Annual Report 2002
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended September 30
(Dollars in thousands except per share amounts)
%
2002 2001 Change
Revenues $ 96,949 121,258 -20.0
Gross profit $ 20,542 21,792 - 5.7
Operating profit $ 12,413 7,878 +57.6
Income before income taxes $ 9,270 4,506 +105.7
Net income $ 5,655 2,703 +109.2
Per common share:
Basic earnings $ 1.80 .86 +109.3
Diluted earnings $ 1.79 .86 +108.1
Total Assets $155,463 152,759 +1.8
Total Debt $ 48,601 55,874 -13.0
Shareholders' Equity $ 79,160 73,112 +8.3
Net book value per share $ 25.06 23.28 +7.6
BUSINESS. The Company is engaged in the transportation and real
estate businesses. The Company's transportation business is
conducted through two wholly owned subsidiaries. Florida Rock & Tank
Lines, Inc. is a Southeastern transportation company concentrating
in the hauling of liquid and dry bulk commodities by tank trucks.
SunBelt Transport, Inc. serves the flatbed portion of the trucking
industry in the Southeast, Midwest and Mid-Atlantic states, hauling
primarily construction materials. The Company's real estate group,
through subsidiaries, acquires, constructs, leases, operates and
manages land and buildings to generate both current cash flows and
long-term capital appreciation. The real estate group also owns real
estate which is leased under mining royalty agreements or held for
investment.
OBJECTIVES. The Company's dual objectives are to build a major
transportation company and a real estate company which provides
sound long-term growth, cash generation and asset appreciation.
TRANSPORTATION
Internal growth is accomplished by a dedicated, competent and
loyal work force, emphasizing superior service to customers in
existing markets, developing new transportation services for
customers in current market areas, as well as expansion into
new market areas.
External growth, through the acquisition program, is designed
to broaden the Company's geographic market area and delivery
services by acquiring related businesses.
REAL ESTATE
The growth plan is based on the acquisition, management and
retention of real estate assets and the development of
industrial rental properties to provide long-term positive cash
flows and capital appreciation.
TO OUR SHAREHOLDERS
We are pleased to report improved operating results compared to a
year ago. Fiscal 2002 produced operating profit and net income of
$12,413,000 and $5,655,000, respectively. Operating profit and net
income for Fiscal 2001 were $7,878,000 and $2,703,000, respectively.
Based on essentially level diluted total shares outstanding, the
Company earned $1.79 per share compared to $.86 for the previous year.
When comparing to Fiscal 2001 it should be noted that operating
performance for Fiscal 2001 was negatively impacted by closure in the
fourth quarter of the Company's third-party, non-asset based
transportation subsidiary, Patriot Transportation, Inc. The Company
experienced a net loss after-tax of $3,786,000 associated with this
subsidiary in 2001.
Comparisons to Fiscal 2001 should also address a significant
variance in net after-tax profits from property sales. After-tax
profits from property sales were $1,732,000 in Fiscal 2001 compared to
$194,000 in Fiscal 2002.
If after-tax losses from Fiscal 2001 closure of the transportation
subsidiary are eliminated together with after-tax profits in both years
from property sales, Fiscal 2002 net income advanced approximately
11.1% ahead of the previous year.
Transportation Group. Notwithstanding a continuing soft,
uncertain economy together with further escalating health costs and
liability insurance premiums, the Company's transportation group
managed improved operating performance compared to the previous year.
Though revenue miles (excluding the May 30, 2002 acquisition of
Infinger Transportation Company, Inc. by Florida Rock & Tank Lines,
Inc.) were slightly down for the Group year-over-year, bottom-line
comparisons were favorable primarily as the result of modestly improved
pricing and good expense control. Capital spending for the Group
totaled about $11,430,000 (including the purchase of Infinger assets)
compared to $5,011,000 during Fiscal 2001.
Demand for hauling services was somewhat uneven between the
Company's petroleum tank operation and its flatbed subsidiary. The
general economic downturn was made worse for petroleum hauling as the
result of continuing fall-out from the September 11, 2001 national
tragedy. Travel patterns and petroleum consumption, especially jet fuel
used by airlines, decreased following September 11. Decreased business
and leisure travel have continued, and demand for petroleum hauling has
remained depressed. Continuing consolidation within the multi-national
integrated oil companies has continued to exert pressure on hauling
rates as companies have combined and been driven to seek operating cost
savings. Growth throughout the country of non-traditional retail
gasoline outlets, so-called "hyper-markets", has also brought new
pressures and market structural changes, driving further consolidation.
Florida Rock & Tank Lines, Inc. achieved additional growth when it
purchased, on May 30, 2002, the operating assets of Infinger
Transportation Company, Inc. Infinger was based in Charleston, South
Carolina and had been operated by the Infinger family as a regional
tank truck carrier since 1946. The acquisition included 111 trailers
and 57 tractors operating primarily from terminals in Charleston and
North Augusta, South Carolina; Charlotte and Wilmington, North
Carolina; Savannah, Georgia; and Jacksonville and Tampa, Florida. The
acquisition is intended to produce operating efficiencies at existing
Florida Rock & Tank Lines terminals and to facilitate growth into new
hauling markets in the Carolinas.
The prevailing low interest rate environment and continuing
homebuilding boom provided fairly consistent demand for construction
materials hauling. SunBelt Transport, Inc., the Company's flatbed
trucking subsidiary, experienced a reasonably steady market for its
services. Driver recruitment and retention remain challenging, and un-
manned power units still plague the flatbed sector as well as the
broader industry. Margin pressures have been unrelenting as health,
liability insurance and general operating expenses continue to squeeze
against revenue rates.
Real Estate Group. The Company's real estate business enjoyed
another year of progress. Encouraging momentum continued within the
Group's core industrial development business. Asset management
opportunities and challenges also characterized the year.
The Group completed and placed in service in March, 2002 a 130,200
square foot flexible office-warehouse, 2202 Lakeside Boulevard. This
building is currently 67% occupied and represents additional progress
toward build-out at the Group's 134-acre Lakeside Business Park
adjacent to Interstate 95 northeast of Baltimore in Harford County,
Maryland.
A major anchor tenant executed a lease for a 200,200 square-foot
build-to-suit office-warehouse at the Group's new 59-acre Hillside
Business Park in Anne Arundel County, Maryland near the Baltimore-
Washington International Airport. Occupancy should occur late fourth
quarter of Fiscal 2003. This new project represents 35% of final build-
out for Hillside Business Park. A speculative office-warehouse, 7010
Dorsey Road, is also scheduled for completion at Hillside in January,
2003. This building will offer 74,600 square feet.
Horizontal development continues at the Group's Commonwealth
Avenue 50-acre site on the western perimeter of Jacksonville, Florida.
This rail-served tract is located just west of Interstate 295 and is
slated at build-out for approximately 500,000 square feet of product.
Total developed building portfolio at September 30, 2002 stood at
about 1.4 million square feet. Combined occupancy for all developed
buildings except those in service less than twelve months (2202
Lakeside Boulevard) was 93.2% at year-end. Final build-out at Lakeside,
Hillside and Commonwealth will produce a developed portfolio of
approximately 3.0 million square feet.
In order to further facilitate the Company's long-term plan to
build and own a portfolio of successful rental properties, an agreement
was executed during Fiscal 2002 second quarter to sell to Florida Rock
Industries, Inc. ("FRI") 108 acres of land located in Springfield,
Virginia. The selling price is $15.0 million and will produce a net
after-tax gain of approximately $7,722,000 at closing. The Company
expects to re-invest the proceeds and structure the transaction as a
tax-deferred exchange under Section 1031 of the United States Internal
Revenue Code.
Asset management activities continued with a focus on the Group's
5.8-acre and 2.1-acre sites on the banks of the Anacostia River in the
District of Columbia. The sites are currently occupied by and leased to
FRI. A $3.8 million waterfront bulkhead was substantially completed on-
time on-budget at the 5.8 acre site. This significant asset enhancement
will prevent shoreline erosion and enable foundation stability for
future vertical development.
