FORM 10-Q/A
Amendment No. 1
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 December 31, 2007
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[X] Non-
accelerated filer[ ]
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, 2007:
3,059,808 shares of $.10 par value common stock.
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q/A
QUARTER ENDED DECEMBER 31, 2007
CONTENTS
Page No.
Preliminary Note Regarding Forward-Looking Statements 3
Amendment No. 1 Explanatory Note 4
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 5
Consolidated Statements of Income 6
Consolidated Statements of Cash Flows 7
Condensed Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risks 22
Item 4. Controls and Procedures 22
Part II. Other Information
Item 1A. Risk Factors 23
Item 6. Exhibits 23
Signatures 24
Exhibit 31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 26
Exhibit 32 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 29
Preliminary Note Regarding Forward-Looking Statements.
Certain matters discussed in this report contain forward-looking
statements that are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated by such
forward-looking statements.
These forward-looking statements relate to, among other things,
capital expenditures, liquidity, capital resources and competition and
may be indicated by words or phrases such as "anticipate", "estimate",
"plans", "projects", "continuing", "ongoing", "expects", "management
believes", "the Company believes", "the Company intends" and similar
words or phrases. The following factors and others discussed in the
Company's periodic reports and filings with the Securities and
Exchange Commission are among the principal factors that could cause
actual results to differ materially from the forward-looking
statements: freight demand for petroleum products including
recessionary and terrorist impacts on travel in the Company's markets;
levels of construction activity in the markets served by our mining
properties and our flatbed trucking subsidiary; fuel costs; accident
severity and frequency; risk insurance markets; driver availability
and cost; the impact of future regulations regarding the
transportation industry; availability and terms of financing;
competition; interest rates, inflation and general economic
conditions; demand for flexible warehouse/office facilities in the
Baltimore/Washington area; and ability to obtain zoning and
entitlements necessary for property development. However, this list
is not a complete statement of all potential risks or uncertainties.
These forward-looking statements are made as of the date hereof based
on management's current expectations, and the Company does not
undertake an obligation to update such statements, whether as a result
of new information, future events or otherwise. Additional information
regarding these and other risk factors may be found in the Company's
other filings made from time to time with the Securities and Exchange
Commission.
Amendment No. 1 Explanatory Note
Patriot Transportation Holding, Inc. is filing this Amendment No. 1 on
Form 10-Q/A to our Form 10-Q for the quarter ended December 31, 2007
to restate our previously issued financial statements to reflect the
accounting for the taking by condemnation in December 2007 of 28 acres
of land.
The Company previously reported in its Form 10-K for the year ended
September 30, 2007, that 28 acres of the Company's 101 acre tract of
land in Prince William County, Virginia, was subject to taking by the
Virginia Department of Transportation ("VDOT"). Management recently
learned that the VDOT took title to 28 acres on December 13, 2007 by
filing a Certificate of Take and depositing with the Court $5,860,000,
representing VDOT's estimate of the fair market value of the property.
The Prince William County Property was purchased in December 2005 and
the cost of the 28 acres taken by VDOT was $3,353,000 resulting in a
gain of $1,544,000 after income taxes of $963,000. The Company
intends to find and purchase replacement property with the
condemnation proceeds.
The restatement increased Gain on condemnation of land and Income
before income taxes by $2,507,000, Provision for income taxes by
$963,000. Net income by $1,544,000, and Earnings per diluted common
share by $.50. The restatement had no effect on Revenues, Cost of
operations, Gross profit or Operating profit. The restatement
increased Account receivable from condemnation by $5,860,000,
decreased Property, plant and equipment by $3,353,000, increased
Deferred income tax liability by $963,000, and increased Retained
earnings by $1,544,000.
