-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrEih5BBSZmthxQ1CdivAGQ6OjossKH5wCb6+Lei76d3su4BM7a5iisPog8gMCyL RhtWspN08fkoaeICszIzoA== 0000844059-05-000007.txt : 20051229 0000844059-05-000007.hdr.sgml : 20051229 20051229155635 ACCESSION NUMBER: 0000844059-05-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051229 DATE AS OF CHANGE: 20051229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT TRANSPORTATION HOLDING INC CENTRAL INDEX KEY: 0000844059 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING & COURIER SERVICES (NO AIR) [4210] IRS NUMBER: 592924957 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17554 FILM NUMBER: 051291550 BUSINESS ADDRESS: STREET 1: 1801 ART MUSEUM DRIVE CITY: JACKSONVILLE STATE: FL ZIP: 32207 BUSINESS PHONE: 9043965733 MAIL ADDRESS: STREET 1: 1801 ART MUSEUM DRIVE CITY: JACKSONVILLE STATE: FL ZIP: 32207 FORMER COMPANY: FORMER CONFORMED NAME: FRP PROPERTIES INC DATE OF NAME CHANGE: 19920703 10-K 1 patr10k05.txt PATRIOT 2005 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 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) Registrant's telephone number, including area code 904/396-5733 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.10 par value (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No X Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No X 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X The number of shares of the registrant's stock outstanding as of December 7, 2005 was 2,965,075. The aggregate market value of the shares of Common Stock held by non-affiliates of the registrant as of March 31, 2005, the last day of business of our most recently completed second fiscal quarter, was $62,301,572. Solely for purposes of this calculation, the registrant has assumed that all directors, officers and ten percent (10%) shareholders of the Company are affiliates of the registrant. Documents Incorporated by Reference Portions of the Patriot Transportation Holding, Inc. 2005 Annual Report to Shareholders are incorporated by reference in Parts I and II. Portions of the Patriot Transportation Holding, Inc. Proxy Statement which will be filed with the Securities and Exchange Commission not later than December 31, 2005 are incorporated by reference in Part III. PART I Item 1. BUSINESS. Patriot Transportation Holding, Inc., which was incorporated in Florida in 1988, and its subsidiaries (the "Company") are engaged in the transportation and real estate businesses. The Company has two business segments: transportation and real estate. Industry segment information is presented in Notes 3 and 12 to the consolidated financial statements included in the accompanying 2005 Annual Report to Shareholders and is incorporated herein by reference. The Company's transportation business is conducted through two wholly owned subsidiaries, Florida Rock & Tank Lines, Inc. ("Tank Lines"), and SunBelt Transport, Inc. ("SunBelt"). Tank Lines is a Southeastern U.S. based transportation company concentrating in the hauling of primarily petroleum related bulk liquids and dry bulk commodities by tank trailers. SunBelt serves the flatbed portion of the trucking industry primarily in the Southeastern U.S., hauling primarily construction materials. The Company's real estate activities are conducted through two wholly owned subsidiaries. Florida Rock Properties, Inc. ("Properties") and FRP Development Corp. ("Development"). Properties owns real estate of which a substantial portion is under mining royalty agreements or leased to Florida Rock Industries, Inc. ("FRI"), a related party. FRI accounted for approximately 30% of the Company's real estate revenues for Fiscal 2005. Properties also owns certain other real estate for investment. Development owns, manages and develops commercial warehouse/office rental properties near Baltimore, Maryland. Substantially all of the real estate operations are conducted within the Southeastern and Mid-Atlantic United States. Revenues from royalties and from a portion of the trucking operations are subject to factors affecting the level of general construction activity. A decrease in the level of general construction activity in any of the Company's market areas may have an adverse effect on such revenues and income derived therefrom. Transportation. Tank Lines is engaged in hauling primarily petroleum related bulk liquids and dry bulk commodities by tank trailers. SunBelt is engaged primarily in hauling building and construction materials on flatbed trailers. During Fiscal 2005, Tank Lines operated from terminals in Jacksonville, Orlando, Panama City, Pensacola, Port Everglades, Tampa and White Springs, Florida; Albany, Atlanta, Augusta, Bainbridge, Columbus, Dalton, Macon and Savannah, Georgia; Knoxville, Tennessee; Montgomery, Alabama; and Charlotte and Wilmington, North Carolina. Tank Lines has from two to six major tank truck competitors in each of its markets. SunBelt's flatbed fleet is based in Jacksonville and Tampa, Florida; Atlanta and Savannah, Georgia; South Pittsburg, Tennessee; and Mobile, Alabama, and hauls primarily building and construction materials in the Southeastern U.S. There are at least ten major competitors in SunBelt's market area and numerous small competitors in the various states served. At September 30, 2005, the Company operated and owned a fleet of approximately 604 trucks, and owned a fleet of approximately 917 trailers. The Company was committed at September 30, 2005 to purchase 26 trailers and 77 tractors and plans to continue its routine fleet replacement and modernization program during 2006. The transportation segment primarily serves customers in the petroleum and building and construction industries. Petroleum customers accounted for approximately 69% and building and construction customers accounted for approximately 31% of transportation segment revenues for the year ended September 30, 2005. The Company hauls construction aggregates, diesel fuel and cement for FRI. Revenues from services provided to FRI accounted for 1.1% of the transportation segment's revenues. Price, service, and location are the major factors which affect competition in the transportation segment within a given market. During Fiscal 2005, the transportation segment's ten largest customers accounted for approximately 44.2% of the transportation segment's revenue. One of these customers accounted for 11.4% of the transportation segment's revenue. The loss of any one of these customers could have an adverse effect on the Company's revenues and income. Real Estate. The Company's real estate and property development activities are conducted through wholly owned subsidiaries. The Company owns real estate in Florida, Georgia, Virginia, Maryland, Delaware and Washington, D.C. The real estate owned falls generally into one of three categories: (i) land and/or buildings leased under rental agreements or being developed for rental; (ii) construction aggregates properties with stone or sand and gravel deposits, substantially all of which is leased to FRI under mining royalty agreements, as to which the Company is paid a percentage of the revenues generated by the material mined and sold, or minimum royalties where there is no current, or only limited, mining activity; and, (iii) land that is being held for future appreciation or development. Additional information about the Company's real estate segment is contained under the caption "Real Estate" and in Notes 3 and 12 to the consolidated financial statements included in the accompanying 2005 Annual Report to Shareholders and is incorporated herein by reference. The Company's real estate strategy of developing high quality, flexible warehouse/office space continues to be successful as average occupancy for the fiscal year for buildings in service for more than 12 months was 88.0%. At September 30, 2005, 86.8% of the total warehouse/office portfolio of approximately 2.3 million square feet was leased. Price, location, rental space availability, flexibility of design, and property management services are the major factors that affect competition in the flexible warehouse/office rental market. The Company experiences considerable competition in all of its markets. Real estate revenues in Fiscal 2005 were divided approximately 66% from rentals on developed properties and 34% from mining royalties. FRI accounted for approximately 30% of total real estate revenues. Tenants of flexible warehouse/office properties are not concentrated in any one particular industry. During 2003 and 2004, a subsidiary of the Company sold several parcels of property to FRI, a related party. The properties were located in St. Mary's County, MD, Lake City, FL, Springfield, VA, and Miami, FL and the combined sales price was $31,464,000. See Notes 3 and 4 to the consolidated financial statements for more information. 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. There were no differences related to corrections reported in the consolidated statements of income or cash flows for the year ended September 30, 2004. 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 also affected periods prior to fiscal 2003 and those periods have been restated where presented. The restatement corrects our historical lease accounting practices. See Note 2 to the Consolidated Financial Statements included in the accompanying 2005 Annual Report to Shareholders for more information. We did not amend our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the restatement, and the financial statements and related financial information contained in such reports should no longer be relied upon. Environmental Matters. 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. Seasonality. The Company's business is subject to limited seasonality due to the cyclical nature of business of our customers, with revenues generally declining slightly during winter months. Employees. The Company employed 903 people in its transportation group, 18 people in its real estate group and 4 people in its corporate offices at September 30, 2005. EXECUTIVE OFFICERS OF THE COMPANY Name Age Office Position Since Edward L. Baker 70 Chairman of the Board May 3, 1989 John E. Anderson 60 President & Chief Feb. 17, 1989 Executive Officer David H. deVilliers, Jr. 54 Vice President of the Feb. 28, 1994 Company and President of the Company's Real Estate Group Ray M. VanLandingham 62 Vice President, Dec. 6, 2000 Treasurer, Secretary and Chief Financial Officer John D. Klopfenstein 42 Controller and Chief Feb. 16, 2005 Accounting Officer Terry S. Phipps 41 President of SunBelt April 5, 2004 Transport, Inc. Robert E. Sandlin 44 President of Florida March 1, 2003 Rock & Tank Lines, Inc. All of the above officers have been employed in their respective positions for the past five years except as follows: John D. Klopfenstein served as Director, Business Development and Planning of the Company, from June 1, 2003 to February 15, 2005, and as Manager, Corporate Development of the Company, from July 1, 1996 to May 31, 2003; Terry S. Phipps was a Vice President of SunBelt from May 2003 to April 2004, Mr. Phipps was employed with Coastal Transport, Inc. from 1990 to May 2003; and Robert E. Sandlin was a Vice President of Florida Rock & Tank Lines from 1993 until March 2003. John D. Baker II, who is the brother of Edward L. Baker, and Thompson S. Baker II, who is the son of Edward L. Baker, are on the Board of Directors of the Company. All executive officers of the Company are elected by the Board of Directors. Item 2. PROPERTIES. The Company's principal properties are located in Florida, Georgia, Virginia, Washington, D.C., Delaware and Maryland. Transportation Segment Properties. The Company has 21 sites for its trucking terminals in Alabama, Florida, Georgia, North Carolina, and Tennessee. The Company owns 13 of these sites and leases 8. Real Estate Segment Properties. Principal properties held by Real Estate segment are discussed below under the captions Developed Properties, Future Planned Development, Construction Aggregates Properties, and Other Properties. At September 30, 2005 certain developed real estate properties having a carrying value of $58,812,000 were pledged on long- term non-recourse notes with an outstanding principal balance totaling $50,900,000. In addition, certain other properties having a carrying value at September 30, 2005 of $714,000 were encumbered by $1,300,000 of industrial revenue bonds that are the liability of FRI. FRI has agreed to pay such debt when due (or sooner if FRI cancels its lease of such property), and further has agreed to indemnify and hold harmless the Company on account of such debt. Developed Properties. At September 30, 2005, the Company owned 10 parcels of land containing 404 usable acres in the Mid- Atlantic region of the United States as follows: 1) Hillside Business Park in Anne Arundel County, Maryland consists of 49 usable acres near the Baltimore-Washington International Airport. The Company plans to develop approximately 540,000 square feet of warehouse/office space on this site. Infrastructure work on the site is substantially completed and three buildings with a total of 419,980 square feet are completed and leased, each to a single tenant. Current plans are to construct an additional 80,000 square feet of warehouse/office space in late fiscal 2006. 2) Lakeside Business Park in Harford County, Maryland consists of 83 usable acres. Seven warehouse/office buildings, totaling 671,550 square feet, have been constructed and are 94% leased. The remaining 31 acres are available for future development and will have the potential to offer an additional 485,000 square feet of comparable product. 3) 6920 Tudsbury Road in Baltimore County, Maryland contains 5.3 acres with 86,100 square feet of warehouse/office space that is 100% leased. 4) 8620 Dorsey Run Road in Howard County, Maryland contains 5.8 acres with 84,600 square feet of warehouse/office space. The lessee at Dorsey Run vacated the premises at the end of its lease term on December 31, 2004. An agreement has been executed to lease 40,000 square feet to commence on January 1, 2006. 5) Rossville Business Center in Baltimore County, Maryland contains approximately 10 acres with 190,517 square feet of warehouse/office space and is 87% leased. 6) 34 Loveton Circle in suburban Baltimore County, Maryland contains 8.5 acres with 29,722 square feet of office space, which is 100% leased. The Company occupies 24% of the space and 23% is leased to FRI's subsidiary Arundel. 7) Oregon Business Center in Anne Arundel County, Maryland contains approximately 17 acres with 195,615 square feet of warehouse/office space, which is 92% leased. 8) Arundel Business Center in Howard County, Maryland contains approximately 11 acres with 162,796 square feet of warehouse/office space, which is 71% leased. 9) 100-400 Interchange Boulevard in New Castle County, Delaware contains approximately 17 acres with 303,006 square feet of warehouse/office space, which is 68% leased. 10) 1187 Azalea Garden Road in Norfolk, Virginia contains approximately 12 acres with 188,093 square feet of warehouse/office space, which is 100% leased. Future Planned Developments. Bird River, located in southeastern Baltimore County, Maryland, is a 179-acre tract of land that will have direct access to Maryland State Road 43 which is under construction and will connect I-95 with Martin State Airport. This property is currently zoned for residential and commercial use with 104 developable acres. The Company plans to develop and lease approximately 515,000 square feet of multiple warehouse/office buildings on the 42 developable acres zoned for commercial use. A subsidiary of the Company has entered into an agreement to develop and sell to a major national homebuilder a minimum of 292 residential lots on the residential portion of the Bird River Property. The agreement is subject to a number of contingencies, including (i) the approval by Baltimore County of a Planned Unit Development (PUD) by July 1, 2006 allowing the development of a minimum of 292 residential lots, (ii) the construction of Route 43, (iii) vehicular, water and sewer connection access to the property by July 1, 2007 at what the subsidiary deems to be a commercially reasonable cost, and (iv) other customary conditions precedent. Assuming that these conditions are satisfied and the development proceeds, the agreement provides for a minimum aggregate purchase price for these lots of $28,705,000. 