The 5.8 acre site had been successfully re-zoned in Fiscal 2000
from Industrial to Planned Unit Development ("PUD") permitting
development of up to 1.5 million square feet of commercial office
space. As a condition of the PUD the 2.1 acre site was proffered away
as part of an amenity package. Although the Group had formally applied
to the District's Zoning Commission during Fiscal 2002 for a two-year
extension of the original PUD zoning, the Zoning Commission voted on
May 13, 2002, 3-2 against granting a two-year extension thereby
relegating the property to a recently adopted zoning classification
that allows for an equal amount of residential and commercial
development on both sites totaling 1.38 million square feet. In
response to this denial, the Group has submitted an appeal to the
Zoning Commission for reconsideration. While awaiting a response from
the Commission to its request for re-consideration, the Group is
continuing to explore options for eventual development.
Other asset management activities continue by the Group in support
of its raw land portfolio ranging from Maryland to South Florida.
Real estate group capital expenditures in Fiscal 2002 were
approximately $7,179,000. This compares to outlays in Fiscal 2001 of
approximately $12,920,000.
Outlook. Continued real estate progress should occur assuming a
low interest rate outlook and a sustainable national economic recovery.
However, current manufacturing sector weakness coupled with
deteriorating consumer and business confidence could undermine a
sufficiently strong uptrend. The Company's real estate outlook must
also be tempered by lower future mining royalties. Two locations
completed stone mining operations during Fiscal 2002.
Transportation business results, in addition to being similarly
impacted by uncertainties surrounding the national economy, will also
be affected by industry consolidation among both shippers and carriers.
Carrier consolidation will result from industry profit margin
pressures. The trucking industry is experiencing sharply rising health
and risk insurance expenses. Volume purchasing efficiencies (equipment,
tires, fuel, supplies, etc.) together with fixed cost benefits from
operating leverage will accelerate consolidation among trucking firms.
And continuing competition for drivers will favor companies whose size
enables superior benefits packages.
Notwithstanding these challenges, your Company remains focused on
operating efficiently and effectively while remaining alert for
appropriate strategic opportunities. We also want to pause along the
journey to thank you as well as the men and women of your Company for
your collective loyalty and support.
Respectfully yours,
Edward L. Baker
Chairman
John E. Anderson
President & Chief Executive Officer
OPERATING REVIEW
Transportation. During Fiscal 2002, the Company's transportation
group operated through two wholly owned subsidiaries. Florida Rock &
Tank Lines, Inc. is engaged in hauling petroleum and other liquid
and dry bulk commodities in tank trucks. SunBelt Transport, Inc. is
engaged primarily in hauling building and construction materials on
flatbed trailers. In September 2001, the Company closed the
operations of Patriot Transportation, Inc. (PTI) which was engaged
in hauling a variety of cargo through third-party independent
freight agents and owner/operators.
The tank trucks operate from terminals in Jacksonville, Orlando,
Panama City, Pensacola, Port Everglades, Tampa and White Springs,
Florida; Albany, Atlanta, Augusta, Bainbridge, Columbus, Dalton,
Macon and Savannah, Georgia; Knoxville, Tennessee; Charlotte and
Wilmington, North Carolina; Charleston, South Carolina; and
Birmingham, Alabama. SunBelt's flatbed fleet is based in
Jacksonville and Tampa, Florida; Atlanta and Savannah, Georgia;
Salisbury, North Carolina; and South Pittsburg, Tennessee and
operates primarily in the Southeastern, Midwestern and Mid-Atlantic
states.
Transportation revenues, excluding the closed operations, were up
1.7% in 2002 as a result of expansion of tank truck hauling through
the purchase of the assets of Infinger Transportation, Inc.
(Infinger) on May 30, 2002 and modest price increases. Gross profit
increased 9.0% from Fiscal 2001 due to the expansion and price
increases.
During Fiscal 2002, the transportation group purchased 96 new
tractors and 25 new trailers and had commitments to purchase an
additional 67 tractors at September 30, 2002. These purchases do not
include the 57 tractors and 111 trailers purchased from Infinger in
May 2002. The Fiscal 2003 capital expenditure plan is based on
maintaining a modernized tank and flatbed fleet and includes the
purchase of approximately 40 new tractors and 70 new trailers in
addition to the 67 tractors under commitment at September 30, 2002.
The fleet modernization program has resulted in reduced maintenance
expenses, improved operating efficiencies and enhanced driver
recruitment and retention.
Transportation labor, fuel and risk insurance pressures are
expected to remain key factors. Comprehensive fuel price surcharges
are now in place and assertive steps continue at both carriers to
boost permanent freight rates.
Real Estate. The real estate group operates the Company's real
estate and property development activities through subsidiaries.
The Company owns real estate in Florida, Georgia, Virginia,
Maryland, and Washington, D.C. The real estate owned generally
falls into one of three categories. The first is land and/or
buildings leased under rental agreements or being developed for
rental. The second category is land with construction aggregates
deposits, substantially all of which is leased to Florida Rock
Industries, Inc. under mining royalty agreements, whereby the
Company is paid a percentage of the revenues generated or annual
minimums, and the third category is land held for future
appreciation or development.
Real estate revenues excluding property sales increased 2.7% over
Fiscal 2001. Royalty revenue declined by 12.8% in 2002 primarily
due to completion of mining at the Miami property but was offset by
an increase of 13.9% in rental revenues. The Fiscal 2002 real
estate revenues, excluding the sale of real estate, were divided
approximately 33% from mining and minimum royalties and 67% from
rental revenues.
At September 30, 2002, the Company owned approximately 1.4 million
square feet of developed buildings that were 91% leased and
approximately 92 acres of developed land ready for building
construction. Brief descriptions of FRP Development Corp.'s projects
in the Baltimore, Maryland area at September 30, 2002 are as
follows:
Hillside Business Park in Anne Arundel County is a 59 acre tract
near the Baltimore-Washington International Airport. The project
will provide the Company an opportunity to develop 575,000 square
feet of warehouse/office space. Grading and infrastructure work
on the site is nearing completion and the first two buildings are
under construction and scheduled to be completed during 2003 with
274,800 square feet of leaseable warehouse/office space. One
building with 200,200 square feet is pre-leased.
Lakeside Business Park in Harford County consists of 134 acres.
Seven warehouse/office buildings, totaling 671,918 square feet
have been constructed and are 86% leased. 32.8 acres remain for
future development of an additional 485,200 square feet of
comparable product.
6920 Tudsbury Road in Baltimore County contains 5.3 acres with
83,100 square feet of warehouse space that is 100% leased.
8620 Dorsey Run Road in Howard County contains 5.8 acres with
84,600 square feet of warehouse space that is 100% leased.
Rossville Center in Baltimore County contains approximately 10
acres with 190,517 square feet of commercial/warehouse space and
is 87% leased.
34 Loveton Circle in Baltimore County contains 8.5 acres with
29,722 square feet of office space which is 11% occupied by the
Company with the balance 100% leased, including 23% leased to FRI.
Oregon Center in Anne Arundel County contains approximately 17
acres with 195,615 square feet of commercial warehouse and office
space which is 100% leased.
Arundel Center in Howard County contains approximately 11 acres
with 162,796 square feet of commercial warehouse and office space
which is 89% leased.
The Company owns a 50-acre, rail-served site on Commonwealth
Avenue in Jacksonville, Florida near the western beltway of
Interstate-295 capable of supporting roughly 500,000 square feet of
eventual build-out. Current efforts include permitting and
preliminary horizontal development work.
During Fiscal 2003 the real estate group will continue to focus on
buildings under construction and the continued development of the
property at Lakeside and Hillside Business Parks near Baltimore and
the Commonwealth site in Jacksonville while continuing a strict
preventative maintenance program on its existing facilities.
The real estate group will also continue its asset management
functions for the benefit of the Company's land portfolio. These
activities will include but not be limited to the Company's site on
the Anacostia River in the District of Columbia. The Company's
long-term plan is to continue to gradually expand its portfolio of
successful rental properties.
