FRPH 10-Q Quarter ended June 30, 2013

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

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or

Commission File Number: 33-26115

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PATRIOT TRANSPORTATION HOLDING, INC.

(Exact name of registrant as specified in its charter)

_____________________

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 (§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  [x]    No  [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 the latest practicable date.

PATRIOT TRANSPORTATION HOLDING, INC.

FORM 10-Q

QUARTER ENDED JUNE 30, 2013

CONTENTS

Page No.

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

(Unaudited) (In thousands, except share data)

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

(In thousands except per share amounts)

(Unaudited)

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2013 AND 2012

(In thousands)

(Unaudited)

The Company recorded non-cash transactions for a receivable on previously capitalized real estate taxes on the Anacostia property of $2,250 in the first nine months of fiscal 2012.

See accompanying notes.

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

(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. Investment in Riverfront Investment Partners I, LLC is accounted for under the equity method of accounting (See Note 14). 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 nine months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. 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, 2012.

(2) Stock Split. On December 1, 2010, the Board of Directors declared a 3-for-1 stock split of the Company’s common stock in the form of a stock dividend. The record date for the split was January 3, 2011 and the new shares were issued on January 17, 2011. The total authorized shares remained 25 million and par value of common stock remained unchanged at $.10 per share. All share and per share information presented has been adjusted to reflect this stock split.

(3) Recent Accounting Pronouncements . In February 2013, accounting guidance was issued to update the presentation of reclassifications from comprehensive income to net income in consolidated financial statements. Under this new guidance, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income either by the respective line items of net income or by cross-reference to other required disclosures. The new guidance does not change the requirements for reporting net income or other comprehensive income in financial statements. This guidance is effective for fiscal years beginning after December 15, 2012 and is not expected to have a material effect on the Company’s financial position or results of operations.

(4) Business Segments. The Company operates in three reportable business segments. The Company’s operations are substantially in the Southeastern and Mid-Atlantic states. The transportation segment hauls petroleum and other liquids and dry bulk commodities by tank trailers. The Company’s real estate operations consist of two reportable segments. The Mining royalty land segment owns real estate including construction aggregate royalty sites and parcels held for investment. The Developed property rentals segment acquires, constructs, and leases office/warehouse buildings primarily in the Baltimore/Northern Virginia/Washington area, and holds real estate for future development or related to its developments.

The Company’s transportation and real estate groups operate independently and have minimal shared overhead except for corporate expenses. Corporate expenses are allocated in fixed quarterly amounts based upon budgeted and estimated proportionate cost by segment. Unallocated corporate expenses primarily include stock compensation and corporate aircraft expenses.

Operating results and certain other financial data for the Company’s business segments are as follows (in thousands):

(a)Includes $2,250 receivable on previously capitalized real estate taxes on the Anacostia property for the nine months ended June 30, 2012.

(5)

On December 21, 2012, the Company entered into a modified credit agreement with Wells Fargo Bank, N.A. (the "Credit Agreement"). The Credit Agreement modifies the Company's prior Amended and Restated Revolving Credit Agreement with Wachovia Bank, National Association ("Wachovia"), Bank of America, N.A., SunTrust Bank, and Compass Bank dated as of November 10, 2004. The Credit Agreement is for a 5 year term with a maximum facility amount of $55 million. The Credit Agreement provides a revolving credit facility (the “Revolver”) with a maximum facility amount of $40 million, with a $20 million sublimit for standby letters of credit, and a term loan facility of $15 million. Wells Fargo Bank, N.A. is the sole lender under the modified Credit Agreement. The Credit Agreement 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 Revolver portion of the credit agreement. The commitment fee may also change quarterly based upon the ratio described above. The Credit Agreement contains certain conditions, affirmative financial covenants and negative covenants including limitations on paying cash dividends. Letters of credit in the amount of $5,600,000 were issued under the Revolver. As of June 30, 2013, $7,300,000 was borrowed under the Revolver, $42,100,000 was available for additional borrowing and $62,230,000 of consolidated retained earnings would be available for payment of dividends. The Company was in compliance with all covenants as of June 30, 2013.

On June 3, 2013 the Company prepaid the $7,281,000 remaining principal balance on a 6.12% mortgage under an early prepayment provision the note allowed after 7.5 years. The $561,000 cost of the prepayment included a penalty of $386,000 and the remaining deferred loan costs of $175,000.

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. At June 30, 2013, the carrying amount and fair value of such other long-term debt was $51,255,000 and $54,623,000, respectively.

