10-Q
1
patrdecq09.txt
PATR DECEMBER 2009 FORM 10-Q
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended December 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-26115
PATRIOT TRANSPORTATION HOLDING, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2924957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Riverside Ave., Suite 500, Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
904/396-5733
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities 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 X No___
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes[ ] No[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer[ ] Accelerated filer[X] Non-
accelerated filer[ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
YES[ ] NO[X]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of June 30, 2009:
3,054,996 shares of $.10 par value common stock.
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2009
CONTENTS
Page No.
Preliminary Note Regarding Forward-Looking Statements 3
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risks 21
Item 4. Controls and Procedures 21
Part II. Other Information
Item 1A. Risk Factors 22
Item 6. Exhibits 22
Signatures 23
Exhibit 31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 25
Exhibit 32 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 28
Preliminary Note Regarding Forward-Looking Statements.
Certain matters discussed in this report contain forward-looking statements
that are subject to risks and uncertainties that could cause actual results
to differ materially from those indicated by such forward-looking statements.
These forward-looking statements relate to, among other things, capital
expenditures, liquidity, capital resources and competition and may be
indicated by words or phrases such as "anticipate", "estimate", "plans",
"projects", "continuing", "ongoing", "expects", "management believes", "the
Company believes", "the Company intends" and similar words or phrases. The
following factors and others discussed in the Company's periodic reports and
filings with the Securities and Exchange Commission are among the principal
factors that could cause actual results to differ materially from the
forward-looking statements: freight demand for petroleum products including
recessionary and terrorist impacts on travel in the Company's markets; levels
of construction activity in the markets served by our mining properties; fuel
costs and the Company's ability to recover fuel surcharges; accident severity
and frequency; risk insurance markets; driver availability and cost; the
impact of future regulations regarding the transportation industry;
availability and terms of financing; competition in our markets; interest
rates, inflation and general economic conditions; demand for flexible
warehouse/office facilities in the Baltimore-Washington-Northern Virginia
area; and ability to obtain zoning and entitlements necessary for property
development. However, this list is not a complete statement of all potential
risks or uncertainties.
These forward-looking statements are made as of the date hereof based on
management's current expectations, and the Company does not undertake an
obligation to update such statements, whether as a result of new information,
future events or otherwise. Additional information regarding these and other
risk factors may be found in the Company's other filings made from time to
time with the Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share data)
December 31, September 30,
Assets 2009 2009
Current assets:
Cash and cash equivalents $ 12,280 15,803
Accounts receivable (including related party of
$417 and $336 and net of allowance for doubtful
accounts of $99 and $110, respectively) 5,912 5,286
Notes receivable 1,177 1,158
Inventory of parts and supplies 682 616
Deferred income taxes 104 104
Prepaid tires on equipment 1,237 1,211
Prepaid taxes and licenses 1,150 1,703
Prepaid insurance 1,620 2,390
Prepaid expenses, other 102 93
Assets of discontinued operations 1,497 1,519
Total current assets 25,761 29,883
Property, plant and equipment, at cost 292,298 289,336
Less accumulated depreciation and depletion 92,624 90,323
Net property, plant and equipment 199,674 199,013
Real estate held for investment, at cost 6,933 6,933
Investment in joint venture 7,090 6,858
Goodwill 1,087 1,087
Notes receivable 5,339 5,647
Unrealized rents 3,363 3,346
Other assets 3,961 4,087
Total assets $253,208 256,854
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,151 2,822
Federal and state income taxes payable 1,348 2,355
Accrued payroll and benefits 3,032 4,945
Accrued insurance 3,033 3,190
Accrued liabilities, other 936 1,102
Long-term debt due within one year 4,366 4,293
Liabilities of discontinued operations 3,375 3,660
Total current liabilities 18,241 22,367
Long-term debt, less current portion 70,741 71,860
Deferred income taxes 15,679 15,679
Accrued insurance 2,950 2,995
Other liabilities 1,480 1,545
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized,
3,054,996 and 3,053,036 shares issued
and outstanding, respectively 306 305
Capital in excess of par value 36,231 35,858
Retained earnings 107,561 106,226
Accumulated other comprehensive income, net 19 19
Total shareholders' equity 144,117 142,408
Total liabilities and shareholders' equity $253,208 256,854
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
THREE MONTHS
ENDED DECEMBER 31,
2009 2008
Revenues:
Transportation $22,081 24,982
Real estate 5,419 5,862
Total revenues (including revenue from related
parties of $1,471 and $1,615, respectively) 27,500 30,844
Cost of operations:
Transportation 18,230 20,343
Real estate 3,178 3,177
Total cost of operations 21,408 23,520
Gross profit:
Transportation 3,851 4,639
Real estate 2,241 2,685
Total gross profit 6,092 7,324
Selling, general and administrative expense 3,050 3,293
Operating profit 3,042 4,031
