-----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, GlJkHm270QCTz0p4884qtm8IEgXLN/X3IlYH04IW2KSHh1bD+ywmXrKkK3VkAThB +GndVYuQX1stz+6pR1cxdg== 0000844059-99-000013.txt : 19991223 0000844059-99-000013.hdr.sgml : 19991223 ACCESSION NUMBER: 0000844059-99-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991222 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: 000-17554 FILM NUMBER: 99778917 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, 1999 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, 1999 aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was $47,114,410. At such date there were 3,363,917 shares of the registrant's Stock outstanding. Documents Incorporated by Reference Portions of the FRP Properties, Inc. 1999 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 15, 1999 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"), SunBelt Transport, Inc. ("SunBelt") and Patriot Transportation, Inc.("Patriot"), 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 9 to the consolidated financial statements included in the accompanying 1999 Annual Report to stockholders and is incorporated herein by reference. On December 1, 1999, the Board of Directors approved spinning off to its shareholders a new company which would include the real estate business while retaining the transportation business in FRP Properties, Inc. It is anticipated that the spin-off will be effective March 31, 2000. For additional information, see Note 13 to the Consolidated Financial Statements. FRI accounted for approximately 8.5% of the Company's consolidated revenues for fiscal 1999. 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. Patriot was formed late in fiscal 1999, to develop business using owner/operators and agents to haul various types of freight throughout the United States. Information as to the Transportation operations' revenue by principal markets is presented on page 5 of the accompanying 1999 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, Dalton, Macon and Savannah, Georgia; Knoxville and Nashville, Tennessee; and Birmingham, Alabama. It also has a central dispatch/office in Montgomery, Alabama. 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; Atlanta and Savannah, Georgia; Salisbury, North Carolina and South Pittsburg, Tennessee 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, 1999, the Company had placed orders and was committed to purchasing tractors and trailers costing approximately $7,660,000. Price, service, and terminal location are the major factors which affect competition within a given market. During fiscal 1999 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 1 under the captions "Real Estate Group" and in Note 9 to the consolidated financial statements included in the accompanying 1999 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 continues 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, 1999. 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 1999 real estate revenues, excluding the sale of real estate, were divided approximately 60% from mining and minimum royalties and 40% from rentals. FRI accounted for approximately 54% 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 11 to the consolidated financial statements included in the accompanying 1999 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 856 people in its Transportation Group, 19 people in its Real Estate Group, and 2 people in its Corporate offices at September 30, 1999. Item 2. PROPERTIES. The Company's principal properties are located in Florida, Georgia, Virginia, Washington, D.C., and Maryland. Transportation Properties. At September 30, 1999 the Company operated an owned (566) and leased (2) fleet of 568 trucks and had 20 sites for its trucking terminals in Florida, Georgia, Alabama and Tennessee totaling approximately 94 acres. Of these acres, the Company owned approximately 84 and leased approximately 10. The Company also leases a central dispatch/office in Montgomery, Alabama. The lease term runs from year-to-year. Construction Aggregates Properties. The following table summarizes the Company's principal construction aggregates locations and estimated reserves at September 30, 1999, substantially all of which are leased to FRI. Tons of Tons Mined Estimated in Year Reserves Ended at 9/30/99 9/30/99 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. 10,666 397,000 17,490 The Company owns four locations being leased but not currently being mined, located at Ft. Myers and Newberry, Florida, and Rome and Columbus, Georgia. - 254,000 3,688 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, 1999 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, 1999 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, 1999. 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. The Company also owns 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, 1999. Two sections of 4.15 acres each have been developed with 132,484 square feet of commercial warehouse space that was 100% leased at November 1, 1999. A 7.33 acre site is being developed with 96,800 square feet of commercial warehouse space under construction at September 30, 1999. A 5.16 acre site, in Western Baltimore County, is being developed with 83,100 square feet of commercial warehouse space under construction at September 30, 1999. 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 2000, and construction of the first building is anticipated to commence during the summer of 2000. As part of the Company's ongoing asset management activities, it 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 in the Washington DC area. In November 1999, the Zoning Commission approved the Company's application. At September 30, 1999 certain property, plant and equipment having a carrying value of $21,911,000 was pledged on certain notes and contracts with an outstanding principal balance totaling $18,561,000 on such date. In addition, certain properties having a carrying value at September 30, 1999 of $1,519,000 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 11 to the Consolidated Financial Statements included in the accompanying 1999 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 832 holders of record of FRP Properties, Inc. common stock, $.10 par value, as of December 1, 1999. 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 4 the Company's 1999 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 1999 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 4 of the Company's 1999 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 pages 5 and 6; under the caption "Capital Expenditures" on page 1; and in Notes 1 through 13 to the consolidated financial statements included in the accompanying 1999 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 affects the amount of interest income that can be earned. For its debt instruments changes in interest rates affect 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 2000 2001 2002 2003 2004 Thereafter Total Fair Value Liabilities: Bank lines of credit $ 3,000 3,000 3,000 Weighted average Interest rate 5.6% Long-term debt at Fixed rates $ 625 677 733 794 860 14,872 18,561 18,033 Weighted average Interest rate 8.1% 8.1 8.0 8.0 8.0 8.1 Bank Revolving Credit Variable interest $20,000 20,000 20,000 Rate Weighted average Interest 6.0% Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information required in response to this Item 8 is included under the caption "Quarterly Results" on page 4 and on pages 7 through 15 of the Company's 1999 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 64 Chairman of the Board May 3, 1989 John E. Anderson 54 President & Chief Feb. 17, 1989 Executive Officer John R. Mabbett III 40 Vice President and Feb. 4, 1993 Secretary Ish Copley 66 President of SunBelt Aug. 9, 1992 Transport, Inc., the Company's flatbed trucking operation David H. deVilliers, Jr. 48 Vice President June 1, 1989 James J. Gilstrap 52 Treasurer, Assistant Aug. 6, 1997 Secretary and Chief Financial Officer Wallace A. Patzke, 52 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 15, 1999; 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 15, 1999; 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 15, 1999; 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 15, 1999 and in Note 2 captioned "Transactions with related parties" in the Company's 1999 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 17 of this Form 10-K. (3)Exhibits. The response to this item is submitted as a separate section. See Exhibit Index on pages 14 through 16 of this Form 10-K. (b) Reports on Form 8-K. During the three months ended September 30, 1999, the Company filed a Form 8-K dated September 24, 1999 reporting a proposed spin-off of its real estate business under Item 5, "Other Events". 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 1, 1999 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 1, 1999. 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, 1999 EXHIBIT INDEX [Item 14(a)(3)] (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)(a)(4) Amendment to the Articles of Incorporation, filed with the Florida Secretary of State on May 6, 1999. A form of such amendment was previously filed as Exhibit 4 to the Company's Form 8-K dated May 5, 1999. File No. 33-26115. (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. (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. (4)(e) Rights Agreement, dated as May 5, 1999 between the Company and First Union National Bank. Previously filed as Exhibit 4 to the Company's Form 8-K dated May 5, 1999. File No. 33-26115. (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. (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 1999 Annual Report to stockholders, portions of which are incorporated by reference in this Form 10-K. Those portions of the 1999 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, 1999: 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 Lakeside L.L.C. #2 (a Maryland limited liability corporation), FRP Lakeside L.L.C. #3 (a Maryland limited liability partnership), FRP Lakeside L.L.C. #4 (a Maryland limited liability partnership), FRP Lakeside L. L.C.#5 (a Maryland limited liability partnership), FRP Hillside L.L.C. (a Maryland limited liability corporation) FRP Windsor LLC (a Maryland limited liability corporation), Patriot Transportation, Inc.(a Florida 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, 1999 and 1998 8(a) For the years ended September 30, 1999, 1998 and 1997: Consolidated statement of income 7(a) Consolidated statement of stockholders' equity 10(a) Consolidated statement of cash flows 9(a) Notes to consolidated financial statements 11-15(a) Independent Auditors' Report 16(a) Selected quarterly financial data (unaudited) 4(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 1999 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 3, 1999, appearing in and incorporated by reference in this Annual Report (Form 10-K) for the year ended September 30, 1999. DELOITTE & TOUCHE LLP Certified Public Accountants Jacksonville, Florida December 21, 1999 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, 1999 and 1998, and for each of the three years in the period ended September 30, 1999, and have issued our report thereon dated December 3, 1999; such consolidated financial statements and report are included in your 1999 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 consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Certified Public Accountants Jacksonville, Florida December 3, 1999 FRP PROPERTIES, INC. SCHEDULE II (CONSOLIDATED) - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997 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, 1999: Allowance for doubtful accounts $ 272,318 $ 12,000 - $ 284,318 Accrued risk insurance $4,545,457 $4,016,846 - $3,176,910(b) $5,385,393 Accrued health insurance $ 841,789 1,480,947 - 1,409,359(b) 913,377 Totals - insurance $5,387,246 $5,497,793 $0 $4,586,269 $6,298,770 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 (a) Accounts written off less recoveries (b) Payments FRP PROPERTIES, INC. SCHEDULE III(CONSOLIDATED)-REAL ESTATE & ACCUMULATED DEPRECIATION AND DEPLETION SEPTEMBER 30, 1999
