þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Rhode Island | 05-0386287 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation or organization) | Identification No.) |
| Tri-State Displays, Inc. (through which the Company leases land for billboards along interstate and primary highways for outdoor advertising purposes) (see Outdoor Advertising Lease in Item 2 below); | ||
| Dunellen, LLC (through which the Company owns the petroleum storage facility in East Providence, Rhode Island) (see Petroleum Storage Facility in Item 2 below); and | ||
| Capital Terminal Company (through which the Company operates its petroleum storage facility). |
2
3
| Parcel 3S A 13-story office building containing approximately 235,000 square feet, which lease terminates in 2087. | ||
| Parcel 5 An 8-story apartment building containing approximately 454,000 square feet with 225 units, which lease terminates in 2142. | ||
| Parcel 7A A 330 car 2-story underground parking garage, which lease terminates in 2104. | ||
| Parcel 8 A 4-story office building containing approximately 114,000 square feet, which lease terminates in 2090. |
| Parcel 9 In April 2004, the Companys lease with GTECH Corporation for 149 years commenced This lease has now been assigned to U. S. Real Estate Limited Partnership. In November 2004, construction of an office building which will contain approximately 210,000 square feet of office space and a parking garage with approximately 250 public parking spaces commenced on the parcel. This office building will house the American headquarters of GTECH. | ||
| Parcel 2 In May 2005, the Company entered into a lease for 103 years with an affiliate of Intercontinental Real Estate Corporation (Intercontinental). Construction of an underground 2-story 480-car garage covering the entire parcel commenced shortly thereafter. In addition, Intercontinental intends to construct two condominium towers containing 193 units. The parcel has sufficient space for two additional buildings for residential, hotel or office use. | ||
| Parcel 6 In 2002, the Company entered into a lease for 99 years under which the developer plans to construct several buildings containing a total of approximately 675,000 square feet of residential, office or retail space, and parking structures. The lease commenced January 1, 2005 and the developer anticipates breaking ground in March 2006. |
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Land | ||||||||||||||||
Improvements | Buildings | Tanks | Equipment | |||||||||||||
Federal income
tax basis (cost) |
$ | 1,898,620 | $ | 126,562 | $ | 7,805,219 | $ | 2,732,152 | ||||||||
Rate per year |
6.67 | % | 2.56 | % | 20 | % | 20 | % | ||||||||
Method |
150% DB | S/L | 200% DB | 200% DB | ||||||||||||
Life (Years) |
15 | 39 | 5 | 5 |
5
Trading Prices | Dividends | |||||||||||
High | Low | Paid | ||||||||||
2004 |
||||||||||||
1st Quarter |
13.72 | 11.95 | .03 | |||||||||
2nd Quarter |
17.45 | 12.85 | .03 | |||||||||
3rd Quarter |
17.50 | 14.80 | .03 | |||||||||
4th Quarter |
18.10 | 14.81 | .21 | |||||||||
2005 |
||||||||||||
1st Quarter |
22.00 | 18.00 | .03 | |||||||||
2nd Quarter |
24.60 | 18.10 | .03 | |||||||||
3rd Quarter |
24.20 | 23.23 | .03 | |||||||||
4th Quarter |
27.95 | 23.75 | .03 |
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7
8
9
10
11
12
13
14
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ASSETS |
||||
Properties and equipment (net of accumulated depreciation) |
$ | 16,756,000 | ||
Cash and cash equivalents |
4,311,000 | |||
Accrued leasing revenues |
232,000 | |||
Prepaid and other |
193,000 | |||
$ | 21,492,000 | |||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||
Liabilities: |
||||
Accounts payable and accrued expenses: |
||||
Property taxes |
$ | 294,000 | ||
Environmental remediation |
110,000 | |||
Other, including $106,000 relating to tank under construction |
295,000 | |||
Deferred leasing revenues |
306,000 | |||
Income taxes: |
||||
Current |
682,000 | |||
Deferred, net |
4,645,000 | |||
6,332,000 | ||||
Commitment (Note 2) |
||||
Shareholders equity (Note 6): |
||||
Class A common stock, $.01 par; authorized 6,000,000 shares;
issued and outstanding 3,299,956 shares |
33,000 | |||
Capital in excess of par |
11,795,000 | |||
Retained earnings |
3,332,000 | |||
15,160,000 | ||||
$ | 21,492,000 | |||
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2005 | 2004 | |||||||
Revenues and other income: |
||||||||
Revenues: |
||||||||
Leasing |
$ | 2,663,000 | $ | 3,049,000 | ||||
Petroleum storage facility |
2,549,000 | 2,074,000 | ||||||
5,212,000 | 5,123,000 | |||||||
Other income: |
||||||||
Gain on sale of parking garage |
1,057,000 | | ||||||
Gain on sale of billboard permit |
100,000 | | ||||||
Attorneys fee judgment |
| 258,000 | ||||||
Condemnation proceeds, including interest of $244,000 |
| 1,672,000 | ||||||
Interest |
94,000 | 22,000 | ||||||
6,463,000 | 7,075,000 | |||||||
Expenses: |
||||||||
