-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D9CicqoP2w5Xm6n5PWr8IqXWgfyN23L49gXxxRJj9s3FPvdivKv8Owu9CJODEhwo 1vecAviytYYU+0P7OCOOEA== 0000090794-99-000001.txt : 19990419 0000090794-99-000001.hdr.sgml : 19990419 ACCESSION NUMBER: 0000090794-99-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 60 EAST 42ND STREET ASSOCIATES CENTRAL INDEX KEY: 0000090794 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 136077181 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02670 FILM NUMBER: 99595369 BUSINESS ADDRESS: STREET 1: C/O WEIN MALKIN & BETTEX STREET 2: 60 EAST 42ND STREET CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 2126878700 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 [] 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) New York 13-6077181 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 60 East 42nd Street, New York, New York 10165 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 687-8700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: $7,000,000 of Participations in Partnership Interests Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market of the voting stock held by non-affiliates of the Registrant: Not applicable, but see Items 5 and 10 of this report. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ An Exhibit Index is located on pages 30 through 32 of this Report. Number of pages (including exhibits) in this filing: 49 PART I Item 1. Business. (a) General 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 Jack K. Feirman, Mark Labell, Anthony E. Malkin, Scott D. Malkin, Thomas N. Keltner, Jr., Peter L. Malkin, and Richard A. Shapiro (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, the "Participants"). Registrant leases the Property to Lincoln Building Associates (the "Lessee") under a long-term net operating lease (the "Lease") the current term of which expires on September 30, 2008. There is one additional 25-year renewal term which, if exercised, will extend the Lease until September 30, 2033. Lessee is a partnership whose members consist of, among others, Mr. Peter 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, which acts as counsel to Registrant and to Lessee (the "Counsel"). See Items 10, 11, 12 and 13 hereof for a description of the ongoing services rendered by, and compensation paid to, Counsel and for a discussion of certain relationships which may pose actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates. As of December 31, 1998, the Building was approximately 96% occupied by approximately 605 tenants who engage principally in the practice of law, accounting, real estate, engineering and advertising. Registrant does not maintain a full-time staff. See Item 2 hereof for additional information concerning the Property. (b) The Mortgage A new mortgage loan on the Property was closed on October 6, 1994 (the "Mortgage Loan"). The material terms of the Mortgage Loan are as follows: (i) A principal amount of $12,020,814; (ii) Annual charges of $1,063,842, payable in equal monthly installments of $88,654, representing interest only at the rate of 8.85% per annum; (iii) A term of ten years; and -1- (iv) A maturity date of October 31, 2004. The Mortgage Loan is prepayable in whole after October 6, 1995, with a penalty providing certain interest protection to the mortgagee. The Mortgage Loan is prepayable in whole without penalty during the 90-day period prior to its maturity date. The refinancing costs were capitalized by Registrant and are being expensed ratably during the period of the mortgage extension from October 6, 1994 to October 31, 2004. (c) The Lease The Lease, as modified, provides: (i) Lessee is required to pay Registrant 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. See Note 4 of Notes to Financial Statements filed under Item 8 hereof (the "Notes"). (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 the payment of $8,393 for fees and expenses in connection with the September 4, 1997 Consent Solicitation Program and $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. -2- 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. (d) Competition Pursuant to tenant space leases at the Building, the average base rent payable to Lessee is approximately $26 per square foot (exclusive of electricity charges and escalation) and current deals range from $34 to $45. Registrant has been advised that buildings of comparable age in the area currently request rental rates within $32 - $51 per square foot. In the overall rental market for commercial space in Manhattan, rents range from approximately $51 or more per square foot for prime office space to approximately $25 per square foot in less developed industrial and/or secondary commercial areas. (e) Tenant Leases Lessee operates the Building free from any federal, state or local government restrictions involving rent control or other similar rent regulations which may be imposed upon residential real estate in New York City. Any increase or decrease in the amount of rent payable by a tenant is governed by the provisions of the tenant's lease, or, if a new tenant, by then existing trends in the rental market for office space. -3- Item 2. Property. Registrant owns the Building located at 60 East 42nd Street, New York, New York, known as the "Lincoln Building," and the land thereunder. See Item 1. Registrant's fee title to the Property is encumbered by the Mortgage Loan with an unpaid principal balance of $12,020,814 at December 31, 1998. For a description of the terms of the Mortgage Loan, see Item 1 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and Note 3 of the Notes thereto. The Building, erected in 1930, has 55 floors, a concourse and a lower lobby. It is located diagonally opposite Grand Central Terminal, on 42nd Street between Park Avenue and Madison Avenue. The Building is net leased to Lessee. See Item 1 hereof and Note 4 of the Notes for additional information concerning the Lease. Item 3. Legal Proceedings. The property of Registrant is the subject of the following material pending litigation: Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et. al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed an action in the Supreme Court of the State of New York, against Helmsley-Spear, Inc. and Leona Helmsley concerning various partnerships which own, lease or operate buildings managed by Helmsley-Spear, Inc., including Registrant's property. In their complaint, plaintiffs sought the removal of Helmsley-Spear, Inc. as managing and leasing agent for all of the buildings. Plaintiffs also sought an order precluding Leona Helmsley from exercising any partner management powers in the partnerships. In August, 1997, 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. No matters were submitted to the Participants during the last quarter of the period covered by this report. -4- PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters. Registrant, a partnership, was organized on September 25, 1958. The securities registered by it under the Securities Exchange Act of 1934, as amended, consist of participations in the partnership interests of the Partners in Registrant (the "Participations") and are not shares of common stock or the equivalent. The Participations represent each Participant's fractional share in a Partner's undivided interest in Registrant. One full unit of the Participations was offered at an original purchase price of $10,000; fractional units were also offered for proportionate purchase prices. Registrant