PATRIOT TRANSPORTATION HOLDING, INC.
501 Riverside Ave., Ste 500
Jacksonville, Florida 32202
March 2, 2010
Ms. Linda Cvrkel
Division of Corporation Finance
Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Re: Patriot Transportation Holding, Inc. (the "Company")
Form 10-K for the Year Ended September 30, 2009
Filed December 3, 2009
Filer No. 000-17554
Dear Ms. Cvrkel:
This letter responds to the staff's comment letter dated January 22,
2010 and received by the Company on February 17, 2020 (the "Comment
Letter") regarding the above-referenced filing. For your convenience,
each of the comments has been duplicated below, followed by our responses.
Annual Report on Form 10-K for the year ended September 30, 2009
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Consolidated Statements of Income
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1. We note the presentation of the measures "gross profit" in the
Company's consolidated statements of income. Given the nature
of the Company's business which consists primarily of providing
transportation services and leasing of real estate, we believe
that the Company should delete the presentation of the measure
"gross profit" as well as the presentation of any related subtotal
before deducting general and administrative expenses. Since the
Company is not involved in the production of a product, we do not
believe the use of this term is appropriate in the Company's
circumstances. Your discussion of this measure in MD&A and in Note
10 should be similarly revised and your discussion of the results
of the operations of your segments should be revised to include a
discussion of the corporate selling general and administrative costs
that have been allocated to each of your segments. Please make
appropriate revisions to your financial statements and the related
disclosures in your MD&A in future filings.
Company Response:
The Company's internal financial statements as reviewed by the Chief
Operating Decision Maker and all other management recipients present gross
profit and SG&A. The Company believes that the presentation of the measure
"gross profit" provides meaningful disclosure to the readers of our financial
statements and periodic reports for the following reasons:
1. SEC guidance indicates gross profit presentation is required - Section
5-03 of Regulation S-X indicates that gross profit is required in
summarized financial information and refers to Regulation S-K. Item
302 of Regulation S-K which defines "selected quarterly financial
data" indicates that "Disclosure shall be made of net sales, gross
profit (net sales less costs and expenses associated directly with or
allocated to products sold or services rendered), income (loss) before
extraordinary items and cumulative effect of a change in accounting,
per share data based upon such income (loss), net income (loss) and
net income (loss) attributable to the registrant, for each full
quarter.."
2. The reader of financials can better assess the leverage of revenue
changes by presenting gross profit and SG&A separately due to the
usually fixed nature of SG&A - The core components of SG&A including
public company costs generally do not increase or decrease
significantly with changes in revenues. As an example, the restatement
for discontinued operations reduced fiscal 2008 revenues by $42 million
or 24.5% but SG&A was only reduced by $0.6 million or 3.8%. As another
example, in the first quarter of fiscal 2010 SG&A was $3 million which
was equal to the average quarter in fiscal 2007 and the core amount in
subsequent years. However this represented 11% of revenue in fiscal
2010 versus 8% in fiscal 2007 and 7% in fiscal 2008 including the
discontinued operation revenues.
3. The reader of the financials can better analyze results with a gross
profit measure because it excludes unusual corporate SG&A items - Gross
profit margin is typically 23-25% of revenues. SG&A expense over the
past nine quarters has varied between 38-74% of gross profit. The
reason for the large variance was primarily three quarters which
included the effects of the previous CEO/CFO retirement accruals and
the corporate aircraft impairment. Unusual SG&A items are typically
not associated directly with or allocated to either segment. The
current presentation makes it easy to identify the effect of and
facilitates discussion of unusual items.
4. The reader of the financials can evaluate the allocated and
unallocated SG&A for financial analysis - Note 10 shows the
allocation of SG&A to each segment and the unallocated amounts. The
Company's segments operate independently and have minimal shared
overhead except for public company "corporate costs". The unallocated
SG&A is also unallocated in our internal financials as reviewed by
the CODM. Unallocated corporate cost primarily includes the previous
CEO/CFO retirement grants, corporate aircraft and stock compensation.
