UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to____________________to___________________
Commission File Number 0-9380
CAPITAL PROPERTIES, INC.
(Name of small business registrant in its charter)
RHODE ISLAND 05-0386287
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 DEXTER ROAD
EAST PROVIDENCE, RHODE ISLAND 02914
(Address of principal executive offices) (ZipCode)
(401) 435-7171
(Registrant's telephone number, including area code)
Check whether the registrant: (1) has 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 registrant 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 April 30, 2003, the Issuer had 3,000,000 shares of Class A Common Stock
and 299,956 shares of Class B Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I
ITEM 1. FINANCIAL STATEMENTS
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(UNAUDITED)
ASSETS
Properties and equipment (net of accumulated depreciation).............................. $ 15,079,000
Cash and cash equivalents............................................................... 1,249,000
Receivables:
Income taxes......................................................................... 372,000
Other................................................................................ 229,000
Accrued rental income................................................................... 464,000
Prepaid and other....................................................................... 197,000
--------------
$ 17,590,000
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes..................................................................... $ 955,000
Other.............................................................................. 581,000
Deferred income taxes, net........................................................... 3,515,000
--------------
5,051,000
--------------
Shareholders' equity:
Class A common stock, $.01 par; authorized 6,000,000 shares;
issued and outstanding 3,000,000 shares............................................ 30,000
Class B common stock, $.01 par; authorized 300,000 shares;
issued and outstanding 299,956 shares.............................................. 3,000
Excess stock, $.01 par; authorized 1,000,000 shares; none issued
and outstanding.................................................................... --
Capital in excess of par............................................................. 11,795,000
Retained earnings.................................................................... 711,000
--------------
12,539,000
--------------
$ 17,590,000
==============
See notes to consolidated financial statements.
-2-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------- --------------
Income:
Revenues:
Leasing..................................................... $ 710,000 $ 631,000
Petroleum storage facilities................................ 632,000 507,000
------------- -------------
1,342,000 1,138,000
Interest...................................................... 2,000 2,000
------------- --------------
1,344,000 1,140,000
------------- --------------
Expenses:
Expenses applicable to:
Leasing..................................................... 545,000 571,000
Petroleum storage facilities................................ 523,000 383,000
General and administrative.................................... 268,000 259,000
------------- --------------
1,336,000 1,213,000
------------- --------------
Income (loss) before income taxes................................ 8,000 (73,000)
Income tax expense (benefit)..................................... 6,000 (3,000)
------------- --------------
Net income (loss)................................................ $ 2,000 $ (70,000)
============= ==============
Basic earnings (loss) per common share........................... $ -- $ (.02)
============= ==============
Dividends on common stock........................................ $ -- $ .03
============= ==============
See notes to consolidated financial statements.
-3-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------- --------------
Cash flows from operating activities:
Net income (loss)............................................... $ 2,000 $ (70,000)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation................................................. 105,000 105,000
Deferred income taxes........................................ (4,000) 613,000
Other, principally net changes in receivables, prepaids,
accounts payable, income taxes and accrued expenses........ (375,000) (797,000)
------------- --------------
Net cash used in operating activities........................... (272,000) (149,000)
------------- --------------
Cash used in investing activities, purchase of properties
and equipment................................................... (112,000) (21,000)
------------- --------------
Cash used in financing activities, payment of dividends............ -- (99,000)
------------- --------------
Decrease in cash and cash equivalents.............................. (384,000) (269,000)
Cash and cash equivalents, beginning............................... 1,633,000 1,167,000
------------- --------------
Cash and cash equivalents, ending.................................. $ 1,249,000 $ 898,000
============= ==============
Supplemental disclosures, cash paid for income taxes............... $ 9,000 $ 9,000
============= ==============
See notes to consolidated financial statements.
-4-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(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 accounting principles
generally accepted in the United States have been condensed or omitted.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for the
year ended December 31, 2002. In the opinion of management, the
accompanying consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of March 31, 2003
and the results of operations and cash flows for the three months ended
March 31, 2003 and 2002.
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 accounting
principles generally accepted in the United States 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. PROPERTIES AND EQUIPMENT:
Properties on lease or held for lease:
Land and land improvements............................... $ 3,740,000
Parking garage........................................... 2,500,000
--------------
6,240,000
--------------
Petroleum storage facilities:
Land and land improvements............................... 5,106,000
Buildings and structures................................. 703,000
Tanks and equipment...................................... 8,978,000
--------------
14,787,000
--------------
Office equipment........................................... 84,000
--------------
21,111,000
--------------
Less accumulated depreciation:
Properties on lease or held for lease.................... 944,000
Petroleum storage facilities............................. 5,016,000
Office equipment......................................... 72,000
--------------
6,032,000
--------------
$ 15,079,000
==============
-5-
4. DESCRIPTION OF LEASING ARRANGEMENTS:
At March 31, 2003, the Company had entered into six long-term land leases
covering six land parcels; of these leases, three will not commence until
construction begins.
