Annual Report 2005
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended September 30
(Dollars in thousands except per share amounts)
%
2005 2004 Change
(restated)
Revenues $131,036 115,789 13.2
Gross profit $ 24,993 22,482 11.2
Operating profit $ 15,191 13,430 13.1
Income before income taxes $ 11,945 9,975 19.8
Income from continuing operations $ 7,609 6,096 24.8
Discontinued operations $ - 14,644 -100.0
Net income $ 7,609 20,740 -63.3
Per common share:
Income from continuing operations
Basic $ 2.58 2.08 24.0
Diluted $ 2.50 2.05 22.0
Discontinued operations
Basic $ - 5.00 -100.0
Diluted $ - 4.92 -100.0
Net income
Basic $ 2.58 7.08 -63.6
Diluted $ 2.50 6.97 -64.1
Total Assets $193,715 186,821 3.7
Total Debt $ 50,900 48,901 4.1
Shareholders' Equity $107,901 98,972 9.0
Book Value Per Common Share $ 36.39 33.79 7.7
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. (Tank Lines) 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 Southeastern U.S., hauling primarily
construction materials. The Company's real estate group, comprised
of FRP Development Corp. and Florida Rock Properties, Inc.,
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 continue building a
substantial transportation company and a real estate company
providing 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 and
management of commercial warehouse/office rental properties
located in appropriate sub-markets in order to provide long-
term positive cash flows and capital appreciation.
TO OUR SHAREHOLDERS
Patriot completed Fiscal 2005 with encouraging momentum in both its
transportation and real estate businesses.
Consolidated revenues increased 13.2% over last fiscal year to
$131,036,000. Operating profit climbed 13.1%, and income from
continuing operations advanced 24.8% to $7,609,000. Net income
declined in 2005 due primarily to a $14,456,000 gain in 2004 from the
sale of properties, compared to no gain in 2005. Diluted earnings per
common share for Fiscal 2005 were $2.50, and book value per common
share increased 7.7% from the previous year to $36.39.
A continuing strong regional and national economy fostered demand for
the Company's transportation hauling services and its flexible
warehouse/office portfolio in the Middle Atlantic region. Favorable
interest rates helped fuel residential and commercial construction
spending, which in turn continued to generate strong demand for
hauling services for construction products. Generally broad, solid
demand across Patriot's businesses contributed to another year of
favorable pricing conditions.
Transportation Group
The Company's Transportation Group began Fiscal 2005 with the
following operational objectives:
- Operate safely - nothing we do is more important;
- Raise prices including fuel surcharges as appropriate;
- Man the equipment - recruit/retain qualified drivers;
- Maximize equipment utilization.
These imperatives stemmed from a number of continuing challenges
confronting the trucking industry. Operating costs have been seriously
escalating. Driver pay represents the largest single component.
Trucking capacity growth has remained under pressure from widespread
driver shortages. Some estimates put the national driver shortages at
20,000, with as many as 500,000 new drivers needed over the next decade
to offset retirements and to satisfy basic economic expansion. Not
surprisingly, driver turnover for larger truckload carriers during 2005
reached close to record highs of 129%, and accident frequency and
turnover remain closely correlated.
Liability insurance, workers compensation insurance and group health
claims rival fuel for the next largest category of operating expense.
Health cost increases for businesses have continued to climb at
double-digit rates. Liability insurance markets have only recently
begun to soften though after-effects from the 2005 hurricane season
could alter this picture. Trucking companies must continue to improve
their safety programs to remain insurable and therefore viable.
Diesel fuel costs across the nation continued to set new record highs
throughout much of the summer and fall together with serious pricing
and availability impacts resulting from Hurricane Katrina. This
incessant pounding from spiking fuel costs contributed directly to
accelerating business failures among trucking companies, which further
compounded capacity constraint. Trucking bankruptcies and rapidly
rising diesel fuel costs have generally been closely correlated over a
number of years.
New equipment prices for tractors and trailers climbed substantially
during the year in reaction to intense national and world demand for
commodities, especially steel, iron, copper and aluminum plus tire
prices from record crude oil levels. In addition, periodic EPA
mandates (next effective for 2007 engines) for lower engine sulfur
emissions also contributed to higher Class 8 tractor prices while
lowering mileage efficiency and adding to fuel expense.
The encouraging offsets at Patriot to these challenges have been a
continuing strong demand and pricing climate coupled with excellent
leadership and teamwork at both Florida Rock & Tank Lines, Inc. and
SunBelt Transport, Inc. New, comprehensive accident prevention
programs were installed within both subsidiaries. Specific targets
for Accident Frequency Ratios ("AFR's"-incidents per million miles
traveled) were established when Fiscal 2005 began. These targets were
tied directly to the Company's annual cash incentive compensation
program from the CEO of Patriot Transportation Holding, Inc. down
through virtually all operating and managerial levels of each
transportation subsidiary. AFR targets for each subsidiary
represented material reductions from prior years and were intended to
be "stretch" goals. Each company achieved their targets, and the
program has been incorporated again for Fiscal 2006 into Patriot's
annual management bonus plan.
Freight rate prices have been, and will continue to be, aggressively
expanded by each company, including appropriate adjustments to fuel
price surcharges. Severe diesel fuel escalation has been mostly
offset within the Transportation Group.
Driver recruitment/retention will remain a challenge. Additional
full-time recruiters, supported by new electronic information
software, have been added. Driver pay and benefits have been
expanded, with special attention to quality-of-life issues for our
drivers. We value and appreciate our drivers, and we want them to
know this.
Finally, equipment utilization continued to improve following similar
results in Fiscal 2004. Annual revenue per driver and per tractor
climbed again at both Florida Rock & Tank Lines, Inc. and SunBelt
Transport, Inc. Replacement and expansion rolling stock is on order,
and the Transportation Group maintains a healthy balance sheet with no
debt.
Real Estate Group
Continued warehouse/office portfolio expansion, increased
permitting/horizontal development preparation at Bird River, and focus
toward final development zoning for the Company's 5.8 acre site in
Washington, D.C. describe primary activities of the Real Estate Group
during Fiscal 2005. Scouting undeveloped land parcels for expansion
and implementation of a major repair and expenditure program for the
existing portfolio also characterized the year.
The Group's most recent portfolio expansion, a 145,180 square foot
warehouse/office, was completed and placed in service during the
fourth quarter. This new building is located within the Group's
Hillside Business Park near the Baltimore-Washington International
Airport. The project was a build-to-suit now under long-term lease.
This new building required a great deal of construction-related
sophistication. It increased the Group's total developed portfolio by
almost 7% to 2,332,000 square feet that was 86.8% occupied at fiscal
year-end. The new addition will increase annualized lease revenues
from total developed buildings by about 14%.
Pre-development activities increased during the year in support of
both the commercial and residential components of the Group's 104
developable acres near Bird River in southeastern Baltimore County.
Residential lots to be developed are under contract to be sold to a
major national homebuilder. An additional 515,000 square feet of
warehouse/office capacity is slated for development on approximately
42 acres within the larger site.
A great deal of effort continues to be expended toward final
development zoning approval for the Company's 5.8 acre undeveloped
site located on the Anacostia River in southeastern Washington, D.C.
The Company is requesting approval of a modified Planned Unit
Development ("PUD") providing for a maximum commercial density of
625,000 square feet and residential density of 440,000 square feet.
The new zoning, if approved, would allow 2 years for development to
commence.
Amidst these re-zoning efforts, Major League Baseball and local
elected officials announced agreement in 2005 whereby a major league
team would re-locate to the District and eventually play its home
games in a proposed new stadium there. The proposed location of this
new stadium is currently planned for Washington's southeastern
quadrant near the Company's 5.8 acre parcel. The Company continues to
follow this development and assess its impact on the Company's
development plans.
As for other real estate activities, asset management efforts remain
underway for various undeveloped land parcels within the Company's
ownerships. Regarding developed portfolio growth, a new
warehouse/office project, 7020 Dorsey Road is now underway. This
83,232 square foot building will be constructed within the Group's
Hillside Business Park.
Conclusion
Fiscal 2005 represented a period of real progress for all of us at
Patriot. Targeted efforts will continue aimed at developing and
enhancing the most critical asset never seen on our balance sheet -
our organization.
We therefore want to extend our continuing appreciation to the people
of Patriot, our customers and our shareholders for your commitment and
support.
Respectfully yours,
Edward L. Baker
Chairman
John E. Anderson
President & Chief Executive Officer
OPERATING PROPERTIES
Transportation. During Fiscal 2005, the Company's transportation
group operated through two wholly owned subsidiaries. Florida Rock &
Tank Lines, Inc. (Tank Lines) is engaged in hauling petroleum and
other liquid and dry bulk commodities in tank trucks. SunBelt
Transport, Inc. (SunBelt) is engaged primarily in hauling building
and construction materials on flatbed trailers.
