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 March 31, 1998
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
incorporation or organization) Identification No.)
100 Dexter Road, East Providence, Rhode Island 02914
(Address of principal executive offices)
Issuer's telephone number 401-435-7171
Issuer's Fax number 40l-435-7179
(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 May 13, 1998, the registrant had 3,000,000 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Properties and equipment (net of accumulated
depreciation) $ 8,674,000
Cash and cash equivalents 4,755,000
Other receivables 492,000
Accrued rental income 453,000
Prepaid and other 321,000
$14,695,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes $ 579,000
Other 88,000
Deferred income taxes 1,262,000
1,929,000
Contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par; authorized, issued and
and outstanding 3,000,000 shares 3,000,000
Capital in excess of par 8,828,000
Retained earnings 938,000
12,766,000
$14,695,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<S> <C> <C>
1998 1997
Income:
Rentals, including garage and surface parking
revenues in 1997 of $120,000 $ 438,000 $ 507,000
Petroleum storage facilities, net of cost of
product sold (1998, $62,000; 1997, $20,000) 50,000 4,000
Interest:
Providence and Worcester Railroad Company 98,000 104,000
Other 9,000 9,000
595,000 624,000
Expenses:
Expenses applicable to:
Rental income, including garage and surface
parking expenses in 1997 of $190,000 249,000 285,000
Petroleum storage facilities 177,000 135,000
General and administrative 355,000 174,000
781,000 594,000
Income (loss) before income taxes (186,000) 30,000
Income taxes (benefit) (68,000) 14,000
Net income (loss) $ (118,000) $ 16,000
Basic earnings (loss) per common share $ (.04) $ .01
Dividends per common share $ -0- $ -0-
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<S> <C> <C>
1998 1997
Cash flows from operating activities:
Net income (loss) $ (118,000) $ 16,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 86,000 91,000
Deferred income taxes (24,000) (11,000)
Other, principally net changes in other
receivables, prepaids, accounts payable and
accrued expenses 121,000 (369,000)
Net cash provided by (used in) operating activities 65,000 (273,000)
Cash flows from investing activities:
Purchase of properties and equipment (96,000)
Proceeds from:
Collection of note receivable, Providence and
Worcester Railroad Company 3,993,000 53,000
Maturity of temporary cash investments 203,000
Net cash provided by investing activities 3,897,000 256,000
Increase (decrease) in cash and cash equivalents 3,962,000 (17,000)
Cash and cash equivalents, beginning 793,000 948,000
Cash and cash equivalents, ending $4,755,000 $ 931,000
Supplemental disclosure, cash paid for income taxes $ -0- $ 30,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1. Basis of presentation:
The accompanying consolidated financial statements have been
prepared by the Company. Certain information and note
disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of
management, the accompanying consolidated financial
statements contain all adjustments necessary to present
fairly the financial position as of March 31, 1998 and the
results of operations and cash flows for the three ended
March 31, 1998 and 1997.
Commencing January 1, 1998, the Company leased under
operating leases its garage and surface parking properties
previously operated by the Company. Accordingly, the Company
has reclassified the accompanying consolidated statement of
income for 1997 to include in rental income and expense
amounts previously reported as garage and surface parking.
The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the
full year.
2. Use of estimates:
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.
3. Property tax dispute with the City of Providence:
During 1995, the Company received notice of an increase in
the assessed valuation of several of its parcels in
Providence, Rhode Island. The increase in the assessment was
not the result of a city-wide revaluation, pertained to 1995
and subsequent years and resulted in an annual increase in
property taxes of $265,000. The Company filed appeals for
1995 and 1996 but elected to make property tax payments as
due pending the outcome of the appeals. During the fourth
quarter of 1996, the City of Providence (the City) reduced
the assessed valuation on one of the parcels, resulting in an
abatement of property taxes of $107,000 for 1995 and a
reduction in the tax of $115,000 for 1996 and subsequent
years. The Company is unable to determine if the remaining
appeals will result in an abatement of the property taxes for
1995 and subsequent years.
On August 18, 1997, the Company received from the City real
property tax bills for taxes assessed as of December 31, 1996
reflecting an unexpected 200% increase in the assessed
valuation of a majority of the Company's parcels in the
Capital Center area, resulting in an annual increase in
property tax expense of approximately $1,370,000. This
increase was not part of a city-wide revaluation.
