FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-26115
PATRIOT TRANSPORTATION HOLDING, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2924957
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
1801 Art Museum Drive, Jacksonville, Florida 32207
(Address of principal executive offices)
(Zip Code)
904/396-5733
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No___
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer[ ] Accelerated filer[ ] Non-accelerated
filer[X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES___ NO_X_
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of June 30, 2006: 3,011,789 shares of $.10
par value common stock.
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2006
CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Condensed Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risks 24
Item 4. Controls and Procedures 25
Part II. Other Information
Item 6. Exhibits 26
Signatures 27
Exhibit 31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 32
Exhibit 32 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 35
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, September 30,
2006 2005
Assets
Current assets:
Cash and cash equivalents $ 658 2,966
Accounts receivable (including related party of
$616 and $288 and net of allowance for doubtful
accounts of $375 and $525, respectively) 10,851 11,731
Inventory of parts and supplies 755 799
Prepaid tires on equipment 2,107 1,959
Prepaid taxes and licenses 242 1,291
Prepaid insurance 1,230 259
Prepaid expenses, other 1,039 564
Total current assets 16,882 19,569
Property, plant and equipment, at cost 271,292 246,725
Less accumulated depreciation and depletion (85,295) (81,789)
Net property, plant and equipment 185,997 164,936
Real estate held for investment, at cost 1,093 1,093
Goodwill 1,087 1,087
Unrealized rents 2,052 1,608
Other assets 5,396 5,422
Total assets $212,507 193,715
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,341 5,674
Federal and state income taxes payable 2,005 642
Accrued payroll 3,991 3,247
Accrued insurance reserves 4,753 3,774
Accrued liabilities, other 358 452
Long-term debt due within one year 2,517 2,432
Total current liabilities 18,965 16,221
Long-term debt 57,192 48,468
Deferred income taxes 14,080 14,394
Accrued insurance reserves 4,993 4,993
Other liabilities 2,046 1,738
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized,
3,011,789 and 2,965,075 shares issued
and outstanding, respectively 301 297
Capital in excess of par value 28,979 27,100
Retained earnings 85,951 80,504
Total shareholders' equity 115,231 107,901
Total liabilities and shareholders' equity $212,507 193,715
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2006 2005 2006 2005
(restated) (restated)
Revenues:
Transportation $ 32,435 28,638 93,080 83,169
Real estate 5,176 4,468 15,515 13,415
Total revenues (including revenue
from related parties of $2,257,
$1,784, $6,104 and $4,981,
respectively) 37,611 33,106 108,595 96,584
Cost of operations:
Transportation 28,114 24,396 80,472 72,288
Real estate 2,157 1,858 7,164 5,768
Total cost of operations 30,271 26,254 87,636 78,056
Gross profit:
Transportation 4,321 4,242 12,608 10,881
Real estate 3,019 2,610 8,351 7,647
Total gross profit 7,340 6,852 20,959 18,528
Selling, general and administrative
expense (including expenses paid
to a related party of $48, $39,
$143 and $127, respectively) 3,286 2,561 9,209 7,290
Operating profit 4,054 4,291 11,750 11,238
Interest income and other 28 2 125 17
Interest expense (1,036) (785) (3,018) (2,410)
Income before income taxes 3,046 3,508 8,857 8,845
Provision for income taxes (1,202) (1,368) (3,410) (3,448)
Net income $ 1,844 2,140 5,447 5,397
Earnings per common share:
Basic $ .62 .72 1.83 1.83
Diluted $ .59 .70 1.77 1.78
Number of shares (in thousands)
used in computing:
-basic earnings per common share 2,985 2,958 2,974 2,946
-diluted earnings per common share 3,105 3,040 3,085 3,026
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2006 AND 2005
(In thousands)
(Unaudited)
2006 2005
(restated)
Cash flows from operating activities:
Net income $ 5,447 5,397
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,995 9,331
Deferred income taxes (845) (2,870)
Gain on sale of equipment (917) (584)
Tax benefit from stock option exercise - 283
Stock-based compensation 778 -
Net changes in operating assets and liabilities:
Accounts receivable 880 954
Inventory of parts and supplies 44 (74)
Prepaid expenses and other current assets (14) (85)
Other assets (831) (941)
Accounts payable and accrued liabilities 1,296 1,608
Income taxes payable 1,363 (5,559)
Long-term insurance reserves and other long-term
liabilities 308 119
Net cash provided by operating activities 17,504 7,579
Cash flows from investing activities:
Purchase of transportation group property and equipment (13,815) ( 9,031)
Purchase of real estate group property and equipment (17,194) (16,405)
Cash held in escrow - 16,553
Proceeds from sale of real estate held for investment
and property and equipment 1,283 1,155
Net cash used in investing activities (29,726) (7,728)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,084 5,745
Net increase (decrease)in revolving debt 8,420 (3,201)
Repayment of long-term debt (1,695) (1,345)
Excess tax benefits from exercise of stock options 406 -
Proceeds from exercised stock options 699 808
Net cash provided by financing activities 9,914 2,007
Net (decrease) increase in cash and cash equivalents (2,308) 1,858
Cash and cash equivalents at beginning of period 2,966 199
Cash and cash equivalents at end of the period $ 658 2,057
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
(1) Basis of Presentation. The accompanying consolidated financial
statements include the accounts of Patriot Transportation Holding, Inc.
and its subsidiaries (the "Company"). These statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and the
instructions to Form 10-Q and do not include all the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the
opinion of management, all adjustments (primarily consisting of normal
recurring accruals) considered necessary for a fair statement of the
results for the interim periods have been included. Operating results
for the nine months ended June 30, 2006 are not necessarily indicative
of the results that may be expected for the fiscal year ending September
30, 2006. The accompanying consolidated financial statements and the
information included under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" should be
read in conjunction with the Company's consolidated financial statements
and related notes included in the Company's Form 10-K for the year ended
September 30, 2005.
(2) 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.