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; and Charlotte and
Wilmington, North Carolina. SunBelt's flatbed fleet is based in
Jacksonville and Tampa, Florida; Atlanta and Savannah, Georgia;
South Pittsburg, Tennessee; and Mobile, Alabama and operates
primarily in the Southeastern U.S.
At September 30, 2005, the transportation group owned and operated a
fleet of 604 trucks, and owned a fleet of 917 trailers.
During Fiscal 2005, the transportation group purchased 105 new
tractors and 87 new trailers and had commitments to purchase an
additional 77 tractors and 26 trailers at September 30, 2005. The
Fiscal 2006 capital expenditure plan is based on maintaining a
modernized tank and flatbed fleet and includes the purchase of
approximately 52 new tractors and 84 new trailers in addition to the
equipment under commitment at September 30, 2005. The fleet
modernization program has resulted in reduced maintenance expenses,
improved operating efficiencies and enhanced driver recruitment and
retention.
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, Delaware 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. (FRI) 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.
At September 30, 2005, the Company owned 10 parcels of land
containing 404 usable acres in the Mid-Atlantic region of the United
States as follows:
1) Hillside Business Park in Anne Arundel County, Maryland consists of
49 usable acres near the Baltimore-Washington International Airport.
The Company plans to develop approximately 540,000 square feet of
warehouse/office space on this site. Infrastructure work on the site
is substantially completed and three buildings with a total of 419,980
square feet are completed and leased, each to a single tenant.
Current plans are to construct an additional 80,000 square feet of
warehouse/office space in late fiscal 2006.
2) Lakeside Business Park in Harford County, Maryland consists of 83
usable acres. Seven warehouse/office buildings, totaling 671,550
square feet, have been constructed and are 94% leased. The remaining
31 acres are available for future development and will have the
potential to offer an additional 485,000 square feet of comparable
product.
3) 6920 Tudsbury Road in Baltimore County, Maryland contains 5.3
acres with 86,100 square feet of warehouse/office space that is 100%
leased.
4) 8620 Dorsey Run Road in Howard County, Maryland contains 5.8
acres with 84,600 square feet of warehouse/office space. The lessee
at Dorsey Run vacated the premises at the end of its lease term on
December 31, 2004. An agreement has been executed to lease 40,000
square feet to commence on January 1, 2006.
5) Rossville Business Center in Baltimore County, Maryland contains
approximately 10 acres with 190,517 square feet of warehouse/office
space and is 87% leased.
6) 34 Loveton Circle in suburban Baltimore County, Maryland contains
8.5 acres with 29,722 square feet of office space which is 100%
leased. The Company occupies 24% of the space and 23% is leased to
FRI's subsidiary Arundel.
7) Oregon Business Center in Anne Arundel County, Maryland contains
approximately 17 acres with 195,615 square feet of warehouse/office
space which is 92% leased.
8) Arundel Business Center in Howard County, Maryland contains
approximately 11 acres with 162,796 square feet of warehouse/office
space, which is 71% leased.
9) 100-400 Interchange Boulevard in New Castle County, Delaware
contains approximately 17 acres with 303,006 square feet of
warehouse/office space which is 68% leased.
10) 1187 Azalea Garden Road in Norfolk, Virginia contains
approximately 12 acres with 188,093 square feet of warehouse/office
space which is 100% leased.
Future Planned Developments. The Bird River property, located in
southeastern Baltimore County, Maryland, is a 179-acre tract of land
that will have direct access to Maryland State Road 43 intended to
connect I-95 with Martin State Airport. This property is currently
zoned for residential and commercial use with 104 developable acres.
The Company plans to develop and lease approximately 515,000 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 national homebuilder a minimum of 292 residential
lots on the residential portion of the Bird River Property. The
agreement is subject to a number of contingencies, including (i) the
approval by Baltimore County of a Planned Unit Development (PUD) by
July 1, 2006 allowing the development of a minimum of 292 residential
lots, (ii) the construction of Route 43, (iii) vehicular, water and
sewer connection access to the property by July 1, 2007 at what the
subsidiary deems to be a commercially reasonable cost, and (iv) other
customary conditions precedent. Assuming that these conditions are
satisfied and the development proceeds, the agreement provides for a
minimum aggregate purchase price for these lots of $28,705,000.
Patriot owns approximately 3,443 acres of land near Brooksville,
Florida that it leases to FRI under a long-term mining lease. FRI
also owns approximately 553 acres of land in Brooksville. Patriot
and FRI management believe that FRI and Patriot may possibly realize
greater value from the Brooksville property through development
rather than continued mining. Accordingly, the independent
directors of Patriot and FRI are considering a proposal to form a
50-50 joint venture to develop the Brooksville property. If this
proposal is approved, the joint venture development will move
forward only if zoning and permitting approvals are obtained that
permit development of property in a manner acceptable to Patriot and
FRI; otherwise, Patriot intends to continue to lease the property to
FRI for mining and related purposes. If the development proceeds,
FRI will continue to conduct mining operations on at least a portion
of the property.
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 a nearby 2.1 acre tract on the same bank of the Anacostia River.
Currently, these properties are leased to FRI on a month-to-month basis.
For several years, the Real Estate Group has been pursuing development
efforts with respect to the 5.8 acre parcel. The Company previously
obtained Planned Unit Development (PUD) Zoning approval for development
of the property and has been working to obtain approval of a modified PUD
that would allow up to 625,000 square feet of commercial development and
up to 440,000 square feet of residential development. If the modified
PUD is approved, the Company would have up to two years to commence
development in accordance with the modified PUD.
The development of this property is likely to be impacted, at least to
some degree, by the proposed construction on nearby property of a new
baseball stadium for the Washington Nationals baseball team. While the
Company currently believes that the construction of this proposed stadium
would be a positive development for the property, the Company cannot yet
determine the potential impact on its development plans if the stadium is
built at the proposed location. The Company will monitor ongoing
developments relating to the stadium while continuing to pursue its
existing plans to develop the property.
The Company owns a 50-acre, rail accessible 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.
Five Year Summary-Years ended September 30
(Dollars and shares in thousands except per share amounts)
2005 2004 2003 2002 2001
(restated)(restated)(restated)(restated)
Summary of Operations:
Revenues(a) $131,036 115,789 102,561 95,898 119,206
Gross profit(b) $ 24,993 22,482 17,590 20,008 20,850
Operating profit $ 15,191 13,430 9,437 11,879 6,936
Interest expense $ 3,276 3,907 3,497 3,164 3,394
Income from continuing
operations $ 7,609 6,096 3,627 5,332 2,171
Per Common Share:
Basic $ 2.58 2.08 1.19 1.70 .69
Diluted $ 2.50 2.05 1.18 1.68 .69
Discontinued
operations $ - 14,644 1,023 516 665
Net income $ 7,609 20,740 4,650 5,848 2,836
Per Common Share:
Basic $ 2.58 7.08 1.53 1.86 .90
Diluted $ 2.50 6.97 1.51 1.85 .90
Financial Summary:
Current assets $ 19,569 30,066 13,965 11,490 16,248
Current liabilities $ 16,221 23,099 11,220 11,972 16,728
Property and
equipment, net $164,936 149,011 139,379 138,367 131,170
Total assets $193,715 186,821 166,643 156,769 153,753
Long-term debt $ 48,468 41,185 57,816 47,290 47,097
Shareholders' equity $107,901 98,972 78,914 79,970 73,729
Net Book Value
Per common Share $ 36.39 33.79 26.91 25.31 23.48
Other Data:
Weighted average common
shares - basic 2,950 2,931 3,033 3,143 3,157
Weighted average common
shares - diluted 3,039 2,976 3,066 3,165 3,158
Number of employees 903 908 845 861 850
Shareholders of record 679 702 745 767 788
The financial data presented above has been revised to reflect a
restatement. For information with respect to the restatement, see
Note 2 of notes to the accompanying consolidated financial
statements.
(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 include gains on the sale of real
estate of $47,000, $323,000, and $2,886,000, respectively.
