FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended December 31, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-26115
PATRIOT TRANSPORTATION HOLDING, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2924957
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
1801 Art Museum Drive, Jacksonville, Florida 32207
(Address of principal executive offices)
(Zip Code)
904/396-5733
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer[ ] Accelerated filer[ ] Non-accelerated filer[X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES___ NO_X_
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of December 31, 2005: 2,965,075 shares of
$.10 par value common stock.
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2005
CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Condensed Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risks 17
Item 4. Controls and Procedures 18
Part II. Other Information
Item 6. Exhibits 18
Signatures 19
Exhibit 31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 24
Exhibit 32 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 27
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
December 31, September 30,
2005 2005
Assets
Current assets:
Cash and cash equivalents $ 371 2,966
Accounts receivable (including related party of
$541 and $288 and net of allowance for doubtful
accounts of $521 and $525, respectively) 10,570 11,731
Inventory of parts and supplies 845 799
Prepaid tires on equipment 2,034 1,959
Prepaid taxes and licenses 952 1,291
Prepaid insurance 1,334 259
Prepaid expenses, other 556 564
Total current assets 16,662 19,569
Property, plant and equipment, at cost 262,246 246,725
Less accumulated depreciation and depletion (83,180) (81,789)
Net property, plant and equipment 179,066 164,936
Real estate held for investment, at cost 1,093 1,093
Goodwill 1,087 1,087
Other assets 7,009 7,030
Total assets $204,917 193,715
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,591 5,674
Federal and state income taxes payable - 642
Accrued payroll 1,752 3,247
Accrued insurance reserves 4,361 3,774
Accrued liabilities, other 268 452
Long-term debt due within one year 2,466 2,432
Total current liabilities 14,438 16,221
Long-term debt 59,423 48,468
Deferred income taxes 14,346 14,394
Accrued insurance reserves 4,993 4,993
Other liabilities 1,791 1,738
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized,
2,965,075 and 2,965,075 shares issued
and outstanding, respectively 297 297
Capital in excess of par value 27,227 27,100
Retained earnings 82,402 80,504
Total shareholders' equity 109,926 107,901
Total liabilities and shareholders' equity $204,917 193,715
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
THREE MONTHS
ENDED DECEMBER 31,
2005 2004
(restated)
Revenues:
Transportation $ 30,300 27,035
Real estate 5,123 4,384
Total revenues (including revenue from related
parties of $1,780 and $1,535, respectively) 35,423 31,419
Cost of operations:
Transportation 26,124 23,604
Real estate 2,517 1,853
Gross profit 6,782 5,962
Selling, general and administrative expense 2,809 2,400
(including expenses paid to a related party of
$48 and $67, respectively)
Operating profit 3,973 3,562
Interest income and other 15 10
Interest expense (927) (813)
Income before income taxes 3,061 2,759
Provision for income taxes (1,163) (1,075)
Net income $ 1,898 1,684
Earnings per common share:
Basic $ .64 .57
Diluted $ .62 .56
Number of shares (in thousands) used in computing:
-basic earnings per common share 2,965 2,932
-diluted earnings per common share 3,066 3,000
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(In thousands)
(Unaudited)
2005 2004
(restated)
Cash flows from operating activities:
Net income $ 1,898 1,684
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 3,293 3,095
Deferred income taxes (48) (3,513)
Gain on sale of equipment (282) (162)
Tax benefit from stock option exercise - 73
Stock-based compensation 127 -
Net changes in operating assets and liabilities:
Accounts receivable 1,250 886
Inventory of parts and supplies (46) (27)
Prepaid expenses and other current assets (803) (1,489)
Other assets (107) (622)
Accounts payable and accrued liabilities (1,175) (489)
Income taxes payable (731) (4,695)
Net change in insurance reserves and other long-term
liabilities 53 45
Net cash provided by (used in) operating activities 3,429 (5,214)
Cash flows from investing activities:
Purchase of property and equipment (17,421) (14,840)
Cash released from escrow - 16,553
Proceeds from sale of real estate held for investment
and property and equipment 407 412
Net cash (used in) provided by investing activities (17,014) 2,125
Cash flows from financing activities:
Proceeds from issuance of long-term debt 151 2,113
Net increase in revolving debt 11,305 1,243
Repayment of long-term debt (466) (434)
Exercise of employee stock options - 327
Net cash provided by financing activities 10,990 3,249
Net (decrease) increase in cash and cash equivalents (2,595) 160
Cash and cash equivalents at beginning of period 2,966 199
Cash and cash equivalents at end of the period $ 371 359
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(Unaudited)
(1) Basis of Presentation. The accompanying consolidated financial
statements include the accounts of Patriot Transportation Holding, Inc.
and its subsidiaries (the "Company"). These statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and the
instructions to Form 10-Q and do not include all the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the
opinion of management, all adjustments (primarily consisting of normal
recurring accruals) considered necessary for a fair statement of the
results for the interim periods have been included. Operating results
for the three months ended December 31, 2005 are not necessarily
indicative of the results that may be expected for the fiscal year
ending September 30, 2006. The accompanying consolidated financial
statements and the information included under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" should be read in conjunction with the Company's
consolidated financial statements and related notes included in the
Company's Form 10-K for the year ended September 30, 2005.
