Annual Report 2010
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended September 30
(Amounts in thousands except per share amounts)
%
2010 2009 Change
Revenues $111,338 114,553 (2.8)
Operating profit $ 14,503 16,128 (10.1)
Income from continuing operations $ 7,056 7,908 (10.8)
Discontinued operations, net $ 315 (4,155) 107.6
Net income $ 7,371 3,753 96.4
Per common share:
Income from continuing operations:
Basic $ 2.31 2.60 (11.2)
Diluted $ 2.25 2.53 (11.1)
Discontinued operations:
Basic $ 0.10 (1.37) 107.3
Diluted $ 0.10 (1.33) 107.5
Net income:
Basic $ 2.41 1.23 95.9
Diluted $ 2.35 1.20 95.8
Total Assets $257,712 256,854 0.3
Total Debt $ 71,860 76,153 (5.6)
Shareholders' Equity $152,056 142,408 6.8
Common Shares Outstanding 3,093 3,053 1.3
Book Value Per Common Share $ 49.17 46.64 5.4
BUSINESS. The Company is engaged in the transportation and real estate
businesses. The Company's transportation business is conducted through a
wholly owned subsidiary, Florida Rock & Tank Lines, Inc. (Tank Lines), which
is a Southeastern U.S. based tank truck company concentrating in the hauling
of primarily petroleum products and other liquids and dry bulk commodities.
The Company's real estate group, comprised of FRP Development Corp. and
Florida Rock Properties, Inc., acquires, constructs, leases, operates and
manages land and buildings to generate both current cash flows and long-term
capital appreciation. The real estate group also owns real estate which is
leased under mining royalty agreements or held for investment.
OBJECTIVES. The Company's dual objectives are to continue building a
substantial transportation company and a real estate company providing sound
long-term growth, cash generation and asset appreciation.
TRANSPORTATION
Internal growth is accomplished by a dedicated and competent work force
emphasizing superior service to customers in existing markets,
developing new transportation services for customers in current market
areas and expanding into new market areas.
External growth is designed to broaden the Company's geographic market
area and delivery services by acquiring related businesses.
REAL ESTATE
The growth plan is based on the acquisition, development and management
of commercial warehouse/office rental properties located in appropriate
sub-markets in order to provide long-term positive cash flows and
capital appreciation.
To Our Shareholders
Fiscal 2010 opened under the continuing cloud of economic downturn and all of
our operations experienced reduced demand for our products and services for the
balance of the year. In January, as we struggled to maintain our returns on
capital amidst a backdrop of heightened competition, we lost two significant
customers in our trucking operations that together accounted for approximately
11% of our prior year's transportation revenues. Since that time we have
worked to fill that void and by year end those volumes had been completely
replaced.
Our Developed Properties segment began the year with a 75% occupancy rate while
facing lease expirations on another 12% of our total square footage. Coping
with increased demands for concessions from expiring and prospective tenants,
our Baltimore based management team performed admirably in renewing 60% of the
expiring tenants and signing a few new ones. By year end our overall occupancy
rate was down only slightly to 72%. For our Mining Properties segment, the
story was much the same as total tons mined declined 8.2%, as demand for
construction materials continued to weaken. However, our actual royalties
received increased 1.4%, due to higher average prices per ton and minimum
royalties at several of the mining sites.
Hosting our first ever earnings conference call in December, we continued our
efforts at transparency with quarterly earnings calls for the balance of the
year. We also made four appearances during the year at analyst conferences
where our presentations were webcast and archived for availability to a wider
potential investor audience. In the same vein we have strived to enhance the
information provided in our regular filings with the SEC that our asset
holdings and business operations may better be understood by our shareholders
and interested investors.
TRANSPORTION SEGMENT:
While there was much effort expended on replacing January's lost business, the
real story of our success in this segment was our team's achievement of an even
better safety record than the record performance they achieved in fiscal 2009.
Our management team has maintained a constant focus for all employees on
keeping our Preventable Accident Frequency Rate low. In an industry where
capital and equipment are readily available and largely fungible, it is the
better-than-average safety record that drives superior operating ratios and
investment returns!
This segment has repeatedly produced excellent returns on capital, and it is
our intention to grow its business. Our plans are to add incremental volumes
to our existing terminals while opening at least one new terminal each year.
We stay in touch with potential acquisition candidates and will acquire when we
can achieve our dual goals of growth and continued high returns on investment.
Additionally our transportation management team continues to drive improvement
through its "ACE" (for "Achieve Continuous Improvement") disciplined management
initiative first reported to you in last year's edition of this letter.
Through this initiative each management team member has aligned his or her
personal commitments to action with the goals and commitments for the year of
the whole segment. Likewise, financial incentives have been tied inextricably
to these same commitments with the conviction that a coordinated approach to
goal achievement is the best method for reaching success.
DEVELOPED PROPERTY SEGMENT:
We began the 2010 fiscal year in this segment with a concentrated focus on
leasing up our existing space and looking to acquire warehouse type facilities
in an opportunistic manner within our geographic area. Traffic for our vacant
space continued to improve during the fiscal year but rates and tenant demands
for it did not. Although we are pleased that our occupancy has not declined
materially during the year, we continue to face a challenging environment.
Our search for opportunities to acquire properties met with success in the
acquisition (through a 3rd party intermediary to facilitate a 1031 tax deferred
exchange) of a 46 acre parcel in Baltimore with one completed warehouse and
several partially developed lots.
Going forward our focus remains as last year: 1) bring our existing occupancy
rate back to our historical rates of 90% plus; 2) vigilantly watch the market
for select opportunities to acquire income-producing commercial properties at
reasonable cap rates; 3) cease any speculative vertical construction; and 4)
actively seek opportunities to market finished building lots to appropriately
selected buyers. We will channel our management performance incentives to
achieve these goals with a focus on returns on our investments.
MINING PROPERTIES SEGMENT:
While we experienced declining tons mined in this segment for 2010, we are
guardedly optimistic that the demand for construction aggregates is near
bottom. Overall, average aggregate prices have improved at an annual rate of
11% over the past five years, leaving us optimistic that as demand for
construction materials returns in the market, our revenues in this segment have
the potential to gain substantially in excess of the growth rates in tons
mined.
CONCLUSION:
Finally, as we look at our balance sheet, we are proud to say that even in
these tough times we have grown both cash and shareholder equity. We continue
to amortize our non-recourse debt as originally scheduled and maintain the
availability of the lion's share of our thirty-seven million dollar revolver.
(We are only using it today to underwrite $12.8 million dollars of letters of
credit primarily used to underpin our insurance retained risks and development
commitments)! As always, our financial philosophy is conservative as we search
for forthcoming opportunities in a recovering economy.
We cannot close this letter without again extending heartfelt thanks to the
many women and men that devote their working lives to the improving performance
of our businesses. Without them our accomplishments would not exist and our
opportunities for improvement would disappear. Our special thanks to all of
them for a good and respectable (if not great) year and our continuing devoted
thanks to you, our loyal shareholders and customers, for the privilege to serve
you and challenge our own abilities to achieve even greater success for all of
us!
Respectively yours,
John D. Baker II
Executive Chairman
Thompson S. Baker II
President & Chief Executive Officer
OPERATING PROPERTIES
Transportation. During fiscal 2010, the Company's transportation group
operated through a wholly owned subsidiary, Florida Rock & Tank Lines, Inc.
Tank Lines). Tank Lines is engaged in hauling petroleum and other liquid and
dry bulk commodities in tank trucks.
Tank Lines operates from terminals in Jacksonville, Orlando, Panama City,
Pensacola, Port Everglades, Tampa and White Springs, Florida; Albany, Atlanta,
Augusta, Bainbridge, Columbus, Macon and Savannah, Georgia; Chattanooga and
Knoxville, Tennessee; Montgomery, Alabama; and Wilmington, North Carolina.
At September 30, 2010 the transportation group owned and operated a fleet of
388 trucks and 502 trailers plus 9 additional trucks that were being prepared
for sale. 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 and leased certain facilities. During
fiscal 2010, the transportation group purchased 55 new tractors and 3 trailers.
In fiscal 2008 and 2009, the Company purchased 102 new tractors. The fiscal
2011 capital budget includes 45 new tractors and 24 new trailers including
binding commitments to purchase 25 tractors at September 30, 2010. Maintaining
a modern fleet has resulted in reduced maintenance expenses, improved operating
efficiencies and enhanced driver recruitment and retention.
Real Estate. The real estate group operates the Company's real estate and
property development activities. The Company owns real estate in Florida,
Georgia, Virginia, Maryland, Delaware and Washington, D.C. The real estate
owned generally falls into one of three categories: (i) land and/or buildings
leased under rental agreements or being developed for rental; (ii) land with
construction aggregates deposits, a substantial portion of which is leased to
Vulcan Materials Company under long-term mining royalty agreements, whereby the
Company is paid a percentage of the revenues generated or annual minimums; and
(iii) land held for future appreciation or development.
At September 30, 2010, the Company owned 267 acres in 12 developed parcels of
land all but one of which are in the Mid-Atlantic region of the United States
as follows:
1) Hillside Business Park in Anne Arundel County, Maryland consists of 49
usable acres. A total of 571,138 square feet exist on the property and it is
86% occupied. Construction of the final building with 66,398 square feet of
office space was completed September 30, 2008 and is currently unoccupied. An
agreement to lease 20,000 square feet is scheduled to commence on or about
January 1, 2011 and will increase the occupancy to 89%.
2) Lakeside Business Park in Harford County, Maryland consists of 84 usable
acres. Nine warehouse/office buildings, totaling 893,722 square feet, were in
place at the beginning of 2010 and are 82% occupied. Construction of the ninth
building with 148,425 warehouse/office space was completed in April 2009 and
was unoccupied until 60,578 square feet were occupied on November 10, 2010.
The remaining 14 acres are available for future development and have the
potential to offer an additional 210,230 square feet of comparable product.
3) 6920 Tudsbury Road in Baltimore County, Maryland contains 5.3 acres with
86,100 square feet of warehouse/office space that was 100% leased to a single
tenant whose lease expired March 31, 2010. The tenant did not renew and the
building was vacant until November 1, 2010 when it was occupied by a single
tenant.
4) 8620 Dorsey Run Road in Howard County, Maryland contains 5.8 acres with
85,100 square feet of warehouse/office space that is 100% leased.
5) Rossville Business Center in Baltimore County, Maryland contains
approximately 10 acres with 190,517 square feet of warehouse/office space and
is 75% leased.
6) 34 Loveton Circle in suburban Baltimore County, Maryland contains 8.5 acres
with 30,006 square feet of office space, which is 40% leased including 23% of
the space occupied by the Company.
7) Oregon Business Center in Anne Arundel County, Maryland contains
approximately 17 acres with 195,615 square feet of warehouse/office space,
which is 75% leased.
8) Arundel Business Center in Howard County, Maryland contains approximately 11
acres with 162,796 square feet of warehouse/office space, which is 83% leased.
9) 100-400 Interchange Boulevard in New Castle County, Delaware contains
approximately 17 acres with 303,006 square feet of warehouse/office space,
which is 17% leased. Chrysler and General Motors plant closings have reduced
demand for space in this market. The remaining 8.8 acres are available for
future development and have the potential to offer an additional 93,600 square
feet of comparable product.
10) 1187 Azalea Garden Road in Norfolk, Virginia contains approximately 12
acres with 188,093 square feet of warehouse/office space, which is 100% leased.
11) Windlass Run Business Park in Baltimore County, Maryland contains 69,474
square feet of warehouse/office space completed September 30, 2008. The
building is as yet unoccupied. This building is contained within a larger
parcel containing approximately 42 acres when complete is estimated to include
519,824 square feet of total build-out.
12) 155 E. 21st Street in Duval County, Florida contains approximately 6 acres
with 68,757 square feet of office space which is 100% leased to Vulcan.
Future Planned Developments. At September 30, 2010 the Company owned the
following future development parcels:
1) Windlass Run Residential (previously Bird River), located in southeastern
Baltimore County, Maryland, is a 121 acre tract of land adjacent to and west of
our Windlass Run Business Park. The property was rezoned in September 2007 to
allow for additional density and plans are being pursued to obtain an
appropriate product mix. In July 2008, the Company entered into an agreement
to sell the property. 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 government approvals and the
closing may be one or more years away. The purchaser has placed non-refundable
deposits of $1,000,000 under this contract in escrow. 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.