Quarterly Results (Restated for 2005)(unaudited)
(Dollars in thousands except per share amounts)
First Second Third Fourth
2005 2004 2005 2004 2005 2004 2005 2004
Revenues $31,419 27,684 32,059 28,386 33,106 29,670 34,452 30,049
Gross profit $ 5,962 5,223 5,714 5,008 6,852 5,989 6,465 6,262
Income from continuing
Operations $ 1,684 1,231 1,573 1,248 2,140 1,913 2,212 1,704
Discontinued
Operations $ - 87 - 5,727 - 9,041 - (211)
Net income $ 1,684 1,318 1,573 6,975 2,140 10,954 2,212 1,493
Basic earnings per common share:
Income from continuing
Operations $ .57 .42 .53 .43 .72 .65 .75 .58
Discontinued
Operations - .03 - 1.95 - 3.09 - (.07)
Net income $ .57 .45 .53 2.38 .72 3.74 .75 .51
Diluted earnings per common share:
Income from continuing
operations $ .56 .41 .52 .42 .70 .64 .72 .57
Discontinued
operations - .03 - 1.92 - 3.04 - (.07)
Net income $ .56 .44 .52 2.34 .70 3.68 .72 .50
Market price per common share:
High $44.99 33.90 53.92 37.50 52.76 37.72 68.70 34.02
Low $32.15 28.65 42.46 30.00 42.70 30.51 52.45 31.74
The financial data presented above has been revised to reflect a
restatement of amounts previously reported for the 2005 quarters.
For information with respect to the restatement, see Note 2 of
notes to the accompanying consolidated financial statements.
Quarterly Results for the Year Ended September 30, 2005
First Second Third
As As As
Previously As Previously As Previously As
Reported_Restated_Reported Restated Reported Restated
Revenues $31,374 31,419 32,014 32,059 33,061 33,106
Gross Profit 5,917 5,962 5,669 5,714 6,807 6,852
Income from continuing
operations 1,656 1,684 1,545 1,573 2,112 2,140
Net income 1,656 1,684 1,545 1,573 2,112 2,140
Earnings per common share:
Basic .56 .57 .52 .53 .71 .72
Diluted .55 .56 .51 .52 .69 .70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Executive Overview
Patriot Transportation Holding, Inc. (the Company) is a holding
company engaged in the transportation and real estate businesses
through wholly owned subsidiaries.
The Company's transportation business operates through two
subsidiaries: Florida Rock & Tank Lines, Inc. (Tank Lines) is engaged
in hauling primarily petroleum related bulk liquids and dry bulk
commodities in tank trailers. SunBelt Transport, Inc. (SunBelt) is
engaged in hauling primarily building and construction materials on
flatbed trailers.
The Company's real estate business is operated through two
subsidiaries: Florida Rock Properties, Inc. and FRP Development Corp.
The Company owns real estate in Florida, Georgia, Virginia, Maryland,
Delaware 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.
The Company is a related party to Florida Rock Industries, Inc. (FRI)
because four of the Company's directors are also directors of FRI and
such directors own approximately 26.1% of the stock of FRI and 49.5%
of the stock of the Company. The Company derived 5.1% of its
consolidated revenue from FRI in fiscal 2005.
Fiscal 2005 showed growth in income from continuing operations but a
decrease in net income due to gains from discontinued operations in
the previous year. Income from continuing operations was $7,609,000
or $2.50 per diluted share in fiscal 2005, an increase of 24.8%
compared to $6,096,000 or $2.05 per diluted share in fiscal 2004.
This increase was generated primarily from the revenue growth in both
the transportation segment and developed properties while fixed
expenses remained steady.
Net income decreased to $7,609,000 in fiscal 2005 from $20,740,000 in
2004, primarily as a result of the sales of properties classified as
discontinued operations in 2004. Three properties were sold to FRI
during 2004, which resulted in an after tax gain of $14,456,000.
Restatement of Prior Financial Information. The Company restated its
consolidated balance sheet as of September 30, 2004 and its
consolidated statement of shareholders' equity for the year then
ended. There were no differences related to corrections reported in
the consolidated statements of income or cash flows for the year
ended September 30, 2004. The Company also restated its consolidated
statements of income, shareholders' equity and cash flows for the
year ended September 30, 2003. In addition, the Company restated its
quarterly results of operations for fiscal 2005. The restatement also
affected periods prior to fiscal 2003 and those periods have been
restated where presented. The restatement corrects our historical
lease accounting practices. See Note 2 of the accompanying Notes to
Consolidated Financial Statements for more information. We did not
amend our previously filed Annual Reports on Form 10-K or Quarterly
Reports on Form 10-Q for the restatement, and the financial
statements and related financial information contained in such
reports should no longer be relied upon.
Transportation. The Company generates transportation revenue by
providing over the road hauling services for customers primarily in
the petroleum products (Tank Lines) and building construction
materials industry (SunBelt). The majority of our petroleum products
customers are major oil companies and convenience store chains, who
sell gasoline or diesel fuel directly to the retail market. Our
customers in the building construction industries are generally the
manufacturer of the products who contract with us to deliver goods to
their customers or within their distribution systems.
Our customers generally pay for services based on miles driven. We
also bill for other services that may include stop-offs, pump-offs,
and load tarping. Additionally, we may bill customers a fuel
surcharge that relates to the fluctuations in diesel fuel costs.
Miles hauled and rates per mile are the primary factors impacting
transportation revenue. Generally, changes in miles or rates will
affect revenue. Given the large increases in diesel fuel costs over
the past 30 months, fuel surcharges have become a critical factor
affecting overall transportation revenue.
On long-haul trips we generally bill for miles driven while under
load. We calculate and monitor weekly a loaded mile factor, which is
the ratio of loaded miles to total miles. A decrease in the loaded
mile factor will have a negative effect on operating profit. SunBelt
is acutely affected by the loaded mile factors, as the majority of
its trips are medium-haul (approximately 350 miles). Tank Lines, on
the other hand, primarily engages in short-haul (approximately 95
miles) out-and-back deliveries and generally is paid for round trip
miles.
Operating safely, efficient equipment utilization, appropriate
freight rates, and driver retention are the most critical factors in
maintaining profitable operations. Statistics related to these
factors are monitored weekly and monthly. Operating expenses are
generally split evenly between variable (driver pay, fuel, and
maintenance) and fixed costs (overhead, insurance and depreciation).
As a result, increases in revenue will generally improve our
operating ratios.
During Fiscal 2005 we saw record diesel fuel costs as well as a
continuation of rising liability, workers compensation and health
care insurance costs. Due to related decreases in capacity in the
trucking industry and increased freight demand, we have been
successful in increasing freight rates and fuel surcharges. We are
monitoring legislative changes affecting the trucking industry,
notably hours-of-service rules and increased driver qualifications
for hazardous material transporting, to determine the effect on our
operations.
Real Estate. The Company owns real estate in Florida, Georgia,
Virginia, Maryland, Delaware, 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; and (iii)
land held for future appreciation or development.
Revenue from land and/or buildings under rental agreements is
generated primarily from leasing our portfolio of flex
office/warehouse buildings. Our flex office/warehouse product is a
functional warehouse with the ability to configure portions as office
space as required by our tenants. We lease space to tenants who
generally sign multiple year agreements. Growth is achieved by
increasing occupancy and lease rates in existing buildings and by
developing or acquiring new warehouses. We attempt to develop or
purchase properties in areas that have high growth potential and are
accessible to major interstates or other distribution lanes.
The following table shows the total developed square footage and occupancy
rates of our flex office/warehouse parks at September 30, 2005:
Total
Development Location Sq. feet % Occupied
Hillside Anne Arundel Co., MD 419,980 100.0%
Lakeside Harford Co., MD 671,550 93.6%
Tudsbury Baltimore Co., MD 86,100 100.0%
Dorsey Run (1) Howard Co., MD 84,600 0.0%
Rossville Baltimore Co., MD 190,517 87.0%
Loveton Baltimore Co., MD 29,722 100.0%
Oregon Anne Arundel Co., MD 195,615 92.5%
Arundel Howard Co., MD 162,796 71.4%
Interchange New Castle Co., DE 303,006 68.5%
Azalea Garden Norfolk, VA 188,093 100.0%
2,331,979 86.8%
(1) An agreement has been executed to lease 40,000 square feet
commencing on January 1, 2006.
In addition to the completed buildings, land is available to
construct additional buildings at Hillside Business Park (120,000
square feet) and Lakeside Business Park (485,000 square feet).
Current plans are to complete construction of an additional 80,000
square feet at Hillside in fiscal 2006.
We also own a portfolio of mineable land, substantially all of which
is leased to FRI under long-term mining royalty agreements, whereby
we are paid a percentage of the revenues generated from mined product
sold or annual minimum rents. The mines primarily consist of
construction aggregates, such as stone and sand and calcium deposits.
Properties held for future development include:
Bird River in southeastern Baltimore County is a 179-acre tract
currently zoned for residential and commercial use with 104
developable acres. The Company has a contract to develop and sell to
a major national homebuilder a minimum of 292 residential lots. The
Company plans to develop approximately 515,000 square feet of
multiple warehouse/office buildings on the 42 developable acres zoned
for commercial use.
