Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended December 31, 2007
OR
| o | 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.
(Exact name of registrant as specified 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)
East Providence, Rhode Island 02914
(Address of principal executive offices) (Zip Code)
(401) 435-7171
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Class A Common Stock, $.01 par value | American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NONE
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of June 30, 2007, the aggregate market value of the Class A voting stock held by non-affiliates
of the Company was $32,769,000, which excludes voting stock held by directors, executive officers
and holders of 5 percent or more of the voting power of the Company’s common stock (without
conceding that such persons are “affiliates” of the Company for purposes of federal securities
laws). The Company has no outstanding non-voting common equity.
As of March 3, 2008, the Company had 3,299,956 shares of Class A Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 2008 Annual Meeting of Shareholders to be held on
April 29, 2008, are incorporated by reference into Part III of this Form 10-K.
CAPITAL PROPERTIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
TABLE OF CONTENTS
PART I
| Page | ||
| 3 | ||
| 7 | ||
| 9 | ||
| 9 | ||
| 9 |
PART II
| 10 | ||
| 12 | ||
| 13 | ||
| 17 | ||
| 18 | ||
| 36 | ||
| 36 |
Part III
| 37 | ||
| 37 | ||
| 37 | ||
| 37 | ||
| 38 |
PART IV
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PART I
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
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 leasing revenues 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;
and exposure to contamination, remediation or similar costs associated with the
operation of the petroleum storage facility.
Item 1. Business
Business Development
The Company was organized as a business corporation under the laws of Rhode Island in 1983 as
Providence and Worcester Company and is the successor by merger in 1983 to a corporation also named
Providence and Worcester Company which was organized under the laws of Delaware in 1979. In 1984,
the Company’s name was changed to Capital Properties, Inc.
Segments
The Company operates in two segments, leasing and petroleum storage. For financial information,
see Note 7 of Notes to Consolidated Financial Statements in Item 8.
Leasing
Capital Center
The leasing segment is principally devoted to the leasing of Company-owned land in the Capital
Center 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, Amtrak’s Northeast Corridor rail was relocated, 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. Rather, the Company offers individual parcels
for lease pursuant to long-term ground leases with terms of 99 years or more. Each lease contains
provisions permitting the tenant to develop the land under certain terms and conditions. Each
lease provides for periodic rent adjustments of various kinds. Under the leases, the tenants are
responsible for insuring the Company against various hazards and events. Each tenant is required
to indemnify the Company with respect to all of the tenant’s activities on the land. The leases
contain other terms and conditions customary to such instruments.
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 at an annual rental of $189,000. The Company paid all
maintenance expenses, real estate taxes and insurance relating to the parking garage which, in
2004, amounted to $110,000. In March 2005, the Company sold the parking garage for $2,500,000 in
cash and leased the underlying land for 99 years at an initial annual contractual rental of
$100,000. Under the lease the buyer is responsible for all real estate taxes and other expenses
relating to the parking garage. The sale of the parking garage while retaining title to the
underlying land is consistent with the Company’s policy not to act as a developer with respect to
improvements constructed on land that it currently owns or may hereafter acquire.
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The Company first began offering parcels for lease in the Capital Center area in the late 1980’s.
As of December 31, 2007, five developed 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 (235,000 gross
square feet), an 8-story 225-unit apartment building (454,000 gross square feet), a 4-story office
building (114,000 gross square feet), a 10-story office building (210,000 gross square feet) and
the 330-car public parking garage.
In 2005, long-term land leases commenced on two of the remaining parcels (undeveloped parcels).
| • | On the southerly portion of one of the parcels, an underground parking garage and two buildings containing 193 condominiums are under construction with an expected completion date in the spring of 2008. On the northerly portion of the same parcel, a 10-story, 307,000 gross square foot building is under construction with an expected completion date of 2010 and will be the headquarters of Blue Cross and Blue Shield of Rhode Island. | ||
| • | On the other undeveloped parcel, two residential buildings are under construction. One building containing 96 condominiums is expected to be completed in the fall of 2008. The other building containing 153 apartments is in the early stages of construction. |
While seeking developers, the Company also leases Parcels 3E, 3W, 4E and 4W in the Capital Center
area for public parking purposes on a short-term basis.
Parcel 20 Adjacent to the Capital Center
Since the 1980’s, the Company has owned an undeveloped parcel of land containing 20,500 square feet
adjacent to the Capital Center (Parcel 20). This parcel is leased out for public parking purposes
on a short-term basis. In November 2007, the Company purchased a three/four-story 18,000 square
foot building and related land for $2,329,000. The building and accompanying land is contiguous to
Parcel 20 on the north and east. The building is on the State Registry of Historic Buildings.
At the time of acquisition, the building had both residential and commercial tenants. It now has
only four commercial tenants who lease their respective spaces under short-term leasing
arrangements. While seeking a developer for the entire parcel, the Company is undertaking a plan
for the restoration of the building and utility infrastructure.
All of the properties described above are located in the Capital Center area and are shown on a map
contained in Exhibit 20.1.
Lamar Lease
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, LLC
(“Lamar”) under a lease which expires in 2033. Presently, there are 25 locations under lease,
containing 48 billboard faces. Of these locations, 22 are controlled by the Company through
easements granted to the Company pursuant to an agreement between the Company and Providence &
Worcester Railroad Company, a related company (“Railroad”), and 3 are leased by the Company from
third parties under leases with remaining terms of one to eight 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. Lamar has a right of first refusal for additional billboard location sites acquired by
the Company in New England and Metropolitan New York City.
Effective June 1, 2006, the Company entered into an Amended and Restated Agreement with Lamar which
among other things provides the following: (1) the base rent will increase annually at the rate of
2.75% for each leased billboard location commencing June 1, 2006 and on each June 1 thereafter; and
(2) in addition to base rent, for each 12-month period commencing each June 1, Lamar must pay to
the Company 30% of the gross revenues from each standard billboard (20% of the gross revenues from
each electronic billboard) for such 12-month period, reduced by the sum of (a) commissions paid to
third parties and (b) the base monthly rent for each leased billboard display for such 12-month
period. In all other respects, the lease remains substantially unchanged.
The Company has the right to require the Providence & Worcester Railroad Company to grant to it
easements for the location of billboards along the Railroad’s right-of-way on commercially
reasonable terms.
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A summary of the long-term leases which have commenced is as follows:
| Parcels in Capital Center Area | ||||||||||||||||||
| 2 | 3S | 5 | 6, Phase I | 6, Phase II | 7A | 8 | 9 | Lamar | ||||||||||
Description of Usage |
Residential/ | Office | Residential | Residential | Residential | Garage | Office | Office | Billboard | |||||||||
| Office | ||||||||||||||||||
Term of Lease |
103 Yrs. | 99 Yrs. | 149 Yrs. | 99 Yrs. | 99 Yrs. | 99 Yrs. | 99 Yrs. | 149 Yrs. | 27 Yrs. | |||||||||
Termination Date |
2108 | 2087 | 2142 | 2103 | 2103 | 2104 | 2090 | 2153 | 2033 | |||||||||
Options to Extend |
Two | None | None | Two | Two | Two | None | None | See LamarLease above | |||||||||
Lease |
75-Year | 50-Year | 50-Year | 75-Year | ||||||||||||||
Current Annual
Contractual Rental |
$36,000 | $468,000 | $345,000 | $48,000 | $24,000 | $100,000 | $223,000 | $100,000 | $723,000 | |||||||||
Contingent Rent |
None | None | 1%Gross | None | None | None | None | None | See LamarLease above | |||||||||
| Revenues | ||||||||||||||||||
Next Periodic
Rental Adjustment |
2008 | 2009 | 2013 | 2010 | 2009 | 2010 | 2010 | 2011 | 2007 | |||||||||
Amount and/or Type |
Cost of Living | Appraisal and | ||||||||||||||||
of Next Adjustment |
$36,000 | Appraisal | Appraisal | $252,000 | $24,000 | Adjustment | 1%Gross | $260,000 | $20,000 | |||||||||
| Receipts Rent | ||||||||||||||||||
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Competition
The Company competes for tenants with other owners of undeveloped real property in downtown
Providence. The Company maintains no listing of other competitive properties and will not engage
in a competitive bid arrangement with proposed developers. The Company’s refusal to sell the land
that it owns may restrict the number of interested developers.
Employees
The leasing segment has 2 employees.
Petroleum Storage
Terminal and Pier Facility
The Company, through a wholly-owned subsidiary, owns a petroleum storage terminal with a capacity
of approximately 1,000,000 barrels (the “Terminal”) and the Wilkesbarre Pier (the “Pier”),
collectively referred to as the “Facility,” located in East Providence, Rhode Island. The Facility
is leased to Global Companies, LLC (“Global”) for the storage and sale of petroleum distillates.
The Terminal utilizes the Company’s Pier and pipelines connecting the Pier to the Terminal. The
Company operates the Facility for Global pursuant to a contract with another Company subsidiary.
The lease provides for a fixed monthly rent which is subject to annual cost-of-living adjustments.
The lease expires April 30, 2013, but will continue thereafter on a year-to-year basis unless
terminated by either party upon ninety days’ written notice. Global may terminate the lease on or
after April 30, 2008, upon one year’s written notice. The lease includes provisions for additional
payments based upon petroleum throughput in any twelve-month period beginning on May 1 of each year
and ending on April 30 of the subsequent year at the rate of $.10 per barrel for every barrel in
excess of 4,000,000 barrels, and for real property taxes in excess of $106,000 annually. The
Company bears all of the operating costs with respect to the Facility, including taxes and
insurance. In addition, Global has an option to purchase the Facility at any time during the term
of the lease (other than the last year thereof) on the terms and conditions set forth in a separate
option agreement. Under a companion agreement, Global has agreed to pay 50% of the cost of all
improvements to the Pier but not more than $1,000,000. To date, Global has paid approximately
$580,000.
Environmental
The operation of a petroleum storage facility carries with it the risk of environmental
contamination.
In 1994, a leak was discovered in a 25,000 barrel storage tank at the Terminal 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 pursuant to which 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. The consulting engineers estimated a total cost of $200,000 to
design, install and operate the system, which the Company reported as an expense in 2004. Through
December 31, 2007, the Company has expended $119,000. RIDEM has not taken any action on the
Company’s proposed plan. As designed, 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. 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, which
could result in the Company incurring additional costs.
