10-Q 1 patrmarq11.txt PATR MARCH 2011 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, 2011 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 the latest practicable date. On March 31, 2011 there were 9,279,623 shares of Common Stock, $.10 par value per share, outstanding (adjusted for 3-for-1 stock split). PATRIOT TRANSPORTATION HOLDING, INC. FORM 10-Q QUARTER ENDED MARCH 31, 2011 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 25 Part II. Other Information Item 1A. Risk Factors 27 Item 2. Purchase of Equity Securities by the Issuer 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 2011 2010 Current assets: Cash and cash equivalents $ 16,624 17,151 Accounts receivable (net of allowance for doubtful accounts of $118 and $83, respectively) 6,627 5,940 Federal and state income taxes receivable - 930 Notes receivable 1,310 1,238 Inventory of parts and supplies 1,115 665 Deferred income taxes 477 - Prepaid tires on equipment 1,260 1,246 Prepaid taxes and licenses 806 1,813 Prepaid insurance 1,243 2,185 Prepaid expenses, other 110 62 Real estate held for sale, at cost 5,808 - Assets of discontinued operations 147 542 Total current assets 35,527 31,772 Property, plant and equipment, at cost 305,900 294,752 Less accumulated depreciation and depletion 100,689 96,636 Net property, plant and equipment 205,211 198,116 Real estate held for investment, at cost 1,040 7,124 Investment in joint venture 7,453 7,344 Goodwill 1,087 1,087 Notes receivable, less current portion 3,246 4,382 Unrealized rents 3,427 3,357 Other assets 3,916 4,530 Total assets $260,907 257,712 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 3,143 3,384 Federal and state income taxes payable 52 - Deferred income taxes - 174 Accrued payroll and benefits 3,922 5,255 Accrued insurance 2,775 2,373 Accrued liabilities, other 537 994 Long-term debt due within one year 4,742 4,588 Liabilities of discontinued operations 160 1,327 Total current liabilities 15,331 18,095 Long-term debt, less current portion 64,862 67,272 Deferred income taxes 16,340 16,084 Accrued insurance 2,582 2,483 Other liabilities 1,758 1,722 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, 9,279,623 and 9,278,088 shares issued and outstanding, respectively 928 928 Capital in excess of par value 38,381 37,511 Retained earnings 120,705 113,597 Accumulated other comprehensive income, net 20 20 Total shareholders' equity 160,034 152,056 Total liabilities and shareholders' equity $260,907 257,712 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, 2011 2010 2011 2010 Revenues: Transportation $23,036 21,658 46,027 43,739 Mining royalty land 918 1,009 2,013 1,996 Developed property rentals 4,636 4,843 8,813 9,275 Total revenues 28,590 27,510 56,853 55,010 Cost of operations: Transportation 21,034 19,934 42,037 40,371 Mining royalty land 352 354 691 672 Developed property rentals 3,499 3,638 6,645 6,852 Unallocated corporate 521 517 1,108 1,006 Total cost of operations 25,406 24,443 50,481 48,901 Operating profit: Transportation 2,002 1,724 3,990 3,368 Mining royalty land 566 655 1,322 1,324 Developed property rentals 1,137 1,205 2,168 2,423 Unallocated corporate (521) (517) (1,108) (1,006) Total operating profit 3,184 3,067 6,372 6,109 Interest income and other 99 119 201 234 Equity in loss of joint venture (2) (1) (2) (2) Interest expense (838) (996) (1,744) (2,022) Income before income taxes 2,443 2,189 4,827 4,319 Provision for income taxes (938) (841) (1,854) (1,659) Income from continuing operations 1,505 1,348 2,973 2,660 Income from discontinued operations, net 178 94 5,105 118 Net income $ 1,683 1,442 8,078 2,778 Earnings per common share: Income from continuing operations - Basic $ .16 .15 .32 .29 Diluted $ .16 .14 .31 .28 Discontinued operations (Note 11) - Basic $ .02 .01 .55 .01 Diluted $ .02 .01 .54 .01 Net income - basic $ .18 .16 .87 .30 Net income - diluted $ .18 .15 .85 .29 Number of shares (in thousands) used in computing: -basic earnings per common share 9,272 9,175 9,272 9,164 -diluted earnings per common share 9,453 9,425 9,457 9,417 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2011 AND 2010 (In thousands) (Unaudited) 2011 2010 Cash flows from operating activities: Net income $ 8,078 2,778 Adjustments to reconcile net income to net cash provided by continuing operating activities: Depreciation, depletion and amortization 6,161 5,776 Deferred income taxes (476) (540) Equity in loss of joint venture 2 2 (Gain) on sale of equipment (233) (135) (Income) from discontinued operations, net (5,105) (118) Stock-based compensation 545 669 Net changes in operating assets and liabilities: Accounts receivable (687) (1,082) Inventory of parts and supplies (450) (37) Prepaid expenses and other current assets 1,887 2,176 Other assets 218 (70) Accounts payable and accrued liabilities (1,629) (1,853) Income taxes payable and receivable 1,324 (1,701) Long-term insurance liabilities and other long-term