On August 21, 1997, the Company received from the City real
property tax bills purporting to assess taxes for assessment
years ending December 31, 1990 through December 31, 1995,
based upon a $42,000,000 retroactive increase in the assessed
valuation of these same properties. These increases were not
part of a city-wide revaluation. The aggregate amount of
such taxes as billed is approximately $7,100,000, which
amount did not include any interest. The Company believes
that the change of assessments is related to the March 1997
Rhode Island Superior Court decision that determined a 1987
value for certain properties condemned by the State of Rhode
Island in 1987.
On October 14, 1997, the Company received from the City real
property tax bills for the second quarter of 1997 indicating
interest due on the 1996 assessment of $76,000 and interest
due on the purported assessed taxes for the years 1990
through 1995 of $3,300,000. The City asserts that the
parcels subject to the retroactive assessment were under-
assessed in the prior assessment periods.
On February 19, 1998, the Company received notices from the
City of tax sales of nine parcels scheduled to occur June 11,
1998. On April 29, 1998, the City informed the Company that
the City had cancelled the tax sales.
The Company believes that the increased assessments for 1997
and prior periods are illegal and on August 27, 1997 filed a
lawsuit against the City in the Rhode Island Superior Court,
which is expected to be tried in the second half of 1998.
The Company, upon consultation with counsel, believes that
its position with respect to these assessments will be
sustained; however, such proceedings can be protracted and
costly, and there can be no assurance that the Company will
be successful in having the 1997 increase or the retroactive
assessments overturned. The failure of the Company to
prevail in the proceedings contesting the retroactive
assessments would have a material adverse effect on the
Company's results of operations and financial condition and,
while the Company believes, upon consultation with counsel,
that the likelihood of such failure is remote, if a court
were to require the Company to pay the retroactive
assessments and related interest, the Company could be forced
to seek the protection of the bankruptcy courts.
The Company is accruing for financial reporting purposes (and
paying) property taxes based on the 1994 and 1995 assessed
valuations while it pursues its lawsuit contesting the 1996
and 1997 increases and the retroactive assessments and its
administrative appeals of the 1994 and 1995 assessments.
Property tax expense reported on the accompanying
consolidated statements of income (loss) totalled $225,000
and $211,000 for 1998 and 1997, respectively.
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 (reduced to 10% in 1995), prepayable at any time
without penalty. On March 30, 1998, Railroad prepaid the
note in full.
5. Properties and equipment:
<TABLE>
<S> <C>
Properties on lease or held for lease:
Land and land improvements $ 4,123,000
Building 2,500,000
6,623,000
Petroleum storage facilities:
Land 2,175,000
Buildings and structures 325,000
Tanks and equipment 4,178,000
6,678,000
Other:
Land and land improvements 126,000
Equipment 84,000
210,000
13,511,000
Less accumulated depreciation:
Petroleum storage facilities 4,135,000
Other 702,000
4,837,000
$ 8,674,000
</TABLE>
6. Other receivables:
<TABLE>
<S> <C>
Rentals, principally tenant property
tax reimbursements $ 174,000
Arbitration award 110,000
Income taxes 195,000
Other 13,000
$ 492,000
</TABLE>
7. Description of leasing arrangements:
At March 31, 1998, the Company had entered into long-term
land leases for four separate land parcels, one of which will
not commence until construction begins which is anticipated
before year-end. Another lease was amended in May 1997,
extending the term thereof from 2092 to 2142, with no change
in the rents due under the original term of the lease, and
rents for the extended period to be calculated in accordance
with the formulas set forth for the original term. The
Company also leases various parcels principally for outdoor
advertising for remaining terms of up to 26 years and parking
for terms of 2 years.
For those leases with scheduled rent increases, the
cumulative excess of straight-line over contractual rentals
(considering scheduled rent increases over the 30 to 149-year
terms of the leases) amounted to $10,957,000 through March
31, 1998. Management has concluded that a portion of the
excess of straight-line over contractual rentals ($453,000 at
March 31, 1998) is realizable when payable over the terms of
the leases.