(2) Restatement of Prior Financial Information. The Company restated
its consolidated balance sheet as of September 30, 2004 and its
consolidated statement of shareholders' equity for the year then ended.
The Company also restated its consolidated statements of income,
shareholders' equity and cash flows for the year ended September 30,
2003. In addition, the Company restated its quarterly results of
operations for fiscal 2005. The restatement corrects our historical
accounting for recognizing rental revenue for scheduled rate increases
on operating leases. For information with respect to the restatement,
see Note 2 to the consolidated financial statements contained in the
Company's Annual Report on 10-K for fiscal 2005. Throughout this Form
10-Q, all referenced amounts for affected prior periods and prior period
comparisons reflect the balances and amounts on a restated basis. As a
result of this restatement, the Company's financial results have been
adjusted as follows (in thousands, except per share data):
Three Months Ended December 31, 2004
As Previously
Reported__ Adjustments As Restated_
Total revenues $ 31,374 45 31,419
Gross profit 5,917 45 5,962
Operating profit 3,517 45 3,562
Income from continuing
operations before tax 2,714 45 2,759
Provision for income taxes 1,058 17 1,075
Income from continuing
operations 1,656 28 1,684
Net income 1,656 28 1,684
Earnings per common share:
Basic $ .56 .01 .57
Diluted $ .55 .01 .56
Cash flows from
operating activities:
Net income $ 1,656 28 1,684
Deferred income taxes (3,530) 17 (3,513)
Net changes in operating
assets and liabilities:
Other assets (577) (45) (622)
Net cash provided by
operating activities 5,214 - 5,214
(3) Recent Accounting Pronouncements. In March 2005, the FASB issued
FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement
Obligations" (FIN 47), which clarifies that the term "conditional asset
retirement obligation" as used in FASB Statement No. 143, "Accounting
for Asset Retirement Obligations", refers to a legal obligation to
perform an asset retirement activity in which the timing and/or method
of settlement are conditional on a future event that may or may not be
within the control of the entity. An entity is required to recognize a
liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably
estimated. FIN 47 is effective for the Company no later than the end of
fiscal 2006. The impact of this new pronouncement is not expected to be
material to the Company's financial statements.
(4) Business Segments. The Company has identified two business segments,
each of which is managed separately along product lines. The Company's
operations are substantially in the Southeastern and Mid-Atlantic
states.
The transportation segment hauls liquid and dry bulk commodities by
motor carrier. The real estate segment owns real estate of which a
substantial portion is under mining royalty agreements or leased. The
real estate segment also holds certain other real estate for investment
and is developing commercial and industrial properties.
Operating results and certain other financial data for the Company's
business segments are as follows (in thousands):
Three Months ended
December 31,
2005 2004
(restated)
Revenues:
Transportation $ 30,300 27,035
Real estate 5,123 4,384
$ 35,423 31,419
Operating profit
Transportation $ 1,971 1,450
Real estate 2,606 2,531
Corporate expenses (604) (419)
$ 3,973 3,562
Identifiable assets December 31, September 30,
2005 2005
Transportation $ 50,456 47,435
Real estate 152,361 141,646
Cash items 371 2,966
Unallocated corporate assets 1,729 1,668
$204,917 193,715
(5) Long-Term debt. Long-term debt is summarized as follows (in
thousands):
December 31, September 30,
2005 2005
Revolving credit (uncollateralized) $ 11,305 -
Construction loan 9,867 9,716
5.7% to 9.5% mortgage notes
due in installments through 2020 40,717 41,184
61,889 50,900
Less portion due within one year 2,466 2,432
$ 59,423 48,468
The Company has a $37,000,000 uncollaterized Revolving Credit Agreement
(the Revolver) with four banks which is scheduled to terminate on
December 31, 2009. The Revolver currently bears interest at a rate of 1%
over the selected LIBOR. The margin rate 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 restrictive covenants including limitations on paying
cash dividends.
(6) Related Party Transactions. The Company, through its transportation
subsidiaries, hauls commodities by tank and flatbed trucks for Florida
Rock Industries, Inc. (FRI). Charges for these services are based on
prevailing market prices. The real estate subsidiaries lease certain
construction aggregates mining and other properties to FRI. In
addition, the Company outsources certain administrative functions to
FRI. The cost of these administrative functions was $48,000 and $67,000
for the quarters ending December 31, 2005 and 2004, respectively.
