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, 2010
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.)
501 Riverside Ave., Suite 500, Jacksonville, Florida 32202
(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 has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes[ ] 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, 2010:
3,061,696 shares of $.10 par value common stock.
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2010
CONTENTS
Page No.
Preliminary Note Regarding Forward-Looking Statements 3
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risks 26
Item 4. Controls and Procedures 27
Part II. Other Information
Item 1A. Risk Factors 28
Item 6. Exhibits 28
Signatures 29
Exhibit 31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 31
Exhibit 32 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 34
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; fuel
costs and the Company's ability to recover fuel surcharges; 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 in our markets; interest
rates, inflation and general economic conditions; demand for flexible
warehouse/office facilities in the Baltimore-Washington-Northern Virginia
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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share data)
June 30, September 30,
Assets 2010 2009
Current assets:
Cash and cash equivalents $ 15,968 15,803
Accounts receivable (including related party of
$574 and $336 and net of allowance for doubtful
accounts of $100 and $110, respectively) 6,475 5,286
Notes receivable 1,217 1,158
Inventory of parts and supplies 676 616
Deferred income taxes 823 104
Prepaid tires on equipment 1,168 1,211
Prepaid taxes and licenses 232 1,703
Prepaid insurance 707 2,390
Prepaid expenses, other 83 93
Assets of discontinued operations 748 1,519
Total current assets 28,097 29,883
Property, plant and equipment, at cost 293,900 289,336
Less accumulated depreciation and depletion 94,260 90,323
Net property, plant and equipment 199,640 199,013
Real estate held for investment, at cost 6,933 6,933
Investment in joint venture 7,296 6,858
Goodwill 1,087 1,087
Notes receivable, less current portion 4,707 5,647
Unrealized rents 3,356 3,346
Other assets 3,803 4,087
Total assets $254,919 256,854
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,618 2,822
Federal and state income taxes payable 795 2,355
Accrued payroll and benefits 4,662 4,945
Accrued insurance 2,658 3,190
Accrued liabilities, other 849 1,102
Long-term debt due within one year 4,512 4,293
Liabilities of discontinued operations 1,726 3,660
Total current liabilities 17,820 22,367
Long-term debt, less current portion 68,448 71,860
Deferred income taxes 15,545 15,679
Accrued insurance 2,774 2,995
Other liabilities 1,553 1,545
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,
3,061,696 and 3,053,036 shares issued
and outstanding, respectively 306 305
Capital in excess of par value 36,852 35,858
Retained earnings 111,602 106,226
Accumulated other comprehensive income, net 19 19
Total shareholders' equity 148,779 142,408
Total liabilities and shareholders' equity $254,919 256,854
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,
2010 2009 2010 2009
Revenues:
Transportation $23,064 22,604 66,803 69,108
Mining royalty land 1,247 1,161 3,243 3,941
Developed property rentals 4,047 4,325 13,322 13,662
Total revenues (including revenue
from related parties of $1,355, $1,600,
$4,856 and $4,809, respectively) 28,358 28,090 83,368 86,711
Cost of operations:
Transportation 20,349 19,939 60,720 62,690
Mining royalty land 368 403 1,040 1,247
Developed property rentals 3,022 3,191 9,874 9,484
Unallocated corporate 138 270 1,144 1,414
Total cost of operations 23,877 23,803 72,778 74,835
Operating profit:
Transportation 2,715 2,665 6,083 6,418
Mining royalty land 879 758 2,203 2,694
Developed property rentals 1,025 1,134 3,448 4,178
Unallocated corporate (138) (270) (1,144) (1,414)
Total operating profit 4,481 4,287 10,590 11,876
Interest income and other 106 2 340 30
Equity in loss of joint venture - - (2) (5)
Interest expense (966) (892) (2,988) (2,542)
Income before income taxes 3,621 3,397 7,940 9,359
Provision for income taxes (1,121) (1,184) (2,780) (3,507)
Income from continuing operations 2,500 2,213 5,160 5,852
Income (loss) from
discontinued operations, net 99 (2,615) 217 (3,098)
Net income $ 2,599 (402) 5,377 2,754
Earnings per common share:
Income from continuing operations -
Basic $ .82 .73 1.69 1.93
Diluted $ .80 .70 1.64 1.88
Discontinued operations (Note 11) -
Basic $ .03 (.86) .07 (1.02)
Diluted $ .03 (.83) .07 (1.00)
Net income - basic $ .85 (.13) 1.76 .91
Net income - diluted $ .83 (.13) 1.71 .88
Number of shares (in thousands)
used in computing:
-basic earnings per common share 3,061 3,044 3,057 3,039
-diluted earnings per common share 3,142 3,123 3,140 3,114
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2010 AND 2009
(In thousands)
(Unaudited)
2010 2009
Cash flows from operating activities:
Net income $ 5,377 2,754
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Depreciation, depletion and amortization 8,647 9,515
Deferred income taxes (853) (425)
Equity in loss of joint venture 2 5
(Gain) on sale of equipment (311) (718)
(Income) loss from discontinued operations, net (217) 3,098
Stock-based compensation 737 726
Net changes in operating assets and liabilities:
Accounts receivable (1,189) 3,878
Inventory of parts and supplies (60) 213
Prepaid expenses and other current assets 3,207 3,484
Other assets (176) (56)
Accounts payable and accrued liabilities (1,272) (5,045)
Income taxes payable (1,560) 1,075
Long-term insurance liabilities and other long-term
liabilities (213) (42)
Net cash provided by operating activities of
continuing operations 12,119 18,462
Net cash (used in) provided by operating activities of
discontinued operations (946) 1,235
Net cash provided by operating activities 11,173 19,697
Cash flows from investing activities:
Purchase of transportation group property and equipment (6,433) (3,064)
Investments in mining royalty land segment (41) -
Investments in developed property rentals segment (2,843) (9,762)
Investment in joint venture (445) (350)
Proceeds from the sale of property, plant and equipment 809 742
Proceeds received on note for sale of Sunbelt 881 -
Net cash used in investing activities of continuing
operations (8,072) (12,434)
Net cash used in investing activities of discontinued
operations - (319)
Net cash used in investing activities (8,072) (12,753)
Cash flows from financing activities:
Repayment of long-term debt (3,193) (2,989)
Excess tax benefits from exercises of stock options
and vesting of restricted stock 65 77
Exercise of employee stock options 192 371
Net cash used in financing activities (2,936) (2,541)
Net increase (decrease) in cash and cash equivalents 165 4,403
Cash and cash equivalents at beginning of period 15,803 7,778
Cash and cash equivalents at end of the period $ 15,968 12,181
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(Unaudited)
(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 nine months ended June 30, 2010 are not necessarily indicative
of the results that may be expected for the fiscal year ending
September 30, 2010. 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, 2009.