The Company will disclose the allocation method of corporate SG&A and
primary components of unallocated corporate SG&A in future filings.
5. The Company's diverse and unrelated segments do not accommodate
consolidated income statement presentation typical for the standalone
trucking or real estate industries. The presentation by segment of
detail expenses as shown in the Company's MD&A cannot be consolidated
at the detail level shown in MD&A due to the different components.
The Company will not present the measures gross profit in future filings.
Note 1. Notes to Consolidated Statements-Accounting Policies Property,
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Plant and Equipment
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2. In your chairman's letter under "Real Estate Segment," it is noted
that three of your recently completed buildings, two of which were
completed in September 2008, and one in the spring of 2009 remained
vacant with no clear prospect for occupancy in the coming year. We
also note from the discussion in "Item 2. Properties" and from the
discussion of your Real Estate segment operating properties that your
property at 100-400 Interchange Boulevard in New Castle County,
Delaware is currently only 8% leased and that Chrysler and General
Motors plant closing have reduced the demand for space in this market.
We also note from your discussion in the "Executive Overview" section
of MD&A that gross profit from the leasing of developed buildings is
expected to weaken from existing levels as three new buildings recently
brought into service are contributing no revenue and expiring leases if
renewed will entail rent concessions from the existing levels. We
further note the discussion indicating that prospective tenants for
vacant space are significantly fewer than in past years, competition
for their contracts are more intense and rental rates continue to
decline from existing levels.
In light of these negative circumstances where no cash flows or very
limited cash flows are expected from the three completely vacant and
one substantially vacant real estate properties in the foreseeable
future, supplementally advise us of when your most recent impairment
analysis was completed with respect to each of these properties. As
part of your response, please tell us the methods and significant
assumptions that were used to evaluate the existence of potential
impairments with respect to each of these properties and provide us
with a summary of the results of your most recent impairment analysis.
If an impairment analysis was not recently performed, please explain
to us in detail the reasons why the negative circumstances outlined
above did not trigger an impairment analysis pursuant to the guidance
in ASC 360-10-35-21.
Company Response:
The Company documented an impairment review of every asset group
within the real estate segment on November 11, 2009. Based upon the
indications of that review including current period and projected losses and
decreases in market value six buildings (including all the buildings in your
comment) and four vacant land parcels within our parks were identified for
further review. The guidance in ASC 360-10-35-17 states:
An impairment loss shall be recognized only if the carrying amount of a
long-lived asset (asset group) is not recoverable and exceeds its fair value.
The carrying amount of a long-lived asset (asset group) is not recoverable if
it exceeds the sum of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset (asset group). That assessment shall
be based on the carrying amount of the asset (asset group) at the date it is
tested for recoverability, whether in use (see paragraph 360-10-35-33) or
under development (see paragraph 360-10-35-34). An impairment loss shall be
measured as the amount by which the carrying amount of a long-lived asset
(asset group) exceeds its fair value.
Detailed cash flow estimates were prepared for the remaining useful life of each
of the identified properties based upon our recently completed business plan.
The business plan considers anticipated delays in leasing, lower market rates,
and any future capital expenditures. In all such cases the estimate of future
cash flows exceeded the Company's carrying amount. The Company has no intent
at this time of selling any of the properties. As a long-term investor in
real estate the Company has not sold any developed properties since the
developed property group began operations in 1989. For all ten properties
studied in detail the undiscounted cash flows for the expected book life of
the buildings (excluding any residual land value) was $253 million versus
carrying amount of $38 million. Based upon this analysis the Company
determined that none of the properties were impaired.
Even though the Company was not required to estimate current fair value of the
properties based on the results of the undiscounted cash flow analysis, the
Company estimated the current fair value of each property by discounting the
estimated future cash flows at various interest rates. At a discount rate of
7.5% each property's fair value exceeded carrying amount. The Company's
Disclosure Committee considered the possibility of events or circumstances
that might indicate a need for an updated impairment review prior to filing
of Form 10-Q for December 31, 2009.