Interest income and other 115 25
Equity in loss of joint venture (1) (5)
Interest expense (1,026) (866)
Income before income taxes 2,130 3,185
Provision for income taxes (818) (1,242)
Income from continuing operations 1,312 1,943
Income (loss) from discontinued operations, net 24 (196)
Net income $ 1,336 1,747
Earnings per common share:
Income from continuing operations -
Basic $ .43 .64
Diluted $ .42 .63
Discontinued operations (Note 11) -
Basic $ .01 (.06)
Diluted $ .01 (.07)
Net income - basic $ .44 .58
Net income - diluted $ .43 .56
Number of shares (in thousands)
used in computing:
-basic earnings per common share 3,051 3,033
-diluted earnings per common share 3,137 3,108
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
(In thousands)
(Unaudited)
2009 2008
Cash flows from operating activities:
Net income $ 1,336 1,747
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Depreciation, depletion and amortization 2,920 3,191
Equity in loss of joint venture 1 5
(Gain) on sale of equipment (43) (84)
(Income) loss from discontinued operations, net (24) 196
Stock-based compensation 247 131
Net changes in operating assets and liabilities:
Accounts receivable (626) 2,084
Inventory of parts and supplies (66) 188
Prepaid expenses and other current assets 1,288 932
Other assets (42) 109
Accounts payable and accrued liabilities (2,907) (3,759)
Income taxes payable (1,007) 1,114
Long-term insurance liabilities and other long-term
liabilities (110) 19
Net cash provided by operating activities of
continuing operations 967 5,873
Net cash (used in) provided by operating activities of
discontinued operations (239) 1,824
Net cash provided by operating activities 728 7,697
Cash flows from investing activities:
Purchase of transportation group property and equipment (2,479) (2,575)
Purchase and development of real estate group property (953) (6,268)
Investment in joint venture (235) (225)
Proceeds from the sale of property, plant and equipment 47 315
Proceeds received on note for sale of Sunbelt 289 -
Net cash used in investing activities of continuing
operations (3,331) (8,753)
Net cash used in investing activities of discontinued
operations - (437)
Net cash used in investing activities (3,331) (9,190)
Cash flows from financing activities:
Repayment of long-term debt (1,046) (980)
Excess tax benefits from exercises of stock options
and vesting of restricted stock 39 6
Exercise of employee stock options 87 7
Net cash used in financing activities (920) (967)
Net decrease in cash and cash equivalents (3,523) (2,460)
Cash and cash equivalents at beginning of period 15,803 7,778
Cash and cash equivalents at end of the period $ 12,280 5,318
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
(Unaudited)
(1) Basis of Presentation. The accompanying consolidated financial
statements include the accounts of Patriot Transportation Holding,
Inc. and its subsidiaries (the "Company"). Investment in the 50%
owned Brooksville Joint Venture is accounted for under the equity
method of accounting. These statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and the
instructions to Form 10-Q and do not include all the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the
opinion of management, all adjustments (primarily consisting of normal
recurring accruals) considered necessary for a fair statement of the
results for the interim periods have been included. Operating results
for the three months ended December 31, 2009 are not necessarily
indicative of the results that may be expected for the fiscal year
ending September 30, 2010. The accompanying consolidated financial
statements and the information included under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the
Company's consolidated financial statements and related notes included
in the Company's Form 10-K for the year ended September 30, 2009.
(2) Recent Accounting Pronouncements. On October 1, 2009, the
Company adopted fair value measurement standards codified in ASC Topic
820, "Fair Value Measurements and Disclosures" (ASC 820), for non-
financial assets and liabilities. ASC 820 defines fair value for
accounting purposes, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. On October 1,
2008, the Company adopted this standard with respect to financial
assets and liabilities and elected to defer our adoption of this
standard for non-financial assets and liabilities. The adoption of
these standards did not materially affect the consolidated financial
results of the Company.
In December 2007 the FASB issued a standard that requires the
acquiring entity in a business combination to recognize the full fair
value of assets acquired and liabilities assumed in the transaction
(whether a full or partial acquisition); establishes the acquisition-
date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose to
investors and other users all of the information needed to evaluate
and understand the nature and financial effect of the business
combination. The guidance was subsequently codified into ASC Topic
805, "Business Combinations", and applies prospectively to business
combinations for which the acquisition date is on or after October 1,
2009. The impact of ASC Topic 805 on the consolidated financial
statements will depend upon the nature, terms and size of the
acquisitions consummated after the effective date.
(3) Business Segments. The Company has identified two business
segments, each of which is managed separately along product lines.
The Company's operations are substantially in the Southeastern and
Mid-Atlantic states. The transportation segment hauls primarily
petroleum related bulk liquids and dry bulk commodities by motor
carrier. The real estate segment owns real estate of which a
substantial portion is under mining royalty agreements or leased. The
real estate segment also holds certain other real estate for
investment and develops commercial and industrial properties.