(7) Earnings per share. The following details the computations of the
basic and diluted earnings per common share (In thousands, except per
share amounts).
THREE MONTHS
ENDED DECEMBER 31,
2005 2004
(restated)
Weighted average common shares
outstanding during the
period - shares used for
basic earnings per share 2,965 2,932
Common shares issuable under
stock options which are
potentially dilutive 101 68
Common shares used for diluted
earnings per share 3,066 3,000
Net income $ 1,898 1,684
Earnings per common share
Basic $ .64 .57
Diluted $ .62 .56
For the three months ended December 31, 2005, all outstanding stock
options were included in the calculation of diluted earnings per share
because the sum of the hypothetical amount of future proceeds from the
exercise price, unrecorded compensation, and tax benefits to be credited
to capital in excess of par for all grants of stock options were lower
than the average price of the common shares, and therefore were
dilutive. For the three months ended December 31, 2004, all outstanding
stock options were included in the calculation of diluted earnings per
share because the exercise prices of the stock options were lower than
the average price of the common shares, and therefore were dilutive.
(8) Stock-Based Compensation Plan. Effective October 1, 2005, the
Company adopted SFAS 123R "Share-Based Payment" for its stock-based
employee compensation plans. Under SFAS 123R, compensation expense must
be measured and recognized for all share-based payments at the grant
date based on the fair value of the award and such costs must be
included in the statement of operations over the requisite service
period. Prior to October 1, 2005 the company followed APB Opinion No.
25, "Accounting for Stock Issued to Employees".
The Company has elected the modified prospective application transition
method whereby the provisions of the statement will apply going forward
only from the date of adoption to new share based payments, and for the
portion of any previously issued and outstanding stock option awards for
which the requisite service is rendered after the date of adoption. The
Company did not restate prior years for pro forma expense amounts. In
addition, compensation expense must be recognized for any awards
modified, repurchased or cancelled after the date of adoption.
The Company has two Stock Option Plans (the 1995 Stock Option Plan and
the 2000 Stock Option Plan) under which options for shares of common
stock have been granted to directors, officers and key employees.
Currently, only the 2000 Plan has options available for grant. The
options awarded under the two plans have similar characteristics. All
stock options have been non-qualified. All stock options expire ten
years from the date of grant. Options awarded to directors are
exercisable immediately and options awarded to officers and employees
become exercisable in cumulative installments of 20% at the end of each
year following the date of grant. The number of shares authorized for
future issuance was 109,700 at December 31, 2005. When stock options
are exercised the Company issues new shares after receipt of exercise
proceeds and taxes due, if any, from the grantee.
The Company utilized the Black-Scholes valuation model for estimating
fair value of stock compensation with the following weighted-average
assumptions:
Three Months ended
December 31,
2005 2004
Dividend yield - -
Expected volatility 41% - 53% 41% - 53%
Average risk-free interest rate 3.2%-4.9% 3.2%-4.9%
Expected life (in years) 6.2 - 7.0 6.2 - 7.0
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 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.
Under provisions of SFAS 123R, the Company recorded $127,000 of stock
compensation expense on its consolidated statement of income for the
three months ended December 31, 2005. Stock compensation expense was
$79,000 after deferred income taxes. This represents three cents per
common share for both basic and diluted earnings per share. There was
no realized tax benefit from options because there were no exercises for
the three months ended December 31, 2005. Total compensation cost of
options granted but not yet vested as of December 31, 2005 was
$1,560,000, which is expected to be recognized over a weighted-average
period of 3.0 years. SFAS 123R also amends FASB Statement No. 95,
Statement of Cash Flows, to require that the benefits associated with
the tax deduction in excess of recognized compensation cost be reported
as financing cash flows, rather than as a reduction of taxes paid. This
requirement will reduce net operating cash flows and increase net
financing cash flows in periods after the effective date.
A summary of option activity under all the Company's plans as of
December 31, 2005 is presented below (in thousands, except per share
amounts):
Shares Weighted Weighted Weighted
Average Average Average
Exercise Remaining Grant Date
Price Term (yrs) Fair Value
_
Outstanding at
October 1, 2005 337,900 $30.72 7.8
Granted 0 $ 0
Exercised 0 $ 0
Forfeited (4,400) $31.90
Outstanding at
December 31, 2005 333,500 $30.70 7.5 $ 5,157
Exerciseable at
December 31, 2005 226,500 $28.94 7.2 $ 3,420
Vested 3 months ending
December 31, 2005 37,500 $ 555
The aggregate intrinsic value of in-the-money options exercisable based
on the market closing price of $66.85 on December 30, 2005 less exercise
prices was $8,587,000. The aggregate intrinsic value of all outstanding
options at December 30, 2005 was $12,056,000. No gains were realized by
option holders during the three months ended December 31, 2005 as no
options were exercised.
