PATRIOT TRANSPORTATION HOLDING, INC.
ANNUAL REPORT
2017
A Transportation Company
Annual Report 2017
Patriot Transportation Holding, Inc.
CONSOLIDATED AND COMBINED FINANCIAL HIGHLIGHTS
Years ended September 30
(Amounts in thousands except per share amounts)
2017
2016
%
Change
Revenues ............................................................................................$ 112,165
2,372
Operating profit ....................................................................................$
2,298
Income before income taxes ................................................................$
1,829
Net income ..........................................................................................$
Per common share:
Basic ..............................................................................................$
Diluted ............................................................................................$
0.55
0.55
Total Assets ..........................................................................................$ 67,954
—
Total Debt ............................................................................................$
Shareholders’ Equity ............................................................................$ 46,583
3,304
Common Shares Outstanding ..............................................................
14.10
Book Value Per Common Share .......................................................... $
120,172
7,790
9,353
5,705
1.74
1.74
66,299
—
43,946
3,289
13.36
(6.7)
(69.6)
(75.4)
(67.9)
(68.4)
(68.4)
2.5
—
6.0
.5
5.5
BUSINESS. The business of the Company, conducted
through our wholly owned subsidiary, Florida Rock &
Tank Lines, Inc. (Tank Lines), which is a Southeastern
U.S. based tank truck company, is to transport petroleum
and other liquids and dry bulk commodities.
to
OBJECTIVES. The Company’s objectives are
continue building a substantial transportation company
providing sound long-term growth, cash generation and
asset appreciation.
GROWTH PLAN.
n Internal growth is accomplished by a dedicated and
competent work force emphasizing superior service
to customers in existing markets, developing new
transportation services for customers in current
market areas and expanding into new market areas..
n External growth
the
is designed
Company’s geographic market area and delivery
services by acquiring related businesses.
to broaden
1
To Our Shareholders
Patriot Transportation Holding, Inc.
Fiscal year 2017 proved to be a difficult year.
Our revenues declined from $120,172,000 last
year to $112,165,000 this year. The Company
reported net income per share of $.55 versus
$1.74 last year. Last year included (i) $.24 per
share of net income from the sale of an
easement in Tampa, FL and (ii) $0.31 per share
of net income from the settlement of a claim
with BP. We ended the year with no debt, a
cash balance of $11,289,000 and grew
our shareholders’ equity by $2,637,000
to $46,583,000.
that our
In certain markets where we operate, we saw
aggressive pricing from our competitors despite
the rising costs of equipment, insurance and
driving pay
industry has been
experiencing. As a result, we lost a sizeable
amount of business with one of our largest
customers following a competitive bid in certain
locations. In addition, another of our largest
customers has been slowly transitioning its
business to its growing private fleet. These two
events represent the largest of our business
losses over the year and outweighed the
business growth we were able to achieve with
other customers.
We continue to face challenges hiring and
retaining qualified drivers in several markets. We
raised driver pay and added vacation time for
our drivers during the year and adopted a new
driver training and retention program to drive
improvement. This year we have engaged our
3rd party insurance advisor to perform an
independent perception survey targeting our
safety programs and culture and provide
insights into ways we can improve our driver
retention and safety record to drive down
the costs associated with
turnover and
preventable incidents.
Again, we are proud to report that we were well
represented by our drivers in the Florida
Trucking
Driving
Championships and had a driver awarded the
Florida Trucking Association Driver of the Year
for 2017. Dennis Rollins who works in our
Association
Truck
2
Jacksonville, Florida terminal won the award
and is a great representative of our company
and driver force.
In December, 2017 the federally mandated
electronic log requirements for all drivers go into
effect. Our Company has been electronic log
compliant
this new
for many years and
requirement will have no negative impact on our
drivers or how we run our business. It is yet to
be determined how this mandate will impact our
competition. We will be watching closely and
looking for opportunities to gain business and
drivers if and when the impacts of the mandate
provide those opportunities.
Technology has been a major focus of the
Company over the past year and we have made
several key strategic decisions with regards to
improving our technology infrastructure and
software applications. We should start to see the
benefits of these initiatives early this year. Our
goal is to be the best in our industry with respect
to using technology to enhance our customers’
experience and leveraging that technology
to automate and reduce costs throughout
the organization.
forward
for revenue growth
Our primary goal for our shareholders is to grow
profitably while maintaining a strong balance
sheet. Due to the declines in revenue throughout
the year, we did not achieve our goal of growing
profitably this year. In order to achieve our goals
next year, we are focused on growing revenues
and continuing to control our variable costs
while reducing our fixed costs. Our strategy
to
going
concentrate our efforts in the markets where we
have been successful finding and retaining
quality drivers. We will also be exploring
acquisition opportunities with small regional
carriers and private fleets. With regards to
reducing fixed costs we are focused on
increasing the utilization of our equipment and
measuring our success based on revenue and
drivers per tractor. We are consistently analyzing
all costs associated with SG&A and making
appropriate changes. With these focuses in
is
To Our Shareholders Continued
Patriot Transportation Holding, Inc.
mind, we are optimistic we will achieve our
targeted levels of revenue and bottom line results
in fiscal 2018.
As always, we do not take your continuing
investment in our Company lightly and we want
to thank you, our loyal shareholders, for your
continued interest and support.
Respectively yours,
Robert E. Sandlin
President & Chief Executive Officer
Thompson S. Baker II
Chairman
3
Our Business
Patriot Transportation Holding, Inc.
On January 30, 2015, FRP Holdings, Inc. ("FRP")
completed the tax-free spin-off (the “Spin-off") of Patriot
Transportation Holding, Inc., (the "Company" or "Patriot").
In the Spin-off, FRP distributed all of the outstanding
stock of the Company to FRP's shareholders as of the
record date of January 9, 2015. FRP’s shareholders
received one share of Patriot (stock symbol “PATI”) for
every three shares of FRP owned on the record date
resulting in 3,242,524 of Patriot shares outstanding on
the distribution date. Patriot now is an independent,
publicly traded company, and FRP retains no ownership
in Patriot.
Patriot was incorporated on August 5, 2014 in connection
with a corporate reorganization that preceded the Spin-
off. The business of the Company is conducted through
our wholly-owned subsidiary, Florida Rock & Tank Lines,
Inc. (“Tank Lines”), the same subsidiary through which
FRP operated the transportation business prior to
the Spin-off.
Our business consists of hauling petroleum related
products, dry bulk commodities and liquid chemicals. We
are one of the largest regional tank truck carriers in North
America. According to the Tank Truck Carrier 2015 Gross
Revenue Report issued by Bulk Transporter, we are the
15th largest bulk tank carrier in North America by
revenue. We operate terminals in Florida, Georgia,
Alabama, South Carolina, North Carolina and
Tennessee. We do not own any of the products we haul;
rather, we act as a third party carrier to deliver our
customers’ products from point A to point B, using
predominately Company employees and Company-
owned tractors and tank trailers. Approximately 82% of
our business consists of hauling liquid petroleum
products (mostly gas and diesel fuel) from large scale
fuel storage facilities to our customers’ retail outlets (e.g.
convenience stores, truck stops and fuel depots) where
we off-load the product into our customer’s fuel storage
tanks for ultimate sale to the retail consumer. The
remaining 18% of our business consists of hauling our
customers’ dry bulk commodities such as cement, lime
and various industrial powder products and liquid
chemicals. As of September 30, 2017, we employed 624
revenue-producing drivers who operated our fleet of 451
tractors and 558 trailers from our 21 terminals and 7
satellite locations.
