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 JUNE 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO 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.
(Name of small business issuer 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) (Zip Code)
(401) 435-7171
(Small business issuer's telephone number, including area code)
Check whether the small business issuer: (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 small business issuer was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
As of July 27, 2005, the Issuer had 3,299,956 shares of Class A 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
JUNE 30, 2005
(UNAUDITED)
ASSETS
Properties and equipment (net of accumulated depreciation) ....... $15,074,000
Cash and cash equivalents ........................................ 5,084,000
Receivables, tenant and other .................................... 74,000
Accrued rental income ............................................ 275,000
Prepaid and other ................................................ 151,000
-----------
$20,658,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes .............................................. $ 372,000
Environmental remediation ................................... 133,000
Other ....................................................... 191,000
Deferred rental income ........................................ 234,000
Income taxes:
Current ..................................................... 448,000
Deferred, net ............................................... 4,534,000
-----------
5,912,000
-----------
Commitment (Note 3)
Shareholders' equity:
Class A common stock, $.01 par; authorized 6,000,000 shares;
issued and outstanding 3,299,956 shares ..................... 33,000
Capital in excess of par ...................................... 11,795,000
Retained earnings ............................................. 2,918,000
-----------
14,746,000
-----------
$20,658,000
===========
See notes to consolidated financial statements.
-2-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues:
Leasing, including gain on sale of parking
garage of $1,057,000 in the six months
ended June 30, 2005, and attorneys fees
judg- ment of $258,000 in the six months
ended June 30, 2004.............. ............ $ 726,000 $ 814,000 $ 2,478,000 $ 1,858,000
Petroleum storage facilities.................... 632,000 502,000 1,290,000 1,067,000
------------- ------------- ------------- -------------
1,358,000 1,316,000 3,768,000 2,925,000
Condemnation proceeds, permanent
including interest of $244,000................ -- -- -- 1,622,000
Interest........................................ 24,000 4,000 33,000 7,000
------------- ------------- ------------- -------------
1,382,000 1,320,000 3,801,000 4,554,000
------------- ------------- ------------- -------------
Expenses:
Expenses applicable to:
Leasing....................................... 202,000 378,000 497,000 860,000
Petroleum storage facilities.................. 426,000 429,000 885,000 861,000
General and administrative...................... 331,000 254,000 620,000 520,000
------------- ------------- ------------- -------------
959,000 1,061,000 2,002,000 2,241,000
------------- ------------- ------------- -------------
Income before income taxes......................... 423,000 259,000 1,799,000 2,313,000
------------- ------------- ------------- -------------
Income tax expense:
Current......................................... 176,000 88,000 742,000 289,000
Deferred........................................ 6,000 17,000 6,000 625,000
------------- ------------- ------------- -------------
182,000 105,000 748,000 914,000
------------- ------------- ------------- -------------
Net income......................................... $ 241,000 $ 154,000 $ 1,051,000 $ 1,399,000
============= ============= ============= =============
Basic income per common share...................... $ .07 $ .04 $ .32 $ .42
============= ============= ============= =============
Dividends on common stock.......................... $ .03 $ .03 $ .06 $ .06
============= ============= ============= =============
See notes to consolidated financial statements.
-3-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
2005 2004
----------- -----------
Cash flows from operating activities:
Net income .............................................. $ 1,051,000 $ 1,399,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of parking garage ....................... (1,057,000) --
Condemnation proceeds, permanent ..................... -- (1,622,000)
Depreciation ......................................... 229,000 196,000
Deferred income taxes ................................ 6,000 625,000
Other, principally net changes in receivables,
prepaids, accounts payable, accrued expenses,
deferred rental income, and income taxes ........... 912,000 (195,000)
----------- -----------
Net cash provided by operating activities ............... 1,141,000 403,000
----------- -----------
Cash flows from investing activities:
Proceeds from:
Sale of parking garage ................................ 2,500,000 --
Condemnation, permanent ............................... -- 1,622,000
Payments for properties and equipment ................... (194,000) (496,000)
----------- -----------
Net cash provided by investing activities ............... 2,306,000 1,126,000
----------- -----------
Cash used in financing activities, payment of dividends .... (198,000) (198,000)
----------- -----------
Increase in cash and cash equivalents ...................... 3,249,000 1,331,000
Cash and cash equivalents, beginning ....................... 1,835,000 2,641,000
----------- -----------
Cash and cash equivalents, ending .......................... $ 5,084,000 $ 3,972,000
=========== ===========
Supplemental disclosures, cash paid for income taxes ....... $ 152,000 $ 271,000
=========== ===========
See notes to consolidated financial statements.
-4-
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(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 consolidated
financial statements and notes thereto included in the Company's Form
10-KSB for the year ended December 31, 2004. In the opinion of management,
the accompanying consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of June 30, 2005 and
the results of operations for the three and six months ended June 30, 2005
and 2004, and the cash flows for the six months ended June 30, 2005 and
2004.
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:
At June 30, 2005, properties and equipment consists of:
Properties on lease or held for lease, land
and land improvements ....................... $ 3,956,000
-----------
Petroleum storage facilities:
Land and land improvements .................. 5,205,000
Buildings and structures .................... 1,101,000
Tanks and equipment ......................... 10,638,000
-----------
16,944,000
-----------
Office equipment ............................. 96,000
-----------
20,996,000
-----------
Less accumulated depreciation:
Properties on lease or held for lease ....... 10,000
Petroleum storage facilities ................ 5,826,000
Office equipment ............................ 86,000
-----------
5,922,000
-----------
$15,074,000
===========
-5-
The Company was the owner of a parking garage located on Parcel 7A in the
Capital Center Project area, which was leased to an experienced parking
operator for several years. In March 2005, the Company sold the parking
garage with a carrying value of $1,443,000 to the tenant for $2,500,000 in
cash but retained ownership of the underlying land which is leased to the
former tenant for 99 years at a current annual contractual rental of
$100,000. Consistent with other Company long-term land leases, the tenant
pays the real property taxes on the land, which were $52,000 for 2004. The
lease further provides for future cost-of-living rental adjustments and
periodic appraisals.