Five Year Summary Years ended September 30
(Dollars and shares in thousands except per share amounts)
2002 2001 2000 1999 1998
Summary of Operations
Revenues(a) $ 96,949 121,258 93,862 82,019 73,974
Gross profit(b) $ 20,542 21,792 16,239 19,994 16,493
Operating profit $ 12,413 7,878 6,840 12,380 9,625
Interest expense $ 3,164 3,394 3,438 2,357 2,300
Income before income taxes
$ 9,270 4,506 3,435 10,093 7,343
Provision for income taxes
$ 3,615 1,803 1,391 3,936 2,863
Net income $ 5,655 2,703 2,044 6,157 4,480
Per Common Share:
Basic EPS $ 1.80 .86 .61 1.79 1.30
Diluted EPS $ 1.79 .86 .61 1.78 1.28
Shareholders' equity
$ 25.06 23.28 22.06 21.53 19.83
Financial Summary
Current assets $ 11,490 16,248 15,089 14,161 10,073
Current liabilities
$ 11,972 16,728 17,498 13,555 9,479
Working capital (deficit)
$ (482) (480) (2,409) 606 594
Property, plant and
equipment, net $138,367 131,170 124,026 115,369 104,970
Total assets $155,463 152,759 148,011 138,655 123,965
Long-term debt $ 47,290 47,097 42,015 37,936 33,299
Shareholders' equity
$ 79,160 73,112 73,813 72,692 68,755
Other Data
Return on average
Shareholders' equity
7.4% 3.7 2.8 8.7 6.7
Net cash flow provided from
operating activities
$ 24,947 9,626 9,566 15,032 13,557
Additions to property,
plant and equipment
$ 18,609 18,428 21,861 21,359 19,901
Depreciation, depletion
and amortization
$ 11,086 11,471 11,144 10,065 9,146
Weighted average number
of shares - basic 3,143 3,157 3,334 3,444 3,452
Weighted average number
of shares - diluted 3,165 3,158 3,348 3,468 3,496
Number of employees 861 850 829 877 753
Shareholders of record 767 788 801 834 850
(a) Fiscal 2001 and 2000 include revenues of $22,623,000 and
$7,689,000 and operating losses of $6,309,000 and $361,000,
respectively, attributed to Patriot Transportation, Inc. which
ceased operations in September, 2001.
(b) Fiscal 2002, 2001, 2000, 1999 and 1998 include gains on the
sale of real estate of $323,000, $2,886,000, $1,533,000,
$3,236,000 and $358,000, respectively.
Quarterly Results (unaudited)
(Dollars in thousands except per share amounts)
First Second Third Fourth
2002 2001 2002 2001 2002 2001 2002 2001
Revenues $23,492 30,700 23,008 31,392 24,876 31,652 25,573 27,514
Gross profit $ 5,067 7,008 4,966 5,552 5,458 5,238 5,051 3,994
Operating profit $ 3,023 4,466 3,172 2,112 3,432 2,775 2,786 (1,475)
Income before
income taxes $ 2,243 3,548 2,373 1,250 2,629 1,929 2,025 (2,221)
Net income $ 1,346 2,129 1 424 750 1,577 1,157 1,308 (1,333)
Per common share:
Basic EPS $.43 .66 .45 .24 .50 .37 .42 (.42)
Diluted EPS $.43 .66 .45 .24 .50 .37 .41 (.42)
Market price:
High $20.55 17.19 35.00 22.00 34.00 21.00 30.00 20.00
Low $16.70 14.63 20.44 15.00 26.15 15.00 21.30 15.50
Included in income before taxes in the fourth quarter of 2001 are
restructuring and other one-time charges of $3,435,000 resulting
from the decision to terminate the operations of the third-party
agent owner-operator subsidiary, Patriot Transportation, Inc.
MANAGEMENT ANALYSIS
OPERATING RESULTS. 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, petroleum product usage in the Southeast which is
driven in part by tourism and commercial aviation, fuel costs, driver
availability and cost, construction activity, Florida Rock Industries,
Inc.'s sales from the Company's mining properties, interest rates and
demand for commercial warehouse space in the Baltimore/Washington
area. Internal factors include revenue mix, capacity utilization,
safety records, other operating factors, administrative costs, and
construction costs of new projects.
During Fiscal 2002, the transportation segment's ten largest customers
accounted for approximately 45.5% of the transportation segment's
revenue. The loss of any one of these customers could have an adverse
effect on the Company's revenues and income. During the fourth
quarter, one of these customers indicated it is moving a majority of
the business it is currently doing with the Company to other carriers.
This decision was reached after a lengthy competitive bid process
resulting in the business being awarded to the lowest bidder. The
Company estimates lost revenues from this customer to be approximately
6% of the transportation segment's revenues for Fiscal 2002. The loss
of this revenue will have an adverse effect on the Company's operating
income, at least in the short term.
Fiscal 2002 as Compared to Fiscal 2001.
Revenues. Consolidated revenues for Fiscal 2002 decreased $24,309,000
or 20.0% to $96,949,000 from $121,258,000 for the previous year.
Transportation revenues decreased 20.6% to $81,921,000 driven mainly
by the closure of the PTI subsidiary in September 2001. Excluding
PTI's revenues in 2001, Transportation revenues increased $1,354,000
or 1.7%, due to modest price increases and expansion in Florida Rock &
Tank Lines by the purchase on May 30, 2002 of the Infinger assets,
offset by a slight reduction in miles driven (0.5%). The reduction in
miles resulted from lower demand for petroleum products due to
decreased tourism and reduced air travel.
Total Real Estate revenues excluding property sales increased 2.7%
primarily due to an increase in revenue from developed properties
partially offset by a decrease in royalties. Revenues from the
company's development operations climbed 16.5%, while royalty revenues
from mining operations decreased 10.1% because of completion of stone
mining at two sites. We expect royalty revenues to continue to
decrease, as mining assets are depleted. Property sales in Fiscal
2002 were $554,000 versus $3,978,000 in Fiscal 2001.
Gross Profit. Consolidated gross profit for Fiscal 2002 decreased 5.7%
to $20,542,000 from $21,792,000 for the previous year.
Transportation gross profits increased $1,456,000 or 14.2% in 2002
as compared to 2001. Excluding PTI's gross loss of $498,000 in 2001,
gross profit increased $958,000 or 9.0% primarily due to the increased
revenues and control of expenses in the tankline operation for 2002.
This was partially offset by a reduction in gross profit of the
flatbed operations due to increased operating expenses and increased
insurance and casualty losses.
Real Estate gross profit excluding property sales decreased $144,000
due to a $1,058,000 reduction in royalty gross profit mostly offset by
an increase in rental income. Gross profit from property sales in
Fiscal 2002 was only $323,000 compared to $2,886,000 in Fiscal 2001.
Operating Expenses. Selling, general and administrative expenses
decreased 33.2% from $12,310,000 in Fiscal 2001 to $8,229,000 for
Fiscal 2002, almost entirely due to the closure of PTI which had
administrative expenses of $4,208,000 in 2001. During Fiscal 2001, the
Company recorded $1,604,000 in restructuring charges related to its
decision to shut down the operations of this subsidiary. In Fiscal
2002, a recovery of $100,000 in amounts previously charged to
restructuring was recorded due to a better than anticipated
disposition of owned and leased trailers, partially offset by higher
severance costs.
Income Taxes. The Company recorded an income tax provision of
$3,615,000 in 2002, compared to a provision of $1,803,000 in 2001.
The effective tax rate decreased 1% to 39% in 2002 primarily due to a
lower level of non-deductible expenses and higher levels of earnings.
Net Income. As a result of the foregoing, net income increased 109.2%
from $2,703,000 in 2001 to $5,655,000 in Fiscal 2002. Diluted
earnings per share increased 108.6% to $1.79 in Fiscal 2002 from $.86
in 2001. Diluted total shares outstanding increased .2% from
3,158,000 in 2001 to 3,165,000 in 2002 as a result of the issuance of
stock options during the year.
Fiscal 2001 as Compared to Fiscal 2000.
Revenues. In Fiscal 2001, revenues increased 29.2% from Fiscal 2000.
In the transportation segment, revenues and miles hauled were up 28.7%
and 22.0%, respectively, in 2001. The Company's closed subsidiary,
PTI, accounted for 64.8% and 80.4% of the increase in revenues and
miles hauled, respectively, for Fiscal 2001. The balance of the growth
in miles hauled came mainly from the Company's tank line operations
which also benefited from modest price increases. The real estate
segment's revenues, exclusive of real estate sales, increased 22.4% in
2001.