We are an important link in our customers’ fuel supply
chain, transporting primarily from petroleum terminals to
retail locations such as hypermarkets, convenience
4
from distribution
stores and truck stops. We also provide the last mile of
delivery service in the liquid chemical and dry bulk
business primarily
facilities or
manufacturing facilities to the end user. Cement and ash
are delivered to concrete plants, powdered lime to
industrial users and liquid chemicals primarily to the end
user at a manufacturing plant or water treatment or
storage facility.
During fiscal 2017, the Company purchased 37 new
tractors. Our fiscal 2018 capital budget includes 62 new
tractors. We anticipate this more modern fleet will result
in reduced maintenance expenses, improved operating
efficiencies and enhanced driver recruitment and
retention. At September 30, 2017 the Company operated
a fleet of 451 tractors and 558 tank trailers, 7 trucks that
were being prepared for sale and 17 trucks that were
being placed in service. The Company owns all of the
tank trailers and tractors used to conduct our business,
except for 13 tractors owned by owner-operators and 10
leased tractors that were assumed in connection with the
Company’s acquisitions of Pipeline Transportation, Inc.
in November, 2013 and Petroleum Transport Corporation
acquired in April 2016.
Approximately 82% of our business consists of hauling
petroleum related products. Our petroleum clients include
major convenience store and hypermarket accounts, fuel
wholesalers and major oil companies. We strive to build
long-term relationships with major customers by
providing outstanding customer service. During fiscal
2017, the Company’s ten largest customers accounted
for approximately 58.8% of revenue. One of these
customers, Murphy USA, accounted for 19.6% of
revenue. The loss of any one of these customers could
have a material adverse effect on the Company’s
revenues and income. Our transportation services
agreements with our customers generally are terminable
upon 90-120 days’ notice, but nine of our top 10 accounts
have been customers for at least 10 years. Our dry bulk
and chemical customers
industrial
companies including cement and concrete accounts and
product distribution
customer
relationships are long-standing and have grown over time
as a result of consistently high safety and service levels.
companies. Our
include
large
Financial information about the company is presented in
the financial statements included in this Annual Report.
Five Year Summary - Years ended September 30
Patriot Transportation Holding, Inc.
(Amounts in thousands except per share amounts)
2017
2016
2015
2014
2013
Summary of Operations:
Revenues ......................................................$
Operating profit ............................................$
Interest expense ..........................................$
Income from continuing operations ..............$
Per Common Share (a):
Basic ............................................................$
Diluted ..........................................................$
112,165
2,372
80
1,829
.55
.55
120,172
7,790
130
5,705
1.74
1.74
122,882
5,586
112
3,339
1.02
1.02
129,162
5,343
109
3,197
.99
.99
112,120
8,570
19
5,216
1.61
1.61
Net income ..................................................$
Per Common Share (a):
Basic ............................................................$
Diluted ..........................................................$
Financial Summary:
Current assets ..............................................$
Current liabilities ..........................................$
Property and equipment, net ........................$
Total assets ..................................................$
Long-term debt ............................................$
Shareholders’ equity/Net Investment ............$
Net Book Value Per common Share (a) ........$
Other Data:
Weighted average common shares - basic (a) ..
Weighted average common shares - diluted (a)..
Number of employees ....................................
Shareholders of record ....................................
1,829
5,705
3,339
3,197
5,216
.55
.55
1.74
1.74
1.02
1.02
.99
.99
23,721
10,028
39,592
67,954
—
46,583
14.10
3,299
3,302
857
406
17,737
10,573
43,703
66,299
—
43,946
13.36
3,283
3,285
959
423
11,796
12,103
42,620
59,526
—
37,202
11.37
3,268
3,275
979
440
11,685
9,950
42,174
61,134
7,282
32,722
10.09
3,243
3,243
942
—
1.61
1.61
11,011
10,838
38,902
51,107
—
29,530
9.11
3,243
3,243
871
—
Quarterly Results (unaudited)
(Dollars in thousands except per share amounts)
First
Second
Third
Fourth
2017
2016
2017
2016
2017
2016
2017
2016
Revenues .................................................... $ 28,758
Operating profit ............................................$ 1,248
Income before income taxes ........................$ 1,218
912
Net income ..................................................$
29,371
599
2,254
1,375
27,393
325
294
260
29,048
1,447
1,415
863
28,104
534
520
456
31,362
2,290
2,260
1,379
27,910
265
266
201
30,391
3,454
3,424
2,088
Earnings per common share (a):
Net Income-
Basic ....................................................$
Diluted ..................................................$
.28
.28
.42
.42
.08
.08
.26
.26
.14
.14
.42
.42
.06
.06
.63
.63
Market price per common share (b):
High ......................................................$ 26.42
Low ...................................................... $ 20.52
24.86
21.70
26.60
20.50
22.98
19.50
23.50
17.80
21.10
18.08
20.33
17.77
22.27
19.40
(a) Earnings per share of common stock is computed independently for each quarter presented. The sum of the quarterly net
earnings per share of common stock for a year may not equal the total for the year due to rounding differences. For comparative
purposes, for the years ended September 30, 2012 through September 30, 2014 and for the first quarter 2015, the number of
common shares outstanding utilized for the calculation is based on the 3,242,524 shares of our common stock that was distributed
to the shareholders of FRP in connection with the Spin-off and distribution on January 30, 2015.
(b) All prices represent Nasdaq reported high and low daily closing prices.
5
Management Analysis
Patriot Transportation Holding, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Executive Overview. The business of the Company, conducted
through our wholly owned subsidiary, Florida Rock & Tank Lines,
Inc., is to transport petroleum and other liquids and dry bulk
commodities. We do not own any of the products we haul, rather,
we act as a third party carrier to deliver our customer’s products
from point A to point B predominately using Company employees
driving Company owned tractors and tank trailers. Approximately
82% of our business consists of hauling liquid petroleum products
(mostly gas and diesel fuel) from large scale fuel storage facilities
to our customers’ retail outlets (e.g. convenience stores, truck
stops and fuel depots) where we off-load the product into our
customer’s fuel storage tanks for ultimate sale to the retail
consumer. The remaining 18% of our business consists of hauling
our customer’s dry bulk commodities such as cement, lime and
various industrial powder products and liquid chemicals. As of
September 30, 2017, we employed 624 revenue-producing drivers
who operated our fleet of 451 tractors and 558 trailers from our
21 terminals and 7 satellite locations in Florida, Georgia,
Alabama, South Carolina, North Carolina and Tennessee.
We experience increased seasonal demand in Florida during
the spring and in most of our other locations during the
summer months.