2) Patriot Business Park, located in Prince William County, Virginia, is a 73
acre tract of land which is immediately adjacent to the Prince William Parkway
providing access to I-66. The Company plans to develop and lease approximately
733,650 square feet of warehouse/office buildings on the property. Land
development efforts commenced in the summer of 2008 but were placed on hold in
April 2009.
3) Brooksville Quarry LLC. 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, a
real estate joint venture to develop approximately 4,300 acres of land near
Brooksville, Florida. The property does not yet have the necessary
entitlements for real estate development. Approval to develop real property in
Florida entails an extensive entitlements process involving multiple and
overlapping regulatory jurisdictions and the outcome is inherently uncertain.
In August 2010, the Company received final development approvals from the
Hernando County Board of County Commissioners for the proposed project. In
September 2010, Hernando County transmitted, as required by state law, the
entire approval package to the State Department of Community Affairs (DCA) for
a determination of whether the approval package is in compliance with state and
local laws. In October 2010, the DCA issued a finding of "not in compliance"
with a list of suggested remedial actions which could be taken to bring the
approval package into compliance. The Company is currently in the process of
negotiating the list of suggested remedial actions with the Department and the
County and expects to complete this process within the next nine months.
4) Anacostia River. The Company owns a 5.8 acre parcel of undeveloped real
estate in Washington D.C. that fronts the Anacostia River and is adjacent to
the Washington Nationals Baseball Park. The Company also owns a nearby 2.1
acre tract on the same bank of the Anacostia River. Currently, the 5.8 acre
tract is leased to a subsidiary of 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.
5) Commonwealth Avenue in Jacksonville, Florida is a 50 acre site near the
western beltway of Interstate-295 capable of supporting approximately 500,000
square feet of warehouse/office build-out.
6) Leister property in Hampstead, Carroll County, Maryland is a 117 acre parcel
located adjacent to State Route 30 bypass. The parcel was acquired for future
commercial development and is projected to contain 900,000 square feet of space
when complete. This parcel is currently in a predevelopment planning stage.
7) Ft. Myers residential property in Lee County, Florida is part of a 1,993
acre site under a long-term mining lease to Vulcan. In June, 2010 the Company
entered into a letter agreement with Vulcan Materials Company that required
modifications to the existing mining lease on our property, such that the
mining will be accelerated and the mining plan will be revised to accommodate
future construction of up to 105 residential dwelling units around the mined
lakes. In return the Company agreed to grant Lee County a right of way for a
road and to place a conservation easement on part of the property.
Real Estate Group Property Summary Schedule at September 30, 2010 (dollars in thousands)
Encumb- Gross Net Date Revenue
County rances Book Cost Book Value Acquired Fiscal 2010
Construction Aggregates
Alachua, FL $ 1,442 $ 1,319 4/86 $579
Clayton, GA 369 364 4/86 78
Fayette, GA 685 623 4/86 369
Lake, FL 403 257 4/86 59
Lee, FL 4,696 4,690 4/86 347
Monroe, GA 792 518 4/86 899
Muscogee, GA 324 99 4/86 170
Prince William. VA 299 0 4/86 258
Putnam, FL 15,039 10,945 4/86 1,272
0 24,049 18,815 4,031
Other Rental Property
Wash D.C. 16,697 13,729 4/86 746
Wash D.C. 3,811 3,811 10/97 72
Putnam, FL 321 17 4/86 0
Spalding, GA 20 20 4/86 4
Lake, FL 1,083 115 4/86 100
Marion, FL 1,184 585 4/86 100
0 23,116 18,277 1,022
Commercial Property
Baltimore, MD 2,273 4,283 2,024 10/89 267
Baltimore, MD 5,519 7,420 3,799 12/91 1,189
Baltimore, MD 1,891 3,535 2,493 7/99 311
Baltimore, MD (1) 0 17,636 17,372 12/02 0
Duval, FL 0 2,945 278 4/86 602
Harford, MD 1,769 3,857 2,294 8/95 790
Harford, MD 3,222 5,602 3,827 8/95 1,218
Harford, MD 4,706 6,760 4,210 8/95 1,446
Harford, MD 0 1,579 1,579 8/95 0
Harford, MD 3,486 10,221 7,695 8/95 1,651
Harford, MD 2,679 11,655 9,559 8/95 647
Howard, MD 2,600 7,383 4,134 9/88 1,046
Howard, MD 1,709 3,439 2,416 3/00 599
Anne Arun, MD 1,463 8,826 4,260 9/88 1,065
Anne Arun, MD 9,613 14,070 11,109 5/98 2,173
Anne Arun, MD 9,143 12,325 10,565 8/04 1,811
Anne Arun, MD 4,536 5,926 5,174 1/03 626
Anne Arun, MD 0 0 0 n/a 0
Anne Arun, MD 0 7,768 7,261 7/07 0
Norfolk, VA 6,305 7,512 6,178 10/04 805
Prince Wil. VA 0 13,446 13,446 12/05 0
Newcastle Co. DE 10,946 13,075 10,816 4/04 128
Carroll, MD 0 6,379 6,379 3/08 0
71,860 175,642 136,868 16,374
Investment Property 2,823 2,171 4/86 34
Brooksville Joint Venture 7,344 7,344 240
Grand Totals $71,860 $232,974 $183,475 $21,701
(1) 121 acres of the 179+/- acre Bird River property is under contract for sale
at $25,075, subject to certain adjustments.
Five Year Summary-Years ended September 30
(Amounts in thousands except per share amounts)
2010 2009 2008 2007 2006
Summary of Operations:
Revenues $111,338 114,553 129,171 111,298 104,466
Operating profit $ 14,503 16,128 14,338 17,105 13,577
Interest expense $ 3,928 3,482 4,551 3,878 3,955
Income from continuing
operations $ 7,056 7,908 8,493 8,737 5,919
Per Common Share:
Basic $ 2.31 2.60 2.80 2.89 1.99
Diluted $ 2.25 2.53 2.72 2.79 1.92
Discontinued
Operations, net $ 315 (4,155) (525) 768 2,159
Net income $ 7,371 3,753 7,968 9,505 8,078
Per Common Share:
Basic $ 2.41 1.23 2.63 3.15 2.71
Diluted $ 2.35 1.20 2.55 3.04 2.62
Financial Summary:
Current assets $ 31,772 29,883 41,852 60,665 37,005
Current liabilities $ 18,095 22,367 28,611 25,571 22,889
Property and
equipment, net $198,116 199,013 197,823 176,395 172,532
Total assets $257,712 256,854 262,040 253,530 219,215
Long-term debt $ 67,272 71,860 76,153 80,172 60,548
Shareholders' equity $152,056 142,408 137,355 130,461 118,052
Net Book Value
Per common Share $ 49.17 46.64 45.20 42.76 39.20
Other Data:
Weighted average common
shares - basic 3,061 3,041 3,033 3,022 2,980
Weighted average common
shares - diluted 3,141 3,117 3,126 3,131 3,087
Number of employees 763 761 1,039 1,019 981
Shareholders of record 509 543 549 573 634
Quarterly Results (unaudited)
(Dollars in thousands except per share amounts)
First Second Third Fourth
2010 2009 2010 2009 2010 2009 2010 2009
Revenues $27,500 30,844 27,510 27,777 28,358 28,090 27,970 27,842
Operating profit$ 3,042 4,031 3,067 3,558 4,481 4,287 3,913 4,252
Income from continuing
operations $ 1,312 1,943 1,348 1,696 2,500 2,213 1,896 2,056
Discontinued
operations, net$ 24 (196) 94 (287) 99 (2,615) 98 (1,057)
Net income $ 1,336 1,747 1,442 1,409 2,599 (402) 1,994 999
Earnings per common share (a):
Income from continuing operations-
Basic $ .43 .64 .44 .56 .82 .73 .62 .67
Diluted $ .42 .63 .43 .54 .80 .71 .60 .66
Discontinued operations-
Basic $ .01 (.06) .03 (.10) .03 (.86) .03 (.34)
Diluted $ .01 (.07) .03 (.09) .03 (.84) .03 (.34)
Net income-
Basic $ .44 .58 .47 .46 .85 (.13) .65 .33
Diluted $ .43 .56 .46 .45 .83 (.13) .63 .32
Market price per common share (b):
High $ 98.36 80.90 93.99 75.00 88.71 86.51 80.15 83.99
Low $ 79.67 61.89 82.98 44.19 80.00 62.12 70.13 69.08
(a) Earnings per share of common stock is computed independently for each
quarter presented. The sum of the quarterly net earnings per share of common
stock for a year may not equal the total for the year due to rounding
differences.
(b) All prices represent high and low daily closing prices as reported by The
Nasdaq Stock Market.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Executive Overview
Patriot Transportation Holding, Inc. (the Company) is a holding company
engaged in the transportation and real estate businesses.
The Company's transportation business, Florida Rock & Tank Lines, Inc. is
engaged in hauling primarily petroleum and other liquids and dry bulk
commodities in tank trailers.
The Company's real estate business is operated through two subsidiaries:
Florida Rock Properties, Inc. and FRP Development Corp. The Company owns
real estate in Florida, Georgia, Virginia, Maryland, Delaware and Washington,
D.C. The real estate owned generally falls into one of three categories: (i)
land and/or buildings leased under rental agreements or being developed for
rental; (ii) land with construction aggregates deposits, a substantial
portion of which is leased to Vulcan Materials Company (Vulcan) under mining
royalty agreements; and (iii) land held for future appreciation or
development.
The Company may have been considered a related party to Vulcan Materials
Company (Vulcan). One director of the Company was employed by Vulcan until
September 17, 2010 and is related to two other Company directors. Those
three directors own under 5% of the stock of Vulcan and 23.6% of the stock of
the Company. The Company derived 5.7% of its consolidated revenue from
Vulcan in fiscal 2010.
Net income was $7,371,000 or $2.35 per diluted share in fiscal 2010, an
increase of 96.4% compared to $3,753,000 or $1.20 per diluted share in fiscal
2009. Net income for 2010 included earnings on discontinued operations of
$315,000 and net income for 2009 included a loss on discontinued operations
of $4,155,000, net of tax benefit, related to the operations and sale of the
Company's flatbed trucking company, Sunbelt Transport, Inc.
Transportation. The Company generates transportation revenue by providing
over the road hauling services for customers primarily in the petroleum
products industry (Tank Lines). The majority of our petroleum products
customers are major oil companies and convenience store chains, who sell
gasoline or diesel fuel directly to the retail market.
Our customers generally pay for services based on miles driven. We also bill
for other services that may include stop-offs and pump-offs. Additionally,
we generally bill customers a fuel surcharge that relates to the fluctuations
in diesel fuel costs.
Miles hauled and rates per mile are the primary factors impacting
transportation revenue. Changes in miles or rates will affect revenue.
Operating results are impacted by our ability to recover fuel surcharges from
customers. In light of the volatility of fuel prices, it may be difficult
for us to recover fuel surcharges from customers at levels that will allow us
to maintain current levels of profitability. Tank Lines primarily engages in
short-haul out-and-back deliveries and generally is paid for round trip miles
(approximately 100 miles).
Operating safely, efficient equipment utilization, appropriate freight rates,
and driver retention are the most critical factors in maintaining profitable
operations. Statistics related to these factors are monitored weekly and
monthly. Operating expenses are generally split evenly between variable
(driver pay, fuel, and maintenance) and fixed costs (overhead, insurance and
depreciation). As a result, increases in revenue will generally improve our
operating profit ratio.
Real Estate. The Company owns real estate in Florida, Georgia, Virginia,
Maryland, Delaware, and Washington, D.C. The real estate owned generally
falls into one of three categories: (i) land and/or buildings leased under
rental agreements or being developed for rental; (ii) land with construction
aggregates deposits; and (iii) land held for future appreciation or
development.
Revenue from land and/or buildings is generated primarily from leasing our
portfolio of flex office/warehouse buildings. Our flex office/warehouse
product is a functional warehouse with the ability to configure portions as
office space as required by our tenants. We lease space to tenants who
generally sign multiple year agreements. Growth is achieved by increasing
occupancy and lease rates in existing buildings and by developing or
acquiring new warehouses. We attempt to develop or purchase properties in
areas that have high growth potential and are accessible to major interstates
or other distribution lanes.
