-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UMjfYZeF7PCnUYf9vyLRgdJkSk/Yqyai0Irch96+4/8Yy64bG0hxuuftwr7epj4d byZLK9poQBmhsgGyLAyAUQ== 0000844059-98-000008.txt : 19981211 0000844059-98-000008.hdr.sgml : 19981211 ACCESSION NUMBER: 0000844059-98-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRP PROPERTIES INC CENTRAL INDEX KEY: 0000844059 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING & COURIER SERVICES (NO AIR) [4210] IRS NUMBER: 592924957 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-26115 FILM NUMBER: 98767671 BUSINESS ADDRESS: STREET 1: 155 EAST 21ST STREET CITY: JACKSONVILLE STATE: FL ZIP: 32206 BUSINESS PHONE: 9043551781 MAIL ADDRESS: STREET 1: 155 E 21ST ST CITY: JACKSONVILLE STATE: FL ZIP: 32206 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 33-26115 FRP PROPERTIES, 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.) 155 East 21st Street, Jacksonville, Florida 32206 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 904/355-1781 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.10 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] At December 1, 1998 aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was $49,572,000. At such date there were 3,463,225 shares of the registrant's Stock outstanding. Documents Incorporated by Reference Portions of the FRP Properties, Inc. 1998 Annual Report to stockholders are incorporated by reference in Parts I, II, III and IV. Portions of the FRP Properties, Inc. Proxy Statement dated December 14, 1998 are incorporated by reference in Part III. PART I Item 1. BUSINESS. FRP Properties, Inc., which was incorporated in Florida in 1988, and its subsidiaries (the "Company") are engaged in the transportation and real estate businesses. Florida Rock & Tank Lines, Inc.("Tank Lines") and SunBelt Transport, Inc. ("SunBelt"), wholly owned subsidiaries, are southeastern transportation companies concentrating in the hauling, by motor carrier, of liquid and dry bulk commodities and materials on flatbed trailers. Another wholly owned subsidiary, Florida Rock Properties, Inc. ("Properties"), owns real estate of which a substantial portion is under mining royalty agreements or leased to Florida Rock Industries, Inc. ("FRI"). The Company also holds certain other real estate for investment. Other wholly owned subsidiaries of the Company, own and are developing certain industrial rental properties near Baltimore, Maryland. Substantially all of the Company's operations are conducted within the Southeastern and Mid-Atlantic United States. The Company has two major business segments: transportation and real estate. Industry segment information is presented in Notes 2 and 8 to the consolidated financial statements included in the accompanying 1998 Annual Report to stockholders and is incorporated herein by reference. FRI accounted for approximately 8.5% of the Company's consolidated revenues for fiscal 1998. Revenues from royalties and from the dump and flatbed truck fleet operations are subject to factors affecting the level of general construction activity. A decrease in the level of general construction activity in any of the Company's market areas may have an adverse effect on such revenues and income derived therefrom. Transportation. Tank Lines is engaged in hauling liquid and dry bulk commodities in tank and dump trucks. SunBelt is engaged in hauling building and construction materials on flatbed trailers. Information as to the Transportation operations' revenue by principal markets is presented on page 6 of the accompanying 1998 Annual Report to stockholders under the caption, "Management Analysis" and is incorporated herein by reference. The Company's owned and leased dump truck fleet hauls principally construction aggregates from terminals in Fort Myers, and Orlando, Florida. There are from 8 to 12 major competitors in each of the Company's markets and numerous small competitors in all markets. The Company normally experiences considerable competition in all of its markets. The Company's owned and leased tank truck fleet hauls liquid and dry bulk commodities, including petroleum and chemicals. It operates from terminals in Jacksonville, Ft. Myers, Orlando, Panama City, Pensacola, Port Everglades, Tampa and White Springs, Florida; Albany, Atlanta, Augusta, Bainbridge, Columbus, Macon and Savannah, Georgia; Knoxville and Nashville, Tennessee; and Birmingham, Alabama. It also has a central dispatch/offices in Greenville, South Carolina and Dalton, Georgia. The Company has from 4 to 8 major tank truck competitors in each of its markets. The Company's owned flatbed fleet is based at Jacksonville and Tampa, Florida and Savannah, Georgia and hauls building and construction materials in 12 southeastern states. There are 10 major competitors in the Company's market area and numerous small competitors in the various states served. At September 30, 1998, the Company had placed orders and was committed to purchasing tractors and trailers costing approximately $9,900,000. Price, service, and terminal location are the major factors which affect competition within a given market. During fiscal 1998 the transportation segment's ten largest customers accounted for approximately 33% of transportation's revenue. The loss of any one of these customers could have an adverse effect on the Company's revenues and income. Real Estate. The Company's real estate and property development activities are conducted through several wholly owned subsidiaries. The Company owns real estate in Florida, Georgia, Virginia, Maryland, and Washington, D.C. The real estate owned falls generally into one of three categories. The first is land with stone or sand and gravel deposits, of which substantially all is leased to Florida Rock Industries, Inc. under mining royalty agreements whereby the Company is paid a percentage of the revenues generated by the material mined and sold, or minimum royalties where there is no current, or only limited, mining activity. The second is land and/or buildings leased under rental agreements, and the third is land and/or buildings which are being developed for rental or held for future appreciation. Additional information about the Company's Real Estate segment is contained on page 2 under the captions "FRP Development Corp." and in Note 11 to the consolidated financial statements included in the accompanying 1998 Annual Report to stockholders and is incorporated herein by reference. The Company's real estate strategy of developing high quality, flexible warehouse/office space in the Baltimore-Washington markets continued to be successful. One hundred percent of the warehouse/office space built by the Company over the last several years was leased at September 30, 1998. Price, location, rental space availability, structural design and flexibility are the major factors which affect competition in the warehouse rental market. The Company experiences considerable competition in all of its markets. In fiscal 1998 real estate revenues, excluding the sale of real estate, were divided approximately 49% from mining and minimum royalties and 51% from rentals. FRI accounted for approximately 57% of such revenue. Environmental Matters. While the Company is affected by environmental regulations, such regulations are not expected to have a major effect on the Company's capital expenditures or operating results. Additional information concerning environmental matters is presented in Note 10 to the consolidated financial statements included in the accompanying 1998 Annual Report to stockholders and in Item 3 "Legal Proceedings" of this Form 10-K, and such information is incorporated herein by reference. Employees. The Company employed approximately 732 people in its Transportation Group, 19 people in its Real Estate Group, and 2 people in its Corporate offices at September 30, 1998. Item 2. PROPERTIES. The Company's principal properties are located in Florida, Georgia, Virginia, Washington, D.C., and Maryland. Transportation Properties. At September 30, 1998 the Company operated an owned (541) and leased (5) fleet of 546 trucks and had 18 sites for its trucking terminals in Florida, Georgia, Alabama and Tennessee totaling approximately 80 acres. Of these acres, the Company owned approximately 74 and leased approximately 6. The Company also leases central dispatch/offices in Greenville, South Carolina and Dalton, Georgia. The lease terms run from year-to-year. Construction Aggregates Properties. The following table summarizes the Company's principal construction aggregates locations and estimated reserves at September 30, 1998, substantially all of which are leased to FRI. Tons of Tons Mined Estimated in Year Reserves Ended at 9/30/98 9/30/98 Approximate (000's) (000's) Acres Owned The Company owns fourteen locations currently being mined located at Brooksville, Astatula, Miami, Grandin, Gulf Hammock, Keuka, Lake Wales, and in Marion and Lake Counties, Florida; Forest Park, Macon and Tyrone, Georgia; St. Mary's County, Maryland; and Manassas, Virginia. 8,614 311,000 17,113 The Company owns three locations being leased but not currently being mined, located at Ft. Myers and Newberry, Florida and Columbus, Georgia. - 136,000 3,363 Other Properties. The Company owns approximately 120 acres of land in Virginia and Washington, D.C. and an office building and approximately 6 acres in Florida which are leased to FRI. The Company owns four parcels of land near Baltimore, Maryland. One contains approximately 11 acres with a commercial warehouse and office space (162,587 square feet), which at November 1, 1998 was 100% leased. The second contains approximately 17 acres with 195,615 square feet of commercial warehouse and office space of which at November 1, 1998 was 100% leased. The third contains approximately 10 acres with 187,517 square feet of commercial/warehouse space that was 100% leased at November 1, 1998. The fourth contains 8.5 acres with an office building (28,533 square feet) which is 6% occupied by the Company with the balance 100% leased, including a portion leased to FRI. In October 1996, the Company purchased 134 acres of land in Harford County, Maryland. The site is being used for the development of the Lakeside Business Park. A 5.2 acre section has been developed with 105,803 square feet of commercial warehouse space that was 100% leased on November 1, 1998. Two sections of 4.15 acres each with approximately 133,000 square feet were under construction at September 30, 1998. The first section with 65,520 square feet was 100% pre-leased at year end. In addition, the Company owns approximately 11,183 acres of investment and other real estate, of which approximately 7,738 acres are in Suwannee and Columbia Counties, Florida. The Company purchased a 59 acre tract in Anne Arundel County, Maryland near the Baltimore-Washington International Airport in May 1998. The project, Hillside Business Park, will provide the Company an opportunity to develop 600,000 square feet of warehouse/office space. Grading and infrastructure work on the site will begin in the spring of 1999, and construction of the first building is anticipated to commence during the fall of 1999. As part of the Company's ongoing asset management activities, it has made application before the Zoning Commission of the District of Columbia to re-zone its 5.8 acre site on the banks of the Anacostia River from industrial to Plan Unit Development(PUD). Approval of the application would allow the development of a 1.5 million square foot commercial office component together with associated waterfront enhancements. The Company expects that a final zoning order will be issued in early 1999. At September 30, 1998 certain property, plant and equipment having a carrying value of $22,415,000 was pledged on certain notes and contracts with an outstanding principal balance totaling $18,832,000 on such date. In addition, certain properties having a carrying value at September 30, 1998 of $1,620,000 were encumbered by industrial revenue bonds which are the liability of FRI. FRI has agreed to pay such debt when due (or sooner if FRI cancels its lease of such property), and further has agreed to indemnify and hold harmless the Company. Item 3. LEGAL PROCEEDINGS. Note 10 to the Consolidated Financial Statements included in the accompanying 1998 Annual Report to stockholders is incorporated herein by reference. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No reportable events. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There were approximately 846 holders of record of FRP Properties, Inc. common stock, $.10 par value, as of December 1, 1998. The Company's common stock is traded on the Nasdaq Stock Market (Symbol FRPP). Information concerning stock prices is included under the caption "Quarterly Results" on page 5 the Company's 1998 Annual Report to stockholders, and such information is incorporated herein by reference. The Company has not paid a cash dividend during the past two years. It is the present policy of the Board of Directors not to pay cash dividends. Information concerning restrictions on the payment of cash dividends is included in Note 3 to the consolidated financial statements included in the accompanying 1998 Annual Report to stockholders and such information is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA. Information required in response to this Item 6 is included under the caption "Five Year Summary" on page 5 of the Company's 1998 Annual Report to stockholders and such information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information required in response to this Item 7 is included under the caption "Management Analysis" on page 5, 6 and 7; under the caption "Capital Expenditures" on page 2; and in Notes 1 through 11 to the consolidated financial statements included in the accompanying 1998 Annual Report to stockholders and in Item 3 "Legal Proceedings" of this Form 10-K. Such information is incorporated herein by reference. Item 7.A QUANTITIVE AND QUALITATIVE ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates. For its cash and cash equivalents a change in interest rates effects the amount of interest income that can be earned. For its debt instruments changes in interest rates effect the amount of interest expense incurred. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates: Interest rate sensitivity 1999 2000 2001 2002 2003 Thereafter Total Fair Value Liabilities: Bank lines of credit $ 1,600 1,600 1,600 Weighted average Interest rate 6.1% Long-term debt at Fixed rates $ 533 579 628 681 738 15,673 18,832 19,996 Weighted average Interest rate 8.1% 8.1 8.1 8.1 8.1 8.1 Bank Revolving Credit Variable interest $15,000 15,000 15,000 Rate Weighted average Interest 6.2% Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information required in response to this Item 8 is included under the caption "Quarterly Results" on page 5 and on pages 8 through 17 of the Company's 1998 Annual Report to stockholders. Such information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No reportable events. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. EXECUTIVE OFFICERS OF THE COMPANY Name Age Office Position Since Edward L. Baker 63 Chairman of the Board May 3, 1989 John E. Anderson 53 President & Chief Feb. 17, 1989 Executive Officer John R. Mabbett III 39 Vice President and Feb. 4, 1993 Secretary Ish Copley 65 President of SunBelt Aug. 9, 1992 Transport, Inc., the Company's flatbed trucking operation David H. deVilliers, Jr. 47 Vice President June 1, 1989 James J. Gilstrap 51 Treasurer, Assistant Aug. 6, 1997 Secretary and Chief Financial Officer Wallace A. Patzke, 51 Controller and Chief Aug. 6, 1997 Jr. Accounting Officer All of the above officers have been employed in their respective positions for the past five years, except James J. Gilstrap and Wallace A. Patzke,Jr. James J. Gilstrap joined FRI in March 1997 and was elected Vice President and Chief Financial Officer in May 1997. In August 1997 Mr. Gilstrap was elected Treasurer of FRI. From 1993 to 1997 he was self-employed as a private investor. From 1984 to 1993 he was a Partner and Executive Vice President and Chief Financial Officer for The Regency Group, Inc., a holding company with interests and operations in commercial real estate development, asset management, brokerage and financial services. Wallace A. Patzke, Jr. has been Vice President, Controller and Chief Accounting Officer of FRI since August 1997. He was elected Vice President of FRI in October 1996 and has served as controller since December 1991. John D. Baker II, who is the brother of Edward L. Baker, and Thompson S. Baker II, who is the son of Edward L. Baker, are on the Board of Directors of the Company. All executive officers of the Company are elected annually by the Board of Directors. Information concerning directors, required in response to this Item 10, is included under the captions "Election of Directors" and Section 16(a) Beneficial Ownership Reporting Compliance in the Company's Proxy Statement dated December 14, 1998; and such information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. Information required in response to this Item 11 is included under the captions "Executive Compensation," "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," and "Shareholder Return Performance" in the Company's Proxy Statement dated December 14, 1998; and such information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required in response to this Item 12 is included under the captions "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership by Directors and Officers" in the Company's Proxy Statement dated December 14, 1998; and such information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required in response to this Item 13 is included under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" in the Company's Proxy Statement dated December 14, 1998 and in Note 2 captioned "Transactions with related parties" in the Company's 1998 Annual Report to stockholders; and such information is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1)and(2) Financial Statements and Financial Statement Schedules. The response to this item is submitted as a separate section. See Index to Financial Statements and Financial Statement Schedules on page 14 of this Form 10-K. (3)Exhibits. The response to this item is submitted as a separate section. See Exhibit Index on pages 11 through 13 of this Form 10-K. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the three months ended September 30, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRP PROPERTIES, INC. Date: December 2, 1998 By JAMES J. GILSTRAP James J. Gilstrap Treasurer, Assistant Secretary and Chief Financial Officer By WALLACE A. PATZKE, JR. Wallace A. Patzke, Jr. Controller and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 2, 1998. JOHN E. ANDERSON DAVID H. deVILLIERS, JR. John E. Anderson David H. deVilliers, Jr. Director, President, and Chief Director Executive Officer (Principal Executive Officer) ALBERT D. ERNEST, JR. Albert D. Ernest, Jr. JAMES J. GILSTRAP Director James J. Gilstrap Treasurer, Assistant Secretary LUKE E. FICHTHORN III and Chief Financial Officer Luke E. Fichthorn III (Principal Financial Officer) Director WALLACE A. PATZKE, JR. FRANCIS X. KNOTT Wallace A. Patzke, Jr. Francis X. Knott Controller and Chief Accounting Director Officer (Principal Accounting Officer) RADFORD D. LOVETT Radford D. Lovett EDWARD L. BAKER Director Edward L. Baker Director JOHN R. MABBETT III John R. Mabbett III JOHN D. BAKER II Director John D. Baker II Director ROBERT H. PAUL III Robert H. Paul III THOMPSON S. BAKER II Director Thompson S. Baker II Director MARTIN E. STEIN Martin E. Stein ISH COPLEY Director Ish Copley Director JAMES H. WINSTON James H. Winston Director FRP PROPERTIES, INC. FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 EXHIBIT INDEX [Item 14(a)(3)] Page No. in Sequential Numbering (3)(a)(1) Articles of Incorporation of FRP Properties, Inc. Previously filed with Form S-4 dated December 13, 1988. Filed No. 33-26155. (3)(a)(2) Amendment to the Articles of Incorporation of FRP Properties, Inc. filed with the Secretary of State of Florida on February 19, 1991. Previously filed with Form 10-K for the fiscal year ended September 30, 1993. Filed No. 33-26115. (3)(a)(3) Amendments to the Articles of Incorporation of FRP Properties, Inc. filed with the Secretary of State of Florida on February 7, 1995. Previously filed as appendix to the Company's Proxy Statement dated December 15, 1994. (3)(b)(1) Restated Bylaws of FRP Properties, Inc. adopted December 1, 1993. Previously filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. (3)(b)(2) Amendment to the Bylaws of FRP Properties, Inc. adopted August 3, 1994. Previously filed with Form 10-K for the fiscal year ended September 30, 1994. File No. 33-26115. (4)(a) Articles III, VII and XII of the Articles of Incorporation of FRP Properties, Inc. Previously filed with Form S-4 dated December 13, 1988. And amended Article III filed with Form 10-K for the fiscal year ended September 30, 1993. And Articles XIII and XIV previously filed as appendix to the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (4)(b) Specimen stock certificate of FRP Properties, Inc. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (4)(c) Credit Agreement dated as of November 15, 1995 among FRP Properties, Inc.; SunTrust Bank, Central Florida, National Association; Bank of America Illinois; Barnett Bank of Jacksonville, N.A.; and First Union National Bank of Florida. Previously filed with Form 10-Q for the quarter ended December 31, 1995. File No. 33-26115. (4)(c)(1) First Amendment dated as of September 30, 1998 to the Credit Agreement dated as of November 15, 1995. Page No. in Sequential Numbering (4)(d) The Company and its consolidated subsidiaries have other long-term debt agreements which do not exceed 10% of the total consolidated assets of the Company and its subsidiaries, and the Company agrees to furnish copies of such agreements and constituent documents to the Commission upon request. (10)(a) Post Distribution Agreement, dated May 7, 1986, by and between Florida Rock Industries, Inc. and Florida Rock & Tank Lines, Inc. and amendments thereto dated July 1, 1987 and September 27, 1988. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(b) Tax Sharing Agreement, dated May 7, 1986, between Florida Rock Industries, Inc. and Florida Rock & Tank Lines, Inc. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(c) Various lease backs and mining royalty agreements with Florida Rock Industries, Inc., none of which are presently believed to be material individually, except for the Mining Lease Agreement dated September 1, 1986, between Florida Rock Industries Inc. and Florida Rock Properties, Inc., successor by merger to Grand in Land, Inc. (see Exhibit (10)(e)), but all of which may be material in the aggregate. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(d) License Agreement, dated June 30, 1986, from Florida Rock Industries, Inc. to Florida Rock & Tank Lines, Inc. to use "Florida Rock" in corporate names. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(e) Mining Lease Agreement, dated September 1, 1986, between Florida Rock Industries, Inc. and Florida Rock Properties, Inc., successor by merger to Grand in Land, Inc. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(f) Summary of Medical Reimbursement Plan of FRP Properties, Inc. Previously filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. Page No. in Sequential Numbering (10)(g) Split Dollar Agreement dated October 3, 1984, between Edward L. Baker and Florida Rock Industries, Inc. and assignment of such agreement, dated January 31, 1986 from Florida Rock Industries, Inc. to Florida Rock & Tank Lines, Inc. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(h) Summary of Management Incentive Compensation Plans. Previously filed with Form 10-K for the fiscal year ended September 30, 1994. File No. 33-26115. (10)(i) Management Security Agreements between the Company and certain officers. Form of agreement previously filed (as Exhibit (10)(I)) with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(i)(1) FRP Properties, Inc. 1989 Employee Stock Option Plan. Previously filed with Form S-4 dated December 13, 1988. File No. 33-26115 (10)(i)(2) FRP Properties, Inc. 1995 Stock Option Plan. Previously filed as an appendix to the Company's Proxy Statement dated December 15, 1994. (11) Computation of Earnings Per Common Share. (13) The Company's 1998 Annual Report to stockholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 1998 Annual Report to stockholders which are not incorporated by reference shall not be deemed to be filed as part of this Form 10-K. (22) Subsidiaries of Registrant at September 30, 1998: Florida Rock & Tank Lines, Inc. (a Florida corporation) Florida Rock Properties, Inc. (a Florida corporation) FRP Development Corp. (a Maryland corporation) FRP Maryland, Inc. (a Maryland corporation) 34 Loveton Center Limited Partnership (a Maryland limited partnership) FRTL, Inc. (a Florida corporation)SunBelt Transport, Inc. (a Florida Corporation)Oz Limited Partnership (a Maryland limited partnership) FRP Delaware, Inc. (a Delaware corporation) FRP Lakeside L.P. (a Maryland limited partnership) FRP Lakeside L.L.P. (a Maryland limited partnership) FRP Hillside L.L.C. (a Maryland limited liability corporation) (23)(a) Consent of Deloitte & Touche LLP, Independent Certified Public Accountants, appears on page 16 of this Form 10-K. (27) Financial Data Schedule FRP PROPERTIES, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14(a) (1) and 2)) Page Consolidated Financial Statements: Consolidated balance sheet at September 30, 1998 and 1997 9(a) For the years ended September 30, 1998, 1997 and 1996: Consolidated statement of income 8(a) Consolidated statement of stockholders' equity 11(a) Consolidated statement of cash flows 10(a) Notes to consolidated financial statements 12-16(a) Selected quarterly financial data (unaudited) 5(a) Independent Auditors' Report 17(a) Consent of Independent Certified Public Accountants 18(b) Consolidated Financial Statement Schedules: Independent Auditors' Report 19(b) II - Valuation and qualifying accounts 20(b) III - Real estate and accumulated depreciation and depletion 21-22(b) (a) Refers to the page number in the Company's 1998 Annual Report to stockholders. Such information is incorporated by reference in Item 8 of this Form 10-K. (b) Refers to the page number in this Form 10-K. All other schedules have been omitted, as they are not required under the related instructions, are inapplicable, or because the information required is included in the consolidated financial statements. Independent Auditors' Consent We consent to the incorporation by reference in Registration Statement (Form S-8 No. 33-43215) pertaining to the FRP Properties, Inc. 1989 Stock Option Plan and in the related Prospectus of our report dated December 1, 1998, appearing in and incorporated by reference in this Annual Report (Form 10-K) for the year ended September 30, 1998. DELOITTE & TOUCHE LLP Jacksonville, Florida December 10, 1998 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of FRP Properties, Inc. Jacksonville, Florida We have audited the consolidated financial statements of FRP Properties, Inc. and subsidiaries ("FRP") as of September 30, 1998 and 1997, and for each of the three years in the period ended September 30, 1998, and have issued our report thereon dated December 1, 1998; such consolidated financial statements and report are included in your 1998 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of FRP, listed in Item 14. These financial statement schedules are the responsibility of FRP's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Jacksonville, Florida December 1, 1998 FRP PROPERTIES, INC. SCHEDULE II (CONSOLIDATED) - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 ADDITIONS ADDITIONS BALANCE CHARGED TO CHARGED TO BALANCE AT BEGIN. COST AND OTHER AT END OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR Year Ended September 30, 1998: Allowance for doubtful accounts $257,952 $12,000 - ($2,366)(a) $272,318 Accrued risk insurance $4,217,714 $4,401,537 - $4,073,794(b) $4,545,457 Accrued health insurance $964,698 1,340,998 - 1,463,907(b) 841,789 Totals - insurance $5,182,412 $5,742,535 $0 $5,537,701 $5,387,246 Year Ended September 30, 1997: Allowance for doubtful accounts $233,537 $18,000 - ($6,415)(a) $257,952 Accrued risk insurance $3,828,654 $3,113,219 - $2,724,159(b)$4,217,714 Accrued health insurance $777,199 1,246,760 - 1,059,261(b) 964,698 Totals - insurance $4,605,853 $4,359,979 $0 $3,783,420 $5,182,412 Year Ended September 30, 1996: Allowance for doubtful accounts $218,474 $18,000 - $2,937(a) $233,537 Accrued risk insurance $2,736,665 $3,240,572 - $2,148,583(b) $3,828,654 Accrued health insurance $817,487 750,842 - 791,130(b) 777,199 Totals - insurance $3,554,152 $3,991,414 $0 $2,939,713 $4,605,853 (a) Accounts written off less recoveries (b) Payments
FRP PROPERTIES, INC. SCHEDULE III(CONSOLIDATED)-REAL ESTATE & ACCUMULATED DEPRECIATION AND DEPLETION SEPTEMBER 30, 1998 Cost capi- Gross amount Date Deprecia- Encumb- Initial cost talized at which Accumulated Of Date tion Life County State rances to subsequent carried at Depreciation Constr- Acquired Computed Company to acquisition end of period tion on: (a) Construction Aggregates Alachua Florida $1,588,458 $ 7,509 $1,595,967 $53,748 n/a 4/86 unit Clay Florida 964,972 15,666 980,638 - n/a 4/86 unit Clayton Georgia 381,787 0 381,787 2,597 n/a 4/86 unit Dade Florida 9,374,660 0 9,374,660 6,284,975 n/a 4/86 unit Fayette Georgia 120,023 400,872 0 400,872 39,474 n/a 4/86 unit Hernando Florida 2,127,533 1 2,127,553 1,096,089 n/a 4/86 unit Lake Florida 1,464,625 20,528 1,485,153 1,011,808 n/a 4/86 unit Lee Florida 4,690,269 0 4,690,269 - n/a 4/86 unit Floyd Georgia 300,000 0 300,000 - n/a 4/86 unit Levy Florida 1,280,643 83,365 1,364,008 352,520 n/a 4/86 unit Marion Florida 1,180,366 0 1,180,366 599,478 n/a 4/86 unit Monroe Florida 840,442 0 840,442 174,573 n/a 4/86 unit Muscogee Georgia 368,674 0 368,674 45,000 n/a 4/86 unit Polk Florida 120,502 0 120,502 75,285 n/a 4/86 unit Prince Wil.Virginia 298,463 0 298,463 236,246 n/a 4/86 unit Putnam Florida 15,014,681 86,752 15,101,433 2,180,058 n/a 4/86 unit St. Marys Maryland 1,269,878 0 1,269,878 497,437 n/a 4/86 unit 120,023 41,666,825 213,821 41,880,646 12,649,288 Land Rental Property District of Columbia 2,901,869 1,555,992 4,457,861 869,422 n/a 4/86 unit Fairfax Virginia 2,035,013 0 2,035,013 - n/a 4/86 unit Putnam Florida 193,584 (23,772) 169,812 116,580 n/a 4/86 unit Spalding Georgia 19,572 0 19,572 - n/a 4/86 unit Suwannee Florida 4,252,091 293,018 4,545,109 691,545 n/a 4/86 unit 0 9,402,129 1,825,238 11,227,367 1,677,547 Commercial Property Baltimore Maryland 1,662,968 439,120 2,390,803 2,829,923 843,558 1990 10/89 31 yr. Baltimore Maryland 4,707,763 961,379 9,584,490 10,545,869 1,006,076 1992 12/91 31 yr. Duval Florida 2,804,344 140,519 2,944,863 1,750,625 n/a 4/86 20 yr. Harford Maryland 1,754,300 10,006,229 11,760,529 42,937 1996 8/95 31 yr. Jessup Maryland 7,981,784 3,069,284 2,971,684 6,040,968 1,237,734 1987 9/88 31 yr. Linthicum Maryland 4,359,779 911,060 6,539,375 7,450,435 1,780,342 1989 9/88 31 yr. Orange Florida 57,047 0 57,047 12,046 n/a 4/86 10 yr. 18,712,294 9,996,534 31,633,100 41,629,634 6,673,318 Investment Property Caroline Virginia 212,876 6,856 219,732 - n/a 4/86 unit Duval Florida 693,553 26,889 720,442 - n/a 4/86 - Fairfax Virginia 273,198 0 273,198 - n/a 4/86 - Fayette Georgia 283,875 0 283,875 - n/a 4/86 - HillsboroughFlorida 187,161 0 187,161 - n/a 4/86 - Lee Florida 270,641 1,950 272,591 138,527 n/a 4/86 unit Suwannee Florida 557,694 (68,216) 489,478 138,224 n/a 4/86 unit 0 2,478,998 (32,521) 2,446,477 276,751 Miscellaneous 1,056,454 61,701 1,118,155 378,489 GRAND TOTALS $18,832,317 $64,600,940 $33,701,339 $98,302,279$21,655,393 (a) The aggregate cost for Federal income tax purposes is $96,628,277.