The Company has obtained all the necessary approvals from the City of East
Providence and State of Rhode Island to construct two additional 152,000
barrel tanks at the petroleum storage facilities. In May 2005, the Company
entered into a contract to construct one additional 152,000 barrel tank at
an estimated cost of $1,700,000. Construction commenced in June 2005, and
the Company has incurred costs of $54,000 through June 30, 2005. The
Company anticipates that the tank will be completed in the fourth quarter
of 2005. The Company expects to pay for the tank from available cash.
4. LITIGATION JUDGMENTS:
Disputes with Amtrak regarding condemnations:
In 1998, as part of the electrification of the Northeast Corridor,
National Railroad Passenger Corporation (Amtrak) erected towers and a
signal bridge within the air rights owned by the Company. In 1999, Amtrak
condemned a three-year temporary easement of all the air rights owned by
the Company and the Company received $335,000 from Amtrak. In 2001, Amtrak
permanently condemned the air rights and a parcel of land adjacent to the
air rights (with a carrying value of $625,000) and the Company received
$925,000 from Amtrak. The Company believed that the condemnation amounts
paid by Amtrak were inadequate and accordingly brought suit against Amtrak
in the United States District Court for the District of Rhode Island (U.
S. District Court) seeking additional compensation. In 2002, the U. S.
District Court awarded the Company $1,378,000 plus interest for additional
damages resulting from the aforementioned condemnations. In 2003, Amtrak
appealed the decision to the U.S. Court of Appeals for the First Circuit.
The First Circuit affirmed the judgment of the U.S. District Court, and in
February 2004 the Company received $1,622,000.
In 2004, Amtrak also permanently condemned a small portion of land
surrounding a pole erected by Amtrak on one of the Company's parcels. The
Company and Amtrak entered into an agreement in full settlement of this
matter for which the Company received $50,000 in September 2004.
Claim against City of Providence for attorneys fees:
In 1997, 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.
-6-
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 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 1999.
After prevailing on the merits, the Company made claim against the City
for attorneys fees.
In 2000, the City filed a motion to vacate the Superior Court and Supreme
Court judgments entered in favor of the Company which motion the Superior
Court denied and awarded the Company attorneys fees of $258,000. The City
filed an appeal in the Supreme Court. In 2004, the Supreme Court affirmed
the judgment against the City, and the Company received the payment from
the City in March 2004. No interest was awarded on the judgment.
5. DESCRIPTION OF LEASING ARRANGEMENTS:
At June 30, 2005, the Company had entered into four long-term land leases
for four separate parcels upon which the improvements have been completed
(developed parcels), including the lease for the land under the parking
garage discussed in Note 3. The Company has entered into three additional
long-term land leases (undeveloped parcels) with commencement dates of
April 1, 2004, January 1, 2005, and May 1, 2005, respectively, when
construction of the improvements commenced.
The Company also leases various parcels of land for outdoor advertising
purposes under a lease having a remaining term of 28 years and parcels of
land in or adjacent to the Capital Center Project area 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 $19,826,000 through June 30, 2005. Management has concluded
that a portion of the excess of straight-line over contractual rentals
($275,000 at June 30, 2005) is realizable when payable over the terms of
the leases. In the event of tenant default, the Company has the right to
reclaim its leased land together with any improvements thereon.
Under the seven land leases which have commenced, the tenants are required
to 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. The real property taxes
attributable to the Company's land under these leases totaled $285,000 and
$519,000, respectively, (seven leases) for the three and six months ended
June 30, 2005, and $136,000 and $215,000, respectively, (four leases) for
the three and six months ended June 30, 2004.
Under the lease which commenced January 1, 2005, the tenant is entitled to
a credit for future rents equal to a portion of the property tax expense
currently being paid by the tenant. For the
-7-
three and six months ended June 30, 2005, the Company is reporting the
portion of the real property taxes subject to the future credit ($38,000
and $75,000, respectively) as property tax expense on the accompanying
consolidated statements of income and as accrued property taxes on the
accompanying consolidated balance sheet. When the tenant makes the tax
payment, the amount of the payment will be reclassified from accrued
property taxes to deferred rental income. At June 30, 2005, the Company
has reclassified $234,000 previously reported as property tax expense in
2004 from accrued property taxes to deferred rental income for payments
made in 2005 by the tenant.
Prior to the commencement of the lease on May 1, 2005, the Company
received option payments pursuant to a month-to-month arrangement.
6. PETROLEUM STORAGE FACILITIES:
Current operations:
The Company and Global Companies, L.L.C. (Global) are parties to an
agreement whereby the Company operates the entire Petroleum Facilities for
Global. The Company is responsible for labor, insurance, property taxes
and other operating expenses, as well as capital improvements.