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 FRI and Patriot 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. The Company owns a 5.8 acre parcel of undeveloped real estate in the southeast quadrant of Washington, D.C. that fronts the Anacostia River and a nearby 2.1 acre tract on the same bank of the Anacostia River. Currently, these properties are leased to FRI on a month-to-month basis. For several years, the Real Estate Group has been pursuing development efforts with respect to the 5.8 acre parcel. The Company previously obtained a Planned Unit Development (PUD) Zoning approval for development of the property and has been working to obtain approval of a modified PUD that would allow up to 625,000 square feet of commercial development and up to 440,000 square feet of residential development. If the modified PUD is approved, the Company would have up to two years to commence development in accordance with the modified PUD. The development of this property is likely to be impacted, at least to some degree, by the proposed construction on nearby property of a new baseball stadium for the Washington Nationals baseball team. While the Company currently believes that the construction of this proposed stadium would be a positive development for the property, the Company cannot yet determine the potential impact on its development plans if the stadium is built at the proposed location. The Company will monitor ongoing developments relating to the stadium while continuing to pursue its existing plans to develop the property. The Company owns a 50-acre, rail accessible site on Commonwealth Avenue in Jacksonville, Florida near the western beltway of Interstate-295 capable of supporting approximately 500,000 square feet of eventual warehouse/office build-out. Construction Aggregates Properties. The following table summarizes the Company's principal construction aggregates locations and estimated reserves at September 30, 2005, substantially all of which are leased to FRI. Tons of Tons Sold Estimated in Year Reserves Ended at 9/30/05 9/30/05 Approximate (000's) (000's) Acres Owned The Company owns eleven locations currently being mined in Brooksville, Grandin, Gulf Hammock, Keuka, Newberry and Airgrove/ Lake County, Florida; Columbus, Macon, Forest Park and Tyrone, Georgia; and Manassas, Virginia. 9,690 488,643 17,135 The Company owns four locations not currently being mined in Ft. Myers, Marion County, Astatula/Lake County and Sandland/Polk County, Florida - 32,891 2,339 Other Properties. In addition to the development, mining and rental sites, the Company owns approximately 2,045 acres of investment and other real estate. The Company owns an office building with approximately 69,000 square feet situated on approximately 6 acres in Jacksonville, Florida, which is leased to FRI. Item 3. LEGAL PROCEEDINGS. Note 15 to the Consolidated Financial Statements included in the accompanying 2005 Annual Report to Shareholders is incorporated herein by reference. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No reportable events. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. There were approximately 679 holders of record of Patriot Transportation Holding, Inc. common stock, $.10 par value, as of September 30, 2005. The Company's common stock is traded on the Nasdaq Stock Market (Symbol PATR). Information concerning stock prices is included under the caption "Quarterly Results" on page 7 of the Company's 2005 Annual Report to Shareholders, and such information is incorporated herein by reference. The Company has not paid a cash dividend in the past and it is the present policy of the Board of Directors not to pay cash dividends. Information concerning restrictions on the payment of cash dividends is included in Note 5 to the consolidated financial statements included in the accompanying 2005 Annual Report to Shareholders and such information is incorporated herein by reference. Information regarding securities authorized for issuance under equity compensation plans is included in Item 12 of Part III of this Annual Report on Form 10-K and such information is incorporated herein by reference. Purchases of Equity Securities by the Issuer and Affiliated Purchasers (c) Total Number of Shares (d) Purchased Approximate (a) As Part of Dollar Value of Total (b) Publicly Shares that May Number of Average Announced Yet Be Purchased Shares Price Paid Plans or Under the Plans Period Purchased per Share Programs or Programs (1) July 1 through July 31 0 $ 0 0 $ 3,490,000 August 1 through August 31 0 $ 0 0 $ 3,490,000 September 1 through September 31 0 $ 0 0 $ 3,490,000 Total 0 $ 0 0 (1) In December, 2003, the Board of Directors authorized management to expend up to $6,000,000 to repurchase shares of the Company's common stock from time to time as opportunities arise. Item 6. SELECTED FINANCIAL DATA. Information required in response to this Item 6 is included under the caption "Five Year Summary" on page 6 of the Company's 2005 Annual Report to Shareholders and such information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. Information required in response to Item 7 is included under the caption "Management Analysis" on pages 8 through 12 of the Company's 2005 Annual Report to Shareholders and such information is incorporated herein by reference. Item 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 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 did not have any variable rate debt outstanding at September 30, 2005, so a sensitivity analysis was not performed to determine the impact of hypothetical changes in interest rates on the Company's results of operations and cash flows. The following table provides information about the Company's long-term debt (dollars in thousands): There Fair Liabilities: 2006 2007 2008 2009 2010 after Total Value Scheduled maturities of long-term debt: Fixed Rate $ 2,432 $2,584 $2,769 $2,968 $3,201 $36,946 $50,900 $52,976 Average interest rate 6.9% 6.9% 6.9% 6.9% 7.0% 7.0% Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information required in response to this Item 8 is included under the caption "Quarterly Results" on page 7 and on pages 13 through 23 of the Company's 2005 Annual Report to Shareholders. Such information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Item 9A. CONTROLS AND PROCEDURES. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and Chief Accounting Officer ("CAO"), as appropriate, to allow timely decisions regarding required disclosure. The Company also maintains a system of internal accounting controls over financial reporting that are designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation and fair presentation of published financial statements. All control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving the desired control objectives. As of September 30, 2005, the Company, under the supervision and with the participation of the Company's management, including the CEO, CFO and CAO, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation and subject to the disclosure below, the Company's CEO, CFO and CAO 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. In coming to the conclusion that our disclosure controls and procedures are effective, our management considered, among other things, the control deficiency related to our accounting for leases, which resulted in the need to restate our previously filed financial statements as disclosed in Note 2 to the consolidated financial statements included in the accompanying 2005 Annual Report to Shareholders. In this regard, our management reviewed and analyzed the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 99, Materiality, Accounting Principles Board Opinion No. 28, Interim Financial Reporting paragraph 29 and SAB Topic 5-F, Accounting Changes Not Retroactively Applied Due to Immateriality. The CEO, CFO and CAO concluded that our disclosure controls and procedures were effective despite this deficiency because, among other reasons: (i) the restatement adjustments did not have a material impact on the financial statements of prior interim or annual periods taken as a whole; (ii) the cumulative impact of the restatement adjustments on shareholders' equity was not material on the financial statements of prior interim or annual periods; and (iii) we were required to restate our previously issued financial statements solely because the cumulative impact of the error, if recorded in the current period would have been material to the current year's reported net income. There have been no changes in the Company's internal controls over financial reporting during the fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding the executive officers of the Company is set forth under the caption "Executive Officers of the Company" in Part I of this Form 10-K. Information concerning directors (including the disclosure regarding audit committee financial experts), required in response to this Item 10, is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than December 31, 2005. The Company has adopted a Financial Code of Ethical Conduct applicable to its principal executive officers, principal financial officers and principal accounting officers. A copy of this Financial Code of Ethical Conduct is filed as Exhibit 14 to this Form 10-K. Item 11. COMPENSATION COMMITTEE. Information required in response to this Item 11 is included under the captions "Executive Compensation," "Compensation Committee Report," "Compensation Committee," and "Shareholder Return Performance" in the Company's Proxy Statement and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than December 31, 2005. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required in response to this Item 12 is included under the captions "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership by Directors and Officers" in the Company's Proxy Statement and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than December 31, 2005. Equity Compensation Plan Information Number of Securities remaining available for Number of future Securities Weighted issuance to be Average under equity issued upon exercise compensation exercise of price of plans outstanding outstanding (excluding options, options, securities warrants warrants reflected in and rights and rights column (a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders 337,900 $30.72 109,700 Equity compensation plans not approved by security holders 0 0 0 Total 337,900 $30.72 109,700 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required in response to this Item 13 is included under the caption "Related Party Transactions" in the Company's Proxy Statement and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than December 31, 2005. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Information required in response to this Item 14 is included under the caption "Independent Registered Certified Public Accounting Firm" in the Company's Proxy Statement and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than December 31, 2005. PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) (1) and (2) Financial Statements and Financial Statement Schedules. The response to this item is submitted as a separate section. See Index to Financial Statements and Financial Statement Schedules on page 21 of this Form 10-K. (3) Exhibits. The response to this item is submitted as a separate section. See Exhibit Index on pages 18 through 20 of this Form 10-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Patriot Transportation Holding, Inc. Date: December 27, 2005 By JOHN E. ANDERSON John E. Anderson President and Chief Executive Officer (Principal Executive Officer) By RAY M. VAN LANDINGHAM Ray M. Van Landingham Vice President, Treasurer, Secretary and Chief Financial Officer (Principal Financial Officer) By JOHN D. KLOPFENSTEIN John D. Klopfenstein Controller and Chief Accounting Officer(Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 27, 2005. JOHN E. ANDERSON LUKE E. FICHTHORN III John E. Anderson Luke E. Fichthorn III Director, President, and Chief Director Executive Officer (Principal Executive Officer) CHARLES E. COMMANDER III______ Charles E. Commander III RAY M. VAN LANDINGHAM Director Ray M. Van Landingham Vice President, Treasurer, Secretary and Chief Financial ROBERT H. PAUL III Officer(Principal Financial Officer) Robert H. Paul III Director JOHN D. KLOPFENSTEIN ____________ John D. Klopfenstein H. W. SHAD III_____ Controller and Chief Accounting H. W. Shad III Officer (Principal Accounting Officer) Director __________________ MARTIN E. STEIN, JR. Edward L. Baker Martin E. Stein, Jr. Chairman of the Board Director JOHN D. BAKER II_________________ JAMES H. WINSTON _________ John D. Baker II James H. Winston Director Director THOMPSON S. BAKER II_____________ Thompson S. Baker II Director PATRIOT TRANSPORTATION HOLDING, INC. FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005 EXHIBIT INDEX [Item 14(a)(3)] (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)(a)(6) 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)(a)(7) 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. (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) 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)(b) 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. (13) The Company's 2005 Annual Report to shareholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 2005 Annual Report to Shareholders which are not incorporated by reference shall not be deemed to be filed as part of this Form 10-K. (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. (21) Subsidiaries of Registrant at September 30, 2005: Florida Rock & Tank Lines, Inc. (a Florida corporation); Florida Rock Properties, Inc. (a Florida corporation); FRP Development Corp. (a Maryland corporation); FRP Maryland, Inc. (a Maryland corporation); 34 Loveton Center LLC (a Maryland limited liability company); FRTL, Inc. (a Florida corporation); SunBelt Transport, Inc. (a Florida Corporation); Oz LLC(a Maryland limited liability company); 1502 Quarry, LLC(a Maryland limited liability company); FRP Lakeside LLC #1 (a Maryland limited company); FRP Lakeside LLC #2 (a Maryland limited liability company); FRP Lakeside LLC #3 (a Maryland limited liability company); FRP Lakeside LLC #4 (a Maryland limited liability company); FRP Lakeside LLC #5 (a Maryland limited liability company); FRP Hillside LLC (a Maryland limited liability company); FRP Hillside LLC #2 (a Maryland limited liability company); FRP Hillside LLC #3 (a Maryland limited liability company); FRP Windsor LLC (a Maryland limited liability company); FRP Dorsey LLC (a Maryland limited liability company); FRP Bird River LLC (a Maryland limited liability company); FRP Interchange LLC (a Maryland limited liability company); FRP Azalea LLC (a Maryland limited liability company). (23)(a) Consent of PricewaterhouseCoopers LLP, Independent Registered Certified Public Accounting Firm, appears on page 22 of this Form 10-K. (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. PATRIOT TRANSPORTATION HOLDING, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 15(a) (1) and 2)) Page Consolidated Financial Statements: Consolidated balance sheets at September 30, 2005 and 2004 14(a) For the years ended September 30, 2005, 2004 and 2003: Consolidated statements of income 