Our industry is characterized by such barriers to entry as the time
and cost required to develop the capabilities necessary to handle
hazardous material, the resources required to recruit, train and
retain drivers, substantial industry regulatory and insurance
requirements and the significant capital investments required to
build a fleet of equipment, establish a network of terminals and,
in recent years, the cost to build and maintain sufficient
information technology resources to allow us to interface with and
assist our customers in the day-to-day management of their
product inventories.
Our ability to provide superior customer service at competitive
rates and to operate safely and efficiently is important to our
success in growing our revenues and increasing profitability. Our
focus is to grow our profitability by executing on our key strategies
of (i) increasing our business with existing and new customers,
particularly hypermarket and large convenience store chains, that
are willing to compensate us for our ability to provide superior,
safe and reliable service which facilitates their ability to grow their
market share and footprint with confidence, (ii) expanding our
service offerings with respect to dry bulk and chemical products
particularly in markets where we already operate terminals, (iii)
earning the reputation as the preferred employer for tank truck
drivers in all the markets in which we operate and (iv) pursuing
strategic acquisitions. Our ability to execute this strategy depends
on continuing our dedicated commitments to customer service
and safety and continuing to recruit and retain qualified drivers.
The driver market remains very tight. As the need to hire drivers
has risen across our industry the trend we are seeing is that more
and more of the applicants are drivers with little to no experience
in the tank truck business. Our management team is keenly
focused on continuing to grow our driver count in markets where
there are opportunities for us to grow our business and to retain
all of our drivers at the levels we have historically achieved while
balancing the aforementioned trends and associated risks of the
“new to the industry” driver applicant pool. Through the
implementation of a new software program, we have enhanced
6
our ability to quickly identify, communicate with and ultimately hire
qualified drivers. We have also implemented programs to help us
determine which new driver applicants are less likely to turnover
early on in their careers with us thus adding new and valuable
information into our hiring decision making process.
There are several opportunities available today in our markets that
will allow us to execute on our growth strategy so long as we can
find, hire and retain qualified drivers to meet the demands of these
opportunities. We believe the tighter driver market has and will
continue to provide us with opportunities to capture new business
and continue to improve upon our rate structure across the
customer base. As these opportunities arise, we are willing to let
certain lower priced business go in this environment to grow our
business with customers willing to pay for our reliability and
superior customer service.
We generate both transportation based revenue as well as fuel
surcharge revenue. Our transportation revenue consists of base
revenue for each delivery which is generally calculated by
multiplying a negotiated mileage-based rate by the quantity of
product delivered plus any fees for extra stops to load or unload,
powered product unloading and toll cost reimbursements.
These negotiated transportation rates compensate us both
for transporting the products as well as for loading and
unloading time.
While our base rates include a fixed amount to cover our cost of
fuel using an assumed price for diesel, we have fuel surcharges
in place with our customers that allow us to obtain additional
compensation for fuel expense incurred when the price of diesel
rises above that assumed price. Likewise, for some customers,
the fuel surcharge system allows the customer to receive a lower
cost from us when the price of diesel drops below that assumed
price. There is a time lag between fuel price fluctuations and
changes to fuel surcharges to our customers. In a rapidly rising
price environment this time lag can negatively impact the
Company’s financial results as we must pay the higher fuel cost
immediately but in most cases aren’t able to adjust fuel
surcharges to our customers until the end of the month.
The main factors that affect our total revenue are the number of
revenue miles driven, rates per mile, quantity of products hauled
and the amount of fuel surcharges.
Our operating costs primarily consist of the following:
• Compensation and Benefits - Wages and employee benefits for
our drivers and terminal support personnel is the largest
component of our operating costs. These costs are impacted by
such factors as miles driven, driver pay increases, driver turnover
and training costs and additional driver pay due to temporary out-
of-town deployments to serve new business;
• Fuel Expenses - Our fuel expenses will vary depending on
miles driven as well as such factors as fuel prices (which can
be highly volatile), the fuel efficiency of our fleet and the average
haul length;
• Repairs and Tires – This category consists of vehicle
maintenance and repairs (excluding shop personnel) and tire
expense (including amortization of tire cost and road repairs).
These expenses will vary based on such factors as miles driven,
the age of our fleet, and tire prices.
Management Analysis Continued
Patriot Transportation Holding, Inc.
• Other Operating Expenses – This category consists of tolls,
hiring costs, out-of-town driver travel cost, terminal facility
maintenance and other operating expenses. These expenses will
vary based on such factors as, driver availability and out-of-town
driver travel requirements, business growth and inflation
among others;
• Insurance and Losses - This includes costs associated with
insurance premiums, and the self-insured portion of liability,
worker’s compensation, health insurance and cargo claims and
wreck repairs. We work very hard to manage these expenses
through our safety and wellness programs, but these expenses
will vary depending on the frequency and severity of accident and
health claims, insurance markets and deductible levels;
• Depreciation Expense – Depreciation expense consists of the
depreciation of the cost of fixed assets such as tractors and
trailers over the life assigned to those assets. The amount of
depreciation expense is impacted by equipment prices and the
timing of new equipment purchases. We expect the cost of new
tractors and trailers to continue to increase, impacting our future
depreciation expense;
• Rents, Tags and Utilities Expenses – This category consists of
rents payable on leased facilities and leased equipment, federal
highway use taxes, vehicle registrations, license and permit fees
and personal property taxes assessed against our equipment,
communications, utilities and real estate taxes;
• Sales, General and Administrative Expenses – This category
consists of the wages, bonus accruals, benefits, travel, vehicle
and office costs for our administrative personnel as well as
professional fees and amortization charges for intangible assets
purchased in acquisitions of other businesses;
• Corporate Expenses - Corporate expenses consist of wages,
bonus accruals, insurance and other benefits, travel, vehicle and
office costs for corporate executives, director fees, stock option
expense and aircraft expense;
• Gains/Loss on Equipment - Our financial results for any period
may be impacted by any gain or loss that we realize on the sale
of used equipment and losses on wrecked equipment. We
periodically sell used equipment as we replace older tractors and
trailers. Gains or losses on equipment sales can vary significantly
from period to period depending on the timing of our equipment
replacement cycle, market prices for used equipment and losses
on wrecked equipment.
The following discussion includes certain non-GAAP financial
measures (“adjusted”) within the meaning of Regulation G
promulgated by the Securities and Exchange Commission
(“Regulation G”) to supplement the financial results as reported
in accordance with GAAP. The non-GAAP financial measures
discussed below include adjusted net income, adjusted operating
profit and adjusted operating ratio. These non-GAAP financial
measures exclude the $1,277,000 gain on easement sale
included in the fourth quarter 2016 and the $2,074,000 intangible
asset impairment charge incurred in second quarter 2015. Patriot
uses these metrics to analyze its continuing operations and to
monitor, assess, and identify meaningful trends in its operating
and financial performance. These measures are not, and should
not be viewed as, substitutes for GAAP financial measures. Refer
to “Non-GAAP Financial Measures” below in this annual report for
a more detailed discussion, including reconciliations of these non-
GAAP financial measures to their most directly comparable GAAP
financial measures..
