<PAGE> 1
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 JUNE 30, 2000
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 July 28, 2000, the Issuer had 3,000,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
ASSETS
Properties and equipment (net of accumulated depreciation)..........$11,993,000
Cash and cash equivalents........................................... 4,467,000
Receivables:
Tenant property tax reimbursements............................... 194,000
Other............................................................ 270,000
Accrued rental income............................................... 475,000
Prepaid and other................................................... 123,000
-----------
$17,522,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes.................................................$ 631,000
Other........................................................... 344,000
Income taxes:
Current......................................................... 76,000
Deferred........................................................ 1,890,000
Deferred condemnation proceeds................................... 130,000
-----------
3,071,000
===========
Contingencies and commitments (Notes 5 and 6)
Shareholders' equity:
Common stock, $1 par; authorized, issued
and outstanding 3,000,000 shares............................... 3,000,000
Capital in excess of par......................................... 8,828,000
Retained earnings................................................ 2,623,000
-----------
14,451,000
-----------
$17,522,000
===========
See notes to consolidated financial statements.
-2-
<PAGE> 3
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Revenues:
Leasing, including temporary
condemnation in 2000 of
$28,000 and $56,000,
respectively............................... $ 658,000 $ 554,000 $1,197,000 $1,047,000
Petroleum storage facilities............... 298,000 283,000 637,000 624,000
---------- ----------- ---------- ----------
956,000 837,000 1,834,000 1,671,000
Interest................................... 64,000 48,000 164,000 97,000
Other...................................... 23,000
---------- ----------- ---------- ----------
1,020,000 885,000 2,021,000 1,768,000
---------- ----------- ---------- ----------
Expenses:
Expenses applicable to:
Leasing..................................... 262,000 269,000 583,000 590,000
Petroleum storage facilities................ 225,000 223,000 508,000 391,000
General and administrative................... 257,000 211,000 493,000 432,000
Interest expense............................. 65,000 65,000
---------- ----------- ---------- ----------
809,000 703,000 1,649,000 1,413,000
---------- ----------- ---------- ----------
Income before income taxes.................... 211,000 182,000 372,000 355,000
Income tax expense............................ 85,000 76,000 152,000 145,000
---------- ----------- ---------- ----------
Net income.................................... $ 126,000 $ 106,000 $ 220,000 $ 210,000
========== =========== ========== ==========
Basic earnings per common share............... $ .04 $ .04 $ .07 $ .07
===== ===== ===== =====
Dividends per common share.................... $ .03 $ .05 $ .56 $ .05
===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 4
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 220,000 $ 210,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Condemnation proceeds, temporary............................. (56,000)
Depreciation................................................. 110,000 42,000
Deferred income taxes........................................ 22,000 (12,000)
Other, principally net changes in receivables,
prepaids, accounts payable, income taxes and
accrued expenses............................................ (1,853,000) 217,000
----------- -----------
Net cash provided by (used in) operating activities............ (1,557,000) 457,000
Cash flows from investing activities, purchase of
properties and equipment...................................... (1,691,000) (287,000)
Cash used in financing activities, payment of
dividends..................................................... (1,680,000) (150,000)
----------- -----------
Increase (decrease) in cash and cash equivalents................. (4,928,000) 20,000
Cash and cash equivalents, beginning............................. 9,395,000 4,743,000
----------- -----------
Cash and cash equivalents, ending................................ $ 4,467,000 $ 4,763,000
=========== ===========
Supplemental disclosures, cash paid for income taxes............. $ 1,934,000 $ 87,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 5
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(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 June
30, 2000 and the results of operations for the three and six months ended
June 30, 2000 and 1999, and the cash flows for the six months ended June
30, 2000 and 1999.
The results of operations for 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 income
and expenses during the reporting period. Actual results could differ from
those estimates.