This amendment also added tables to Note 10 of the Company's notes to
consolidated financial statements detailing the expense and payments
related to retirement benefits for the Company's previous CEO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share data) December 31, September 30,
2007 2007
Assets (restated)
Current assets:
Cash and cash equivalents $ 24,732 26,944
Accounts receivable (including related party of
$454 and $308 and net of allowance for doubtful
accounts of $214 and $207, respectively) 10,250 10,983
Accounts receivable from condemnation 5,860 -
Inventory of parts and supplies 802 743
Deferred income taxes 1,877 455
Prepaid tires on equipment 2,045 2,028
Prepaid taxes and licenses 1,189 1,652
Prepaid insurance 1,715 1,601
Prepaid expenses, other 85 80
Total current assets 48,555 44,486
Property, plant and equipment, at cost 285,212 282,277
Less accumulated depreciation and depletion 92,670 89,754
Net property, plant and equipment 192,542 192,523
Real estate held for investment, at cost 1,274 1,274
Investment in joint venture 6,143 5,904
Goodwill 1,087 1,087
Unrealized rents 2,889 2,589
Other assets 5,658 5,667
Total assets $258,148 253,530
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,931 5,408
Federal and state income taxes payable 1,172 702
Accrued payroll and benefits 7,361 5,202
Accrued insurance reserves 4,239 4,119
Accrued liabilities, other 730 1,035
Long-term debt due within one year 3,825 3,762
Total current liabilities 23,258 20,228
Long-term debt 79,192 80,172
Deferred income taxes 16,809 15,274
Accrued insurance reserves 4,562 4,562
Other liabilities 1,582 2,833
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized,
3,059,808 and 3,051,064 shares issued
and outstanding, respectively 306 305
Capital in excess of par value 32,705 32,154
Retained earnings 99,708 98,087
Accum. other comprehensive income (loss), net 26 (85)
Total shareholders' equity 132,745 130,461
Total liabilities and shareholders' equity $258,148 253,530
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
THREE MONTHS
ENDED DECEMBER 31,
2007 2006
(restated)
Revenues:
Transportation $ 32,919 31,724
Real estate 6,281 5,400
Total revenues (including revenue from related
parties of $2,188 and $2,062, respectively) 39,200 37,124
Cost of operations:
Transportation 30,136 27,129
Real estate 2,841 2,536
Total cost of operations 32,977 29,665
Gross profit:
Transportation 2,783 4,595
Real estate 3,440 2,864
Total gross profit 6,223 7,459
Selling, general and administrative expense
(including expenses paid to a related party of
$36 and $48, respectively) (see Note 10) 5,387 3,058
Operating profit 836 4,401
Gain on condemnation of land 2,507 -
Interest income and other 326 32
Equity in loss of joint venture (10) -
Interest expense (1,380) (891)
Income before income taxes 2,279 3,542
Provision for income taxes ( 874) (1,382)
Net income $ 1,405 2,160
Earnings per common share:
Basic $ .46 .72
Diluted $ .45 .69
Number of shares (in thousands)
used in computing:
-basic earnings per common share 3,042 2,997
-diluted earnings per common share 3,150 3,109
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006
(In thousands)
(Unaudited)
2007 2006
(restated)
Cash flows from operating activities:
Net income $ 1,405 2,160
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,549 3,557
Deferred income taxes 113 24
Equity in loss of joint venture 10 -
Gain on sale of equipment and real estate 18 (461)
Gain on condemnation of land (2,507) -
Stock-based compensation 378 190
Net changes in operating assets and liabilities:
Accounts receivable 733 177
Inventory of parts and supplies (59) 82
Prepaid expenses and other current assets 327 (1,352)
Other assets (345) (194)
Accounts payable and accrued liabilities 2,278 (999)
Income taxes payable 686 1,235
Long-term insurance reserves and other long-term
liabilities (1,251) 74
Net cash provided by operating activities 5,335 4,493
Cash flows from investing activities:
Purchase of transportation group property and equipment (2,751) (3,922)
Purchase of real estate group property and equipment (4,042) (2,389)
Investment in joint venture (250) (3,118)
Proceeds from the sale of property, plant and equipment 20 531
Net cash used in investing activities (7,023) (8,898)
Cash flows from financing activities:
Net increase in revolving debt - 5,239
Repayment of long-term debt (917) (627)
Excess tax benefits from exercises of stock options
and vesting of restricted stock 191 89
Exercise of employee stock options 202 126
Net cash (used in) provided by financing activities (524) 4,827
Net (decrease) increase in cash and cash equivalents (2,212) 422
Cash and cash equivalents at beginning of period 26,944 154
Cash and cash equivalents at end of the period $24,732 576
During the quarter ended December 31, 2007 the Company recorded a non-cash
transaction for accounts receivable from condemnation in the amount of $5,860.
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
(Unaudited)
Restatement
The accompanying consolidated financial statements and these notes
for the quarter ended December 31, 2007 have been restated to
reflect the accounting for the taking by condemnation in December
2007 of 28 acres of land.
The Company previously reported in its Form 10-K for the year ended
September 30, 2007, that 28 acres of the Company's 101 acre tract of
land in Prince William County, Virginia, was subject to taking by
the Virginia Department of Transportation ("VDOT"). Management
recently learned that the VDOT took title to 28 acres on December
13, 2007 by filing a Certificate of Take and depositing with the
Court $5,860,000, representing VDOT's estimate of the fair market
value of the property. The Prince William County Property was
purchased in December 2005 and the cost of the 28 acres taken by
VDOT was $3,353,000. The gain was $1,544,000 after income taxes of
$963,000. The Company intends to find and purchase replacement
property with the condemnation proceeds.