Management believes these adjusted measures better reflect our
operating performance during the periods discussed and reflect
how management evaluates our operational results. These
measures are not, and should not be viewed as, substitutes for
GAAP reporting measures.
To measure our performance, management focuses primarily on
transportation revenue growth, revenue miles, our preventable
accident frequency rate (“PAFR”), our operating ratio (defined as
our operating expenses as a percentage of our operating
revenue), turnover rate and average driver count (defined as
average number of revenue producing drivers under employment
over the specified time period) as compared to the same period
in the prior year.
ITEM
Total Revenue
Transportation Revenue
Revenue Miles
Fuel net of surcharges
PAFR
Adjusted Operating Ratio
Driver Turnover Rate
Average Number of Drivers Down 11%
FY 2017 vs. FY 2016
Down 6.7%
Down 8.9%
Down by 11.4%
Down by 22.9%
Improved from 2.03 to 2.00
Increased from 94.6% to 97.9%
Increased from 63% to 67%
The Company’s operations are influenced by a number of external
and internal factors. External factors include levels of economic
and industrial activity in the United States and the Southeast,
driver availability and cost, government regulations regarding
driver qualifications and limitations on the hours drivers can work,
petroleum product demand in the Southeast which is driven in part
by tourism and commercial aviation, and fuel costs. Internal
factors include revenue mix, equipment utilization, Company
imposed restrictions on hiring drivers under the age of 25 or
drivers without at least two years of driving experience, auto and
workers’ compensation accident frequencies and severity,
administrative costs, and group health claims experience.
Highlights of Fiscal 2017
• Transportation revenue decreased $10,258,000, or 8.9%.
• Annualized driver turnover rate increased from 63% last year to
67% this year.
• Fuel cost net of surcharges increased $2,417,000.
• The Company’s net income was $1,829,000, or $.55 per share
(inclusive of $427,000, or $.13 per share, due to a reduced tax
expense from stock option exercises in accordance with newly
adopted accounting guidance on stock option exercises),
compared to net income of $5,705,000, or $1.74 per share, last
year. The prior year included $1,029,000, or $0.31 per share, of
net income from the settlement of a claim with BP over the
Deepwater Horizon event and $779,000, or $.24 per share, of net
income from the sale of the easement in Tampa, FL.
7
Management Analysis Continued
Patriot Transportation Holding, Inc.
COMPARATIVE RESULTS OF OPERATIONS
(dollars in
thousands)
Revenue miles
(in thousands)
Revenues:
Transportation
revenue
Fuel
surcharges
Fiscal Years ended September 30
2017
%
2016
%
2015
%
38,000
42,884
43,220
$105,334
93.9% 115,592
96.2% 111,294 90.6%
6,831
6.1%
4,580
3.8%
11,588
9.4%
Total Revenues
112,165 100.0% 120,172 100.0% 122,882 100.0%
Cost of operations:
Compensation
and benefits
48,109
42.9%
51,069
42.5%
49,050 39.9%
Fuel
expenses
Repairs
& tires
Other
operating
Insurance
and losses
Depreciation
expense
Rents, tags
& utilities
Sales, General
& Administrative
Corporate
expenses
Intangible asset
impairment
Gain on
property sale
Gain on
equipment sales
Total cost of
operations
Total
operating profit
14,991
13.4%
15,157
12.6%
20,295 16.5%
7,077
6.3%
7,777
6.5%
7,876
6.4%
4,418
3.9%
4,719
3.9%
4,520
3.7%
10,728
9.6%
10,358
8.6%
10,249
8.3%
9,542
8.5%
8,870
7.4%
8,486
6.9%
3,384
3.0%
3,834
3.2%
3,892
3.2%
9,404
8.4%
9,626
8.0%
9,188
7.5%
2,711
2.4%
2,946
2.4%
3,203
2.6%
—
0.0%
—
0.0%
2,074 1.7%
—
0.0%
(1,277)
(1.1%)
— 0.0%
(571)
(.5%)
(697)
(.5%)
(1,537) (1.2%)
109,793
97.9% 112,382
93.5% 117,296 95.5%
$ 2,372
2.1%
7,790
6.5%
5,586
4.5%
Fiscal Year 2017 versus 2016 – Total revenues were
$112,165,000, down $8,007,000 or 6.7% from last year.
Transportation revenues (excluding fuel surcharges) were down
$10,258,000, or 8.9%, to $105,334,000. Revenue miles declined
by 4,884,000, or 11.4%, to 38,000,000 versus last year mostly
attributable to (i) business loss in a competitive bid due to rates,
(ii) privatization of a customer fleet, (iii) the lower demand for
gasoline in the earlier part of the fiscal year and (iv) Hurricanes
Harvey and Irma. Revenue per mile increased by 2.8% over last
8
year which partially offset the reduced miles. Fuel surcharge
revenues were up $2,251,000 to $6,831,000 due to higher diesel
prices and the positive benefits of renegotiating fuel surcharge
tables with several key customers last year..
Compensation and benefits decreased $2,960,000, or 5.8%, due
to fewer miles driven partially offset by higher driver pay following
the pay increase that went into effect June 30, 2017. Net
fuel expense (i.e. gross fuel expenses less fuel surcharges)
decreased by $2,417,000, or 23%, due to fewer miles driven and
higher fuel surcharges.
Insurance and losses were up $370,000 versus last year due
mainly to increased risk and health claims. Depreciation increased
$672,000 but was offset by lower repair and equipment leasing
costs as we have continued to replace leased equipment from a
prior acquisition with new equipment. SG&A was down $222,000
and corporate expenses were down by $235,000 due to no bonus
compensation expense in the current year and lower legal fees.
As a result, operating profit was $2,372,000 compared to
$7,790,000 last year. Last year’s quarter included $1,277,000 from
the sale of the easement in Tampa, FL. Operating ratio was 97.9
this year compared to 94.6 last year excluding the gain on the
Tampa easement sale.
Fiscal Year 2016 versus 2015 – Total revenues for fiscal 2016
were $120,172,000 down $2,710,000 from $122,882,000 in fiscal
2015. Transportation revenues (excluding fuel surcharges) were
up $4,298,000 to $115,592,000 and fuel surcharge revenues were
down $7,008,000 to $4,580,000. Our transportation revenue per
mile in fiscal 2016 increased by 4.7% over fiscal 2015.