SFAS 123R requires the presentation of pro forma information for the
comparative period prior to the adoption as if all employee stock
options had been accounted for under the fair value method of the
original SFAS 123, "Accounting for Stock-Based Compensation." The
following table illustrates the effect on net income and earnings per
share if SFAS 123 had been applied to stock-based employee compensation
to the prior-year period (in thousands, except per share amounts):
Three months ended
December 31, 2004
(restated)
Net income
As reported $1,684
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method, net of tax effects 284
Pro forma $1,400
Basic earnings per common share
As reported $ .57
Pro forma $ .48
Diluted earnings per common share
As reported $ .56
Pro forma $ .47
(9) Contingent liabilities. Certain of the Company's subsidiaries are
involved in litigation on a number of matters and are subject to certain
claims which arise in the normal course of business. The Company has
retained certain self-insurance risks with respect to losses for third
party liability and property damage. In the opinion of management none
of these matters are expected to have a material adverse effect on the
Company's consolidated financial condition, results of operations or
cash flows.
(10)Customer Concentration. During the first three months of fiscal
2006, the transportation segment's ten largest customers accounted for
approximately 45% of the transportation segment's revenue. One of
these customers accounted for 12.1% of the transportation segment's
revenue. The loss of any one of these customers could have a material
adverse effect on the Company's revenues and income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview - The Company's operations are influenced by a number of
external and internal factors. External factors include levels of
economic and industrial activity in the United States and the Southeast,
petroleum product usage in the Southeast which is driven in part by
tourism and commercial aviation, fuel costs, driver availability and
cost, regulations regarding driver qualifications and hours of service,
construction activity, FRI's sales from the Company's mining properties,
interest rates, market conditions and attendant prices for casualty
insurance, demand for commercial warehouse space in the
Baltimore/Washington area, and ability to obtain zoning and entitlements
necessary for property development. Internal factors include revenue
mix, capacity utilization, auto and workers' compensation accident
frequencies and severity, other operating factors, administrative costs,
group health claims experience, and construction costs of new projects.
During the first three months of fiscal 2006, the transportation
segment's ten largest customers accounted for approximately 45% of the
transportation segment's revenue. One of those customers accounted for
12.1% of transportation segment's revenues. The loss of any one of
these customers could have a material adverse effect on the Company's
revenues and income.
Financial results of the Company for any individual quarter are not
necessarily indicative of results to be expected for the year.
Restatement of Prior Financial Information - The Company restated its
consolidated balance sheet as of September 30, 2004 and its
consolidated statement of shareholders' equity for the year then
ended. The Company also restated its consolidated statements of
income, shareholders' equity and cash flows for the year ended
September 30, 2003. In addition, the Company restated its quarterly
results of operations for fiscal 2005. The restatement corrects our
historical accounting for recognizing rental revenue for scheduled
rate increases on operating leases. For information with respect to
the restatement, see Note 2 to the consolidated financial statements
contained in the Company's Annual Report on 10-K for fiscal 2005.
Throughout this Form 10Q, all referenced amounts for affected prior
periods and prior period adjustments reflect the balances and amounts
on a restated basis.
Comparative Results of Operations for the Three Months Ended December
31, 2005 and 2004
Consolidated Results. - Net income for the first quarter of fiscal 2006
was $1,898,000, an increase of $214,000 or 12.7% compared to $1,684,000
for the same period last year. Diluted earnings per share for the first
quarter of fiscal 2006 was $0.62 compared to $0.56 in the first quarter
of fiscal 2005.
Transportation
Three Months Ended December 31
(dollars in thousands) ___2005 % 2004 %_
Transportation revenue $ 25,962 86% 24,675 91%
Fuel surcharges 4,338 14% 2,360 9%
Revenues 30,300 100% 27,035 100%
Compensation and benefits 11,209 37% 10,685 40%
Fuel expenses 6,394 21% 4,899 18%
Insurance and losses 3,232 11% 3,233 12%
Depreciation expense 2,066 7% 1,981 7%
Other, net 3,223 10% 2,806 10%
Cost of operations 26,124 86% 23,604 87%
Gross profit $ 4,176 14% 3,431 13%
Transportation segment revenues were $30,300,000 in the first quarter of
2006, an increase of $3,265,000 over the same quarter last year. Fuel
surcharges accounted for $1,978,000 of the increase, resulting from
higher diesel fuel costs during the quarter compared to the same quarter
last year. Excluding fuel surcharges, revenue per mile increased 6.9%,
reflecting better pricing for our services. Revenue miles in the current
quarter were down 1.6% compared to the first quarter of 2005 due to low
driver availability.