3. Also, assuming a satisfactory response to our comment above, please
significantly expand your discussion of in the "Critical Accounting
Policies" section of MD&A to explain in further detail the methods
and significant assumptions the Company uses in preparing its
impairment analysis with respect to its real estate properties.
Your revised discussion should also explain in detail why the
Company does not believe any impairment charges are currently
required with respect to those properties which are currently
unoccupied or only minimally occupied at the present time.
Company Response:
The Company's Critical Accounting Policy on impairment review will
be revised to add the underlined items:
The Company periodically reviews property and equipment and intangible
assets for potential impairment whenever events or circumstances indicate
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the carrying amount of a long-lived asset may not be recoverable. The
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review of real estate group assets consists of comparing cap rates on
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recent cash flows and market value estimates to the carrying values of
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each asset group. If this review indicates the carrying value might
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exceed fair value then an estimate of future cash flows for the
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remaining useful life of each property is prepared considering anticipated
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vacancy, lease rates, and any future capital expenditures. The review of
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the transportation group assets consists of a review of future anticipated
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results considering business prospects and asset utilization. If the sum
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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 asset. The Company's
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estimated holding period for developed buildings with current vacancies
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is long enough that the undiscounted cash flows exceed the carrying value
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of the properties and thus no impairment loss is recorded. If this
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review indicated that the carrying amount of the asset may not be
recoverable, the Company would estimate the fair value of the
assets, generally using an estimate of the discounted future cash flows
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expected with regards to the asset and its 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.
4. In your Press Release dated January 6, 2010, we note your
disclosure indicating you were unsuccessful in renewing certain
contracts with significant customers. We also note that the
customers lost contributed approximately $10.0 million or
approximately 11% of the transportation group's revenue in 2009.
In light of this significant expected decrease in revenues in
fiscal 2010, supplementally advise us and expand your future
disclosure to discuss whether an updated impairment analysis
will be performed pursuant to ASC 360-10-35 with respect to the
long-lived assets associated with your transportation business.
If not, please explain why. Your response and your future
disclosure in MD&A should also be expanded to discuss the
factors that resulted in a requirement to perform an updated
impairment analysis and should also discuss the methods and
significant assumptions used in the analysis as well as the
results of your analysis.
Company Response:
The Company's transportation group operating profit including
allocated corporate expense exceeded $9 million in fiscal 2009 which
was an increase of about $1 million annually compared to the prior two
fiscal years. Return on capital employed exceeded 20% after income
taxes in each of the last three years. Depreciation is about $6 million
annually and replacement capital could be as much as $8 million annually
depending on assumptions. Generally as long as the Company expects an
operating profit in excess of anticipated replacement capital less
depreciation then no impairment would be indicated. The loss of $10
million in revenue would be expected to result in no more than 30% or
$3 million reduction in operating profit in the short term all else
equal. The budgeted profit prior to the loss in revenue less the
maximum estimated affect of the loss of business does not indicate any
significant risk of impairment.
In addition the Company does not anticipate material losses from sales
of excess equipment or the need to revise depreciation estimates. The
Company does not believe that this loss of revenue is significant to
the long-term value of the transportation group due to the Company's
operating history and current expectations. The impairment analysis
is performed on the transportation group in total as equipment is
routinely moved from one location to another. The loss of revenue did
not result in the closure of any locations. This loss of revenue is
not considered a significant adverse change in the extent or manner of
use of the long-lived assets for these reasons.
Based on the financial analysis performed, the Company determined that
a formal impairment analysis was not required. The significant
accounting policy as shown in the response to comment 3 was expanded
to show factors and assumptions as reflected by the underlined items
and will be included in future filings.