Compensation and benefits costs were up $2,019,000 (or $.05
per mile) versus
to driver pay
enhancements as we continued to invest in hiring and retaining
our driver force.
fiscal 2015 due mainly
For fiscal 2016 the Company’s gross cost of fuel was down
$5,138,000 over fiscal 2015 which was not enough to off-set the
$7,008,000 reduction in fuel surcharge revenues resulting in a
negative margin impact of $1,870,000 (or $.04 per mile) in fiscal
2016 versus fiscal 2015. The Company’s gross price of diesel fuel
remained low and in a fairly tight range throughout fiscal year 2016
with the second quarter having the lowest average cost per mile
at $.31 and the fourth quarter having the highest average cost per
mile at $.35. Since the price of diesel began declining in late 2014,
the Company experienced margin erosion as the decline in fuel
surcharge revenue outpaced the decline in diesel fuel cost. During
the first half of fiscal 2016 we were able to implement positive
adjustments to the fuel surcharge tables with many of our
customers and those adjustments contributed significantly to a
positive trend of less margin erosion resulting from the lower
diesel fuel price (negative margin impact: Q1 - $883,000 (or $.09
per mile), Q2 - $719,000 (or $.07 per mile), Q3 - $251,000 (or $.02
per mile), Q4 - $17,000 (or $.002)).
SG&A was up $438,000 as we have hired more management
personnel to focus on the issues of driver hiring and turnover and
to support our safety performance.
Corporate expense was lower by $257,000 compared to fiscal
2015 due mainly to the sale of a 75% interest in the corporate
airplane during the second quarter of fiscal 2016.
Gain on equipment sales were $840,000 lower compared to fiscal
2015 primarily to fewer trailers sold and lower average value
of tractors sold. Gain on property sales were $1,277,000 higher
as a result of the sale of the easement in the fourth quarter of
fiscal 2016.
Management Analysis Continued
Patriot Transportation Holding, Inc.
Operating profit for fiscal 2016 was $7,790,000 versus an
operating profit of $5,586,000 in fiscal 2015. Fiscal 2016’s
operating profit benefitted from the gain on easement sale of
$1,277,000 while fiscal 2015 was negatively impacted by the
$2,074,000 intangible asset impairment charge.
Adjusted operating profit in fiscal 2016 was $6,513,000 versus an
adjusted operating profit of $7,660,000 in fiscal 2015. Our
adjusted operating ratio was 94.6% in fiscal 2016 compared to an
adjusted operating ratio of 93.8% in fiscal 2015. The lower results
were mainly due to the higher net fuel cost of $1,870,000 which
mostly occurred in the first half of fiscal 2016 prior to the positive
adjustments we made to the fuel surcharge tables. These non-
GAAP financial measures exclude gain from easement sale
realized in the fourth quarter of fiscal 2016 and the intangible
asset impairment charge incurred in the second quarter of fiscal
2015. Management believes these adjusted measures better
reflect our operating performance during the periods discussed
and reflect how management evaluates our operational results.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains its operating accounts with Wells Fargo
Bank, N.A. and these accounts directly sweep overnight against
the Wells Fargo revolver. As of September 30, 2017, we had no
debt outstanding on this revolver, $2,180,000 outstanding under
letters of credit and $22,820,000 available for additional
borrowings. The Company expects our fiscal year 2018 cash
generation to cover the cost of our operations and all of our
budgeted capital expenditures.
Cash Flows – The following table summarizes our cash flows
from operating, investing and financing activities for each of the
periods presented (in thousands of dollars):
Years Ended September 30
Total cash provided by
(used for):
Operating activities
Investing activities
Financing activities
Increase in cash
2017
2016
2015
$ 10,660
(5,376)
—
$ 14,955 $ 15,052
(8,042)
(7,010)
(8,348)
(602)
and cash equivalents
$
5,284
$ 6,005 $
—
Outstanding debt at the
beginning of the period
Outstanding debt at the
end of the period
$
$
— $
— $
7,282
— $
— $
—
Operating Activities – Net cash provided by operating activities
(as set forth in the cash flow statement) was $10,660,000 for the
year ended September 30, 2017, $14,955,000 in 2016 and
$15,052,000 in 2015. The total of net income plus depreciation
and amortization less gains on asset dispositions decreased
$1,692,000 versus the same period last year. These changes are
described above under “Comparative Results of Operations”.
Trade accounts receivable decreased $599,000 compared to an
increase of $339,000 last year due to lower days sales
outstanding and lower revenues. Deferred income tax decreased
$434,000 versus an increase of $2,145,000 last year. These
changes comprise the majority of the increase in net cash
provided by operating activities.
Investing Activities – Investing activities include the purchase of
property and equipment, any business acquisitions and proceeds
from sales of these assets upon retirement. For the year ended
September 30, 2017, we spent $5,376,000 on equipment net of
proceeds from retirements. The Company received $1,330,000 for
an easement granted to the state of Florida over the Company's
25.2 acre terminal facility in Tampa, Florida resulting in a
$1,277,000 gain during 2016.
In 2016, cash required by investing activities was $8,348,000
compared to $8,042,000 in 2015.
Financing Activities – Financing activities primarily include net
changes to our outstanding revolving debt. For the year ended
September 30, 2017 we had no financing activities. For the year
ended September 30, 2016 we used $602,000 of cash to pay
down debt. The Company had no outstanding long-term debt on
September 30, 2017 or September 30, 2016.
Cash used by financing activities in the year ended September
30, 2016, was $602,000 compared to $7,010,000 in 2015.
Credit Facilities – In connection with the Spin-off, on January 30,
2015, the Company entered into a five-year credit agreement with
Wells Fargo Bank N.A. which provides a $25 million revolving line
of credit with a $10 million sublimit for stand-by letters of credit. In
connection with the Spin-off, the Company assumed and
refinanced onto this new revolving credit line approximately $5.1
million of indebtedness from FRP. The amounts outstanding under
the credit agreement bear interest at a rate of 1.0% over LIBOR,
which may change quarterly based on the Company’s ratio of
consolidated total debt to consolidated total capital. A commitment
fee of 0.15% per annum is payable quarterly on the unused
portion of the commitment, which fee may change quarterly based
on our ratio of consolidated total debt to consolidated total capital.
The credit agreement contains certain conditions and financial
covenants, including a minimum $25 million tangible net worth. As
of September 30, 2017, the tangible net worth covenant would
have limited our ability to pay dividends or repurchase stock with
borrowed funds to a maximum of $13.4 million combined.
Cash Requirements – The Company currently expects its fiscal
2018 capital expenditures to be approximately $10,492,000 for
expansion and replacement equipment which we expect to be fully
funded by our cash generated from our operations. The Company
does not currently pay any cash dividends on common stock.
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.
The Company expects that cash flows from operating activities,
cash on hand and the funds available under its revolving credit
agreement will be adequate to finance these capital expenditures
and its working capital needs for the next 12 months and the
foreseeable future.
9
Management Analysis Continued
Patriot Transportation Holding, Inc.
NON-GAAP FINANCIAL MEASURES
To supplement the financial results presented in accordance with
GAAP, Patriot presents certain non-GAAP financial measures
within the meaning of Regulation G promulgated by the Securities
and Exchange Commission. Patriot uses these non-GAAP
financial measures to analyze its continuing operations and to
monitor, assess, and identify meaningful trends in its operating
and financial performance. These measures are not, and should
not be viewed as, substitutes for GAAP financial measures.