In May 2003, the Company and Global entered into an amended and restated
lease agreement (Amended Agreement) which, among other things, provides as
follows: (1) the Amended Agreement will expire April 30, 2013, but will
continue thereafter on a year-to-year basis unless terminated by either
party upon ninety days' written notice; (2) Global may terminate the
Amended Agreement on or after April 30, 2008, upon one year's written
notice; (3) Global will pay a monthly fee of $150,000 effective May 1,
2004, subject to annual cost-of-living adjustments; (4) Global will
reimburse the Company for any increase in real property taxes over the
2002 level; and (5) the Company will receive an additional $.10 per barrel
for every barrel in excess of 4,000,000 barrels of throughput in any
agreement year.
For the three and six months ended June 30, 2005, the Company earned
contingent revenues of $84,000 and $123,000 respectively. For the three
and six months ended June 30, 2004, the Company earned contingent revenues
of $98,000 and $140,000, respectively.
In October 2004, the Company completed construction of a 152,000 barrel
tank which Global immediately leased at a monthly cost of $35,000,
increasing Global's monthly fee to $185,000. On May 1, 2005, the scheduled
cost-of-living adjustment resulted in a total current monthly fee of
$191,000.
In May 2003, Global was granted the option to purchase the Petroleum
Facilities at any time during the term of the Amended Agreement under the
terms and conditions set forth in an option agreement. In a separate but
related agreement, Global agreed to make certain improvements at the
Wilkesbarre Pier which, for 2004, totaled approximately $300,000 and are
estimated to be $150,000 for 2005. [See Wilkesbarre Pier below].
Environmental remediation:
In 1994, a leak was discovered in a 25,000 barrel storage tank at the
Petroleum Facilities which allowed the escape of a small amount of fuel
oil. All required notices were made to the State of
-8-
Rhode Island Department of Environmental Management (RIDEM). In 2000, the
tank was demolished and testing of the groundwater indicated that there
was no large pooling of contaminants. In 2001, RIDEM approved a plan
whereby the Company installed a passive system consisting of three wells
and commenced monitoring the wells.
In 2003, RIDEM decided that the passive monitoring system previously
approved was not sufficient and required the Company to design an active
remediation system for the removal of product from the contaminated site.
The Company and its consulting engineers began the pre-design testing of
the site in the fourth quarter of 2004, and the Company continues to work
with RIDEM to design an acceptable system. The consulting engineers
estimated a total cost of $200,000 to design, install and operate the
system, which the Company recorded as a liability in 2004. Through June
30, 2005, the Company has expended $67,000. The Company expects the system
to be installed by the third quarter of 2005. The system will pump out the
contaminants which will be disposed of in compliance with applicable
regulations. After a period of time, the groundwater will be tested to
determine if sufficient contaminants have been removed. The Company
anticipates that the remediation process will be completed by the fourth
quarter of 2006. While the Company and its consulting engineers believe
that the proposed active remediation system will correct the situation, it
is possible that RIDEM could require the Company to expand remediation
efforts, thereby incurring additional costs.
Environmental incident:
In 2002, during testing of monitoring wells at the Petroleum Facilities,
the Company's consultant discovered free floating phase product in a
groundwater monitoring well located on that portion of the Petroleum
Facilities purchased in 2000. Preliminary laboratory analysis indicated
that the product was gasoline, which is not a product the Company ever
stored 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, the results of
which indicate that the gasoline did not come from the Company's Petroleum
Facilities. The Company notified RIDEM. The Company will continue to
monitor RIDEM's investigation of this contamination to ensure that the
responsible party addresses this contamination.
Since 2003, the Company has not incurred 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.
Wilkesbarre Pier (the Pier):
The Pier is a deep-water pier in East Providence, Rhode Island 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 (the Railroad) (the then owner of the Pier) entered into
an agreement which, among other things, gave the Company the right to
acquire the Pier for One Dollar ($1.00). The Company acquired the Pier
from the Railroad in January of 1998. The Company and the Railroad have a
common controlling shareholder.
Since 2000, the Company has been involved in litigation with Getty
Properties Corp. (Properties), the owner of an adjacent petroleum storage
facility and a party with a claimed interest in the Pier, and Getty
Petroleum Marketing, Inc. (Marketing), the lessee of Properties
-9-
with respect to the interest of Properties in the Pier and the obligations
attendant thereto and concerning certain obligations under agreements
entered into between the Company, Properties and Marketing in 1997. Among
the issues litigated between the parties was the question of whether or
not Properties and/or Marketing was under an obligation to participate in
the cost of the installation of certain fire suppression equipment
required by the Fire Department of the City of East Providence. It was the
position of the Company that Properties was obligated under certain
agreements with the Railroad to which the Company succeeded to participate
in the payment. In December 2004, the United States Court of Appeals for
the First Circuit determined that Properties had no such obligation. In
another aspect of the litigation, the United States District Court
determined that Properties had the obligation to install an additional
16-inch pipeline on the Pier. The Company undertook the installation in
2004 and in February 2005, Properties paid $394,000 for the installation.
The Company is presently engaged in litigation with Properties over the
question of whether either party has the obligation to indemnify the other
for litigation expenses incurred in the underlying litigation with respect
to the Pier pursuant to a 1986 Guaranty and Indemnity Agreement. The suit
was commenced in New York and has been transferred to the United States
District Court for the District of Rhode Island. Properties is claiming
damages in an amount of not less than $498,000. Neither of the parties has
engaged in any discovery on the damage claims. In February 2005, the Judge
Magistrate issued a report and recommendation recommending that the Court
deny and dismiss all of the claims asserted by the parties in the action.
Both parties have appealed that recommendation and the Court heard oral
arguments in May 2005. A decision is expected during 2005.