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 corrects our historical
accounting for recognizing rental revenue for scheduled rate increases
on operating leases. For information with respect to the restatement,
see Note 2 to the consolidated financial statements contained in the
Company's Annual Report on 10-K for fiscal 2005. Throughout this Form
10-Q, all referenced amounts for affected prior periods and prior period
comparisons reflect the balances and amounts on a restated basis. As a
result of this restatement, the Company's financial results have been
adjusted as follows (in thousands, except per share data):
Three Months Ended June 30, 2005
As Previously
Reported Adjustments As Restated
Total revenues $ 33,061 45 33,106
Gross profit 6,807 45 6,852
Operating profit 4,246 45 4,291
Income before tax 3,463 45 3,508
Provision for income taxes 1,351 17 1,368
Net income 2,112 28 2,140
Earnings per common share:
Basic $ .71 .01 .72
Diluted $ .69 .01 .70
Nine Months Ended June 30, 2005
As Previously
Reported Adjustments As Restated
Total revenues $ 96,449 135 96,584
Gross profit 18,393 135 18,528
Operating profit 11,103 135 11,238
Income before tax 8,710 135 8,845
Provision for income taxes 3,397 51 3,448
Net income 5,313 84 5,397
Earnings per common share:
Basic $ 1.80 .03 1.83
Diluted $ 1.76 .02 1.78
Cash flows from
operating activities:
Net income $ 5,313 84 5,397
Deferred income taxes (2,921) 51 (2,870)
Net changes in operating
assets and liabilities:
Other assets (806) (135) (941)
Net cash provided by
operating activities 7,579 - 7,579
(3) Recent Accounting Pronouncements. In July 2006, the FASB issued
FASB Interpretation No. 48 (FIN 48) "Accounting for Uncertainty in
Income Taxes" which prescribes a recognition threshold and
measurement process for recording in the financial statements
uncertain tax positions taken or expected to be taken in a tax
return. Additionally, FIN 48 provides guidance on derecognition,
classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. The accounting provisions
of FIN 48 will be effective for the Company beginning October 1,
2007. The Company is in the process of determining the effect, if
any, the adoption of FIN 48 will have on its 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 is effective for the Company no later than
the end of fiscal 2006. The impact of this new pronouncement is not
expected to be material to the Company's financial statements.
(4) Accrued Vacation Liability. The Company recorded a liability of
$1,055,000 in the third quarter of 2006 to reflect the Company's
obligation for vacation pay. Under generally accepted accounting
principles, compensated absences must be accrued for both hourly and
salaried employees. Under FAS No. 43 "Accounting for Compensated
Absences," the accrual must consist of the vested liability as well as
the portion of the unvested liability that is deemed to be earned. In
prior years, the Company did not accrue for this liability but made a
determination that the accrual was not material to the Company's
financial statements. The Company expensed payments of vacation pay to
hourly and salaried employees when paid. The Company's policy does not
permit vacation to be rolled over from year to year for salaried
employees but permits hourly employees to rollover a maximum of five
days. The Company's payroll systems do not permit the Company to
determine accrued vacation liability as of the end of prior fiscal
periods; accordingly, the Company has determined that the accrued
liability should be recorded in the third quarter of 2006. The impact on
the balance sheet of recording this liability was to increase payroll
liability by $1,055,000, to increase the current portion of deferred tax
benefits by $406,000 and to reduce shareholder's equity by $649,000.
These entries did not affect net cash provided by operations. The
effect of these entries on the income statement is shown in the table
below:
Increase/(Decrease)
Cost of operations:
Transportation $ 712
Real estate 82
Total cost of operations 794
Selling, general and administrative expense 261
Income before income taxes (1,055)
Provision for income taxes (406)
Net income $ ( 649)
Earnings per common share:
Basic $ ( .22)
Diluted $ ( .21)
(5) 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 and
construction materials by motor carrier. The real estate segment owns
real estate of which a substantial portion is under mining royalty
agreements or leased. The real estate segment also holds certain other
real estate for investment and develops commercial and industrial
properties.
Operating results and certain other financial data for the Company's
business segments are as follows (in thousands):
Three Months ended Nine Months ended
June 30, June 30,
2006 2005 2006 2005
(restated) (restated)
Revenues:
Transportation $ 32,435 28,638 93,080 83,169
Real estate 5,176 4,468 15,515 13,415
$ 37,611 33,106 108,595 96,584
Operating profit
Transportation $ 2,097 2,059 5,988 4,872
Real estate 3,019 2,610 8,351 7,646
Corporate expenses (1,062) (378) (2,589) (1,280)
$ 4,054 4,291 11,750 11,238
Identifiable assets June 30, September 30,
2006 2005
Transportation $ 53,770 47,435
Real estate 155,832 141,646
Cash items 658 2,966
Unallocated corporate assets 2,247 1,668
$212,507 193,715
(6) Long-Term debt. Long-term debt is summarized as follows (in
thousands):
June 30, September 30,
2006 2005
Revolving credit (uncollateralized) $ 8,420 -
Construction loan - 9,716
5.7% to 9.5% mortgage notes
due in installments through 2021 51,289 41,184
59,709 50,900
Less portion due within one year 2,517 2,432
$ 57,192 48,468
The Company has a $37,000,000 uncollaterized Revolving Credit Agreement
(the Revolver) with four banks which is scheduled to terminate on
December 31, 2009. The Revolver currently bears interest at a rate of
1.25% over the selected LIBOR and may change quarterly based on the
Company's ratio of Consolidated Total Debt to Consolidated Total
Capital, as defined. A commitment fee of 0.20% 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.
(7) Related Party Transactions. The Company, through its transportation
subsidiaries, hauls commodities by tank and flatbed trucks for Florida
Rock Industries, Inc. (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. The Company
also outsources certain administrative functions to FRI.
For information regarding a joint venture with FRI, see Note 12, Recent
Developments.
(8) Earnings per common share. The following details the computations of
the basic and diluted earnings per common share (In thousands, except
per share amounts).
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2006 2005 2006 2005
(restated) (restated)
Weighted average common shares
outstanding during the
period - shares used for
basic earnings per share 2,985 2,958 2,974 2,946
Common shares issuable under
stock options which are
potentially dilutive 120 82 111 80
Common shares used for diluted
earnings per share 3,105 3,040 3,085 3,026
Net income $ 1,844 2,140 5,447 5,397
Earnings per common share
Basic $ .62 .72 1.83 1.83
Diluted $ .59 .70 1.77 1.78
For the nine months ended June 30, 2006, all outstanding stock options
were included in the calculation of diluted earnings per common share
because the sum of the hypothetical amount of future proceeds from the
exercise price, unrecorded compensation, and tax benefits to be credited
to capital in excess of par for all grants of stock options were lower
than the average price of the common shares, and therefore were
dilutive. For the nine months ended June 30, 2006, all outstanding
restricted shares were included in the calculation of diluted earnings
per common share because the unrecorded compensation and tax benefits to
be credited to capital in excess of par for all awards of restricted
stock were lower than the average price of the common shares, and
therefore were dilutive. For the nine months ended June 30, 2005, all
outstanding stock options were included in the calculation of diluted
earnings per common 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-Based Compensation Plan. Effective October 1, 2005, the
Company adopted SFAS 123R "Share-Based Payment" for its stock-based
employee compensation plans. Under SFAS 123R, compensation expense must
be measured and recognized for all share-based payments at the grant
date based on the fair value of the award and such costs must be
included in the statement of operations over the requisite service
period. Prior to October 1, 2005 the company followed APB Opinion No.
