10-Q 1 patrmarq10.txt PATR MARCH 2010 FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended March 31, 2010 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.) 501 Riverside Ave., Suite 500, Jacksonville, Florida 32202 (Address of principal executive offices) (Zip Code) 904/396-5733 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[ ] No[ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer[ ] Accelerated filer[X] Non- accelerated filer[ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES[ ] NO[X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 31, 2010: 3,061,096 shares of $.10 par value common stock. PATRIOT TRANSPORTATION HOLDING, INC. FORM 10-Q QUARTER ENDED MARCH 31, 2010 CONTENTS Page No. Preliminary Note Regarding Forward-Looking Statements 3 Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets 4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Condensed Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risks 25 Item 4. Controls and Procedures 26 Part II. Other Information Item 1A. Risk Factors 27 Item 5. Other Information 27 Item 6. Exhibits 27 Signatures 28 Exhibit 31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 30 Exhibit 32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 33 Preliminary Note Regarding 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 those indicated by such forward-looking statements. These forward-looking statements relate to, among other things, capital expenditures, liquidity, capital resources and competition and may be indicated by words or phrases such as "anticipate", "estimate", "plans", "projects", "continuing", "ongoing", "expects", "management believes", "the Company believes", "the Company intends" and similar words or phrases. The following factors and others discussed in the Company's periodic reports and filings with the Securities and Exchange Commission are among the principal factors that could cause actual results to differ materially from the forward-looking statements: freight demand for petroleum products including recessionary and terrorist impacts on travel in the Company's markets; levels of construction activity in the markets served by our mining properties; fuel costs and the Company's ability to recover fuel surcharges; accident severity and frequency; risk insurance markets; driver availability and cost; the impact of future regulations regarding the transportation industry; availability and terms of financing; competition in our markets; interest rates, inflation and general economic conditions; demand for flexible warehouse/office facilities in the Baltimore-Washington-Northern Virginia area; and ability to obtain zoning and entitlements necessary for property development. 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. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) March 31, September 30, Assets 2010 2009 Current assets: Cash and cash equivalents $ 12,410 15,803 Accounts receivable (including related party of $599 and $336 and net of allowance for doubtful accounts of $80 and $110, respectively) 6,368 5,286 Notes receivable 1,197 1,158 Inventory of parts and supplies 653 616 Deferred income taxes 651 104 Prepaid tires on equipment 1,219 1,211 Prepaid taxes and licenses 764 1,703 Prepaid insurance 1,127 2,390 Prepaid expenses, other 111 93 Assets of discontinued operations 1,281 1,519 Total current assets 25,781 29,883 Property, plant and equipment, at cost 293,467 289,336 Less accumulated depreciation and depletion 92,721 90,323 Net property, plant and equipment 200,746 199,013 Real estate held for investment, at cost 6,933 6,933 Investment in joint venture 7,138 6,858 Goodwill 1,087 1,087 Notes receivable, less current portion 5,026 5,647 Unrealized rents 3,356 3,346 Other assets 3,844 4,087 Total assets $253,911 256,854 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 2,774 2,822 Federal and state income taxes payable 654 2,355 Accrued payroll and benefits 3,988 4,945 Accrued insurance 2,912 3,190 Accrued liabilities, other 532 1,102 Long-term debt due within one year 4,438 4,293 Liabilities of discontinued operations 2,833 3,660 Total current liabilities 18,131 22,367 Long-term debt, less current portion 69,604 71,860 Deferred income taxes 15,686 15,679 Accrued insurance 2,849 2,995 Other liabilities 1,560 1,545 Commitments and contingencies (Note 8) Shareholders' equity: Preferred stock, no par value; 5,000,000 shares authorized; none issued - - Common stock, $.10 par value; 25,000,000 shares authorized, 3,061,096 and 3,053,036 shares issued and outstanding, respectively 306 305 Capital in excess of par value 36,754 35,858 Retained earnings 109,002 106,226 Accumulated other comprehensive income, net 19 19 Total shareholders' equity 146,081 142,408 Total liabilities and shareholders' equity $253,911 256,854 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited) THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, 2010 2009 2010 2009 Revenues: Transportation $21,658 21,522 43,739 46,504 Mining royalty land 1,009 1,476 1,996 2,781 Developed property rentals 4,843 4,779 9,275 9,336 Total revenues (including revenue from related parties of $2,031, $2,005, $3,501 and $3,619, respectively) 27,510 27,777 55,010 58,621 Cost of operations: Transportation 20,069 20,049 40,642 43,048 Mining royalty land 354 367 672 844 Developed property rentals 3,638 3,249 6,852 6,293 Unallocated corporate 382 554 735 847 Total cost of operations 24,443 24,219 48,901 51,032 Operating profit: Transportation 1,589 1,473 3,097 3,456 Mining royalty land 655 1,109 1,324 1,937 Developed property rentals 1,205 1,530 2,423 3,043 Unallocated corporate (382) (554) (735) (847) Total operating profit 3,067 3,558 6,109 7,589 Interest income and other 119 3 234 28 Equity in loss of joint venture (1) - (2) (5) Interest expense (996) (784) (2,022) (1,650) Income before income taxes 2,189 2,777 4,319 5,962 Provision for income taxes (841) (1,081) (1,659) (2,323) Income from continuing operations 1,348 1,696 2,660 3,639 Income (loss) from discontinued operations, net 94 (287) 118 (483) Net income $ 1,442 1,409 2,778 3,156 Earnings per common share: Income from continuing operations - Basic $ .44 .56 .87 1.20 Diluted $ .43 .55 .84 1.18 Discontinued operations (Note 11) - Basic $ .03 (.10) .04 (.16) Diluted $ .03 (.10) .04 (.16) Net income - basic $ .47 .46 .91 1.04 Net income - diluted $ .46 .45 .88 1.02 Number of shares (in thousands) used in computing: -basic earnings per common share 3,058 3,039 3,055 3,036 -diluted earnings per common share 3,142 3,102 3,139 3,106 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2010 AND 2009 (In thousands) (Unaudited) 2010 2009 Cash flows from operating activities: Net income $ 2,778 3,156 Adjustments to reconcile net income to net cash provided by continuing operating activities: Depreciation, depletion and amortization 5,776 6,344 Deferred income taxes (540) (599) Equity in loss of joint venture 2 5 (Gain) on sale of equipment (135) (694) (Income) loss from discontinued operations, net (118) 483 Stock-based compensation 669 555 Net changes in operating assets and liabilities: Accounts receivable (1,082) 4,182 Inventory of parts and supplies (37) 174 Prepaid expenses and other current assets 2,176 2,193 Other assets (70) 75 Accounts payable and accrued liabilities (1,853) (4,799) Income taxes payable (1,701) 