In 2002, during testing of monitoring wells at the Terminal, the Company’s consulting engineers
discovered free floating phase product in a groundwater monitoring well located on that portion of
the Terminal purchased in 2000. Preliminary laboratory analysis indicated that the product was
gasoline, which is not a product the Company ever stored at its Terminal. 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 Terminal. The Company notified RIDEM. The Company will continue to
monitor RIDEM’s investigation.
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Since January 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 Facility but may affect
the Company’s ability to sell the Facility should it determine to do so.
The Company manages its exposure to contamination, remediation or similar costs associated with the
Facility through adherence to established procedures for operations and equipment maintenance.
Insurance
The Company maintains what management believes to be adequate levels of insurance, including
environmental insurance. The Company notified its insurance company of the gasoline contamination.
The insurance company advised the Company that coverage is only provided under policies in place
at the time the contamination occurs.
Competition
The Facility competes with several other similar facilities located on and adjacent to the
Providence Harbor. The Terminal has approximately 42% of the total distillate storage capacity in
the Providence area. Global competes with other terminal operators on the basis of price,
availability, and a willingness to advance credit to local wholesalers. The amount of petroleum
throughput at the Terminal is a function of Global’s ability to compete effectively in the
marketplace.
Employees
The Terminal employs 7 people on a full-time and 1 person on a part-time basis.
Item 1A. Risk Factors
General Risk Factors
Control. We are controlled by Robert and Linda Eder who own more than 50% of our common
stock. As a result, the Eders are in a position to dictate the Company’s future and, in most
cases, to dictate whether any action is approved by the shareholders. There can be no assurance
that on the death of Mr. and Mrs. Eder, their heirs will decide to continue to operate the Company
in the manner in which it is operated today.
Succession; Senior Management Personnel. Robert Eder, our Chief Executive Officer, is 75
years old. His age creates the risk of the loss of his services, either permanently or for an
indeterminate period of time. In such circumstances, we would be obligated to find a replacement
for him and during the period of the search for replacement, our operating results might be
adversely affected.
Lack of Liquidity. Our common stock is registered on the American Stock Exchange. Trading
in our stock is very thin and the purchase or sale of a small amount of shares can have a
substantial impact on the price of our stock.
Cost of Compliance with Federal Securities Laws. We are a small company with a small
number of employees. As a publicly traded company, we are subject to significant regulations
including the Sarbanes-Oxley Act of 2002. While we maintain a corporate compliance program, we
cannot assure you that we are now, or will in the future be, in compliance with all such applicable
laws and regulations. If we fail to comply with any of these regulations, we could be subject to
significant penalties, including fines and other sanctions as well as litigation. Our preparation
for implementation of various corporate governance and reporting reforms and enhanced disclosure
laws and regulations adopted in recent years required us to incur significant additional accounting
and legal costs and may continue to do so as new or existing laws and regulations are adopted or
modified.
Leasing Segment
Geographic Concentration. All of our non-billboard property is located in downtown
Providence. We are, therefore, dependent on the Providence commercial real estate market with
respect to the development of our undeveloped properties. The loss of major tenants by any one or
more of our ground lease tenants of the developed properties could result in a default. Upon
default and absent any mortgagee of the leasehold interest entering into a new ground lease with
us, we would succeed to the ownership of the improvements. We would then be obligated to manage
those improvements. We lack personnel with experience in managing large commercial structures.
Additionally, a certain amount of our rental income is dependent upon the amount of rent received
by our ground lease tenants. Accordingly, an economic downturn in Providence could adversely
affect the rents paid to us.
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Undeveloped Properties. We have five parcels of land which are not subject to long-term
ground leases and portions of which are being leased for off-street parking. There is no assurance
that we will find tenants for these properties. Historically, each of the Company’s tenants has
been a single purpose entity with no other assets. While our leases require provision of
performance and payment bonds during construction, there is always risk that an owner may default,
or its contractor may default and the bonding company for various reasons may not discharge the
liens on the property, leaving us with the obligation to discharge the liens in order to protect
our interests.
Generally, our leases provide for very modest rents during the construction and lease-up periods
which have historically run about five years. Therefore, the impact on our revenues during the
early years of any lease is primarily the avoidance of payment of real estate taxes. The rents
that we receive from the use of the undeveloped properties for surface parking have generally
covered our real estate taxes. Therefore, during the early years of any new lease, the additional
net revenues will be marginal.
Reliance on Senior Management. Mr. Eder is responsible for managing the leasing segment of
the Company’s business. There is no one in the Company who could take over his responsibilities
should something happen to him. If that circumstance arose, we would be obligated to search for a
replacement.
Reliance on Single Tenant. All of our billboard locations are leased by Lamar. We have no
experience in the outdoor advertising business. If Lamar defaults, we lack the expertise to find
other advertisers and we might have difficulty finding a new tenant on the same terms and
conditions or acquiring control over the billboard structures which are owned by Lamar. In such
event, our revenues would be adversely affected for an indeterminate period.
Insurance Coverage. We require all of our tenants to maintain specific insurance coverages
in amounts which we believe are sufficient to protect us against loss. There may, however, be
circumstances where the amount of that insurance is inadequate. We could experience a loss of
rental income while pursuing an insurance claim. While all of our leases require that the tenant
carry business interruption insurance to ensure the continued payment of rents to us in the event
that a building could no longer be occupied due to fire or other casualty, the holder of any
mortgage on the tenant’s interest in the property might not permit the rebuilding and our lease
would terminate leaving us with no rental income.
Environmental. While each of our tenants is required to protect the Company against any
environmental hazards created as a result of its tenancy, nevertheless, as owner of the property,
we have a residual obligation to remediate any contamination. Additionally, much of our property
in downtown Providence has been filled over time and much of it was at one time dedicated to
railroad use. While we believe that the environmental issues are not significant, nevertheless,
underlying soil conditions may prohibit or restrict the type of use to which the land can be put.
Newly-acquired property. In November 2007, we acquired a three/four-story 18,000 square
foot office building and accompanying land. At the time of the acquisition, the building had both
commercial and residential tenants. There are no longer residential tenants in the building. The
building is on the State Registry of Historic Buildings. We are examining the feasibility of
rehabilitating the building’s façade and utility infrastructure. We have not previously managed a
similar project, and there is no assurance that we will be able to successfully manage the project
and be able to rent-up the building. We plan to offer the building together with the undeveloped
portion of Parcel 20 to a developer as one package.
Petroleum Storage Segment
Single Tenant for the Facility. We lease the Facility to one tenant and operate it for the
account of that tenant under a lease which ends April 30, 2013. On or after April 30, 2008, this
tenant has the right to terminate the lease and operating agreement at any time on giving us one
year’s notice. Upon such termination or default by the tenant, there is no assurance that we could
find another tenant for the Facility or, if we did find a tenant, that such tenant would pay the
same rent. Any failure to secure a tenant willing to pay the same rental could have an adverse
impact on our financial performance.
Environmental Concerns. The operation of the Facility carries with it significant
environmental risk, including the potential for spills at the Terminal and the Pier. We have two
known environmental problems at the Facility, one of which we think is insignificant. The other is
a substantial plume of gasoline which our consulting engineers tell us was caused by the activities
of an adjacent landowner which denies responsibility. Regulatory authorities are pursuing the
claim against the adjacent landowner but to date there has been no resolution of the claim and
there can be no assurance that there will be resolution in the future. As such, the existence of
this environmental condition
may restrict our ability to sell or otherwise dispose of the Facility and may at some point impose on us significant costs which we might not be able to recover from a third party.
may restrict our ability to sell or otherwise dispose of the Facility and may at some point impose on us significant costs which we might not be able to recover from a third party.
Reliance on the Pier and Related Pipeline. The Terminal relies almost exclusively on the
Pier for supplying petroleum products to the Terminal. The Pier is connected to the Terminal by
underground pipelines. If for any
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reason either the Pier or any portion of the connecting pipelines were to be unavailable, the
Terminal would experience a severe reduction in supply and petroleum throughput. Depending on the
time of year, this could have an adverse impact on our revenues.
Insurance. While we carry insurance with respect to the Facility which we think is
adequate given the cost, there is no assurance that our coverage fully protects us.
Terrorism. The Facility is potentially a target for terrorists. We have taken the steps
required by the United States Transportation Security Administration and the United States Coast
Guard to provide security at both the Terminal and the Pier. We believe that our security measures
are adequate. They are, however, not foolproof and there always exists a possibility that we could
be subject to an act of terrorism that could result in substantial damage to the Terminal. We
maintain terrorism insurance. The coverages and amounts of that insurance might not be adequate in
the event that the Terminal were substantially destroyed.
Potential for Increased Governmental Regulation. We are subject to governmental regulation
by the Environmental Protection Agency, the United States Department of Homeland Security and other
federal, state and local regulatory authorities with respect to the operation and security of the
Facility. Any change in the regulations applicable to the Facility could impose on us additional
costs and could adversely affect our financial performance. In particular, the Department of
Homeland Security could change the threat classification of the Terminal or the Pier which could
result in our incurring substantial additional capital and ongoing operating costs.
Item 2. Properties
The Company owns approximately 18.5 acres and a historic building in and adjacent to the Capital
Center District in Providence, Rhode Island. All of the property and a portion of the building are
leased either under long-term leases or short-term leases as more particularly described in Item 1.
See Item 1, Leasing Segment. The Company also owns or controls 25 locations on which billboards
have been constructed. Of these, 22 are owned by the Company under easements from a related
company, the Providence and Worcester Railroad Company, and 3 are leased from unrelated third
parties with terms remaining from 1 to 8 years. The Company owns an approximately 10-acre site in
East Providence, Rhode Island on which there are located 9 petroleum storage tanks and related
racks together with a 3,000 square foot single story office building in which the Company’s
headquarters and other support operations are located. In 2006, the Company completed the
development of the land currently owned by the Company at the Terminal. In addition, the Company
is the owner of the Pier located in East Providence, Rhode Island. The Pier, which has a deep
water draft capacity of -40 feet MLW, can accommodate ships up to 800 hundred feet in length. The
Company has a permanent right to use the pipelines connecting the Pier to the Terminal.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company’s security holders during the fourth quarter of
fiscal year 2007.
