EX-13 2 east13a.txt EXHIBIT 13 A [LETTERHEAD OF WIEN & MALKIN LLP] March 2, 2001 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, 2000. The reported income for 2000 was $6,296,724. This was less than distributions of $6,602,458 which is partly the result of amortization of mortgage refinancing costs. Monthly distributions during 2000 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, 2000 was $7,227,175, or an excess of $6,173,375 over the advances of $1,053,800. Wien & Malkin LLP received $617,337 and the balance of the excess rent of $5,556,038 was distributed to the participants on November 30, 2000. The additional distribution of $5,556,038 represented an annual return of about 79.4% on the cash investment of $7,000,000, so that total distributions for 2000 were at the rate of about 94.3% per annum. Taking into account that a portion of prior distributions constituted a return of capital, the book value on December 31, 2000 of an original cash investment of $10,000 was a deficit balance of $6,935. The enclosed Schedule K-1 form(s) (Form 1065), containing 2000 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 2000. Cordially yours, WIEN & MALKIN LLP By: Stanley Katzman SK:fm Encs. -37- [LETTERHEAD OF J.H. COHN ACCOUNTANTS & CONSULTANTS] 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, 2000, 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 auditing standards generally accepted in the United States of America. 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 60 East 42nd Street Associates as of December 31, 2000, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. J.H. Cohn LLP 1212 Avenue of the Americas New York, N. Y. 10036 February 15, 2001 -38- 60 EAST 42ND ST. ASSOCIATES BALANCE SHEET DECEMBER 31, 2000 Assets Cash in banks $ 5,900,407 Cash in distribution account held by Wien & Malkin LLP 87,202 5,987,609 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 - Building improvements, construction in progress 3,195,115 Land 7,240,000 Mortgage refinancing costs 1,361,096 Less: Accumulated amortization 348,797 1,012,299 Total assets $17,435,023 Liabilities and partners' capital (deficit) Liabilities: First mortgage $12,020,814 Second mortgage 7,000,000 Due to lessee 3,288,906 Accrued expenses 49,488 Total liabilities 22,359,208 Commitments and contingencies Partners' capital (deficit) (4,924,185) Total liabilities and partners' capital (deficit) $17,435,023 See accompanying notes to financial statements. -39- 60 EAST 42ND ST. ASSOCIATES STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2000 Income: Basic rent income $1,194,968 Additional rent income 7,227,175 Interest income 92,422 Total income 8,514,565 Expenses: Interest on mortgages $1,263,391 Supervisory services 648,717 Amortization of mortgage refinancing costs 219,012 Professional fees 86,721 Total expenses 2,217,841 Net income $6,296,724 See accompanying notes to financial statements. -40- 60 EAST 42ND ST. ASSOCIATES STATEMENT OF PARTNERS' CAPITAL (DEFICIT) YEAR ENDED DECEMBER 31, 2000 Partners' capital (deficit), January 1, 2000 $(4,618,451) Add, Net income for the year ended December 31, 2000 6,296,724 1,678,273 Less, Distributions: Monthly distributions, January 1, 2000 through December 31, 2000 $1,046,420 Distribution on November 30, 2000 of balance of additional rent for the lease year ended September 30, 2000 5,556,038 6,602,458 Partners' capital (deficit), December 31, 2000 $(4,924,185) See accompanying notes to financial statements. -41- 60 EAST 42ND ST. ASSOCIATES STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000 Cash flows from operating activities Net income $ 6,296,724 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of mortgage refinancing costs 219,012 Change in accrued expenses 4,235 Change in due to lessee 93,791 Net cash provided by operating activities 6,613,762 Cash flows from financing activities Proceeds from second mortgage loan 7,000,000 Payment of mortgage refinancing costs (1,111,574) Monthly distributions to participants (1,046,420) Distribution on November 30, 2000 of balance of additional rent for the lease year ended September 30, 2000 (5,556,038) Net cash used in financing activities (714,032) Net change in cash 5,899,730 Cash at beginning of year 87,879 Cash at end of year $ 5,987,609 Supplemental disclosure of cash flows information Cash paid in 2000 for interest $ 1,213,903 Supplemental disclosure of non-cash investing and financing activities In 2000 the Partnership purchased certain building improvements by means of a financial agreement with the lessee $ 2,132,547 See accompanying notes to financial statements. -42- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 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 (the "Lessee"). 2. Summary of Significant Accounting Policies Use of estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management 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. In 1999 Associates began a building improvements program (see Note 10). At December 31, 2000 costs totaling $3,195,115 have been incurred for new building improvements, construction in progress, which have not yet been put into service. It is Associates' policy to depreciate such improvements when they are placed in service. Mortgage refinancing costs and amortization and related party transactions: 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 first mortgage, from October 6, 1994 through October 31, 2004. Mortgage refinancing costs of $1,111,574, incurred in connection with the March 8, 2000 refinancing of the second mortgage, are being amortized ratably over the term of the second mortgage, from March 8, 2000 through October 31, 2004. Included in the refinancing costs applicable to the second mortgage (see Note 3) are payments of $70,071 made to the firm of Wien & Malkin LLP, a related party. -43- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (Continued) 3. First and Second Mortgages 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 totaling $1,063,842 per annum for interest only, at the rate of 8.85% per annum, and matures on October 31, 2004. In connection with the building improvements program (see Note 