In connection with the presentation adopted in March, 2010 of our real
estate operations as two reportable segments, two properties in
Washington, D.C. and two properties in Duval County, Florida were
reclassified out of the Royalties and rent division and the division
was renamed the Mining royalty land segment. Historical results have
been reclassified to conform to the new segment presentation.
(2) Recent Accounting Pronouncements. On October 1, 2009, the
Company adopted fair value measurement standards codified in ASC Topic
820, "Fair Value Measurements and Disclosures" (ASC 820), for non-
financial assets and liabilities. ASC 820 defines fair value for
accounting purposes, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. On October 1,
2008, the Company adopted this standard with respect to financial
assets and liabilities and elected to defer our adoption of this
standard for non-financial assets and liabilities. The adoption of
these standards did not materially affect the consolidated financial
results of the Company.
(3) Business Segments. The Company operates in three reportable
business segments. The Company's operations are substantially in the
Southeastern and Mid-Atlantic states. The transportation segment
hauls petroleum and other liquids and dry bulk commodities by tank
trailers. The Company's real estate operations consist of two
reportable segments. The Mining royalty land segment owns real estate
including construction aggregate royalty sites and parcels held for
investment. The Developed property rentals segment acquires,
constructs, and leases office/warehouse buildings primarily in the
Baltimore/Northern Virginia/Washington area and holds real estate for
future development or related to its developments.
The Company's transportation and real estate groups operate
independently and have minimal shared overhead except for corporate
expenses. Corporate expenses are allocated in fixed quarterly amounts
based upon budgeted and estimated proportionate cost by segment.
Unallocated corporate expenses primarily include stock compensation
and corporate aircraft expenses. Reclassifications to prior period
amounts have been made to be comparable the current presentation.
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, _ _
2010 2009 2010 2009
Revenues:
Transportation $ 23,064 22,604 $ 66,803 69,108
Mining royalty land 1,247 1,161 3,243 3,941
Developed property rentals 4,047 4,325 13,322 13,662
$ 28,358 28,090 83,368 86,711
Operating profit:
Transportation $ 3,062 3,075 7,123 7,648
Mining royalty land 1,021 896 2,628 3,107
Developed property rentals 1,237 1,341 4,085 4,798
Corporate expenses:
Allocated to transportation (347) (410) (1,040) (1,230)
Allocated to mining land (142) (138) (425) (413)
Allocated to developed property (212) (207) (637) (620)
Unallocated (138) (270) (1,144) (1,414)
(839) (1,025) (3,246) (3,677)
$ 4,481 4,287 10,590 11,876
Interest expense:
Mining royalty land $ 9 18 30 56
Developed property rentals ___957 ___874 _2,958 _2,486
$ 966 892 2,988 2,542
Capital expenditures:
Transportation $ 790 250 6,433 3,064
Mining royalty land 25 - 41 -
Developed property rentals:
Capitalized interest 243 396 700 1,374
Internal labor 83 91 201 421
Real estate taxes 288 70 867 691
Other costs 256 812 1,075 7,276
$ 1,685 1,619 9,317 12,826
Depreciation, depletion and
amortization:
Transportation $ 1,536 1,676 4,605 5,058
Mining royalty land 30 31 77 101
Developed property rentals 1,257 1,279 3,805 3,800
Other 48 185 160 556
$ 2,871 3,171 8,647 9,515
Identifiable assets (less depreciation) June 30, September 30,
2010 2009
Transportation $ 43,196 43,229
Discontinued Transportation Operations 748 1,519
Mining royalty land 28,634 28,088
Developed property rentals 162,677 164,373
Cash items 15,968 15,803
Unallocated corporate assets 3,696 3,842
$254,919 256,854
(4) Long-Term debt. Long-term debt is summarized as follows (in
thousands):
June 30, September 30,
2010 2009
5.6% to 8.6% mortgage notes
due in installments through 2027 72,960 76,153
Less portion due within one year 4,512 4,293
$ 68,448 71,860
The Company has a $37,000,000 uncollateralized Revolving Credit
Agreement with three banks, which matures on December 13, 2013. The
Revolver bears interest at a rate of 1.00% over the selected LIBOR,
which may change quarterly based on the Company's ratio of
Consolidated Total Debt to Consolidated Total Capital, as defined. A
commitment fee of 0.15% per annum is payable quarterly on the unused
portion of the commitment. The commitment fee may also change
quarterly based upon the ratio described above. The Revolver contains
limitations on availability and restrictive covenants including
limitations on paying cash dividends. Letters of credit in the amount
of $13,263,000 were issued under the Revolver. As of June 30, 2010,
$23,737,000 was available for borrowing and $41,978,000 of
consolidated retained earnings would be available for payment of
dividends. The Company was in compliance with all covenants as of
June 30, 2010.
The fair values of the Company's mortgage notes payable were estimated
based on current rates available to the Company for debt of the same
remaining maturities. At June 30, 2010, the carrying amount and fair
value of such other long-term debt was $72,960,000 and $72,679,000,
respectively.
(5) Related Party Transactions. The Company may be considered a
related party to Vulcan Materials Company (Vulcan). One director of
the Company is employed by Vulcan and is related to two other Company
directors. The Company, through its transportation subsidiaries,
hauls commodities by tank trucks for Vulcan. Charges for these
services are based on prevailing market prices. The real estate
subsidiaries lease certain construction aggregates mining and other
properties to Vulcan.