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PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s Class A Common Stock is traded on the American Stock Exchange, symbol “CPI.” The
following table shows the high and low trading prices for the Company’s Class A Common Stock during
the quarterly periods indicated as obtained from the American Stock Exchange, together with
dividends paid per share during such periods.
| Trading Prices | Dividends | |||||||||||
| High | Low | Paid | ||||||||||
| 2007 | ||||||||||||
1st Quarter |
24.21 | 21.81 | .05 | |||||||||
2nd Quarter |
24.20 | 21.00 | .05 | |||||||||
3rd Quarter |
32.85 | 23.50 | .06 | |||||||||
4th Quarter |
25.55 | 23.05 | .06 | |||||||||
2006 |
||||||||||||
1st Quarter |
32.00 | 27.50 | .03 | |||||||||
2nd Quarter |
33.30 | 29.27 | .03 | |||||||||
3rd Quarter |
29.74 | 23.50 | .04 | |||||||||
4th Quarter |
24.70 | 22.60 | .04 | |||||||||
At March 31, 2008, there were 360 holders of record of the Company’s Class A Common Stock.
(Balance of page intentionally left blank.)
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Performance Graph
Prepared by Burnham Securities Inc. for Capital Properties, Inc.
Five — Year Return
Capital Properties, Inc.,
Dow Jones Wilshire Real Estate Securities Index® and Russell 2000 Index®
Capital Properties, Inc.,
Dow Jones Wilshire Real Estate Securities Index® and Russell 2000 Index®
Fiscal Years Ended December 31
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||||||
CPI |
100.0 | 175.0 | 160.1 | 174.9 | 97.9 | 113.2 | ||||||||||||||||||
Dow Jones Wilshire Real |
100.0 | 123.0 | 157.7 | 171.3 | 223.2 | 176.2 | ||||||||||||||||||
Estate Securities Index® |
||||||||||||||||||||||||
Russell 2000 Index® |
100.0 | 110.3 | 129.1 | 139.2 | 161.2 | 200.0 | ||||||||||||||||||
The Dow Jones Wilshire Real Estate Securities Index® measures the performance of publicly traded
real estate securities. The Russell 2000 Index® measures the performance of small capitalization US
companies by measuring the performance of the 2,000 smallest securities in the Russell 3000 Index®.
11
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Item 6. Selected Financial Data
The selected financial data set forth below has been derived from the Company’s consolidated
financial statements. The selected data should be read in conjunction with the Company’s
consolidated financial statements and notes thereto, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the other information included elsewhere in this
annual report on Form 10-K.
| Income statement data: |
| Years Ended December 31, | ||||||||||||||||||||
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Total revenues and other income |
$ | 6,695,000 | $ | 5,789,000 | $ | 6,463,000 | 1 | $ | 7,075,000 | 2 | $ | 6,918,000 | 3 | |||||||
Total expenses4 |
$ | 4,388,000 | $ | 3,574,000 | $ | 3,707,000 | $ | 4,504,000 | $ | 5,458,000 | ||||||||||
Income taxes |
$ | 922,000 | $ | 896,000 | $ | 1,093,000 | $ | 1,010,000 | $ | 576,000 | ||||||||||
Net income |
$ | 1,385,000 | $ | 1,319,000 | $ | 1,663,000 | $ | 1,561,000 | $ | 884,000 | ||||||||||
Basic income per common share |
$ | 0.42 | $ | 0.40 | $ | 0.50 | $ | 0.47 | $ | 0.27 | ||||||||||
Dividends per common share |
$ | 0.22 | $ | 0.14 | $ | 0.12 | $ | 0.30 | $ | 0.03 | ||||||||||
Balance sheet data:
| December 31, | ||||||||||||||||||||
| 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Properties and equipment, net |
$ | 20,717,000 | $ | 18,471,000 | $ | 16,756,000 | $ | 16,527,000 | $ | 14,879,000 | ||||||||||
Total assets |
$ | 23,037,000 | $ | 21,858,000 | $ | 21,492,000 | $ | 19,531,000 | $ | 18,411,000 | ||||||||||
Shareholders’ equity |
$ | 16,676,000 | $ | 16,017,000 | $ | 15,160,000 | $ | 13,893,000 | $ | 13,322,000 | ||||||||||
| 1 | Includes a $1,057,000 gain from the sale of the parking garage; see Note 3 to Notes to Consolidated Financial Statements in Item 8. | |
| 2 | Includes $1,672,000 in condemnation proceeds received from Amtrak and $258,000 from the City of Providence for reimbursement of attorneys fees. | |
| 3 | Includes $1,700,000 received from the City of Providence in settlement of tax appeals from the period 1995 to 2002. | |
| 4 | The downward trend in total expenses between 2003 and 2006 resulted principally from the assumption of the payment of real estate taxes by tenants under long-term land leases entered into in 2004 and 2005 and the tax settlement with the City of Providence in 2003. The increase in 2007 from 2006 results principally from increased depreciation relating to the construction of tanks at the petroleum storage facility and bonuses paid to two retiring employees. |
12
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
1. Overview:
Critical accounting policies:
The Securities and Exchange Commission (“SEC”) has issued guidance for the disclosure of “critical
accounting policies.” The SEC defines such policies as those 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 2 of Notes to Consolidated
Financial Statements in Item 8. 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 SEC 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 known annual rental amounts are totaled and this total is divided by
99.
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 (the “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 until the 56th
year (the “turnaround date”) since management could not be assured of collection.
In 1988, management met with the 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 presently conclude would be collectible. The SEC
accounting staff did not object to this application by the Company.
Through December 31, 2007, the receivable on this lease has grown to approximately $17,150,000
(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 38 years away.
In 2004, a second such lease commenced with an original term of 149 years and provides for fixed
minimum percentage increases at specified intervals (as well as reappraisal increases). For this
lease, the contractual amount paid by the tenant will not exceed the calculated straight-line
amount until the 94th year of the lease. Through December 31, 2007, the receivable on
this lease is approximately $8,899,000 (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 91 years away.
In June 2006, the Company entered into an Amended and Restated Agreement of its lease with Lamar
Outdoor Advertising LLC (“Lamar”) with a current remaining term of 27 years which provides for
fixed percentage increases annually. For this lease, the contractual amount paid by Lamar will not
exceed the calculated straight-line amount until the 16th year of the lease. Through
December 31, 2007, the receivable on this lease is approximately $351,000 (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 15 years away.
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Accordingly, the Company has not reported any portion of these amounts as leasing revenue in its
consolidated financial statements and does not anticipate that it can reach such a conclusion until
the turnaround dates are closer.
Although the Company’s other long-term land leases provide for scheduled rent increases, the
provisions of the leases are such that certain 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 revenues under these leases using the contractual amounts in
accordance with the provisions of FAS No. 13. The Company continues to recognize accrued leasing
revenue from two leases which were recorded in prior years.
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.
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 have been required to
construct buildings thereon, with the exception of a parking garage), the leasing of a portion of
the building acquired in November 2007 under short-term leasing arrangements and the leasing of
locations along interstate and primary highways in Rhode Island and Massachusetts to Lamar 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 area will consist
primarily of long-term ground leases. Pending this development, the Company leases these parcels
for public parking under short-term leasing arrangements.
The petroleum storage segment consists of operating the Facility in East Providence, Rhode Island,
for Global Companies, LLC (“Global”).
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 assets constructed on the Company’s land, including the payment of real property taxes on both
the land and any improvements constructed thereon; whereas the Company is responsible for the
operating and maintenance expenses, including real property taxes, as well as capital improvements
at the Facility.
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. No Excess Stock was issued and it is no longer
authorized.
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Table of Contents
| 2. | Results of operations: |
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Leasing segment:
| 2007 | 2006 | Difference | ||||||||||
Leasing revenues |
$ | 2,853,000 | $ | 2,493,000 | $ | 360,000 | ||||||
Leasing expense |
566,000 | 663,000 | $ | (97,000 | ) | |||||||
| $ | 2,287,000 | $ | 1,830,000 | |||||||||
Leasing revenues increased as a result of the following:
| • | In June 2007, the Company entered into a settlement agreement with a former tenant concerning amounts due the Company resulting from the tenant’s prematurely terminating its lease with the Company in 2003 and received $100,000 in settlement, which amount is included in leasing revenues. | ||
| • | Effective June 1, 2006, the Company entered into an Amended and Restated Agreement of Lease with Lamar, which changed the contractual rental payments thereby extending the turnaround date until 2022. As a result, the Company concluded that it should not presently record a receivable resulting from reporting leasing revenue on straight-line basis. However, prior to June 1, 2006, the Company had been recognizing revenue on this lease on a straight-line basis and, accordingly, had recorded a reduction in leasing revenue of $187,000 for the year ended December 31, 2006. | ||
| • | Increases in rentals under the short-term leases, including rentals from the newly-acquired building. |
Leasing expense decreased principally due to lower real property taxes due to an existing tenant’s
assumption of all real property taxes on its parcel as of January 1, 2007.
Petroleum storage segment:
| 2007 | 2006 | Difference | ||||||||||
Petroleum storage facility revenues |
$ | 3,714,000 | $ | 3,187,000 | $ | 527,000 | ||||||
Petroleum storage facility expense |
2,451,000 | 1,798,000 | $ | 653,000 | ||||||||
| $ | 1,263,000 | $ | 1,389,000 | |||||||||
Petroleum storage facility revenue increased as a result of the following:
| • | Rent for the new 175,000 barrel tank effective August 2006; | ||
| • | Higher monthly rent resulting from the annual cost-of-living adjustments; | ||
| • | Higher contingent revenue; and | ||
| • | Rental of $97,000 resulting from the increase in real property taxes as required by the lease, which amount resulted principally from an increase in the assessment on the petroleum storage facility. |
Petroleum storage facility expense increased principally due to the following:
| • | Payroll and related costs resulting from the hiring of a new employee and the payment of a bonus to the retiring president of the petroleum storage facility; | ||
| • | Higher depreciation related to the new tank built in 2006; | ||
| • | Higher real estate taxes resulting principally from an increased assessment on the petroleum storage facility, which amount was substantially reimbursed by the tenant; and | ||
| • | Higher legal fees associated with a Wilkesbarre Pier litigation. |
General:
For the year ended December 31, 2007, general and administrative expense increased $258,000 from
2006 due principally to payroll and related costs resulting from the payment of a bonus to the
retiring president of the Company and higher professional fees in connection with the Company’s
filing status changing from a small business issuer to a non-accelerated filer for the year ended
December 31, 2006, and the costs incurred in complying with Section 404(a) of the Sarbanes-Oxley
Act of 2002.