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 a nearby 2.1 acre tract on the same bank of the Anacostia River.
Currently, these properties are leased to FRI on a month-to-month basis.
For several years, the Real Estate Group has been pursuing development
efforts with respect to the 5.8 acre parcel. The Company previously
obtained Planned Unit Development (PUD) Zoning approval for development
of the property and has been working to obtain approval of a modified
PUD that would allow up to 625,000 square feet of commercial development
and up to 440,000 square feet of residential development. If the
modified PUD is approved, the Company would have up to two years to
commence development in accordance with the modified PUD.
The development of this property is likely to be impacted, at least to
some degree, by the proposed construction on nearby property of a new
baseball stadium for the Washington Nationals baseball team. While the
Company currently believes that the construction of this proposed
stadium would be a positive development for the property, the Company
cannot yet determine the potential impact on its development plans if
the stadium is built at the proposed location. The Company will monitor
ongoing developments relating to the stadium while continuing to pursue
its existing plans to develop the property.
Commonwealth Avenue is a 50-acre, rail accessible site in
Jacksonville, Florida near the western beltway of Interstate-295
capable of supporting approximately 500,000 square feet of
warehouse/office build-out.
COMPARATIVE RESULTS OF OPERATIONS
Transportation
Fiscal Years ended September 30
(dollars in thousands) 2005 % 2004 % 2003 %
Transportation revenue $101,934 90% 94,786 95% 85,028 97%
Fuel surcharges 10,890 10% 4,638 5% 2,968 3%
Revenues 112,824 100% 99,424 100% 87,996 100%
Compensation and benefits 44,185 39% 40,779 41% 37,192 42%
Fuel expenses 21,555 19% 14,779 15% 12,320 14%
Insurance and losses 11,925 11% 11,462 12% 11,144 13%
Depreciation expense 7,920 7% 7,875 8% 8,171 9%
Other, net 12,499 11% 11,317 11% 10,129 12%
Cost of operations 98,084 87% 86,212 87% 78,956 90%
Gross profit $ 14,740 13% 13,212 13% 9,040 10%
The Transportation group's goals for 2005 were to operate safely,
improve freight rates and fuel surcharges, recruit and retain
qualified drivers and maximize equipment utilization.
Revenues 2005 vs 2004 - Transportation segment revenues were
$112,824,000, an increase of $13,400,000 or 13.5% over last year. The
average price paid per gallon of diesel fuel increased $0.55 over
2004 and as a result fuel surcharge revenue increased $6,252,000.
Excluding fuel surcharges, revenue per mile increased 5.1%,
reflecting better pricing for our services. Revenue miles in the
current year were up 2.3% compared to 2004 and were constrained by
low driver availability.
Revenues 2004 vs 2003 - Transportation segment revenues were
$99,424,000, an increase of $11,428,000 or 13.0% over 2003.
Transportation revenues increased $6,937,000 mostly due to an 8.8%
increase in revenue miles, reflecting increased customer demand for
transportation services. The increased demand also allowed better
pricing for our services and as a result, average revenue per mile
excluding fuel surcharge increased 2.5%. The average price paid per
gallon of diesel fuel increased $0.17 and as a result fuel surcharge
revenue increased $1,670,000.
Expenses 2005 vs 2004 - Transportation's cost of operations increased
$11,872,000 to $98,084,000 in 2005, compared to $86,212,000 in 2004.
The primary factors for the increase were increased miles, higher
diesel fuel costs and an increase in risk insurance costs. Average
diesel fuel cost per gallon increased 36.2% in 2005 compared to 2004.
Compensation and benefits were higher as a result of increased
revenue miles and higher driver pay. As a percent of revenue cost of
operations remained constant.
Expenses 2004 vs 2003 - Transportation's cost of operations increased
$7,256,000 to $86,212,000 in 2004, compared to $78,956,000 in 2003.
The 9.2% increase was primarily due to an increase in driver
compensation and increased fuel costs related to increased miles and
a $.17 increase in the average price paid per gallon of diesel fuel
from 2003 to 2004.
Real Estate
Fiscal Years ended September 30
(dollars in thousands) 2005 % 2004 % 2003 %
(restated) (restated)
Royalties and rent $ 6,143 34% 5,822 36% 5,572 39%
Developed property rentals 12,069 66% 10,543 64% 8,925 61%
Property sales - 0% - 0% 68 0%
Total revenue 18,212 100% 16,365 100% 14,565 100%
Mining and land rent expenses 1,378 8% 1,887 12% 1,806 12%
Developed property management 6,581 36% 5,208 32% 4,188 29%
Cost of property sold - 0% - 0% 21 0%
Cost of operations 7,959 44% 7,095 43% 6,015 41%
Gross profit $ 10,253 56% 9,270 57% 8,550 59%
Revenues 2005 vs 2004 - Real Estate revenues increased $1,847,000 or
11.3% in 2005 to $18,212,000. Lease revenues from developed
properties increased $1,526,000 or 14.5% due to an increase in
occupied square feet resulting from the completion of a pre-leased
74,600 square foot building in January 2005, the purchase of a fully
leased 188,000 square foot building in October 2004, and the
completion of a pre-leased 145,180 square foot building in July 2005.
Royalties from mining operations increased 5.5% during 2005 as a
result of increased royalties per ton.
Revenues 2004 vs 2003 - Real Estate revenues increased $1,800,000 or
12.4% in 2004 to $16,365,000. Lease revenues from developed
properties increased 18.1% due to the completion of a 200,200 square
foot building at the Hillside Business Park in late fiscal 2003 and
the purchase of a 151,000 square foot building at Interchange
Boulevard in Newark, Delaware in March of 2004. Both were fully
leased during the year. Royalties from mining operations increased
4.5% during 2004.
Expenses 2005 vs 2004 - Real Estate segment expenses increased
slightly to $7,959,000 in 2005, compared to $7,095,000 in 2004.
Expenses related to development activities increased as a result of
the new building additions.
Expenses 2004 vs 2003 - Real Estate cost of operations increased
$1,080,000 to $7,095,000 in 2004, compared to $6,015,000 in 2003. The
increase is due primarily to operating expenses related to the
completed building at Hillside and the two purchased buildings at
Interchange Boulevard.
Consolidated Results
Gross Profit - Consolidated gross profit was $24,993,000 in 2005
compared to $22,482,000 in 2004, an increase of 11.2%. Consolidated
gross profit was $22,482,000 in 2004 compared to $17,590,000 in 2003,
an increase of 27.8%.
Selling, general and administrative expense - Selling, general and
administrative expenses for 2005 increased $750,000 to $9,802,000 or
7.5% of consolidated revenues. The increase was due to professional
fees, management incentive compensation, and additional staffing.
Selling, general and administrative expenses for 2004 increased
$899,000 or 11% to $9,052,000 or 7.8% of consolidated revenues,
primarily due to the accrual of management incentive compensation,
which is based on the Company achieving certain profitability
targets.
Interest expense - Interest expense for 2005 decreased $631,000 to
$3,276,000 due to prepayment in 2004 of high rate long-term debt and
lower average borrowings under the revolving credit agreement.
Interest expense increased $410,000 in 2004 from 2003 due to lower
capitalized interest cost and higher average interest rates.
Income taxes - Income tax expense increased $457,000 to $4,336,000
compared to $3,879,000 in 2004. This is due to higher earnings
before taxes, partially offset by a decrease in the effective tax
rate to 36.3% versus 39.0% last year. The decrease in the effective
tax rate was due to a $203,000 reduction in state income tax reserves
from the expiration of certain contingencies. Income tax expense
increased $1,561,000 to $3,879,000 in 2004 compared to $2,318,000 in
2003 due to higher earnings in 2004.
Income from continuing operations - Income from continuing operations
was $7,609,000 or $2.50 per diluted share in fiscal 2005, an increase
of 24.8% compared to $6,096,000 or $2.05 per diluted share in fiscal
2004. Income from continuing operations increased 68.1% in 2004 from
$3,627,000 or $1.18 per diluted share in fiscal 2003.
Discontinued Operations - The Company had one sale of real estate in
2003 and three sales of real estate in 2004 which have been accounted
for as discontinued operations, in accordance with SFAS 144. The
income from the operations and gains on sale of these components have
been reflected in the consolidated income statement as income from
discontinued operations, net of income taxes.
The after-tax gain from the sale of the properties in 2004 and 2003
was $14,456,000 and $657,000, respectively. The after-tax net income
from the operations of the sold properties was $188,000 and $366,000
for 2004 and 2003, respectively.
