SECURITIES AND EXCHANGE COMMISSION 	Washington, D.C. 20549 	FORM 10-K (Mark One) [X]	 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 	OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2003 	OR [ ] 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 	OF THE SECURITIES EXCHANGE ACT OF 1934 	Commission file number 33-26115 	PATRIOT TRANSPORTATION HOLDING, INC. 	(Exact name of registrant as specified in its charter) FLORIDA							 59-2924957 State or other jurisdiction of			 	 (I.R.S. Employer incorporation or organization			 Identification No.) 1801 Art Museum Drive, Jacksonville, Florida		 32207 (Address of principal executive offices)			 (Zip Code) Registrant's telephone number, including area code 904/396-5733 Securities registered pursuant to Section 12(b) of the Act:	None Securities registered pursuant to Section 12(g) of the Act: 	Common Stock $.10 par value 	(Title of class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X At December 8, 2003 aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was $47,493,379. At such date there were 2,934,108 shares of the registrant's stock outstanding. 	Documents Incorporated by Reference Portions of the Patriot Transportation Holding, Inc. 2003 Annual Report to Shareholders are incorporated by reference in Parts I and II. Portions of the Patriot Transportation Holding, Inc. Proxy Statement dated December 31, 2003 are incorporated by reference in Part III. PART I Item 1. BUSINESS. Patriot Transportation Holding, Inc., which was incorporated in Florida in 1988, and its subsidiaries (the "Company") are 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. ("Tank Lines"), and SunBelt Transport, Inc. ("SunBelt"). Tank Lines is a Southeastern U.S. based transportation company concentrating in the hauling of primarily petroleum related liquids and other liquids and dry bulk commodities by tank trucks. SunBelt serves the flatbed portion of the trucking industry in the Southeast, Midwest and Mid-Atlantic states, hauling primarily construction materials. A third transportation subsidiary, Patriot Transportation, Inc. ("PTI") closed operations in September 2001. The Company's real estate activities are conducted through several wholly owned subsidiaries. Florida Rock Properties, Inc. ("Properties") owns real estate of which a substantial portion is under mining royalty agreements or leased to Florida Rock Industries, Inc. ("FRI"), a related party. FRI accounted for approximately 39% of the Company's real estate revenues for Fiscal 2003. Properties also holds certain other real estate for investment. FRP Development Corp. ("Development") owns, manages and develops commercial warehouse/office rental properties near Baltimore, Maryland. Substantially all of the real estate operations are conducted within the Southeastern and Mid-Atlantic United States. The Company has two business segments: transportation and real estate. Industry segment information is presented in Notes 2 and 10 to the consolidated financial statements included in the accompanying 2003 Annual Report to Shareholders and is incorporated herein by reference. Revenues from royalties and from a portion of the trucking operations are subject to factors affecting the level of general construction activity. A decrease in the level of general construction activity in any of the Company's market areas may have an adverse effect on such revenues and income derived therefrom. Transportation. Tank Lines is engaged in hauling primarily petroleum related liquids and other liquid and dry bulk commodities by tank trucks. SunBelt is engaged primarily in hauling building and construction materials on flatbed trailers. Before closing its operations in September 2001, PTI was engaged in the hauling of a variety of cargo through independent agents and owner-operators. During Fiscal 2003, Tank Lines operated 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; and Charleston, South Carolina. Tank Lines has from two to six major tank truck competitors in each of its markets. On May 30, 2002, Tank Lines acquired substantially all of the operating assets of Infinger Transportation Company, Inc. (Infinger), a regional tank truck carrier based in Charleston, South Carolina. The purpose of the acquisition was to enable the Company to expand into new markets and increase capacity in existing markets. SunBelt's owned and leased flatbed fleet is based in Jacksonville and Tampa, Florida; Atlanta and Savannah, Georgia; and South Pittsburg, Tennessee and hauls primarily building and construction materials in Southeastern, Midwestern and Mid- Atlantic states. There are at least ten major competitors in SunBelt's market area and numerous small competitors in the various states served. The Company discontinued the operation of its third-party agent/owner-operator subsidiary, PTI, on September 30, 2001. PTI hauled a variety of cargo, throughout the United States, through independent contractors until it ceased operations. PTI began operations in December 1999 and was a non-asset based variable cost transportation company that provided transportation services to shippers through a network of independent sales agents and contractors. Independent sales agents and contractors were compensated based on a percentage of revenue generated by them. The Company decided to close PTI due to declining operating margins, high administrative costs to support this start up business, sharply higher liability insurance costs and an adverse economic climate. PTI was dissolved October 4, 2002 and ceased to exist as a legal entity. Additional information is presented in Note 3 to the consolidated financial statements included in the accompanying 2003 Annual Report to Shareholders and is incorporated herein by reference. The Company was committed at September 30, 2003 to purchase nine trailers and no tractors and plans to continue its routine fleet replacement and modernization program during 2004. The transportation segment primarily serves customers in the petroleum and building and construction industries. Petroleum customers accounted for approximately 67% and building and construction customers accounted for approximately 22% of transportation segment revenues for the year ended September 30, 2003. The Company hauls construction aggregates, diesel fuel and supplies for FRI. Revenues from services provided to FRI accounted for 1.6% of the transportation segment's revenues. Price, service, and location are the major factors which affect competition in the transportation segment within a given market. During Fiscal 2003, the transportation segment's ten largest customers accounted for approximately 38% 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. Real Estate. The Company's real estate and property development activities are conducted through several wholly owned subsidiaries. The Company owns real estate in Florida, Georgia, Virginia, Maryland, and Washington, D.C. The real estate owned falls generally into one of three categories: (i) land and/or buildings leased under rental agreements or being developed for rental; (ii) construction aggregates properties with stone or sand and gravel deposits, substantially all of which is leased to FRI under mining royalty agreements, as to which the Company is paid a percentage of the revenues generated by the material mined and sold, or minimum royalties where there is no current, or only limited, mining activity; and, (iii) land that is being held for future appreciation or development. Additional information about the Company's real estate segment is contained on page 1 under the captions "Real Estate Group" and in Notes 2 and 10 to the consolidated financial statements included in the accompanying 2003 Annual Report to Shareholders and is incorporated herein by reference. The Company's real estate strategy of developing high quality, flexible warehouse/office space continues to be successful as average occupancy for the fiscal year for buildings in service for more than 12 months was 92.7%. At September 30, 2003, 88.9% of the total warehouse/office portfolio of approximately 1.7 million square feet was leased. Price, location, rental space availability, flexibility of design, and property management services are the major factors that affect competition in the flexible warehouse/office rental market. The Company experiences considerable competition in all of its markets. Real estate revenues in Fiscal 2003 were divided approximately 69% from rentals, 30% from mining and minimum royalties and 1% from property sales. FRI accounted for approximately 39% of total revenues. Tenants of flexible warehouse/office properties are not concentrated in any one particular industry. A subsidiary of the Company signed an Agreement in February 2002 to sell 108 acres of land located in Springfield, Virginia to FRI for $15,000,000. Closing is subject to a title search and surveys and is to occur within 45 days of FRI giving notice to close. If FRI fails to close by December 31, 2004, 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 if the consummation of the sale would cause a default in the Credit Agreement among FRI and Wachovia Bank, N.A., 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 announced in May 2003 that a subsidiary has agreed to sell a 935 acre parcel of property in Miami, Florida to FRI for $1,638,000. The property is principally composed of mined- out lakes, mitigation areas, 145 acres of mineable land and 32 acres of roads and railroad track right-of-ways. The closing of the sale is to occur no later than December 31, 2004. The terms of the agreement were approved by the Company's Audit Committee, which is comprised of independent directors, after considering, among other factors, the terms of the existing lease agreement and consultation with management. A subsidiary of the Company agreed on December 3, 2003 to sell a parcel of land containing approximately 6,321 acres in Suwannee and Columbia Counties, near Lake City, Florida, to FRI for $13,000,000 in cash. The sale is subject to a definitive agreement and the closing date is to be determined. The sales price was approved by the Company's Audit Committee which is composed of independent directors after considering among other factors, an independent appraisal, the current use of the property and consultation with management. Environmental Matters. While the Company is affected by environmental regulations, such regulations are not expected to have a major effect on the Company's capital expenditures or operating results. Employees. The Company employed approximately 845 people in its transportation group, 11 people in its real estate group, and 4 people in its corporate offices at September 30, 2003. EXECUTIVE OFFICERS OF THE COMPANY Name Age Office 	Position Since Edward L. Baker 68 Chairman of the Board May 3, 1989 John E. Anderson 58 President & Chief Feb. 17, 1989 Executive Officer David H. DeVilliers, Jr. 52 Vice President of the Feb. 28, 1994 Company and President of the Company's Real Estate Group Ray M. VanLandingham 60 Vice President, Finance Dec. 6, 2000 and Administration and Chief Financial Officer Gregory B. Lechwar 36 Controller and Chief Accounting Officer Oct. 2, 2002 Rick J. Copley 46 President of SunBelt Sept 16, 2002 Transport, Inc. Robert E. Sandlin 42 President of Florida March 1, 2003 Rock & Tank Lines, Inc. All of the above officers have been employed in their respective positions for the past five years except as follows: Ray Van Landingham was Vice President, Finance and Administration of the Jacksonville Port Authority from December 1991 to November 2000; Gregory B. Lechwar has been employed by the Company in various accounting positions since October 1999, and from August 1991 until October 1999, Mr. Lechwar was employed as a Certified Public Accountant with PricewaterhouseCoopers LLP; Rick J. Copley was a Vice President of SunBelt from 1993 to September 2002; and Robert E. Sandlin was a Vice President of Florida Rock & Tank Lines from 1993 until March 2003. John D. Baker II, who is the brother of Edward L. Baker, and Thompson S. Baker II, who is the son of Edward L. Baker, are on the Board of Directors of the Company. All executive officers of the Company are elected by the Board of Directors. Item 2. PROPERTIES. The Company's principal properties are located in Florida, Georgia, Virginia, Washington, D.C., and Maryland. Transportation Properties. At September 30, 2003, the Company operated and owned a fleet of approximately 563 trucks, and owned a fleet of approximately 837 trailers. The Company has 21 sites for its trucking terminals in Florida, Georgia, North Carolina, South Carolina and Tennessee. The Company owns 12 of these sites and leases 9. Development Properties. At September 30, 2003, the Company owned nine parcels of land totaling 432 acres near Baltimore, Maryland 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 approximately 575,000 square feet of warehouse/office space. Infrastructure work on the site is nearing completion and the first two planned buildings within the park are completed and contain 274,800 square feet of leaseable warehouse/office space. One building with 200,200 square feet is leased to one tenant for 15 years. The other building is available lease. Lakeside Business Park in Harford County consists of 134 acres. Seven warehouse/office buildings, totaling 671,918 square feet, have been constructed and are 87% leased. The remaining 32.8 acres are available for future development and will offer 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/office space that is 100% leased. 