A subsidiary of the Company (FRP) has a Joint Venture Agreement with
Vulcan Materials Company (formerly Florida Rock Industries, Inc.),
Brooksville Quarry, LLC, 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 $2.1 million of which
capital contributions of $1,945,000 have been made by each party as of
June 30, 2010. Distributions will be made on a 50-50 basis except for
royalties and depletion specifically allocated to FRP. Other income
for the nine months ended June 30, 2010 and 2009 includes a loss of
$2,000 and $5,000, respectively, representing the Company's equity in
the loss of the joint venture.
(6) Earnings per share. The following details the computations of the
basic and diluted earnings per common share (dollars in thousands,
except per share amounts):
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2010 2009 2010 2009
Weighted average common shares
outstanding during the period
- shares used for basic
earnings per common share 3,061 3,044 3,057 3,039
Common shares issuable under
share based payment plans
which are potentially dilutive 81 79 83 75
Common shares used for diluted
earnings per common share 3,142 3,123 3,140 3,114
Net income $ 2,599 (402) 5,377 2,754
Earnings per common share
Basic $ .85 (.13) 1.76 .91
Diluted $ .83 (.13) 1.71 .88
For the three and nine months ended June 30, 2010, 34,570 and 37,070
shares attributable to outstanding stock options were excluded from
the calculation of diluted earnings per share because their inclusion
would have been anti-dilutive. For the three and nine months ended
June 30 2009, 20,000 shares attributable to outstanding stock options
were excluded from the calculation of diluted earnings per common
share because their inclusion would have been anti-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,
2009, the Company's stock-based compensation plan permits the grant of
stock options, stock appreciation rights, restricted stock awards,
restricted stock units, and stock awards. The number of common shares
available for future issuance was 231,970 at June 30, 2010.
The Company recorded the following stock compensation expense in its
consolidated statements of income (in thousands):
Three Months ended Nine Months ended
June 30, _ June 30,_
2010 2009 2010 2009
Stock option grants $ 68 120 335 280
Restricted stock awards granted in 2006 - 51 48 152
Annual director stock award - - 354 294
68 171 737 726
A summary of changes in outstanding options is presented below (in
thousands, except share and 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, 2009 237,930 $36.70 4.5 $ 4,246
Granted 9,070 $96.48 $ 349
Exercised 4,700 $40.79 $ 90
Forfeited - $ - $ -
Outstanding at
June 30, 2010 242,300 $38.86 3.9 $ 4,505
Exercisable at
June 30, 2010 213,730 $33.09 3.3 $ 3,529
Vested during
nine months ended
June 30, 2010 14,400 $ 384
The aggregate intrinsic value of exercisable in-the-money options was
$10,282,000 and the aggregate intrinsic value of all outstanding in-
the-money options was $10,383,000 based on the market closing price of
$80.91 on June 30, 2010 less exercise prices. Gains of $233,000 were
realized by option holders during the nine months ended June 30, 2010.
The realized tax benefit from options exercised for the nine months
ended June 30, 2010 was $89,000. Total compensation cost of options
granted but not yet vested as of June 30, 2010 was $842,000, which is
expected to be recognized over a weighted-average period of 3.1 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
September 30, 2009 2,550 $63.70 .3 $ 163
Granted - $ - $ -
Vested 2,510 $63.66 $ 160
Forfeited 40 $66.09 $ 3
Outstanding at
June 30, 2010 - $ - - $ -
(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. There is a
reasonable possibility that the Company's estimate of vehicle and
workers' compensation liability for the transportation group or
discontinued operations may be understated or overstated but the
possible range can not be estimated. The liability at any point in
time depends upon the relative ages and amounts of the individual open
claims. 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) Concentrations. The transportation segment primarily serves
customers in the Southeastern U.S. Significant economic disruption or
downturn in this geographic region or these industries could have an
adverse effect on our financial statements.
During the first nine months of fiscal 2010, the transportation
segment's ten largest customers accounted for approximately 58.2% of
the transportation segment's revenue. One of these customers
accounted for 21.2% 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 $2,987,000 and
$2,578,000 at June 30, 2010 and September 30, 2009 respectively.
(10) Fair Value Measurements. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement
date. The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. Level
1 means the use of quoted prices in active markets for identical
assets or liabilities. Level 2 means the use of values that are
derived principally from or corroborated by observable market data.
Level 3 means the use of inputs that are unobservable and significant
to the overall fair value measurement.
As of June 30, 2010 the Company had no assets or liabilities measured
at fair value on a recurring basis and only one asset recorded at fair
value on a non-recurring basis as it was deemed to be other-than-
temporarily impaired. The fair value of the corporate aircraft of
$1,850,000 is based on level 2 inputs for similar assets in the
current market. The fourth quarter of fiscal 2009 included $900,000
for the impairment to estimated fair value of the corporate aircraft.
The Company's decision to discontinue its use required adjustment to
the lower values of the current economic environment.
The fair value of note receivable (see Note 11) approximates the
unpaid principal balance based upon the interest rate and credit risk
of the note. The fair value of all other financial instruments with
the exception of mortgage notes (see Note 4) approximates the carrying
value due to the short-term nature of such instruments.
(11) Discontinued operations. In August 2009 the Company sold its
flatbed trucking company, SunBelt Transport, Inc. ("SunBelt"). Under
the agreement, the Buyer purchased all of SunBelt's tractors and
trailers, leased the SunBelt terminal facilities in Jacksonville,
Florida for 36 months at a rental of $5,000 per month and leased the
terminal facilities in South Pittsburgh, Tennessee for 60 months at a
rental of $5,000 per month with an option to purchase the Tennessee
facilities at the end of the lease for payment of an additional
$100,000. The South Pittsburgh lease was recorded as a sale under
bargain purchase accounting. The purchase price received for the
tractors and trailers and inventories was a $1 million cash payment
and the delivery of a Promissory Note requiring 60 monthly payments of
$130,000 each including interest at 7%, secured by the assets of the
business conveyed. In the quarter ending September 30, 2009 the
Company recognized $283,000 in severance costs related to a change-in-
control agreement triggered by the sale of SunBelt. The Company
retained all pre-closing receivables and liabilities.