25, "Accounting for Stock Issued to Employees".
The Company has elected the modified prospective application transition
method whereby the provisions of the statement will apply going forward
only from the date of adoption to new share based payments, and for the
portion of any previously issued and outstanding stock option awards for
which the requisite service is rendered after the date of adoption. The
Company did not restate prior years for pro forma expense amounts. In
addition, compensation expense must be recognized for any awards
modified, repurchased or cancelled after the date of adoption. The
straight-line attribution model is used to measure compensation expense.
Prior to February 2006, the Company had two Stock Option Plans (the 1995
Stock Option Plan and the 2000 Stock Option Plan) under which options
for shares of common stock were granted to directors, officers and key
employees. The options awarded under the two plans have similar
characteristics. All stock options are non-qualified and 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. When stock options are exercised the
Company issues new shares after receipt of exercise proceeds and taxes
due, if any, from the grantee.
In February, 2006 the Shareholders approved the 2006 Stock Incentive
Plan which replaced the 2000 Stock Option Plan. The 2006 plan permits
the grant of stock options, stock appreciation rights, restricted stock
awards, restricted stock units, or stock awards. In February, 2006
15,960 shares of restricted stock were granted subject to forfeiture
restrictions, tied to continued employment, that lapse 25% annually
beginning on January 1, 2007. The number of common shares authorized
for future issuance was 279,540 at June 30, 2006.
The Company utilized the Black-Scholes valuation model for estimating
fair value of stock compensation for options awarded to officers and
employees in prior periods. Each grant was evaluated based upon
assumptions at the time of grant. The assumptions were no dividend
yield, expected volatility between 41% and 53%, risk-free interest rate
of 3.2% to 4.9% and expected life of 6.2 to 7.0 years.
The dividend yield of zero is based on the fact that the Company does
not pay cash dividends and has no present intention to pay cash
dividends. Expected volatility is estimated based on the Company's
historical experience over a period equivalent to the expected life in
years. The risk-free interest rate is based on the U.S. Treasury
constant maturity interest rate with a term consistent with the expected
life of the options granted. The expected life calculation is based on
the observed and expected time to exercise options by the employees.
Under provisions of SFAS 123R, the Company recorded $192,000 of stock
compensation expense in its consolidated statement of income for the
three months ended June 30, 2006. This consisted of $133,000 for stock
options issued in prior years, and $59,000 for restricted stock awards.
Stock compensation expense was $118,000 net of deferred income tax
benefits. This represents $.04 per common share for both basic and
diluted earnings per common share. For the nine months ended June 30,
2006, the Company recorded $778,000 of stock compensation expense in its
consolidated statement of income. This consisted of $286,000 for an
annual stock award to non-employee directors, $394,000 for stock options
issued in prior years, and $98,000 for restricted stock awards. Stock
compensation expense was $478,000 net of deferred income tax benefits.
This represents $.16 per common share for both basic and diluted
earnings per common share.
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. Financing cash flows for the nine months
ended June 30, 2006 included $406,000 of excess tax benefits from the
exercise of stock options.
A summary of changes in outstanding options is presented below (in
thousands, except per share amounts):
Weighted Weighted Weighted
Number Average Average Average
Of Exercise Remaining Grant Date
Options Shares Price Term (yrs) Fair Value
Outstanding at
October 1, 2005 337,900 $30.72 7.8
Granted 0 $ 0 $ 0
Exercised 26,454 $26.41 $ 359
Forfeited 6,700 $33.66
Outstanding at
June 30, 2006 304,746 $31.03 7.1 $ 4,760
Exerciseable at
June 30, 2006 201,546 $29.19 6.8 $ 3,086
Vested during
Nine months ended
June 30, 2006 39,000 $ 572
The aggregate intrinsic value of exercisable in-the-money options was
$11,607,000 based on the market closing price of $86.78 on June 30, 2006
less exercise prices. The aggregate intrinsic value of all outstanding
options at June 30, 2006 was $16,990,000. Gains of $1,404,000 were
realized by option holders during the nine months ended June 30, 2006.
The realized tax benefit from options exercised for the nine months
ended June 30, 2006 was $528,000. Total compensation cost of options
granted but not yet vested as of June 30, 2006 was $1,292,000, which is
expected to be recognized over a weighted-average period of 2.5 years.
A summary of changes in restricted stock awards is presented below (in
thousands, except per share amounts):
Weighted Weighted Weighted
Number Average Average Average
Of Grant Remaining Grant Date
Restricted Stock Shares Price Term (yrs) Fair Value
Outstanding at
October 1, 2005 0
Granted 15,960 $63.64 $ 1,016
Vested 0 $ 0
Forfeited 200 $63.54
Outstanding at
June 30, 2006 15,760 $63.64 3.5 $ 1,003
Total compensation cost of restricted stock granted but not yet vested
as of June 30, 2006 was $765,000 which is expected to be recognized over
a weighted-average period of 3.2 years.
SFAS 123R requires the presentation of pro forma information for the
comparative periods prior to its adoption as if all employee stock
options had been accounted for under the fair value method of the
original SFAS 123, "Accounting for Stock-Based Compensation." The
following table illustrates the effect on net income and earnings per
common share if SFAS 123 had been applied to stock-based employee
compensation to the prior-year periods (in thousands, except per share
amounts):
Three months ended Nine months ended
June 30, 2005 June 30, 2005
(restated) (restated)
Net income
As reported $2,140 $5,397
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method, net of tax effects 179 658
Pro forma $1,961 $4,739
Basic earnings per common share
As reported $ .72 $ 1.83
Pro forma $ .66 $ 1.61
Diluted earnings per common share
As reported $ .70 $ 1.78
Pro forma $ .65 $ 1.57
(10) 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.
(11) Customer Concentration. During the first nine months of fiscal
2006, the transportation segment's ten largest customers accounted for
approximately 47.1% of the transportation segment's revenue. One of
these customers accounted for 11.5% of the transportation segment's
revenue. The loss of any one of these customers could have a material
adverse effect on the Company's revenues and income.
(12) Recent developments. On August 2, 2006, the Company's independent
directors approved a 50-50 real estate joint venture between a
subsidiary of the Company (FRP) and Florida Rock Industries, Inc. (FRI)
to develop approximately 4,300 acres of land near Brooksville, Florida.