Operating results and certain other financial data for the Company's
business segments are as follows (in thousands):
Three Months ended
December 31,___
2009 2008
Revenues:
Transportation $ 22,081 24,982
Real estate 5,419 5,862
$ 27,500 30,844
Operating profit:
Transportation $ 1,855 2,393
Real estate 2,241 2,685
Corporate expenses:
Allocated to transportation (347) (410)
Allocated to real estate (354) (344)
Unallocated (353) (293)
(1,054) (1,047)
$ 3,042 4,031
Interest expense:
Real estate $ 1,026 866
Capital expenditures:
Transportation $ 2,479 2,575
Real estate 953 6,268
$ 3,432 8,843
Depreciation, depletion and
amortization:
Transportation $ 1,561 1,705
Real estate 1,300 1,301
Other 59 185
$ 2,920 3,191
Identifiable assets December 31, September 30,
2009 2009
Transportation $ 43,372 43,229
Discontinued Transportation Operations 1,497 1,519
Real estate 192,300 192,461
Cash items 12,280 15,803
Unallocated corporate assets 3,759 3,842
$253,208 256,854
(4) Long-Term debt. Long-term debt is summarized as follows (in
thousands):
December 31, September 30,
2009 2009
5.6% to 8.6% mortgage notes
due in installments through 2027 75,107 76,153
Less portion due within one year 4,366 4,293
$ 70,741 71,860
The Company has a $37,000,000 uncollaterized Revolving Credit
Agreement with three banks, which matures on December 13, 2013. The
Revolver bears interest at a rate of 1.00% over the selected LIBOR,
which may change quarterly based on the Company's ratio of
Consolidated Total Debt to Consolidated Total Capital, as defined. A
commitment fee of 0.15% per annum is payable quarterly on the unused
portion of the commitment. The commitment fee may also change
quarterly based upon the ratio described above. The Revolver contains
limitations on availability and restrictive covenants including
limitations on paying cash dividends. Letters of credit in the amount
of $12,382,000 were issued under the Revolver. As of December 31,
2009, $24,618,000 was available for borrowing and $39,287,000 of
consolidated retained earnings would be available for payment of
dividends. The Company was in compliance with all covenants as of
December 31, 2009.
The fair values of the Company's mortgage notes payable were estimated
based on current rates available to the Company for debt of the same
remaining maturities but does not consider prepayment penalties. At
December 31, 2009, the carrying amount and fair value of such other
long-term debt was $75,107,000 and $71,769,000, respectively.
(5) Related Party Transactions. The Company may be considered a
related party to Vulcan Materials Company (Vulcan). One director of
the Company is employed by Vulcan and is related to two other Company
directors. The Company, through its transportation subsidiaries,
hauls commodities by tank trucks for Vulcan. Charges for these
services are based on prevailing market prices. The real estate
subsidiaries lease certain construction aggregates mining and other
properties to Vulcan.
A subsidiary of the Company (FRP) has a Joint Venture Agreement with
Vulcan Materials Company (formerly Florida Rock Industries, Inc.),
Brooksville Quarry, LLC, to develop approximately 4,300 acres of land
near Brooksville, Florida. The venture is jointly controlled by
Vulcan and FRP, and they each have a mandatory obligation to fund
additional capital contributions of up to $2 million of which capital
contributions of $1,735,000 have been made by each party as of
December 31, 2009. Distributions will be made on a 50-50 basis except
for royalties and depletion specifically allocated to FRP. Other
income for the three months ended December 31, 2009 and 2008 includes
a loss of $1,000 and $5,000, respectively, representing the Company's
equity in the loss of the joint venture.
(6) Earnings per share. The following details the computations of the
basic and diluted earnings per common share (dollars in thousands,
except per share amounts):
THREE MONTHS
ENDED DECEMBER 31,
2009 2008
Weighted average common shares
outstanding during the period
- shares used for basic
earnings per common share 3,051 3,033
Common shares issuable under
share based payment plans
which are potentially dilutive 86 75
Common shares used for diluted
earnings per common share 3,137 3,108
Net income $ 1,336 1,747
Earnings per common share
Basic $ .44 .58
Diluted $ .43 .56
For the three months ended December 31, 2009, 37,070 shares
attributable to outstanding stock options were excluded from the
calculation of diluted earnings per share because their inclusion
would have been anti-dilutive. For the three months ended December 31
2008, 10,000 shares attributable to outstanding stock options were
excluded from the calculation of diluted earnings per common share
because their inclusion would have been anti-dilutive. For the three
months ended December 31, 2009 and 2008, all outstanding restricted
shares were included in the calculation of diluted earnings per common
share because the unrecorded compensation and tax benefits to be
credited to capital in excess of par for all awards of restricted
stock were lower than the average price of the common shares, and
therefore were dilutive.
(7) Stock-Based Compensation Plans. As more fully described in Note
7 to the Company's notes to the consolidated financial statements in
the Company's Annual Report on Form 10-K for the year ended
September 30, 2009, the Company's stock-based compensation plan
permits the grant of stock options, stock appreciation rights,
restricted stock awards, restricted stock units, and stock awards.
The number of common shares available for future issuance was
231,970 at December 31, 2009.