Note 10-Business Segments
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5. We note that your real estate segment includes a diverse
portfolio of assets used for various purposes, including
developed properties that are leased to third parties, land
held for future development and construction aggregates
properties. In light of this diversity, supplementally
advise and expand your disclosure to indicate why you believe
it is appropriate to aggregate the different types of real
estate properties into one reportable segment. As part of
your response, please explain in detail how your chief operating
decision maker reviews the Company's financial results for
purposes of making decisions about allocating resources and for
purposes of assessing performance. Also, if you believe that you
have multiple real estate operating segments, but that it is
appropriate to aggregate them, please explain in detail how they
meet the criteria required for aggregation outlines in ASC
280-10-50-11 (paragraph 17 of SFAS No. 131). As part of your
response, please explain in detail why you believe the aggregated
operations have similar economic characteristics and provide us
with revenue and operating income information for each segment in
support of your response. We may have further comment upon receipt
of your response.
Company Response:
The Company believes the aggregation of the real estate reporting units is
appropriate because it meets the criteria for aggregation. The Company
further believes that the income statement presentation showing the real
estate divisions aggregated allows the reader to more easily compare the
two diverse segments presented, real estate and transportation.
The Company was formed in 1986 with the spin off from Florida Rock Industries,
Inc. (FRI) of its mining and certain other operating properties and a
trucking subsidiary. Most of the properties were subject to long term leases
to FRI. The properties stretched from Washington D.C. to Miami. The
properties include construction aggregate royalty sites, land leases for other
purposes, a large office building, and parcels held for investment. This is
the Royalties and Rent division which is a reporting unit. In 1989 the
Company formed FRP Development Corp to acquire, construct, and lease
office/warehouse buildings in the Baltimore/Northern Virginia/Washington area.
This is the Developed Property Rentals division which is a reporting unit.
The results of the Royalties and Rent division include royalties from
construction aggregates along with material office building rents, land
rents and timber sales. The Company internal financials as reviewed by
the CODM do not have any schedules showing the results for construction
aggregate royalties separate from the other items in this division.
Each division has properties held for future development. In the case of
the Royalties and Rent division it includes a parcel in Washington D.C.
received in the spin off that is leased to FRI for a concrete plant but
that will be developed eventually, a potential warehouse site in Florida,
along with a few other parcels previously leased to FRI including one
recently placed under contract for sale. In the case of the Developed
Property Rentals division the property held for future development is
parcels that are related to our horizontal development of office/warehouse
parks. The company also has property held for future development in the
form of a non-consolidated Joint Venture with FRI that is not part of the
real estate segment. In general, the expenses related
to the properties held for future development are not material to the
Company as they consist primarily of real estate taxes some of which are
capitalized due to the state of development activities. The Company's
internal financial statements do no present totals of property held for
future development by division or in aggregate. It is the Company's
position that the properties held for future development do not compose
a segment.
The Company's MD&A on the real estate segment was expanded in the Form
10-Q for the quarter ending December 31, 2009 to show more detail of
each division's costs. This is in response to analyst's questions
concerning cash flows by division. Operating costs as a percent of
each division's revenues are shown in the table below. The cash
operating expenses are very similar for each division. The primary
difference in the gross profit by division is the depreciation/depletion.
The depreciation/depletion expense is a function of the historic cost
and holding period of the assets of each group rather than the economic
differences of the divisions. The Company believes that the divisions
have similar economic returns evaluated on fair value and the Company
is exploring growth opportunities in both divisions. The reader can
easily see the aggregated segment's individual division results as
shown in the MD&A table below:
Three
Months
ended Dec
31
2009 2008
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Royalties and rent 1,335 25% 1,635 28%
Developed property rentals 4,084 75% 4,227 72%
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Total Revenue 5,419 100% 5,862 100%
Mining and land rent expense -
Property operating expenses 353 26% 458 28%
Depreciation/depletion 94 7% 111 7%
Management company indirect 57 4% 44 3%
Developed property expenses
Property operating expenses 1,100 27% 879 21%
Depreciation/depletion 1,206 30% 1,190 28%
Management company indirect 368 9% 495 12%
Cost of operations 3,178 59% 3,177 59%
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Gross profit 2,241 41% 2,685 50%
The real estate segment's personnel are based in Baltimore, all provide
services for both divisions, and the segment has one chief operating
decision maker (CODM). The CODM reviews the two division financial
statements and assesses performance on that basis. The Company's
real estate group consists of two reporting units aggregated for
reporting practices.