Operating profit from the leasing of developed buildings has been unfavorably
impacted by three newer buildings brought into service in fiscal 2009 which
remained vacant during fiscal 2010, two nearly vacant buildings in Delaware
impacted by automobile plant closings along with other space vacated upon
lease expiration. Occupancy decreased from 75.1% to 72.0% during the year
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. Two tenants took occupancy in November 2010 comprising 5.1% of
total square footage. The Company is not presently engaged in the
construction of any new buildings.
The following table shows the total developed square footage and occupancy
rates of our flex office/warehouse and office parks at September 30, 2010:
Total
Development Location Sq. feet % Occupied
Hillside Anne Arundel Co., MD 571,138 85.7%
Lakeside Harford Co., MD 893,722 81.6%
Tudsbury Baltimore Co., MD 86,100 0.0%
Dorsey Run Howard Co., MD 85,100 100.0%
Rossville Baltimore Co., MD 190,517 74.5%
Loveton Baltimore Co., MD 30,006 40.0%
Oregon Anne Arundel Co., MD 195,615 75.0%
Arundel Howard Co., MD 162,796 82.5%
Interchange New Castle Co., DE 303,006 16.9%
Azelea Garden Norfolk, VA 188,093 100.0%
Windlass Run Baltimore Co., MD 69,474 0.0%
21st Street Duval Co., FL 68,757 100.0%
2,844,324 72.0%
Average occupancy in fiscal 2010 was 73.8% compared to 84.1% in fiscal 2009
and 95.5% in fiscal 2008. Excluding buildings in service less than 12 months
average occupancy in fiscal 2010 was 75.8% compared to 91.0% in fiscal 2009
and 96.5% in fiscal 2008.
In addition to the completed buildings land is available at these parks to
construct additional buildings at Lakeside Business Park (210,230 square
feet), Windlass Run (450,300 square feet), and Interchange (93,600 square
feet).
As of September 30, 2010, leases at our properties representing approximately
9%, 8%, 13%, 5% and 12% of the total square footage of buildings completed
prior to September 2010 were scheduled to expire in fiscal year 2011, 2012,
2013, 2014 and 2015, respectively. There is currently vacant space in the
portfolio. Leasing or renewing these spaces will be critical to future
financial results.
We also own a portfolio of mineable land, a substantial portion of which is
leased to Vulcan under long-term mining royalty agreements, whereby we are
paid a percentage of the revenues generated from mined product sold or annual
minimum rents. The mines primarily consist of construction aggregates, such
as stone and sand, and calcium deposits.
Properties held for future development include:
Windlass Run Residential (previously Bird River), located in southeastern
Baltimore County, Maryland, is a 121 acre tract of land adjacent to and west
of our Windlass Run Business Park. The property was rezoned in September
2007 to allow for additional density and plans are being pursued to obtain an
appropriate product mix. In July 2008, the Company entered into an agreement
to sell the property. 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 government approvals and
the closing may be one and one half or more years away. The purchaser has
placed non-refundable deposits of $1,000,000 under this contract in escrow.
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.
Patriot Business Park, located in Prince William County, Virginia, is a 73-
acre tract of land, which is immediately adjacent to the Prince William
Parkway providing access to I-66. The Company plans to develop and lease
approximately 733,650 square feet of warehouse/office buildings on the
property. Land development efforts commenced in the spring of 2008 but were
placed on hold in April 2009.
Brooksville Quarry LLC. 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, a
real estate joint venture to develop approximately 4,300 acres of land near
Brooksville, Florida. Under the terms of the joint venture, FRP contributed
its fee interest in approximately 3,443 acres formerly leased to Vulcan under
a long-term mining lease which had a net book value of $2,548,000. Vulcan is
entitled to mine the property until 2018 and pay royalties for the benefit of
FRP for as long as mining does not interfere with the development of the
property. Real estate revenues included $231,000 of such royalties in fiscal
2010 and $158,000 in fiscal 2009. Allocated depletion expense of $7,000 was
included in real estate cost of operations for fiscal 2010. FRP also
contributed $3,018,000 for one-half of the acquisition costs of a 288-acre
contiguous parcel. Vulcan also contributed 553 acres that it owned as well
as its leasehold interest in the 3,443 acres that it leased from FRP. The
joint venture is jointly controlled by Vulcan and FRP, and they each had a
mandatory obligation to fund additional capital contributions of up to $2.15
million. Capital contributions of $1,995,000 have been made by each party as
of September 30, 2010. Distributions will be made on a 50-50 basis except
for royalties and depletion specifically allocated to FRP. Other income for
fiscal 2010 includes a loss of $2,000 representing the Company's equity in
the loss of the joint venture. The property does not yet have the necessary
entitlements for real estate development. Approval to develop real property
in Florida entails an extensive entitlements process involving multiple and
overlapping regulatory jurisdictions and the outcome is inherently uncertain.
In August 2010, the Company received final development approvals from the
Hernando County Board of County Commissioners for the proposed project. In
September 2010, Hernando County transmitted, as required by state law, the
entire approval package to the State Department of Community Affairs (DCA)
for a determination of whether the approval package is in compliance with
state and local laws. In October 2010, the DCA issued a finding of "not in
compliance" with a list of suggested remedial actions which could be taken to
bring the approval package into compliance. The Company is currently in the
process of negotiating the list of suggested remedial actions with the
Department and the County and expects to complete this process within the
next nine months.
The Company owns a 5.8 acre parcel of undeveloped real estate in Washington
D.C. that fronts the Anacostia River and is adjacent to the Washington
Nationals Baseball Park. The Company also owns a nearby 2.1 acre tract on
the same bank of the Anacostia River. Currently, the 5.8 acre tract is
leased to Vulcan Materials Company on a month-to-month basis. 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. 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.
Commonwealth Avenue is a 50-acre site in Jacksonville, Florida near the
western beltway of Interstate-295 capable of supporting approximately 500,000
square feet of warehouse/office build-out.
Leister property in Hampstead, Carroll County, Maryland is a 117 acre parcel
located adjacent to State Route 30 bypass. The parcel was acquired for
future commercial development and is projected to contain 900,000 square feet
of space when complete. This parcel is currently in a predevelopment
planning stage.
Ft. Myers residential property in Lee County, Florida is part of a 1,993 acre
site under a long-term mining lease to Vulcan. In June, 2010 the Company
entered into a letter agreement with Vulcan Materials Company that required
modifications to the existing mining lease on our property, such that the
mining will be accelerated and the mining plan will be revised to accommodate
future construction of up to 105 residential dwelling units around the mined
lakes. In return the Company agreed to grant Lee County a right of way for a
road and to place a conservation easement on part of the property.
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 Company's book value of the property is $276,000. If
the sale closes before January 19, 2011 the Company intends to use the
proceeds in a 1031 exchange to purchase Hollander 95 Business Park in a
foreclosure sale auction through a qualified intermediary. Hollander 95
Business Park, in Baltimore City, Maryland, closed on October 22, 2010 by a
1031 intermediary for a purchase price totaling $5,750,000. This property
consists of an existing 82,800 square foot warehouse building (52.9%
occupied) with an additional 42 acres of partially developed land with a
development capacity of 470,000 square feet (a mix of warehouse, office,
hotel and flex buildings).
COMPARATIVE RESULTS OF OPERATIONS
Transportation
Fiscal Years ended September 30
(dollars in thousands) ___2010 % _2009 % 2008 %
Transportation revenue $ 77,478 86% 81,570 89% 83,925 80%
Fuel surcharges 12,159 14% 9,850 11% 21,162 20%
Revenues 89,637 100% 91,420 100% 105,087 100%
Compensation and benefits 33,699 37% 35,631 39% 37,921 36%
Fuel expenses 16,828 19% 14,777 16% 25,026 24%
Insurance and losses 6,432 7% 6,712 7% 8,553 8%
Depreciation expense 5,995 7% 6,502 7% 5,840 6%
Other, net 9,636 11% 8,684 10% 9,986 9%
Sales, general & administrative 7,331 8% 7,646 8% 7,733 7%
Allocated corporate expenses 1,480 2% 1,617 2% 1,665 2%
Cost of operations 81,401 91% 81,569 89% 96,724 92%
Operating profit $ 8,236 9% 9,851 11% 8,363 8%
Revenues 2010 vs 2009 - 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 remainder of fiscal 2010.
Nevertheless, revenue miles in the current year were down 3.1% compared to
fiscal 2009 due to the time involved in replacing the lost business along
with lower demand and a more competitive economic climate. Approximately
3.3% of miles during fiscal 2010 were from services related to the contracts
that were not renewed. Transportation revenues were $89,637,000 in 2010, a
decrease of $1,783,000 or 2.0% over 2009. Fuel surcharge revenue increased
$2,309,000. Excluding fuel surcharges, revenue per mile decreased 2.1% over
2009 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 $0.36 or
15.8% over 2009.
Revenues 2009 vs 2008 - Transportation revenues were $91,420,000 for 2009, a
decrease of $13,667,000 or 13.0% over 2008. Revenue miles were down 7.0%
principally due to lower demand for products hauled resulting from the
economic environment. Excluding fuel surcharges, revenue per mile increased
4.3%. The average price paid per gallon of diesel fuel decreased by $1.43 or
39% over 2008 and fuel surcharge revenue decreased $11,312,000.
Expenses 2010 vs 2009 - The Transportation segment's cost of operations was
$81,401,000 in 2010, a decrease of $168,000 over 2009. The Transportation
segment's cost of operations in 2010 as a percentage of revenue was 91%
versus 89% in 2009. Compensation and benefits decreased $1,932,000 or 5.4%
in 2010 due to the decrease in miles driven, change in the mix of business
and lower driver turnover related pay. Fuel surcharge revenue increased
$2,309,000 while fuel cost increased by $2,051,000. Insurance and losses
decreased $280,000 compared to last year due to a $314,000 decrease in group
health expense. Depreciation expense decreased $507,000 due to fewer trucks
in service and existing trailers becoming fully depreciated. Other expense
increased $952,000 primarily due to lower gains on equipment sales partially
due to reduced market values of used equipment. Selling general and
administrative costs decreased $315,000 or 4.1% compared to last year due to
lower staffing. Allocated corporate expenses decreased $137,000 due to
reduced allocation to the Transportation segment as a result of the sale of
SunBelt.
Expenses 2009 vs 2008 - Transportation's segment's cost of operations was
$81,569,000 in 2009, a decrease of $15,155,000 over 2008. The Transportation
segment's cost of operations in 2009 as a percentage of revenue was 89%
versus 92% in 2008. Compensation and benefits decreased $2,290,000 or 6.0%
in 2009 due to the decrease in miles driven. Fuel surcharge revenue
decreased $11,312,000 while fuel costs decreased by $10,249,000 leaving a
negative impact on operating profit of $1,063,000 due to less favorable
recovery of fuel costs when the fuel price is lower. Insurance and losses
decreased $1,841,000 due to the reduction in miles driven and reduced vehicle
accident costs partially offset by higher health insurance claims.
Depreciation expense increased $662,000. Other expense decreased $1,302,000
due to the higher gains on equipment sales, the decrease in miles driven, and
other cost management. Selling general and administrative costs decreased
$87,000 compared to 2008. Allocated corporate expenses decreased $48,000 due
to reduced allocation to the Transportation segment as a result of the sale
of SunBelt.
Mining Royalty Land
Fiscal Years ended September 30
(dollars in thousands) ___2010 % 2009 % 2008 %
Mining royalty land revenue $ 4,510 100% 5,067 100% 5,585 100%
Property operating expenses 537 12% 713 14% 661 12%
Depreciation and depletion 103 2% 134 2% 193 3%
Management company indirect 174 4% 192 4% 190 3%
Allocated corporate expense 588 13% 551 11% 480 9%
Cost of operations 1,402 31% 1,590 31% 1,524 27%
Operating profit $ 3,108 69% 3,477 69% 4,061 73%
Revenues 2010 vs 2009 - Mining royalty land segment revenues for fiscal 2010
were $4,510,000, a decrease of $557,000 or 11.0% compared to $5,067,000 in
2009 due to a $594,000 decrease in revenues from timber sales.