3. Litigation with the State of Rhode Island:
On December 2, 1999, the Rhode Island Supreme Court (Supreme Court) issued
an opinion denying and dismissing the appeals of the State of Rhode Island
(the State) and adopting as its own the opinion of the Rhode Island
Superior Court (Superior Court), with certain modifications, as it concerns
the condemnation by the State. The Supreme Court ordered the State to pay
an additional condemnation award to the Company. The condemnation award
relates to a 1987 condemnation by the State of certain property owned by
the Company in the Capital Center Project area in downtown Providence,
Rhode Island. In 1988, the Company filed a petition in the Superior Court
for an increased condemnation award alleging that the 1987 award paid by
the State was inadequate. The December 2, 1999 ruling by the Supreme Court
was the culmination of those proceedings and multiple appeals. On December
22, 1999, the State paid the Company $5,977,000, representing 50% of the
condemnation award plus pre-judgment and post-judgment interest at the
U.S. Treasury bill rate.
-5-
<PAGE> 6
At the time of the condemnation, the Company and the State entered into an
agreement requiring the Company to pay 50% of the condemnation award to the
State as consideration of the conveyance to the Company of Parcel 9 in the
Capital Center Project area.
Following the December 2, 1999 opinion, the parties raised several issues.
The first issue was whether the Company was entitled to pre-judgment
interest at the rate of 12% (the interest rate in effect when the Company
entered into the 1987 Agreement with the State) or the U. S. Treasury Bill
rate (which is the interest rate now required by State statute). The second
issue was the Company's claim that, in connection with its obligation to
return 50% of the condemnation proceeds to the State, it was not obligated
to return interest on those proceeds. The third issue was whether the
Company was entitled to post-judgment interest at the rate of 12% as
opposed to the U. S. Treasury bill rate. On December 20, 1999, the Supreme
Court entered an order directing these issues be presented to the Superior
Court for determination. On March 24, 2000, the Superior Court ruled that
the Company was only entitled to pre-judgment interest at the U. S.
Treasury Bill rate, that the Company was entitled to retain interest on the
portion of the condemnation award to be returned to the State, and that it
was entitled to post-judgment interest at the rate of 12% as opposed to the
U. S. Treasury Bill rate. A formal judgment was entered on June 16, 2000,
and the State filed a notice of appeal on July 5, 2000.
Based on the decision of the Superior Court, the Company estimates that the
amount due it through December 22, 1999, is approximately $4,400,000.
Upon consultation with counsel and as result of the State's appeal, the
Company is presently unable to determine what additional amounts, if any,
it will receive.
4. Dispute with Amtrak:
The Company is in a dispute with the National Railroad Passenger
Corporation (Amtrak) concerning various trespasses. As part of the Capital
Center Project, during the 1980's the Company, State, City and Amtrak each
conveyed parcels of land in Capital Center so that each party had the land
it needed for its designated functions. Pursuant to this arrangement, the
Company was conveyed approximately 1.9 acres of air rights over Amtrak's
Northeast Corridor, which rights are 19.3 feet above the top of rail within
Parcel 6. Following that conveyance, the railroad station and the Company's
adjacent parking garage were constructed and partially financed by the
Federal Railroad Administration. Many of the utilities needed to service
the railroad station were built within the confines of Parcel 7A (the
parking garage parcel). Over the years, the Company did not charge Amtrak
for this intrusion on its property; and over the years Amtrak assumed the
cost of electricity provided to the parking garage. In 1997, Amtrak
unilaterally refused to pay for the electricity, and the Company brought
suit in the United States District Court for the District of Rhode Island
seeking an order requiring Amtrak to remove its encroachments from
Parcel 7A.
-6-
<PAGE> 7
In the fall of 1998, as part of Amtrak's electrification of the Northeast
Corridor, Amtrak erected catenaries within the air rights over Parcel 6
(the tops of which vary in height between 27 and 31 feet above the tracks)
and a 42-foot signal bridge. The Company amended its complaint against
Amtrak to include these trespasses into the Company's air rights suit.
Amtrak has condemnation powers, and in July 1999 condemned all the air
rights owned by the Company for a three-year temporary easement retroactive
to August 1998. In October 1999, the Company received from Amtrak $335,000,
the sum estimated by Amtrak to be just compensation for the property taken.
In July 1999, Amtrak also condemned a permanent easement within a portion
of the parking garage parcel upon which Amtrak had placed improvements. In
October 1999, the Company received from Amtrak $60,000, the sum estimated
by Amtrak to be just compensation for the property taken.
