U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSITION REPORT UNDER 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 Identification No.)
incorporation or organization)
One Hospital Trust Plaza, Suite 920, Providence, RI 02903
(Address of principal executive offices)
Issuer's telephone number 401-331-0100
(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
latest practicable date:
As of November 6, 1996, the registrant had 1,000,000 shares of common stock
outstanding.
Transitional small business disclosure format (check one). YES_____ NO X .
<PAGE>
PART I
Item 1. Financial Statements
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Properties and equipment (net of accumulated depreciation) $ 9,113,000
Cash and cash equivalents 1,528,000
Note receivable, Providence and Worcester Railroad Company 4,263,000
Other receivables 210,000
Accrued rental income of $9,554,000 less amount for which
realization is not assured of $9,207,000 347,000
Prepaid and other 125,000
$15,586,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $ 55,000
Income tax payable 142,000
Accrued expenses:
Property taxes 449,000
Other 84,000
Deferred income taxes 1,360,000
2,090,000
Contingencies (Notes 6 and 8)
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 1,668,000
13,496,000
$ 15,586,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income:
Rentals $ 429,000 $ 439,000 $1,310,000 $1,320,000
Garage and surface parking
revenues 107,000 112,000 378,000 363,000
Interest:
Providence and Worcester
Railroad Company 107,000 157,000 331,000 552,000
Other 15,000 10,000 34,000 26,000
Gain on sale of properties
and equipment 75,000
658,000 718,000 2,053,000 2,336,000
Expenses:
Expenses applicable to:
Rental income 184,000 269,000 550,000 625,000
Garage and surface parking 132,000 282,000 538,000 595,000
General and administrative 141,000 208,000 459,000 931,000
Interest 28,000 124,000
457,000 787,000 1,547,000 2,275,000
Income (loss) before income
taxes 201,000 (69,000) 506,000 61,000
Income tax expense (benefit) 81,000 (41,000) 205,000 24,000
Net income (loss) $ 120,000 $ (28,000) $ 301,000 $ 37,000
Earnings (loss) per common
share $.12 $ (.03) $.30 $.04
Dividends per common share $-0- $ -0- $.15 $.10
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 301,000 $ 37,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 271,000 274,000
Gain on sale of properties and equipment (75,000)
Deferred income taxes (70,000) (90,000)
Other, principally net changes in other
receivables, accounts payable and
accrued expenses 66,000 (20,000)
Net cash provided by operating activities 568,000 126,000
Cash flows from investing activities:
Purchase of properties and equipment (8,000) (10,000)
Proceeds from:
Collection of note receivable, Providence and
Worcester Railroad Company 351,000 2,020,000
Sale of properties and equipment 138,000
Net cash provided by investing activities 343,000 2,148,000
Cash flows from financing activities, payment of:
Note payable, bank (2,053,000)
Dividends (150,000) (100,000)
Cash used in financing activities (150,000) (2,153,000)
Increase in cash and cash equivalents 761,000 121,000
Cash and cash equivalents, beginning 767,000 757,000
Cash and cash equivalents, ending $1,528,000 $ 878,000
Supplemental disclosure, cash paid for:
Interest $ -0- $ 119,000
Income taxes $ 91,000 $ 280,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 1996 and the results of operations for
the three and nine months ended September 30, 1996 and 1995, and cash flows
for the nine months ended September 30, 1996 and 1995.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. Results for interim periods may not be necessarily indicative of the
results to be expected for the year.
3. Properties and equipment:
<TABLE>
<S> <C>
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, petroleum storage tanks 4,163,000
10,628,000
Other:
Land and land improvements 192,000
Buildings, principally parking garage 2,536,000
Equipment 91,000
2,819,000
13,447,000
Less accumulated depreciation:
Properties and equipment on lease or held for lease 3,705,000
Other 629,000
4,334,000
$ 9,113,000
</TABLE>
4. Note receivable, Providence and Worcester Railroad Company:
In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of Providence and Worcester Railroad Company (Railroad) to the
Company's shareholders. The Company and Railroad have a common controlling
shareholder. As part of the plan, the Company received a promissory note in
the amount of $9,377,000 payable over a period of
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
4. Note receivable, Providence and Worcester Railroad Company (continued):
twenty years with interest at 12% per year, prepayable at any time without
penalty. Such prepayments reduced the required monthly payments (not
changing the term of the note).