The Company also leases various parcels of land for outdoor advertising
purposes for remaining terms of up to 28 years and for public parking
purposes under short-term cancellable leases.
For those leases with presently known 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 $15,015,000 through March 31, 2003. Management has concluded
that a portion of the excess of straight-line over contractual rentals
($464,000 at March 31, 2003) is realizable when payable over the terms of
the leases.
The three long-term land leases which have commenced provide that the
tenants pay the City of Providence for real property taxes, which amounts
are excluded from leasing revenues and expenses applicable to leasing on
the accompanying consolidated statements of income (loss). These tenant
payments attributable to the Company's land totaled $86,000 and $83,000
for the three months ended March 31, 2003 and 2002, respectively.
5. PETROLEUM STORAGE FACILITIES:
Current operations:
The Company and a petroleum distribution company (Petroleum Company)
entered into an agreement which will expire April 30, 2004, but will
continue thereafter on a year-to-year basis unless terminated by either
party upon three months written notice, whereby the Company operates the
entire Petroleum Facilities for the Petroleum Company. The Company is
responsible for labor, insurance, property taxes and other operating
expenses, as well as capital improvements. The agreement further provides
for annual fee increases of 4.5%. After the scheduled increase on May 1,
2002, the present monthly fee is $118,000.
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 (contingent revenue). For the agreement
year ended April 30, 2002, throughput exceeded 2,000,000 barrels in
January 2002. For the agreement year ending April 30, 2003, throughput
exceeded 2,000,000 barrels in December 2002. For the three months ended
March 31, 2003 and 2002, the Company earned contingent revenues of
$220,000 and $106,000.
Environmental incident:
In March 2002, during testing of monitoring wells at the Petroleum
Facilities, the Company's consultant sampled a groundwater monitoring well
located on that portion of the Petroleum Facilities purchased in 2000 and
discovered free floating phase product. Preliminary laboratory analysis
indicated that the product was gasoline, which is not a product the
Company currently stores at its Petroleum Facilities. However, in the
1950's gasoline was stored on the Company's property by a predecessor
owner. The Company commenced an environmental investigation and analysis,
and the results indicate that the
-6-
gasoline is not coming from the Company's Petroleum Facilities. The
Company notified the State of Rhode Island Department of Environmental
Management (RIDEM). The Company will continue to monitor RIDEM's
investigation of this contamination to ensure that the responsible party
addresses this contamination.
The Company maintains what management believes to be adequate levels of
insurance. The Company notified its insurance company of the
contamination. The insurance company advised the Company that coverage is
only provided under policies in place at the time the contamination
occurs.
For the year ended December 31, 2002, the Company incurred costs totaling
$102,000 during its initial investigation and laboratory analysis.
Currently, the Company is not incurring significant costs in connection
with this matter and is unable to determine the costs it might incur to
remedy the situation as well as any costs to investigate, defend and seek
reimbursement from the responsible party with respect to this
contamination. This situation does not affect current operations at the
Petroleum Facilities.
Wilkesbarre Pier:
Wilkesbarre Pier (the Pier) is a deep-water pier in East Providence, Rhode
Island, now owned by the Company, which is integral to the operation of
the Petroleum Facilities. The Pier and the Petroleum Facilities are
connected by two petroleum pipelines. In 1995, the Company and Providence
and Worcester Railroad Company (Railroad) (the then owner of the Pier)
entered into an agreement which, among other provisions, gave the Company
the right to acquire the Pier for $1. The Company and Railroad have a
common controlling shareholder.
Effective January 1, 1998, Railroad and a company which uses the Pier to
off-load primarily gasoline from ships to its terminal (Oil Company)
entered into an agreement (the Agreement) whereby Oil Company agreed to
pay annual fees for five years ($185,000 in 2002). In January 1998, the
Company exercised its right and acquired the Pier, and Railroad assigned
its rights under the Agreement to the Company. Under the terms of the
Agreement, the owner of the Pier is not required to make any repairs to
the Pier. The Agreement was extended to March 31, 2003 at a monthly fee of
$15,000, which Agreement terminated at that time.
In May 2000, the Fire Department of the City of East Providence (Fire
Department) notified the Company, Oil Company and another company then
related to Oil Company (Other Company) that there was a lack of adequate
fire protection at the Pier and required them to install certain equipment
and facilities. The Company demanded that Other Company take steps to
commence and complete the performance of all work and to supply all
material required to satisfy the Fire Department.
In August 2000, Oil Company and Other Company (collectively Plaintiffs)
filed a lawsuit against the Company in the United States District Court
for the District of Rhode Island claiming fraud on the part of Railroad
and sought rescission of the Agreement and other agreements. The Company
filed counterclaims against Other Company, including one for damages based
on Other Company's failure to comply with the order and direction of the
Fire Department as well as the failure of Other Company to comply with
certain other agreements. Plaintiffs amended their complaint in June 2001
to include additional claims.
-7-
Following the close of discovery, the Court dismissed all the fraud
claims. The Court later bifurcated the trial of the jury claims for
damages and the non-jury claims for declaratory and injunctive relief.