Gross Profit. Consolidated gross profit for Fiscal 2001 increased
$5,553,000 and the gross profit margin increased to 18.0% from 17.3%.
The transportation segment's gross profit increased $2,330,000 and the
gross margin increased to 9.9% from 9.8% in Fiscal 2000. The increase
in gross profit for the transportation segment in Fiscal 2001 was
primarily attributable to the increase in miles hauled, improved
margins due to price increases and improved fuel surcharges in the
tank line business partially offset by increased losses in the now
closed third-party subsidiary. Gross profit in the real estate
segment increased $3,224,000 over Fiscal 2000 due to property sales,
increased royalties from mining properties and additional rental
income from newly developed and existing properties. Gross profit on
real estate sales was $2,886,000 as compared to $1,533,000 in 2000.
Operating Expenses. Selling, general and administrative expense
increased 31.0% in Fiscal 2001 compared to 2000. This increase was
primarily due to administrative support costs associated with the
third-party agent/owner-operator transportation subsidiary prior to
its ceasing operations in September 2001 and non-recurring charges of
$1,805,000 due primarily to asset write-offs associated with its
closing.
Fiscal 2001 also included non-recurring charges of $1,604,000
related to the closed subsidiary (See note 3 of Notes to the
Consolidated Financial Statements).
Income Taxes. Income tax expense increased $412,000 for Fiscal 2001 as
a result of increased income before income taxes. Income tax expense
is 40% of income before income tax expense for 2001 and 40.5% for
2000.
SUMMARY OF CRITICAL ACCOUNTING POLICIES.
Management of the Company considers the following accounting policies
critical to the reported operations of the Company:
Accounts Receivable Valuation. The Company is subject to customer
credit risk including bankruptcies, primarily in the Transportation
segment, that could affect the collection of outstanding accounts
receivable. To mitigate these risks, the Company performs credit
reviews on all new customers and periodically on existing customers.
A detailed analysis of late and slow pay customers is prepared monthly
and reviewed by senior management. The overall collectibility of
outstanding receivables is evaluated and allowances are recorded as
appropriate.
Risk Insurance. The nature of the Transportation business subjects the
Company to risks arising from workers' compensation, automobile
liability, and general liability claims. The Company retains the
exposure on certain claims of $100,000 to $500,000 and has third party
coverage for amounts exceeding the retention. The Company expenses
during the year an estimate of risk insurance losses. Periodically,
an analysis is performed, using historical and projected data, to
determine exposure for claims incurred but not reported. On an annual
basis the Company obtains an independent actuarial analysis. The
Company attempts to mitigate losses from insurance claims by
maintaining safe operations and providing mandatory safety training.
Real Estate Investments. All direct and indirect costs, including
interest and real estate taxes associated with the development,
construction, leasing or expansion of real estate investments are
capitalized as a cost of the property. Included in indirect costs is
an estimate of internal costs associated with development and rental
of real estate investments. All external costs associated with the
acquisition of real estate investments are capitalized as a cost of
the property.
Tires on Equipment. The Company accounts for the tires on its tractors
and trailers separately from fixed assets. The value of the tires is
accounted for as a prepaid expense and amortized over the estimated
life of the tires as a function of miles driven. The mile factors used
differ by geographic location and are determined based on historical
experience. Tires that are damaged due to road hazards are expensed
immediately using an estimated value based on remaining tread life.
LIQUIDITY AND CAPITAL RESOURCES. The following key financial
measurements reflect the Company's financial position and capital
resources at September 30 (dollars in thousands):
2002 2001 2000
Cash $ 529 440 633
Total debt $48,601 55,874 48,411
Unused lines of credit $24,500 20,200 23,400
During 2002, net cash flow from operating activities was
$24,947,000 which funded the Company's investing activities of
$17,978,000 and the reduction of debt.
During 2001, net cash flow from operating activities was $9,626,000
which along with issuing additional long and short-term debt funded
the Company's investing activities of $13,878,000 and the repurchase
of common stock of $3,404,000.
The Company has a $37,000,000 revolving credit agreement (the
Revolver) of which $24,500,000 was available at fiscal year end. The
Revolver contains restrictive covenants including limitations on
paying cash dividends. Under these restrictions, as of September 30,
2002, $5,632,000 of consolidated retained earnings would be available
for payment of dividends or repurchase of common stock.
The Board of Directors has authorized management to repurchase
shares of the Company's common stock from time to time as
opportunities may arise. During Fiscal 2002, the company repurchased
1,658 shares for approximately $32,000. At September 30, 2002 the
Company had approximately $3,628,000 available under this
authorization.
The aggregate amounts due in each fiscal year on long-term debt
outstanding at September 30, 2002 is: 2003 - $1,311,000; 2004 -
$1,415,000; 2005 - $1,467,000; 2006 - $1,587,000; 2007 - $1,695,000;
and thereafter - $28,626,000.
In addition to the above the $12,500,000 balance outstanding under
the Revolver at September 30, 2002 will be due in January 2005 unless
the Revolver is renewed or replaced.
The Company has a $7,500,000 Letter of Credit facility with
SunTrust Bank, N.A. under which the Company may issue letters of
credit to various beneficiaries. Each letter of credit is generally
irrevocable for a period of one year and is automatically extended for
additional one-year periods unless notified not less than thirty days
before the expiration dates. At September 30, 2002, $7,353,000 of
irrevocable letters of credit were outstanding. Substantially all of
these were issued for workers' compensation and liability insurance
retentions. If these letters of credit are not extended the Company
will have to find alternative methods of collateralizing or funding
these obligatons.
The Company currently expects its Fiscal 2003 capital expenditures
to be approximately $28,410,000 ($16,494,000 for real estate
development expansion and $11,916,000 for transportation segment
expansion) and depreciation and depletion expense to be approximately
$11,711,000. The expenditures are expected to be financed from the
cash flow from operating activities, financing of new real estate
projects, and the funds available under its revolving credit
agreement.
The Company has obtained a commitment for a first mortgage loan of
$8,500,000 to be secured by a 200,200 square foot building that is
currently under construction and is pre-leased to one tenant. The loan
which is subject to building completion and other normal conditions is
for a period of 15 years with level monthly payments of principal and
interest at 5.69%.
In February 2002, a subsidiary of the Company signed an Agreement to
sell 108 acres of land to FRI for $15,000,000. Closing is subject to a
title search and surveys and my occur within 45 days of the Company
giving notice to FRI to close, or subsequent to June 30, 2003, within
45 days of either party giving notice to close. If FRI fails to close
by December 31, 2003, at no fault of the Company, the Company may
retain the $100,000 binder deposit and be under no further obligation
to close. FRI has the right to terminate this Agreement prior to
receiving the Company's notice to close if there shall exist or the
consummation of the sale would cause a default in the Credit Agreement
among FRI and Wachovia Bank, et. al. The Company intends to structure
this transaction as a tax deferred exchange under Section 1031 of the
United States Internal Revenue Code and the Treasury Regulations
promulgated thereunder. If the transaction closes, the Company will
recognize a gain on the sale of approximately $7,772,000 net of income
taxes, or $2.45 per diluted share. The tract has been rented to a
subsidiary of FRI and the Company received rental income of
approximately $650,000 for the 2002 fiscal year.
Management believes that the Company is financially postured to be
able to take advantage of external and internal growth opportunities
in real estate development and in the motor carrier industry that may
arise.
INFLATION. Historically, the Company has been able to recover
inflationary cost increases in the transportation group through
increased freight rates. It is expected that over time, justifiable
and necessary rate increases will be obtained. Substantially all of
the Company's royalty agreements are based on a percentage of the
sales price. Minimum royalties and substantially all lease agreements
provide escalation provisions.
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 these 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 other risk factors
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: driver availability and cost; availability and
terms of financing; freight demand; risk insurance markets;
competition; general economic conditions; demand for flexible
warehouse/office facilities; restructuring charges; interest rates;
levels of construction activity in FRI's markets; fuel costs; and
inflation. 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.