The following table sets forth the effects of the restatement on
certain line items in our previously reported financial statements
(in thousands except per share amounts):
Three Months Ended
December 31, 2007
(restated) (previously
Consolidated Statement of Income reported)
Operating profit $ 836 836
Gain on condemnation of land 2,507 -
Interest income and other 326 326
Equity in loss of joint venture (10) (10)
Interest expense (1,380) (1,380)
Income (loss) before income taxes 2,279 (228)
Provision for income taxes ( 874) 89
Net income (loss) $ 1,405 (139)
Earnings (loss) per common share:
Basic $ .46 (.05)
Diluted $ .45 (.05)
Number of shares (in thousands)
used in computing:
-basic earnings (loss) per common share 3,042 3,042
-diluted earnings (loss) per common share 3,150 3,042
December 31, 2007
(restated) (previously
Consolidated Balance Sheet reported)
Assets
Accounts receivable from condemnation $ 5,860 $ -
Total current assets 48,555 42,695
Net Property, plant and equipment 192,542 195,895
Total assets 258,148 255,641
Liabilities and Shareholders' Equity
Deferred income taxes 16,809 15,846
Retained Earnings 99,708 98,164
Total shareholders' equity 132,745 131,201
Total liabilities and shareholders' equity $258,148 $255,641
(1) Basis of Presentation. The accompanying consolidated financial
statements include the accounts of Patriot Transportation Holding,
Inc. and its subsidiaries (the "Company"). Investment in the 50% owned
Brooksville Joint Venture is accounted for under the equity method of
accounting. 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
three months ended December 31, 2007 are not necessarily indicative of
the results that may be expected for the fiscal year ending September
30, 2008. 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, 2007.
(2) 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 Company adopted the provisions of FIN 48 on October 1,
2007. As a result of the adoption of FIN 48, the Company recognized a
$216,000 reduction in the liability for unrecognized tax benefits,
which was accounted for as an increase to retained earnings. As of
October 1, the Company had a liability for unrecognized tax benefits
of $537,000, which is included in income taxes payable. If recognized,
$337,000 of unrecognized tax benefits would impact the Company's
effective tax rate. Interest and penalties of $200,000 has been
reflected as a component of the total liability. It is the Company's
policy to recognize as additional income tax expense the items of
interest and penalties directly related to income taxes. For the three
months ended December 31, 2007, there were no material changes to the
total amount of unrecognized tax benefits. The Company does not expect
any significant increases or decreases for uncertain tax positions
during the next 12 months. The Company files income tax returns in
the U.S. and various states which are subject to audit for up to five
years after filing.
In September 2006, the FASB issued Statement No. 157, Fair Value
Measurement (SFAS 157). The Statement defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This Statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. Management believes that the
adoption of SFAS 157 will only require additional disclosure on the
fair value of its goodwill, asset retirement obligations, and long-
term mortgage notes payable and as such will not have a material
impact on the consolidated financial results of the Company.
(3) 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 primarily petroleum related bulk
liquids, 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
December 31,___
2007 2006
Revenues:
Transportation $ 32,919 31,724
Real estate 6,281 5,400
$ 39,200 37,124
Operating profit
Transportation $ 646 2,412
Real estate 3,440 2,864
Corporate expenses (3,250) (875)
$ 836 4,401
Identifiable assets December 31, September 30,
2007 2007
(restated)
Transportation $ 55,578 56,101
Real estate 174,491 168,587
Cash items 24,732 26,944
Unallocated corporate assets 3,347 1,898
$258,148 253,530
(4) Long-Term debt. Long-term debt is summarized as follows (in
thousands):
December 31, September 30,
2007 2007
5.6% to 8.6% mortgage notes
due in installments through 2027 83,017 83,934
Less portion due within one year 3,825 3,762
$ 79,192 80,172
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 in the Revolver. A commitment
fee of 0.2% 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 December 31, 2007, approximately $28,000,000 was
available for borrowing. The Company is in compliance with all
restrictive covenants as of December 31, 2007. No amounts were
outstanding as of December 31 and September 30, 2007.
(5) Related Party Transactions. The Company was a related party to
Florida Rock Industries, Inc. (FRI) because four of the Company's
directors also served until November 16, 2007, as directors of FRI and
such directors owned approximately 24% of the stock of FRI and 47% of
the stock of the Company. The Company derived 5.4% of its consolidated
revenue from FRI in fiscal 2007. FRI merged with Vulcan Materials
Company ("Vulcan") in November 2007.
The Company, through its transportation subsidiaries, hauls
commodities by tank and flatbed trucks for the Florida Rock Division
of Vulcan. Charges for these services are based on prevailing market
prices. The real estate subsidiaries leased certain construction
aggregates mining and other properties to Vulcan. Vulcan currently
continues to operate under the same mining royalty agreements and
leases. The Company also outsourced certain administrative functions
to Vulcan. The cost of these administrative functions was $36,000 and
$48,000 for the three months ended December 31, 2007 and 2006,
respectively.