liabilities 135 (131) Net cash provided by operating activities of continuing operations 9,770 5,734 Net cash used in operating activities of discontinued operations (593) (471) Net cash provided by operating activities 9,177 5,263 Cash flows from investing activities: Purchase of transportation group property and equipment (3,159) (5,643) Investments in mining royalty land segment - (16) Investments in developed property rentals segment (5,010) (1,973) Investment in joint venture (114) (285) Proceeds from the sale of property, plant and equipment 416 563 Proceeds received on note for sale of SunBelt 1,064 582 Net cash used in investing activities (6,803) (6,772) Cash flows from financing activities: Repayment of long-term debt (2,256) (2,111) Repurchase of Company Stock (1,145) - Excess tax benefits from exercises of stock options and vesting of restricted stock 249 61 Exercise of employee stock options 251 166 Net cash used in financing activities (2,901) (1,884) Net (decrease) in cash and cash equivalents (527) (3,393) Cash and cash equivalents at beginning of period 17,151 15,803 Cash and cash equivalents at end of the period $ 16,624 12,410 The Company recorded a non-cash transaction from an exchange of real estate of $4,941 in December 2010 along with a related deferred tax liability of $1,792 and a $2,053 permanent tax benefit on the value of donated minerals and aggregates which was recorded as a $342 receivable and $1,711 deferred tax. See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 (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, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2011. 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, 2010. In connection with the presentation adopted in March, 2010 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) Stock Split. On December 1, 2010, the board of directors declared a 3-for-1 stock split of the Company's common stock in the form of a stock dividend. The record date for the split was January 3, 2011 and the new shares were issued on January 17, 2011. The total authorized shares remained 25 million and par value of common stock remained unchanged at $0.10 per share. All share and per share information presented has been adjusted to reflect this stock split. (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 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. 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. Reclassifications to prior period amounts have been made to be comparable to the current presentation. 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,_ _ 2011 2010 2011 2010 Revenues: Transportation $ 23,036 21,658 $ 46,027 43,739 Mining royalty land 918 1,009 2,013 1,996 Developed property rentals 4,636 4,843 8,813 9,275 $ 28,590 27,510 56,853 55,010 Operating profit: Transportation $ 2,392 2,070 4,769 4,061 Mining royalty land 718 797 1,627 1,607 Developed property rentals 1,365 1,417 2,625 2,848 Corporate expenses: Allocated to transportation (390) (346) (779) (693) Allocated to mining land (152) (142) (305) (283) Allocated to developed property (228) (212) (457) (425) Unallocated (521) (517) (1,108) (1,006) (1,291) (1,217) (2,649) (2,407) $ 3,184 3,067 6,372 6,109 Interest expense: Mining royalty land $ 9 9 18 21 Developed property rentals ___829 _ 987 _1,726 _2,001 $ 838 996 1,744 2,022 Capital expenditures: Transportation $ 1,363 3,164 3,159 5,643 Mining royalty land - 5 - 16 Developed property rentals: Capitalized interest 316 233 583 457 Internal labor 149 74 260 118 Real estate taxes 269 367 572 579 Other costs (a) 1,557 357 3,595 819 $ 3,654 4,200 8,169 7,632 (a)Net of 1031 exchange of $4,941 Depreciation, depletion and amortization: Transportation $ 1,563 1,508 3,098 3,069 Mining royalty land 26 24 51 47 Developed property rentals 1,316 1,271 2,617 2,548 Other 48 53 395 112 $ 2,953 2,856 6,161 5,776 March 31, September 30, 2011 2010 Identifiable net assets Transportation $ 41,748 43,100 Discontinued Transportation Operations 147 542 Mining royalty land 28,295 28,651 Developed property rentals 171,356 164,601 Cash items 16,624 17,151 Unallocated corporate assets 2,737 3,667 $260,907 257,712 (4) Long-Term debt. Long-term debt is summarized as follows (in thousands): March 31, September 30, 2011 2010 5.6% to 8.6% mortgage notes due in installments through 2027 69,604 71,860 Less portion due within one year 4,742 4,588 $ 64,862 67,272 The Company has a $37,000,000 uncollateralized 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 $13,942,000 were issued under the Revolver. As of March 31, 2011, $23,058,000 was available for borrowing and $48,686,000 of consolidated retained earnings would be available for payment of dividends. The Company was in compliance with all covenants as of March 31, 2011. 