The Transportation segment's cost of operations in the first quarter of
2006 increased $2,520,000 to $26,124,000, as compared to $23,604,000 in
the same quarter last year. The primary factor for the increase was
higher diesel fuel costs. Average diesel fuel cost per gallon increased
25% in the first quarter of 2006 compared to the same quarter last year.
Compensation and benefits were higher as a result of higher driver pay.
Real Estate
Three Months Ended December 31
(dollars in thousands) ___2005 % 2004 %_
(restated)
Royalties and rent $ 1,579 31% 1,425 33%
Developed property rentals 3,544 69% 2,959 67%
Total Revenue 5,123 100% 4,384 100%
Mining and land rent expenses 446 9% 357 8%
Developed property expenses 2,071 40% 1,496 34%
Cost of Operations 2,517 49% 1,853 42%
Gross profit $ 2,606 51% 2,531 58%
Real Estate segment revenues for the first quarter of fiscal 2006 were
$5,123,000, an increase of $739,000 or 16.9% over the same quarter last
year. Lease revenue from developed properties increased $585,000 or
19.8%, due to an increase in occupied square feet resulting from the
leasing of a 74,600 square foot building in January 2005 and the
completion of a pre-leased 145,180 square foot building in July 2005.
Royalties from mining operations increased $154,000 as a result of
increased royalties per ton.
Real estate segment expenses increased to $2,517,000 during the first
quarter of fiscal 2006, compared to $1,853,000 for the same quarter last
year. Expenses related to development activities increased as a result
of the new building additions.
Consolidated Results
Gross Profit - Consolidated gross profit was $6,782,000 in the first
quarter of fiscal 2006 compared to $5,962,000 in the same period last
year, an increase of 13.8%. Gross profit in the transportation segment
increased $745,000 or 21.7%, primarily due to improved pricing as
compared to the same quarter last year. Gross profit in the real estate
segment increased $75,000 or 3% from the first quarter 2005, due to the
increased revenues mostly offset by increased staffing and professional
fees.
Selling, general and administrative expense - Selling, general and
administrative expenses increased $409,000 over the same quarter last
year. The increase included $155,000 of higher incentive compensation
accrual due to improved earnings and $127,000 from expensing of stock
options as required by SFAS 123R (see Note 8 of Condensed Notes to
Consolidated Financial Statements). SG&A expense was 7.9% of revenue for
the first quarter of fiscal 2006 compared to 7.6% for the same period
last year.
Income taxes - Income tax expense increased $88,000 over the same
quarter last year. This is due to higher earnings before taxes,
partially offset by a decrease in the effective tax rate to 38.0%
versus 39.0% for the same quarter last year.
Net income - Net income was $1,898,000 or $0.62 per diluted share in the
first quarter of fiscal 2006, an increase of $214,000 or 12.7% compared
to $1,684,000 or $0.56 per diluted share in the same period last year.
Liquidity and Capital Resources
For the first three months of fiscal 2006, the Company used cash
provided by operations and borrowings under its Revolver and
construction loan to finance its operating activities and the purchase
of $17,421,000 in property and equipment and to make scheduled payments
on long-term debt. At September 30, 2004, the Company had $16,553,000 of
cash from sales of real estate during fiscal 2004, which was placed in
escrow in anticipation of using the funds in an Internal Revenue Code
Section 1031 tax-deferred exchange. On October 30, 2004, $7,150,000 of
the escrowed funds were used in a qualified exchange and the remaining
funds were released for general use.
The Company has a $37,000,000 revolving credit agreement (the Revolver)
of which $25,695,000 was available at December 31, 2005. The Revolver
contains restrictive covenants including limitations on paying cash
dividends. The Revolver will expire on December 31, 2009.
In the quarter ended December 31, 2005, the Company borrowed $11,305,000
under the Revolver, of which $10,105,000 was used to purchase 103 acres
of undeveloped land located in Manassas, Virginia. The balance of the
funds borrowed under the Revolver was used for other investment
activities.
The Company had $16,823,000 of irrevocable letters of credit outstanding
as of January 1, 2006. Most of the letters of credit are irrevocable
for a period of one year and are automatically extended for additional
one-year periods unless notified by the issuing bank not less than
thirty days before the expiration date. Substantially all of these were
issued for workers' compensation and liability insurance retentions. If
these letters of credit are not extended the Company will have to find
alternative methods of collateralizing or funding these obligations.
The Board of Directors has authorized Management to repurchase shares of
the Company's common stock from time to time as opportunities arise. As
of December 31, 2005, $3,490,000 was authorized to repurchase the
Company's common stock. No shares were repurchased during fiscal 2006.
The Company does not currently pay any dividends on common stock.