The Company recorded the following stock compensation expense in its
consolidated statements of income (in thousands):
Three Months ended
December 31,_
2009 2008
Stock option grants $ 199 80
Restricted stock awards granted in 2006 48 51
247 131
A summary of changes in outstanding options is presented below (in
thousands, except share and per share amounts):
Weighted Weighted Weighted
Number Average Average Average
Of Exercise Remaining Grant Date
Options Shares Price Term (yrs) Fair Value
Outstanding at
September 30, 2009 237,930 $36.70 4.5 $ 4,246
Granted 9,070 $96.48 $ 349
Exercised 2,000 $43.50 $ 40
Forfeited - $ - $ -
Outstanding at
December 31, 2009 245,000 $38.86 4.4 $ 4,555
Exercisable at
December 31, 2009 212,430 $32.28 3.7 $ 3,444
Vested during
three months ended
December 31, 2009 10,400 $ 250
The aggregate intrinsic value of exercisable in-the-money options was
$13,214,000 and the aggregate intrinsic value of all outstanding in-
the-money options was $13,641,000 based on the market closing price of
$94.46 on December 31, 2009 less exercise prices. Gains of $103,000
were realized by option holders during the three months ended December
31, 2009. The realized tax benefit from options exercised for the
three months ended December 31, 2009 was $39,000. Total compensation
cost of options granted but not yet vested as of December 31, 2009 was
$978,000, which is expected to be recognized over a weighted-average
period of 3.6 years.
A summary of changes in restricted stock awards is presented below (in
thousands, except per share amounts):
Weighted Weighted Weighted
Number Average Average Average
Of Grant Remaining Grant Date
Restricted Stock Shares Price Term (yrs) Fair Value
Outstanding at
September 30, 2009 2,550 $63.70 .3 $ 163
Granted - $ - $ -
Vested - $ - $ -
Forfeited 40 $66.09 $ 3
Outstanding at
December 31, 2009 2,510 $63.66 - $ 160
(8) Contingent liabilities. Certain of the Company's subsidiaries are
involved in litigation on a number of matters and are subject to
certain claims which arise in the normal course of business. The
Company has retained certain self-insurance risks with respect to
losses for third party liability and property damage. In the opinion
of management none of these matters are expected to have a material
adverse effect on the Company's consolidated financial condition,
results of operations or cash flows.
(9) Concentrations. The transportation segment primarily serves
customers in the Southeastern U.S. Significant economic disruption or
downturn in this geographic region or these industries could have an
adverse effect on our financial statements.
During the first three months of fiscal 2010, the transportation
segment's ten largest customers accounted for approximately 63.4% of
the transportation segment's revenue. One of these customers
accounted for 21.5% of the transportation segment's revenue. The loss
of any one of these customers would have an adverse effect on the
Company's revenues and income. Accounts receivable from the
transportation segment's ten largest customers was $2,833,000 and
$2,578,000 at December 31, 2009 and September 30, 2009 respectively.
(10) Fair Value Measurements. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement
date. The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. Level
1 means the use of quoted prices in active markets for identical
assets or liabilities. Level 2 means the use of values that are
derived principally from or corroborated by observable market data.
Level 3 means the use of inputs that are unobservable and significant
to the overall fair value measurement.
As of December 31, 2009 the Company had no assets or liabilities
measured at fair value on a recurring basis and only one asset
recorded at fair value on a non-recurring basis as it was deemed to be
other-than-temporarily impaired. The fair value of the corporate
aircraft of $1,850,000 is based on level 2 inputs for similar assets
in the current market. The fourth quarter of fiscal 2009 included
$900,000 for the impairment to estimated fair value of the corporate
aircraft. The Company's decision to discontinue its use required
adjustment to the lower values of the current economic environment.
The fair value of note receivable (see Note 11) approximates the
unpaid principal balance based upon the interest rate and credit risk
of the note. The fair value of all other financial instruments with
the exception of mortgage notes (see Note 4) approximates the carrying
value due to the short-term nature of such instruments.
(11) Discontinued operations. In August 2009 the Company sold its
flatbed trucking company, SunBelt Transport, Inc. ("SunBelt"). Under
the agreement, the Buyer purchased all of SunBelt's tractors and
trailers, leased the SunBelt terminal facilities in Jacksonville,
Florida for 36 months at a rental of $5,000 per month and leased the
terminal facilities in South Pittsburgh, Tennessee for 60 months at a
rental of $5,000 per month with an option to purchase the Tennessee
facilities at the end of the lease for payment of an additional
$100,000. The South Pittsburgh lease was recorded as a sale under
bargain purchase accounting. The purchase price received for the
tractors and trailers and inventories was a $1 million cash payment
and the delivery of a Promissory Note requiring 60 monthly payments of
$130,000 each including interest at 7%, secured by the assets of the
business conveyed. In the quarter ending September 30, 2009 the
Company recognized $283,000 in severance costs related to a change-in-
control agreement triggered by the sale of SunBelt. The Company
retained all pre-closing receivables and liabilities.