15
Table of Contents
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Leasing segment:
| 2006 | 2005 | Difference | ||||||||||
Leasing revenues |
$ | 2,493,000 | $ | 2,663,000 | $ | (170,000 | ) | |||||
Leasing expense |
663,000 | 778,000 | $ | (115,000 | ) | |||||||
| $ | 1,830,000 | $ | 1,885,000 | |||||||||
Leasing revenues decreased principally due to the reversal of $159,000 of previously reported
accrued leasing revenue from Lamar.
Prior to the commencement of two long-term land leases in 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) than the amounts received
from the short-term parking leases; however, the tenant pays the real property taxes, resulting in
a decrease in real property tax expense of $30,000 for the year ended December 31, 2006 from 2005.
The decrease in leasing expense is also due in part to lower legal fees.
Petroleum storage segment:
| 2006 | 2005 | Difference | ||||||||||
Petroleum storage facility revenues |
$ | 3,187,000 | $ | 2,549,000 | $ | 638,000 | ||||||
Petroleum storage facility expense |
1,798,000 | 1,713,000 | $ | 85,000 | ||||||||
| $ | 1,389,000 | $ | 836,000 | |||||||||
Petroleum storage facility revenue increased due principally to rent for the new 152,000 barrel
tank effective December 2005 and the new 175,000 barrel tank effective August 2006, and higher
monthly rent resulting from the annual cost-of-living adjustment May 1, 2006.
Petroleum storage facility expense increased due principally to higher depreciation related
principally to the new tanks offset by lower insurance costs and a decrease in levels of scheduled
repairs and maintenance.
Other income:
Other income decreased due to the sale in March 2005 of the Company’s parking garage for
$2,500,000, resulting in a gain of $1,057,000, and the sale in July 2005 of a billboard permit,
resulting in a gain of $100,000.
General:
For the year ended December 31, 2006, general and administrative expense decreased $103,000 from
2005 due principally to lower professional fees; in 2005, the Company incurred costs in (1) the
conversion of its Class B common stock to Class A common stock and (2) responding to a tender offer
to acquire shares of the Company’s stock.
| 3. | Liquidity and capital resources: |
Historically, the Company has had adequate liquidity to fund its operations.
A summary of cash flows by year is as follows:
| 2007 | 2006 | 2005 | ||||||||||
Operating activities |
$ | 2,502,000 | $ | 1,542,000 | $ | 2,245,000 | ||||||
Investing activities |
$ | (2,794,000 | ) | $ | (2,399,000 | ) | $ | 627,000 | ||||
Financing activities |
$ | (726,000 | ) | $ | (462,000 | ) | $ | (396,000 | ) | |||
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Operating activities:
The changes in cash flows from operating activities among the years results principally from the
payment in 2006 of income taxes attributable to 2005. In 2007, the increase also includes the
$100,000 in cash received under a settlement agreement with a former tenant. In 2006, the
decrease resulting from the payment of the 2005 income taxes was offset in part by increased
revenue from the newly constructed tanks at the Terminal.
Investing activities:
Exclusive of the cash received from the sales of the parking garage and the billboard in 2005
($2,600,000), the cash used in investing activities relates principally to the acquisition of a
building and the underlying land in 2007 ($2,329,000) and the costs incurred in the construction of
a petroleum tank in each of 2006 and 2005.
Financing activities:
The cash used in financing activities is for the payment of dividends.
Cash and cash equivalents and cash commitments:
At December 31, 2007, the Company had cash and cash equivalents of $1,974,000.
The Company anticipates making no major capital additions to the Facility but does expect to expend
$300,000 in 2008 for improvements at the Pier.
In 2004, the Company received condemnation proceeds from Amtrak of $1,428,000 which qualified for
deferred reinvestment for income tax reporting purposes pursuant to which the Company elected to
reduce the income tax basis of qualifying subsequent acquisitions, thereby avoiding paying income
taxes on the proceeds, subject to certain restrictions. The Company’s 2004 income tax returns made
such election, thereby reducing its cash outlay for income taxes for 2004 by approximately
$570,000. At December 31, 2006, the Company had made qualifying acquisitions totaling $250,000 and
in November 2007 purchased land and buildings for $2,329,000 which were qualifying assets, thereby
reinvesting the remaining proceeds from the condemnation.
In January 2008, the Company paid a quarterly dividend of $198,000 ($.06 per common share). 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.
At December 31, 2007, the Company has no non-cancellable contract obligations other than three
operating leases for billboard locations for which the rent expense is not material in amount.
Item 7A. Quantitative and Qualitative Disclosures About Market Securities
The Company’s cash and cash equivalent balances are exposed to risk of changes in short-term
interest rates. Reductions in short-term interest rates could result in a reduction in interest
income; however, the impact on income would not be material in amount.
17
Table of Contents
Item 8. Consolidated Financial Statements and Supplementary Data
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
| 19 | ||||
| 20 | ||||
| 21 | ||||
| 22 | ||||
| 23-32 | ||||
| 33 | ||||
| 34-35 | ||||
18
Table of Contents
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Certified Public Accountants
10 Weybosset Street, Suite 700
Providence, Rhode Island 02903
Certified Public Accountants
10 Weybosset Street, Suite 700
Providence, Rhode Island 02903
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors
Capital Properties, Inc.
East Providence, Rhode Island
Capital Properties, Inc.
East Providence, Rhode Island
We have audited the accompanying consolidated balance sheets of Capital Properties, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income
and retained earnings, and cash flows for each of the three years in the period ended December 31,
2007. Our audits also included the financial statement schedules listed in the accompanying index.
These financial statements and financial statement schedules are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management
and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Capital Properties, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2007, in conformity with U. S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
March 26, 2008
19
Table of Contents
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2007 | 2006 | |||||||
ASSETS |
||||||||
Properties and equipment (net of accumulated depreciation) |
$ | 20,717,000 | $ | 18,471,000 | ||||
Cash and cash equivalents |
1,974,000 | 2,992,000 | ||||||
Income taxes receivable |
12,000 | — | ||||||
Prepaid and other |
334,000 | 395,000 | ||||||
| $ | 23,037,000 | $ | 21,858,000 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Liabilities: |
||||||||
Accounts payable and accrued expenses: |
||||||||
Property taxes |
$ | 276,000 | $ | 298,000 | ||||
Environmental remediation |
81,000 | 82,000 | ||||||
Other |
333,000 | 137,000 | ||||||
Deferred leasing revenues |
520,000 | 448,000 | ||||||
Income taxes: |
||||||||
Current |
— | 18,000 | ||||||
Deferred, net |
5,151,000 | 4,858,000 | ||||||
| 6,361,000 | 5,841,000 | |||||||
Shareholders’ equity: |
||||||||
Class A common stock, $.01 par; authorized 6,000,000 shares;
issued and outstanding 3,299,956 shares |
33,000 | 33,000 | ||||||
Capital in excess of par |
11,795,000 | 11,795,000 | ||||||
Retained earnings |
4,848,000 | 4,189,000 | ||||||
| 16,676,000 | 16,017,000 | |||||||
| $ | 23,037,000 | $ | 21,858,000 | |||||
See accompanying notes to consolidated financial statements.
20
Table of Contents
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Revenues and other income: |
||||||||||||
Revenues: |
||||||||||||
Leasing |
$ | 2,853,000 | $ | 2,493,000 | $ | 2,663,000 | ||||||
Petroleum storage facility |
3,714,000 | 3,187,000 | 2,549,000 | |||||||||
| 6,567,000 | 5,680,000 | 5,212,000 | ||||||||||
Other income: |
||||||||||||
Gain on sale of parking garage |
— | — | 1,057,000 | |||||||||
Gain on sale of billboard permit |
— | — | 100,000 | |||||||||
Interest |
128,000 | 109,000 | 94,000 | |||||||||
| 6,695,000 | 5,789,000 | 6,463,000 | ||||||||||
Expenses: |
||||||||||||
Leasing |
566,000 | 663,000 | 778,000 | |||||||||
Petroleum storage facility |
2,451,000 | 1,798,000 | 1,713,000 | |||||||||
General and administrative |
1,371,000 | 1,113,000 | 1,216,000 | |||||||||
| 4,388,000 | 3,574,000 | 3,707,000 | ||||||||||
Income before income taxes |
2,307,000 | 2,215,000 | 2,756,000 | |||||||||
Income tax expense: |
||||||||||||
Current |
629,000 | 683,000 | 976,000 | |||||||||
Deferred |
293,000 | 213,000 | 117,000 | |||||||||
| 922,000 | 896,000 | 1,093,000 | ||||||||||
Net income |
1,385,000 | 1,319,000 | 1,663,000 | |||||||||
Retained earnings, beginning |
4,189,000 | 3,332,000 | 2,065,000 | |||||||||
Dividends on common stock
($.22, $.14 and $.12 per share
in 2007, 2006 and 2005,
respectively) |
(726,000 | ) | (462,000 | ) | (396,000 | ) | ||||||
Retained earnings, ending |
$ | 4,848,000 | $ | 4,189,000 | $ | 3,332,000 | ||||||
Basic income per share |
$ | .42 | $ | .40 | $ | .50 | ||||||
See accompanying notes to consolidated financial statements.