8620 Dorsey Run Road in Howard County contains 5.8 acres with 84,600 square feet of warehouse/office space that is 100% leased. Rossville Business Center in Baltimore County contains approximately 10 acres with 190,517 square feet of warehouse/office space and is 88% leased. 34 Loveton Circle in suburban Baltimore County contains 8.5 acres with 29,722 square feet of office space which is 100% leased. The Company occupies 11% of the space and 23% is leased to FRI. Oregon Business Center in Anne Arundel County contains approximately 17 acres with 195,615 square feet of warehouse/office space which is 100% leased. Arundel Business Center in Howard County contains approximately 11 acres with 162,796 square feet of warehouse/office space, which is 100% leased. Bird River in southeastern Baltimore County, Maryland, is a 179 acre tract of land held for future development. This development tract has direct access to the proposed Maryland State Road 43 intended to connect I-95 with Martin State Airport. This property is currently zoned for residential and commercial use with 115.6 developable acres. The Company plans to develop and lease approximately 502,000 square feet of multiple warehouse/office buildings on the 42 developable acres zoned for commercial use. A subsidiary of the Company has entered into an agreement to develop and sell to a major home builder a minimum of 292 residential lots on the residential portion of the Bird River Property. The minimum aggregate purchase price for these lots is $28,705,000. The rights and obligations of the subsidiary under this agreement are specifically contingent upon the approval by Baltimore County of a Planned Unit Development (PUD) by July 1, 2006 which will permit the development of and use of the property for a minimum of 292 residential lots. The subsidiary's rights and obligations are also expressly contingent upon the construction of the proposed Route 43 and the subsidiary's ability to have vehicular, water and sewer connection access to the property by July 1, 2007 at what the subsidiary deems, in its sole discretion, to be a commercially reasonable cost. The obligations of the builder under the agreement also are subject to customary conditions precedent. The Company owns approximately 120 acres of land in Virginia, 8 acres in Washington, D.C. and an office building with approximately 69,000 square feet situated on approximately 6 acres in Jacksonville, Florida, all of which are leased to FRI. At September 30, 2003 certain developed real estate properties having a carrying value of $44,432,000 were pledged on long- term non-recourse notes with an outstanding principal balance totaling $39,361,000. In addition, certain other properties having a carrying value at September 30, 2003 of $876,000 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 on account of such debt. The Company owns a 5.8 acre parcel of undeveloped real estate in the southeast quadrant of Washington D.C. that fronts the Anacostia River and has been working with the District of Columbia Zoning Commission to obtain appropriate zoning for development. The Zoning Commission granted in 2003 preliminary approval of the size and use of a PUD and gave the Company until May of 2004 to submit modified drawings that would conform to the approved design guidelines. The design guidelines provide for a maximum allowable commercial development of 625,000 square feet and a minimum residential development of 440,000 square feet. If approval of the redesign is obtained, the Company will have an additional two years to begin development of the site in accordance with the approved PUD. The Company also owns a 2.1 acre tract nearby on the same bank of the Anacostia River. The two sites are currently leased to FRI under leases expiring in April 2006. The Company will continue to explore opportunities for eventual development of these properties. Construction Aggregates Properties. The following table summarizes the Company's principal construction aggregates locations and estimated reserves at September 30, 2003, substantially all of which are leased to FRI. Tons of Tons Sold Estimated in Year Reserves Ended at 9/30/03 9/30/03 Approximate (000's) (000's) Acres Owned The Company owns eleven locations currently being mined in Brooksville, Grandin, Gulf Hammock, Keuka, Newberry and Airgrove/ Lake County, Florida; Columbus, Macon, Forest Park and Tyrone, Georgia; and Manassas, Virginia. 9,805 508,590 17,135 The Company owns five locations not currently being mined in Ft. Myers, Miami, Marion County, Astatula/Lake County and Sandland/Polk County, Florida - 32,891 3,340 Other Properties. In addition to the development, mining and rental sites, the Company owns approximately 8,373 acres of investment and other real estate, of which approximately 6,321 acres are in Suwannee County and Columbia County, Florida and are leased to FRI. The Company continues permitting and preliminary horizontal development work for a 50-acre, rail accessable site on Commonwealth Avenue in Jacksonville, Florida near the western beltway of Interstate-295. This site is planned for approximately 500,000 square feet of eventual warehouse/office build-out. Item 3. LEGAL PROCEEDINGS. Note 14 to the Consolidated Financial Statements included in the accompanying 2003 Annual Report to Shareholders is incorporated herein by reference. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No reportable events. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. There were approximately 718 holders of record of Patriot Transportation Holding, Inc. common stock, $.10 par value, as of December 8, 2003. The Company's common stock is traded on the Nasdaq Stock Market (Symbol PATR). Information concerning stock prices is included under the caption "Quarterly Results" on page 5 of the Company's 2003 Annual Report to Shareholders, and such information is incorporated herein by reference. The Company has not paid a cash dividend in the past and it is the present policy of the Board of Directors not to pay cash dividends. Information concerning restrictions on the payment of cash dividends is included in Note 4 to the consolidated financial statements included in the accompanying 2003 Annual Report to Shareholders and such information is incorporated herein by reference. Information regarding securities authorized for issuance under equity compensation plans is included in Item 12 of Part III of this Annual Report on Form 10-K and such information is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA. Information required in response to this Item 6 is included under the caption "Five Year Summary" on page 5 of the Company's 2003 Annual Report to Shareholders and such information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information required in response to Item 7 is included under the caption "Management Analysis" on pages 6, 7 and 8; under the caption "Capital Expenditures" on page 1; and in Notes to Consolidated Financial Statements included in the accompanying 2003 Annual Report to Shareholders. Such information is incorporated herein by reference. Item 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates. For its cash and cash equivalents, a change in interest rates affects the amount of interest income that can be earned. For its debt instruments with variable interest rates, changes in interest rates affect the amount of interest expense incurred. The Company prepared a sensitivity analysis of its variable rate borrowings to determine the impact of hypothetical changes in interest rates on the Company's results of operations and cash flows. The interest-rate analysis assumed a 50 basis point adverse change in interest rates on all borrowings under the credit agreement. However, the interest-rate analysis did not consider the effects of the reduced level of economic activity that could exist in such an environment. Based on this analysis, management has concluded that a 50 basis point adverse move in interest rates on the Company's outstanding borrowings under the credit agreement would have an immaterial impact on the Company's results of operations and cash flows. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates (dollars in thousands): There Fair Liabilities: 2004 2005 2006 2007 2008 after Total Value Long-term debt: Fixed Rate $ 1,545 1,607 1,732 1,848 1,996 30,636 39,360 41,795 Average interest rate 7.2% 7.2 7.2 7.2 7.2 7.2 Variable Rate $20,000 20,000 20,000 Average interest rate 3.2% Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information required in response to this Item 8 is included under the caption "Quarterly Results" on page 5 and on pages 9 through 18 of the Company's 2003 Annual Report to Shareholders. Such information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On May 1, 2002, the Board of Directors of the Company, upon recommendation of its Audit Committee, decided to dismiss Deloitte & Touche LLP ("Deloitte & Touche") as the Company's principal public accountants and engaged PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") to serve as the Company's principal public accountants for a three year term beginning with fiscal year 2002. Deloitte & Touche's reports on the consolidated financial statements of the Company and its subsidiaries for the two most recent fiscal years ended September 30, 2001 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company's two fiscal years ended September 30, 2001 and the subsequent interim periods through March 31, 2002, there were no disagreements between the Company and Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Deloitte & Touche's satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports; and there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K. The Company provided Deloitte & Touche with a copy of the foregoing disclosures. During the Company's two fiscal years ended September 30, 2001, the Company did not consult PricewaterhouseCoopers with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K. 	PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding the executive officers of the Company is set forth under the caption "Executive Officers of the Company" in Part I of this Form 10-K. Information concerning directors (including the disclosure regarding audit committee financial experts), required in response to this Item 10, is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than December 31, 2003. The Company has adopted a Financial Code of Ethical Conduct applicable to its principal executive officers, principal financial officers and principal accounting officers. A copy of this Financial Code of Ethical Conduct is filed as an Exhibit to this Form 10-K. Item 11. EXECUTIVE COMPENSATION. Information required in response to this Item 11 is included under the captions "Executive Compensation," "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," and "Shareholder Return Performance" in the Company's Proxy Statement and such information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required in response to this Item 12 is included under the captions "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership by Directors and Officers" in the Company's Proxy Statement and such information is incorporated herein by reference. Equity Compensation Plan Information Number of Securities remaining available for Number of future Securities Weighted issuance to be Average under equity issued upon exercise compensation exercise of price of plans outstanding outstanding (excluding options, options, securities warrants warrants reflected in and rights and rights column (a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders 299,500 21.85 258,000 Equity compensation plans not approved by security holders 0 0 0 Total 299,500 21.85 258,000 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required in response to this Item 13 is included under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" in the Company's Proxy Statement and such information is incorporated herein by reference. Item 14. CONTROLS AND PROCEDURES. Evaluation of disclosure controls and procedures. As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2003. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. Based upon that evaluation, the Company's President and Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer as appropriate, to allow timely decisions regarding required disclosures. Changes in internal controls. There have been no changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 	PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 	 FORM 8-K. (a) (1) and (2) Financial Statements and Financial Statement Schedules. The response to this item is submitted as a separate section. See Index to Financial Statements and Financial Statement Schedules on page 21 of this Form 10-K. (3) Exhibits. The response to this item is submitted as a separate section. See Exhibit Index on pages 18 through 20 of this Form 10-K. (b) Reports on Form 8-K. On July 29, 2003, the Company filed a Form 8-K reporting under Item 7, a press release announcing its earnings for the third quarter of 2003. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Patriot Transportation Holding, Inc. Date: December 23, 2003 By JOHN E. ANDERSON John E. Anderson President and Chief Executive Officer (Principal Executive Officer) By RAY M. VAN LANDINGHAM Ray M. Van Landingham Vice President, Finance & Administration and Chief Financial Officer (Principal Financial Officer) By GREGORY B. LECHWAR Gregory B. Lechwar Controller and Chief Accounting Officer(Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 23, 2003. JOHN E. ANDERSON DAVID H. DEVILLIERS, JR. John E. Anderson David H. deVilliers, Jr. Director, President, and Chief Director Executive Officer (Principal Executive Officer) LUKE E. FICHTHORN III Luke E. Fichthorn III Director RAY M. VAN LANDINGHAM ___________ FRANCIS X. KNOTT Ray M. Van Landingham Francis X. Knott Vice President, Finance and Director Administration (Principal Financial Officer) ROBERT H. PAUL, III Robert H. Paul, III Director GREGORY B. LECHWAR Gregory B. Lechwar H. JAY SKELTON Controller and Chief Accounting H. Jay Skelton Officer (Principal Accounting Officer) Director EDWARD L. BAKER MARTIN E. STEIN, JR. Edward L. Baker Martin E. Stein, Jr. Chairman of the Board Director JOHN D. BAKER II JAMES H. WINSTON John D. Baker II James H. Winston Director Director THOMPSON S. BAKER II Thompson S. Baker II Director 	 PATRIOT TRANSPORTATION HOLDING, INC. 	FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003 	EXHIBIT INDEX 	[Item 14(a)(3)] (3)(a)(1) Articles of Incorporation of Patriot Transportation Holding, Inc., incorporated by reference to the corresponding exhibit filed with Form S-4 dated December 13, 1988. File No. 33- 26115. (3)(a)(2) Amendment to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of Florida on February 19, 1991 incorporated by reference to the corresponding exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33- 26115. (3)(a)(3) Amendments to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of Florida on February 7, 1995, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (3)(a)(4) Amendment to the Articles of Incorporation of Patriot Transportation Holding, Inc., filed with the Florida Secretary of State on May 6, 1999 incorporated by reference to a form of such amendment filed as Exhibit 4 to the Company's Form 8-K dated May 5, 1999. File No. 33-26115. (3)(a)(5) Amendment to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of Florida on February 21, 2000, incorporated by reference to the corresponding exhibit filed with Form 10-Q for the quarter ended March 31, 2000. File No. 33-26115. (3)(b)(1) Restated Bylaws of Patriot Transportation Holding, Inc. adopted December 1, 1993, incorporated by reference to the corresponding exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. (3)(b)(2) Amendment to the Bylaws of Patriot Transportation Holding, Inc. adopted August 3, 1994, incorporated by reference to the corresponding exhibit filed with Form 10-K for the fiscal year ended September 30, 1994. File No. 33- 26115. (3)(b)(3) Amendments to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of State of Florida on February 7, 1995, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (4)(a) Articles III, VII and XII of the Articles of Incorporation of Patriot Transportation Holding, Inc, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. And amended Article III, incorporated by reference to an exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. And Articles XIII and XIV, incorporated by reference to an appendix filed with the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (4)(b) Specimen stock certificate of Patriot Transportation Holding, Inc, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (4)(c) Revolving Credit Agreement dated as of January 9, 2002 among Patriot Transportation Holding, Inc. as Borrower, the Lenders from time to time party hereto and SunTrust Bank as Administrative Agent, incorporated by reference to an exhibit filed with Form 10-Q for the quarter ended December 31, 2001. File No. 33-26115. (4)(d) The Company and its consolidated subsidiaries have other long-term debt agreements, none of which exceed 10% of the total consolidated assets of the Company and its subsidiaries, and the Company agrees to furnish copies of such agreements and constituent documents to the Commission upon request. (4)(e) Rights Agreement, dated as May 5, 1999 between the Company and First Union National Bank, incorporated by reference to Exhibit 4 to the Company's Form 8-K dated May 5, 1999. File No. 33-26115. (10)(a) Various lease backs and mining royalty agreements with Florida Rock Industries, Inc., none of which are presently believed to be material individually, except for the Mining Lease Agreement dated September 1, 1986, between Florida Rock Industries Inc. and Florida Rock Properties, Inc., successor by merger to Grandin Land, Inc. (see Exhibit (10)(c)), but all of which may be material in the aggregate, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(b) License Agreement, dated June 30, 1986, from Florida Rock Industries, Inc. to Florida Rock & Tank Lines, Inc. to use "Florida Rock" in corporate names, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(c) Mining Lease Agreement, dated September 1, 1986, between Florida Rock Industries, Inc. and Florida Rock Properties, Inc., successor by merger to Grandin Land, Inc., incorporated by reference to an exhibit previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(d) Summary of Medical Reimbursement Plan of Patriot Transportation Holding, Inc., incorporated by reference to an exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. (10)(e) Summary of Management Incentive Compensation Plans, incorporated by reference to an exhibit filed with Form 10-K for the fiscal year ended September 30, 1994. File No. 33- 26115. (10)(f) Management Security Agreements between the Company and certain officers, incorporated by reference to a form of agreement previously filed (as Exhibit (10)(I)) with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(g)(1) Patriot Transportation Holding, Inc. 1995 Stock Option Plan, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (10)(g)(2) Patriot Transportation Holding, Inc. 2000 Stock Option Plan, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1999. File No. 33-26115. (10)(h) Purchase and Sale Agreement dated February 6, 2002 between Florida Rock Industries, Inc. and Florida Rock Properties, Inc., incorporated by reference to an exhibit filed with Form 10-Q for the quarter ended December 31, 2001. File No. 33-26115. (10)(i) Purchase and Sale Agreement dated May 7, 2003 between Maryland Rock Industries, Inc. and Florida Rock Industries, Inc. and Florida Rock Properties, Inc., incorporated by reference to an exhibit filed with Form 10-Q for the quarter ended June 30, 2003. File No. 33-26115. (10)(j) Purchase and Sale Agreement dated August 25, 2003 between Florida Rock Properties, Inc. and Florida Rock Industries, Inc. (10)(k) Agreement of Purchase and Sale dated October 21, 2003 between FRP Bird River, LLC and The Ryland Group, Inc. (11) Computation of Earnings Per Common Share. (13)	 The Company's 2003 Annual Report to shareholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2003 Annual Report to Shareholders which are not incorporated by reference shall not be deemed to be filed as part of this Form 10-K. (14) Financial Code of Ethical Conduct between the Company, Chief Executive Officers and Financial Managers, adopted December 4, 2002. (22) Subsidiaries of Registrant at September 30, 2003: Florida Rock & Tank Lines, Inc. (a Florida corporation); Florida Rock Properties, Inc. (a Florida corporation); FRP Development Corp. (a Maryland corporation); FRP Maryland, Inc. (a Maryland corporation); 34 Loveton Center LLC (a Maryland limited liability company); FRTL, Inc. (a Florida corporation); SunBelt Transport, Inc. (a Florida Corporation); Oz LLC(a Maryland limited liability company); FRP Delaware, Inc. (a Delaware corporation); 1502 Quarry, LLC(a Maryland limited liability company); FRP Lakeside LLC #1 (a Maryland limited company); FRP Lakeside LLC #2 (a Maryland limited liability company); FRP Lakeside LLC #3 (a Maryland limited liability company); FRP Lakeside LLC #4 (a Maryland limited liability company); FRP Lakeside LLC #5 (a Maryland limited liability company); FRP Hillside LLC (a Maryland limited liability company); FRP Windsor LLC (a Maryland limited liability company); FRP Dorsey LLC (a Maryland limited liability company); FRP Bird River LLC (a Maryland limited liability company). (23)(a) Consent of PricewaterhouseCoopers LLP, Independent Certified Public Accountants, appears on page 22 of this Form 10-K. (23)(b) Consent of Deloitte & Touche LLP, Independent Certified Public Accountants, appears on page 22 of this Form 10-K. (31)(a) Certification of John E. Anderson. (31)(b) Certification of Ray M. Van Landingham. (31)(c) Certification of Gregory B. Lechwar. (32) Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 	PATRIOT TRANSPORTATION HOLDING, INC. 	INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 	(Item 14(a) (1) and 2)) Page Consolidated Financial Statements: Consolidated balance sheets at September 30, 2003 and 2002 10(a) For the years ended September 30, 2003, 2002 and 2001: Consolidated statements of income 9(a) Consolidated statements of cash flows 11(a) Consolidated statements of shareholders' equity 12(a) Notes to consolidated financial statements 12-18(a) Reports of Independent Certified Public Accountants 19(a) Selected quarterly financial data (unaudited) 5(a) Consents of Independent Certified Public Accountants 22(b) Independent Auditors' Reports on Financial Statement Schedules 23(b) Consolidated Financial Statement Schedules: II - Valuation and qualifying accounts 24(b) III - Real estate and accumulated depreciation and Depletion 25-26(b) (a)		Refers to the page number in the Company's 2003 Annual Report to Shareholders. Such information is incorporated by reference in Item 8 of this Form 10-K. (b)		Refers to the page number in this Form 10-K. All other schedules have been omitted, as they are not required under the related instructions, are inapplicable, or because the information required is included in the consolidated financial statements. CONSENTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Exhibit 23(a) We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-43215, 33-18878 and 33- 55132) of Patriot Transportation Holding, Inc. of our report dated December 16, 2003 relating to the financial statements and the financial statement schedules, which appear in this Form 10-K. PricewaterhouseCoopers LLP Jacksonville, Florida December 23, 2003 ____________________ INDEPENDENT AUDITORS' CONSENT Exhibit 23(b) We consent to the incorporation by reference in Registration Statement Nos. 33-43215, 33-18878 and 33-55132 of Patriot Transportation Holding, Inc. on Form S-8 of our report dated December 10, 2001, appearing in this Annual Report on Form 10-K of Patriot Transportation Holding, Inc. for the year ended September 30, 2003. DELOITTE & TOUCHE LLP Jacksonville, Florida December 23, 2003 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors Patriot Transportation Holding, Inc.: Our audit of the consolidated financial statements as of and for the year ended September 30, 2003 referred to in our report dated December 16, 2003 appearing in the 2003 Annual Report to Shareholders of Patriot Transportation Holding, Inc., (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15 of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Jacksonville, Florida December 16, 2003 ____________________ INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Patriot Transportation Holding, Inc. Jacksonville, Florida We have audited the consolidated financial statements of Patriot Transportation Holding, Inc. and subsidiaries ("Patriot") as of and for the year ended September 30, 2001, and have issued our report thereon dated December 10, 2001; such consolidated financial statements and report are included in your 2003 Annual Report to Stockholders and are incorporated herein by reference. Our audit also included the financial statement schedules of Patriot, listed in Item 15. These financial statement schedules are the responsibility of Patriot's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Certified Public Accountants Jacksonville, Florida December 10, 2001 PATRIOT TRANSPORTATION HOLDING, INC. SCHEDULE II (CONSOLIDATED) - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001 ADDITIONS ADDITIONS BALANCE CHARGED TO CHARGED TO BALANCE AT BEGIN. COST AND OTHER AT END OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR Year Ended September 30, 2003: Allowance for Doubtful accounts $ 474,000 $ 157,537 $ - $ 65,793(a) $ 565,744 Accrued risk insurance $6,326,406 $ 7,989,574 - $ 7,536,635(b)$ 6,779,345 Accrued health Insurance 1,111,808 2,755,090 - 2,610,053(b) 1,256,845 Totals - insurance $7,438,214 $10,744,664 $ 0 $10,146,688 $8,036,190 Year Ended September 30, 2002: Allowance for doubtful accounts $1,160,051 $ 140,000 - $ 826,051(a) $ 474,000 Accrued risk insurance $6,032,351 $5,162,666 - $4,868,611(b) $6,326,406 Accrued health insurance 1,078,152 2,834,763 - 2,801,107(b) 1,111,808 Totals - insurance $7,110,503 $7,997,429 $ 0 $7,669,718 $7,438,214 Year Ended September 30, 2001: Allowance for doubtful accounts $ 868,541 $1,177,379 - $ 885,869(a)$1,160,051 Accrued risk insurance $5,397,442 $6,221,228 - $5,586,319(b)$6,032,351 Accrued health insurance 989,608 2,517,708 - 2,429,164(b) 1,078,152 Totals - insurance $6,387,050 $8,738,936 $ 0 $8,015,483 $7,110,503 (a) Accounts written off less recoveries (b) Payments PATRIOT TRANSPORTATION HOLDING, INC. SCHEDULE III (CONSOLIDATED)-REAL ESTATE & ACCUMULATED DEPRECIATION AND DEPLETION SEPTEMBER 30, 2003 (dollars in thousands) <s>	 <c>	<c>	 <c>	 <c>	 <c>	 <c>	<c>	<c> 			 Cost capi-	 Gross amount		Year		 Deprecia- 	 Encumb-	Initial cost talized	 at which	 Accumulated	 Of	 Date	 tion Life County	 rances	 to	 subsequent carried at	 Depreciation	Constr-	Acquired Computed 		 Company	 to acqui-	 end of period		 tion		 on: 			 	 sition	 (a) Construction Aggregates Alachua, FL		 1,442	 0	 1,442	 83	 n/a	4/86	unit Clayton, GA		 369	 0	 369	 5	 n/a	4/86	unit Dade, FL		 9,372	 0	 9,372	 9,372	 n/a	4/86	unit Fayette, GA	 55	 685	 0	 685	 51	 n/a	4/86	unit Hernando, FL		 3,174	 325	 3,499	 958	 n/a	4/86	unit Lake, FL		 1,485	 0	 1,485	 1,058	 n/a	4/86	unit Lee, FL		 	 4,690	 6	 4,696	 4	 n/a	4/86	unit Levy, FL		 1,281	 104	 1,385	 471	 n/a	4/86	unit Marion, FL		 1,180	 0	 1,180	 599	 n/a	4/86	unit Monroe, GA		 792	 0	 792	 241	 n/a	4/86	unit Muscogee, GA		 369	 0	 369	 88	 n/a	4/86	unit Polk, FL		 121	 0	 121	 75	 n/a	4/86	unit Prince Wil. VA		 298	 0	 298	 294	 n/a	4/86	unit Putnam , FL	 15,002	 49	 15,051	 3,034	 n/a	4/86	unit 	 55	 40,260	 484	 40,744	 16,333 Other Rental Property Wash D.C.		 6,768	 6,310	 13,078	 1,160	 n/a	4/86	15 yr. Fairfax, VA		 2,035	 23	 2,058	 0	 n/a	4/86 Putnam, FL		 326	 50	 376	 329	 n/a	4/86	10 yr. Spalding, GA		 20	 0	 20	 0	 n/a	4/86 Suwannee, FL	 60	 4,529	 322	 4,851	 939	 n/a	4/86	10 yr. 	 60	 13,678	 6,705	 20,383	 2,428 Commercial Property Baltimore, MD 1,368	 439	 3,000	 3,439	 1,447	1990	10/89	31 yr. Baltimore, MD 3,893	 950	 5,774	 6,724	 2,074	1994	12/91	31 yr. Baltimore, MD 2,531	 690	 2,837	 3,527	 356	2000	7/99	31 yr. Baltimore, MD 	 5,634	 73	 5,707	 0	 n/a 	12/02	31 yr. Duval, FL		 2,416	 529	 2,945	 2,322	 n/a	4/86	25 yr. Harford, MD 2,730	 31	 3,826	 3,857	 687	1998	8/95	31 yr. Harford, MD 4,531	 50	 5,562	 5,612	 699	1999	8/95	31 yr. Harford, MD 6,215	 85	 6,580	 6,665	 725	2001	8/95	31 yr. Harford, MD	 	 92	 1,439	 1,531	 0	 n/a	8/95	31 yr. Harford, MD 4,569	 88	 5,801	 5,889	 381	2002	8/95	31 yr. Harford, MD 3,538	 155	 4,966	 5,121	 454	2001	8/95	31 yr. Howard, MD 4,117	 2,859	 3,545	 6,404	 1,873	1996	9/88	31 yr. Howard, MD 2,287	 2,473	 332	 2,805	 316	2000	3/00	31 yr. Anne Arun, MD 3,466	 715	 6,662	 7,377	 3,242	1989	9/88	31 yr. Anne Arun, MD ______	 950	 14,940	 15,890	 127	 n/a	5/98	31 yr. 	 39,245	 17,627	 65,866	 83,493	 14,703 Investment Property	 1,071	 112	 1,183	 33 GRAND TOTALS	$39,360	$72,636	 $73,167	 $145,803	 $33,497 (a) The aggregate cost for Federal income tax purposes is $141,587. PATRIOT TRANSPORTATION HOLDING, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION AND DEPLETION YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001 (In thousands) 2003 2002 2001 Gross Carrying Cost of Real Estate: Balance at beginning of period $133,925 127,174 115,229 Additions during period: Amounts capitalized 13,319 7,053 13,037 Deductions during period: Cost of real estate sold 1,441 302 - Other (abandonments) - - 1,092 Balance at close of period $145,803 133,925 127,174 Accumulated Depreciation & Depletion: Balance at beginning of period $ 31,395 28,934 25,968 Additions during period: Charged to cost & expense 2,784 2,532 2,966 Deductions during period: Real estate sold 682 71 - Balance at close of period $33,497 31,395 28,934 Annual Report 2003 CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended September 30 (Dollars in thousands except per share amounts) % 2003 2002 Change Revenues $103,303 96,949 + 6.6 Gross profit $ 18,067 20,542 -12.0 Operating profit $ 9,915 12,413 -20.1 Income from continuing operations before income taxes $ 6,423 9,270 -30.7 Gain on discontinued operations $ 657 - - Net income $ 4,575 5,655 -19.1 Per common share: Basic earnings $ 1.51 1.80 -16.1 Diluted earnings $ 1.49 1.79 -16.8 Total Assets $165,216 155,463 +6.3 Total Debt $ 59,361 48,601 +22.1 Shareholders' Equity $ 78,029 79,160 -1.4 Net book value per share $ 26.61 25.06 +6.2 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. (Tanklines) is a Southeastern U.S. based transportation company concentrating in the hauling of primarily petroleum products but also other liquid and dry bulk commodities by tank trucks. SunBelt Transport, Inc. (SunBelt) 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 and competent work force, emphasizing superior service to customers in existing markets, developing new transportation services for customers in current market areas and expanding into new market areas. External growth 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, development, management and retention of commercial warehouse/office rental properties to provide long-term positive cash flows and capital appreciation. TO OUR SHAREHOLDERS Your company's Fiscal 2003 was characterized by both challenge and progress. The Transportation Group completed the year with a decline in operating profit compared to Fiscal 2002. On the other hand, positive momentum continued within the Real Estate Group as both development and asset management progress was made. Fiscal 2003 operating profit was $9,915,000, a 20.1% decline from the previous year. Consolidated net income after tax decreased 19.1% to $4,575,000 compared to $5,655,000 for Fiscal 2002. After tax profits from property sales were $686,000 in Fiscal 2003 compared to $194,000 in Fiscal 2002. Earnings per share on a diluted basis were $1.49 for Fiscal 2003 versus $1.79 per share in Fiscal 2002. The diluted number of shares outstanding was 3.1% less for Fiscal 2003 compared to the previous year. Transportation Group. Both transportation subsidiaries had lower operating profits for Fiscal 2003 compared to the previous year. Revenue miles increased at Tanklines and SunBelt. On the other hand, the effects of the war in Iraq and a still struggling national economy hampered efforts to raise freight rates. Fuel price surcharges aggressively implemented at both Companies helped to offset record levels of diesel fuel costs in the early spring as a result of the war in Iraq. So even though total revenue miles increased and variable costs were generally held in line, the combined effect compared to the previous year was to retard growth in variable contribution (the amount remaining for fixed costs and profits after variable costs are deducted from revenues). Restrained increases in variable contribution left each Company's profitability exposed to higher fixed costs. Each Company suffered significant increases in its costs for risk and workers compensation insurance. These increases were driven by increasing premium rates as a result of a continuing, difficult global reinsurance market, as well as adverse claims development from prior year occurrences. The combination of only moderately increased variable contribution in the face of sharply increased fixed costs contributed to lower operating profits within each Company compared to the previous year. Capital spending within the Transportation Group was approximately $7,086,000 in 2003 compared to $11,430,000 during 2002. Accelerated tractor purchasing had occurred during 2002 to anticipate adverse operating efficiencies resulting from a 2002 EPA mandated diesel engine emission standard. Widespread accelerated tractor purchases had been occurring throughout the trucking industry because of concern about operating disadvantages stemming from this 2002 Federal emissions mandate. Demand for hauling services continued uneven for Tanklines. Overall demand for petroleum products remained negatively impacted from the decline in travel patterns and petroleum consumption going back to the September 11, 2001 national terrorist event. Airline jet fuel consumption remained depressed along with altered patterns of business and leisure travel. A weak and uncertain national economy contributed to decreased petroleum consumption and lower demand. In fact, virtually all of the revenue increase at Tanklines during Fiscal 2003 resulted from its purchase on May 30, 2002 of the operating assets of Infinger Transportation Company, Inc. and fuel surcharges. Infinger was based in Charleston, South Carolina and the acquisition included 111 trailers and 57 tractors operating from terminals in Charleston and North Augusta, South Carolina; Charlotte and Wilmington, North Carolina; Savannah, Georgia; and Jacksonville and Tampa, Florida. Tanklines had to overcome an additional hurdle beginning in the second quarter of Fiscal 2003. The subsidiary lost one of its largest customers as a result of competitive bidding from consolidation within the multi-national, integrated oil industry. Although Tanklines successfully replaced this lost revenue at acceptable price levels by mid-year, the accompanying operating disruptions caused equipment inefficiencies as hauling capacity