SunBelt has been accounted for as discontinued operations in
accordance with ASC Topic 205-20 Presentation of Financial Statements
- Discontinued Operations. All periods presented have been restated
accordingly. A summary of discontinued operations is as follows:
Three months
Ended December 31,
2009 2008
Revenue $ 44 7,088
Operating expenses (23) 7,248
Income (loss) before taxes 38 (319)
Income taxes (14) 123
Income (loss) from
discontinued operations $ 24 (196)
The components of the balance sheet are as follows:
December 31, September 30,
2009 2009
Accounts receivable $ 122 142
Other assets 2 1
Deferred income taxes 1,249 1,249
Property and equipment, net 124 127
Assets of discontinued operations $ 1,497 1,519
Accounts payable $ 98 243
Accrued payroll and benefits 2 140
Accrued liabilities, other 72 73
Insurance liabilities 3,203 3,204
Liabilities of discontinued operations $ 3,375 3,660
(12) Subsequent Events. Subsequent events have been evaluated and
disclosed herein relating to events that have occurred from January 1,
2010 through the date we issued these financial statements, February
3, 2010.
The Company announced on January 6, 2010 that the transportation group
has been unsuccessful in renewing certain contracts with significant
customers recently. For the fiscal year ending September 30, 2009 the
revenue from these customers was $10,012,000 or approximately 11.0% of
transportation group revenue.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview - The Company has two business segments: transportation and
real estate.
The Company's transportation business is conducted through Florida
Rock & Tank Lines, Inc. ("Tank Lines") which operates in the
Southeastern United States. Tank Lines hauls petroleum and other
liquids and dry bulk commodities by tank trailers.
The Company's real estate activities are conducted through two wholly
owned subsidiaries. Florida Rock Properties, Inc. ("Properties") and
FRP Development Corp. ("Development"). Properties owns mining
properties and other properties held for investment or future
development. Development owns, manages and develops commercial
warehouse/office rental properties in the Baltimore-Washington-
Northern Virginia area. Substantially all of the real estate
operations are conducted within the Southeastern and Mid-Atlantic
United States.
The Company's operations are influenced by a number of external and
internal factors. External factors include levels of economic and
industrial activity in the United States and the Southeast, driver
availability and cost, regulations regarding driver qualifications and
hours of service, petroleum product usage in the Southeast which is
driven in part by tourism and commercial aviation, fuel costs,
construction activity, aggregates sales by lessees from the Company's
mining properties, interest rates, market conditions and attendant
prices for casualty insurance, demand for commercial warehouse space
in the Baltimore-Washington-Northern Virginia area, and ability to
obtain zoning and entitlements necessary for property development.
Internal factors include revenue mix, capacity utilization, auto and
workers' compensation accident frequencies and severity, other
operating factors, administrative costs, group health claims
experience, and construction costs of new projects. Financial results
of the Company for any individual quarter are not necessarily
indicative of results to be expected for the year.
Discontinued Operation. In August 2009 the Company sold its flatbed
trucking company, SunBelt Transport, Inc. ("SunBelt"). Under the
agreement, the buyer purchased all of SunBelt's tractors and trailers,
leased the SunBelt terminal facilities in Jacksonville, Florida for 36
months at a rental of $5,000 per month and leased the terminal
facilities in South Pittsburgh, Tennessee for 60 months at a rental of
$5,000 per month with an option to purchase the Tennessee facilities
at the end of the lease for payment of an additional $100,000. The
South Pittsburgh lease was recorded as a sale under bargain purchase
accounting. The purchase price received for the tractors and trailers
and inventories was a $1 million cash payment and the delivery of a
Promissory Note requiring 60 monthly payments of $130,000 each
including interest at 7%, secured by the assets of the business
conveyed. The Company retained all pre-closing receivables and
liabilities. SunBelt has been accounted for as discontinued
operations in accordance with ASC Topic 205-20 Presentation of
Financial Statements - Discontinued Operations. All periods
presented have been restated accordingly.
Comparative Results of Operations for the Three Months Ended
December 31, 2009 and 2008
Consolidated Results - Net income for the first quarter of fiscal 2010
decreased 23.5% to $1,336,000 compared to $1,747,000 for the same
period last year. Diluted earnings per common share for the first
quarter of fiscal 2010 were $0.43 compared to $0.56 the same quarter
last year. Transportation segment results were lower due to reduced
miles driven and lower fuel surcharges. The real estate segment's
results were lower due to reduced mining royalties and lower developed
property occupancy.
Transportation Results
Three Months Ended December 31
(dollars in thousands) ___2009 % 2008 %_
Transportation revenue $ 19,467 88% 21,013 84%
Fuel surcharges 2,614 12% 3,969 16%
Revenues 22,081 100% 24,982 100%
Compensation and benefits 8,319 38% 9,537 38%
Fuel expenses 3,905 18% 4,527 18%
Insurance and losses 2,265 10% 2,262 9%
Depreciation expense 1,523 7% 1,661 7%
Other, net 2,218 10% 2,356 9%
Cost of operations 18,230 83% 20,343 81%
Gross profit $ 3,851 17% 4,639 19%
Transportation segment revenues were $22,081,000 in the first quarter
of 2010, a decrease of $2,901,000 over the same quarter last year.
Revenue miles in the current quarter were down 9.2% compared to the
first quarter of 2009 due to lower demand and a competitive economic
climate. Fuel surcharge revenue decreased $1,355,000. Excluding fuel
surcharges, revenue per mile increased 2.1% over the same quarter last
year. The average price paid per gallon of diesel fuel decreased by
$.15 or 5.6% over the same quarter in fiscal 2009.
