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 Quarter Ended June 30, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-17554
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 an accelerated
filer (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 July 25, 2005: 2,962,175 shares of
$.10 par value common stock.
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 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 9
Item 3. Quantitative and Qualitative Disclosures about Market Risks 18
Item 4. Controls and Procedures 18
Part II. Other Information
Item 6. Exhibits 19
Signatures 20
Exhibit 31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 25
Exhibit 32 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 28
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except shares and per share amounts)
(Unaudited)
June 30, September 30,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $ 2,057 199
Cash held in escrow - 16,553
Accounts receivable (including related
party of $311 and $344) 8,605 9,761
Less allowance for doubtful accounts (436) (638)
Inventory 716 642
Prepaid tires on equipment 2,126 1,930
Prepaid insurance 1,149 504
Prepaid expenses, other 359 1,115
Total current assets 14,576 30,066
Property, plant and equipment, at cost 244,786 224,230
Less accumulated depreciation and
depletion (79,910) (75,219)
Net property, plant and equipment 164,876 149,011
Goodwill 1,087 1,087
Other assets 5,705 5,230
Total assets $186,244 185,394
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,457 3,072
Federal and state income taxes payable 1,240 6,799
Accrued payroll 3,269 2,757
Accrued insurance reserves 3,013 2,188
Accrued liabilities, other 375 567
Short-term notes payable - 5,914
Long-term debt due within one year 1,903 1,802
Total current liabilities 13,257 23,099
Long-term debt 48,197 41,185
Deferred income taxes 12,924 15,767
Accrued insurance reserves 5,689 5,689
Other liabilities 1,686 1,567
Shareholders' equity:
Preferred stock, no par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value;
25,000,000 shares authorized,
2,962,175 and 2,929,075 shares issued
and outstanding, respectively 296 293
Capital in excess of par value 26,872 25,784
Retained earnings 77,323 72,010
Total shareholders' equity 104,491 98,087
Total liabilities and shareholders' equity $186,244 185,394
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2005 2004 2005 2004
Revenues:
Transportation $ 28,638 25,585 83,169 73,637
Real Estate 4,423 4,085 13,280 12,103
Total revenues (includes related
Party revenue of $1,784, $1,680
$4,981 and $4,503, respectively) 33,061 29,670 96,449 85,740
Cost of operations:
Transportation 24,396 22,031 72,288 64,027
Real Estate 1,858 1,650 5,769 5,492
Gross profit 6,807 5,989 18,392 16,221
Selling, general and
administrative expense 2,561 2,276 7,289 6,650
Operating profit 4,246 3,713 11,103 9,571
Other income 2 284 17 378
Interest expense (785) (915) (2,410) (2,869)
Income from continuing
operations before income taxes 3,463 3,082 8,710 7,080
Provision for income taxes (1,351) (1,169) (3,397) (2,690)
Income from continuing
operations 2,112 1,913 5,313 4,390
Discontinued operations
net of tax - 9,041 - 14,855
Net income $ 2,112 10,954 5,313 19,245
Basic earnings per common share:
Income from continuing
operations $ .71 .65 1.80 1.50
Discontinued operations $ - 3.09 - 5.07
Net income $ .71 3.74 1.80 6.57
Diluted earnings per common share:
Income from continuing operations $ .69 .64 1.76 1.47
Discontinued operations $ - 3.04 - 4.99
Net income $ .69 3.68 1.76 6.46
Number of shares used in computing:
Basic earnings per common share 2,958 2,929 2,946 2,931
Diluted earnings per common share 3,040 2,979 3,026 2,977
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2005 AND 2004
(In thousands)
(Unaudited)
2005 2004
Cash flows from operating activities:
Net income $ 5,313 19,245
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,331 9,173
Deferred income taxes (2,921) 4,342
Gain on disposition of property, plant and equipment (584) (23,789)
Tax benefit from stock option exercise 283 288
Net changes in operating assets and liabilities:
Accounts receivable 954 (765)
Prepaid expenses and other current assets (159) 730
Other assets (806) (767)
Accounts payable and accrued liabilities 1,608 (828)
Federal and state income taxes payable (5,559) 6,106
Accrued insurance reserves and other long-term
liabilities 119 (64)
Net cash provided by operating activities 7,579 13,671
Cash flows from investing activities:
Purchase of property and equipment (25,436) (16,870)
Cash released from (placed in) escrow 16,553 (16,164)
Proceeds from sale of property and equipment 1,155 30,196
Net cash used in investing activities (7,728) (2,838)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,745 8,500
Net decrease in revolving debt (3,201) (17,512)
Repayment of long-term debt (1,345) (1,443)
Repurchase of Company Stock - (2,509)
Exercise of employee stock options 808 1,494
Net cash provided by (used in) financing activities 2,007 (11,470)
Net increase (decrease) in cash and cash equivalents 1,858 (637)
Cash and cash equivalents at beginning of period 199 757
Cash and cash equivalents at end of the period $ 2,057 120
See accompanying notes.
PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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
and nine months ended June 30, 2005 are not necessarily indicative
of the results that may be expected for the fiscal year ending
September 30, 2005. 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, 2004. Certain reclassifications have been made to the Fiscal
2004 financial statements to conform to the presentation adopted in
Fiscal 2005.
(2) Recent Accounting Pronouncements. In December 2004, the
Financial Accounting Standards Board (FASB) issued a revised
Statement No. 123 "Share-Based Payment" (SFAS 123R). This Statement
establishes standards for the accounting for transactions in which
an entity exchanges its equity instruments for goods and services,
and affects the Company's accounting for its stock option plans.
The standard is effective for the Company at the beginning of its
next fiscal year (October 1, 2005). The Company intends to use the
modified prospective application, and therefore at the effective
date compensation costs shall be included in the determination of
net income for all new, modified, repurchased, or cancelled awards
and all prior awards whose requisite service conditions have not
been met. Compensation costs to be expensed upon adoption are the
grant-date fair value of the stock option awards. While we cannot
determine the impact on future net earnings as a result of the
adoption of SFAS 123R, the estimated compensation expense related
to prior periods is presented in Note 8. The compensation expense
for future periods will be dependent on the number of options
granted, the market price of the common stock at the date of grant,
the vesting period and other factors.
In December 2004, the FASB issued Statement No. 153, "Exchanges
of Nonmonetary Assets" (SFAS 153). This statement amends the
guidance in APB Opinion No. 29, "Accounting for Nonmonetary
Transactions" to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions
of SFAS 153 are effective in fiscal periods beginning after June
15, 2005. The adoption of SFAS 153 is not expected to have a
material effect on the Company's consolidated financial
statements.
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 becomes effective for fiscal years
ending after December 15, 2005. The impact of this new
pronouncement is not expected to be material to the Company's
financial statements.
(3) 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 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 Nine Months ended
June 30, June 30,__
2005 2004 2005 2004
Revenues:
Transportation $ 28,638 25,585 83,169 73,637
Real estate 4,423 4,085 13,280 12,103
$ 33,061 29,670 96,449 85,740
Operating profit
Transportation $ 2,059 1,641 4,872 4,108
Real estate 2,565 2,435 7,511 6,609
Corporate expenses (378) (363) (1,280) (1,146)
$ 4,246 3,713 11,103 9,571
Identifiable assets June 30, September 30,
2005 2004
Transportation $ 44,420 42,479
Real estate 138,496 125,030
Cash items 2,057 16,752
Unallocated corporate assets 1,271 1,133
$186,244 185,394
(4) Long-Term debt. Long-term debt is summarized as follows (in
thousands):
June 30, September 30,
2005 2004
Revolving Credit,
Uncollateralized, variable
rate $ - 3,201
Construction loan 6.17% 8,458 2,713
5.7% to 9.5% mortgage notes
payable in installments
through 2020 41,642 42,987
50,100 48,901
Less portion due in one year 1,903 7,716
$48,197 41,185
The Company has a $37,000,000 uncollaterized Revolving Credit
Agreement (the Revolver) with four banks, which was to terminate on
December 31, 2004. On November 10, 2004, the Company and the four
banks entered into an Amended and Restated Revolving Credit
Agreement with essentially the same terms and conditions except
that the termination date was extended to December 31, 2009. The
Revolver bears interest at an initial rate of 1% over the selected
LIBOR, which would have resulted in a rate of 3.86% at June 30,
2005. The margin rate may change quarterly based on the Company's
ratio of Consolidated Total Debt to Consolidated Total Capital. An
initial 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.