Under the terms of the joint venture, FRP will contribute its fee
interest in 3,443 acres that it currently leases to FRI under a long-
term mining lease. FRP also will reimburse FRI for one-half of the
acquisition costs (approximately $3 million) of a 288 acre contiguous
parcel recently acquired by FRI from a third party. The 288 acre parcel
will be contributed to the Joint Venture.
FRI will contribute 553 acres that it owns as well as its leasehold
interest in the 3,443 acres that it leases from FRP. The joint venture
will be jointly controlled by FRI and FRP, and they will each have a
mandatory obligation to fund additional capital contributions of up to
$2 million. Distributions will also be made on a 50-50 basis.
The property does not yet have the necessary entitlements for real
estate development. Approval to develop real property in Florida
entails an extensive entitlements process involving multiple and
overlapping regulatory jurisdictions and the outcome is inherently
uncertain. The Company currently expects that the entitlement process
may take several years to complete.
In connection with the Joint Venture, the independent directors of the
Company also approved certain extensions of lease agreements between FRP
and FRI on FRI's corporate headquarters in Jacksonville, Florida, the
Astatula and Marion Sand mining properties, also in Florida. The
Company and FRI also agreed that a 2,500 acre tract of the Grandin
mining property, in Florida, due to be released will remain subject to
the lease and available for future mining.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's operations are influenced by a number of external and
internal factors. External factors include levels of economic and
industrial activity in the United States and the Southeast, driver
availability and cost, regulations regarding driver qualifications and
hours of service, petroleum product usage in the Southeast which is
driven in part by tourism and commercial aviation, fuel costs,
construction activity, FRI's sales from the Company's mining properties,
interest rates, market conditions and attendant prices for casualty
insurance, demand for commercial warehouse space in the
Baltimore/Washington area, and ability to obtain zoning and entitlements
necessary for property development. Internal factors include revenue
mix, capacity utilization, auto and workers' compensation accident
frequencies and severity, other operating factors, administrative costs,
group health claims experience, and construction costs of new projects.
During the first nine months of fiscal 2006, the transportation
segment's ten largest customers accounted for approximately 47.1% of the
transportation segment's revenue. One of those customers accounted for
11.5% of transportation segment's revenues. The loss of any one of
these customers could have a material adverse effect on the Company's
revenues and income.
Financial results of the Company for any individual quarter are not
necessarily indicative of results to be expected for the year.
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. 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 corrects our
historical accounting for recognizing rental revenue for scheduled
rate increases on operating leases. For information with respect to
the restatement, see Note 2 to the consolidated financial statements
contained in the Company's Annual Report on 10-K for fiscal 2005.
Throughout this Form 10Q, all referenced amounts for affected prior
periods and prior period comparisons reflect the balances and amounts
on a restated basis.
Comparative Results of Operations for the Three Months Ended June 30,
2006 and 2005
Consolidated Results. - Net income for the third quarter of fiscal 2006
was $1,844,000, a decrease of $296,000 or 13.8% compared to $2,140,000
for the same period last year. Diluted earnings per common share for the
third quarter of fiscal 2006 was $0.59 compared to $0.70 in the third
quarter of fiscal 2005. Net income for the third quarter of fiscal 2006
was adversely impacted by $649,000 ($.21 per diluted common share) of
vacation expense, net of income tax benefits, that was not previously
accrued.
Transportation
Three Months Ended June 30
(dollars in thousands) 2006 % 2005 %
Transportation revenue $ 27,967 86% 25,823 90%
Fuel surcharges 4,468 14% 2,815 10%
Revenues 32,435 100% 28,638 100%
Compensation and benefits 12,637 39% 11,187 39%
Fuel expenses 7,257 22% 5,534 19%
Insurance and losses 2,602 8% 2,633 9%
Depreciation expense 2,109 7% 1,979 7%
Other, net 3,509 11% 3,063 11%
Cost of operations 28,114 87% 24,396 85%
Gross profit $ 4,321 13% 4,242 15%
Transportation segment revenues were $32,435,000 in the third quarter of
2006, an increase of $3,797,000 over the same quarter last year. Fuel
surcharges accounted for $1,653,000 of the increase, resulting from
higher diesel fuel costs during the quarter compared to the same quarter
last year. Excluding fuel surcharges, revenue per mile increased 6.1%,
reflecting better pricing for our services. Revenue miles in the current
quarter were up 1.7% compared to the third quarter of 2005 and were
hindered by low driver availability.
The Transportation segment's cost of operations in the third quarter of
2006 increased $3,718,000 to $28,114,000, as compared to $24,396,000 in
the same quarter last year. The primary factor for the increase was
higher diesel fuel costs. Average diesel fuel cost per gallon increased
28.7% in the third quarter of 2006 compared to the same quarter last
year. Compensation and benefits were higher as a result of vacation
expense not previously accrued, the increased miles and higher driver
pay.
Real Estate
Three Months Ended June 30
(dollars in thousands) 2006 % 2005 %
(restated)
Royalties and rent $ 1,753 34% 1,687 38%
Developed property rentals 3,423 66% 2,781 62%
Total Revenue 5,176 100% 4,468 100%
Mining and land rent expenses 351 7% 393 9%
Developed property expenses 1,806 35% 1,465 33%
Cost of Operations 2,157 42% 1,858 42%
Gross profit $ 3,019 58% 2,610 58%
Real Estate segment revenues for the third quarter of fiscal 2006 were
$5,176,000, an increase of $708,000 or 15.8% over the same quarter last
year. Lease revenue from developed properties increased $642,000 or
23.1%, due to an increase in occupied square feet resulting from the
completion of a pre-leased 145,180 square foot building in July 2005
along with higher rental rates on new leases and higher average
occupancy. Royalties from mining operations increased $66,000 as a
result of increased royalties per ton.
Real estate segment expenses increased to $2,157,000 during the third
quarter of fiscal 2006 compared to $1,858,000 for the same quarter last
year. Expenses related to development activities increased as a result
of the new building addition and increased staffing to facilitate
continuing portfolio expansion.
Consolidated Results
Gross Profit - Consolidated gross profit was $7,340,000 in the third
quarter of fiscal 2006 compared to $6,852,000 in the same period last
year, an increase of 7.1%. Gross profit in the transportation segment
increased $79,000 or 1.9%, primarily due to improved pricing, operating
efficiencies and increased miles partially offset by $712,000 of
vacation expense not previously accrued as compared to the same quarter
last year. Gross profit in the real estate segment increased $409,000
or 15.7% from the third quarter 2005, due to the increased revenues
partially offset by costs associated with increased square footage
leased, increased staffing and $82,000 of vacation expense not
previously accrued.