Expenses applicable to: |
||||||||
Leasing |
778,000 | 1,590,000 | ||||||
Petroleum storage facility |
1,713,000 | 1,876,000 | ||||||
General and administrative |
1,216,000 | 1,038,000 | ||||||
3,707,000 | 4,504,000 | |||||||
Income before income taxes |
2,756,000 | 2,571,000 | ||||||
Income tax expense: |
||||||||
Current |
976,000 | 149,000 | ||||||
Deferred |
117,000 | 861,000 | ||||||
1,093,000 | 1,010,000 | |||||||
Net income |
1,663,000 | 1,561,000 | ||||||
Retained earnings, beginning |
2,065,000 | 1,494,000 | ||||||
Dividends on common stock ($.12 and $.30 per share
in 2005 and 2004, respectively) |
(396,000 | ) | (990,000 | ) | ||||
Retained earnings, ending |
$ | 3,332,000 | $ | 2,065,000 | ||||
Basic income per share |
$ | .50 | $ | .47 | ||||
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2005 | 2004 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 1,663,000 | $ | 1,561,000 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Gain on sale of parking garage |
(1,057,000 | ) | | |||||
Gain on sale of billboard permit |
(100,000 | ) | | |||||
Condemnation proceeds |
| (1,672,000 | ) | |||||
Depreciation |
431,000 | 410,000 | ||||||
Accrued leasing revenues |
94,000 | 91,000 | ||||||
Deferred income taxes |
117,000 | 861,000 | ||||||
Changes in assets and liabilities: |
||||||||
Increase in: |
||||||||
Receivables |
| (213,000 | ) | |||||
Prepaid and other |
| (156,000 | ) | |||||
Current income taxes payable |
647,000 | | ||||||
Deferred leasing revenues |
306,000 | | ||||||
Decrease in: |
||||||||
Receivables |
413,000 | | ||||||
Prepaid and other |
237,000 | | ||||||
Accounts payable and accrued expenses |
(506,000 | ) | (250,000 | ) | ||||
Current income taxes payable |
| (63,000 | ) | |||||
Net cash provided by operating activities |
2,245,000 | 569,000 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from: |
||||||||
Sale of parking garage |
2,500,000 | | ||||||
Sale of billboard permit |
100,000 | | ||||||
Condemnation |
| 1,672,000 | ||||||
Payments for properties and equipment |
(1,973,000 | ) | (2,057,000 | ) | ||||
Net cash provided by (used in) investing activities |
627,000 | (385,000 | ) | |||||
Cash used in financing activities, payment of dividends |
(396,000 | ) | (990,000 | ) | ||||
Increase (decrease) in cash and cash equivalents |
2,476,000 | (806,000 | ) | |||||
Cash and cash equivalents, beginning |
1,835,000 | 2,641,000 | ||||||
Cash and cash equivalents, ending |
$ | 4,311,000 | $ | 1,835,000 | ||||
Supplemental disclosures, cash paid for income taxes |
$ | 152,000 | $ | 378,000 | ||||
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1. | Basis of presentation and summary of significant accounting policies: | |
Basis of presentation and principles of consolidation: | ||
The accompanying consolidated financial statements include the accounts of Capital Properties, Inc. and its wholly-owned subsidiaries, Tri-State Displays, Inc., Capital Terminal Company and Dunellen, LLC (collectively referred to as the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts on the accompanying consolidated statement of income and retained earnings for the year ended December 31, 2004 have been reclassified to conform to the current year presentation. | ||
Description of business: | ||
The Company operates in two segments: (1) the leasing of certain of its real estate interests in downtown Providence, Rhode Island, and locations along interstate and primary highways in Rhode Island and Massachusetts for outdoor advertising purposes; and (2) the operation of its petroleum storage facility (the Petroleum Facility) in East Providence, Rhode Island. | ||
Use of estimates: | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. | ||
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, 2005, cash equivalents consisted of an overnight uninsured sweep with the Companys principal bank totaling $3,936,000. | ||
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. | ||
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. |
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Leasing and option revenue: | ||
The Companys properties leased to others are under operating leases. The Company reports leasing revenue when earned under the operating method. | ||
Certain of the Companys long-term land leases, including the outdoor advertising locations, provide for presently known scheduled rent increases over the terms (30 to 149 years). In accordance with the provisions of FAS No. 13 (Accounting for Leases) and certain of its interpretations, the Company is recognizing 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. | ||
The Company reports option revenue when earned. | ||
Petroleum storage facility revenue: | ||
The Company reports revenue from the operations of the petroleum storage facility when earned. | ||
Contingent revenue: | ||
The Company reports contingent revenue in the period in which the factors occur on which the contingent payments are based. | ||