Net income - Net income decreased to $7,609,000 in fiscal 2005 from
$20,740,000 in 2004 as a result of the gains from property sales in
2004 classified as discontinued operations. Fiscal 2004 net income
was up from $4,650,000 in 2003 due to the improved results from
continuing operations and the property sales. Diluted earnings per
share decreased to $2.50 in fiscal 2005 from $6.97 in 2004, and were
$1.51 in 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in 2005 was $10,535,000,
which together with $1,377,000 from the sales of property and
equipment, $16,553,000 of cash released from escrow, $877,000 in
stock options exercised and $7,003,000 in additional long-term
borrowings, funded the $28,574,000 purchase of property and
equipment, and the $5,004,000 reduction in revolving debt and
amortization of long-term debt.
Net cash provided by operating activities during 2004 was
$17,050,000, which together with $30,600,000 from sales of property
and equipment and $11,213,000 in additional borrowings, funded the
$21,969,000 purchase of property and equipment, $21,673,000 in
reduction of debt, and the repurchase of $2,510,000 of Company stock.
During 2003 and 2004 the Company sold four properties for $31,464,000
in cash, resulting in before tax gains of $24,729,000. The net
proceeds of $31,172,000 from the sale of these properties were placed
in escrow in anticipation of utilizing the funds to purchase
replacement property in tax deferred exchanges under IRC Section
1031. Due to a competitive real estate market for suitable exchange
properties, not all of the gains resulting from the property sales
could be utilized under Section 1031. During fiscal 2004, $11,417,000
was used in qualified exchanges and $3,265,000 was released from
escrow for general use leaving a balance in escrow of $16,553,000 at
September 30, 2004. On October 1, 2004, $7,150,000 of the escrowed
funds were used in a qualified exchange and the remaining funds of
$9,340,000 were released for general use.
The Company obtained an $8,500,000 mortgage loan secured by a
building completed in 2003 and also obtained construction financing
for an ongoing project. Draws on the construction financing totaled
$9,716,000 at September 30, 2005. These borrowings, combined with
operating cash flows helped the Company reduce amounts borrowed under
the revolver to zero.
The Company has a $37,000,000 revolving credit agreement (the
Revolver) of which $37,000,000 was available at fiscal year end. The
Revolver contains restrictive covenants including limitations on
paying cash dividends. Under these restrictions, as of September 30,
2005, $18,880,000 of consolidated retained earnings was available for
payment of dividends. The Revolver was set to expire on December 31,
2004 but on November 10, 2004 was amended and restated with
essentially the same terms and conditions except that the termination
date was extended to December 31, 2009.
The Company had $14,739,000 of irrevocable letters of credit
outstanding at September 30, 2005. Most of the letters of credit are
irrevocable for a period of one year and are automatically extended
for additional one-year periods unless notified by the issuing bank
not less than thirty days before the expiration date. 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. No shares were repurchased during Fiscal 2005. During Fiscal
2004, the company repurchased 77,533 shares for approximately
$2,510,000 at an average price of $32.37 per share. At September 30,
2005 the Company had $3,490,000 authorized for repurchase of shares.
The Company currently expects its Fiscal 2006 capital expenditures to
be approximately $42,000,000 ($26,000,000 for real estate development
expansion and $16,000,000 for transportation segment expansion and
replacement equipment). Depreciation and depletion expense will be
approximately $12,905,000. The Company expects to finance the
expenditures from the cash flows from operating activities, secured
financing on new real estate projects, and the $37,000,000 available
under its revolving credit agreement.
OFF-BALANCE SHEET ARRANGEMENTS
Except for the letters of credit described above under "Liquidity and
Capital Resources," the Company does not have any off balance sheet
arrangements that either have, or are reasonably likely to have, a
current or future material effect on its financial condition.
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 that could affect the collection
of outstanding accounts receivable and straight-lined rents. 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 and straight-lined rents is
evaluated and allowances are recorded as appropriate.
Revenue and Expense Recognition. Transportation revenue, including
fuel surcharges, is recognized when there is an agreement in place,
the services have been rendered to customers or delivery has
occurred, the pricing is fixed or determinable and collectibility is
reasonably assured. Transportation expenses are recognized as
incurred.
Real estate rental revenue and mining royalties are generally
recognized when earned under the leases. Rental income from leases
with scheduled increases during their term is recognized on a
straight-line basis over the term of the lease. Reimbursements of
expenses, when provided in the lease, are recognized in the period
that the expenses are incurred.
Sales of real estate are recognized when the collection of the sales
price is reasonably assured and when the Company has fulfilled
substantially all of its obligations, which are typically as of the
closing date.
Property and Equipment. Property 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 7-10
Other equipment 3-10
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 and equipment and
intangible assets for potential impairment. If this review
indicated that the carrying amount of the asset may not be
recoverable, the Company would estimate 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 would record an impairment loss based on the fair value
of the asset. The Company performs an annual impairment test on
goodwill.
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.
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.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of
September 30, 2005:
Payments due by period
Less than 1-3 3-5 More than
Total 1 year years years 5 years
Debt Including Interest $81,088 6,023 11,998 12,014 51,053
Operating Leases 519 296 223 - -
Purchase Commitments 8,167 8,167 - - -
Other Long-Term Liabilities 1,030 87 174 174 595
Total obligations $90,804 14,573 12,395 12,188 51,648
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
(In thousands except per share amounts)
2005 2004 2003
(restated) (restated)
Revenues:
Transportation $112,824 99,424 87,996
Real estate 18,212 16,365 14,497
Sale of real estate - - 68
Total revenues (including revenue from
related parties of $6,728, $7,623 and
$7,305, respectively) 131,036 115,789 102,561
Cost of operations:
Transportation 98,084 86,212 78,956
Real estate 7,959 7,095 5,994
Cost of real estate sold - - 21
Gross profit 24,993 22,482 17,590
Selling, general and administrative expense
(including expenses paid to related party
of $174, $372 and $440, respectively) 9,802 9,052 8,153
Operating profit 15,191 13,430 9,437
Interest income and other 30 452 5
Interest expense (3,276) (3,907) (3,497)
Income from continuing operations
before income taxes 11,945 9,975 5,945
Provision for income taxes 4,336 3,879 2,318
Income from continuing operations 7,609 6,096 3,627
Discontinued operations (Note 4):
Income from operations, net of tax - 188 366
Gain on sale of properties, net of tax - 14,456 657
Discontinued operations - 14,644 1,023
Net income $ 7,609 20,740 4,650
Basic earnings per common share:
Income from continuing operations $ 2.58 2.08 1.19
Discontinued operations - 5.00 .34
Net income $ 2.58 7.08 1.53
Diluted earnings per common share:
Income from continuing operations $ 2.50 2.05 1.18
Discontinued operations - 4.92 .33
Net income $ 2.50 6.97 1.51
Number of shares (in thousands) used in computing:
- basic earnings per common share 2,950 2,931 3,033
- diluted earnings per common share 3,039 2,976 3,066
See accompanying notes.