has not repurchased Participations in the past and is not likely to change its policy in the future. (a) The Participations neither are traded on an established securities market nor are readily tradable on a secondary market or the equivalent thereof. Based on Registrant's transfer records, Participations are sold by the holders thereof from time to time in privately negotiated transactions and, in many instances, Registrant is not aware of the prices at which such transactions occur. During 1998, Registrant was advised of 65 transfers of Participations. In nine instances, the indicated purchase price was equal to two times the face amount of the Participations transferred, i.e., $20,000 for a $10,000 participation. In two instances, the indicated purchase price was equal to approximately 1.9 times the face amount of the Participations transferred, i.e., $9,450 for a $5,000 participation. In all other cases, no consideration was indicated. (b) As of December 31, 1998, there were 743 holders of Participations of record. (c) Registrant does not pay dividends. During each of the years ended December 31, 1998 and 1997, Registrant made regular monthly distributions of $124.57 for each $10,000 Participation. On November 30, 1998 and December 2, 1997, Registrant made additional distributions for each $10,000 Participation of $1,955.90 and $2,651.83, respectively. Such distributions repre- sented primarily Additional Rent and Further Additional Rent payable by Lessee in accordance with the terms of the Lease. See Item 1 hereof. There are no restrictions on Registrant's present or future ability to make distributions; however, the amount of such distributions, particularly distributions of Additional Rent and Further Additional Rent, depends solely on Lessee's ability to make payments of Basic Rent, Additional Rent and Further Additional Rent to Registrant. See Item 1 hereof. Registrant expects to make distributions so long as it receives the payments provided for under the Lease. See Item 7 hereof. -5- [SELECTED FINANCIAL DATA] Item 6. 60 EAST 42nd ST. ASSOCIATES SELECTED FINANCIAL DATA
Year ended December 31, 1998 1997 1996 1995 1994 Basic rent income..$ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,122,040 Advance of additional rent income.... 1,053,800 1,053,800 1,053,800 1,053,800 1,053,800 Further additional rent income..... 1,529,651 2,110,080 2,051,475 1,565,928 2,202,847 Total revenue... $ 3,671,293 $ 4,251,722 $ 4,193,117 $ 3,707,570 $ 4,378,687 Net income......... $ 2,390,776 $ 2,877,925 $ 2,867,971 $ 2,430,979 $ 3,051,227 Earnings per $10,000 participation unit, based on 700 participation units outstanding during the year......... $ 3,415 $ 4,111 $ 4,097 $ 3,473 $ 4,359 Total assets....... $ 7,472,392 $ 7,497,168 $ 7,521,944 $7,546,720 $ 7,660,149 Long-term obligations....... $12,020,814 $12,020,814 $12,020,814 $12,020,814 $12,020,814 Distributions per $10,000 participation unit, based on 700 participation units outstanding during the year: Income.......... $ 3,415 $ 4,111 $ 4,097 $ 3,473 $ 4,006 Return of capital.. 35 35 35 35 - Total distributions $ 3,450 $ 4,146 $ 4,132 $ 3,508 $ 4,006
-6- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Registrant was organized solely for the purpose of acquiring the Property subject to a net operating lease held by Lessee. Registrant is required to pay, from Basic Rent under the Lease, mortgage charges and amounts for supervisory services. Registrant is required to pay from Additional Rent and Further Additional Rent additional amounts for supervisory services and then to distribute the balance of such Additional Rent and Further Additional Rent to the Participants. Under the Lease, Lessee has assumed sole responsibility for the condition, operation, repair, maintenance and management of the Property. Registrant need not maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property. The following summarizes the material factors affecting Registrant's results of operations for the three years ended December 31, 1998: (a) Total income decreased for the year ended December 31, 1998 as compared with the year ended December 31, 1997. Such decrease is attributable to the payment of a decreased amount of Further Additional Rent received by Registrant in 1998. Total income increased for the year ended December 31, 1997 as compared with the year ended December 31, 1996. Such increase is attributable to the payment of an increased amount of Further Additional Rent to Registrant in 1997. See Note 4 of the Notes. (b) Total expenses decreased for the year ended December 31, 1998 as compared with the year ended December 31, 1997. Such decrease resulted mainly from a decrease in the additional payment for supervisory services payable with respect to a decreased amount of Further Additional Rent received by Registrant in 1998 and professional fees incurred in connection with the Consent Solicitation Program. Total expenses increased for the year ended December 31, 1997 as compared with the year ended December 31, 1996. Such increase resulted from an increase in the additional payment for supervisory services payable with respect to Further Additional Rent received by Registrant in 1997 and professional fees incurred in connection with the Consent Solicitation Program. 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. -7- Liquidity and Capital Resources There has been no significant change in Registrant's liquidity for the year ended December 31, 1998 as compared with the year ended December 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 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 Inflationary trends in the economy do not directly affect Registrant's operations since, as noted above, Registrant does not actively engage in the operation of the Property. Inflation may impact the operations of Lessee. Lessee is required to pay Basic Rent, regardless of the results of its operations. Inflation and other operating factors affect only the amount of Additional Rent and Further Additional Rent payable by Lessee, which is based on Lessee's net operating profit. Item 8. Financial Statements and Supplementary Data. The financial statements, together with the accompanying report by, and the consent to the use thereof, of Jacobs Evall & Blumenfeld LLP immediately following, are being filed in response to this item. Item 9. Disagreement on Accounting and Financial Disclosure. Not applicable. -8- PART III Item 10. Directors and Executive Officers of the Registrant. Registrant has no directors or officers or any other centralization of management. There is no specific term of office for any Partner. The table below sets forth as to each Partner as of December 31, 1998 the following: name, age, nature of any family relationship with any other Partner, business experience during the past five years and principal occupation and employment during such period, including the name and principal business of any corporation or any organization in which such occupation and employment was carried on and the date such individual became a Partner: Nature Principal Date of Family Occupation Individual Relation- Business and became Name Age ship Experience Employment Partner Anthony E. Malkin 36 son of President of President of 1997 Peter L. real estate W&M Properties, Malkin, management Inc. brother company of Scott D. Malkin Scott D. Malkin 40 son of Chairman and CEO of 1997 Peter L. CEO of real S.D. Malkin Malkin, estate Properties, brother development