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, 2011, the carrying amount and fair value of such other long-term debt was $69,604,000 and $70,574,000, respectively. (5) Transactions with Vulcan Materials Company. The Company previously may have been considered a related party to Vulcan Materials Company (Vulcan). One director of the Company was employed by Vulcan until September 17, 2010 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. Revenue from Vulcan for the first six months of fiscal 2011 was $3,169,000 compared to $3,501,000 for the same period last year. 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. 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, 2011 and March 31, 2010 includes a loss of $2,000 and $2,000, 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, 2011 2010 2011 2010 Weighted average common shares outstanding during the period - shares used for basic earnings per common share 9,272 9,175 9,272 9,164 Common shares issuable under share based payment plans which are potentially dilutive 181 250 185 253 Common shares used for diluted earnings per common share 9,453 9,425 9,457 9,417 Net income $ 1,683 1,442 8,078 2,778 Earnings per common share Basic $ .18 .16 .87 .30 Diluted $ .18 .15 .85 .29 For the three and six months ended March 31, 2011 132,870 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 2010, 37,070 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. (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, 2010, 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 644,250 at March 31, 2011. 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,_ 2011 2010 2011 2010 Stock option grants $ 79 68 211 267 Restricted stock awards granted in 2006 - - - 48 Annual director stock award 334 354 334 354 413 422 545 669 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 October 1, 2010 633,900 $14.00 4.1 $ 4,206 Granted 29,160 $25.60 $ 293 Exercised 33,035 $ 7.56 $ 132 Forfeited - $ - $ - Outstanding at March 31, 2011 630,025 $14.88 4.0 $ 4,367 Exercisable at March 31, 2011 531,397 $12.65 3.2 $ 3,261 Vested during six months ended March 31, 2011 11,442 $ 113 The aggregate intrinsic value of exercisable in-the-money options was $7,579,000 and the aggregate intrinsic value of all outstanding in- the-money options was $7,688,000 based on the market closing price of $26.75 on March 31, 2011 less exercise prices. Gains of $680,000 were realized by option holders during the six months ended March 31, 2011. The realized tax benefit from options exercised for the six months ended March 31, 2011 was $261,000. Total compensation cost of options granted but not yet vested as of March 31, 2011 was $856,000, which is expected to be recognized over a weighted-average period of 2.7 years. (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 industries 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 2011, the transportation segment's ten largest customers accounted for approximately 56.1% of the transportation segment's revenue. One of these customers accounted for 20.7% 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 $2,998,000 and $2,797,000 at March 31, 2011 and September 30, 2010 respectively. The Company places its cash and cash equivalents with high credit quality institutions. At times such amounts may exceed FDIC limits. (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, 2011 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 $1,550,000 is based on level 2 inputs for similar assets in the current market. The first quarter of fiscal 2011 includes $300,000 for the impairment to estimated fair value of the corporate aircraft due to indications of a decrease in value versus the previous year end. The Company's decision to discontinue its regular use requires adjustment to the current estimated value as necessary. 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. Proceeds from the sale of equipment of $427,000 were applied as partial prepayment to the note in fiscal 2011. 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. In December 2010, a subsidiary of the Company, Florida Rock Properties, Inc., sold approximately 1,777 acres of land in Caroline County, Virginia, to the Commonwealth of Virginia, Board of Game and Inland Fisheries. The purchase price for the property was $5,200,000, subject to certain deductions. The Company also donated the $5,402,000 value of minerals and aggregates and recognized a $2,053,000 permanent tax benefit. The Company's book value of the property was $276,000. A summary of discontinued operations is as follows (in thousands): Three months Six months Ended March 31, Ended March 31, 2011 2010 2011 2010 Revenue $ 15 11 30 55 Operating expenses (274) (142) (260) (136) Gain on property sale before taxes - - 4,665 - Income before income taxes $ 289 153 4,955 191 Provision (benefit) for taxes (111) (59) 150 (73) Income from Discontinued operations $ 178 94 5,105 118 The components of the balance sheet are as follows: March 31, September 30, 2011 2010 Accounts receivable $ 1 8 Deferred income taxes 34 417 Property