Following the receipt of the condemnation proceeds, the initial litigation
between Amtrak and the Company and the Amtrak condemnation cases were
consolidated for trial. Amtrak has petitioned the Court to bring the State
of Rhode Island Department of Transportation into the litigation as a
third-party defendant on the grounds that they are responsible, in part,
for the costs of condemnation. The case is seeking a determination of the
value of the properties condemned and the parties' rights and liabilities,
if any, concerning the trespasses. The case is scheduled to be heard before
year-end.
5. Litigation with the City of Providence
On July 7, 2000, the City of Providence filed a motion to vacate several
Superior Court judgments entered in favor of the Company that relate to a
property tax dispute and the ownership of Parcel 9 in the Capital Center
Project area. The tax dispute concerned an attempt by the City in 1997 to
reassess the tax value of property owned by the Company in the Capital
Center Project area and assess back taxes on that property. The Parcel 9
dispute concerned the City's attempt in 1998 to condemn Parcel 9. On July
13, 1999, the Superior Court entered judgments in favor of the Company in
both disputes. The Superior Court declared as illegal the reassessment and
back taxes and the attempted condemnation of Parcel 9. The Supreme Court
affirmed these judgments in December 1999.
Upon consultation with counsel, the Company believes that the Superior
Court judgments, as affirmed by the Supreme Court, will be upheld and that
the motion to vacate these judgments will be denied. However, should the
City's motion be granted, the Company would further litigate the validity
of the condemnation and taxes. This could expose the Company to a liability
in excess of $20,000,000 for unanticipated property taxes, including
interest, and the condemnation of Parcel 9, for which the Company would be
compensated. The Company expects a hearing in the Superior Court in August
2000.
-7-
<PAGE> 8
6. Properties and equipment:
Properties on lease or held for lease:
Land and land improvements........................ $ 4,365,000
Parking garage.................................... 2,500,000
-----------
6,865,000
-----------
Petroleum storage facilities:
Land and land improvements......................... 3,336,000
Buildings and structures........................... 324,000
Tanks and equipment................................ 6,591,000
-----------
10,251,000
-----------
Office equipment.................................... 76,000
-----------
17,192,000
-----------
Less accumulated depreciation:
Properties on lease or held for lease.............. 770,000
Petroleum storage facilities....................... 4,373,000
Office equipment................................... 56,000
-----------
5,199,000
-----------
$11,993,000
===========
In April 2000, the Company purchased real estate consisting of 2.275 acres
of land and a building (which property abuts the petroleum storage
facilities) for $533,000. The Company is demolishing the building to
provide additional acreage for future expansion. An environmental study of
the property has been conducted and the estimated cost of demolition and
cleanup is approximately $465,000. It is anticipated that this project will
be completed in the third quarter of 2000.
In July 2000, the Company commenced construction of two new tanks (with a
total capacity of 175,000 barrels) together with certain enhancements in
the existing tank area which are required by environmental regulators. The
estimated total cost of this project is $3,000,000, and it is anticipated
that the project will be substantially completed during 2000.
Under an agreement with the State of Rhode Island entered into in 1990, the
Company was obligated to pay the State $158,000 for the construction of
certain improvements affecting one of the Company's parcels located in the
Capital Center Project area. Since the Company had an agreement with the
developer of the parcel to reimburse the Company for the amount owed to the
State of Rhode Island, the Company did not record this liability on its
balance sheet. The agreement between the developer and the Company
terminated in 1999; in December 1999, the Company tendered the $158,000 to
the State of Rhode Island in satisfaction of its obligation, which amount
was reported as an addition to properties and equipment. Subsequently, the
State claimed that the Company owed interest in the amount of $130,000,
which the Company disputed. In July 2000, the Company and the State reached
an agreement whereby the Company has agreed to pay $65,000, which amount is
reported as interest expense on the accompanying statements of income for
the three and six months ended June 30, 2000.
-8-
<PAGE> 9
7. Description of leasing arrangements:
At June 30, 2000, the Company had entered into long-term land leases for
four separate land parcels, one of which will not commence until
construction begins. The Company also leases various parcels of land for
outdoor advertising purposes for remaining terms of up to 25 years and for
public parking purposes under short-term cancellable 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
$12,865,000 through June 30, 2000. Management has concluded that a portion
of the excess of straight-line over contractual rentals ($475,000 at June
30, 2000) is realizable when payable over the terms of the leases.