Inc. of company Anthony E. Malkin Mark Labell 46 None Attorney-at-Law; Partner 1998 Real Estate Wien & Malkin LLP, Thomas N. Keltner, Jr. 52 None Attorney-at-Law; Senior Partner 1996 Real Estate Wien & Malkin LLP, -9- Nature Principal Date of Family Occupation Individual Relation- Business and became Name Age ship Experience Employment Partner Jack K. Feirman 53 None Attorney-at-Law; Partner 1998 Real Estate Wien & Malkin LLP, Peter L. Malkin 65 Father Attorney-at-Law; Senior Partner 1970 of Real Estate Anthony E. and Chairman and Wien & Malkin Scott D. LLP Malkin Richard A. Shapiro 53 None Attorney-at-Law; Senior Partner 1996 Real Estate Wien & Malkin LLP As stated above, five of the Partners are current members of Counsel. See Items 11, 12 and 13 hereof for a description of the services rendered by, and the compensation paid to, Counsel and for a discussion of certain relationships which may pose actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates. The names of entities which have a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or are subject to the requirements of Section 15(d) of that Act, and in which the Partners are either a director, joint venturer or general partner are as follows: Thomas N. Keltner, Jr. is a general partner in Empire State Building Associates, Navarre-500 Building Associates and Garment Capitol Associates. Richard A. Shapiro is a general partner in Garment Capitol Associates and Empire State Building Associates. Anthony E. Malkin is a joint venturer in 250 West 57th Street Associates. Peter L. Malkin is a joint venturer in 250 West 57th St. Associates; and a general partner in Empire State Building Associates, Navarre-500 Building Associates and Garment Capitol Associates. -10- Item 11. Executive Compensation. As stated in Item 10 hereof, Registrant has no directors or officers or any other centralization of management. No remuneration was paid during the current fiscal year ended December 31, 1998 by Registrant to any of the Partners as such. Registrant pays Counsel, for supervisory services and disbursements, fees of $24,000 per annum plus an additional payment of 10% of all distributions to Participants in Registrant in any year in excess of the amount representing an annual return of 14% on the Participants' remaining cash investment in Registrant (which remaining cash investment, at December 31, 1998, was equal to the Participant's original cash investment of $7,000,000). Pursuant to such fee arrangements, Registrant paid Counsel a total of $183,506 (consisting of $24,000 as an annual basic payment for supervisory services and $159,506 as an additional payment for supervisory services) during the fiscal year ended December 31, 1998. The supervisory services included preparing of reports and related documentation required by the Securities and Exchange Commission, monitoring of all areas of federal and local securities law compliance, preparing certain financial reports, as well as the supervising of accounting and other documentation related to the administration of Registrant's business. Out of its fees, Counsel paid all disbursements and costs of regular accounting services. As noted in Items 1 and 10 of this report, five of the Partners are also members of Counsel. Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) Registrant has no voting securities. See Item 5 hereof. At December 31, 1998, no person owned of record or was known by Registrant to own beneficially more than 5% of the outstanding Participations. (b) At December 31, 1998, the Partners (see Item 10 hereof) beneficially owned, directly or indirectly, the following Participations: Name and Address Amount of Percent of Beneficial Beneficial of Title of Class Owners Ownership Class Participations Thomas N. Keltner, Jr. $ 2,500 .036% in Partnership 60 East 42nd Street Interests New York, NY 10165 Anthony E. Malkin $25,833 .369% 60 East 42nd Street New York, NY 10165 Peter L. Malkin $62,500 .893% 60 East 42nd Street New York, NY 10165 Scott D. Malkin $33,334 .476% 27 Hereford Square SW7 4NB London, England -11- At such date, certain of the Partners (or their respective spouses) held additional Participations 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. Isabel Malkin, the wife of Peter L. Malkin, owned individually and beneficially $35,000 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations. Richard A. Shapiro owned of record as custodian a $5,000 Participation. Mr. Shapiro disclaims any beneficial ownership of such Participation. (c) Not applicable. Item 13. Certain Relationships and Related Transactions. (a) As stated in Items 1 and 10 hereof, Messrs. Feirman, Keltner, Labell, Anthony E. Malkin, Peter L. Malkin, Scott D. Malkin and Shapiro are the seven Partners in Registrant and also act as agents for Participants in their respective partnership interests therein. Mr. Peter Malkin is also among the partners in Lessee. As a consequence of one of the seven Partners being a partner in Lessee and five of the seven Partners being members of Counsel (which represents Registrant and Lessee), certain actual or potential conflicts of interest may arise with respect to the management and administration of the business of Registrant. However, under the respective Participating Agreements pursuant to which the Partners act as agents for the Participants, certain transactions require the prior consent from Participants owning a specified interest under the Agreements in order for the agents to act on the Participants' behalf. Such transactions, among others, include modification and extension of the Lease or the Mortgage Loan, or a sale or other disposition of the Property or substantially all of Registrant's other assets. -12- See Items 1 and 2 hereof for a description of the terms of the Lease. As of December 31, 1998, Mr. Peter 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, and, in the case of Mr. Peter 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 Partner in Counsel, by reason of his respective interest in Counsel, is entitled to receive his pro rata share of any legal fees or other remuneration paid to Counsel for professional services rendered to Registrant and Lessee. See Item 11 hereof for a description of the remuneration arrangements between Registrant and Counsel relating to supervisory services provided by Counsel. Reference is also made to Items 1 and 10 hereof for a description of the relationship between Registrant and Counsel, of which five of the Partners are among the members. The respective interests of each Partner in any remuneration paid or given by Registrant to Counsel arises solely from such Partner's ownership of an interest in Counsel. See Item 11 hereof for a description of the remuneration arrangements between Registrant and Counsel relating to supervisory services provided by Counsel. (b) Reference is made to paragraph (a) above. (c) Not applicable. (d) Not applicable. -13- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1) Financial Statements: Consent of Jacobs Evall & Blumenfeld LLP, Certified Public Accountants, dated February 2, 1999. Accountant's Report of Jacobs Evall & Blumenfeld LLP, Certified Public Accountants, dated January 29, 1999. Balance Sheets at December 31, 1998 and at December 31, 1997 (Exhibit A). Statements of Income for the fiscal years ended December 31, 1998, 1997 and 1996. (Exhibit B). Statement of Partners' Capital Deficit for the fiscal year ended December 31, 1998 (Exhibit C-1). Statement of