Selling, general and administrative expense - Selling, general and
administrative expenses increased $725,000 over the same quarter last
year. The increase included $192,000 from stock compensation expense as
required by SFAS 123R (see Note 9 of Condensed Notes to Consolidated
Financial Statements), $179,000 of audit fees and Sarbanes-Oxley
compliance work and $261,000 of vacation expense not previously accrued.
SG&A expense was 8.7% of revenue for the third quarter of fiscal 2006
compared to 7.7% for the same period last year.
Interest expense - Interest expense increased $251,000 over the same
quarter last year. This is due to higher debt levels in the real estate
segment resulting from development of properties and the purchase of
land for future development combined with higher interest rates on the
Company's Revolver.
Income taxes - Income tax expense decreased $166,000 over the same
quarter last year. This is due to lower earnings before taxes,
partially offset by a decrease in the effective tax rate to 38.5%
versus 39.0% for the same quarter last year.
Net income - Net income for the third quarter of fiscal 2006 was
$1,844,000, a decrease of $296,000 or 13.8% compared to $2,140,000 for
the same period last year. Diluted earnings per common share for the
third quarter of fiscal 2006 was $0.59 compared to $0.70 in the third
quarter of fiscal 2005. Net income for the third quarter of fiscal 2006
was adversely impacted by $649,000 ($.21 per diluted common share) of
vacation expense, net of income tax benefits, that was not previously
accrued.
Comparative Results of Operations for the Nine Months Ended June 30,
2006 and 2005
Consolidated Results - Net income for the first nine months of fiscal
2006 was $5,447,000, an increase of $50,000 or .9% compared to
$5,397,000 for the same period last year. Diluted earnings per common
share for the first nine months of fiscal 2006 was $1.77 compared to
$1.78 for the same period last year. Net income for the first nine
months of fiscal 2006 includes $649,000 ($.21 per diluted common share)
of vacation expense, net of income tax benefits, that was not previously
accrued.
Transportation
Nine Months Ended June 30
(dollars in thousands) 2006 % 2005 %
Transportation revenue $ 80,587 87% 75,719 91%
Fuel surcharges 12,493 13% 7,450 9%
Revenues 93,080 100% 83,169 100%
Compensation and benefits 35,643 38% 32,793 39%
Fuel expenses 19,936 21% 15,458 19%
Insurance and losses 8,751 9% 9,150 11%
Depreciation expense 6,286 7% 5,967 7%
Other, net 9,856 11% 8,920 11%
Cost of operations 80,472 86% 72,288 87%
Gross profit $ 12,608 14% 10,881 13%
Transportation segment revenues were $93,080,000 in the first nine
months of 2006, an increase of $9,911,000 over the same period last
year. Fuel surcharges accounted for $5,043,000 of the increase.
Excluding fuel surcharges, revenue per mile increased 6.2%, reflecting
better pricing for our services. Revenue miles in the first nine months
of 2006 were flat compared to the first nine months of 2005 and were
hindered by low driver availability.
The Transportation segment's cost of operations in the first nine months
of 2006 increased $8,184,000 to $80,472,000, as compared to $72,288,000
in the same period last year. Higher diesel fuel costs accounted for
$4,478,000 of the increase. Average diesel fuel cost per gallon
increased 25.1% in the first nine months of 2006 compared to the same
period last year. Compensation and benefits increased $2,850,000 due to
higher driver pay necessary to attract and retain qualified drivers and
vacation expense not previously accrued.
Real Estate
Nine Months Ended June 30
(dollars in thousands) 2006 % 2005 %
(restated)
Royalties and rent $ 4,979 32% 4,570 34%
Developed property rentals 10,536 68% 8,845 66%
Total Revenue 15,515 100% 13,415 100%
Mining and land rent expenses 1,214 8% 1,024 8%
Developed property expenses 5,950 38% 4,744 35%
Cost of Operations 7,164 46% 5,768 43%
Gross profit $ 8,351 54% 7,647 57%
Real Estate segment revenues for the first nine months of fiscal 2006
were $15,515,000, an increase of $2,100,000 or 15.7% over the same
period last year. Lease revenue from developed properties increased
$1,690,000 or 19.1%, due to a 13.5% increase in occupied square feet
resulting from the completion of a pre-leased 74,600 square foot
building in January 2005 and the completion of a pre-leased 145,180
square foot building in July 2005 along with higher rental rates on new
leases and higher average occupancy. Royalties from mining operations
increased as a result of increased royalties per ton.
Real estate segment expenses increased $1,396,000 to $7,164,000 during
the first nine months of fiscal 2006, compared to $5,768,000 for the
same period last year. Expenses related to development activities
increased as a result of the new building additions, increased staffing
and professional fees to facilitate continuing portfolio expansion.
Consolidated Results
Gross Profit - Consolidated gross profit was $20,959,000 in the first
nine months of fiscal 2006 compared to $18,528,000 in the same period
last year, an increase of 13.1%. Gross profit in the transportation
segment increased $1,727,000 or 15.9%, primarily due to improved pricing
partially offset by $712,000 of vacation expense not previously accrued
as compared to the same period last year. Gross profit in the real
estate segment increased $704,000 or 9.2% over the same period in 2005
due to the increased revenues partially offset by costs associated with
increased square footage leased, increased staffing and professional
fees and $82,000 of vacation expense not previously accrued.
Selling, general and administrative expense - Selling, general and
administrative expenses increased $1,919,000 over the same period last
year. The increase included $778,000 from stock compensation expense as
required by SFAS 123R (see Note 9 of Condensed Notes to Consolidated
Financial Statements), $287,000 of increased compensation and benefits
primarily due to additional support staff, $223,000 of audit fees and
Sarbanes-Oxley compliance work, $146,000 of higher incentive
compensation accrual related to management performance objectives and
$261,000 of vacation expense not previously accrued. SG&A expense was
8.5% of revenue for the first nine months of fiscal 2006 compared to
7.5% for the same period last year.
Interest expense - Interest expense increased $608,000 over the same
period last year. This is due to higher debt levels in the real estate
segment resulting from development of properties and purchase of land
for future development combined with higher interest rates on the
Company's Revolver.
Income taxes - Income tax expense decreased $38,000 over the same period
last year. This is due to higher earnings before taxes, partially
offset by a decrease in the effective tax rate to 38.5% versus 39.0% for
the same period last year.