FRP PROPERTIES, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION AND DEPLETION YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 1998 1997 1996 Gross Carrying Cost of Real Estate: Balance at beginning of period $86,939,335 $80,950,619 $78,633,725 Additions during period: Acquisitions through foreclosure - - - Other acquisitions 2,241,837 3,500,646 2,016,371 Improvements, etc. 5,480,287 2,725,828 2,811,488 Reclassification of deposit - - - Other (transfers) 3,811,104 - - Deductions during period: Cost of real estate sold 170,284 237,758 510,965 Other (abandonments) - - - Other (transfers to Transportation) - - - Balance at close of period $98,302,279 $86,939,335 $80,950,619 Accumulated Depreciation & Depletion: Balance at beginning of period $19,463,097 $17,440,035 $15,521,665 Additions during period: Charged to cost & expense 2,278,379 2,108,105 1,994,854 Other (transfers from Transportation) - - - Deductions during period: Cost of real estate sold 86,083 85,043 76,484 Other (abandonments) - - - Balance at close of period $21,655,393 $19,463,097 $17,440,035 Annual Report 1998 CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended September 30 (Dollars in thousands except per share amounts) % 1998 1997 Change Revenues $73,974 68,844 + 7.5 Gross profit $16,493 14,908 +10.6 Operating profit $ 9,625 8,977 + 7.2 Income before income taxes $ 7,343 6,984 + 5.1 Net income $ 4,480 4,260 + 5.2 Per common share: Basic earnings per share $ 1.30 1.22 + 6.6 Diluted earnings per share $ 1.28 1.21 + 5.8 Stockholder's equity $ 19.83 18.53 + 7.0 1998 CORPORATE HIGHLIGHTS Revenues - up 7.5% to $73,974,000 Gross profit - up 10.6% to $16,493,000 Net income - up 5.2% to $4,480,000 Diluted earnings per share - up 5.8% to $1.28 per share $37,400,000 of borrowing capacity is available under the Company's credit agreements at September 30, 1998 BUSINESS. The Company is engaged in the transportation and real estate businesses. The Company's transportation business is conducted through two wholly owned subsidiaries. Florida Rock & Tank Lines, Inc. is a Southeastern transportation company concentrating in the hauling by motor carrier of liquid and dry bulk commodities. SunBelt Transport, Inc. serves the flatbed portion of the trucking industry in the Southeast, hauling primarily construction materials. The Company's Real Estate Group, through subsidiaries, acquires, constructs, leases, operates and manages land and buildings to generate both current cash flows and long-term capital appreciation. OBJECTIVES. The Company's dual objectives are to build a major Southeastern transportation company and a real estate company which provides sound long-term growth, cash generation and asset appreciation. Transportation Internal growth is accomplished by a dedicated, competent and loyal work force emphasizing superior service to customers in existing markets, developing new transportation services for customers in current market areas and opening new terminals in other market areas. External growth, through the acquisition program, is designed to broaden the Company's geographic market area and delivery services by acquiring related businesses in the Southeast. Real Estate The growth plan is based on the acquisition, management and retention of real estate assets and the development of industrial rental properties to provide long-term positive cash flows and capital appreciation. To Our Stockholders: Fiscal 1998 was a year of continued progress with our corporate initiatives which remained consistent to the short and long-term goals in both the Transportation and Real Estate businesses. Results. Revenues for fiscal 1998 were $73,974,000, a 7.5% increase over $68,844,000 in fiscal 1997. Transportation revenues increased 7.5% due to continued growth and expansion in both SunBelt Transport, Inc. and Florida Rock & Tank Lines, Inc. Real estate revenues increased 6.9% principally as the result of increased rental income and timber sales. Real estate property sales approximated $426,000 in fiscal 1998 versus $837,000 in 1997. Gross profit of $16,493,000 increased 10.6% from $14,908,000 in fiscal 1997. The Transportation Group's gross profit for fiscal 1998 increased 10.7% from last year as result of higher miles hauled. The Real Estate Group's gross profit was 10.5% above last year principally because of increased rental income. Selling, general and administrative expenses were up 15.8% in 1998 to $6,868,000 as compared to $5,931,000 in 1997. The increase is primarily attributed to non-recurring costs incurred for various projects, incentive compensation, staffing and expenses associated with system upgrades necessary for Year 2000 compliance. Net income increased 5.2% to $4,480,000 from $4,260,000 in fiscal 1997. Diluted earnings per share increased 5.8% to $1.28 from $1.21 last year. FRP Development Corp. The Company's real estate strategy of developing high quality, flexible warehouse/office space in carefully selected markets continued to be successful. At September 30, 1998 the Company's operating properties totaling 680,000 square feet were fully leased. In addition, approximately 133,000 square feet is currently under construction of which 49% has been pre-leased. The Company continued with its land development activities at Lakeside Business Park, a 134 acre site in Harford County, Maryland north of Baltimore where the Company is developing warehouse/office space. During fiscal 1998, 105,800 square feet of property under construction was completed. All of the operating properties are fully leased. Two additional buildings approximating 133,000 square feet are under construction and will be completed during the fiscal 1999. In addition to the Lakeside Business Park development, the Company purchased a 59 acre tract in Anne Arundel County, Maryland near the Baltimore-Washington International Airport in May 1998. The project, Hillside Business Park, will provide the Company an opportunity to develop 600,000 square f As part of the Company's ongoing asset management activities, it has made application before the Zoning Commission of the District of Columbia to re-zone its 5.8 acre site on the banks of the Anacostia River from industrial to Planned Unit Development (PUD). Approval of the application would allow the development of a 1.5 million square foot commercial office component together with associated waterfront enhancements. The Company expects that a final zoning order will be issued in early 1999. Capital Expenditures. Capital expenditures in 1998 for the transportation business totaled $8,368,000 versus $7,520,000 in 1997. The 1998 capital expenditures were approximately 35% for new plant and equipment and 65% for replacements. Capital expenditures for the real estate segment in 1998 approximated $11,504,000 versus $6,226,000 in 1997. Total depreciation and depletion for fiscal 1998 was $8,987,000 versus $8,205,000 in 1997. The 1999 planned capital expenditures for the transportation business total $10,774,000 for continued expansion of both the flatbed and tank truck fleets and to maintain the modernized fleet. The capital budget for the real estate segment is $12,087,000. Total depreciation and depletion expense is expected to be approximately $10,220,000. Financial Management. The Company's $34,000,000 unsecured revolver and term facility was extended this past year and has a final maturity in November 2003. At September 30, 1998, $15,000,000 was outstanding leaving a balance of $19,000,000 of availability under the facility. The Company also has facilitated $20,000,000 in unsecured demand credit of which $1,600,000 was borrowed at the end of fiscal 1998. $18,832,000 of the Company's total debt is long-term fixed rate mortgages secured by real estate projects. As of September 30, 1998, funded debt approximated 30% of capital employed. Annual Meeting. At the Annual Stockholders Meeting on February 4, 1998, the stockholders elected Edward L. Baker, Thompson S. Baker II, Radford D. Lovett, and Martin E. Stein, Jr. as directors to serve a four-year term expiring in the year 2002. Outlook. Fiscal 1999 is expected to be another year of growth and progress for the Company. The Transportation Group is expected to continue to expand in 1999 through the growth of its business with existing customers as well as entries into new markets. Industrial real estate markets served by FRP Development Corp. in the Baltimore-Washington area remain in good condition with low vacancy rates and steady rent levels. The Company's high quality buildings combined with good market locations have enabled the properties to remain fully leased. In addition to the Lakeside Business Park development, the Hillside Business Park provides the Company additional development opportunities for 1999. Management intends to continue its careful blend of prudence coupled with an aggressive search for new opportunities to grow both the transportation and real estate segments of the business. The Company plans to build on its financial strength and sound market positions. The dedication and support of our employees will continue to be the key to the Company's future success. We extend our sincere thanks to these loyal men and women for their efforts. Respectfully yours, Edward L. Baker Chairman of the Board John E. Anderson President and Chief Executive Officer Operating Review Transportation. The Company's Transportation Group operates through two wholly owned subsidiaries, Florida Rock & Tank Lines, Inc., engaged in hauling liquid and dry bulk commodities primarily in tank trucks, and SunBelt Transport, Inc., engaged in flatbed hauling. The Group operates from terminals in Jacksonville, Ft. Myers, Orlando, Panama City, Pensacola, Port Everglades, Tampa and White Springs, Florida; Albany, Atlanta, Augusta, Bainbridge, Columbus, Macon and Savannah, Georgia; Knoxville and Nashville, Tennessee; and Birmingham, Alabama and has central dispatch offices in Greenville, South Carolina and Dalton, Georgia. During fiscal 1998 the owned and leased fleet increased from 521 to 546 trucks. Revenues for miles hauled were up 6.9% due to both continued expansion of flatbed and tank truck hauling. Gross profit increased 10.7% from fiscal 1997 primarily as a result of increased miles hauled due to the Company's continued growth and expansion in both SunBelt Transport, Inc. and Florida Rock & Tank Lines, Inc. during fiscal 1998. During fiscal 1998, including replacements and growth of SunBelt, the Group purchased 70 new tractors and 104 new trailers. The fiscal 1999 capital expenditure plan is based on maintaining a modernized tank fleet and also expanding the tank truck and flatbed fleets. The fleet modernization program has resulted in reduced maintenance expenses and improved operating efficiencies. For fiscal 1999 Transportation expects another year of growth in its existing bulk hauling business resulting from the continued penetration of targeted market segments. The near term outlook is for increases in the hauling of petroleum, dry bulk and chemical products given modest economic growth. Flatbed hauling is expected to have a year of strong growth during fiscal 1999. Real Estate. The Real Estate Group operates the Company's real estate and property development activities through subsidiaries. The Company owns real estate in Florida, Georgia, Virginia, Maryland, and Washington, D.C. The real estate owned generally falls into one of three categories. The first is land with stone or sand and gravel deposits, substantially all of which is leased to Florida Rock Industries, Inc. under mining royalty agreements, whereby the Company is paid a percentage of the revenues generated or annual minimums. The second is land and/or buildings leased under rental agreements, and the third is land and/or buildings which are being developed for future rental or held for future appreciation or development. Real estate revenues increased 6.9% over fiscal 1997 as a result of higher rental income and timber sales. The fiscal 1998 real estate revenues, excluding the sale of real estate and timber, were divided approximately 49% from mining and minimum royalties and 51% from rental. A brief description of FRP Development Corp.'s projects at September 30, 1998 follows: 8230 Preston Court, 72,182 square feet of flexible warehouse/office space. 8240 Preston Court, 90,405 square feet of flexible warehouse/office space. 810 Oregon Avenue, 113,280 square feet of flexible warehouse/office space. 1502 Quarry Drive, 105,803 square feet of flexible warehouse/office space completed during fiscal 1998. 812 Oregon Avenue, 82,335 square feet of flexible warehouse/office space. Rossville Business Center, a two building complex consisting of 187,517 square feet of flexible warehouse/office space. TESSCO Center, a 28,533 square foot suburban office building. Lakeside Business Park is a 134 acre site capable of supporting 1,400,000 square feet of warehouse/office space. At September 30, 1998, 133,000 square feet is under construction of which 49% has been pre-leased. Approximately 72 acres remain available for development. Hillside Business Park, is a 59 acre site located in Anne Arundel County, Maryland and capable of supporting 600,000 square feet of warehouse/office space. The Group during fiscal 1999 will continue to focus on the development of the property at Lakeside Business Park. In addition, land development and planning for Hillside Business Park will commence. At September 30, 1998 the Company owns approximately 680,000 square feet of rental properties that were fully leased. The Real Estate Group will continue its asset management functions for the benefit of the Company's land portfolio. These activities will also include but not be limited to the pending re-zoning application for the Company's site on the Anacostia River in the District of Columbia. The Company's long-term plan is to gradually build and own a portfolio of successful rental properties. Five Year Summary Years ended September 30 (Dollars and shares in thousands except per share amounts) 1998 1997 1996 1995(a) 1994 Summary of Operations Revenues $ 73,974 68,844 64,403 58,273 54,011 Gross profit(b) $ 16,493 14,908 14,615 15,132 12,255 Operating profit $ 9,625 8,977 9,017 9,440 7,264 Interest expense $ 2,300 2,061 2,234 1,933 1,105 Income before income taxes $ 7,343 6,984 6,827 7,591 6,219 Provision for income taxes $ 2,863 2,724 2,662 2,961 2,425 Net income $ 4,480 4,260 4,165 4,630 3,794 Per Common Share Basic EPS $ 1.30 1.22 1.16 1.24 .95 Diluted EPS $ 1.28 1.21 1.14 1.22 .94 Stockholders' equity $ 19.83 18.53 17.72 16.74 15.64 Financial Summary Current assets $ 10,073 8,549 8,003 8,495 7,703 Current liabilities $ 9,479 11,063 9,595 7,117 10,234 Working capital (deficit) $ 594 (2,514) (1,592) 1,378 (2,531) Property, plant and equipment, net $104,970 95,018 90,058 83,319 74,697 Total assets $123,965 116,582 107,036 101,357 91,769 Long-term debt $ 33,299 30,647 26,170 25,503 16,108 Stockholders' equity $ 68,755 63,734 61,894 61,622 59,437 Other Data Return on average stockholders' equity 6.7% 6.8 6.7 7.6 6.4 Return on average capital employed 4.1% 4.2 5.8 6.6 5.5 Net cash flow provided from operating activities $ 13,557 13,982 14,681 10,131 10,005 Additions to property, plant and equipment $ 19,901 13,746 15,970 15,805 9,165 Depreciation, depletion and amortization $ 9,146 8,356 7,667 7,304 6,945 Weighted average number of shares - basic 3,452 3,490 3,588 3,742 3,977 Weighted average number of shares - diluted 3,496 3,530 3,647 3,798 4,019 Number of employees at end of year 753 721 665 644 556 Stockholders of record 850 873 913 939 975 (a) Effective October 1, 1994, the Company changed depreciation lives on revenue equipment which resulted in an increase in gross profit of $842,000 and net income of $525,000 ($.14 per share) for fiscal 1995. (b) Fiscal 1998, 1997, 1996, 1995 and 1994 include gains on the sale of real estate of $358,000, $817,000, $93,000, $79,000 and $1,167,000, respectively. Quarterly Results (unaudited) (Dollars in thousands except per share amounts)
First Second Third Fourth 1998 1997 1998 1997 1998 1997 1998 1997 Revenues $17,671 16,398 17,831 16,221 19,002 17,533 19,470 18,692 Gross profit $ 3,974 3,363 3,776 3,244 4,337 4,077 4,406 4,224 Operating profit $ 2,458 1,844 2,104 1,734 2,512 2,573 2,551 2,826 Income before income taxes $ 1,894 1,369 1,555 1,274 1,943 2,038 1,951 2,303 Net income $ 1,155 835 949 777 1,185 1,243 1,191 1,405 Per common share: Basic EPS $.34 .24 .28 .22 .34 .36 .34 .41 Diluted EPS $.33 .23 .27 .22 .34 .35 .34 .40 Market price: High $38.00 26.00 33.75 28.75 37.25 28.00 33.00 34.00 Low $31.37 20.50 30.00 24.00 32.00 24.50 20.50 25.25
Management Analysis Operating Results. 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 Southeast, petroleum product usage in the Southeast, fuel costs, construction activity in certain Georgia and Florida markets, Florida Rock Industries, Inc.'s sales from the Company's mining properties, interest rates and demand for commercial warehouse space in the Baltimore/Washington area. Internal factors include revenue mix, capacity utilization, safety record, other operating factors, and construction costs of new projects. In fiscal 1998 and 1997, revenues increased 7.5% and 6.9%, respectively. In the Transportation segment revenues and miles hauled were up 7.5% and 6.9% in 1998, respectively, and 6.7% and 2.3%, respectively in 1997. The Real Estate segment's revenues, exclusive of real estate sales, increased 12.5% in 1998 and remained level with 1997. The increase in real estate revenues is the result of increase rental income and timber sales. The estimated contribution to Transportation revenues by principal markets follows: 1998 1997 1996 1995 1994 Petroleum 67% 68 68 66 45 Construction 21% 21 20 19 26 Chemical 7% 6 7 10 15 Other 5% 5 5 5 14 Gross profit for fiscal 1998 increased $1,585,000 and gross margin remained stable from last year. The Transportation segment gross profit increased $969,000 principally as a result of higher miles hauled. Gross margin remained stable. In the Real Estate segment, gross profit increased $616,000 primarily as a result of increased rental income and timber sales partially offset by a decrease in property sales. In fiscal 1997, gross profit increased $293,000 from 1996 and gross margin decreased to 22% from 23%. The Transportation segment's gross profit decreased $605,000, principally due to higher insurance costs, increased depreciation expense and lower gains on the sale of equipment. Gross margin decreased to 15% from 17% principally due to reduced gains on the sale of equipment, increased depreciation expense and higher operating costs. In the Real Estate segment gross profit increased $898,000 in fiscal 1997 from 1996. The increase was principally due to real estate sales gross profit of $817,000 in 1997 compared to $93,000 in 1996, increased development revenues and a 1996 write-off of $349,000 in connection with the abandonment of certain development costs. Selling, general and administrative expense increased 15.8% in 1998 and increased 6% in 1997. The 1998 increase is primarily attributed to non-recurring costs incurred for various projects, business development opportunities related to Transportation incentive compensation, staffing and consulting related to systems upgrades necessary for Year 2000 compliance. Interest expense in 1998 increased 12% or $239,000 from 1997 primarily as a result of an increase in the average debt outstanding and an increase in the average interest rate. These increases were partially offset by an increase in the amount of interest capitalized. In 1997 interest expense decreased 8% from 1996 primarily due to increased capitalization of interest. Year 2000 Conversion. The