SunBelt has been accounted for as discontinued operations in
accordance with ASC Topic 205-20 Presentation of Financial Statements
- - Discontinued Operations. All periods presented have been restated
accordingly.
A summary of discontinued operations is as follows (in thousands):
Three months Nine months
Ended June 30, Ended June 30,
2010 2009 2010 2009
Revenue $ 15 5,849 70 18,391
Operating expenses (147) 6,831 (283) 20,158
Loss on sale before taxes - (3,263) - (3,263)
Income (loss) before taxes $ 162 (4,245) 353 (5,030)
Income taxes (63) 1,630 (136) 1,932
Income (loss) from
Discontinued operations $ 99 (2,615) 217 (3,098)
A summary of the loss on sale before income taxes (in thousands):
Carrying amount of assets disposed:
Petty cash $ 4
Inventory of parts and supplies 88
Prepaid tires on equipment 643
Land 103
Buildings 459
Equipment 24,022
Less accumulated depreciation (14,013)
Net book value of assets disposed $ 11,306
Plus liabilties assumed:
Change in control agreement 283
Real estate taxes of bargain lease 61
Less proceeds from sale:
Cash Payment Received 1,000
Present value of promissory note 6,565
Present value of bargain lease _____325
Loss on sale before taxes $ 3,760
The estimated loss on sale of $3,263,000 was recorded in the quarter
ending June 30, 2009. An adjustment to the loss on sale of $214,000
along with the change in control agreement of $283,000 was recorded in
the quarter ending September 30, 2010.
The components of the balance sheet are as follows:
June 30, September 30,
2010 2009
Accounts receivable $ 45 142
Other assets 2 1
Deferred income taxes 582 1,249
Property and equipment, net 119 127
Assets of discontinued operations $ 748 1,519
Accounts payable $ 165 243
Accrued payroll and benefits 2 140
Accrued liabilities, other 60 73
Insurance liabilities 1,499 3,204
Liabilities of discontinued operations $ 1,726 3,660
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview - The Company operates in two industries: transportation and
real estate.
The Company's transportation business is conducted through Florida
Rock & Tank Lines, Inc. ("Tank Lines") which operates in the
Southeastern United States. Tank Lines hauls petroleum and other
liquids and dry bulk commodities by tank trailers.
The Company's real estate operations consist of two reportable
segments. The Mining royalty land segment owns real estate including
construction aggregate royalty sites and parcels held for investment.
The Developed property rentals segment acquires, constructs, and
leases office/warehouse buildings primarily in the Baltimore/Northern
Virginia/Washington area and holds real estate for future development
or related to its developments. Substantially all of the real estate
operations are conducted within the Southeastern and Mid-Atlantic
United States.
In prior filings the Company's real estate operations were aggregated
and reported as a single segment. The prior filings additionally
included results by division. In connection with the new presentation
of our real estate operations as two reportable segments, two
properties in Washington, D.C. and two properties in Duval County,
Florida were reclassified out of the Royalties and rent division and
the division was renamed the Mining royalty land segment. Historical
results have been reclassified to conform to the new segment
presentation.
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, aggregates sales by lessees 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-Northern Virginia 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. There is a
reasonable possibility that the Company's estimate of vehicle and
workers' compensation liability for the transportation group or
discontinued operations may be understated or overstated but the
possible range can not be estimated. The liability at any point in
time depends upon the relative ages and amounts of the individual open
claims. Financial results of the Company for any individual quarter
are not necessarily indicative of results to be expected for the year.
Discontinued Operation. In August 2009 the Company sold its flatbed
trucking company, SunBelt Transport, Inc. ("SunBelt"). Under the
agreement, the buyer purchased all of SunBelt's tractors and trailers,
leased the SunBelt terminal facilities in Jacksonville, Florida for 36
months at a rental of $5,000 per month and leased the terminal
facilities in South Pittsburgh, Tennessee for 60 months at a rental of
$5,000 per month with an option to purchase the Tennessee facilities
at the end of the lease for payment of an additional $100,000. The
South Pittsburgh lease was recorded as a sale under bargain purchase
accounting. The purchase price received for the tractors and trailers
and inventories was a $1 million cash payment and the delivery of a
Promissory Note requiring 60 monthly payments of $130,000 each
including interest at 7%, secured by the assets of the business
conveyed. The Company retained all pre-closing receivables and
liabilities. SunBelt has been accounted for as discontinued
operations in accordance with ASC Topic 205-20 Presentation of
Financial Statements - Discontinued Operations. All periods
presented have been restated accordingly.
Comparative Results of Operations for the Three Months Ended June
30, 2010 and 2009
Consolidated Results - Net income for the third quarter of fiscal 2010
was $2,599,000 compared to a net loss of $402,000 for the same period
last year. Diluted earnings per common share for the third quarter of
fiscal 2010 were $0.83 compared to ($0.13) for the same quarter last
year. Income from discontinued operations favorably impacted net
income due to losses from operations in the prior year and lower than
expected retained liabilities. Transportation segment results were
slightly higher due to the favorable impact of the falling cost of
diesel during the quarter mostly offset by reduced revenue per mile.
The mining royalty land segment's results were higher due to an
increase in mined tons. The Developed property rentals segment's
results were lower due to lower developed property occupancy.
Transportation Results
Three Months Ended June 30
(dollars in thousands) ___2010 % 2009 %_
Transportation revenue $ 19,593 85% 20,796 92%
Fuel surcharges 3,471 15% 1,808 8%
Revenues 23,064 100% 22,604 100%
Compensation and benefits 8,573 37% 8,855 39%
Fuel expenses 4,465 19% 3,443 15%
Insurance and losses 1,394 6% 1,447 7%
Depreciation expense 1,499 6% 1,633 7%
Other, net 2,198 10% 2,282 10%
Sales, general & administrative 1,873 8% 1,869 8%
Allocated corporate expenses _____347 2% ___410 2%
Cost of operations 20,349 88% 19,939 88%
Operating profit $ 2,715 12% 2,665 12%
The Company announced on January 6, 2010 that the transportation group
had been unsuccessful in renewing contracts with customers that
represented approximately 11.0% of transportation group revenue in
fiscal 2009. In the third quarter, the Company continued to find
replacement business for the non-renewed contracts and accordingly
revenue miles were only 0.7% lower than the same quarter last year.