Partners' Capital Deficit for the fiscal year ended December 31, 1997 (Exhibit C-2). Statement of Partners' Capital Deficit for the fiscal year ended December 31, 1996 (Exhibit C-3). Statements of Cash Flows for the fiscal years ended December 31, 1998, 1997 and 1996 (Exhibit D). Notes to Financial Statements for the fiscal years ended December 31, 1998, 1997 and 1996. (2) Financial Statement Schedules: List of Omitted Schedules. Real Estate and Accumulated Depreciation - December 31, 1998 (Schedule III). (3) Exhibits: See Exhibit Index. (b) No report on Form 8-K was filed by Registrant during the last quarter of the period covered by this report. -14- [LETTERHEARD OF JACOBS EVALL & BLUMENFELD LLP CERTIFIED PUBLIC ACCOUNTANTS] February 2, 1999 60 East 42nd St. Associates New York, N. Y. We consent to the use of our independent accountants' report dated January 29, 1999 covering our audits of the accompanying financial statements of 60 East 42nd St. Associates in connection with and as part of your December 31, 1998 annual report (Form 10-K) to the Securities and Exchange Commission. Jacobs Evall & Blumenfeld LLP Certified Public Accountants - 15- INDEPENDENT ACCOUNTANTS' REPORT To the participants in 60 East 42nd St. Associates (a Partnership) New York, N. Y. We have audited the accompanying balance sheets of 60 East 42nd St. Associates as of December 31, 1998 and 1997 and the related statements of income, partners' capital deficit and cash flows for each of the three years in the period ended December 31, 1998, and the supporting financial statement schedule as contained in Item 14(a)(2) of this Form 10-K. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 60 East 42nd St. Associates as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles, and the related financial statement schedule, when considered in relation to the basic financial statements, presents fairly, in all material respects, the information set forth therein. Jacobs Evall & Blumenfeld LLP Certified Public Accountants New York, N. Y. January 29, 1999 - 16- EXHIBIT A 60 EAST 42nd ST. ASSOCIATES BALANCE SHEETS A S S E T S
December 31, 1998 1997 Current Assets: Cash in Fleet Bank $ 677 $ 677 Cash in distribution account held by Wien & Malkin LLP (Note 10) 87,202 87,202 TOTAL CURRENT ASSETS..... 87,879 87,879 Real Estate (Notes 2a and 3): Land........................... 7,240,000 7,240,000 Buildings...................... $16,960,000 $16,960,000 Less: Accumulated depreciation.16,960,000 - 16,960,000 - Building improvements............ 1,574,135 1,574,135 Less: Accumulated depreciation 1,574,135 - 1,574,135 - Other Assets: Mortgage refinancing costs, less accumulated amortization of $105,009 in 1998 and $80,233 in 1997 (Note 2b).............. 144,513 169,289 TOTAL ASSETS............. $ 7,472,392 $ 7,497,168 LIABILITIES AND PARTNERS' CAPITAL DEFICIT Long-term Liabilities: Bonds, mortgages and similar debt: First mortgage payable (Note 3).. $12,020,814 $12,020,814 TOTAL LIABILITIES.......... 12,020,814 12,020,814 Partners' Capital Deficit (Exhibit C). (4,548,422) (4,523,646) TOTAL LIABILITIES AND PARTNERS' CAPITAL DEFICIT... $ 7,472,392 $ 7,497,168
See accompanying notes to financial statements. -17- EXHIBIT B 60 EAST 42nd ST. ASSOCIATES STATEMENTS OF INCOME
Year ended December 31, 1998 1997 1996 Revenue: Rent income, from a related party (Note 4)..................... $ 3,671,293 $ 4,251,722 $4,193,117 Expenses: Interest on mortgage (Note 3)..... 1,063,842 1,063,842 1,063,842 Supervisory services, to a related party (Note 5).......................... 183,506 237,634 236,528 Amortization of mortgage refinancing costs (Note 2b)......................... 24,776 24,776 24,776 Professional fees, to a related party (Note 6).......................... 8,393 47,545 - 1,280,517 1,373,797 1,325,146 NET INCOME, CARRIED TO PARTNERS' CAPITAL DEFICIT (NOTE 9)...... $ 2,390,776 $2,877,925 $2,867,971 Earnings per $10,000 participation unit, based on 700 participation units outstanding during each year.............................. $ 3,415 $ 4,111 $ 4,097
See accompanying notes to financial statements. -18- EXHIBIT C-3 60 EAST 42nd ST. ASSOCIATES STATEMENT OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1996
Partners' Partners' capital deficit capital deficit Share of December 31, January 1, 1996 net income Distributions 1996 Stanley Katzman Group. $ (639,156) $ 409,710 $ 413,250 $ (642,696) John L. Loehr Group (formerly Melvin H. Halper Group).......... (639,156) 409,710 413,250 (642,696) Richard A. Shapiro Group (formerly C . Michael Spero Group).......... (639,156) 409,710 413,249 (642,695) Donald A. Bettex Group... (639,156) 409,710 413,249 (642,695) Peter L. Malkin Group..... (639,156) 409,710 413,250 (642,696) Ralph W. Felsten Group... (639,157) 409,710 413,249 (642,696) Thomas N. Keltner Jr. Group (formerly Martin D. Newman Group).. (639,157) 409,711 413,250 (642,696) $(4,474,094) $2,867,971 $2,892,747 $(4,498,870)
See accompanying notes to financial statements. -19- EXHIBIT C-2 60 EAST 42nd ST. ASSOCIATES STATEMENT OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1997
Partners' Partners' capital deficit capital deficit Share of December 31, January 1, 1997 net income Distributions 1997 Stanley Katzman Group... $ (642,696) $ 411,132 $ 414,671 $ (646,235) John L. Loehr Group.... (642,696) 411,132 414,671 (646,235) Richard A. Shapiro Group. (642,695) 411,132 414,672 (646,235) Anthony E. Malkin Group (formerly Donald A. Bettex Group)............... (642,695) 411,132 414,672 (646,235) Peter L. Malkin Group..... (642,696) 411,133 414,672 (646,235) Scott D. Malkin Group (formerly Ralph W. Felsten Group)............... (642,696) 411,132 414,671 (646,235) Thomas N. Keltner Jr. Group. 642,696) 411,132 414,672 (646,236) $(4,498,870) $2,877,925 $2,902,701 $(4,523,646)
See accompanying notes to financial statements. -20- EXHIBIT C-1 60 EAST 42nd ST. ASSOCIATES STATEMENT OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1998
Partners' Partners' capital deficit capital deficit Share of December 31, January 1, 1998 net income Distributions 1998 Jack Feirman Group (formerly Stanley Katzman Group).... $ (646,235) $ 341,539 $ 345,078 $ (649,774) Mark Labell Group (formerly John L. Loehr Group). (646,235) 341,539 345,079 (649,775) Richard A. Shapiro Group. (646,235) 341,539 345,079 (649,775) Anthony E. Malkin Group. (646,235) 341,539 345,079 (649,775) Peter L. Malkin Group. (646,235) 341,540 345,079 (649,774) Scott D. Malkin Group.. (646,235) 341,540 345,079 (649,774) Thomas N. Keltner Jr. Group. ................ (646,236) 341,540 345,079 (649,775) $(4,523,646) $2,390,776 $2,415,552 $(4,548,422)
See accompanying notes to financial statements. -21- EXHIBIT D 60 EAST 42nd ST. ASSOCIATES STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 1997 1996 Cash flows from operating activities: Net income............................. $ 2,390,776 $ 2,877,925 $ 2,867,971 Adjustments to reconcile net income to cash provided by operating activities: Amortization of mortgage refinancing costs (Note 2b).................... 24,776 24,776 24,776 Net cash provided by operating activities....... 2,415,552 2,902,701 2,892,747 Cash flows from financing activities: Cash distributions.................... (2,415,552) (2,902,701) (2,892,747) Net cash used in financing activities................. (2,415,552) (2,902,701) (2,892,747) Net change in cash........... - - - Cash, beginning of year................... 87,879 87,879 87,879 CASH, END OF YEAR............ $ 87,879 $ 87,879 $ 87,879 Supplemental disclosure of cash flow information: 1998 1997 1996 Cash paid for: Interest........................... $ 1,063,842 $1,063,842 $ 1,063,842