(5) 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 $21,000 and $91,000 for the quarters ending June 30,
2005 and 2004, respectively.
On March 30, 2004, a subsidiary sold a parcel of land and
improvements containing approximately 6,321 acres in Suwannee and
Columbia Counties, near Lake City, Florida to a subsidiary of FRI
for $13,000,000 in cash, resulting in a gain of $5,655,000 after
income taxes of $3,465,000. The sales price was approved by the
Company's Audit Committee, composed of independent Directors of the
Company, after considering among other factors, an independent
appraisal, the current use of the property and consultation with
management.
On May 7, 2004, a subsidiary of the Company sold 108 acres of land
located in the northwest quadrant of I-395 and I-495 at Edsall Road
in Springfield, Virginia to FRI for $15,000,000 in cash resulting
in a gain of $8,009,000 after income taxes of $4,909,000. The
sales price was approved by a committee of independent directors of
the Company after review of a development feasibility study and
other materials, consultation with management and advice of
independent counsel.
Also on May 7, 2004, a subsidiary of the Company sold a 935 acre
parcel of property in Miami, Florida to FRI for $1,628,000 in cash,
resulting in a gain of $1,000,000, after income taxes of $614,000.
The property is principally composed of mined-out lakes, mitigation
areas, 145 acres of mineable land and 32 acres of roads and
railroad track rights-of-way. The terms of the sale were approved
by the Company's Audit Committee after considering, among other
factors, the terms of the existing lease agreement and consultation
with management.
See Note (6) Discontinued operations for further information.
(6) Discontinued operations. During fiscal year 2004, the Company
sold three tracts of land that were accounted for as discontinued
operations in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144). A summary of discontinued
operations is as follows(in thousands):
Three Months ended Nine Months ended
June 30, June 30,__
2005 2004 2005 2004
Royalties and rents $ - 54 - 498
Operating expenses - 2 - 190
Income before income taxes - 52 - 308
Income taxes - (20) - (117)
Income from discontinued
operations $ - 32 - 191
Gain from sale of
Discontinued operations - 14,532 - 23,652
Income taxes - (5,523) - (8,988)
Net gain from sale of
Discontinued operations - 9,009 - 14,664
Discontinued operations
Net of tax - 9,041 - 14,855
(7) Earnings per share. The following details the denominators of
the basic and diluted earnings per common share computations.
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2005 2004 2005 2004
Weighted average common shares
outstanding during the
period - shares used for
basic earnings per share 2,958,124 2,929,107 2,945,836 2,931,067
Common shares issuable under
Stock options which are
potentially dilutive 82,095 49,947 79,961 46,136
Common shares used for diluted
earnings per share 3,040,219 2,979,054 3,025,797 2,977,203
Income from continuing operations 2,112,000 1,913,000 5,313,000 4,390,000
Discontinued operations - 9,041,000 - 14,855,000
Net income 2,112,000 10,954,000 5,313,000 19,245,000
Basic earnings per common share
Income from continuing operations $ .71 .65 1.80 1.50
Discontinued operations $ - 3.09 - 5.07
Net income $ .71 3.74 1.80 6.57
Diluted earnings per common share
Income from continuing operations $ .69 .64 1.76 1.47
Discontinued operations $ - 3.04 - 4.99
Net income $ .69 3.68 $1.76 6.46
For the nine months ended June 30, 2004 and 2005, all outstanding
stock options were included in the calculation of diluted earnings
per common 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. The Company accounts for its
stock-based employee compensation plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and
earnings per common share if the company had applied the fair value
recognition provisions of FASB Statement No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation (in
thousands except per share amounts).