On October 4, 2006, a subsidiary of the Company (FRP) entered into a
Joint Venture Agreement with Florida Rock Industries, Inc. (now
Vulcan) to form Brooksville Quarry, LLC, a real estate joint venture
to develop approximately 4,300 acres of land near Brooksville,
Florida. The venture is jointly controlled by Vulcan and FRP, and
they each have a mandatory obligation to fund additional capital
contributions of up to $2 million. Capital contributions of $750,000
have been made by each party as of December 31, 2007. Distributions
will be made on a 50-50 basis except for royalties and depletion
specifically allocated to FRP. Other income for the three months
ended December 31, 2007 includes a loss of $10,000 representing the
Company's equity in the loss of the joint venture.
(6) 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
ENDED DECEMBER 31,
2007 2006
(restated)
Weighted average common shares
outstanding during the
period - shares used for
basic earnings per share 3,042 2,997
Common shares issuable under
share based payment plans
which are potentially dilutive 108 112
Common shares used for diluted
earnings per share 3,150 3,109
Net income $ 1,405 2,160
Earnings per common share
Basic $ .46 .72
Diluted $ .45 .69
For the three months ended December 31, 2007 and 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 three months ended December 31,
2007 and 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.
(7) Stock-Based Compensation Plans. As more fully described in Note
7 to the Company's notes to the consolidated financial statements in
the Company's Annual Report on Form 10-K for the year ended
September 30, 2007, the Company's stock-based compensation plans
permit the grant of stock options, stock appreciation rights,
restricted stock awards, restricted stock units, of stock awards.
The number of common shares available for future issuance was
276,400 at December 31, 2007.
The Company recorded the following stock compensation expense in its
consolidated statement of income (in thousands):
Three Months ended
December 31,__
2007 2006
Stock options issued prior to 123R adoption $ 105 131
Restricted stock awards granted in 2006 54 59
Modification to accelerate prior awards
made in connection with CEO retirement 219 -
378 190
Deferred income tax benefit 147 73
Stock compensation net of tax expense $ 231 117
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
September 30, 2007 266,611 $31.42 5.9
Granted 0 $ 0 $ 0
Exercised 8,744 $22.98 $ 105
Forfeited 0 $ 0
Outstanding at
December 31, 2007 257,867 $31.70 5.6 $ 4,116
Exercisable at
December 31, 2007 229,467 $30.41 5.5 $ 3,554
Vested during
three months ended
December 31, 2007 35,500 $ 510
The aggregate intrinsic value of exercisable in-the-money options was
$14,466,000 and the aggregate intrinsic value of all outstanding
options was $15,923,000 based on the market closing price of $93.45 on
December 31, 2007 less exercise prices. Gains of $604,000 were
realized by option holders during the three months ended December 31,
2007. The realized tax benefit from options exercised for the three
months ended December 31, 2007 was $232,000. Total compensation cost
of options granted but not yet vested as of December 31, 2007 was
$347,000, which is expected to be recognized over a weighted-average
period of 1.9 years. The first quarter of fiscal 2008 includes stock
compensation expense of $183,000 related to the modification to
accelerate the vesting of 4,000 shares in connection with the
retirement benefits for John E. Anderson, the Company's President and
CEO, whose retirement is effective February 6, 2008.
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
September 30, 2007 10,800 $63.65 2.3
Granted 0 $ 0
Vested 0 $ 0
Forfeited 0
Outstanding at
December 31, 2007 10,800 $63.65 2.0 $ 687
Total compensation cost of restricted stock granted but not yet vested
as of December 31, 2007 was $396,000 which is expected to be
recognized over a weighted-average period of 2.0 years. The first
quarter of fiscal 2008 includes stock compensation expense of $36,000
related to the modification to accelerate the vesting of 400 shares in
connection with retirement benefits for John E. Anderson, the
Company's President and CEO, whose retirement is effective February 6,
2008.
(8) Contingent liabilities. Certain of the Company's subsidiaries are
involved in litigation on a number of matters and are subject to
certain claims which arise in the normal course of business. The
Company has retained certain self-insurance risks with respect to
losses for third party liability and property damage. In the opinion
of management none of these matters are expected to have a material
adverse effect on the Company's consolidated financial condition,
results of operations or cash flows.
(9) Customer Concentration. The transportation segment primarily
serves customers in the petroleum and building and construction
industries. Petroleum customers accounted for approximately 72% and
building and construction customers accounted for approximately 28% of
transportation segment revenues for the three months ended December
31, 2007.
During the first three months of fiscal 2008, the transportation
segment's ten largest customers accounted for approximately 53.9% of
the transportation segment's revenue. One of these customers accounted
for 15.2% of the transportation segment's revenue. The loss of any one
of these customers would have an adverse effect on the Company's
revenues and income. Accounts receivable from the transportation
segment's ten largest customers was $3,851,000 and $4,766,000 at
December 31, 2007 and 2006 respectively.