and equipment, net 112 117 Assets of discontinued operations $ 147 542 Accounts payable $ 27 154 Accrued payroll and benefits 2 2 Accrued liabilities, other 21 61 Insurance liabilities 110 1,110 Liabilities of discontinued operations $ 160 1,327 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview - Patriot Transportation Holding, Inc. (the Company) is a holding company engaged in the transportation and real estate businesses. The Company's transportation business, Florida Rock & Tank Lines, Inc. is engaged in hauling primarily petroleum and other liquids and dry bulk commodities in 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. Prior to quarter ending March 31, 2010 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. On December 1, 2010, the board of directors declared a 3-for-1 stock split of the Company's common stock in the form of a stock dividend. The record date for the split was January 3, 2011 and the new shares were issued on January 17, 2011. All share and per share information presented has been adjusted to reflect this stock split. 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 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. 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. In December 2010, a subsidiary of the Company, Florida Rock Properties, Inc., sold approximately 1,777 acres of land in Caroline County, Virginia, to the Commonwealth of Virginia, Board of Game and Inland Fisheries. The purchase price for the property was $5,200,000 and expenses of the sale were $259,000. The Company also donated the $5,402,000 value of minerals and aggregates and recognized a $2,053,000 permanent tax benefit. The Company's book value of the property was $276,000. Caroline County 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, 2011 and 2010 Consolidated Results - Net income for the second quarter of fiscal 2011 was $1,683,000 compared to $1,442,000 for the same period last year. Diluted earnings per common share for the second quarter of fiscal 2011 were $0.18 compared to $0.15 for the same quarter last year. Transportation segment results were higher due to lower health benefit claims. The mining royalty land segment's results were lower due to a shift of tons sold in northern Georgia to a quarry with a lower royalty. The Developed property rentals segment's results were lower due to increased depreciation and property taxes. Income from discontinued operations favorably impacted net income due to lower than expected retained liabilities and losses from prior year operations. Transportation Results Three Months Ended March 31 (dollars in thousands) ___2011 % 2010 %_ Transportation revenue $ 18,885 82% 18,787 87% Fuel surcharges 4,151 18% 2,871 13% Revenues 23,036 100% 21,658 100% Compensation and benefits 8,460 37% 8,297 38% Fuel expenses 5,381 23% 4,174 19% Insurance and losses 1,237 5% 1,571 7% Depreciation expense 1,535 7% 1,469 7% Other, net 2,157 9% 2,311 11% Sales, general & administrative 1,874 8% 1,766 8% Allocated corporate expenses _____390 2% ___346 2% Cost of operations 21,034 91% 19,934 92% Operating profit $ 2,002 9% 1,724 8% Transportation segment revenues were $23,036,000 in the second quarter of 2011, an increase of $1,378,000 over the same quarter last year. Revenue miles in the current quarter were up 2.9% compared to the second quarter of fiscal 2010 due to business growth and a longer average haul length. Fuel surcharge revenue increased $1,280,000. Excluding fuel surcharges, revenue per mile decreased 2.5% over the same quarter last year due to a longer average haul length. The average price paid per gallon of diesel fuel increased by $0.74 or 28.1% over the same quarter in fiscal 2010. The Transportation segment's cost of operations was $21,034,000 in the second quarter of 2011, an increase of $1,100,000 over the same quarter last year. The Transportation segment's cost of operations in the second quarter of 2011 as a percentage of revenue was 91% compared to 92% in the second quarter of 2010. Compensation and benefits increased $163,000 or 2.0% compared to the same quarter last year primarily due to the increase in miles driven. Fuel surcharge revenue increased $1,280,000 while fuel cost increased by $1,207,000 leaving a positive impact to operating profit of $73,000. Insurance and losses decreased $334,000 compared to the same quarter last year due to lower health benefit claims. Depreciation expense increased $66,000 due to more trucks in service. Other expense decreased $154,000 primarily due to higher gains on equipment sales. Selling general and administrative costs increased $108,000 or 6.1% compared to the same quarter last year. Allocated corporate expenses increased $44,000. Mining Royalty Land Results Three Months Ended March 31 (dollars in thousands) ___2011 % 2010 %_ Mining royalty land revenue $ 918 100% 1,009 100% Property operating expenses 133 14% 148 15% Depreciation and depletion 