1,155 Long-term insurance liabilities and other long-term liabilities (131) 32 Net cash provided by operating activities of continuing operations 5,734 12,262 Net cash (used in) provided by operating activities of discontinued operations (471) 827 Net cash provided by operating activities 5,263 13,089 Cash flows from investing activities: Purchase of transportation group property and equipment (5,643) (3,185) Investments in mining royalty land segment (16) - Investments in developed property rentals segment (1,973) (8,393) Investment in joint venture (285) (300) Proceeds from the sale of property, plant and equipment 563 1,047 Proceeds received on note for sale of Sunbelt 582 - Net cash used in investing activities of continuing operations (6,772) (10,831) Net cash used in investing activities of discontinued operations - (316) Net cash used in investing activities (6,772) (11,147) Cash flows from financing activities: Repayment of long-term debt (2,111) (1,976) Excess tax benefits from exercises of stock options and vesting of restricted stock 61 15 Exercise of employee stock options 166 29 Net cash used in financing activities (1,884) (1,932) Net increase (decrease) in cash and cash equivalents (3,393) 10 Cash and cash equivalents at beginning of period 15,803 7,778 Cash and cash equivalents at end of the period $ 12,410 7,788 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 (Unaudited) (1) Basis of Presentation. The accompanying consolidated financial statements include the accounts of Patriot Transportation Holding, Inc. and its subsidiaries (the "Company"). Investment in the 50% owned Brooksville Joint Venture is accounted for under the equity method of accounting. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the six months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2010. The accompanying consolidated financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Company's consolidated financial statements and related notes included in the Company's Form 10-K for the year ended September 30, 2009. In connection with the new presentation of our real estate operations as two reportable segments, two properties in Washington, D.C. and two properties in Duval County, Florida were reclassified out of the Royalties and rent division and the division was renamed the Mining royalty land segment. Historical results have been reclassified to conform to the new segment presentation. (2) Recent Accounting Pronouncements. On October 1, 2009, the Company adopted fair value measurement standards codified in ASC Topic 820, "Fair Value Measurements and Disclosures" (ASC 820), for non- financial assets and liabilities. ASC 820 defines fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosures about fair value measurements. On October 1, 2008, the Company adopted this standard with respect to financial assets and liabilities and elected to defer our adoption of this standard for non-financial assets and liabilities. The adoption of these standards did not materially affect the consolidated financial results of the Company. (3) Business Segments. The Company operates in three reportable business segments. The Company's operations are substantially in the Southeastern and Mid-Atlantic states. The transportation segment hauls primarily petroleum related bulk liquids and dry bulk commodities by motor carrier. The Company's real estate operations consist of two reportable segments. The Mining royalty land segment owns real estate including construction aggregate royalty sites and parcels held for investment. The Developed property rentals segment acquires, constructs, and leases office/warehouse buildings primarily in the Baltimore/Northern Virginia/Washington area and holds real estate for future development or related to its developments. The Company's transportation and real estate groups operate independently and have minimal shared overhead except for corporate expenses. Corporate expenses are allocated in fixed quarterly amounts based upon budgeted and estimated proportionate cost by segment. Unallocated corporate expenses primarily include stock compensation and corporate aircraft expenses. Operating results and certain other financial data for the Company's business segments are as follows (in thousands): Three Months ended Six Months ended March 31,___ March 31,_ _ 2010 2009 2010 2009 Revenues: Transportation $ 21,658 21,522 $ 43,739 46,504 Mining royalty land 1,009 1,476 1,996 2,781 Developed property rentals 4,843 4,779 9,275 9,336 $ 27,510 27,777 55,010 58,621 Operating profit: Transportation $ 1,936 1,883 3,790 4,276 Mining royalty land 797 1,247 1,607 2,212 Developed property rentals 1,417 1,736 2,848 3,456 Corporate expenses: Allocated to transportation (347) (410) (693) (820) Allocated to mining land (142) (138) (283) (275) Allocated to developed property (212) (206) (425) (413) Unallocated (382) (554) (735) (847) (1,083) (1,308) (2,136) (2,355) $ 3,067 3,558 6,109 7,589 Interest expense: Mining royalty land $ 9 19 21 38 Developed property rentals ___987 ___765 _2,001 _1,612 $ 996 784 2,022 1,650 Capital expenditures: Transportation $ 3,164 610 5,643 3,185 Mining royalty land 5 - 16 - Developed property rentals 1,031 2,125 1,973 8,393 $ 4,200 2,735 7,632 11,578 Depreciation, depletion and amortization: Transportation $ 1,508 1,677 3,069 3,382 Mining royalty land 24 30 47 70 Developed property rentals 1,271 1,260 2,548 2,521 Other 53 186 112 371 $ 2,856 3,153 5,776 6,344 Identifiable assets March 31, September 30, 2010 2009 Transportation $ 44,152 43,229 Discontinued Transportation Operations 1,281 1,519 Mining royalty land 28,395 28,088 Developed property rentals 163,594 164,373 Cash items 12,410 15,803 Unallocated corporate assets 4,079 3,842 $253,911 256,854 (4) Long-Term debt. Long-term debt is summarized as follows (in thousands): March 31, September 30, 2010 2009 5.6% to 8.6% mortgage notes due in installments through 2027 74,042 76,153 Less portion due within one year 4,438 4,293 $ 69,604 71,860 The Company has a $37,000,000 uncollaterized Revolving Credit Agreement with three banks, which matures on December 13, 2013. The Revolver bears interest at a rate of 1.00% over the selected LIBOR, which may change quarterly based on the Company's ratio of Consolidated Total Debt to Consolidated Total Capital, as defined. A commitment fee of 0.15% per annum is payable quarterly on the unused portion of the commitment. The commitment fee may also change quarterly based upon the ratio described above. The Revolver contains limitations on availability and restrictive covenants including limitations on paying cash dividends. Letters of credit in the amount of $12,590,000 were issued under the Revolver. As of March 31, 2010, $24,410,000 was available for borrowing and $40,247,000 of consolidated retained earnings would be available for payment of dividends. The Company was in compliance with all covenants as of March 31, 2010. The fair values of the Company's mortgage notes payable were estimated based on current rates available to the Company for debt of the same remaining maturities. At March 31, 2010, the carrying amount and fair value of such other long-term debt was $74,042,000 and $72,756,000, respectively. (5) Related Party Transactions. The Company may be considered a related party to Vulcan Materials Company (Vulcan). One