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Table of Contents
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 1,385,000 | $ | 1,319,000 | $ | 1,663,000 | ||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Depreciation |
664,000 | 551,000 | 431,000 | |||||||||
Gain on sale of parking garage |
— | — | (1,057,000 | ) | ||||||||
Gain on sale of billboard permit |
— | — | (100,000 | ) | ||||||||
Reversal of accrued leasing revenues |
— | 159,000 | — | |||||||||
Deferred income taxes |
293,000 | 213,000 | 117,000 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Increase in: |
||||||||||||
Income taxes receivable |
(12,000 | ) | — | — | ||||||||
Prepaid and other |
— | (158,000 | ) | — | ||||||||
Current income taxes payable |
— | — | 647,000 | |||||||||
Deferred leasing revenues |
72,000 | 142,000 | 306,000 | |||||||||
Decrease in: |
||||||||||||
Receivables |
— | — | 413,000 | |||||||||
Accrued leasing revenues |
— | 29,000 | 94,000 | |||||||||
Prepaid and other |
61,000 | — | 237,000 | |||||||||
Accounts payable and accrued expenses |
57,000 | (49,000 | ) | (506,000 | ) | |||||||
Current income taxes payable |
(18,000 | ) | (664,000 | ) | — | |||||||
Net cash provided by operating activities |
2,502,000 | 1,542,000 | 2,245,000 | |||||||||
Cash flows from investing activities: |
||||||||||||
Payments for properties and equipment |
(2,794,000 | ) | (2,399,000 | ) | (1,973,000 | ) | ||||||
Proceeds from: |
||||||||||||
Sale of parking garage |
— | — | 2,500,000 | |||||||||
Sale of billboard permit |
— | — | 100,000 | |||||||||
Net cash provided by (used in) investing activities |
(2,794,000 | ) | (2,399,000 | ) | 627,000 | |||||||
Cash used in financing activities, payment of dividends |
(726,000 | ) | (462,000 | ) | (396,000 | ) | ||||||
Increase (decrease) in cash and cash equivalents |
(1,018,000 | ) | (1,319,000 | ) | 2,476,000 | |||||||
Cash and cash equivalents, beginning |
2,992,000 | 4,311,000 | 1,835,000 | |||||||||
Cash and cash equivalents, ending |
$ | 1,974,000 | $ | 2,992,000 | $ | 4,311,000 | ||||||
Supplemental disclosure, cash paid for income taxes |
$ | 647,000 | $ | 1,357,000 | $ | 152,000 | ||||||
See accompanying notes to consolidated financial statements.
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
| 1. | Description of business: |
Capital Properties, Inc. and its wholly-owned subsidiaries, Tri-State Displays, Inc., Capital
Terminal Company and Dunellen, LLC (collectively referred to as “the Company”), operate in two
segments: (1) Leasing and (2) Petroleum Storage.
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 a parking garage), the leasing of a portion of
the building acquired in November 2007 under short-term leasing arrangements and the leasing of
locations along interstate and primary highways in Rhode Island and Massachusetts to Lamar Outdoor
Advertising, LLC (“Lamar”) 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 area will consist primarily of long-term ground leases. Pending this development, the
Company leases these parcels for public parking under short-term leasing arrangements.
The petroleum storage segment consists of the operating of the petroleum storage terminal (the
“Terminal”) and the Wilkesbarre Pier (the “Pier”), collectively referred to as the “Facility,”
located in East Providence, Rhode Island, for Global Companies, LLC (“Global”) which stores and
distributes petroleum products.
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 assets constructed on the Company’s land, including the payment of real property taxes on both
the land and any improvements constructed thereon; whereas the Company is responsible for the
operating and maintenance expenditures, including real property taxes, as well as capital
improvements at the Facility.
| 2. | Summary of significant accounting policies: |
Principles of consolidation:
The accompanying consolidated financial statements include the accounts and transactions of the
Company and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of estimates:
The preparation of consolidated 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.
Fair value of financial instruments:
The Company believes that the fair value of financial instruments, including cash and cash
equivalents and accounts payable and accrued expenses, approximate their respective book values at
December 31, 2007 and 2006.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. At December 31, 2007 and 2006, cash equivalents consisted of an
overnight uninsured sweep with the Company’s principal bank totaling $1,866,000 and $2,787,000,
respectively.
Properties and equipment:
Properties and equipment are stated at cost. Acquisitions and additions are capitalized while
routine maintenance and repairs, which do not improve the asset or extend its life, are charged to
expense when incurred. Depreciation is being provided by the straight-line method over the
estimated useful lives of the respective assets.
23
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The Company follows the provisions of Statement of Financial Accounting Standards (FAS) No. 144
(Accounting for the Impairment or Disposal of Long-Lived Assets) which requires that properties and
equipment held and used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the net book value of the asset may not be recoverable. An impairment
loss will be recognized if the sum of the expected future cash flows (undiscounted and before
interest) from the use of the asset is less than the net book value of the asset. Generally, the
amount of the impairment loss is measured as the difference between the net book value and the
estimated fair value of the asset.
Environmental remediation:
The Company accrues a liability when the environmental remediation is probable and the costs are
estimable. The Company charges to expense those costs that do not extend the life, increase the
capacity or improve the safety or efficiency of the property owned by the Company.
Revenues and other income:
Leasing — The Company’s properties leased to others are under operating leases. The Company
reports leasing revenue when earned under the operating method.
Certain of the Company’s long-term land leases, including the outdoor advertising locations,
provide for presently known scheduled rent increases over the remaining terms (27 to 147 years).
In accordance with the provisions of FAS No. 13 (Accounting for Leases) and certain of its
interpretations, the Company recognizes leasing revenue on the straight-line basis over the terms
of the leases; however, the Company does not report as revenue that portion of such straight-line
rentals which management is unable to conclude is realizable (collectible) due to the length of the
lease terms and other related uncertainties.
Options — The Company reports option revenue when earned.
Petroleum storage facility — The Company reports revenue from the operations of the Facility when
earned and reports as revenue the tenant’s portion of the real property taxes as required by the
lease.
Contingent — The Company reports contingent revenue in the period in which the factors occur on
which the contingent payments are predicated.
Litigation and condemnation — The Company reports income resulting from litigation and
condemnations in the period in which the cash is received.
Income taxes:
The Company and its subsidiaries file consolidated income tax returns.
The Company provides for income taxes based on income reported for financial reporting purposes.
The provision for income taxes differs from the amounts currently payable because of temporary
differences associated with the recognition of certain income and expense items for financial
reporting and tax reporting purposes.
New accounting standards:
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation
No. 48 (Accounting for Uncertainty in Income Taxes) on January 1, 2007. The interpretation
clarifies the accounting for uncertainty in income taxes recognized in financial statements in
accordance with FAS No. 109 (Accounting for Income Taxes). Based on its evaluation, the Company
has concluded that there are no significant uncertain tax positions requiring recognition in the
consolidated financial statements.
The Company reviews new accounting standards as issued. Although some of these accounting
standards may be applicable to the Company, the Company has not identified any other standards that
it believes merit further discussion. The Company expects that none of the new standards would
have a significant impact on its consolidated financial statements.
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| 3. | Properties and equipment: |
Properties and equipment consists of the following:
| Estimated | ||||||||||||
| Useful Life | December 31, | |||||||||||
| in Years | 2007 | 2006 | ||||||||||
Properties on lease or held for lease: |
||||||||||||
Land and land improvements |
— | $ | 4,621,000 | $ | 3,991,000 | |||||||
Building |
39 | 1,699,000 | — | |||||||||
| 6,320,000 | 3,991,000 | |||||||||||
Petroleum storage facility, on lease: |
||||||||||||
Land and land improvements |
— | 5,561,000 | 5,398,000 | |||||||||
Buildings and structures |
33 | 1,406,000 | 1,338,000 | |||||||||
Tanks and equipment |
15-20 | 14,569,000 | 14,322,000 | |||||||||
| 21,536,000 | 21,058,000 | |||||||||||
Office equipment |
5-10 | 126,000 | 97,000 | |||||||||
| 27,982,000 | 25,146,000 | |||||||||||
Less accumulated depreciation: |
||||||||||||
Properties on lease or held for lease |
16,000 | 12,000 | ||||||||||
Petroleum storage facility, on lease |
7,160,000 | 6,576,000 | ||||||||||
Office equipment |
89,000 | 87,000 | ||||||||||
| 7,265,000 | 6,675,000 | |||||||||||
| $ | 20,717,000 | $ | 18,471,000 | |||||||||
In November 2007, the Company purchased a building and accompanying land for $2,329,000, which is
contiguous on the north and east with Parcel 20 already owned by the Company. The Company is
leasing a portion of the building to four tenants under short-term leasing arrangements.
The Company was the owner of a parking garage located on Parcel 7A in the Capital Center area,
which was leased for several years. In March 2005, the Company sold the parking garage with a net
book value of $1,443,000 for $2,500,000 in cash but retained ownership of the underlying land which
is leased 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. The lease
further provides for future periodic rental adjustments.
| 4. | Description of leasing arrangements: |
Long-term land leases:
As of December 31, 2007, the Company had entered into five long-term land leases for five 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. In 2005, two additional long-term land
leases commenced (“undeveloped parcels”) and construction of the improvements is in process on both
parcels.
Under the seven land leases, the tenants are required to negotiate any tax stabilization treaty or
other arrangements, appeal any changes in real property assessments, and pay real property taxes
assessed under these arrangements. Accordingly, the amounts paid by the tenants are excluded from
leasing revenues and leasing expense on the accompanying consolidated statements of income and
retained earnings. The real property taxes attributable to the Company’s land under these seven
leases are as follows:
| Year Ended December 31, | Real Property Taxes | |
2007
|
$1,434,000 | |
| 2006 | $1,302,000 | |
| 2005 | $1,277,000 |
Under one of the leases which commenced in 2005, the tenant is entitled to a credit for future
rents equal to a portion of the real property taxes paid by the tenant through April 2007, which
credit now totals $520,000, the maximum amount. For real estate taxes prior to 2007, the Company
reported the portion of the real property taxes subject to
25
Table of Contents
the future credit as property tax
expense on the accompanying consolidated statements of income and retained earnings and as accrued
property taxes on its consolidated balance sheets. As the tenant made the tax payment, the amount
of the payment was reclassified from accrued property taxes to deferred leasing revenues which
totaled $520,000 and $448,000 at December 31, 2007 and 2006, respectively. During the periods that
the tenant is entitled to the credit (commencing in 2010), the Company will reclassify deferred
leasing revenues to leasing revenues.
In June 2007, the Company entered into a settlement agreement with a former tenant concerning
amounts due the Company resulting from the tenant’s prematurely terminating its lease with the
Company in 2003. The Company received $100,000 in settlement, which amount is included in leasing
revenues on the accompanying consolidated statement of income and retained earnings for the year
ended December 31, 2007.