26 3% 24 2% Management Company indirect 41 4% 40 4% Allocated corporate expense 152 17% 142 14% Cost of operations 352 38% 354 35% Operating profit $ 566 62% 655 65% Mining royalty land segment revenues for the second quarter of fiscal 2011 were $918,000, a decrease of $91,000 or 9.0% over the same quarter last year, primarily due to a shift of tons sold in northern Georgia to a quarry with a lower royalty. The mining royalty land segment's cost of operations was $352,000 in the second quarter of 2011, a decrease of $2,000 over the same quarter last year. Developed Property Rentals Results Three Months Ended March 31 (dollars in thousands) ___2011 % 2010 %_ Developed property rentals revenue $ 4,636 100% 4,843 100% Property operating expenses 1,591 34% 1,791 37% Depreciation and amortization 1,316 28% 1,271 26% Management Company indirect 364 8% 364 8% Allocated corporate expense 228 5% 212 4% Cost of operations 3,499 75% 3,638 75% Operating profit $ 1,137 25% 1,205 25% Developed property rentals segment revenues for the second quarter of fiscal 2011 were $4,636,000, a decrease of $207,000 or 4.3% due to reduced tenant reimbursements for snow removal partially offset by higher occupancy. Developed property segment's cost of operations was $3,499,000 in the second quarter of 2011, a decrease of $139,000 or 3.8% over the same quarter last year. Property operating expenses decreased $200,000 due to a $304,000 reduction in snow removal costs offset by higher utilities and property taxes. Depreciation and amortization increased $45,000 due to the purchase of a building. Management Company indirect expenses (excluding internal allocations for lease related property management fees) remained constant. Allocated corporate expenses increased $16,000. Consolidated Results Operating Profit - Consolidated operating profit was $3,184,000 in the second quarter of fiscal 2011, an increase of $117,000 or 3.8% compared to $3,067,000 in the same period last year. Operating profit in the transportation segment increased $278,000 or 16.1% primarily due to lower health benefit claims. Operating profit in the mining royalty land segment decreased $88,000 or 13.5% due to a shift of tons sold in northern Georgia to a quarry with a lower royalty. Operating profit in the Developed property rentals segment decreased $69,000 or 5.7% due to higher depreciation and property taxes. Consolidated operating profit includes corporate expenses not allocated to any segment in the amount of $521,000 in the second quarter of fiscal 2011, an increase of $4,000 compared to the same period last year. Interest expense - Interest expense decreased $158,000 over the same quarter last year due to declining mortgage interest expense and higher capitalized interest. Income taxes - Income tax expense increased $97,000 over the same quarter last year due to higher earnings. Income from continuing operations - Income from continuing operations was $1,505,000 or $0.16 per diluted share in the second quarter of fiscal 2011, an increase of 11.6% compared to $1,348,000 or $.14 per diluted share for the same period last year. The $157,000 increase was primarily due to the $117,000 increase in operating profits and $158,000 reduction in interest expense offset by higher income taxes. Discontinued operations - The after tax income from discontinued operations for the second quarter of fiscal 2011 was $178,000 versus $94,000 for the same period last year. Diluted earnings per share on discontinued operations for the second quarter of fiscal 2011 was $.02 compared to $.01 in the second quarter of fiscal 2010. Results in both periods were due to lower than expected retained liabilities and losses from prior year operations. Net income - Net income for the second quarter of fiscal 2011 was $1,683,000 compared to $1,442,000 for the same period last year. Diluted earnings per common share for the second quarter of fiscal 2011 were $0.18 compared to $0.15 for the same quarter last year. Transportation segment results were higher due to lower health benefit claims. The mining royalty land segment's results were lower due to a shift of tons sold in northern Georgia to a quarry with a lower royalty. The Developed property rentals segment's results were lower due to increased depreciation and property taxes. Income from discontinued operations favorably impacted net income due to lower than expected retained liabilities and losses from prior year operations. Comparative Results of Operations for the Six Months Ended March 31, 2011 and 2010 Consolidated Results - Net income for the first six months of fiscal 2011 was $8,078,000 compared to $2,778,000 for the same period last year. Diluted earnings per common share for the first six months of fiscal 2011 were $0.85 compared to $0.29 in the first six months of fiscal 2010. Income from discontinued operations favorably impacted net income due to an after tax gain of $4,926,000 from