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 acquisition end period tion on: (a) Construction Aggregates Alachua Florida $1,588,458 8,536 1,596,994 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 3,236 n/a 4/86 unit Dade Florida 9,374,660 0 9,374,660 7,180,001 n/a 4/86 unit Fayette Georgia 109,342 400,872 0 400,872 42,349 n/a 4/86 unit Hernando Florida 3,174,084 0 3,174,084 1,107,684 n/a 4/86 unit Lake Florida 1,464,625 20,528 1,485,153 1,026,253 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 1,364,008 374,802 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 0 840,442 201,628 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 0 298,463 241,184 n/a 4/86 unit Putnam Florida 15,014,681 47,768 15,062,449 2,358,985 n/a 4/86 unit St. Marys Maryland 1,269,818 0 1,269,818 508,104 n/a 4/86 unit 109,342 42,713,316 175,863 42,889,179 13,817,737 Land Rental Property District of Columbia 6,712,973 2,152,586 8,865,559 911,687 n/a 4/86 15 yr. Fairfax Virginia 2,035,013 0 2,035,013 - n/a 4/86 - Putnam Florida 191,518 0 191,518 119,121 n/a 4/86 10 yr. Spalding Georgia 19,572 0 19,572 - n/a 4/86 - Suwannee Florida 268,536 4,567,382 371,294 4,938,676 759,316 n/a 4/86 10 yr. 268,536 13,526,458 2,523,880 16,050,338 1,790,124 Commercial Property Baltimore Maryland 1,614,092 439,120 2,381,905 2,821,025 923,344 1990 10/89 31 yr. Baltimore Maryland 4,572,886 961,379 5,768,186 6,729,565 1,228,091 1992 12/91 31 yr. Baltimore Maryland 690,221 1,256,287 1,946,508 0 n/a 7/99 - Duval Florida 2,804,344 142,461 2,946,805 1,858,905 n/a 4/86 20 yr. Harford Maryland 1,754,300 14,209,359 15,963,659 246,252 1996 8/95 31 yr. Howard Maryland 7,785,160 3,069,284 3,859,411 6,928,695 1,807,744 1987 9/88 31 yr. Anne Arun Maryland 4,211,173 911,060 5,654,712 6,565,772 1,582,971 1989 9/88 31 yr. Anne Arun Maryland 1,011,551 296,038 1,307,589 0 n/a 5/98 - Orange Florida 57,047 0 57,047 12,046 n/a 4/86 10 yr. 18,183,311 11,698,306 33,568,359 45,266,665 7,659,353 Investment Property Caroline Virginia 212,876 6,858 219,734 - n/a 4/86 unit Duval Florida 640,310 0 640,310 - 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 - Hillsborough Florida 187,161 0 187,161 - n/a 4/86 - Suwannee Florida 400,313 0 400,313 106,525 n/a 4/86 unit 1,997,733 6,858 2,004,591 106,525 Miscellaneous 720,088 0 720,088 303,225 GRAND TOTALS $18,561,189 70,655,901 36,274,960 106,930,861 23,676,964
(a) The aggregate cost for Federal income tax purposes is $105,327,346. FRP PROPERTIES, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION AND DEPLETION YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997 1999 1998 1997 Gross Carrying Cost of Real Estate: Balance at beginning of period $ 98,302,279 86,939,335 80,950,619 Additions during period: Acquisitions through foreclosure - - - Other acquisitions 9,663,944 2,241,837 3,500,646 Improvements, etc. - 5,480,287 2,725,828 Reclassification of deposit - - - Other (transfers) - 3,811,104 - Deductions during period: Cost of real estate sold 704,062 170,284 237,758 Other (abandonments) - - - Other (transfers to Transportation) 331,300 - - Balance at close of period $106,930,861 98,302,279 86,939,335 Accumulated Depreciation & Depletion: Balance at beginning of period $ 21,655,393 19,463,097 17,440,035 Additions during period: Charged to cost & expense 2,446,115 2,278,379 2,108,105 Other (transfers from Transportation) - - - Deductions during period: Cost of real estate sold 233,134 86,083 85,043 Other(transfer to Transp.) 191,410 - - Balance at close of period $23,676,964 21,655,393 19,463,097 Annual Report 1999 CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended September 30 (Dollars in thousands except per share amounts) % 1999 1998 Change Revenues $82,019 73,974 +10.9 Gross profit $19,994 16,493 +21.2 Operating profit $12,380 9,625 +28.6 Income before income taxes $10,093 7,343 +37.5 Net income $ 6,157 4,480 +37.4 Per common share: Basic earnings per share $ 1.79 1.30 +37.7 Diluted earnings per share $ 1.78 1.28 +39.1 Stockholder's equity $ 21.53 19.83 + 8.6 1999 CORPORATE HIGHLIGHTS Revenues - up 10.9% to $82,019,000 Gross profit - up 21.2% to $19,994,000 Net income - up 37.4% to $6,157,000 Diluted earnings per share - up 39.1% to $1.78 per share Gains from the sale of real estate of $3,788,000 $31,000,000 of borrowing capacity is available under the Company's credit agreements at September 30, 1999 Formed Patriot Transportation, Inc to enter into the non-asset based segment of the domestic trucking industry Approved a Plan of Reorganization and Distribution to separate the transportation and real estate operations during fiscal 2000 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 1999 will prove to be a milestone in the continued progress and evolution of your Company. Our two primary business groups, Transportation and Real Estate, have coexisted successfully since the formation of the Company in the mid 1980's but have now progressed in size and scope to warrant sharpened strategic focus. Accordingly, your Board approved a Plan of Reorganization and Distribution to formally separate the transportation and real estate operations in the coming year. Consolidated Results. Revenues for fiscal 1999 were $82,019,000, a 10.9% increase over $73,974,000 in fiscal 1998. Transportation revenues increased 4.7% due to an increase in miles hauled in both Florida Rock and Tank Lines and SunBelt. Real estate revenues excluding property sales increased 17.3% principally as the result of increased royalties, rental income and timber sales. Real estate property sales approximated $3,788,000 in fiscal 1999 versus $426,000 in 1998. Gross profit of $19,994,000 increased 21.2% from $16,493,000 in fiscal 1998. The Transportation Group's gross profit for fiscal 1999 decreased 3.6% from last year as result of an increase in operating costs. The Real Estate Group's gross profit excluding gains from property sales was 16.0% above last year principally because of increased timber, royalty and rental income on the Company's real estate projects. Gains from property sales were $3,236,000 compared to $358,000 last year. Selling, general and administrative expenses were $7,614,000 as compared to $6,868,000 in 1998. The increase is primarily attributed to non-recurring costs incurred for retirement and severance compensation and higher variable costs related to increased sales. Net income increased 37.4% to $6,157,000 from $4,480,000 in fiscal 1998. Diluted earnings per share increased 39.1% to $1.78 from $1.28 last year. Capital Expenditures. Capital expenditures in 1999 for the transportation business totaled $9,344,000 versus $8,368,000 in 1998. Capital expenditures for the real estate segment in 1999 approximated $12,010,000 versus $11,504,000 in 1998. Total depreciation and depletion for fiscal 1999 was $10,065,000 versus $9,146,000 in 1998. The fiscal 2000 capital expenditure plan for the transportation business approximate $12,868,000 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 $13,855,000. Total depreciation and depletion expense is expected to be approximately $11,063,000. Financial Management. The Company's $34,000,000 unsecured revolver and term facility has a final maturity of November 2003. At September 30, 1999, $20,000,000 was outstanding leaving a balance of $14,000,000 in availability under the facility. The Company also has $20,000,000 of credit facilities in overnight unsecured demand loans of which $3,000,000 was borrowed and outstanding at the end of fiscal 1999. $18,561,000 of the Company's total debt outstanding is non-recourse long-term fixed rate mortgages secured by real estate projects. At September 30, 1999 the Company had $31,000,000 of available credit and a funded debt to equity rate of 57%. The Company is currently evaluating and pursuing additional financing alternatives for each business group and expects to modify the existing credit facilities prior to the effective date of the proposed reorganization. Annual Meeting. At the Annual Stockholders Meeting on February 3, 1999, the stockholders elected Francis X. Knott, John R. Mabbett III, and James H. Winston as directors to serve a four-year term expiring in the year 2003. Real Estate Group. Success continued to be achieved toward the twin strategies of developing high-quality, flexible warehouse/office space in carefully selected markets and progressive asset management to enhance the Group's land portfolio. The Group maintained development momentum at its Lakeside Business Park, a 134 acre site in Harford County, Maryland north of Baltimore. Two new buildings in this park, 2206 and 2208 Lakeside Boulevard, totaling 132,484 square feet, were successfully leased-up. An additional 96,800 square foot warehouse is slated for completion and marketing during fiscal 2000. Continuing pre-development and infrastructure related activities are underway at Hillside Business Park, a 59 acre tract in Anne Arundel County, Maryland near the Baltimore-Washington International Airport. Final build out on this site is anticipated at approximately 600,000 square feet of flexible warehouse/office product. An additional 83,100 square feet of build-to-suit office/warehouse space is underway in a separate market segment to the west of Greater Baltimore. Combined developed buildings should total slightly over one million square feet of capacity by the end of fiscal 2000. Excluding the build-to-suit the Group had in excess of 812,000 square feet of its rental properties fully leased at September 30, 1999. Additionally, the Group achieved final zoning approvals, during first quarter fiscal 2000, to re-zone its 5.8 acre site on the banks of the Anacostia River in Washington, D.C. from industrial to Planned Unit Development(PUD). This action by the Zoning Commission of the District of Columbia represents the culmination of approximately six years of constant advocacy by the company. The approved re-zoning allows development of a 1.5 million square foot commercial office component together with associated waterfront enhancements. The Group is now exploring options for highest and best use of this site. Transportation Group. Florida Rock & Tank Lines, Inc. and SunBelt Transport, Inc. continued their growth in both miles and revenue while new strategic initiatives occurred in the Transportation Group this past fiscal year. The Group formed a third new venture during the year, Patriot Transportation, Inc. Patriot marks the Group's entry into the non-asset based segment of the domestic trucking industry. In addition to being large and highly fragmented, this segment offers the opportunity of faster revenue growth at significantly lower levels of capital investment. A number of operating synergies should accrue by linking Patriot's freight movements in coordination with the existing operations and facilities of Florida Rock & Tank Lines and SunBelt Transport. During the year, the Group added key senior management who have been instrumental in spearheading the development of an administrative infrastructure to support the operational diversity and growth of