In December 2003, the Company committed to develop a 145,000 square foot
build-to-suit warehouse/office building pursuant to a 15 year triple net
lease. This project cost approximately $14,900,000 and has been financed
through a construction loan and the Company's cash flows. The terms of
the construction financing are for borrowings not to exceed $11,800,000
for a period not to exceed 18 months converting to a 15 year non-
recourse mortgage of $11,800,000 at project completion. The interest
rate is 6.17% for both the construction and mortgage loans. Borrowings
under the construction loan totaled $9,867,0000 at December 31, 2005.
The building has been completed and the Company expects to close on the
15 year mortgage in February 2006. The Company will receive additional
proceeds of approximately $1,933,000 which will be used to reduce the
balance outstanding under the Revolver.
While the Company is affected by environmental regulations, such
regulations are not expected to have a major effect on the Company's
capital expenditures or operating results.
Management believes that the Company is financially postured to be able
to take advantage of external and internal growth opportunities in both
our real estate and transportation segments.
Adoption of SFAS 123R. Effective October 1, 2005, the Company adopted
SFAS 123R "Share-Based Payment" for its stock-based employee
compensation plans. Under SFAS 123R, compensation expense must be
measured and recognized for all share-based payments at the grant date
based on the fair value of the award and such costs must be included in
the statement of operations over the requisite service period. Prior to
October 1, 2005 the company followed APB Opinion No. 25, "Accounting for
Stock Issued to Employees".
The Company has elected the modified prospective application transition
method whereby the provisions of the statement will apply going forward
only from the date of adoption to new share based payments, and for the
portion of any previously issued and outstanding stock option awards for
which the requisite service is rendered after the date of adoption. The
Company did not restate prior years for pro forma expense amounts. In
addition, compensation expense must be recognized for any awards
modified, repurchased or cancelled after the date of adoption.
Under provisions of SFAS 123R, the Company recorded $127,000 of stock
compensation expense on its consolidated statement of income for the
three months ended December 31, 2005. Stock compensation expense was
$79,000 after deferred income taxes. This represents three cents per
common share both basic and diluted. There was no realized tax benefit
from options because there were no exercises for the three months ended
December 31, 2005. Total compensation cost of options granted but not
yet vested as of December 31, 2005 was $1,560,000, which is expected to
be recognized over a weighted-average period of 3.0 years. SFAS 123R
also amends FASB Statement No. 95, Statement of Cash Flows, to require
that the benefits associated with the tax deduction in excess of
recognized compensation cost be reported as financing cash flows, rather
than as a reduction of taxes paid. This requirement will reduce net
financing cash flows in periods after the effective date.
Recent Accounting Pronouncements. In March 2005, the FASB issued FASB
Interpretation No. 47, "Accounting for Conditional Asset Retirement
Obligations" (FIN 47), which clarifies that the term "conditional
asset retirement obligation" as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations", refers to a legal
obligation to perform an asset retirement activity in which the
timing and/or method of settlement are conditional on a future event
that may or may not be within the control of the entity. An entity is
required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value of the liability can be
reasonably estimated. FIN 47 is effective for the Company no later
than the end of fiscal 2006. The impact of this new pronouncement is
not expected to be material to the Company's financial statements.
Related Party Transactions. The Company, through its transportation
subsidiaries, hauls commodities by tank and flatbed trucks for Florida
Rock Industries, Inc. (FRI). Charges for these services are based on
prevailing market prices. Other wholly owned subsidiaries lease certain
construction aggregates mining and other properties to FRI. In
addition, the Company outsources certain administrative functions to
FRI. The cost of these administrative functions was $48,000 and $67,000
for the quarters ending December 31, 2005 and 2004, respectively.
Patriot owns approximately 3,443 acres of land near Brooksville, Florida
that it leases to FRI under a long-term mining lease. FRI also owns
approximately 553 acres of land in Brooksville. Patriot and FRI
management believe that Patriot and FRI may possibly realize greater
value from the Brooksville property through development rather than
continued mining. Accordingly, the independent directors of Patriot and
FRI are considering a proposal to form a 50-50 joint venture to develop
the Brooksville property. If this proposal is approved, the joint
venture development will move forward only if zoning and permitting
approvals are obtained that permit development of the property in a
manner acceptable to Patriot and FRI; otherwise, Patriot intends to
continue to lease the property to FRI for mining and related purposes.
If the development proceeds, FRI will continue to conduct mining
operations on at least a portion of the property.
Summary and Outlook. The Company's real estate development business
continues to benefit from positive inquiry trends from prospective
tenants for its warehouse-office product. The Company continues to
explore opportunities for development of various properties owned by the
Company, including certain properties leased by the Company to FRI.