8. Income taxes:
Deferred income taxes are recorded based upon differences
between financial statement and tax carrying amounts of
assets and liabilities. The tax effects of temporary
differences which give rise to deferred tax assets and
liabilities at March 31, 1998 were as follows:
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement basis
in excess of its tax basis $1,275,000
Accrued rental income 181,000
1,456,000
Gross deferred tax assets, principally
professional fees in connection with
condemnation case (194,000)
$1,262,000
9. Petroleum storage facilities:
Termination of lease and arbitration:
The Company's petroleum storage facilities (the Facilities)
were leased to an operator (the Operator) from October 1, 1991
through September 30, 1996 at an annual rental of $183,000
plus reimbursement of property taxes (approximately $90,000
annually).
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 proposed several
acceptable options and 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 Operator 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
proposed several options and 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).
In 1995, the Company provided for the estimated costs to
remediate the contaminated soil and repair the eroded channel
by reporting a liability and a corresponding receivable from
the Operator for $42,000. In 1996, the Company paid $15,000
to repair the eroded channel, which amount reduced the
reported liability to $27,000.
Management is of the opinion that the terms of the lease not
only made the Operator 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
Operator to return the Facilities at the termination of the
lease in a condition substantially the same as when the
Operator took possession. After the Operator vacated the
Facilities and emptied the tanks, the Company inspected the
Facilities and determined that one of the tanks had a
structural failure. The Company repaired the tank at a cost
of $65,000, which amount was included in expenses applicable
to rental income on the accompanying consolidated statement of
income and retained earnings for 1996.
Since 1985, the Company had been a party to an agreement (the
Pier Operating Agreement) covering the operation and
maintenance of the Pier which was owned by Railroad. The
Pier, which is connected by two petroleum pipelines to the
Company's Facilities, is integral to the operation of the
Facilities. In 1991, the Pier Operating Agreement was
amended by the parties then subject to it, which were the
Company, Railroad and two oil companies. The Pier Operating
Agreement provided that the parties would share the annual
cost of operating and maintaining the Pier based on their
relative usage of the Pier as measured by vessel berthing
hours.
Commencing in 1991, Railroad notified the parties on a
periodic basis of the need for several significant repair,
maintenance and dredging projects to the Pier and attempted to
obtain agreement among the parties to proceed with such
repairs. In 1996, Railroad notified the parties that the
estimated cost of the projects totalled approximately
$1,100,000 and requested the parties to consent to its
undertaking such projects. All of the Company's
responsibilities and obligations under the Pier Operating
Agreement were assumed by the Operator in accordance with the
terms of its lease. Although the Operator paid for certain
on-going operating costs, it did not agree that it was
responsible for any portion of the costs of the projects
identified by Railroad.
Because the Operator did not accept responsibility for any of
the aforementioned costs, the Company initiated arbitration
proceedings in accordance with the lease. In the arbitration
proceedings, the Operator again denied responsibility and set
forth counterclaims asserting that it was entitled to recover
$96,000 plus interest from the Company for operating expenses.
The Company denied any liability in connection with the
counterclaims.
In August 1997, the arbitrator awarded the Company $184,000
with respect to all claims. The Operator paid the Company
$74,000 but challenged the disposition of the remaining
portion of the award relating to the soil remediation by
appealing the award to the Rhode Island Superior Court. In
its appeal the Operator demands that the Agency be joined as a
party and the unpaid funds be expended only in connection with
a remediation plan approved by the Agency. The Company
contends that there was no restriction on its use of the
funds. The Company expects to resolve this issue and receive
payment in the second quarter of 1998.
Wilkesbarre Pier:
In October 1997, Railroad was notified by one of the two oil
companies party to the Pier Operating Agreement (the
Withdrawing Company) that the Withdrawing Company was with-
drawing from the Pier Operating Agreement on April 1, 1998 and
that it would no longer be using the Pier after December 31,
1997. The other oil company had previously discontinued
utilizing the Pier but never withdrew from the Pier Operating
Agreement.
In December 1997, Railroad and the Withdrawing Company entered
into a new agreement (New Agreement) whereby the Withdrawing
Company agrees to pay in monthly installments annual minimum
fees for five years commencing January 1, 1998, which range
from $185,000 to $235,000. Under the terms of the New
Agreement, the owner of the Pier is not required to make any
repairs to the Pier. The New Agreement may be terminated by
the Withdrawing Company upon ninety days' notice only in the
event of a failure of a component of the Pier that the owner
does not repair.