8. Petroleum storage facilities:
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 is responsible for labor, insurance, property taxes and other
operating expenses. The Company and the Petroleum Company entered into an
agreement effective May 1, 1999, extending the arrangement to April 30,
2002, plus options to extend on an annual basis, with a present minimum
monthly fee of $70,000, increasing 4.5% annually during the extended term.
In March 2000 the agreement was further amended, extending the agreement to
April 30, 2004. The agreement also provides that the Company will receive
an additional $.10 per barrel for every barrel in excess of 2,000,000
barrels of throughput in an agreement year. For the agreement year ended
April 30, 2000, the Company exceeded the 2,000,000 barrels and has included
in revenues, petroleum storage facilities $25,000 for the three months
ended June 30, 2000 and $88,000 for six months ended June 30, 2000.
9. 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 June 30, 2000 were as follows:
Gross deferred tax liabilities:
Property having a financial statement basis
in excess of its tax basis........................ $1,395,000
Accrued rental income............................... 190,000
Condemnation proceeds............................... 392,000
---------
1,977,000
Gross deferred tax assets............................ (87,000)
---------
$1,890,000
==========
10. Operating segment disclosures:
-9-
<PAGE> 10
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 cancellable leasing arrangements.
The Petroleum Storage Facilities segment consists of the operating of the
Facilities in East Providence under a five year agreement at a fixed
monthly rate for the Petroleum Company which stores and distributes
petroleum products. The Agreement includes options to extend on an annual
basis and additional payments based upon throughput.
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 following financial information is used by the chief operating decision
maker for making operating decisions and assessing performance of the
Company's segments:
<TABLE>
<CAPTION>
PETROLEUM
STORAGE
LEASING FACILITIES TOTAL
-------------- -------------- --------------
<S> <C> C> <C>
Six months ended June 30, 2000:
Revenues:
Contractual.......................................... $1,065,000 $ 549,000 $1,614,000
Contingent........................................... 80,000 88,000 168,000
Noncash:
Condemnation, temporary............................. 56,000 56,000
Excess of contractual rentals over
straight-line...................................... (4,000) (4,000)
---------- --------- ----------
$1,197,000 $ 637,000 $1,834,000
========== ========= ==========
Depreciation.......................................... $ 31,000 $ 75,000 $ 106,000
========== ========= ==========
Income before income taxes............................ $ 614,000 $ 129,000 $ 743,000
========== ========= ==========
Six months ended June 30, 1999:
Revenues:
Contractual.......................................... $ 990,000 $ 624,000 $1,614,000
</TABLE>
-10-
<PAGE> 11
<TABLE>
<CAPTION>
PETROLEUM
STORAGE
LEASING FACILITIES TOTAL
-------------- -------------- --------------
<S> <C> C> <C>
Contingent........................................... 50,000 50,000
Noncash, excess of straight-line over
contractual rentals................................. 7,000 7,000
---------- ---------- ----------
$1,047,000 $ 624,000 $1,671,000
========== ========== ==========
Depreciation.......................................... $ 31,000 $ 9,000 $ 40,000
========== ========== ==========
Income before income taxes............................ $ 457,000 $ 233,000 $ 690,000
========== ========== ==========
</TABLE>
The following is a reconciliation of the segment information to the amounts
reported in the accompanying consolidated financial statements for the six
months ended June 30, 2000 and 1999:
2000 1999
---- ----
Income:
Revenues for operating segments..................... $1,834,000 $1,671,000
Interest income..................................... 164,000 97,000
Other............................................... 23,000
---------- ----------
Total consolidated income.......................... $2,021,000 $1,768,000
========== ==========
Depreciation:
Depreciation for operating segments................. $ 106,000 $ 40,000
Unallocated corporate depreciation.................. 4,000 2,000
---------- ----------
Total consolidated depreciation.................... $ 110,000 $ 42,000
========== ==========
Income before income taxes:
Income for operating segments....................... $ 743,000 $ 690,000
Interest income..................................... 164,000 97,000
Other income, condemnation proceeds, permanent...... 23,000
Interest expense.................................... (65,000)
Unallocated corporate expenses...................... (493,000) (432,000)
---------- ----------
Total consolidated income before income taxes..... $ 372,000 $ 355,000
========== ==========
-11-
<PAGE> 12
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
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 June 30, 2000, the Company is earning revenue from long-term
land leases for three separate land parcels. The tenants of each parcel have
constructed buildings which are substantially occupied.