director of the Company is employed by Vulcan and is related to two other Company directors. The Company, through its transportation subsidiaries, hauls commodities by tank trucks for Vulcan. Charges for these services are based on prevailing market prices. The real estate subsidiaries lease certain construction aggregates mining and other properties to Vulcan. A subsidiary of the Company (FRP) has a Joint Venture Agreement with Vulcan Materials Company (formerly Florida Rock Industries, Inc.), Brooksville Quarry, LLC, to develop approximately 4,300 acres of land near Brooksville, Florida. The venture is jointly controlled by Vulcan and FRP, and they each have a mandatory obligation to fund additional capital contributions of up to $2.1 million of which capital contributions of $1,785,000 have been made by each party as of March 31, 2010. Distributions will be made on a 50-50 basis except for royalties and depletion specifically allocated to FRP. Other income for the six months ended March 31, 2010 and 2009 includes a loss of $2,000 and $5,000, respectively, representing the Company's equity in the loss of the joint venture. (6) Earnings per share. The following details the computations of the basic and diluted earnings per common share (dollars in thousands, except per share amounts): THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, 2010 2009 2010 2009 Weighted average common shares outstanding during the period - shares used for basic earnings per common share 3,058 3,039 3,055 3,036 Common shares issuable under share based payment plans which are potentially dilutive 84 63 84 70 Common shares used for diluted earnings per common share 3,142 3,102 3,139 3,106 Net income $ 1,442 1,409 2,778 3,156 Earnings per common share Basic $ .47 .46 .91 1.04 Diluted $ .46 .45 .88 1.02 For the three and six months ended March 31, 2010, 37,070 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three and six months ended March 31 2009, 19,000 and 10,000 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per common share because their inclusion would have been anti- dilutive. For the six months ended March 31, 2009, all outstanding restricted shares were included in the calculation of diluted earnings per common share because the unrecorded compensation and tax benefits to be credited to capital in excess of par for all awards of restricted stock were lower than the average price of the common shares, and therefore were dilutive. (7) Stock-Based Compensation Plans. As more fully described in Note 7 to the Company's notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended September 30, 2009, the Company's stock-based compensation plan permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and stock awards. The number of common shares available for future issuance was 231,970 at March 31, 2010. The Company recorded the following stock compensation expense in its consolidated statements of income (in thousands): Three Months ended Six Months ended March 31, _ March 31,_ 2010 2009 2010 2009 Stock option grants $ 68 80 267 159 Restricted stock awards granted in 2006 - 51 48 102 Annual director stock award 354 294 354 294 422 425 669 555 A summary of changes in outstanding options is presented below (in thousands, except share and per share amounts): Weighted Weighted Weighted Number Average Average Average Of Exercise Remaining Grant Date Options Shares Price Term (yrs) Fair Value Outstanding at September 30, 2009 237,930 $36.70 4.5 $ 4,246 Granted 9,070 $96.48 $ 349 Exercised 4,100 $40.39 $ 78 Forfeited - $ - $ - Outstanding at March 31, 2010 242,900 $38.87 4.2 $ 4,517 Exercisable at March 31, 2010 210,330 $32.23 3.4 $ 3,407 Vested during six months ended March 31, 2010 10,400 $ 250 The aggregate intrinsic value of exercisable in-the-money options was $11,024,000 and the aggregate intrinsic value of all outstanding in- the-money options was $11,205,000 based on the market closing price of $84.48 on March 31, 2010 less exercise prices. Gains of $207,000 were realized by option holders during the six months ended March 31, 2010. The realized tax benefit from options exercised for the six months ended March 31, 2010 was $79,000. Total compensation cost of options granted but not yet vested as of March 31, 2010 was $910,000, which is expected to be recognized over a weighted-average period of 3.4 years. A summary of changes in restricted stock awards is presented below (in thousands, except per share amounts): Weighted Weighted Weighted Number Average Average Average Of Grant Remaining Grant Date Restricted Stock Shares Price Term (yrs) Fair Value Outstanding at September 30, 2009 2,550 $63.70 .3 $ 163 Granted - $ - $ - Vested 2,510 $63.66 $ 160 Forfeited 40 $66.09 $ 3 Outstanding at March 31, 2010 - $ - - $ - (8) 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. There is a reasonable possibility that the Company's estimate of vehicle and workers' compensation liability for the transportation group or discontinued operations may be understated or overstated but the possible range can not be estimated. The liability at any point in time depends upon the relative ages and amounts of the individual open claims. 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. (9) Concentrations. The transportation segment primarily serves customers in the Southeastern U.S. Significant economic disruption or downturn in this geographic region or these industries could have an adverse effect on our financial statements. During the first six months of fiscal 2010, the transportation segment's ten largest customers accounted for approximately 60.4% of the transportation segment's revenue. One of these customers accounted for 21.2% of the transportation segment's revenue. The loss of any one of these customers would have an adverse effect on the Company's revenues and income. Accounts receivable from the transportation segment's ten largest customers was $2,849,000 and $2,578,000 at March 31, 2010 and September 30, 2009 respectively. (10) Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 means the use of quoted prices in active markets for identical assets or liabilities. Level 2 means the use of values that are derived principally from or corroborated by observable market data. Level 3 means the use of inputs that are unobservable and significant to the overall fair value measurement. As of March 31, 2010 the Company had no assets or liabilities measured at fair value on a recurring basis and only one asset recorded at fair value on a non-recurring basis as it was deemed to be other-than- temporarily impaired. The fair value of the corporate aircraft of $1,850,000 is based on level 2 inputs for similar assets in the current market. The fourth quarter of fiscal 2009 included $900,000 for the impairment to estimated fair value of the corporate aircraft. The Company's decision to discontinue its use required adjustment to the lower values of the current economic environment. The fair value of note receivable (see Note 11) approximates the unpaid principal balance based upon the interest rate and credit risk of the note. The fair value of all other financial instruments with the exception of mortgage notes (see Note 4) approximates the carrying value due to the short-term nature of such instruments. (11) Discontinued operations. In August 2009 the Company