Net income - Net income for the first nine months of fiscal 2006 was
$5,447,000, an increase of $50,000 or .9% compared to $5,397,000 for the
same period last year. Diluted earnings per common share for the first
nine months of fiscal 2006 was $1.77 compared to $1.78 for the same
period last year. Net income for the first nine months of fiscal 2006
includes $649,000 ($.21 per diluted common share) of vacation expense,
net of income tax benefits, that was not previously accrued.
Liquidity and Capital Resources
For the first nine months of fiscal 2006, the Company used cash provided
by operating activities of $17,504,000, borrowings of $8,420,000 under
its Revolver and additional long-term debt of $2,084,000 to purchase
$31,009,000 in property and equipment and to make scheduled payments of
$1,695,000 on long-term debt.
The purchase of property and equipment included $10,105,000 for the
purchase of land for future development, $7,089,000 for real estate
development, and $13,815,000 for the purchase of transportation group
equipment.
The Company has a $37,000,000 revolving credit agreement (the Revolver)
of which $28,580,000 was available at June 30, 2006. The Revolver
contains restrictive covenants including limitations on paying cash
dividends. The Revolver will expire on December 31, 2009.
During the second quarter of fiscal 2006 the Company converted a
construction loan into a 15-year non-recourse mortgage of $11,800,000
with an interest rate of 6.17%. The construction loan was used to
develop a 145,000 square foot build-to-suit warehouse/office building
pursuant to a 15-year triple net lease.
The Company had $18,957,000 of irrevocable letters of credit outstanding
as of June 30, 2006. 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 are 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 arise. As
of June 30, 2006, $3,490,000 was authorized to repurchase the Company's
common stock. No shares were repurchased during the first nine months of
fiscal 2006.
The Company does not currently pay any dividends on common stock.
The Company has committed to expend approximately $5 million dollars in
connection with a joint venture with FRI (see Related Party
Transactions), approximately $3 million of which will be funded in the
quarter ending September 30, 2006.
While the Company is affected by environmental regulations, such
regulations are not expected to have a major effect on the Company's
capital expenditures or operating results.
Management believes that the Company is financially postured to be able
to take advantage of external and internal growth opportunities in both
its real estate and transportation segments.
Adoption of SFAS 123R. Effective October 1, 2005, the Company adopted
SFAS 123R "Share-Based Payment" for its stock-based employee
compensation plans. Under SFAS 123R, compensation expense must be
measured and recognized for all share-based payments at the grant date
based on the fair value of the award and such costs must be included in
the statement of operations over the requisite service period. Prior to
October 1, 2005 the company followed APB Opinion No. 25, "Accounting for
Stock Issued to Employees".
The Company has elected the modified prospective application transition
method whereby the provisions of the statement will apply going forward
only from the date of adoption to new share based payments, and for the
portion of any previously issued and outstanding stock option awards for
which the requisite service is rendered after the date of adoption. The
Company did not restate prior years for pro forma expense amounts. In
addition, compensation expense must be recognized for any awards
modified, repurchased or cancelled after the date of adoption.
Under provisions of SFAS 123R, the Company recorded $192,000 of stock
compensation expense in its consolidated statement of income for the
three months ended June 30, 2006. This consisted of $133,000 for stock
options issued in prior years and $59,000 for restricted stock. Stock
compensation expense was $118,000 net of deferred income tax benefits.
This represents $.04 per common share for both basic and diluted
earnings per common share. For the nine months ended June 30, 2006, the
Company recorded $778,000 of stock compensation expense in its
consolidated statement of income. This consisted of $286,000 for an
annual stock award to non-employee directors, $394,000 for stock options
issued in prior years, and $98,000 for restricted stock. Stock
compensation expense was $478,000 net of deferred income tax benefits.
This represents $.16 per common share for both basic and diluted
earnings per common share.
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. Financing cash flows for the nine months
ended June 30, 2006 included $406,000 of excess tax benefits from the
exercise of stock options.
Recent Accounting Pronouncements. In July 2006, the FASB issued FASB
Interpretation No. 48 (FIN 48) "Accounting for Uncertainty in Income
Taxes" which prescribes a recognition threshold and measurement
process for recording in the financial statements uncertain tax
positions taken or expected to be taken in a tax return.
Additionally, FIN 48 provides guidance on derecognition,
classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. The accounting provisions
of FIN 48 will be effective for the Company beginning October 1,
2007. The Company is in the process of determining the effect, if
any, the adoption of FIN 48 will have on its 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 is effective for the Company no later than the end
of fiscal 2006. The impact of this new pronouncement is not expected
to be material to the Company's financial statements.
Related Party Transactions. The Company, through its transportation
subsidiaries, hauls commodities by tank and flatbed trucks for Florida
Rock Industries, Inc. (FRI). Charges for these services are based on
prevailing market prices. Other wholly owned subsidiaries lease certain
construction aggregates mining and other properties to FRI. In
addition, the Company outsources certain administrative functions to
FRI. The cost of these administrative functions was $48,000 and $39,000
for the quarters ending June 30, 2006 and 2005, respectively.
On August 2, 2006, the Company's independent directors approved a 50-50
real estate joint venture between a subsidiary of the Company (FRP) and
Florida Rock Industries, Inc. (FRI) to develop approximately 4,300 acres
of land near Brooksville, Florida. Under the terms of the joint
venture, FRP will contribute its fee interest in 3,443 acres that it
currently leases to FRI under a long-term mining lease. FRP also will
reimburse FRI for one-half of the acquisition costs (approximately $3
million) of a 288 acre contiguous parcel recently acquired by FRI from a
third party. The 288 acre parcel will be contributed to the Joint
Venture.
FRI will contribute 553 acres that it owns as well as its leasehold
interest in the 3,443 acres that it leases from FRP. The joint venture
will be jointly controlled by FRI and FRP, and they will each have a
mandatory obligation to fund additional capital contributions of up to
$2 million. Distributions will also be made on a 50-50 basis.
Management believes that the Company ultimately will realize greater
value from development of the Brooksville property rather than
continuing under the mining lease.
The property does not yet have the necessary entitlements for real
estate development. Approval to develop real property in Florida
entails an extensive entitlements process involving multiple and
overlapping regulatory jurisdictions and the outcome is inherently
uncertain. The Company currently expects that the entitlement process
may take several years to complete.
In connection with the Joint Venture, the independent directors of the
Company also approved certain extensions of lease agreements between FRP
and FRI on FRI's corporate headquarters in Jacksonville, Florida, the
Astatula and Marion Sand mining properties, also in Florida. The
Company and FRI also agreed that a 2,500 acre tract of the Grandin
mining property, in Florida, due to be released will remain subject to
the lease and available for future mining.
