UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-9380
CAPITAL PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter)
Rhode Island 05-0386287
(State or other jurisdiction of IRS Employer Identification No.
incorporation or organization)
100 Dexter Road, East Providence, Rhode Island 02914
(Address of principal executive offices)
(401) 435-7171
(Issuer's telephone number)
(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
common equity, as of the latest practicable date:
As of April 30, 1999, the Issuer 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, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Properties and equipment (net of accumulated depreciation) $ 8,609,000
Cash and cash equivalents 4,893,000
Receivables:
Tenant property tax reimbursements 216,000
Income taxes 92,000
Other 10,000
Accrued rental income 502,000
Prepaid and other 156,000
$14,478,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes $ 602,000
Other 227,000
Deferred income taxes 1,162,000
1,991,000
Contingencies (Note 2)
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 659,000
12,487,000
$14,478,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
Income:
Revenues:
Leasing $ 494,000 $ 438,000
Petroleum storage facilities, net of cost of
product sold of $62,000 in 1998 341,000 50,000
835,000 488,000
Interest:
Providence and Worcester Railroad Company 98,000
Other 48,000 9,000
883,000 595,000
Expenses:
Expenses applicable to:
Leasing 321,000 249,000
Petroleum storage facilities 168,000 177,000
General and administrative 221,000 355,000
710,000 781,000
Income (loss) before income taxes 173,000 (186,000)
Income tax expense (benefit) 69,000 (68,000)
Net income (loss) $ 104,000 $(118,000)
Basic earnings (loss) per common share $ .03 $(.04)
Dividends on common stock $ -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, 1999 AND 1998
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
Cash flows from operating activities:
Net income (loss) $ 104,000 $ (118,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 20,000 86,000
Deferred income taxes (11,000) (24,000)
Other, principally net changes in
receivables, prepaids, accounts payable
and accrued expenses 93,000 121,000
Net cash provided by operating activities 206,000 65,000
Cash flows from investing activities:
Purchase of properties and equipment (56,000) (96,000)
Proceeds from collection of note receivable,
Providence and Worcester Railroad Company 3,993,000
Net cash provided by (used in) investing
activities (56,000 3,897,000
Increase in cash and cash equivalents 150,000 3,962,000
Cash and cash equivalents, beginning 4,743,000 793,000
Cash and cash equivalents, ending $4,893,000 $4,755,000
Supplemental disclosures, cash paid for
income taxes $ -0- $ -0-
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(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,
1999 and the results of operations and cash flows for the three months ended
March 31, 1999 and 1998.
The results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year.
The Company has adopted the provisions of Statement of Financial Accounting
Standards (FAS) No. 131 (Disclosures about Segments of an Enterprise and
Related Information) which changes the manner in which the Company determines
its operating business segments. FAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The provisions of FAS No. 131 result in the Company's reporting two operating
segments:
* the leasing of certain of its real estate interests in downtown
Providence, Rhode Island, and locations along interstate and primary
highways in Rhode Island and Massachusetts for outdoor advertising
purposes; and
* the operation of its petroleum storage facilities (the Facilities)
in East Providence, Rhode Island.
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 income and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
3. Litigation with the State of Rhode Island and the City of Providence:
Condemnation case:
On January 16, 1987, the Company entered into an Agreement with the State of
Rhode Island (CPI/State Agreement) relating to the State of Rhode Island's
obligation with respect to the condemnation of a portion of the Company's
property in connection with the proposed River Relocation in Providence,
Rhode Island. In November 1987, the State of Rhode Island (the State)
condemned the property and paid the Company a condemnation award of
$2,600,000. Under the CPI/State Agreement, the Company purchased another
parcel of land (Disputed Parcel) 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 (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 (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 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. On April 17, 1998, the Supreme Court entered an order affirming the
judgment of the Superior Court. Interest continues to accrue 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."