the Group. In addition, management is focused on identifying and consummating strategic acquisitions alongside a stepped up focus on internal development for the coming year. The combination of a major liquid and dry bulk carrier with an existing network of eighteen terminals, a rapidly expanding flatbed company and a non-asset, owner-operator carrier provides the nucleus for a more versatile strategic focus. As a result, the Group anticipates an array of expansion, utilization and efficiency options. Related Developments and Outlook. Fiscal 2000 is expected to be another year of growth and progress for our businesses. As previously announced, the Board of Directors approved a Plan of Reorganization and Distribution (Plan) at its December, 1999 scheduled meeting. When executed, the Plan will allow separate managements to better focus on its core business and to pursue opportunities for each business segment independently. The Plan creates a new company that will include all the assets and operations of the Real Estate Group. The new company will be distributed on a share for share basis in a tax free transaction to existing shareholders at the date of reorganization and will trade on the NASDAQ as a public company. The Transportation Group's assets and operations will remain with the Company and assuming a name change approval at the Annual Meeting on February 2, 2000, the Company will become Patriot Transportation Holding, Inc. Management anticipates with enthusiasm and excitement this new chapter in your company's development. We extend sincere appreciation to our hard working and dedicated employees for their crucial roles in helping to enable this new direction. Respectfully yours, Edward L. Baker Chairman John E. Anderson President & Chief Executive Officer Operating Review Transportation. During fiscal 1999 the Company's Transportation Group operated 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. During the year the Company also formed Patriot Transportation, Inc. that will conduct the Company's entry into owner operator 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, Dalton, Macon and Savannah, Georgia; Knoxville and Nashville, Tennessee; and Birmingham, Alabama. The Group also has a central dispatch office in Montgomery, Alabama. During fiscal 1999 the owned and leased fleet increased from 546 to 568 trucks. Revenues for miles hauled were up 4.7% due to both continued expansion of flatbed and tank truck hauling. Gross profit decreased 3.6% from fiscal 1998 primarily as a result of increased expansion in both SunBelt Transport, Inc. and Florida Rock & Tank Lines, Inc. During fiscal 1999, the Group purchased 109 new tractors and 112 new trailers. The fiscal 2000 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 2000 the Transportation Group expects a year of growth in its existing 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 see strong year over year growth during fiscal 2000. The startup of owner operator hauling conducted through Patriot Transportation in the coming year will also make a positive contribution. 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, excluding property sales increased 17.3% over fiscal 1999 as a result of higher timber sales and increased royalties and rental revenue on the Company's real estate projects. The fiscal 1999 real estate revenues, excluding the sale of real estate and timber, were divided approximately 46% from mining and minimum royalties and 54% from rental. A brief description of FRP Development Corp.'s projects at September 30, 1999 follows: 8230 Preston Court, 72,182 square feet of flexible warehouse/office space and 100% leased. 8240 Preston Court, 90,405 square feet of flexible warehouse/office space and 100% leased. 810 Oregon Avenue, 113,280 square feet of flexible warehouse/office space and 100% leased. 812 Oregon Avenue, 82,335 square feet of flexible warehouse/office space and 100% leased. Rossville Business Center, a two building complex consisting of 187,517 square feet of flexible warehouse/office space and 100% leased. TESSCO Center, a 28,533 square foot suburban office building and 100% leased. 1502 Quarry Drive, 105,803 square feet of flexible warehouse/office space and 100% leased. 1504 Quarry Drive, 96,800 square feet of flexible warehouse/office space under construction to be completed during fiscal 2000. 2206 Lakeside Boulevard, 66,964 square feet of flexible warehouse/office space completed during fiscal 1999 and 100% leased. 2208 Lakeside Boulevard, 65,520 square feet of flexible warehouse/office space completed during fiscal 1999 and 100% leased. 6920 Tudsbury Road, 83,100 square feet, built to suit warehouse/office under construction to be completed during fiscal 2000 and 100% pre-leased. Lakeside Business Park is a 134 acre site capable of supporting 1,250,000 square feet of warehouse/office space. At September 30, 1999, 96,800 square feet was under construction and expected to be completed during fiscal 2000. Approximately 63 acres remain available for development and capable of supporting 900,000 square feet of new 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 Real Estate Group during fiscal 2000 will continue to focus on buildings under construction and the continued development of the property at Lakeside Business Park. In addition, planning, development and permitting for Hillside Business Park development will continue. At September 30, 1999 the Company owns approximately 812,000 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 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) 1999 1998 1997 1996 1995 Summary of Operations Revenues $ 82,019 73,974 68,844 64,403 58,273 Gross profit(a) $ 19,994 16,493 14,908 14,615 15,132 Operating profit $ 12,380 9,625 8,977 9,017 9,440 Interest expense $ 2,357 2,300 2,061 2,234 1,933 Income before income taxes $ 10,093 7,343 6,984 6,827 7,591 Provision for income taxes $ 3,936 2,863 2,724 2,662 2,961 Net income $ 6,157 4,480 4,260 4,165 4,630 Per Common Share Basic EPS $ 1.79 1.30 1.22 1.16 1.24 Diluted EPS $ 1.78 1.28 1.21 1.14 1.22 Stockholders' equity $ 21.53 19.83 18.53 17.72 16.74 Financial Summary Current assets $ 14,161 10,073 8,549 8,003 8,495 Current liabilities $ 13,555 9,479 11,063 9,595 7,117 Working capital (deficit) $ 606 594 (2,514) (1,592) 1,378 Property, plant and equipment, net $115,369 104,970 95,018 90,058 83,319 Total assets $138,655 123,965 116,582 107,036 101,357 Long-term debt $ 37,936 33,299 30,647 26,170 25,503 Stockholders' equity $ 72,692 68,755 63,734 61,894 61,622 Other Data Return on average stockholders' equity 8.7% 6.7 6.8 6.7 7.6 Return on average capital employed 5.2% 4.1 4.2 5.8 6.6 Net cash flow provided from operating activities $ 15,032 13,557 13,982 14,681 10,131 Additions to property, plant and equipment $ 21,359 19,901 13,746 15,970 15,805 Depreciation, depletion and amortization $ 10,065 9,146 8,356 7,667 7,304 Weighted average number of shares - basic 3,444 3,452 3,490 3,588 3,742 Weighted average number of shares - diluted 3,468 3,496 3,530 3,647 3,798 Number of employees at end of year 877 753 721 665 644 Stockholders of record 834 850 873 913 939 (a) Fiscal 1999, 1998, 1997, 1996 and 1995 include gains on the sale of real estate of $3,236,000, $358,000, $817,000, $93,000 and $79,000, respectively. Quarterly Results (unaudited) (Dollars in thousands except per share amounts)
First Second Third Fourth 1999 1998 1999 1998 1999 1998 1999 1998 Revenues $19,031 17,671 21,016 17,831 19,854 19,002 22,118 19,470 Gross profit $ 4,393 3,974 5,539 3,776 4,382 4,337 5,680 4,406 Operating profit $ 2,299 2,458 3,868 2,104 2,470 2,512 3,743 2,551 Income before income taxes $ 1,743 1,894 3,352 1,555 1,874 1,943 3,124 1,951 Net income $ 1,063 1,155 2,045 949 1,143 1,185 1,906 1,191 Per common share: Basic EPS $.31 .34 .59 .28 .33 .34 .56 .34 Diluted EPS $.30 .33 .59 .27 .33 .34 .56 .34 Market price: High $30.00 38.00 28.88 33.75 26.00 37.25 26.00 33.00 Low $19.50 31.37 23.00 30.00 21.25 32.00 21.63 20.50
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 1999 and 1998, revenues increased 10.9% and 7.5%, respectively. In the Transportation segment revenues and miles hauled were both up 4.7% in 1999 and up 7.5% and 6.9%, respectively, in 1998. The Real Estate segment's revenues, exclusive of real estate sales, increased 17.3% and 12.5% in 1999 and 1998, respectively. The increase in real estate revenues is the result of higher timber sales and increased rental and royalty income. The estimated contribution to Transportation revenues by principal markets follows: 1999 1998 1997 1996 1995 Petroleum 65% 67 68 68 66 Construction 24% 21 21 20 19 Chemical 7% 7 6 7 10 Other 4% 5 5 5 5 Gross profit for fiscal 1999 increased $3,501,000 and gross margin increased to 24% from 22%. The Transportation segment gross profit decreased $360,000 and gross margin decreased to 14% from 15%. These decreases were due to increased costs to attract and retain qualified drivers and increased depreciation expense partially offset by reduced fuel costs. Gross profit for the real estate segment increased $3,861,000 primarily as a result of real estate sales, increased royalty income and increased rental income. Gross profit on real estate sales was $3,236,000 in 1999 and $358,000 in 1998. Gross profit for fiscal 1998 increased $1,585,000 and gross margin remained stable from the prior 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. Selling, general and administrative expense increased 10.9% in 1999 and increased 15.8% in 1998. The 1999 increase was attributable to non-recurring retirement and severence and systems upgrades for Year 2000 compliance. The 1998 increase results from 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 1999 increased 3% or $57,000 from 1998. Interest expense in 1998 increased 12% or $239,000 from 1997. These increases were primarily as a result of an increase in the average debt outstanding and an increase in the average interest rate. The 1998 increase was partially offset by an increase in the amount of interest capitalized. Year 2000 Conversion. The Company, like most entities relying on automated data processing was faced with the task of modifying systems to become Year 2000 compliant. The Company analyzed its Year 2000 exposure and developed plans for addressing the Year 2000 exposure as well as reengineering selective systems to enhance their functionality. The Company 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 completed the installation of this software during the fourth quarter of 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. FRI has completed updating the systems used by the Company. The Company has identified operating equipment which may be effected by Year 2000. Once the equipment was identified, testing was done to determine if such equipment is Year 2000 compliant. When equipment was identified as not Year 2000 compliant, the equipment was replaced. Vendors, suppliers and customers that are critical to the Company's operations were identified. Questionnaires were sent to these entities to determine their state of readiness for Year 2000. The Company identified alternative vendors and suppliers if any of the current suppliers are not Year 2000 compliant. The costs associated with the purchase and installation of the truck dispatching and maintenance software and hardware was capitalized and is 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. The expected costs of the systems was not expected to be material to the financial condition or results of operations of the Company. The Company feels it has addressed 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 has contingency plans in place if there is a disruption. This plan assesses 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): 1999 1998 1997 Cash $ 2,593 663 429 Total debt $41,561 35,432 35,065 Debt as a percent of capital employed 34% 32 33 Unused lines of credit $31,000 37,400 35,500 During 1999, net cash flows from operating activities were $15,032,000 which along with issuing additional long and short-term debt funded the Company's investing activities of $16,746,000 and the repurchase of common stock. 