Three Months ended Nine Months ended
June 30, June 30,
2005 2004 2005 2004
Net income, as reported $ 2,112 10,954 5,313 19,245
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects 176 138 647 487
Pro forma net income $ 1,936 10,816 4,666 18,758
Earnings per common share:
Basic, as reported $ .71 3.74 1.80 6.57
Basic, pro forma $ .65 3.69 1.58 6.40
Diluted, as reported $ .69 3.68 1.76 6.46
Diluted, pro forma $ .64 3.63 1.54 6.30
(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.
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, and demand for commercial
warehouse space in the Baltimore/Washington area. 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 nine months of fiscal 2005, the transportation
segment's ten largest customers accounted for approximately 44% of
the transportation segment's revenue. One of those customers
accounted for 11% 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.
Comparative Results of Operations for the Three Months Ended June
30, 2005 and 2004
Consolidated Results. - Income from continuing operations for the
third quarter of fiscal 2005 was $2,112,000, an increase of
$199,000 or 10.4% compared to $1,913,000 for the same period last
year. The third quarter of 2004 included $9,041,000 in income from
discontinued operations resulting in net income of $10,954,000
compared to net income of $2,112,000 for the third quarter of 2005.
Diluted earnings common per share for the third quarter of fiscal
2005 was $0.69 compared to $3.68 in the third quarter of fiscal
2004.
Transportation
Three Months Ended June 30
(dollars in thousands) ___2005 % 2004 %_
Transportation revenue $ 25,823 90% 24,258 95%
Fuel surcharges 2,815 10% 1,327 5%
Revenues 28,638 100% 25,585 100%
Compensation and benefits 11,187 39% 10,406 41%
Fuel expenses 5,534 19% 3,805 15%
Insurance and losses 2,633 9% 2,914 11%
Depreciation expense 1,979 7% 1,934 7%
Other, net 3,063 11% 2,972 12%
Cost of operations 24,396 85% 22,031 86%
Gross profit $ 4,242 15% 3,554 14%
Transportation segment revenues were $28,638,000 in the third
quarter of 2005, an increase of $3,053,000 over the same quarter
last year. Fuel surcharges accounted for $1,488,000 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 4.5%, reflecting better
pricing for our services. Revenue miles in the current quarter were
up 1.9% compared to the third quarter of 2004 and were constrained
by low driver availability.
The Transportation segment cost of operations in the third quarter
of 2005 increased $2,365,000 to $24,396,000, as compared to
$22,031,000 in the same quarter last year. The primary factor for
the increase was higher diesel fuel costs. Average diesel fuel cost
per gallon increased 36% in the third quarter of 2005 compared to
the same quarter last year. Compensation and benefits was higher
as a result of increased revenue miles and higher driver pay.
Real Estate
Three Months Ended June 30
(dollars in thousands) ___2005 % 2004 %_
Royalties and rent $ 1,687 38% 1,519 37%
Developed property rentals 2,736 62% 2,566 63%
Total Revenue 4,423 100% 4,085 100%
Mining and land rent expenses 393 9% 462 11%
Developed property expenses 1,465 33% 1,188 29%
Cost of Operations 1,858 42% 1,650 40%
Gross profit $ 2,565 58% 2,435 60%
Real Estate segment revenues for the third quarter of fiscal 2005
were $4,423,000, an increase of $338,000 or 8.3% over the same
quarter last year. Lease revenue from developed properties
increased $170,000 or 6.6%, due to an increase in occupied square
feet resulting from the completion of a pre-leased 74,600 square
foot building in January 2005 and the purchase of a fully leased
188,000 square foot building in October 2004. Royalties from mining
operations increased as a result of increased royalties per ton.
Real estate segment expenses increased slightly to $1,858,000
during the third quarter of fiscal 2005, compared to $1,650,000 for
the same quarter last year. Expenses related to development
activities increased as a result of the new building additions.
Consolidated Gross Profit - Consolidated gross profit was
$6,807,000 in the third quarter of fiscal 2005 compared to
$5,989,000 in the same period last year, an increase of 13.7%.
Consolidated selling, general and administrative expense - Selling,
general and administrative expenses were consistent quarter to
quarter. SG&A expense was 7.7% of revenue for the third quarter of
fiscal 2005 compared to 7.7% for the same period last year.