Litigation and condemnation income: | ||
The Company reports income resulting from litigation and condemnations in the period in which the cash is received. | ||
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. | ||
Income taxes: | ||
The Company and its subsidiaries file consolidated income tax returns. | ||
The Company provides for income taxes based on income reported for financial statement 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. |
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2. | Properties and equipment: | |
At December 31, 2005, properties and equipment consists of: |
Properties on lease or held for lease, land and land improvements |
$ | 3,956,000 | ||
Petroleum storage facility : |
||||
Land and land improvements |
5,262,000 | |||
Buildings and structures |
1,120,000 | |||
Tanks and equipment, including $106,000 relating to
tank under construction |
12,446,000 | |||
18,828,000 | ||||
Office equipment |
96,000 | |||
22,880,000 | ||||
Less accumulated depreciation: |
||||
Properties on lease or held for lease |
11,000 | |||
Petroleum storage facility |
6,027,000 | |||
Office equipment |
86,000 | |||
6,124,000 | ||||
$ | 16,756,000 | |||
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 carrying 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 cost-of-living rental adjustments and periodic appraisals. | ||
In November 2005, the Company entered into a contract to construct a 175,000 barrel tank at a remaining cost of $2,000,000. Construction will commence in the first quarter of 2006. The Company anticipates that the tank will be completed in the third quarter of 2006. | ||
3. | Litigation judgments: | |
Disputes with Amtrak regarding condemnations: | ||
In 1998, as part of the electrification of the Northeast Corridor, National Railroad Passenger Corporation (Amtrak) erected towers and a signal bridge within the air rights owned by the Company. In 1999, Amtrak condemned a three-year temporary easement of all the air rights owned by the Company and the Company received $335,000 from Amtrak. In 2001, Amtrak permanently condemned the air rights and a parcel of land adjacent to the air rights (with a carrying value of $625,000) and the Company received $925,000 from Amtrak. The Company believed that the condemnation amounts paid by Amtrak were inadequate and accordingly brought suit against Amtrak in the United States District Court for the District of Rhode Island (U. S. District Court) seeking additional compensation. In 2002, the U. S. District Court awarded the Company $1,378,000 plus interest for additional damages resulting from the aforementioned condemnations. In 2003, Amtrak appealed the decision to the U.S. Court of Appeals for the First Circuit. The First Circuit affirmed the judgment of the U.S. District Court, and in 2004 the Company received $1,622,000. |
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In 2004, Amtrak also permanently condemned a small portion of land surrounding a pole erected by Amtrak on one of the Companys parcels. The Company and Amtrak entered into an agreement in full settlement of this matter for which the Company received $50,000 in 2004. | ||
Claim against City of Providence for attorneys fees: | ||
In 1997, the City of Providence (the City) revalued certain of the Companys properties within the Capital Center area in downtown Providence, Rhode Island, and reached back six years to assess over $13,000,000 in back taxes, interest and penalties on the properties based upon a retroactive increase in the assessed values. These increases were not a part of a city-wide revaluation. The Company contended that this action by the City was both unprecedented and illegal. | ||
In another action, the City claimed that the Company was not the owner of a certain parcel of land in the Capital Center (Disputed Parcel), which the Company purchased in 1989 from the State of Rhode Island subsequent to the States acquiring the parcel from the City. Moreover, the City attempted to condemn the Disputed Parcel. The Company contested both the Citys claim of ownership and the Citys attempt to condemn the Disputed Parcel. | ||
In 1999, the Rhode Island Superior Court (Superior Court) ruled in favor of the Company and found (1) that both the Citys new tax assessments and back taxes were illegal and void, and (2) that the Company is the rightful owner of the Disputed Parcel and that the City had no right to condemn same. The City appealed the judgments to the Rhode Island Supreme Court (Supreme Court), which denied and dismissed the Citys appeal in 1999. | ||
After prevailing on the merits, the Company made claim against the City for attorneys fees. | ||
In 2000, the City filed a motion to vacate the Superior Court and Supreme Court judgments entered in favor of the Company which motion the Superior Court denied and awarded the Company attorneys fees of $258,000. The City filed an appeal in the Supreme Court which affirmed the judgment against the City, and the Company received the payment from the City in 2004. No interest was awarded on the judgment. | ||