Revenues 2009 vs 2008 - Mining royalty land segment revenues decreased
$518,000 or 9.3% in 2009 to $5,067,000 due to reduced demand for mined tons.
Expenses 2010 vs 2009 - The mining royalty land segment's cost of operations
decreased $188,000 to $1,402,000 in 2010, compared to $1,590,000 in 2009.
Property operating expenses decreased $176,000 due to lower maintenance and
other costs. Depreciation and depletion expenses decreased $31,000 due to
reduced tons mined. Management Company indirect expenses (excluding internal
allocations for lease related property management fees) decreased $18,000 due
to reduced salaries from the staffing level adjustments completed during
fiscal 2009. Allocated corporate expenses increased $37,000.
Expenses 2009 vs 2008 - The mining royalty land segment's cost of operations
increased $66,000 to $1,590,000 in 2009, compared to $1,524,000 in 2008.
Property operating expenses increased $52,000. Depreciation and depletion
decreased $59,000 due to reduced tons mined. Management Company indirect
expenses increased $2,000. Allocated corporate expenses increased $71,000.
Developed Property Rentals
Fiscal Years ended September 30
(dollars in thousands) ___2010 % 2009 % 2008 %
Developed property rentals revenue$ 17,191 100% 18,066 100% 18,499 100%
Property operating expenses 5,436 32% 5,072 28% 5,048 27%
Depreciation and depletion 5,061 29% 5,081 28% 4,688 26%
Management company indirect 1,568 9% 1,731 10% 1,707 9%
Allocated corporate expense 883 5% 826 4% 720 4%
Cost of operations 12,948 75% 12,710 70% 12,163 66%
Operating profit $ 4,243 25% 5,356 30% 6,336 34%
Revenues 2010 vs 2009 - Developed property rentals segment revenues decreased
$875,000 or 4.8% in 2010 to $17,191,000 due to reduced occupancy partly offset
by a $376,000 increase in tenant reimbursements for snow removal.
Revenues 2009 vs 2008 - Developed property rentals segment revenues decreased
$433,000 or 2.3% in 2009 to $18,066,000.
Expenses 2010 vs 2009 - Developed property segment's cost of operations
increased to $12,948,000 in 2010, compared to $12,710,000 in 2009. Property
operating expenses increased $364,000 due to higher property taxes and
increased snow removal expenses. Depreciation and amortization decreased
$20,000 due to lower commission amortization. Management Company indirect
expenses (excluding internal allocations for lease related property management
fees) decreased $163,000 due to reduced salaries from the staffing level
adjustments completed during fiscal 2009. Allocated corporate expenses
increased $57,000 due to increase allocation to the real estate segment
resulting from the sale of SunBelt.
Expenses 2009 vs 2008 - Developed property segment's cost of operations
increased to $12,710,000 in 2009, compared to $12,163,000 in 2008. Property
operating expenses increased $24,000 due to higher property taxes.
Depreciation and amortization increased $393,000 as a result of new building
placed in service. Management Company indirect expenses increased $24,000 as a
result of new buildings placed into service and severance costs. Allocated
corporate expenses increased $106,000.
Consolidated Results
Operating Profit - Consolidated operating profit was $14,503,000 in fiscal 2010
compared to $16,128,000, a decrease of 10.1%. Operating profit in the
transportation segment decreased $1,615,000 or 16.4% 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 $369,000 or 10.6% due to lower timber sales partially offset by
reduced expenses. Operating profit in the Developed property rentals segment
decreased $1,113,000 or 20.8% due to reduced occupancy of developed properties.
Consolidated operating profit includes corporate expenses not allocated to any
segment in the amount of $1,084,000 in fiscal 2010, a decrease of $1,472,000
compared to the same period last year. These unallocated corporate expenses
primarily include stock compensation and corporate aircraft expenses both of
which decreased during 2010 versus 2009. Consolidated operating profit was
$16,128,000 in 2009 compared to $14,338,000 in 2008 an increase of 12.5%.
Gain from condemnation of land - Gain from condemnation of land was $3,111,000
in fiscal 2008 resulting from the taking by the Virginia Department of
Transportation ("VDOT") of 28 acres on December 13, 2007. The Prince William
County Property was purchased in December 2005 and the cost of the 28 acres
taken by VDOT was $3,282,000.
Interest income and other - Interest income and other in fiscal 2010 increased
$356,000 due to the note receivable from the sale of SunBelt Transport, Inc. in
August 2009. Fiscal 2009 was $793,000 lower than 2008 due to lower cash
balances, reduced interest rates, and a land sale of $171,000 in fiscal 2008.
Interest expense - Interest expense for fiscal 2010 increased $446,000 over
2009 due to lower capitalized interest due to less projects under construction.
Interest expense for 2009 decreased $1,069,000 from the prior year due to
higher capitalized interest costs.
Income taxes - Income tax expense for 2010 decreased $859,000 over 2009 due to
decreased earnings, a tax credit of $116,000 funded by legislative action
related to fiscal 2008 expenditures, lower non-deductible expenses and lower
than estimated state income taxes. Income tax expense for 2009 decreased
$437,000 from the prior year due to the lower earnings.
Income from continuing operations - Income from continuing operations was
$7,056,000 or $2.25 per diluted share in 2010, a decrease of 10.8% compared to
$7,908,000 or $2.53 per diluted share in 2009. Income from continuing
operations was $7,908,000 or $2.53 per diluted share in fiscal 2009, a decrease
of 6.8% compared to $8,493,000 or $2.72 per diluted share in fiscal 2008.
Discontinued operations - The after tax income from discontinued operations was
$315,000 or $.10 per diluted share in fiscal 2010 as a result of favorable
insurance reserve adjustments compared to a loss of $4,155,000 or $1.33 per
diluted share in fiscal 2009. Fiscal 2009 includes a loss on the sale of
$2,316,000 after tax or $.74 per diluted share. Fiscal 2008 loss from
discontinued operations was $525,000 or $.17 per diluted share.
Net income - Net income was $7,371,000 or $2.35 per diluted share in fiscal
2010, an increase of 96.4% compared to $3,753,000 or $1.20 per diluted share in
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. Net
income for 2008 benefited from a gain on condemnation of land of $1,916,000,
net of income taxes but was adversely impacted by the retirement benefits
expense of $1,541,000, net of income tax benefits, for the Company's previous
President and CEO, whose retirement was effective February 6, 2008. Diluted
earnings per share increased to $2.35 in fiscal 2010 from $1.20 in 2009, and
were $2.55 in 2008.
LIQUIDITY AND CAPITAL RESOURCES
For fiscal 2010, the Company used cash provided by operating activities of
continuing operations of $14,390,000, proceeds received on notes of $1,185,000,
proceeds from the sale of plant, property and equipment of $833,000, proceeds
from the exercise of employee stock options of $732,000, and excess tax
benefits from the exercise of stock options of $740,000 to purchase $6,568,000
in transportation equipment, to expend $4,135,000 in real estate development,
to invest $495,000 in the Brooksville Joint Venture and to make $4,293,000
scheduled principal payments on long-term debt. Cash used in operating
activities of discontinued operations was $1,041,000. Cash increased
$1,348,000.
Cash flows from operating activities for fiscal 2010 were $11,624,000 lower
than the same period last year primarily due to lower revenues, payment of
retained SunBelt liabilities, higher income tax payments related to the sale of
SunBelt, overpayment of income taxes, and deposit on real estate. 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 fiscal 2010 were $4,200,000 lower
than fiscal 2009 due to decreased real estate development.
Cash flows from financing activities for fiscal 2010 were $747,000 lower than
fiscal 2009 due to increased stock options exercised by employees offset by an
increase of $274,000 in mortgage principal payments.
For fiscal 2009, the Company used cash provided by operating activities of
continuing operations of $24,341,000, proceeds from the sale of plant, property
and equipment of $1,181,000, proceeds from the exercise of employee stock
options of $371,000, excess tax benefits from the exercise of stock options of
$80,000 and cash balances to purchase $3,298,000 in transportation equipment,
to expend $10,826,000 in real estate development, to invest $475,000 in the
Brooksville Joint Venture and to make $4,019,000 scheduled principal payments
on long-term debt. Cash provided by operating activities of discontinued
operations was $632,000, proceeds from the sale of plant, property and
equipment of discontinued operations was $1,055,000 and transportation
equipment of discontinued operations was purchased for $1,017,000. Cash
increased $8,025,000. Cash flows from operating activities for fiscal 2009
were $2,674,000 higher than the same period last year primarily reflecting
prepayment of fiscal 2009 insurance premiums in September 2008 along with a
reduction in accounts receivable due to lower revenues and lower days sales
outstanding. Cash flows used in investing activities for fiscal 2009 were
$21,832,000 lower than fiscal 2008 due to decreased purchases of equipment and
land. Fiscal 2008 included $3,395,000 for the purchase of a corporate aircraft
and $4,333,000 for the purchase of 118 acres in Carroll County, Maryland for
future warehouse/office development. Cash flows from financing activities for
fiscal 2009 were $2,685,000 lower than fiscal 2008 due to an increase of
$257,000 in mortgage principal payments, reduced stock options exercised by
employees and the prior year including $4,388,000 for the repurchase of Company
stock.
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.
The Company has a $37,000,000 uncollaterized Revolving Credit Agreement which
was renewed on October 1, 2008 to extend the term until December 31, 2013 and
to amend the loan covenants. The Revolver contains limitations including
limitations on paying cash dividends. As of September 30, 2010 letters of
credit in the amount of $14,204,000 were issued under the Revolver. As of
September 30, 2010, $22,796,000 of the line was available for borrowing and
$43,306,000 of consolidated retained earnings was available for the payment of
dividends. The Company was in compliance with all covenants as of September
30, 2010.
The Company had $14,853,000 of irrevocable letters of credit outstanding at
September 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 by 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 avoid increased fees.
The Board of Directors has authorized management to repurchase shares of the
Company's common stock from time to time as opportunities may arise. No shares
were repurchased during fiscal 2010 or 2009. At September 30, 2010 the Company
had $5,625,000 authorized for future repurchases of common stock.
The Company has committed to make an additional capital contribution of up to
$155,000 to Brooksville Quarry, LLC in connection with a joint venture with
Vulcan (see Transactions with Related Parties).
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 received these funds in
April 2008. On October 15, 2008 the Company agreed to total compensation for
the condemnation of $6,414,000 resulting in an additional amount of $554,000
received February 2009. A portion of these funds that were receivable were used
to purchase replacement property in March 2008 and the Company used the balance
of the funds to improve the replacement property under IRS involuntary
conversion rules.
The Company currently expects its fiscal 2011 capital expenditures to be
approximately $26,467,000 ($18,071,000 for real estate development expansion,
$8,396,000 for transportation segment expansion and replacement equipment).
Depreciation and depletion expense is expected to be approximately $11,116,000.
The Company expects that cash flows from operating activities, secured
financing on existing and planned real estate projects, cash on hand and the
funds available under its revolving credit agreement will be adequate to
finance these capital expenditures and its working capital needs for the next
12 months and the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
Except for the letters of credit described above under "Liquidity and Capital
Resources," the Company does not have any off balance sheet arrangements that
either have, or are reasonably likely to have, a current or future material
effect on its financial condition.
CRITICAL ACCOUNTING POLICIES
Management of the Company considers the following accounting policies critical
to the reported operations of the Company:
Accounts Receivable and Unrealized Rents Valuation. The Company is subject to
customer credit risk that could affect the collection of outstanding accounts
receivable and unrealized rents, that is rents recorded on a straight-lined
basis. To mitigate these risks, the Company performs credit reviews on all new
customers and periodic credit reviews on existing customers. A detailed
analysis of late and slow pay customers is prepared monthly and reviewed by
senior management. The overall collectibility of outstanding receivables and
straight-lined rents is evaluated and allowances are recorded as appropriate.
Significant changes in customer credit could require increased allowances and
affect cash flows.
Property and Equipment and Intangible Assets. Property and equipment is
recorded at cost less accumulated depreciation and depletion. Provision for
depreciation of property, plant and equipment is computed using the straight-
line method based on the following estimated useful lives:
Years
Buildings and improvements 7-39
Revenue equipment 7-10
Other equipment 3-10
Depletion of sand and stone deposits is computed on the basis of units of
production in relation to estimated reserves.