had to be reallocated and balanced for new customer accounts. Ongoing structural changes within national retail petroleum distribution also challenged the Company's tank truck operations. Non- traditional retail gasoline outlets, "hyper-markets", are growing rapidly and bringing new pricing pressures to retail distribution. This dynamic is contributing to a soft transportation pricing environment from customers seeking to adapt to this competitive reality. Notwithstanding changes and uncertainties within its operating environment, Tanklines intends to successfully navigate these challenges, building from its reputation for excellent customer service and sound financial condition. SunBelt, the Company's flatbed trucking subsidiary, benefited from top-flight customer service and homebuilding construction demand, notwithstanding the soft national economy. Though SunBelt could anticipate positive demand for its hauling services, it was plagued throughout the year by driver shortages, inadequate equipment utilization and substantial workmen's compensation expense increases from prior year claims development. SunBelt is now aggressively overcoming its driver shortage difficulties, with consequent benefits to revenue and equipment utilization. A new accident prevention culture is being firmly implanted throughout SunBelt. Finally, an apparent recovery underway in commercial construction is strengthening demand for SunBelt's hauling services in the face of decreased flatbed trucking capacity. This is bringing opportunities to raise freight rates and resulting variable contribution. The combined effects should lead to improved operating results. Real Estate Group. Fiscal 2003 marked another year of progress and encouragement for the Company's real estate business. Significant development activity occurred at the Group's 59 acre Hillside Business Park in Anne Arundel County, Maryland. This new Park is within two miles of the Baltimore-Washington International Airport. The Group's largest flexible warehouse/office to date, 7021 Dorsey Road, a 200,200 square foot build-to-suit warehouse/office, was completed and occupied in August. A speculative flexible warehouse/office, 7010 Dorsey Road, was also completed and placed in service at the beginning of the second fiscal quarter. This is a 74,600 square foot facility which is available for occupancy. The Group's developed building portfolio totaled approximately 1.7 million square feet at fiscal year end of which 88.9% was occupied. Average occupancy for the fiscal year, excluding those buildings in service less than 12 months, was 92.7%. The Group purchased at mid-year 115 developable acres located on Bird River Road north of the Martin State Airport in Greater Baltimore. This new development tract will have direct access to the new Maryland State Road 43 intended to connect Interstate 95 with Martin State Airport. Construction for Route 43 is underway. The Bird River Road tract is zoned commercial and residential. The commercial portion is slated for approximately 502,000 square feet of warehouse/office development while the residential portion will be simultaneously developed into lots and sold. Continued permitting and initial horizontal development occurred at the Commonwealth Avenue fifty acre site located on Interstate 295 on the west side of Jacksonville, Florida. Final build out for this tract is still targeted for approximately 500,000 square feet of warehouse/office product. Following the Bird River Road purchase, the Real Estate Group's total anticipated developed portfolio will result in approximately 3.3 million square feet of warehouse/office capacity. As a continuation of the Group's strategic plan to build, lease and own a portfolio of flexible warehouse/office, agreements were executed during Fiscal 2003 for the sale to Florida Rock Industries, Inc. ("FRI") of two tracts of land for a total of approximately $3.5 million. One tract is located near Miami, Florida and was a former mining site under long-term lease to FRI. The second tract located on the Potomac River in Maryland was sold to FRI in September. The proceeds from sales of these two tracts, together with the previously announced $15.0 million sale of the Group's 108 acre tract in Springfield, Virginia to FRI, are expected to be reinvested in appropriate properties to further the Real Estate Group's strategic expansion plan. The Maryland land sale was closed late in the fourth quarter of Fiscal 2003, producing an approximate after tax profit of $657,000. The sale of the Springfield, Virginia tract, when closed, will produce a net after tax gain of about $7,722,000, and the net after tax gain from the Miami property sale, when closed, should produce approximately $999,000. Combined after-tax profits anticipated from the Virginia and Miami sales will yield approximately $2.86 per diluted share. The Group continued intensive asset management on its 5.8 acre tract which fronts on the Anacostia River in the District of Columbia. This tract had been rezoned in Fiscal 2000 from industrial to a planned unit development ("PUD"). During Fiscal 2003 the Zoning Commission granted preliminary approval of a change in the size and use of the PUD and gave the Company until May, 2004 to submit modified drawings that would conform to approved design guidelines. The design guidelines provide for a maximum allowable commercial development of 625,000 square feet and a minimum residential development of 440,000 square feet. If approval of the redesign is obtained the Company will have an additional 2 years to begin development on the site in accordance with the approved, modified PUD. In the meantime, the Real Estate Group continues to evaluate opportunities for this property and a nearby 2.1 acre tract on the same bank of the Anacostia River. Capital expenditures for the Real Estate Group totaled approximately $13,328,000 in Fiscal 2003 compared to about $7,179,000 the previous year. Outlook. Positive Real Estate development momentum should continue in the markets we serve, enhanced by what appears to be a recovering national economy at fiscal year end. An attractive low interest rate environment should further reinforce a positive outlook for real estate. The Company's transportation business, assuming a recovering national economy, anticipates improved results. An intense focus on accident prevention will continue to be the number one priority at each company. Both Florida Rock & Tank Lines, Inc. and SunBelt Transport, Inc. will focus on increased equipment utilization and operating efficiencies. Freight rate increases will be pursued, and strategic expansion opportunities will be evaluated along the way. We will also be monitoring two additional transportation issues as we enter Fiscal 2004. Effective January, 2004 new U.S. Department of Transportation hours-of-service regulations become applicable for our drivers. Additionally, U.S. Transportation Security Administration regulations governing issuance/renewal of Hazmat Commercial Drivers Licenses go into effect. These new security restrictions affecting our tanker drivers become effective beginning as early as April, 2004 according to individual state timetables. The two new federal mandates may impact driver productivity, recruitment and retention, with corresponding implications for operating efficiencies and costs. You can be quite proud of the quality, commitment and loyalty of the men and women at all levels who represent the backbone of your company. We take this opportunity to express our sincerest appreciation to them as well as for the loyalty and support of our shareholders. Respectfully yours, Edward L. Baker Chairman John E. Anderson President & Chief Executive Officer OPERATING REVIEW Transportation. During Fiscal 2003, 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; and Charleston, South Carolina. SunBelt's flatbed fleet is based in Jacksonville and Tampa, Florida; Atlanta and Savannah, Georgia; and South Pittsburg, Tennessee and operates primarily in the Southeastern, Midwestern and Mid-Atlantic states. Transportation revenues were up 7.4% in 2003 as a result of expansion of tank truck hauling through the purchase of the assets of Infinger Transportation, Inc. (Infinger) in May, 2002, higher fuel surcharges, and modest price increases. Gross profit decreased 22.6% from Fiscal 2002 primarily due to higher costs associated with the Company's risk programs. During Fiscal 2003, the transportation group purchased 67 new tractors and 49 new trailers and had commitments to purchase an additional 9 trailers at September 30, 2003. The Fiscal 2004 capital expenditure plan is based on maintaining a modernized tank and flatbed fleet and includes the purchase of approximately 82 new tractors and 80 new trailers in addition to the 9 trailers under commitment at September 30, 2003. The fleet modernization program has resulted in reduced maintenance expenses, improved operating efficiencies and enhanced driver recruitment and retention. Driver recruitment/retention, fuel, accident prevention and risk insurance pressures are expected to remain key factors. Comprehensive fuel price surcharges are 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: (i) land and/or buildings leased under rental agreements or being developed for rental; (ii) 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, (iii) land held for future appreciation or development. Real estate revenues increased 2% over Fiscal 2002. Royalty revenue declined by 3% in 2003 primarily due to completion of mining at the Miami property but was offset by an increase of 14% in rental revenues. Property sales were $486,000 less in 2003. The Fiscal 2003 real estate revenues were divided approximately 30% from mining and minimum royalties, 69% from rental revenues and 1% from property sales. At September 30, 2003, the Company owned approximately 1.7 million square feet of developed buildings in the Baltimore, Maryland area that were 89% leased and approximately 58 acres of developed land ready for building construction. Brief descriptions of FRP Development Corp.'s projects in the Baltimore area at September 30, 2003 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 approximately 575,000 square feet of warehouse/office space. Infrastructure work on the site is nearing completion and the first two buildings are completed with 274,800 square feet of leaseable warehouse/office space. One building with 200,200 square feet is leased to one tenant for 15 years and the other building is available for lease. Lakeside Business Park in Harford County consists of 134 acres. Seven warehouse/office buildings, totaling 671,918 square feet, have been constructed and are 87% leased. The remaining 32.8 acres are available for future development and will offer an additional 485,200 square feet of comparable product. 6920 Tudsbury Road in Baltimore County contains 5.3 acres with 86,100 square feet of warehouse/office space that is 100% leased. 8620 Dorsey Run Road in Howard County contains 5.8 acres with 84,600 square feet of warehouse/office space that is 100% leased. Rossville Business Center in Baltimore County contains approximately 10 acres with 190,517 square feet of warehouse/office space and is 88% leased. 34 Loveton Circle in suburban Baltimore County contains 8.5 acres with 29,722 square feet of office space which is 100% leased. The Company occupies 11% of the space and 23% is leased to FRI. Oregon Business Center in Anne Arundel County contains approximately 17 acres with 195,615 square feet of warehouse/office space, which is 100% leased. Arundel Business Center in Howard County contains approximately 11 acres with 162,796 square feet of warehouse/office space, which is 100% leased. Bird River in southeastern Baltimore County is a 179 acre tract of land for future development. This development tract has direct access to the proposed Maryland State Road 43 intended to connect I- 95 with Martin State Airport. This property is currently zoned for residential and commercial use with 115.6 developable acres. The Company plans to develop and lease approximately 502,000 square feet of multiple warehouse/office buildings on the 42 developable acres zoned for commercial use. A subsidiary of the Company has entered into an agreement to develop and sell to a major home builder a minimum of 292 residential lots on the residential portion of the Bird River Property. The Company owns a 50-acre, rail accessable site on Commonwealth Avenue in Jacksonville, Florida near the western beltway of Interstate-295 capable of supporting approximately 500,000 square feet of eventual warehouse/office build-out. Current efforts include permitting and preliminary horizontal development planning work. During Fiscal 2004 the real estate group will continue to focus on the continued development of the property at Lakeside and Hillside Business Parks near Baltimore and the Commonwealth site in Jacksonville while continuing to search for additional developed and undeveloped sites. 