4. | Description of leasing arrangements: | |
As of December 31, 2005, the Company had entered into four long-term land leases for four separate parcels upon which the improvements have been completed (developed parcels), including the lease for the land under the parking garage discussed in Note 2. The Company has entered into three additional long-term land leases (undeveloped parcels) with commencement dates of April 1, 2004, January 1, 2005, and May 1, 2005, respectively. Construction of the improvements has commenced on two of the three parcels. | ||
For those leases with presently known scheduled rent increases, the cumulative excess of straight-line over contractual rentals (considering scheduled rent increases over the 30 to 149 year terms of the leases) amounted to $21,918,000 through December 31, 2005. Management has concluded that a portion of the excess of straight-line over contractual rentals ($232,000 at December 31, 2005) is realizable when payable over the terms of the leases. | ||
Under the seven land leases which have commenced, the tenants are required to pay the City for real property taxes, which amounts are excluded from leasing revenues and expenses applicable to leasing on the accompanying consolidated statements of income and retained earnings. The real property taxes attributable to the Companys land under these leases totaled $1,277,000 |
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(seven leases) for the year ended December 31, 2005, and $488,000 (four leases) for the year ended December 31, 2004. | ||
Under the lease which commenced January 1, 2005, the tenant is entitled to a credit for future rents equal to a portion of the real property tax expense currently being paid by the tenant. For the years ended December 31, 2005 and 2004, the Company reported the portion of the real property taxes subject to the future credit ($143,000 and $234,000, respectively) as property tax expense on the accompanying consolidated statements of income and retained earnings and as accrued property taxes on its consolidated balance sheet. As the tenant makes the tax payment, the amount of the payment is reclassified from accrued property taxes to deferred leasing revenues which totaled $306,000 at December 31, 2005. During the periods that the tenant is entitled to the credit (commencing in 2010), the Company will reclassify deferred leasing revenues to leasing revenues. | ||
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 approximately $58,000 for each of the years ended December 31, 2005 and 2004. | ||
The Company also leases various parcels of land for outdoor advertising purposes to Lamar Outdoor Advertising (Lamar) under a lease having a remaining term of 28 years. Presently, there are 25 locations under lease with 48 billboard faces. Of these locations, 22 are owned by the Company and 3 are leased by the Company from third parties under operating leases with original terms of 1 to 11 years. In July 2005, another of the Companys operating leases with a third party terminated since the Company had been unable to negotiate a renewal, and the Company sold the permit for this billboard to the former lessor for $100,000 in cash. | ||
The Lamar lease also provides that the Company receive contingent rentals based upon a fixed percentage of the total annual revenue received by Lamar provided such revenue exceeds the contractual base payment. Contingent rental revenues totaled $87,000 and $98,000 for the years ended December 31, 2005 and 2004, respectively. | ||
Minimum future contractual rental payments to be received from noncancellable long-term leases as of December 31, 2005 are: |
2006 |
$ | 1,992,000 | ||
2007 |
1,972,000 | |||
2008 |
2,020,000 | |||
2009 |
2,032,000 | |||
2010 |
2,119,000 | |||
2011 to 2153 |
673,719,000 | |||
$ | 683,854,000 | |||
In the event of tenant default, the Company has the right to reclaim its leased land together with any improvements thereon. | ||
The Company leases the undeveloped parcels of land in or adjacent to the Capital Center area for public parking purposes under short-term cancellable leases. |
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5. | Petroleum storage facility: | |
Current operations: | ||
The Company and Global Companies, L.L.C. (Global) are parties to an agreement whereby the Company operates the entire Petroleum Facility for Global. The Company is responsible for labor, insurance, property taxes and other operating expenses, as well as capital improvements. | ||