See accompanying notes to financial statements. -22- 60 EAST 42nd ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS 1. Business Activity 60 East 42nd St. Associates ("Associates") is a general partnership which owns commercial property situated at 60 East 42nd Street and 301 Madison Avenue, New York, New York. The property is net leased to Lincoln Building Associates (the "Lessee"). 2. Summary of Significant Accounting Policies a. Real Estate and Depreciation: Real estate, consisting of land, buildings and building improvements, is stated at cost. The buildings and building improvements are fully depreciated. b. Mortgage Refinancing Costs, Amortization and Related Party Transactions: Mortgage refinancing costs of $249,522, incurred in connection with the October 6, 1994 refinancing of the first mortgage payable (see Note 3), are being charged to income ratably over the 10 year and 26 day term of the mortgage, from October 6, 1994 through October 31, 2004. c.Use of Estimates: In preparing financial statements in conformity with generally accepted accounting principles, management often makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. First Mortgage Payable On October 6, 1994, a first mortgage was placed on the property with Morgan Guaranty Trust Company of New York, as trustee of a pension trust, to refinance an existing first mortgage in the amount of $12,020,814. Annual mortgage charges are $1,063,842, payable in equal monthly installments, for interest only at the rate of 8.85% per annum. The first mortgage matures on October 31, 2004. The real estate is pledged as collateral for the first mortgage. Principal payments required to be made on long-term debt are as follows: Year ending December 31, 2004 (payable in full, October 31, 2004)......................................$12,020,814 -23- 60 EAST 42nd ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (continued) 4. Related Party Transactions - Rent Income Rent income for the years ended December 31, 1998, 1997 and 1996, totaling $3,671,293, $4,251,722 and $4,193,117, respectively, as provided under an operating lease with the Lessee dated October 1, 1958, as modified, consisted of the following: 1998 1997 1996 Basic rent income............. $1,087,842 $1,087,842 $1,087,842 Advance of additional rent.... 1,053,800 1,053,800 1,053,800 Further additional rent....... 1,529,651 2,110,080 2,051,475 $3,671,293 $4,251,722 4,193,117 Effective October 6, 1994, the lease, as modified, provides for annual basic rent of $1,087,842, which is equal to the sum of $1,063,842, the new constant annual mortgage charges, plus $24,000. The modified lease also provides for payments of additional rent, as follows: 1. Advances of additional rent are payable in equal monthly installments totaling an amount equal to the lesser of $1,053,800 or the defined net operating income of the Lessee during the preceding fiscal year ended September 30th (the "lease year"); and 2. Further additional rent is payable in an amount equal to 50% of the Lessee's remaining net operating income, as defined, in each lease year. The modified lease further provides for changes to be made in the basic rent paid in the event of a refinancing of the first mortgage (Note 3). In such case, unless there is an increase in the mortgage balance, the annual basic rent will be modified and will be equal to the sum of $24,000 plus an amount equal to the revised mortgage charges. In the event such mortgage refinancing results in an increase in the amount of outstanding principal balance of the mortgage, the basic rent shall be equal to the sum of $24,000 plus an amount equal to the product of the new debt service percentage rate under the refinanced mortgage multiplied by the principal balance of the mortgage immediately prior to the refinancing. Additional rent is billed to and advanced by the Lessee in equal monthly installments of $87,817. While it is not practicable to estimate that portion of additional rent for the lease year ending on the ensuing September 30th which would be allocable to the current three month period ending December 31st, Associates' policy is to include in its income each year the advances of additional rent income received from October 1st to December 31st. No other additional rent is accrued by Associates for the period between the end of the Lessee's lease year ending September 30th and the end of Associates' fiscal year ending December 31st. The lease had an initial term expiring on September 30, 1983, with renewal options for two additional periods of 25 years each. In 1982, the first lease renewal option was exercised for the period from October 1, 1983 through September 30, 2008. -24- 60 EAST 42nd ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (continued) 4. Related Party Transactions - Rent Income (Continued) The Lessee may surrender the lease at the end of any month, upon sixty days' prior written notice; the liability of the Lessee will end on the effective date of such surrender. A partner in Associates is also a partner in the Lessee. 5. Related Party Transactions - Supervisory Services Fees for supervisory services (including disbursements and costs of accounting services) for the years ended December 31, 1998, 1997 and 1996, totaling $183,506, $237,634 and $236,528, respectively, were paid to the firm of Wien & Malkin LLP. Some members of that firm are partners in Associates. Fees for supervisory services are paid pursuant to an agreement, which amount is based on a rate of return of investment achieved by the participants of Associates each year. 6. Related Party Transactions - Professional Fees Professional fees for the year ended December 31, 1998 and 1997, totaling $8,393 and $47,545, respectively, including disbursements, were paid to the firm of Wien & Malkin LLP, a related party. 7. Number of Participants There were approximately 725 participants in the participating groups at December 31, 1998, 1997 and 1996. 8. Determination of Distributions to Participants Distributions to participants during each year represent the excess of rent income over the mortgage requirements and cash expenses. -25- 60 EAST 42nd ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (continued) 9. Distributions and Amount of Income per $10,000 Participation Unit Distributions and amount of income per $10,000 participation unit during the years 1998, 1997 and 1996, based on 700 participation units outstanding during each year, consisted of the following: Year ended December 31, 1998 1997 1996 Income........................$3,415 $4,111 $4,097 Return of capital............. 35 35 35 TOTAL DISTRIBUTIONS..... $3,450 $4,146 $4,132 Net income is computed without regard to income tax expense since Associates does not pay a tax on its income; instead, any such taxes are paid by the participants in their individual capacities. 10. Concentration of Credit Risk Associates maintains cash balances in a bank and in a distribution account held by Wien & Malkin LLP. The bank balance is insured by the Federal Deposit Insurance Corporation up to $100,000, and at December 31, 1998 was completely insured. The distribution account held by Wien & Malkin LLP is not insured. The funds held in the distribution account were paid to the participants on January 1, 1999. -26- 60 EAST 42nd ST. ASSOCIATES OMITTED SCHEDULES The following schedules have been omitted as not applicable in the present instance: SCHEDULE I - Condensed financial information of registrant. SCHEDULE II - Valuation and qualifying accounts. SCHEDULE IV - Mortgage loans on real estate. -27- 60 EAST 42nd ST. ASSOCIATES SCHEDULE III Real Estate and Accumulated Depreciation December 31, 1998
