PATRIOT TRANSPORTATION HOLDING, INC.
1801 Art Museum Drive
Jacksonville, Florida 32207
February 13, 2008
Ms. Claire Erlanger
Division of Corporation Finance
Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Re: Patriot Transportation Holding, Inc.
Form 10-K for the Year Ended September 30, 2007
Filed December 7, 2007
Filer No. 000-17554
Dear Ms. Erlanger:
This letter responds to the staff's comment letter dated January
31, 2008 (the "Comment Letter") regarding the above-referenced filing.
For your convenience, each of the comments has been duplicated below,
followed by our responses.
Form 10-K for the year ended September 30, 2007
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Note 11. Accrued Vacation Liability
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1. We note from the disclosure included in Note 11 that
prior to fiscal 2006 the Company did not accrue for compensation absences
as a determination had been made that the accrual was not material to the
Company's financial statements. We also note that during the third quarter
of fiscal 2006, the Company reevaluated the materiality of the accrual and
recorded a liability of $1,055,000 to reflect the Company's obligation for
vacation pay. In this regard, please explain in further detail the Company's
basis or rationale for its conclusion that the accrual of compensated absences
was not material to the Company's financial statements in periods prior to the
third quarter of fiscal 2006. As part of your response, please provide us
with quantified information regarding the amount of accrual that would have
been required for fiscal 2005 and the first two quarters of fiscal 2006. We
may have further comment upon receipt of your responses.
Company Response:
Background Information. In the third quarter of fiscal year 2006 and as
part of its efforts to bring the Company in compliance with Section 404 of the
Sarbanes-Oxley Act, the Company adopted measures to improve its internal
controls for all of its accounting processes
including those relating to accounting for compensated absences. Prior to the
third quarter of fiscal 2006, vacation records were not maintained for salaried
personnel and historical vacation records of hourly personnel were not retained.
As a result of its compliance efforts, the Company implemented new processes in
the third quarter of fiscal 2006 that allowed management to calculate vacation
liability at the end of each fiscal quarter.
In connection with these processes, the Company determined that its
accrued vacation liability at June 30, 2006 was approximately $1,055,000, and
the Company recorded this accrued liability in the third quarter of fiscal 2006.
Prior to that time, the Company did not accrue for this liability based on
management's belief that the accrual was not material.
Quantitative Analysis of Materiality. Due to the absence of historical
records related to compensated absences for salaried personnel and system
limitations related to hourly personnel vacation usage, the Company is unable
to calculate with precision its vacation liability as of dates prior to the end
of the third quarter of fiscal 2006. Accordingly, as part of its materiality
analysis, the Company made an estimate of prior periods based upon an
assumption that the liability as a percentage of total payroll was a
consistent ratio. This estimate ignores such factors as seasonal fluctuations
in vacation usage and levels of employee turnover, but the Company believes
it is a reasonable method for assessing materiality because in recent years
the Company has not had significant changes in the size of its workforce.
Using this method, the Company estimates that the vacation liability
as of the end of fiscal 2005 and for the first three quarters of fiscal 2006
was as follows:
Estimated Total
Estimated Vacation Liability
Vacation Expense at End of Period
for the Period Impact on Equity
Net of Tax
Fiscal 2005 Year $90,000 $1,012,000 $628,000 (0.58% of total equity)
Q1 2006 $14,000 $1,026,000 $635,000 (0.58% of total equity)
Q2 2006 $14,000 $1,030,000 $642,000 (0.57% of total equity)
Q3 2006 $15,000 $1,055,000 $649,000 (0.56% of total equity)
Based on these estimates, vacation expenses constituted approximately
0.75% of pretax income for fiscal 2005, 0.46% of pretax income for the first
quarter of fiscal 2006, and 0.51% of pretax income for the second quarter of
fiscal 2006. In addition, the total vacation liability, net of income taxes,
had an impact of less than 1% of total equity at the end of each of these
periods. Applying this method, the Company determined that the accrual was
not material to prior periods from a quantitative perspective.
Qualitative Analysis of Materiality. In evaluating the materiality
of this error, in addition to the quantitative analysis described above, the
Company also considered the following qualitative factors detailed in Section
M of Topic 1, Financial Statements, of the Staff Accounting Bulletin Series:
1. The misstatement arises from an estimate with an inherent
degree of imprecision rather than an item capable of precise measurement.
The Company had not previously monitored vacation liability for
salaried personnel because the Company's salaried employees are not entitled
to carry over vacation pay from year to year. At June 30, 2006, accrued
vacation liability for salaried personnel represented 47% of the Company's
total vacation liability. Calculating accrued vacation liability is
complicated by the fact that, for most employees, vacation vesting is based
upon an anniversary year calculated from their date of hire. There are no
reports that would allow precise calculation of vacation accrual in prior
years for the hourly personnel. Accordingly, the vacation accrual for prior
periods represents an estimate with inherent uncertainty.
2. The misstatement does not mask a change in earnings or
other earnings.
The Company did not accrue for vacation liability during any period
prior to the third quarter of fiscal 2006. The accrued liability has
increased over time as the Company's total payroll and total revenues have
increased. The Company's best estimate is that the accrual would not have
had a significant impact on any single prior period. The misstatement did
not significantly impact the quarterly trend on earnings in fiscal 2006
versus the prior year.
3. The misstatement did not hide a failure to meet analyst's
expectations.
Management is unaware of any analyst coverage of the Company
relating to earnings expectations. In any event, the error resulted in
an insignificant overstatement of earnings, generally estimated at less
than one percent. The item did not change a loss into income or vice versa.
The item resulted in a consistently immaterial understatement of earnings
and thus did not affect estimates of operating results or cash flow from
operations, if any investors or analysts were in fact, following the company
to such a degree.
4. The misstatement did not concern a segment or other portion
of the Company's business that has been identified as playing a significant
role in the registrant's operations or profitability.
The misstatement applied to both of the Company's business segments
proportionately based on the total payroll of each segment.
5. The misstatement did not affect the Company's compliance
with regulatory requirements.
The Company is not aware of any such requirements that were affected
by the misstatement.
6. The misstatement did not affect the Company's compliance with
loan covenants or other contractual requirements.
The Company is not aware of any such requirements that were affected
by the misstatement.
7. The misstatement did not have material effect on management
compensation.
The misstatement did not result in material changes to management
compensation plans.
8. The misstatement did not conceal an unlawful transaction.
The misstatement did not conceal any unlawful transactions.
Prior to the third quarter of fiscal 2006 and the subsequent
adoption of Staff Accounting Bulletin No. 108, the Company evaluated the
differences using the rollover method. The Company considered whether to
restate its financial statements for periods prior to June 30, 2006.
After considering the quantitative and qualitative factors described above,
the Company determined that restatement would not be necessary as the amount
was not material to any prior period results of operations. In addition,
the Company determined that it did not have adequate information to
determine with precision the liability amount for prior periods necessary
to prepare the restatement.
The Company hereby acknowledges that:
* the Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action with
respect to the filing; and
* the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
The Company further acknowledges that the Division of Enforcement
has access to all information that it provides to the staff of the
Division of Corporation Finance in your review of its filings or in
response to your comments on its filings.
Please contact the undersigned if you have any additional
comments or questions.
Very truly yours,
/s/ Ray M. Van Landingham
__________________________
Ray M. Van Landingham