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. 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. 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 $14,000,000 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 $3,000,000 was outstanding at September 30, 1999. The Company currently expects its fiscal 2000 capital expenditures to be approximately $26,746,000 and depreciation and depletion expense to be $11,063,000. The expenditures are expected to be financed from the cash flow from operating activities and the $14,000,000 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. Spin-off of Real Estate Business. As discussed in Note 13 to the Consolidated Financial Statements, the Board of Directors approved spinning off to its shareholders a new company which would include the real estate business, while retaining the transportation business in FRP Properties, Inc. It is anticipated that the spin-off would be effective at the end of the Company's second quarter, ending March 31, 2000. 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 four 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 FRI's markets; fuel costs; and inflation. Consolidated Statement of Income Years ended September 30 (Dollars and shares in thousands except per share amounts) 1999 1998 1997 Revenues: Transportation $ 67,048 64,014 59,530 Real estate 11,183 9,534 8,477 Sale of real estate 3,788 426 837 Total revenues (including revenue from related parties of $6,999, $6,256, and $6,006) 82,019 73,974 68,844 Cost of operations: Transportation 57,396 54,002 50,487 Real estate 4,077 3,411 3,429 Cost of real estate sold 552 68 20 Gross profit 19,994 16,493 14,908 Selling, general and administrative expense (including expenses paid to related party of $1,656, $1,515 and $1,414) 7,614 6,868 5,931 Operating profit 12,380 9,625 8,977 Interest expense (2,357) (2,300) (2,061) Interest income 46 13 46 Other income, net 24 5 22 Income before income taxes 10,093 7,343 6,984 Provision for income taxes 3,936 2,863 2,724 Net income $ 6,157 4,480 4,260 Earnings per share: Basic $ 1.79 1.30 1.22 Diluted $ 1.78 1.28 1.21 Number of shares used in computing: Basic earnings per share 3,444 3,452 3,490 Diluted earnings per share 3,468 3,496 3,530 See accompanying notes. Consolidated Balance Sheet September 30 (Dollars in thousands) 1999 1998 Assets Current assets: Cash and cash equivalents $ 2,593 663 Accounts receivable, less allowance for doubtful accounts of $284 ($272 in 1998) (including related party of $399 and $380) 8,451 6,510 Inventory of parts and supplies 503 552 Prepaid expenses and other 2,614 2,348 Total current assets 14,161 10,073 Other assets: Real estate held for investment, at cost 5,674 5,703 Goodwill, at cost less amortization of $403 ($362 in 1998) 1,207 1,248 Other 2,244 1,971 Total other assets 9,125 8,922 Property, plant and equipment, at cost: Land 56,937 55,284 Buildings 35,971 30,953 Plant and equipment 67,677 62,134 Construction in progress 12,162 9,712 172,747 158,083 Less accumulated depreciation and depletion 57,378 53,113 Net property, plant and equipment 115,369 104,970 $138,655 123,965 Liabilities and Stockholders' Equity Current liabilities: Short-term note payable to bank $ 3,000 1,600 Accounts payable (including related party of $166 and $85) 5,565 2,776 Federal and state income taxes 499 1,224 Accrued liabilities: Payroll and benefits 1,415 1,500 Taxes 604 412 Interest 193 176 Insurance reserves 1,654 1,258 Long-term debt due within one year 625 533 Total current liabilities 13,555 9,479 Long-term debt 37,936 33,299 Deferred income taxes 8,820 7,656 Accrued insurance reserves 4,644 4,129 Other liabilities 1,008 647 Commitments and contingent liabilities (Notes 11 and 12) Stockholders' equity: Preferred stock, no par value; 5,000,000 shares authorized - - Common stock, $.10 par value; 25,000,000 shares authorized; 3,375,817 shares issued (3,468,225 shares in 1998) 338 347 Capital in excess of par value 15,660 17,871 Retained earnings 56,694 50,537 Total stockholders' equity 72,692 68,755 $138,655 123,965 See accompanying notes. Consolidated Statement of Cash Flows Years ended September 30 (Dollars in thousands Cash flows from operating activities: 1999 1998 1997 Net income $ 6,157 4,480 4,260 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 10,065 9,146 8,356 Net changes in operating assets and liabilities: Accounts receivable (1,953) (993) (250) Inventory of parts and supplies 49 (83) 33 Prepaid expenses (265) (228) (261) Accounts payable and accrued liabilities 2,659 492 732 Increase in deferred income taxes 1,089 620 1,181 Net change in insurance reserves and other liabilities 876 879 759 Gain on sale of real estate, plant and equipment (3,638) (778) (792) Other, net (7) 22 (36) Net cash provided by operating activities 15,032 13,557 13,982 Cash flows from investing activities: Purchase of property, plant and equipment (20,475) (15,323)(13,470) Purchase of real estate held for investment (315) - - Additions to other assets (737) (451) (4,156) Proceeds from the sale of real estate held for investment, property, plant and equipment, and other assets 4,781 1,542 1,118 Net cash used in investing activities (16,746) (14,232)(16,508) Cash flows from financing activities: Proceeds from long-term debt 5,000 3,200 4,900 Net increase (decrease) in short-term debt 1,400 (2,400) 500 Repayment of long-term debt (535) (432) (338) Exercise of employee stock options - 574 879 Repurchase of Company stock (2,221) (33) (3,299) Net cash provided by financing activities 3,644 909 2,642 Net increase in cash and cash equivalents 1,930 234 116 Cash and cash equivalents at beginning of year 663 429 313 Cash and cash equivalents at end of year $ 2,593 663 429 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense, net of amount capitalized $ 2,340 2,288 1,997 Income taxes $ 3,459 1,759 898 Noncash investing and financing activities: Additions to property, plant and equipment from: Exchanges $ 620 767 276 Other assets $ - 3,811 - Issuance of debt $ 264 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, 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 Shares 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 Shares purchased and canceled (92,408) (9) (2,211) - Net income - - - 6,157 Balance at September 30, 1999 3,375,817 $338 15,660 56,694 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. 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 $100,000 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 - 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. The only difference between basic and diluted shares used for the calculation is the effect of employee stock options. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ENVIRONMENTAL - Environmental expenditures that benefit future periods are capitalized. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Estimation of such liabilities 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 - Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income". 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. There are no items that require disclosure. Effective October 1, 1998, the Company adopted 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. 2. Transactions with related parties. As of September 30, 1999 seven of the Company's directors were also directors of Florida Rock Industries, Inc. ("FRI"). Such directors own approximately 29% 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): 1999 1998 1997 Transportation $ 931 839 883 Real estate 6,068 5,417 5,123 $6,999 6,256 6,006 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 $1,656,000 in 1999, $1,515,000 in 1998 and $1,414,000 in 1997. The Company and FRI agreed to amend the agreement effective October 1, 1999. Under the amended agreement, the Company will assume responsibility for accounting, credit and certain MIS functions. 3. Lines of credit and debt. Long-term debt at September 30 is summarized as follows (in thousands): 1999 1998 Revolving credit (unsecured) $20,000 15,000 6.9% to 9.5% mortgage notes payable in installments through 2015 18,561 18,832 38,561 33,832 Less portion due within one year 625 533 $37,936 33,299 The aggregate amount of principal payments, excluding the revolving credit, due subsequent to September 30, 1999 is: 2000 - $625,000; 2001 - $677,000; 2002 - $733,000; 2003 - $794,000; 2004-$860,000; 2005 and subsequent years - $14,872,000. 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, 1999 $14,477,000 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 $21,911,000 at September 30, 1999. Certain properties having a carrying value at September 30, 1999 of $1,519,000 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, 1999 and 1998 were 5.6% and 6.1%, respectively. During fiscal 1999, 1998 and 1997 the Company capitalized interest cost of $315,000, $331,000 and $223,000, respectively. 4. Leases. At September 30, 1999, 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 $ 42,889 Commercial property 45,267 Land and other property 16,050 104,206 Less accumulated depreciation and depletion 23,267 $ 80,939 The minimum future rentals on noncancelable operating leases as of September 30, 1999 are as follows: 2000 - $5,210,000; 2001 - $4,436,000; 2002 - $3,853,000; 2003 - $3,293,000; 2004 - $3,163,000; 2005 and subsequent years $10,744,000. 5. Preferred Shareholder Rights Plan. On May 5, 1999, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock. The dividend was payable on June 2, 1999. Each right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company, par value $.01 per share (The "Preferred Shares"), at a price of $96 per one one-hundredth of a Preferred Share, subject to adjustment. In the event that any Person or group of affiliated or associated Persons (an "Acquiring Person") acquires beneficial ownership of 15% or more of the Company's outstanding common stock each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of Common Shares having a market value of two times the exercise price of the Right. An Acquiring Person excludes any Person or group of affiliated or associated Persons who were beneficial owners, individually or collectively, of 15% or more of the Company's Common Shares on May 4, 1999. The rights will initially trade together with the Company's common stock and will not be exercisable. However, if an Acquiring Person acquires 15% or more of the Company's common stock the rights may become exercisable and trade separately in the absence of future board action. The Board of Directors may, at its option, redeem all rights for $.01 per right, at any time prior to the rights becoming exercisable. The rights will expire September 30, 2009 unless earlier redeemed, exchanged or amended by the Board. 6. 