The State filed several motions to prevent the Company from collecting the
judgment, which now exceeds $11,500,000 including interest. The Superior
Court denied the State's motions and ordered the State to pay the judgment by
August 14, 1998. The State filed an appeal with the Supreme Court. In
December 1998, the Supreme Court directed that this case, together with other
disputes between the Company, the State and the City of Providence, be
consolidated before a single justice of the Superior Court. This is more
fully discussed below.
Under the CPI/State Agreement, the Company may be required to return to the
State a portion of the award.
Property tax dispute with the City of Providence:
During 1995, the Company received notice from the City of Providence (the
City) of an increase in the assessed values of several of its parcels within
Capital Center. The increase in the assessed values 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
<PAGE>
pending the outcome of the appeals. During the fourth quarter of 1996, the
City reduced the assessed value of 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 values of a majority of the Company's parcels
within Capital Center, 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 values of these same properties. These increases
were not part of a city-wide revaluation. The aggregate amount of such taxes
as billed was approximately $7,100,000, which amount did not include any
interest. The Company believes that the change in the assessed values is
related to the March 1997 Superior Court decision that determined a 1987
value for certain properties condemned by the State in 1987.
The Company believes that the increase in the assessed values for 1997 and
prior periods are illegal and on August 27, 1997 filed a lawsuit against the
City in the Superior Court.
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 November 14, 1997, the Company filed appeals of the 1997 real property
tax bills.
On August 5, 1998, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1997, which taxes are based upon the
assessed valuations as of December 31, 1996. The Company has appealed these
assessments and on October 16, 1998, filed a lawsuit against the City in the
Superior Court claiming that the increased assessments for 1998 are illegal.
In December 1998, the Supreme Court directed that the property tax disputes
with the City, title to the Disputed Parcel, and the condemnation case
previously discussed be heard by a single justice of the Superior Court.
The real property tax bills received by the Company in April 1999 from the
City indicate that there remains unpaid taxes of $11,645,000 and interest
Thereon of $5,589,000 for assessment dates of December 31, 1990 through 1997.
Interest continues to accrue at the rate of 1 percent per month.
The Company is reporting for financial statement purposes (and paying)
property taxes based on the 1994 and 1995 assessed valuations while it
pursues its lawsuits and its administrative appeals. City of Providence
property tax expense reported on the accompanying consolidated statements of
income (loss) totaled $195,000 and $206,000 for 1999 and 1998, respectively.
<PAGE>
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 and 1998 increases or the retroactive
assessments overturned. The failure of the Company to prevail in the
proceedings contesting the retroactive increase in assessed values 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.
Dispute over ownership of Disputed Parcel:
Pursuant to the terms of an agreement dated January 1987 between the City and
the State (City/State Agreement), the City was obligated to convey the
Disputed Parcel to the State. As discussed above under the heading
"Condemnation Case," pursuant to the CPI/State Agreement, the State was
obligated to reconvey the Disputed Parcel to the Company. In 1989, the City
conveyed the Disputed Parcel to the State, and the State reconveyed the
Disputed Parcel to the Company. Contemporaneously, the Company purchased a
title insurance policy in the amount of $1,600,000 covering the Disputed
Parcel.
The City now claims that its execution of the City/State Agreement was
invalid, that its conveyance of the Disputed Parcel to the State was void,
and hence the City is the true owner of the Disputed Parcel. Moreover, in
December 1998, the City adopted an ordinance authorizing the Providence
Redevelopment Agency to condemn the Disputed Parcel. The Company is
contesting both the City's claim of ownership and the City's attempt to
condemn the Disputed Parcel.
The Company, upon consultation with counsel, believes that its ownership of
the Disputed Parcel will be affirmed and that the City will fail in any
attempt to condemn this parcel.
This dispute with the City is included in the matters being heard by the
single justice of the Superior Court as directed by the Supreme Court.