The jury claims were tried in December 2002. The jury returned a verdict
against the Company in the amount of $100,000, which amount was recorded
as an expense in 2002. The Company filed a post-trial motion requesting
that the Court vacate the verdict. The Court entered judgment as a matter
of law against the Company on the Company's claim that Other Company was
obligated to pay for the installation of certain fire suppression
equipment on the Pier. Trial of the remaining non-jury claims is
anticipated in the spring of 2003.
For the three months ended March 31, 2003 and 2002, the Company incurred
legal fees in connection with this litigation of $80,000 and $34,000,
respectively, which amounts are included in expenses, petroleum storage
facilities on the accompanying consolidated statements of income (loss).
Pursuant to a Guaranty and Indemnity Agreement, the Company filed a
lawsuit in September 2002 against Other Company and Other Company's parent
in the U. S. District Court for the Eastern District of New York seeking
reimbursement for all reasonable costs incurred by the Company in
defending the Wilkesbarre Pier litigation described above. The matter has
been transferred to the U. S. District Court for the District of Rhode
Island and is in the early stages of discovery.
6. CLAIM AGAINST CITY OF PROVIDENCE FOR ATTORNEYS FEES:
In 1997, the City of Providence (the City) revalued certain of the
Company's properties within the Capital Center area in downtown
Providence, Rhode Island, and reached back six years to assess over
$13,000,000 in back taxes, interest and penalties on the properties based
upon a retroactive increase in the assessed values. These increases were
not a part of a city-wide revaluation. The Company contended that this
action by the City was both unprecedented and illegal.
In another action, the City claimed that the Company was not the owner of
a certain parcel of land in the Capital Center (Disputed Parcel), which
the Company purchased in 1989 from the State of Rhode Island subsequent to
the State's acquiring the parcel from the City. Moreover, the City
attempted to condemn the Disputed Parcel. The Company contested both the
City's claim of ownership and the City's attempt to condemn the Disputed
Parcel.
In July 1999, the Rhode Island Superior Court (Superior Court) ruled in
favor of the Company and found (1) that both the City's new tax
assessments and back taxes were illegal and void, and (2) that the Company
is the rightful owner of the Disputed Parcel and that the City had no
right to condemn same. The City appealed the judgments to the Rhode Island
Supreme Court (Supreme Court), which denied and dismissed the City's
appeal in December 1999.
After prevailing on the merits, the Company made claim against the City
for attorneys fees.
In July 2000, the City filed a motion to vacate the Superior Court and
Supreme Court judgments entered in favor of the Company. In October 2000,
the Superior Court denied the
-8-
motion to vacate and awarded the Company attorneys fees of $258,000. The
City has filed an appeal in the Supreme Court. The Court has not yet
scheduled this matter for hearing. Pending the ultimate resolution of the
matter, the Company is not reporting the award as income in the
accompanying consolidated financial statements.
7. CITY OF PROVIDENCE PROPERTY TAXES:
After receiving tax bills from the City of Providence for the years 1995
through 1999 and making the necessary tax payments, the Company filed
appeals with the City contesting the assessed values with respect to
certain of its properties.
In accordance with Rhode Island law, the City of Providence completed a
city-wide revaluation of all real property for property tax assessment
purposes. In March 2001, the Company received revaluation notices for each
of its properties which set forth the proposed assessed values of its
properties as of December 31, 2000. The proposed assessed values of the
properties (other than those properties for which the tenants are
responsible for tax payments) totaled $64,300,000 as compared with the
prior assessed values which totaled $24,400,000. In management's opinion,
the proposed assessed values of its properties are significantly in excess
of their market values as of December 31, 2000. After a meeting between
representatives of the Company and the revaluation firm retained by the
City, the Company received notices indicating that the proposed assessed
values had been reduced to $53,341,000.
In August 2001, the Company received real property tax bills from the City
of Providence for 2001 totaling $1,845,000. Of this amount, $82,000
represented the annual tax on the property condemned by Amtrak in May 2001
(see Note 8), and the Company has paid to the City its share of such tax
on this condemned property ($29,000) to the date of condemnation.
In accordance with statutory requirements, after the first tax installment
of $461,000 was paid in August 2001, the Company filed appeals with the
City contesting the assessed values with respect to most of its
properties. If successful, the appeals will reduce the Company's annual
tax expense to approximately $1,105,000.
The Providence Board of Tax Assessment Review (the Board) failed to hear
any of the Company's appeals until it was directed to do so by the
Superior Court. The hearing was held in March 2002 and the Board denied
all of the Company's appeals for the years 1995 through 1999 and 2001. The
Company appealed the decision of the Board to the Superior Court.
In August 2002, the Company received real property tax bills from the City
of Providence for 2002 totaling $1,850,000. After paying the first
installment of $463,000 in September 2002, the Company filed appeals with
the City contesting the assessed values with respect to most of its
properties. If successful, the appeals will reduce the Company's annual
tax expense to approximately $1,166,000. The Board has not scheduled a
hearing date for the 2002 appeals.