Prior to the commencement of the May 1, 2005 lease, the Company received option payments pursuant
to a month-to-month arrangement.
Under one of the long-term land leases, the Company receives contingent rentals (based upon a fixed
percentage of gross revenue received by the tenant) which totaled $59,000, $62,000, and $58,000
for the years ended December 31, 2007, 2006 and 2005, respectively.
The Company also leases various parcels of land for outdoor advertising purposes to Lamar under a
lease having a remaining term of 27 years. Effective June 1, 2006, the Company entered into an
Amended and Restated Agreement with Lamar which among other things provides the following: (1) the
base rent will increase annually in fixed increases of 2.75% for each leased billboard location
commencing June 1, 2006 and on each June 1 thereafter; and (2) in addition to base rent, for each
12-month period commencing each June 1, Lamar must pay to the Company the difference between 30% of
the gross revenues from each standard billboard (20% of the gross revenues from each electronic
billboard) for such 12-month period reduced by the sum of (a) commissions paid to third parties and
(b) the base monthly rent for each leased billboard display for such 12-month period (“contingent
revenue”). For the years ended December 31, 2007, 2006 and 2005, contingent revenues totaled
$71,000, $78,000 and $87,000, respectively. In all other respects, the lease remains substantially
unchanged.
The June 1, 2006 change in the contractual rental payments extended the turnaround date until 2022,
resulting in the Company concluding that it should not presently record a receivable resulting from
reporting leasing revenue on a straight-line basis. Accordingly, the Company reversed a previously
recorded receivable for accrued leasing revenue from Lamar of $159,000 and is not reporting as
leasing revenue any portion of the current excess of straight-line over contractual revenue.
At December 31, 2007, there are 25 locations under lease with 48 billboard faces. Of these
locations, 22 are controlled through easements and 3 are leased from third parties under operating
leases with remaining terms of one to eight years. In July 2005, another of the Company’s
operating leases with a third party terminated since the Company had been unable to negotiate a
renewal. The Company sold the permit for this billboard to the former lessor for $100,000 in cash.
Minimum future contractual rental payments to be received from noncancellable long-term leases as
of December 31, 2007 are:
| Year ending December 31, | ||||
2008 |
$ | 2,093,000 | ||
2009 |
2,137,000 | |||
2010 |
2,278,000 | |||
2011 |
2,858,000 | |||
2012 |
3,135,000 | |||
2013 to 2153 |
714,542,000 | |||
| $ | 727,043,000 | |||
For those leases with presently known scheduled rent increases at December 31, 2007 and 2006, the
cumulative excess of straight-line over contractual rentals (considering scheduled rent increases
over the 30 to 149 year terms of the leases) and the portion of the excess of straight-line over
contractual rentals which management has concluded is realizable when payable over the terms of the
leases is as follows:
| 2007 | 2006 | |||||||
Cumulative excess of straight-line over contractual rentals |
$ | 30,539,000 | $ | 25,998,000 | ||||
Amount management has not been able to conclude is collectible |
30,496,000 | 25,954,000 | ||||||
Accrued leasing revenues, which are included in prepaid and
other on the accompanying consolidated balance sheets |
$ | 43,000 | $ | 44,000 | ||||
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In the event of tenant default, the Company has the right to reclaim its leased land together with
any improvements thereon, subject to the right of any leasehold mortgagee to enter into a new lease
with the Company with the same terms and conditions as the lease in default.
Short-term leases:
The Company leases the undeveloped parcels of land in or adjacent to the Capital Center area for
public parking purposes to one tenant under short-term cancellable leases.
In November 2007, the Company purchased a building and underlying land, which is contiguous on the
north and east with Parcel 20 already owned by the Company. The Company is leasing a portion of
the building to four tenants under short-term leases (one year or less) at a current annual rental
of $134,000.
| 5. | Petroleum storage facility: |
Current operations:
The Company and Global are parties to a lease agreement whereby the Company operates the entire
Facility for Global. The Company is responsible for labor, insurance, property taxes and other
operating expenses, as well as capital improvements.
The lease provides as follows:
| • | The lease expires April 30, 2013, but will continue thereafter on a year-to-year basis unless terminated by either party upon ninety days’ written notice; | ||
| • | Global may terminate the lease on or after April 30, 2008, upon one year’s written notice; | ||
| • | Global will pay a monthly rent as shown in the following schedule, subject to annual cost-of-living adjustments; | ||
| • | Global will reimburse the Company for real property taxes in excess of $106,000 annually; and | ||
| • | The Company will receive an additional $.10 per barrel for every barrel in excess of 4,000,000 barrels of throughput in any lease year (contingent revenue). |
For the years ended December 31, 2007, 2006 and 2005, the Company earned contingent revenue of
$171,000, $141,000 and $123,000, respectively.
The monthly rent as of January 1, 2005 was $185,000 and has increased as follows:
| Effective | Amount of | New | ||||||||||
| Date | Reason for Increase | Increase | Monthly Rent | |||||||||
| May 2005 | Annual cost-of-living adjustment |
$ | 6,000 | $ | 191,000 | |||||||
| December 2005 | Completion of 152,000 barrel tank |
36,000 | 227,000 | |||||||||
| May 2006 | Annual cost-of-living adjustment |
7,000 | 234,000 | |||||||||
| August 2006 | Completion of 175,000 barrel tank |
43,000 | 277,000 | |||||||||
| May 2007 | Annual cost-of-living adjustment |
8,000 | 285,000 | |||||||||
Effective May 2003, Global has an option to purchase the Facility at any time during the term of
the lease (other than the last year thereof) on the terms and conditions set forth in a separate
option agreement. Under a companion agreement, Global agreed to make certain improvements at the
Pier which totaled approximately $170,000 and $110,000 for the years ended December 31, 2006 and
2005, respectively. No improvements were made in 2007. [See Wilkesbarre Pier below].
Environmental remediation:
In 1994, a leak was discovered in a 25,000 barrel storage tank at the Terminal 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 pursuant to which the Company installed a passive system consisting of three wells and
commenced monitoring the wells.
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Table of Contents
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. The consulting engineers estimated a total cost of $200,000 to
design, install and operate the system, which amount was accrued in 2004. Through December 31,
2007, the Company has expended $119,000. RIDEM has not taken any action on the Company’s proposed
plan. As designed, 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. 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, which could result in
the Company incurring additional costs.
Environmental incident:
In 2002, during testing of monitoring wells at the Terminal, the Company’s consulting engineer
discovered free floating phase product in a groundwater monitoring well located on that portion of
the Terminal purchased in 2000. Preliminary laboratory analysis indicated that the product was
gasoline, which is not a product the Company ever stored at the Terminal. 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 Terminal. The Company notified RIDEM. The Company will continue to monitor RIDEM’s
investigation.
Since January 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 is a deep-water pier in East Providence, Rhode Island owned by the Company which is
integral to the operation of the Terminal. The Pier and the Terminal are connected by two
petroleum pipelines which the Company has a permanent right to use. 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 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 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 was also engaged in litigation with Properties over the question of whether either
party had 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. In
February 2005, the Judge Magistrate of the United States District Court for the District of Rhode
Island recommended that the Court deny and dismiss all of the claims asserted by the parties in the
action. Both parties appealed that recommendation, and in September 2005, the Court denied and
dismissed all claims. Neither party appealed the Court’s decision.
| 6. | Income taxes: |
In 2004, the Company received condemnation proceeds from Amtrak totaling $1,428,000 which qualified
for deferred reinvestment for income tax reporting purposes pursuant to which the Company elected
to reduce the income tax basis of qualifying subsequent acquisitions, thereby avoiding paying
income taxes on the proceeds, subject to certain restrictions. The Company’s 2004 income tax
returns made such election, thereby reducing its cash outlay for income taxes for 2004 by
approximately $570,000. Through December 31, 2006, the Company had made qualifying acquisitions
totaling $250,000, and in November 2007 purchased a building and related land for $2,329,000 which
were qualifying assets, thereby reinvesting the remaining proceeds from the condemnation.
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Income tax expense is comprised of the following components:
| 2007 | 2006 | 2005 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 519,000 | $ | 528,000 | $ | 771,000 | ||||||
State |
110,000 | 155,000 | 205,000 | |||||||||
| 629,000 | 683,000 | 976,000 | ||||||||||
Deferred: |
||||||||||||
Federal |
218,000 | 152,000 | 70,000 | |||||||||
State |
75,000 | 61,000 | 47,000 | |||||||||
| 293,000 | 213,000 | 117,000 | ||||||||||
| $ | 922,000 | $ | 896,000 | $ | 1,093,000 | |||||||
A reconciliation of the income tax provision as computed by applying the United States income tax
rate (34%) to income before income taxes is as follows:
| 2007 | 2006 | 2005 | ||||||||||
Computed “expected” tax |
$ | 784,000 | $ | 753,000 | $ | 937,000 | ||||||
Increase (decrease) in “expected” tax resulting from: |
||||||||||||
State income tax, net of Federal income tax benefit |
140,000 | 133,000 | 165,000 | |||||||||
Statutory and other |
(2,000 | ) | 10,000 | (9,000 | ) | |||||||
| $ | 922,000 | $ | 896,000 | $ | 1,093,000 | |||||||
Deferred income taxes are recorded based upon differences between financial statement and tax basis
amounts of assets and liabilities. The tax effects of temporary differences which give rise to
deferred tax assets and liabilities were as follows:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
Gross deferred tax liabilities: |
||||||||
Property having a financial statement basis in excess of tax basis: |
||||||||
Cost differences |
$ | 3,517,000 | $ | 3,150,000 | ||||
Depreciation differences |
1,874,000 | 1,578,000 | ||||||
| 5,391,000 | 4,728,000 | |||||||
Condemnation proceeds |
— | 470,000 | ||||||
Insurance premiums |
80,000 | 74,000 | ||||||
| 5,471,000 | 5,272,000 | |||||||
Gross deferred tax assets |
(320,000 | ) | (414,000 | ) | ||||
| $ | 5,151,000 | $ | 4,858,000 | |||||
| 7. | Operating segment disclosures: |
The Company operates in two segments: (1) Leasing and (2) Petroleum Storage.
The Company makes decisions relative to the allocation of resources and evaluates performance based
on each segment’s respective income before income taxes, excluding interest income, and certain
corporate expenses.