The Company periodically reviews property and equipment and intangible assets
for potential impairment whenever events or circumstances indicate the carrying
amount of a long-lived asset may not be recoverable. The review of real estate
group assets consists of comparing cap rates on recent cash flows and market
value estimates to the carrying values of each asset group. If this review
indicates the carrying value might exceed fair value then an estimate of future
cash flows for the remaining useful life of each property is prepared
considering anticipated vacancy, lease rates, and any future capital
expenditures. The Company's estimated holding period for developed buildings
with current vacancies is long enough that the undiscounted cash flows exceed
the carrying value of the properties and thus no impairment loss is recorded.
The review of the transportation group assets consists of a review of future
anticipated results considering business prospects and asset utilization. If
the sum of these future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the assets, the Company would record an
impairment loss based on the fair value of the assets with the fair value of
the assets generally based upon an estimate of the discounted future cash flows
expected with regards to the assets and their eventual disposition as the
measure of fair value. The Company performs an annual impairment test on
goodwill. Changes in estimates or assumptions could have an impact on the
Company's financials.
All direct and indirect costs, including interest and real estate taxes,
associated with the development, construction, leasing or expansion of real
estate investments are capitalized as a development cost of the property.
Included in indirect costs is an estimate of internal costs associated with
development and rental of real estate investments. Changes in estimates or
assumptions could have an impact on the Company's financials.
Risk Insurance. The nature of the Transportation business subjects the
Company to risks arising from workers' compensation, automobile liability,
and general liability claims. The Company retains the exposure on certain
claims of $250,000 to $500,000 and has third party coverage for amounts
exceeding the retention up to the amount of the policy limits. The Company
expenses during the year an estimate of risk insurance losses. Periodically,
an analysis is performed, using historical and projected data, to determine
exposure for claims incurred and reported but not yet settled and for claims
incurred but not reported. On at least an annual basis the Company obtains
an independent actuarial analysis to assist in estimating the losses expected
on such claims. The Company attempts to mitigate losses from insurance claims
by maintaining safe operations and providing mandatory safety training.
Significant changes in assumptions or claims history could have a material
impact on our operations. The liability at any point in time depends upon
the relative ages and amounts of the individual open claims. There is a
reasonable possibility that the Company's estimate of this liability for the
transportation group or discontinued operations may be understated or
overstated but the possible range can not be estimated.
Income Taxes. The Company accounts for income taxes under the asset-and-
liability method. Deferred tax assets and liabilities represent items that
will result in taxable income or a tax deduction in future years for which
the related tax expense or benefit has already been recorded in our statement
of earnings. Deferred tax accounts arise as a result of timing differences
between when items are recognized in the Consolidated Financial Statements
compared with when they are recognized in the tax returns. The Company
assesses the likelihood that deferred tax assets will be recovered from
future taxable income. To the extent recovery is not probable, a valuation
allowance is established and included as an expense as part of our income tax
provision. No valuation allowance was recorded at September 30, 2010, as all
deferred tax assets are considered more likely than not to be realized.
Significant judgment is required in determining and assessing the impact of
complex tax laws and certain tax-related contingencies on the provision for
income taxes. As part of the calculation of the provision for income taxes,
we assess whether the benefits of our tax positions are at least more likely
than not of being sustained upon audit based on the technical merits of the
tax position. For tax positions that are more likely than not of being
sustained upon audit, we accrue the largest amount of the benefit that is
more likely than not of being sustained in our consolidated financial
statements. Such accruals require estimates and judgments, whereby actual
results could vary materially from these estimates. Further, a number of
years may elapse before a particular matter, for which an established accrual
was made, is audited and resolved.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of September
30, 2010:
Payments due by period
Less than 1-3 3-5 More than
Total 1 year years years 5 years
Mortgages Including Interest $104,292 8,997 17,994 17,144 60,157
Operating Leases 1,028 376 499 153 -
Purchase Commitments 10,230 10,180 50 - -
Other Long-Term Liabilities 813 248 146 78 341
Total obligations $116,363 19,801 18,689 17,375 60,498
As of September 30, 2010 the Company was committed to make an additional
capital contribution of up to $155,000 to Brooksville Quarry, LLC in
connection with a joint venture with Vulcan (see Transactions with Related
Parties) which is not included in the table above.
INFLATION
Historically, the Company has been able to recover inflationary cost
increases in the transportation group through increased freight rates and
fuel surcharges. It is expected that over time, justifiable and necessary
rate increases will be obtained. Substantially all of the Company's royalty
agreements are based on a percentage of the sales price of the related mined
items. Minimum royalties and substantially all lease agreements provide
escalation provisions.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking statements
that are subject to risks and uncertainties that could cause actual results
to differ materially from 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; 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 Annual Report on Form 10-K and
other filings made from time to time with the Securities and Exchange
Commission.
CONSOLIDATED STATEMENTS OF INCOME - Years ended September 30
(In thousands except per share amounts)
2010 2009 2008
Revenues:
Transportation $ 89,637 91,420 105,087
Mining royalty land 4,510 5,067 5,585
Developed property rentals 17,191 18,066 18,499
Total revenues (including revenue
from related parties of $6,295,
$6,408, and $8,004, respectively) 111,338 114,553 129,171
Cost of operations:
Transportation 81,401 81,569 96,724
Mining royalty land 1,402 1,590 1,524
Developed property rentals 12,948 12,710 12,163
Unallocated corporate 1,084 2,556 4,422
Total cost of operations 96,835 98,425 114,833
Operating profit:
Transportation 8,236 9,851 8,363
Mining royalty land 3,108 3,477 4,061
Developed property rentals 4,243 5,356 6,336
Unallocated corporate (1,084) (2,556) (4,422)
Total operating profit 14,503 16,128 14,338
Gain on condemnation of land - - 3,111
Interest income and other 446 90 883
Equity in loss of joint venture (2) (6) (29)
Interest expense (3,928) (3,482) (4,551)
Income before income taxes 11,019 12,730 13,752
Provision for income taxes 3,963 4,822 5,259
Income from continuing operations 7,056 7,908 8,493
Income (loss) from
discontinued operations, net 315 (4,155) (525)
Net income $ 7,371 3,753 7,968
Earnings per common share:
Income from continuing operations-
Basic $ 2.31 2.60 2.80
Diluted $ 2.25 2.53 2.72
Discontinued operations-
Basic $ 0.10 (1.37) (.17)
Diluted $ 0.10 (1.33) (.17)
Net Income-
Basic $ 2.41 1.23 2.63
Diluted $ 2.35 1.20 2.55
Number of weighted average shares (in thousands) used in computing:
- basic earnings per common share 3,061 3,041 3,033
- diluted earnings per common share 3,141 3,117 3,126
See accompanying notes.
CONSOLIDATED BALANCE SHEETS - As of September 30
(In thousands, except share data)
2010 2009
Assets
Current assets:
Cash and cash equivalents $ 17,151 15,803
Accounts receivable (including related party of
$436 and $336 and net of allowance for doubtful
accounts of $83 and $110, respectively) 5,940 5,286
Federal and state income taxes receivable 930 -
Notes receivable 1,238 1,158
Inventory of parts and supplies 665 616
Deferred income taxes - 104
Prepaid tires on equipment 1,246 1,211
Prepaid taxes and licenses 1,813 1,703
Prepaid insurance 2,185 2,390
Prepaid expenses, other 62 93
Assets of discontinued operations 542 1,519
Total current assets 31,772 29,883
Property and equipment, at cost:
Land 93,707 90,828
Buildings 127,617 126,408
Equipment 72,062 71,208
Construction in progress 1,366 892
294,752 289,336
Less accumulated depreciation and depletion 96,636 90,323
198,116 199,013
Real estate held for investment, at cost 7,124 6,933
Investment in joint venture 7,344 6,858
Goodwill 1,087 1,087
Notes receivable 4,382 5,647
Unrealized rents 3,357 3,346
Other assets 4,530 4,087
Total assets $257,712 256,854
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,384 2,822
Federal and state income taxes payable - 2,355
Deferred income taxes 174 -
Accrued payroll and benefits 5,255 4,945
Accrued insurance 2,373 3,190
Accrued liabilities, other 994 1,102
Long-term debt due within one year 4,588 4,293
Liabilities of discontinued operations 1,327 3,660
Total current liabilities 18,095 22,367
Long-term debt, less current portion 67,272 71,860
Deferred income taxes 16,084 15,679
Accrued insurance 2,483 2,995
Other liabilities 1,722 1,545
Commitments and contingencies (Notes 12 and 13)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized; 3,092,696 and 3,053,036
shares issued and outstanding, respectively 309 305
Capital in excess of par value 38,130 35,858
Retained earnings 113,597 106,226
Accumulated other comprehensive income, net 20 19
Total shareholders' equity 152,056 142,408
Total liabilities and shareholders' equity $257,712 256,854
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Years ended September 30
(In thousands)
Cash flows from operating activities: 2010 2009 2008
Net income $ 7,371 3,753 7,968
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 11,507 13,432 11,412
Deferred income taxes 683 235 4,812
Equity in loss of joint venture 2 6 29
Gain on sale of equipment and real estate (325) (1,020) (665)
Gain on condemnation of land - - (3,111)
Gain from discontinued operations, net of tax (315) 4,155 525
Stock-based compensation 804 868 1,078
Net changes in operating assets and liabilities:
Accounts receivable (654) 4,548 (1,085)
Inventory of parts and supplies (49) 197 (102)
Prepaid expenses and other current assets 91 733 (1,905)
Other assets (1,052) (155) (341)
Accounts payable and accrued liabilities (53) (4,612) 3,391
Income taxes payable and receivable (3,285) 2,355 (1,076)
Long-term insurance liabilities and other
long-term liabilities (335) (154) (1,689)
Net cash provided by operating activities of
continuing operations 14,390 24,341 19,241
Net cash (used in) provided by operating
activities of discontinued operations (1,041) 632 3,058
Net cash provided by operating activities 13,349 24,973 22,299
Cash flows from investing activities:
Purchase of transportation group property
and equipment (6,568) (3,298) (17,124)
Purchase of real estate group property
and equipment (4,135) (10,826) (24,192)
Investment in joint venture (495) (475) (525)
Proceeds from the disposal of property,
plant and equipment 833 1,181 6,763
Proceeds from Notes Receivable 1,185 - -
Net cash used in investing activities of
continuing operations (9,180) (13,418) (35,078)
Net cash provided by (used in) investing
activities of discontinued operations - 38 (134)
Net cash used in investing activities (9,180) (13,380) (35,212)
Cash flows from financing activities:
Repayment of long-term debt (4,293) (4,019) (3,762)
Repurchase of Company stock - - (4,388)
Excess tax benefits from exercises of stock
options and vesting of restricted stock 740 80 704
Exercise of employee stock options 732 371 1,193
Net cash (used in) provided by
financing activities of continuing operations (2,821) (3,568) (6,253)
Net increase (decrease) in
cash and cash equivalents 1,348 8,025 (19,166)
Cash and cash equivalents at beginning of year 15,803 7,778 26,944
Cash and cash equivalents at end of year $ 17,151 15,803 7,778
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of capitalized amounts $ 3,928 3,482 4,565
Income taxes $ 6,043 4,077 2,274
The Company recorded a non-cash transaction for notes receivable from the sale
of its flatbed trucking company, Sunbelt Transport, Inc. for $6,890 in August
2009. The Company recorded a non-cash transaction for accounts receivable from
condemnation in the amount of $554 in fourth quarter of fiscal 2008.