CONSOLIDATED BALANCE SHEETS - As of September 30, (In thousands, except share
data)
2005 2004
(restated)
Assets
Current assets:
Cash and cash equivalents $ 2,966 199
Cash held in escrow - 16,553
Accounts receivable (including related party of
$288 and $344 and net of allowance for doubtful
accounts of $525 and $638, respectively) 11,731 9,123
Inventory of parts and supplies 799 642
Prepaid tires on equipment 1,959 1,930
Prepaid taxes and licenses 1,291 972
Prepaid insurance 259 504
Prepaid expenses, other 564 143
Total current assets 19,569 30,066
Property and equipment, at cost:
Land 62,304 56,045
Buildings 97,455 77,924
Equipment 79,167 73,838
Construction in progress 7,799 16,423
246,725 224,230
Less accumulated depreciation and depletion 81,789 75,219
164,936 149,011
Real estate held for investment, at cost 1,093 1,093
Goodwill 1,087 1,087
Other assets 7,030 5,564
Total assets $193,715 186,821
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,674 3,072
Federal and state income taxes payable 642 6,799
Accrued payroll 3,247 2,757
Accrued insurance reserves 3,774 2,188
Accrued liabilities, other 452 567
Short-term notes payable - 5,914
Long-term debt due within one year 2,432 1,802
Total current liabilities 16,221 23,099
Long-term debt 48,468 41,185
Deferred income taxes 14,394 16,309
Accrued insurance reserves 4,993 5,689
Other liabilities 1,738 1,567
Commitments and contingencies (Notes 15 and 16)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized; 2,965,075
and 2,929,075 shares issued and
outstanding, respectively 297 293
Capital in excess of par value 27,100 25,784
Retained earnings 80,504 72,895
Total shareholders' equity 107,901 98,972
Total liabilities and shareholders' equity $193,715 186,821
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30,
(In thousands)
Cash flows from operating activities: 2005 2004 2003
(restated) (restated)
Net income $ 7,609 20,740 4,650
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 12,479 12,230 11,956
Deferred income taxes (2,421) 4,916 925
Gain on sale of real estate and equipment (757) (24,055) (210)
Tax benefit from stock option exercise 443 339 57
Net changes in operating assets and liabilities:
Accounts receivable (2,608) (1,791) 12
Income taxes receivable - - 8
Inventory of parts and supplies (157) 28 (37)
Prepaid expenses and other current assets (132) (138) (435)
Other assets (1,916) (883) (826)
Accounts payable and accrued liabilities 4,677 (994) (1,173)
Income taxes payable (6,157) 6,793 6
Net change in insurance reserves and other
long-term liabilities (525) (135) 412
Net cash provided by operating activities 10,535 17,050 15,345
Cash flows from investing activities:
Purchase of property and equipment (28,574) (21,969)(20,413)
Cash released from (placed in) escrow 16,553 (14,758) (1,795)
Proceeds from the sale of real estate held for
investment and property and equipment 1,377 30,600 2,094
Net cash used in investing activities (10,644) (6,127)(20,114)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 7,003 11,213 4,600
Net(decrease) increase in revolving debt (3,201) (16,799) 7,500
Repayment of long-term debt (1,803) (4,874) (1,340)
Exercise of employee stock options 877 1,489 355
Repurchase of Company stock - (2,510) (6,118)
Net cash provided by (used in)
financing activities 2,876 (11,481) 4,997
Net increase (decrease) in
cash and cash equivalents 2,767 (558) 228
Cash and cash equivalents at beginning of year 199 757 529
Cash and cash equivalents at end of year $ 2,966 199 757
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,272 3,977 3,477
Income taxes $ 12,472 1,159 2,004
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended September 30
(In thousands, except share amounts)
Capital in
Common Stock Excess of Retained
Shares Amount Par Value Earnings
Balance at October 1, 2002(restated) 3,159,008 $316 $26,250 $53,404
Shares purchased and retired (246,300) (25) (2,046) (4,047)
Exercise of stock options 20,000 2 410 -
Net income (restated) - - - 4,650
Balance at September 30, 2003(restated) 2,932,708 293 24,614 54,007
Shares purchased and retired (77,533) (7) (651) (1,852)
Exercise of stock options 73,900 7 1,821 -
Net income - - - 20,740
Balance at September 30, 2004(restated) 2,929,075 293 25,784 72,895
Exercise of stock options 36,000 4 1,316 -
Net income - - - 7,609
Balance at September 30, 2005 2,965,075 $297 $27,100 $80,504
See accompanying notes.
NOTES TO CONSOLDIATED 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. (Tank Lines) is a Southeastern transportation company
concentrating in the hauling by motor carrier of primarily petroleum related
bulk liquids and dry bulk commodities. SunBelt Transport, Inc. (SunBelt)
serves the flatbed portion of the trucking industry primarily in the
Southeastern U.S., 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, including fuel
surcharges, is recognized when there is an agreement in place, the services
have been rendered to customers or delivery has occurred, the pricing is
fixed or determinable and collectibility is reasonably assured.
Transportation expenses are recognized as incurred.
Real estate rental revenue and mining royalties are generally recognized when
earned under the leases. Rental income from leases with scheduled increases
during their term is recognized on a straight-line basis over the term of the
lease. Reimbursements of expenses, when provided in the lease, are recognized
in the period that the expenses are incurred.
Sales of real estate are recognized when the collection of the sales price is
reasonably assured and when the Company has fulfilled substantially all of
its obligations, which are typically as of the closing date.
PROPERTY AND EQUIPMENT - Property 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 7-10
Other equipment 3-10
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 and equipment and intangible
assets for potential impairment. If this review indicated that the
carrying amount of the asset may not be recoverable, the Company would
estimate 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 would record an impairment loss based on the fair value
of the asset. The Company performs an annual impairment test on goodwill.
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 has historically accounted for its
employee stock compensation plans under APB Opinion No. 25. Effective
October 1, 2005 the Company will account for these options in accordance
with SFAS No. 123R. See Note 9 for pro forma disclosures of net income and
earnings per common 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 common share are based on
the weighted average number of common shares outstanding during the
periods. Diluted earnings per common 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 PRONOUNCEMENTS - In December 2004, the Financial Accounting
Standards Board (FASB) issued a revised Statement No. 123, Share-Based
Payment (SFAS 123R). This Statement establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for
goods and services, and affects the Company's accounting for its stock
option plans. The standard is effective for the Company at the beginning of
its next fiscal year (October 1, 2005). The Company intends to use the
modified prospective application, and therefore at the effective date
compensation costs shall be included in the determination of net income for
all new, modified, repurchased, or cancelled awards and all prior awards
whose requisite service conditions have not been met. Compensation costs to
be expensed upon adoption are the grant-date fair value of the stock option
awards. While we cannot determine the impact on future net earnings as a
result of the adoption of SFAS 123R, the estimated compensation expense
related to prior periods is presented in Note 9. The compensation expense
for future periods will be dependent on the number of options granted, the
market price of the common stock at the date of grant, the vesting period
and other factors. SFAS 123R also amends FASB Statement No. 95, Statement
of Cash Flows, to require that the benefits associated with the tax
deduction in excess of recognized compensation cost be reported as financing
cash flows, rather than as a reduction of taxes paid. This requirement will
reduce net operating cash flows and increase net financing cash flows in
periods after the effective date.
In December 2004, the FASB issued Statement No. 153, Exchanges of
Nonmonetary Assets (SFAS 153). This statement amends the guidance in APB
Opinion No. 29, "Accounting for Nonmonetary Transactions" to eliminate the
exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of SFAS 153 are
effective in fiscal periods beginning after June 15, 2005. The adoption of
SFAS 153 is not expected to have a material effect on the Company's
consolidated financial statements.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47), which clarifies that the
term "conditional asset retirement obligation" as used in FASB Statement No.
143, "Accounting for Asset Retirement Obligations", refers to a legal
obligation to perform an asset retirement activity in which the timing
and/or method of settlement are conditional on a future event that may or
may not be within the control of the entity. An entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated.
FIN 47 becomes effective for fiscal years ending after December 15, 2005.
The impact of this new pronouncement is not expected to be material to the
Company's financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to 2004 and
2003 financials to conform to the presentation adopted in 2005.
2. Restatement of Financial Statements.
In November 2005, the Company initiated a review of certain aspects of its
lease-related accounting practices. As a result of this review, the
Company changed its practice related to recognizing rental revenue for
scheduled rate increases on operating leases and restated certain
historical financial information for prior periods to correct these errors
in lease accounting.
Historically, the Company has recognized rental revenue for leases on a
cash basis for leases with scheduled annual rate increases of 3.5% or
less. Based on a re-examination of the applicable accounting literature,
including SFAS No. 13, Accounting for Leases, FASB Technical Bulletin No.
88-1, Issues Relating to Accounting for Leases, and FASB Technical
Bulletin 85-3, Accounting for Operating Leases With Scheduled Rent
Increases, the Company determined that the proper accounting practice is
to recognize rental revenue on a straight line basis over the contractual
term of the lease.
The Company restated its consolidated balance sheet as of September 30,
2004 and its consolidated statement of shareholders' equity for the year
then ended. The Company also restated its consolidated statements of
income, shareholders' equity and cash flows for the year ended September
30, 2003 to reflect these corrections. In addition, the Company restated
its quarterly results of operations for fiscal 2005. The restatement also
affected periods prior to fiscal 2003. The impact of the restatement on
such prior periods has been reflected as an adjustment of $810,000 to
retained earnings as of October 1, 2002 in the consolidated statements of
shareholders' equity. There were no differences related to corrections
reported in the consolidated statements of income or cash flows for the
year ended September 30, 2004. The Company has also updated the
disclosure in Notes (8, 9, 10 and 12) within these consolidated financial
statements to give effect to the restatement. As a result of this
restatement, the Company's financial results have been adjusted as follows
(in thousands, except per share data):
Year Ended September 30, 2004
As Previously
Reported Adjustments As Restated
Other assets $ 4,137 1,427 5,564
Deferred income taxes 15,767 542 16,309
Retained earnings 72,010 885 72,895
Total shareholders' equity 98,087 885 98,972
Year Ended September 30, 2003
As Previously
Reported Adjustments As Restated
Total revenues $ 102,440 121 102,561
Gross profit 17,469 121 17,590
Operating profit 9,316 121 9,437
Income from continuing
operations before tax 5,824 121 5,945
Provision for income taxes 2,272 46 2,318
Income from continuing
operations 3,552 75 3,627
Net income 4,575 75 4,650
Earnings per common share:
Basic $ 1.51 .02 1.53
Diluted $ 1.49 .02 1.51
Cash flows from
Operating activities:
Net income $ 4,575 75 4,650
Deferred income taxes 879 46 925
Net changes in operating
assets and liabilities:
Other assets (705) (121) (826)
Net cash provided by
Operating activities 15,345 - 15,345
3. Transactions with Related Parties.
As of September 30, 2005, four of the Company's directors were also
directors of Florida Rock Industries, Inc. ("FRI"). Such directors own
approximately 26.1% of the stock of FRI and 49.5% 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. The real estate subsidiaries lease certain
construction aggregates mining and other properties to FRI.
