U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1933
For the quarterly period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission File Number 0-3960
CAPITAL PROPERTIES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Rhode Island 05-0386287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Hospital Trust Plaza, Suite 920, Providence, RI 02903
(Address of principal executive offices)
Issuer's telephone number 40l-33l-0100
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the lastest practicable date:
As of May 1, 1996, the registrant had 1,000,000
shares of common stock outstanding.
Transitional small business disclosure format (check one).
YES NO X .
PART I
Item 1. Financial Statements
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Properties and equipment (net of accumulated
depreciation................................ $ 9,286,000
Cash and cash equivalents..................... 1,015,000
Note receivable, Providence and Worcester
Railroad Company............................ 4,563,000
Other receivables............................. 208,000
Accrued rental income of $9,077,000 less
amount for which realization is not
assured of $8,776,000....................... 301,000
Prepaid and other............................. 108,000
$15,481,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable............................ $ 31,000
Income tax payable.......................... 7,000
Accrued expenses:
Property taxes............................ 519,000
Other..................................... 82,000
Deferred income taxes....................... 1,405,000
2,044,000
Contingencies (Notes 5 and 7)
Shareholders' equity:
Common stock, $1 par; authorized, issued
and outstanding 1,000,000 shares........... 1,000,000
Capital in excess of par.................... 10,828,000
Retained earnings........................... 1,609,000
13,437,000
$15,481,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<S> <C> <C>
1996 1995
Income:
Rentals............................... $430,000 $440,000
Garage and surface parking revenues... 140,000 127,000
Interest:
Providence and Worcester Railroad
Company............................. 114,000 199,000
Other................................ 10,000 7,000
694,000 773,000
Expenses:
Expenses applicable to:
Rental income........................ 174,000 178,000
Garage and surface parking........... 204,000 158,000
General and administrative............ 158,000 320,000
Interest.............................. 50,000
536,000 706,000
Income before income taxes.............. 158,000 67,000
Income taxes............................ 66,000 28,000
Net income............................. $ 92,000 $ 39,000
Income per common share................ $.09 $.04
Dividends per common share............. $-0- $-0-
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net income.......................... $ 92,000 $ 39,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation..................... 90,000 93,000
Deferred income taxes............ (25,000) (22,000)
Other, principally net changes in
other receivables, accounts
payable and accrued expenses.... 40,000 (120,000)
Net cash provided by (used in)
operating activities.............. 197,000 (10,000)
Cash flows from investing activities:
Purchase of properties and
equipment.......................... (4,000)
Proceeds from collection of note
receivable, Providence and Worcester
Railroad Company................... 51,000 78,000
Net cash provided by investing
activities......................... 51,000 74,000
Cash flows from financing activities,
payment of note payable, bank....... (71,000)
Increase (decrease) in cash and
cash equivalents.................... 248,000 (7,000)
Cash and cash equivalents, beginning.. 767,000 757,000
Cash and cash equivalents, ending..... $1,015,000 $ 750,000
Supplemental disclosure, cash paid for:
Interest........................... $ -0- $ 33,000
Income taxes....................... $ 5,000 $ 101,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1. In the opinion of management, the accompanying interim consolidated
financial statements contain all adjustments necessary to present fairly
the financial position as of March 31, 1996 and the results of operations
for the three months ended March 31, 1996 and 1995, and cash flows for
the three months ended March 31, 1996 and 1995.
2. Results for interim periods may not be necessarily indicative of the
results to be expected for the year.
3. Properties and equipment:
<TABLE>
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Properties and equipment on
lease or held for lease:
Land and land improvements........... $ 6,140,000
Petroleum storage facilities:
Buildings and structures............ 325,000
Equipment, tanks.................... 4,163,000
10,628,000
Other:
Land and land improvements............ 192,000
Buildings, principally parking
garage............................... 2,536,000
Equipment............................. 83,000
2,811,000
13,439,000
Less accumulated depreciation:
Properties and equipment on
lease or held for lease.............. 3,560,000
Other................................. 593,000
4,153,000
$ 9,286,000
</TABLE>
4. Other receivables:
<TABLE>
<S> <C>
Rentals, principally tenant
property tax reimbursement........... $ 128,000
Petroleum terminal tenant.............. 42,000
Interest, Providence and Worcester
Railroad Company..................... 38,000
$ 208,000
</TABLE>
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
5. Description of leasing arrangements:
At March 31, 1996, the Company has entered into land leases for
three separate land parcels with remaining terms of up to 97
years. The Company also leases petroleum storage facilities and
various parcels of land (leased principally for outdoor
advertising and surface parking) for remaining terms of up to 28
years.