Company, like most entities relying on automated data processing is faced with the task of modifying systems to become Year 2000 compliant. The Company has analyzed its Year 2000 exposure and has developed plans for addressing the Year 2000 exposure as well as reengineering selective systems to enhance their functionality. The Company is in various stages of modifying or replacing both internally developed and purchased software. The Company has purchased new software and hardware for its truck dispatching and maintenance system that is represented to be Year 2000 compliant to replace its existing systems. The Company will begin to phase in this software in January 1999 and have the total system installed in June 1999. The Company purchases from an affiliate, Florida Rock Industries, Inc. (FRI) certain administrative services including automated data processing (Purchased Services). FRI is in the process of updating its systems to be Year 2000 compliant. The Company has reviewed FRI's plan and is monitoring the progress of this plan as it relates to the Purchased Services. The Company is in the process of identifying operating equipment which may be effected by Year 2000. Once the equipment has been identified testing will begin to determine if such equipment is Year 2000 compliant. Vendors, suppliers and customers that are critical to the Company's operations are in the process of being identified. Questionnaires will be sent to these entities to determine their state of readiness for Year 2000. The Company will identify alternative vendors and suppliers if any of the current suppliers do not appear to be taking corrective actions and as a contingency in case these entities are not Year 2000 compliant. The costs associated with the purchase and installation of the truck dispatching and maintenance software and hardware will be capitalized and amortized over the estimated useful life of the software or equipment. Other costs associated such as selection, training and reengineering of the existing processing are being expensed as incurred. Based on current information, the expected costs of the systems are not expected to be material to the financial condition or results of operations of the Company. The Company feels it is addressing in a timely manner the major issues related to the Year 2000 and any significant disruptive problems in its ability to conduct its business as a result are unlikely. The Company's contingency plans will be finalized during the second quarter of calendar 1999. This plan will assess the risks and possible countermeasures. However, despite efforts and initiatives undertaken by the Company, total assurances can not be given that absolute compliance can be achieved. There can be no guarantees that the computer systems of other entities on which the Company relies will be converted in a timely manner or that their failure to convert, or a conversion that is incompatible with the Company's system, will not have an adverse effect on the Company's business, financial condition and results of operations. Liquidity and Capital Resources. The following key financial measurements reflect the Company's financial position and capital resources at September 30 (dollars in thousands): 1998 1997 1996 Cash $ 663 429 313 Total debt $35,432 35,065 30,003 Debt as a percent of capital employed 32% 33 31 Unused lines of credit $37,400 35,500 35,500 During 1998, net cash flows from operating activities were $13,557,000 which along with exercise of stock options and issuing of debt funded the Company's investing activities of $14,232,000. During 1997, net cash flows from operating activities were $13,982,000, net cash used in investing activities were $16,508,000 and common stock repurchased was $3,299,000. These activities were funded by additional borrowings of $5,400,000 and proceeds from the exercise of stock options of $879,000. The Company is financially postured to be able to take advantage of external and internal growth opportunities in real estate development and in the motor carrier industry that may occur in the Southeast. The Board of Directors has authorized management to repurchase shares of the Company's common stock from time to time as opportunities may arise. The Company has a $34,000,000 revolving credit agreement of which $19,000,000 was available at fiscal year end. In addition, it has unsecured short-term lines of credit under which it may borrow up to $20,000,000 of which $1,600,000 was outstanding at September 30, 1998. The Company currently expects its fiscal 1999 capital expenditures to be approximately $22,861,000 and depreciation and depletion expense to be $10,220,000. The expenditures are expected to be financed from the cash flow from operating activities and the $19,000,000 unused and available under its revolving credit agreement. The Company believes it will be able to renegotiate its present credit facilities or obtain similar replacement credit facilities when necessary in the future. Inflation. Historically, the Company has been able to recover inflationary cost increases through increased freight rates. It is expected that over time justifiable and necessary rate increases will be obtained in the future, although deregulation of intrastate trucking rates has made this more difficult in the past three years. Substantially all of the Company's royalty agreements are based on a percentage of the sales price. Minimum royalties and substantially all lease agreements provide various escalation provisions. Forward-Looking Statements. Certain matters discussed in this report contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from these indicated by such forward-looking statements. These forward-looking statements relate to, among other things, capital expenditures, liquidity, capital resources, competition and the Year 2000 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 are among the principal factors that could cause actual results to differ materially from the forward-looking statements: Year 2000 technology issues; availability and terms of financing; competition; levels of construction activity in the FRI's markets; fuel costs; and inflation. Consolidated Statement of Income Years ended September 30 (Dollars and shares in thousands except per share amounts) 1998 1997 1996 Revenues: Transportation $ 64,014 59,530 55,801 Real estate 9,534 8,477 8,434 Sale of real estate 426 837 168 Total revenues (including revenue from related parties of $6,256, $6,006, and $6,544) 73,974 68,844 64,403 Cost of operations: Transportation 54,002 50,487 46,153 Real estate 3,411 3,429 3,560 Cost of real estate sold 68 20 75 Gross profit 16,493 14,908 14,615 Selling, general and administrative expense (including expenses paid to related party of $1,515, $1,414 and $1,383) 6,868 5,931 5,598 Operating profit 9,625 8,977 9,017 Interest expense (2,300) (2,061) (2,234) Interest income 13 46 34 Other income, net 5 22 10 Income before income taxes 7,343 6,984 6,827 Provision for income taxes 2,863 2,724 2,662 Net income $ 4,480 4,260 4,165 Earnings per share: Basic $ 1.30 1.22 1.16 Diluted $ 1.28 1.21 1.14 Number of shares used in computing: Basic earnings per share 3,452 3,490 3,588 Diluted earnings per share 3,496 3,530 3,647 See accompanying notes. Consolidated Balance Sheet September 30 (Dollars in thousands) 1998 1997 Assets Current assets: Cash and cash equivalents $ 663 429 Accounts receivable, less allowance for doubtful accounts of $272 ($258 in 1997) (including related party of $380 and $283) 6,510 5,531 Inventory of parts and supplies 552 469 Prepaid expenses and other 2,348 2,120 Total current assets 10,073 8,549 Other assets: Real estate held for investment, at cost 5,703 5,771 Goodwill, at cost less amortization of $362 ($322 in 1997) 1,248 1,288 Other 1,971 5,956 Total other assets 8,922 13,015 Property, plant and equipment, at cost: Land 55,284 55,614 Buildings 30,953 27,485 Plant and equipment 62,134 53,563 Construction in progress 9,712 6,009 158,083 142,671 Less accumulated depreciation and depletion 53,113 47,653 Net property, plant and equipment 104,970 95,018 $123,965 116,582 Liabilities and Stockholders' Equity Current liabilities: Short-term note payable to bank $ 1,600 4,000 Accounts payable (including related party of $85 and $77) 2,776 2,427 Federal and state income taxes 1,224 779 Accrued liabilities: Payroll and benefits 1,500 1,154 Taxes 412 582 Interest 176 165 Insurance reserves 1,258 1,538 Long-term debt due within one year 533 418 Total current liabilities 9,479 11,063 Long-term debt 33,299 30,647 Deferred income taxes 7,656 7,243 Accrued insurance reserves 4,129 3,382 Other liabilities 647 513 Commitments and contingent liabilities (Notes 10 and 11) Stockholders' equity: Preferred stock, no par value; 5,000,000 shares authorized - - Common stock, $.10 par value; 25,000,000 shares authorized; 3,468,225 shares issued (3,439,235 shares in 1997) 347 344 Capital in excess of par value 17,871 17,333 Retained earnings 50,537 46,057 Total stockholders' equity 68,755 63,734 $123,965 116,582 See accompanying notes. Consolidated Statement of Cash Flows Years ended September 30 (Dollars in thousands) 1998 1997 1996 Cash flows from operating activities: Net income $ 4,480 4,260 4,165 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 9,146 8,356 7,667 Net changes in operating assets and liabilities: Accounts receivable (993) (250) 268 Inventory of parts and supplies (83) 33 (1) Prepaid expenses (228) (261) 157 Accounts payable and accrued liabilities 492 732 1,161 Increase in deferred income taxes 620 1,181 1,622 Net change in insurance reserves and other liabilities 879 759 242 Gain on sale of real estate, plant and equipment (778) (792) (550) Other, net 22 (36) (50) Net cash provided by operating activities 13,557 13,982 14,681 Cash flows from investing activities: Purchase of property, plant and equipment (15,323) (13,470)(14,070) Purchase of real estate held for investment - - (32) Additions to other assets (451) (4,156) (130) Proceeds from the sale of real estate held for investment, property, plant and equipment, and other assets 1,542 1,118 1,012 Net cash used in investing activities (14,232) (16,508)(13,220) Cash flows from financing activities: Proceeds from long-term debt 3,200 4,900 3,000 Net increase (decrease) in short-term debt (2,400) 500 1,700 Repayment of long-term debt (432) (338) (2,347) Exercise of employee stock options 574 879 22 Repurchase of Company stock (33) (3,299) (3,915) Net cash provided by (used in) financing activities 909 2,642 (1,540) Net increase (decrease) in cash and cash equivalents 234 116 (79) Cash and cash equivalents at beginning of year 429 313 392 Cash and cash equivalents at end of year $ 663 429 313 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense, net of amount capitalized $ 2,288 1,997 2,257 Income taxes (received) $ 1,759 898 (216) Noncash investing and financing activities: Additions to property, plant and equipment from: Exchanges $ 767 276 1,900 Other assets $ 3,811 - - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with maturities of three months or less at time of purchase to be cash equivalents. See accompanying notes. Consolidated Statement of Stockholders' Equity Years ended September 30 (Dollars in thousands) Capital in Common Stock Excess of Retained Shares Amount Par Value Earnings Balance at October 1, 1995 3,681,594 $368 23,622 37,632 Shares purchased and canceled (191,408) (19) (3,896) Exercise of stock options 2,000 22 Net income 4,165 Balance at September 30, 1996 3,492,186 349 19,748 41,797 Shares purchased and canceled (147,951) (14) (3,285) Exercise of stock options 95,000 9 870 Net income 4,260 Balance at September 30, 1997 3,439,235 344 17,333 46,057 Share purchased and canceled (1,010) - (33) - Exercise of stock options 30,000 3 571 - Net income - - - 4,480 Balance at September 30, 1998 3,468,225 $347 17,871 50,537 See accompanying notes. Notes to Consolidated Financial Statements 1. Accounting polices. CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated in consolidation. Certain amounts for 1997 have been reclassified to conform to presentation in 1998. INVENTORY - Inventory of parts and supplies is valued at the lower of cost (first-in, first-out) or market. REVENUE AND EXPENSE RECOGNITION - Substantially all transportation revenue is recognized when shipment is complete and transportation expenses are recognized as incurred. Real estate rental revenue and mining royalties are generally recognized when due under the leases. The straight-line method is used to recognize rental revenues under leases which provide for varying rents over their term. PROPERTY, PLANT AND EQUIPMENT - Provision for depreciation of plant and equipment is computed using the straight-line method based on the following estimated useful lives: Years Buildings and improvements 8-32 Revenue equipment 5-10 Other equipment 3- 5 Furniture and fixtures 5-10 Depletion of sand and stone deposits is computed on the basis of units of production in relation to estimated reserves. Goodwill is amortized over forty years using the straight-line method. The Company periodically reviews property and equipment for potential impairment. If this review indicates that the carrying amount of the asset may not be recoverable, the Company estimates the future cash flows expected with regards to the asset and its eventual disposition. If the sum of these future cash flows (undiscounted and without interest charges) is less than the carrying amount of the assets, the Company records an impairment loss based on the fair value of the asset. RISK INSURANCE - The Company has a $250,000 to $500,000 self-insured retention per occurrence in connection with its workers' compensation, automobile liability, and general liability insurance programs ("Risk Insurance"). The Company accrues monthly the estimated cost in connection with its portion of its Risk Insurance losses. Claims paid by the Company are charged against the reserve. Additionally, the Company maintains a reserve for incurred but not reported claims based on historical analysis of such claims. INCOME TAXES - The Company uses an asset and liability approach to financial reporting for income taxes. Under this method, deferred tax assets and liabilities are recognized based on differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. Deferred income taxes result from temporary differences between pre-tax income reported in the financial statements and taxable income. EARNINGS PER COMMON SHARE - Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the presentation of primary earnings per share (EPS) and fully diluted EPS with a presentation of basic and diluted EPS. Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share are based on the weighted average number of common shares and potential dilution of securities that could share in earnings. Earnings per share for all prior periods have been restated. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ENVIRONMENTAL - Environmental expenditures that benefit future periods are capitalized. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Estimation of such liabilities is extremely complex. Some factors that must be assessed are engineering estimates, continually evolving governmental laws and standards, and potential involvement of other potentially responsible parties. NEW ACCOUNTING REQUIREMENTS - In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires reporting segment profit or loss, certain specific revenue and expense items and segment assets. It also requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts reported in the financial statements. Restatement of comparative information for earlier periods presented is required in the initial year of application. Interim information is not required until the second year of application, at which time comparative information is required. The Company has not determined the impact that the adoption of this new accounting standard will have on its financial statement disclosures. The Company will adopt this accounting standard on October 1, 1998, as required. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", effective for fiscal year beginning after December 15, 1997. SFAS 130 requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This statement also requires that an entity classify items of other comprehensive earnings may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on marketable securities classified as available-for-sale. Restatement of disclosures for earlier periods is required. This statement is not expected to have a material effect on the Company's financial statements. In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits", effective for fiscal years beginning after December 15, 1997. SFAS 132 revised employer disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. Restatement of disclosures for earlier periods is required. The Company will adopt this accounting standard on October 1, 1998, as required. In March 1998, the AICPA issued SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", effective for fiscal years beginning after December 15, 1998. This SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. This SOP requires that entities capitalize certain internal-use software costs once certain criteria are met. Adoption of this standard is not expected to have a material effect on the Company's financial statements. 2. Transactions with related parties. As of September 30, 1998 seven of the Company's directors were also directors of Florida Rock Industries, Inc. ("FRI"). Such directors own approximately 30% of the stock of FRI and 41% of the stock of the Company. Accordingly, FRI and the Company are considered related parties. The Company, through its transportation subsidiaries, hauls construction aggregates for FRI and customers of FRI. It also hauls diesel fuel and other supplies for FRI. Charges for these services are based on prevailing market prices. Other wholly owned subsidiaries lease certain construction aggregates mining and other properties and provide construction management services to FRI. A summary of revenues derived from FRI follows (in thousands): 1998 1997 1996 Transportation $ 839 883 1,100 Real estate 5,417 5,123 5,444 $6,256 6,006 6,544 Under an agreement extending until September 30, 2000, FRI furnishes the Company with certain management and related services, including financial, tax, legal, administrative, accounting and computer. Charges for such services were $1,515,000 in 1998, $1,414,000 in 1997 and $1,383,000 in 1996. 