The Company's carrying value of the Disputed Parcel is $57,000. The Disputed
Parcel's assessed value was increased to $7,909,000 by the City as more fully
discussed above under the heading "Property Tax Dispute with the City of
Providence." The real property tax bill relating to the Disputed Parcel
received in April 1999 from the City indicates that the unpaid taxes and
interest total approximately $2,350,000 through that date.
Consolidated case:
In the consolidated case of all of the various disputes between the Company,
City and State before a single justice of the Superior Court, final briefs
under various Cross Motions for Summary Judgment have been filed. The
Company expects a decision in these matters to be issued shortly. Any
decision is subject to appeal to the Supreme Court.
<PAGE>
4. Properties and equipment:
<TABLE>
<S> <C>
Properties on lease or held for lease:
Land and land improvements $4,206,000
Parking garage 2,500,000
6,706,000
Petroleum storage facilities:
Land 2,175,000
Buildings and structures 474,000
Tanks and equipment 4,283,000
6,932,000
Office equipment 89,000
13,727,000
Less accumulated depreciation:
Properties on lease or held for lease 691,000
Petroleum storage facilities 4,345,000
Office equipment 82,000
5,118,000
$8,609,000
</TABLE>
5. 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. In March 1998, Railroad prepaid the note in full.
6. Description of leasing arrangements:
At March 31, 1999, the Company had entered into long-term land leases for six
separate land parcels, three of which will not commence until construction
begins. One 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 for outdoor advertising purposes for remaining terms of up to
30 years and for public parking purposes under short-term cancelable leases.
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 $11,866,000 through
March 31, 1999. Management has concluded that a portion of the excess of
straight-line over contractual rentals ($502,000 at March 31, 1999) is
realizable when payable over the terms of the leases.
<PAGE>
7. 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, 1999 were as follows:
<TABLE>
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Gross deferred tax liabilities:
Property having a financial statement basis
in excess of its tax basis $1,194,000
Accrued rental income 202,000
1,396,000
Gross deferred tax assets, principally
professional fees in connection with
condemnation case (see Note 3) (234,000)
$1,162,000
</TABLE>
8. Petroleum storage facilities:
During 1997 and the first half of 1998, the Company purchased petroleum
products which it stored and resold at the Facilities and leased storage
tanks under short-term arrangements for the warehousing of petroleum
products. Effective September 1, 1998, the Company entered into a short-term
arrangement with a petroleum company (Petroleum Company) under which the
Company operates the entire Facilities for the Petroleum Company. The Company
currently receives a monthly fee of approximately $78,000 and is responsible
for labor, insurance, property taxes and other operating expenses. The
Company and the Petroleum Company have entered into an agreement effective
May 1, 1999, extending the current arrangement for an additional three-year
period plus options to extend on an annual basis with a minimum monthly fee of
$67,000, increasing 4.5% annually during the extended term.
9. Operating segment disclosures:
The Company operates in two segments: (1) Leasing and (2) Petroleum Storage
Facilities.
The Leasing segment consists of the long-term leasing of certain of its real
estate interests in downtown Providence, Rhode Island (to tenants that have
constructed buildings thereon) and locations along interstate and primary
highways in Rhode Island and Massachusetts (to a company which has
constructed outdoor advertising boards thereon). The Company anticipates
that the future development of its remaining properties will consist
primarily of long-term ground leases. Pending this development, the Company
leases these parcels and an adjacent parking garage for public parking
purposes under short-term cancelable leasing arrangements.
The Petroleum Storage Facilities segment consists of operating the Facilities
in East Providence under short-term arrangements for the Petroleum Company
which stores and distributes petroleum products. The Company and the
Petroleum Company have entered into an agreement effective May 1, 1999,
extending the current arrangement for an additional three-year period plus
options to extend on an annual basis.
<PAGE>
The principal difference between the two segments relates to the nature of
the operations. The tenants in the Leasing segment incur substantially all
of the development and operating costs of the asset constructed on the
Company's land, whereas the Company is responsible for the operating and
maintenance expenditures of the Facilities.