Income from continuing operations - Income from continuing
operations was $2,112,000 or $0.69 per diluted share in the third
quarter of fiscal 2005, an increase of $199,000 or 10.4% compared
to $1,913,000 or $0.64 per diluted share in the same period last
year.
Discontinued Operations - During fiscal 2004 the Company had three
sales of real estate that have been accounted for as discontinued
operations, in accordance with SFAS 144. The income from the
operations of these components have been reflected in the
consolidated income statement as income from discontinued
operations, net of income taxes.
The results of operations of these properties, consisting of
royalty and rental income, operating expenses and depreciation,
have been reclassified to discontinued operations. Income from the
disposed properties, net of income taxes of $20,000 was $32,000 for
the three months ending June 30, 2004.
Two of these properties were sold during the quarter ended June 30,
2004 and the gains from the sales of $9,009,000 after income taxes
of $5,523,000 have been recorded as discontinued operations.
Net income - As a result of the property sales in the third quarter
of 2004, net income decreased to $2,112,000 in the third quarter of
fiscal 2005 from $10,954,000 in the same period last year. Diluted
earnings per common share decreased to $0.69 in the third quarter
of fiscal 2005 from $3.68 in the same period last year.
Comparative Results of Operations for the Nine Months Ended June
30, 2005 and 2004
Consolidated Results. - Income from continuing operations for the
first nine months of fiscal 2005 was $5,313,000, an increase of
$923,000 or 21% compared to $4,390,000 for the same period last
year. The first nine months of 2004 included $14,855,000 in income
from discontinued operations resulting in net income of $19,245,000
compared to net income of $5,313,000 for the first nine months of
fiscal 2005. Diluted earnings per common share for the first nine
months of fiscal 2005 was $1.76 compared to $6.46 for the same
period last year.
Transportation
Nine Months Ended June 30
(dollars in thousands) ___2005 % 2004 %
Transportation revenue $ 75,719 91% 70,567 96%
Fuel surcharges 7,450 9% 3,070 4%
Revenues 83,169 100% 73,637 100%
Compensation and benefits 32,793 39% 30,401 41%
Fuel expenses 15,458 19% 10,600 14%
Insurance and losses 9,150 11% 8,499 12%
Depreciation expense 5,967 7% 5,959 8%
Other, net 8,920 11% 8,569 12%
Cost of operations 72,288 87% 64,027 87%
Gross profit $ 10,881 13% 9,610 13%
The Transportation segment revenues were $83,169,000 in the first
nine months of 2005, an increase of $9,532,000 over the same period
last year. Fuel surcharges accounted for $4,380,000 of the
increase. Excluding fuel surcharges, revenue per mile increased
4.9%, reflecting better pricing for our services. Revenue miles for
the nine months were up 2.3% compared to the first nine months of
2004 and were constrained by low driver availability.
The Transportation segment cost of operations in the first nine
months of 2005 increased $8,261,000 to $72,288,000, as compared to
$64,027,000 in the same period last year. The primary factors for
the increase are higher diesel fuel costs and an increase in risk
and health insurance costs. Average diesel fuel cost per gallon
increased 35.7% in the first nine months of 2005 compared to the
same period last year. Compensation and benefits was higher as a
result of increased revenue miles and higher driver pay.
Real Estate
Nine Months Ended June 30
(dollars in thousands) ___2005 % 2004 %
Royalties and rent $ 4,570 34% 4,353 36%
Developed property rentals 8,710 66% 7,750 64%
Total Revenue 13,280 100% 12,103 100%
Mining and land rent expenses 1,025 8% 1,466 12%
Developed property expenses 4,744 36% 4,026 33%
Cost of Operations 5,769 44% 5,492 45%
Gross profit $ 7,511 56% 6,611 55%
Real Estate segment revenues for the first nine months of fiscal
2005 were $13,280,000, an increase of $1,177,000 or 9.7% over the
same period last year. Lease revenue from developed properties
increased $960,000 or 12.4%, due to an 11.2% increase in occupied
square feet resulting from the completion of a pre-leased 74,600
square foot building in January 2005 and the purchase of a fully
leased 188,000 square foot building in October 2004. Royalties from
mining operations increased as a result of increased royalties per
ton.