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY - Years ended September 30
(In thousands, except share amounts)
Accumu-
lated
Other
Compre- Total
Capital in hensive Share
Common Stock Excess of Retained Loss, net Holders
Shares Amount Par Value Earnings of tax Equity
Balance at October 1, 2007 3,051,064 305 32,154 $98,087 $ (85) 130,461
Exercise of stock options 39,531 4 1,189 1,193
Excess tax benefits from
exercises of stock options
and vesting of restricted stock 704 704
Stock option compensation 477 477
Restricted stock expense 206 206
Shares granted to Directors 5,000 1 395 396
Restricted stock forfeitures (1,000)
Shares purchased and cancelled(55,509) (6) (585) (3,798) (4,389)
Adoption of FIN48 216 216
Net income 7,968 7,968
Minimum pension liability,
net of $74 tax 118 118
Net actuarial gain retiree
health net of $3 tax 5 5
Balance at September 30, 2008 3,039,086 304 34,540 102,473 38 137,355
Exercise of stock options 10,550 1 370 371
Excess tax benefits from
exercises of stock options
and vesting of restricted stock 80 80
Stock option compensation 381 381
Restricted stock expense 193 193
Shares granted to Directors 4,000 294 294
Restricted stock forfeitures (600)
Net income 3,753 3,753
Minimum pension liability,
net of $5 tax 9 9
Net actuarial loss retiree
health net of $17 tax (28) (28)
Balance at September 30, 2009 3,053,036 $305 $35,858 $106,226 $19 $142,408
Exercise of stock options 35,700 4 728 732
Excess tax benefits from
exercises of stock options
and vesting of restricted stock 740 740
Stock option compensation 402 402
Restricted stock expense 48 48
Shares granted to Directors 4,000 354 354
Restricted stock forfeitures (40)
Net income 7,371 7,371
Minimum pension liability,
net of $4 tax 7 7
Net actuarial loss retiree
health net of $4 tax (6) (6)
Balance at September 30, 2010 3,092,696 $309 $38,130 $113,597 $20 $152,056
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - Years ended September 30
(In thousands)
2010 2009 2008
Net income $ 7,371 3,753 7,968
Other comprehensive income, net of tax:
Actuarial gain retiree health (6) (28) 5
Minimum pension liability 7 9 118
Comprehensive income $ 7,372 3,734 8,091
See accompanying notes.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
1. Accounting Policies.
ORGANIZATION - Patriot Transportation Holding, Inc. (Company) is engaged in the
transportation and real estate businesses. The Company's transportation
business is conducted through its subsidiary, Florida Rock & Tank Lines, Inc.
(Tank Lines). Tank Lines is a Southeastern transportation company
concentrating in the hauling by motor carrier of primarily petroleum related
bulk liquids and dry bulk commodities. The Company's real estate group,
through subsidiaries, acquires, constructs, leases, operates and manages land
and buildings to generate both current cash flows and long-term capital
appreciation. The real estate group also owns real estate that is leased under
mining royalty agreements or held for investment.
RECLASSIFICATIONS - 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. Certain reclassifications due to discontinued
operation (see note 16) have been made to 2008 and 2009 financials to conform
to the presentation adopted in 2010.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Investment in the 50% owned
Brooksville joint venture is accounted for under the equity method. All
significant intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with maturities of three months or less at time of purchase to be
cash equivalents.
INVENTORY - Inventory of parts and supplies is valued at the lower of cost
(first-in, first-out) or market.
TIRES ON EQUIPMENT - The value of tires on tractors and trailers is accounted
for as a prepaid expense and amortized over the life of the tires as a function
of miles driven.
REVENUE AND EXPENSE RECOGNITION - Transportation revenue, including fuel
surcharges, is recognized when the services have been rendered to customers or
delivery has occurred, the pricing is fixed or determinable and collectibility
is reasonably assured. Transportation expenses are recognized as incurred.
Real estate rental revenue and mining royalties are generally recognized when
earned under the leases. Rental income from leases with scheduled increases or
other incentives during their term is recognized on a straight-line basis over
the term of the lease. Reimbursements of expenses, when provided in the lease,
are recognized in the period that the expenses are incurred.
Sales of real estate are recognized when the collection of the sales price is
reasonably assured and when the Company has fulfilled substantially all of its
obligations, which are typically as of the closing date.
Accounts receivable are recorded net of discounts and provisions for estimated
allowances. We estimate allowances on an ongoing basis by considering
historical and current trends. We record estimated bad debts expense as a
selling, general and administrative expense. We estimate the net
collectability of our accounts receivable and establish an allowance for
doubtful accounts based upon this assessment. Specifically, we analyze the
aging of accounts receivable balances, historical bad debts, customer
concentrations, customer credit-worthiness, current economic trends and changes
in customer payment terms.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost less
accumulated depreciation and depletion. Provision for depreciation of
property, plant and equipment is computed using the straight-line method based
on the following estimated useful lives:
Years
Buildings and improvements 7-39
Revenue equipment 7-10
Other equipment 3-10
Depletion of sand and stone deposits is computed on the basis of units of
production in relation to estimated reserves. Reserve estimates are
periodically adjusted based upon surveys.
The Company recorded depreciation and depletion expenses for 2010, 2009 and
2008 of $10,908,000, $12,764,000, and $10,708,000, respectively.
The Company periodically reviews property and equipment and intangible assets
for potential impairment whenever events or circumstances indicate the carrying
amount of a long-lived asset may not be recoverable. The review of real estate
group assets consists of comparing cap rates on recent cash flows and market
value estimates to the carrying values of each asset group. If this review
indicates the carrying value might exceed fair value then an estimate of future
cash flows for the remaining useful life of each property is prepared
considering anticipated vacancy, lease rates, and any future capital
expenditures. The review of the transportation group assets consists of a
review of future anticipated results considering business prospects and asset
utilization. If the sum of these future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the assets, the Company
would record an impairment loss based on the fair value of the assets with the
fair value of the assets generally based upon an estimate of the discounted
future cash flows expected with regards to the assets and their eventual
disposition. The Company performs an annual impairment test on goodwill.
Changes in estimates or assumptions could have an impact on the Company's
financials.
All direct and indirect costs, including interest and real estate taxes,
associated with the development, construction, leasing or expansion of real
estate investments are capitalized as a cost of the property. Included in
indirect costs is an allocation of internal costs associated with development
of real estate investments. The cost of routine repairs and maintenance to
property and equipment is expensed as incurred.
INVESTMENTS - The Company uses the equity method to account for its investment
in Brooksville, in which it has a voting interest of 50% and has significant
influence but does not have control. Under the equity method, the investment
is originally recorded at cost and adjusted to recognize the Company's share of
net earnings or losses of the investee, limited to the extent of the Company's
investment in and advances to the investee and financial guarantees on behalf
of the investee that create additional basis. The Company regularly monitors
and evaluates the realizable value of its investments. When assessing an
investment for an other-than-temporary decline in value, the Company considers
such factors as, the performance of the investee in relation to its own
operating targets and its business plan, the investee's revenue and cost
trends, as well as liquidity and cash position, and the outlook for the overall
industry in which the investee operates. From time to time, the Company may
consider third party evaluations or valuation reports. If events and
circumstances indicate that a decline in the value of these assets has occurred
and is other-than-temporary, the Company records a charge to investment income
(expense).
INSURANCE - The Company has a $250,000 to $500,000 self-insured retention per
occurrence in connection with certain of its workers' compensation, automobile
liability, and general liability insurance programs ("risk insurance"). The
Company is also self-insured for its employee health insurance benefits and
carries stop loss coverage of $250,000 per covered participant per year plus a
$53,000 aggregate. The Company has established an accrued liability for the
estimated cost in connection with its portion of its risk and health insurance
losses incurred and reported. Claims paid by the Company are charged against
the liability. Additionally, the Company maintains an accrued liability for
incurred but not reported claims based on historical analysis of such claims.
The method of calculating the accrual liability is subject to inherent
uncertainty. If actual results are less favorable than the estimates used to
calculate the liabilities, the Company would have to record expenses in excess
of what has been accrued.
INCOME TAXES - Deferred tax assets and liabilities are recognized based on
differences between financial statement and tax bases of assets and liabilities
using presently enacted tax rates. Deferred income taxes result from temporary
differences between pre-tax income reported in the financial statements and
taxable income. The Company recognizes liabilities for uncertain tax positions
based on a two-step process. The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates
that it is more likely than not that the position will be sustained on audit.
The second step is to estimate and measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon ultimate settlement.
It is inherently difficult and subjective to estimate such amounts, as the
amounts rely upon the determination of the probability of various possible
outcomes. The Company reevaluates these uncertain tax positions on a quarterly
basis. This evaluation is based on factors including, but not limited to,
changes in facts or circumstances, changes in tax law and expiration of
statutes of limitations, effectively settled issues under audit, and audit
activity. Such a change in recognition or measurement would result in the
recognition of a tax benefit or an additional charge to the tax provision. It
is the Company's policy to recognize as additional income tax expense the items
of interest and penalties directly related to income taxes.
STOCK BASED COMPENSATION - The Company accounts for compensation related to
share based plans by recognizing the grant date fair value of stock options and
other equity-based compensation issued to employees in its income statement
over the requisite employee service period using the straight-line attribution
model. In addition, compensation expense must be recognized for the change in
fair value of any awards modified, repurchased or cancelled after the grant
date. The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The assumptions used in the model and
current year impact is discussed in Footnote 7.
PENSION PLAN - The Company accounts for its pension plan following the
requirements of FASB ASC Topic 715, "Compensation - Retirement Benefits", which
requires an employer to: (a) recognize in its statement of financial position
the funded status of a benefit plan; (b) measure defined benefit plan assets
and obligations as of the end of the employer's fiscal year (with limited
exceptions); and (c) recognize as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or credits that arise
but are not recognized as components of net periodic benefit costs pursuant to
prior existing guidance.
EARNINGS PER COMMON SHARE - Basic earnings per common share are based on the
weighted average number of common shares outstanding during the periods.
Diluted earnings per common share are based on the weighted average number of
common shares and potential dilution of securities that could share in
earnings. The differences between basic and diluted shares used for the
calculation are the effect of employee and director stock options and
restricted stock.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United State requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Certain accounting policies and estimates are of more significance in the
financial statement preparation process than others. The most critical
accounting policies and estimates include the economic useful lives and salvage
values of our vehicles and equipment, provisions for uncollectible accounts
receivable and collectability of unrealized rents and notes receivable,
estimates of exposures related to our insurance claims plans, and estimates for
taxes. To the extent that actual, final outcomes are different than these
estimates, or that additional facts and circumstances result in a revision to
these estimates, earnings during that accounting period will be affected.
ENVIRONMENTAL - Environmental expenditures that benefit future periods are
capitalized. Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded for the estimated amount of
expected environmental assessments and/or remedial efforts. Estimation of such
liabilities includes an assessment of engineering estimates, continually
evolving governmental laws and standards, and potential involvement of other
potentially responsible parties.
COMPREHENSIVE INCOME - Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) refers to
expenses, gains, and losses that are not included in net income, but rather are
recorded directly in shareholder's equity.
NEW 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.
2. Transactions with Related Parties.
The Company may have been considered a related party to Vulcan Materials
Company (Vulcan). One director of the Company was employed by Vulcan until
September 17, 2010 and is related to two other Company directors. Those three
directors own under 5% of the stock of Vulcan and 23.6% of the stock of the
Company.
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 summary of revenues derived from Vulcan follows (in thousands):
2010 2009 2008
Transportation $ 2,407 1,659 1,952
Real estate 3,888 4,591 6,052
$ 6,295 6,250 8,004
The Company outsourced certain functions to Vulcan in prior years, including
some administrative, and property management functions. The cost of these
administrative services was $45,000 in 2008.
A subsidiary of the Company (FRP) has a Joint Venture Agreement with Vulcan
Materials Company (formerly Florida Rock Industries, Inc.) to develop
approximately 4,300 acres of land near Brooksville, Florida. Under the terms
of the joint venture, FRP contributed its fee interest in approximately 3,443
acres formerly leased to Vulcan under a long-term mining lease which had a net
book value of $2,548,000. Vulcan is entitled to mine the property until 2018
and pay royalties for the benefit of FRP for as long as mining does not
interfere with the development of the property. Real estate revenues included
$231,000 of such royalties in fiscal 2010 and $158,000 in fiscal 2009.
Allocated depletion expense of $7,000 was included in real estate cost of
operations for fiscal 2010. FRP also contributed $3,018,000 for one-half of
the acquisition costs of a 288-acre contiguous parcel. Vulcan also contributed
553 acres that it owned as well as its leasehold interest in the 3,443 acres
that it leased from FRP. The joint venture is jointly controlled by Vulcan and
FRP, and they each had a mandatory obligation to fund additional capital
contributions of up to $2.15 million. Capital contributions of $1,995,000 have
been made by each party as of September 30, 2010. Distributions will be made
on a 50-50 basis except for royalties and depletion specifically allocated to
FRP. Other income for fiscal 2010 includes a loss of $2,000 representing the
Company's equity in the loss of the joint venture. The property does not yet
have the necessary entitlements for real estate development. Approval to
develop real property in Florida entails an extensive entitlements process
involving multiple and overlapping regulatory jurisdictions and the outcome is
inherently uncertain.