13(a) Consolidated statements of cash flows 15(a) Consolidated statements of shareholders' equity 16(a) Notes to consolidated financial statements 16-23(a) Report of Independent Registered Certified Public Accounting Firm 24(a) Selected quarterly financial data (unaudited) 7(a) Consent of Independent Registered Certified Public Accounting Firm 22(b) Report of Independent Registered Certified Public Accounting Firm on Financial Statement Schedules 23(b) Consolidated Financial Statement Schedules: II - Valuation and qualifying accounts 24(b) III - Real estate and accumulated depreciation and Depletion 25-26(b) (a) Refers to the page number in the Company's 2005 Annual Report to Shareholders. Such information is incorporated by reference in Item 8 of this Form 10-K. (b) Refers to the page number in this Form 10-K. All other schedules have been omitted, as they are not required under the related instructions, are inapplicable, or because the information required is included in the consolidated financial statements. Exhibit 23(a) CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-43215, 33-18878, 33- 55132 and 33-125099) of Patriot Transportation Holding, Inc. of our report dated December 22, 2005 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated December 22, 2005, relating to the financial statement schedules, which appear in this Form 10-K. PricewaterhouseCoopers LLP Jacksonville, Florida December 27, 2005 ____________________ REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Patriot Transportation Holding, Inc.: Our audits of the consolidated financial statements referred to in our report dated December 22, 2005 appearing in the 2005 Annual Report to Shareholders of Patriot Transportation Holding, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. As described in Note 2, the consolidated financial statements for the years ended September 30, 2004 and 2003 have been restated. PricewaterhouseCoopers LLP Jacksonville, Florida December 22, 2005 ____________________ PATRIOT TRANSPORTATION HOLDING, INC. SCHEDULE II (CONSOLIDATED) - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 2005, 2004 AND 2003 ADDITIONS ADDITIONS BALANCE CHARGED TO CHARGED TO BALANCE AT BEGIN. COST AND OTHER AT END OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR Year Ended September 30, 2005: Allowance for doubtful accounts $ 638,320 $ 177,000 $ - $ 290,065(a) $ 525,255 Accrued risk insurance $6,653,657 $ 3,710,925 $ - $ 2,787,793(b) $7,576,789 Accrued health insurance 1,205,334 2,938,379 - 2,947,551(b) 1,196,162 Totals - insurance $7,858,991 $ 6,649,304 $ 0 $ 5,735,344 $8,772,951 Year Ended September 30, 2004: Allowance for doubtful accounts $ 565,744 $ 168,000 $ - $ 95,423(a) $ 638,320 Accrued risk insurance $6,779,345 $ 3,562,400 $ - $ 3,688,088(b) $6,653,657 Accrued health insurance 1,256,845 3,075,521 - 3,127,032(b) 1,205,334 Totals - insurance $8,036,190 $ 6,637,921 $ 0 $ 6,815,120 $7,858,991 Year Ended September 30, 2003: Allowance for Doubtful accounts $ 474,000 $ 157,537 $ - $ 65,793(a) $ 565,744 Accrued risk insurance $6,326,406 $ 4,151,065 $ - $ 3,698,126(b) $6,779,345 Accrued health Insurance 1,111,808 2,570,287 - 2,425,250(b) 1,256,845 Totals - insurance $7,438,214 $ 6,721,352 $ 0 $ 6,123,376 $8,036,190 (a) Accounts written off less recoveries (b) Payments PATRIOT TRANSPORTATION HOLDING, INC. SCHEDULE III (CONSOLIDATED)-REAL ESTATE & ACCUMULATED DEPRECIATION AND DEPLETION SEPTEMBER 30, 2005 (dollars in thousands)
Cost capi- Gross amount Year Deprecia- Encumb- Initial talized at which Accumulated Of Date tion Life County rances cost to subsequent carried at Depreciation Constr- Acquired Computed Company to acqui- end of period tion on: sition (a) Construction Aggregates Alachua, FL $ 1,442 $ 0 $ 1,442 $ 96 n/a 4/86 unit Clayton, GA 369 0 369 5 n/a 4/86 unit Fayette, GA 20 685 0 685 55 n/a 4/86 unit Hernando, FL 3,174 325 3,499 971 n/a 4/86 unit Lake, FL 1,485 0 1,485 1,086 n/a 4/86 unit Lee, FL 4,690 6 4,696 5 n/a 4/86 unit Levy, FL 1,281 104 1,385 502 n/a 4/86 unit Marion, FL 1,180 0 1,180 599 n/a 4/86 unit Monroe, GA 792 0 792 250 n/a 4/86 unit Muscogee, GA 369 0 369 148 n/a 4/86 unit Polk, FL 121 0 121 75 n/a 4/86 unit Prince Wil. VA 298 0 298 298 n/a 4/86 unit Putnam, FL 15,002 49 15,051 3,447 n/a 4/86 unit 20 30,888 484 31,372 7,537 Other Rental Property Wash D.C. 2,957 7,222 10,179 1,677 n/a 4/86 15 yr. Wash D.C. 3,811 0 3,811 0 n/a 10/97 Putnam, FL 326 50 376 341 n/a 4/86 5 yr. Spalding, GA 20 0 20 0 n/a 4/86 0 7,114 7,272 14,386 2,018 Commercial Property Baltimore, MD 0 439 3,338 3,777 1,635 1990 10/89 31.5 yr. Baltimore, MD 1,897 950 6,257 7,207 2,513 1994 12/91 31.5 yr. Baltimore, MD 2,383 690 2,837 3,527 555 2000 7/99 31.5 yr. Baltimore, MD 0 5,634 844 6,478 0 2001 8/95 31.5 yr. Duval, FL 0 2,416 529 2,945 2,526 n/a 4/86 25 yr. Harford, MD 2,501 31 3,826 3,857 943 1998 8/95 31.5 yr. Harford, MD 4,226 50 5,562 5,612 1,011 1999 8/95 31.5 yr. Harford, MD 5,858 85 6,665 6,750 1,246 2001 8/95 31.5 yr. Harford, MD 0 92 1,479 1,571 0 n/a 8/95 31.5 yr. Harford, MD 4,303 88 5,823 5,911 870 n/a 8/95 31.5 yr. Harford, MD 3,335 155 4,996 5,151 830 2001 8/95 31.5 yr. Howard, MD 3,766 2,859 3,734 6,593 2,263 1996 9/88 31.5 yr. Howard, MD 2,154 2,473 613 3,086 503 2000 3/00 31.5 yr. Anne Arun, MD 3,002 715 6,690 7,405 3,651 1989 9/88 31.5 yr. Anne Arun, MD 7,739 950 13,055 14,005 911 n/a 5/98 31.5 yr. Anne Arun, MD 9,716 1,525 10,658 12,183 56 2001 8/04 31.5 yr. Anne Arun, MD 0 1,307 198 1,505 0 n/a 1/03 31.5 yr. Norfolk, VA 0 7,512 0 7,512 222 1971 10/04 31.5 yr. Newcastle Co. DE 0 11,559 696 12,255 490 n/a 4/04 31.5 yr. 50,880 39,530 77,800 117,330 20,225 Investment Property 1,033 112 1,145 36 n/a 4/86 n/a GRAND TOTALS $50,900 $78,565 $85,668 $164,233 $29,816
(a) The aggregate cost for Federal income tax purposes is $147,392. PATRIOT TRANSPORTATION HOLDING, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION AND DEPLETION YEARS ENDED SEPTEMBER 30, 2005, 2004 AND 2003 (In thousands) 2005 2004 2003 Gross Carrying Cost of Real Estate: Balance at beginning of period $146,995 145,803 133,925 Additions during period: Amounts capitalized 17,330 17,510 13,319 Deductions during period: Cost of real estate sold 92 16,318 1,441 Other (abandonments) - - - Balance at close of period $164,233 146,995 145,803 Accumulated Depreciation & Depletion: Balance at beginning of period $ 26,328 33,497 31,395 Additions during period: Charged to cost & expense 3,580 3,229 2,784 Deductions during period: Real estate sold 92 10,398 682 Balance at close of period $29,816 26,328 33,497 EX-13 2 ex13annual.txt PATRIOT 2005 ANNUAL REPORT Annual Report 2005 CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended September 30 (Dollars in thousands except per share amounts) % 2005 2004 Change (restated) Revenues $131,036 115,789 13.2 Gross profit $ 24,993 22,482 11.2 Operating profit $ 15,191 13,430 13.1 Income before income taxes $ 11,945 9,975 19.8 Income from continuing operations $ 7,609 6,096 24.8 Discontinued operations $ - 14,644 -100.0 Net income $ 7,609 20,740 -63.3 Per common share: Income from continuing operations Basic $ 2.58 2.08 24.0 Diluted $ 2.50 2.05 22.0 Discontinued operations Basic $ - 5.00 -100.0 Diluted $ - 4.92 -100.0 Net income Basic $ 2.58 7.08 -63.6 Diluted $ 2.50 6.97 -64.1 Total Assets $193,715 186,821 3.7 Total Debt $ 50,900 48,901 4.1 Shareholders' Equity $107,901 98,972 9.0 Book Value Per Common Share $ 36.39 33.79 7.7 BUSINESS. The Company is engaged in the transportation and real estate businesses. The Company's transportation business is conducted through two wholly owned subsidiaries. Florida Rock & Tank Lines, Inc. (Tank Lines) is a Southeastern U.S. based transportation company concentrating in the hauling of primarily petroleum products but also other liquid and dry bulk commodities by tank trucks. SunBelt Transport, Inc. (SunBelt) serves the flatbed portion of the trucking industry in the Southeastern U.S., hauling primarily construction materials. The Company's real estate group, comprised of FRP Development Corp. and Florida Rock Properties, Inc., acquires, constructs, leases, operates and manages land and buildings to generate both current cash flows and long-term capital appreciation. The real estate group also owns real estate which is leased under mining royalty agreements or held for investment. OBJECTIVES. The Company's dual objectives are to continue building a substantial transportation company and a real estate company providing sound long-term growth, cash generation and asset appreciation. TRANSPORTATION Internal growth is accomplished by a dedicated and competent work force emphasizing superior service to customers in existing markets, developing new transportation services for customers in current market areas and expanding into new market areas. External growth is designed to broaden the Company's geographic market area and delivery services by acquiring related businesses. REAL ESTATE The growth plan is based on the acquisition, development and management of commercial warehouse/office rental properties located in appropriate sub-markets in order to provide long- term positive cash flows and capital appreciation. TO OUR SHAREHOLDERS Patriot completed Fiscal 2005 with encouraging momentum in both its transportation and real estate businesses. Consolidated revenues increased 13.2% over last fiscal year to $131,036,000. Operating profit climbed 13.1%, and income from continuing operations advanced 24.8% to $7,609,000. Net income declined in 2005 due primarily to a $14,456,000 gain in 2004 from the sale of properties, compared to no gain in 2005. Diluted earnings per common share for Fiscal 2005 were $2.50, and book value per common share increased 7.7% from the previous year to $36.39. A continuing strong regional and national economy fostered demand for the Company's transportation hauling services and its flexible warehouse/office portfolio in the Middle Atlantic region. Favorable interest rates helped fuel residential and commercial construction spending, which in turn continued to generate strong demand for hauling services for construction products. Generally broad, solid demand across Patriot's businesses contributed to another year of favorable pricing conditions. Transportation Group The Company's Transportation Group began Fiscal 2005 with the following operational objectives: - Operate safely - nothing we do is more important; - Raise prices including fuel surcharges as appropriate; - Man the equipment - recruit/retain qualified drivers; - Maximize equipment utilization. These imperatives stemmed from a number of continuing challenges confronting the trucking industry. Operating costs have been seriously escalating. Driver pay represents the largest single component. Trucking capacity growth has remained under pressure from widespread driver shortages. Some estimates put the national driver shortages at 20,000, with as many as 500,000 new drivers needed over the next decade to offset retirements and to satisfy basic economic expansion. Not surprisingly, driver turnover for larger truckload carriers during 2005 reached close to record highs of 129%, and accident frequency and turnover remain closely correlated. Liability insurance, workers compensation insurance and group health claims rival fuel for the next largest category of operating expense. Health cost increases for businesses have continued to climb at double-digit rates. Liability insurance markets have only recently begun to soften though after-effects from the 2005 hurricane season could alter this picture. Trucking companies must continue to improve their safety programs to remain insurable and therefore viable. Diesel fuel costs across the nation continued to set new record highs throughout much of the summer and fall together with serious pricing and availability impacts resulting from Hurricane Katrina. This incessant pounding from spiking fuel costs contributed directly to accelerating business failures among trucking companies, which further compounded capacity constraint. Trucking bankruptcies and rapidly rising diesel fuel costs have generally been closely correlated over a number of years. New equipment prices for tractors and trailers climbed substantially during the year in reaction to intense national and world demand for commodities, especially steel, iron, copper and aluminum plus tire prices from record crude oil levels. In addition, periodic EPA mandates (next effective for 2007 engines) for lower engine sulfur emissions also contributed to higher Class 8 tractor prices while lowering mileage efficiency and adding to fuel expense. The encouraging offsets at Patriot to these challenges have been a continuing strong demand and pricing climate coupled with excellent leadership and teamwork at both Florida Rock & Tank Lines, Inc. and SunBelt Transport, Inc. New, comprehensive accident prevention programs were installed within both subsidiaries. Specific targets for Accident Frequency Ratios ("AFR's"-incidents per million miles traveled) were established when Fiscal 2005 began. These targets were tied directly to the Company's annual cash incentive compensation program from the CEO of Patriot Transportation Holding, Inc. down through virtually all operating and managerial levels of each transportation subsidiary. AFR targets for each subsidiary represented material reductions from prior years and were intended to be "stretch" goals. Each company achieved their targets, and the program has been incorporated again for Fiscal 2006 into Patriot's annual management bonus plan. Freight rate prices have been, and will continue to be, aggressively expanded by each company, including appropriate adjustments to fuel price surcharges. Severe diesel fuel escalation has been mostly offset within the Transportation Group. Driver recruitment/retention will remain a challenge. Additional full-time recruiters, supported by new electronic information software, have been added. Driver pay and benefits have been expanded, with special attention to quality-of-life issues for our drivers. We value and appreciate our drivers, and we want them to know this. Finally, equipment utilization continued to improve following similar results in Fiscal 2004. Annual revenue per driver and per tractor climbed again at both Florida Rock & Tank Lines, Inc. and SunBelt Transport, Inc. Replacement and expansion rolling stock is on order, and the Transportation Group maintains a healthy balance sheet with no debt. Real Estate Group Continued warehouse/office portfolio expansion, increased permitting/horizontal development preparation at Bird River, and focus toward final development zoning for the Company's 5.8 acre site in Washington, D.C. describe primary activities of the Real Estate Group during Fiscal 2005. Scouting undeveloped land parcels for expansion and implementation of a major repair and expenditure program for the existing portfolio also characterized the year. The Group's most recent portfolio expansion, a 145,180 square foot warehouse/office, was completed and placed in service during the fourth quarter. This new building is located within the Group's Hillside Business Park near the Baltimore-Washington International Airport. The project was a build-to-suit now under long-term lease. This new building required a great deal of construction-related sophistication. It increased the Group's total developed portfolio by almost 7% to 2,332,000 square feet that was 86.8% occupied at fiscal year-end. The new addition will increase annualized lease revenues from total developed buildings by about 14%. Pre-development activities increased during the year in support of both the commercial and residential components of the Group's 104 developable acres near Bird River in southeastern Baltimore County. Residential lots to be developed are under contract to be sold to a major national homebuilder. An additional 515,000 