Real estate segment expenses increased slightly to $5,769,000
during the first nine months of fiscal 2005, compared to $5,492,000
for the same period last year. Expenses related to development
activities increased as a result of the new building additions.
Consolidated Gross Profit - Consolidated gross profit was
$18,392,000 in the first nine months of fiscal 2005 compared to
$16,221,000 in the same period last year, an increase of 13.4%.
Consolidated selling, general and administrative expense - Selling,
general and administrative expenses were consistent year over year.
SG&A expense was 7.6% of revenue for the first nine months of
fiscal 2005 compared to 7.8% for the same period last year.
Income from continuing operations - Income from continuing
operations was $5,313,000 or $1.76 per diluted share in the first
nine months of fiscal 2005, an increase of $923,000 or 21% compared
to $4,390,000 or $1.47 per diluted share in the same period last
year.
Discontinued Operations - During fiscal 2004 the Company had three
sales of real estate that have been accounted for as discontinued
operations, in accordance with SFAS 144. The income from the
operations of these components has been reflected in the
consolidated income statement as income from discontinued
operations, net of income taxes.
The results of operations of these properties, consisting of
royalty and rental income, operating expenses and depreciation,
have been reclassified to discontinued operations. Income from the
disposed properties, net of income taxes of $117,000 was $191,000
for the nine months ending June 30, 2004.
The sale of these properties resulted in a gain of $14,664,000
after income taxes of $8,988,000 and is included in discontinued
operations for the nine months ended June 30, 2004.
Net income - Net income decreased as a result of the property sales
during fiscal year 2004 to $5,313,000 in the first nine months of
fiscal 2005 from $19,245,000 in the same period last year. Diluted
earnings per common share decreased to $1.76 in the first nine
months of fiscal 2005 from $6.46 in the same period last year.
Liquidity and Capital Resources
For the first nine months of Fiscal 2005, the Company used cash
provided by operations, cash released from escrow and borrowings
under its construction loan to finance its operating activities and
the purchase of $25,436,000 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 the 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. A portion of the funds were used in November
2004 to purchase land and buildings for $7,200,000 in a tax
deferred exchange and the remaining funds were released from
escrow. The Company also purchased $9,031,000 in transportation
equipment and spent $9,205,000 in construction on new buildings.
The Company has a $37,000,000 revolving line of credit (Revolver)
under which $37,000,000 was available at June 30, 2005. On November
10, 2004, the Company and the four banks entered into an Amended
and Restated Revolving Credit Agreement with essentially the same
terms and conditions except that the termination date was extended
to December 31, 2009
The Company had $13,932,000 of irrevocable letters of credit
outstanding at June 30, 2005. 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 June 30, 2005, $3,490,000 was authorized
to repurchase the Company's common stock.
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 is expected to cost approximately
$14,900,000 and is being 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 at
project completion. The interest rate is 6.17% for both the
construction and mortgage loans. Borrowings under the construction
loan totaled $8,458,0000 at June 30, 2005. The building is
scheduled for completion by August 2005.
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.
Recent Accounting Pronouncements. In December 2004, the Financial
Accounting Standards Board (FASB) issued a revised Statement No.
123 "Share-Based Payment" (SFAS 123R). This Statement establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods and services, and
affects the Company's accounting for its stock option plans. The
standard is effective for the Company at the beginning of its next
fiscal year (October 1, 2005). The Company intends to use the
modified prospective application, and therefore at the effective
date compensation costs shall be included in the determination of
net income for all new, modified, repurchased, or cancelled awards
and all prior awards whose requisite service conditions have not
been met. Compensation costs to be expensed upon adoption are the
grant-date fair value of the stock option awards. While we cannot
determine the impact on future net earnings as a result of the
adoption of SFAS 123R, the estimated compensation expense related
to prior periods is presented in Note 8. The compensation expense
for future periods will be dependent on the number of options
granted, the market price of the common stock at the date of grant,
the vesting period and other factors.
In December 2004, the FASB issued Statement No. 153, "Exchanges
of Nonmonetary Assets" (SFAS 153). This statement amends the
guidance in APB Opinion No. 29, "Accounting for Nonmonetary
Transactions" to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions
of SFAS 153 are effective in fiscal periods beginning after June
15, 2005. The adoption of SFAS 153 is not expected to have a
material effect on the Company's consolidated financial
statements.