Favorable freight-hauling demands for its transportation business remain
challenged by an industry-wide, tight driver availability. Continuing
volatile crude oil and diesel fuel price fluctuations remain likely to
impact operating margins.
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
these 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: driver
availability and cost; regulations regarding driver qualification and
hours of service; availability and terms of financing; freight demand
for petroleum products including recessionary and terrorist impacts on
travel in the Company's markets; freight demand for building and
construction materials in the Company's markets; risk insurance markets;
competition; general economic conditions; demand for flexible
warehouse/office facilities in the Baltimore/Washington area; ability to
obtain zoning and entitlements necessary for property development;
interest rates; levels of construction activity in FRI's markets; fuel
costs; and inflation. However, this list is not a complete statement of
all potential risks or uncertainties.
These forward-looking statements are made as of the date hereof based on
management's current expectations, and the Company does not undertake an
obligation to update such statements, whether as a result of new
information, future events or otherwise. Additional information
regarding these and other risk factors may be found in the Company's
other filings made from time to time with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk from changes in interest rates.
For its cash and cash equivalents, a change in interest rates affects
the amount of interest income that can be earned. For its debt
instruments with variable interest rates, changes in interest rates
affect the amount of interest expense incurred. The Company prepared a
sensitivity analysis of its variable rate borrowings to determine the
impact of hypothetical changes in interest rates on the Company's
results of operations and cash flows. The interest-rate analysis assumed
a 50 basis point adverse change in interest rates on all borrowings
under the credit agreement. However, the interest-rate analysis did not
consider the effects of the reduced level of economic activity that
could exist in such an environment. Based on this analysis, management
has concluded that a 50 basis point adverse move in interest rates on
the Company's outstanding borrowings under the credit agreement would
have an immaterial impact on the Company's results of operations and
cash flows.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As required by Rule
13A-15 under the Exchange Act, as of the end of the period covered by
this report, the Company carried out an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and
procedures. This evaluation was carried out under the supervision and
with the participation of the Company's management, including the
Company's President and Chief Executive Officer, Chief Financial Officer
and Chief Accounting Officer. Based on this evaluation the Company's
President and Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer have concluded that the Company's disclosure controls
and procedures are effective in alerting them in a timely manner to
material information required to be included in periodic SEC filings.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in
Company reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in
the Securities and Exchange Commission's rule and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed
in Company reports filed under the Exchange Act is accumulated and
communicated to management, including the Company's Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer as
appropriate, to allow timely decisions regarding required disclosures.
Changes in internal controls. There have been no changes in the
Company's internal controls over financial reporting during the first
quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 6. EXHIBITS
(a) Exhibits. The response to this item is submitted as a
separate Section entitled "Exhibit Index", starting on page
18.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 1, 2006 PATRIOT TRANSPORTATION HOLDING, INC.
John E. Anderson
John E. Anderson
President and Chief Executive
Officer
Ray M. Van Landingham
Ray M. Van Landingham
Vice President, Treasurer,
Secretary and Chief
Financial Officer
John D. Klopfenstein
John D. Klopfenstein
Controller and Chief
Accounting Officer
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2005
EXHIBIT INDEX
(3)(a)(1) Articles of Incorporation of Patriot Transportation
Holding Inc., incorporated by reference to the
corresponding exhibit filed with Form S-4 dated
December 13,1988. File No. 33-26115.
(3)(a)(2) Amendment to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State of Florida on February 19, 1991
incorporated by reference to the corresponding
exhibit filed with Form 10-K for the fiscal year
ended September 30, 1993. File No. 33-26115.
(3)(a)(3) Amendments to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State of Florida on February 7,1995,
incorporated by reference to an appendix to the
Company's Proxy Statement dated December 15, 1994.
File No. 33-26115.
(3)(a)(4) Amendment to the Articles of Incorporation of
Patriot Transportation Holding, Inc., filed with
the Florida Secretary of State on May 6, 1999
incorporated by reference to a form of such
amendment filed as Exhibit 4 to the Company's Form
8-K dated May 5, 1999. File No. 33-26115.
(3)(a)(5) Amendment to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State of Florida on February 21, 2000,
incorporated by reference to the corresponding
exhibit filed with Form 10-Q for the quarter ended
March 31, 2000. File No. 33-26115.
(3)(b)(1) Amended and Restated Bylaws of Patriot
Transportation Holding, Inc. adopted August 3,
2005, incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K dated August 3, 2005. File
No. 33-26115.
(4)(a) Articles III, VII and XII of the Articles of
Incorporation of Patriot Transportation Holding,
Inc., incorporated by reference to an exhibit filed
with Form S-4 dated December 13, 1988. An amended
Article III, incorporated by reference to an
exhibit filed with Form 10-K for the fiscal year
ended September 30, 1993. And Articles XIII and
XIV, incorporated by reference to an appendix filed
with the Company's Proxy Statement dated December
15, 1994. File No. 33-26115.