10), a second mortgage loan was placed on the property on March 8, 2000, with Emigrant Savings Bank. The principal amount of the second mortgage note is $27,979,186, to be drawn down as payments for the building improvements are needed. Through December 31, 2000 Associates had drawn down advances of $7,000,000 against this loan. The loan agreement permits additional advances to be made through September 1, 2002 in amounts of not less than $1,000,000 each, provided that no more than six advances may be made during any twelve consecutive calendar month period. The second mortgage provides that the first $7,000,000 of loan proceeds advanced through September 30, 2000 shall bear interest at the rate of 8.21% per annum through the term of the loan. All loan proceeds advanced after September 30, 2000 or in excess of $7,000,000 (in the aggregate) shall bear interest at a Floating Rate, defined to be either the prime rate, a U.S. Treasury based rate or a LIBO-based rate, as selected by Associates. Monthly payments for debt service on the loan are interest only. The second mortgage also matures on October 31, 2004. On October 1, 2002, the interest rate on the second mortgage will be converted to a Fixed Rate. The Fixed Rate is equal to 1.65% per annum in excess of the yield on U.S. Treasury Securities having the closest maturity to October 31, 2004, as last published prior to October 1, 2002 by the Federal Reserve Board. The real estate is pledged as collateral for the first and second mortgages. 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. See Note 10. The lease as modified provides for an annual basic rent equal to the sum of the constant annual mortgage charges on all mortgages, 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. -44- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (Continued) 4. Rent Income and Related Party Transactions (continued) 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, 2000 the Lessee reported additional rent of $7,227,175, based on an operating profit of $13,400,549 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 of 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. 5. Supervisory Services and Related Party Transactions Payments for supervisory services, including disbursements and the cost of regular 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 Included in professional fees are payments of $70,054 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. -45- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (Continued) 8. Concentration of Credit Risk Associates maintains cash balances in two banks and in a distribution account held by Wien & Malkin LLP. The bank balances are insured by the Federal Deposit Insurance Corporation up to $100,000 each, and at December 31, 2000 approximately $5,649,000 was not 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, 2001. 9. Contingencies Wien & Malkin LLP and Peter L. Malkin are engaged in a dispute with Helmsley-Spear, Inc. concerning the management, leasing and supervision of the property net leased to the Lessee. In this connection, certain legal and professional fees and other expenses have been paid and incurred and additional costs are expected to be incurred. Associates' allocable share of such costs cannot as yet be determined. Accordingly, Associates has not provided for the expense and related liability with respect to such costs in the accompanying financial statements. 10. Building Improvements Program In 1999 the participants of Associates and the Lessee consented to a building improvements program (the "Program") estimated to cost approximately $22,800,000 and expected to take two to three years to complete. In 2000 the participants of the Lessee approved an increase to the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. The increased amount had previously been authorized by the participants of Associates. The Lessee is currently financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Associates and acknowledges its intention to finance them through an increase in the fee mortgage (Note 3), and (2) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Sinceany overage rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally,assuming overage rent continues to be earned. To induce the Lessee to approve the Program, Associates agreed to grant to the Lessee, upon the completion of the Program, an extension of the lease (Note 4) for an additional 50 years to 2083. -46- 60 EAST 42ND ST. ASSOCIATES NOTES TO FINANCIAL STATEMENTS (Continued) 11. Receipt of Warrants and Stock in Telecommunications Companies In 2000, Associates received 8,914 shares of common stock of Broadband Office, Inc., and warrants to acquire 22,920 shares and 16,200 shares of common stock of Gillette Global Network, Inc. ("Gillette") and ENN Providers, Inc. ("Narrowcast"), respectively, (each of the aforementioned companies collectively referred to as the "Companies"). The stock and warrants were provided to Associates for allowing the Companies, at little or no cost to Associates, to wire the building to provide high speed internet access and other telecommunications services, the installation of monitors in the building's elevator cabs to display current news and weather reports, advertisements and building information messages. The Lessee received an equal amount of shares and warrants. In addition, the Lessee will receive from 5% to 10% of the revenues generated by such services from advertising and subscriptions with tenants of the building. No income from these sources was earned in 2000. The warrants are exercisable, generally, following an initial public offering ("IPO") of each of the Companies. There is no expectation that such an IPO will occur at anytime soon. The Gillette and Narrowcast warrants expire on August 29, 2003 and August 17, 2005, respectively. There are restrictions as to the transfer of stock and there is no current market for the warrants or the stock. Since they did not have an ascertainable value as of the date they were granted or at December 31, 2000, no amounts have been recorded in the accompanying financial statements for such warrants or stock. -47-