For those leases with scheduled rent increases, the cumulative
excess of straight-line over contractual rentals (considering
scheduled rent increases over the initial 32 to 102 year terms of
the leases) amounted to $9,077,000 at March 31, 1996. Management
has been able to conclude that a portion of the excess of
straight-line over contractual rentals ($301,000 through March
31, 1996) is realizable when payable over the terms of the leases.
Since October 1, 1991, the Company's petroleum storage facilities
(the facilities) have been leased under a 5-year agreement under
which the tenant pays an annual rental of $183,000 plus
reimbursement of property taxes (approximately $86,000 annually)
and had the option to extend the lease term for an additional
five years. The tenant has notified the Company that it is not
exercising its option to extend the lease term. The lease also
gives the tenant an option to purchase the facilities during the
term of the lease at a price which increases annually by an
inflation factor ($5,l00,000 at March 31, 1996). The Company has
not been advised by the tenant as to whether it will purchase the
terminal.
The Company and the tenant are presently in negotiations to
extend the present lease for an additional 3-year period. In addition,
several parties have expressed an initial interest in leasing or
acquiring the facilities should the present tenant vacate the
facilities. There is no assurance that the tenant and the
Company can arrive at a mutually agreeable arrangement prior to the
September 30, 1996 expiration of the lease term or that any of
the presently interested parties will enter into a transaction
acceptable to the Company. Should a transaction not be entered
into with the present tenant or any of the currently interested
parties, management believes that sufficient time exists to
evaluate its options and make its decision whether to place the
facilities for sale or seek a tenant.
In 1994, a leak was discovered in a 25,000 barrel storage tank at
the facilities which allowed the escape of a small amount of fuel
oil. The tank was emptied and all required notices were made to
the appropriate environmental agency (the agency). To date,
monitoring wells have shown no ground water contamination, and the
<PAGE>
CAPITAL PROPERTIES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
5. Description of leasing arrangements (continued):
leak has been contained in the soil under the tank. The
Company's engineering consultants (the consultants) are working with the
agency to determine the extent of remediation. The consultants
have proposed several acceptable options and have determined a
range of estimated costs (including professional fees) to be
$27,000 (for the capping of the contaminated area) to $383,000
(for the complete removal of the contaminated soil and its off-
site disposal). The agency has advised the Company that it will
accept the capping of the contaminated area as an appropriate
remediation measure, subject to the placement of a notice on the
Company's deed describing the location of the contaminated area.
During 1995, the tenant informed the Company of the erosion of a
slope and damage to a retaining wall which caused the washing
away of several tons of soil. The consultants have proposed several
acceptable options and have determined a range of estimated costs
(including professional fees) to be $15,000 (to repair the eroded
channel) to $136,000 (to include the replacement of the retaining
wall).
Management is of the opinion that the terms of the lease not only
make the tenant solely responsible for the payment of all costs
to remediate the contaminated soil and to repair the erosion of the
slope and retaining wall, but also require the tenant to return
the facilities at the termination of the lease in a condition
substantially the same as when the tenant took possession. The
tenant does not agree that it is responsible for the payment of
such costs. The lease provides for arbitration in the event that
the parties cannot reach agreement.
Due to the negotiations with the tenant to extend the lease, the
tenant's option to purchase the facilities, and discussions held
to date with other parties expressing an initial interest in the
facilities, management cannot determine which of the possible
courses of action it will pursue in connection with the
remediation of the contaminated soil and the repair of the
erosion and retaining wall. As management is of the opinion that the
tenant has financial responsibility for all costs, the Company is
providing for the estimated costs to remediate the contaminated
soil and remedy the erosion situation by reporting a liability of
$42,000 and a corresponding receivable from the tenant on the
accompanying consolidated balance sheet at March 31, 1996 in
accrued expenses, other and other receivables, respectively.