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 warehouse/office rental properties. Five Year Summary Years ended September 30 (Dollars and shares in thousands except per share amounts) 2003 2002 2001 2000 1999 Summary of Operations: Revenues(a) $103,303 96,949 121,258 93,862 82,019 Gross profit(b) $ 18,067 20,542 21,792 16,239 19,994 Operating profit $ 9,915 12,413 7,878 6,840 12,380 Interest expense $ 3,492 3,143 3,372 3,438 2,357 Income before income taxes $ 6,423 9,270 4,506 3,435 10,093 Provision for income taxes $ 2,505 3,615 1,803 1,391 3,936 Gain from discontinued operations $ 657 - - - - Net income $ 4,575 5,655 2,703 2,044 6,157 Per Common Share: Basic EPS $ 1.51 1.80 .86 .61 1.79 Diluted EPS $ 1.49 1.79 .86 .61 1.78 Shareholders' equity $ 26.61 25.06 23.28 22.06 21.53 Financial Summary: Current assets $ 13,965 11,490 16,248 15,089 14,161 Current liabilities $ 11,220 11,972 16,728 17,498 13,555 Property, plant and equipment, net $145,262 138,367 131,170 124,026 115,369 Total assets $165,216 155,463 152,759 148,011 138,655 Long-term debt $ 57,816 47,290 47,097 42,015 37,936 Shareholders' equity $ 78,029 79,160 73,112 73,813 72,692 Other Data: Return on average Shareholders' equity 5.8% 7.4 3.7 2.8 8.7 Net cash flow provided by operating activities $ 16,056 24,947 9,626 9,566 15,032 Additions to property, plant and equipment $ 20,413 18,046 18,438 21,861 21,359 Depreciation, depletion and amortization $ 11,956 11,086 11,471 11,144 10,065 Weighted average number of shares - basic 3,033 3,143 3,157 3,334 3,444 Weighted average number of shares - diluted 3,066 3,165 3,158 3,348 3,468 Number of employees 845 861 850 829 877 Shareholders of record 745 767 788 801 834 (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 2003, 2002, 2001, 2000 and 1999 include gains on the sale of real estate of $47,000, $323,000, $2,886,000, $1,533,000, and $3,236,000, respectively. Quarterly Results (unaudited) (Dollars in thousands except per share amounts) <s>		<c>	<c>	<c>	<c>	<c>	<c>	<c>	<c> 	 	First	 	Second	 	Third	 	Fourth 		2003	2002	2003	2002	2003	2002	2003	2002 Revenues	$24,042	23,492	25,073	23,008	27,031	24,876	27,157	25,573 Gross profit	$ 4,329	 5,067	 3,915	 4,966	 5,118	 5,458	 4,704	 5,051 Operating profit$ 2,377	 3,023	 1,905	 3,172	 3,105	 3,432	 2,528	 2,786 Income before income taxes	$ 1,538	 2,243	 1,019	 2,373	 2,206	 2,629	 1,660	 2,025 Gain from discontinued operations	$ -	 -	 -	 -	 -	 -	 657	 - Net income	$ 938	 1,346	 622	 1,424	 1,346	 1,577	 1,669	 1,308 Per common share: Basic EPS	$.30	 .43	 .20	 .45	 .45	 .50	 .57	 .42 Diluted EPS	$.30	 .43	 .20	 .45	 .44	 .50	 .56	 .41 Market price: High	$28.85	20.55	28.38	35.00	30.00	34.00	33.00	30.00 Low	$19.00	16.70	20.00	20.44	21.00	26.15	28.00	21.30 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, regulations regarding driver qualifications and hours of service, construction activity, Florida Rock Industries, Inc.'s sales from the Company's mining properties, interest rates and demand for commercial warehouse/office space in the Baltimore/Washington area. Internal factors include revenue mix, capacity utilization, auto and workers' compensation accident frequencies and severity, other operating factors, administrative costs, and construction costs of new projects. The following detailed analysis of operations also presents the revenue generated by our real estate segment excluding property sales. Property sales include the sale of easements, right of ways, parcels of real estate, and timber and other miscellaneous sales. We believe that presenting some results excluding the effects of one-time property sales is helpful to investors because it permits a comparison of our core real estate operations. Such measures should only be considered in conjunction with the total real estate revenues as calculated and presented in accordance with U.S. GAAP. During Fiscal 2003, the transportation segment's ten largest customers accounted for approximately 38% 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. Fiscal 2003 as compared to Fiscal 2002. Revenues. Consolidated revenues for Fiscal 2003 were $103,303,000, an increase of $6,354,000 or 6.6% from $96,949,000 from the previous year. Transportation segment revenues were $87,996,000, an increase of $6,075,000 or 7.4% over last year. Transportation revenues increased $3,490,000 due to an increase in revenue miles, resulting from the new business generated from the May 2002 acquisition of the operating assets of Infinger Transportation, Inc. (Infinger) and internal growth, offset by the loss of a major customer in the first quarter of 2003. Of the remainder, $1,936,000 was due to an increase in billed fuel surcharges over last year, as a result of increased diesel fuel cost. Real Estate revenues, excluding property sales, were $15,239,000, an increase of 5.3% over last year. The increase was primarily due to an 11.1% increase in rental revenue from developed properties partially offset by a 2.8% decrease in royalty revenues. Revenues from the Company's developed operations increased due to a 9.2% increase in average leased square feet, while royalty revenues from mining operations decreased because of completion of aggregate mining at two sites. Royalty revenues are expected to continue near the level experienced in 2003. Property sales in Fiscal 2003 were $68,000 versus $554,000 in Fiscal 2002. Gross Profit. Consolidated gross profit for Fiscal 2003 decreased 12.0% to $18,067,000 from $20,542,000 for the previous year. Transportation gross profit was $9,040,000, a decrease of $2,638,000 or 22.6%, in 2003 as compared to 2002. The decrease in gross profit was primarily due to a $2,964,000 or 32.6% increase in expenses related to higher insurance premiums and workers compensation claims. The Company will continue to strive to operate safely and efficiently and to increase freight rates and volumes to offset the continuing increased insurance costs. Real Estate gross profit excluding property sales increased $439,000 primarily due to the increase in rental revenues. Gross profit from property sales in Fiscal 2003 was only $47,000 compared to $323,000 in Fiscal 2002. Operating Expenses. Selling, general and administrative expenses for 2003 were comparable to 2002, decreasing 0.6% from $8,229,000 in Fiscal 2002 to $8,181,000 for Fiscal 2003. Income Taxes. The Company recorded an income tax provision of $2,505,000 in 2003, compared to a provision of $3,615,000 in 2002. The effective tax rate was 39% in both years. Discontinued Operations. During the fourth quarter of 2003, a subsidiary of the Company sold a former mining property, located in St. Mary's County, Maryland for $1,836,000. According to the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the property is considered a component of the entity, as defined by SFAS 144, and is therefore treated as a discontinued operation. A gain on disposal of the property of $657,000, net of income taxes of $420,000, has been recorded as discontinued operations. Since there have been no active mining operations on the property during the periods presented, revenues and expenses from the discontinued operation are not material. Net Income. Net income decreased 19.1% to $4,575,000 in Fiscal 2003 from $5,655,000 in 2002. Diluted earnings per share decreased 16.8% to $1.49 in Fiscal 2003 from $1.79 in 2002. Diluted total shares outstanding decreased 3.1% from 3,165,000 in 2002 to 3,066,000 in 2003 as a result of the repurchase and cancellation of 246,300 shares during the year. 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. 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. 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. 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 periodic credit reviews on existing customers. A detailed analysis of late and slow pay customers is at least 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 $250,000 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. Net cash flow from operating during 2003 was $16,056,000, which together with $10,760,000 net cash inflow from long term debt, funded the $20,413,000 purchase of property and equipment and the repurchase of $6,118,000 in Company stock. Net cash flow from operating activities during 2002 was $24,947,000 which funded the Company's investing activities of $17,978,000 and the reduction of debt. The Company has a $37,000,000 revolving credit agreement (the Revolver) of which $17,000,000 was available at fiscal year end. The Revolver contains restrictive covenants including limitations on paying cash dividends. Under these restrictions, as of September 30, 2003, $13,048,000 of consolidated retained earnings was available for payment of dividends. On October 1, 2003, the company closed on a non-recourse first mortgage loan of $8,500,000 secured by a 200,200 square foot completed building that is leased to one tenant. The loan is for a period of 15 years with level monthly payments of principal and interest at 5.69%. The proceeds were used to reduce amounts outstanding under the Revolver. The aggregate amounts due in each fiscal year on fully amortizing, non-recourse long-term debt outstanding at September 30, 2003 is: 2004 - - $1,545,000; 2005 - $1,604,000; 2006 - $1,732,000; 2007 - $1,848,000; 2008 - $1,996,000; and thereafter - $30,636,000. In addition, $20,000,000 outstanding under the Revolver at September 30, 2003 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. In addition, the Company has a $1,790,000 letter of credit with Wachovia Bank, N.A. Each letter of credit is generally irrevocable for a period of one year and is automatically extended for additional one-year periods unless notified by the issuing bank not less than thirty days before the expiration date. At September 30, 2003, $9,143,000 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 obligations. 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 2003, the company repurchased 246,300 shares for approximately $6,119,000. At September 30, 2003 the Company had approximately $3,000,000 authorized for repurchase of shares. On December 3, 2003 the Board of Directors authorized an additional $3,000,000 for the repurchase of shares bringing the total authorization to $6,000,000. The Company currently expects its Fiscal 2004 capital expenditures to be approximately $18,600,000 ($8,500,000 for real estate development expansion and $10,100,000 for transportation segment expansion) and depreciation and depletion expense to be approximately $12,500,000. The expenditures are expected to be financed from the cash flow from operating activities, financing of a new real estate project, and the funds available under its revolving credit agreement. A subsidiary of the Company signed an Agreement in February 2002 to sell 108 acres of land to FRI for $15,000,000. Closing is subject to a title search and surveys and is to occur within 45 days of FRI giving notice to close. If FRI fails to close by December 31, 2004, 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 closing 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 $2.54 per diluted share. The tract is rented to a subsidiary of FRI and the Company received rental income of approximately $650,000 for the 2003 fiscal year. The Company announced on May 7, 2003 that a subsidiary has agreed to sell a 935 acre parcel of property in Miami, Florida to FRI for $1,638,000. The property is principally composed of mined-out lakes, mitigation areas, 145 acres of mineable land and 32 acres of roads and railroad track right-of-ways. The closing of the sale is to occur no later than December 31, 2004. The terms of the agreement were approved by the Company's Audit Committee which (comprised of independent directors) after considering, among other factors, the terms of the existing lease agreement and consultation with management. If this transaction closes, the Company will recognize a gain of approximately $999,000, net of income taxes, or $.33 per diluted common share. A subsidiary of the Company agreed on December 3, 2003 to sell a parcel of land containing approximately 6,321 acres in Suwannee and Columbia Counties, near Lake City, Florida, to FRI for $13,000,000 in cash. The sale is subject to a definitive agreement and the closing date is to be determined. The sales price was approved by the Company's Audit Committee which is composed of independent Directors of the Company after considering among other factors, an independent appraisal, the current use of the property and consultation with management. If the transaction closes, the Company will recognize a gain of approximately $5,287,000, net of income taxes or $1.78 per diluted common share. The Company expects to ultimately redeploy the cash proceeds into commercial warehouse/office rental properties. Management believes that the Company is financially postured to be able to take advantage of external and internal growth opportunities in both real estate development and the motor carrier industry. 