The Transportation segment's cost of operations was $18,230,000 in the
first quarter of 2010, a decrease of $2,113,000 over the same quarter
last year. The Transportation segment's cost of operations in the
first quarter of 2010 as a percentage of revenue was 83% versus 81% in
the first quarter of 2009. Compensation and benefits decreased
$1,218,000 or 12.8% compared to the same quarter last year due to the
decrease in miles driven and lower driver turnover related pay. Fuel
surcharge revenue decreased $1,355,000 while fuel cost decreased by
only $622,000 leaving a negative impact to gross profit of $733,000.
Insurance and losses increased $3,000 compared to the same quarter
last year due to a $279,000 increase in group health expense offset by
lower other costs due to the reduced miles driven. Depreciation
expense decreased $138,000 due to fewer trucks. Other expense
decreased $138,000 primarily due to the decrease in miles driven,
reduced vehicle maintenance, reduced hiring costs, and other cost
management.
Real Estate Results
Three Months Ended December 31
(dollars in thousands) ___2009 % 2008 %_
Royalties and rent $ 1,335 25% 1,635 28%
Developed property rentals 4,084 75% 4,227 72%
Total Revenue 5,419 100% 5,862 100%
Mining and land rent expenses:
Property operating expenses 353 7% 458 8%
Depreciation and depletion 94 2% 111 2%
Management Company indirect 57 1% 44 1%
Developed property expenses:
Property operating expenses 1,100 20% 879 15%
Depreciation and amortization 1,206 22% 1,190 20%
Management Company indirect 368 7% 495 8%
Cost of Operations 3,178 59% 3,177 54%
Gross profit $ 2,241 41% 2,685 46%
Real Estate segment revenues for the first quarter of fiscal 2010 were
$5,419,000, a decrease of $443,000 or 7.6% over the same quarter last
year. Lease revenue from developed properties decreased $143,000 or
3.4% due to reduced occupancy partly offset by snow removal
reimbursements. Royalties and rent decreased $300,000 or 18.3% due to
decreased demand for mined tons and a $161,000 decrease in revenues
from timber sales.
Real estate segment expenses for the first quarter of fiscal 2010 were
constant from the same quarter last year. Developed property
operating expenses increased $221,000 due to increased snow removal
expenses and higher property taxes. Developed property depreciation
and amortization increased $16,000 due to a new building placed into
service April 2009. Mining and land rent property operating expenses
decreased $105,000 due to lower maintenance and other costs. Mining
and land depreciation and depletion expenses decreased $17,000 due to
reduced tons mined. Management Company indirect expenses (excluding
lease related property management fees) decreased $114,000 due to
reduced salaries from the staffing level adjustments completed during
fiscal 2009.
Consolidated Results
Gross Profit - Consolidated gross profit was $6,092,000 in the first
quarter of fiscal 2010, a decrease of $1,232,000 or 16.8% compared to
$7,324,000 in the same period last year. Gross profit in the
transportation segment decreased $788,000 or 17.0% due to reduced
miles driven and lower fuel surcharges. Gross profit in the real
estate segment decreased $444,000 or 16.6% due to decreased demand for
tons mined and reduced occupancy of developed properties.
Selling, general and administrative expense - Selling, general and
administrative expenses decreased $243,000 or 7.4% over the same
quarter last year due to lower staffing and reduced company aircraft
expenses partly offset by increased stock compensation expense and
professional services.
Interest expense - Interest expense increased $160,000 over the same
quarter last year due to lower capitalized interest.
Income taxes - Income tax expense decreased $424,000 over the same
quarter last year due to decreased earnings.
Income from continuing operations - Income from continuing operations
was $1,312,000 or $.42 per diluted share in the first quarter of
fiscal 2010, a decrease of 32.5% compared to $1,943,000 or $.63 per
diluted share for the same period last year.
Discontinued operations - The after tax income from discontinued
operations for the first quarter of fiscal 2010 was $24,000 versus a
loss of $196,000 for the same period last year. Diluted earnings on
discontinued operations for the first quarter of fiscal 2010 was $.01
compared to a diluted loss of $.07 in the first quarter of fiscal
2009.
Net income - Net income for the first quarter of fiscal 2010 decreased
23.5% to $1,336,000 compared to $1,747,000 for the same period last
year. Diluted earnings per common share for the first quarter of
fiscal 2010 were $0.43 compared to $0.56 the same quarter last year.
Transportation segment results were lower due to reduced miles driven
and lower fuel surcharges. The real estate segment's results were
lower due to reduced mining royalties and lower developed property
occupancy.
Liquidity and Capital Resources. For the first three months of fiscal
2010, the Company used cash provided by operating activities of
continuing operations of $967,000, proceeds received on notes of
$289,000, proceeds from the sale of plant, property and equipment of
$47,000, proceeds from the exercise of employee stock options of
$87,000, excess tax benefits from the exercise of stock options of
$39,000 and cash balances to purchase $2,479,000 in transportation
equipment, to expend $953,000 in real estate development, to invest
$235,000 in the Brooksville Joint Venture and to make $1,046,000
scheduled payments on long-term debt. Cash used in the operating
activities of discontinued operations was $239,000. Cash decreased
$3,523,000.