The Company and the City have scheduled mediation in May 2003 in an effort
to resolve all property tax disputes.
-9-
The Company is unable to determine to what extent, if any, the taxes may
be reduced. The Company is recording and paying its tax expense in
accordance with the bills received.
8. DISPUTE WITH AMTRAK:
The Company is in litigation with the National Railroad Passenger
Corporation (Amtrak) concerning various trespasses by Amtrak. 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 within Capital Center. As part of this arrangement,
Amtrak conveyed to the Company approximately 1.9 acres of air rights over
Amtrak's Northeast Corridor, which rights began 19.3 feet above the top of
rail. Following that conveyance, the railroad station and the Company's
adjacent parking garage were constructed and partially financed by the
Federal Railroad Administration (FRA).
In the fall of 1998, as part of Amtrak's electrification of the Northeast
Corridor, Amtrak erected towers and a signal bridge within the air rights
(the tops of which vary in height between 27 and 42 feet above the top of
rail).
In July 1999, Amtrak condemned a three-year temporary easement of all the
air rights owned by the Company 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 May 2001, Amtrak permanently condemned the air rights and a parcel of
land adjacent to the air rights (with a carrying value of $625,000) for
which the Company received from Amtrak $925,000, the amount estimated by
Amtrak to be just compensation for the air rights and property taken.
The Company believed that the condemnation amounts paid by Amtrak were
inadequate and and accordingly, brought suit in the United States District
Court for the District of Rhode Island (U.S. District Court) against
Amtrak seeking additional compensation for the land condemned.
In November 2002, the case was tried in the U.S. District Court and the
Company was awarded approximately $1,500,000, including interest, in
additional damages resulting from the aforementioned condemnations. In
February 2003, Amtrak appealed the decision to the U. S. Court of Appeals
for the First Circuit. The Company is unable to determine when the appeal
will be heard and the amount of additional damages, if any, the Company
may ultimately receive. Pending the final resolution of the matter, the
Company is not reporting the award as income in the accompanying
consolidated financial statements.
9. INCOME TAXES:
The permanent condemnation proceeds received in 1999 from the State of
Rhode Island qualify for deferred reinvestment for income tax reporting
purposes whereby the Company may elect to reduce the income tax basis of
qualifying subsequent acquisitions, subject to certain restrictions. In
February 2002, the Company effected a qualifying purchase with a
consolidated subsidiary and amended its 1999 federal and state income tax
returns with respect to condemnation proceeds previously taxed. From June
to December, 2002, the Company received refunds totaling $661,000,
including interest of $94,000.
-10-
For income tax reporting purposes, the Company reported a tax loss for the
year ended December 31, 2002, and filed carryback claims that will result
in a refund of federal income taxes previously paid in the amount of
$372,000.
Under present Rhode Island law, income tax losses cannot be carried back,
and state tax loss carryforwards are limited to the amount of the federal
tax loss carryforward. As of March 31, 2003, the Company has $156,000 of
federal and state loss carryforwards.
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, 2003 were as follows:
Gross deferred tax liabilities:
Property having a financial statement basis in excess
of tax basis....................................................... $ 3,586,000
Accrued rental income............................................... 186,000
-------------
3,772,000
-------------
Gross deferred tax assets:
Professional fees in connection with Amtrak dispute and
environmental matters.............................................. 158,000
Loss carryforwards.................................................. 62,000
Other............................................................... 37,000
-------------
257,000
-------------
$ 3,515,000
=============
10. 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 cancellable leasing arrangements.
The Petroleum Storage Facilities segment consists of the operating of the
Petroleum 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 provisions to extend and
additional payments based upon throughput. (See Note 5.)
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 as well as capital improvements at the Petroleum
Facilities.
-11-
The Company makes decisions relative to the allocation of resources and
evaluates performance based on income (loss) before income taxes,
excluding interest and certain corporate expenses.
There are no inter-segment revenues. The Company did not incur interest
expense during the three months ended March 31, 2003 and 2002.