Recent Developments. As previously reported, a subsidiary of the
Company entered into an agreement to develop and sell to a homebuilder a
minimum of 292 residential lots on the residential portion of the Bird
River Property. The agreement was subject to a number of contingencies,
including a zoning upgrade followed by an approval by Baltimore County
of a Planned Unit Development (PUD) by July 1, 2006 allowing the
development of a minimum of 292 residential lots. The Company was
unable to obtain the necessary approval by July 1, 2006 and, therefore,
has terminated the agreement with the homebuilder. The Company
continues to pursue the zoning upgrade and to explore development
strategies that will ultimately maximize the market value of this
residential property.
Also as previously reported, the Company owns a 5.8 acre parcel of
undeveloped real estate in Washington D.C. that fronts the Anacostia
River and is one block from the construction site for the new Washington
Nationals Baseball Stadium. The Company also owns a nearby 2.1 acre
tract on the same bank of the Anacostia River. Currently, these
properties are leased to Florida Rock Industries, Inc., on a month-to-
month basis.
The Company has been pursuing development efforts with respect to the
5.8 acre parcel for several years. The Company previously obtained a
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. A hearing on the
Company's zoning application has been scheduled for September 18, 2006.
The Company remains optimistic that its zoning application will be
approved while at the same time recognizing that there is inherent
uncertainty in any zoning approval process.
Summary and Outlook. The Company's real estate development business has
continued to benefit from positive inquiry trends from prospective
tenants for its warehouse-office product. The Company continues to
explore opportunities for development of various properties owned by the
Company, including certain properties leased by the Company to FRI.
Freight-hauling demands for its transportation business remain
challenged by an industry-wide, tight driver availability. Continuing
volatile crude oil and diesel fuel price fluctuations remain likely to
impact operating margins.
Higher interest rates, a slowing national housing market, sharply higher
retail gasoline prices and forecasts for decreased GDP activity could
temper market strength within both transportation and real estate. The
Company will use periods of diminished economic activity to prospect for
sound, long-term value opportunities.
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 others discussed in the Company's
periodic reports and filings with the Securities and Exchange Commission
are among the principal factors that could cause actual results to
differ materially from the forward-looking statements: driver
availability and cost; regulations regarding driver qualification and
hours of service; availability and terms of financing; freight demand
for petroleum products including recessionary and terrorist impacts on
travel in the Company's markets; freight demand for building and
construction materials in the Company's markets; risk insurance markets;
competition; general economic conditions; demand for flexible
warehouse/office facilities in the Baltimore/Washington area; ability to
obtain zoning and entitlements necessary for property development;
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk from changes in interest rates.
For its cash and cash equivalents, a change in interest rates affects
the amount of interest income that can be earned. For its debt
instruments with variable interest rates, changes in interest rates
affect the amount of interest expense incurred. The Company prepared a
sensitivity analysis of its variable rate borrowings to determine the
impact of hypothetical changes in interest rates on the Company's
results of operations and cash flows. The interest-rate analysis assumed
a 50 basis point adverse change in interest rates on all borrowings
under the credit agreement. However, the interest-rate analysis did not
consider the effects of the reduced level of economic activity that
could exist in such an environment. Based on this analysis, management
has concluded that a 50 basis point adverse move in interest rates on
the Company's outstanding borrowings under the credit agreement would
have an immaterial impact on the Company's results of operations and
cash flows.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's reports under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and that
such information is accumulated and communicated to management,
including the Company's Chief Executive Officer ("CEO"), Chief Financial
Officer ("CFO"), and Chief Accounting Officer ("CAO"), as appropriate,
to allow timely decisions regarding required disclosure.
The Company also maintains a system of internal accounting controls
over financial reporting that are designed to provide reasonable
assurance to the Company's management and Board of Directors regarding
the preparation and fair presentation of published financial
statements.
All control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance of achieving the desired control
objectives. Management is in the process of evaluating, upgrading and
testing its internal control systems to comply with the requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, which becomes
applicable to the Company at the end of the current fiscal year.
As of June 30, 2006, the Company, under the supervision and with the
participation of the Company's management, including the CEO, CFO and
CAO, carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based
on this evaluation and subject to the disclosure below, the Company's
CEO, CFO and CAO concluded that the Company's disclosure controls and
procedures are effective in alerting them in a timely manner to
material information required to be included in periodic SEC filings,
except with respect to the matters described below.
In connection with management's work towards compliance with Section
404 of Sarbanes-Oxley Act of 2002 the Company determined that it
should improve its tracking of vacation accruals. The Company had not
previously monitored vacation accrual for salaried personnel because
the Company's salaried employees are not entitled to roll over
vacation pay from year to year. At June 30, 2006, accrued vacation
liability for salaried personnel represented 47% of the Company's
total vacation liability. Calculating accrued vacation liability is
complicated by the fact that, for most employees, vacation vesting is
based upon an anniversary year calculated from their date of hire.
In prior years, the Company did not accrue for this liability but made
a determination that the accrual was not material to the Company's
financial statements. Management has now concluded that it is
appropriate to record the accrued liability and to accrue for such
liability in future periods in accordance with generally accepted
accounting principles. In reviewing this issue, management also
determined that the Company's payroll systems did not permit the
Company to determine the accrued vacation liability as of the end of
prior periods. Accordingly, the Company recorded the full amount of
the accrued liability in the current quarter.
This adjustment did not have a material impact on the financial
statements of prior interim or annual periods taken as a whole.In
addition, the cumulative impact of the adjustments on shareholders'
equity was not material on the financial statements of prior interim
or annual periods.
The Company has taken steps to implement appropriate controls to
assure that the Company will be able to accrue for compensated
absences in future periods.
Subject to the foregoing, there have been no changes in the Company's
internal controls over financial reporting during the third quarter
that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. EXHIBITS
(a) Exhibits. The response to this item is submitted as a separate
Section entitled "Exhibit Index", starting on page 24.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 14, 2006 PATRIOT TRANSPORTATION HOLDING, INC.
John E. Anderson
John E. Anderson
President and Chief Executive
Officer
Ray M. Van Landingham
Ray M. Van Landingham
Vice President, Treasurer,
Secretary and Chief
Financial Officer
John D. Klopfenstein
John D. Klopfenstein
Controller and Chief
Accounting Officer
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006
EXHIBIT INDEX
(3)(a)(1) Articles of Incorporation of Patriot Transportation
Holding Inc., incorporated by reference to the
corresponding exhibit filed with Form S-4 dated
December 13,1988. File No. 33-26115.