In August 2009 the Company sold its flatbed trucking company, SunBelt
Transport, Inc. ("SunBelt"). The purchase price received for the
tractors and trailers and inventories was a $1 million cash payment
and the delivery of a Promissory Note requiring 60 monthly payments of
$130,000 each including 7% interest, secured by the assets of the
business conveyed. The Company retained all pre-closing receivables
and liabilities. SunBelt has been accounted for as discontinued
operations. All periods presented have been restated accordingly.
Cash flows from operating activities for the first three months of
fiscal 2010 were $6,969,000 lower than the same period last year
primarily due to lower revenues, higher income tax payments related to
the sale of SunBelt and the same quarter last year including an
usually large decrease in accounts receivable both in continuing
operations and discontinued operations.
Cash flows used in investing activities for the first three months of
fiscal 2010 were $5,859,000 lower due to decreased purchases of
equipment and land reflecting lower construction levels on the
portfolio.
Cash flows used in financing activities for the first three months of
fiscal 2010 were $47,000 lower than the same period last year due to
an increase of $66,000 in mortgage payments and increased stock
options exercised by employees.
The Company has a $37,000,000 uncollaterized Revolving Credit
Agreement with three banks, which matures on December 13, 2013. The
Revolver contains limitations on availability and restrictive
covenants including limitations on paying cash dividends. During the
past year letters of credit in the amount of $12,382,000 were issued
under the Revolver. As of December 31, 2009, $24,618,000 was
available for borrowing and $39,287,000 of consolidated retained
earnings would be available for payment of dividends. The Company was
in compliance with all covenants as of December 31, 2009.
The Company had $18,460,000 of irrevocable letters of credit
outstanding as of December 31, 2009. Most of the letters of credit
are irrevocable for a period of one year and are automatically
extended for additional one-year periods until notice of non-renewal
is received from the issuing bank not less than thirty days before the
expiration date. These were issued for insurance retentions and to
guarantee certain obligations to state agencies related to real estate
development. During fiscal 2009 the Company faced increased fees at
the annual renewal of its letters of credit. The Company issued
replacement letters of credit through the Revolver to reduce fees.
The Board of Directors has authorized Management to repurchase shares
of the Company's common stock from time to time as opportunities
arise. As of December 31, 2009, $5,625,000 was authorized for future
repurchases of common stock. The Company does not currently pay any
dividends on common stock.
The Company has committed to make additional capital contributions of
up to $265,000 over the next 12 months to Brooksville Quarry, LLC in
connection with a joint venture with Vulcan.
While the Company is affected by environmental regulations, such
regulations are not expected to have a major effect on the Company's
capital expenditures or operating results.
Recent Accounting Pronouncements. On October 1, 2009, the Company
adopted fair value measurement standards codified in ASC Topic 820,
"Fair Value Measurements and Disclosures" (ASC 820), for non-financial
assets and liabilities. ASC 820 defines fair value for accounting
purposes, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. On October 1, 2008, the
Company adopted this standard with respect to financial assets and
liabilities and elected to defer our adoption of this standard for
non-financial assets and liabilities. The adoption of these standards
did not materially affect the consolidated financial results of the
Company.
In December 2007 the FASB issued a standard that requires the
acquiring entity in a business combination to recognize the full fair
value of assets acquired and liabilities assumed in the transaction
(whether a full or partial acquisition); establishes the acquisition-
date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose to
investors and other users all of the information needed to evaluate
and understand the nature and financial effect of the business
combination. The guidance was subsequently codified into ASC Topic
805, "Business Combinations", and applies prospectively to business
combinations for which the acquisition date is on or after October 1,
2009. The impact of ASC Topic 805 on the consolidated financial
statements will depend upon the nature, terms and size of the
acquisitions consummated after the effective date.
Related Party Transactions. The Company, through its transportation
subsidiaries, hauls commodities by tank and flatbed trucks for Vulcan
Materials Company (Vulcan). Charges for these services are based on
prevailing market prices. The real estate subsidiaries lease certain
construction aggregates mining and other properties to Vulcan.
On October 4, 2006, a subsidiary of the Company (FRP) entered into a
Joint Venture Agreement with Vulcan Materials Company (formerly
Florida Rock Industries, Inc.) to form Brooksville Quarry, LLC, to
develop approximately 4,300 acres of land near Brooksville, Florida.
The venture is jointly controlled by Vulcan and FRP, and they each
have a mandatory obligation to fund additional capital contributions
of up to $2 million of which capital contributions of $1,735,000 have
been made by each party as of December 31, 2009. Distributions will
be made on a 50-50 basis except for royalties and depletion
specifically allocated to FRP. Other income for the three months
ended December 31, 2009 and 2008 includes a loss of $1,000 and $5,000,
respectively, representing the Company's equity in the loss of the
joint venture.
Summary and Outlook. Transportation segment results were lower due to
reduced miles driven and lower fuel surcharges. The Company announced
on January 6, 2010 that the transportation group has been unsuccessful
in renewing certain contracts with significant customers recently.