The following financial information is used for making operating decisions
and assessing performance of the Company's segments:
Petroleum
Storage
Leasing Facilities Total
------------- -------------- ---------------
Three months ended March 31, 2003:
Revenues:
Contractual.......................................... $ 597,000 $ 412,000 $ 1,009,000
Contingent........................................... 1,000 220,000 221,000
Option............................................... 128,000 -- 128,000
Noncash, excess of contractual over
straight-line rentals.............................. (16,000) -- (16,000)
------------- -------------- ---------------
$ 710,000 $ 632,000 $ 1,342,000
============= ============== ===============
Property tax expense.................................... $ 480,000 $ 28,000 $ 508,000
============= ============== ===============
Depreciation............................................ $ 16,000 $ 86,000 $ 102,000
============= ============== ===============
Income before income taxes.............................. $ 165,000 $ 109,000 $ 274,000
============= ============== ===============
Assets.................................................. $ 5,867,000 $ 10,203,000 $ 16,070,000
============= ============== ===============
Properties and equipment, additions..................... $ -- $ -- $ --
============= ============== ===============
Three months ended March 31, 2002:
Revenues:
Contractual.......................................... $ 554,000 $ 401,000 $ 955,000
Contingent........................................... 2,000 106,000 108,000
Option............................................... 85,000 -- 85,000
Noncash, excess of contractual over
straight-line rentals.............................. (10,000) -- (10,000)
------------- -------------- ---------------
$ 631,000 $ 507,000 $ 1,138,000
============= ============== ===============
Property tax expense.................................... $ 450,000 $ 26,000 $ 476,000
============= ============== ===============
Depreciation............................................ $ 16,000 $ 86,000 $ 102,000
============= ============== ===============
Income before income taxes.............................. $ 60,000 $ 124,000 $ 184,000
============= ============== ===============
Assets.................................................. $ 5,883,000 $ 10,121,000 $ 16,004,000
============= ============== ===============
Properties and equipment, additions..................... $ -- $ 20,000 $ 20,000
============= ============== ===============
-12-
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, 2003 and 2002:
2003 2002
-------------- ---------------
Income:
Revenues for operating segments................................... $ 1,342,000 $ 1,138,000
Interest income................................................... 2,000 2,000
-------------- ---------------
Total consolidated income....................................... $ 1,344,000 $ 1,140,000
============== ===============
Property tax expense:
Property tax expense for operating segments....................... $ 508,000 $ 476,000
Unallocated corporate property tax expense........................ 1,000 1,000
-------------- ---------------
Total consolidated property tax expense......................... $ 509,000 $ 477,000
============== ===============
Depreciation:
Depreciation for operating segments............................... $ 102,000 $ 102,000
Unallocated corporate depreciation................................ 3,000 3,000
-------------- ---------------
Total consolidated depreciation $ 105,000 $ 105,000
============== ===============
Income before income taxes:
Income for operating segments..................................... $ 274,000 $ 184,000
Interest income................................................... 2,000 2,000
Unallocated corporate expenses.................................... (268,000) (259,000)
-------------- ---------------
Total consolidated income (loss) before income taxes............ $ 8,000 $ (73,000)
============== ===============
Assets:
Assets for operating segments..................................... $ 16,070,000 $ 16,004,000
Corporate cash and equivalents.................................... 1,096,000 646,000
Income tax receivable............................................. 372,000 1,231,000
Other unallocated amounts......................................... 52,000 54,000
-------------- ---------------
Total consolidated assets....................................... $ 17,590,000 $ 17,935,000
============== ===============
Additions to properties and equipment:
Operating segments................................................ $ -- $ 20,000
Unallocated corporate additions................................... -- 1,000
-------------- ---------------
Total consolidated additions $ -- $ 21,000
============== ===============
-13-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
CERTAIN PORTIONS OF THIS REPORT, AND PARTICULARLY THE MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND THE NOTES TO THE UNAUDITED 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; THE COMMENCEMENT OF ADDITIONAL
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 AMTRAK, OIL COMPANY AND CITY OF PROVIDENCE
LAWSUITS AND CITY OF PROVIDENCE TAX APPEALS; AND EXPOSURE TO
CONTAMINATION, CLEANUP OR SIMILAR COSTS ASSOCIATED WITH THE OPERATION
OF THE PETROLEUM STORAGE FACILITIES.
1. OVERVIEW:
Critical accounting policies:
Critical accounting policies are policies that require application of
management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.
The Company's significant accounting policies are described in Note 1 of
the Notes to Consolidated Financial Statements in its Report on Form
10-KSB for the year ended December 31, 2002. Not all of these significant
accounting policies require management to make difficult, subjective or
complex judgments or estimates. Management believes that the Company's
revenue recognition policy for long-term leases with scheduled rent
increases (leasing segment) meets the definition of "critical."
Certain of the Company's long-term land leases have original terms of 30
to 149 years and contain scheduled rent increases where the future dollar
increases are known at the time of the commencement of the lease or at a
subsequent date.
The first such lease commenced in 1988, had an original term of 99 years
and provides for fixed percentage increases at specified intervals (as
well as reappraisal increases). In accordance with the provisions of
Statement of Financial Accounting Standards (FAS) No. 13 (Accounting for
Leases) and certain of its interpretations, rental income related to the
fixed percentage increases that are presently known should be recognized
on a straight-line basis. To calculate the annual straight-line amount,
the 99 annual rental amounts are totaled and this total is divided by 99.
-14-
For this lease, the calculated annual straight-line amount for 1988 was
eight times (multiple) the amount paid by the tenant under the terms of
the lease (contractual amount). In subsequent years, as the tenant pays
higher rents, the multiple gradually decreases until the 57th year of the
lease, at which time the contractual amount paid by the tenant will exceed
the calculated straight-line amount. If the Company were to report annual
revenue for this lease using the straight-line amount, it would record a
significant receivable for each of the first 56 years, which receivable
would grow to approximately $33,000,000. Management does not believe that
the Company should record a receivable that would not begin to be
collected for 56 years (turnaround date) since management could not be
assured of collection.