During 1995, Railroad informed the Company that it had secured a commitment
from a bank which would enable it to borrow funds in an amount sufficient to
prepay the entire balance of its note at an interest rate below 10%. The
Company and Railroad negotiated an agreement reducing the interest rate to
10% upon Railroad's prepayment of $1,800,000 on its note. The agreement
further provides that the first $200,000 of any future prepayments will
reduce the required monthly payments over the remaining term of the note. In
April 1996 Railroad prepaid $200,000. Hereafter, 50% of any additional
prepayments will reduce the required monthly payments, and the balance will
be applied to reduce the note in inverse order of maturity of the remaining
principal payments.
At September 30, 1996, the current monthly payment of principal and interest
over the remaining twelve-year term is $53,000.
5. Other receivables:
<TABLE>
<S> <C>
Rentals, principally tenant property tax reimbursement $ 133,000
Petroleum terminal tenant 42,000
Interest, Providence and Worcester Railroad Company 35,000
$ 210,000
</TABLE>
6. Description of leasing arrangements:
At September 30, 1996, the Company has entered into land leases for three
separate land parcels with remaining terms of up to 97 years. The Company
leases various parcels of land principally for outdoor advertising and
surface parking for remaining terms of up to 28 years; and through September
30, 1996, the Company leased its petroleum storage facilities.
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 $9,554,000
at September 30, 1996. Management has been able to conclude that a portion
of the excess of straight-line over contractual rentals ($347,000 at
September 30, 1996) is realizable when payable over the terms of the leases.
Since October 1, 1991, the Company's petroleum storage facilities (the
facilities) had been leased under a 5-year agreement under which the tenant
paid an annual rental of $183,000 plus
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
6. Description of leasing arrangements (continued):
reimbursement of property taxes (approximately $86,000 annually) which lease
terminated September 30, 1996.
Effective October 1, 1996, the Company, through a newly-formed subsidiary,
commenced the operation of the facilities as a thru-put operation (receiving,
storing and disbursing product) and is currently in negotiations with several
oil companies to enter into thru-put arrangements. However, there is no
assurance when such arrangements can be completed.
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 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 former tenant of the facilities informed the Company of the
erosion of a slope and damage to a retaining wall which caused the washing
way 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 made the
former 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 required the former tenant to return the facilities at the
termination of the lease in a condition substantially the same as when the
former tenant took possession. The former tenant does not agree that it is
responsible for the payment of such costs. The lease provided for
arbitration in the event that the parties cannot reach agreement.
As management is of the opinion that the former 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
former tenant on the accompanying consolidated balance sheet at September 30,
1996 in accrued expenses, other and other receivables, respectively.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
6. Description of leasing arrangements (continued):
The Company could be found financially responsible for some or all of the
remediation or repair costs as a result of an arbitration proceeding.
7. Income taxes:
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities. The tax effects of
temporary differences which give rise to deferred tax assets and liabilities
at September 30, 1996 were as follows:
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement basis in
excess of its tax basis $ 1,407,000
Excess of straight line over contractual rental income 138,000
1,545,000
Gross deferred tax assets, principally professional
fees (185,000)
$ 1,360,000
</TABLE>
8. 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 September 30, 1996, totals
approximately 64% 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 fourth quarter 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.
In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of Providence and Worcester Railroad Company (Railroad) to the
Company's shareholders. The Company and Railroad have a common controlling
shareholder. As part of the plan, the Company received a promissory note in
the amount of $9,377,000 payable over a period of twenty years with interest
at 12% per year, prepayable at any time without penalty. Such prepayments
reduced the required monthly payments (not changing the term of the note).
During 1995, Railroad informed the Company that it had secured a commitment
from a bank which would enable it to borrow funds in an amount sufficient to
prepay the entire balance of its note at an interest rate below 10%. The
Company and Railroad negotiated an agreement reducing the interest rate to
10% upon Railroad's prepayment of $1,800,000 on its note. The agreement
further provides that the first $200,000 of any future prepayments will
reduce the required monthly payments over the remaining term of the note.