(10) CEO Retirement. On December 5, 2007, John E. Anderson, age 62,
announced his retirement as the Company's President and Chief
Executive Officer effective February 6, 2008. Mr. Anderson will
continue to serve on the Company's Board of Directors. Also on
December 5, 2007, the board of directors approved certain retirement
benefits to Mr. Anderson in recognition of his years of service to the
Company. Upon Mr. Anderson's retirement, the Company will pay him
approximately $4,731,000 for his accrued benefit under the Management
Security Plan, the fair value of his outstanding stock options and
restricted stock and an additional bonus. The Company expects that
the total impact of these payments on the Company's earnings for
fiscal 2008 to be approximately $2,371,000 before taxes which is
included in selling, general, and administrative expense. On December
5, 2007, the Company's Board of Directors appointed John D. Baker II
to succeed Mr. Anderson as President and Chief Executive Officer.
The following tables detail the estimated expense and payments to be
made (in thousands):
Expenses
Additional bonus to be paid $2,152
Expense related to accelerated vesting of options 183
Expense for accelerated vesting of restricted stock 36
Total expense recorded in first quarter fiscal 2008 $2,371
Payments
Total expense recorded in first quarter fiscal 2008 $2,371
Previously accrued benefit MSP Retirement Plan 1,331
Gain on vested stock options to be repurchased 1,011
Restricted shares vesting 1/1/08 to be repurchased 18
Total payments to be made $4,731
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview - The Company has two business segments: transportation and
real estate.
The Company's transportation business is conducted through two wholly
owned subsidiaries, Florida Rock & Tank Lines, Inc. ("Tank Lines"),
and SunBelt Transport, Inc. ("SunBelt"). Tank Lines is a Southeastern
U.S. based transportation company concentrating in the hauling of
primarily petroleum related bulk liquids and dry bulk commodities by
tank trailers. SunBelt serves the flatbed portion of the trucking
industry primarily in the Southeastern U.S., hauling mainly
construction materials.
The Company's real estate activities are conducted through two wholly
owned subsidiaries. Florida Rock Properties, Inc. ("Properties") and
FRP Development Corp. ("Development"). Properties owns a number of
mining and other properties that are leased to Vulcan Materials
Company ("Vulcan"). Properties also owns certain other real estate for
investment. Development owns, manages and develops commercial
warehouse/office rental properties in the Mid-Atlantic United States.
The Company's operations are influenced by a number of external and
internal factors. External factors include levels of economic and
industrial activity in the United States and the Southeast, driver
availability and cost, regulations regarding driver qualifications and
hours of service, petroleum product usage in the Southeast which is
driven in part by tourism and commercial aviation, fuel costs,
construction activity in the Southeast, Vulcan'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 Mid-Atlantic 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. Financial results of the Company
for any individual quarter are not necessarily indicative of results
to be expected for the year.
Comparative Results of Operations for the Three Months Ended
December 31, 2007 and 2006
Consolidated Results. - Net income for the first quarter of fiscal
2008 was $1,405,000, a decrease of $755,000 compared to net income of
$2,160,000 for the same period last year. Diluted earnings per common
share for the first quarter of fiscal 2008 were $0.45 compared to
$0.69 in the first quarter of fiscal 2007. Net income for the first
quarter of fiscal 2008 benefited from a gain on condemnation of land
of $1,544,000, net of income taxes but was adversely impacted by the
accrual of retirement benefits of $1,460,000, net of income tax
benefits, for the Company's President and CEO, whose retirement is
effective February 6, 2008. The transportation segment was negatively
impacted in the first quarter of fiscal 2008 from continuing adverse
demand, fuel expense and operating disruptions for the flatbed
trucking operations. The first quarter of fiscal 2007 benefited from
gains on equipment sales and prior period insurance recoveries.
Transportation Results
Three Months Ended December 31
(dollars in thousands) ___2007 % 2006 %_
Transportation revenue $ 27,762 84% 27,889 88%
Fuel surcharges 5,157 16% 3,835 12%
Revenues 32,919 100% 31,724 100%
Compensation and benefits 12,624 38% 12,104 38%
Fuel expenses 8,346 26% 6,744 21%
Insurance and losses 3,273 10% 2,875 9%
Depreciation expense 2,221 7% 2,283 7%
Other, net 3,672 11% 3,123 10%
Cost of operations 30,136 92% 27,129 85%
Gross profit $ 2,783 8% 4,595 15%
Transportation segment revenues were $32,919,000 in the first quarter
of 2008 an increase of $1,195,000 over the same quarter last year.