Column A Description Land, buildings and building improvements situated at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y. B Encumbrances - Morgan Guaranty Trust Company of New York, as trustee of a pension trust Balance at December 31, 1998....................... $12,020,814 C Initial cost to company Land............................................... $ 7,240,000 Buildings.......................................... $16,960,000 D Cost capitalized subsequent to acquisition Building improvements.............................. $ 1,574,135 Carrying costs..................................... $ None E Gross amount at which carried at close of period Land................................................. $ 7,240,000 Buildings and building improvements............... 18,534,135 Total............................................. $25,774,135(a) F Accumulated depreciation............................. $18,534,135(b) G Date of construction 1930 H Date acquired October 1, 1958 I Life on which depreciation in latest income statements is computed Not applicable
(a) There have been no changes in the carrying values of real estate for the years ended December 31, 1998, December 31, 1997 and December 31, 1996. The costs for federal income tax purposes are the same as for financial statement purposes. (b) Accumulated depreciation Balance at January 1, 1996 $18,534,135 Depreciation: F/Y/E 12/31/96 None 12/31/97 None 12/31/98 None None Balance at December 31, 1998 $18,534,135 -28- SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the 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* Date: April 15, 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 and as a Partner in Registrant on the date indicated. By /s/ Stanley Katzman Stanley Katzman, Attorney-in-Fact* Date: April 15, 1999 ________________________ * Mr. Katzman supervises accounting functions for Registrant. -29- Exhibit Index Number Document Page* 3(a) Partnership Agreement, dated September 25, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 3 to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto. 3(b) Amended Business Certificate of Registrant filed with the Clerk of New York County on November 28, 1997, reflecting a change in the Partners of Registrant, which was filed as Exhibit 3(b) to Registrant's 10-Q for the period ended March 31, 1998 and is incorporated by reference as an exhibit hereto. 4 Form of Participating Agreement, which was filed as Exhibit No. 4 to Registrant's Form S-1 Registration Statement, as amended (the "Registration Statement") by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. 10(a) Deed of Lincoln Building to WLKP Realty Corp., which was filed as Exhibit No. 5 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. _______________________ * Page references are based on a sequential numbering system. -30- Number Document Page* 10(b) First Mortgage evidenced by a Modification, Extension & Consolidation Agreement, dated March 31, 1954, between WLKP Realty Corp. and The Prudential Insurance Company of America ("Prudential"), which was filed as Exhibit No. 6 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. 10(c) Form of Net Lease between Registrant and Lincoln Building Associates, which was filed as Exhibit No. 9 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. 10(d) Deed from Lincoln Building Associates to Registrant, dated October 1, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 10(d) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference, as an exhibit hereto. 10(e) Second Modification of Lease Agreement, dated January 1, 1977, which was filed by letter dated March 28, 1980 (Commission File No. 0-2670) as Exhibit II under Item 10(b) of Registrant's Form 10-K for the fiscal year ended December 31, 1979, is incorporated by reference as an exhibit hereto. 10(f) Third Modification of Lease Agreement, which was filed by letter dated March 28, 1980 (Commission File No. 0-2670) as Exhibit II under Item 10(b) of Registrant's Form 10-K for the fiscal year ended December 31, 1979, is incorporated by reference as an exhibit hereto. _______________________ * Page references are based on a sequential numbering system. -31- Number Document Page* 13(a) Letter to Participants, dated February 3, 1999 and supplementary financial reports for the fiscal year ended December 31, 1998. The foregoing material shall not be deemed to be "filed" with the Com- mission or otherwise subject to the liabilities of Section 18 of the Secur- ities Exchange Act of 1934. 13(b) Letter to Participants, dated November 30, 1998 and accompanying financial reports for the lease year ended September 30, 1998. The foregoing material shall not be deemed to be "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934. 24 Powers of Attorney dated March 18, 1998, March 20, 1998 and May 14, 1998 between the Partners of Registrant and Stanley Katzman and Richard A. Shapiro, which was filed as Exhibit 24 to Registrant's 10-Q for the period ended March 31, 1998 and is incorporated by reference as an exhibit hereto. 27 Financial Data Schedule of Registrant for the fiscal year ended December 31, 1997. _______________________ * Page references are based on a sequential numbering system. -32- EX-13 2 EXHIBIT 3A Exhibit 13a [LETTERHEARD OF WIEN & MALKIN LLP] February 3, 1999 To Participants in 60 East 42nd St. Associates Federal Identification Number 13-6077181 We enclose the annual report of the partnership which owns the premises at 60 East 42nd Street (the Lincoln Building), and at 301 Madison Avenue, New York City, for the year ended December 31, 1998. The reported income for 1998 was $2,390,776. This was less than distributions of $2,415,552, because of the amortization of mortgage refinancing costs. Monthly distributions during 1998 totalled $1,046,420, or about 14.9% per annum on the original cash investment of $7,000,000. The distributions were made possible by advances from the lessee totalling $1,053,800 against additional rent. Additional rent for the lease year ended September 30, 1998 was $2,583,451, or an excess of $1,529,651 over the advances of $1,053,800. After deducting fees and expenses of $8,393 incurred in connection with the September 4, 1997 consent solicitation program, the balance of $1,521,258 was available for distribution and additional supervisory fee. Wien & Malkin LLP received $152,126 and the balance of the excess rent of $1,369,132 was distributed to the participants on November 30, 1998. The additional distribution of $1,369,132 represented an annual return of about 19.6% on the cash investment of $7,000,000, so that total distributions for 1998 were at the rate of about 34.5% per annum. Taking into account that a portion of prior distributions constituted a return of capital, the book value on December 31, 1998 of an original cash investment of $10,000 was a deficit balance of $6,498. The enclosed Schedule K-1 form(s) (Form 1065), containing 1998 tax information, must be reviewed in detail by your accountant. If you have any question about the enclosed material, please communicate with our office. Please retain this letter and the enclosed Schedule K-1 form(s) for