Consolidated Statements of Income Years ended September 30
(Dollars and shares in thousands except per share amounts)
2002 2001 2000
Revenues:
Transportation $ 81,921 103,189 80,152
Real estate 14,474 14,091 11,450
Sale of real estate 554 3,978 2,260
Total revenues (including revenue from
related parties of $6,944, $10,693 and
$7,178, respectively) 96,949 121,258 93,862
Cost of operations:
Transportation 70,243 92,968 72,260
Real estate 5,933 5,406 4,636
Cost of real estate sold 231 1,092 727
Gross profit 20,542 21,792 16,239
Selling, general and administrative expense
(including expenses paid to related party
of $463, $527 and $582, respectively) 8,229 12,310 9,399
Non-recurring charges (recoveries) related
to closed subsidiary (100) 1,604 -
Operating profit 12,413 7,878 6,840
Interest expense (3,164) (3,394) (3,438)
Interest income 21 22 24
Other income, net - - 9
Income before income taxes 9,270 4,506 3,435
Provision for income taxes 3,615 1,803 1,391
Net income $ 5,655 2,703 2,044
Earnings per share:
Basic $ 1.80 .86 .61
Diluted $ 1.79 .86 .61
Number of shares used in computing:
Basic earnings per share 3,143 3,157 3,334
Diluted earnings per share 3,165 3,158 3,348
See accompanying notes.
Consolidated Balance Sheets September 30
(Dollars in thousands)
2002 2001
Assets
Current assets:
Cash and cash equivalents $ 529 440
Accounts receivable (including related
party of $107 and $276, less allowance
for doubtful
accounts of $474 and $1,160, respectively) 7,343 8,477
Income taxes receivable 8 1,002
Inventory of parts and supplies 633 570
Prepaid expenses and other 2,977 4,568
Assets held for sale - 1,191
Total current assets 11,490 16,248
Property, plant and equipment, at cost:
Land 66,380 65,622
Buildings 55,420 50,372
Plant and equipment 72,489 67,847
Construction in progress 14,986 13,507
209,275 197,348
Less accumulated depreciation and depletion 70,908 66,178
138,367 131,170
Real estate held for investment, at cost 1,047 1,260
Goodwill, at cost less amortization of $523
and $483, respectively 1,087 1,127
Other assets 3,472 2,954
Total Assets $155,463 152,759
Liabilities and Shareholders' Equity
Current liabilities:
Short-term note payable to bank $ - 7,800
Accounts payable including related party of
$39 and $114, respectively 5,771 3,627
Accrued liabilities:
Payroll and benefits 2,229 2,115
Other accrued expenses 554 366
Accrued Insurance reserves 2,107 1,843
Long-term debt due within one year 1,311 977
Total current liabilities 11,972 16,728
Long-term debt 47,290 47,097
Deferred income taxes 10,062 9,280
Accrued insurance reserves 5,331 5,268
Other liabilities 1,648 1,274
Commitments and contingencies (Notes 12 and 13)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized - -
Common stock, $.10 par value;
25,000,000 shares authorized; 3,159,008
and 3,140,066 shares issued and
outstanding, respectively 316 314
Capital in excess of par value 11,748 11,357
Retained earnings 67,096 61,441
Total shareholders' equity 79,160 73,112
Total Liabilities and Shareholders' equity $155,463 152,759
See accompanying notes.
Consolidated Statements of Cash Flows Years ended September 30
(Dollars in thousands)
Cash flows from operating activities: 2002 2001 2000
Net income $ 5,655 2,703 2,044
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 11,086 11,471 11,144
Non-cash portion of restructuring charge - 968 -
Deferred income taxes 889 332 (238)
Gain on sale of real estate, plant and
equipment (612) (3,008) (2,220)
Net changes in operating assets and liabilities:
Accounts receivable 1,133 2,293 (2,319)
Income taxes receivable 994 (1,002) -
Inventory of parts and supplies (63) 80 (147)
Prepaid expenses and other 1,509 (1,815) (423)
Assets held for sale 1,191 - -
Accounts payable and accrued liabilities 2,686 (2,915) 1,219
Net change in insurance reserves and other
liabilities 437 485 405
Other, net 42 34 101
Net cash provided by operating activities 24,947 9,626 9,566
Cash flows from investing activities:
Purchase of property, plant and equipment (18,046) (18,438)(21,041)
Additions to other assets (942) (734) (777)
Proceeds from the sale of real estate held for
investment, property, plant and equipment, and
other assets 1,010 5,294 4,365
Net cash used in investing activities (17,978) (13,878)(17,453)
Cash flows from financing activities:
Proceeds from long-term debt 10,200 6,140 5,000
Net (decrease) increase in short-term debt (7,800) 2,200 2,600
Repayment of long-term debt (9,673) (877) (750)
Exercise of employee stock options 425 - 545
Repurchase of Company stock (32) (3,404) (1,468)
Net cash (used in) provided by financing activities(6,880) 4,059 5,927
Net increase(decrease)in cash and cash equivalents 89 (193) (1,960)
Cash and cash equivalents at beginning of year 440 633 2,593
Cash and cash equivalents at end of year $ 529 440 633
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,179 3,480 3,477
Income taxes $ 1,720 3,399 920
Non cash investing and financing activities:
Additions to property, plant and equipment from:
Exchanges $ 563 - 820
See accompanying notes.
Consolidated Statements of Shareholders' Equity Years ended September 30
(Dollars in thousands)
Capital in
Common Stock Excess of Retained
Shares Amount Par Value Earnings
Balance at October 1, 1999 3,375,817 $338 $15,660 $56,694
Shares purchased and canceled (69,466) (7) (1,461) -
Exercise of stock options 40,000 4 541 -
Net income - - - 2,044
Balance at September 30, 2000 3,346,351 335 14,740 58,738
Shares purchased and canceled (206,285) (21) (3,383) -
Net income - - - 2,703
Balance at September 30, 2001 3,140,066 314 11,357 61,441
Shares purchased and canceled (1,658) - (32) -
Exercise of stock options 20,600 2 423 -
Net income - - - 5,655
Balance at September 30, 2002 3,159,008 $316 $11,748 $67,096
See accompanying notes.
Notes to Consolidated Financial Statements
1. Accounting policies. ORGANIZATION - Patriot Transportation Holding, Inc.
is engaged in the transportation and real estate businesses. The Company's
transportation business is conducted through two wholly owned subsidiaries.
Florida Rock & Tank Lines, Inc. is a Southeastern transportation company
concentrating in the hauling by motor carrier of liquid and dry bulk
commodities. SunBelt Transport, Inc. serves the flatbed portion of the
trucking industry in the Southeast, Midwest and Mid-Atlantic States, hauling
primarily construction materials. The Company's real estate group, through
subsidiaries, acquires, constructs, leases, operates and manages land and
buildings to generate both current cash flows and long-term capital
appreciation. The real estate group also owns real estate which is leased
under mining royalty agreements or held for investment.
CONSOLIDATION - The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with maturities of three months or less at time of purchase to be
cash equivalents.
INVENTORY - Inventory of parts and supplies is valued at the lower of cost
(first-in, first-out) or market.
TIRES ON EQUIPMENT - The value of tires on tractors and trailers is
accounted for as a prepaid expense and amortized over the life of the tires
as a function of miles driven.
REVENUE AND EXPENSE RECOGNITION - Transportation revenue is recognized when
shipment is complete and transportation expenses are recognized as incurred.
Real estate rental revenue and mining royalties are generally recognized
when due under the leases. Rental income from leases with scheduled
increases during their term is recognized when due under the leases, except
when increases are deemed material (greater that 3% per annum), in which
case, rents are recognized on a straight-line basis.
Sales of real estate are recognized when the collection of the sales price
is reasonably assured and when the Company has fulfilled its obligations,
which are typically as of the closing date.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is recorded
at cost less accumulated depreciation. Provision for depreciation of
property, plant and equipment is computed using the straight-line method
based on the following estimated useful lives:
Years
Buildings and improvements 8-32
Revenue equipment 5-10
Other equipment 3- 5
Furniture and fixtures 5-10
Depletion of sand and stone deposits is computed on the basis of units
of production in relation to estimated reserves.