Excluding fuel surcharges, revenue per mile increased 2.7% over the
same quarter last year. Decreased construction material freight
demand and pricing softness from the downturn in housing pushed
revenues down in the flatbed operation compared to the same quarter
last year. Revenue miles in the current quarter were down 3.1%
compared to the first quarter of 2007 from reduced loads in the
flatbed portion of the transportation segment.
The Transportation segment's cost of operations in the first quarter
of 2008 increased as a percentage of revenue compared to the same
quarter last year. Average fuel cost per gallon in the first quarter
of 2008 increased 31% over the same period last year. This resulted
in an increase in fuel cost of $280,000 in excess of the increase in
fuel surcharge revenue in the flatbed portion. Insurance and losses
increased due to $357,000 of prior period recoveries in the same
quarter last year. Other expense increased $455,000 due to higher
gains on equipment sales the same quarter last year along with an
increase of $156,000 in vehicle tires and maintenance.
Real Estate Results
Three Months Ended December 31
(dollars in thousands) ___2007 % 2006 %_
Royalties and rent $ 1,976 31% 1,602 30%
Developed property rentals 4,305 69% 3,798 70%
Total Revenue 6,281 100% 5,400 100%
Mining and land rent expenses 565 9% 396 7%
Developed property expenses 2,276 36% 2,140 40%
Cost of Operations 2,841 45% 2,536 47%
Gross profit $ 3,440 55% 2,864 53%
Real Estate segment revenues for the first quarter of fiscal 2008 were
$6,281,000, an increase of $881,000 or 16.3% over the same quarter
last year. Lease revenue from developed properties increased $507,000
or 13.3%, due to an increase in occupied square footage along with
higher rental rates on new leases. Royalties and rent increased
$374,000 or 23.3% despite reduced tons mined because of an increase of
$311,000 in revenues from timber harvesting and increases in minimum
rent requirements effective in August 2007 and October 2007 pursuant
to terms contained in several mining leases.
Real estate segment expenses increased $305,000 to $2,841,000 during
the first quarter of fiscal 2008 compared to $2,536,000 for the same
quarter last year. Expenses related to developed properties increased
as a result of new building additions, increased staffing and
professional fees to facilitate continuing portfolio expansion.
Consolidated Results
Gross Profit - Consolidated gross profit was $6,223,000 in the first
quarter of fiscal 2008, a decrease of $1,236,000 or 16.6% compared to
$7,459,000 in the same period last year. Gross profit in the
transportation segment decreased $1,812,000 or 39.4% due to the
increase in cost of operations along with decreased freight demand,
resulting in reduced revenue miles and lower pricing in the flatbed
portion. Gross profit in the real estate segment increased $576,000 or
20.1% from the first quarter 2007, due to higher rental rates on new
leases and $311,000 increased gross profit from timber harvesting.
Selling, general and administrative expense - Selling, general and
administrative expenses increased $2,329,000 over the same quarter
last year. The current year includes $2,371,000 accrual of retirement
benefits for the Company's President and Chief Executive Officer.
Gain from condemnation of land - Gain from condemnation of land was
$2,507,000 in the first quarter of fiscal 2008 resulting from the
taking by the Virginia Department of Transportation ("VDOT") of 28
acres on December 13, 2007 by filing a Certificate of Take and
depositing with the Court $5,860,000, representing VDOT's estimate of
the fair market value of the property. The Prince William County
Property was purchased in December 2005 and the cost of the 28 acres
taken by VDOT was $3,353,000.
Interest expense - Interest expense increased $489,000 over the same
quarter last year due to lower capitalized interest and interest on
new mortgage debt.
Income taxes - Income tax expense decreased $508,000 over the same
quarter last year due to reduced earnings.
Net income - Net income for the first quarter of fiscal 2008 was
$1,405,000, a decrease of $755,000 compared to net income of
$2,160,000 for the same period last year. Diluted earnings per common
share for the first quarter of fiscal 2008 were $0.45 compared to
$0.69 in the first quarter of fiscal 2007. Net income for the first
quarter of fiscal 2008 benefited from a gain on condemnation of land
of $1,544,000, net of income taxes but was adversely impacted by the
accrual of retirement benefits of $1,460,000, net of income tax
benefits, for the Company's President and CEO, whose retirement is
effective February 6, 2008. The transportation segment was negatively
impacted in the first quarter of fiscal 2008 from continuing adverse
demand, fuel expense and operating disruptions for the flatbed
trucking operations. The first quarter of fiscal 2007 benefited from
gains on equipment sales and prior period insurance recoveries.
Liquidity and Capital Resources. For the first three months of fiscal
2008, the Company used cash provided by operating activities of
$5,335,000 and cash balances to purchase $6,793,000 in property and
equipment, to invest $250,000 in the Brooksville Joint Venture, and to
make $917,000 scheduled payments on long-term debt. Cash decreased
$2,212,000.