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, 1999 the number of shares available for issuance is 60,400 shares. Option transactions for the fiscal years ended September 30 are summarized as follows: 1999 1998 1997 Average Average Average Options Price(1) Options Price(1) Options Price(1) Shares under option: Beginning of year 120,000 16.31 150,000 15.25 245,000 12.78 Issued 24,600 24.00 - - - - Exercised - - (30,000) 11.00 (95,000) 8.88 End of year 144,600 17.62 120,000 16.31 150,000 15.25 Options exercisable at end of year 109,000 98,000 108,600 (1) Weighted average exercise price The following table summarizes information concerning stock options outstanding at September 30, 1999: Options Options Weighted-Average Exercise Price Outstanding Exercisable Remaining Life 12.25 30,000 30,000 .8 years 17.25 15,000 12,000 5.2 years 17.75 75,000 67,000 5.1 years 24.00 24,600 - 9.2 years Remaining non-exercisable options as of September 30, 1999 become exercisable as follows: 2000 - 15,920; 2001 - 4,920; 2002 - 4,920; 2003 - 4,920 and 2004 - 4,920. 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. If compensation cost for stock option grants had been determined based on the Black-Scholes option pricing model value at the grant date for the 1999 awards consistent with the provisions of SFAS No. 123, the Company's 1999 net income, basic and diluted earnings per share would have been $6,121,000, $1.78 and $1.76, respectively. The SFAS 123 method has not been applied to options granted prior to October 1, 1996, and the pro forma compensation expense may not be indicative of pro forma expense in future years. The fair value of options granted was estimated to be $14.40 on the date of grant using the following assumptions; no dividends yield, expected volatility of 54.8%, risk-free interest rates of 4.3% and expected lives of 7 years. 7. Income taxes. The provision for income taxes for fiscal years ended September 30 consists of the following (in thousands): 1999 1998 1997 Current: Federal $2,445 1,914 1,317 State 402 329 226 2,847 2,243 1,543 Deferred 1,089 620 1,181 Total $3,936 2,863 2,724 A reconciliation between the amount of tax shown above and the amount computed at the statutory Federal income tax rate follows (in thousands): 1999 1998 1997 Amount computed at statutory Federal rate $3,432 2,497 2,374 State income taxes (net of Federal income tax benefit) 370 277 263 Other, net 134 89 87 Provision for income taxes $3,936 2,863 2,724 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: 1999 1998 Deferred tax liabilities: Basis difference in property, plant and equipment $10,241 8,758 Depletion 630 630 Prepaid expenses 980 930 Gross deferred tax liabilities 11,851 10,318 Deferred tax assets: Insurance reserves 2,107 1,798 Other, net 641 505 Gross deferred tax assets 2,748 2,303 Net deferred tax liability $ 9,103 8,015 8. 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 $458,000 in 1999, $429,000 in 1998, $403,000 in 1997. 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): 1999 1998 Change in benefit obligation Balance beginning of year $ 471 496 Service cost 30 32 Interest cost 29 30 Actuarial gain (76) (66) Benefits paid (5) (21) Balance end of year $ 449 471 Change in plan assets Balance beginning of year $ 0 0 Employer contributions 5 21 Benefits paid (5) (21) Balance end of year $ 0 0 Funded status $(449) (471) Unrecognized net gain (136) (68) Unrecognized prior service cost - (15) Accrued postretirement benefit costs $(585) (554) Net periodic postretirement benefit cost for fiscal years ended September 30 includes the following components (in thousands): 1999 1998 1997 Service cost of benefits earned during the period $ 30 33 38 Interest cost on APBO 29 30 32 Net amortization and deferral (23) (62) (59) Net periodic postretirement benefit cost $ 36 1 11 The discount rate used in determining the Net Periodic Postretirement Benefit Cost and the APBO was 7.25%. 9. Business segments. On September 30, 1999, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS 131 established standards for reporting information about segments in annual financial statements and requires selected information about segments in interim financial reports issued to stockholders. In addition, SFAS 131 established standards for related disclosures about products and services, and geographic areas. 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 accessing performance. The Company has identified two business segments each of which is managed separately along product lines. All the Company's operations are in the Southeastern and mid-Atlantic states. The transportation segment hauls liquid and dry commodities by motor carrier. The real estate segment owns real estate of which a substantial portion is under mining royalty agreements or leased. They also hold certain other real estate for investment and are developing commercial and industrial properties. Operating results and certain other financial data for the Company's business segments are as follows (in thousands): 1999 1998 1997 Revenues: Transportation $ 67,048 64,014 59,530 Real estate (a) 14,971 9,960 9,314 $ 82,019 73,974 68,844 Operating profit(b): Transportation $ 3,589 4,371 4,188 Real estate (a) 10,177 6,357 5,777 Corporate expenses (1,386) (1,103) (988) Operating profit $ 12,380 9,625 8,977 Capital expenditures: Transportation $ 9,344 8,368 7,497 Real estate 12,010 11,504 6,226 Other 5 29 23 $ 21,359 19,901 13,746 Depreciation, depletion and amortization: Transportation $ 7,398 6,740 6,136 Real estate 2,612 2,356 2,173 Other 55 50 47 $ 10,065 9,146 8,356 Identifiable assets at September 30: Transportation $ 49,816 43,976 42,841 Real estate 85,720 78,807 72,806 Cash items 2,593 663 429 Unallocated corporate assets 526 519 506 $138,655 123,965 116,582 (a) Fiscal 1999, 1998 and 1997 includes revenue of $3,788,000, $426,000, and $837,000 and operating profit of $3,236,000, $358,000 and $817,000, respectively, from the sale of real estate. (b) Operating profit is earnings before interest expense, other income, interest income and income taxes. 10. Fair values of financial instruments. At September 30, 1999 and 1998, 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, 1999 the carrying amount and fair value of such other long-term debt was $18,562,000 and $18,033,000, respectively. 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. 11. 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. 12. Commitments. At September 30, 1999, the Company had placed orders and was committed to purchase tractors and trailers costing approximately $7,660,000 and had entered into various contracts to purchase and develop real estate with remaining commitments totaling $2,159,000. 13. Spin-off of Real Estate Business. On December 1, 1999, the Board of Directors approved a reorganization of the Company which would result in spinning off to its shareholders a new company which would include the real estate business, while retaining the transportation business in FRP Properties, Inc. The Company has obtained a tax ruling from the Internal Revenue Service which allows the proposed transaction to be tax-free to shareholders. It is anticipated that the spin-off will be made effective by the end of the Company's second quarter, ending March 31, 2000. For information concerning the selected information concerning the real estate business, see Note 9. 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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants Jacksonville, Florida December 3, 1999 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 Realty Trust, Inc. 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 2, 2000, 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 Martin, Ade, Birchfield & Mickler 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-30-1999 OCT-01-1998 SEP-30-1999 2,593 0 8,735 284 503 14,161 172,747 57,378 138,655 13,555 37,936 0 0 338 72,354 138,655 82,019 82,019 62,025 62,025 0 0 (2,357) 10,093 3,936 6,157 0 0 0 6,157 1.79 1.78
EX-11 3 EPS EXHIBIT (11) FRP PROPERTIES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE Years Ended September 30 1999 1998 1997 Net income $6,157,000 4,480,000 4,260,000 Common shares: Weighted average shares outstanding during the period - shares used for basic earnings per share 3,443,972 3,451,748 3,490,207 Shares issuable under stock options which are potentially dilutive 23,537 44,442 39,716 Shares used for diluted earnings per share 3,467,509 3,496,190 3,529,923 Basic earnings per common share $1.79 $1.30 $1.22 Diluted earnings per common share $1.78 $1.28 $1.21 EX-13 4 ANNUAL REPORT Annual Report 1999 CONSOLIDATED FINANCIAL HIGHLIGHTS Years ended September 30 (Dollars in thousands except per share amounts) % 1999 1998 Change Revenues $82,019 73,974 +10.9 Gross profit $19,994 16,493 +21.2 Operating profit $12,380 9,625 +28.6 Income before income taxes $10,093 7,343 +37.5 Net income $ 6,157 4,480 +37.4 Per common share: Basic earnings per share $ 1.79 1.30 +37.7 Diluted earnings per share $ 1.78 1.28 +39.1 Stockholder's equity $ 21.53 19.83 + 8.6 1999 CORPORATE HIGHLIGHTS Revenues - up 10.9% to $82,019,000 Gross profit - up 21.2% to $19,994,000 Net income - up 37.4% to $6,157,000 Diluted earnings per share - up 39.1% to $1.78 per share Gains on sale of real estate of $3,788,000 $31,000,000 of borrowing capacity is available under the Company's credit agreements at September 30, 1999 Formed Patriot Transportation, Inc to enter into the non-asset based segment of the domestic trucking industry Approved a Plan of Reorganization and Distribution to separate the transportation and real estate operations during fiscal 2000 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 1999 will prove to be a milestone in the continued progress and evolution of your Company. Our two primary business groups, Transportation and Real Estate, have coexisted successfully since the formation of the Company in the mid 1980's but have now progressed in size and scope to warrant sharpened strategic focus. Accordingly, your Board approved a Plan of Reorganization and Distribution to formally separate the transportation and real estate operations in the coming year. Consolidated Results. Revenues for fiscal 1999 were $82,019,000, a 10.9% increase over $73,974,000 in fiscal 1998. Transportation revenues increased 4.7% due to an increase in miles hauled in both Florida Rock and Tank Lines and SunBelt. Real estate revenues excluding property sales increased 17.3% principally as the result of increased royalties, rental income and timber sales. Real estate property sales approximated $3,788,000 in fiscal 1999 versus $426,000 in 1998. Gross profit of $19,994,000 increased 21.2% from $16,493,000 in fiscal 1998. The Transportation Group's gross profit for fiscal 1999 decreased 3.6% from last year as result of an increase in operating costs. The Real Estate Group's gross profit excluding gains from property sales was 16.0% above last year principally because of increased timber, royalty and rental income on the Company's real estate projects. Gains from property sales were $3,236,000 compared to $358,000 last year. Selling, general and administrative expenses were $7,614,000 as compared to $6,868,000 in 1998. The increase is primarily attributed to non-recurring costs incurred for retirement and severance compensation and higher variable costs related to increased sales. Net income increased 37.4% to $6,157,000 from $4,480,000 in fiscal 1998. Diluted earnings per share increased 39.1% to $1.78 from $1.28 last year. Capital Expenditures. Capital expenditures in 1999 for the transportation business totaled $9,344,000 versus $8,368,000 in 1998. Capital expenditures for the real estate segment in 1999 approximated $12,010,000 versus $11,504,000 in 1998. Total depreciation and depletion for fiscal 1999 was $10,065,000 versus $9,146,000 in 1998. The fiscal 2000 capital expenditure plan for the transportation business approximate $12,868,000 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 $13,855,000. Total depreciation and depletion expense is expected to be approximately $11,063,000. Financial Management. The Company's $34,000,000 unsecured revolver and term facility has a final maturity of November 2003. At September 30, 1999, $20,000,000 was outstanding leaving a balance of $14,000,000 in availability under the facility. The Company also has $20,000,000 of credit facilities in overnight unsecured demand loans of which $3,000,000 was borrowed and outstanding at the end of fiscal 1999. $18,561,000 of the Company's total debt outstanding is non-recourse long-term fixed rate mortgages secured by real estate projects. At September 30, 1999 the Company had $31,000,000 of available credit and a funded debt to equity rate of 57%. The Company is currently evaluating and pursuing additional financing alternatives for each business group and expects to modify the existing credit facilities prior to the effective date of the proposed reorganization. Annual Meeting. At the Annual Stockholders Meeting on February 3, 1999, the stockholders elected Francis X. Knott, John R. Mabbett III, and James H. Winston as directors to serve a four-year term expiring in the year 2003. Real Estate Group. Success continued to be achieved toward the twin strategies of developing high-quality, flexible warehouse/office space in carefully selected markets and progressive asset management to enhance the Group's land portfolio. The Group maintained development momentum at its Lakeside Business Park, a 134 acre site in Harford County, Maryland north of Baltimore. Two new buildings in this park, 2206 and 2208 Lakeside Boulevard, totaling 132,484 square feet, were successfully leased-up. An additional 96,800 square foot warehouse is slated for completion and marketing during fiscal 2000. Continuing pre-development and infrastructure related activities are underway at Hillside Business Park, a 59 acre tract in Anne Arundel County, Maryland near the Baltimore-Washington International Airport. Final build out on this site is anticipated at approximately 600,000 square feet of flexible warehouse/office product. An additional 83,100 square feet of build-to-suit office/warehouse space is underway in a separate market segment to the west of Greater Baltimore. Combined developed buildings should total slightly over one million square feet of capacity by the end of fiscal 2000. Excluding the build-to-suit the Group had in excess of 812,000 square feet of its rental properties fully leased at September 30, 1999. Additionally, the Group achieved final zoning approvals, during first quarter fiscal 2000, to re-zone its 5.8 acre site on the banks of the Anacostia River in Washington, D.C. from industrial to Planned Unit Development(PUD). This action by the Zoning Commission of the District of Columbia represents the culmination of approximately six years of constant advocacy by the company. The approved re-zoning allows development of a 1.5 million square foot commercial office component together with associated waterfront enhancements. The Group is now exploring options for highest and best use of this site. Transportation Group. Florida Rock & Tank Lines, Inc. and SunBelt Transport, Inc. continued their growth in both miles and revenue while new strategic initiatives occurred in the Transportation Group this past fiscal year. The Group formed a third new venture during the year, Patriot Transportation, Inc. Patriot marks the Group's entry into the non-asset based segment of the domestic trucking industry. In addition to being large and highly fragmented, this segment offers the opportunity of faster revenue growth at significantly lower levels of capital investment. A number of operating synergies should accrue by linking Patriot's freight movements in coordination with the existing operations and facilities of Florida Rock & Tank Lines and SunBelt Transport. During the year, the Group added key senior management who have been instrumental in spearheading the development of an administrative infrastructure to support the operational diversity and growth of the Group. In addition, management is focused on identifying and consummating strategic acquisitions alongside a stepped up focus on internal development for the coming year. The combination of a major liquid and dry bulk carrier with an existing network of eighteen terminals, a rapidly expanding flatbed company and a non-asset, owner-operator carrier provides the nucleus for a more versatile strategic focus. As a result, the Group anticipates an array of expansion, utilization and efficiency options. Related Developments and Outlook. Fiscal 2000 is expected to be another year of growth and progress for our businesses. As previously announced, the Board of Directors approved a Plan of Reorganization and Distribution (Plan) at its December, 1999 scheduled meeting. When executed, the Plan will allow separate managements to better focus on its core business and to pursue opportunities for each business segment independently. The Plan creates a new company that will include all the assets and operations of the Real Estate Group. The new company will be distributed on a share for share basis in a tax free transaction to existing shareholders at the date of reorganization and will trade on the NASDAQ as a public company. The Transportation Group's assets and operations will remain with the Company and assuming a name change approval at the Annual Meeting on February 2, 2000, the Company will become Patriot Transportation Holding, Inc. Management anticipates with enthusiasm and excitement this new chapter in your company's development. We extend sincere appreciation to our hard working and dedicated employees for their crucial roles in helping to enable this new direction. Respectfully yours, Edward L. Baker Chairman John E. Anderson President & Chief Executive Officer Operating Review Transportation. During fiscal 1999 the Company's Transportation Group operated 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. During the year the Company also formed Patriot Transportation, Inc. that will conduct the Company's entry into owner operator 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, Dalton, Macon and Savannah, Georgia; Knoxville and Nashville, Tennessee; and Birmingham, Alabama. The Group also has a central dispatch office in Montgomery, Alabama. During fiscal 1999 the owned and leased fleet increased from 546 to 568 trucks. Revenues for miles hauled were up 4.7% due to both continued expansion of flatbed and tank truck hauling. Gross profit decreased 3.6% from fiscal 1998 primarily as a result of increased expansion in both SunBelt Transport, Inc. and Florida Rock & Tank Lines, Inc. During fiscal 1999, the Group purchased 109 new tractors and 112 new trailers. The fiscal 2000 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 2000 the Transportation Group expects a year of growth in its existing 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 see strong year over year growth during fiscal 2000. The startup of owner operator hauling conducted through Patriot Transportation in the coming year will also make a positive contribution. 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, excluding property sales increased 17.3% over fiscal 1999 as a result of higher timber sales and increased royalties and rental revenue on the Company's real estate projects. The fiscal 1999 real estate revenues, excluding the sale of real estate and timber, were divided approximately 46% from mining and minimum royalties and 54% from rental. A brief description of FRP Development Corp.'s projects at September 30, 1999 follows: 8230 Preston Court, 72,182 square feet of flexible warehouse/office space and 100% leased. 8240 Preston Court, 90,405 square feet of flexible warehouse/office space and 100% leased. 810 Oregon Avenue, 113,280 square feet of flexible warehouse/office space and 100% leased. 812 Oregon Avenue, 82,335 square feet of flexible warehouse/office space and 100% leased. Rossville Business Center, a two building complex consisting of 187,517 square feet of flexible warehouse/office space and 100% leased. TESSCO Center, a 28,533 square foot suburban office building and 100% leased. 1502 Quarry Drive, 105,803 square feet of flexible warehouse/office space and 100% leased. 1504 Quarry Drive, 96,800 square feet of flexible warehouse/office space under construction to be completed during fiscal 2000. 2206 Lakeside Boulevard, 66,964 square feet of flexible warehouse/office space completed during fiscal 1999 and 100% leased. 2208 Lakeside Boulevard, 65,520 square feet of flexible warehouse/office space completed during fiscal 1999 and 100% leased. 6920 Tudsbury Road, 83,100 square feet, built to suit warehouse/office under construction to be completed during fiscal 2000 and 100% pre-leased. Lakeside Business Park is a 134 acre site capable of supporting 1,250,000 square feet of warehouse/office space. At September 30, 1999, 96,800 square feet was under construction and expected to be completed during fiscal 2000. Approximately 63 acres remain available for development and capable of supporting 900,000 square feet of new 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 Real Estate Group during fiscal 2000 will continue to focus on buildings under construction and the continued development of the property at Lakeside Business Park. In addition, planning, development and permitting for Hillside Business Park development will continue. At September 30, 1999 the Company owns approximately 812,000 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 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) 1999 1998 1997 1996 1995 Summary of Operations Revenues $ 82,019 73,974 68,844 64,403 58,273 Gross profit(a) $ 19,994 16,493 14,908 14,615 15,132 Operating profit $ 12,380 9,625 8,977 9,017 9,440 Interest expense $ 2,357 2,300 2,061 2,234 1,933 Income before income taxes $ 10,093 7,343 6,984 6,827 7,591 Provision for income taxes $ 3,936 2,863 2,724 2,662 2,961 Net income $ 6,157 4,480 4,260 4,165 4,630 Per Common Share Basic EPS $ 1.79 1.30 1.22 1.16 1.24 Diluted EPS $ 1.78 1.28 1.21 1.14 1.22 Stockholders' equity $ 21.53 19.83 18.53 17.72 16.74 Financial Summary Current assets $ 14,161 10,073 8,549 8,003 8,495 Current liabilities $ 13,555 9,479 11,063 9,595 7,117 Working capital (deficit) $ 606 594 (2,514) (1,592) 1,378 Property, plant and equipment, net $115,369 104,970 95,018 90,058 83,319 Total assets $138,655 123,965 116,582 107,036 101,357 Long-term debt $ 37,936 33,299 30,647 26,170 25,503 Stockholders' equity $ 72,692 68,755 63,734 61,894 61,622 Other Data Return on average stockholders' equity 8.7% 6.7 6.8 6.7 7.6 Return on average capital employed 5.2% 4.1 4.2 5.8 6.6 Net cash flow provided from operating activities $ 15,032 13,557 13,982 14,681 10,131 Additions to property, plant and equipment $ 21,359 19,901 13,746 15,970 15,805 Depreciation, depletion and amortization $ 10,065 9,146 8,356 7,667 7,304 Weighted average number of shares - basic 3,444 3,452 3,490 3,588 3,742 Weighted average number of shares - diluted 3,468 3,496 3,530 3,647 3,798 Number of employees at end of year 877 753 721 665 644 Stockholders of record 834 850 873 913 939 (a) Fiscal 1999, 1998, 1997, 1996 and 1995 include gains on the sale of real estate of $3,236,000, $358,000, $817,000, $93,000 and $79,000, respectively. Quarterly Results (unaudited) (Dollars in thousands except per share amounts)