The Company believes the aggregation of the real estate reporting units
is appropriate because it meets the criteria for aggregation:
* The nature of products and services is the same as the two
reporting units are both in the business of leasing and
developing real property.
* The nature of the production process is the same as each
division has property with active lease income and active
projects which will result in the construction of buildings.
* The customers are of a similar type and class.
* The method of providing the service is the same, ownership
of real estate.
* Both reporting units operate under similar regulations.
* The economic characteristics are similar excluding
depreciation/depletion which is a reflection of historical
cost due to the spin-off bases.
In future filings the Company will disclose the aggregation and discuss
the reasons it is appropriate.
Note 13-Commitments
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6. We note that you have entered into an agreement to sell the
Windlass Run Residential Property for $25.2 M, subject to certain
potential price adjustments resulting from the buyer's inspection
and government approvals. You also indicate that the property is
classified as held for investment at the balance sheet dates
presented in your financial statements. Although, the sale of
the property within one year is not probable, the reason appears
to be the result of regulatory approvals that are beyond your
control. Furthermore, as indicated in "Operating Properties,"
the purchaser has placed non-refundable deposits of $1M in escrow,
and preliminary approval for the development as originally
contemplated under the agreement's pricing contingencies has been
received and the time for any appeals expired in July 2009. Based
on these factors, it appears that these matters may represent
exceptions to the one year requirement outlined ASC 360-10-45-9d
which would require treatment of the property as "held for sale"
pursuant to the guidance in ASC 360-10-45-11. Supplementally
advise us and expand your disclosure to indicate what
consideration was given to classifying this property as held for
sale with the resultant measurement of the property at fair value
less costs to sell, supplementally advise us if there has been any
substantial decline in this property's fair value since you entered
into the sale agreement. We may have further comment upon reviewing
your response.
Company Response:
The agreement to sell the Windlass Run Residential property was made
in July 2008. The purchaser desired to delay closing until they had obtained
a recorded subdivision plat. The preliminary approval for the development is
a step toward that goal. Both parties knew at the time of agreement that it
would be at least two years to complete the sale and the buyer did not wish
to expend the funds to purchase the property until immediately before it could
be placed in use. ASC360-10-45-11 indicates, in part:
An exception to the one-year requirement in paragraph 360-10-45-9(d) shall
apply in the following situations in which such events or circumstances arise:
a. If at the date an entity commits to a plan to sell a long-lived asset
(disposal group) the entity reasonably expects that others (not a buyer)
will impose conditions on the transfer of the asset (group) that will extend
the period required to complete the sale and both of the following conditions
are met:
1. Actions necessary to respond to those conditions cannot be
initiated until after a firm purchase commitment
2. A firm purchase commitment is probable within one year.
In this case the government is not preventing completion of the sale, the
agreement was simply written to delay closing until the recorded subdivision
plat was received. In any case the following conditions for the exception
were not met because a firm purchase commitment was not required to seek
government approval and no firm commitment was probable in one year as the
buyer will not be required to complete the purchase if the recorded
subdivision plat is not received. The other two exceptions detailed in
ASC360-10-45-11 related to unexpected conditions and there have been no
unexpected conditions. The property's current fair value may be less
than the $25.2 million contractual sales price, however, the buyer is
still expending its own funds to obtain the recorded subdivision plat and
could walk away from the contract with a only a loss of the $1 million
deposit and funds it has expended. Although this is an indication that
the fair value has not declined substantially our carrying value is less
than 25% of the sales price. No impairment is indicated because the fair
value less costs to sell is more than the Company's carrying value of the
property of $6 million. In addition as it is non-depreciable land the
only difference in the current treatment versus held for sale treatment
would be the balance sheet classification.