sold its flatbed trucking company, SunBelt Transport, Inc. ("SunBelt"). Under the agreement, the Buyer purchased all of SunBelt's tractors and trailers, leased the SunBelt terminal facilities in Jacksonville, Florida for 36 months at a rental of $5,000 per month and leased the terminal facilities in South Pittsburgh, Tennessee for 60 months at a rental of $5,000 per month with an option to purchase the Tennessee facilities at the end of the lease for payment of an additional $100,000. The South Pittsburgh lease was recorded as a sale under bargain purchase accounting. The purchase price received for the tractors and trailers and inventories was a $1 million cash payment and the delivery of a Promissory Note requiring 60 monthly payments of $130,000 each including interest at 7%, secured by the assets of the business conveyed. In the quarter ending September 30, 2009 the Company recognized $283,000 in severance costs related to a change-in- control agreement triggered by the sale of SunBelt. The Company retained all pre-closing receivables and liabilities. SunBelt has been accounted for as discontinued operations in accordance with ASC Topic 205-20 Presentation of Financial Statements - Discontinued Operations. All periods presented have been restated accordingly. A summary of discontinued operations is as follows: Three months Six months Ended March 31, Ended March 31, 2010 2009 2010 2009 Revenue $ 11 5,454 55 12,542 Operating expenses (147) 5,724 (170) 12,972 Income (loss) before taxes 153 (466) 191 (785) Income taxes (59) 179 (73) 302 Income (loss) from discontinued operations $ 94 (287) 118 (483) The components of the balance sheet are as follows: March 31, September 30, 2010 2009 Accounts receivable $ 107 142 Other assets 1 1 Deferred income taxes 1,051 1,249 Property and equipment, net 122 127 Assets of discontinued operations $ 1,281 1,519 Accounts payable $ 83 243 Accrued payroll and benefits 2 140 Accrued liabilities, other 59 73 Insurance liabilities 2,689 3,204 Liabilities of discontinued operations $ 2,833 3,660 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview - The Company operates in two industries: transportation and real estate. The Company's transportation business is conducted through Florida Rock & Tank Lines, Inc. ("Tank Lines") which operates in the Southeastern United States. Tank Lines hauls petroleum and other liquids and dry bulk commodities by tank trailers. The Company's real estate operations consist of two reportable segments. The Mining royalty land segment owns real estate including construction aggregate royalty sites and parcels held for investment. The Developed property rentals segment acquires, constructs, and leases office/warehouse buildings primarily in the Baltimore/Northern Virginia/Washington area and holds real estate for future development or related to its developments. Substantially all of the real estate operations are conducted within the Southeastern and Mid-Atlantic United States. In prior filings the Company's real estate operations were aggregated and reported as a single segment. The prior filings additionally included results by division. In connection with the new presentation of our real estate operations as two reportable segments, two properties in Washington, D.C. and two properties in Duval County, Florida were reclassified out of the Royalties and rent division and the division was renamed the Mining royalty land segment. Historical results have been reclassified to conform to the new segment presentation. The Company's operations are influenced by a number of external and internal factors. External factors include levels of economic and industrial activity in the United States and the Southeast, driver availability and cost, regulations regarding driver qualifications and hours of service, petroleum product usage in the Southeast which is driven in part by tourism and commercial aviation, fuel costs, construction activity, aggregates sales by lessees from the Company's mining properties, interest rates, market conditions and attendant prices for casualty insurance, demand for commercial warehouse space in the Baltimore-Washington-Northern Virginia area, and ability to obtain zoning and entitlements necessary for property development. Internal factors include revenue mix, capacity utilization, auto and workers' compensation accident frequencies and severity, other operating factors, administrative costs, group health claims experience, and construction costs of new projects. There is a reasonable possibility that the Company's estimate of vehicle and workers' compensation liability for the transportation group or discontinued operations may be understated or overstated but the possible range can not be estimated. The liability at any point in time depends upon the relative ages and amounts of the individual open claims. Financial results of the Company for any individual quarter are not necessarily indicative of results to be expected for the year. Discontinued Operation. In August 2009 the Company sold its flatbed trucking company, SunBelt Transport, Inc. ("SunBelt"). Under the agreement, the buyer purchased all of SunBelt's tractors and trailers, leased the SunBelt terminal facilities in Jacksonville, Florida for 36 months at a rental of $5,000 per month and leased the terminal facilities in South Pittsburgh, Tennessee for 60 months at a rental of $5,000 per month with an option to purchase the Tennessee facilities at the end of the lease for payment of an additional $100,000. The South Pittsburgh lease was recorded as a sale under bargain purchase accounting. The purchase price received for the tractors and trailers and inventories was a $1 million cash payment and the delivery of a Promissory Note requiring 60 monthly payments of $130,000 each including interest at 7%, secured by the assets of the business conveyed. The Company retained all pre-closing receivables and liabilities. SunBelt has been accounted for as discontinued operations in accordance with ASC Topic 205-20 Presentation of Financial Statements - Discontinued Operations. All periods presented have been restated accordingly. Comparative Results of Operations for the Three Months Ended March 31, 2010 and 2009 Consolidated Results - Net income for the second quarter of fiscal 2010 increased 2.3% to $1,442,000 compared to $1,409,000 for the same period last year. Diluted earnings per common share for the second quarter of fiscal 2010 were $0.46 compared to $0.45 for the same quarter last year. Transportation segment results were slightly higher due to reduced vehicle accident costs mostly offset by reduced miles driven and lower equipment sale gains. The mining royalty land segment's results were lower due to reduced mining royalties and lower timber sales. The Developed property rentals segment's results were lower due to lower developed property occupancy. Income from discontinued operations favorably impacted net income due losses from operations in the prior year and lower than expected retained liabilities. Transportation Results Three Months Ended March 31 (dollars in thousands) ___2010 % 2009 %_ Transportation revenue $ 18,787 87% 19,852 92% Fuel surcharges 2,871 13% 1,670 8% Revenues 21,658 100% 21,522 100% Compensation and benefits 8,297 38% 8,644 40% Fuel expenses 4,174 19% 3,186 15% Insurance and