(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):

For the three and nine months ended June 30, 2013, 87,550 and 173,240 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 and nine months ended June 30, 2012, 172,060 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.

(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, 2012, 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 537,880 at June 30, 2013.

T he Company recorded the following stock compensation expense in its consolidated statements of income (in thousands):

A summary of changes in outstanding options is presented below (in thousands, except share and per share amounts):

The aggregate intrinsic value of exercisable in-the-money options was $3,897,000 and the aggregate intrinsic value of all outstanding in-the-money options was $4,300,000 based on the market closing price of $30.04 on June 28, 2013 less exercise prices. Gains of $1,577,000 were realized by option holders during the nine months ended June 30, 2013. The realized tax benefit from options exercised for the nine months ended June 30, 2013 was $610,000. Total compensation cost of options granted but not yet vested as of June 30, 2013 was $781,000, which is expected to be recognized over a weighted-average period of 3.4 years.

(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. There is a reasonable possibility that the Company’s estimate of vehicle and workers’ compensation liability for the transportation segment may be understated or overstated but the possible range can not be estimated. The liability at any point in time depends upon the relative ages and amounts of the individual open claims. 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 petroleum industry 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 nine months of fiscal 2013, the transportation segment’s ten largest customers accounted for approximately 54.3% of the transportation segment’s revenue. One of these customers accounted for 20.0% 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 $3,703,000 and $2,988,000 at June 30, 2013 and September 30, 2012 respectively .

The mining royalty land segment has one lessee that accounted for 73.2% of the segment’s revenues and $134,000 of accounts receivable at June 30, 2013. The loss of this customer would have an adverse effect on the segment.

The Company places its cash and cash equivalents with high credit quality institutions. At times, such amounts may exceed FDIC limits.

(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 June 30, 2013 the Company had no assets or liabilities measured at fair value on a recurring basis or non-recurring basis. The fair value of all other financial instruments with the exception of mortgage notes (see Note 5) 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"). 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 (in thousands):

(12) Real Estate Held for Sale. In September 2012 the Company received a non-binding letter of intent to sell phase 1 of the Windlass Run Residential property. The property was under contract and expected to close during fiscal 2013 for $7.9 million but the contract expired during the due diligence period. The Company executed a similar contract on April 17, 2013 with another buyer with a due diligence period that expired on June 15, 2013. The contract contemplates the sale of phase 1 of the property in the quarter ending September 30, 2013 for $8.0 million. The book value of the property at June 30, 2013 was $2,948,000.

In February 2012 the Company signed an agreement to sell 15.18 acres of land at Patriot Business Park for a purchase price of $4,774,577 subject to an escrow for the Company’s obligations related to future site and offsite development. The book value of the property at June 30, 2013 was $3,602,000. The sale closed in July 2013.

On April 22, 2013 the Company signed an agreement to sell 5.38 acres of land at Hollander 95 Business Park for a purchase price of $1,520,000 subject to the Company’s obligations related to future site and offsite development. The book value of the property at June 30, 2013 was $588,000.

(13) Unusual or Infrequent Items Impacting Quarterly Results. On June 3, 2013 the Company prepaid the $7,281,000 remaining principal balance on a 6.12% mortgage under an early prepayment provision the note allowed after 7.5 years. The prepayment penalty of $386,000 is included in interest expense. The remaining deferred loan costs of $175,000 were also included in interest expense.

Income from continuing operations for the first quarter of fiscal 2013 included a gain on the sale of the developed property rentals Commonwealth property in Jacksonville, Florida, of $1,116,000 before income taxes. The book value of the property was $723,000.

Income from continuing operations for the first quarter of fiscal 2012 included a gain on termination of sale contract in the amount of $1,039,000 before income taxes for the receipt of non-refundable deposits related to the termination of an agreement to sell the Company’s Windlass Run Residential property.

Accrued insurance liabilities decreased $1,659,000 during the nine months ending June 30, 2013 due to payments to our new insurer under a captive agreement along with payment in settlement of three unusually large prior year liability and health claims. Payments under the captive agreement are for the fiscal 2013 year-to-date loss fund as estimated in advance using actuarial methodology. The captive agreement provides that we will share in the underwriting results, good or bad, within a $250,000 per occurrence layer of loss through retrospective premium adjustments.