Of the maintenance, repair and dredging projects estimated by
Railroad in 1996 to cost approximately $1,100,000, one of the
projects was completed in 1997 at a cost of $130,000, of which
the Company's share was $15,000.
In 1995, the Company and Railroad entered into an agreement
which, among other provisions, gave the Company the right to
acquire the Pier for $1. In January 1998, the Company
exercised its right and acquired the Pier; and Railroad
assigned its rights under the New Agreement to the Company.
The Company believes that the remaining projects proposed by
Railroad are no longer necessary in light of the Company's
planned operation of the Pier.
Pipeline rights:
A trust for the benefit of the Company's controlling
shareholder (the Trust) was party to an agreement (the
Pipeline Agreement) with respect to the use of the two
petroleum pipelines which connect the Pier to the Facilities.
Since February 1983, the Company and any operator of its
Facilities have had the right to use the pipelines for the
transportation of petroleum products in consideration for
which the Company assumed all of the Trust's obligations for
repair and maintenance under the Pipeline Agreement and agreed
to pay to the Trust a fee based upon the number of barrels of
product transported through the pipelines. The fee was
subject to adjustment as of October 1 of each year to reflect
changes in the Consumer Price Index (1967=100). For the
twelve-month period ending September 30, 1997, the Company
paid $20,000 to the Trust and was not required to make any
payment with respect to maintenance and other expenses.
In December 1997, the Trust entered into an agreement with the
Withdrawing Company which owns the two petroleum pipelines,
whereby the Withdrawing Company released the Trust from
liability in connection with the pipelines for any costs
incurred to date by the Withdrawing Company. Pursuant to said
agreement, the Trust will only be responsible in the future for
its proportionate share of a repair or replacement to the
pipelines in excess of $25,000.
The Company had the option to purchase the rights of the Trust
under the Pipeline Agreement and exercised its option in
January 1998, acquiring all rights of the Trust for $50,000,
which amount is included in properties and equipment on the
accompanying consolidated balance sheet.
10. Stock split:
In May 1997, the Company's Board of Directors declared a
three-for-one split of the Company's common stock (effected in
the form of a 200% stock dividend) which was paid on June 16,
1997. To permit the split, the Company's articles of
incorporation were restated to increase the number of
authorized common shares, $1 par value, from 1,000,000 to
3,000,000 shares.
11. Pending litigation:
In connection with the River Relocation Project, in 1987 the
State of Rhode Island condemned a portion of the Company's
property. On January 16, 1987, the Company entered into an
Agreement with the State of Rhode Island (the 1987 Agreement)
relating to the State's obligation with respect to the
condemnation. In November 1987, the State paid a condemnation
award of $2,600,000. Under the 1987 Agreement, the Company
purchased another parcel of land from the State and was
required to return to the State a portion of the condemnation
award.
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 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 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.
In May 1997, the Superior Court entered final judgment
awarding additional condemnation proceeds of $6,101,000 in
favor of the Company and interest on the judgment through that
date of $4,552,000. The State filed an appeal with the
Supreme Court. The matter was argued before the Supreme Court
on April 8, 1998. On April 17, 1998, the Supreme Court
entered an order affirming the judgment of the Superior Court.
Interest is accruing on the judgment. The Supreme Court
expressly stated that its decision was "without prejudice to
any party seeking to enforce any contractual obligations that
may be implicated by the enforcement of the Judgment."
Under the 1987 Agreement, the Company may be required to
return to the State a portion of the award. Because the State
and the Company may disagree concerning their respective
obligations under the 1987 Agreement, the Company and its
counsel are currently reviewing the 1987 Agreement to
determine the amount, if any to be included in the Company's
second quarter financial statements as a result of the Court's
judgment.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial condition:
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 (reduced to 10% in 1995), prepayable at any time
without penalty. On March 30, 1998, Railroad prepaid the note in
full. The Company has invested the proceeds while management is
evaluating ways to use the proceeds to maximize shareholder
value. However, the Company anticipates that it will not be able
to invest the proceeds at rates comparable to the interest rate
formerly paid by Railroad.