The Company makes decisions relative to the allocation of resources and
evaluates performance based on income before income taxes, excluding interest
and other income, and certain corporate expenses.
There are no inter-segment revenues. The Company did not incur interest
expense during the three months ended March 31, 1999 and 1998.
The following financial information is used by the chief operating decision
maker for making operating decisions and assessing performance of the
Company's segments:
<TABLE>
<S> <C> <C> <C>
Petroleum
storage
Leasing Facilities Total
Three months ended March 31, 1999:
Revenues:
Contractual $ 490,000 $ 341,000 $ 831,000
Noncash, excess of straight-line over
contractual rentals 4,000 4,000
$ 494,000 $ 341,000 $ 835,000
Income before income taxes $ 173,000 $ 173,000 $ 346,000
Three Months ended March 31, 1998:
Revenues:
Contractual $ 437,000 $ 50,000 $ 487,000
Noncash, excess of straight-line over
contractual rentals 1,000 1,000
$ 438,000 $ 50,000 $ 488,000
Income (loss) before income taxes $ 189,000 $(127,000) $ 62,000
</TABLE>
The following is a reconciliation of the segment information to the amounts
reported in the accompanying consolidated financial statements for the three
months ended March 31, 1999 and 1998:
<TABLE>
<S> <C> <C>
1999 1998
Income:
Revenues for operating segments $ 835,000 $ 488,000
Interest income 48,000 107,000
Total consolidated income $ 883,000 $ 595,000
Income (loss) before income taxes:
Income for operating segments $ 346,000 $ 62,000
Interest income 48,000 107,000
Unallocated corporate expenses (221,000) (355,000)
Total consolidated income (loss)
before income taxes $ 173,000 $(186,000)
</TABLE>
<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. In March 1998, Railroad prepaid the note in full.
The Company's principal assets consist of land, a public parking garage,
petroleum storage facilities (the 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, 1999, the Company is earning revenue from
long-term land leases for three separate land parcels. One 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 tenants of each parcel have constructed buildings
which are substantially occupied.
As of December 31, 1998, the Company had entered into land leases for three
additional land parcels with terms of 95, 145 and 149 years. Under the 95-
year land lease, the developer proposes to construct a hotel containing
approximately 265 suites with parking. Under the 145-year land lease, the
developer proposes to construct an apartment complex containing approximately
250 individual units with underground parking. Under the 149-year land
lease, the developer proposes to construct a building of approximately
350,000 square feet of commercial space and a minimum of 200 public parking
spaces. All leases provide a period of time within which the developer may
perform its due diligence, seek the approval of the plans for its complex from
the Capital Center Commission and enter into a tax stabilization agreement
with the City of Providence. There can be no assurance that the developers,
individually or collectively, will be able to satisfy the conditions
precedent to proceeding with the developments. Each developer's ability to
obtain a tax stabilization agreement with the City of Providence may be
adversely affected by the pending litigation between the City and the Company
with respect to prior year taxes as discussed below. The Company is unable
to determine at this time when construction will begin and therefore the time
at which the term of each lease will commence.
The Company is engaged in discussions concerning the possible development of
the remaining parcels but is unable to predict when leases on these parcels
will commence. However, the Company will continue to lease all available
parcels which are suitable for public surface parking under short-term
cancelable 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 developers and occupied.
<PAGE>
Effective September 1, 1998, the Company entered into a short-term
arrangement with a petroleum company (Petroleum Company) under which the
Company operates the entire Facilities for the Petroleum Company. The
Company currently receives a monthly fee of approximately $78,000 and is
responsible for labor, insurance, property taxes and other operating
expenses. The Company and Petroleum Company have entered into an agreement
effective May 1, 1999, extending the current arrangement for an additional
three-year term plus options to extend on an annual basis with a minimum
monthly fee of $67,000, increasing 4.5% annually during the extended term.