At June 30, 2000, the Company had entered into a land lease for 149 years under
which the developer proposed to construct a building of approximately 350,000
square feet of commercial space and a minimum of 200 public parking spaces. The
lease provides for a period 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 developer will be able to satisfy
the conditions precedent to proceeding with the development. The Company is
unable to determine at this time when construction will begin and therefore the
time at which the term of the lease will commence. The Company has also entered
into two letters of intent for the development of three additional parcels in
the Capital Center area. The Company anticipates entering into leases with each
developer during the third quarter of 2000 similar in terms and conditions with
those leases already in place.
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.
Effective September 1, 1998, the Company entered into an arrangement with a
petroleum company (Petroleum Company) under which the Company operates the
entire Facilities for the Petroleum Company. The Company 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 arrangement to April 30, 2002, plus options to extend on an annual
basis with a present minimum monthly fee of $70,000, increasing 4.5% annually
during the extended term. In March 2000, the agreement was further amended
extending the agreement to April 30, 2004. The agreement also provides that the
Company will receive an additional $.10 per barrel for every barrel in excess of
2,000,000 barrels of throughput in an agreement year. For the agreement year
ended April 30, 2000, the Company exceeded the 2,000,000 barrels and earned
$88,000.
-12-
<PAGE> 13
In April 2000, the Company purchased real estate consisting of 2.275 acres of
land and a building (which property abuts the Facilities) for $533,000 in cash.
The Company is demolishing the building to provide additional acreage for future
expansion. An environmental study of the property has been conducted and the
estimated cost of demolition and cleanup is approximately $465,000, which the
Company anticipates paying from available cash. It is anticipated that this
project will be completed in the third quarter of 2000.
In July 2000, the Company commenced construction of two new tanks (with a total
capacity of 175,000 barrels) together with certain enhancements in the existing
tank area which are required by environmental regulators. The estimated total
cost of this project is $3,000,000, and it is anticipated that the project will
be substantially completed during 2000. The Company anticipates paying for this
project from available cash.
The Company manages its exposure to contamination, cleanup or similar costs
associated with the 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.
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 December 2, 1999, the Rhode Island Supreme Court (Supreme Court) issued an
opinion denying and dismissing the appeals of the State of Rhode Island (the
State) and adopting as its own the opinion of the Rhode Island Superior Court
(Superior Court), with certain modifications, as it concerns the condemnation by
the State. The Supreme Court ordered the State to pay an additional condemnation
award to the Company. The condemnation award relates to a 1987 condemnation by
the State of certain property owned by the Company in the Capital Center Project
area in downtown Providence, Rhode Island. In 1988, the Company filed a petition
in the Superior Court for an increased condemnation award alleging that the 1987
award paid by the State was inadequate. The December 2, 1999 ruling by the
Supreme Court was the culmination of those proceedings and multiple appeals. On
December 22, 1999, the State paid the Company $5,977,000, representing 50% of
the condemnation award plus pre-judgment and post-judgment interest at the U. S.
Treasury bill rate.
At the time of the condemnation, the Company and the State entered into an
agreement requiring the Company to pay 50% of the condemnation award to the
State as consideration of the conveyance to the Company of Parcel 9 in the
Capital Center Project area.