square feet of warehouse/office capacity is slated for development on approximately 42 acres within the larger site. A great deal of effort continues to be expended toward final development zoning approval for the Company's 5.8 acre undeveloped site located on the Anacostia River in southeastern Washington, D.C. The Company is requesting approval of a modified Planned Unit Development ("PUD") providing for a maximum commercial density of 625,000 square feet and residential density of 440,000 square feet. The new zoning, if approved, would allow 2 years for development to commence. Amidst these re-zoning efforts, Major League Baseball and local elected officials announced agreement in 2005 whereby a major league team would re-locate to the District and eventually play its home games in a proposed new stadium there. The proposed location of this new stadium is currently planned for Washington's southeastern quadrant near the Company's 5.8 acre parcel. The Company continues to follow this development and assess its impact on the Company's development plans. As for other real estate activities, asset management efforts remain underway for various undeveloped land parcels within the Company's ownerships. Regarding developed portfolio growth, a new warehouse/office project, 7020 Dorsey Road is now underway. This 83,232 square foot building will be constructed within the Group's Hillside Business Park. Conclusion Fiscal 2005 represented a period of real progress for all of us at Patriot. Targeted efforts will continue aimed at developing and enhancing the most critical asset never seen on our balance sheet - our organization. We therefore want to extend our continuing appreciation to the people of Patriot, our customers and our shareholders for your commitment and support. Respectfully yours, Edward L. Baker Chairman John E. Anderson President & Chief Executive Officer OPERATING PROPERTIES Transportation. During Fiscal 2005, the Company's transportation group operated through two wholly owned subsidiaries. Florida Rock & Tank Lines, Inc. (Tank Lines) is engaged in hauling petroleum and other liquid and dry bulk commodities in tank trucks. SunBelt Transport, Inc. (SunBelt) is engaged primarily in hauling building and construction materials on flatbed trailers. Tank Lines operated from terminals in Jacksonville, Orlando, Panama City, Pensacola, Port Everglades, Tampa and White Springs, Florida; Albany, Atlanta, Augusta, Bainbridge, Columbus, Dalton, Macon and Savannah, Georgia; Knoxville, Tennessee; and Charlotte and Wilmington, North Carolina. SunBelt's flatbed fleet is based in Jacksonville and Tampa, Florida; Atlanta and Savannah, Georgia; South Pittsburg, Tennessee; and Mobile, Alabama and operates primarily in the Southeastern U.S. At September 30, 2005, the transportation group owned and operated a fleet of 604 trucks, and owned a fleet of 917 trailers. During Fiscal 2005, the transportation group purchased 105 new tractors and 87 new trailers and had commitments to purchase an additional 77 tractors and 26 trailers at September 30, 2005. The Fiscal 2006 capital expenditure plan is based on maintaining a modernized tank and flatbed fleet and includes the purchase of approximately 52 new tractors and 84 new trailers in addition to the equipment under commitment at September 30, 2005. The fleet modernization program has resulted in reduced maintenance expenses, improved operating efficiencies and enhanced driver recruitment and retention. Real Estate. The real estate group operates the Company's real estate and property development activities through subsidiaries. The Company owns real estate in Florida, Georgia, Virginia, Maryland, Delaware and Washington, D.C. The real estate owned generally falls into one of three categories: (i) land and/or buildings leased under rental agreements or being developed for rental; (ii) land with construction aggregates deposits, substantially all of which is leased to Florida Rock Industries, Inc. (FRI) under mining royalty agreements, whereby the Company is paid a percentage of the revenues generated or annual minimums; and, (iii) land held for future appreciation or development. At September 30, 2005, the Company owned 10 parcels of land containing 404 usable acres in the Mid-Atlantic region of the United States as follows: 1) Hillside Business Park in Anne Arundel County, Maryland consists of 49 usable acres near the Baltimore-Washington International Airport. The Company plans to develop approximately 540,000 square feet of warehouse/office space on this site. Infrastructure work on the site is substantially completed and three buildings with a total of 419,980 square feet are completed and leased, each to a single tenant. Current plans are to construct an additional 80,000 square feet of warehouse/office space in late fiscal 2006. 2) Lakeside Business Park in Harford County, Maryland consists of 83 usable acres. Seven warehouse/office buildings, totaling 671,550 square feet, have been constructed and are 94% leased. The remaining 31 acres are available for future development and will have the potential to offer an additional 485,000 square feet of comparable product. 3) 6920 Tudsbury Road in Baltimore County, Maryland contains 5.3 acres with 86,100 square feet of warehouse/office space that is 100% leased. 4) 8620 Dorsey Run Road in Howard County, Maryland contains 5.8 acres with 84,600 square feet of warehouse/office space. The lessee at Dorsey Run vacated the premises at the end of its lease term on December 31, 2004. An agreement has been executed to lease 40,000 square feet to commence on January 1, 2006. 5) Rossville Business Center in Baltimore County, Maryland contains approximately 10 acres with 190,517 square feet of warehouse/office space and is 87% leased. 6) 34 Loveton Circle in suburban Baltimore County, Maryland contains 8.5 acres with 29,722 square feet of office space which is 100% leased. The Company occupies 24% of the space and 23% is leased to FRI's subsidiary Arundel. 7) Oregon Business Center in Anne Arundel County, Maryland contains approximately 17 acres with 195,615 square feet of warehouse/office space which is 92% leased. 8) Arundel Business Center in Howard County, Maryland contains approximately 11 acres with 162,796 square feet of warehouse/office space, which is 71% leased. 9) 100-400 Interchange Boulevard in New Castle County, Delaware contains approximately 17 acres with 303,006 square feet of warehouse/office space which is 68% leased. 10) 1187 Azalea Garden Road in Norfolk, Virginia contains approximately 12 acres with 188,093 square feet of warehouse/office space which is 100% leased. Future Planned Developments. The Bird River property, located in southeastern Baltimore County, Maryland, is a 179-acre tract of land that will have direct access to Maryland State Road 43 intended to connect I-95 with Martin State Airport. This property is currently zoned for residential and commercial use with 104 developable acres. The Company plans to develop and lease approximately 515,000 square feet of multiple warehouse/office buildings on the 42 developable acres zoned for commercial use. A subsidiary of the Company has entered into an agreement to develop and sell to a major national homebuilder a minimum of 292 residential lots on the residential portion of the Bird River Property. The agreement is subject to a number of contingencies, including (i) the approval by Baltimore County of a Planned Unit Development (PUD) by July 1, 2006 allowing the development of a minimum of 292 residential lots, (ii) the construction of Route 43, (iii) vehicular, water and sewer connection access to the property by July 1, 2007 at what the subsidiary deems to be a commercially reasonable cost, and (iv) other customary conditions precedent. Assuming that these conditions are satisfied and the development proceeds, the agreement provides for a minimum aggregate purchase price for these lots of $28,705,000. 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 FRI and Patriot 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 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. The Company owns a 5.8 acre parcel of undeveloped real estate in the southeast quadrant of Washington, D.C. that fronts the Anacostia River and a nearby 2.1 acre tract on the same bank of the Anacostia River. Currently, these properties are leased to FRI on a month-to-month basis. For several years, the Real Estate Group has been pursuing development efforts with respect to the 5.8 acre parcel. The Company previously obtained Planned Unit Development (PUD) Zoning approval for development of the property and has been working to obtain approval of a modified PUD that would allow up to 625,000 square feet of commercial development and up to 440,000 square feet of residential development. If the modified PUD is approved, the Company would have up to two years to commence development in accordance with the modified PUD. The development of this property is likely to be impacted, at least to some degree, by the proposed construction on nearby property of a new baseball stadium for the Washington Nationals baseball team. While the Company currently believes that the construction of this proposed stadium would be a positive development for the property, the Company cannot yet determine the potential impact on its development plans if the stadium is built at the proposed location. The Company will monitor ongoing developments relating to the stadium while continuing to pursue its existing plans to develop the property. The Company owns a 50-acre, rail accessible site on Commonwealth Avenue in Jacksonville, Florida near the western beltway of Interstate-295 capable of supporting approximately 500,000 square feet of eventual warehouse/office build-out. Five Year Summary-Years ended September 30 (Dollars and shares in thousands except per share amounts) 2005 2004 2003 2002 2001 (restated)(restated)(restated)(restated) Summary of Operations: Revenues(a) $131,036 115,789 102,561 95,898 119,206 Gross profit(b) $ 24,993 22,482 17,590 20,008 20,850 Operating profit $ 15,191 13,430 9,437 11,879 6,936 Interest expense $ 3,276 3,907 3,497 3,164 3,394 Income from continuing operations $ 7,609 6,096 3,627 5,332 2,171 Per Common Share: Basic $ 2.58 2.08 1.19 1.70 .69 Diluted $ 2.50 2.05 1.18 1.68 .69 Discontinued operations $ - 14,644 1,023 516 665 Net income $ 7,609 20,740 4,650 5,848 2,836 Per Common Share: Basic $ 2.58 7.08 1.53 1.86 .90 Diluted $ 2.50 6.97 1.51 1.85 .90 Financial Summary: Current assets $ 19,569 30,066 13,965 11,490 16,248 Current liabilities $ 16,221 23,099 11,220 11,972 16,728 Property and equipment, net $164,936 149,011 139,379 138,367 131,170 Total assets $193,715 186,821 166,643 156,769 153,753 Long-term debt $ 48,468 41,185 57,816 47,290 47,097 Shareholders' equity $107,901 98,972 78,914 79,970 73,729 Net Book Value Per common Share $ 36.39 33.79 26.91 25.31 23.48 Other Data: Weighted average common shares - basic 2,950 2,931 3,033 3,143 3,157 Weighted average common shares - diluted 3,039 2,976 3,066 3,165 3,158 Number of employees 903 908 845 861 850 Shareholders of record 679 702 745 767 788 The financial data presented above has been revised to reflect a restatement. For information with respect to the restatement, see Note 2 of notes to the accompanying consolidated financial statements. (a) Fiscal 2001 includes revenues of $22,623,000 and operating losses of $6,309,000, attributed to Patriot Transportation, Inc. which ceased operations in September, 2001. (b) Fiscal 2003, 2002, and 2001 include gains on the sale of real estate of $47,000, $323,000, and $2,886,000, respectively. Quarterly Results (Restated for 2005)(unaudited) (Dollars in thousands except per share amounts) First Second Third Fourth 2005 2004 2005 2004 2005 2004 2005 2004 Revenues $31,419 27,684 32,059 28,386 33,106 29,670 34,452 30,049 Gross profit $ 5,962 5,223 5,714 5,008 6,852 5,989 6,465 6,262 Income from continuing Operations $ 1,684 1,231 1,573 1,248 2,140 1,913 2,212 1,704 Discontinued Operations $ - 87 - 5,727 - 9,041 - (211) Net income $ 1,684 1,318 1,573 6,975 2,140 10,954 2,212 1,493 Basic earnings per common share: Income from continuing Operations $ .57 .42 .53 .43 .72 .65 .75 .58 Discontinued Operations - .03 - 1.95 - 3.09 - (.07) Net income $ .57 .45 .53 2.38 .72 3.74 .75 .51 Diluted earnings per common share: Income from continuing operations $ .56 .41 .52 .42 .70 .64 .72 .57 Discontinued operations - .03 - 1.92 - 3.04 - (.07) Net income $ .56 .44 .52 2.34 .70 3.68 .72 .50 Market price per common share: High $44.99 33.90 53.92 37.50 52.76 37.72 68.70 34.02 Low $32.15 28.65 42.46 30.00 42.70 30.51 52.45 31.74 The financial data presented above has been revised to reflect a restatement of amounts previously reported for the 2005 quarters. For information with respect to the restatement, see Note 2 of notes to the accompanying consolidated financial statements. Quarterly Results for the Year Ended September 30, 2005 First Second Third As As As Previously As Previously As Previously As Reported_Restated_Reported Restated Reported Restated Revenues $31,374 31,419 32,014 32,059 33,061 33,106 Gross Profit 5,917 5,962 5,669 5,714 6,807 6,852 Income from continuing operations 1,656 1,684 1,545 1,573 2,112 2,140 Net income 1,656 1,684 1,545 1,573 2,112 2,140 Earnings per common share: Basic .56 .57 .52 .53 .71 .72 Diluted .55 .56 .51 .52 .69 .70 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Executive Overview Patriot Transportation Holding, Inc. (the Company) is a holding company engaged in the transportation and real estate businesses through wholly owned subsidiaries. The Company's transportation business operates through two subsidiaries: Florida Rock & Tank Lines, Inc. (Tank Lines) is engaged in hauling primarily petroleum related bulk liquids and dry bulk commodities in tank trailers. SunBelt Transport, Inc. (SunBelt) is engaged in hauling primarily building and construction materials on flatbed trailers. The Company's real estate business is operated through two subsidiaries: Florida Rock Properties, Inc. and FRP Development Corp. The Company owns real estate in Florida, Georgia, Virginia, Maryland, Delaware and Washington, D.C. The real estate owned generally falls into one of three categories: (i) land and/or buildings leased under rental agreements or being developed for rental; (ii) land with construction aggregates deposits, substantially all of which is leased to Florida Rock Industries, Inc. under mining royalty agreements, whereby the Company is paid a percentage of the revenues generated or annual minimums; and, (iii) land held for future appreciation or development. The Company is a related party to Florida Rock Industries, Inc. (FRI) because four of the Company's directors are also directors of FRI and such directors own approximately 26.1% of the stock of FRI and 49.5% of the stock of the Company. The Company derived 5.1% of its consolidated revenue from FRI in fiscal 2005. Fiscal 2005 showed growth in income from continuing operations but a decrease in net income due to gains from discontinued operations in the previous year. Income from continuing operations was $7,609,000 or $2.50 per diluted share in fiscal 2005, an increase of 24.8% compared to $6,096,000 or $2.05 per diluted share in fiscal 2004. This increase was generated primarily from the revenue growth in both the transportation segment and developed properties while fixed expenses remained steady. Net income decreased to $7,609,000 in fiscal 2005 from $20,740,000 in 2004, primarily as a result of the sales of properties classified as discontinued operations in 2004. Three properties were sold to FRI during 2004, which resulted in an after tax gain of $14,456,000. 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. There were no differences related to corrections reported in the consolidated statements of income or cash flows for the year ended September 30, 2004. 