3. Lines of credit and debt. Long-term debt at September 30 is summarized as follows (in thousands): 1998 1997 Revolving credit (unsecured) $15,000 15,000 6.9% to 9.5% mortgage notes payable in installments through 2015 18,832 16,065 33,832 31,065 Less portion due within one year 533 418 $33,299 30,647 The aggregate amount of principal payments, excluding the revolving credit, due subsequent to September 30, 1998 is: 1999 - $533,000; 2000 - $579,000; 2001 - $628,000; 2002 - $681,000; 2003 - $738,000; 2004 and subsequent years - $15,673,000. The Company has a revolving credit agreement under which it may borrow from three banks up to $34,000,000 on term loans payable 25% on November 15, 2001, 25% on November 15, 2002 and the balance on November 15, 2003. Interest is payable at SunTrust Bank, Central Florida, N.A.'s prime rate until November 15, 2000, and at 1/4 of 1% above such prime rate thereafter. Alternative interest rates based on the London interbank rate and/or the reserve-adjusted certificate of deposit rate are available at the Company's option. A commitment fee of 1/4 of 1% is payable on the unused amount of the commitment until November 15, 2000. The revolving credit agreement contains restrictive covenants, including limitations on paying cash dividends. As of September 30, 1998 $12,593,000 of consolidated retained earnings was not restricted as to payment of cash dividends. The mortgage notes payable are collateralized by real estate having a carrying value of approximately $22,415,000 at September 30, 1998. Certain properties having a carrying value at September 30, 1998 of $1,620,000 were encumbered by industrial revenue bonds which are the liability of FRI. FRI has agreed to pay such debt when due (or sooner if FRI cancels its lease of such property) and further has agreed to indemnify and hold harmless the Company. The Company also has short-term lines of credit totaling $20,000,000 from three banks. Under these lines the Company can borrow funds for a period from one to ninety days. There is no commitment fee and the banks can terminate the lines at any time. The interest rate is determined at the time of each borrowing. The weighted average interest rates of such borrowings on September 30, 1998 and 1997 were 6.1% and 7.0%, respectively. During fiscal 1998, 1997 and 1996 the Company capitalized interest cost of $331,000, $223,000 and $17,000, respectively. 4. Leases. At September 30, 1998, the total carrying value of property owned by the Company which is leased or held for lease to others is summarized as follows (in thousands): Construction aggregates property $41,881 Commercial property 41,630 Land and other property 11,227 94,738 Less accumulated depreciation and depletion 21,000 $73,738 The minimum future rentals on noncancelable operating leases as of September 30, 1998 are as follows: 1999 - $4,208,000; 2000 - $3,936,000; 2001 - $3,082,000; 2002 - $2,461,000; 2003 - $1,948,000; 2004 and subsequent years $10,121,000. 5. Stock option plan. The Company has a Stock Option Plan under which options for shares of common stock may be granted to directors, officers and key employees. At September 30, 1998 the number of shares available for issuance is 85,000 shares. The Company did not issue options during 1998 and 1997, therefore, SFAS No. 123 pro forma disclosures are not presented. Option transactions for the fiscal years ended September 30 are summarized as follows: 1998 1997 1996 Average Average Average Options Price(1) Options Price(1) Options Price(1) Shares under option: Beginning of year 150,000 15.25 245,000 12.78 247,000 12.76 Exercised (30,000) 11.00 (95,000) 8.88 (2,000) 11.00 End of year 120,000 16.31 150,000 15.25 245,000 12.78 Options exercisable at end of year 98,000 108,600 184,300 (1) Weighted average exercise price The following table summarizes information concerning stock options outstanding at September 30, 1998: Options Options Weighted-Average Exercise Price Outstanding Exercisable Remaining Life 12.25 30,000 30,000 1.8 years 17.25 15,000 9,000 6.2 years 17.75 75,000 59,000 6.1 years Remaining non-exercisable options as of September 30, 1998 become exercisable as follows: 1999 - 11,000 and 2000 - 11,000. The options expire ten years from the date of grant and become exercisable in cumulative installments of 20% to 33% each year after a one year waiting period from date of grant. 6. Income taxes. The provision for income taxes for fiscal years ended September 30 consists of the following (in thousands): 1998 1997 1996 Current: Federal $1,914 1,317 892 State 329 226 148 2,243 1,543 1,040 Deferred 620 1,181 1,622 Total $2,863 2,724 2,662 A reconciliation between the amount of tax shown above and the amount computed at the statutory Federal income tax rate follows (in thousands): 1998 1997 1996 Amount computed at statutory Federal rate $2,497 2,374 2,321 State income taxes (net of Federal income tax benefit) 277 263 255 Other, net 89 87 86 Provision for income taxes $2,863 2,724 2,662 The types of temporary differences and their related tax effects that give rise to deferred tax assets and deferred tax liabilities at September 30, are presented below: 1998 1997 Deferred tax liabilities: Basis difference in property, plant and equipment $8,758 8,014 Depletion 630 656 Prepaid expenses 930 833 Gross deferred tax liabilities 10,318 9,503 Deferred tax assets: Insurance reserves 1,798 1,614 Other, net 505 495 Gross deferred tax assets 2,303 2,109 Net deferred tax liability $8,015 7,394 7. Employee benefits. The Company and certain subsidiaries have a savings/profit sharing plan for the benefit of qualified employees. The savings feature of the plan incorporates the provisions of Section 401(k) of the Internal Revenue Code. Under the savings feature of the plan, an eligible employee may elect to save a portion (within limits) of their compensation on a tax deferred basis. The Company contributes to a participant's account an amount equal to 50% (with certain limits) of the participant's contribution. Additionally, the Company may make an annual contribution to the plan as determined by the Board of Directors, with certain limitations. The plan provides for deferred vesting with benefits payable upon retirement or earlier termination of employment. The Company's cost was $429,000 in 1998, $403,000 in 1997 and $419,000 in 1996. The Company provides certain health benefits for retired employees. Employees may become eligible for those benefits if they were employed by the Company prior to December 10, 1992, meet the service requirements and reach retirement age while working for the Company. The plan is contributory and unfunded. The Company accrues the estimated cost of retiree health benefits over the years that the employees render service. The following table sets forth the plan's status reconciled with the accrued postretirement benefit cost included in the Company's consolidated balance sheet at September 30 (in thousands): 1998 1997 1996 Accumulated postretirement benefit obligation (APBO): Retirees $ 87 117 133 Fully eligible active participants 109 62 62 Other active participants 275 317 307 Total APBO 471 496 502 Unrecognized net gain (loss) from past experience different from that assumed and from changes in assumptions 68 5 (68) Unrecognized prior service cost 15 74 133 Accrued postretirement benefit cost $ 554 575 567 Net periodic postretirement benefit cost for fiscal years ended September 30 includes the following components (in thousands): 1998 1997 1996 Service cost of benefits earned during the period $ 33 38 39 Interest cost on APBO 30 32 32 Net amortization and deferral (62) (59) (55) Net periodic postretirement benefit cost $ 1 11 16 The discount rate used in determining the Net Periodic Postretirement Benefit Cost and the APBO was 7.25%. 8. Industry segments. The Company has two major business segments: transportation and real estate, both operated principally within the Mid-Atlantic and Southeastern United States. The transportation segment is operated through two wholly owned subsidiaries which are engaged in the hauling of liquid and dry commodities by motor carrier. The real estate segment is operated through wholly owned subsidiaries that own real estate of which a substantial portion is under mining royalty agreements or leased. They also hold certain other real estate for investment and are developing commercial and industrial properties. The Company grants credit to customers who are in the petroleum, chemical, convenience store, construction materials and agricultural industries. Financial data for industry segments is as follows (in thousands): 1998 1997 1996 Revenues: Transportation $ 64,014 59,530 55,801 Real estate (a) 9,960 9,314 8,602 $ 73,974 68,844 64,403 Segment profit: Transportation $ 4,371 4,188 4,947 Real estate (a) 6,362 5,799 4,908 10,733 9,987 9,855 Corporate expenses (1,090) (942) (794) Interest expense (2,300) (2,061) (2,234) Income before income taxes $ 7,343 6,984 6,827 Capital expenditures: Transportation $ 8,368 7,520 13,174 Real estate 11,504 6,226 2,782 $ 19,872 13,746 15,956 Depreciation, depletion and amortization: Transportation $ 6,740 6,136 5,558 Real estate 2,356 2,173 2,065 $ 9,096 8,309 7,623 Identifiable assets at September 30: Transportation $ 44,054 42,895 41,489 Real estate 79,393 73,159 64,972 General corporate 518 528 575 $123,965 116,582 107,036 (a) Fiscal 1998, 1997 and 1996 includes revenue of $426,000, $837,000 and $168,000 and segment profit of $358,000, $817,000 and $93,000, respectively, from the sale of real estate. General corporate assets consist principally of cash, receivables, investments and equipment. 9. Fair values of financial instruments. At September 30, 1998 and 1997, the carrying amount reported in the balance sheet for cash and cash equivalents, short-term notes payable to bank and revolving credit approximate their fair value. The fair values of the Company's other long-term debt are estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. At September 30, 1998 the carrying amount and fair value of such other long-term debt was $18,832,000 and $19,996,000, respectively. At September 30, 1997 the carrying amount and fair value of such other long-term debt was $16,065,000 and $15,470,000, respectively. 10. Contingent liabilities. Certain of the Company's subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage. In the opinion of management, none of these matters are expected to have a materially adverse effect on the Company's consolidated financial statements. One of the Company's subsidiaries is a potentially responsible party in connection with a Superfund Site. It is the policy of the Company to accrue environmental contamination cleanup costs when it is probable that a liability has been incurred and the amount of such liability is reasonably estimable. The Company has made an estimate of its likely costs in connection with this site and a liability has been recorded. Such liability is not material to the financial statements of the Company. 11. Commitments. At September 30, 1998, the Company had placed orders and was committed to purchase tractors and trailers costing approximately $9,900,000 and had entered into various contracts to purchase and develop real estate with remaining commitments totaling $2,000,000. 12. Fourth quarter financial information (unaudited). In the fourth quarter of fiscal 1997, the Company increased its risk insurance reserves approximately $682,000. Independent Auditors' Report To the Board of Directors and Stockholders FRP Properties, Inc. We have audited the accompanying consolidated balance sheets of FRP Properties, Inc. and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of FRP Properties, Inc. and subsidiaries at September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Jacksonville, Florida December 1, 1998 Directors and Officers Directors John E. Anderson (1) President and Chief Executive Officer of the Company Edward L. Baker (1) Chairman of the Board of the Company John D. Baker, II (1) President and Chief Executive Officer of Florida Rock Industries, Inc. Thompson S. Baker II Vice President of Florida Rock Industries, Inc. Ish Copley President of SunBelt Transport, Inc., the Company's flatbed trucking operations David H. deVilliers, Jr. Vice President of the Company and President of FRP Development Corp., the Company's northern real estate operations Albert D. Ernest, Jr. (2)(3) President of Albert Ernest Enterprises Luke E. Fichthorn III (2) Private Investment Banker, Twain Associates and Chairman of the Board and Chief Executive Officer of Bairnco Corporation Francis X. Knott (2) Chief Executive Officer of Partners Management Company Radford D. Lovett (3) Chairman of the Board of Commodores Point Terminal Corp. John R. Mabbett III Vice President and Secretary of the Company and President of Florida Rock & Tank Lines, Inc., the Company's tank and dump trucking operations Robert H. Paul III (3) Chairman of the Board, President and Chief Executive Officer of Southeast-Atlantic Beverage Corporation Martin E. Stein, Jr. Chairman and Chief Executive Officer of Regency Realty Corporation James H. Winston (2) President of LPMC of Jax, Inc. and President of Omega Insurance Company ________________ (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Compensation Committee Officers Edward L. Baker Chairman of the Board John E. Anderson President and Chief Executive Officer John R. Mabbett III Vice President and Secretary President, Florida Rock & Tank Lines, Inc. David H. deVilliers, Jr. Vice President President, FRP Development Corp., the Company's northern real estate operations James J. Gilstrap Treasurer and Chief Financial Officer Wallace A. Patzke, Jr. Controller and Chief Accounting Officer FRP PROPERTIES, Inc. General Office: 155 East 21st Street Jacksonville, Florida 32206 Telephone: (904) 355-1781 Annual Meeting Shareholders are cordially invited to attend the Annual Stockholders Meeting which will be held at 2 p.m. local time, on Wednesday, February 3, 1999, at the general offices of the Company, 155 East 21st Street, Jacksonville, Florida. Transfer Agent First Union Customer Information Center Corporate Trust Client Services NC-1153 1525 West W. T. Harris Boulevard - 3C3 Charlotte, NC 28288-1153 Telephone: 1-800-829-8432 General Counsel Lewis S. Lee, Esquire LeBoeuf, Lamb, Greene & MacRae, L.L.P. Jacksonville, Florida Independent Auditors Deloitte & Touche LLP Jacksonville, Florida Common Stock Listed The Nasdaq Stock Market (Symbol: FRPP) Form 10-K Stockholders may receive without charge a copy of FRP Properties, Inc.'s annual report to the Securities and Exchange Commission on Form 10-K by writing to the Treasurer at P.O. Box 4667, Jacksonville, Florida 32201. EX-27 2 FDS
5 1000 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 663 0 6,782 272 552 10,073 158,083 53,113 123,965 9,479 33,299 0 0 347 68,411 123,965 73,974 73,974 57,481 57,481 0 0 (2,300) 7,343 2,863 4,480 0 0 0 4,480 1.30 1.28
EX-11 3 EPS EXHIBIT (11) FRP PROPERTIES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE Years Ended September 30 1998 1997 1996 Net income $4,480,000 4,260,000 4,165,000 Common shares: Weighted average shares outstanding during the period - shares used for basic earnings per share 3,451,748 3,490,207 3,587,894 Shares issuable under stock options which are potentially dilutive 44,442 39,716 59,487 Shares used for diluted earnings per share 3,496,190 3,529,926 3,647,381 Basic earnings per common share $1.30 $1.22 $1.16 Diluted earnings per common share $1.28 $1.21 $1.14 EX-4 4 FIRST AMENDMENT TO CREDIT AGREEMENT FIRST AMENDMENT DATED AS OF SEPTEMBER 30, 1998 TO THE CREDIT AGREEMENT DATED AS OF NOVEMBER 15, 1995 - - - - - - - - - - THIS FIRST AMENDMENT DATED AS OF SEPTEMBER 30, 1998 TO THE CREDIT AGREEMENT DATED AS OF NOVEMBER 15, 1995 (the "Agreement"), is entered into among FRP PROPERTIES, INC., a Florida corporation (the "Company"), SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION (in its individual capacity, "SunTrust"), as agent (in such capacity, the "Agent"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national bank, successor by merger to Bank of America Illinois, BARNETT BANK, N. A. (formerly known as Barnett Bank of Jacksonville, N.A.), ("Barnett") and FIRST UNION NATIONAL BANK, (successor by merger to First Union National Bank of Florida) ("FUNB") Recitals: The Company has requested that the Banks modify the Agreement as set forth herein. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Agreement. Therefore, in consideration of any loan or advance or grant of credit heretofore or hereafter made to the Company by the Banks, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree that the Agreement is hereby amended as follows (hereinafter, as amended, the "Agreement"): Section 1. Clauses (a), (b) and of Section 1.3 are amended in their entirety to read as follows: "(a) a sum equal to twenty-five percent (25%) of the principal balance outstanding on the Commitment Termination Date shall be payable on November 15, 2001; "(b) a sum equal to twenty-five percent (25%) of the principal balance outstanding on the Commitment Termination Date shall be payable on November 15, 2002; and "(c) the remaining principal balance outstanding on the Commitment Termination Date shall be due and payable in full on November 15, 2003." Exhibit "A", as referred to in Section 1.3 and attached to the Agreement, is amended in its entirety in the form of Exhibit "A" attached to this First Amendment. Section 2. Section 1.5 is hereby amended to read as follows: "Section 1.5 Interest on Loans. "(a) Each Prime Loan shall bear interest on its principal amount outstanding from time to time at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) (I) from the Closing Date through November 15, 2000 at a rate per annum equal to the Prime Rate, and (ii) from November 16, 2000 through November 15, 2003 at a rate per annum equal to the Prime Rate plus 1/4 of 1%. Interest shall be payable on each Prime Loan quarterly on each Interest Payment Date, commencing with the first of such dates after the date of such Prime Loan, and at maturity or the date of conversion of such Prime Loan to a Loan of a different type. "(b) Each Certificate of Deposit Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) (I) from the Closing Date through November 15, 2000, at a rate per annum of 3/4 of 1% in excess of the CD Rate for the Interest Period in effect for such Loan, (ii) from November 16, 2000 through November 15, 2003, at a rate per annum of 1% in excess of the CD Rate for the Interest Period in effect for such Loan. Interest shall be payable on each Certificate of Deposit Loan on each applicable Interest Payment Date and at maturity or the date of conversion of such Certificate of Deposit Loan into a Loan of a different type. The Agent shall determine the applicable CD Rate for each Interest Period at 10:00 a.m., Atlanta time, on the first day of the applicable Interest Period, or as soon as practicable thereafter, and shall notify the Company and the Banks of the CD Rate so determined. Such determination shall be conclusive absent manifest error. "(c) Each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) (I) from the Closing Date through November 15, 2000, at a rate per annum 5/8 of 1% in excess of the LIBOR Rate for the Interest Period in effect for such Loan, and (ii) from November 16, 2000 through November 15, 2003, at a rate per annum 3/4 of 1% in excess of the LIBOR Rate for the Interest Period in effect for such Loan. Interest shall be payable on each Eurodollar Loan on each applicable Interest Payment Date and at maturity or the date of conversion of such Eurodollar Loan into a Loan of a different type. The Agent shall notify the Company and the Banks of the applicable LIBOR Rate for each Interest Period at 10:00 a.m., Atlanta time, or as soon as practicable thereafter, on the date when the determination is to be made in respect of such Interest Period. Such determination shall be conclusive absent manifest error" Section 3. Section 2.3 is hereby amended to read as follows: "Section 2.3. Financial Statements. "The Company has heretofore furnished to each Bank (a) the consolidated balance sheet of the Company and the Subsidiaries, dated as of September 30, 1997, and the related consolidated statements of income, stockholders' equity and cash flows of the Company for the fiscal year ended on such date, reported on by Deloitte & Touche LLP, independent certified public accountants, (b) June 30, 1998 consolidated balance sheet, income statement and statement of cash flows, unaudited, and an unaudited consolidated balance sheet dated August 31, 1998, and the related unaudited consolidated statement of income of the Company and the Subsidiaries for the eleven months ended on such date. Such financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis, are complete and correct and fairly