On June 20, 2013, the Company purchased for approximately $8 million, Transit Business Park in Baltimore, Maryland which consists of 5 buildings on 14.5 acres totaling 232,318 square feet. The Company has accounted for this acquisition in accordance with the provisions of ASC 805, Business Combinations (ASC 805). The Company has allocated the purchase price of the property, through the use of a third party valuation, based upon the fair value of the assets acquired, consisting of land, buildings and intangible assets, including in-place leases and below market leases. Based on the third party valuation performed, $865,000 and $159,000 of the purchase price has been allocated to the fair value of the in-place leases and below market in-place leases, respectively. These intangible assets are recorded within Other assets and Other liabilities, respectively, in the consolidated balance sheets as of June 30, 2013. The value of the in-place lease intangibles will be amortized to amortization expense over the remaining lease term. The fair value assigned pertaining to the below-market in-place leases will be amortized to rental revenue over the remaining non-cancelable terms of the respective leases.

(14) Riverfront I Joint Venture. On March 30, 2012 the Company entered into a Contribution Agreement with MRP SE Waterfront Residential, LLC. (“MRP”) to form a joint venture to develop the first phase only of the four phase master development known as RiverFront on the Anacostia in Washington, D.C. The purpose of the Joint Venture is to develop, own, lease and ultimately sell an approximately 300,000 square foot residential apartment building (including approximately 18,000 square feet of retail) on a portion of the roughly 5.82 acre site. The joint venture, Riverfront Investment Partners I, LLC (“Riverfront I) was formed in June 2013 as contemplated. The Company’s cost of the property to be contributed of $5,839,000 was transferred from Property, plant and equipment to Investment in joint ventures and is accounted for under the equity method of accounting. MRP will contribute capital of at least $4,000,000 to the joint venture including development costs paid prior to formation of the joint venture. MRP will raise any additional equity capital and obtain a nonrecourse loan for the balance of the estimated construction and lease up costs. At this point the Company anticipates commencement of construction of Phase I in mid 2014 with lease up scheduled between late 2015 and all of 2016. The Company’s equity interest in the joint venture will be determined based on leverage of the entity, additional cash contributions by the Company, and negotiations with potential third partners.

CONDITION AND RESULTS OF OPERATIONS

Overview – Patriot Transportation Holding, Inc. (the Company) is a holding company engaged in the transportation and real estate businesses.

The Company’s transportation business, Florida Rock & Tank Lines, Inc. is engaged in hauling primarily petroleum and other liquids and dry bulk commodities in tank trailers.

The Company’s real estate operations consist of two reportable segments. The Mining royalty land segment owns real estate including construction aggregate royalty sites and parcels held for investment. The Developed property rentals segment acquires, constructs, leases, operates and manages office/warehouse buildings primarily in the Baltimore/Northern Virginia/Washington area, and holds real estate for future development or related to its developments. 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. There is a reasonable possibility that the Company’s estimate of vehicle and workers’ compensation liability for the transportation group may be understated or overstated but the possible range can not be estimated. The liability at any point in time depends upon the relative ages and amounts of the individual open claims. Financial results of the Company for any individual quarter are not necessarily indicative of results to be expected for the year.

Comparative Results of Operations for the Three months ended June 30, 2013 and 2012

Consolidated Results – Net income for the third quarter of fiscal 2013 was $3,002,000 compared to $2,684,000 for the same period last year. Diluted earnings per common share for the third quarter of fiscal 2013 were $.31 compared to $.28 for the same quarter last

year. Transportation segment results were higher due to the increase in miles driven, lower health insurance claims and higher gains on equipment sales. The mining royalty land segment’s results were higher due to new property royalties along with a shift in production at two locations increasing the share of mining on property owned by the Company. The Developed property rentals segment’s results were higher due to higher occupancy and lower maintenance expenses partially offset by higher property taxes and professional fees. Interest expense included $342,000 after income taxes related to mortgage prepayment.

Transportation Results

Transportation segment revenues were $28,794,000 in the third quarter of 2013, an increase of $1,887,000 over the same quarter last year. Revenue miles in the current quarter were up 6.6% compared to the third quarter of fiscal 2012 due to business growth and a longer average haul length. Revenue per mile increased .7% over the same quarter last year due to rate increases partially offset by lower fuel surcharges and a longer average haul length. Fuel surcharge revenue decreased $108,000 due to the lower cost of fuel. The average price paid per gallon of diesel fuel decreased by $.09 over the same quarter in fiscal 2012. There is a time lag between changes in fuel prices and surcharges and often fuel costs change more rapidly than the market indexes used to determine fuel surcharges. Excluding fuel surcharges, revenue per mile increased 2.4% over the same quarter last year.