Note 16-Discontinued Operations
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7. We note from the disclosure included in Note 16 that the buyer of
SunBelt Transport, Inc., purchased all of SunBelt's tractors and
trailers, leased SunBelt's terminal facilities in Jacksonville,
Florida for 36 months at a rental of $5,000 per month and leased
the terminal facilities in South Pittsburgh, Tennessee for 60
months at a rental of $5,000 per month with an option to purchase
the Tennessee facilities at the end of the lease for payment of an
additional $100,000. We also note that the South Pittsburgh lease
was recorded as a sale under bargain purchase accounting. With
regards to the South Pittsburgh lease, please explain in detail
why you believe this lease should be accounted for as a sale under
bargain purchase accounting. As past of your response, please
explain in detail how your accounting for this lease complies with
the guidance outlines in ASC 840-10-25 (paragraphs 26 and 27 of
SFAS No. 13) as applicable.
Company Response:
The lease includes a bargain purchase option because the purchase option
for $100,000 is well below the expected fair value of the property and the
exercise of the option appears to be reasonably assured. The property is
very important to the lessee's business but in any case the total of the
lease payments of $300,000 plus the $100,000 purchase option was significantly
less than the Company's historical cost, carrying value of the property, or
expected fair value. In addition the Company is responsible for property
taxes during the lease further enhancing the bargain lease. The lease
transfers substantially all the benefits and risks incident to ownership to
the lessor. As the collectibility of the payments is reasonably predictable
and there are no important uncertainties as to costs to be incurred by the
lessor then the lease should be accounted for as a direct financing lease.
However, as the accounting was simpler and not materially different, the
Company viewed this as a bargain sale in connection with the sale of the
other SunBelt assets. The Company recorded a long-term receivable at the
discounted present value of the future expected payments and a liability
was established for the discounted liability for real estate taxes to be
paid by the Company. The existing fixed assets were retired at a loss
using the receivable less liabilities as proceeds. We believe this method
of income recognition is appropriate because it is equivalent to the gross
investment and unearned income treatment required for a direct financing
lease. In addition the transaction is not material.
8. Also, in light of the materiality of the loss from the sale of
discontinued operations recognized during fiscal 2009, supplementally
advise us and expand your disclosure to indicate how you calculated
the loss from this transaction pursuant to ASC 205-20. As part of
your response, please present your calculation of gain/loss in a
table that indicated all items considered in your calculation,
and including the note receivable. We may have further comment
upon reviewing your response.
Company Response:
The loss on the sale was $3,760,000 before taxes as disclosed in
footnote 16. The Company will include a summary of the table below in
future filings.
Carrying amount of assets disposed:
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Petty cash $ 4,000
Inventory of parts and supplies 88,000
Prepaid tires on equipment 643,000
Land 103,000
Buildings 459,000
Equipment 24,022,000
Less accumulated depreciation (14,013,000)
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Net book value of assets disposed 11,306,000
Plus liabilties assumed:
Change in control agreement 283,000
Real estate taxes of bargain lease 61,000
Less proceeds from sale:
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Cash Payment Received 1,000,000
Present value of promissory note 6,565,000
Present value of bargain lease 325,000
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Loss on sale before taxes $3,760,000
The present value of the note receivable and bargain lease were
discounted at 7% which was determined to approximate fair value.
The Company retains a lien on the titles of all equipment and the
estimated fair value of such equipment is projected to exceed the
promissory note balance until paid in full.
9. In light of the materiality of the insurance liabilities
associated with the SunBelt business remaining on your balance
sheet at September 30, 2009 in relation to the Company's loss
from discontinued operations for 2009, supplementally advise
us and expand your disclosure in future filings to indicate
whether there are any contingencies associated with the $3,204
of insurance liabilities. If there are uncertainties surrounding
the amount that will ultimately be paid, please expand your
disclosure to explain the nature of such contingencies. Refer
to the guidance outlined in SAB Topic 5:Z, Question 2.