For the fiscal year ending September 30, 2009 the revenue from these
customers was $10,012,000 or approximately 11.0% of transportation
group revenue.
Gross profit from the leasing of developed buildings has weakened from
previous levels and may weaken further as our three newer buildings
brought into service in the past fifteen months continue to contribute
no revenue (but now add their fair share of depreciation and
maintenance expense) and expiring leases, if renewed, will likely
entail rent concessions from the existing levels. Prospective tenants
for vacant space are significantly fewer than in the past few years,
competition for their contracts are more intense and rental rates
continue to decline from existing levels. The Company is not
presently engaged in the construction of any new buildings.
In July 2008, a subsidiary of the Company, FRP Bird River, LLC,
entered into an agreement to sell approximately 121 acres of land in
Baltimore County, Maryland to Mackenzie Investment Group, LLC. The
purchase price for the property is $25,265,000, subject to certain
potential purchase price adjustments. The agreement of sale is
subject to certain contingencies including satisfactory completion of
the buyer's inspection period and additional government approvals and
closing may be two or more years away. The purchaser has placed non-
refundable deposits of $1,000,000 under this contract in escrow
including $650,000 in March 2009. Preliminary approval for the
development as originally contemplated under the agreement's pricing
contingencies has now been received and the time for any appeals from
that approval expired.
In May 2008, the Company received final approval from the Zoning
Commission of the District of Columbia of its planned unit development
application for the Company's 5.8 acre undeveloped waterfront site on
the Anacostia River in Washington, D.C. This site is located adjacent
to the recently opened Washington Nationals Baseball Park. The site
currently is leased to Vulcan Materials Company on a month-to-month
basis. The approved planned unit development permits the Company to
develop a four building, mixed use project, containing approximately
545,800 square feet of office and retail space and approximately
569,600 square feet of additional space for residential and hotel
uses. The approved development would include numerous publicly
accessible open spaces and a waterfront esplanade along the Anacostia
River. In November 2009, the Company received a two-year extension
for commencement of this project, moving the construction commencement
date to June 2013. The Company sought this extension because of
negative current market indications.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk from changes in interest rates.
For its cash and cash equivalents, a change in interest rates affects
the amount of interest income that can be earned. For its debt
instruments with variable interest rates, changes in interest rates
affect the amount of interest expense incurred. The Company prepared
a sensitivity analysis of its cash and cash equivalents to determine
the impact of hypothetical changes in interest rates on the Company's
results of operations and cash flows. The interest-rate analysis
assumed a 50 basis point adverse change in interest rates on all cash
and cash equivalents. However, the interest-rate analysis did not
consider the effects of the reduced level of economic activity that
could exist in such an environment. Based on this analysis,
management has concluded that a 50 basis point adverse move in
interest rates on the Company's cash and cash equivalents would have
an immaterial impact on the Company's results of operations and cash
flows.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to
management, including the Company's Chief Executive Officer ("CEO"),
Chief Financial Officer ("CFO"), and Chief Accounting Officer ("CAO"),
as appropriate, to allow timely decisions regarding required
disclosure.
The Company also maintains a system of internal accounting controls
over financial reporting that are designed to provide reasonable
assurance to the Company's management and Board of Directors regarding
the preparation and fair presentation of published financial
statements.
All control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance of achieving the desired control
objectives.
As of December 31, 2009, the Company, under the supervision and with
the participation of the Company's management, including the CEO, CFO
and CAO, carried out an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures.
Based on this evaluation, the Company's CEO, CFO and CAO concluded
that the Company's disclosure controls and procedures are effective in
alerting them in a timely manner to material information required to
be included in periodic SEC filings.
There have been no changes in the Company's internal controls over
financial reporting during the first three months that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, you
should carefully consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our Annual Report on Form 10-K for the year ended
September 30, 2009, which could materially affect our business,
financial condition or future results. The risks described in our
Annual Report on Form 10-K are not the only risks facing our
Company. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating
results.
Item 6. EXHIBITS
(a) Exhibits. The response to this item is submitted as a
separate Section entitled "Exhibit Index", on page 27.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
February 3, 2010 PATRIOT TRANSPORTATION HOLDING, INC.
John D. Baker II
John D. Baker II
President and Chief Executive
Officer
John D. Milton, Jr.
John D. Milton
Executive Vice President, Treasurer,
Secretary and Chief
Financial Officer
John D. Klopfenstein
John D. Klopfenstein
Controller and Chief
Accounting Officer
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2009
EXHIBIT INDEX
(14) Financial Code of Ethical Conduct between the
Company, Chief Executive Officers and Financial
Managers, as revised on January 28, 2004, which
is available on the Company's website at
www.patriottrans.com.
(31)(a) Certification of John D. Baker II.
(31)(b) Certification of John D. Milton, Jr.
(31)(c) Certification of John D. Klopfenstein.
(32) Certification of Chief Executive Officer, Chief
Financial Officer, and Chief Accounting Officer
under Section 906 of the Sarbanes-Oxley Act of
2002.