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 also affected periods prior to fiscal 2003 and those periods have been restated where presented. The restatement corrects our historical lease accounting practices. See Note 2 of the accompanying Notes to Consolidated Financial Statements for more information. We did not amend our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the restatement, and the financial statements and related financial information contained in such reports should no longer be relied upon. Transportation. The Company generates transportation revenue by providing over the road hauling services for customers primarily in the petroleum products (Tank Lines) and building construction materials industry (SunBelt). The majority of our petroleum products customers are major oil companies and convenience store chains, who sell gasoline or diesel fuel directly to the retail market. Our customers in the building construction industries are generally the manufacturer of the products who contract with us to deliver goods to their customers or within their distribution systems. Our customers generally pay for services based on miles driven. We also bill for other services that may include stop-offs, pump-offs, and load tarping. Additionally, we may bill customers a fuel surcharge that relates to the fluctuations in diesel fuel costs. Miles hauled and rates per mile are the primary factors impacting transportation revenue. Generally, changes in miles or rates will affect revenue. Given the large increases in diesel fuel costs over the past 30 months, fuel surcharges have become a critical factor affecting overall transportation revenue. On long-haul trips we generally bill for miles driven while under load. We calculate and monitor weekly a loaded mile factor, which is the ratio of loaded miles to total miles. A decrease in the loaded mile factor will have a negative effect on operating profit. SunBelt is acutely affected by the loaded mile factors, as the majority of its trips are medium-haul (approximately 350 miles). Tank Lines, on the other hand, primarily engages in short-haul (approximately 95 miles) out-and-back deliveries and generally is paid for round trip miles. Operating safely, efficient equipment utilization, appropriate freight rates, and driver retention are the most critical factors in maintaining profitable operations. Statistics related to these factors are monitored weekly and monthly. Operating expenses are generally split evenly between variable (driver pay, fuel, and maintenance) and fixed costs (overhead, insurance and depreciation). As a result, increases in revenue will generally improve our operating ratios. During Fiscal 2005 we saw record diesel fuel costs as well as a continuation of rising liability, workers compensation and health care insurance costs. Due to related decreases in capacity in the trucking industry and increased freight demand, we have been successful in increasing freight rates and fuel surcharges. We are monitoring legislative changes affecting the trucking industry, notably hours-of-service rules and increased driver qualifications for hazardous material transporting, to determine the effect on our operations. Real Estate. The Company owns real estate in Florida, Georgia, Virginia, Maryland, Delaware, and Washington, D.C. The real estate owned generally falls into one of three categories: (i) land and/or buildings leased under rental agreements or being developed for rental; (ii) land with construction aggregates deposits; and (iii) land held for future appreciation or development. Revenue from land and/or buildings under rental agreements is generated primarily from leasing our portfolio of flex office/warehouse buildings. Our flex office/warehouse product is a functional warehouse with the ability to configure portions as office space as required by our tenants. We lease space to tenants who generally sign multiple year agreements. Growth is achieved by increasing occupancy and lease rates in existing buildings and by developing or acquiring new warehouses. We attempt to develop or purchase properties in areas that have high growth potential and are accessible to major interstates or other distribution lanes. The following table shows the total developed square footage and occupancy rates of our flex office/warehouse parks at September 30, 2005: Total Development Location Sq. feet % Occupied Hillside Anne Arundel Co., MD 419,980 100.0% Lakeside Harford Co., MD 671,550 93.6% Tudsbury Baltimore Co., MD 86,100 100.0% Dorsey Run (1) Howard Co., MD 84,600 0.0% Rossville Baltimore Co., MD 190,517 87.0% Loveton Baltimore Co., MD 29,722 100.0% Oregon Anne Arundel Co., MD 195,615 92.5% Arundel Howard Co., MD 162,796 71.4% Interchange New Castle Co., DE 303,006 68.5% Azalea Garden Norfolk, VA 188,093 100.0% 2,331,979 86.8% (1) An agreement has been executed to lease 40,000 square feet commencing on January 1, 2006. In addition to the completed buildings, land is available to construct additional buildings at Hillside Business Park (120,000 square feet) and Lakeside Business Park (485,000 square feet). Current plans are to complete construction of an additional 80,000 square feet at Hillside in fiscal 2006. We also own a portfolio of mineable land, substantially all of which is leased to FRI under long-term mining royalty agreements, whereby we are paid a percentage of the revenues generated from mined product sold or annual minimum rents. The mines primarily consist of construction aggregates, such as stone and sand and calcium deposits. Properties held for future development include: Bird River in southeastern Baltimore County is a 179-acre tract currently zoned for residential and commercial use with 104 developable acres. The Company has a contract to develop and sell to a major national homebuilder a minimum of 292 residential lots. The Company plans to develop approximately 515,000 square feet of multiple warehouse/office buildings on the 42 developable acres zoned for commercial use. The Company owns a 5.8 acre parcel of undeveloped real estate in the southeast quadrant of Washington, D.C. that fronts the Anacostia River and a nearby 2.1 acre tract on the same bank of the Anacostia River. Currently, these properties are leased to FRI on a month-to-month basis. For several years, the Real Estate Group has been pursuing development efforts with respect to the 5.8 acre parcel. The Company previously obtained Planned Unit Development (PUD) Zoning approval for development of the property and has been working to obtain approval of a modified PUD that would allow up to 625,000 square feet of commercial development and up to 440,000 square feet of residential development. If the modified PUD is approved, the Company would have up to two years to commence development in accordance with the modified PUD. The development of this property is likely to be impacted, at least to some degree, by the proposed construction on nearby property of a new baseball stadium for the Washington Nationals baseball team. While the Company currently believes that the construction of this proposed stadium would be a positive development for the property, the Company cannot yet determine the potential impact on its development plans if the stadium is built at the proposed location. The Company will monitor ongoing developments relating to the stadium while continuing to pursue its existing plans to develop the property. Commonwealth Avenue is a 50-acre, rail accessible site in Jacksonville, Florida near the western beltway of Interstate-295 capable of supporting approximately 500,000 square feet of warehouse/office build-out. COMPARATIVE RESULTS OF OPERATIONS Transportation Fiscal Years ended September 30 (dollars in thousands) 2005 % 2004 % 2003 % Transportation revenue $101,934 90% 94,786 95% 85,028 97% Fuel surcharges 10,890 10% 4,638 5% 2,968 3% Revenues 112,824 100% 99,424 100% 87,996 100% Compensation and benefits 44,185 39% 40,779 41% 37,192 42% Fuel expenses 21,555 19% 14,779 15% 12,320 14% Insurance and losses 11,925 11% 11,462 12% 11,144 13% Depreciation expense 7,920 7% 7,875 8% 8,171 9% Other, net 12,499 11% 11,317 11% 10,129 12% Cost of operations 98,084 87% 86,212 87% 78,956 90% Gross profit $ 14,740 13% 13,212 13% 9,040 10% The Transportation group's goals for 2005 were to operate safely, improve freight rates and fuel surcharges, recruit and retain qualified drivers and maximize equipment utilization. Revenues 2005 vs 2004 - Transportation segment revenues were $112,824,000, an increase of $13,400,000 or 13.5% over last year. The average price paid per gallon of diesel fuel increased $0.55 over 2004 and as a result fuel surcharge revenue increased $6,252,000. Excluding fuel surcharges, revenue per mile increased 5.1%, reflecting better pricing for our services. Revenue miles in the current year were up 2.3% compared to 2004 and were constrained by low driver availability. Revenues 2004 vs 2003 - Transportation segment revenues were $99,424,000, an increase of $11,428,000 or 13.0% over 2003. Transportation revenues increased $6,937,000 mostly due to an 8.8% increase in revenue miles, reflecting increased customer demand for transportation services. The increased demand also allowed better pricing for our services and as a result, average revenue per mile excluding fuel surcharge increased 2.5%. The average price paid per gallon of diesel fuel increased $0.17 and as a result fuel surcharge revenue increased $1,670,000. Expenses 2005 vs 2004 - Transportation's cost of operations increased $11,872,000 to $98,084,000 in 2005, compared to $86,212,000 in 2004. The primary factors for the increase were increased miles, higher diesel fuel costs and an increase in risk insurance costs. Average diesel fuel cost per gallon increased 36.2% in 2005 compared to 2004. Compensation and benefits were higher as a result of increased revenue miles and higher driver pay. As a percent of revenue cost of operations remained constant. Expenses 2004 vs 2003 - Transportation's cost of operations increased $7,256,000 to $86,212,000 in 2004, compared to $78,956,000 in 2003. The 9.2% increase was primarily due to an increase in driver compensation and increased fuel costs related to increased miles and a $.17 increase in the average price paid per gallon of diesel fuel from 2003 to 2004. Real Estate Fiscal Years ended September 30 (dollars in thousands) 2005 % 2004 % 2003 % (restated) (restated) Royalties and rent $ 6,143 34% 5,822 36% 5,572 39% Developed property rentals 12,069 66% 10,543 64% 8,925 61% Property sales - 0% - 0% 68 0% Total revenue 18,212 100% 16,365 100% 14,565 100% Mining and land rent expenses 1,378 8% 1,887 12% 1,806 12% Developed property management 6,581 36% 5,208 32% 4,188 29% Cost of property sold - 0% - 0% 21 0% Cost of operations 7,959 44% 7,095 43% 6,015 41% Gross profit $ 10,253 56% 9,270 57% 8,550 59% Revenues 2005 vs 2004 - Real Estate revenues increased $1,847,000 or 11.3% in 2005 to $18,212,000. Lease revenues from developed properties increased $1,526,000 or 14.5% due to an increase in occupied square feet resulting from the completion of a pre-leased 74,600 square foot building in January 2005, the purchase of a fully leased 188,000 square foot building in October 2004, and the completion of a pre-leased 145,180 square foot building in July 2005. Royalties from mining operations increased 5.5% during 2005 as a result of increased royalties per ton. Revenues 2004 vs 2003 - Real Estate revenues increased $1,800,000 or 12.4% in 2004 to $16,365,000. Lease revenues from developed properties increased 18.1% due to the completion of a 200,200 square foot building at the Hillside Business Park in late fiscal 2003 and the purchase of a 151,000 square foot building at Interchange Boulevard in Newark, Delaware in March of 2004. Both were fully leased during the year. Royalties from mining operations increased 4.5% during 2004. Expenses 2005 vs 2004 - Real Estate segment expenses increased slightly to $7,959,000 in 2005, compared to $7,095,000 in 2004. Expenses related to development activities increased as a result of the new building additions. Expenses 2004 vs 2003 - Real Estate cost of operations increased $1,080,000 to $7,095,000 in 2004, compared to $6,015,000 in 2003. The increase is due primarily to operating expenses related to the completed building at Hillside and the two purchased buildings at Interchange Boulevard. Consolidated Results Gross Profit - Consolidated gross profit was $24,993,000 in 2005 compared to $22,482,000 in 2004, an increase of 11.2%. Consolidated gross profit was $22,482,000 in 2004 compared to $17,590,000 in 2003, an increase of 27.8%. Selling, general and administrative expense - Selling, general and administrative expenses for 2005 increased $750,000 to $9,802,000 or 7.5% of consolidated revenues. The increase was due to professional fees, management incentive compensation, and additional staffing. Selling, general and administrative expenses for 2004 increased $899,000 or 11% to $9,052,000 or 7.8% of consolidated revenues, primarily due to the accrual of management incentive compensation, which is based on the Company achieving certain profitability targets. Interest expense - Interest expense for 2005 decreased $631,000 to $3,276,000 due to prepayment in 2004 of high rate long-term debt and lower average borrowings under the revolving credit agreement. Interest expense increased $410,000 in 2004 from 2003 due to lower capitalized interest cost and higher average interest rates. Income taxes - Income tax expense increased $457,000 to $4,336,000 compared to $3,879,000 in 2004. This is due to higher earnings before taxes, partially offset by a decrease in the effective tax rate to 36.3% versus 39.0% last year. The decrease in the effective tax rate was due to a $203,000 reduction in state income tax reserves from the expiration of certain contingencies. Income tax expense increased $1,561,000 to $3,879,000 in 2004 compared to $2,318,000 in 2003 due to higher earnings in 2004. Income from continuing operations - Income from continuing operations was $7,609,000 or $2.50 per diluted share in fiscal 2005, an increase of 24.8% compared to $6,096,000 or $2.05 per diluted share in fiscal 2004. Income from continuing operations increased 68.1% in 2004 from $3,627,000 or $1.18 per diluted share in fiscal 2003. Discontinued Operations - The Company had one sale of real estate in 2003 and three sales of real estate in 2004 which have been accounted for as discontinued operations, in accordance with SFAS 144. The income from the operations and gains on sale of these components have been reflected in the consolidated income statement as income from discontinued operations, net of income taxes. The after-tax gain from the sale of the properties in 2004 and 2003 was $14,456,000 and $657,000, respectively. The after-tax net income from the operations of the sold properties was $188,000 and $366,000 for 2004 and 2003, respectively. Net income - Net income decreased to $7,609,000 in fiscal 2005 from $20,740,000 in 2004 as a result of the gains from property sales in 2004 classified as discontinued operations. Fiscal 2004 net income was up from $4,650,000 in 2003 due to the improved results from continuing operations and the property sales. Diluted earnings per share decreased to $2.50 in fiscal 2005 from $6.97 in 2004, and were $1.51 in 2003. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities in 2005 was $10,535,000, which together with $1,377,000 from the sales of property and equipment, $16,553,000 of cash released from escrow, $877,000 in stock options exercised and $7,003,000 in additional long-term borrowings, funded the $28,574,000 purchase of property and equipment, and the $5,004,000 reduction in revolving debt and amortization of long-term debt. Net cash provided by operating activities during 2004 was $17,050,000, which together with $30,600,000 from sales of property and equipment and $11,213,000 in additional borrowings, funded the $21,969,000 purchase of property and equipment, $21,673,000 in reduction of debt, and the repurchase of $2,510,000 of Company stock. During 2003 and 2004 the Company sold four properties for $31,464,000 in cash, resulting in before tax gains of $24,729,000. The net proceeds of $31,172,000 from the sale of these properties were placed in escrow in anticipation of utilizing the funds to purchase replacement property in tax deferred exchanges under IRC Section 1031. Due to a competitive real estate market for suitable exchange properties, not all of the gains resulting from the property sales could be utilized under Section 1031. During fiscal 2004, $11,417,000 was used in qualified exchanges and $3,265,000 was released from escrow for general use leaving a balance in escrow of $16,553,000 at September 30, 2004. On October 1, 2004, $7,150,000 of the escrowed funds were used in a qualified exchange and the remaining funds of $9,340,000 were released for general use. The Company obtained an $8,500,000 mortgage loan secured by a building completed in 2003 and also obtained construction financing for an ongoing project. Draws on the construction financing totaled $9,716,000 at September 30, 2005. These borrowings, combined with operating cash flows helped the Company reduce amounts borrowed under the revolver to zero. The Company has a $37,000,000 revolving credit agreement (the Revolver) of which $37,000,000 was available at fiscal year end. The Revolver contains restrictive covenants including limitations on paying cash dividends. Under these restrictions, as of September 30, 2005, $18,880,000 of consolidated retained earnings was available for payment of dividends. The Revolver was set to expire on December 31, 2004 but on November 10, 2004 was amended and restated with essentially the same terms and conditions except that the termination date was extended to December 31, 2009. The Company had $14,739,000 of irrevocable letters of credit outstanding at September 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 may arise. No shares were repurchased during Fiscal 2005. During Fiscal 2004, the company repurchased 77,533 shares for approximately $2,510,000 at an average price of $32.37 per share. At September 30, 2005 the Company had $3,490,000 authorized for repurchase of shares. The Company currently expects its Fiscal 2006 capital expenditures to be approximately $42,000,000 ($26,000,000 for real estate development expansion and $16,000,000 for transportation segment expansion and replacement equipment). Depreciation and depletion expense will be approximately $12,905,000. The Company expects to finance the expenditures from the cash flows from operating activities, secured financing on new real estate projects, and the $37,000,000 available under its revolving credit agreement. OFF-BALANCE SHEET ARRANGEMENTS Except for the letters of credit described above under "Liquidity and Capital Resources," the Company does not have any off balance sheet arrangements that either have, or are reasonably likely to have, a current or future material effect on its financial condition. CRITICAL ACCOUNTING POLICIES Management of the Company considers the following accounting policies critical to the reported operations of the Company: Accounts Receivable Valuation. The Company is subject to customer credit risk including bankruptcies that could affect the collection of outstanding accounts receivable and straight-lined rents. To mitigate these risks, the Company performs credit reviews on all new customers and periodic credit reviews on existing customers. A detailed analysis of late and slow pay customers is at least prepared monthly and reviewed by senior management. The overall collectibility of outstanding receivables and straight-lined rents is evaluated and allowances are recorded as appropriate. Revenue and Expense Recognition. Transportation revenue, including fuel surcharges, is recognized when there is an agreement in place, the services have been rendered to customers or delivery has occurred, the pricing is fixed or determinable and collectibility is reasonably assured. Transportation expenses are recognized as incurred. Real estate rental revenue and mining royalties are generally recognized when earned under the leases. Rental income from leases with scheduled increases during their term is recognized on a straight-line basis over the term of the lease. Reimbursements of expenses, when provided in the lease, are recognized in the period that the expenses are incurred. Sales of real estate are recognized when the collection of the sales price is reasonably assured and when the Company has fulfilled substantially all of its obligations, which are typically as of the closing date. Property and Equipment. Property and equipment is recorded at cost less accumulated depreciation. Provision for depreciation of property, plant and equipment is computed using the straight-line method based on the following estimated useful lives: Years Buildings and improvements 7-39 Revenue equipment 7-10 Other equipment 3-10 Depletion of sand and stone deposits is computed on the basis of units of production in relation to estimated reserves. The Company periodically reviews property and equipment and intangible assets for potential impairment. If this review indicated that the carrying amount of the asset may not be recoverable, the Company would estimate the future cash flows expected with regards to the asset and its eventual disposition. If the sum of these future cash flows (undiscounted and without interest charges) is less than the carrying amount of the assets, the Company would record an impairment loss based on the fair value of the asset. The Company performs an annual impairment test on goodwill. All direct and indirect costs, including interest and real estate taxes, associated with the development, construction, leasing or expansion of real estate investments are capitalized as a cost of the property. Included in indirect costs is an estimate of internal costs associated with development and rental of real estate investments. All external costs associated with the acquisition of real estate investments are capitalized as a cost of the property. Risk Insurance. The nature of the Transportation business subjects the Company to risks arising from workers' compensation, automobile liability, and general liability claims. The Company retains the exposure on certain claims of $250,000 to $500,000 and has third party coverage for amounts exceeding the retention. The Company expenses during the year an estimate of risk insurance losses. Periodically, an analysis is performed, using historical and projected data, to determine exposure for claims incurred but not reported. On an annual basis the Company obtains an independent actuarial analysis. The Company attempts to mitigate losses from insurance claims by maintaining safe operations and providing mandatory safety training. Real Estate Investments. All direct and indirect costs, including interest and real estate taxes associated with the development, construction, leasing or expansion of real estate investments are capitalized as a cost of the property. Included in indirect costs is an estimate of internal costs associated with development and rental of real estate investments. All external costs associated with the acquisition of real estate investments are capitalized as a cost of the property. CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations as of September 30, 2005: Payments due by period Less than 1-3 3-5 More than Total 1 year years years 5 years Debt Including Interest $81,088 6,023 11,998 12,014 51,053 Operating Leases 519 296 223 - - Purchase Commitments 8,167 8,167 - - - Other Long-Term Liabilities 1,030 87 174 174 595 Total obligations $90,804 14,573 12,395 12,188 51,648 INFLATION Historically, the Company has been able to recover inflationary cost increases in the transportation group through increased freight rates. It is expected that over time, justifiable and necessary rate increases will be obtained. Substantially all of the Company's royalty agreements are based on a percentage of the sales price. Minimum royalties and substantially all lease agreements provide escalation provisions. FORWARD LOOKING STATEMENTS Certain matters discussed in this report contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from 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 other risk factors 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 qualifications and hours of service; availability and terms of financing; freight demand for petroleum products and for building and construction materials in the Company's markets; risk insurance markets; competition; general economic conditions; demand for flexible warehouse/office facilities; 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. CONSOLIDATED STATEMENTS OF INCOME - Years ended September 30 (In thousands except per share amounts) 2005 2004 2003 (restated) (restated) Revenues: Transportation $112,824 99,424 87,996 Real estate 18,212 16,365 14,497 Sale of real estate - - 68 Total revenues (including revenue from related parties of $6,728, $7,623 and $7,305, respectively) 131,036 115,789 102,561 Cost of operations: Transportation 98,084 86,212 78,956 Real estate 7,959 7,095 5,994 Cost of real estate sold - - 21 Gross profit 24,993 22,482 17,590 Selling, general and administrative expense (including expenses paid to related party of $174, $372 and $440, respectively) 9,802 9,052 8,153 Operating profit 15,191 13,430 9,437 Interest income and other 30 452 5 Interest expense (3,276) (3,907) (3,497) Income from continuing operations before income taxes 11,945 9,975 5,945 Provision for income taxes 4,336 3,879 2,318 Income from continuing operations 7,609 6,096 3,627 Discontinued operations (Note 4): Income from operations, net of tax - 188 366 Gain on sale of properties, net of tax - 14,456 657 Discontinued operations - 14,644 1,023 Net income $ 7,609 20,740 4,650 Basic earnings per common share: Income from continuing operations $ 2.58 2.08 1.19 Discontinued operations - 5.00 .34 Net income $ 2.58 7.08 1.53 Diluted earnings per common share: Income from continuing operations $ 2.50 2.05 1.18 Discontinued operations - 4.92 .33 Net income $ 2.50 6.97 1.51 Number of shares (in thousands) used in computing: - basic earnings per common share 2,950 2,931 3,033 - diluted earnings per common share 3,039 2,976 3,066 See accompanying notes. CONSOLIDATED BALANCE SHEETS - As of September 30, (In thousands, except share data) 2005 2004 (restated) Assets Current assets: Cash and cash equivalents $ 2,966 199 Cash held in escrow - 16,553 Accounts receivable (including related party of $288 and $344 and net of allowance for doubtful accounts of $525 and $638, respectively) 11,731 9,123 Inventory of parts and supplies 799 642 Prepaid tires on equipment 1,959 1,930 Prepaid taxes and licenses 1,291 972 Prepaid insurance 259 504 Prepaid expenses, other 564 143 Total current assets 19,569 30,066 Property and equipment, at cost: Land 62,304 56,045 Buildings 97,455 77,924 Equipment 79,167 73,838 Construction in progress 7,799 16,423 246,725 224,230 Less accumulated depreciation and depletion 81,789 75,219 164,936 149,011 Real estate held for investment, at cost 1,093 1,093 Goodwill 1,087 1,087 Other assets 7,030 5,564 Total assets $193,715 186,821 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 5,674 3,072 Federal and state income taxes payable 642 6,799 Accrued payroll 3,247 2,757 Accrued insurance reserves 3,774 2,188 Accrued liabilities, other 452 567 Short-term notes payable - 5,914 Long-term debt due within one year 2,432 1,802 Total current liabilities 16,221 23,099 Long-term debt 48,468 41,185 Deferred income taxes 14,394 16,309 Accrued insurance reserves 4,993 5,689 Other liabilities 1,738 1,567 Commitments and contingencies (Notes 15 and 16) 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 2,929,075 shares issued and outstanding, respectively 297 293 Capital in excess of par value 27,100 25,784 Retained earnings 80,504 72,895 Total shareholders' equity 107,901 98,972 Total liabilities and shareholders' equity $193,715 186,821 See accompanying notes. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended September 30, (In thousands) Cash flows from operating activities: 2005 2004 2003 (restated) (restated) Net income $ 7,609 20,740 4,650 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 12,479 12,230 11,956 Deferred income taxes (2,421) 4,916 925 Gain on sale of real estate and equipment (757) (24,055) (210) Tax benefit from stock option exercise 443 339 57 Net changes in operating assets and liabilities: Accounts receivable (2,608) (1,791) 12 Income taxes receivable - - 8 Inventory of parts and supplies (157) 28 (37) Prepaid expenses and other current assets (132) (138) (435) Other assets (1,916) (883) (826) Accounts payable and accrued liabilities 4,677 (994) (1,173) Income taxes payable (6,157) 6,793 6 Net change in insurance reserves and other long-term liabilities (525) (135) 412 Net cash provided by operating activities 10,535 17,050 15,345 Cash flows from investing activities: Purchase of property and equipment (28,574) (21,969)(20,413) Cash released from (placed in) escrow 16,553 (14,758) (1,795) Proceeds from the sale of real estate held for investment and property and equipment 1,377 30,600 2,094 Net cash used in investing activities (10,644) (6,127)(20,114) Cash flows from financing activities: Proceeds from issuance of long-term debt 7,003 11,213 4,600 Net(decrease) increase in revolving debt (3,201) (16,799) 7,500 Repayment of long-term debt (1,803) (4,874) (1,340) Exercise of employee stock options 877 1,489 355 Repurchase of Company stock - (2,510) (6,118) Net cash provided by (used in) financing activities 2,876 (11,481) 4,997 Net increase (decrease) in cash and cash equivalents 2,767 (558) 228 Cash and cash equivalents at beginning of year 199 757 529 Cash and cash equivalents at end of year $ 2,966 199 757 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,272 3,977 3,477 Income taxes $ 12,472 1,159 2,004 See accompanying notes. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY Years ended September 30 (In thousands, except share amounts) Capital in Common Stock Excess of Retained Shares Amount Par Value Earnings Balance at October 1, 2002(restated) 3,159,008 $316 $26,250 $53,404 Shares purchased and retired (246,300) (25) (2,046) (4,047) Exercise of stock options 20,000 2 410 - Net income (restated) - - - 4,650 Balance at September 30, 2003(restated) 2,932,708 293 24,614 54,007 Shares purchased and retired (77,533) (7) (651) (1,852) Exercise of stock options 73,900 7 1,821 - Net income - - - 20,740 Balance at September 30, 2004(restated) 2,929,075 293 25,784 72,895 Exercise of stock options 36,000 4 1,316 - Net income - - - 7,609 Balance at September 30, 2005 2,965,075 $297 $27,100 $80,504 See accompanying notes. NOTES TO CONSOLDIATED FINANCIAL STATEMENTS 1. Accounting Policies. ORGANIZATION - Patriot Transportation Holding, Inc. (Company) is engaged in the transportation and real estate businesses. The Company's transportation business is conducted through two wholly owned subsidiaries. Florida Rock & Tank Lines, Inc. (Tank Lines) is a Southeastern transportation company concentrating in the hauling by motor carrier of primarily petroleum related bulk liquids and dry bulk commodities. SunBelt Transport, Inc. (SunBelt) serves the flatbed portion of the trucking industry primarily in the Southeastern U.S., hauling primarily construction materials. The Company's real estate group, through subsidiaries, acquires, constructs, leases, operates and manages land and buildings to generate both current cash flows and long-term capital appreciation. The real estate group also owns real estate which is leased under mining royalty agreements or held for investment. CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments with maturities of three months or less at time of purchase to be cash equivalents. INVENTORY - Inventory of parts and supplies is valued at the lower of cost (first-in, first-out) or market. TIRES ON EQUIPMENT - The value of tires on tractors and trailers is accounted for as a prepaid expense and amortized over the life of the tires as a function of miles driven. REVENUE AND EXPENSE RECOGNITION - Transportation revenue, including fuel surcharges, is recognized when there is an agreement in place, the services have been rendered to customers or delivery has occurred, the pricing is fixed or determinable and collectibility is reasonably assured. Transportation expenses are recognized as incurred. Real estate rental revenue and mining royalties are generally recognized when earned under the leases. Rental income from leases with scheduled increases during their term is recognized on a straight-line basis over the term of the lease. Reimbursements of expenses, when provided in the lease, are recognized in the period that the expenses are incurred. Sales of real estate are recognized when the collection of the sales price is reasonably assured and when the Company has fulfilled substantially all of its obligations, which are typically as of the closing date. PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost less accumulated depreciation. Provision for depreciation of property, plant and equipment is computed using the straight-line method based on the following estimated useful lives: Years Buildings and improvements 7-39 Revenue equipment 7-10 Other equipment 3-10 Depletion of sand and stone deposits is computed on the basis of units of production in relation to estimated reserves. The Company periodically reviews property and equipment and intangible assets for potential impairment. If this review indicated that the carrying amount of the asset may not be recoverable, the Company would estimate the future cash flows expected with regards to the asset and its eventual disposition. If the sum of these future cash flows (undiscounted and without interest charges) is less than the carrying amount of the assets, the Company would record an impairment loss based on the fair value of the asset. The Company performs an annual impairment test on goodwill. All direct and indirect costs, including interest and real estate taxes, associated with the development, construction, leasing or expansion of real estate investments are capitalized as a cost of the property. Included in indirect costs is an estimate of internal costs associated with development and rental of real estate investments. All external costs associated with the acquisition of real estate investments are capitalized as a cost of the property. INSURANCE - The Company has a $250,000 to $500,000 self-insured retention per occurrence in connection with certain of its workers' compensation, automobile liability, and general liability insurance programs ("risk insurance"). The Company is self-insured for its employee health insurance benefits and carries a stop loss coverage of $200,000 per covered participant per year. The Company accrues monthly the estimated cost in connection with its portion of its risk and health insurance losses. Claims paid by the Company are charged against the reserve. Additionally, the Company maintains a reserve for incurred but not reported claims based on historical analysis of such claims. INCOME TAXES - The Company uses an asset and liability approach to financial reporting for income taxes. Under this method, deferred tax assets and liabilities are recognized based on differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. Deferred income taxes result from temporary differences between pre-tax income reported in the financial statements and taxable income. STOCK OPTION AWARDS - The Company has historically accounted for its employee stock compensation plans under APB Opinion No. 25. Effective October 1, 2005 the Company will account for these options in accordance with SFAS No. 123R. See Note 9 for pro forma disclosures of net income and earnings per common share, as if the fair value based method of accounting defined in SFAS No. 123 had been applied. EARNINGS PER COMMON SHARE - Basic earnings per common share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per common share are based on the weighted average number of common shares and potential dilution of securities that could share in earnings. The only difference between basic and diluted shares used for the calculation is the effect of employee and director stock options. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ENVIRONMENTAL - Environmental expenditures that benefit future periods are capitalized. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Estimation of such liabilities includes an assessment of engineering estimates, continually evolving governmental laws and standards, and potential involvement of other potentially responsible parties. NEW 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 9. 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. 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. 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. RECLASSIFICATIONS - Certain reclassifications have been made to 2004 and 2003 financials to conform to the presentation adopted in 2005. 2. Restatement of Financial Statements. In November 2005, the Company initiated a review of certain aspects of its lease-related accounting practices. As a result of this review, the Company changed its practice related to recognizing rental revenue for scheduled rate increases on operating leases and restated certain historical financial information for prior periods to correct these errors in lease accounting. Historically, the Company has recognized rental revenue for leases on a cash basis for leases with scheduled annual rate increases of 3.5% or less. Based on a re-examination of the applicable accounting literature, including SFAS No. 13, Accounting for Leases, FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, and FASB Technical Bulletin 85-3, Accounting for Operating Leases With Scheduled Rent Increases, the Company determined that the proper accounting practice is to recognize rental revenue on a straight line basis over the contractual term of the lease. 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 to reflect these corrections. In addition, the Company restated its quarterly results of operations for fiscal 2005. The restatement also affected periods prior to fiscal 2003. The impact of the restatement on such prior periods has been reflected as an adjustment of $810,000 to retained earnings as of October 1, 2002 in the consolidated statements of shareholders' equity. There were no differences related to corrections reported in the consolidated statements of income or cash flows for the year ended September 30, 2004. The Company has also updated the disclosure in Notes (8, 9, 10 and 12) within these consolidated financial statements to give effect to the restatement. As a result of this restatement, the Company's financial results have been adjusted as follows (in thousands, except per share data): Year Ended September 30, 2004 As Previously Reported Adjustments As Restated Other assets $ 4,137 1,427 5,564 Deferred income taxes 15,767 542 16,309 Retained earnings 72,010 885 72,895 Total shareholders' equity 98,087 885 98,972 Year Ended September 30, 2003 As Previously Reported Adjustments As Restated Total revenues $ 102,440 121 102,561 Gross profit 17,469 121 17,590 Operating profit 9,316 121 9,437 Income from continuing operations before tax 5,824 121 5,945 Provision for income taxes 2,272 46 2,318 Income from continuing operations 3,552 75 3,627 Net income 4,575 75 4,650 Earnings per common share: Basic $ 1.51 .02 1.53 Diluted $ 1.49 .02 1.51 Cash flows from Operating activities: Net income $ 4,575 75 4,650 Deferred income taxes 879 46 925 Net changes in operating assets and liabilities: Other assets (705) (121) (826) Net cash provided by Operating activities 15,345 - 15,345 3. Transactions with Related Parties. As of September 30, 2005, four of the Company's directors were also directors of Florida Rock Industries, Inc. ("FRI"). Such directors own approximately 26.1% of the stock of FRI and 49.5% of the stock of the Company. Accordingly, FRI and the Company are considered related parties. The Company, through its transportation subsidiaries, hauls commodities by tank and flatbed trucks for 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. A summary of revenues derived from FRI follows (in thousands): 2005 2004 2003 Transportation $ 1,217 1,711 1,367 Real estate 5,511 5,912 5,938 $ 6,728 7,623 7,305 Included in the 2004 and 2003 revenues are $498,000 and $863,000, respectively, of Real Estate revenues derived from FRI that have been reclassified to discontinued operations on the Consolidated Statements of Income. The Company outsources certain functions to FRI, including some administrative, human resources, legal and risk management. Charges for services provided by FRI were $174,000 in 2005, $372,000 in 2004, and $440,000 in 2003. During 2003 and 2004, the Company closed on previously announced agreements to sell several tracts of land to FRI as follows: St. Mary's County, Maryland. On September 30, 2003, a subsidiary sold 796 acres of land located in St. Mary's County, Maryland to FRI for $1,836,000 in cash resulting in a gain of $657,000, after income taxes of $420,000. A committee of independent directors of the Company approved the sale after review of a developed feasibility study and other materials, consultation with management and advice from independent counsel. Lake City, Florida. 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 $5,574,000 after income taxes of $3,546,000. The sales price was approved by the Company's Audit Committee after considering among other factors, an independent appraisal, and the current use of the property and consultation with management. Springfield, Virginia. 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 $7,895,000, after income taxes of $5,023,000. 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. Miami, Florida. 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 $987,000, after income taxes of $627,000. 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 4 for further information regarding the accounting for the sales of these properties as discontinued operations. 4. Discontinued Operations. As discussed in Note 3, during the fiscal years ended September 30, 2004 and 2003, the Company sold several tracts of land, which 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). All periods presented have been restated accordingly. A summary of discontinued operations is as follows (in thousands): 2005 2004 2003 Royalty and rental income $ - 498 863 Operating expenses - 190 264 Income before income taxes - 308 599 Income taxes - (120) (233) Income from discontinued operations $ - 188 366 Gain from sale of discontinued properties $ - 23,652 1,077 Income taxes - (9,196) (420) Net gain from sale of discontinued properties $ - 14,456 657 5. Debt. Debt at September 30 is summarized as follows (in thousands): 2005 2004 Revolving credit (uncollateralized) $ - 3,201 Construction loan 9,716 2,713 5.7% to 9.5% mortgage notes, due in installments through 2020 41,184 42,987 50,900 48,901 Less portion due within one year 2,432 7,716 $48,468 41,185 The aggregate amount of principal payments, excluding the revolving credit, due subsequent to September 30, 2005 is: 2006 - $2,432,000; 2007 - $2,584,000; 2008 - $2,769,000; 2009 - $2,968,000; 2010 - $3,201,000; 2011 and subsequent years - $36,946,000. The Company has a $37,000,000 uncollaterized Revolving Credit Agreement 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 (the Revolver) 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. The margin rate may change quarterly based on the Company's ratio of Consolidated Total Debt to Consolidated Total Capital, as defined. 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. Under these restrictions, as of September 30, 2005, $18,880,000 of consolidated retained earnings would be available for payment of dividends. The Company is in compliance with all restrictive covenants as of September 30, 2005. During the fourth quarter of fiscal 2004, a subsidiary of the Company obtained a construction loan to fund the development of a pre-leased 145,000 square foot office/warehouse. As of September 30, 2005, $9,716,000 was borrowed under the loan. 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 6.12% for both the construction and mortgage loans. The non-recourse fully amortizing mortgage notes payable are collateralized by real estate having a carrying value of approximately $58,812,000 at September 30, 2005. Certain properties having a carrying value at September 30, 2005 of $714,000 are encumbered by $1,300,000 of industrial revenue bonds that are the liability of FRI. FRI has agreed to pay such debt when due (or sooner if FRI cancels its lease of such property) and further has agreed to indemnify and hold harmless the Company. During Fiscal 2005, 2004 and 2003 the Company capitalized interest costs of $305,000, $10,000 and $182,000, respectively. The Company had $14,739,000 of irrevocable letters of credit outstanding at September 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. 6. Leases. At September 30, 2005, the total carrying value of property owned by the Company which is leased or held for lease to others is summarized as follows (in thousands): Construction aggregates property $ 31,372 Commercial property 131,716 Land and other property 1,145 164,233 Less accumulated depreciation and depletion 29,816 $134,417 The minimum future straight-lined rentals due the Company on noncancelable leases as of September 30, 2005 are as follows: 2006 - $12,082,000; 2007 - $10,988,000; 2008 - $9,819,000; 2009 - $8,339,000; 2010 - $7,451,000; 2011 and subsequent years $36,790,000. 7. Preferred Shareholder Rights Plan. On May 5, 1999, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock. The dividend was payable on June 2, 1999. Each Right entitles the registered holder to purchase from the Company one one- hundredth of a share of Series A Junior Participating Preferred Stock of the Company, par value $.01 per share (the "Preferred Shares"), at a price of $96 per one one-hundredth of a Preferred Share, subject to adjustment. In the event that any Person or group of affiliated or associated Persons (an "Acquiring Person") acquires beneficial ownership of 15% or more of the Company's outstanding common stock, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of Common Shares having a market value of two times the exercise price of the Right. An Acquiring Person excludes any Person or group of affiliated or associated Persons who were beneficial owners, individually or collectively, of 15% or more of the Company's Common Shares on May 4, 1999. The Rights initially trade together with the Company's common stock and are not exercisable. However, if an Acquiring Person acquires 15% or more of the Company's common stock, the Rights may become exercisable and trade separately in the absence of future board action. The Board of Directors may, at its option, redeem all Rights for $.01 per right, at any time prior to the Rights becoming exercisable. The Rights will expire September 30, 2009 unless earlier redeemed, exchanged or amended by the Board. 