present the consolidated financial condition and the consolidated results of operations of the Company and the Subsidiaries as of the dates and for the periods indicated, subject, in the case of the aforesaid unaudited statements, only to normal year-end audit adjustments and the addition of a cash flow statement (August 31, 1998 statement) and footnotes thereto. Such balance sheets show all liabilities, either direct or contingent, which would normally be reported in accordance with generally accepted accounting principles as of the respective dates thereof of the Company and the Subsidiaries." Section 4. Section 2.4 is hereby amended to read as follows: "Section 2.4 No Material Adverse Changes. "There has been no material adverse change in the condition, financial or otherwise, of the Company and Subsidiaries, taken and considered together, since August 31, 1998, except as may be reflected by this Credit Agreement." Section 5. Section 3.2 is supplemented by adding a new paragraph at the end thereof to read as follows: "On the date of closing of the First Amendment hereto, the Agent shall have received an opinion of LeBoeuf, Lamb, Greene & MacRae L.L.P., counsel to the Company, addressed to the Agent and the Banks, as to the legal status and corporate powers of the Company and the authorization, execution, delivery and binding effect of the Credit Agreement, the First Amendment to the Credit Agreement and the Notes." Section 6. Clause (b) of Section 5.1 is hereby amended to read as follows: "(b) unsecured Short Term Indebtedness of the Company or a Subsidiary, provided that such indebtedness does not in an aggregate amount exceed 30% of Consolidated Tangible Net Worth and is not outstanding for more than 270 days in the aggregate during any 12-month period; provided, further, that if there is an unused Commitment which is equal to or greater that such outstanding unsecured Short Term Indebtedness of the Company or a Subsidiary for a period of 90 consecutive days, then such indebtedness shall be deemed to have been reduced by the amount of such unused Commitment during such period;" Section 7. In Article VII, Definitions, "Commitment Termination Date" is changed from "November 15, 1998" to "November 15, 2000". Section 8. Schedule I, as referred to in Sections 5.1(f) and 5.3 and attached to the Agreement, is amended in its entirety in the form of Schedule I attached to this First Amendment. Section 9. Schedule II, as referred to in Section 2.6 and attached to the Agreement, is amended in its entirety in the form of Schedule II attached to this First Amendment. Section 10. Schedule III, as referred to in Section 2.10 and attached to the Agreement, is amended in its entirety in the form of Schedule III attached to this First Amendment. Section 11. Schedule IV, as referred to in Sections 2.11 and 5.3 and attached to the Agreement, is amended in its entirety in the form of Schedule IV attached to this First Amendment. Section 12. Schedule V (Part A and Part B), as referred to in Sections 2.11 and 5.3 and attached to the Agreement, is amended in its entirety in the form of Schedule V (Part A and Part B) attached to this First Amendment. Section 13. The Company hereby represents and warrants to each of the Banks that there is no existing Event of Default, or event, which with the lapse of time or the giving of notice, or both, could become an Event of Default, under the Agreement and that at the date hereof the principal balance outstanding on the loans is Fifteen Million and no/100 Dollars ($15,000,000.00), which loans and the Agreement are not subject to claims or counterclaims by the Company. Section 14. This Amendment shall become effective as of September 30, 1998. Section 15. As modified herein, all provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written. FRP PROPERTIES, INC. By: JAMES J. GILSTRAP James J. Gilstrap Title: Treasurer and Chief Financial Officer Address: Post Office Box 4667 Jacksonville, Florida 32201 Facsimile No.: 904/355-0817 Telephone No.: 904/355-1781 SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION By: SCOTT G. BALKE Scott G. Balke Title: Vice President Address: 200 South Orange Avenue Tower 6th Floor Orlando, Florida 32801 Attn: Scott G. Balke Vice President Facsimile No.: 407/237-4076 Telephone No.: 407/237-5879 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: STEVE A. ARONOWITZ Steve A. Aronowitz Title: Managing Director Address: 335 Madison Avenue New York, New York 10017 Attn.: Steve A. Aronowitz Managing Director Facsimile No.: 212/503-7066 Telephone No.: 212/503-7950 BARNETT BANK, N.A. By: SUSAN S. DELGADO Susan S. Delgado Title: Vice President Address: 24th Floor, Barnett Tower 50 North Laura Street Jacksonville, Florida 32202 Attn: Susan S. Delgado Vice President-Corp. Banking Facsimile No.: 904/791-7937 Telephone No.: 904/791-7570 FIRST UNION NATIONAL BANK By: CHARLES N. KAUFFMAN Charles N. Kauffman Title: Vice President Address: 225 Water Street Jacksonville, Florida 32202 Attn: Charles N. Kauffman Vice President - Commercial Banking Facsimile No.: 904/361-2417 Telephone No.: 904/361-3662 EXHIBIT A PROMISSORY NOTE [Name of Bank] $[Insert Amount] Camden County, Georgia September 30, 1998 FOR VALUE RECEIVED, FRP PROPERTIES, INC., a Florida corporation (the "Company"), DOES HEREBY PROMISE to pay to the order of [Name of Bank] (the "Bank") at [Bank's address] on the dates specified in the Credit Agreement hereafter referred to and, if not sooner paid, then in any event on November 15, 2003, in lawful money of the United States of America, the principal amount of [Insert Amount] or the aggregate outstanding amount of the Loan made by the payee hereof to the maker hereof, pursuant to the Credit Agreement, whichever is less, and to pay interest on the unpaid principal amount in like money in the manner and at the rate or rates on the dates specified in the Credit Agreement. This Note is one of the Notes referred to in, and evidences indebtedness incurred under, a certain Credit Agreement dated as of November 15, 1995, as amended by First Amendment dated as of September 30, 1998, between the Company and the Bank and other banks and is subject to prepayment and the maturity hereof may be accelerated, all as provided in said Credit Agreement. FRP PROPERTIES, INC. By:________________________________ JAMES J. GILSTRAP Its: Treasurer and Chief Financial Officer STATE OF GEORGIA COUNTY OF CAMDEN On this the __ day of September, 1998, personally appeared James J. Gilstrap, the Treasurer and Chief Financial Officer of FRP Properties, Inc., a Florida corporation (the "Borrower"), and before me executed this Promissory Note in the principal amount of $____________, payable by the Borrower to ______________ on behalf of the Borrower. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. Signature of Notary Public, State of Georgia [NOTARIAL SEAL] [Print, type or stamp commissioned name of Notary Public] Personally known __ OR produced identification Type of identification produced: EX-13 5 ANNUAL REPORT Annual Report 1998 CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended September 30 (Dollars in thousands except per share amounts) % 1998 1997 Change Revenues $73,974 68,844 + 7.5 Gross profit $16,493 14,908 +10.6 Operating profit $ 9,625 8,977 + 7.2 Income before income taxes $ 7,343 6,984 + 5.1 Net income $ 4,480 4,260 + 5.2 Per common share: Basic earnings per share $ 1.30 1.22 + 6.6 Diluted earnings per share $ 1.28 1.21 + 5.8 Stockholder's equity $ 19.83 18.53 + 7.0 1998 CORPORATE HIGHLIGHTS Revenues - up 7.5% to $73,974,000 Gross profit - up 10.6% to $16,493,000 Net income - up 5.2% to $4,480,000 Diluted earnings per share - up 5.8% to $1.28 per share $37,400,000 of borrowing capacity is available under the Company's credit agreements at September 30, 1998 BUSINESS. The Company is engaged in the transportation and real estate businesses. The Company's transportation business is conducted through two wholly owned subsidiaries. Florida Rock & Tank Lines, Inc. is a Southeastern transportation company concentrating in the hauling by motor carrier of liquid and dry bulk commodities. SunBelt Transport, Inc. serves the flatbed portion of the trucking industry in the Southeast, hauling primarily construction materials. The Company's Real Estate Group, through subsidiaries, acquires, constructs, leases, operates and manages land and buildings to generate both current cash flows and long-term capital appreciation. OBJECTIVES. The Company's dual objectives are to build a major Southeastern transportation company and a real estate company which provides sound long-term growth, cash generation and asset appreciation. Transportation Internal growth is accomplished by a dedicated, competent and loyal work force emphasizing superior service to customers in existing markets, developing new transportation services for customers in current market areas and opening new terminals in other market areas. External growth, through the acquisition program, is designed to broaden the Company's geographic market area and delivery services by acquiring related businesses in the Southeast. Real Estate The growth plan is based on the acquisition, management and retention of real estate assets and the development of industrial rental properties to provide long-term positive cash flows and capital appreciation. To Our Stockholders: Fiscal 1998 was a year of continued progress with our corporate initiatives which remained consistent to the short and long-term goals in both the Transportation and Real Estate businesses. Results. Revenues for fiscal 1998 were $73,974,000, a 7.5% increase over $68,844,000 in fiscal 1997. Transportation revenues increased 7.5% due to continued growth and expansion in both SunBelt Transport, Inc. and Florida Rock & Tank Lines, Inc. Real estate revenues increased 6.9% principally as the result of increased rental income and timber sales. Real estate property sales approximated $426,000 in fiscal 1998 versus $837,000 in 1997. Gross profit of $16,493,000 increased 10.6% from $14,908,000 in fiscal 1997. The Transportation Group's gross profit for fiscal 1998 increased 10.7% from last year as result of higher miles hauled. The Real Estate Group's gross profit was 10.5% above last year principally because of increased rental income. Selling, general and administrative expenses were up 15.8% in 1998 to $6,868,000 as compared to $5,931,000 in 1997. The increase is primarily attributed to non-recurring costs incurred for various projects, incentive compensation, staffing and expenses associated with system upgrades necessary for Year 2000 compliance. Net income increased 5.2% to $4,480,000 from $4,260,000 in fiscal 1997. Diluted earnings per share increased 5.8% to $1.28 from $1.21 last year. FRP Development Corp. The Company's real estate strategy of developing high quality, flexible warehouse/office space in carefully selected markets continued to be successful. At September 30, 1998 the Company's operating properties totaling 680,000 square feet were fully leased. In addition, approximately 133,000 square feet is currently under construction of which 49% has been pre-leased. The Company continued with its land development activities at Lakeside Business Park, a 134 acre site in Harford County, Maryland north of Baltimore where the Company is developing warehouse/office space. During fiscal 1998, 105,800 square feet of property under construction was completed. All of the operating properties are fully leased. Two additional buildings approximating 133,000 square feet are under construction and will be completed during the fiscal 1999. In addition to the Lakeside Business Park development, the Company purchased a 59 acre tract in Anne Arundel County, Maryland near the Baltimore-Washington International Airport in May 1998. The project, Hillside Business Park, will provide the Company an opportunity to develop 600,000 square feet of warehouse/office space. Grading and infrastructure work on the site will begin in the spring of 1999, and construction of the first building is anticipated to commence during the fall of 1999. As part of the Company's ongoing asset management activities, it has made application before the Zoning Commission of the District of Columbia to re-zone its 5.8 acre site on the banks of the Anacostia River from industrial to Planned Unit Development (PUD). Approval of the application would allow the development of a 1.5 million square foot commercial office component together with associated waterfront enhancements. The Company expects that a final zoning order will be issued in early 1999. Capital Expenditures. Capital expenditures in 1998 for the transportation business totaled $8,368,000 versus $7,520,000 in 1997. The 1998 capital expenditures were approximately 35% for new plant and equipment and 65% for replacements. Capital expenditures for the real estate segment in 1998 approximated $11,504,000 versus $6,226,000 in 1997. Total depreciation and depletion for fiscal 1998 was $8,987,000 versus $8,205,000 in 1997. The 1999 planned capital expenditures for the transportation business total $10,774,000 for continued expansion of both the flatbed and tank truck fleets and to maintain the modernized fleet. The capital budget for the real estate segment is $12,087,000. Total depreciation and depletion expense is expected to be approximately $10,220,000. Financial Management. The Company's $34,000,000 unsecured revolver and term facility was extended this past year and has a final maturity in November 2003. At September 30, 1998, $15,000,000 was outstanding leaving a balance of $19,000,000 of availability under the facility. The Company also has facilitated $20,000,000 in unsecured demand credit of which $1,600,000 was borrowed at the end of fiscal 1998. $18,832,000 of the Company's total debt is long-term fixed rate mortgages secured by real estate projects. As of September 30, 1998, funded debt approximated 30% of capital employed. Annual Meeting. At the Annual Stockholders Meeting on February 4, 1998, the stockholders elected Edward L. Baker, Thompson S. Baker II, Radford D. Lovett, and Martin E. Stein, Jr. as directors to serve a four-year term expiring in the year 2002. Outlook. Fiscal 1999 is expected to be another year of growth and progress for the Company. The Transportation Group is expected to continue to expand in 1999 through the growth of its business with existing customers as well as entries into new markets. Industrial real estate markets served by FRP Development Corp. in the Baltimore-Washington area remain in good condition with low vacancy rates and steady rent levels. The Company's high quality buildings combined with good market locations have enabled the properties to remain fully leased. In addition to the Lakeside Business Park development, the Hillside Business Park provides the Company additional development opportunities for 1999. Management intends to continue its careful blend of prudence coupled with an aggressive search for new opportunities to grow both the transportation and real estate segments of the business. The Company plans to build on its financial strength and sound market positions. The dedication and support of our employees will continue to be the key to the Company's future success. We extend our sincere thanks to these loyal men and women for their efforts. Respectfully yours, Edward L. Baker Chairman of the Board John E. Anderson President and Chief Executive Officer Operating Review Transportation. The Company's Transportation Group operates through two wholly owned subsidiaries, Florida Rock & Tank Lines, Inc., engaged in hauling liquid and dry bulk commodities primarily in tank trucks, and SunBelt Transport, Inc., engaged in flatbed hauling. The Group operates from terminals in Jacksonville, Ft. Myers, Orlando, Panama City, Pensacola, Port Everglades, Tampa and White Springs, Florida; Albany, Atlanta, Augusta, Bainbridge, Columbus, Macon and Savannah, Georgia; Knoxville and Nashville, Tennessee; and Birmingham, Alabama and has central dispatch offices in Greenville, South Carolina and Dalton, Georgia. During fiscal 1998 the owned and leased fleet increased from 521 to 546 trucks. Revenues for miles hauled were up 6.9% due to both continued expansion of flatbed and tank truck hauling. Gross profit increased 10.7% from fiscal 1997 primarily as a result of increased miles hauled due to the Company's continued growth and expansion in both SunBelt Transport, Inc. and Florida Rock & Tank Lines, Inc. during fiscal 1998. During fiscal 1998, including replacements and growth of SunBelt, the Group purchased 70 new tractors and 104 new trailers. The fiscal 1999 capital expenditure plan is based on maintaining a modernized tank fleet and also expanding the tank truck and flatbed fleets. The fleet modernization program has resulted in reduced maintenance expenses and improved operating efficiencies. For fiscal 1999 Transportation expects another year of growth in its existing bulk hauling business resulting from the continued penetration of targeted market segments. The near term outlook is for increases in the hauling of petroleum, dry bulk and chemical products given modest economic growth. Flatbed hauling is expected to have a year of strong growth during fiscal 1999. Real Estate. The Real Estate Group operates the Company's real estate and property development activities through subsidiaries. The Company owns real estate in Florida, Georgia, Virginia, Maryland, and Washington, D.C. The real estate owned generally falls into one of three categories. The first is land with stone or sand and gravel deposits, substantially all of which is leased to Florida Rock Industries, Inc. under mining royalty agreements, whereby the Company is paid a percentage of the revenues generated or annual minimums. The second is land and/or buildings leased under rental agreements, and the third is land and/or buildings which are being developed for future rental or held for future appreciation or development. Real estate revenues increased 6.9% over fiscal 1997 as a result of higher rental income and timber sales. The fiscal 1998 real estate revenues, excluding the sale of real estate and timber, were divided approximately 49% from mining and minimum royalties and 51% from rental. A brief description of FRP Development Corp.'s projects at September 30, 1998 follows: 8230 Preston Court, 72,182 square feet of flexible warehouse/office space. 8240 Preston Court, 90,405 square feet of flexible warehouse/office space. 810 Oregon Avenue, 113,280 square feet of flexible warehouse/office space. 1502 Quarry Drive, 105,803 square feet of flexible warehouse/office space completed during fiscal 1998. 812 Oregon Avenue, 82,335 square feet of flexible warehouse/office space. Rossville Business Center, a two building complex consisting of 187,517 square feet of flexible warehouse/office space. TESSCO Center, a 28,533 square foot suburban office building. Lakeside Business Park is a 134 acre site capable of supporting 1,400,000 square feet of warehouse/office space. At September 30, 1998, 133,000 square feet is under construction of which 49% has been pre-leased. Approximately 72 acres remain available for development. Hillside Business Park, is a 59 acre site located in Anne Arundel County, Maryland and capable of supporting 600,000 square feet of warehouse/office space. The Group during fiscal 1999 will continue to focus on the development of the property at Lakeside Business Park. In addition, land development and planning for Hillside Business Park will commence. At September 30, 1998 the Company owns approximately 680,000 square feet of rental properties that were fully leased. The Real Estate Group will continue its asset management functions for the benefit of the Company's land portfolio. These activities will also include but not be limited to the pending re-zoning application for the Company's site on the Anacostia River in the District of Columbia. The Company's long-term plan is to gradually build and own a portfolio of successful rental properties. Five Year Summary Years ended September 30 (Dollars and shares in thousands except per share amounts) 1998 1997 1996 1995(a) 1994 Summary of Operations Revenues $ 73,974 68,844 64,403 58,273 54,011 Gross profit(b) $ 16,493 14,908 14,615 15,132 12,255 Operating profit $ 9,625 8,977 9,017 9,440 7,264 Interest expense $ 2,300 2,061 2,234 1,933 1,105 Income before income taxes $ 7,343 6,984 6,827 7,591 6,219 Provision for income taxes $ 2,863 2,724 2,662 2,961 2,425 Net income $ 4,480 4,260 4,165 4,630 3,794 Per Common Share Basic EPS $ 1.30 1.22 1.16 1.24 .95 Diluted EPS $ 1.28 1.21 1.14 1.22 .94 Stockholders' equity $ 19.83 18.53 17.72 16.74 15.64 Financial Summary Current assets $ 10,073 8,549 8,003 8,495 7,703 Current liabilities $ 9,479 11,063 9,595 7,117 10,234 Working capital (deficit) $ 594 (2,514) (1,592) 1,378 (2,531) Property, plant and equipment, net $104,970 95,018 90,058 83,319 74,697 Total assets $123,965 116,582 107,036 101,357 91,769 Long-term debt $ 33,299 30,647 26,170 25,503 16,108 Stockholders' equity $ 68,755 63,734 61,894 61,622 59,437 Other Data Return on average stockholders' equity 6.7% 6.8 6.7 7.6 6.4 Return on average capital employed 4.1% 4.2 5.8 6.6 5.5 Net cash flow provided from operating activities $ 13,557 13,982 14,681 10,131 10,005 Additions to property, plant and equipment $ 19,901 13,746 15,970 15,805 9,165 Depreciation, depletion and amortization $ 9,146 8,356 7,667 7,304 6,945 Weighted average number of shares - basic 3,452 3,490 3,588 3,742 3,977 Weighted average number of shares - diluted 3,496 3,530 3,647 3,798 4,019 Number of employees at end of year 753 721 665 644 556 Stockholders of record 850 873 913 939 975 (a) Effective October 1, 1994, the Company changed depreciation lives on revenue equipment which resulted in an increase in gross profit of $842,000 and net income of $525,000 ($.14 per share) for fiscal 1995. (b) Fiscal 1998, 1997, 1996, 1995 and 1994 include gains on the sale of real estate of $358,000, $817,000, $93,000, $79,000 and $1,167,000, respectively. Quarterly Results (unaudited) (Dollars in thousands except per share amounts)