Transportation segment revenues were $23,064,000 in the third quarter
of 2010, an increase of $460,000 over the same quarter last year.
Fuel surcharge revenue increased $1,663,000. Excluding fuel
surcharges, revenue per mile decreased 5.3% over the same quarter last
year due to a longer average haul length and lower revenue per mile on
certain replacement business. The average price paid per gallon of
diesel fuel increased by $.59 or 27.8% over the same quarter in fiscal
2009.
The Transportation segment's cost of operations was $20,349,000 in the
third quarter of 2010, an increase of $410,000 over the same quarter
last year. The Transportation segment's cost of operations in the
third quarter of 2010 as a percentage of revenue was 88% consistent
with the third quarter of 2009. Compensation and benefits decreased
$282,000 or 3.2% compared to the same quarter last year primarily due
to the longer average haul length and decrease in miles driven. Fuel
surcharge revenue increased $1,663,000 while fuel cost increased by
only $1,022,000 leaving a positive impact to operating profit of
$641,000 due to the falling cost of diesel during the quarter.
Insurance and losses decreased $53,000 compared to the same quarter
last year due to lower health claims partially offset by a smaller
reduction to actuarial projections of risk insurance claims.
Depreciation expense decreased $134,000 due to fewer trucks in service
and existing trailers becoming fully depreciated. Other expense
decreased $84,000 primarily due to higher gains on equipment sales.
Selling general and administrative costs increased $4,000 or 0.2%
compared to the same quarter last year. Allocated corporate expenses
decreased $63,000 due to reduced allocation to the Transportation
segment as a result of the sale of SunBelt.
Mining Royalty Land Results
Three Months Ended June 30
(dollars in thousands) ___2010 % 2009 %_
Mining royalty land revenue $ 1,247 100% 1,161 100%
Property operating expenses 155 13% 166 14%
Depreciation and depletion 30 3% 31 3%
Management Company indirect 41 3% 68 6%
Allocated corporate expense 142 11% 138 12%
Cost of operations 368 30% 403 35%
Operating profit $ 879 70% 758 65%
Mining royalty land segment revenues for the third quarter of fiscal
2010 were $1,247,000, an increase of $86,000 or 7.4% over the same
quarter last year, due to an increase in mined tons offset by an
$11,000 decrease in timber sales.
The mining royalty land segment's cost of operations was $368,000 in
the third quarter of 2010, a decrease of $35,000 primarily due to
lower salaries from staffing adjustments completed during fiscal 2009.
Developed Property Rentals Results
Three Months Ended June 30
(dollars in thousands) ___2010 % 2009 %_
Developed property rentals revenue $ 4,047 100% 4,325 100%
Property operating expenses 1,179 29% 1,089 25%
Depreciation and amortization 1,257 32% 1,278 30%
Management Company indirect 374 9% 617 14%
Allocated corporate expense 212 5% 207 5%
Cost of operations 3,022 75% 3,191 74%
Operating profit $ 1,025 25% 1,134 26%
Developed property rentals segment revenues for the third quarter of
fiscal 2010 were $4,047,000, a decrease of $278,000 or 6.4% due to
reduced occupancy.
Developed property segment's cost of operations was $3,022,000 in the
third quarter of 2010, a decrease of $169,000 or 5.3%. Property
operating expenses increased $90,000 due to higher property taxes.
Depreciation and amortization decreased $21,000 due to lower
commission amortization. Management Company indirect expenses
(excluding internal allocations for lease related property management
fees) decreased $243,000 due to reduced salaries from the staffing
level adjustments completed during fiscal 2009. Allocated corporate
expenses increased $5,000 due to increased allocation to the real
estate segment resulting from the sale of SunBelt.
Consolidated Results
Operating Profit - Consolidated operating profit was $4,481,000 in the
third quarter of fiscal 2010, an increase of $194,000 or 4.5% compared
to $4,287,000 in the same period last year. Operating profit in the
transportation segment increased $50,000 or 1.9% due to the favorable
impact of the falling cost of diesel during the quarter mostly offset
by reduced business and revenue per mile. Operating profit in the
mining royalty land segment increased $121,000 or 16.0% due to an
increase in mined tons. Operating profit in the Developed property
rentals segment decreased $109,000 or 9.6% due to reduced occupancy of
developed properties. Consolidated operating profit includes
corporate expenses not allocated to any segment in the amount of
$138,000 in the third quarter of fiscal 2010, a decrease of $132,000
compared to the same period last year.
Interest expense - Interest expense increased $74,000 over the same
quarter last year due to lower capitalized interest.
Income taxes - Income tax expense decreased $63,000 over the same
quarter last year due to higher earnings offset by a tax credit of
$116,000 funded by legislative action related to fiscal 2008
expenditures, a reduction in uncertain tax positions related to the
expiration of statutes, and lower than estimated state income taxes.
Income from continuing operations - Income from continuing operations
was $2,500,000 or $.80 per diluted share in the third quarter of
fiscal 2010, an increase of 13.0% compared to $2,213,000 or $.70 per
diluted share for the same period last year. The $287,000 increase
was primarily due to the $194,000 increase in operating profits and
lower income taxes.
Discontinued operations - The after tax income from discontinued
operations for the third quarter of fiscal 2010 was $99,000 versus a
loss of $2,615,000 for the same period last year. Diluted earnings
per share on discontinued operations for the third quarter of fiscal
2010 was $.03 compared to a diluted loss of $.83 in the third quarter
of fiscal 2009. The third quarter of fiscal 2009 included a loss on
the sale of $2,010,000 after tax or $.64 per diluted share.