Adjusted Operating Profit
Adjusted operating profit excludes the impact of the gain on
property sale. Adjusted operating profit is presented to provide
additional perspective on underlying trends in Patriot’s core
operating results. A reconciliation between operating profit and
adjusted operating profit is as follows:
Three months ended
September 30, 2017
Three months ended
September 30, 2016
Operating profit
Adjustments:
$
Gain on property sale
Adjusted operating profit $
265
—
265
3,454
(1,277)
2,177
Twelve months ended
September 30, 2017
Twelve months ended
September 30, 2016
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the consolidated
and combined financial statements and the reported amounts of
revenues and expenses during the respective reporting periods.
Accounting estimates are considered to be critical if (1) the nature
of the estimates and assumptions is material due to the levels of
subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change;
and (2) the impact of the estimates and assumptions on financial
condition or operating performance is material. Actual results
could differ
the estimates and assumptions used.
Management of the Company considers the following accounting
policies critical to the reported operations of the Company:
from
Accounts Receivable Valuation. The Company is subject to
customer credit risk that could affect the collection of outstanding
accounts receivable. To mitigate these risks, the Company
performs credit reviews on all new customers and periodic credit
reviews on existing customers. A detailed analysis of late and slow
pay customers is prepared monthly and reviewed by senior
management. The overall collectability of outstanding receivables
is evaluated and allowances are recorded as appropriate.
Significant changes in customer credit could require increased
allowances and affect cash flows.
Operating profit
Adjustments:
$
Gain on property sale
Adjusted operating profit $
2,372
—
2,372
7,790
(1,277)
6,513
Property and Equipment and Impairment of Assets. Property
and equipment is recorded at cost less accumulated depreciation.
Provision for depreciation of property and equipment is computed
using the straight-line method based on the following estimated
useful lives:
Adjusted Operating Ratio
Adjusted operating ratio excludes the impact of the gain on
property sale. Adjusted operating ratio is presented to provide
additional perspective on underlying trends in Patriot’s core
operating results. A reconciliation between operating ratio and
adjusted operating ratio is as follows:
Three months ended
September 30, 2017
Three months ended
September 30, 2016
Operating ratio
Adjustments:
Gain on property sale
Adjusted operating ratio
99.1%
—
99.1%
88.6%
4.2%
92.8%
Twelve months ended
September 30, 2017
Twelve months ended
September 30, 2016
Operating ratio
Adjustments:
Gain on property sale
Adjusted operating ratio
97.9%
—
97.9%
93.5%
1.1%
94.6%
OFF-BALANCE SHEET ARRANGEMENTS
Except for the letters of credit described above under “Liquidity
and Capital Resources,” the Company does not have any
off balance sheet arrangements that either have, or are
reasonably likely to have, a current or future material effect on its
financial condition.
10
Buildings and improvements
Revenue equipment
Other equipment
Years
7-39
7-10
3-10
The Company periodically reviews property and equipment for
potential impairment whenever events or circumstances indicate
the carrying amount of a long-lived asset may not be recoverable.
The analysis consists of a review of future anticipated results
considering business prospects and asset utilization. If the sum
of these future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the assets, the
Company would record an impairment loss based on the fair value
of the assets with the fair value of the assets generally based upon
an estimate of the discounted future cash flows expected with
regards to the assets and their eventual disposition as the
measure of fair value. The Company performs an annual
impairment test on goodwill and other intangible assets. Changes
in estimates or assumptions could have an impact on the
Company’s financials.
Insurance Accruals. The nature of
the
Claims and
transportation business subjects the Company to risks arising
from workers’ compensation, automobile liability, and general
liability claims. The Company retains the exposure on certain
claims of $250,000 ($500,000 for automobile liability and general
liability claims prior to fiscal 2011 and for worker’s compensation
claims prior to fiscal 2013) and has third party coverage for
amounts exceeding the retention up to the amount of the policy
limits. The Company expenses during the year an estimate of risk
insurance losses based upon independent actuarial analysis,
insurance company estimates, and our monthly review of claims
reserve changes. In making claim reserve changes we rely upon
Management Analysis Continued
Patriot Transportation Holding, Inc.
estimates of our
insurance company adjusters, attorney
evaluations, and judgment of our management. Our estimates
require judgment concerning the nature, severity, comparative
liability, jurisdiction, legal and investigative costs of each claim.
Claims involving serious injury have greater uncertainty of the
eventual cost. In the past, our estimate of the amount of individual
claims has increased from insignificant amounts to the full
deductible as we learn more information about the claim in
subsequent periods. We obtain an independent actuarial analysis
at least twice annually to assist in estimating the total loss
reserves expected on claims including claim development and
incurred but not reported claims. We also retain exposure on
employee health benefits up to $250,000 per covered participant
each calendar year plus a $77,000 aggregate deductible for any
claims exceeding $250,000. We estimate claim liability using
historical payment trends and specific knowledge of larger claims.
Health claims are expensed as the health services are rendered
so there is only a two month lag in payments on average. We are
usually aware of the larger claims before closing each accounting
period reducing the amount of uncertainty of the estimate. Our
accrued insurance liabilities for retiree benefits are recorded by
actuarial calculation. Our accrued insurance liabilities for claims
as of September 30, 2017, 2016, and 2015 amounted to $.8
million, $.9 million and $2.1 million, respectively. Payments made
under a captive agreement for each year’s loss fund are
scheduled in advance using actuarial methodology. The captive
agreement provides that we will share in the underwriting results,
good or bad, within a $250,000 per occurrence layer of loss
through retrospective premium adjustments. Including the
potential exposure in the captive we have $4.8 million of estimated
insurance liabilities. In the event that actual costs for these claims
are different than estimates we will have adjustments in future
periods. It is likely that we will experience either gains or losses of
5-10% of prior year estimated insurance liabilities in any year.
Income Taxes. The Company accounts for income taxes under
the asset-and-liability method. Deferred tax assets and liabilities
represent items that will result in taxable income or a tax deduction
in future years for which the related tax expense or benefit has
already been recorded in our statement of earnings. Deferred tax
accounts arise as a result of timing differences between when
items are recognized in the consolidated and combined financial
statements compared with when they are recognized in the tax
returns. The Company assesses the likelihood that deferred tax
assets will be recovered from future taxable income. To the extent
recovery is not probable, a valuation allowance is established and
included as an expense as part of our income tax provision. No
valuation allowance was recorded at September 30, 2016, as all
deferred tax assets are considered more likely than not to be
realized. Significant judgment is required in determining and
assessing the impact of complex tax laws and certain tax-related
contingencies on the provision for income taxes. As part of the
calculation of the provision for income taxes, we assess whether
the benefits of our tax positions are at least more likely than not
of being sustained upon audit based on the technical merits of the
tax position. For tax positions that are more likely than not of being
sustained upon audit, we accrue the largest amount of the benefit
that is more likely than not of being sustained in our financial
statements. Such accruals require estimates and judgments,
whereby actual results could vary materially from these estimates.
Further, a number of years may elapse before a particular
matter, for which an established accrual was made, is audited
and resolved.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of
September 30, 2017:
Payments due by period
Contractual Obligations
(thousands of dollars)
Less
than
1 year
1-3
years
More
than
years 5 years
3-5
Total
Operating
Leases
2,044
581
632
641
190
Purchase
Commitments 2,763
2,233
530
-
-
Other
Long-Term
Liabilities
Total
obligations
1,086
74
153
195
664
$ 5,893
2,888
1,315
836
854
INFLATION
Most of the Company’s operating expenses are inflation-sensitive,
with inflation generally producing increased costs of operations.