losses 1,571 7% 2,353 11% Depreciation expense 1,469 7% 1,635 8% Other, net 2,311 11% 1,761 8% Sales, general & administrative 1,900 9% 2,060 9% Allocated corporate expenses 347 2% 410 2% Cost of operations 20,069 93% 20,049 93% Operating profit $ 1,589 7% 1,473 7% The Company announced on January 6, 2010 that the transportation group had been unsuccessful in renewing certain contracts with significant customers. For the fiscal year ending September 30, 2009 the revenue from these customers was $10,012,000 or approximately 11.0% of transportation group revenue. Revenue miles in the current quarter were down 5.7% compared to the second quarter of 2009 primarily due to this loss of business. Approximately 2.9% of miles during the quarter were from transition services related to the contracts that were not renewed. Transportation segment revenues were $21,658,000 in the second quarter of 2010, an increase of $136,000 over the same quarter last year. Fuel surcharge revenue increased $1,201,000. Excluding fuel surcharges, revenue per mile increased .4% over the same quarter last year. The average price paid per gallon of diesel fuel increased by $.69 or 35.5% over the same quarter in fiscal 2009. The Transportation segment's cost of operations was $20,069,000 in the second quarter of 2010, an increase of $20,000 over the same quarter last year. The Transportation segment's cost of operations in the second quarter of 2010 as a percentage of revenue was 93% consistent with the second quarter of 2009. Compensation and benefits decreased $347,000 or 4.0% compared to the same quarter last year due to the decrease in miles driven partially offset by increased driver minimum pay and unemployment tax increases. Fuel surcharge revenue increased $1,201,000 while fuel cost increased by only $988,000 leaving a positive impact to operating profit of $213,000. Insurance and losses decreased $782,000 compared to the same quarter last year due to reduced vehicle accident costs, a decrease in group health expense and reduced miles driven. Depreciation expense decreased $166,000 due to fewer trucks in service and existing trailers becoming fully depreciated. Other expense increased $550,000 primarily due to lower gains on equipment sales partially due to reduced market values of used equipment. Selling general and administrative costs decreased $160,000 or 7.8% compared to the same quarter last year due to lower staffing. Allocated corporate expenses decreased $63,000 due to reduced allocation to the Transportation segment as a result of the sale of SunBelt. Mining Royalty Land Results Three Months Ended March 31 (dollars in thousands) ___2010 % 2009 %_ Mining royalty land revenue $ 1,009 100% 1,476 100% Property operating expenses 148 15% 152 10% Depreciation and depletion 24 2% 30 2% Management Company indirect 40 4% 47 3% Allocated corporate expense 142 14% 138 10% Cost of operations 354 35% 367 25% Operating profit $ 655 65% 1,109 75% Mining royalty land segment revenues for the second quarter of fiscal 2010 were $1,009,000, a decrease of $467,000 or 31.6% over the same quarter last year, due to decreased demand for mined tons and a $374,000 decrease in revenues from timber sales. The mining royalty land segment's cost of operations was $354,000 in the second quarter of 2010, a decrease of $13,000. Developed Property Rentals Results Three Months Ended March 31 (dollars in thousands) ___2010 % 2009 %_ Developed property rentals revenue $ 4,843 100% 4,779 100% Property operating expenses 1,791 37% 1,361 29% Depreciation and amortization 1,271 26% 1,261 26% Management Company indirect 364 8% 421 9% Allocated corporate expense 212 4% 206 4% Cost of operations 3,638 75% 3,249 68% Operating profit $ 1,205 25% 1,530 32% Developed property rentals segment revenues for the second quarter of fiscal 2010 were $4,843,000, an increase of $64,000 or 1.3% due to $407,000 of snow removal reimbursements partly offset by reduced occupancy. Developed property segment's cost of operations was $3,638,000 in the second quarter of 2010, an increase of $389,000 or 12.0%. Property operating expenses increased $430,000 due to increased snow removal expenses and higher property taxes. Depreciation and amortization increased $10,000 due to a new building placed into service April 2009. Management Company indirect expenses (excluding lease related property management fees) decreased $57,000 due to reduced salaries from the staffing level adjustments completed during fiscal 2009. Allocated corporate expenses increased $6,000 due to increased allocation to the real estate segment resulting from the sale of SunBelt. Consolidated Results Operating Profit - Consolidated operating profit was $3,067,000 in the second quarter of fiscal 2010, a decrease of $491,000 or 13.8% compared to $3,558,000 in the same period last year. Operating profit in the transportation segment increased $116,000 or 7.9% due to reduced vehicle accident costs mostly offset by reduced miles driven and lower equipment sale gains. Operating profit in the mining royalty land segment decreased $454,000 or 40.9% due to decreased demand for tons mined and decreased timber sales. Operating profit in the Developed property rentals segment decreased $325,000 or 21.2% due to reduced occupancy of developed properties. Consolidated operating profit includes corporate expenses not allocated to any segment in the amount of $382,000 in the second quarter of fiscal 2010, a decrease of $172,000 compared to the same period last year. These unallocated corporate expenses primarily include stock compensation and corporate aircraft expenses. Interest expense - Interest expense increased $212,000 over the same quarter last year due to lower capitalized interest. Income taxes - Income tax expense decreased $240,000 over the same quarter last year due to decreased earnings. Income from continuing operations - Income from continuing operations was $1,348,000 or $.43 per diluted share in the second quarter of fiscal 2010, a decrease of 20.5% compared to $1,696,000 or $.55 per diluted share for the same period last year. Discontinued operations - The after tax income from discontinued operations for the second quarter of fiscal 2010 was $94,000 versus a loss of $287,000 for the same period last year. Diluted earnings on discontinued operations for the second quarter of fiscal 2010 was $.03 compared to a diluted loss of $.10 in the second quarter of fiscal 2009. Net income - Net income for the second quarter of fiscal 2010 increased 2.3% to $1,442,000 compared to $1,409,000 for the same period last year. Diluted earnings per common share for the second quarter of fiscal 2010 were $0.46 compared to $0.45 for the same quarter last year. Transportation segment results were slightly higher due to reduced vehicle accident costs mostly offset by reduced miles driven and lower equipment sale gains. The mining royalty land segment's results were lower due to reduced mining royalties and lower timber sales. The Developed property rentals segment's results were lower due to lower developed property occupancy. Income from discontinued operations favorably impacted net income due losses from operations in the prior year and lower than expected retained liabilities. Comparative Results of Operations for the Six Months Ended March 31, 2010 and 2009 Consolidated