Net income - Net income for the third quarter of fiscal 2010 was
$2,599,000 compared to a net loss of $402,000 for the same period last
year. Diluted earnings per common share for the third quarter of
fiscal 2010 were $0.83 compared to ($0.13) for the same quarter last
year. Income from discontinued operations favorably impacted net
income due to losses from operations in the prior year and lower than
expected retained liabilities. Transportation segment results were
slightly higher due to the favorable impact of the falling cost of
diesel during the quarter mostly offset by reduced revenue per mile.
The mining royalty land segment's results were higher due to an
increase in mined tons. The Developed property rentals segment's
results were lower due to lower developed property occupancy.
Comparative Results of Operations for the Nine Months Ended June 30,
2010 and 2009
Consolidated Results - Net income for the first nine months of fiscal
2010 increased 95.2% to $5,377,000 compared to $2,754,000 for the same
period last year. Diluted earnings per common share for the first
nine months of fiscal 2010 were $1.71 compared to $0.88 in the first
nine months of fiscal 2009. Transportation segment results were lower
due to reduced miles driven and higher fuel costs net of surcharges.
Mining royalty land segment's results were lower due to reduced mining
royalties and lower timber sales. Developed property rentals
segment's results were lower due to lower developed property
occupancy. Income from discontinued operations favorably impacted net
income due to lower than expected retained liabilities and losses in
the prior year from operations.
Transportation Results
Nine Months Ended June 30
(dollars in thousands) ___2010 % 2009 %_
Transportation revenue $ 57,847 87% 61,661 89%
Fuel surcharges 8,956 13% 7,447 11%
Revenues 66,803 100% 69,108 100%
Compensation and benefits 25,189 38% 27,036 39%
Fuel expenses 12,544 19% 11,156 16%
Insurance and losses 5,230 8% 6,063 9%
Depreciation expense 4,491 7% 4,928 7%
Other, net 6,727 10% 6,399 9%
Sales, general & administrative 5,499 8% 5,878 9%
Allocated corporate expenses ___1,040 _1% _1,230 __2%
Cost of operations 60,720 91% 62,690 91%
Operating profit $ 6,083 9% 6,418 9%
The Company announced on January 6, 2010 that the transportation group
had been unsuccessful in renewing contracts with customers that
represented approximately 11.0% of transportation group revenue in
fiscal 2009. The Company successfully replaced the majority of the
lost business with new business obtained in the second and third
quarters of fiscal 2010. Nevertheless, revenue miles in the first
nine months of fiscal 2010 were down 5.2% compared to the first nine
months of 2009 due to the time involved in replacing the lost business
along with lower demand and a more competitive economic climate.
Approximately 4.3% of miles during the first nine months of fiscal
2010 were from services related to the contracts that were not
renewed. Transportation segment revenues were $66,803,000 in the
first nine months of 2010, a decrease of $2,305,000 over the same
period last year. Fuel surcharge revenue increased $1,509,000.
Excluding fuel surcharges, revenue per mile decreased 1.2% over the
same period last year due to lower revenue per mile on certain
replacement business partially offset by a shorter average haul length
in the first six months of fiscal 2010. The average price paid per
gallon of diesel fuel increased by $.38 or 16.9% over the same period
last year.
The Transportation segment's cost of operations was $60,720,000 in the
first nine months of 2010, a decrease of $1,970,000 over the same
period last year. The Transportation segment's cost of operations in
the first nine months of 2010 as a percentage of revenue was 91%
consistent with the first nine months of 2009. Compensation and
benefits decreased $1,847,000 or 6.8% compared to the same period last
year due to the decrease in miles driven and lower driver turnover
related pay. Fuel surcharge revenue increased $1,509,000 while fuel
cost increased by $1,388,000 leaving a positive impact to operating
profit of $121,000. Insurance and losses decreased $833,000 compared
to the same period last year due to reduced vehicle accident costs,
reduced miles driven, and a $178,000 decrease in group health expense.
Depreciation expense decreased $437,000 due to fewer trucks in service
and existing trailers becoming fully depreciated. Other expense
increased $328,000 primarily due to lower gains on equipment sales
partially due to reduced market values of used equipment. Selling
general and administrative costs decreased $379,000 or 6.4% compared
to the same period last year due to lower staffing. Allocated
corporate expenses decreased $190,000 due to reduced allocation to the
Transportation segment as a result of the sale of SunBelt.
Mining Royalty Land Results
Nine Months Ended June 30
(dollars in thousands) ___2010 % 2009 %_
Mining royalty land revenue $ 3,243 100% 3,941 100%
Property operating expenses 413 13% 563 14%
Depreciation and depletion 78 2% 102 3%
Management Company indirect 124 4% 169 4%
Allocated corporate expense 425 13% 413 11%
Cost of operations 1,040 32% 1,247 32%
Operating profit $ 2,203 68% 2,694 68%
Mining royalty land segment revenues for the first nine months of
fiscal 2010 were $3,243,000, a decrease of $698,000 or 17.7% over the
same period last year due to decreased demand for mined tons and a
$546,000 decrease in revenues from timber sales.
Mining royalty land segment's cost of operations was $1,040,000 in the
first nine months of fiscal 2010, a decrease of $207,000 over the same
period last year. Property operating expenses decreased $150,000 due
to lower maintenance and other costs. Depreciation and depletion
expenses decreased $24,000 due to reduced tons mined. Management
Company indirect expenses (excluding internal allocations for lease
related property management fees) decreased $45,000 due to reduced
salaries from the staffing level adjustments completed during fiscal
2009. Allocated corporate expenses increased $12,000 due to increased
allocation to the real estate segment resulting from the sale of
SunBelt.