Management is also of the opinion that there is a possibility
that in the near term the Company could accept financial
responsibility for some of the remediation or repair costs as part of
either an eventual lease or sale of the facilities, or the Company could
be found financially responsible as a result of an arbitration proceeding.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
6. Income taxes:
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and
available tax credit carryforwards. The tax effect of temporary
differences and carryforwards which give rise to deferred tax
assets and liabilities at March 31, 1996 were as follows:
<TABLE>
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Gross deferred tax liabilities:
Property having a financial
statement basis in excess of
its tax basis..................... $1,458,000
Excess of straight line over
contractual rental income......... 121,000
1,579,000
Gross deferred tax assets,
principally professional fees....... (174,000)
$1,405,000
</TABLE>
7. Pending litigation:
In connection with the River Relocation Project, the State of
Rhode Island condemned a portion of the Company's property and paid an
award of $2,600,000 in 1987. As part of an agreement to purchase
another parcel of land from the State, the Company was required
to return to the State a portion of the condemnation award
($1,600,000).
In April 1988, the Company filed a petition in the Rhode Island
Superior Court for an increased condemnation award alleging that
the award paid in 1987 was inadequate. In January 1992, the Superior
Court awarded the Company an additional condemnation award of
$401,000 plus interest from the date of the condemnation. The
interest is calculated by using a published Treasury bill rate
which compounds annually and, through March 31, 1996, totals
approximately 59% of any additional award. The Company had asserted in the
Superior Court that it was entitled to an additional condemnation
award in excess of $6,000,000 plus interest, and accordingly, in
February 1992, the Company appealed the decision of the Superior
Court to the Rhode Island Supreme Court. In an Opinion issued in
January 1994, the Supreme Court overturned the Superior Court
decision and returned the matter to the Superior Court for a
retrial of the case. The case was retried in 1995 and the Company
expects a decision in the summer of 1996. The Company cannot now determine
what amount, if any, will be awarded beyond that paid in 1987.
Under the aforementioned agreement, the Company may be required
to return to the State a portion of any additional award as and when
finally determined.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis or Plan of Operation
Financial condition:
A significant portion of the Company's land consists of
approximately 20.5 acres, including 1.9 acres of air rights, in
downtown Providence, Rhode Island, held for development. The
Company is engaged in discussions concerning the possible
development of other parcels but is unable to predict when
leases on additional parcels will commence; however, the Company
will continue to use the available parcels for public surface
parking.
Since October 1, 1991, the Company's petroleum storage
facilities (the facilities) have been leased under a 5-year
agreement under which the tenant pays an annual rental of
$183,000 plus reimbursement of property taxes (approximately
$86,000 annually) and had the option to extend the lease term
for an additional five years. The tenant has notified the
Company that it is not exercising its option to extend the lease
term. The lease also gives the tenant an option to purchase the
facilities during the term of the lease at a price which
increases annually by an inflation factor ($5,l00,000 at March
31, 1996). The Company has not been advised by the tenant as to
whether it will purchase the terminal.
The Company and the tenant are presently in negotiations to
extend the present lease for an additional 3-year period. In
addition, several parties have expressed an initial interest in
leasing or acquiring the facilities should the present tenant
vacate the facilities. There is no assurance that the tenant
and the Company can arrive at a mutually agreeable arrangement
prior to the September 30, 1996 expiration of the lease term or
that any of the presently interested parties will enter into a
transaction acceptable to the Company. Should a transaction not
be entered into with the present tenant or any of the currently
interested parties, management believes that sufficient time
exists to evaluate its options and make its decision whether to
place the facilities for sale or seek a tenant.
In 1994, a leak was discovered in a 25,000 barrel storage tank
at the facilities which allowed the escape of a small amount of
fuel oil. The tank was emptied and all required notices were
made to the appropriate environmental agency (the agency).
To date, monitoring wells have shown no ground water
contamination, and the leak has been contained in the soil under
the tank. The Company's engineering consultants (the
consultants) are working with the agency to determine the extent
of remediation. The consultants have proposed several
acceptable options and have determined a range of estimated
costs (including professional fees) to be $27,000 (for the
capping of the contaminated area) to $383,000 (for the complete
removal of the contaminated soil and its off-site disposal).
The agency has advised the Company that it will accept the
<PAGE>
capping of the contaminated area as an appropriate remediation
measure, subject to the placement of a notice on the Company's
deed describing the location of the contaminated area.
During 1995, the tenant informed the Company of the erosion of a
slope and damage to a retaining wall which caused the washing
away of several tons of soil. The consultants have proposed
several acceptable options and have determined a range of
estimated costs (including professional fees) to be $15,000 (to
repair the eroded channel) to $136,000 (to include the
replacement of the retaining wall).