Company Response:
The Company retained the liability for risk insurance losses incurred
prior to the sale of the SunBelt operations. The Company has reviewed
relevant guidance from SAB Topic 5;Z, Question 2 and Statement 5 which
indicates that if exposure to loss exists in excess of the amount
accrued, disclosure of the contingency shall be made when there is at
least a reasonable possibility that a loss or an additional loss may
have been incurred. The disclosure shall indicate the nature of the
contingency and shall give an estimate of the possible loss or range
of loss or state that such an estimate cannot be made.
The Company's relevant critical accounting policy is shown below:
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.
As indicated in the critical accounting policy the Company obtained an
independent actuarial analysis at least annually which is based upon
actual claims history including open claims evaluated by outside claim
adjusters. This report included all claims of the transportation group
along with an estimate of the amount by subsidiary. The Company also
performs a detailed analysis of the claims and actuarial report to
determine it is reasonable before adjusting the liability. In all
presented periods the Company's analysis indicated the actuarial
estimate was reasonable. SunBelt's insurance liabilities at September
30 for each year presented was booked to our best estimate which was
supported by independent actuarial analysis. In response to your
comment, the Company will add the following sentence to future filings;
"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."
Schedule II Valuation and Qualifying Accounts
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10. We note that insurance and loss expense declined substantially
by $1,842,000 in the current year as indicated in MD&A and your
chairman's letter. Furthermore, we note from your accounting
policy disclosures included in Note 1 and in your discussion of
Critical Accounting Policies that in order to calculate insurance
accruals, you use historical and projected data. Given the
decline in insurance and loss expense achieved in 2009 and the
fact that the Chairman's letter indicates that the tank truck
operations' management has developed a strong safety culture
that will enable the Company to achieve an industry leading
performance in this area in the future, supplementally advise
us and expand your disclosure in future filings to indicate the
reasons why accrued risk insurance accruals at September 30,
2009 remained at levels comparable to the previous year.
Company Response:
In future filings the Company will split the amount of accrued risk
insurance showing in Schedule II between the continuing and discontinued
operations as shown below. The insurance and loss expense decrease of
$1,841,000 reflects continuing operation activity (Tank Lines) and
includes the $1,176,000 decrease calculated from the schedule below,
a $789,000 decrease in premiums & related expenses due to the lower
miles and favorable loss experience in the recent results, a $387,000
decrease in losses not subject to contingent liability accounting
offset by $511,000 increase in health insurance. The majority of
the decrease in the expense in the table below was due to a lower
projected ultimate loss amount for accidents that occurred in fiscal
2009 but part of it was for favorable development of prior year
estimates. The actual amount of the liability for continuing
operations did not decrease as much as the expense because of the
sharp decrease in payments. The Company will add the following
sentence to its critical accounting policy on risk insurance in
future filings; "The liability at any point in time depends upon
the relative ages and amounts of the individual open claims."
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGIN. COST AND AT END
OF YEAR EXPENSES PAYMENTS OF YEAR
-------- -------- -------
Year Ended
September 30, 2009:
Accrued risk
insurance $8,215,064 $ 3,546,297 $ 3,464,304 $8,297,057
Tank Lines $5,493,553 $ 1,069,706 $ 1,470,108 $5,093,151
SunBelt $2,721,511 $ 2,476,591 $ 1,994,196 $3,203,906
Year Ended
September 30, 2008:
Accrued risk
insurance $7,611,683 $ 3,914,380 $ 3,310,999 $8,215,064
Tank Lines $5,647,211 $ 2,246,019 $ 2,399,677 $5,493,553
SunBelt $1,964,472 $ 1,668,361 $ 911,322 $2,721,511
Year Ended
September 30, 2007:
Accrued risk
insurance $8,208,570 $ 2,319,782 $ 2,916,669 $7,611,683
Tank Lines $6,146,750 $ 1,345,161 $ 1,844,700 $5,647,211
SunBelt $2,061,820 $ 974,621 $ 1,071,969 $1,964,472
Definitive Proxy Statement on Schedule 14A
- ------------------------------------------
Summary Compensation Table, page 20
- -----------------------------------
11. We note that you paid your named executive officers amounts
pursuant to your MIC plan. Please disclose in detail how you
determined the amounts awarded based on the performance
targets set forth on page 16. Include any formula used, if
applicable.