Results - Net income for the first six months of fiscal 2010 decreased 12.0% to $2,778,000 compared to $3,156,000 for the same period last year. Diluted earnings per common share for the first six months of fiscal 2010 were $0.88 compared to $1.02 in the first six months of fiscal 2009. Transportation segment results were lower due to reduced miles driven and higher fuel costs net of surcharges. Mining royalty land segment's results were lower due to reduced mining royalties and lower timber sales. Developed property rentals segment's results were lower due to lower developed property occupancy. Income from discontinued operations favorably impacted net income due to lower than expected retained liabilities and losses in the prior year from operations. Transportation Results Six Months Ended March 31 (dollars in thousands) ___2010 % 2009 %_ Transportation revenue $ 38,254 87% 40,865 88% Fuel surcharges 5,485 13% 5,639 12% Revenues 43,739 100% 46,504 100% Compensation and benefits 16,616 38% 18,181 39% Fuel expenses 8,079 18% 7,713 17% Insurance and losses 3,836 9% 4,616 10% Depreciation expense 2,992 7% 3,295 7% Other, net 4,529 10% 4,117 9% Sales, general & administrative 3,897 9% 4,306 9% Allocated corporate expenses 693 2% 820 2% Cost of operations 40,642 93% 43,048 93% Operating profit $ 3,097 7% 3,456 7% The Company announced on January 6, 2010 that the transportation group had been unsuccessful in renewing certain contracts with significant customers. For the fiscal year ending September 30, 2009 the revenue from these customers was $10,012,000 or approximately 11.0% of transportation group revenue. Revenue miles in the first six months of fiscal 2010 were down 7.5% compared to the first six months of 2009 due to this loss of business along with lower demand and a competitive economic climate. Approximately 6.6% of miles during the first six months of fiscal 2010 were from services related to the contracts that were not renewed. Transportation segment revenues were $43,739,000 in the first six months of 2010, a decrease of $2,765,000 over the same period last year. Fuel surcharge revenue decreased $154,000. Excluding fuel surcharges, revenue per mile increased 1.3% over the same period last year. The average price paid per gallon of diesel fuel increased by $.27 or 11.8% over the same period last year. The Transportation segment's cost of operations was $40,642,000 in the first six months of 2010, a decrease of $2,406,000 over the same period last year. The Transportation segment's cost of operations in the first six months of 2010 as a percentage of revenue was 93% consistent with the first six months of 2009. Compensation and benefits decreased $1,565,000 or 8.6% compared to the same period last year due to the decrease in miles driven and lower driver turnover related pay. Fuel surcharge revenue decreased $154,000 while fuel cost increased by $366,000 leaving a negative impact to operating profit of $520,000. Insurance and losses decreased $780,000 compared to the same period last year due to reduced vehicle accident costs and reduced miles driven partially offset by a $123,000 increase in group health expense. Depreciation expense decreased $303,000 due to fewer trucks in service and existing trailers becoming fully depreciated. Other expense increased $412,000 primarily due to lower gains on equipment sales partially due to reduced market values of used equipment. Selling general and administrative costs decreased $409,000 or 9.5% compared to the same period last year due to lower staffing. Allocated corporate expenses decreased $127,000 due to reduced allocation to the Transportation segment as a result of the sale of SunBelt. Mining Royalty Land Results Six Months Ended March 31 (dollars in thousands) ___2010 % 2009 %_ Mining royalty land revenue $ 1,996 100% 2,781 100% Property operating expenses 259 13% 398 14% Depreciation and depletion 47 3% 70 2% Management Company indirect 83 4% 101 4% Allocated corporate expense 283 14% 275 10% Cost of operations 672 34% 844 30% Operating profit $ 1,324 66% 1,937 70% Mining royalty land segment revenues for the first six months of fiscal 2010 were $1,996,000, a decrease of $785,000 or 28.2% over the same period last year due to decreased demand for mined tons and a $535,000 decrease in revenues from timber sales. Mining royalty land segment's cost of operations was $672,000 in the first six months of fiscal 2010, a decrease of $172,000 over the same period last year. Property operating expenses decreased $139,000 due to lower maintenance and other costs. Depreciation and depletion expenses decreased $23,000 due to reduced tons mined. Management Company indirect expenses (excluding lease related property management fees) decreased $18,000. Allocated corporate expenses increased $8,000 due to increased allocation to the real estate segment resulting from the sale of SunBelt. Developed Property Rentals Results Six Months Ended March 31 (dollars in thousands) ___2010 % 2009 %_ Developed property rentals revenue 9,275 100% 9,336 100% Property operating expenses 3,133 34% 2,452 26% Depreciation and amortization 2,548 27% 2,522 27% Management Company indirect 746 8% 906 10% Allocated corporate expense 425 5% 413 4% Cost of operations 6,852 74% 6,293 67% Operating profit $ 2,423 26% 3,043 33% Developed property rentals segment revenues for the first six months of fiscal 2010 were $9,275,000, a decrease of $61,000 or .7% over the same period last year due to reduced occupancy partly offset by a $656,000 increase in tenant reimbursements for snow removal. Developed property rentals segment's cost of operations was $6,852,000 for the first six months of fiscal 2010, an increase of $559,000 over the same period last year. Property operating expenses increased $681,000 due to increased snow removal expenses and higher property taxes. Depreciation and amortization increased $26,000 due to a new building placed into service April 2009. Management Company indirect expenses (excluding lease related property management fees) decreased $160,000 due to reduced salaries from the staffing level adjustments completed during fiscal 2009. Allocated corporate expenses increased $12,000 due to increased allocation to the real estate segment resulting from the sale of SunBelt. Consolidated Results Operating Profit - Consolidated operating profit was $6,109,000 in the first six months of fiscal 2010, a decrease of $1,480,000 or 19.5% compared to $7,589,000 in the same period last year. Operating profit in the transportation segment decreased $359,000 or 10.4% due to reduced miles driven and higher fuel costs net of surcharges. Operating profit in the mining royalty land segment decreased $613,000 or 31.6% due to decreased demand for tons mined and lower timber sales. Operating profit in the Developed property rentals segment decreased $620,000 or 20.4% due to reduced occupancy of developed properties. Consolidated operating profit includes corporate expenses not allocated to any segment in the amount of $735,000 in the first six months of fiscal 2010, a decrease of $112,000 compared to the same period last year. These unallocated corporate expenses primarily include stock compensation and corporate aircraft expenses. Interest expense - Interest expense increased $372,000 over the same period last year due to lower