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 becomes effective for fiscal years
ending after December 15, 2005. 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
$21,000 and $91,000 for the quarters ending June 30, 2005 and 2004,
respectively.
The Company leases certain mining properties to FRI under long-term
leases. The Company and FRI believe that certain of these
properties, upon completion of mining and subsequent reclamation,
present valuable opportunities for residential or commercial
development. Accordingly, the Company and FRI have decided to
investigate jointly the ultimate market potential for these
properties. The Company expects that the preliminary investigation
will not be completed for several months.
On March 30, 2004, a subsidiary sold a parcel of land and
improvements containing approximately 6,321 acres in Suwannee and
Columbia Counties, near Lake City, Florida to a subsidiary of FRI
for $13,000,000 in cash, resulting in a gain of $5,655,000 after
income taxes of $3,465,000. The sales price was approved by the
Company's Audit Committee, composed of independent Directors of the
Company, after considering among other factors, an independent
appraisal, the current use of the property and consultation with
management.
On May 7, 2004, a subsidiary of the Company sold 108 acres of land
located in the northwest quadrant of I-395 and I-495 at Edsall Road
in Springfield, Virginia to FRI for $15,000,000 in cash resulting
in a gain of $8,009,000 after income taxes of $4,909,000. The
sales price was approved by a committee of independent directors of
the Company after review of a development feasibility study and
other materials, consultation with management and advice of
independent counsel.
Also on May 7, 2004, a subsidiary of the Company sold a 935 acre
parcel of property in Miami, Florida to FRI for $1,628,000 in cash,
resulting in a gain of $1,000,000, after income taxes of $614,000.
The property is principally composed of mined-out lakes, mitigation
areas, 145 acres of mineable land and 32 acres of roads and
railroad track rights-of-way. The terms of the sale were approved
by the Company's Audit Committee after considering, among other
factors, the terms of the existing lease agreement and consultation
with management.
See Note (6) Discontinued operations under the Notes to
Consolidated Financial Statements for further information.
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. These properties include a 5.8 acre
parcel and a 2.1 acre parcel in Washington D.C. that are near the
proposed site of the Washington Nationals baseball park and on
which the Company has been exploring a mixed use development.
Notwithstanding favorable freight-hauling demands for its
transportation business, the Company's trucking operations remain
challenged to effectively satisfy such demand due to an industry-
wide, tight driver availability.
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; 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
There are no material changes to the disclosures made in Form 10-K
for the fiscal year ended September 30, 2004 with respect to this
item.
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 upon 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 timely alerting them to
material information relating to the Company required to be
included in the Company's 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
internal controls or in other factors that could significantly
affect these controls during the quarter, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
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 21.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 3, 2005 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 Finance &
Administration and Chief
Financial Officer
John D. Klopfenstein
John D. Klopfenstein
Controller and Chief
Accounting Officer
PATRIOT TRANSPORTATION HOLDING, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 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) Restated Bylaws of Patriot Transportation Holding,
Inc. adopted December 1, 1993, 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)(b)(2) Amendment to the Bylaws of Patriot Transportation
Holding, Inc. adopted August 3, 1994, incorporated
by reference to the corresponding exhibit filed
with Form 10-K for the fiscal year ended September
30, 1994. File No. 33-26115.
(3)(b)(3) Amendments to the Articles of Incorporation of
Patriot Transportation Holding, Inc. filed with the
Secretary of State 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)(b)(4) Amendment to the Restated Bylaws of Patriot
Transportation Holding, Inc. adopted May 5, 2004,
incorporated by reference to an exhibit filed with
Form 10-Q for the quarter ended June 30, 2004. File
No. 33-26115.
(4)(e) 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.
(4)(f) 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) 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. And
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.
(10)(j) 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.
(10)(k) 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)(l) 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)(m) Summary of compensation arrangements with non-
employee directors, incorporated by reference to
the corresponding exhibit filed with Form 10-Q for
the quarter ended March 31, 2005. File No. 33-
26115.
(10)(n) 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 applicable to
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.