7. SHAREHOLDERS' EQUITY:
In December 2001, the Company amended its Articles of Incorporation to
create three classes of $.01 par value stock -- Class A Common Stock,
Class B Common Stock, and Excess Stock. The Company converted the then
outstanding 3,000,000 shares of $1.00 par value common shares into
3,000,000 shares of Class A Common Stock. In addition, the Company issued
(in the form of a stock dividend) 299,956 shares of Class B Common Stock
(one share for each ten shares of Class A Common Stock held). No
fractional Class B shares were issued.
The amended Articles of Incorporation prohibited any shareholder from
acquiring more than a 5% interest in the Company's classes of common stock
and prohibited the two shareholders who each beneficially then owned in
excess of 5% of the Company's classes of common stock from increasing
their percentage ownership of each class of common stock. The purpose of
the amendment of the Articles of Incorporation was to provide the Company
with the necessary flexibility to qualify to be taxed as a real estate
investment trust (REIT). The amendment provided that if the Company did
not make an election to be taxed as a REIT on or before March 31, 2005,
the restrictions on share ownership would automatically lapse and shares
of Class B Common Stock would automatically be converted into shares of
Class A Common Stock on a one for one basis.
The Company did not make the election and on March 31, 2005, the shares of
Class B Common Stock were converted into shares of Class A Common Stock,
resulting in the Company having 3,299,956 shares of Class A Common Stock
outstanding, and the Excess Stock is no longer authorized.
-10-
8. INCOME TAXES:
In 2004, the Company received permanent condemnation proceeds from Amtrak
which qualify for deferred reinvestment for income tax reporting purposes
whereby the Company elected to reduce the income tax basis of qualifying
subsequent acquisitions, which resulted in the Company's not currently
paying income taxes on the proceeds, subject to certain restrictions.
Accordingly, the income tax provision of the three and six months ended
June 30, 2004, reflected such election.
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, 2005, were as follows:
Gross deferred tax liabilities:
Property having a financial statement basis
in excess of tax basis ...................... $ 4,278,000
Condemnation proceeds ......................... 484,000
Accrued rental income ......................... 110,000
-----------
4,872,000
Gross deferred tax assets ........................ (338,000)
-----------
$ 4,534,000
===========
9. OPERATING SEGMENT DISCLOSURES:
The Company operates in two segments: (1) Leasing and (2) Petroleum
Storage Facilities.
The Leasing segment consists of the long-term leasing of certain of its
real estate interests in downtown Providence, Rhode Island (upon the
commencement of which the tenants are required to construct buildings
thereon, with the exception of the parking garage, and to pay real
property taxes) 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 in and adjacent to the Capital
Center Project area will consist primarily of long-term ground leases.
Pending this development, the Company leases these parcels 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 an Amended Agreement
effective May 1, 2003, that expires in 2013 at a fixed monthly rate for
Global which stores and distributes petroleum products. The Amended
Agreement includes provisions to extend and additional payments based upon
throughput. (See Note 6).
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.
The Company makes decisions relative to the allocation of resources and
evaluates performance based on income before income taxes, excluding
interest income, permanent condemnation proceeds and certain corporate
expenses.
-11-
Inter-segment revenues are immaterial in amount. The Company did not incur
interest expense during the six months ended June 30, 2005 and 2004.
The following financial information is used for making operating decisions and
assessing performance of the Company's segments:
Petroleum
Storage
Leasing Facilities Total
------------- ------------- -------------
Six months ended June 30, 2005:
Revenues:
Contractual ........................... $ 1,276,000 $ 1,167,000 $ 2,443,000
Contingent ............................ 114,000 123,000 237,000
Option ................................ 81,000 -- 81,000
Gain on sale of parking garage ........ 1,057,000 -- 1,057,000
Noncash, excess of contractual over
straight-line rentals ............... (50,000) -- (50,000)
------------- ------------- -------------
$ 2,478,000 $ 1,290,000 $ 3,768,000
============= ============= =============
Property tax expense ..................... $ 389,000 $ 44,000 $ 433,000
============= ============= =============
Depreciation ............................. $ 13,000 $ 214,000 $ 227,000
============= ============= =============
Income before income taxes ............... $ 1,981,000 $ 405,000 $ 2,386,000
============= ============= =============
Assets ................................... $ 4,402,000 $ 11,992,000 $ 16,324,000
============= ============= =============
Properties and equipment, additions ...... $ -- $ 218,000 $ 218,000
============= ============= =============
Six months ended June 30, 2004:
Revenues:
Contractual ........................... $ 1,251,000 $ 927,000 $ 2,178,000
Contingent ............................ 127,000 140,000 267,000
Option ................................ 272,000 -- 272,000
Attorneys fees judgment ............... 258,000 -- 258,000
Noncash, excess of contractual over
straight-line rentals ............... (50,000) -- (50,000)
------------- ------------- -------------
$ 1,858,000 $ 1,067,000 $ 2,925,000
============= ============= =============
Property tax expense ..................... $ 735,000 $ 38,000 $ 773,000
============= ============= =============
Depreciation ............................. $ 31,000 $ 163,000 $ 194,000
============= ============= =============
Income before income taxes ............... $ 998,000 $ 206,000 $ 1,204,000
============= ============= =============
Assets ................................... $ 6,032,000 $ 10,469,000 $ 16,501,000
============= ============= =============
Properties and equipment:
Additions ............................. $ 211,000 $ 433,000 $ 644,000
============= ============= =============
Deletions ............................. $ (2,500,000) $ -- $ --
============= ============= =============
-12-
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, 2005 and 2004:
2005 2004
------------- -------------
Revenues:
Operating segments ...................................... $ 3,768,000 $ 2,925,000
Condemnation proceeds, permanent, including interest .... -- 1,622,000
Interest income ......................................... 33,000 7,000
------------- -------------