In April 1996 Railroad prepaid $200,000. Hereafter, 50% of any additional
prepayments will reduce the required monthly payments, and the balance will
be applied to reduce the note in inverse order of maturity of the remaining
principal payments.
At September 30, 1996, the current monthly payment of principal and interest
over the remaining twelve-year term is $53,000.
Since October 1, 1991, the Company's petroleum storage facilities (the
facilities) had been leased under a 5-year agreement under which the tenant
paid an annual rental of $183,000 plus reimbursement of property taxes
(approximately $86,000 annually), which lease terminated September 30, 1996.
Accordingly, effective October 1, 1996, the Company, through a newly-formed
subsidiary, commenced the operation of the facilities as a thru-put operation
(receiving, storing and disbursing product) and is currently in negotiations
with several oil companies to enter into thru-put arrangements. However,
there is no assurance when such arrangements can be completed. Management
believes that the use of the terminal as a thru-put facility will in time
generate sufficient revenues to replace the annual payments received under
the lease (rental income, $183,000, and property tax reimbursement, $86,000).
However, management cannot predict the length of time it will take to reach
that level. The Company will incur certain costs to ready the
<PAGE>
terminal for the resumption of operation. To date, management estimates
these costs to be approximately $60,000.
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 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 former tenant of the facilities 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 made the
former 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 required the former tenant to return the facilities at the
termination of the lease in a condition substantially the same as when the
former tenant took possession. The former 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.
As management is of the opinion that the former 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
former tenant on the accompanying consolidated balance sheet at September 30,
1996.
The Company could be found financially responsible for some or all of the
remediation or repair costs as a result of an arbitration proceeding.
Results of operations:
For the three and nine months ended September 30, 1996, total income
decreased approximately 8% and 12%, respectively, 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 1996 and 1995
totalling $200,000 and $1,855,000, respectively, and the reduction in 1995
of the interest rate on the note from 12% to 10%; and the sale of properties
and equipment in 1995, which resulted in a gain of $75,000.
<PAGE>
For the three and nine months ended September 30, 1996, total expenses
decreased approximately 42% and 32%, respectively, from the 1995 level.
The decrease in expenses applicable to rental income resulted principally
from a decrease in professional fees.
In July 1995 the Company received an unexpected increase in property taxes
resulting from an increase in the assessed valuations. The Company has filed
appeals for an abatement of the increase in the property taxes for both 1995
and 1996 and has had preliminary hearings on the matter. To date, the
Company has not resolved any of its appeals for abatement of taxes for 1995.
The Company has received a reduction in the assessed valuation of one of the
several appeals filed for 1996, resulting in an annual decrease in property
taxes of $115,000. This reduction resulted in the reversal of $59,000 in the
third quarter of 1996 of property tax expense accrued in the first two
quarters of 1996 which is reflected in expenses applicable to garage and
surface parking on the accompanying statements of income for the three and
nine months ended September 30, 1996. No final decision has been rendered on
the remaining appeals which, if granted in full, would result in additional
abatements of the Company's share of taxes of approximately $136,000 and
$235,000 for 1996 and 1995, respectively. However, management is unable to
determine if the appeals will result in any additional lowering of the taxes
and abatement of amounts paid to date.
The decrease in general and administrative expense resulted principally from
a decrease in payroll and related costs resulting from a reduced number of
employees and a decrease in professional fees in connection with the
condemnation case.
The decrease in interest expense resulted from the full prepayment
($1,755,000) by Company of a note payable to a bank in August 1995.
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 (incorporated 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) (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).
(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)(i) 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)(iii) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1995).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
<PAGE>
SIGNATURE
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: November 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 1528
<SECURITIES> 0 0
<RECEIVABLES> 0 4473
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 13447
<DEPRECIATION> 0 4334
<TOTAL-ASSETS> 0 15586
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
<COMMON> 0 1000
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 15586
<SALES> 0 0
<TOTAL-REVENUES> 658 2053
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 457 1547
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 201 506
<INCOME-TAX> 81 205
<INCOME-CONTINUING> 120 301
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 120 301
<EPS-PRIMARY> .12 .30
<EPS-DILUTED> 0 0
</TABLE>