the preparation of your income tax returns for the year 1998. Cordially yours, WIEN & MALKIN LLP By: Stanley Katzman SK:jf Encs. -33- [LETTERHEARD OF JACOBS EVALL & BLUMENFELD LLP] INDEPENDENT ACCOUNTANTS' REPORT To the participants in 60 East 42nd St. Associates (a Partnership): We have audited the accompanying balance sheet of 60 East 42nd St. Associates ("Associates") as of December 31, 1998, and the related statements of income, partners' capital (deficit) and cash flows for the year then ended. These financial statements are the responsibility of Associates' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Associates as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. January 29, 1999 -34- INDEPENDENT ACCOUNTANTS' REPORT To the participants in 60 East 42nd St. Associates (a Partnership): We have audited the accompanying balance sheet of 60 East 42nd St. Associates ("Associates") as of December 31, 1998, and the related statements of income, partners' capital (deficit) and cash flows for the year then ended. These financial statements are the responsibility of Associates' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Associates as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Jacobs Evall & Blumenfeld LLP Certified Public Accountants 420 Lexington Avenue New York, N. Y. 10170 January 29, 1999 -35- 60 EAST 42ND ST. ASSOCIATES BALANCE SHEET DECEMBER 31, 1998 Assets Cash in Fleet Bank $ 677 Cash in distribution account held by Wien & Malkin LLP 87,202 87,879 Real estate at 60 East 42nd Street and 301 Madison Avenue, New York City: Buildings $16,960,000 Less: Accumulated depreciation 16,960,000 - Building improvements 1,574,135 Less: Accumulated depreciation 1,574,135 - Land 7,240,000 Mortgage refinancing costs 249,522 Less: Accumulated amortization 105,009 144,513 Total assets $ 7,472,392 Liabilities and partners' capital (deficit) Liabilities: First mortgage $12,020,814 Partners' capital (deficit) (4,548,422) Total liabilities and partners' capital (deficit) $ 7,472,392 See accompanying notes to financial statements. -36- 60 EAST 42ND ST. ASSOCIATES STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1998 Income: Basic rent income $1,087,842 Additional rent income 2,583,451 Total income 3,671,293 Expenses: Interest on first mortgage $1,063,842 Supervisory services 183,506 Amortization of mortgage refinancing costs 24,776 Professional fees 8,393 Total expenses 1,280,517 Net income $2,390,776 See accompanying notes to financial statements. -37- 60 EAST 42ND ST. ASSOCIATES STATEMENT OF PARTNERS' CAPITAL (DEFICIT) YEAR ENDED DECEMBER 31, 1998 Partners' capital (deficit), January 1, 1998 $(4,523,646) Add, Net income for the year ended December 31, 1998 2,390,776 (2,132,870) Less, Distributions: Monthly distributions, January 1, 1998 through December 31, 1998 $1,046,420 Distribution on November 30, 1998 of balance of additional rent for the lease year ended September 30, 1998 1,369,132 2,415,552 Partners' capital (deficit), December 31, 1998 $(4,548,422) See accompanying notes to financial statements. -38- 60 EAST 42ND ST. ASSOCIATES STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 Cash flows from operating activities Net income $ 2,390,776 Adjustments to reconcile net income to cash provided by operating activities: Amortization of mortgage refinancing costs 24,776 Net cash provided by operating activities 2,415,552 Cash flows from financing activities Monthly distributions to participants (1,046,420) Distribution on November 30, 1998 of balance of additional rent for the lease year ended September 30, 1998 (1,369,132) Net cash used in financing activities (2,415,552) Net change in cash - Cash at beginning of year 87,879 Cash at end of year $ 87,879 Supplemental disclosure of cash flows information Cash paid in 1998 for: Interest $ 1,063,842 See accompanying notes to financial statements. -39- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 1. Business Activity 60 East 42nd St. Associates ("Associates") is a general partnership which owns commercial property at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y. The property is net leased to Lincoln Building Associates. 2. Summary of Significant Accounting Policies Use of estimates In preparing financial statements in conformity with generally accepted accounting principles, management often makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Land, buildings, building improvements and depreciation: Land, buildings and building improvements are stated at cost. Depreciation was provided on the straight-line method over the estimated useful life of the buildings, 26 years from October 1, 1958, and the estimated useful life of the building improvements, 20 years, 5 months from May 1, 1964. The buildings and building improvements are fully depreciated. Mortgage refinancing costs and amortization: Mortgage refinancing costs of $249,522, incurred in connection with the October 6, 1994 refinancing of the first mortgage, are being amortized ratably over the term of the mortgage, from October 6, 1994 through October 31, 2004. 3. First Mortgage Payable On October 6, 1994, a first mortgage was placed on the property with Morgan Guaranty Trust Company of New York, as trustee of a pension trust, in the amount of $12,020,814. The first mortgage requires constant equal monthly payments totalling $1,063,842 per annum for interest only, at the rate of 8.85% per annum, and matures on October 31, 2004. The real estate is pledged as collateral for the first mortgage. -40- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (Continued) 3. First Mortgage Payable (continued) Required principal payments on the first mortgage are as follows: 1999 through 2003 - 0 - October 31, 2004 $12,020,814 4. Rent Income and Related Party Transactions On January 4, 1982, Lincoln Building Associates (the lessee) exercised its option to renew the lease for an additional period of 25 years, and the lease period now extends through September 30, 2008. The lease includes an option to renew for one additional period of 25 years through September 30, 2033. Effective October 6, 1994, the lease, as modified, provides for annual basic rent of $1,087,842, which is equal to the sum of $1,063,842, the constant annual mortgage charges, plus $24,000. In the event of a mortgage refinancing, unless there is an increase in the mortgage balance, the annual basic rent will be modified and will be equal to the sum of $24,000 plus an amount equal to the revised mortgage charges. In the event that such mortgage refinancing results in an increase in the amount of outstanding principal balance of the mortgage, the basic rent shall be equal to $24,000 plus an amount equal to the product of the new debt service percentage rate under the refinanced mortgage multiplied by the principal balance of the mortgage immediately prior to the refinancing. The lease, as modified, also provides for additional rent, as follows: 1. Additional rent equal to the first $1,053,800 of the lessee's net operating income, as defined, in each lease year. 2. Further additional rent equal to 50% of the lessee's remaining net operating income, as defined, in each lease year. For the lease year ended September 30, 1998,the lessee reported additional rent of $2,583,451 based on an operating profit of $4,113,103 subject to additional rent. Additional rent is billed to and advanced by the lessee in equal monthly installments of $87,817. While it is not practicable to estimate that portion of additional rent for the lease year ending on the ensuing September 30th which would be allocable to the current three month period ending December 31st, Associates' policy is to include in its income each year the advances of additional rent income received from October 1st to December 31st. No other additional rent is accrued by Associates for the period between the end of the lessee's lease year ending September 30th and the end of Associates' fiscal year ending December 31st. A partner in Associates is also a partner in the lessee. -41- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (Continued) 5. Supervisory Services and Related Party Transactions Payments for supervisory services, including disbursements and cost of accounting services, are made to the firm of Wien & Malkin LLP. A member of that firm is a partner in Associates. 