Total consolidated revenues ........................... $ 3,801,000 $ 4,554,000
============= =============
Property tax expense:
Property tax expense for operating segments ............. $ 433,000 $ 773,000
Unallocated corporate property tax expense .............. 1,000 1,000
------------- -------------
Total consolidated property tax expense ............... $ 434,000 $ 774,000
============= =============
Depreciation:
Depreciation for operating segments ..................... $ 227,000 $ 194,000
Unallocated corporate depreciation ...................... 2,000 2,000
------------- -------------
Total consolidated depreciation ....................... $ 229,000 $ 196,000
============= =============
Income before income taxes:
Income for operating segments ........................... $ 2,386,000 $ 1,204,000
Condemnation proceeds, permanent ........................ -- 1,622,000
Interest income ......................................... 33,000 7,000
Unallocated corporate expenses .......................... (620,000) (520,000)
------------- -------------
Total consolidated income before income taxes ......... $ 1,799,000 $ 2,313,000
============= =============
Assets:
Assets for operating segments ........................... $ 16,324,000 $ 16,501,000
Corporate cash and cash equivalents ..................... 4,323,000 3,503,000
Other unallocated amounts ............................... 11,000 16,000
------------- -------------
Total consolidated assets ............................. $ 20,658,000 $ 20,020,000
============= =============
Properties and equipment:
Additions:
Operating segments .................................... $ 218,000 $ 644,000
Unallocated corporate additions ....................... -- 13,000
------------- -------------
Total consolidated additions ........................ $ 218,000 $ 657,000
============= =============
Deletion, parking garage, operating segment and
total consolidated deletion ........................... $ (2,500,000) $ --
============= =============
-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 OR PLAN 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 WILKESBARRE PIER LITIGATION; AND
EXPOSURE TO CONTAMINATION, CLEANUP OR SIMILAR COSTS ASSOCIATED WITH
THE OPERATION OF THE PETROLEUM STORAGE FACILITIES.
1. OVERVIEW:
Critical accounting policies:
The Company believes that its revenue recognition policy for long-term
leases with scheduled rent increases (leasing segment) meets the
definition of a critical accounting policy which was discussed in the
Company's Form 10-KSB for the year ended December 31, 2004. There have
been no changes to the application of this accounting policy since
December 31, 2004.
Segments:
The Company operates in two segments, leasing and petroleum storage.
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.
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As part of the construction of the Railroad Station, the Federal Railroad
Administration constructed a 330-car parking garage on the Company's land
adjacent to the Railroad Station, and the Company paid one-half of the
construction cost. Subsequently, the Company became the sole owner of the
parking garage, which was leased to an experienced parking operator at an annual
rental of $189,000. In March 2005, the Company sold the parking garage to the
tenant for $2,500,000 in cash but retained ownership of the underlying land
which is leased to the former tenant for 99 years at a current annual
contractual rental of $100,000. Consistent with other Company long-term land
leases, the tenant pays the real property taxes on the land, which were $52,000
for 2004. The lease further provides for future cost-of-living rental
adjustments and periodic appraisals.
The Company first began offering parcels for lease in the late 1980's. At June
30, 2005, four developed parcels have been leased by the Company under long-term
leases of 99 years or more (including the lease for the land under the parking
garage). Located on these parcels are a 13-story office building, a 225-unit
luxury apartment complex, a 114,000 square foot office building, and the parking
garage. The Company has entered into three additional long-term land leases
(undeveloped parcels) which commenced April 1, 2004, January 1, 2005 and May 1,
2005.
Prior to the commencement of the May 1, 2005 lease, the Company received option
payments from the tenant pursuant to a month-to-month arrangement.
The Company continues to seek developers 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 and, pending future development, 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 Lamar Outdoor Advertising under a lease which
expires in 2033. Presently, there are twenty-six locations under lease with
Lamar containing fifty billboard faces. Of these locations, twenty-two are owned
by the Company, and four are leased by the Company from third parties under
leases with original terms of one to five years. The term of the Lamar lease is
extended for two years for each additional location added. Although no new
locations have been added since 2002, one structure was moved to a different
location and the lease was extended for two years.
In July 2005, one of the Company's leases with a third party terminated and the
Company was unable to negotiate a renewal. In July 2005, the Company sold the
permit for the billboard to the former lessor for $100,000 in cash, and this
location was removed from the Lamar lease. For 2004, the leasing revenue
(including contingent rent) from this location was $50,000 and the lease expense
was $11,000.
PETROLEUM STORAGE FACILITIES:
The Company, through a wholly-owned subsidiary, owns a 676,500 barrel petroleum
storage facility (Petroleum Facilities) located in East Providence, Rhode
Island. The Petroleum Facilities utilize the Company's Wilkesbarre Pier and a
pipeline connecting the Wilkesbarre Pier to the Petroleum Facilities. The
Company (through this wholly-owned subsidiary) and Global Companies, LLC
(Global) are parties to an agreement whereby the Company (through another
wholly-owned subsidiary) operates the entire Petroleum Facilities for Global at
a fixed monthly rate which is subject to annual cost-of-living adjustments. The
agreement expires April 30, 2013, but will continue thereafter on a year-to-year
basis unless terminated by either party upon
-15-
ninety days' written notice. Global may terminate the agreement on or after
April 30, 2008, upon one year's 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 and for any increases in real property taxes. The Company bears all of the
operating costs with respect to the Petroleum Facilities, including real estate
taxes and insurance. In addition, Global was granted an option to purchase the
Petroleum Facilities at any time during the term of the agreement under the
terms and conditions set forth in an option agreement.