First Second Third Fourth 1999 1998 1999 1998 1999 1998 1999 1998 Revenues $19,031 17,671 21,016 17,831 19,854 19,002 22,118 19,470 Gross profit $ 4,393 3,974 5,539 3,776 4,382 4,337 5,680 4,406 Operating profit $ 2,299 2,458 3,868 2,104 2,470 2,512 3,743 2,551 Income before income taxes $ 1,743 1,894 3,352 1,555 1,874 1,943 3,124 1,951 Net income $ 1,063 1,155 2,045 949 1,143 1,185 1,906 1,191 Per common share: Basic EPS $.31 .34 .59 .28 .33 .34 .56 .34 Diluted EPS $.30 .33 .59 .27 .33 .34 .56 .34 Market price: High $30.00 38.00 28.88 33.75 26.00 37.25 26.00 33.00 Low $19.50 31.37 23.00 30.00 21.25 32.00 21.63 20.50
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 1999 and 1998, revenues increased 10.9% and 7.5%, respectively. In the Transportation segment revenues and miles hauled were both up 4.7% in 1999 and up 7.5% and 6.9%, respectively, in 1998. The Real Estate segment's revenues, exclusive of real estate sales, increased 17.3% and 12.5% in 1999 and 1998, respectively. The increase in real estate revenues is the result of higher timber sales and increased rental and royalty income. The estimated contribution to Transportation revenues by principal markets follows: 1999 1998 1997 1996 1995 Petroleum 65% 67 68 68 66 Construction 24% 21 21 20 19 Chemical 7% 7 6 7 10 Other 4% 5 5 5 5 Gross profit for fiscal 1999 increased $3,501,000 and gross margin increased to 24% from 22%. The Transportation segment gross profit decreased $360,000 and gross margin decreased to 14% from 15%. These decreases were due to increased costs to attract and retain qualified drivers and increased depreciation expense partially offset by reduced fuel costs. Gross profit for the real estate segment increased $3,861,000 primarily as a result of real estate sales, increased royalty income and increased rental income. Gross profit on real estate sales was $3,236,000 in 1999 and $358,000 in 1998. Gross profit for fiscal 1998 increased $1,585,000 and gross margin remained stable from the prior 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. Selling, general and administrative expense increased 10.9% in 1999 and increased 15.8% in 1998. The 1999 increase was attributable to non-recurring retirement and severence and systems upgrades for Year 2000 compliance. The 1998 increase results from 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 1999 increased 3% or $57,000 from 1998. Interest expense in 1998 increased 12% or $239,000 from 1997. These increases were primarily as a result of an increase in the average debt outstanding and an increase in the average interest rate. The 1998 increase was partially offset by an increase in the amount of interest capitalized. Year 2000 Conversion. The Company, like most entities relying on automated data processing was faced with the task of modifying systems to become Year 2000 compliant. The Company analyzed its Year 2000 exposure and developed plans for addressing the Year 2000 exposure as well as reengineering selective systems to enhance their functionality. The Company 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 completed the installation of this software during the fourth quarter of 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. FRI has completed updating the systems used by the Company. The Company has identified operating equipment which may be effected by Year 2000. Once the equipment was identified, testing was done to determine if such equipment is Year 2000 compliant. When equipment was identified as not Year 2000 compliant, the equipment was replaced. Vendors, suppliers and customers that are critical to the Company's operations were identified. Questionnaires were sent to these entities to determine their state of readiness for Year 2000. The Company identified alternative vendors and suppliers if any of the current suppliers are not Year 2000 compliant. The costs associated with the purchase and installation of the truck dispatching and maintenance software and hardware was capitalized and is 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. The expected costs of the systems was not expected to be material to the financial condition or results of operations of the Company. The Company feels it has addressed 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 has contingency plans in place if there is a disruption. This plan assesses 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): 1999 1998 1997 Cash $ 2,593 663 429 Total debt $41,561 35,432 35,065 Debt as a percent of capital employed 34% 32 33 Unused lines of credit $31,000 37,400 35,500 During 1999, net cash flows from operating activities were $15,032,000 which along with issuing additional long and short-term debt funded the Company's investing activities of $16,746,000 and the repurchase of common stock. 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. 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. 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 $14,000,000 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 $3,000,000 was outstanding at September 30, 1999. The Company currently expects its fiscal 2000 capital expenditures to be approximately $26,746,000 and depreciation and depletion expense to be $11,063,000. The expenditures are expected to be financed from the cash flow from operating activities and the $14,000,000 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. Spin-off of Real Estate Business. As discussed in Note 13 to the Consolidated Financial Statements, the Board of Directors approved spinning off to its shareholders a new company which would include the real estate business, while retaining the transportation business in FRP Properties, Inc. It is anticipated that the spin-off would be effective at the end of the Company's second quarter, ending March 31, 2000. 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 four 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 FRI's markets; fuel costs; and inflation. Consolidated Statement of Income Years ended September 30 (Dollars and shares in thousands except per share amounts) 1999 1998 1997 Revenues: Transportation $ 67,048 64,014 59,530 Real estate 11,183 9,534 8,477 Sale of real estate 3,788 426 837 Total revenues (including revenue from related parties of $6,999, $6,256, and $6,006) 82,019 73,974 68,844 Cost of operations: Transportation 57,396 54,002 50,487 Real estate 4,077 3,411 3,429 Cost of real estate sold 552 68 20 Gross profit 19,994 16,493 14,908 Selling, general and administrative expense (including expenses paid to related party of $1,656, $1,515 and $1,414) 7,614 6,868 5,931 Operating profit 12,380 9,625 8,977 Interest expense (2,357) (2,300) (2,061) Interest income 46 13 46 Other income, net 24 5 22 Income before income taxes 10,093 7,343 6,984 Provision for income taxes 3,936 2,863 2,724 Net income $ 6,157 4,480 4,260 Earnings per share: Basic $ 1.79 1.30 1.22 Diluted $ 1.78 1.28 1.21 Number of shares used in computing: Basic earnings per share 3,444 3,452 3,490 Diluted earnings per share 3,468 3,496 3,530 See accompanying notes. Consolidated Balance Sheet September 30 (Dollars in thousands) 1999 1998 Assets Current assets: Cash and cash equivalents $ 2,593 663 Accounts receivable, less allowance for doubtful accounts of $284 ($272 in 1998) (including related party of $399 and $380) 8,451 6,510 Inventory of parts and supplies 503 552 Prepaid expenses and other 2,614 2,348 Total current assets 14,161 10,073 Other assets: Real estate held for investment, at cost 5,674 5,703 Goodwill, at cost less amortization of $403 ($362 in 1998) 1,207 1,248 Other 2,244 1,971 Total other assets 9,125 8,922 Property, plant and equipment, at cost: Land 56,937 55,284 Buildings 35,971 30,953 Plant and equipment 67,677 62,134 Construction in progress 12,162 9,712 172,747 158,083 Less accumulated depreciation and depletion 57,378 53,113 Net property, plant and equipment 115,369 104,970 $138,655 123,965 Liabilities and Stockholders' Equity Current liabilities: Short-term note payable to bank $ 3,000 1,600 Accounts payable (including related party of $166 and $85) 5,565 2,776 Federal and state income taxes 499 1,224 Accrued liabilities: Payroll and benefits 1,415 1,500 Taxes 604 412 Interest 193 176 Insurance reserves 1,654 1,258 Long-term debt due within one year 625 533 Total current liabilities 13,555 9,479 Long-term debt 37,936 33,299 Deferred income taxes 8,820 7,656 Accrued insurance reserves 4,644 4,129 Other liabilities 1,008 647 Commitments and contingent liabilities (Notes 11 and 12) Stockholders' equity: Preferred stock, no par value; 5,000,000 shares authorized - - Common stock, $.10 par value; 25,000,000 shares authorized; 3,375,817 shares issued (3,468,225 shares in 1998) 338 347 Capital in excess of par value 15,660 17,871 Retained earnings 56,694 50,537 Total stockholders' equity 72,692 68,755 $138,655 123,965 See accompanying notes. Consolidated Statement of Cash Flows Years ended September 30 (Dollars in thousands Cash flows from operating activities: 1999 1998 1997 Net income $ 6,157 4,480 4,260 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 10,065 9,146 8,356 Net changes in operating assets and liabilities: Accounts receivable (1,953) (993) (250) Inventory of parts and supplies 49 (83) 33 Prepaid expenses (265) (228) (261) Accounts payable and accrued liabilities 2,659 492 732 Increase in deferred income taxes 1,089 620 1,181 Net change in insurance reserves and other liabilities 876 879 759 Gain on sale of real estate, plant and equipment (3,638) (778) (792) Other, net (7) 22 (36) Net cash provided by operating activities 15,032 13,557 13,982 Cash flows from investing activities: Purchase of property, plant and equipment (20,475) (15,323)(13,470) Purchase of real estate held for investment (315) - - Additions to other assets (737) (451) (4,156) Proceeds from the sale of real estate held for investment, property, plant and equipment, and other assets 4,781 1,542 1,118 Net cash used in investing activities (16,746) (14,232)(16,508) Cash flows from financing activities: Proceeds from long-term debt 5,000 3,200 4,900 Net increase (decrease) in short-term debt 1,400 (2,400) 500 Repayment of long-term debt (535) (432) (338) Exercise of employee stock options - 574 879 Repurchase of Company stock (2,221) (33) (3,299) Net cash provided by financing activities 3,644 909 2,642 Net increase in cash and cash equivalents 1,930 234 116 Cash and cash equivalents at beginning of year 663 429 313 Cash and cash equivalents at end of year $ 2,593 663 429 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense, net of amount capitalized $ 2,340 2,288 1,997 Income taxes $ 3,459 1,759 898 Noncash investing and financing activities: Additions to property, plant and equipment from: Exchanges $ 620 767 276 Other assets $ - 3,811 - Issuance of debt $ 264 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, 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 Shares 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 Shares purchased and canceled (92,408) (9) (2,211) - Net income - - - 6,157 Balance at September 30, 1999 3,375,817 $338 15,660 56,694 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. 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 $100,000 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 - 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. The only difference between basic and diluted shares used for the calculation is the effect of employee stock options. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ENVIRONMENTAL - Environmental expenditures that benefit future periods are capitalized. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Estimation of such liabilities 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 - Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income". 