6. Professional Fees and Related Party Transactions Payments for professional fees, including disbursements, are made to the firm of Wien & Malkin LLP, a related party. 7. Income Taxes Net income is computed without regard to income tax expense since Associates does not pay a tax on its income; instead, any such taxes are paid by the participants in their individual capacities. 8. Concentration of Credit Risk Associates maintains cash balances in a bank and in a distribution account held by Wien & Malkin LLP. The bank balance is insured by the Federal Deposit Insurance Corporation up to $100,000, and at December 31, 1998 was completely insured. The distribution account held by Wien & Malkin LLP is not insured. The funds held in the distribution account were paid to the participants on January 1, 1999. -42- EX-13 3 EXHIBIT 13B Exhibit 13b [LETTERHEARD OF WIEN & MALKIN LLP] December 2, 1997 TO PARTICIPANTS IN 60 EAST 42ND ST. ASSOCIATES: We enclose the operating report of the lessee, Lincoln Building Associates, for the fiscal year of the lease ended September 30, 1997. The lessee reported profit of $5,273,959 subject to additional rent for the lease year ended September 30, 1997, as against profit of $5,156,749 for the lease year ended September 30, 1996. Additional rent for the lease year ended September 30, 1997 was $3,163,880; $1,053,800 at $87,817 per month was advanced against additional rent so that the balance of additional rent is $2,110,080. After deducting fees and expenses of $47,545 incurred in connection with the September 4, 1997 consent solicitation program, the balance of $2,062,535 is available for distribution and additional supervisory fee. Wien & Malkin LLP receives an additional payment for supervisory services of 10% of distributions in excess of 14% per annum on the cash investment. Accordingly, Wien & Malkin LLP received $206,254 of the additional rent and the balance of $1,856,281 is being distributed to the participants. A check for your share of the additional distribution and the computation of the additional payment to Wien & Malkin LLP and distribution are enclosed. The additional distribution of $1,856,281 represents a return of about 26.5% on the cash investment of $7,000,000. Regular monthly distributions are at the rate of about 14.9% a year, so that distributions for the year ending December 31, 1997 will be about 41.4% per annum. If you have any question about the enclosed material, please communicate with the undersigned. Cordially yours, WIEN & MALKIN LLP By: Stanley Katzman SK:fm Encs. -43- 60 East 42nd St. Associates Computation of Additional Payment for Supervisory Services and Distribution For the Lease Year Endedg September 30, 1998 Secondary additional rent $1,529,651 Primary additional rent, 1998: Monthly distributions at about 14.9% per annum on $7,000,000 original investment $1,046,420 Additional monthly payment to Wien & Malkin LLP 7,380 1,053,800 Total rent to be distributed 2,583,451 14% return on $7,000,000 investment 980,000 Subject to additional payment at 10% to Wien & Malkin LLP $1,603,451 Additional payment at 10% $ 160,345 Paid to Wien & Malkin LLP as advances for additional payment 7,380 Balance of additional payment to Wien & Malkin LLP $ 152,965 Summary: Additional distribution to participants $1,376,686 Payment to Wien & Malkin LLP, as above 152,965 Total secondary additional rent available for distribution to participants and payment to Wien & Malkin LLP $1,529,651 -44- [LETTERHEARD OF ROGOFF & COMPANY, P.C. CERTIFED PUBLIC ACCOUNTANTS] Lincoln Building Associates 60 East 42nd Street New York, New York 10165 Gentlemen: In accordance with our engagement, we have reviewed the special-purpose statement of income and expense of Lincoln Building Associates for the lease year ended September 30, 1998. Our engagement included the examination of statements of receipts and disbursements for the property, together with supporting records, but did not include the verification by direct communication of the income from tenants or liabilities and disbursements to vendors. We have no knowledge of any contingent liabilities that should be disclosed. Based on our review, subject to the above, the accompanying special-purpose statement of income and expense presents fairly the net operating income, as defined, for the computation of additional rent, of Lincoln Building Associates, for the lease year ended September 30, 1998. New York, New York October 20, 1998 -45- Lincoln Building Associates Statement of Income and Expense October 1, 1997 through September 30, 1998 (Unaudited) Income: Rent $23,827,607 Electricity - net 838,186 Other income 724,952 Total Income $25,390,745 Expenses: Basic rent expense 1,087,839 Real estate taxes 5,353,821 Labor costs 5,589,029 Repairs, supplies and improvements 6,407,704 Steam 483,773 Management and leasing fees 1,381,258 Professional fees 320,071 Insurance 161,299 Water and sewer charges 154,361 Miscellaneous 338,487 Total Expenses 21,277,642 Net income subject to additional rent 4,113,103 Less, Net income subject to primary additional rent 1,053,800 Net income subject to secondary additional rent $3,059,303 Secondary additional rent @ 50% $1,529,651 Computation of Additional Rent due Landlord: Primary additional rent $1,053,800 Secondary additional rent 1,529,651 Total additional rent 2,583,451 Less, Advances against additional rent 1,053,800 Additional rent due landlord $ 1,529,651 The accompanying letter of transmittal and notes are an integral part of this statement. -46- Lincoln Building Associates Notes to Financial Statement Note 1 - The lease as modified effective January 1, 1977 provides for additional rent, as follows: Additional rent equal to the first $1,053,800 of the Lessee's net operating income, as defined, in each lease year. Further additional rent equal to 50% of the Lessee's remaining net operating income, as defined, in each lease year. -47- EX-27 4
5 This schedule contains summary financial information extracted from the Company's Balance Sheet as of December 31, 1998 and the Statement Of Income for the year ended December 31, 1998, and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 87,879 0 0 0 0 87,879 25,774,135 18,534,135 7,472,392 0 0 0 0 0 (4,548,422) 7,472,392 3,671,293 3,671,293 0 0 216,675 0 1,063,842 2,390,776 0 2,390,776 0 0 0 2,390,776 3,415 3,415 Includes unamortized mortgage refinance costs. Rental Income Supervisory services, Professional fees, and amortization of mortgage refinance costs. Earnings per $10,000 participation unit, based on 700 participation units outstanding during the period
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