Cash flows from operating activities for the first three months of
fiscal 2008 were $842,000 higher than the same period last year
primarily reflecting net changes in accounts payable due to the timing
of payments in our payment cycle.
Cash flows used in investing activities for the first three months of
fiscal 2008 were $1,875,000 lower than the same period last year due
to the initial investment in the Brooksville joint venture in fiscal
2007, fewer tractors purchased in fiscal 2008 and more real estate
development in fiscal 2008.
Cash flows from financing activities for the first three months of
fiscal 2008 were $5,351,000 lower than the same period last year due
to the reduced borrowings on the Revolver.
The Company has a $37,000,000 revolving credit agreement (the
Revolver) which had a zero balance as of December 31, 2007. The
Revolver contains restrictive covenants including limitations on
paying cash dividends. Under these restrictions, as of December 31,
2007, approximately $28,000,000 was available for borrowing. The
Revolver will expire on December 31, 2009.
On July 31, 2007, the Company borrowed $36,000,000 from Prudential
Insurance Company of America. The non-recourse mortgage loans fully
amortize on a level term over 20 years and bear interest at a fixed
rate of 5.74%. The loans are secured by seven developed properties
with an aggregate net book value of $31,074,000 at June 30, 2007. A
portion of the proceeds were used to repay balances outstanding under
the Company's Revolver and the remaining proceeds will be used to fund
new construction, purchase land for future development, and for
general corporate purposes. Net interest expense for fiscal 2008 is
expected to increase versus fiscal 2007 by approximately $1,000,000
due to lower capitalized interest and interest rates on mortgage debt
exceeding short-term cash investments.
The Company had $17,222,000 of irrevocable letters of credit
outstanding as of December 31, 2007. 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 December 31, 2007, $3,490,000 was authorized to
repurchase the Company's common stock. No shares were repurchased
during the first three months of fiscal 2008. The Company does not
currently pay any dividends on common stock.
The Company has committed to make additional capital contributions of
up to $1,250,000 to Brooksville Quarry, LLC in connection with a joint
venture with Vulcan.
The Virginia Department of Transportation took title to 28 acres of
the Company's land on December 13, 2007 by filing a Certificate of
Take and depositing with the Court $5,860,000. The Company is making
application to the Court for these funds and intends to use them for
general corporate purposes until the Company identifies and purchases
replacement property under IRS involuntary conversion rules.
The Company will make cash payments of retirement benefits to John E.
Anderson of $4.7 million during the second quarter of fiscal 2008.
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.
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 Company adopted the provisions of FIN 48 on October 1,
2007. As a result of the adoption of FIN 48, the Company recognized a
$216,000 reduction in the net liability for unrecognized tax benefits,
which was accounted for as an increase to retained earnings. As of
October 1, the Company had a liability for unrecognized tax benefits
of $537,000, which is included in income taxes payable. If recognized,
$337,000 of unrecognized tax benefits would impact the Company's
effective tax rate. Interest and penalties of $200,000 has been
reflected as a component of the total liability. It is the Company's
policy to recognize as additional income tax expense the items of
interest and penalties directly related to income taxes. For the three
months ended December 31, 2007, there were no material changes to the
total amount of unrecognized tax benefits. The Company does not expect
any significant increases or decreases for uncertain tax positions
during the next 12 months. The Company files income tax returns in
the U.S. and various states which are subject to audit for up to five
years after filing.
In September 2006, the FASB issued Statement No. 157, Fair Value
Measurement (SFAS 157). The Statement defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. This Statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. Management believes that the
adoption of SFAS 157 will only require additional disclosure on the
fair value of its goodwill, asset retirement obligations, and long-
term mortgage notes payable and as such will not have a material
impact on the consolidated financial results of the Company.
Related Party Transactions. The Company was a related party to Florida
Rock Industries, Inc. (FRI) because four of the Company's directors
also served until November 16, 2007, as directors of FRI and such
directors owned approximately 24% of the stock of FRI and 47% of the
stock of the Company. The Company derived 5.4% of its consolidated
revenue from FRI in fiscal 2007. FRI merged with Vulcan Materials
Company ("Vulcan") in November 2007.
The Company, through its transportation subsidiaries, hauls
commodities by tank and flatbed trucks for the Florida Rock Division
of Vulcan. Charges for these services are based on prevailing market
prices. The real estate subsidiaries leased certain construction
aggregates mining and other properties to Vulcan. Vulcan currently
continues to operate under the same mining royalty agreements and
leases. The Company also outsourced certain administrative functions
to Vulcan. The cost of these administrative functions was $36,000 and
$48,000 for the three months ended December 31, 2007 and 2006,
respectively.