In 1988, management met with the Securities and Exchange Commission (SEC)
accounting staff to discuss its concerns over the provisions of FAS No. 13
as they related to a lease of this length which results in the recording
of such a significant receivable that would remain on the Company's
balance sheet and continue to grow on an annual basis with a turnaround
date so far in the future. The Company presented the SEC accounting staff
with an application of the accounting policy whereby management would
evaluate the collectibility of the receivable on an annual basis and
report as leasing revenue only that portion of the receivable that
management could conclude would be collectible. The SEC accounting staff
did not object to this application by the Company.
Through March 31, 2003, this receivable on this lease has grown to
approximately $13,716,000 (cumulative excess of straight-line over
contractual rentals) and management has not been able to conclude that any
portion is collectible as the turnaround date is still 41 years away.
Accordingly, the Company has not reported any portion of this amount as
leasing revenue in its financial statements and does not anticipate that
it can reach such a conclusion until the turnaround date is closer.
By contrast, the Company's long-term lease for outdoor advertising
locations had an original term of 30 years, scheduled rent increases where
the future dollar increases were known at the time of the commencement of
the lease, and a turnaround date in the 9th year. In this instance,
management was of the opinion that the receivable was collectible due to
the closeness of the turnaround date and other factors. Accordingly, the
Company has recognized leasing revenue using the annual straight-line
amount in its consolidated financial statements since the inception of the
lease.
Although the Company's other long-term land leases provide for scheduled
rent increases, the provisions of the leases are such that the future
dollar amounts could not be calculated either at the time of the
commencement of the lease or now, as such amounts are based on factors
that are not presently known, i.e., future cost-of-living adjustments or
future appraised values. The Company is reporting the annual rental income
under these leases using the contractual amounts in accordance with the
provisions of FAS No. 13.
The Audit Committee of the Board of Directors concurs with the Company's
application of its critical accounting policy relating to leasing revenue
under long-term land leases.
Segments:
The Company operates in two segments, leasing and petroleum storage.
-15-
Leasing:
The leasing segment is principally devoted to the leasing of Company-owned
land in the Capital Center Project Area (Capital Center), in downtown
Providence, Rhode Island under long-term ground leases. The Company owns
approximately 18 acres in the Capital Center consisting of 11 individual
parcels. The Capital Center (approximately 77 acres of land) is the result
of a development project undertaken by the State of Rhode Island, the City
of Providence, the National Railroad Passenger Corporation (Amtrak) and
the Company during the 1980's in which two rivers, the Moshassuck and the
Woonasquatucket, were moved, a new railroad station (the Railroad Station)
was constructed and significant public improvements were made to improve
pedestrian and vehicular traffic in the area. The Company has not acted,
and does not intend to act, as a developer with respect to any
improvements constructed on Company-owned parcels.
The Company first began offering parcels for lease in the late 1980's. As
part of the construction of the Railroad Station, the Federal Railroad
Administration constructed a 330-car parking garage adjacent to the
Railroad Station, and the Company paid one-half of the construction cost.
Subsequently, the Company became sole owner of the parking garage, which
is currently leased to an experienced parking operator (parking operator).
Three other parcels have been leased by the Company under long-term leases
of 99 years or more. Located on these parcels are a 13-story office
building, a 225-unit luxury apartment complex and a 114,000 square foot
office building.
Three of the remaining parcels (undeveloped parcels) are the subject of
three leases, the term of each of which has not commenced pending
completion of development plans and closing of construction financing.
During the interim, option payments are being made by the developers under
the leases for the undeveloped parcels. Under one of the leases, the
developer made a series of six-month option payments, the last of which
was paid in December 2002. The option will terminate June 27, 2003.
However, in April 2003, as reported in the media, GTECH Holdings Corp.
expressed an interest in moving its corporate headquarters in Rhode Island
to this parcel. Under another lease, the Company receives option payments
pursuant to a month-to-month arrangement. On the third lease, the Company
began receiving option payments April 1, 2003. There is no assurance that
any one or more of these development projects will actually proceed.
The Company continues to seek a developer for the remaining four parcels
in the Capital Center which contain 2.9 acres. The Company is unable to
predict when these parcels will be leased.
Pending future development or commencement of the leases, five of the
parcels are subject to short-term leases to the parking operator.
Additionally, the Company, through a wholly-owned subsidiary, leases
certain outdoor advertising locations along interstate and primary
highways in Rhode Island and Massachusetts to an outdoor advertising
company. Presently, there are now fifty billboard faces leased. The lease
expires in 2031. The term of the lease is extended for two years for each
additional location added. The Company added three locations in 2002.
