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 June 30, 1999
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 12 of this Report.
Number of pages (including exhibits) in this filing: 12
PART I. FINANCIAL INFORMATION
60 East 42nd St. Associates
Condensed Statements of Income
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Rent Income:
Basic rent, from a
related party (Note B) $271,960 $271,960 $ 543,921 $ 543,921
Additional rent from a
related party (Note B) 263,450 263,450 526,900 526,900
-------- -------- ---------- ----------
Total rent income 535,410 535,410 1,070,821 1,070,821
======== ======== ========== ==========
Expenses:
Interest on mortgage (Note B) 265,960 265,960 531,921 531,921
Supervisory services,
to a related party (Note C) 7,845 7,845 15,690 15,690
Amortization of mortgage
refinancing costs 6,194 6,194 12,388 12,388
-------- -------- ---------- ----------
Total expenses 279,999 279,999 559,999 559,999
-------- -------- ---------- ----------
Net Income $255,411 $255,411 $ 510,822 510,822
======== ======== ========== ==========
Earnings per $10,000
participation unit, based
on 700 participation units
outstanding during the year $ 364.87 $ 364.87 $ 729.75 $ 729.75
======== ======== ========= =========
Distributions per $10,000
participation consisted
of the following:
Income $ 364.87 $ 364.87 $ 729.75 $ 729.75
Return of Capital $ 8.85 8.85 17.69 17.69
-------- -------- --------- ---------
Total distributions $ 373.72 $ 373.72 $ 747.44 747.44
======== ======== ========= =========
At June 30, 1999 and 1998, there were $7,000,000 of participations
outstanding.
-1-
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
Assets June 30, 1999 December 31, 1998
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
----------- -----------
7,240,000 7,240,000
Mortgage refinancing costs 249,522 249,522
Less, allowance for amortization 117,397 105,009
----------- -----------
132,125 144,513
----------- -----------
Total assets $ 7,460,004 $ 7,472,392
=========== ===========
Liabilities and Capital
Long-term debt $12,020,814 12,020,814
Capital
Capital deficit, January 1, (4,548,422) (4,523,646)
Add, Net income:
January 1, 1999 through June 30, 1999 510,822 -0-
January 1, 1998 through December 31, 1998 -0- 2,390,776
----------- -----------
(4,037,600) (2,132,870)
Less Distributions:
Monthly distributions,
January 1, 1999 through June 30, 1999 523,210 -0-
January 1, 1998 through December 31, 1998 -0- 1,046,420
Distribution on November 30, 1998 of
Additional Rent for the lease year
ended September 30, 1998 -0- 1,369,132
----------- -----------
Total distributions 523,210 2,415,552
----------- -----------
Capital (deficit)
June 30, 1999 (4,560,810) -0-
December 31, 1998 -0- (4,548,422)
----------- -----------
Total liabilities and capital:
June 30, 1999 7,460,004 -0-
December 31, 1998 -0- 7,472,392
=========== ===========
-2-
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
January 1, 1999 January 1, 1998
through through
June 30, 1999 June 30, 1998
Cash flows from operating activities:
Net income $ 510,822 $ 510,822
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage
refinancing costs 12,388 12,388
----------- ----------
Net cash provided by operating
Activities 523,210 523,210
----------- ----------
Cash flows from financing activities:
Cash distributions (523,210) (523,210)
----------- ----------
Net cash used in financing
activities (523,210) (523,210)
----------- ----------
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, 1999 January 1, 1998
through through
June 30, 1999 June 30, 1998
Cash paid for:
Interest $ 531,921 $ 531,921
=========== ==========
-3-
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., Richard A. Shapiro, Jack Feirman and
Mark Labell, 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 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").
-4-
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.
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 deducting expenses of $8,393
incurred in connection with the September 4, 1997 consent solicitation
program and payment of $152,126 to Counsel as an additional payment
for supervisory services, the balance of $1,369,132 was 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.
-5-
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 June 30, 1999, such remaining cash
investment was $7,000,000 representing the original cash investment of
Participants in Registrant.
No remuneration was paid during the six month period ended
June 30, 1999 by Registrant to any of the Partners as such. Pursuant
to the fee arrangements described herein, Registrant paid Counsel
$12,000 of the Basic Payment and $3,690 on account of the Additional
Payment, for supervisory services for the six month period ended June
30, 1999. 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.
-6-
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 June 30, 1999, 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 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 June 30, 1999, the Partners owned of record and
beneficially an aggregate $61,667 of participations in Registrant,
representing 8.8% of the currently outstanding participations therein.
In addition, as of June 30, 1999, certain of the Partners in
Registrant (or their respective spouses) held additional
Participations in Registrant as follows:
Anthony E. Malkin owned of record as co-trustee an aggregate
of $5,000 of Participations. Mr. Anthony E. Malkin disclaims
any beneficial ownership of such Participations.
Peter L. Malkin owned of record as trustee or co-trustee, an
aggregate of $45,714 of Participations. Mr. Malkin
disclaims any beneficial ownership of such Participations.
Trusts for the benefit of members of Peter L. Malkin's
family owned of record and beneficially $107,500 of
Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations, except that such Trusts
are required to complete scheduled payments to Mr. Malkin.
Richard A. Shapiro owned of record as custodian, but not
beneficially, a $5,000 Participation. Mr. Shapiro disclaims
any beneficial ownership of such Participation.
-7-
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 six month
period ended June 30, 1999, 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 made an additional
distribution of $1,955.90 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 remained the same for the six month
period ended June 30, 1999, as compared with the six
month period ended June 30, 1998.
Total expenses remained the same for the six month
period ended June 30, 1999, as compared with the six
month period ended June 30, 1998.
-8-
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the six month period ended June 30, 1999, as compared
with the six month period ended June 30, 1998.
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, 1998, which
report and all exhibits thereto are incorporated herein by reference
and made a part hereof.
-9-
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 4. Submission of Matters to a Vote of Participants.
On June 30, 1999, 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 for a program to complete and finance
improvements and grant lease extensions. 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 July 1, 1999, and is incorporated by reference.
Supplementary letters consistent with such Statement were
subsequently mailed to the Participants, have been filed with the
Securities and Exchange Commission, and are also incorporated by
reference.
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.
-10-
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*
Date: August 13, 1999
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*
Date: August 13, 1999
__________________________
* Mr. Katzman supervises accounting functions for Registrant.
-11-
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, 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.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of June 30, 1999 and the Statement Of Income
for the year ended June 30, 1999, and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<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> 7,460,004<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (4,560,810)
<TOTAL-LIABILITY-AND-EQUITY> 7,460,004
<SALES> 1,070,821<F2>
<TOTAL-REVENUES> 1,070,821
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,078<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 531,921
<INCOME-PRETAX> 510,822
<INCOME-TAX> 0
<INCOME-CONTINUING> 510,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 510,822
<EPS-BASIC> 729.75<F4>
<EPS-DILUTED> 729.75<F4>
<FN>
<F1>Includes unamortized mortgage refinance costs
<F2>Rental income
<F3>Supervisory fees, and amortization of mortgage
refinance costs
<F4>Earnings per $10,000 participation unit, based on 700 participation
units outstanding during the period
</TABLE>