In connection with the Joint Venture, the independent directors of the Company
also approved certain extensions of lease agreements between FRP and Vulcan on
Vulcan's offices in Jacksonville, Florida, the Astatula and Marion Sand mining
properties, also in Florida. The Company and Vulcan also agreed that a 2,500
acre tract of the Grandin mining property, in Florida, due to be released will
remain subject to the lease and available for future mining.
3. Debt.
Debt at September 30 is summarized as follows (in thousands):
2010 2009
Revolving credit (uncollateralized) $ - -
5.6% to 8.6% mortgage notes,
due in installments through 2027 71,860 76,153
71,860 76,153
Less portion due within one year 4,588 4,293
$67,272 71,860
The aggregate amount of principal payments, excluding the revolving credit, due
subsequent to September 30, 2010 is: 2011 - $4,588,000; 2012 - $4,902,000; 2013
- - $5,239,000; 2014 - $5,308,000; 2015 - $5,379,000; 2016 and subsequent years -
$46,444,000.
The Company has a $37,000,000 uncollaterized 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. During fiscal 2010 letters of credit in the amount of $14,204,000
were issued under the Revolver. As of September 30, 2010, $22,796,000 was
available for borrowing and $43,306,000 of consolidated retained earnings would
be available for payment of dividends. The Company was in compliance with all
covenants as of September 30, 2010.
The non-recourse fully amortizing mortgage notes payable are collateralized by
real estate having a carrying value of approximately $78,328,000 at September
30, 2010.
During fiscal 2010, 2009 and 2008 the Company capitalized interest costs of
$952,000, $1,707,000, and $890,000, respectively.
The Company had $14,853,000 of irrevocable letters of credit outstanding at
September 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
unless notified by 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.
4. Leases.
At September 30, 2010, the total carrying value of property owned by the
Company which is leased or held for lease to others is summarized as follows
(in thousands):
Construction aggregates property $ 24,049
Commercial property 198,758
222,807
Less accumulated depreciation and depletion 48,847
$173,960
The minimum future straight-lined rentals due the Company on noncancelable
leases as of September 30, 2010 are as follows: 2011 - $13,016,000; 2012 -
$11,666,000; 2013 - $9,891,000; 2014 - $8,712,000; 2015 - $7,243,000; 2016 and
subsequent years $23,101,000.
5. Preferred Shareholder Rights Plan.
On May 5, 1999, the Board of Directors of the Company declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock. The dividend was payable on June 2, 1999. The Rights expired on
September 30, 2009 and are no longer exercisable.
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.)
Years Ended September 30
2010 2009 2008
Common shares:
Weighted average common shares
outstanding during the period -
shares used for basic earnings
per common share 3,061 3,041 3,033
Common shares issuable under share
based payment plans which are
potentially dilutive 80 76 93
Common shares used for diluted
earnings per common share 3,141 3,117 3,126
Net income $ 7,371 3,753 7,968
Earnings per common share
Basic $2.41 1.23 2.63
Diluted $2.35 1.20 2.55
For 2010, 2009 and 2008, 37,070, 28,000 and 10,000 shares, respectively,
attributable to outstanding stock options were excluded from the calculation of
diluted earnings per share because their inclusion would have been anti-
dilutive. For 2010, 2009 and 2008, 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.
The Company has two Stock Option Plans (the 2000 Stock Option Plan and the 2006
Stock Option Plan) under which options for shares of common stock were granted
to directors, officers and key employees. The 2006 plan permits the grant of
stock options, stock appreciation rights, restricted stock awards, restricted
stock units, or stock awards. The options awarded under the plans have similar
characteristics. All stock options are non-qualified and expire ten years from
the date of grant. Stock based compensation awarded to directors, officers and
employers are exercisable immediately or become exercisable in cumulative
installments of 20% or 25% at the end of each year following the date of grant.
When stock options are exercised the Company issues new shares after receipt of
exercise proceeds and taxes due, if any, from the grantee. In February 2006,
15,960 shares of restricted stock were granted subject to forfeiture
restrictions, tied to continued employment that lapsed 25% annually beginning
on January 1, 2007 and were fully vested on January 1, 2010. The number of
common shares available for future issuance was 227,970 at September 30, 2010.
The Company utilizes the Black-Scholes valuation model for estimating fair
value of stock compensation for options awarded to officers and employees.
Each grant is evaluated based upon assumptions at the time of grant. The
assumptions were no dividend yield, expected volatility between 37% and 53%,
risk-free interest rate of 2.7% to 4.9% and expected life of 5.0 to 7.0 years.
The dividend yield of zero is based on the fact that the Company does not pay
cash dividends and has no present intention to pay cash dividends. Expected
volatility is estimated based on the Company's historical experience over a
period equivalent to the expected life in years. The risk-free interest rate
is based on the U.S. Treasury constant maturity interest rate at the date of
grant with a term consistent with the expected life of the options granted.
The expected life calculation is based on the observed and expected time to
exercise options by the employees.
The Company recorded the following stock compensation expense in its
consolidated statement of income (in thousands):
Years Ended September 30
2010 2009 2008
Stock option grants $ 402 381 315
Restricted stock awards granted in 2006 48 193 206
Annual non-employee Director stock award 354 294 395
Shares purchased in connection with previous
CEO retirement - - 162
Modification to accelerate prior awards made
in connection with CEO retirement - - 216
804 868 1,294
A summary of changes in outstanding options is presented below:
Weighted Weighted Weighted
Number Average Average Average
Of Exercise Remaining Grant Date
Options Shares Price Term (yrs) Fair Value (000's)
Outstanding at
October 1, 2007 266,611 $31.42 5.9 $ 4,221
Granted 10,000 $86.24 $ 369
Exercised (39,531) $30.17 $ 588
Forfeited (5,000) $43.50
Outstanding at
September 30, 2008 232,080 $33.73 5.0 $ 3,900
Granted 18,000 $74.43 $ 556
Exercised (10,550) $35.20 $ 180
Forfeited (1,600) $39.84
Outstanding at
September 30, 2009 237,930 $36.70 4.5 $ 4,246
Granted 9,070 $96.48 $ 349
Exercised (35,700) $20.48 $ 389
Forfeited - $ -
Outstanding at
September 30, 2010 211,300 $42.01 4.1 $ 4,206
Exercisable at
September 30, 2010 184,330 $36.09 3.4 $ 3,280
Vested during
Twelve months ended
September 30, 2010 16,000 $ 435
The following table summarizes information concerning stock options outstanding
at September 30, 2010:
Shares Weighted Weighted
Range of Exercise under Average Average
Prices per Share Option Exercise Price Remaining Life
Non-exercisable:
$51.01 - $76.00 14,400 74.43 8.8
$76.01 - $87.00 12,570 91.59 8.5
26,970 $82.43 8.7 years
Exercisable:
$15.00 - $23.00 38,780 21.48 1.8
$23.01 - $34.00 81,000 29.75 2.9
$34.01 - $51.00 45,450 44.29 4.3
$51.01 - $76.00 12,600 64.41 6.0
$76.01 - $87.00 6,500 90.18 8.3
184,330 $36.09 3.4 years
Total 211,300 $42.01 4.1 years
The aggregate intrinsic value of exercisable in-the-money options was
$6,420,000 and the aggregate intrinsic value of outstanding in-the-money
options was $6,420,000 based on the market closing price of $70.13 on September
30, 2010 less exercise prices. Gains of $1,988,000 were realized by option
holders during the twelve months ended September 30, 2010. The realized tax
benefit from options exercised for the twelve months ended September 30, 2010
was $762,000. Total compensation cost of options granted but not yet vested as
of September 30, 2010 was $775,000, which is expected to be recognized over a
weighted-average period of 2.9 years. Fiscal 2008 included stock compensation
expense of $180,000 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 previous President and CEO, whose retirement was effective
February 6, 2008.
A summary of changes in restricted stock awards is presented below:
Weighted Weighted Weighted
Number Average Average Average
Of Grant Remaining Grant Date
Restricted Stock Shares Price Term (yrs) Fair Value (000's)
Outstanding at
September 30, 2007 10,800 $63.65 2.3 $ 687
Granted 0 $ 0
Vested (3,600) $63.65 $ 229
Forfeited (1,000) $63.54 63
Outstanding at
September 30, 2008 6,200 $63.67 1.3 $ 395
Granted 0 $ 0
Vested (3,050) $63.67 $ 194
Forfeited (600) $63.54 $ 38
Outstanding at
September 30, 2009 2,550 $63.70 .3 $ 163
Granted 0 $ 0
Vested (2,510) $63.66 $ 160
Forfeited (40) $66.09 $ 3
Outstanding at
September 30, 2010 - $ - - $ -
Fiscal 2008 included 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 previous President and
CEO, whose retirement was effective February 6, 2008.
8. Income Taxes.
The provision for income taxes for continuing operations for fiscal years ended
September 30 consists of the following (in thousands):
2010 2009 2008
Current:
Federal $3,162 3,800 292
State 119 777 233
3,281 4,577 525
Deferred 682 245 4,734
Total $3,963 4,822 5,259
A reconciliation between the amount of tax shown above and the amount computed
at the statutory Federal income tax rate follows (in thousands):
2010 2009 2008
Amount computed at statutory
Federal rate $3,760 4,359 4,715
State income taxes (net of Federal
income tax benefit) 460 541 578
Other, net (257) (78) (34)
Provision for income taxes $3,963 4,822 5,259
In this reconciliation, the category "Other, net" consists of changes in
unrecognized tax benefits, permanent tax differences related to non-deductible
expenses, special tax rates and tax credits, interest and penalties, and
adjustments to prior year estimates.
The types of temporary differences and their related tax effects that give rise
to deferred tax assets and deferred tax liabilities at September 30, are
presented below (in thousands):
2010 2009
Deferred tax liabilities:
Property and equipment $16,097 15,819
Depletion 431 421
Unrealized rents 1,289 1,285
Prepaid expenses 1,633 1,675
Gross deferred tax liabilities 19,450 19,200
Deferred tax assets:
Insurance liabilities 1,735 2,238
Employee benefits and other 1,457 1,387
Gross deferred tax assets 3,192 3,625
Net deferred tax liability $16,258 15,575
A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows (in thousands):
2010 2009
Balance at October 1 $237 372
Reductions due to lapse of statute of limitations (154) (135)
Balance at September 30 83 237
As of September 30, 2010 there was $61,000 of unrecognized tax benefits that,
if recognized, would impact the Company's effective tax rate. Interest and
penalties of $22,000 was reflected as a component of the total liability at
September 30, 2010. The Company expects a decrease in the liability of up to
$32,000 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.
9. Employee Benefits.
The Company and certain subsidiaries have a savings/profit sharing plan for the
benefit of qualified employees. The savings feature of the plan incorporates
the provisions of Section 401(k) of the Internal Revenue Code under which an
eligible employee may elect to save a portion (within limits) of their
compensation on a tax deferred basis. The Company contributes to a
participant's account an amount equal to 50% (with certain limits) of the
participant's contribution. Additionally, the Company may make an annual
discretionary contribution to the plan as determined by the Board of Directors,
with certain limitations. The plan provides for deferred vesting with benefits
payable upon retirement or earlier termination of employment. The Company's
cost was $612,000 in 2010, $760,000 in 2009 and $828,000 in 2008.
The Company has a Management Security Plan (MSP) for certain officers and key
employees. The accruals for future benefits are based upon the remaining years
to retirement of the participating employees and other actuarial assumptions.
Life insurance on the lives of one of the participants has been purchased to
partially fund this benefit and the Company is the owner and beneficiary of
that policy. The expense for fiscal 2010, 2009 and 2008 was $143,000, $136,000
and $191,000, respectively. The accrued benefit under this plan as of
September 30, 2010 and 2009 was $1,089,000 and $1,017,000 respectively. On
December 5, 2007, the board of directors approved certain retirement benefits
for John E. Anderson, the Company's previous President and Chief Executive
Officer who retired effective February 6, 2008. Upon Mr. Anderson's
retirement, the Company paid him $1,331,000 for his GAAP accrued benefit under
the MSP.