In May 2003, the Company and Global entered into an amended and restated lease agreement (Amended Agreement) which, among other things, provides as follows: (1) the Amended Agreement will expire April 30, 2013, but will continue thereafter on a year-to-year basis unless terminated by either party upon ninety days written notice; (2) Global may terminate the Amended Agreement on or after April 30, 2008, upon one years written notice; (3) Global will pay a monthly fee of $150,000 effective May 1, 2004, subject to annual cost-of-living adjustments; (4) Global will reimburse the Company for certain increases in real property taxes over the 2002 level; and (5) the Company will receive an additional $.10 per barrel for every barrel in excess of 4,000,000 barrels of throughput in any agreement year. | ||
For the years ended December 31, 2005 and 2004, the Company earned contingent revenues of $123,000 and $140,000, respectively. | ||
In October 2004, the Company completed construction of a 152,000 barrel tank which Global immediately leased at a monthly fee of $35,000, increasing Globals monthly fee to $185,000. On May 1, 2005, the scheduled cost-of-living adjustment resulted in an increased monthly fee of $191,000. In December 2005, the Company completed the construction of another 152,000 barrel tank which Global immediately leased at a monthly fee of $36,000, increasing Globals total present monthly fee to $227,000. | ||
In October 2005, the Company and Global entered into the First Amendment to the Amended Agreement whereby Global agreed to include the 175,000 barrel tank to be constructed in 2006 (see Note 2) under the existing Amended Agreement at a monthly fee of approximately $42,000. | ||
Also effective May 2003, Global was granted the option to purchase the Petroleum Facility at any time during the term of the Amended Agreement under the terms and conditions set forth in an option agreement. In a separate but related agreement, Global agreed to make certain improvements at the Wilkesbarre Pier which totaled approximately $110,000 and $300,000 for the years ended December 31, 2005 and 2004, respectively. [See Wilkesbarre Pier below]. | ||
Environmental remediation: | ||
In 1994, a leak was discovered in a 25,000 barrel storage tank at the Petroleum Facility which allowed the escape of a small amount of fuel oil. All required notices were made to the State of Rhode Island Department of Environmental Management (RIDEM). In 2000, the tank was demolished and testing of the groundwater indicated that there was no large pooling of contaminants. In 2001, RIDEM approved a plan whereby the Company installed a passive system consisting of three wells and commenced monitoring the wells. | ||
In 2003, RIDEM decided that the passive monitoring system previously approved was not sufficient and required the Company to design an active remediation system for the removal of product from the contaminated site. The Company and its consulting engineers began the pre-design testing of the site in the fourth quarter of 2004, and the Company continues to work with RIDEM to design an acceptable system. The consulting engineers estimated a total cost of |
24
$200,000 to design, install and operate the system, which amount was included in expenses applicable to petroleum storage facility on the accompanying consolidated statement of income and retained earnings for the year ended December 31, 2004. Through December 31, 2005, the Company has expended $90,000. The Company expects the system to be installed during the second quarter of 2006. The system will pump out the contaminants which will be disposed of in compliance with applicable regulations. After a period of time, the groundwater will be tested to determine if sufficient contaminants have been removed. The Company anticipates that the remediation process will be completed by the second quarter of 2007. 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 Petroleum Facility, the Companys consultant discovered free floating phase product in a groundwater monitoring well located on that portion of the Petroleum Facility purchased in 2000. Preliminary laboratory analysis indicated that the product was gasoline, which is not a product the Company ever stored at its Petroleum Facility. However, in the 1950s gasoline was stored on the Companys 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 Companys Petroleum Facility. The Company notified RIDEM. The Company will continue to monitor RIDEMs investigation of this contamination to ensure that the responsible party addresses this contamination. | ||
Since 2003, the Company has not incurred significant costs in connection with this matter and is unable to determine the costs it might incur to remedy the situation as well as any costs to investigate, defend, and seek reimbursement from the responsible party with respect to this contamination. | ||
Wilkesbarre Pier (the Pier): | ||
