:
Basic rent from a related
party (Note B) $ 271,960 $ 271,960
Additional rent from a related
party (Note B) 263,450 263,450
---------- ----------
Total rent income 535,410 535,410
---------- ----------
Expenses:
Interest on mortgage (Note B) 265,960 265,960
Supervisory services, to a
related party (Note C) 7,845 7,845
Amortization of mortgage
refinancing costs 6,194 6,194
---------- ----------
Total expenses 279,999 279,999
---------- ----------
Net income $ 255,411 $ 255,411
========== ==========
Earnings per $10,000 participa-
tion unit, based on 700 parti-
cipation units outstanding
during the year $ 364.87 $ 364.87
========== ==========
Distributions per $10,000
participation:
Distributions per $10,000
participation consisted of the
following:
Income $ 364.87 $ 364.87
Return of capital 8.85 8.85
========== =========
Total distributions $ 373.72 $ 373.72
========== =========
At March 31, 1998 and 1997, there were $7,000,000 of participations
outstanding.<PAGE>
60 East 42nd St. Associates 3.
Condensed Balance Sheet
(Unaudited)
March 31, 1998 December 31, 1997
Assets
Current assets:
Cash $ 87,879 $ 87,879
----------- -----------
Total current assets 87,879 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 86,427 80,233
----------- -----------
163,095 169,289
----------- -----------
Total assets $7,490,974 $7,497,168
=========== ===========
Liabilities and Capital
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 March 31, 1998 255,411 -0-
January 1, 1997 through December 31, 1997 -0- 2,877,925
----------- -----------
(4,268,235) (1,620,945)
----------- -----------
Less, Distributions:
Monthly distributions,
January 1, 1998 through March 31, 1998 261,605 -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 261,605 2,902,701
----------- -----------
Capital (deficit)
March 31, 1998 (4,529,840) -0-
December 31, 1997 -0- (4,523,646)
----------- -----------
Total liabilities and capital:
March 31, 1998 $7,490,974 -0-
December 31, 1997 -0- $7,497,168
=========== ==========<PAGE>
60 East 42nd St. Associates 4.
Condensed Statements of Cash Flows
(Unaudited)
January 1, 1998 January 1, 1997
through through
March 31, 1998 March 31, 1997
Cash flows from operating activities:
Net income $ 255,411 $ 255,411
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage refinancing
costs 6,194 6,194
---------- -----------
Net cash provided by operating
activities 261,605 261,605
---------- ----------
Cash flows from financing activities:
Cash distributions (261,605) (261,605)
---------- ----------
Net cash used in financing
activities (261,605) (261,605)
---------- ----------
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
March 31, 1998 March 31, 1997
Cash paid for:
Interest $ 265,960 $ 265,960
=========== ==========<PAGE>
60 East 42nd St. Associates 5.
March 31, 1998
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 state-
ment 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, Mr. 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:<PAGE>
60 East 42nd St. Associates 6.
March 31, 1998
(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 re-
quired during the subsequent lease year shall be reduced by an
amount equal to such excess until Lessee shall have recovered,
through retention of net operating income, the full amount of such
excess.
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 was 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. <PAGE>
60 East 42nd St. Associates 7.
March 31, 1998
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 March 31, 1998, such
remaining cash investment was $7,000,000 representing the original
cash investment of Participants in Registrant.
No remuneration was paid during the three month period
ended March 31, 1998 by Registrant to any of the Partners as such.
Pursuant to the fee arrangements described herein, Registrant paid
Counsel $6,000 of the Basic Payment and $1,845 on account of the
Additional Payment, for supervisory services for the three month
period ended March 31, 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<PAGE>
60 East 42nd St. Associates 8.
March 31, 1998
Lessee. As of March 31, 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 April 15, 1998, the Partners owned of record and
beneficially an aggregate $109,167 of participations in
Registrant, representing 1.56% of the currently outstanding
participations therein.
In addition, as of April 15, 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 Partici-
pants 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<PAGE>
60 East 42nd St. Associates 9.
March 31, 1998
of the Property. Registrant is not required to maintain substan-
tial reserves or otherwise maintain liquid assets to defray any
operating expenses of the Property.
Registrant does not pay dividends. During the three
month period ended March 31, 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 restric-
tions on Registrant's present or future ability to make distribu-
tions; 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 made an additional
distribution of $2,651.83 for each $10,000 participation. Such
distribution represented 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
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 remained the same for the three month
period ended March 31, 1998, as compared with the
three month period ended March 31, 1997.
Total expenses remained the same for the three month
period ended March 31, 1998, as compared with the
three month period ended March 31, 1997.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the three month period ended March 31, 1998, as
compared with the three month period ended March 31, 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<PAGE>
60 East 42nd St. Associates 10.
March 31, 1998
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 in-
vestment 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 commit-
ments 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.<PAGE>
60 East 42nd St. Associates 11.
March 31, 1998
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>
60 East 42nd St. Associates 12.
March 31, 1998
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 (collectively, the
"Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Dated: May , 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 each of 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: May , 1998
______________________
* Mr. Katzman supervises accounting functions for
Registrant.<PAGE>
60 East 42nd St. Associates 13.
March 31, 1998
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.
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.
______________________
*Page references are based on a sequential numbering system.<PAGE>
12.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of March 31, 1998 and the Statement Of Income
for the year ended March 31, 1998, and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 87,879
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,879
<PP&E> 25,774,135
<DEPRECIATION> 18,534,135
<TOTAL-ASSETS> 7,490,974<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (4,529,840)
<TOTAL-LIABILITY-AND-EQUITY> 7,490,974
<SALES> 535,410<F2>
<TOTAL-REVENUES> 535,410
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 279,999<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 255,411
<INCOME-TAX> 0
<INCOME-CONTINUING> 255,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,411
<EPS-PRIMARY> 364.87<F4>
<EPS-DILUTED> 364.87<F4>
<FN>
<F1>Includes unamortized mortgage refinance costs
<F2>Rental income
<F3>Mortgage interest, supervisory fees, and amortization of mortgage
refinance costs
<F4>Earnings per $10,000 participation unit, based on 700 participation
units outstanding during the period
</FN>
</TABLE>