A summary of revenues derived from FRI follows (in thousands):
2005 2004 2003
Transportation $ 1,217 1,711 1,367
Real estate 5,511 5,912 5,938
$ 6,728 7,623 7,305
Included in the 2004 and 2003 revenues are $498,000 and $863,000,
respectively, of Real Estate revenues derived from FRI that have been
reclassified to discontinued operations on the Consolidated Statements of
Income.
The Company outsources certain functions to FRI, including some
administrative, human resources, legal and risk management. Charges for
services provided by FRI were $174,000 in 2005, $372,000 in 2004, and
$440,000 in 2003.
During 2003 and 2004, the Company closed on previously announced agreements to
sell several tracts of land to FRI as follows:
St. Mary's County, Maryland. On September 30, 2003, a subsidiary sold 796
acres of land located in St. Mary's County, Maryland to FRI for $1,836,000 in
cash resulting in a gain of $657,000, after income taxes of $420,000. A
committee of independent directors of the Company approved the sale after
review of a developed feasibility study and other materials, consultation with
management and advice from independent counsel.
Lake City, Florida. On March 30, 2004, a subsidiary sold a parcel of land and
improvements containing approximately 6,321 acres in Suwannee and Columbia
Counties, near Lake City, Florida to a subsidiary of FRI for $13,000,000 in
cash, resulting in a gain of $5,574,000 after income taxes of $3,546,000. The
sales price was approved by the Company's Audit Committee after considering
among other factors, an independent appraisal, and the current use of the
property and consultation with management.
Springfield, Virginia. On May 7, 2004 a subsidiary of the Company sold 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 in cash resulting in a
gain of $7,895,000, after income taxes of $5,023,000. The sales price 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.
Miami, Florida. Also on May 7, 2004, a subsidiary of the Company sold a 935
acre parcel of property in Miami, Florida to FRI for $1,628,000 in cash,
resulting in a gain of $987,000, after income taxes of $627,000. The property
is principally composed of mined-out lakes, mitigation areas, 145 acres of
mineable land and 32 acres of roads and railroad track rights-of-way. The
terms of the sale were approved by the Company's Audit Committee after
considering, among other factors, the terms of the existing lease agreement
and consultation with management.
See Note 4 for further information regarding the accounting for the sales of
these properties as discontinued operations.
4. Discontinued Operations.
As discussed in Note 3, during the fiscal years ended September 30, 2004
and 2003, the Company sold several tracts of land, which were accounted for
as discontinued operations in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144). All periods presented have been restated
accordingly. A summary of discontinued operations is as follows (in
thousands):
2005 2004 2003
Royalty and rental income $ - 498 863
Operating expenses - 190 264
Income before income taxes - 308 599
Income taxes - (120) (233)
Income from discontinued operations $ - 188 366
Gain from sale of
discontinued properties $ - 23,652 1,077
Income taxes - (9,196) (420)
Net gain from sale of
discontinued properties $ - 14,456 657
5. Debt.
Debt at September 30 is summarized as follows (in thousands):
2005 2004
Revolving credit (uncollateralized) $ - 3,201
Construction loan 9,716 2,713
5.7% to 9.5% mortgage notes,
due in installments through 2020 41,184 42,987
50,900 48,901
Less portion due within one year 2,432 7,716
$48,468 41,185
The aggregate amount of principal payments, excluding the revolving credit,
due subsequent to September 30, 2005 is: 2006 - $2,432,000; 2007 - $2,584,000;
2008 - $2,769,000; 2009 - $2,968,000; 2010 - $3,201,000; 2011 and subsequent
years - $36,946,000.
The Company has a $37,000,000 uncollaterized Revolving Credit Agreement with
four banks which was to terminate on December 31, 2004. On November 10, 2004,
the Company and the four banks entered into an Amended and Restated Revolving
Credit Agreement (the Revolver) with essentially the same terms and conditions
except that the termination date was extended to December 31, 2009. The
Revolver bears interest at an initial rate of 1% over the selected LIBOR. The
margin rate may change quarterly based on the Company's ratio of Consolidated
Total Debt to Consolidated Total Capital, as defined. An initial commitment
fee of 0.15% per annum is payable quarterly on the unused portion of the
commitment. The commitment fee may also change quarterly based upon the ratio
described above. The Revolver contains restrictive covenants including
limitations on paying cash dividends. Under these restrictions, as of
September 30, 2005, $18,880,000 of consolidated retained earnings would be
available for payment of dividends. The Company is in compliance with all
restrictive covenants as of September 30, 2005.
During the fourth quarter of fiscal 2004, a subsidiary of the Company obtained
a construction loan to fund the development of a pre-leased 145,000 square
foot office/warehouse. As of September 30, 2005, $9,716,000 was borrowed under
the loan. The terms of the construction financing are for borrowings not to
exceed $11,800,000 for a period not to exceed 18 months converting to a 15
year non-recourse mortgage at project completion. The interest rate is 6.12%
for both the construction and mortgage loans.
The non-recourse fully amortizing mortgage notes payable are collateralized
by real estate having a carrying value of approximately $58,812,000 at
September 30, 2005.
Certain properties having a carrying value at September 30, 2005 of
$714,000 are encumbered by $1,300,000 of 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 2005, 2004 and 2003 the Company capitalized interest costs of
$305,000, $10,000 and $182,000, respectively.
The Company had $14,739,000 of irrevocable letters of credit outstanding at
September 30, 2005. Most of the letters of credit are irrevocable for a
period of one year and are automatically extended for additional one-year
periods unless notified by the issuing bank not less than thirty days before
the expiration date. 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.
6. Leases.
At September 30, 2005, 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 $ 31,372
Commercial property 131,716
Land and other property 1,145
164,233
Less accumulated depreciation and depletion 29,816
$134,417
The minimum future straight-lined rentals due the Company on noncancelable
leases as of September 30, 2005 are as follows: 2006 - $12,082,000; 2007 -
$10,988,000; 2008 - $9,819,000; 2009 - $8,339,000; 2010 - $7,451,000; 2011
and subsequent years $36,790,000.
7. 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.
8. Earnings Per Share.
The following details the computations of the basic and diluted earnings per
common share. (Dollars in thousands, except per share amounts.)
Years Ended September 30
2005 2004 2003
(restated)
Common shares:
Weighted average common shares
outstanding during the period -
shares used for basic earnings
per common share 2,950 2,931 3,033
Common shares issuable under stock
options which are potentially
dilutive 89 45 33
Common shares used for diluted
earnings per common share 3,039 2,976 3,066
Income from continuing operations $ 7,609 6,096 3,627
Discontinued operations - 14,644 1,023
Net income $ 7,609 20,740 4,650
Basic earnings per common share:
Income from continuing operations $2.58 2.08 1.19
Discontinued operations - 5.00 .34
Net income $2.58 7.08 1.53
Diluted earnings per common share:
Income from continuing operations $2.50 2.05 1.18
Discontinued operations - 4.92 .33
Net income $2.50 6.97 1.51
For 2005, 2004 and 2003, all outstanding stock options were included in the
calculation of diluted earnings per share because the exercise prices of the
stock options were lower than the average price of the common shares, and
therefore were dilutive.
9. 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% at the
end of each year following the date of grant. Options awarded in 2005
included 74,000 to officers and key employees and 42,000 to directors.
Options awarded in 2004 included 10,000 to an officer and 41,000 to
directors. Options awarded in 2003 included 140,000 to officers and key
employees and 42,000 to directors.
At September 30, 2005, there were 337,900 options outstanding.
