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 June 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 August 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
tem 1. Financial Statements
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
<TABLE>
ASSETS
<S> <C>
Properties and equipment (net of accumulated depreciation) $ 9,195,000
Cash and cash equivalent.................................. 1,321,000
Note receivable, Providence and Worcester Railroad Company 4,313,000
Other receivables......................................... 213,000
Accrued rental income of $9,315,000 less amount for which
realization is not assured of $8,991,000................. 324,000
Prepaid and other......................................... 109,000
$15,475,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable......................................... $ 55,000
Income tax payable....................................... 81,000
Accrued expenses:
Property taxes......................................... 516,000
Other.................................................. 72,000
Deferred income taxes.................................... 1,375,000
2,099,000
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........................................ 1,548,000
13,376,000
$15,475,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income:
Rentals......................... $451,000 $441,000 $ 881,000 $ 881,000
Garage and surface parking
revenues....................... 131,000 124,000 271,000 251,000
Interest:
Providence and Worcester
Railroad Company.............. 110,000 196,000 224,000 395,000
Other.......................... 9,000 9,000 19,000 16,000
Gain on sale of properties and
equipment...................... 75,000 75,000
701,000 845,000 1,395,000 1,618,000
Expenses:
Expenses applicable to:
Rental income.................. 192,000 178,000 366,000 356,000
Garage and surface parking..... 202,000 155,000 406,000 313,000
General and administrative...... 160,000 403,000 318,000 723,000
Interest........................ 46,000 96,000
554,000 782,000 1,090,000 1,488,000
Income before income taxes....... 147,000 63,000 305,000 130,000
Income taxes..................... 58,000 37,000 124,000 65,000
Net income....................... $ 89,000 $ 26,000 $ 181,000 $ 65,000
Income per common share.......... $.09 $.03 $.18 $.07
Dividends per common share....... $.15 $.10 $.15 $.10
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................... $ 181,000 $ 65,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 181,000 183,000
Gain on sale of properties and equipment.... (75,000)
Deferred income taxes....................... (55,000) (52,000)
Other, principally net changes in other
receivables, accounts payable and
accrued expenses........................... 96,000 (32,000)
Net cash provided by operating activities..... 403,000 89,000
Cash flows from investing activities:
Purchase of properties and equipment.......... (10,000)
Proceeds from:
Collection of note receivable, Providence and
Worcester Railroad Company.................. 301,000 163,000
Sale of properties and equipment............. 138,000
Net cash provided by investing activities..... 301,000 291,000
Cash flows from financing activities, payment of:
Note payable, bank............................ (277,000)
Dividends..................................... (150,000) (100,000)
Cash used in financing activities.............. (150,000) (377,000)
Increase (decrease) in cash and cash equivalents 554,000 (3,000)
Cash and cash equivalents, beginning............ 767,000 757,000
Cash and cash equivalents, ending............... $1,321,000 $ 760,000
Supplemental disclosure, cash paid for:
Interest...................................... $ -0- $ 81,000
Income taxes.................................. $ 57,000 $ 229,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 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 June 30, 1996 and the results of operations for the
three and six months ended June 30, 1996 and 1995, and cash flows for the
six months ended June 30, 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>
<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............................................ 83,000
2,811,000
13,439,000
Less accumulated depreciation:
Properties and equipment on lease or held for lease.. 3,633,000
Other................................................ 611,000
4,244,000
$ 9,195,000
</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 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
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
4. Note receivable, Providence and Worcester Railroad Company (continued):
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, and the Railroad prepaid $200,000 in April 1996. 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 June 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... $ 135,000
Petroleum terminal tenant................................ 42,000
Interest, Providence and Worcester Railroad Company...... 36,000
$ 213,000
</TABLE>
6. Description of leasing arrangements:
At June 30, 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 $9,315,000
at June 30, 1996. Management has been able to conclude that a portion of the
excess of straight-line over contractual rentals ($324,000 through June 30,
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 nflation factor ($5,100,000 at June 30,
1996). The Company has not been advised by the tenant as to whether it will
purchase the terminal; however, the Company does not believe it will
receive an offer to purchase from the tenant.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
6. Description of leasing arrangements (continued):
Accordingly, effective October 1, 1996, the Company, through a newly-formed
subsidiary, plans to commence 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 that such arrangements can be completed by
October 1, 1996.
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 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 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.
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 June 30, 1996 in accrued expenses,
other and other receivables, respectively.
The Company could be found financially responsible for some or all of the
remediation or repair costs as a result of an arbitration proceeding.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
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 June 30, 1996 were as follows:
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement basis in
excess of its tax basis............................ $ 1,430,000
Excess of straight line over contractual rental income 130,000
1,560,000
Gross deferred tax assets, principally professional
fees................................................. (185,000)
$ 1,375,000
</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 June 30, 1996,
totals approximately 62% 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 third 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,
and the Railroad prepaid $200,000 in April 1996. 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 June 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) 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 ($5,100,000 at
June 30, 1996). The Company has not been advised by the tenant as to whether
it will purchase the terminal; however, the Company does not believe it will
receive an offer to purchase from the tenant.
Accordingly, effective October 1, 1996, the Company, through a newly-formed
subsidiary, plans to commence 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 that such arrangements can be completed by
October 1, 1996. 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 current 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.
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 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 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.
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 June 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 six months ended June 30, 1996, total income decreased
approximately 17% and 14%, 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.
For the three and six months ended June 30, 1996, total expenses decreased
approximately 29% and 27%, respectively, from the 1995 level 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 ($1,755,000) by Company of a note payable to a bank in August 1995.
The decrease was offset in part by an unexpected increase in 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 and has had preliminary
hearings on the matter, but no final decision has been made to date. 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 (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 10, 1994 (incor-
porated by reference to Exhibit 10(c)(i)
to the Issuer's annual report on Form 10-
KSB for the year ended December 31, 1994).
(2) Dated November 10, 1994 (incor-
porated 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, 1994 (incor-
porated by reference to Exhibit 10(c)(iii)
to the Issuer's annual report on Form 10-
KSB for the year ended December 31, 1994).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended September 30, 1995.
<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: August 6, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 0 1321
<SECURITIES> 0 0
<RECEIVABLES> 0 4526
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 13439
<DEPRECIATION> 0 4244
<TOTAL-ASSETS> 0 15475
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
<COMMON> 0 1000
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 15475
<SALES> 0 0
<TOTAL-REVENUES> 451 881
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 554 1090
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 147 305
<INCOME-TAX> 58 124
<INCOME-CONTINUING> 89 181
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 89 181
<EPS-PRIMARY> .09 .18
<EPS-DILUTED> 0 0
</TABLE>