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; regulations regarding driver qualifications and hours of service; availability and terms of financing; freight demand for petroleum products and for building and construction materials in the Company's markets; risk insurance markets; competition; general economic conditions; demand for flexible warehouse/office facilities; 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) 2003 2002 2001 Revenues: Transportation $ 87,996 81,921 103,189 Real estate 15,239 14,474 14,091 Sale of real estate 68 554 3,978 Total revenues (including revenue from related parties of $7,305, $6,944 and $10,693, respectively) 103,303 96,949 121,258 Cost of operations: Transportation 78,956 70,243 92,968 Real estate 6,259 5,933 5,406 Cost of real estate sold 21 231 1,092 Gross profit 18,067 20,542 21,792 Selling, general and administrative expense (including expenses paid to related party of $440, $463 and $527, respectively) 8,181 8,229 12,310 Non-recurring charges (recoveries) related to closed subsidiary (29) (100) 1,604 Operating profit 9,915 12,413 7,878 Interest expense, net (3,492) (3,143) (3,372) Income from continuing operations before income taxes 6,423 9,270 4,506 Provision for income taxes 2,505 3,615 1,803 Income from continuing operations 3,918 5,655 2,703 Gain from sale of discontinued mining property (Note 11) 1,077 - - Income tax provision (420) - - Gain on discontinued operations 657 - - Net income $ 4,575 5,655 2,703 Earnings per share: Basic $ 1.51 1.80 .86 Diluted $ 1.49 1.79 .86 Number of shares used in computing: Basic earnings per share 3,033 3,143 3,157 Diluted earnings per share 3,066 3,165 3,158 See accompanying notes. Consolidated Balance Sheets As of September 30, (Dollars in thousands) 2003 2002 Assets Current assets: Cash and cash equivalents $ 757 529 Cash held in escrow 1,795 - Accounts receivable (including related party of $359 and $107, less allowance for doubtful accounts of $566 and $474, respectively) 7,332 7,343 Income taxes receivable - 8 Inventory of parts and supplies 670 633 Prepaid expenses and other 3,411 2,977 Total current assets 13,965 11,490 Property, plant and equipment, at cost: Land 67,781 66,380 Buildings 69,438 55,420 Plant and equipment 72,941 72,489 Construction in progress 11,331 14,986 221,491 209,275 Less accumulated depreciation and depletion 76,229 70,908 145,262 138,367 Real estate held for investment, at cost 1,130 1,047 Goodwill, net of $523 amortization 1,087 1,087 Other assets 3,772 3,472 Total Assets $165,216 155,463 Liabilities and Shareholders' Equity Current liabilities: Accounts payable including related party of $2 and $39, respectively 4,734 5,771 Accrued liabilities: Payroll and benefits 1,798 2,229 Other accrued expenses 829 554 Accrued Insurance reserves 2,314 2,107 Long-term debt due within one year 1,545 1,311 Total current liabilities 11,220 11,972 Long-term debt 57,816 47,290 Deferred income taxes 10,760 10,062 Accrued insurance reserves 5,722 5,331 Other liabilities 1,669 1,648 Commitments and contingencies (Notes 14 and 15) Shareholders' equity: Preferred stock, no par value; 5,000,000 shares authorized - - Common stock, $.10 par value; 25,000,000 shares authorized; 2,932,708 and 3,159,008 shares issued and outstanding, respectively 293 316 Capital in excess of par value 6,065 11,748 Retained earnings 71,671 67,096 Total shareholders' equity 78,029 79,160 Total Liabilities and Shareholders' equity $165,216 155,463 See accompanying notes. 	Consolidated Statements of Cash Flows Years ended September 30, 	(Dollars in thousands) Cash flows from operating activities: 2003 2002 2001 Net income $ 4,575 5,655 2,703 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 11,956 11,086 11,471 Non-cash portion of restructuring charge - - 968 Deferred income taxes 879 889 332 Gain on sale of real estate, plant and equipment (210) (612) (3,008) Net changes in operating assets and liabilities: Accounts receivable 12 1,133 2,293 Income taxes receivable 8 994 (1,002) Inventory of parts and supplies (37) (63) 80 Prepaid expenses and other (435) 1,509 (1,815) Assets held for sale - 1,191 - Accounts payable and accrued liabilities (1,167) 2,686 (2,915) Net change in insurance reserves and other liabilities 412 437 485 Other, net 63 42 34 Net cash provided by operating activities 16,056 24,947 9,626 Cash flows from investing activities: Purchase of property, plant and equipment (20,413) (18,046)(18,438) Additions to other assets (768) (942) (734) Cash held in escrow (1,795) - - Proceeds from the sale of real estate held for investment, property, plant and equipment, and other assets 2,094 1,010 5,294 Net cash used in investing activities (20,882) (17,978)(13,878) Cash flows from financing activities: Proceeds from long-term debt 4,600 10,200 5,140 Increase (decrease) in revolving debt 7,500 (8,500) 1,000 Net (decrease) increase in short-term debt - (7,800) 2,200 Repayment of long-term debt (1,340) (1,173) (877) Exercise of employee stock options 412 425 - Repurchase of Company stock (6,118) (32) (3,404) Net cash provided by (used in) financing activities 5,054 (6,880) 4,059 Net increase(decrease)in cash and cash equivalents 228 89 (193) Cash and cash equivalents at beginning of year 529 440 633 Cash and cash equivalents at end of year $ 757 529 440 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,477 3,179 3,480 Income taxes $ 2,004 1,720 3,399 Non cash investing and financing activities: Additions to property, plant and equipment from: Exchanges $ - 563 - See accompanying notes. Consolidated Statements of Shareholders' Equity (Dollars in thousands, except per share amounts) Capital in Common Stock Excess of Retained Shares Amount Par Value Earnings 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 Shares purchased and canceled (246,300) (25) (6,093) - Exercise of stock options 20,000 2 410 - Net income - - - 4,575 Balance at September 30, 2003 2,932,708 $293 $ 6,065 $71,671 See accompanying notes. Notes to Consolidated Financial Statements 1. Accounting policies. ORGANIZATION - Patriot Transportation Holding, Inc. (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. (Tanklines) is a Southeastern transportation company concentrating in the hauling by motor carrier of primarily petroleum related liquids and other liquid and dry bulk commodities. SunBelt Transport, Inc. (SunBelt) 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 than 3% per annum), in which case, rents are recognized on a straight-line basis over the term of the lease. 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 7-39 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 and intangible assets 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 $250,000 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. See Footnote 7 for 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 completed the transitional goodwill impairment test resulting in no impairment of goodwill. Goodwill amortization for 2003, 2002, and 2001, was $0, $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 adopted the provisions of SFAS 143 for the quarter ending December 31, 2002 with no 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. RECLASSIFICATIONS - Certain reclassifications have been made to the 2002 and 2001 financial statements to conform to the presentation adopted in 2003. 2. Transactions with related parties. As of September 30, 2003, five 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 47.1% of the stock of the Company. Accordingly, FRI and the Company are considered related parties. The Company, through its transportation subsidiaries, hauls commodities by tank and flatbed trucks for FRI. Charges for these services are based on prevailing market prices. Other wholly owned subsidiaries lease certain construction aggregates mining and other properties to FRI. A summary of revenues derived from FRI follows (in thousands): 2003 2002 2001 Transportation $ 1,367 986 950 Real estate 5,938 5,958 9,743 $ 7,305 6,944 10,693 The Company outsources certain functions to FRI, including some administrative, human resources, legal and risk management. Charges for services provided by FRI were $440,000 in 2003, $463,000 in 2002, and $527,000 in 2001. A subsidiary of the Company sold, in September 2003, 796 acres of land located in St. Mary's County, Maryland to FRI for $1,836,000. The sale was approved by a committee of independent directors of the Company after receipt of an appraisal and consultation with management. The Company recognized a gain on the sale of approximately $1,078,000 before income taxes. The Company plans to defer the gain for tax purposes under Section 1031 of the Internal Revenue Code. See Footnote 11 for more information. The Company sold, during Fiscal 2001, 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. The Company announced on May 7, 2003 that a subsidiary agreed to sell a 935 acre parcel of property in Miami, Florida to FRI for $1,638,000. The property is principally composed of mined-out lakes, mitigation areas, 145 acres of mineable land and 32 acres of roads and railroad track right-of- ways. The closing of the sale is to occur no later than December 31, 2004. The terms of the agreement were approved by the Company's Audit Committee which, is comprised of independent directors, after considering, among other factors, the terms of the existing lease agreement and consultation with management. If this transaction closes, the Company will recognize a gain of approximately $999,000, net of income taxes, or $.33 per diluted common share. A subsidiary of the Company signed an Agreement in February 2002 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 is to occur within 45 days of FRI giving notice to close. If FRI fails to close by December 31, 2004, 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 closing 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 $2.54 per diluted share. The tract is rented to a subsidiary of FRI and the Company received rental income of approximately $650,000 for the 2003 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 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. The Company continued its attempts to recover amounts written off related to the closure of the subsidiary. As a result, recovery of restructuring charges of $29,000 and $100,000 was recorded in 2003 and 2002, respectively. The recoveries were due to better than expected disposition of owned and leased trailers. Recoveries of $49,000 and $194,000 in amounts previously charged to administrative expense were also recorded in 2003 and 2002, respectively, primarily due to recovery of accounts receivable in excess of amounts anticipated. At September 30, 2003 and 2002, $82,000 and $113,000 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: 2003 2002 2001 Revenue $ 0 $ 0	 $22,623,000 Operating profit (loss) $ 78,000 $ 294,000 $(6,309,000) 4. Long-term debt. Long-term debt at September 30 is summarized as follows (in thousands): 2003 2002 Revolving credit (unsecured) $20,000 12,500 5.7% to 9.5% mortgage notes, due in installments through 2020 39,361 36,101 59,361 48,601 Less portion due within one year 1,545 1,311 $57,816 47,290 The aggregate amount of principal payments, excluding the revolving credit, due subsequent to September 30, 2003 is: 2004 - $1,545,000; 2005 - $1,604,000; 2006 - $1,732,000; 2007-$1,848,000; 2008-$1,996,000; 2009 and subsequent years - $30,636,000. In January 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 a margin rate of 1.675% 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, 2003, $13,048,000 of consolidated retained earnings would be available for payment of dividends or repurchase of common stock. The non-recourse fully amortizing mortgage notes payable are collateralized by real estate having a carrying value of approximately $43,852,000 at September 30, 2003. Certain properties having a carrying value at September 30, 2003 of $876,000 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 2003, 2002 and 2001 the Company capitalized interest cost of $182,000, $194,000 and $412,000, respectively. 