Option transactions for the fiscal years ended September 30 are summarized
as follows:
Options Weighted Average
Outstanding Exercise Price
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
Granted 51,000 31.20
Cancelled (9,400) 22.23
Exercised (73,900) 20.15
Balance at September 30, 2004 267,200 23.99
Granted 116,000 44.38
Cancelled (9,300) 32.52
Exercised (36,000) 24.38
Balance at September 30, 2005 337,900 $ 30.72
The following table summarizes information concerning stock options
outstanding at September 30, 2005:
Shares Weighted Weighted
Range of Exercise under Average Average
Prices per Share Option Exercise Price Remaining Life
Non-exercisable:
$22.23 - $43.50 112,180 $ 35.82 8.5 years
Exercisable:
$15.13 - $22.66 106,620 20.56 6.6
$23.77 - $34.00 86,100 29.57 7.8
$44.50 - $60.40 33,000 49.19 9.5
225,720 $ 28.18 7.5 years
Total 337,900 $ 30.72 7.8 years
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):
2005 2004 2003
(restated)
Net income
As reported $ 7,609 20,740 4,650
Deduct: Total stock-based
employee compensation expense
determined under fair value based
method, net of tax effects 905 626 546
Pro forma $ 6,704 20,114 4,104
Basic earnings per common share
As reported $ 2.58 7.08 1.53
Pro forma $ 2.27 6.86 1.35
Diluted earnings per common share
As reported $ 2.50 6.97 1.51
Pro forma $ 2.21 6.76 1.34
The weighted average fair value of options granted in 2003 was estimated to
be $13.51 on the date of grant using the following assumptions; no dividend
yield, expected volatility of 52.6%, risk-free interest rates of 4.5% and
expected lives of 7 years. The weighted average fair value of options
granted in 2004 was estimated to be $16.32 on the date of grant using the
following assumptions; no dividend yield, expected volatility of 45.1%,
risk-free interest rates of 3.9% and expected lives of 7 years. The
weighted average fair value of options granted in 2005 was estimated to be
$21.00 on the date of grant using the following assumptions; no dividend
yield, expected volatility of 41.6%, risk-free interest rates of 4.0% and
expected useful lives of 7 and 6.2 years.
10. Income Taxes.
The provision for income taxes for continuing operations for fiscal years
ended September 30 consists of the following (in thousands):
2005 2004 2003
(restated)
Current:
Federal $5,540 2,720 1,592
State 1,217 445 262
6,757 3,165 1,854
Deferred:
Federal (1,871) 605 395
State (550) 109 69
(2,421) 714 464
Total $4,336 3,879 2,318
A reconciliation between the amount of tax shown above and the amount
computed at the statutory Federal income tax rate follows (in thousands):
2005 2004 2003
(restated)
Amount computed at statutory
Federal rate $4,061 3,491 2,021
State income taxes (net of Federal
income tax benefit) 441 362 216
Other, net (166) 26 81
Provision for income taxes $4,336 3,879 2,318
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:
2005 2004
(restated)
Deferred tax liabilities:
Property and equipment $16,225 18,382
Depletion 604 570
Prepaid expenses 1,206 1,181
Gross deferred tax liabilities 18,035 20,133
Deferred tax assets:
Insurance reserves 3,083 2,745
Other, net 950 965
Gross deferred tax assets 4,033 3,710
Net deferred tax liability $14,002 16,423
11. 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 which 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 $694,000 in 2005, $649,000 in 2004 and
$591,000 in 2003.
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 accrued postretirement benefit cost as of September 30, 2005 and 2004
was $536,000 and $564,000, respectively. The net periodic postretirement
benefit cost was $10,000, $2,000 and $5,000 for fiscal 2005, 2004, and
2003, respectively. The discount rate used in determining the Net Periodic
Postretirement Benefit Cost was 6.0% for 2005, 5.75% for 2004 and 7.0% for
2003. The Accumulated Postretirement Benefit Obligation (APBO) was 5.0% for
2005, 6.0% for 2004 and 5.75% for 2003. No medical trend is applicable
because the Company's share of the cost is frozen.
12. 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):
2005 2004 2003
(restated) (restated)
Revenues:
Transportation $112,824 99,424 87,996
Real estate (a) 18,212 16,365 14,565
$131,036 115,789 102,561
Operating profit:
Transportation $ 6,587 5,625 2,360
Real estate (a) 10,253 9,269 8,550
Corporate expenses (1,649) (1,464) (1,473)
$ 15,191 13,430 9,437
Capital expenditures:
Transportation $ 11,063 4,350 7,086
Real estate 17,511 17,619 13,327
$ 28,574 21,969 20,413
Depreciation, depletion and
amortization:
Transportation $ 8,166 8,200 8,510
Real estate 4,086 3,782 3,211
Other 227 248 235
$ 12,479 12,230 11,956
Identifiable assets at September 30:
Transportation $ 47,435 42,479 45,055
Real estate 141,646 126,457 117,696
Cash 2,966 16,752 2,552
Unallocated corporate assets 1,668 1,133 1,340
$193,715 186,821 166,643
(a) Fiscal 2003 includes revenue of $68,000 and operating profit of $47,000
from the sale of real estate.
13. Cash Held in Escrow.
At September 30, 2004, the Company had $16,553,000 of cash held in escrow
accounts. Proceeds from the sales of certain properties were placed in the
escrow accounts in anticipation of reinvesting these proceeds in tax-deferred
exchanges under Section 1031 of the United States Internal Revenue Code.
Subsequent to the fiscal year end, $7,150,000 of the escrowed funds was used
in a qualified exchange and the remaining funds of $9,340,000 were released
for general use.
14. Fair Values of Financial Instruments.
At September 30, 2005 and 2004, the carrying amount reported in the
consolidated balance sheets for cash and cash equivalents, short-term notes
payable and revolving credit approximate their fair value. The fair values
of the Company's other long-term debt were estimated based on current rates
available to the Company for debt of the same remaining maturities. At
September 30, 2005, the carrying amount and fair value of such other long
term debt was $50,900,000 and $52,976,000, respectively. At September 30,
2004, the carrying amount and fair value of other long term debt was
$45,700,000 and $47,859,000, respectively.
15. 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.
16. Commitments.
The Company, at September 30, 2005, had entered into various contracts to
develop real estate with remaining commitments totaling $1,231,000, and to
purchase transportation equipment for approximately $6,936,000.
A subsidiary of the Company has entered into an agreement to develop and sell
to a major national homebuilder a minimum of 292 residential lots on the
residential portion of the Bird River Property. The agreement is subject to a
number of contingencies, including (i) the approval by Baltimore County of a
Planned Unit Development (PUD) by July 1, 2006 allowing the development of a
minimum of 292 residential lots, (ii) the construction of Route 43, (iii)
vehicular, water and sewer connection access to the property by July 1, 2007
at what the subsidiary deems to be a commercially reasonable cost, and (iv)
other customary conditions precedent. Assuming that these conditions are
satisfied and the development proceeds, the agreement provides for a minimum
aggregate purchase price for these lots of $28,705,000.
17. Customer Concentration.
During Fiscal 2005, the transportation segment's ten largest customers
accounted for approximately 44.2% of the transportation segment's revenue.
One of these customers accounted for 11.4% 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.
Report of Independent Registered Certified Public Accounting Firm
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, 2005 and
2004, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2005 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 the standards of the Public Company Accounting Oversight
Board (United States). 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, 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.
As described in Note 2, the consolidated financial statements for the years
ended September 30, 2004 and 2003 have been restated.
PricewaterhouseCoopers LLP
December 22, 2005
Jacksonville, Florida
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.
Charles E. Commander III (2)(4)
Partner, Jacksonville office
Foley & Lardner
Luke E. Fichthorn III
Private Investment Banker,
Twain Associates and Chairman of the
Board and Chief Executive Officer of
Bairnco Corporation
Robert H. Paul III (2)(3)(4)
Chairman of the Board of
Southeast-Atlantic Beverage Corporation
H. W. Shad III (2)
Management Consulting and Business Valuations
Mike Shad, P.L.
Martin E. Stein, Jr. (3)(4)
Chairman and Chief Executive Officer of
Regency Centers Corporation
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
(4) Member of the Nominating 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. and
Florida Rock Properties, Inc.
Ray M. Van Landingham
Vice President, Treasurer, Secretary
and Chief Financial Officer
John D. Klopfenstein
Controller and Chief Accounting Officer
Terry S. Phipps
President, SunBelt Transport, Inc.
Robert E. Sandlin
President, Florida Rock & Tank Lines, Inc.
Patriot Transportation Holding, Inc.
1801 Art Museum Drive, Suite 300
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 1, 2006, at
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
McGuireWoods LLP
Jacksonville, Florida
Independent Registered Certified Public Accounting Firm
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, 2005 as filed with the Securities and Exchange Commission by
writing to the Treasurer at 1801 Art Museum Drive, Suite 300, Jacksonville,
Florida 32207.