Company Response:
For fiscal 2009, Messrs. John Baker and deVilliers were eligible to earn
bonuses of up to 100% of their respective base salaries. Messrs. Milton
and Sandlin were eligible to earn bonuses of up to 60% of their respective
base salaries. The performance objectives and threshold and target
performance levels for these executives are described under the
"Compensation Discussion and Analysis" section of the proxy statement.
For fiscal 2009, bonuses for these executive officers was tied to the
achievement of specified objectives for Florida Rock & Tank Lines, Inc.
("FRTL"), SunBelt Transport, Inc. ("SunBelt"), and the Real Estate Group.
Percentage of Bonus Tied to Objectives of:
------------------------------------------
Named Executive Officer Bonus as FRTL SunBelt Real Estate
% of Base Group
Salary
John D. Baker, Jr.
President and CEO 100% 30% 20% 50%
John D. Milton, Jr.
Executive VP and CFO 60% 30% 20% 50%
David H. deVilliers, Jr.
President of Real Estate
Group 100% 0% 0% 100%
Robert E. Sandlin
President of FRTL 60% 100% 0% 0%
With respect to FRTL and SunBelt, Messrs. Baker, Milton and Sandlin
were eligible to receive a bonus for fiscal 2009 up to the percentages
specified above if FRTL and SunBelt achieved targeted levels of after-
tax return on capital employed ("ROCE"). The targeted after-tax ROCE
levels were 19.8% for FRTL and 1.47% for SunBelt. A portion of the
earned bonus was contingent on (i) the achievement of specific safety
objectives measured by preventable accident frequency ratios, (ii)
favorable employee relations, (iii) developing a long-term plan for
the growth and development of FRTL, (iv) in the case of FRTL,
achieving a specified preventable product contamination ratio, and
(v) in the case of SunBelt Transport, installing generators in trucks.
For 2009, real estate objectives consisted of weighted, targeted
achievement levels in three broad areas, (1) operating properties
(achievement of a targeted dollar amount of gross profit from the
portfolio of developed buildings ($9,183,282) and achievement of an
average occupancy rate of 95%), (2) special projects (completion of
certain special projects), and (3) completion of certain pending
development projects within budgeted levels.
For each year, the bonus for each officer was contingent on a
determination that the internal control over financial reporting for
the company (or their respective business unit) was effective for
the applicable year.
For fiscal 2009, FRTL achieved the targeted level of ROCE and
satisfied the other conditions to payment of the bonus, but SunBelt
failed to achieve the targeted level of ROCE. The Compensation
Committee determined that the Real Estate Group's objectives were 78.6%
achieved for fiscal 2009. This was comprised of 23.6% for the gross
profit from the portfolio of developed buildings, 50% from completion
of the special projects, and 5% for completion of certain pending
projects within budgeted levels.
Accordingly, the Company paid the following bonuses to the named
executive officers for fiscal 2009:
Named Executive Maximum FRTL SunBelt Real Estate Total Bonus
Officer Bonus Group
- --------------- ------- ---- ------- ----------- -----------
John D. Baker, Jr.
President and CEO $250,000 $75,000 $0 $98,281 $173,281
John D. Milton, Jr.
Executive VP and
CFO $ 99,000 $29,700 $0 $38,919 $68,619
David H. deVilliers, Jr.
President of Real
Estate Group $301,375 -- -- $236,956 $236,956
Robert E. Sandlin
President of FRTL $120,510 $120,510 -- -- $120,510
In future filings the Company will disclose the percent of bonus tied
to the objectives of each segment for the CEO and CFO.
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/ John D. Milton, Jr.
__________________________________
John D. Milton, Jr.
Vice President and Chief Financial
Officer