The Company periodically reviews property, plant and equipment for
potential impairment. If this review indicates that the carrying amount
of the asset may not be recoverable, the Company estimates the future cash
flows expected with regards to the asset and its eventual disposition. If
the sum of these future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the assets, the Company
records an impairment loss based on the fair value of the asset.
All direct and indirect costs, including interest and real estate taxes
associated with the development, construction, leasing or expansion of real
estate investments are capitalized as a cost of the property. Included in
indirect costs is an estimate of internal costs associated with development
and rental of real estate investments. All external costs associated with
the acquisition of real estate investments are capitalized as a cost of the
property.
INSURANCE - The Company has a $100,000 to $500,000 self-insured
retention per occurrence in connection with certain of its workers'
compensation, automobile liability, and general liability insurance
programs ("risk insurance"). The Company is self-insured for its employee
health insurance benefits and carries a stop loss coverage of $200,000 per
covered participant per year. The Company accrues monthly the estimated
cost in connection with its portion of its risk and health insurance
losses. Claims paid by the Company are charged against the reserve.
Additionally, the Company maintains a reserve for incurred but not reported
claims based on historical analysis of such claims.
INCOME TAXES - The Company uses an asset and liability approach to
financial reporting for income taxes. Under this method, deferred tax
assets and liabilities are recognized based on differences between
financial statement and tax bases of assets and liabilities using presently
enacted tax rates. Deferred income taxes result from temporary
differences between pre-tax income reported in the financial statements and
taxable income.
STOCK OPTION AWARDS - The Company accounts for its employee stock
compensation plans under APB Opinion No. 25 with pro forma disclosures of
net earnings and earnings per share, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.
EARNINGS PER COMMON SHARE - Basic earnings per share are based on the
weighted average number of common shares outstanding during the periods.
Diluted earnings per share are based on the weighted average number of
common shares and potential dilution of securities that could share in
earnings. The only difference between basic and diluted shares used for
the calculation is the effect of employee and director stock options.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles 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 and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
ENVIRONMENTAL - Environmental expenditures that benefit future periods
are capitalized. Expenditures that relate to an existing condition caused
by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the
costs can be reasonably estimated. Estimation of such liabilities includes
an assessment of engineering estimates, continually evolving governmental
laws and standards, and potential involvement of other potentially
responsible parties.
NEW ACCOUNTING REQUIREMENTS - In June 2001, the FASB issued Statement No.
142, "Goodwill and Other Intangible Assets" (SFAS 142). This statement
addresses the accounting for intangible assets. The Company adopted SFAS No.
142 on October 1, 2002. In accordance with this statement, the Company is not
required to complete the transitional goodwill impairment test until March
31, 2003. Management has evaluated the effects of adopting this statement and
does not believe that adoption will result in an impairment of goodwill.
Management estimates that goodwill amortization required under previous
accounting standards of $40,000 will not be charged to the income statement
in 2003. Goodwill amortization for 2002, 2001, and 2000, was $40,000, $40,000
and $40,000, respectively.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143), which addresses financial accounting and
reporting for obligations with the retirement of tangible long-lived assets
and the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and (or) normal use of the
asset. The Company will adopt the provisions of SFAS 143 for the quarter
ending December 31, 2002. The Company is currently reviewing the effects of
adopting this statement, but does not believe that it will have a material
affect on its financial statements.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". SFAS 144 retains the
fundamental provisions of SFAS 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement
of long-lived assets to be disposed of by sale. SFAS 144 is effective for
fiscal years beginning after December 15, 2001. The Company adopted this
statement October 1, 2002 with no impact on the financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). The provisions of
SFAS 146 are effective for exit or disposal activities initiated after
December 31, 2002.
RECLASSIFICATIONS - Certain reclassifications have been made to the 2001 and
2000 financial statements to conform to the presentation adopted in 2002.
2. Transactions with related parties. As of September 30, 2002, six of the
Company's directors were also directors of Florida Rock Industries, Inc.
("FRI"). Such directors own approximately 27.6% of the stock of FRI and
44.6% of the stock of the Company. Accordingly, FRI and the Company are
considered related parties.
The Company, through its transportation subsidiaries, hauls commodities
in tank trucks for FRI and customers of FRI. It also hauls diesel fuel and
other supplies for FRI. Charges for these services are based on prevailing
market prices. Other wholly owned subsidiaries lease certain construction
aggregates mining and other properties and provides construction management
services to FRI.
A summary of revenues derived from FRI follows (in thousands):
2002 2001 2000
Transportation $ 986 950 1,202
Real estate 5,958 9,743 5,976
$ 6,944 10,693 7,178
The Company outsources certain functions to FRI, including some
administrative, human resources, legal and risk management. Charges for
services provided by FRI were $463,000 in 2002, $527,000 in 2001, and
$582,000 in 2000.
During Fiscal 2001, the Company sold two parcels of land to FRI, for
$2,607,000 and recognized a pre-tax gain of $2,034,000. The transactions
including the purchase price were reviewed and approved on behalf of the
Company by a committee of independent directors after obtaining independent
appraisals.
In February 2002, a subsidiary of the Company signed an Agreement to
sell 108 acres of land located in the northwest quadrant of I-395 and I-495
at Edsall Road in Springfield, Virginia to FRI for $15,000,000. Closing is
subject to a title search and surveys and may occur within 45 days of the
Company giving notice to FRI to close or, subsequent to June 30, 2003,
within 45 days of either party giving notice to close. If FRI fails to
close by December 31, 2003, at no fault of the Company, the Company may
retain the $100,000 binder deposit and be under no further obligation to
close. FRI has the right to terminate this Agreement prior to receiving
the Company's notice to close if there shall exist or the consummation of
the sale would cause a default in the Credit Agreement among FRI and
Wachovia Bank, et. al. The Agreement was approved by a committee of
independent directors of the Company after review of a development
feasibility study and other materials, consultation with management and
advice of independent counsel. The Company intends to structure this
transaction as a tax deferred exchange under Section 1031 of the United
States Internal Revenue Code and the Treasury Regulations promulgated
thereunder. If the transaction closes, the Company will recognize a gain on
the sale of approximately $7,772,000 net of income taxes, or $2.45 per
diluted share. The tract has been rented to a subsidiary of FRI and the
Company received rental income of approximately $650,000 for the 2002
fiscal year.
3. Non-recurring charges related to closed subsidiary. In the quarter
ended September 30, 2001, the Company recorded restructuring and other one-
time charges of $3,435,000 from continuing operations, resulting from the
decision to shut down its third party agent/owner-operator subsidiary,
Patriot Transportation, Inc., which began operation in Fiscal 2000. The
shutdown charge was comprised of $2,051,000 for asset write-offs, $968,000
for fixed asset impairments, $285,000 for employee severance and
termination benefit costs, $90,000 for remaining lease obligations and
$41,000 for additional costs associated with exiting the third party
agent/owner-operator business. The $3,435,000 charge was recorded in the
Consolidated Statement of Income as cost of operations of $26,000, selling,
general and administrative expense of $1,805,000 and restructuring and
other charges of $1,604,000.
During 2002, the Company completed a substantial portion of its activities
related to the closure of the subsidiary. As a result, a recovery of
restructuring charges of $100,000 was recorded. The recovery was due to
better than expected disposition of owned and leased trailers, partially
offset by higher severance costs. A $194,000 recovery in amounts
previously charged to administrative expense was also recorded in 2002,
primarily due to recovery of accounts receivable in excess of amounts
anticipated.
At September 30, 2002 and 2001, $113,000 and $356,000 was included in
accounts payable and accrued liabilities, representing the portion of
various charges not yet expended.
Revenue and operating profit (loss) related to Patriot Transportation, Inc.
for the years ended September 30 are as follows:
2002 2001 2000
Revenue $ 0 $22,623,000 7,689,000
Operating profit (loss) $294,000 $(6,309,000) (361,000)
4. Long-term debt. Long-term debt at September 30 is summarized as follows
(in thousands):
2002 2001
Revolving credit (unsecured) $12,500 21,000
6.5% to 9.5% mortgage notes payable
in installments through 2020 36,101 27,074
48,601 48,074
Less portion due within one year 1,311 977
$47,290 47,097
The aggregate amount of principal payments, excluding the revolving
credit, due subsequent to September 30, 2002 is: 2003 - $1,311,000; 2004 -
$1,415,000; 2005 - $1,467,000; 2006-$1,587,000; 2007-$1,695,000; 2008 and
subsequent years - $28,626,000.