As described in Note 6 of Notes to Consolidated Financial Statements, the
Company was in litigation (Wilkesbarre Pier litigation) with Getty Petroleum
Marketing, Inc. and Getty Properties Corp. over the rights of others to utilize
the Wilkesbarre Pier. During 2003, the Company settled all litigation with Getty
Petroleum Marketing, Inc. In 2003, the Company appealed to the U. S. Court of
Appeals for the First Circuit the inconsistent judgments concerning whether the
Company or Getty Properties Corp. was responsible for the cost of the fire
suppression equipment at the Pier. In December 2004, the Company's appeal was
denied.
In 1994, a leak was discovered in a 25,000 barrel storage tank at the Petroleum
Facilities which allowed the escape of a small amount of fuel oil. All required
notices were made to the State of Rhode Island Department of Environmental
Management (RIDEM). In 2000, the tank was demolished and testing of the
groundwater indicated that there was no large pooling of contaminants. In 2001,
RIDEM approved a plan whereby the Company installed a passive system consisting
of three wells and commenced monitoring the wells.
In 2003, RIDEM decided that the passive monitoring system previously approved
was not sufficient and required the Company to design an active remediation
system for the removal of product from the contaminated site. The Company and
its consulting engineers began the pre-design testing of the site in the fourth
quarter of 2004 and the Company continues to work with RIDEM to design an
acceptable system. The consulting engineers estimated a total cost of $200,000
to design and install the system, which amount was recorded in the fourth
quarter of 2004. Through June 30, 2005, the Company has expended $67,000. The
Company expects the system to be installed by the third quarter of 2005. The
system will pump out the contaminants which will be disposed of in compliance
with applicable regulations. After a period of time, the groundwater will be
tested to determine if sufficient contaminants have been removed. The Company
anticipates that the remediation process will be completed by the fourth quarter
of 2006. While the Company and its consulting engineers believe that the
proposed active remediation system will correct the situation, it is possible
that RIDEM could require the Company to expand remediation efforts, thereby
incurring additional costs
In 2002, during testing of monitoring wells at the Petroleum Facilities, the
Company's consultant discovered free floating phase product in a groundwater
monitoring well located on that portion of the Petroleum Facilities purchased in
2000. Preliminary laboratory analysis indicated that the product was gasoline,
which is not a product the Company ever stored 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, the results of which indicate that the gasoline did not come from the
Company's Petroleum Facilities. The Company notified RIDEM. The Company will
continue to monitor RIDEM's investigation of this contamination to ensure that
the responsible party addresses this contamination.
-16-
Since 2003, the Company has not incurred 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 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.
In 2004, the Company constructed a 152,000 barrel tank. The Company has
sufficient land to further expand the storage capacity and has obtained all the
necessary approvals from the City of East Providence and State of Rhode Island
to construct two additional 152,000 barrel tanks. In May 2005, the Company
entered into a contract to construct one additional tank at an estimated cost of
$1,700,000. Construction commenced in June 2005, and the Company has incurred
costs of $54,000 through June 30, 2005. The Company anticipates that the tank
will be completed in the fourth quarter of 2005. Global has agreed to use the
new tank when completed at a monthly fee of $36,000 until April 30, 2006, at
which time it has the option to include the new tank under the existing Amended
Agreement. The Company has no present plans to build the last tank for which it
has approvals.
The Company manages its exposure to contamination, remediation or similar costs
associated with the Petroleum Facilities through adherence to established
procedures for operations and equipment maintenance.
Changes in capital structure:
In December 2001, the Company amended its Articles of Incorporation to create
three classes of $.01 par value stock -- Class A Common Stock, Class B Common
Stock, and Excess Stock. The Company converted the then outstanding 3,000,000
shares of $1.00 par value common shares into 3,000,000 shares of Class A Common
Stock. In addition, the Company issued (in the form of a stock dividend) 299,956
shares of Class B Common Stock (one share for each ten shares of Class A Common
Stock held). No fractional Class B shares were issued.
The amended Articles of Incorporation prohibited any shareholder from acquiring
more than a 5% interest in the Company's classes of common stock and prohibited
the two shareholders who each beneficially then owned in excess of 5% of the
Company's classes of common stock from increasing their percentage ownership of
each class of common stock. The purpose of the amendment of the Articles of
Incorporation was to provide the Company with the necessary flexibility to
qualify to be taxed as a real estate investment trust (REIT). The amendment
provided that if the Company did not make an election to be taxed as a REIT on
or before March 31, 2005, the restrictions on share ownership would
automatically lapse and shares of Class B Common Stock would automatically be
converted into shares of Class A Common Stock on a one for one basis.
The Company did not make the election, and on March 31, 2005, the shares of
Class B Common Stock were converted into shares of Class A Common Stock,
resulting in the Company having 3,299,956 shares of Class A Common Stock
outstanding, and the Excess Stock is no longer authorized.
-17-
2. RESULTS OF OPERATIONS:
Leasing segment:
As discussed above, in March 2005 the Company sold its parking garage for
$2,500,000, resulting in a gain of $1,057,000.
In 1997, the City of Providence revalued certain of the Company's
properties within the Capital Center area, reaching back six years to
assess over $13,000,000 in back taxes, interest and penalties based upon a
retroactive increase in the assessed values. 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 in the Capital Center and also attempted to condemn that parcel.