On October 4, 2006, a subsidiary of the Company (FRP) entered into a
Joint Venture Agreement with Florida Rock Industries, Inc. (now
Vulcan) to form Brooksville Quarry, LLC, a real estate joint venture
to develop approximately 4,300 acres of land near Brooksville,
Florida. The venture is jointly controlled by Vulcan and FRP, and
they each have a mandatory obligation to fund additional capital
contributions of up to $2 million. Capital contributions of $750,000
have been made by each party as of December 31, 2007. Distributions
will be made on a 50-50 basis except for royalties and depletion
specifically allocated to FRP. Other income for the three months
ended December 31, 2007 includes a loss of $10,000 representing the
Company's equity in the loss of the joint venture.
Summary and Outlook. The flatbed portion of the transportation
segment continues to face severe industry over capacity and
significant disruptions to profitability from poor freight demand,
utilization disruption and pricing softness resulting from the housing
downturn as well as high fuel expenses. This downturn is expected to
continue to impact the operations of the flatbed portion of our
transportation business throughout calendar 2008.
The Company's real estate development business has benefited from
active inquiry from prospective tenants for its warehouse-office
product and corresponding favorable occupancy rates. The Company also
continues to explore opportunities for development of various
properties. The Company expects to continue expanding its portfolio of
warehouse-office products consistent with maintaining a watchful eye
on national and regional economic health.
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 cash and cash equivalents 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 cash
and cash equivalents. 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 cash and cash equivalents 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.
As of December 31, 2007, 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, the Company's CEO, CFO and CAO concluded
that the Company's disclosure controls and procedures were not
effective at December 31, 2007, because these controls and procedures
failed to assure that the information regarding the condemnation of
the Company's property in Prince William County, Virginia was promptly
disclosed, resulting in this restatement.
The Company previously reported in its Form 10-K for the year ended
September 30, 2007, that 28 acres of the Company's 101 acre tract of
land in Prince William County, Virginia, was subject to taking by the
Virginia Department of Transportation ("VDOT"). VDOT communicated to
the Company on or about December 13, 2007, that they confirmed the
offer of $5,860,000 and that VDOT had filed or was filing a
Certificate of Take. VDOT forwarded a copy of the unrecorded
Certificate of Take to a subsidiary of the Company on December 17,
2007, together with a letter stating that VDOT would proceed with
condemnation if an agreement could not be made in the near future, and
that the $5,860,000 was available to the Company. Management of the
subsidiary did not understand from these communications, particularly
in light of the ongoing negotiations with VDOT, that the Certificate
of Take had in fact been recorded and that title to the 28 acres had
been transferred to VDOT. Management of the subsidiary came to
understand these facts and communicated them to management of the
Company in late February 2008. Management has performed an extensive
review of this transaction in an effort to ensure that this amendment
reflects all necessary adjustments. We believe that this review, the
investigation and analysis of the facts, research of applicable state
condemnation laws, increased scrutiny concerning any future proposed
condemnations and the Company's continuing efforts to evaluate and
enhance disclosure controls will provide reasonable assurance that any
similar transactions will be accounted for in accordance with
generally accepted accounting principles in our future filings.
There have been no changes in the Company's internal controls over
financial reporting during the first 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 1A. RISK FACTORS
In addition to the other information set forth in this report, you
should carefully consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our Annual Report on Form 10-K for the year ended
September 30, 2007, which could materially affect our business,
financial condition or future results. The risks described in our
Annual Report on Form 10-K are not the only risks facing our
Company. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating
results.
Item 6. EXHIBITS
(a) Exhibits. The response to this item is submitted as a
separate Section entitled "Exhibit Index", 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.
March 12, 2008 PATRIOT TRANSPORTATION HOLDING, INC.
John D. Baker II
John D. Baker II
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/A FOR THE QUARTER ENDED DECEMBER 31, 2007
EXHIBIT INDEX
(10)(k) Joint Venture Agreement between Florida Rock
Industries, Inc. and Florida Rock Properties,
incorporated by reference to an exhibit filed
with Form 10-K for the fiscal year ended
September 30, 2006. File No. 33-26115.
(10)(l) Letter Agreement between the Company and John E.
Anderson, filed herewith.
(10)(m) Letter Agreement between the Company and David H.
deVilliers, Jr., filed herewith.
(10)(n) Letter Agreement between the Company and Robert
E. Sandlin, filed herewith.
(10)(o) Letter Agreement between the Company and Terry S.
Phipps, filed herewith.
(10)(p) Letter Agreement between the Company and John D.
Klopfenstein, filed herewith.
(14) Financial Code of Ethical Conduct between the
Company, Chief Executive Officers and Financial
Managers, as revised on January 28, 2004, which
is available on the Company's website at
www.patriottrans.com.
(31)(a) Certification of John D. Baker.
(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
under Section 906 of the Sarbanes-Oxley Act of
2002.