capitalized interest. Income taxes - Income tax expense decreased $664,000 over the same period last year due to decreased earnings. Income from continuing operations - Income from continuing operations was $2,660,000 or $.84 per diluted share in the first six months of fiscal 2010, a decrease of 26.9% compared to $3,639,000 or $1.18 per diluted share for the same period last year. Discontinued operations - The after tax income from discontinued operations for the first six months of fiscal 2010 was $118,000 versus a loss of $483,000 for the same period last year. Diluted earnings on discontinued operations for the first six months of fiscal 2010 was $.04 compared to a diluted loss of $.16 in the first six months of fiscal 2009. Net income - Net income for the first six months of fiscal 2010 decreased 12.0% to $2,778,000 compared to $3,156,000 for the same period last year. Diluted earnings per common share for the first six months of fiscal 2010 were $0.88 compared to $1.02 for the same period last year. Transportation segment results were lower due to reduced miles driven and higher fuel costs net of surcharges. The mining royalty land segment's results were lower due to reduced mining royalties and lower timber sales. The Developed property rentals segment's results were lower due to lower developed property occupancy. Income from discontinued operations favorably impacted net income due losses from operations in the prior year and lower than expected retained liabilities. Liquidity and Capital Resources. For the first six months of fiscal 2010, the Company used cash provided by operating activities of continuing operations of $5,734,000, proceeds received on notes of $582,000, proceeds from the sale of plant, property and equipment of $563,000, proceeds from the exercise of employee stock options of $166,000, excess tax benefits from the exercise of stock options of $61,000 and cash balances to purchase $5,643,000 in transportation equipment, to expend $16,000 in mining land development, to expend $1,973,000 in real estate development, to invest $285,000 in the Brooksville Joint Venture and to make $2,111,000 scheduled payments on long-term debt. Cash used in the operating activities of discontinued operations was $471,000. Cash decreased $3,393,000. In August 2009 the Company sold its flatbed trucking company, SunBelt Transport, Inc. ("SunBelt"). The purchase price received for the tractors and trailers and inventories was a $1 million cash payment and the delivery of a Promissory Note requiring 60 monthly payments of $130,000 each including 7% interest, secured by the assets of the business conveyed. The Company retained all pre-closing receivables and liabilities. SunBelt has been accounted for as discontinued operations. All periods presented have been restated accordingly. Cash flows from operating activities for the first six months of fiscal 2010 were $7,826,000 lower than the same period last year primarily due to lower revenues and higher income tax payments related to the sale of SunBelt. Also, the same period last year included an unusually large decrease in accounts receivable both in continuing operations and discontinued operations resulting from lower fuel surcharge revenues. Cash flows used in investing activities for the first six months of fiscal 2010 were $4,375,000 lower primarily reflecting lower construction levels in the developed property segment. Cash flows used in financing activities for the first six months of fiscal 2010 were $48,000 lower than the same period last year due to increased stock options exercised by employees and an increase of $135,000 in mortgage payments. The Company has a $37,000,000 uncollaterized Revolving Credit Agreement with three banks, which matures on December 13, 2013. The Revolver contains limitations on availability and restrictive covenants including limitations on paying cash dividends. During the past year letters of credit in the amount of $12,590,000 were issued under the Revolver. As of March 31, 2010, $24,410,000 was available for borrowing and $40,247,000 of consolidated retained earnings would be available for payment of dividends. The Company was in compliance with all covenants as of March 31, 2010. The Company had $14,191,000 of irrevocable letters of credit outstanding as of March 31, 2010. Most of the letters of credit are irrevocable for a period of one year and are automatically extended for additional one-year periods until notice of non-renewal is received from the issuing bank not less than thirty days before the expiration date. These were issued for insurance retentions and to guarantee certain obligations to state agencies related to real estate development. During fiscal 2009 the Company faced increased fees at the annual renewal of its letters of credit. The Company issued replacement letters of credit through the Revolver to reduce fees. The Board of Directors has authorized Management to repurchase shares of the Company's common stock from time to time as opportunities arise. As of March 31, 2010, $5,625,000 was authorized for future repurchases of common stock. The Company does not currently pay any dividends on common stock. The Company has committed to make additional capital contributions of up to $315,000 over the next 12 months to Brooksville Quarry, LLC in connection with a joint venture with Vulcan. 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. Recent Accounting Pronouncements. On October 1, 2009, the Company adopted fair value measurement standards codified in ASC Topic 820, "Fair Value Measurements and Disclosures" (ASC 820), for non-financial assets and liabilities. ASC 820 defines fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosures about fair value measurements. On October 1, 2008, the Company adopted this standard with respect to financial assets and liabilities and elected to defer our adoption of this standard for non-financial assets and liabilities. The adoption of these standards did not materially affect the consolidated financial results of the Company. Related Party Transactions. The Company, through its transportation subsidiaries, hauls commodities by tank and flatbed trucks for Vulcan Materials Company (Vulcan). Charges for these services are based on prevailing market prices. The real estate subsidiaries lease certain construction aggregates mining and other properties to Vulcan. On October 4, 2006, a subsidiary of the Company (FRP) entered into a Joint Venture Agreement with Vulcan Materials Company (formerly Florida Rock Industries, Inc.) to form Brooksville Quarry, LLC, to develop approximately 4,300 acres of land near Brooksville, Florida. The venture is jointly controlled by Vulcan and FRP, and they each have a mandatory obligation to fund additional capital contributions of up to $2.1 million of which capital contributions of $1,785,000 have been made by each party as of March 31, 2010. Distributions will be made on a 50-50 basis except for royalties and depletion specifically allocated to FRP. Other income for the six months ended March 31, 2010 and 2009 includes a loss of $2,000 and $5,000, respectively, representing the Company's equity in the loss of the joint venture. Summary and Outlook. Transportation segment results for the second quarter improved over the same quarter last year even though revenue