The Company contested both of the City's actions. In 1999, after
prevailing on the merits in both actions, the Company made claim against
the City for attorneys fees. In 2000, the Company was awarded attorneys
fees of $258,000. The City filed an appeal in the Rhode Island Supreme
Court. In January 2004, the Supreme Court affirmed the judgment against
the City, and the Company received the payment from the City in March
2004. No interest was awarded on the judgment.
Exclusive of the $1,057,000 gain on the sale of the parking garage and the
$258,000 received for the attorneys fees, for the three and six months
ended June 30, 2005, revenue from leasing decreased $88,000 and $179,000,
respectively, from 2004. Prior to the commencement of the long-term land
leases in 2004 and 2005, the Company was receiving option payments and
revenue from a short-term surface parking lease but was paying all real
property taxes. Upon commencement of the leases, the Company receives an
annual rental which is lower during the construction and lease-up periods
(approximately five years) but the tenant directly pays the real property
taxes, resulting in a decrease in real property tax expense of $165,000
and $346,000, respectively, for the three and six months ended June 30,
2005. The net effect of these changes is the principal reason for the
increase to income before income taxes of the leasing segment for the
three and six months ended June 30, 2005.
Petroleum storage:
For the three and six months ended June 30, 2005, revenue from petroleum
storage facilities increased $130,000 and $223,000 from 2004 due
principally to fees for the new 152,000 barrel tank effective October 2004
and higher monthly fees resulting from the annual cost-of-living
adjustment, offset in part by lower contingent revenues. For the three and
six months ended June 30, 2005, expenses applicable to petroleum storage
facilities remained approximately at the 2004 level. Higher depreciation
expense related principally to the tank constructed in 2004 and costs
associated with maintaining and monitoring the security at the petroleum
storage facilities as required by the Department of Homeland Security were
offset principally by lower legal fees in connection with the Wilkesbarre
Pier litigation.
General:
As described in Note 4 of Notes 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 2002, the U. S. District
Court for the District of Rhode Island awarded the Company additional
damages of $1,378,000
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plus interest. In 2003, Amtrak appealed the decision to the U. S. Court of
Appeals for the First Circuit. The First Circuit affirmed the judgment of
the U. S. District Court and in February 2004, the Company received a
payment of $1,622,000.
For the three and six months ended June 30, 2005, general and
administrative expenses increased $77,000 and $100,000 from 2004 due to
various items, including the costs associated with the conversion of the
Class B common stock to Class A common stock and expenses associated with
responding to a tender offer to acquire up to 285,000 shares of Company's
stock which commenced May 2, 2005, and ended June 13, 2005, at which time
the tender offeror acquired 9,675 shares of the Company's Class A common
stock.
Liquidity:
Historically, the Company has had adequate liquidity to fund its
operations.
Under the land leases for undeveloped parcels, developers made option
payments. Under one lease, the developer made a $100,000 option payment in
December 2003, which option terminated March 31, 2004. This lease
commenced April 1, 2004, under the terms of which the Company receives an
annual contractual rental of $100,000 during the seven-year construction
and lease-up phases, and the tenant commenced paying real property taxes
at a current annual rate of $232,000.
A second land lease for an undeveloped parcel commenced January 1, 2005,
under the terms of which the Company receives an annual contractual rental
equal to the option revenue it was previously receiving ($24,000) during
the thirty-month construction phase. The tenant pays real property taxes,
commencing with the tax payments for 2004 due in January and April 2005,
totaling $234,000 for which the tenant will receive a credit against
future rentals starting in 2010. The current annual rate for the 2005 real
property taxes is $518,000. The tenant will be entitled to additional
credits against future rentals for a portion of these real property taxes
paid ($150,000 per year) for the years 2005 and 2006.
Under a third land lease for an undeveloped parcel, the Company received
option payments equal to the real property taxes, which option terminated
April 30, 2005. This lease commenced May 1, 2005, under the terms of which
the Company receives an annual contractual rental of $36,000 during the
three-year construction phase, and the tenant commenced paying real
property taxes at a current rate of $243,000.
Under one of the long-term land leases which commenced in 1988, a
scheduled annual contractual rent increase of $100,000 became effective
October 2004.
Under another long-term land lease which commenced in 1988, during 2004
the tenant advised the Company that its sub-tenant would vacate the entire
building by December 31, 2004, and the Company's tenant was attempting to
find a suitable replacement sub-tenant for the building. In December 2004,
the tenant filed for protection under Chapter 11 of the United States
Bankruptcy Code. At the time of the filing by the tenant, the tenant was
current in its rent. The lease provides for a scheduled annual rent
increase of $46,000 based upon a cost-of-living adjustment which became
effective February 2005. Subsequent to the filing, with the permission of
the Court, the tenant has continued to make the rental and other payments
required under the lease. Based upon documents filed by the tenant,
management believes that the tenant has sufficient
-19-
cash resources to continue to pay the rent and other amounts required to
be paid under the lease until at least September 2005.
In 2004, the Company received permanent condemnation proceeds from Amtrak
of $1,428,000, excluding interest, which qualify for deferred reinvestment
for income tax reporting purposes whereby the Company may elect to reduce
the income tax basis of qualifying subsequent acquisitions, which results
in the Company's not currently paying income taxes on the proceeds,
subject to certain restrictions. The Company filed its 2004 income tax
returns, making such election, thereby reducing its cash outlay for income
taxes for 2004 by approximately $570,000. However, the Company will be
required to reinvest the condemnation proceeds in qualifying assets by
December 31, 2007, or then pay the income tax on the unexpended proceeds.