Following the December 2, 1999 opinion, the parties raised several issues. The
first issue was whether the Company was entitled to pre-judgment interest at the
rate of 12% (the interest rate in effect when the Company entered into the 1987
Agreement with the State) or the U. S. Treasury Bill rate (which is the interest
rate now required by State statute). The second issue was the Company's claim
that, in connection with its obligation to return 50% of the condemnation
proceeds to the State, it was not obligated to return interest on those
proceeds. The third issue was whether the Company was entitled to post-judgment
interest at the rate of 12% as opposed to the U. S. Treasury bill rate. On
December 20, 1999, the Supreme Court entered an order directing these issues be
presented to the Superior Court for determination. On March 24, 2000, the
Superior Court ruled that the Company was only entitled to pre-judgment interest
at the U. S. Treasury Bill rate, that the Company was entitled to retain
interest on the portion of the condemnation award to be returned to the State,
and that it was entitled to post-judgment interest
-13-
<PAGE> 14
at the rate of 12% as opposed to the U. S. Treasury Bill rate. A formal judgment
was entered on June 16, 2000, and the State filed a notice of appeal on July 5,
2000.
Based on the decision of the Superior Court, the Company estimates that the
amount due it through December 22, 1999, is approximately $4,400,000.
Upon consultation with counsel and as a result of the State's appeal, the
Company is presently unable to determine what additional amounts, if any,
it will receive.
The Company is in a dispute with the National Railroad Passenger Corporation
(Amtrak) concerning various trespasses. As part of the Capital Center Project,
during the 1980's the Company, State, City and Amtrak each conveyed parcels of
land in Capital Center so that each party had the land it needed for its
designated functions. Pursuant to this arrangement, the Company was conveyed
approximately 1.9 acres of air rights over Amtrak's Northeast Corridor, which
rights are 19.3 feet above the top of rail within Parcel 6. Following that
conveyance, the railroad station and the Company's adjacent parking garage were
constructed and partially financed by the Federal Railroad Administration. Many
of the utilities needed to service the railroad station were built within the
confines of Parcel 7A (the parking garage parcel). Over the years, the Company
did not charge Amtrak for this intrusion on its property; and over the years
Amtrak assumed the cost of electricity provided to the parking garage. In 1997,
Amtrak unilaterally refused to pay for the electricity, and the Company brought
suit in the United States District Court for the District of Rhode Island
seeking an order requiring Amtrak to remove its encroachments from Parcel 7A.
In the fall of 1998, as part of Amtrak's electrification of the Northeast
Corridor, Amtrak erected catenaries within the air rights over Parcel 6 (the
tops of which vary in height between 27 and 31 feet above the tracks) and a
42-foot signal bridge. The Company amended its complaint against Amtrak to
include these trespasses into the Company's air rights suit.
Amtrak has condemnation powers, and in July 1999 condemned all the air rights
owned by the Company for a three-year temporary easement retroactive to August
1998. In October 1999, the Company received from Amtrak $335,000, the sum
estimated by Amtrak to be just compensation for the property taken.
In July 1999, Amtrak also condemned a permanent easement within a portion of the
parking garage parcel upon which Amtrak had placed improvements. In October
1999, the Company received from Amtrak $60,000, the sum estimated by Amtrak to
be just compensation for the property taken.
Following the receipt of the condemnation proceeds, the initial litigation
between Amtrak and the Company and the Amtrak condemnation cases were
consolidated for trial. Amtrak has petitioned the Court to bring the State of
Rhode Island Department of Transportation into the litigation as a third-party
defendant on the grounds that they are responsible, in part, for the costs of
condemnation. The case is seeking a determination of the value of the properties
condemned and the parties' rights and liabilities, if any, concerning the
trespasses. The case is scheduled to be heard before year-end.
On July 7, 2000, the City of Providence filed a motion to vacate several
Superior Court judgments entered in favor of the Company that relate to a
property tax dispute and the ownership of Parcel 9 in the Capital Center Project
area. The tax dispute concerned an attempt
-14-
<PAGE> 15
by the City in 1997 to reassess the tax value of property owned by the Company
in the Capital Center Project area and assess back taxes on that property. The
Parcel 9 dispute concerned the City's attempt in 1998 to condemn Parcel 9. On
July 13, 1999, the Superior Court entered judgments in favor of the Company in
both disputes. The Superior Court declared as illegal the reassessment and back
taxes and the attempted condemnation of Parcel 9 illegal. The Supreme Court
affirmed these judgments in December 1999.