the exchange of property included in the first six months of fiscal 2011. Transportation segment results were higher due to reduced health benefit claims. The mining royalty land segment's results were substantially unchanged. The Developed property rentals segment's results were lower due to increased professional fees, property taxes, and depreciation. Transportation Results Six Months Ended March 31 (dollars in thousands) ___2011 % 2010 %_ Transportation revenue $ 38,509 84% 38,254 87% Fuel surcharges 7,518 16% 5,485 13% Revenues 46,027 100% 43,739 100% Compensation and benefits 16,914 36% 16,616 38% Fuel expenses 10,127 22% 8,079 18% Insurance and losses 2,886 6% 3,836 9% Depreciation expense 3,041 7% 2,992 7% Other, net 4,407 10% 4,529 10% Sales, general & administrative 3,883 8% 3,626 8% Allocated corporate expenses _____779 2% ___693 2% Cost of operations 42,037 91% 40,371 92% Operating profit $ 3,990 9% 3,368 8% Transportation segment revenues were $46,027,000 in the first six months of 2011, an increase of $2,288,000 over the same period last year. Revenue miles in the first six months of 2011 were up 4.3% compared to the first six months of fiscal 2010 due to business growth and a longer average haul length. Fuel surcharge revenue increased $2,033,000. Excluding fuel surcharges, revenue per mile decreased 3.3% over the same period last year due to a longer average haul length and lower revenue per mile on certain growth business. The average price paid per gallon of diesel fuel increased by $0.57 or 22.1% over the same period in fiscal 2010. The Transportation segment's cost of operations was $42,037,000 in the first six months of 2011, an increase of $1,666,000 over the same period last year. The Transportation segment's cost of operations in the first six months of 2011 as a percentage of revenue was 91% compared to 92% in the first six months of 2010. Compensation and benefits increased $298,000 or 1.8% compared to the same period last year primarily due to the increase in miles driven. Fuel surcharge revenue increased $2,033,000 while fuel cost increased by $2,048,000 leaving a negative impact to operating profit of $15,000. Insurance and losses decreased $950,000 compared to the same period last year due to lower health benefit claims. Depreciation expense increased $49,000 due to more trucks in service. Other expense decreased $122,000 primarily due to higher gains on equipment sales. Selling general and administrative costs increased $257,000 or 7.1% compared to the same period last year. Allocated corporate expenses increased $86,000. Mining Royalty Land Results Six Months Ended March 31 (dollars in thousands) ___2011 % 2010 %_ Mining royalty land revenue $ 2,013 100% 1,996 100% Property operating expenses 257 13% 258 13% Depreciation and depletion 51 2% 48 3% Management Company indirect 78 4% 83 4% Allocated corporate expense 305 15% 283 14% Cost of operations 691 34% 672 34% Operating profit $ 1,322 66% 1,324 66% Mining royalty land segment revenues for the first six months of fiscal 2011 were $2,013,000, an increase of $17,000 or 0.9% over the same period last year, due to an increase in mined tons. The mining royalty land segment's cost of operations was $691,000 in the first six months of 2011, an increase of $19,000 over the same period last year. Property operating expenses decreased $1,000. Depreciation and depletion expenses increased $3,000 due to an increase in mined tons. Management Company indirect expenses (excluding internal allocations for lease related property management fees) decreased $5,000. Allocated corporate expenses increased $22,000. Developed Property Rentals Results Six Months Ended March 31 (dollars in thousands) ___2011 % 2010 %_ Developed property rentals revenue $ 8,813 100% 9,275 100% Property operating expenses 2,872 32% 3,133 34% Depreciation and amortization 2,617 30% 2,548 27% Management Company indirect 699 8% 746 8% Allocated corporate expense 457 5% 425 5% Cost of operations 6,645 75% 6,852 74% Operating profit $ 2,168 25% 2,423 26% Developed property rentals segment revenues for the first six months of fiscal 2011 were $8,813,000, a decrease of $462,000 or 5.0% due to reduced tenant reimbursements for snow removal partially offset by higher occupancy. Developed property segment's cost of operations was $6,645,000 in the first six months of 2011, a decrease of $207,000 or 3.0% over the same period last year. Property operating expenses decreased $261,000 due to a $505,000 reduction in snow removal costs offset by higher professional fees, property taxes and utilities. Depreciation and amortization increased $69,000 due to the purchase of a building. Management Company indirect expenses (excluding internal allocations for lease related property management fees) decreased $47,000. Allocated corporate expenses increased $32,000. Consolidated Results Operating Profit - Consolidated operating profit was $6,372,000 in the first six months of fiscal 2011, an increase of $263,000 or 4.3% compared to $6,109,000 in the same period last year. Operating profit in the transportation segment increased $622,000 or 18.5% primarily due to lower health benefit claims. Operating profit in the mining royalty land segment decreased $2,000. Operating profit in the Developed property rentals segment decreased $255,000 or 10.5% due to higher professional fees, property taxes, and depreciation. Consolidated operating profit includes corporate expenses not allocated to any segment in the amount of $1,108,000 in the first six months of fiscal 2011, an increase of $102,000 compared to the same period last year due to adjustment to the fair value of the corporate aircraft of $300,000 partially offset by lower stock compensation and professional fees. Interest expense - Interest expense decreased $278,000 over the same period last year due to declining mortgage interest expense and higher capitalized interest. Income taxes - Income tax expense increased $195,000 over the same period last year due to higher earnings. Income from continuing operations - Income from continuing operations was $2,973,000 or $0.31 per diluted share in the first six months of fiscal 2011, an increase of 11.8% compared to $2,660,000 or $.28 per diluted share for the same period last year. The $313,000 increase was primarily due to the $263,000 increase in operating profits and $278,000 reduction in interest expense offset by higher income taxes. Discontinued operations - The after tax income from discontinued operations for the first six months of fiscal 2011 was $5,105,000 versus $118,000 for the same period last year. Diluted earnings per share on discontinued operations for the first six months of fiscal 2011 was $.54 compared to $.01 in the first six months of fiscal 2010. The first six months of 2011 included a book gain on the exchange of property of $4,926,000 after tax or $.52 per diluted share. Net income - Net income for the first six months of fiscal 2011 was $8,078,000 compared to $2,778,000 for the same period last year. Diluted earnings per common share for the first six months of fiscal 2011 were $0.85 compared to $0.29 in the first six months of fiscal 2010. Income from discontinued operations favorably impacted net income due to an after tax gain of $4,926,000 from the exchange of property included in the first six months of fiscal 2011. Transportation segment results were higher due to reduced health benefit claims. The mining royalty land segment's results were substantially unchanged. The Developed property rentals segment's results were lower due to increased professional fees, property taxes, and depreciation. Liquidity and Capital Resources. For the first six months of fiscal 2011, the Company used cash provided by operating activities of continuing operations of $9,770,000, proceeds received on notes of $1,064,000, proceeds from the sale of plant, property and equipment of $416,000, proceeds from the exercise of employee stock options of $251,000, excess tax benefits from the exercise of stock options of $249,000 and cash balances to purchase $3,159,000 in transportation equipment, to purchase Hollander 95 Business Park $1,222,000 (net of 1031 exchange of $4,941,000), to expend $3,788,000 in real estate development, to invest $114,000 in the Brooksville Joint Venture, to make $2,256,000 scheduled payments on long-term debt and to repurchase Company stock for $1,145,000. Cash used in the operating activities of discontinued operations was $593,000. Cash decreased $527,000. 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. In December 2010, a subsidiary of the Company, Florida Rock Properties, Inc., sold approximately 1,777 acres of land in Caroline County, Virginia, to the Commonwealth of Virginia, Board of Game and Inland Fisheries. The purchase price for the property was $5,200,000 and expenses of the sale were $259,000. The Company also donated the $5,402,000 value of minerals and aggregates and recognized a $2,053,000 permanent tax benefit. The $2,053,000 permanent tax benefit was recorded to income taxes receivable for $342,000 and offset to long-term deferred tax liabilities of $1,711,000. Actual realization of the $1,711,000 in deferred taxes will depend on taxable income, income tax rates, and income tax regulations over the 5 year carry forward period. The Company's book value of the property was $276,000. The Caroline County property has been accounted for as a discontinued operation and all periods presented have been restated accordingly. The Company used all the proceeds in a 1031 exchange to purchase Hollander 95 Business Park in a foreclosure sale auction through a qualified intermediary. Hollander 95 Business Park, in Baltimore City, Maryland, closed on October 22, 2010 by a 1031 intermediary for a purchase price totaling $5,750,000. This property consists of an existing 