Inter-segment revenues are immaterial in amount. The Company did not incur interest expense during
the years ended December 31, 2007, 2006 and 2005.
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The following financial information is used for making operating decisions and assessing
performance of the Company’s segments:
| December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Leasing: |
||||||||||||
Revenues and other income: |
||||||||||||
Revenues: |
||||||||||||
Long-term leases: |
||||||||||||
Contractual |
$ | 2,053,000 | $ | 2,010,000 | $ | 1,983,000 | ||||||
Contingent |
130,000 | 140,000 | 145,000 | |||||||||
Option |
100,000 | — | 81,000 | |||||||||
Excess of contractual over straight-line rentals |
(1,000 | ) | (29,000 | ) | (94,000 | ) | ||||||
Non-cash reversal of accrued leasing revenues |
— | (159,000 | ) | — | ||||||||
Short-term leases |
571,000 | 531,000 | 548,000 | |||||||||
| 2,853,000 | 2,493,000 | 2,663,000 | ||||||||||
Other income: |
||||||||||||
Gain on sale of parking garage |
— | — | 1,057,000 | |||||||||
Gain on sale of billboard permit |
— | — | 100,000 | |||||||||
Total revenues and other income |
$ | 2,853,000 | $ | 2,493,000 | $ | 3,820,000 | ||||||
Property tax expense |
$ | 447,000 | $ | 543,000 | $ | 574,000 | ||||||
Depreciation |
$ | 4,000 | $ | 1,000 | $ | 14,000 | ||||||
Income before income taxes |
$ | 2,287,000 | $ | 1,830,000 | $ | 3,042,000 | ||||||
Assets |
$ | 6,498,000 | $ | 4,179,000 | $ | 4,271,000 | ||||||
Properties and equipment: |
||||||||||||
Additions |
$ | 2,329,000 | $ | 35,000 | $ | — | ||||||
Deletion, parking garage |
$ | — | $ | — | $ | (2,500,000 | ) | |||||
Petroleum storage: |
||||||||||||
Revenues: |
||||||||||||
Contractual |
$ | 3,543,000 | $ | 3,046,000 | $ | 2,426,000 | ||||||
Contingent |
171,000 | 141,000 | 123,000 | |||||||||
Total revenues |
$ | 3,714,000 | $ | 3,187,000 | $ | 2,549,000 | ||||||
Property tax expense |
$ | 204,000 | $ | 107,000 | $ | 95,000 | ||||||
Depreciation |
$ | 657,000 | $ | 549,000 | $ | 415,000 | ||||||
Income before income taxes |
$ | 1,263,000 | $ | 1,389,000 | $ | 836,000 | ||||||
Assets |
$ | 14,625,000 | $ | 14,871,000 | $ | 13,273,000 | ||||||
Properties and equipment: |
||||||||||||
Additions |
$ | 551,000 | $ | 2,230,000 | $ | 2,103,000 | ||||||
Deletion |
(73,000 | ) | — | — | ||||||||
| $ | 478,000 | $ | 2,230,000 | $ | 2,103,000 | |||||||
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The following is a reconciliation of the segment information to the amounts reported in the
accompanying consolidated financial statements:
| 2007 | 2006 | 2005 | ||||||||||
Revenues and other income: |
||||||||||||
Revenues and other income for operating segments: |
||||||||||||
Leasing |
$ | 2,853,000 | $ | 2,493,000 | $ | 3,820,000 | ||||||
Petroleum storage |
3,714,000 | 3,187,000 | 2,549,000 | |||||||||
| 6,567,000 | 5,680,000 | 6,369,000 | ||||||||||
Interest income |
128,000 | 109,000 | 94,000 | |||||||||
Total consolidated revenues and other income |
$ | 6,695,000 | $ | 5,789,000 | $ | 6,463,000 | ||||||
Property tax expense: |
||||||||||||
Property tax expense for operating segments: |
||||||||||||
Leasing |
$ | 447,000 | $ | 543,000 | $ | 574,000 | ||||||
Petroleum storage |
204,000 | 107,000 | 95,000 | |||||||||
| 651,000 | 650,000 | 669,000 | ||||||||||
Unallocated corporate property tax expense |
1,000 | 1,000 | 1,000 | |||||||||
Total consolidated property tax expense |
$ | 652,000 | $ | 651,000 | $ | 670,000 | ||||||
Depreciation: |
||||||||||||
Depreciation for operating segments: |
||||||||||||
Leasing |
$ | 4,000 | $ | 1,000 | $ | 14,000 | ||||||
Petroleum storage |
657,000 | 549,000 | 415,000 | |||||||||
| 661,000 | 550,000 | 429,000 | ||||||||||
Unallocated corporate depreciation |
3,000 | 1,000 | 2,000 | |||||||||
Total consolidated depreciation |
$ | 664,000 | $ | 551,000 | $ | 431,000 | ||||||
Income before income taxes: |
||||||||||||
Income for operating segments: |
||||||||||||
Leasing |
$ | 2,287,000 | $ | 1,830,000 | $ | 3,042,000 | ||||||
Petroleum storage |
1,263,000 | 1,389,000 | 836,000 | |||||||||
| 3,550,000 | 3,219,000 | 3,878,000 | ||||||||||
Interest income |
128,000 | 109,000 | 94,000 | |||||||||
Unallocated corporate expenses |
(1,371,000 | ) | (1,113,000 | ) | (1,216,000 | ) | ||||||
Total consolidated income before income taxes |
$ | 2,307,000 | $ | 2,215,000 | $ | 2,756,000 | ||||||
Assets: |
||||||||||||
Assets for operating segments: |
||||||||||||
Leasing |
$ | 6,498,000 | $ | 4,179,000 | $ | 4,271,000 | ||||||
Petroleum storage |
14,625,000 | 14,871,000 | 13,273,000 | |||||||||
| 21,123,000 | 19,050,000 | 17,544,000 | ||||||||||
Corporate cash and cash equivalents |
1,866,000 | 2,787,000 | 3,936,000 | |||||||||
Other unallocated amounts |
48,000 | 21,000 | 12,000 | |||||||||
Total consolidated assets |
$ | 23,037,000 | $ | 21,858,000 | $ | 21,492,000 | ||||||
Additions and deletions to properties and equipment: |
||||||||||||
Additions and deletions to properties and equipment: |
||||||||||||
Leasing |
$ | 2,329,000 | $ | 35,000 | $ | (2,500,000 | ) | |||||
Petroleum storage |
478,000 | 2,230,000 | 2,103,000 | |||||||||
| 2,807,000 | 2,265,000 | (397,000 | ) | |||||||||
Unallocated corporate additions to properties and equipment |
29,000 | 1,000 | — | |||||||||
Total consolidated additions (deletions) |
$ | 2,836,000 | $ | 2,266,000 | $ | (397,000 | ) | |||||
31
Table of Contents
The following table sets forth those customers whose revenues exceed 10% of the Company’s segment
revenues:
| 2007 | 2006 | 2005 | ||||||||||
Leasing segment: |
||||||||||||
Metropark, Ltd. |
$ | 805,000 | $ | 605,000 | $ | 718,000 | ||||||
Lamar Outdoor Advertising, LLC |
558,000 | 531,000 | 548,000 | |||||||||
Gramercy Capital Corp |
468,000 | 468,000 | 468,000 | |||||||||
AvalonBay Communities, Inc. |
404,000 | 406,000 | 403,000 | |||||||||
| $ | 2,235,000 | $ | 2,010,000 | $ | 2,137,000 | |||||||
Petroleum storage segment, Global Companies, LLC |
$ | 3,714,000 | $ | 3,187,000 | $ | 2,549,000 | ||||||
| 8. | Fourth quarter transactions for 2007: | |
| In December 2007, the president of Capital Properties, Inc. retired and was paid a bonus totaling $125,000, which amount is recorded in general and administrative expense on the accompanying statement of income and retained earnings for the year ended December 31, 2007. In December 2007, the president of Capital Terminal Company also retired and was paid a bonus totaling $109,000, which amount is recorded in petroleum storage facility expense on the accompanying statement of income and retained earnings for the year ended December 31, 2007. | ||
| 9. | Selected quarterly financial data (unaudited): | |
| The following table sets forth selected financial data for each quarter of 2007 and 2006. The information for each of these quarters is unaudited but includes all normal recurring adjustments that the Company considers necessary for a fair presentation. These results, however, are not necessarily indicative of results for any future period. The sum of the quarterly basic income per common share may vary from the total for the year due to rounding. |
| Year Ended December 31, 2007, | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
Total revenues and other income |
$ | 1,665,000 | $ | 1,776,000 | $ | 1,565,000 | $ | 1,689,000 | ||||||||
Net income |
$ | 380,000 | $ | 489,000 | $ | 333,000 | $ | 183,000 | ||||||||
Basic income per common share |
$ | 0.12 | $ | 0.15 | $ | 0.10 | $ | 0.06 | ||||||||
| Year Ended December 31, 2006, | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
Total revenues and other income |
$ | 1,470,000 | $ | 1,320,000 | $ | 1,471,000 | $ | 1,528,000 | ||||||||
Net income |
$ | 321,000 | $ | 252,000 | $ | 373,000 | $ | 373,000 | ||||||||
Basic income per common share |
$ | 0.10 | $ | 0.07 | $ | 0.11 | $ | 0.11 | ||||||||
Total revenues and other income for the second quarter of 2007 include option revenue of $100,000
resulting from the settlement of a dispute with a former tenant. As discussed in Note 8 above, two
bonuses were recorded in the fourth quarter of 2007.