Petroleum storage:
The Company, through a wholly-owned subsidiary, owns a 524,500 barrel
petroleum storage facility (Petroleum Facilities) located in East
Providence, Rhode Island. The Petroleum Facilities
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utilizes the Company's deep-water pier (Wilkesbarre Pier) and a pipeline
connecting the Wilkesbarre Pier to the Petroleum Facilities. Another
wholly-owned subsidiary operates the Petroleum Facilities under a
five-year agreement with a petroleum distribution company at a fixed
monthly rate. The agreement expires April 30, 2004 but will continue on a
year-to-year basis unless terminated by either party upon three months
written notice. The agreement includes provisions for additional payments
based upon throughput in any twelve-month period beginning on May 1 of
each year and ending on April 30 of the subsequent year. The Company bears
all of the operating costs with respect to the Petroleum Facilities,
including real estate taxes and insurance charges.
Pursuant to an agreement (Agreement) with another company (Oil Company),
which affords that Oil Company the right to use the Wilkesbarre Pier, the
Company received annual payments. In 2002, this payment was $185,000. This
Agreement was extended to March 31, 2003 at a monthly fee of $15,000,
which Agreement terminated at that time. As described in Note 5 of Notes
to Consolidated Financial Statements, the Company is in litigation
(Wilkesbarre Pier litigation) with Oil Company and a related party over
the Agreement and the rights of others to utilize the Wilkesbarre Pier.
In March 2002, during testing of a monitoring well at the Petroleum
Facilities, the Company's consultant sampled a groundwater monitoring well
on that portion of the Petroleum Facilities purchased in 2000 and
discovered free floating phase product. Preliminary laboratory analysis
indicated that the product was gasoline, which is not a product the
Company currently stores at its Petroleum Facilities. However, in the
1950's gasoline was stored on the Company's property by a predecessor
owner. The Company commenced an environmental investigation and analysis,
and the results indicate that the gasoline is not coming from the
Company's Petroleum Facilities. The Company notified the State of Rhode
Island Department of Environmental Management (RIDEM). The Company will
continue to monitor RIDEM's investigation of this contamination.
The Company maintains what management believes to be adequate levels of
insurance. The Company notified its insurance company of the
contamination. The insurance company advised the Company that coverage is
only provided under policies in place at the time the contamination
occurs.
For the year ended December 31, 2002, the Company incurred costs totaling
$102,000 during its initial investigation and laboratory analysis.
Currently, the Company is not incurring significant costs in connection
with this matter and is unable to determine the costs it might incur to
remedy the situation as well as any costs to investigate, defend and seek
reimbursement from the responsible party with respect to this
contamination. This situation does not affect current operations at the
Petroleum Facilities.
The Company manages its exposure to contamination, cleanup or similar
costs associated with the Petroleum Facilities through adherence to
established procedures for operations and equipment maintenance.
Condemnation proceedings:
As described in Note 8 to Consolidated Financial Statements, certain of
the Company's property adjacent to Amtrak's Northeast Corridor in
Providence, Rhode Island was condemned by Amtrak in 1999 and 2001. The
Company believed that the amounts paid by Amtrak were inadequate and made
a claim for additional condemnation proceeds. In November 2002 the U. S.
District Court
-17-
for the District of Rhode Island awarded the Company $1,500,000, including
interest, in additional damages. In February 2003, Amtrak appealed the
decision to the U. S. Court of Appeals for the First Circuit. The Company
is unable to determine when the appeal will be heard and the amount of
additional damages, if any, the Company may ultimately receive.
2. RESULTS OF OPERATIONS:
Leasing segment:
For the three months ended March 31, 2003, revenue from leasing increased
13% from 2002 due principally to higher option payments received on those
leases which will not commence until construction begins, renewals of
short-term parking leases and revenue associated with the three billboard
locations added in the fourth quarter of 2002. Expenses applicable to
leasing decreased approximately 4% from 2002 due to a decrease in
professional fees offset in part by an increase in property taxes.
As described in Note 7 of Notes to Consolidated Financial Statements, the
Company appealed the tax increase for the years 1995 through 1999 and 2001
to the Providence Board of Tax Assessment Review (the Board). In March
2002, the Board denied the Company's appeal. The Company appealed the
decision of the Board to the Superior Court. The Company cannot predict
when this case will be heard or the outcome of the case. The Company's
failure to achieve relief from the City of Providence's taxes will
continue to have a material adverse effect on the income derived from its
leasing segment. To date, all of the Company's long-term leases of the
Capital Center property which have commenced require the tenant to pay all
real property taxes. The Company has no reason to believe that future
leases will not contain a similar requirement.
Petroleum storage:
For the three months ended March 31, 2003, revenue from petroleum storage
facilities increased 25% from 2002 resulting principally from a scheduled
annual fee increase and higher contingent revenues due to a colder winter.
Expenses applicable to petroleum storage facilities increased 37% from
2002 principally due to higher legal fees associated with the Wilkesbarre
Pier litigation, expenses associated with the higher volume of throughput
at the Petroleum Facilities and increased insurance costs.
General:
For the three months ended March 31, 2003, general and administrative
expenses remained approximately at the 2002 level.
Under present Rhode Island law, state income tax losses cannot be carried
back, and state tax loss carryforwards are limited to the amount of the
federal tax loss carryforward resulting in an income tax provision for
2002 that does not bear the customary relationship to income (loss) before
income taxes.