During 1999, the Company plans to construct a new expanded truck rack at the
Facilities which will be fully automated and will have both top and bottom
loading capabilities at an estimated cost of $2.0 million. The Company
anticipates paying for the construction from available cash.
In management's opinion, the Company will continue to be able to generate
adequate amounts of cash to meet substantially all of its expenditures.
On January 16, 1987, the Company entered into an Agreement with the State of
Rhode Island (CPI/State Agreement) relating to the State of Rhode Island's
obligation with respect to the condemnation of a portion of the Company's
property in connection with the proposed River Relocation in Providence,
Rhode Island. In November 1987, the State of Rhode Island (the State)
condemned the property and paid the Company a condemnation award of
$2,600,000. Under the CPI/State Agreement, the Company purchased another
parcel of land (Disputed Parcel) 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 (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 (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 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. On April 17, 1998, the Supreme Court entered an order affirming the
judgment of the Superior Court. Interest continues to accrue 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."
The State filed several motions to prevent the Company from collecting the
judgment, which now exceeds $11,500,000 including interest. The Superior
Court denied the State's motions and ordered the State to pay the judgment by
August 14, 1998. The State filed an appeal with the Rhode Island Supreme
Court. In December 1998, the Supreme Court directed that this case, together
with other disputes between the Company, the State and the City of Providence,
be consolidated before a single justice of the Superior Court. This is more
fully discussed below.
<PAGE>
Under the CPI/State Agreement, the Company may be required to return to the
State a portion of the award.
During 1995, the Company received notice from the City of Providence (the
City) of an increase in the assessed values of several of its parcels within
Capital Center. The increase in the assessed values 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 reduced the assessed value of 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 values of a majority of the Company's parcels
within Capital Center, 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 values of these same properties. These increases were not
part of a city-wide revaluation. The aggregate amount of such taxes as
billed was approximately $7,100,000, which amount did not include any
interest. The Company believes that the change in the assessed values is
related to the March 1997 Superior Court decision that determined a 1987
value for certain properties condemned by the State in 1987.
The Company believes that the increase in the assessed values for 1997 and
prior periods are illegal and on August 27, 1997 filed a lawsuit against the
City in the Superior Court.
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 November 14, 1997, the Company filed appeals of the 1997 real property tax
bills.
On August 5, 1998, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1997, which taxes are based upon the
assessed valuations as of December 31, 1996. The Company has appealed these
assessments and on October 16, 1998, filed a lawsuit against the City in the
Superior Court claiming that the increased assessments for 1998 are illegal.
In December 1998, the Supreme Court directed that the property tax disputes
with the City, title to the Disputed Parcel, and the condemnation case
previously discussed be heard by a single justice of the Superior Court.
The real property tax bills received by the Company in April 1999 from the
City indicate that there remains unpaid taxes of $11,645,000 and interest
thereon of $5,589,000 for assessment
<PAGE>
dates of December 31, 1990 through 1997. Interest continues to accrue at the
rate of 1 percent per month.
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 and 1998 increases or the retroactive
assessments overturned. The failure of the Company to prevail in the
proceedings contesting the retroactive increase in assessed values 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.
Pursuant to the terms of an agreement dated January 1987 between the City and
the State (City/State Agreement), the City was obligated to convey the
Disputed Parcel to the State. As discussed above, pursuant to the CPI/State
Agreement, the State was obligated to reconvey the Disputed Parcel to the
Company. In 1989, the City conveyed the Disputed Parcel to the State, and
the State reconveyed the Disputed Parcel to the Company. Contemporaneously,
the Company purchased a title insurance policy in the amount of $1,600,000
covering the Disputed Parcel.
The City now claims that its execution of the City/State Agreement was
invalid, that its conveyance of the Disputed Parcel to the State was void,
and hence the City is the true owner of the Disputed Parcel. Moreover, in
December 1998, the City adopted an ordinance authorizing the Providence
Redevelopment Agency to condemn the Disputed Parcel. The Company is
contesting both the City's claim of ownership and the City's attempt to
condemn the Disputed Parcel.