Management is of the opinion that the terms of the lease not
only make the tenant solely responsible for the payment of all
costs to remediate the contaminated soil and to repair the
erosion of the slope and retaining wall, but also require the
tenant to return the facilities at the termination of the lease
in a condition substantially the same as when the tenant took
possession. The tenant does not agree that it is responsible for
the payment of such costs. The lease provides for arbitration
in the event that the parties cannot reach agreement.
Due to the negotiations with the tenant to extend the lease, the
tenant's option to purchase the facilities, and discussions held
to date with other parties expressing an initial interest in the
facilities, management cannot determine which of the possible
courses of action it will pursue in connection with the
remediation of the contaminated soil and the repair of the
erosion and retaining wall. As management is of the opinion
that the tenant has financial responsibility for all costs, the
Company has provided for the estimated costs to remediate the
contaminated soil and remedy the erosion situation by reporting
a liability of $42,000 and a corresponding receivable from the
tenant on the accompanying consolidated balance sheet at March
31, 1996.
Management is also of the opinion that there is a possibility
that in the near term the Company could accept financial
responsibility for some of the remediation or repair costs as
part of either an eventual lease or sale of the facilities, or
the Company could be found financially responsible as a result
of an arbitration proceeding.
Results of operations:
For the three months ended March 31, 1996, total income
decreased approximately 10% from the 1995 level due to the
decrease in interest income on the note receivable from
Providence and Worcester Railroad Company resulting from
prepayments in 1995 totalling $l,855,000 and the reduction in
1995 of the interest rate on the note from 12% to 10%.
Total expenses decreased approximately 24% from the 1995 level
resulting principally from a decrease in payroll and related
costs resulting from a reduced number of employees and a
decrease in interest expense resulting from the full prepayment
by Company of a note payable to a bank in August 1995. The
decrease was offset in part by an unexpected increase in
<PAGE>
property taxes resulting from an increase in the assessed
valuations of which the Company was not aware until July 1995.
The Company has filed an appeal for an abatement of the increase
in the property taxes but to date no hearing on the matter has
been scheduled. The Company is unable to determine if the
appeal will result in the lowering of the taxes and abatement of
amounts paid to date.
Future cash outlays for income taxes will be a more significant
portion of total tax expense and presently exceed tax expense
for financial reporting purposes. This results principally from
the recognition of rental income on a contractual basis for tax
reporting purposes and to additional depreciation claimed for
financial reporting purposes.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) (a) Articles of incorporation (incor-
porated by reference to Exhibit 3 to the
Issuer's annual report on Form 10-K for the year ended
December 31, 1988).
(b) By-laws, as amended (incorporated by
reference to Exhibit 3(b) to the Issuer's quarterly
report on Form 10-QSB for the quarter ended June 30,
1995).
(10) Material contracts:
(a) Note from Providence and Worcester Railroad Company
to Issuer dated January 1, 1988 (incorporated by reference
to Exhibit 10(a) to the Issuer's annual report on Form 10-KSB
for the year ended December 31, 1992) as modified by
Agreement dated August 16, 1995 (incorporated by reference
to Exhibit 10(a) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1995).
(b) Lease between Whiteco Metrocom, Inc. and Issuer dated
June 25, 1985 (incorporated by reference to Exhibit 10(b)
to the Issuer's annual report on Form 10-KSB for the year
ended December 31, 1992) as amended by agreement dated March
13, 1995 (incorporated by reference to Exhibit 10(c) to
the Issuer's quarterly report on Form 10-QSB for the quarter
ended June 30, 1995).
(c) Leases between Metropark, Ltd. and Issuer:
(1) Dated November 30, 1995 (incorporated by reference
to Exhibit 10(c)(1) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1995).
(2) Dated November 10, 1994 (incorporated by reference
to Exhibit 10(c)(ii) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1994).
(3) Dated November 10, 1995 (incorporated by reference
to Exhibit 10(c)(3) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1995).
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended March 31, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
issuer caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAPITAL PROPERTIES, INC.
By /s/ Barbara J. Dreyer
Barbara J. Dreyer
President, Treasurer and
Principal Financial Officer
DATED: May 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1015
<SECURITIES> 0
<RECEIVABLES> 4771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13439
<DEPRECIATION> 4153
<TOTAL-ASSETS> 15481
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1000
0
0
<OTHER-SE> 12437
<TOTAL-LIABILITY-AND-EQUITY> 15481
<SALES> 0
<TOTAL-REVENUES> 694
<CGS> 0
<TOTAL-COSTS> 536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 158
<INCOME-TAX> 66
<INCOME-CONTINUING> 92
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