On January 9, 2002, the Company and four banks signed a $37,000,000
uncollateralized revolving credit agreement (the Revolver) for a term of
three years. The Revolver currently bears interest at an initial margin
rate of 1.50% over the selected LIBOR or alternatively, 0.25% over the
prime rate of SunTrust Bank, N.A. The margin rate may change quarterly
based on the Company's ratio of consolidated adjusted debt to earnings
before interest, taxes, depreciation, amortization and rent for the
previous four quarters. The Revolver contains a $5,000,000 swing line which
may be used for daily borrowings. An annual commitment fee of one-quarter
of one percent per annum is payable on the unused amount of the commitment
during the term of the loan. The commitment fee may also change quarterly
based upon the ratio described above. The Revolver contains restrictive
covenants including limitations on paying cash dividends. Under these
restrictions, as of September 30, 2002, $5,632,000 of consolidated retained
earnings would be available for payment of dividends or repurchase of
common stock.
The non-recourse mortgage notes payable are collateralized by real
estate having a carrying value of approximately $40,975,000 at September
30, 2002.
Certain properties having a carrying value at September 30, 2002 of
$981,000 were encumbered by industrial revenue bonds that are the liability
of FRI. FRI has agreed to pay such debt when due (or sooner if FRI cancels
its lease of such property) and further has agreed to indemnify and hold
harmless the Company.
During Fiscal 2002, 2001 and 2000 the Company capitalized interest
cost of $194,000, $412,000 and $279,000, respectively.
5. Leases. At September 30, 2002, the total carrying value of property
owned by the Company which is leased or held for lease to others is
summarized as follows (in thousands):
Construction aggregates property $ 42,056
Commercial property 60,312
Land and other property 20,130
122,498
Less accumulated depreciation and depletion 31,363
$ 91,135
The minimum future rentals due the Company on noncancelable leases as
of September 30, 2002 are as follows: 2003 - $9,027,000; 2004 - $8,730,000;
2005 - $7,993,000; 2006 - $5,817,000; 2007 - $4,097,000; 2008 and
subsequent years $13,359,000.
6. Preferred Shareholder Rights Plan. On May 5, 1999, the Board of
Directors of the Company declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock.
The dividend was payable on June 2, 1999. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share
of Series A Junior Participating Preferred Stock of the Company, par value
$.01 per share (the "Preferred Shares"), at a price of $96 per one one-
hundredth of a Preferred Share, subject to adjustment.
In the event that any Person or group of affiliated or associated
Persons (an "Acquiring Person") acquires beneficial ownership of 15% or
more of the Company's outstanding common stock, each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon
exercise that number of Common Shares having a market value of two times
the exercise price of the Right. An Acquiring Person excludes any Person or
group of affiliated or associated Persons who were beneficial owners,
individually or collectively, of 15% or more of the Company's Common Shares
on May 4, 1999.
The Rights initially trade together with the Company's common stock
and are not exercisable. However, if an Acquiring Person acquires 15% or
more of the Company's common stock, the Rights may become exercisable and
trade separately in the absence of future board action. The Board of
Directors may, at its option, redeem all Rights for $.01 per right, at any
time prior to the Rights becoming exercisable. The Rights will expire
September 30, 2009 unless earlier redeemed, exchanged or amended by the
Board.
7. Stock Option Plan. The Company has a Stock Option Plan under which
options for shares of common stock may be granted to directors, officers
and key employees. At September 30, 2002, the number of shares available
for issuance is 426,000 shares.
Option transactions for the fiscal years ended September 30 are
summarized as follows:
2002 2001 2000
Average Average Average
Options Price(1) Options Price(1) Options Price(1)
Shares under option:
Beginning of year 131,600 $18.67 102,600 $19.05 144,600 $17.62
Issued 37,000 22.99 29,000 17.31 - -
Canceled (7,000) 21.29 - - (2,000) 24.00
Exercised (20,600) 17.93 - - (40,000) 13.63
End of year 141,000 $19.78 131,600 $18.67 102,600 $19.05
Options exercisable
at end of year 133,560 118,040 84,520
(1) Weighted average exercise price
The following table summarizes information concerning stock options
outstanding at September 30, 2002:
Options Options Weighted-Average
Exercise Price Outstanding Exercisable Remaining Life
$ 17.25 15,000 15,000 2.2 years
17.75 45,000 45,000 2.1 years
24.00 18,000 10,560 6.2 years
17.41 (Average) 42,000 42,000 8.7 years
27.06 (Average) 21,000 21,000 9.6 years
Remaining non-exercisable options as of September 30, 2002 become
exercisable by 3,720 shares each year through 2004.
The options expire ten years from the date of grant. The options
issued in 2001 and 2002 are exercisable immediately and certain prior year
options become exercisable in cumulative installments of 20% each year
after a one year waiting period from date of grant.
If compensation cost for stock option grants had been determined based
on the Black-Scholes option pricing model value at the grant date for the
awards granted subsequent to October 1, 1996 consistent with the provisions
of SFAS No. 123, the Company's net income, basic and diluted earnings per
share would have been (in thousands, except per share amounts):
2002 2001 2000
Net income
As reported $5,655 2,703 2,044
Pro forma 5,307 2,500 2,001
Basis earnings per share:
As reported 1.80 0.86 0.61
Pro forma 1.69 0.79 0.60
Diluted earnings per share
As reported 1.79 0.86 0.61
Pro forma 1.68 0.79 0.60
The SFAS 123 method has not been applied to options granted prior to
October 1, 1996, and the pro forma compensation expense may not be
indicative of pro forma expense in future years. The fair value of options
granted in 2002 was estimated to be $13.51 on the date of grant using the
following assumptions; no dividend yield, expected volatility of 52.6%,
risk-free interest rates of 4.5% and expected lives of 7 years. The
weighted average fair value of options granted in 2001 was estimated to be
$9.21 on the dates of grant using the following weighted average
assumptions; no dividend yield, expected volatility of 43.2%, risk-free
interest rates of 5.1% and expected lives of 7 years.
8. Income taxes. The provision for income taxes for fiscal years ended
September 30 consists of the following (in thousands):
2002 2001 2000
Current:
Federal $2,366 1,260 1,399
State 360 211 230
2,726 1,471 1,629
Deferred
Federal 728 284 (205)
State 161 48 (33)
889 332 (238)
Total $3,615 1,803 1,391
A reconciliation between the amount of tax shown above and the amount
computed at the statutory Federal income tax rate follows (in thousands):
2002 2001 2000
Amount computed at statutory
Federal rate $3,152 1,532 1,168
State income taxes (net of Federal
income tax benefit) 338 169 135
Other, net 125 102 88
Provision for income taxes $3,615 1,803 1,391
The types of temporary differences and their related tax effects that
give rise to deferred tax assets and deferred tax liabilities at September
30, are presented below:
2002 2001
Deferred tax liabilities:
Property, plant and equipment $11,944 11,001
Depletion 570 588
Prepaid expenses 1,000 1,184
Gross deferred tax liabilities 13,514 12,773
Deferred tax assets:
Insurance reserves 2,573 2,350
Other, net 855 1,226
Gross deferred tax assets 3,428 3,576
Net deferred tax liability $10,086 9,197
9. Employee benefits. The Company and certain subsidiaries have a
savings/profit sharing plan for the benefit of qualified employees. The
savings feature of the plan incorporates the provisions of Section 401(k)
of the Internal Revenue Code. Under the savings feature of the plan, an
eligible employee may elect to save a portion (within limits) of their
compensation on a tax deferred basis. The Company contributes to a
participant's account an amount equal to 50% (with certain limits) of the
participant's contribution. Additionally, the Company may make an annual
contribution to the plan as determined by the Board of Directors, with
certain limitations. The plan provides for deferred vesting with benefits
payable upon retirement or earlier termination of employment. The
Company's cost was $545,000 in 2002, $517,000 in 2001 and $433,000 in 2000.
The Company provides certain health benefits for retired employees.