The Company, upon consultation with counsel, believes that its ownership of
the Disputed Parcel will be affirmed and that the City will fail in any
attempt to condemn this parcel.
This dispute with the City is included in the matters being heard by the
single justice in the Superior Court as directed by the Supreme Court.
The Company's carrying value of the Disputed Parcel is $57,000. The Disputed
Parcel's assessed value was increased to $7,909,000 by the City as more fully
discussed above. The real property tax bill relating to the Disputed Parcel
received in April 1999 from the City indicates that the unpaid taxes and
interest total approximately $2,350,000 through that date.
In the consolidated case of all of the various disputes between the Company,
City and State before a single justice of the Superior Court, final briefs
under various Cross Motions for Summary Judgment have been filed. The
Company expects a decision in these matters to be issued shortly. Any
decision is subject to appeal to the Supreme Court.
Future cash outlays for income taxes will be a more significant portion of
total tax expense and presently exceeds total tax expense for financial
reporting purposes. This results principally from the recognition of rental
income on a contractual basis for tax reporting purposes and additional
depreciation claimed for financial reporting purposes.
<PAGE>
The Company has determined that the "Year 2000" issue will not materially
affect its business, financial condition or results of operations. The
Company employs nine people. Substantially all of the leasing revenue is in
the form of fixed monthly payments, and the operation of the Facilities is
not dependent upon date-sensitive equipment. Should the Company experience a
problem, it is entirely feasible to maintain its systems in a non-computer
environment and continue to operate the Facilities.
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 ability of the Company to generate adequate amounts of cash; 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 and property tax litigation and the dispute over the
ownership of a parcel in the Capital Center Project area; and exposure to
contamination, cleanup or similar costs associated with the operation of the
Facilities.
Results of operations:
For the three months ended March 31, 1999, total revenue increased 48% from
the 1998 level.
Leasing revenue increased 13% due principally to the renewal of short-term
leases and the addition of two billboards locations. Expenses applicable to
leasing increased 25% due principally to legal fees in connection with the
condemnation case and the property tax dispute with the City of Providence.
The increase in revenue from petroleum storage facilities resulted
principally from income from a short-term arrangement to operate the
Facilities which commenced September 1, 1998. The decrease in expenses
applicable to petroleum storage facilities resulted principally from a
decrease in depreciation expense; this decrease was offset in part by an
increase in payroll and related costs as a result of an increased number of
employees.
The decrease in total interest income in 1999 from 1998 results from
Railroad's prepaying its note in full in March 1998, which note provided for
a 10% rate. The Company is not able to invest the proceeds at comparable
rates.
The general and administrative expenses for 1999 decreased approximately 36%
from the 1998 due principally to professional fees in connection with
corporate planning matters.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits:
(3) (a) Restated articles of incorporation (incorporated
by reference to Exhibit 4.1 to the
Issuer's report on Form 8A 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) 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) Leases between Metropark, Ltd., and Issuer:
(i) Dated December 1, 1997 (incorporated by reference to
Exhibit 10(b)(iii) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1997).
(ii) Dated as of November 1, 1998 (incorporated by reference
to Exhibit 10(b)(ii) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1998).
(iii) Dated as of December 1, 1998 (incorporated by reference
to Exhibit 10(b)(iii) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1998).
(iv) Dated as of January 1, 1999 (incorporated by reference
to Exhibit 10(b)(iv) to the issuer's annual report on
Form 10-KSB for the year ended December 31, 1998.)
(v) Dated as of January 1, 1999 (incorporated by reference
to Exhibit 10(b)(v) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1998).
(b) For the quarter ended March 31, 1999, no reports on Form 8-K
were filed.
<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: April 30, 1999
- -2-
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