First Second Third Fourth 1998 1997 1998 1997 1998 1997 1998 1997 Revenues $17,671 16,398 17,831 16,221 19,002 17,533 19,470 18,692 Gross profit $ 3,974 3,363 3,776 3,244 4,337 4,077 4,406 4,224 Operating profit $ 2,458 1,844 2,104 1,734 2,512 2,573 2,551 2,826 Income before income taxes $ 1,894 1,369 1,555 1,274 1,943 2,038 1,951 2,303 Net income $ 1,155 835 949 777 1,185 1,243 1,191 1,405 Per common share: Basic EPS $.34 .24 .28 .22 .34 .36 .34 .41 Diluted EPS $.33 .23 .27 .22 .34 .35 .34 .40 Market price: High $38.00 26.00 33.75 28.75 37.25 28.00 33.00 34.00 Low $31.37 20.50 30.00 24.00 32.00 24.50 20.50 25.25
Management Analysis Operating Results. 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 Southeast, petroleum product usage in the Southeast, fuel costs, construction activity in certain Georgia and Florida markets, Florida Rock Industries, Inc.'s sales from the Company's mining properties, interest rates and demand for commercial warehouse space in the Baltimore/Washington area. Internal factors include revenue mix, capacity utilization, safety record, other operating factors, and construction costs of new projects. In fiscal 1998 and 1997, revenues increased 7.5% and 6.9%, respectively. In the Transportation segment revenues and miles hauled were up 7.5% and 6.9% in 1998, respectively, and 6.7% and 2.3%, respectively in 1997. The Real Estate segment's revenues, exclusive of real estate sales, increased 12.5% in 1998 and remained level with 1997. The increase in real estate revenues is the result of increase rental income and timber sales. The estimated contribution to Transportation revenues by principal markets follows: 1998 1997 1996 1995 1994 Petroleum 67% 68 68 66 45 Construction 21% 21 20 19 26 Chemical 7% 6 7 10 15 Other 5% 5 5 5 14 Gross profit for fiscal 1998 increased $1,585,000 and gross margin remained stable from last year. The Transportation segment gross profit increased $969,000 principally as a result of higher miles hauled. Gross margin remained stable. In the Real Estate segment, gross profit increased $616,000 primarily as a result of increased rental income and timber sales partially offset by a decrease in property sales. In fiscal 1997, gross profit increased $293,000 from 1996 and gross margin decreased to 22% from 23%. The Transportation segment's gross profit decreased $605,000, principally due to higher insurance costs, increased depreciation expense and lower gains on the sale of equipment. Gross margin decreased to 15% from 17% principally due to reduced gains on the sale of equipment, increased depreciation expense and higher operating costs. In the Real Estate segment gross profit increased $898,000 in fiscal 1997 from 1996. The increase was principally due to real estate sales gross profit of $817,000 in 1997 compared to $93,000 in 1996, increased development revenues and a 1996 write-off of $349,000 in connection with the abandonment of certain development costs. Selling, general and administrative expense increased 15.8% in 1998 and increased 6% in 1997. The 1998 increase is primarily attributed to non-recurring costs incurred for various projects, business development opportunities related to Transportation incentive compensation, staffing and consulting related to systems upgrades necessary for Year 2000 compliance. Interest expense in 1998 increased 12% or $239,000 from 1997 primarily as a result of an increase in the average debt outstanding and an increase in the average interest rate. These increases were partially offset by an increase in the amount of interest capitalized. In 1997 interest expense decreased 8% from 1996 primarily due to increased capitalization of interest. Year 2000 Conversion. The Company, like most entities relying on automated data processing is faced with the task of modifying systems to become Year 2000 compliant. The Company has analyzed its Year 2000 exposure and has developed plans for addressing the Year 2000 exposure as well as reengineering selective systems to enhance their functionality. The Company is in various stages of modifying or replacing both internally developed and purchased software. The Company has purchased new software and hardware for its truck dispatching and maintenance system that is represented to be Year 2000 compliant to replace its existing systems. The Company will begin to phase in this software in January 1999 and have the total system installed in June 1999. The Company purchases from an affiliate, Florida Rock Industries, Inc. (FRI) certain administrative services including automated data processing (Purchased Services). FRI is in the process of updating its systems to be Year 2000 compliant. The Company has reviewed FRI's plan and is monitoring the progress of this plan as it relates to the Purchased Services. The Company is in the process of identifying operating equipment which may be effected by Year 2000. Once the equipment has been identified testing will begin to determine if such equipment is Year 2000 compliant. Vendors, suppliers and customers that are critical to the Company's operations are in the process of being identified. Questionnaires will be sent to these entities to determine their state of readiness for Year 2000. The Company will identify alternative vendors and suppliers if any of the current suppliers do not appear to be taking corrective actions and as a contingency in case these entities are not Year 2000 compliant. The costs associated with the purchase and installation of the truck dispatching and maintenance software and hardware will be capitalized and amortized over the estimated useful life of the software or equipment. Other costs associated such as selection, training and reengineering of the existing processing are being expensed as incurred. Based on current information, the expected costs of the systems are not expected to be material to the financial condition or results of operations of the Company. The Company feels it is addressing in a timely manner the major issues related to the Year 2000 and any significant disruptive problems in its ability to conduct its business as a result are unlikely. The Company's contingency plans will be finalized during the second quarter of calendar 1999. This plan will assess the risks and possible countermeasures. However, despite efforts and initiatives undertaken by the Company, total assurances can not be given that absolute compliance can be achieved. There can be no guarantees that the computer systems of other entities on which the Company relies will be converted in a timely manner or that their failure to convert, or a conversion that is incompatible with the Company's system, will not have an adverse effect on the Company's business, financial condition and results of operations. Liquidity and Capital Resources. The following key financial measurements reflect the Company's financial position and capital resources at September 30 (dollars in thousands): 1998 1997 1996 Cash $ 663 429 313 Total debt $35,432 35,065 30,003 Debt as a percent of capital employed 32% 33 31 Unused lines of credit $37,400 35,500 35,500 During 1998, net cash flows from operating activities were $13,557,000 which along with exercise of stock options and issuing of debt funded the Company's investing activities of $14,232,000. During 1997, net cash flows from operating activities were $13,982,000, net cash used in investing activities were $16,508,000 and common stock repurchased was $3,299,000. These activities were funded by additional borrowings of $5,400,000 and proceeds from the exercise of stock options of $879,000. The Company is financially postured to be able to take advantage of external and internal growth opportunities in real estate development and in the motor carrier industry that may occur in the Southeast. The Board of Directors has authorized management to repurchase shares of the Company's common stock from time to time as opportunities may arise. The Company has a $34,000,000 revolving credit agreement of which $19,000,000 was available at fiscal year end. In addition, it has unsecured short-term lines of credit under which it may borrow up to $20,000,000 of which $1,600,000 was outstanding at September 30, 1998. The Company currently expects its fiscal 1999 capital expenditures to be approximately $22,861,000 and depreciation and depletion expense to be $10,220,000. The expenditures are expected to be financed from the cash flow from operating activities and the $19,000,000 unused and available under its revolving credit agreement. The Company believes it will be able to renegotiate its present credit facilities or obtain similar replacement credit facilities when necessary in the future. Inflation. Historically, the Company has been able to recover inflationary cost increases through increased freight rates. It is expected that over time justifiable and necessary rate increases will be obtained in the future, although deregulation of intrastate trucking rates has made this more difficult in the past three years. Substantially all of the Company's royalty agreements are based on a percentage of the sales price. Minimum royalties and substantially all lease agreements provide various escalation provisions. Forward-Looking Statements. Certain matters discussed in this report contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from these indicated by such forward-looking statements. These forward-looking statements relate to, among other things, capital expenditures, liquidity, capital resources, competition and the Year 2000 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 are among the principal factors that could cause actual results to differ materially from the forward-looking statements: Year 2000 technology issues; availability and terms of financing; competition; levels of construction activity in the FRI's markets; fuel costs; and inflation. Consolidated Statement of Income Years ended September 30 (Dollars and shares in thousands except per share amounts) 1998 1997 1996 Revenues: Transportation $ 64,014 59,530 55,801 Real estate 9,534 8,477 8,434 Sale of real estate 426 837 168 Total revenues (including revenue from related parties of $6,256, $6,006, and $6,544) 73,974 68,844 64,403 Cost of operations: Transportation 54,002 50,487 46,153 Real estate 3,411 3,429 3,560 Cost of real estate sold 68 20 75 Gross profit 16,493 14,908 14,615 Selling, general and administrative expense (including expenses paid to related party of $1,515, $1,414 and $1,383) 6,868 5,931 5,598 Operating profit 9,625 8,977 9,017 Interest expense (2,300) (2,061) (2,234) Interest income 13 46 34 Other income, net 5 22 10 Income before income taxes 7,343 6,984 6,827 Provision for income taxes 2,863 2,724 2,662 Net income $ 4,480 4,260 4,165 Earnings per share: Basic $ 1.30 1.22 1.16 Diluted $ 1.28 1.21 1.14 Number of shares used in computing: Basic earnings per share 3,452 3,490 3,588 Diluted earnings per share 3,496 3,530 3,647 See accompanying notes. Consolidated Balance Sheet September 30 (Dollars in thousands) 1998 1997 Assets Current assets: Cash and cash equivalents $ 663 429 Accounts receivable, less allowance for doubtful accounts of $272 ($258 in 1997) (including related party of $380 and $283) 6,510 5,531 Inventory of parts and supplies 552 469 Prepaid expenses and other 2,348 2,120 Total current assets 10,073 8,549 Other assets: Real estate held for investment, at cost 5,703 5,771 Goodwill, at cost less amortization of $362 ($322 in 1997) 1,248 1,288 Other 1,971 5,956 Total other assets 8,922 13,015 Property, plant and equipment, at cost: Land 55,284 55,614 Buildings 30,953 27,485 Plant and equipment 62,134 53,563 Construction in progress 9,712 6,009 158,083 142,671 Less accumulated depreciation and depletion 53,113 47,653 Net property, plant and equipment 104,970 95,018 $123,965 116,582 Liabilities and Stockholders' Equity Current liabilities: Short-term note payable to bank $ 1,600 4,000 Accounts payable (including related party of $85 and $77) 2,776 2,427 Federal and state income taxes 1,224 779 Accrued liabilities: Payroll and benefits 1,500 1,154 Taxes 412 582 Interest 176 165 Insurance reserves 1,258 1,538 Long-term debt due within one year 533 418 Total current liabilities 9,479 11,063 Long-term debt 33,299 30,647 Deferred income taxes 7,656 7,243 Accrued insurance reserves 4,129 3,382 Other liabilities 647 513 Commitments and contingent liabilities (Notes 10 and 11) Stockholders' equity: Preferred stock, no par value; 5,000,000 shares authorized - - Common stock, $.10 par value; 25,000,000 shares authorized; 3,468,225 shares issued (3,439,235 shares in 1997) 347 344 Capital in excess of par value 17,871 17,333 Retained earnings 50,537 46,057 Total stockholders' equity 68,755 63,734 $123,965 116,582 See accompanying notes. Consolidated Statement of Cash Flows Years ended September 30 (Dollars in thousands) 1998 1997 1996 Cash flows from operating activities: Net income $ 4,480 4,260 4,165 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 9,146 8,356 7,667 Net changes in operating assets and liabilities: Accounts receivable (993) (250) 268 Inventory of parts and supplies (83) 33 (1) Prepaid expenses (228) (261) 157 Accounts payable and accrued liabilities 492 732 1,161 Increase in deferred income taxes 620 1,181 1,622 Net change in insurance reserves and other liabilities 879 759 242 Gain on sale of real estate, plant and equipment (778) (792) (550) Other, net 22 (36) (50) Net cash provided by operating activities 13,557 13,982 14,681 Cash flows from investing activities: Purchase of property, plant and equipment (15,323) (13,470)(14,070) Purchase of real estate held for investment - - (32) Additions to other assets (451) (4,156) (130) Proceeds from the sale of real estate held for investment, property, plant and equipment, and other assets 1,542 1,118 1,012 Net cash used in investing activities (14,232) (16,508)(13,220) Cash flows from financing activities: Proceeds from long-term debt 3,200 4,900 3,000 Net increase (decrease) in short-term debt (2,400) 500 1,700 Repayment of long-term debt (432) (338) (2,347) Exercise of employee stock options 574 879 22 Repurchase of Company stock (33) (3,299) (3,915) Net cash provided by (used in) financing activities 909 2,642 (1,540) Net increase (decrease) in cash and cash equivalents 234 116 (79) Cash and cash equivalents at beginning of year 429 313 392 Cash and cash equivalents at end of year $ 663 429 313 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense, net of amount capitalized $ 2,288 1,997 2,257 Income taxes (received) $ 1,759 898 (216) Noncash investing and financing activities: Additions to property, plant and equipment from: Exchanges $ 767 276 1,900 Other assets $ 3,811 - - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with maturities of three months or less at time of purchase to be cash equivalents. See accompanying notes. Consolidated Statement of Stockholders' Equity Years ended September 30 (Dollars in thousands) Capital in Common Stock Excess of Retained Shares Amount Par Value Earnings Balance at October 1, 1995 3,681,594 $368 23,622 37,632 Shares purchased and canceled (191,408) (19) (3,896) Exercise of stock options 2,000 22 Net income 4,165 Balance at September 30, 1996 3,492,186 349 19,748 41,797 Shares purchased and canceled (147,951) (14) (3,285) Exercise of stock options 95,000 9 870 Net income 4,260 Balance at September 30, 1997 3,439,235 344 17,333 46,057 Share purchased and canceled (1,010) - (33) - Exercise of stock options 30,000 3 571 - Net income - - - 4,480 Balance at September 30, 1998 3,468,225 $347 17,871 50,537 See accompanying notes. Notes to Consolidated Financial Statements 1. Accounting polices. CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated in consolidation. Certain amounts for 1997 have been reclassified to conform to presentation in 1998. INVENTORY - Inventory of parts and supplies is valued at the lower of cost (first-in, first-out) or market. REVENUE AND EXPENSE RECOGNITION - Substantially all transportation revenue is recognized when shipment is complete and transportation expenses are recognized as incurred. Real estate rental revenue and mining royalties are generally recognized when due under the leases. The straight-line method is used to recognize rental revenues under leases which provide for varying rents over their term. PROPERTY, PLANT AND EQUIPMENT - Provision for depreciation of plant and equipment is computed using the straight-line method based on the following estimated useful lives: Years Buildings and improvements 8-32 Revenue equipment 5-10 Other equipment 3- 5 Furniture and fixtures 5-10 Depletion of sand and stone deposits is computed on the basis of units of production in relation to estimated reserves. Goodwill is amortized over forty years using the straight-line method. The Company periodically reviews property and equipment for potential impairment. If this review indicates that the carrying amount of the asset may not be recoverable, the Company estimates the future cash flows expected with regards to the asset and its eventual disposition. If the sum of these future cash flows (undiscounted and without interest charges) is less than the carrying amount of the assets, the Company records an impairment loss based on the fair value of the asset. RISK INSURANCE - The Company has a $250,000 to $500,000 self-insured retention per occurrence in connection with its workers' compensation, automobile liability, and general liability insurance programs ("Risk Insurance"). The Company accrues monthly the estimated cost in connection with its portion of its Risk Insurance losses. Claims paid by the Company are charged against the reserve. Additionally, the Company maintains a reserve for incurred but not reported claims based on historical analysis of such claims. INCOME TAXES - The Company uses an asset and liability approach to financial reporting for income taxes. Under this method, deferred tax assets and liabilities are recognized based on differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. Deferred income taxes result from temporary differences between pre-tax income reported in the financial statements and taxable income. EARNINGS PER COMMON SHARE - Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the presentation of primary earnings per share (EPS) and fully diluted EPS with a presentation of basic and diluted EPS. Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share are based on the weighted average number of common shares and potential dilution of securities that could share in earnings. Earnings per share for all prior periods have been restated. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ENVIRONMENTAL - Environmental expenditures that benefit future periods are capitalized. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Estimation of such liabilities is extremely complex. Some factors that must be assessed are engineering estimates, continually evolving governmental laws and standards, and potential involvement of other potentially responsible parties. NEW ACCOUNTING REQUIREMENTS - In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires reporting segment profit or loss, certain specific revenue and expense items and segment assets. It also requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts reported in the financial statements. Restatement of comparative information for earlier periods presented is required in the initial year of application. Interim information is not required until the second year of application, at which time comparative information is required. The Company has not determined the impact that the adoption of this new accounting standard will have on its financial statement disclosures. The Company will adopt this accounting standard on October 1, 1998, as required. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", effective for fiscal year beginning after December 15, 1997. SFAS 130 requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This statement also requires that an entity classify items of other comprehensive earnings may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on marketable securities classified as available-for-sale. Restatement of disclosures for earlier periods is required. This statement is not expected to have a material effect on the Company's financial statements. In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits", effective for fiscal years beginning after December 15, 1997. SFAS 132 revised employer disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. Restatement of disclosures for earlier periods is required. The Company will adopt this accounting standard on October 1, 1998, as required. In March 1998, the AICPA issued SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", effective for fiscal years beginning after December 15, 1998. This SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. This SOP requires that entities capitalize certain internal-use software costs once certain criteria are met. Adoption of this standard is not expected to have a material effect on the Company's financial statements. 2. Transactions with related parties. As of September 30, 1998 seven of the Company's directors were also directors of Florida Rock Industries, Inc. ("FRI"). Such directors own approximately 30% of the stock of FRI and 41% of the stock of the Company. Accordingly, FRI and the Company are considered related parties. The Company, through its transportation subsidiaries, hauls construction aggregates for FRI and customers of FRI. It also hauls diesel fuel and other supplies for FRI. Charges for these services are based on prevailing market prices. Other wholly owned subsidiaries lease certain construction aggregates mining and other properties and provide construction management services to FRI. A summary of revenues derived from FRI follows (in thousands): 1998 1997 1996 Transportation $ 839 883 1,100 Real estate 5,417 5,123 5,444 $6,256 6,006 6,544 Under an agreement extending until September 30, 2000, FRI furnishes the Company with certain management and related services, including financial, tax, legal, administrative, accounting and computer. Charges for such services were $1,515,000 in 1998, $1,414,000 in 1997 and $1,383,000 in 1996. 3. Lines of credit and debt. Long-term debt at September 30 is summarized as follows (in thousands): 1998 1997 Revolving credit (unsecured) $15,000 15,000 6.9% to 9.5% mortgage notes payable in installments through 2015 18,832 16,065 33,832 31,065 Less portion due within one year 533 418 $33,299 30,647 The aggregate amount of principal payments, excluding the revolving credit, due subsequent to September 30, 1998 is: 1999 - $533,000; 2000 - $579,000; 2001 - $628,000; 2002 - $681,000; 2003 - $738,000; 2004 and subsequent years - $15,673,000. The Company has a revolving credit agreement under which it may borrow from three banks up to $34,000,000 on term loans payable 25% on November 15, 2001, 25% on November 15, 2002 and the balance on November 15, 2003. Interest is payable at SunTrust Bank, Central Florida, N.A.'s prime rate until November 15, 2000, and at 1/4 of 1% above such prime rate thereafter. Alternative interest rates based on the London interbank rate and/or the reserve-adjusted certificate of deposit rate are available at the Company's option. A commitment fee of 1/4 of 1% is payable on the unused amount of the commitment until November 15, 2000. The revolving credit agreement contains restrictive covenants, including limitations on paying cash dividends. As of September 30, 1998 $12,593,000 of consolidated retained earnings was not restricted as to payment of cash dividends. The mortgage notes payable are collateralized by real estate having a carrying value of approximately $22,415,000 at September 30, 1998. Certain properties having a carrying value at September 30, 1998 of $1,620,000 were encumbered by industrial revenue bonds which are the liability of FRI. FRI has agreed to pay such debt when due (or sooner if FRI cancels its lease of such property) and further has agreed to indemnify and hold harmless the Company. The Company also has short-term lines of credit totaling $20,000,000 from three banks. Under these lines the Company can borrow funds for a period from one to ninety days. There is no commitment fee and the banks can terminate the lines at any time. The interest rate is determined at the time of each borrowing. The weighted average interest rates of such borrowings on September 30, 1998 and 1997 were 6.1% and 7.0%, respectively. During fiscal 1998, 1997 and 1996 the Company capitalized interest cost of $331,000, $223,000 and $17,000, respectively. 4. Leases. At September 30, 1998, the total carrying value of property owned by the Company which is leased or held for lease to others is summarized as follows (in thousands): Construction aggregates property $41,881 Commercial property 41,630 Land and other property 11,227 94,738 Less accumulated depreciation and depletion 21,000 $73,738 The minimum future rentals on noncancelable operating leases as of September 30, 1998 are as follows: 1999 - $4,208,000; 2000 - $3,936,000; 2001 - $3,082,000; 2002 - $2,461,000; 2003 - $1,948,000; 2004 and subsequent years $10,121,000. 5. Stock option plan. The Company has a Stock Option Plan under which options for shares of common stock may be granted to directors, officers and key employees. At September 30, 1998 the number of shares available for issuance is 85,000 shares. The Company did not issue options during 1998 and 1997, therefore, SFAS No. 123 pro forma disclosures are not presented. Option transactions for the fiscal years ended September 30 are summarized as follows: 1998 1997 1996 Average Average Average Options Price(1) Options Price(1) Options Price(1) Shares under option: Beginning of year 150,000 15.25 245,000 12.78 247,000 12.76 Exercised (30,000) 11.00 (95,000) 8.88 (2,000) 11.00 End of year 120,000 16.31 150,000 15.25 245,000 12.78 Options exercisable at end of year 98,000 108,600 184,300 (1) Weighted average exercise price The following table summarizes information concerning stock options outstanding at September 30, 1998: Options Options Weighted-Average Exercise Price Outstanding Exercisable Remaining Life 12.25 30,000 30,000 1.8 years 17.25 15,000 9,000 6.2 years 17.75 75,000 59,000 6.1 years Remaining non-exercisable options as of September 30, 1998 become exercisable as follows: 1999 - 11,000 and 2000 - 11,000. The options expire ten years from the date of grant and become exercisable in cumulative installments of 20% to 33% each year after a one year waiting period from date of grant. 6. Income taxes. The provision for income taxes for fiscal years ended September 30 consists of the following (in thousands): 1998 1997 1996 Current: Federal $1,914 1,317 892 State 329 226 148 2,243 1,543 1,040 Deferred 620 1,181 1,622 Total $2,863 2,724 2,662 A reconciliation between the amount of tax shown above and the amount computed at the statutory Federal income tax rate follows (in thousands): 1998 1997 1996 Amount computed at statutory Federal rate $2,497 2,374 2,321 State income taxes (net of Federal income tax benefit) 277 263 255 Other, net 89 87 86 Provision for income taxes $2,863 2,724 2,662 The types of temporary differences and their related tax effects that give rise to deferred tax assets and deferred tax liabilities at September 30, are presented below: 1998 1997 Deferred tax liabilities: Basis difference in property, plant and equipment $8,758 8,014 Depletion 630 656 Prepaid expenses 930 833 Gross deferred tax liabilities 10,318 9,503 Deferred tax assets: Insurance reserves 1,798 1,614 Other, net 505 495 Gross deferred tax assets 2,303 2,109 Net deferred tax liability $8,015 7,394 7. Employee benefits. The Company and certain subsidiaries have a savings/profit sharing plan for the benefit of qualified employees. The savings feature of the plan incorporates the provisions of Section 401(k) of the Internal Revenue Code. Under the savings feature of the plan, an eligible employee may elect to save a portion (within limits) of their compensation on a tax deferred basis. The Company contributes to a participant's account an amount equal to 50% (with certain limits) of the participant's contribution. Additionally, the Company may make an annual contribution to the plan as determined by the Board of Directors, with certain limitations. The plan provides for deferred vesting with benefits payable upon retirement or earlier termination of employment. The Company's cost was $429,000 in 1998, $403,000 in 1997 and $419,000 in 1996. The Company provides certain health benefits for retired employees. Employees may become eligible for those benefits if they were employed by the Company prior to December 10, 1992, meet the service requirements and reach retirement age while working for the Company. The plan is contributory and unfunded. The Company accrues the estimated cost of retiree health benefits over the years that the employees render service. The following table sets forth the plan's status reconciled with the accrued postretirement benefit cost included in the Company's consolidated balance sheet at September 30 (in thousands): 1998 1997 1996 Accumulated postretirement benefit obligation (APBO): Retirees $ 87 117 133 Fully eligible active participants 109 62 62 Other active participants 275 317 307 Total APBO 471 496 502 Unrecognized net gain (loss) from past experience different from that assumed and from changes in assumptions 68 5 (68) Unrecognized prior service cost 15 74 133 Accrued postretirement benefit cost $ 554 575 567 Net periodic postretirement benefit cost for fiscal years ended September 30 includes the following components (in thousands): 1998 1997 1996 Service cost of benefits earned during the period $ 33 38 39 Interest cost on APBO 30 32 32 Net amortization and deferral (62) (59) (55) Net periodic postretirement benefit cost $ 1 11 16 The discount rate used in determining the Net Periodic Postretirement Benefit Cost and the APBO was 7.25%. 8. Industry segments. The Company has two major business segments: transportation and real estate, both operated principally within the Mid-Atlantic and Southeastern United States. The transportation segment is operated through two wholly owned subsidiaries which are engaged in the hauling of liquid and dry commodities by motor carrier. The real estate segment is operated through wholly owned subsidiaries that own real estate of which a substantial portion is under mining royalty agreements or leased. They also hold certain other real estate for investment and are developing commercial and industrial properties. The Company grants credit to customers who are in the petroleum, chemical, convenience store, construction materials and agricultural industries. Financial data for industry segments is as follows (in thousands): 1998 1997 1996 Revenues: Transportation $ 64,014 59,530 55,801 Real estate (a) 9,960 9,314 8,602 $ 73,974 68,844 64,403 Segment profit: Transportation $ 4,371 4,188 4,947 Real estate (a) 6,362 5,799 4,908 10,733 9,987 9,855 Corporate expenses (1,090) (942) (794) Interest expense (2,300) (2,061) (2,234) Income before income taxes $ 7,343 6,984 6,827 Capital expenditures: Transportation $ 8,368 7,520 13,174 Real estate 11,504 6,226 2,782 $ 19,872 13,746 15,956 Depreciation, depletion and amortization: Transportation $ 6,740 6,136 5,558 Real estate 2,356 2,173 2,065 $ 9,096 8,309 7,623 Identifiable assets at September 30: Transportation $ 44,054 42,895 41,489 Real estate 79,393 73,159 64,972 General corporate 518 528 575 $123,965 116,582 107,036 (a) Fiscal 1998, 1997 and 1996 includes revenue of $426,000, $837,000 and $168,000 and segment profit of $358,000, $817,000 and $93,000, respectively, from the sale of real estate. General corporate assets consist principally of cash, receivables, investments and equipment. 9. Fair values of financial instruments. At September 30, 1998 and 1997, the carrying amount reported in the balance sheet for cash and cash equivalents, short-term notes payable to bank and revolving credit approximate their fair value. The fair values of the Company's other long-term debt are estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. At September 30, 1998 the carrying amount and fair value of such other long-term debt was $18,832,000 and $19,996,000, respectively. At September 30, 1997 the carrying amount and fair value of such other long-term debt was $16,065,000 and $15,470,000, respectively. 10. Contingent liabilities. Certain of the Company's subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage. In the opinion of management, none of these matters are expected to have a materially adverse effect on the Company's consolidated financial statements. One of the Company's subsidiaries is a potentially responsible party in connection with a Superfund Site. It is the policy of the Company to accrue environmental contamination cleanup costs when it is probable that a liability has been incurred and the amount of such liability is reasonably estimable. The Company has made an estimate of its likely costs in connection with this site and a liability has been recorded. Such liability is not material to the financial statements of the Company. 11. Commitments. At September 30, 1998, the Company had placed orders and was committed to purchase tractors and trailers costing approximately $9,900,000 and had entered into various contracts to purchase and develop real estate with remaining commitments totaling $2,000,000. 12. Fourth quarter financial information (unaudited). In the fourth quarter of fiscal 1997, the Company increased its risk insurance reserves approximately $682,000. Independent Auditors' Report To the Board of Directors and Stockholders FRP Properties, Inc. We have audited the accompanying consolidated balance sheets of FRP Properties, Inc. and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of FRP Properties, Inc. and subsidiaries at September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Jacksonville, Florida December 1, 1998 Directors and Officers Directors John E. Anderson (1) President and Chief Executive Officer of the Company Edward L. Baker (1) Chairman of the Board of the Company John D. Baker, II (1) President and Chief Executive Officer of Florida Rock Industries, Inc. Thompson S. Baker II Vice President of Florida Rock Industries, Inc. Ish Copley President of SunBelt Transport, Inc., the Company's flatbed trucking operations David H. deVilliers, Jr. Vice President of the Company and President of FRP Development Corp., the Company's northern real estate operations Albert D. Ernest, Jr. (2)(3) President of Albert Ernest Enterprises Luke E. Fichthorn III (2) Private Investment Banker, Twain Associates and Chairman of the Board and Chief Executive Officer of Bairnco Corporation Francis X. Knott (2) Chief Executive Officer of Partners Management Company Radford D. Lovett (3) Chairman of the Board of Commodores Point Terminal Corp. John R. Mabbett III Vice President and Secretary of the Company and President of Florida Rock & Tank Lines, Inc., the Company's tank and dump trucking operations Robert H. Paul III (3) Chairman of the Board, President and Chief Executive Officer of Southeast-Atlantic Beverage Corporation Martin E. Stein, Jr. Chairman and Chief Executive Officer of Regency Realty Corporation James H. Winston (2) President of LPMC of Jax, Inc. and President of Omega Insurance Company ________________ (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Compensation Committee Officers Edward L. Baker Chairman of the Board John E. Anderson President and Chief Executive Officer John R. Mabbett III Vice President and Secretary President, Florida Rock & Tank Lines, Inc. David H. deVilliers, Jr. Vice President President, FRP Development Corp., the Company's northern real estate operations James J. Gilstrap Treasurer and Chief Financial Officer Wallace A. Patzke, Jr. Controller and Chief Accounting Officer FRP PROPERTIES, Inc. General Office: 155 East 21st Street Jacksonville, Florida 32206 Telephone: (904) 355-1781 Annual Meeting Shareholders are cordially invited to attend the Annual Stockholders Meeting which will be held at 2 p.m. local time, on Wednesday, February 3, 1999, at the general offices of the Company, 155 East 21st Street, Jacksonville, Florida. Transfer Agent First Union Customer Information Center Corporate Trust Client Services NC-1153 1525 West W. T. Harris Boulevard - 3C3 Charlotte, NC 28288-1153 Telephone: 1-800-829-8432 General Counsel Lewis S. Lee, Esquire LeBoeuf, Lamb, Greene & MacRae, L.L.P. Jacksonville, Florida Independent Auditors Deloitte & Touche LLP Jacksonville, Florida Common Stock Listed The Nasdaq Stock Market (Symbol: FRPP) Form 10-K Stockholders may receive without charge a copy of FRP Properties, Inc.'s annual report to the Securities and Exchange Commission on Form 10-K by writing to the Treasurer at P.O. Box 4667, Jacksonville, Florida 32201. -----END PRIVACY-ENHANCED MESSAGE-----