Employees may become eligible for those benefits if they were employed by
the Company prior to December 10, 1992, meet the service requirements and
reach retirement age while working for the Company. The plan is
contributory and unfunded. The Company accrues the estimated cost of
retiree health benefits over the years that the employees render service.
The following table sets forth the plan's status reconciled with the
accrued postretirement benefit cost included in the Company's consolidated
balance sheet at September 30 (in thousands):
2002 2001
Change in benefit obligation:
Balance beginning of year $ 424 380
Service cost 19 24
Interest cost 24 29
Plan participants' contribution 11 13
Actuarial loss(gain) (69) 17
Benefits paid (35) (39)
Balance end of year $ 374 424
Change in plan assets:
Balance beginning of year $ - -
Employer contributions 24 26
Plan participants' contribution 11 13
Benefits paid (35) (39)
Balance end of year $ 0 0
Funded status $(374) (424)
Unrecognized net gain (227) (186)
Unrecognized prior service cost - -
Accrued postretirement benefit costs $(601) (610)
Net periodic postretirement benefit cost for fiscal years ended September 30
includes the following components (in thousands):
2002 2001 2000
Service cost of benefits earned during
the period $ 19 24 23
Interest cost on APBO 24 29 26
Net amortization and deferral (28) (21) (20)
Net periodic postretirement benefit
cost $ 15 32 29
The discount rate used in determining the Net Periodic Postretirement
Benefit Cost and the APBO was 7.0% for 2002, 7.5% for 2001 and 7.75% for
2000. No medical trend is applicable because the Company's share of the cost
is frozen.
10. 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 liquid 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 is developing
commercial and industrial properties.
Operating results and certain other financial data for the Company's
business segments are as follows (in thousands):
2002 2001 2000
Revenues:
Transportation (a) $ 81,921 103,189 80,152
Real estate (b) 15,028 18,069 13,710
$ 96,949 121,258 93,862
Operating profit:
Transportation (a) $ 5,057 (2,248) 118
Real estate (b) 8,864 11,550 8,258
Corporate expenses (1,508) (1,424) (1,536)
Operating profit $ 12,413 7,878 6,840
Capital expenditures:
Transportation $ 11,430 5,011 12,091
Real estate 7,179 12,920 9,762
Other 0 497 8
$ 18,609 18,428 21,861
Depreciation, depletion and
amortization:
Transportation $ 7,876 8,175 8,191
Real estate 2,961 3,259 2,897
Other 249 37 56
$ 11,086 11,471 11,144
Identifiable assets at September 30:
Transportation $ 47,519 48,987 54,836
Real estate 105,850 101,274 92,166
Cash 529 440 633
Unallocated corporate assets 1,565 2,058 376
$155,463 152,759 148,011
(a) Fiscal 2001 and 2000 include revenues of $22,623,000 and $7,689,000 and
operating of losses of $6,309,000 and $361,000, respectively attributed to
Patriot Transportation, Inc. which ceased operations in September, 2001.
(b) Fiscal 2002, 2001 and 2000 includes revenue of $554,000, $3,978,000, and
$2,260,000 and operating profit of $323,000, $2,886,000, and $1,533,000,
respectively, from the sale of real estate.
11. Acquisition. On May 30, 2002, the Company acquired substantially all of
the operating assets of Infinger Transportation Company, Inc. (Infinger), a
regional tank truck carrier based in Charleston, South Carolina. The
acquisition was accounted for as a purchase. The purchase price was
approximately $3,698,000, including costs associated with the acquisition.
The purchase price, which was financed through the revolving credit facility,
has been allocated to the assets acquired based on their respective fair
values. The purpose of the acquisition was to enable the Company to expand
into new markets and increase capacity in existing markets. No goodwill was
recorded in the transaction.
12. Fair values of financial instruments. At September 30, 2002 and 2001,
the carrying amount reported in the consolidated balance sheet for cash and
cash equivalents, short-term notes payable to bank and revolving credit
approximate their fair value. The fair values of the Company's other long-
term debt are estimated based on current rates available to the Company for
debt of the same remaining maturities. At September 30, 2002, the carrying
amount and fair value of such other long term debt was $36,101,000 and
$38,450,000, respectively.
13. 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 materially adverse effect on the Company's
consolidated financial statements.
14. Commitments. At September 30, 2002, the Company had entered into various
contracts to purchase and develop real estate with remaining commitments
totaling $8,727,000, and to purchase transportation equipment for
approximately $4,722,000.
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of
Patriot Transportation Holding, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity, and cash flows
present fairly, in all material respects, the financial position of Patriot
Transportation Holding, Inc. and its subsidiaries at September 30, 2002, and
the results of their operations and their cash flows for the year then ended
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
November 15, 2002
Jacksonville, Florida
Independent Auditors' Report
To the Board of Directors and Shareholders
Patriot Transportation Holding, Inc.
We have audited the accompanying consolidated balance sheet of Patriot
Transportation Holding, Inc. and subsidiaries as of September 30, 2001,
and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the two years in the period ended September 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Patriot Transportation
Holding, Inc. and subsidiaries at September 30, 2001, and the results of
their operations and their cash flows for each of the two years in the
period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche, LLP
Certified Public Accountants
Jacksonville, Florida
December 10, 2001
Directors and Officers
Directors
John E. Anderson (1)
President and Chief Executive
Officer of the Company
Edward L. Baker (1)
Chairman of the Board of the Company
and of Florida Rock Industries, Inc.
John D. Baker II (1)
President and Chief Executive
Officer of Florida Rock Industries, Inc.
Thompson S. Baker II
Vice President of
Florida Rock Industries, Inc.
David H. deVilliers, Jr.
Vice President of the Company and
President of FRP Development Corp.,
the Company's northern
real estate operations
Luke E. Fichthorn III (3)
Private Investment Banker,
Twain Associates and Chairman of the
Board and Chief Executive Officer of
Bairnco Corporation
Francis X. Knott (2)
Chairman of Partner Management Co., LLC
and of Partners Realty Trust, Inc.
Robert H. Paul III (2)(3)
Chairman of the Board, President
and Chief Executive Officer of
Southeast-Atlantic Beverage Corporation
H. Jay Skelton (2)
President and Chief Executive Officer of
DDI, Inc.
Martin E. Stein, Jr. (3)
Chairman and Chief Executive Officer of
Regency Centers Corporation and
Chairman of the Regency Group, Inc.
James H. Winston (3)
President of LPMC of Jax, Inc.,
Omega Insurance Company and Citadel
Life & Health Insurance Co.
________________
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Officers
Edward L. Baker
Chairman of the Board
John E. Anderson
President and Chief Executive Officer
David H. deVilliers, Jr.
Vice President
President, FRP Development Corp.,
the Company's northern real estate
operations
Ray M. Van Landingham
Vice President, Finance and Administration
and Chief Financial Officer
Gregory B. Lechwar
Controller
Rick J. Copley
President, SunBelt Transport, Inc.
John R. Mabbett III
President, Florida Rock & Tank Lines, Inc.
Patriot Transportation Holding, Inc.
General Office: 1801 Art Museum Drive
Jacksonville, Florida 32207
Telephone: (904) 396-5733
Annual Meeting
Shareholders are cordially invited to attend the Annual Shareholders Meeting
which will be held at 2 p.m. local time, on Wednesday, February 5, 2003, 155
East 21st Street, Jacksonville, Florida, 32206.
Transfer Agent
Wachovia Bank, N.A.
Corporate Trust Client Services NC-1153
1525 West W. T. Harris Boulevard - 3C3
Charlotte, NC 28288-1153
Telephone: 1-800-829-8432
General Counsel
Lewis S. Lee, Esquire
McGuireWoods LLP
Jacksonville, Florida
Independent Auditors
PricewaterhouseCoopers LLP
Jacksonville, Florida
Common Stock Listed
The Nasdaq Stock Market
(Symbol: PATR)
Form 10-K
Shareholders may receive without charge a copy of Patriot Transportation
Holding, Inc.'s annual report on Form 10-K for the fiscal year ended
September 30, 2002 as filed with the Securities and Exchange Commission by
writing to the Treasurer at 1801 Art Museum Drive Suite 300, Jacksonville,
Florida 32207.
34