The Transportation segment’s cost of operations was $25,687,000 in the third quarter of 2013, an increase of $1,066,000 over the same quarter last year. The Transportation segment’s cost of operations in the third quarter of 2013 as a percentage of revenue was 89% compared to 92% in the third quarter of 2012. Compensation and benefits increased $982,000 or 10.5% compared to the same quarter last year primarily due to the increase in miles driven, a driver

pay increase, and increased new driver training pay. Fuel cost increased by $246,000 due to the increase in miles driven partially offset by the lower cost per gallon. Insurance and losses decreased $323,000 compared to the same quarter last year primarily due to lower health insurance claims. Depreciation expense increased $170,000 due to the higher cost of newer equipment. Other expense increased $115,000 due to increased employee moving expenses and increased miles driven. Sales, general and administrative costs increased $82,000 or 3.9% compared to the same quarter last year due to increased bonus compensation partially offset by one-time lower IT related costs. Allocated corporate expenses increased $10,000. Gains on equipment sales increased $216,000 due to increased sales of tractors.

Mining Royalty Land Results

Mining royalty land segment revenues for the third quarter of fiscal 2013 were $1,299,000, an increase of $198,000 or 18.0% over the same quarter last year due to royalties on a new property purchased in May 2012 along with a shift in production at two locations increasing the share of mining on property owned by the Company.

The mining royalty land segment’s cost of operations was $319,000 in the third quarter of 2013, an increase of $12,000 over the same quarter last year due primarily to higher professional fees and maintenance expense.

Developed Property Rentals Results

Developed property rentals segment revenues for the third quarter of fiscal 2013 were $5,615,000, an increase of $593,000 or 11.8% due to higher occupancy and revenue on the 117,600 square foot build to suit building completed and occupied during the quarter ending March 2013. Occupancy at June 30, 2013 was 89.9% as compared to 87.0% at June 30, 2012.

On June 20, 2013 the Company purchased, through a qualified intermediary, Transit Business Park in Baltimore, Maryland which consists of 5 buildings on 14.5 acres totaling 232,318 square feet which were 87.9% occupied (including 6.4% for temporary leases and 7.1% for holdover tenant). This purchase is planned as a forward 1031 exchange upon the closing of phase 1 of Windlass Run Residential scheduled to close during the fourth quarter of fiscal 2013.

Developed property rentals segment’s cost of operations was $3,428,000 in the third quarter of 2013, an increase of $311,000 or 10.0% over the same quarter last year. Property operating expenses increased $279,000 due to higher occupancy, property taxes, and professional fees and the newly completed building, partially offset by lower maintenance expenses. Depreciation and amortization increased $47,000 primarily due to the newly completed build to suit building. Management Company indirect expenses (excluding internal allocations for lease related property management and construction fees) decreased $34,000 due to the prior year including severance costs partially offset by higher professional fees. Allocated corporate expenses increased $19,000.

Consolidated Results

Operating Profit - Consolidated operating profit was $6,070,000 in the third quarter of fiscal 2013, an increase of $1,179,000 or 24.1% compared to $4,891,000 in the same period last year. Operating profit in the transportation segment increased $821,000 or 35.9% due to the increase in miles driven, lower health insurance claims and higher gains on sales of equipment. Operating profit in the mining royalty land segment increased $186,000 or 23.4% due to royalties on a new property purchased in May 2012 along with a shift in production at two locations increasing the share of mining on property owned by the Company partially offset by higher professional fees and maintenance expenses. Operating profit in the Developed property rentals segment increased $282,000 or 14.8% due to higher occupancy, the 117,600 square foot build to suit building completed and occupied during the second quarter, and lower maintenance expenses partially offset by higher property taxes and professional fees. Consolidated operating profit includes corporate expenses not allocated to any segment in the amount of $204,000 in the third quarter of fiscal 2013, an increase of $110,000 compared to the same period last year.

Interest income and other (expense) income, net – Interest income and other (expense) income, net decreased $10,000 over the same quarter last year.

Interest expense – Interest expense increased $600,000 over the same quarter last year due to accelerated prepayment on long-term debt and lower capitalized interest partially offset by declining mortgage principal balance. On June 3, 2013 the Company prepaid the $7,281,000 remaining principal balance on a 6.12% mortgage under an early prepayment provision the note allowed after 7.5 years. The $561,000 cost of the prepayment included a penalty of $386,000 and the remaining deferred loan costs of $175,000. The amount of interest capitalized on real estate projects under development was $166,000 lower than the same quarter in fiscal 2012 primarily due to the completion of Patriot Business Park’s horizontal development.