The Company provides certain health benefits for retired employees. Employees
may become eligible for those benefits if they were employed by the Company
prior to December 10, 1992, meet the service requirements and reach retirement
age while working for the Company. The plan is contributory and unfunded. The
Company accrues the estimated cost of retiree health benefits over the years
that the employees render service. The accrued postretirement benefit
obligation for this plan as of September 30, 2010 and 2009 was $319,000 and
$308,000, respectively. The net periodic postretirement benefit cost was
$12,000, $(1,000) and $13,000 for fiscal 2010, 2009, and 2008, respectively.
The discount rate used in determining the Net Periodic Postretirement Benefit
Cost was 5.5% for 2010, 6.75% for 2009 and 6.0% for 2008. The discount rate
used in determining the Accumulated Postretirement Benefit Obligation (APBO)
was 5.5% for 2010, 5.5% for 2009 and 6.75% for 2008. No medical trend is
applicable because the Company's share of the cost is frozen.
10. 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):
2010 2009 2008
Revenues:
Transportation $ 89,637 91,420 105,087
Mining royalty land 4,510 5,067 5,585
Developed property rentals 17,191 18,066 18,499
$111,338 114,553 129,171
Operating profit:
Transportation $ 9,716 11,468 10,028
Mining royalty land 3,696 4,028 4,541
Developed property rentals 5,126 6,182 7,056
Corporate expenses:
Allocated to transportation (1,480) (1,617) (1,665)
Allocated to mining land (588) (551) (480)
Allocated to developed property (883) (826) (720)
Unallocated (1,084) (2,556) (4,422)
(4,035) (5,550) (7,287)
$ 14,503 16,128 14,338
Interest expense:
Mining royalty land $ 39 74 71
Developed property rentals 3,889 3,408 4,480
$ 3,928 3,482 4,551
Capital expenditures:
Transportation $ 6,568 3,298 17,124
Mining royalty land 59 14 4
Developed property rentals:
Capitalized interest 952 1,707 890
Internal labor 281 495 948
Real estate taxes 1,157 892 293
Other costs 1,686 7,718 22,057
$ 10,703 14,124 41,316
Depreciation, depletion and
amortization:
Transportation $ 6,143 6,670 6,036
Mining royalty land 103 134 193
Developed property rentals 5,053 5,081 4,688
Other 208 1,558 504
$ 11,507 13,443 11,421
Identifiable assets (less depreciation) at September 30:
Transportation $ 43,100 43,229 45,214
Discontinued Transportation Operations 542 1,519 17,297
Mining royalty land 28,651 28,088 28,064
Developed property rentals 164,601 164,373 159,175
Cash 17,151 15,803 7,778
Unallocated corporate assets 3,667 3,842 4,512
$257,712 256,854 262,040
11. 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 are those that are unobservable and significant to the overall
fair value measurement.
As of September 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 the note receivable (see Note 16) 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 3) approximates the carrying value due to the short-
term nature of such instruments.
The fair values of the Company's other mortgage notes payable were estimated
based on current rates available to the Company for debt of the same remaining
maturities. At September 30, 2010, the carrying amount and fair value of such
other long-term debt was $71,860,000 and $73,558,000, respectively. At
September 30, 2009, the carrying amount and fair value of other long-term debt
was $76,153,000 and $72,750,000, respectively.
12. 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.
13. Commitments.
The Company, at September 30, 2010, had entered into various contracts to
develop real estate with remaining commitments totaling $7,355,000, and to
purchase transportation equipment for approximately $2,875,000. The Company
has committed to make an additional capital contribution of up to $155,000
dollars to Brooksville Quarry, LLC in connection with a joint venture with
Vulcan. In July 2008, the Company entered into an agreement to sell the
Windlass Run Residential property. Windlass Run Residential (previously Bird
River), located in southeastern Baltimore County, Maryland, is a 121 acre tract
of land adjacent to and west of our Windlass Run Business Park. The property
was rezoned in September 2007 to allow for additional density and plans are
being pursued to obtain an appropriate product mix. 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 $5,808,000 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.
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 Company's book value of the property is $276,000. If the sale
closes before January 19, 2011 the Company intends to use the proceeds in a
1031 exchange to purchase Hollander 95 Business Park in a foreclosure sale
auction through a qualified intermediary. Hollander 95 Business Park, in
Baltimore City, Maryland, closed on October 22, 2010 by a 1031 intermediary for
a purchase price totaling $5,750,000. This property consists of an existing
82,800 square foot warehouse building (52.9% occupied) with an additional 42
acres of partially developed land with a development capacity of 470,000 square
feet (a mix of warehouse, office, hotel and flex buildings).
14. Concentrations.
The transportation segment primarily serves customers in the industries 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 fiscal 2010, the transportation segment's ten largest customers
accounted for approximately 57.3% of the transportation segment's revenue. One
of these customers accounted for 21.1% 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 $2,797,000 and $2,578,000 at September 30
2010 and 2009 respectively.
The Company places its cash and cash equivalents with high credit quality
institutions. At times such amounts may exceed FDIC limits.
15. Previous CEO Retirement.
On December 5, 2007, the board of directors approved certain retirement
benefits for John E. Anderson, the Company's previous President and Chief
Executive Officer effective February 6, 2008. Upon Mr. Anderson's retirement,
the Company paid him $4,851,000 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 total impact of these payments on the
Company's earnings for fiscal 2008 was $2,503,000 before taxes which is
included in selling, general, and administrative expense primarily in the three
months ended December 31, 2007. On December 5, 2007, the Company's Board of
Directors elected John D. Baker II to succeed Mr. Anderson as President and
Chief Executive Officer. The following tables detail the expense incurred and
payments made (in thousands):
Expenses
Additional bonus paid in cash $2,125
Repurchase of vested options and stock at 20 day
average market value per agreement which exceeded
the closing price on the date of repurchase 162
Accelerated vesting of options 180
Accelerated vesting of restricted stock 36
Total expense ($2,371 in quarter ended 12/31/07) $2,503
Payments
Total expense $2,503
Previously accrued benefit MSP Retirement Plan 1,331
Gain on vested stock options repurchased 999
Restricted shares vested 1/1/08 repurchased 18
Total payments $4,851
16. 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 Pittsburg, 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.
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 Company's book value of the property is $276,000. The sale is
likely to be completed during fiscal 2011. The property had revenue of
$729,000 and operating expense of $38,000 in fiscal 2008 from timber sales
which has been reclassified to discontinued operations.
A summary of discontinued operations is as follows:
2010 2009 2008
Revenue $ 84 21,250 42,878
Operating expenses (427) 24,239 43,732
Loss on sale before taxes - (3,760) -
Income (loss) before taxes $ 511 (6,749) (854)
Income taxes (196) 2,594 329
Income (loss) from
discontinued operations $ 315 (4,155) (525)
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 liabilities 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, 2009.
The components of the balance sheet are as follows:
September 30, September 30,
2010 2009
Accounts receivable $ 8 142
Other assets - 1
Deferred income taxes 417 1,249
Property and equipment, net 117 127
Assets of discontinued operations $ 542 1,519
Accounts payable $ 154 243
Accrued payroll and benefits 2 140
Accrued liabilities, other 61 73
Insurance liabilities 1,110 3,204
Liabilities of discontinued operations $ 1,327 3,660
17. Subsequent Events
On December 1, 2010 the Company announced a 3-for-1 common stock split.
Shareholders of record on January 3, 2011 will receive two additional shares
for each share held. The stock split will be effected in the form of a stock
dividend which will be paid in newly issued common stock on January 17, 2011.
As of December 1, 2010, the Company had 3,092,696 shares of common stock
outstanding. After the stock split, the Company will have approximately
9,278,088 shares of common stock outstanding. The effect of this stock split
has not been reflected in these financial statements because it will not occur
until January 2011.
Management's Report on Internal Control Over Financial Reporting
The management of Patriot is responsible for establishing and maintaining
adequate internal control over financial reporting. Patriot's internal
control system was designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation and fair
presentation of published financial statements in accordance with U.S.
generally accepted accounting principles. All internal control systems, no
matter how well designed have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Patriot's
management assessed the effectiveness of the Company's internal control over
financial reporting as of September 30, 2010 based on the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on this assessment,
management believes that, as of September 30, 2010, the Company's internal
control over financial reporting is effective.
Report of Independent Registered Certified Public Accounting Firm
The Shareholders and Board of Directors
Patriot Transportation Holding, Inc.
We have audited the accompanying consolidated balance sheets of Patriot
Transportation Holding, Inc. as of September 30, 2010, and 2009, and the
related consolidated statements of income, shareholder's equity and
comprehensive income, and cash flows for years ended September 30, 2010, 2009
and 2008. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Patriot
Transportation Holding, Inc. as of September 30, 2010 and 2009, and the
consolidated results of its operations and its cash flows for the years ended
September 30, 2010, 2009 and 2008 in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Patriot
Transportation Holding, Inc.'s internal control over financial reporting as of
September 30, 2010, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management's Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our opinion. A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Patriot Transportation Holding, Inc. maintained, in all
material respects, effective internal control over financial reporting as of
September 30, 2010, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Hancock Askew & Co., LLP
December 1, 2010
Savannah, Georgia
DIRECTORS AND OFFICERS
Directors
Thompson S. Baker II (1)
President and Chief Executive
Officer of the Company
John D. Baker II (1)
Executive Chairman
Edward L. Baker (1)
Chairman Emeritus
John E. Anderson
Former President and Chief Executive
Officer of Patriot Transportation Holding, Inc.
Charles E. Commander III (2)(4)
Retired Partner
Foley & Lardner
Luke E. Fichthorn III
Private Investment Banker,
Twain Associates
Robert H. Paul III (2)(3)(4)
Chairman of the Board of
Southeast Atlantic Capital, LLC
H. W. Shad III (2)
Owner, Bozard Ford Company
Martin E. Stein, Jr. (3)(4)
Chairman and Chief Executive Officer of
Regency Centers Corporation
James H. Winston (3)
President of LPMC of Jax, Inc. and
Citadel Life & Health Insurance Co.
________________
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee
Officers
John D. Baker II
Executive Chairman
Thompson S. Baker II
President and Chief Executive Officer
John D. Milton, Jr.
Executive Vice President, Treasurer, Secretary
and Chief Financial Officer
David H. deVilliers, Jr.
Vice President
President, FRP Development Corp. and
Florida Rock Properties, Inc.
John D. Klopfenstein
Controller and Chief Accounting Officer
Robert E. Sandlin
Vice President
President, Florida Rock & Tank Lines, Inc.
Patriot Transportation Holding, Inc.
501 Riverside Avenue, Suite 500
Jacksonville, Florida, 32202
Telephone: (904) 396-5733
Annual Meeting
Shareholders are cordially invited to attend the Annual Shareholders Meeting
which will be held at 10 a.m. local time, on Wednesday, February 2, 2011, at the
St. Joe Company building, 245 Riverside Avenue, Jacksonville, Florida, 32202.
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
Telephone: 1-800-937-5449
General Counsel
Fowler White Boggs P.A.
Jacksonville, Florida
Independent Registered Certified Public Accounting Firm
Hancock Askew & Co., LLP
Savannah, Georgia
Common Stock Listed
The Nasdaq Stock Market
(Symbol: PATR)
Form 10-K
Shareholders may receive without charge a copy of Patriot Transportation
Holding, Inc.'s annual report on Form 10-K for the fiscal year ended September
30, 2010 as filed with the Securities and Exchange Commission by writing to the
Treasurer at 501 Riverside Avenue, Suite 500, Jacksonville, Florida 32202. The
most recent certifications by our Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 are filed as exhibits to our Form 10-K.
Company Website
The Company's website may be accessed at www.patriottrans.com. All of our
filings with the Securities and Exchange Commission can be accessed through our
website promptly after filing. This includes annual reports on Form 10-K, proxy
statements, quarterly reports on Form 10-Q, current reports filed or furnished
on Form 8-K and all related amendments.