Liquidity:
Historically, the Company has had adequate liquidity to fund its
operations.
-18-
In 1999, the Company was the recipient of substantial condemnation
proceeds from the State of Rhode Island. In February 2002, the Company
effected a qualifying purchase with a consolidated subsidiary which
permitted it to amend its 1999 federal and state income tax returns to
claim refunds totaling $568,000 with respect to condemnation proceeds
previously taxed. For federal income tax reporting purposes, the Company
reported a loss for the year ended December 31, 2001, and filed a
carryback claim that resulted in a refund of federal income taxes
previously paid for years 1996 through 1999 in the amount of $607,000. The
Company received all of these refunds plus interest in 2002.
For income tax reporting purposes, the Company reported a tax loss for the
year ended December 31, 2002 and filed a carryback claim that will result
in a refund of federal income taxes previously paid in the amount of
$372,000. With this refund, the Company will have recovered substantially
all federal income taxes paid during the carryback period.
In February 2002, the Company paid a quarterly dividend of $99,000 to
holders of Class A and Class B common stock at the rate of $.03 per share.
However, at subsequent quarterly meetings, the Board of Directors elected
to omit the dividend pending resolution of the Company's tax appeals
against the City of Providence and other matters. The Board re-examines
the situation quarterly to determine whether the dividend will be
reinstated. The declaration of future dividends and the amount thereof
will depend on the Company's future earnings, financial factors and other
events.
In January 2003, the Company paid $112,000 for properties purchased in
2002. The Company has no present commitments for the purchase of
properties and equipment.
In connection with the condemnation by Amtrak, in November 2002 the
Company was awarded approximately $1,500,000 including interest in
additional damages. In February 2003, Amtrak appealed the decision to the
U. S. Court of Appeals for the First Circuit. The Company is unable to
determine when the appeal will be heard and the amount of additional
damages, if any, the Company may ultimately receive.
In connection with one of the land leases which will not commence until
construction begins, the developer has made a series of six-month option
payments each in the amount of $109,000, the last of which was paid in
December 2002. This option will terminate June 27, 2003. The Company has
no assurance that additional option payments will be made.
As discussed above, the Company's extended agreement with Oil Company
terminated March 31, 2003.
While the Company has been adversely impacted by the cost of the
Wilkesbarre Pier litigation and the increase in the City of Providence
real property taxes, in management's opinion, the Company should be able
to generate sufficient amounts of cash to meet all of its anticipated
obligations. In the event temporary additional liquidity is required, the
Company believes that a line of credit or other arrangements could be
obtained by pledging some or all of its unencumbered assets as collateral.
-19-
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-4 of the Securities Exchange Act of 1934 (the "Exchange
Act"), within the 90-day period prior to the filing date of this report, the
President and Treasurer carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures. Based on that evaluation, the
undersigned officers of the Company have concluded that such disclosure controls
and procedures were adequate to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC rules and regulations. There were no significant changes in internal
controls or, to the Company's knowledge, in other factors that could
significantly affect such internal controls, subsequent to the date of the
evaluation by the undersigned officers of the Company.
-20-
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX OF EXHIBITS:
3.1 Amended Articles of Incorporation (incorporated by reference
to Exhibit 3.1 to the Issuer's report on Form 8-K filed
December 10, 2001).
3.2 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: leases between Metropark, Ltd. and
registrant:
(i) Dated December 12, 2001 (incorporated by reference to
Exhibit 10(a)(i) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 2001).
(ii) Dated December 12, 2001 (incorporated by reference to
Exhibit 10(a)(ii) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 2001).
(iii) Dated December 12, 2001 (incorporated by reference to
Exhibit 10(a)(iii) to the Issuer's annual report on
Form 10-KSB for the year ended December 31, 2001).
(iv) Dated December 12, 2001 (incorporated by reference to
Exhibit 10(a)(iv) to the Issuer's annual report on Form
10-KSB for the Year ended December 31, 2001).
(v) Dated December 12, 2001 (incorporated by reference to
Exhibit 10(a)(v) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 2001).
99.1 Certification of President and Principal Executive Officer
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Treasurer and Principal Financial Officer
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) For the quarter ended March 31, 2003, no reports on Form 8-K were
filed.
-21-
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 and Principal Executive Officer
By /s/ Barbara J. Dreyer
-----------------------------------------
Barbara J. Dreyer
Treasurer and Principal Financial Officer
DATED: April 30, 2003
-22-
CAPITAL PROPERTIES, INC. AND CONSOLIDATED AFFILIATES
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald P. Chrzanowski, President and Principal Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of Capital
Properties, Inc. and Consolidated Affiliates;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Ronald P. Chrzanowski
-----------------------------------------
Ronald P. Chrzanowski
President and Principal Executive Officer
-23-
I, Barbara J. Dreyer, Treasurer and Principal Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Capital
Properties, Inc. and Consolidated Affiliates;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Barbara J. Dreyer
-----------------------------------------
Barbara J. Dreyer
Treasurer and Principal Financial Officer
-24-