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. There are no items that require disclosure. Effective October 1, 1998, the Company adopted 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. 2. Transactions with related parties. As of September 30, 1999 seven of the Company's directors were also directors of Florida Rock Industries, Inc. ("FRI"). Such directors own approximately 29% 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): 1999 1998 1997 Transportation $ 931 839 883 Real estate 6,068 5,417 5,123 $6,999 6,256 6,006 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 $1,656,000 in 1999, $1,515,000 in 1998 and $1,414,000 in 1997. The Company and FRI agreed to amend the agreement effective October 1, 1999. Under the amended agreement, the Company will assume responsibility for accounting, credit and certain MIS functions. 3. Lines of credit and debt. Long-term debt at September 30 is summarized as follows (in thousands): 1999 1998 Revolving credit (unsecured) $20,000 15,000 6.9% to 9.5% mortgage notes payable in installments through 2015 18,561 18,832 38,561 33,832 Less portion due within one year 625 533 $37,936 33,299 The aggregate amount of principal payments, excluding the revolving credit, due subsequent to September 30, 1999 is: 2000 - $625,000; 2001 - $677,000; 2002 - $733,000; 2003 - $794,000; 2004-$860,000; 2005 and subsequent years - $14,872,000. 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, 1999 $14,477,000 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 $21,911,000 at September 30, 1999. Certain properties having a carrying value at September 30, 1999 of $1,519,000 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, 1999 and 1998 were 5.6% and 6.1%, respectively. During fiscal 1999, 1998 and 1997 the Company capitalized interest cost of $315,000, $331,000 and $223,000, respectively. 4. Leases. At September 30, 1999, 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 $ 42,889 Commercial property 45,267 Land and other property 16,050 104,206 Less accumulated depreciation and depletion 23,267 $ 80,939 The minimum future rentals on noncancelable operating leases as of September 30, 1999 are as follows: 2000 - $5,210,000; 2001 - $4,436,000; 2002 - $3,853,000; 2003 - $3,293,000; 2004 - $3,163,000; 2005 and subsequent years $10,744,000. 5. Preferred Shareholder Rights Plan. On May 5, 1999, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock. The dividend was payable on June 2, 1999. Each right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company, par value $.01 per share (The "Preferred Shares"), at a price of $96 per one one-hundredth of a Preferred Share, subject to adjustment. In the event that any Person or group of affiliated or associated Persons (an "Acquiring Person") acquires beneficial ownership of 15% or more of the Company's outstanding common stock each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of Common Shares having a market value of two times the exercise price of the Right. An Acquiring Person excludes any Person or group of affiliated or associated Persons who were beneficial owners, individually or collectively, of 15% or more of the Company's Common Shares on May 4, 1999. The rights will initially trade together with the Company's common stock and will not be exercisable. However, if an Acquiring Person acquires 15% or more of the Company's common stock the rights may become exercisable and trade separately in the absence of future board action. The Board of Directors may, at its option, redeem all rights for $.01 per right, at any time prior to the rights becoming exercisable. The rights will expire September 30, 2009 unless earlier redeemed, exchanged or amended by the Board. 6. 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, 1999 the number of shares available for issuance is 60,400 shares. Option transactions for the fiscal years ended September 30 are summarized as follows: 1999 1998 1997 Average Average Average Options Price(1) Options Price(1) Options Price(1) Shares under option: Beginning of year 120,000 16.31 150,000 15.25 245,000 12.78 Issued 24,600 24.00 - - - - Exercised - - (30,000) 11.00 (95,000) 8.88 End of year 144,600 17.62 120,000 16.31 150,000 15.25 Options exercisable at end of year 109,000 98,000 108,600 (1) Weighted average exercise price The following table summarizes information concerning stock options outstanding at September 30, 1999: Options Options Weighted-Average Exercise Price Outstanding Exercisable Remaining Life 12.25 30,000 30,000 .8 years 17.25 15,000 12,000 5.2 years 17.75 75,000 67,000 5.1 years 24.00 24,600 - 9.2 years Remaining non-exercisable options as of September 30, 1999 become exercisable as follows: 2000 - 15,920; 2001 - 4,920; 2002 - 4,920; 2003 - 4,920 and 2004 - 4,920. 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. If compensation cost for stock option grants had been determined based on the Black-Scholes option pricing model value at the grant date for the 1999 awards consistent with the provisions of SFAS No. 123, the Company's 1999 net income, basic and diluted earnings per share would have been $6,121,000, $1.78 and $1.76, respectively. The SFAS 123 method has not been applied to options granted prior to October 1, 1996, and the pro forma compensation expense may not be indicative of pro forma expense in future years. The fair value of options granted was estimated to be $14.40 on the date of grant using the following assumptions; no dividends yield, expected volatility of 54.8%, risk-free interest rates of 4.3% and expected lives of 7 years. 7. Income taxes. The provision for income taxes for fiscal years ended September 30 consists of the following (in thousands): 1999 1998 1997 Current: Federal $2,445 1,914 1,317 State 402 329 226 2,847 2,243 1,543 Deferred 1,089 620 1,181 Total $3,936 2,863 2,724 A reconciliation between the amount of tax shown above and the amount computed at the statutory Federal income tax rate follows (in thousands): 1999 1998 1997 Amount computed at statutory Federal rate $3,432 2,497 2,374 State income taxes (net of Federal income tax benefit) 370 277 263 Other, net 134 89 87 Provision for income taxes $3,936 2,863 2,724 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: 1999 1998 Deferred tax liabilities: Basis difference in property, plant and equipment $10,241 8,758 Depletion 630 630 Prepaid expenses 980 930 Gross deferred tax liabilities 11,851 10,318 Deferred tax assets: Insurance reserves 2,107 1,798 Other, net 641 505 Gross deferred tax assets 2,748 2,303 Net deferred tax liability $ 9,103 8,015 8. 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 $458,000 in 1999, $429,000 in 1998, $403,000 in 1997. 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): 1999 1998 Change in benefit obligation Balance beginning of year $ 471 496 Service cost 30 32 Interest cost 29 30 Actuarial gain (76) (66) Benefits paid (5) (21) Balance end of year $ 449 471 Change in plan assets Balance beginning of year $ 0 0 Employer contributions 5 21 Benefits paid (5) (21) Balance end of year $ 0 0 Funded status $(449) (471) Unrecognized net gain (136) (68) Unrecognized prior service cost - (15) Accrued postretirement benefit costs $(585) (554) Net periodic postretirement benefit cost for fiscal years ended September 30 includes the following components (in thousands): 1999 1998 1997 Service cost of benefits earned during the period $ 30 33 38 Interest cost on APBO 29 30 32 Net amortization and deferral (23) (62) (59) Net periodic postretirement benefit cost $ 36 1 11 The discount rate used in determining the Net Periodic Postretirement Benefit Cost and the APBO was 7.25%. 9. Business segments. On September 30, 1999, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS 131 established standards for reporting information about segments in annual financial statements and requires selected information about segments in interim financial reports issued to stockholders. In addition, SFAS 131 established standards for related disclosures about products and services, and geographic areas. 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 accessing performance. The Company has identified two business segments each of which is managed separately along product lines. All the Company's operations are in the Southeastern and mid-Atlantic states. The transportation segment hauls liquid and dry commodities by motor carrier. The real estate segment owns real estate of which a substantial portion is under mining royalty agreements or leased. They also hold certain other real estate for investment and are developing commercial and industrial properties. Operating results and certain other financial data for the Company's business segments are as follows (in thousands): 1999 1998 1997 Revenues: Transportation $ 67,048 64,014 59,530 Real estate (a) 14,971 9,960 9,314 $ 82,019 73,974 68,844 Operating profit(b): Transportation $ 3,589 4,371 4,188 Real estate (a) 10,177 6,357 5,777 Corporate expenses (1,386) (1,103) (988) Operating profit $ 12,380 9,625 8,977 Capital expenditures: Transportation $ 9,344 8,368 7,497 Real estate 12,010 11,504 6,226 Other 5 29 23 $ 21,359 19,901 13,746 Depreciation, depletion and amortization: Transportation $ 7,398 6,740 6,136 Real estate 2,612 2,356 2,173 Other 55 50 47 $ 10,065 9,146 8,356 Identifiable assets at September 30: Transportation $ 49,816 43,976 42,841 Real estate 85,720 78,807 72,806 Cash items 2,593 663 429 Unallocated corporate assets 526 519 506 $138,655 123,965 116,582 (a) Fiscal 1999, 1998 and 1997 includes revenue of $3,788,000, $426,000, and $837,000 and operating profit of $3,236,000, $358,000 and $817,000, respectively, from the sale of real estate. (b) Operating profit is earnings before interest expense, other income, interest income and income taxes. 10. Fair values of financial instruments. At September 30, 1999 and 1998, 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, 1999 the carrying amount and fair value of such other long-term debt was $18,562,000 and $18,033,000, respectively. 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. 11. 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. 12. Commitments. At September 30, 1999, the Company had placed orders and was committed to purchase tractors and trailers costing approximately $7,660,000 and had entered into various contracts to purchase and develop real estate with remaining commitments totaling $2,159,000. 13. Spin-off of Real Estate Business. On December 1, 1999, the Board of Directors approved a reorganization of the Company which would result in spinning off to its shareholders a new company which would include the real estate business, while retaining the transportation business in FRP Properties, Inc. The Company has obtained a tax ruling from the Internal Revenue Service which allows the proposed transaction to be tax-free to shareholders. It is anticipated that the spin-off will be made effective by the end of the Company's second quarter, ending March 31, 2000. For information concerning the selected information concerning the real estate business, see Note 9. 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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants Jacksonville, Florida December 3, 1999 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 Realty Trust, Inc. 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 2, 2000, 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 Martin, Ade, Birchfield & Mickler 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-----