8. Earnings Per Share. The following details the computations of the basic and diluted earnings per common share. (Dollars in thousands, except per share amounts.) Years Ended September 30 2005 2004 2003 (restated) Common shares: Weighted average common shares outstanding during the period - shares used for basic earnings per common share 2,950 2,931 3,033 Common shares issuable under stock options which are potentially dilutive 89 45 33 Common shares used for diluted earnings per common share 3,039 2,976 3,066 Income from continuing operations $ 7,609 6,096 3,627 Discontinued operations - 14,644 1,023 Net income $ 7,609 20,740 4,650 Basic earnings per common share: Income from continuing operations $2.58 2.08 1.19 Discontinued operations - 5.00 .34 Net income $2.58 7.08 1.53 Diluted earnings per common share: Income from continuing operations $2.50 2.05 1.18 Discontinued operations - 4.92 .33 Net income $2.50 6.97 1.51 For 2005, 2004 and 2003, 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. 9. Stock Option Plans. 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 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. Options awarded in 2005 included 74,000 to officers and key employees and 42,000 to directors. Options awarded in 2004 included 10,000 to an officer and 41,000 to directors. Options awarded in 2003 included 140,000 to officers and key employees and 42,000 to directors. At September 30, 2005, there were 337,900 options outstanding. Option transactions for the fiscal years ended September 30 are summarized as follows: Options Weighted Average Outstanding Exercise Price Balance at September 30, 2002 141,000 $ 19.78 Granted 182,000 22.87 Cancelled (3,500) 22.48 Exercised (20,000) 17.75 Balance at September 30, 2003 299,500 21.85 Granted 51,000 31.20 Cancelled (9,400) 22.23 Exercised (73,900) 20.15 Balance at September 30, 2004 267,200 23.99 Granted 116,000 44.38 Cancelled (9,300) 32.52 Exercised (36,000) 24.38 Balance at September 30, 2005 337,900 $ 30.72 The following table summarizes information concerning stock options outstanding at September 30, 2005: Shares Weighted Weighted Range of Exercise under Average Average Prices per Share Option Exercise Price Remaining Life Non-exercisable: $22.23 - $43.50 112,180 $ 35.82 8.5 years Exercisable: $15.13 - $22.66 106,620 20.56 6.6 $23.77 - $34.00 86,100 29.57 7.8 $44.50 - $60.40 33,000 49.19 9.5 225,720 $ 28.18 7.5 years Total 337,900 $ 30.72 7.8 years If compensation cost for stock option grants had been determined based on the Black-Scholes option pricing model value at the grant date for the awards consistent with the provisions of SFAS No. 123, the Company's net income, basic and diluted earnings per share would have been (in thousands, except per share amounts): 2005 2004 2003 (restated) Net income As reported $ 7,609 20,740 4,650 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax effects 905 626 546 Pro forma $ 6,704 20,114 4,104 Basic earnings per common share As reported $ 2.58 7.08 1.53 Pro forma $ 2.27 6.86 1.35 Diluted earnings per common share As reported $ 2.50 6.97 1.51 Pro forma $ 2.21 6.76 1.34 The weighted average fair value of options granted in 2003 was estimated to be $13.51 on the date of grant using the following assumptions; no dividend yield, expected volatility of 52.6%, risk-free interest rates of 4.5% and expected lives of 7 years. The weighted average fair value of options granted in 2004 was estimated to be $16.32 on the date of grant using the following assumptions; no dividend yield, expected volatility of 45.1%, risk-free interest rates of 3.9% and expected lives of 7 years. The weighted average fair value of options granted in 2005 was estimated to be $21.00 on the date of grant using the following assumptions; no dividend yield, expected volatility of 41.6%, risk-free interest rates of 4.0% and expected useful lives of 7 and 6.2 years. 10. Income Taxes. The provision for income taxes for continuing operations for fiscal years ended September 30 consists of the following (in thousands): 2005 2004 2003 (restated) Current: Federal $5,540 2,720 1,592 State 1,217 445 262 6,757 3,165 1,854 Deferred: Federal (1,871) 605 395 State (550) 109 69 (2,421) 714 464 Total $4,336 3,879 2,318 A reconciliation between the amount of tax shown above and the amount computed at the statutory Federal income tax rate follows (in thousands): 2005 2004 2003 (restated) Amount computed at statutory Federal rate $4,061 3,491 2,021 State income taxes (net of Federal income tax benefit) 441 362 216 Other, net (166) 26 81 Provision for income taxes $4,336 3,879 2,318 The types of temporary differences and their related tax effects that give rise to deferred tax assets and deferred tax liabilities at September 30, are presented below: 2005 2004 (restated) Deferred tax liabilities: Property and equipment $16,225 18,382 Depletion 604 570 Prepaid expenses 1,206 1,181 Gross deferred tax liabilities 18,035 20,133 Deferred tax assets: Insurance reserves 3,083 2,745 Other, net 950 965 Gross deferred tax assets 4,033 3,710 Net deferred tax liability $14,002 16,423 11. Employee Benefits. The Company and certain subsidiaries have a savings/profit sharing plan for the benefit of qualified employees. The savings feature of the plan incorporates the provisions of Section 401(k) of the Internal Revenue Code under which an eligible employee may elect to save a portion (within limits) of their compensation on a tax deferred basis. The Company contributes to a participant's account an amount equal to 50% (with certain limits) of the participant's contribution. Additionally, the Company may make an annual contribution to the plan as determined by the Board of Directors, with certain limitations. The plan provides for deferred vesting with benefits payable upon retirement or earlier termination of employment. The Company's cost was $694,000 in 2005, $649,000 in 2004 and $591,000 in 2003. The Company provides certain health benefits for retired employees. Employees may become eligible for those benefits if they were employed by the Company prior to December 10, 1992, meet the service requirements and reach retirement age while working for the Company. The plan is contributory and unfunded. The Company accrues the estimated cost of retiree health benefits over the years that the employees render service. The accrued postretirement benefit cost as of September 30, 2005 and 2004 was $536,000 and $564,000, respectively. The net periodic postretirement benefit cost was $10,000, $2,000 and $5,000 for fiscal 2005, 2004, and 2003, respectively. The discount rate used in determining the Net Periodic Postretirement Benefit Cost was 6.0% for 2005, 5.75% for 2004 and 7.0% for 2003. The Accumulated Postretirement Benefit Obligation (APBO) was 5.0% for 2005, 6.0% for 2004 and 5.75% for 2003. No medical trend is applicable because the Company's share of the cost is frozen. 12. 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): 2005 2004 2003 (restated) (restated) Revenues: Transportation $112,824 99,424 87,996 Real estate (a) 18,212 16,365 14,565 $131,036 115,789 102,561 Operating profit: Transportation $ 6,587 5,625 2,360 Real estate (a) 10,253 9,269 8,550 Corporate expenses (1,649) (1,464) (1,473) $ 15,191 13,430 9,437 Capital expenditures: Transportation $ 11,063 4,350 7,086 Real estate 17,511 17,619 13,327 $ 28,574 21,969 20,413 Depreciation, depletion and amortization: Transportation $ 8,166 8,200 8,510 Real estate 4,086 3,782 3,211 Other 227 248 235 $ 12,479 12,230 11,956 Identifiable assets at September 30: Transportation $ 47,435 42,479 45,055 Real estate 141,646 126,457 117,696 Cash 2,966 16,752 2,552 Unallocated corporate assets 1,668 1,133 1,340 $193,715 186,821 166,643 (a) Fiscal 2003 includes revenue of $68,000 and operating profit of $47,000 from the sale of real estate. 13. Cash Held in Escrow. At September 30, 2004, the Company had $16,553,000 of cash held in escrow accounts. Proceeds from the sales of certain properties were placed in the escrow accounts in anticipation of reinvesting these proceeds in tax-deferred exchanges under Section 1031 of the United States Internal Revenue Code. Subsequent to the fiscal year end, $7,150,000 of the escrowed funds was used in a qualified exchange and the remaining funds of $9,340,000 were released for general use. 14. Fair Values of Financial Instruments. At September 30, 2005 and 2004, the carrying amount reported in the consolidated balance sheets for cash and cash equivalents, short-term notes payable and revolving credit approximate their fair value. The fair values of the Company's other long-term debt were estimated based on current rates available to the Company for debt of the same remaining maturities. At September 30, 2005, the carrying amount and fair value of such other long term debt was $50,900,000 and $52,976,000, respectively. At September 30, 2004, the carrying amount and fair value of other long term debt was $45,700,000 and $47,859,000, respectively. 15. 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. 16. Commitments. The Company, at September 30, 2005, had entered into various contracts to develop real estate with remaining commitments totaling $1,231,000, and to purchase transportation equipment for approximately $6,936,000. A subsidiary of the Company has entered into an agreement to develop and sell to a major national homebuilder a minimum of 292 residential lots on the residential portion of the Bird River Property. The agreement is subject to a number of contingencies, including (i) the approval by Baltimore County of a Planned Unit Development (PUD) by July 1, 2006 allowing the development of a minimum of 292 residential lots, (ii) the construction of Route 43, (iii) vehicular, water and sewer connection access to the property by July 1, 2007 at what the subsidiary deems to be a commercially reasonable cost, and (iv) other customary conditions precedent. Assuming that these conditions are satisfied and the development proceeds, the agreement provides for a minimum aggregate purchase price for these lots of $28,705,000. 17. Customer Concentration. During Fiscal 2005, the transportation segment's ten largest customers accounted for approximately 44.2% of the transportation segment's revenue. One of these customers accounted for 11.4% of the transportation segment's revenue. The loss of any one of these customers could have an adverse effect on the Company's revenues and income. Report of Independent Registered Certified Public Accounting Firm To the Board of Directors and Shareholders of Patriot Transportation Holding, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Patriot Transportation Holding, Inc. and its subsidiaries at September 30, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 2, the consolidated financial statements for the years ended September 30, 2004 and 2003 have been restated. PricewaterhouseCoopers LLP December 22, 2005 Jacksonville, Florida DIRECTORS AND OFFICERS Directors John E. Anderson (1) President and Chief Executive Officer of the Company Edward L. Baker (1) Chairman of the Board of the Company and of Florida Rock Industries, Inc. John D. Baker II (1) President and Chief Executive Officer of Florida Rock Industries, Inc. Thompson S. Baker II Vice President of Florida Rock Industries, Inc. Charles E. Commander III (2)(4) Partner, Jacksonville office Foley & Lardner Luke E. Fichthorn III Private Investment Banker, Twain Associates and Chairman of the Board and Chief Executive Officer of Bairnco Corporation Robert H. Paul III (2)(3)(4) Chairman of the Board of Southeast-Atlantic Beverage Corporation H. W. Shad III (2) Management Consulting and Business Valuations Mike Shad, P.L. Martin E. Stein, Jr. (3)(4) Chairman and Chief Executive Officer of Regency Centers Corporation James H. Winston (3) President of LPMC of Jax, Inc., Omega Insurance Company and Citadel Life & Health Insurance Co. ________________ (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Compensation Committee (4) Member of the Nominating Committee Officers Edward L. Baker Chairman of the Board John E. Anderson President and Chief Executive Officer David H. deVilliers, Jr. Vice President President, FRP Development Corp. and Florida Rock Properties, Inc. Ray M. Van Landingham Vice President, Treasurer, Secretary and Chief Financial Officer John D. Klopfenstein Controller and Chief Accounting Officer Terry S. Phipps President, SunBelt Transport, Inc. Robert E. Sandlin President, Florida Rock & Tank Lines, Inc. Patriot Transportation Holding, Inc. 1801 Art Museum Drive, Suite 300 Jacksonville, Florida 32207 Telephone: (904) 396-5733 Annual Meeting Shareholders are cordially invited to attend the Annual Shareholders Meeting which will be held at 2 p.m. local time, on Wednesday, February 1, 2006, at 155 East 21st Street, Jacksonville, Florida, 32206. Transfer Agent Wachovia Bank, N.A. Corporate Trust Client Services NC-1153 1525 West W. T. Harris Boulevard - 3C3 Charlotte, NC 28288-1153 Telephone: 1-800-829-8432 General Counsel McGuireWoods LLP Jacksonville, Florida Independent Registered Certified Public Accounting Firm PricewaterhouseCoopers LLP Jacksonville, Florida Common Stock Listed The Nasdaq Stock Market (Symbol: PATR) Form 10-K Shareholders may receive without charge a copy of Patriot Transportation Holding, Inc.'s annual report on Form 10-K for the fiscal year ended September 30, 2005 as filed with the Securities and Exchange Commission by writing to the Treasurer at 1801 Art Museum Drive, Suite 300, Jacksonville, Florida 32207. EX-23 3 ex23.txt AUDITOR CONSENT Exhibit 23(a) CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-43215, 33-18878, 33- 55132 and 33-125099) of Patriot Transportation Holding, Inc. of our report dated December 22, 2005 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated December 22, 2005, relating to the financial statement schedules, which appear in this Form 10-K. PricewaterhouseCoopers LLP Jacksonville, Florida December 27, 2005 ____________________ EX-31 4 ex31a.txt CEO CERTIFICATION CERTIFICATIONS Exhibit 31(a) I, John E. Anderson, certify that: 1. I have reviewed this annual report on Form 10-K of Patriot Transportation Holding, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal annual that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 27, 2005 /s/John E. Anderson President and Chief Executive Officer EX-31 5 ex31b.txt CFO CERTIFICATION CERTIFICATIONS Exhibit 31(b) I, Ray M. Van Landingham, certify that: 1. I have reviewed this annual report on Form 10-K of Patriot Transportation Holding, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal annual that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 27, 2005 /s/Ray M. Van Landingham Vice President, Treasurer, Secretary and Chief Financial Officer EX-31 6 ex31c.txt CAO CERTIFICATION CERTIFICATIONS Exhibit 31(c) I, John D. Klopfenstein, certify that: 1. I have reviewed this annual report on Form 10-K of Patriot Transportation Holding, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal annual that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 27, 2005 /s/John D. Klopfenstein Controller and Chief Accounting Officer EX-32 7 ex32.txt SECTION 906 CERTIFICATION Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned individuals certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Patriot Transportation Holding, Inc. on Form 10-K for the fiscal year ended September 30, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Patriot Transportation Holding, Inc. PATRIOT TRANSPORTATION HOLDING, INC. December 22, 2005 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 A signed original of this written statement required by Section 906 has been provided to Patriot Transportation Holding, Inc. and will be retained by Patriot Transportation Holding, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification accompanies the issuer's Annual Report on Form 10-K and is not filed as provided in SEC Release Nos. 33-8212, 34-4751 and IC-25967, dated June 30, 2003. -----END PRIVACY-ENHANCED MESSAGE-----