82,800 square foot warehouse building (46.9% occupied) with an additional 42 acres of partially developed land with a development capacity of 490,000 square feet (a mix of warehouse, office, hotel and flex buildings). Cash flows from operating activities for the first six months of fiscal 2011 were $3,914,000 higher than the same period last year primarily due to large income tax payments in the same quarter last year related to the sale of SunBelt and lower insurance payments. Cash flows used in investing activities for the first six months of fiscal 2011 were $31,000 higher primarily reflecting the purchase of Hollander 95 Business Park (net of 1031 exchange of $4,941,000) offset by lower purchases of transportation equipment. Cash flows used in financing activities for the first six months of fiscal 2011 were $1,017,000 higher than the same period last year due to repurchases of Company stock for $1,145,000 partially offset by increased stock options exercised. The Company has a $37,000,000 uncollateralized 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. Letters of credit in the amount of $13,942,000 were issued under the Revolver. As of March 31, 2011, $23,058,000 was available for borrowing and $48,686,000 of consolidated retained earnings would be available for payment of dividends. The Company was in compliance with all covenants as of March 31, 2011. The Company had $13,942,000 of irrevocable letters of credit outstanding as of March 31, 2011. 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. 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. During the first six months of fiscal 2011 the Company repurchased 42,000 shares for $1,145,000. As of March 31, 2011, $4,480,000 was authorized for future repurchases of common stock. The Company does not currently pay any cash dividends on common stock. The Company has committed to make additional capital contributions of up to $41,000 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. Summary and Outlook. Transportation segment miles for this year were 4.3% higher than last year. The Company continues to succeed in replacing customers from the non-renewed contracts announced January 6, 2010 and has basically recovered from new customers substantially all the lost revenue miles, albeit at lower rates per mile for longer average hauls. Operating profit from the leasing of developed buildings has been unfavorably impacted by three newer buildings brought into service since September 2008 along with two nearly vacant buildings in Delaware impacted by automobile plant closings and the residential housing downturn. Occupancy increased from 72.0% to 77.2% over last fiscal year end as the market for new tenants appears to have bottomed and traffic for vacant space has increased. 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 additional government approvals and closing is scheduled to occur in the first quarter of calendar 2012. The cost of the property of $5,808,000 was transferred from Real estate held for investment to Real estate held for sale as of March 31, 2011 because of the expectation that the sale will be completed within one year. The Company may choose to have any proceeds from the sale placed into escrow in anticipation of utilizing the funds to purchase replacement property under IRC Section 1031. 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 has expired. 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, a real estate joint venture to develop approximately 4,300 acres of land near Brooksville, Florida (the "Project"). In April 2011, the Florida Department of Community Affairs issued its Final Order approving the development of the Project. Prior to commencing development of the Project the property will need to be rezoned consistent with the approved entitlements. 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, 2011, 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, 2010, 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 2. PURCHASES OF EQUITY SECURITIES BY THE ISSUER (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) January 1 through January 31 6,000 $ 31.65 6,000 $ 4,480,000 February 1 through February 28 0 $ 0 0 $ 4,480,000 March 1 through March 31 0 $ 0 0 $ 4,480,000 Total 6,000 $ 31.65 6,000 (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. On February 19, 2008, the Board of Directors authorized management to expend up to an additional $5,000,000 to repurchase shares of the Company's common stock from time to time as opportunities arise. Item 6. EXHIBITS (a) Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", on page 29. 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 4, 2011 PATRIOT TRANSPORTATION HOLDING, INC. Thompson S. Baker II Thompson S. 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, 2011 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 Thompson S. 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.