miles were down 5.7% versus the prior year's quarter. The Company continues to succeed in replacing customers from the non-renewed contracts announced January 6, 2010 and anticipates recovering from new customers substantially all the lost revenue miles over the next few quarters, albeit at lower margins. Operating profit from the leasing of developed buildings has been unfavorably impacted by three newer buildings brought into service in the past eighteen months, which are vacant, along with two nearly vacant buildings in Delaware impacted by automobile plant closings and the residential housing downturn. We are encouraged by the recent execution of a lease with a new tenant for 20,000 square feet in one of our new buildings but prospective tenants for vacant space remain fewer than in the past few years and competition for their contracts is intense. The Company is not presently engaged in the construction of any new buildings. In July 2008, a subsidiary of the Company, FRP Bird River, LLC, entered into an agreement to sell approximately 121 acres of land in Baltimore County, Maryland to Mackenzie Investment Group, LLC. The purchase price for the property is $25,075,000, subject to certain potential purchase price adjustments. The agreement of sale is subject to certain contingencies including satisfactory completion of the buyer's inspection period and additional government approvals and closing may be one and one half or more years away. The cost of the property of $5,677,000 is included in Real estate held for investment rather than held for sale because of the original and current expectation that the sale would not be completed within one year. The purchaser has placed non-refundable deposits of $1,000,000 under this contract in escrow including $650,000 in March 2009. Preliminary approval for the development as originally contemplated under the agreement's pricing contingencies has now been received and the time for any appeals from that approval expired. In February 2010, a subsidiary of the Company, Florida Rock Properties, Inc., entered into an agreement to sell approximately 1,844 acres of land in Caroline County, Virginia, to the Commonwealth of Virginia, Board of Game and Inland Fisheries. The purchase price for the property is $5,200,000, subject to certain deductions. The Company is also donating the value of minerals and aggregates. The agreement of sale is subject to certain contingencies including satisfactory completion of the buyer's inspection period, federal government funding and additional government approvals. The contract expires if not completed before September 21, 2010. The Company's book value of the property is $233,000 and is included in Real estate held for investment rather than held for sale due to open contingencies at March 31, 2010. The Federal Appraisal Review was completed in April, 2010 triggering the 90 day study period. If the sale closes, the Company may use the proceeds in a 1031 exchange for the purchase of real estate. In May 2008, the Company received final approval from the Zoning Commission of the District of Columbia of its planned unit development application for the Company's 5.8 acre undeveloped waterfront site on the Anacostia River in Washington, D.C. This site is located adjacent to the recently opened Washington Nationals Baseball Park. The site currently is leased to Vulcan Materials Company on a month-to-month basis. The approved planned unit development permits the Company to develop a four building, mixed use project, containing approximately 545,800 square feet of office and retail space and approximately 569,600 square feet of additional space for residential and hotel uses. The approved development would include numerous publicly accessible open spaces and a waterfront esplanade along the Anacostia River. In November 2009, the Company received a two-year extension for commencement of this project, moving the construction commencement date to June 2013. The Company sought this extension because of negative current market indications. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to market risk from changes in interest rates. For its cash and cash equivalents, a change in interest rates affects the amount of interest income that can be earned. For its debt instruments with variable interest rates, changes in interest rates affect the amount of interest expense incurred. The Company prepared a sensitivity analysis of its cash and cash equivalents to determine the impact of hypothetical changes in interest rates on the Company's results of operations and cash flows. The interest-rate analysis assumed a 50 basis point adverse change in interest rates on all cash and cash equivalents. However, the interest-rate analysis did not consider the effects of the reduced level of economic activity that could exist in such an environment. Based on this analysis, management has concluded that a 50 basis point adverse move in interest rates on the Company's cash and cash equivalents would have an immaterial impact on the Company's results of operations and cash flows. ITEM 4. 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 March 31, 2010, 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, 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. There have been no changes in the Company's internal controls over financial reporting during the first six months that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 1A. RISK FACTORS In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Item 5. OTHER INFORMATION On February 3, 2010, the Company held its annual shareholders meeting. At the meeting, the shareholders elected the following directors by the vote shown: Term Votes Votes Broker/ Ending For Withhold Non-Votes Thompson S. Baker II 2014 2,407,763 122,534 - Martin E. Stein, Jr. 2014 2,448,146 82,151 - The directors whose terms of office as director have continued after the meeting are John E. Anderson, Edward L. Baker, John D. Baker II, Charles E. Commander III, Luke E. Fichthorn III, Robert H. Paul III, H.W. Shad III and James H. Winston. In addition, the shareholders ratified the appointment by the Audit Committee of Hancock Askew & Co., LLP as the Company's independent auditors for the fiscal year 2010 by the vote shown: Votes for: 2,902,922 Votes against: 710 Abstaining: 1,819 Item 6. EXHIBITS (a) Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", on page 27. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. May 5, 2010 PATRIOT TRANSPORTATION HOLDING, INC. John D. Baker II John D. Baker II President and Chief Executive Officer John D. Milton, Jr. John D. Milton Executive Vice President, Treasurer, Secretary and Chief Financial Officer John D. Klopfenstein John D. Klopfenstein Controller and Chief Accounting Officer PATRIOT TRANSPORTATION HOLDING, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2010 EXHIBIT INDEX (14) Financial Code of Ethical Conduct between the Company, Chief Executive Officers and Financial Managers, as revised on January 28, 2004, which is available on the Company's website at www.patriottrans.com. (31)(a) Certification of John D. Baker II. (31)(b) Certification of John D. Milton, Jr. (31)(c) Certification of John D. Klopfenstein. (32) Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer under Section 906 of the Sarbanes-Oxley Act of 2002.