The Pier is a deep-water pier in East Providence, Rhode Island owned by the Company which is integral to the operation of the Petroleum Facility. The Pier and the Petroleum Facility are connected by two petroleum pipelines. In 1995, the Company and Providence and Worcester Railroad Company (the Railroad) (the then owner of the Pier) entered into an agreement which, among other things, gave the Company the right to acquire the Pier for One Dollar ($1.00). The Company acquired the Pier from the Railroad in 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. |
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The Company was 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 Courts decision. | ||
6. | Shareholders equity: | |
In December 2001, the Company amended its Articles of Incorporation to create three classes of $.01 par value stockClass 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 Companys classes of common stock and prohibited the two shareholders who each beneficially then owned in excess of 5% of the Companys classes of common stock from increasing their percentage ownership of each class of common stock. The purpose of the amendment of the Articles of Incorporation was to provide the Company with the necessary flexibility to qualify to be taxed as a real estate investment trust (REIT). The amendment provided that if the Company did not make an election to be taxed as a REIT on or before March 31, 2005, the restrictions on share ownership would automatically lapse and shares of Class B Common Stock would automatically be converted into shares of Class A Common Stock on a one for one basis. | ||
The Company did not make the election and on March 31, 2005, the shares of Class B Common Stock were converted into shares of Class A Common Stock, resulting in the Company having 3,299,956 shares of Class A Common Stock outstanding, and the Excess Stock is no longer authorized. | ||
7. | Income taxes: | |
In 2004, the Company received condemnation proceeds from Amtrak which qualify for deferred reinvestment for income tax reporting purposes whereby the Company elected to reduce the income tax basis of qualifying subsequent acquisitions, which resulted in the Companys not then paying income taxes on the proceeds, subject to certain restrictions. During 2004, the Company made qualifying acquisitions totaling $216,000. Accordingly, the income tax provision for the year ended December 31, 2004 reflected such election. | ||
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: |
2005 | 2004 | |||||||
Computed expected tax |
$ | 937,000 | $ | 874,000 | ||||
Increase (decrease) in expected tax
resulting from: |
||||||||
State income tax, net of Federal income tax
benefit |
165,000 | 160,000 | ||||||
Statutory and other |
(9,000 | ) | (24,000 | ) | ||||
$ | 1,093,000 | $ | 1,010,000 | |||||
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Deferred income taxes are recorded based upon differences between financial statement and tax carrying amounts of assets and liabilities. The tax effects of temporary differences which give rise to deferred tax assets and liabilities at December 31, 2005 were as follows: |
Gross deferred tax liabilities: |
||||
Property having a financial statement basis
in excess of tax basis |
$ | 4,373,000 | ||
Condemnation proceeds |
484,000 | |||
Accrued leasing revenues |
93,000 | |||
Insurance premiums |
62,000 | |||
5,012,000 | ||||
Gross deferred tax assets |
(367,000 | ) | ||
$ | 4,645,000 | |||
8. | Operating segment disclosures: | |
The Company operates in two segments: (1) Leasing and (2) Petroleum storage facility. | ||
The Leasing segment consists of the long-term leasing of certain of its real estate interests in downtown Providence, Rhode Island (upon the commencement of which the tenants are required to construct buildings thereon, with the exception of the parking garage, and to pay real property taxes) and locations along interstate and primary highways in Rhode Island and Massachusetts (to 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 purposes under short-term cancellable leasing arrangements. | ||
The Petroleum Storage Facility segment consists of the operating of the Petroleum Facility in East Providence under an Amended Agreement effective May 1, 2003, that expires in 2013 at a fixed monthly rate for Global which stores and distributes petroleum products. The Amended Agreement includes provisions to extend and additional payments based upon throughput. (See Note 5). | ||
The principal difference between the two segments relates to the nature of the operations. The tenants in the leasing segment incur substantially all of the development and operating costs of the assets constructed on the Companys land, whereas the Company is responsible for the operating and maintenance expenditures as well as capital improvements at the Petroleum Facility. | ||
The Company makes decisions relative to the allocation of resources and evaluates performance based on income before income taxes, excluding interest income, condemnation proceeds and certain corporate expenses. | ||
Inter-segment revenues are immaterial in amount. The Company did not incur interest expense during the years ended December 31, 2005 and 2004. | ||