In 2004, the Company purchased qualifying assets totaling $216,000.
In 2004, the Company constructed a 152,000 barrel tank at a total cost of
$1,226,000. Effective October 15, 2004, Global commenced using the new
tank at a monthly fee of $35,000, which increased Global's monthly fee to
$185,000, subject to annual cost-of-living adjustments. The Company
anticipates painting the new tank in the fall of 2005 at an estimated cost
of $92,000. The Company has obtained all the necessary approvals from the
City of East Providence and State of Rhode Island to construct two
additional 152,000 barrel tanks at the Petroleum Facilities. In May 2005,
the Company entered into a contract to construct one additional tank at an
estimated total cost of $1,700,000. The increased cost of the new tank
results principally from the tank's location in the petroleum storage
facilities as well as increased steel costs. Construction commenced in
June 2005. The Company anticipates that the tank will be completed
December 2005. The Company expects to pay for the tank with available
cash. Global has agreed to use the new tank when completed at a monthly
fee of $36,000 until April 30, 2006, at which time it has the option to
include the new tank under the existing Amended Agreement at a total
monthly fee of $227,000, subject to annual cost-of-living adjustments. The
Company has no present plans to build the last tank for which it has
approvals.
Regulations of the Department of Homeland Security required the Company to
secure the Petroleum Facilities (including the Wilkesbarre Pier) against
possible threats by the installation of fences, barricades and similar
items in 2004. For the three and six months ended June 30, 2005, the
Company incurred expenses of $25,000 and $39,000, respectively, to
maintain the installation. The Company cannot predict what additional
expenses it may incur in the future to maintain the required security
levels.
As discussed in Note 6 of Notes to Consolidated Financial Statements, in
2003, the remaining non-jury claims in the litigation with Getty were
tried and the Court ordered Getty Properties Corp. to install a new
sixteen-inch pipeline on the Pier for the Company's use and benefit.
Pursuant to an agreement with Getty Properties Corp. in the fall of 2004,
the Company installed the pipeline at a cost of $394,000. The Company
received payment from Getty Properties Corp. in February 2005.
Other than the tank under construction, remaining commitments for the
purchase of properties and equipment are immaterial.
In 2004, the Company paid a dividend of $99,000 each quarter to holders of
Class A and Class B Common Stock at the rate of $.03 per share per
quarter. In addition, in December 2004, the Company paid a special
dividend of $594,000 to holders of Class A and Class B Common Stock at the
rate of $.18 per share. In January 2005, the Company paid a quarterly
dividend of $99,000
-20-
to holders of both classes of stock. On April 1, 2005, Class B Common
Stock was converted into Class A Common Stock. In April 2005, the Company
paid a quarterly dividend of $99,000 to holders of its Class A Common
Stock. The declaration of future dividends and the amount thereof will
depend on the Company's future earnings, financial factors and other
events.
In management's opinion, the Company should be able to generate adequate
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.
-21-
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.
-22-
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on April 26, 2005. Of the
3,000,000 "A" shares entitled to vote, 2,806,754 shares of stock were
present, in person or by proxy. Of the 299,956 "B" shares entitled to
vote, 193,686 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,
Alfred J. Corso, Robert H. Eder, Harold J. Harris, and Harris N. Rosen. Of
the "A" shares, each director received 2,802,294 affirmative votes; 4,460
votes withheld. Of the "B" shares, each director received 183,630
affirmative and 56 votes withheld.
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 2005. Of the "A" shares, the
resolution received 2,806,620 votes for the resolution, 1 vote against the
resolution and 133 votes abstaining. Of the "B" shares, the resolution
received 182,234 votes for the resolution, 1,440 votes against the
resolution and 12 votes abstained.
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:
(a) LEASE BETWEEN METROPARK, LTD. AND COMPANY:
(i) Dated January 1, 2005 (incorporated by reference to Exhibit
10(a) to the Issuer's annual report on Form 10-KSB for the
year ended December 31, 2004).
(b) MISCELLANEOUS CONTRACTS:
(i) Option Agreement to Purchase Real Property and Related Assets,
dated June 9, 2003, by and between Dunellen, LLC and Global
Companies, LLC. (incorporated by reference to Exhibit 10(b)(i)
to the Issuer's Report on Form 10-QSB/A for the quarterly
period ended June 30, 2003)
-23-
31.1 Rule 13a-14(a) Certification of Chairman of the Board and Principal
Executive Officer
31.2 Rule 13a-14(a) Certification of Treasurer and Principal Financial
Officer
32.1 Certification of Chairman of the Board 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
32.2 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) A report on Form 8-K was filed April 29, 2005, reporting salary increases
for the Chairman and Principal Executive Officer, President and Treasurer
of the Issuer and increased fees and retainers for the members of the
Board of Directors of the Issuer.
A report on Form 8-K was filed May 9, 2005, announcing the commencement of
construction of an underground parking structure, retail pavilion and two
residential towers on the Issuer's property in the Capital Center in
downtown Providence, Rhode Island.
A report on Form 8-K was filed May 17, 2005, reporting that the Issuer had
sent a letter to shareholders responding to the tender offer by Mercury
Real Estate Advisors LLC.
-24-
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/ Robert H. Eder
-----------------------------------
Robert H. Eder
Chairman of the Board and
Principal Executive Officer
By /s/ Barbara J. Dreyer
-----------------------------------
Barbara J. Dreyer
Treasurer and Principal Financial
Officer
DATED: July 27, 2005
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