Income taxes – Income tax expense increased $252,000 over the same quarter last year due to higher earnings from continuing operations compared to the same quarter last year.

Income from continuing operations – Income from continuing operations was $3,002,000 or $.31 per diluted share in the third quarter of fiscal 2013, an increase of 12.2% compared to $2,676,000 or $.28 per diluted share for the same period last year. The $326,000 increase was primarily due to the $1,179,000 increase in operating profits offset by higher income taxes.

Discontinued operations – The after tax income from discontinued operations for the third quarter of fiscal 2012 was $8,000.

Net income - Net income for the third quarter of fiscal 2013 was $3,002,000 compared to $2,684,000 for the same period last year. Diluted earnings per common share for the third quarter of fiscal 2013 were $.31 compared to $.28 for the same quarter last year. Transportation segment results were higher due to the increase in miles driven, lower health insurance claims and higher gains on equipment sales. The mining royalty land segment’s results were higher due to new property royalties along with a shift in production at two locations increasing the share of mining on property owned by the Company. The Developed property rentals segment’s results were higher due to higher occupancy and lower maintenance expenses partially offset by higher property taxes and professional fees. Interest expense included $342,000 after income taxes related to mortgage prepayment.

Comparative Results of Operations for the Nine months ended June 30, 2013 and 2012

Consolidated Results – Net income for the first nine months of fiscal 2013 was $8,396,000 compared to $6,451,000 for the same period last year. Diluted earnings per common share for the first nine months of fiscal 2013 were $.88 compared to $.68 for the same period last year. Transportation segment results were higher due to incremental profits on increased revenue and higher gains on

equipment sales. The mining royalty land segment’s results were higher due to new property royalties along with a shift in production at two locations increasing the share of mining on property owned by the Company. The Developed property rentals segment’s results were higher due to higher occupancy, reduced severance costs, and lower maintenance costs partially offset by higher property taxes. Interest expense included $342,000 after income taxes related to mortgage prepayment.

Transportation Results

Transportation segment revenues were $82,609,000 in the first nine months of 2013, an increase of $5,412,000 over the same period last year. Revenue miles in the first nine months of fiscal 2013 were up 5.1% compared to the first nine months of fiscal 2012 due to business growth and a slightly longer average haul length. Revenue per mile increased 1.7% over the same period last year due to rate increases. Fuel surcharge revenue decreased $61,000 due to changes to certain customer rates to incorporate fuel surcharges into base rates. The average price paid per gallon of diesel fuel increased by $.02 or .7% over the same period in fiscal 2012. There is a time lag between changes in fuel prices and surcharges and often fuel costs change more rapidly than the market indexes used to determine fuel surcharges. Excluding fuel surcharges, revenue per mile increased 3.7% over the same period last year.

The Transportation segment’s cost of operations was $75,784,000 in the first nine months of 2013, an increase of $4,106,000 over the same period last year. The Transportation segment’s cost of operations in the first nine months of 2013 as a percentage of revenue was 92% compared to 93% in the first nine months of 2012. Compensation and benefits increased $2,087,000 or 7.6% compared to the same period last year primarily due to the increase in miles driven and a driver pay increase. Fuel cost increased by $876,000

due to the increase in miles driven and higher cost per gallon. Insurance and losses increased $162,000 compared to the same period last year primarily due to higher accident claims partially offset by lower health insurance claims. Depreciation expense increased $406,000 due to the higher cost of new equipment. Other expense increased $556,000 due to increased miles driven, higher vehicle repair costs, increased site maintenance, and increased tire prices. Sales, general and administrative costs increased $322,000 or 5.2% compared to the same period last year due to severance costs and increased bonus compensation. Allocated corporate expenses increased $97,000. Gains on equipment sales increased $400,000 due to increased sales of tractors.

Mining Royalty Land Results

Mining royalty land segment revenues for the first nine months of fiscal 2013 were $3,874,000, an increase of $771,000 or 24.8% over the same period last year due to royalties on a new property purchased in May 2012 along with a shift in production at two locations increasing the share of mining on property owned by the Company partially offset by lower timber sales.

The mining royalty land segment’s cost of operations was $945,000 in the first nine months of 2013, an increase of $22,000 over the same period last year due primarily to the $37,000 increase in allocated corporate expenses offset by a $11,000 decrease in depletion expenses.

Developed Property Rentals Results