The following financial information is used for making operating decisions and assessing performance of the Companys segments: |
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Petroleum | ||||||||||||
Storage | ||||||||||||
Leasing | Facility | Total | ||||||||||
Year ended December 31, 2005: |
||||||||||||
Revenues and other income: |
||||||||||||
Revenues: |
||||||||||||
Long-term leases: |
||||||||||||
Contractual |
$ | 1,983,000 | $ | 2,426,000 | $ | 4,409,000 | ||||||
Contingent |
145,000 | 123,000 | 268,000 | |||||||||
Option |
81,000 | | 81,000 | |||||||||
Non-cash, excess of contractual over
straight-line rentals |
(94,000 | ) | | (94,000 | ) | |||||||
Short-term lease |
548,000 | | 548,000 | |||||||||
2,663,000 | 2,549,000 | 5,212,000 | ||||||||||
Other income: |
||||||||||||
Gain on sale of parking garage |
1,057,000 | | 1,057,000 | |||||||||
Gain on sale of billboard permit |
100,000 | | 100,000 | |||||||||
Total revenues and other income |
$ | 3,820,000 | $ | 2,549,000 | $ | 6,369,000 | ||||||
Property tax expense |
$ | 574,000 | $ | 95,000 | $ | 669,000 | ||||||
Depreciation |
$ | 14,000 | $ | 415,000 | $ | 429,000 | ||||||
Income before income taxes |
$ | 3,042,000 | $ | 836,000 | $ | 3,878,000 | ||||||
Assets |
$ | 4,271,000 | $ | 13,273,000 | $ | 17,544,000 | ||||||
Properties and equipment: |
||||||||||||
Additions |
$ | | $ | 2,103,000 | $ | 2,103,000 | ||||||
Deletion |
$ | (2,500,000 | ) | $ | | $ | (2,500,000 | ) | ||||
Year ended December 31, 2004: |
||||||||||||
Revenues and other income: |
||||||||||||
Revenues: |
||||||||||||
Long-term leases: |
||||||||||||
Contractual |
$ | 1,705,000 | $ | 1,934,000 | $ | 3,639,000 | ||||||
Contingent |
156,000 | 140,000 | 296,000 | |||||||||
Option |
405,000 | | 405,000 | |||||||||
Non-cash, excess of contractual over
straight-line rentals |
(91,000 | ) | | (91,000 | ) | |||||||
Short-term lease |
874,000 | | 874,000 | |||||||||
3,049,000 | 2,074,000 | 5,123,000 | ||||||||||
Other income, attorneys fees judgment |
258,000 | | 258,000 | |||||||||
Total revenues and other income |
$ | 3,307,000 | $ | 2,074,000 | $ | 5,381,000 | ||||||
Property tax expense |
$ | 1,326,000 | $ | 76,000 | $ | 1,402,000 | ||||||
Depreciation |
$ | 64,000 | $ | 342,000 | $ | 406,000 | ||||||
Income before income taxes |
$ | 1,717,000 | $ | 198,000 | $ | 1,915,000 | ||||||
Assets |
$ | 6,036,000 | $ | 11,814,000 | $ | 17,850,000 | ||||||
Properties and equipment, additions |
$ | 216,000 | $ | 1,830,000 | $ | 2,046,000 | ||||||
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The following is a reconciliation of the segment information to the amounts reported in the accompanying consolidated financial statements: |
2005 | 2004 | |||||||
Revenues and other income: |
||||||||
Revenues and other income for operating segments |
$ | 6,369,000 | $ | 5,381,000 | ||||
Condemnation proceeds, including interest |
| 1,672,000 | ||||||
Interest income |
94,000 | 22,000 | ||||||
Total consolidated revenues and other income |
$ | 6,463,000 | $ | 7,075,000 | ||||
Property tax expense: |
||||||||
Property tax expense for operating segments |
$ | 669,000 | $ | 1,402,000 | ||||
Unallocated corporate property tax expense |
1,000 | 1,000 | ||||||
Total consolidated property tax expense |
$ | 670,000 | $ | 1,403,000 | ||||
Depreciation: |
||||||||
Depreciation for operating segments |
$ | 429,000 | $ | 406,000 | ||||
Unallocated corporate depreciation |
2,000 | 4,000 | ||||||
Total consolidated depreciation |
$ | 431,000 | $ | 410,000 | ||||
Income before income taxes: |
||||||||
Income for operating segments |
$ | 3,878,000 | $ | 1,915,000 | ||||
Condemnation proceeds |
| 1,672,000 | ||||||
Interest income |
94,000 | 22,000 | ||||||
Unallocated corporate expenses |
(1,216,000 | ) | (1,038,000 | ) | ||||
Total consolidated income before income taxes |
$ | 2,756,000 | $ | 2,571,000 | ||||
Assets: |
||||||||
Assets for operating segments |
$ | 17,544,000 | $ | 17,850,000 | ||||
Corporate cash and cash equivalents |
3,936,000 | 1,667,000 | ||||||
Other unallocated amounts |
12,000 | 14,000 | ||||||
Total consolidated assets |
$ | 21,492,000 | $ | 19,531,000 | ||||
Additions to properties and equipment: |
||||||||
Operating segments |
$ | 2,103,000 | $ | 2,046,000 | ||||
Unallocated corporate additions |
| 12,000 | ||||||
Total consolidated additions |
$ | 2,103,000 | $ | 2,058,000 | ||||
Deletion to properties and equipment, parking garage,
operating segment and total consolidated deletion |
$ | (2,500,000 | ) | $ | | |||
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The following table sets forth those customers whose revenues exceed 10% of the Companys segment revenues. |
2005 | 2004 | |||||||
Leasing segment: |
||||||||
A |
$ | 718,000 | $ | 717,000 | ||||
B |
548,000 | 874,000 | ||||||
C |
468,000 | 392,000 | ||||||
D |
403,000 | 403,000 | ||||||
$ | 2,137,000 | $ | 2,386,000 | |||||
Petroleum storage facility segment (one customer) |