(3)(a)(2) Amendment to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State of Florida on February 19, 1991
incorporated by reference to the corresponding
exhibit filed with Form 10-K for the fiscal year
ended September 30, 1993. File No. 33-26115.
(3)(a)(3) Amendments to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State of Florida on February 7,1995,
incorporated by reference to an appendix to the
Company's Proxy Statement dated December 15, 1994.
File No. 33-26115.
(3)(a)(4) Amendment to the Articles of Incorporation of
Patriot Transportation Holding, Inc., filed with
the Florida Secretary of State on May 6, 1999
incorporated by reference to a form of such
amendment filed as Exhibit 4 to the Company's Form
8-K dated May 5, 1999. File No. 33-26115.
(3)(a)(5) Amendment to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State of Florida on February 21, 2000,
incorporated by reference to the corresponding
exhibit filed with Form 10-Q for the quarter ended
March 31, 2000. File No. 33-26115.
(3)(b)(1) Amended and Restated Bylaws of Patriot
Transportation Holding, Inc. adopted August 3,
2005, incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K dated August 3, 2005. File
No. 33-26115.
(4)(a) Articles III, VII and XII of the Articles of
Incorporation of Patriot Transportation Holding,
Inc., incorporated by reference to an exhibit filed
with Form S-4 dated December 13, 1988. An amended
Article III, incorporated by reference to an
exhibit filed with Form 10-K for the fiscal year
ended September 30, 1993. And Articles XIII and
XIV, incorporated by reference to an appendix filed
with the Company's Proxy Statement dated December
15, 1994. File No. 33-26115.
(4)(b) Specimen stock certificate of Patriot
Transportation Holding, Inc., incorporated by
reference to an exhibit filed with Form S-4 dated
December 13, 1988. File No. 33-26115.
(4)(c) Rights Agreement, dated as May 5, 1999 between the
Company and First Union National Bank, incorporated
by reference to Exhibit 4 to the Company's Form 8-K
dated May 5, 1999. File No. 33-26115.
(10)(a) Various mining leases and mining royalty agreements
with Florida Rock Industries, Inc., none of which
are presently believed to be material individually,
except for the Mining Lease Agreement dated
September 1, 1986, between Florida Rock Industries
Inc. and Florida Rock Properties, Inc., successor
by merger to Grandin Land, Inc. (see Exhibit
(10)(c)), but all of which may be material in the
aggregate, incorporated by reference to an exhibit
filed with Form S-4 dated December 13, 1988. File
No. 33-26115.
(10)(b) License Agreement, dated June 30, 1986, from
Florida Rock Industries, Inc. to Florida Rock &
Tank Lines, Inc. to use "Florida Rock" in corporate
names, incorporated by reference to an exhibit
filed with Form S-4 dated December 13, 1988. File
No. 33-26115.
(10)(c) Mining Lease Agreement, dated September 1, 1986,
between Florida Rock Industries, Inc. and Florida
Rock Properties, Inc., successor by merger to
Grandin Land, Inc., incorporated by reference to an
exhibit previously filed with Form S-4 dated
December 13, 1988. File No. 33-26115.
(10)(d) Summary of Medical Reimbursement Plan of Patriot
Transportation Holding, Inc., incorporated by
reference to an exhibit filed with Form 10-K for
the fiscal year ended September 30, 1993. File No.
33-26115.
(10)(e) Summary of Management Incentive Compensation Plans,
incorporated by reference to an exhibit filed with
Form 10-K for the fiscal year ended September 30,
1994. File No. 33-26115.
(10)(f) Management Security Agreements between the Company
and certain officers, incorporated by reference to
a form of agreement previously filed (as Exhibit
(10)(I)) with Form S-4 dated December 13, 1988.
File No. 33-26115.
(10)(g)(1) Patriot Transportation Holding, Inc. 1995 Stock
Option Plan, incorporated by reference to an
appendix to the Company's Proxy Statement dated
December 15, 1994. File No. 33-26115.
(10)(g)(2) Patriot Transportation Holding, Inc. 2000 Stock
Option Plan, incorporated by reference to an
appendix to the Company's Proxy Statement dated
December 15, 1999. File No. 33-26115.
(10)(g)(3) Patriot Transportation Holding, Inc. 2006 Stock
Incentive Plan, incorporated by reference to an
appendix to the Company's Proxy Statement dated
December 29, 2005. File No. 33-26115.
(10)(h) Agreement of Purchase and Sale dated October 21,
2003 between FRP Bird River, LLC and The Ryland
Group, Inc., incorporated by reference to an
exhibit filed with Form 10-K for the year ended
September 30, 2003. File No. 33-26115.
(10)(i) Amended and Restated Revolving Credit Agreement
dated November 10, 2004 among Patriot
Transportation Holding, Inc. as Borrower, the
Lenders from time to time party hereto and Wachovia
Bank, National Association as Administrative Agent,
incorporated by reference to the Company's Form 8-K
dated November 16, 2004. File No. 33-26115.
(10)(j) The Company and its consolidated subsidiaries have
other long-term debt agreements, none of which
exceed 10% of the total consolidated assets of the
Company and its subsidiaries, and the Company
agrees to furnish copies of such agreements and
constituent documents to the Commission upon
request.
(10)(k) Letter of Credit Facility between Patriot
Transportation Holding, Inc. and SunTrust Bank,
N.A. dated February 16, 2005, incorporated by
reference to the Company's Form 8-K dated February
16, 2005. File No. 33-26115.
(10)(l) Summary of compensation arrangements with non-
employee directors, incorporated by reference to
the corresponding exhibit filed with Form 8-K dated
October 11, 2005. File No. 33-26115.
(10)(m) Summary of compensation arrangements with Named
Executive Officers, incorporated by reference to
the corresponding exhibit filed with Form 10-Q for
the quarter ended March 31, 2005 and Form 8-K filed
December 2, 2005. File No. 33-26115.
(14) Financial Code of Ethical Conduct between the
Company, Chief Executive Officers and Financial
Managers, adopted December 4, 2002, incorporated by
reference to an exhibit filed with Form 10-K for
the year ended September 30, 2003. File No. 33-
26115.
(31)(a) Certification of John E. Anderson.
(31)(b) Certification of Ray M. Van Landingham.
(31)(c) Certification of John D. Klopfenstein.
(32) Certification of Chief Executive Officer, Chief
Financial Officer, and Chief Accounting Officer
pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.