The Company's principal assets consist of land, a public parking
garage, petroleum storage facilities and outdoor advertising
sites. A significant portion of the land consists of
approximately 20.5 acres, including 1.9 acres of air rights, in
downtown Providence, Rhode Island, held for development. At
March 31, 1998, the Company had entered into long-term land
leases for four separate land parcels, one of which will not
commence until construction begins, which is anticipated before
year-end. Another lease was amended in May 1997, extending the
term thereof from 2092 to 2142, with no change in the rents due
under the original term of the lease, and rents for the extended
period to be calculated in accordance with the formulas set forth
for the original term. The Company also leases various parcels
of land principally for outdoor advertising for remaining terms
of up to 26 years and surface parking for terms of 2 years.
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 lease the available parcels suitable for public
surface parking under short-term cancellable leases. The Company
anticipates that future development of the remaining properties
will consist primarily of long-term ground leases under which the
significant portion of future rental income will not be earned
until the buildings are completed by the tenants and occupied.
During 1995, the Company received notice of an increase in the
assessed valuation of several of its parcels in Providence, Rhode
Island. The increase in the assessment was not the result of a
city-wide revaluation, pertained to 1995 and subsequent years and
resulted in an annual increase in property taxes of $265,000.
The Company filed appeals for 1995 and 1996 but elected to make
property tax payments as due pending the outcome of the appeals.
During the fourth quarter of 1996, the City of Providence (the
City) reduced the assessed valuation on one of the parcels,
resulting in an abatement of property taxes of $107,000 for 1995
and a reduction in the tax of $115,000 for 1996 and subsequent
years. The Company is unable to determine if the remaining
appeals will result in an abatement of the property taxes for
1995 and subsequent years.
On August 18, 1997, the Company received from the City real
property tax bills for taxes assessed as of December 31, 1996
reflecting an unexpected 200% increase in the assessed valuation
of a majority of the Company's parcels in the Capital Center
area, resulting in an annual increase in property tax expense of
approximately $1,370,000. This increase was not part of a city-
wide revaluation.
On August 21, 1997, the Company received from the City real
property tax bills purporting to assess taxes for assessment
years ending December 31, 1990 through December 31, 1995, based
upon a $42,000,000 retroactive increase in the assessed valuation
of these same properties. These increases were not part of a
city-wide revaluation. The aggregate amount of such taxes as
billed is approximately $7,100,000, which amount did not include
any interest. The Company believes that the change of
assessments is related to the March 1997 Rhode Island Superior
Court decision that determined a 1987 value for certain
properties condemned by the State of Rhode Island in 1987.
On October 14, 1997, the Company received from the City real
property tax bills for the second quarter of 1997 indicating
interest due on the 1996 assessment of $76,000 and interest due
on the purported assessed taxes for the years 1990 through 1995
of $3,300,000. The City asserts that the parcels subject to the
retroactive assessment were under-assessed in the prior
assessment periods.
On February 19, 1998, the Company received notices from the City
of tax sales of nine parcels scheduled to occur June 11, 1998.
On April 29, 1998, the City informed the Company that the City
had cancelled the tax sales.
The Company believes that the increased assessments for 1997 and
prior periods are illegal and on August 27, 1997 filed a lawsuit
against the City in the Rhode Island Superior Court, which is
expected to be tried in the second half of 1998.
The Company, upon consultation with counsel, believes that its
position with respect to these assessments will be sustained;
however, such proceedings can be protracted and costly, and there
can be no assurance that the Company will be successful in having
the 1997 increase or the retroactive assessments overturned. The
failure of the Company to prevail in the proceedings contesting
the retroactive assessments would have a material adverse
effect on the Company's results of operations and financial
condition and, while the Company believes, upon consultation with
counsel, that the likelihood of such failure is remote, if a
court were to require the Company to pay the retroactive
assessments and related interest, the Company could be forced to
seek the protection of the bankruptcy courts.
In connection with the River Relocation Project, in 1987 the
State of Rhode Island condemned a portion of the Company's
property. On January 16, 1987, the Company entered into an
Agreement with the State of Rhode Island (the 1987 Agreement)
relating to the State's obligation with respect to the condemnation.
In November 1987, the State paid a condemnation award of $2,600,000.