32
Table of Contents
Capital Properties, Inc. and Subsidiaries
Valuation and Qualifying Accounts
December 31, 2007, 2006 and 2005
Valuation and Qualifying Accounts
December 31, 2007, 2006 and 2005
Schedule II
| Description: | ||||||||||||||||||||
| Cumulative Excess of Straight-line over | ||||||||||||||||||||
| Contractual Rentals Which Management Has | Balance at | Charged to | Charged to Accrued | Balance at | ||||||||||||||||
| Not Been Able to Conclude is Collectible | Beginning of Period | Revenues | Leasing Revenues | Deductions | End of Period | |||||||||||||||
Year ended 12/31/07: |
$ | 25,954,000 | $ | — | $ | 4,548,000 | $ | (6,000 | ) | $ | 30,496,000 | |||||||||
Year ended 12/31/06: |
$ | 21,686,000 | $ | — | $ | 4,274,000 | $ | (6,000 | ) | $ | 25,954,000 | |||||||||
Year ended 12/31/05: |
$ | 17,680,000 | $ | — | $ | 4,013,000 | $ | (7,000 | ) | $ | 21,686,000 | |||||||||
33
Table of Contents
Capital Properties, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2007
Real Estate and Accumulated Depreciation
December 31, 2007
Schedule III
| Costs Capitalized | |||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent to | Gross Amount at Which Carried | Life on | |||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost | Acquisition | at Close of Period (2) | which | ||||||||||||||||||||||||||||||||||||||||||||
| Buildings | Buildings | Buildings | Accumulated | Date of | Date | Depreciation | |||||||||||||||||||||||||||||||||||||||||
| Description | Land | and Other | Land | and Other | Land | and Other | Total | Depreciation | Construction | Acquired | is Computed | ||||||||||||||||||||||||||||||||||||
Prov RI |
|||||||||||||||||||||||||||||||||||||||||||||||
Parcel 2 |
$ | 191,000 | $ | — | $ | 236,000 | $ | — | $ | 427,000 | $ | — | $ | 427,000 | N/A | 12/29/82 | |||||||||||||||||||||||||||||||
Parcel 3E |
44,000 | — | 19,000 | — | 63,000 | — | 63,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 3S |
88,000 | — | 23,000 | — | 111,000 | — | 111,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 3W |
73,000 | — | 40,000 | — | 113,000 | — | 113,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 4E |
44,000 | — | 19,000 | — | 63,000 | — | 63,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 4W |
103,000 | — | 40,000 | — | 143,000 | — | 143,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 5 |
118,000 | — | 30,000 | — | 148,000 | — | 148,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 6 |
573,000 | — | 723,000 | — | 1,296,000 | — | 1,296,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 7A |
162,000 | — | 31,000 | — | 193,000 | — | 193,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 8 |
73,000 | — | 20,000 | — | 93,000 | — | 93,000 | N/A | 12/29/82 | ||||||||||||||||||||||||||||||||||||||
Parcel 9 |
17,000 | — | 33,000 | — | 50,000 | — | 50,000 | N/A | 9/28/89 | ||||||||||||||||||||||||||||||||||||||
Parcel 20 |
672,000 | — | 536,000 | — | 1,208,000 | — | 1,208,000 | N/A | 5/31/88 | ||||||||||||||||||||||||||||||||||||||
2007 Addition |
— | — | 630,000 | 1,699,000 | 630,000 | 1,699,000 | 2,329,000 | $ | 4,000 | 11/30/07 | 39 Years | ||||||||||||||||||||||||||||||||||||
Billboard
Easements
MA and RI |
70,000 | — | 13,000 | — | 83,000 | — | 83,000 | 12,000 | 12/31/87 | 21 Years | |||||||||||||||||||||||||||||||||||||
| $ | 2,228,000 | $ | — | $ | 3,393,000 | $ | 1,699,000 | $ | 4,621,000 | $ | 1,699,000 | $ | 6,320,000 | $ | 16,000 | ||||||||||||||||||||||||||||||||
34
Table of Contents
Capital Properties, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation (continued)
December 31, 2007
Schedule III
Real Estate and Accumulated Depreciation (continued)
December 31, 2007
Schedule III
Cost: |
||||
Balance, January 1, 2005 |
$ | 6,456,000 | ||
Cost of parking garage sold |
(2,500,000 | ) | ||
Balance, December 31, 2005 |
3,956,000 | |||
Acquisitions |
35,000 | |||
Balance, December 31, 2006 |
3,991,000 | |||
Acquisitions |
2,329,000 | |||
Balance, December 31, 2007 |
$ | 6,320,000 | ||
Accumulated depreciation: |
||||
Balance, January 1, 2005 |
$ | 1,054,000 | ||
Depreciation |
14,000 | |||
Accumulated depreciation on parking garage sold |
(1,057,000 | ) | ||
Balance, December 31, 2005 |
11,000 | |||
Depreciation |
1,000 | |||
Balance, December 31, 2006 |
12,000 | |||
Depreciation |
4,000 | |||
Balance, December 31, 2007 |
$ | 16,000 | ||
| (1) | The “Encumbrance” column has been deleted since not applicable. | |
| (2) | The aggregate cost for Federal income tax reporting purposes of the above assets at December
31, 2007 is $3,361,000. |
35
Table of Contents
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There were no changes in, or disagreements with, accountants on accounting or financial disclosure
as defined by Item 304 of Regulation S-K.
Item 9A. Controls and Procedures
Under the supervision of the Company’s management, including its principal executive officer and
principal financial officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rule 13a-15 under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based upon this
evaluation, the principal executive officer and principal financial officer have concluded that, as
of such date, the Company’s disclosure controls and procedures were effective in making them aware
on a timely basis of the material information relating to the Company required to be included in
the Company’s periodic filings with the Securities and Exchange Commission.
Management’s Annual Report on Internal Control over Financial Reporting.
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act). The Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of its financial reporting and the preparation of
published financial statements in accordance with generally accepted accounting principles.
However, because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or the degree of compliance with
policies may deteriorate.
Management conducted its evaluation of the effectiveness of its internal control over financial
reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”) as of December 31, 2007.
Based on this assessment, the principal executive officer and principal financial officer believe
that as of December 31, 2007, the Company’s internal control over financial reporting was effective
based on criteria set forth by COSO in “Internal Control-Integrated Framework.”
This annual report does not include an attestation report of the Company’s independent registered
public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting.
During the quarter ended December 31, 2007, there has been no change in the Company’s internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange
Act) that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
36
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
The information concerning directors required by this item, including the Audit Committee and the
Audit Committee financial expert, is incorporated by reference to the Sections entitled “Election
of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Security Ownership of
Certain Beneficial Owners and Management” and “Audit Committee Report” in the Company’s Definitive
Proxy for the 2008 Annual Meeting of the Shareholders to be filed with the SEC.
The following are the executive officers of the Registrant:
| Date of First | ||||||||||
| Name | Age | Office Held | Election to Office | |||||||
Robert H. Eder
|
75 | President, Capital Properties, Inc. | 1995 | |||||||
Barbara J. Dreyer
|
69 | Treasurer, Capital Properties, Inc. | 1997 | |||||||
Stephen J. Carlotti
|
65 | Secretary, Capital Properties, Inc. | 1998 | |||||||
Todd D. Turcotte
|
36 | President, Capital Terminal Company and Vice President, Capital Properties, Inc. | 2008 | |||||||
All officers hold their respective offices until their successors are duly elected and qualified.
Ms. Dreyer served as President and Treasurer of the Registrant from 1995 to 1997 and as Treasurer
since that date. Mr. Carlotti is a partner in the law firm, Hinckley, Allen & Snyder LLP, which
firm provides legal services to the Company.
Code of Ethics:
The Company has adopted a Code of Ethics which applies to all directors, officers and employees of
the Company and its subsidiaries including the Principal Executive Officer and the Treasurer (who
is both the principal accounting and financial officer), which meets the requirement of a “code of
ethics” as defined in Item 406 of Regulation S-K. The Company will provide a copy of the Code to
shareholders pursuant to any request directed to the Treasurer at the Company’s principal offices.
The Company intends to disclose any amendments to, or waiver of, any provisions of the Code for the
Principal Executive Officer or Treasurer, or any person performing similar functions.
The additional information required by this item is incorporated by reference to the Section
entitled “Corporate Governance” in the Company’s Definitive Proxy Statement for the 2008 Annual
Meeting of the Shareholders to be filed with the Securities and Exchange Commission.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Sections entitled
“Compensation of Directors”, “Compensation Discussion and Analysis”, “Compensation Committee
Report”, and “Executive Compensation” in the Company’s Definitive Proxy Statement for the 2008
Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission..
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated by reference to the Section entitled
“Security Ownership of Certain Beneficial Owners and Management” in the Company’s Definitive Proxy
Statement for the 2008 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference to the Sections entitled
“Election of Directors” and “Transactions with Management” in the Company’s Definitive Proxy
Statement for the 2008 Annual Meeting of the Shareholders to be filed with the Securities and
Exchange Commission.
37
Table of Contents
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the Section entitled
“Independent Registered Public Accountants” in the Company’s Definitive Proxy Statement for the
2008 Annual Meeting of the Shareholders to be filed with the Securities and Exchange Commission
PART IV
Item 15. Exhibits and Financial Statement Schedules
| (a) | and (c) The consolidated financial statements and supplementary data (including financial statement schedules) are included in Item 8. |
(b) Exhibits:
| 3.1 | Amended Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s report on Form 8-K filed December 10, 2001). | ||
| 3.2 | By-laws, as amended December 10, 2007 | ||
| 10 | Material contracts: |
| (a) | Lease between Metropark, Ltd. and Company: | ||
| (i) | Dated January 1, 2005 (incorporated by reference to Exhibit 10(a) to the registrant’s annual report on Form 10-KSB for the year ended December 31, 2004), as amended. | ||
| (b) | Miscellaneous contract: | ||
| (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 registrant’s Report on Form 10-QSB/A for the quarterly period ended June 30, 2003), as amended. |
| 20.1 | Map of the Company’s parcels in Downtown Providence, Rhode Island | ||
| 20.2 | Map of the Company’s petroleum storage facility in East Providence, Rhode Island | ||
| 21 | Subsidiaries of the Company | ||
| 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 |
38
Table of Contents
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company has 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 | ||||
| President and Principal Executive Officer | ||||
DATED: March 26, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the Company and on the dates indicated.
/s/ Robert H. Eder
|
March 25, 2008 | |
Robert H. Eder |
||
President and Director |
||
Principal Executive Officer |
||
/s/ Barbara J. Dreyer
|
March 26, 2008 | |
Barbara J. Dreyer |
||
Treasurer, Principal Financial Officer |
||
and Principal Accounting Officer |
||
/s/ Ronald P. Chrzanowski
|
March 26, 2008 | |
Ronald P. Chrzanowski, Director |
||
/s/ Alfred J. Corso
|
March 26, 2008 | |
Alfred J. Corso, Director |
39