(4)(b) Specimen stock certificate of Patriot
Transportation Holding, Inc., incorporated by
reference to an exhibit filed with Form S-4 dated
December 13, 1988. File No. 33-26115.
(4)(c) Rights Agreement, dated as May 5, 1999 between the
Company and First Union National Bank, incorporated
by reference to Exhibit 4 to the Company's Form 8-K
dated May 5, 1999. File No. 33-26115.
(10)(a) Various lease backs and mining royalty agreements
with Florida Rock Industries, Inc., none of which
are presently believed to be material individually,
except for the Mining Lease Agreement dated
September 1, 1986, between Florida Rock Industries
Inc. and Florida Rock Properties, Inc., successor
by merger to Grandin Land, Inc. (see Exhibit
(10)(c)), but all of which may be material in the
aggregate, incorporated by reference to an exhibit
filed with Form S-4 dated December 13, 1988. File
No. 33-26115.
(10)(b) License Agreement, dated June 30, 1986, from
Florida Rock Industries, Inc. to Florida Rock &
Tank Lines, Inc. to use "Florida Rock" in corporate
names, incorporated by reference to an exhibit
filed with Form S-4 dated December 13, 1988. File
No. 33-26115.
(10)(c) Mining Lease Agreement, dated September 1, 1986,
between Florida Rock Industries, Inc. and Florida
Rock Properties, Inc., successor by merger to
Grandin Land, Inc., incorporated by reference to an
exhibit previously filed with Form S-4 dated
December 13, 1988. File No. 33-26115.
(10)(d) Summary of Medical Reimbursement Plan of Patriot
Transportation Holding, Inc., incorporated by
reference to an exhibit filed with Form 10-K for
the fiscal year ended September 30, 1993. File No.
33-26115.
(10)(e) Summary of Management Incentive Compensation Plans,
incorporated by reference to an exhibit filed with
Form 10-K for the fiscal year ended September 30,
1994. File No. 33-26115.
(10)(f) Management Security Agreements between the Company
and certain officers, incorporated by reference to
a form of agreement previously filed (as Exhibit
(10)(I)) with Form S-4 dated December 13, 1988.
File No. 33-26115.
(10)(g)(1) Patriot Transportation Holding, Inc. 1995 Stock
Option Plan, incorporated by reference to an
appendix to the Company's Proxy Statement dated
December 15, 1994. File No. 33-26115.
(10)(g)(2) Patriot Transportation Holding, Inc. 2000 Stock
Option Plan, incorporated by reference to an
appendix to the Company's Proxy Statement dated
December 15, 1999. File No. 33-26115.
(10)(h) Agreement of Purchase and Sale dated October 21,
2003 between FRP Bird River, LLC and The Ryland
Group, Inc., incorporated by reference to an
exhibit filed with Form 10-K for the year ended
September 30, 2003. File No. 33-26115.
(10)(i) Amended and Restated Revolving Credit Agreement
dated November 10, 2004 among Patriot
Transportation Holding, Inc. as Borrower, the
Lenders from time to time party hereto and Wachovia
Bank, National Association as Administrative Agent,
incorporated by reference to the Company's Form 8-K
dated November 16, 2004. File No. 33-26115.
(10)(j) The Company and its consolidated subsidiaries have
other long-term debt agreements, none of which
exceed 10% of the total consolidated assets of the
Company and its subsidiaries, and the Company
agrees to furnish copies of such agreements and
constituent documents to the Commission upon
request.
(10)(k) Letter of Credit Facility between Patriot
Transportation Holding, Inc. and SunTrust Bank,
N.A. dated February 16, 2005, incorporated by
reference to the Company's Form 8-K dated February
16, 2005. File No. 33-26115.
(10)(l) Summary of compensation arrangements with non-
employee directors, incorporated by reference to
the corresponding exhibit filed with Form 8-K dated
October 11, 2005. File No. 33-26115.
(10)(m) Summary of compensation arrangements with Named
Executive Officers, incorporated by reference to
the corresponding exhibit filed with Form 10-Q for
the quarter ended March 31, 2005. File No. 33-
26115.
(14) Financial Code of Ethical Conduct between the
Company, Chief Executive Officers and Financial
Managers, adopted December 4, 2002, incorporated by
reference to an exhibit filed with Form 10-K for
the year ended September 30, 2003. File No. 33-
26115.
(31)(a) Certification of John E. Anderson.
(31)(b) Certification of Ray M. Van Landingham.
(31)(c) Certification of John D. Klopfenstein.
(32) Certification of Chief Executive Officer, Chief
Financial Officer, and Chief Accounting Officer
pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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