Under the 1987 Agreement, the Company purchased another parcel of
land from the State and was required to return to the State a portion
of the condemnation award.
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 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 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.
In May 1997, the Superior Court entered final judgment awarding
additional condemnation proceeds of $6,101,000 in favor of the Company
and interest on the judgment through that date of $4,552,000. The
State filed an appeal with the Supreme Court. The matter was
argued before the Supreme Court on April 8, 1998. On April 17,
1998, the Supreme Court entered an order affirming the judgment
of the Superior Court. Interest is accruing on the judgment.
The Supreme Court expressly stated that its decision was "without
prejudice to any party seeking to enforce any contractual
obligations that may be implicated by the enforcement of the
Judgment."
Under the 1987 Agreement, the Company may be required to return to
the State a portion of the award. Because the State and the Company
may disagree concerning their respective obligations under the 1987
Agreement, the Company and its counsel are currently reviewing the
1987 Agreement to determine the amount, if any, to be included in
the Company's second quarter financial statements as as a result of
the Court's judgment.
The Company manages its exposure to future contamination, cleanup
or similar costs associated with the petroleum storage facilities
through its adherence to established procedures for operations
and equipment maintenance. In addition, the Company maintains
what it believes to be adequate levels of insurance.
During 1997, FAS No. 130 (Reporting Comprehensive Income) and FAS
No. 131 (Disclosures about Segments of an Enterprise and Related
Information) were issued and are effective for the year 1998.
FAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (income, expenses, gains
and losses) in a full set of general purpose financial
statements. The Company does not have any components of
comprehensive income. FAS No. 131 establishes standards for the
way public companies report information about operating segments
and requires that those companies report selected information
about operating segments and establishes standards for related
disclosures about products and services, geographic areas and
major customers. The Company presently operates in one business
segment as a lessor of properties principally in the Providence,
Rhode Island area.
Certain portions of this report, and particularly the
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Notes to Consolidated Financial
Statements, contain forward-looking statements which represent
the Company's expectations or beliefs concerning future events.
The Company cautions that these statements are further qualified
by important factors that could cause actual results to differ
materially from those in the forward-looking statements,
including, without limitation, the following: the collectibility
of the accrued rental income when due over the terms of the long-
term land leases; changes in economic conditions that may affect
either the current or future development on the Company's
parcels; the final outcome of the condemnation litigation; the
resolution of the property tax litigation with the City; and
exposure to future contamination, cleanup or similar costs
associated with the operation of the petroleum storage
facilities.
Results of operations:
For the three months ended March 31, 1998, total revenue
decreased approximately 5% from the 1997 level.
The decrease in rental income was offset in part by a decrease in
expenses applicable to rental income resulting principally from
certain direct expenses in connection with the garage and surface
parking facilities previously operated by the Company which are
now under lease.
The increase in revenue from petroleum storage facilities results
principally from fees received under the Company's New Agreement
in connection with the Wilkesbarre Pier. (See Note 9 to the
accompanying consolidated financial statements.) The increase in
expenses applicable to petroleum storage facilities results
principally from increased insurance costs.
The increase in general and administrative expenses results
principally from an increase in payroll and related costs due to
an increased number of employees and from an increase in legal
and professional fees.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) (a) Restated articles of incorporation
(incorporated by reference to Exhibit 4.1 to the
Issuer's report on Form 8-A dated June 6, 1997).
(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) 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) Leases between Metropark, Ltd. and Issuer:
(i) Dated as of December 1, 1997 (incorporated by
reference to Exhibit 10(b)(i) to the Issuer's
annual report on Form 10-KSB for the year ended
December 31, 1997).
(ii) Dated as of December 1, 1997 (incorporated by
reference to Exhibit 10(b)(ii) to the Issuer's
annual report on Form 10-KSB for the year ended
December 31, 1997).
(iii) Dated November 6, 1996 (incorporated by
reference to Exhibit 10(c)(i) to the Issuer's
annual report on Form 10-KSB for the year ended
December 31, 1996).
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the
quarter ended March 31, 1998.
<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/ Ronald P. Chrzanowski
Ronald P. Chrzanowski,
President
By /s/ Barbara J. Dreyer
Barbara J. Dreyer, Treasurer
and Principal Financial Officer
DATED: May 13, 1998
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0
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