During the past three years, inflation has been fairly modest with
its impacts mostly related to equipment prices, tire prices and the
compensation paid to drivers. Tractor prices have increased over
45% since 2007 due in part to EPA mandated new engine
emission requirements on tractor engines. Customer rate
increases received have lagged the increased prices paid for new
equipment over the same period.
In addition to inflation, fluctuations in fuel prices can affect
profitability. Most of the Company’s contracts with customers
contain fuel surcharge provisions. Although the Company
historically has been able to pass through most long-term
increases in fuel prices and operating taxes to customers in the
form of surcharges and higher rates, there is no guarantee that
this will be possible in the future. See “Risk Factors—We may be
adversely impacted by fluctuations in the price and availability
of fuel.”
SEASONALITY
Our business is subject to seasonal trends common in the refined
petroleum products delivery industry. We typically face reduced
demand for refined petroleum products delivery services during
the winter months and increased demand during the spring and
summer months. Further, operating costs and earnings are
generally adversely affected by inclement weather conditions.
These factors generally result in lower operating results during the
first and fourth calendar quarters of the year and cause our
operating results to fluctuate from quarter to quarter. Our
operating expenses also have been somewhat higher in the winter
months, due primarily to decreased fuel efficiency and increased
maintenance costs for tractors and trailers in colder months.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report contain forward-looking
statements that are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated by
such
forward-looking
statements relate to, among other things, capital expenditures,
liquidity, capital resources and competition and may be indicated
by words or phrases such as ”anticipate”, ”estimate”, ”plans”,
forward-looking statements. These
11
Management Analysis Continued
Patriot Transportation Holding, Inc.
”projects”, ”continuing”, ”ongoing”, ”expects”, ”management
believes”, ”the Company believes”, ”the Company intends” and
similar words or phrases. The following factors and others
discussed in the Company’s periodic reports and filings with the
Securities and Exchange Commission are among the principal
factors that could cause actual results to differ materially from the
forward-looking statements: freight demand for petroleum
products including recessionary and terrorist impacts on travel in
the Company’s markets; fuel costs and the Company’s ability to
recover fuel surcharges; accident severity and frequency; risk
insurance markets; driver availability and cost; the impact of future
regulations regarding the transportation industry; availability and
terms of financing; competition in our markets; interest rates, and
inflation and general economic conditions. However, this list is not
a complete statement of all potential risks or uncertainties.
These forward-looking statements are made as of the date hereof
based on management’s current expectations, and the Company
does not undertake an obligation to update such statements,
whether as a result of new information, future events or otherwise.
Additional information regarding these and other risk factors may
be found in the Company’s other filings made from time to time
with the Securities and Exchange Commission.
12
Consolidated and Combined Statements of Income -Years ended September 30
Patriot Transportation Holding, Inc.
(In thousands, except per share amounts)
Revenues:
2017
2016
2015
Transportation revenues ....................................................................................$ 105,334
6,831
Fuel surcharges ..................................................................................................
Total revenues ............................................................................................................ 112,165
115,592
4,580
120,172
Cost of operations:
Compensation and benefits ................................................................................ 48,109
Fuel expenses ...................................................................................................... 14,991
7,077
Repairs & tires ......................................................................................................
4,418
Other operating ....................................................................................................
Insurance and losses .......................................................................................... 10,728
9,542
Depreciation expense ..........................................................................................
3,384
Rents, tags & utilities ............................................................................................
9,404
Sales, general & administrative ............................................................................
2,711
Corporate expenses ............................................................................................
-
Intangible asset impairment ................................................................................
-
Gain on property sale ..........................................................................................
(571)
Gain on equipment sales ....................................................................................
51,069
15,157
7,777
4,719
10,358
8,870
3,834
9,626
2,946
-
(1,277)
(697)
Total cost of operations .............................................................................................. 109,793
112,382
Total operating profit ..................................................................................................
2,372
BP claim settlement ....................................................................................................
Interest income and other ..........................................................................................
Interest expense ........................................................................................................
-
6
(80)
Income before income taxes ......................................................................................
Provision for income taxes ..........................................................................................
2,298
469
Net income ..............................................................................................................$
1,829
Earnings per common share:
Net Income-
Basic .................................................................................................................. $
Diluted ................................................................................................................$
.55
.55
Number of shares (in thousands) used in computing:
- basic earnings per common share ....................................................................
- diluted earnings per common share ..................................................................
3,299
3,302
7,790
1,687
6
(130)
9,353
3,648
5,705
1.74
1.74
3,283
3,285
Consolidated and Combined Statements of Comprehensive Income -Years ended September 30
(In thousands)
Net income ..............................................................................................................$
Other comp. income (loss)net of tax:
Actuarial gain retiree health ....................................................................................
Minimum pension liability ........................................................................................
Comprehensive income ............................................................................................$
See notes to consolidated and combined financial statements
2017
1,829
-
-
1,829
2016
5,705
123
-
5,828
111,294
11,588
122,882
49,050
20,295
7,876
4,520
10,249
8,486
3,892
9,188
3,203
2,074
-
(1,537)
117,296
5,586
-
-
(112)
5,474
2,135
3,339
1.02
1.02
3,268
3,275
2015
3,339
4
(6)
3,337
13
Consolidated and Combined Balance Sheets -As of September 30
Patriot Transportation Holding, Inc.
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents ..............................................................................................$
Accounts receivable (net of allowance for doubtful
accounts of $150 and $153, respectively) ......................................................................
Federal and state taxes receivable ....................................................................................
Inventory of parts and supplies ..........................................................................................
Prepaid tires on equipment ................................................................................................
Prepaid taxes and licenses ................................................................................................
Prepaid insurance ..............................................................................................................
Prepaid expenses, other ....................................................................................................
Total current assets ..................................................................................................
Property, plant and equipment, at cost:
Land ..................................................................................................................................
Buildings ............................................................................................................................
Equipment ..........................................................................................................................
Less accumulated depreciation ............................................................................................
2017
11,289
7,642
516
855
1,913
612
823
71
23,721
2,773
5,639
93,511
101,923
62,331
39,592
Goodwill ................................................................................................................................
Intangible assets, net ............................................................................................................
Other assets, net ....................................................................................................................
Total assets .......................................................................................................................... $
3,431
1,021
189
67,954
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable ..............................................................................................................$
Accrued payroll and benefits ..............................................................................................
Accrued insurance ..............................................................................................................
Accrued liabilities, other ......................................................................................................
Total current liabilities ................................................................................................
Deferred income taxes ..........................................................................................................
Accrued insurance ................................................................................................................
Other liabilities ......................................................................................................................
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred stock, 5,000,000 shares authorized,
of which 250,000 shares are designated Series A
Junior Participating Preferred Stock; $0.01 par
value; none issued and outstanding ................................................................................