5. Leases. At September 30, 2003, 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 $ 40,744 Commercial property 103,875 Land and other property 1,621 146,240 Less accumulated depreciation and depletion 33,757 $112,483 The minimum future rentals due the Company on noncancelable leases as of September 30, 2003 are as follows: 2004 - $9,881,000; 2005 - $8,733,000; 2006 - $6,664,000; 2007 - $5,306,000; 2008 - $5,037,000; 2009 and subsequent years $23,653,000. 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 Plans. The Company has two Stock Option Plans (the 1995 Stock Option Plan and the 2000 Stock Option Plan) under which options for shares of common stock have been granted to directors, officers and key employees. Currently, only the 2000 Plan has options available for grant. The options awarded under the two plans have similar characteristics. All stock options expire ten years from the date of grant. Options awarded to directors are exercisable immediately and options awarded to officers and employees become exercisable in cumulative installments of 20% each year after a one year waiting period from date of grant. Options awarded in 2003 included 140,000 to officers and key employees. The remaining options issued in 2003 and all awards in 2002 and 2001 were to directors. At September 30, 2003, the number of shares available for issuance is 158,880 shares. Option transactions for the fiscal years ended September 30 are summarized as follows: Shares under Weighted Average Option Exercise Price Balance at September 30, 2000 102,600 $ 19.05 Granted 29,000 17.31 Cancelled - - Exercised - - Balance at September 30, 2001 131,600 18.67 Granted 37,000 22.99 Cancelled (7,000) 21.29 Exercised (20,600) 17 93 Balance at September 30, 2002 141,000 19.78 Granted 182,000 22.87 Cancelled (3,500) 22.48 Exercised (20,000) 17.75 Balance at September 30, 2003 299,500 $ 21.85 The following table summarizes information concerning stock options outstanding at September 30, 2003: Shares Weighted Weighted Range of Exercise under Average Average Prices per Share Option Exercise Price Remaining Life Outstanding: $22.23 - $24.00 140,620 $ 24.64 9.0 Exercisable: $15.13 - $19.87 82,000 17.49 4.5 $21.60 - $30.44 76,880 26.52 8.4 158,880 $ 21.85 6.4 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 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): 2003 2002 2001 Net income As reported $ 4,575 5,655 2,703 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax effects $ 540 348 203 Pro forma $ 4,035 5,307 2,500 Basic earnings per share As reported $ 1.51 1.80 0.86 Pro forma $ 1.33 1.69 0.79 Diluted earnings per share As reported $ 1.49 1.79 0.86 Pro forma $ 1.32 1.68 0.79 The fair value of options granted in 2003 was estimated to be $11.94 on the date of grant using the following assumptions; no dividend yield, expected volatility of 45.3%, risk-free interest rates of 3.7% and expected lives of 7 years. The weighted average 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. 8. Income taxes. The provision for income taxes for fiscal years ended September 30 consists of the following (in thousands): 2003 2002 2001 Current: Federal $1,755 2,366 1,260 State 289 360 211 2,044 2,726 1,471 Deferred Federal 390 728 284 State 71 161 48 461 889 332 Total $2,505 3,615 1,803 A reconciliation between the amount of tax shown above and the amount computed at the statutory Federal income tax rate follows (in thousands): 2003	 2002	 2001 Amount computed at statutory Federal rate $2,184 3,152 1,532 State income taxes (net of Federal income tax benefit) 279 338 169 Other, net 42 125 102 Provision for income taxes $2,505 3,615 1,803 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: 2003	 2002 Deferred tax liabilities: Property, plant and equipment $12,839 11,944 Depletion 570 570 Prepaid expenses 1,144 1,000 Gross deferred tax liabilities 14,553 13,514 Deferred tax assets: Insurance reserves 2,659 2,573 Other, net 929 855 Gross deferred tax assets 3,588 3,428 Net deferred tax liability $10,965 10,086 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 $591,000 in 2003, $545,000 in 2002 and $517,000 in 2001. 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): 2003 2002 Change in benefit obligation: Balance beginning of year $ 374 424 Service cost 16 19 Interest cost 20 24 Plan participants' contribution 14 11 Actuarial loss(gain) (40) (69) Benefits paid (25) (35) Balance end of year $ 359 374 Change in plan assets: Balance beginning of year $ - - Employer contributions 11 24 Plan participants' contribution 14 11 Benefits paid (25) (35) Balance end of year $ 0 0 Funded status $(359) (374) Unrecognized net gain (236) (227) Unrecognized prior service cost - - Accrued postretirement benefit costs $(595) (601) Net periodic postretirement benefit cost for fiscal years ended September 30 includes the following components (in thousands): 2003	 2002	 2001 Service cost of benefits earned during the period $ 16 19 24 Interest cost on APBO 20 24 29 Net amortization and deferral (31) (28) (21) Net periodic postretirement benefit cost $ 5 15 32 The discount rate used in determining the Net Periodic Postretirement Benefit Cost and the APBO was 5.75% for 2003, 7.0% for 2002 and 7.5% for 2001. 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): 2003	 2002	 2001 Revenues: Transportation (a) $ 87,996 81,921 103,189 Real estate (b) 15,307 15,028 18,069 $103,303 96,949 121,258 Operating profit: Transportation (a) $ 2,360 5,057 (2,248) Real estate (b) 9,028 8,864 11,550 Corporate expenses (1,473) (1,508) (1,424) $ 9,915 12,413 7,878 Capital expenditures: Transportation $ 7,086 11,430 5,011 Real estate 13,327 7,179 12,920 Other 0 0 497 $ 20,413 18,609 18,428 Depreciation, depletion and amortization: Transportation $ 8,510 7,876 8,175 Real estate 3,211 2,961 3,259 Other 235 249 37 $ 11,956 11,086 11,471 Identifiable assets at September 30: Transportation $ 45,055 47,519 48,987 Real estate 116,269 105,850 101,274 Cash 2,552 529 440 Unallocated corporate assets 1,340 1,565 2,058 $165,216 155,463 152,759 (a) Fiscal 2001 includes revenues of $22,623,000 and operating losses of $6,309,000 attributed to Patriot Transportation, Inc. which ceased operations in September, 2001. (b) Fiscal 2003, 2002 and 2001 includes revenue of $68,000, $554,000, and $3,978,000 and operating profit of $47,000, $323,000, and $2,886,000, respectively, from the sale of real estate. 11. Discontinued operations. During the fourth quarter of 2003, a subsidiary of the Company sold a mining property, located in St. Mary's County, Maryland to FRI for $1,836,000. According to the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the property is considered a component of the entity, as defined by SFAS 144, and should therefore be treated as a discontinued operation. A gain on disposal of the property of $657,000, net of income taxes of $420,000, has been recorded after income from continuing operations. Since there have been no active mining operations on the property during the periods presented, revenues and expenses from the discontinued operations are not material. 12. 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. 13. Fair values of financial instruments. At September 30, 2003 and 2002, 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, 2003, the carrying amount and fair value of such other long term debt was $39,361,000 and $41,795,000, respectively. 14. Contingent liabilities. Certain of the Company's subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage. In the opinion of management none of these matters are expected to have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows. In addition, a transportation subsidiary of the Company is a defendant in a pending vehicular accident case that is scheduled to go to trial in January 2004. The plaintiff in that case is seeking compensatory and punitive damages. Although the Company, through its subsidiary, is vigorously defending the litigation and believes that there is no basis for an award of punitive damages, the Company believes that there is a significant risk that the Company's subsidiary will incur losses in connection with such case, a portion of which (any punitive damages award) may or may not be covered by insurance, depending in part on the findings at trial. At this time neither the Company nor its counsel can reasonably predict the amount or the range of such loss, if any. However, if punitive damages are awarded and are not covered by insurance, and such amounts are material, such award could have a material adverse impact on the Company's financial condition, results of operations or cash flows. 15. Commitments. The Company, at September 30, 2003, had entered into various contracts to develop real estate with remaining commitments totaling $930,000, and to purchase transportation equipment for approximately $548,000. A subsidiary of the Company has entered into an agreement to develop and sell to a major home builder a minimum of 292 residential lots on 73.6 acres of the Bird River Property currently zoned for residential. The minimum aggregate purchase price for these lots is $28,705,000. The rights and obligations of the subsidiary under this agreement are specifically contingent upon the approval by Baltimore County of a Planned Unit Development (PUD) by July 1, 2006 which will permit the development of and use of the property for a minimum of 292 residential lots. The subsidiary's rights and obligations are also expressly contingent upon the construction of the proposed Route 43 and the subsidiary's ability to have vehicular and water and sewer connection access to the property by July 1, 2007, at what the subsidiary deems in its sole discretion to be a commercially reasonable cost. The obligations of the builder under the agreement also are subject to customary conditions precedent. 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 sheets 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, 2003 and 2002, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2003 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 audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP December 16, 2003 Jacksonville, Florida Independent Auditors' Report To the Board of Directors and Shareholders Patriot Transportation Holding, Inc. We have audited the consolidated statements of income, shareholders' equity, and cash flows of Patriot Transportation Holding, Inc. and subsidiaries for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of Patriot Transportation Holding, Inc. and subsidiaries' operations and cash flows for the year 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 the Company's Real Estate Group 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 and Chief Accounting Officer Rick J. Copley President, SunBelt Transport, Inc. Robert E. Sandlin 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 4, 2004, 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, 2003 as filed with the Securities and Exchange Commission by writing to the Treasurer at 1801 Art Museum Drive Suite 300, Jacksonville, Florida 32207. 25