$ | 2,549,000 | $ | 2,074,000 | ||||
9. | Fair value of financial instruments: | |
The carrying amounts of the Companys financial instruments approximate their fair values at December 31, 2005, due to the short maturities of cash and cash equivalents, and accounts payable and accrued expenses. |
Item 8. 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-B. |
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Item 8A. Controls and Procedures | ||
Under the supervision of the Companys 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 15d-14(c) 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 Companys 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 Companys periodic filings with the Securities and Exchange Commission. | ||
There were no significant changes made in the Companys internal controls during the period covered by this report or, to the Companys knowledge, in the factors that could significantly affect these controls subsequent to the date of their evaluation. |
Item 9. Directors, Executive Officers, Promoters and Control Persons of the Issuer | ||
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, Security Ownership of Certain Beneficial Owners and Management and Audit Committee Report in the Companys Definitive Proxy for the 2006 Annual Meeting of the Shareholders to be filed with the SEC. | ||
The following are the executive officers of the Issuer: |
Date of First | ||||||
Name | Age | Office Held | Election to Office | |||
Robert H. Eder |
73 | Chairman, Capital Properties, Inc. | 1995 | |||
Ronald P. Chrzanowski |
63 | President, Capital Properties, Inc. | 1997 | |||
Barbara J. Dreyer |
67 | Treasurer, Capital Properties, Inc. | 1997 | |||
Stephen J. Carlotti |
63 | Secretary, Capital Properties, Inc. | 1998 | |||
Avery L. Noe |
62 | President, Capital Terminal Company | 1996 |
All officers hold their respective offices until their successors are duly elected and qualified. Mr. Chrzanowski served as Vice President of the Issuer from November 12, 1997 to December 31, 1997, and as President since that date. Ms. Dreyer served as President and Treasurer of the Issuer 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-B. The Company will provide a copy of the Code to shareholders pursuant to any request directed to the Treasurer at the Companys 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. |
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Item 10. Executive Compensation | ||
The information required by this item is incorporated by reference to the Section entitled Executive Compensation in the Companys Definitive Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the SEC. |
Item 11. Security Ownership of Certain Beneficial Owners and Management | ||
The information required by this item is incorporated by reference to the Section entitled Security Ownership of Certain Beneficial Owners and Management in the Companys Definitive Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the SEC. |
Item 12. Certain Relationships and Related Transactions | ||
Not applicable. |
32
Item 13. Exhibits and Reports on Form 8-K |
(a) | Index of Exhibits: |
3.1 | Amended Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Issuers report on Form 8-K filed December 10, 2001). | ||
3.2 | By-laws, as amended (incorporated by reference to Exhibit 3(b) to the Issuers quarterly report on Form 10-QSB for the quarter ended September 30, 1999). | ||
10 | Material contracts: |
(a) | Lease between Metropark, Ltd. and Company: | ||
(i) | Dated January 1, 2005 (incorporated by reference to Exhibit 10(a) to the Issuers 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 Issuers Report on Form 10-QSB/A for the quarterly period ended June 30, 2003), as amended. |
20.1 | Map of the Companys parcels in Downtown Providence, Rhode Island | ||
20.2 | Map of the Companys 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 |
(b) | A report on Form 8-K was filed October 28, 2005, reporting the election of a director and the entering into a First Amendment to the Amended and Restated Lease Agreement with Global Companies, LLC. |
Item 14. Principal Accountant Fees and Services |
The information required by this item is incorporated by reference to the Section entitled Independent Public Accountants in the Companys Definitive Proxy Statement for the 2006 Annual Meeting of the Shareholders to be filed with the SEC. |
33
CAPITAL PROPERTIES, INC. | ||||
By | /s/ Robert H. Eder | |||
Robert H. Eder | ||||
Chairman of the Board and | ||||
Principal Executive Officer |
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 17, 2006 | |||
Chairman and Director | ||||
Principal Executive Officer | ||||
/s/ Ronald P. Chrzanowski | March 17, 2006 | |||
President and Director | ||||
/s/ Barbara J. Dreyer | March 17, 2006 | |||
Treasurer, Principal Financial Officer | ||||
And Principal Accounting Officer | ||||
/s/ Harris N. Rosen | March 17, 2006 | |||
34