Upon consultation with counsel, the Company believes that the Superior Court
judgments, as affirmed by the Supreme Court, will be upheld and that the motion
to vacate these judgments will be denied. However, should the City's motion be
granted, the Company would further litigate the validity of the condemnation and
taxes. This could expose the Company to a liability in excess of $20,000,000 for
unanticipated property taxes, including interest, and the condemnation of Parcel
9, for which the Company would be compensated. The Company expects a hearing in
the Superior Court in August 2000.
In February 2000, the Company paid a quarterly dividend of $.03 per share and a
special dividend of $.50 per share on the Company's outstanding stock. The
special dividend represented a portion of the interest received and expected to
be received from the State of Rhode Island in connection with a condemnation
award affirmed in December 1999 by the Rhode Island Supreme Court after
deducting therefrom the expenses and income taxes related thereto. The Company
also paid a quarterly dividend of $.03 per share in May 2000. The Company
expects to be in a position to continue dividend payments on a quarterly basis;
however, the declaration of any dividend and the amount thereof will depend on
the Company's future earnings, financial condition and other relevant factors.
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, City of Providence and Amtrak litigations; cost to complete the
projects at the Facilities; and exposure to contamination, cleanup or similar
costs associates with the operation of the Facilities.
RESULTS OF OPERATIONS:
For the three and six months ended June 30, 2000, total income increased 15% and
14%, respectively, from the 1999 level.
For the three and six months ended June 30, 2000, leasing revenue increased 19%
and 14%, respectively, from the 1999 level due principally to the renewal of
short-term leases, revenue from a temporary condemnation and contingent rentals
received under a long-term lease. For the three and six months ended June 30,
2000, expenses applicable to leasing remained at the 1999 level.
-15-
<PAGE> 16
For the three and six months ended June 30, 2000, revenue from petroleum storage
facilities increased 5% and 2%, respectively, due to the payment received of
$.10 per barrel for every barrel in excess of 2,000,000 in the agreement year
ended April 30, 2000. For the three months ended June 30, 2000, expenses
applicable to petroleum storage facilities remained at the 1999 level; however,
an increase in depreciation expense due to the completion of the truck rack was
offset in part by a decrease in costs associated with the temporary relocation
of employees while the truck rack was under construction. For the six months
ended June 30, 2000, expenses applicable to petroleum storage facilities
increased 30% from the 1999 level resulting principally from an increase in
depreciation expense due to the completion of the truck rack; payroll and
related costs; and costs associated with the disposal of contaminated soil.
For the three and six months ended June 30, 2000, interest income increased 33%
and 69%, respectively, from the 1999 level resulting from higher levels of cash.
For the three and six months ended June 30, 2000, general and administrative
expenses increased 22% and 14%, respectively, from the 1999 level due
principally to an increase in purchased services.
Interest expense for the three and six months ended June 30, 2000, relates to an
agreed payment to the State of Rhode Island relating to a prior year agreement.
-16-
<PAGE> 17
PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on April 25, 2000. Of the
3,000,000 shares entitled to vote, 2,724,241 shares of stock were
present, in person or by proxy.
All directors of the Issuer are elected on an annual basis and the
following were so elected at this Annual Meeting: Ronald P.
Chrzanowski, James H. Dodge, Robert H. Eder, Harold J. Harris and
Henry S. Woodbridge, Jr. Each director received 2,722,825 affirmative
votes; 1,416 abstained.
Also presented for approval was a resolution for the appointment of
Lefkowitz, Garfinkel, Champi & DeRienzo P.C. as independent auditors
of the accounts of the Issuer for the year 2000. The resolution
received 2,723,345 affirmative votes and 590 negative votes; 306
abstained.
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 September 30, 1999).
(10) Material contracts:
(a) Leases between Metropark, Ltd., and Issuer:
(i) 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).
(ii) 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).
(iii) 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).
(iv) Dated December 1, 1999 (incorporated by reference to
Exhibit 10(b)(i) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 1999).
-17-
<PAGE> 18
(v) Dated as of January 1, 2000 (incorporated by reference to
Exhibit 10(b)(v) to the Issuer's quarterly report on Form
10-QSB for the quarter ended March 31, 2000.)
(27) Financial Data Schedule
(b) For the quarter ended June 30, 2000, no reports on Form 8-K were filed.
-18-
<PAGE> 19
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: July 28, 2000
-19-