Developed Property Rentals Results
Nine Months Ended June 30
(dollars in thousands) ___2010 % 2009 %_
Developed property rentals revenue 13,322 100% 13,662 100%
Property operating expenses 4,312 32% 3,541 26%
Depreciation and amortization 3,805 29% 3,800 28%
Management Company indirect 1,120 8% 1,523 10%
Allocated corporate expense 637 5% 620 5%
Cost of operations 9,874 74% 9,484 69%
Operating profit $ 3,448 26% 4,178 31%
Developed property rentals segment revenues for the first nine months
of fiscal 2010 were $13,322,000, a decrease of $340,000 or 2.5% over
the same period last year due to reduced occupancy partly offset by a
$685,000 increase in tenant reimbursements for snow removal.
Developed property rentals segment's cost of operations was $9,874,000
for the first nine months of fiscal 2010, an increase of $390,000 over
the same period last year. Property operating expenses increased
$771,000 due to increased snow removal expenses and higher property
taxes. Depreciation and amortization increased $5,000. Management
Company indirect expenses (excluding internal allocations for lease
related property management fees) decreased $403,000 due to reduced
salaries from the staffing level adjustments completed during fiscal
2009. Allocated corporate expenses increased $17,000 due to increased
allocation to the real estate segment resulting from the sale of
SunBelt.
Consolidated Results
Operating Profit - Consolidated operating profit was $10,590,000 in
the first nine months of fiscal 2010, a decrease of $1,286,000 or
10.8% compared to $11,876,000 in the same period last year. Operating
profit in the transportation segment decreased $335,000 or 5.2% due to
reduced miles driven and lower gains on sales of equipment partially
offset by lower insurance and losses. Operating profit in the mining
royalty land segment decreased $491,000 or 18.2% due to decreased
demand for tons mined and lower timber sales. Operating profit in the
Developed property rentals segment decreased $730,000 or 17.5% due to
reduced occupancy of developed properties. Consolidated operating
profit includes corporate expenses not allocated to any segment in the
amount of $1,144,000 in the first nine months of fiscal 2010, a
decrease of $270,000 compared to the same period last year. These
unallocated corporate expenses primarily include stock compensation
and corporate aircraft expenses both of which decreased during the
current year versus the same period last year.
Interest expense - Interest expense increased $446,000 over the same
period last year due to lower capitalized interest.
Income taxes - Income tax expense decreased $727,000 over the same
period last year due to decreased earnings, a tax credit of $116,000
funded by legislative action related to fiscal 2008 expenditures, a
reduction in uncertain tax positions related to the expiration of
statutes, and lower than estimated state income taxes.
Income from continuing operations - Income from continuing operations
was $5,160,000 or $1.64 per diluted share in the first nine months of
fiscal 2010, a decrease of 11.8% compared to $5,852,000 or $1.88 per
diluted share for the same period last year.
Discontinued operations - The after tax income from discontinued
operations for the first nine months of fiscal 2010 was $217,000
versus a loss of $3,098,000 for the same period last year. Diluted
earnings on discontinued operations for the first nine months of
fiscal 2010 was $0.07 compared to a diluted loss of $1.00 in the first
nine months of fiscal 2009. The first nine months of fiscal 2009
included a loss on the sale of $2,010,000 after tax or $.65 per
diluted share.
Net income - Net income for the first nine months of fiscal 2010
increased 95.2% to $5,377,000 compared to $2,754,000 for the same
period last year. Diluted earnings per common share for the first
nine months of fiscal 2010 were $1.71 compared to $0.88 in the first
nine months of fiscal 2009. Income from discontinued operations
favorably impacted net income due to lower than expected retained
liabilities and losses in the prior year from operations.
Transportation segment results were lower due to reduced miles driven
and lower gains on sales of equipment partially offset by lower
insurance and losses. Mining royalty land segment's results were
lower due to reduced mining royalties and lower timber sales.
Developed property rentals segment's results were lower due to lower
developed property occupancy.
Liquidity and Capital Resources. For the first nine months of fiscal
2010, the Company used cash provided by operating activities of
continuing operations of $12,119,000, proceeds received on notes of
$881,000, proceeds from the sale of plant, property and equipment of
$809,000, proceeds from the exercise of employee stock options of
$192,000, excess tax benefits from the exercise of stock options of
$65,000 and cash balances to purchase $6,433,000 in transportation
equipment, to expend $41,000 in mining land development, to expend
$2,843,000 in real estate development, to invest $445,000 in the
Brooksville Joint Venture and to make $3,193,000 scheduled payments on
long-term debt. Cash used in the operating activities of discontinued
operations was $946,000. Cash increased $165,000.
In August 2009 the Company sold its flatbed trucking company, SunBelt
Transport, Inc. ("SunBelt"). The purchase price received for the
tractors and trailers and inventories was a $1 million cash payment
and the delivery of a Promissory Note requiring 60 monthly payments of
$130,000 each including 7% interest, secured by the assets of the
business conveyed. The Company retained all pre-closing receivables
and liabilities. SunBelt has been accounted for as discontinued
operations. All periods presented have been restated accordingly.
Cash flows from operating activities for the first nine months of
fiscal 2010 were $8,523,000 lower than the same period last year
primarily due to lower revenues, payment of retained SunBelt
liabilities, and higher income tax payments related to the sale of
SunBelt. Also, the same period last year included an unusually large
decrease in accounts receivable both in continuing operations and
discontinued operations resulting from lower fuel surcharge revenues.
Cash flows used in investing activities for the first nine months of
fiscal 2010 were $4,681,000 lower primarily reflecting lower
construction levels in the developed property segment.
Cash flows used in financing activities for the first nine months of
fiscal 2010 were $396,000 higher than the same period last year due to
decreased stock options exercised by employees and an increase of
$204,000 in mortgage payments.
The Company has a $37,000,000 uncollateralized Revolving Credit
Agreement with three banks, which matures on December 13, 2013. The
Revolver contains limitations on availability and restrictive
covenants including limitations on paying cash dividends. Letters of
credit in the amount of $13,263,000 were issued under the Revolver.
As of June 30, 2010, $23,737,000 was available for borrowing and
$41,978,000 of consolidated retained earnings would be available for
payment of dividends. The Company was in compliance with all
covenants as of June 30, 2010.
The Company had $13,911,000 of irrevocable letters of credit
outstanding as of June 30, 2010. Most of the letters of credit are
irrevocable for a period of one year and are automatically extended
for additional one-year periods until notice of non-renewal is
received from the issuing bank not less than thirty days before the
expiration date. These were issued for insurance retentions and to
guarantee certain obligations to state agencies related to real estate
development. The Company issued replacement letters of credit through
the Revolver to reduce fees.
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, 2010, $5,625,000 was authorized for future
repurchases of common stock. The Company does not currently pay any
dividends on common stock.
The Company has committed to make additional capital contributions of
up to $155,000 over the next 12 months to Brooksville Quarry, LLC in
connection with a joint venture with Vulcan.
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. On October 1, 2009, the Company
adopted fair value measurement standards codified in ASC Topic 820,
"Fair Value Measurements and Disclosures" (ASC 820), for non-financial
assets and liabilities. ASC 820 defines fair value for accounting
purposes, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. On October 1, 2008, the
Company adopted this standard with respect to financial assets and
liabilities and elected to defer our adoption of this standard for
non-financial assets and liabilities. The adoption of these standards
did not materially affect the consolidated financial results of the
Company.
Related Party Transactions. The Company, through its transportation
subsidiary, hauls commodities by tank truck for Vulcan Materials
Company (Vulcan). Charges for these services are based on prevailing
market prices. The real estate subsidiaries lease certain
construction aggregates mining and other properties to Vulcan.
On October 4, 2006, a subsidiary of the Company (FRP) entered into a
Joint Venture Agreement with Vulcan Materials Company (formerly
Florida Rock Industries, Inc.) to form Brooksville Quarry, LLC, 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 $2.1 million of which capital contributions of $1,945,000
have been made by each party as of June 30, 2010. Distributions will
be made on a 50-50 basis except for royalties and depletion
specifically allocated to FRP. Other income for the nine months ended
June 30, 2010 and 2009 includes a loss of $2,000 and $5,000,
respectively, representing the Company's equity in the loss of the
joint venture.
Summary and Outlook. Transportation segment miles for this year's
third quarter were only 0.7% lower than the same quarter last year
which was a large improvement from the March quarter comparison thanks
to a 7.7% incremental increase in miles. The Company continues to
succeed in replacing customers from the non-renewed contracts
announced January 6, 2010 and has basically recovered from new
customers substantially all the lost revenue miles, albeit at lower
rates per mile for longer average hauls.
Operating profit from the leasing of developed buildings has been
unfavorably impacted by three newer buildings brought into service in
the past twenty-one months, which are vacant, along with two nearly
vacant buildings in Delaware impacted by automobile plant closings and
the residential housing downturn. Occupancy decreased from 75.1% to
72.2% during the quarter primarily due to space vacated at lease
expiration. However, the market for new tenants appears to have
bottomed and traffic for vacant space has increased. The Company is
not presently engaged in the construction of any new buildings.
In July 2008, a subsidiary of the Company, FRP Bird River, LLC,
entered into an agreement to sell approximately 121 acres of land in
Baltimore County, Maryland to Mackenzie Investment Group, LLC. The
purchase price for the property is $25,075,000, subject to certain
potential purchase price adjustments. The agreement of sale is
subject to certain contingencies including additional government
approvals and closing may be one and one half or more years away. The
cost of the property of $5,799,000 is included in Real estate held for
investment rather than held for sale because of the original and
current expectation that the sale would not be completed within one
year. The purchaser has placed non-refundable deposits of $1,000,000
under this contract in escrow including $650,000 in March 2009.
Preliminary approval for the development as originally contemplated
under the agreement's pricing contingencies has now been received and
the time for any appeals from that approval has expired.
In February 2010, a subsidiary of the Company, Florida Rock
Properties, Inc., entered into an agreement to sell approximately
1,844 acres of land in Caroline County, Virginia, to the Commonwealth
of Virginia, Board of Game and Inland Fisheries. The purchase price
for the property is $5,200,000, subject to certain deductions. The
Company is also donating the value of minerals and aggregates. The
agreement of sale is subject to certain contingencies including
satisfactory completion of the buyer's inspection period, federal
government funding and additional government approvals. The contract
expires if not completed before September 21, 2010. The Company's
book value of the property is $258,000 and is included in Real estate
held for investment rather than held for sale due to open
contingencies at June 30, 2010. The Federal Appraisal Review was
completed in April, 2010 triggering the 90 day study period. If the
sale closes, the Company may use the proceeds in a 1031 exchange for
the purchase of real estate. Accordingly in July 2010, the Company
agreed to purchase an 82,000 square foot warehouse in Baltimore City,
Maryland in a foreclosure sale auction through a qualified
intermediary and may use the majority of the proceeds from the
Caroline County property sale for this purchase.
In May 2008, the Company received final approval from the Zoning
Commission of the District of Columbia of its planned unit development
application for the Company's 5.8 acre undeveloped waterfront site on
the Anacostia River in Washington, D.C. This site is located adjacent
to the recently opened Washington Nationals Baseball Park. The site
currently is leased to Vulcan Materials Company on a month-to-month
basis. The approved planned unit development permits the Company to
develop a four building, mixed use project, containing approximately
545,800 square feet of office and retail space and approximately
569,600 square feet of additional space for residential and hotel
uses. The approved development would include numerous publicly
accessible open spaces and a waterfront esplanade along the Anacostia
River. In November 2009, the Company received a two-year extension
for commencement of this project, moving the construction commencement
date to June 2013. The Company sought this extension because of
negative current market indications.
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 June 30, 2010, 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 are effective in alerting
them in a timely manner to material information required to be
included in periodic SEC filings.
There have been no changes in the Company's internal controls over
financial reporting during the first nine months 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, 2009, 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 27.
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 4, 2010 PATRIOT TRANSPORTATION HOLDING, INC.
John D. Baker II
John D. Baker II
President and Chief Executive
Officer
John D. Milton, Jr.
John D. Milton
Executive 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, 2010
EXHIBIT INDEX
(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 II.
(31)(b) Certification of John D. Milton, Jr.
(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.