Common stock, $.10 par value; (25,000,000 shares
authorized; 3,303,802 and 3,289,353 shares issued
and outstanding, respectively ..........................................................................................
Capital in excess of par value ............................................................................................
Retained earnings ..............................................................................................................
Accumulated other comprehensive income, net ................................................................
Total shareholders’ equity ..........................................................................................
Total liabilities and shareholders’ equity ............................................................................$
4,948
4,143
558
379
10,028
10,045
193
1,105
-
330
36,726
9,353
174
46,583
67,954
See notes to consolidated and combined financial statements
2016
6,005
7,043
261
811
2,052
681
820
64
17,737
2,626
5,494
94,663
102,783
59,080
43,703
3,431
1,214
214
66,299
4,896
4,608
700
369
10,573
10,479
184
1,117
-
329
35,919
7,524
174
43,946
66,299
14
Consolidated and Combined Statements of Cash Flows -Years ended September 30
Patriot Transportation Holding, Inc.
(In thousands)
Cash flows from operating activities:
Net income ....................................................................................................$
Adjustments to reconcile net income to
net cash provided by continuing operating activities:
Depreciation and amortization ........................................................................
Intangible asset impairment ............................................................................
Deferred income taxes ....................................................................................
Gain on asset dispositions ..............................................................................
Stock-based compensation ............................................................................
Net changes in operating assets and liabilities:
Accounts receivable ....................................................................................
Inventory of parts and supplies ....................................................................
Prepaid expenses ........................................................................................
Other assets..................................................................................................
Accounts payable and accrued liabilities ....................................................
Income taxes payable and receivable ..........................................................
Long-term insurance liabilities and other
long-term liabilities ....................................................................................
Net cash provided by operating activities ....................................................
2017
1,829
10,293
-
(434)
(602)
808
(599)
(44)
198
14
(545)
(255)
2016
5,705
9,729
-
2,145
(2,222)
745
339
(31)
(98)
132
(448)
(146)
2015
3,339
9,485
2,074
(590)
(1,558)
617
(263)
115
152
(148)
2,478
(244)
(3)
10,660
(895)
14,955
(405)
15,052
Cash flows from investing activities:
Purchase of property and equipment ..............................................................
Proceeds from the sale of property, plant and equipment ..............................
Net cash used in investing activities ................................................................
(6,332)
956
(5,376)
Cash flows from financing activities:
(Decrease) Increase in bank overdrafts ..........................................................
Proceeds from borrowing on revolving credit facility ......................................
Payments on revolving credit facility ................................................................
Debt issue costs ..............................................................................................
Excess tax benefits from exercise of stock options ........................................
Proceeds from exercised stock options............................................................
Net distributions to FRP prior to spin-off ........................................................
Net cash used in financing activities ..............................................................
-
-
-
-
-
-
-
-
Net increase in cash and cash equivalents ..................................................
Cash and cash equivalents at beginning of year ................................................
Cash and cash equivalents at end of year ......................................................$
5,284
6,005
11,289
(11,503)
3,155
(8,348)
(773)
13,536
(13,536)
-
171
-
-
(602)
6,005
-
6,005
(9,905)
1,863
(8,042)
(160)
43,793
(51,075)
(94)
425
202
(101)
(7,010)
-
-
-
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ......................................................................................................$
Income taxes ..............................................................................................$
53
1,578
74
1,909
175
2,840
The Company recorded a non-cash, impairment charge related to the customer relationship intangible asset recorded resulting
from the Pipeline acquisition of $2,074 during the second quarter of fiscal 2015.
See notes to consolidated and combined financial statements.
15
Consolidated and Combined Statements of Shareholder’s Equity/Net Investment -Years ended September 30
Patriot Transportation Holding, Inc.
(In thousands, except share amounts)
Balance at September 30, 2014..................................
– $
– $
–
$
– $
Capital in
Common Stock
Excess of Retained
Shares Amount Par Value Earnings
Accumulated
Other
Comprehensive
Income, net
53
$
Total
Stockholders’
Equity/Net
Investment
32,722
$
Net
Investment
32,669
Issuance of common stock at spinoff .......................... 3,242,524
Exercise of stock options..............................................
16,000
Excess tax benefits from exercise of stock options ....
Stock-based compensation ........................................
Shares granted to Directors ........................................
Net income....................................................................
Minimum pension liability, net of tax ............................
Actuarial (loss) gain, net ..............................................
Reclassification of net investment to capital in
14,280
324
2
1
201
425
174
341
3,339
excess of par value ..................................................
33,864
(1,520)
(32,669)
324
203
425
174
342
3,339
(6)
4
(325)
(6)
4
Balance as of September 30, 2015 ............................ 3,272,804 $
327 $ 35,005
$ 1,819 $
–
$
51
$
37,202
Excess tax benefits from exercise of stock options ....
Stock-based compensation ........................................
Shares granted to Directors ........................................
Net income....................................................................
Actuarial (loss) gain, net ..............................................
16,549
2
171
384
359
5,705
171
384
361
5,705
123
123
Balance as of September 30, 2016 ............................ 3,289,353 $
329 $ 35,919
$ 7,524 $
–
$
174
$
43,946
Stock-based compensation ........................................
Shares granted to Directors ........................................
Net income....................................................................
14,449
1
440
367
1,829
440
368
1,829
Balance as of September 30, 2017 ............................ 3,303,802 $
330 $ 36,726
$ 9,353 $
–
$
174
$
46,583
16
Notes to Consolidated and Combined Financial Statements
Patriot Transportation Holding, Inc.
1. Accounting Policies.
DESCRIPTION OF BUSINESS
SPIN-OFF TRANSACTION - On January 30, 2015, FRP
Holdings, Inc. ("FRP") completed the tax-free spin-off (the
“Spin-off") of Patriot Transportation Holding, Inc., (the
"Company" or "Patriot"). In the Spin-off, FRP distributed all of
the outstanding stock of the Company to FRP's shareholders
as of the record date of January 9, 2015. FRP’s shareholders
received one share of Patriot (stock symbol “PATI”) for every
three shares of FRP owned on the record date resulting in
3,242,524 of Patriot shares outstanding on the distribution
date. Patriot now is an independent, publicly traded company,
and FRP retains no ownership in Patriot.
COMPANY’S BUSINESS - The business of the Company,
conducted through our wholly owned subsidiary, Florida Rock
& Tank Lines, Inc., is to transport petroleum and other liquids
and dry bulk commodities. We do not own any of the products
we haul, rather, we act as a third party carrier to deliver our
customer’s products from point A to point B predominately
using Company employees driving Company owned tractors
and tank trailers. Approximately 82% of our business consists
of hauling liquid petroleum products (mostly gas and diesel
fuel) from large scale fuel storage facilities to our customers’
retail outlets (e.g. convenience stores, truck stops and fuel
depots) where we off-load the product into our customer’s fuel
storage tanks for ultimate sale to the retail consumer. The
remaining 18% of our business consists of hauling our
customer’s dry bulk commodities such as cement, lime and
various industrial powder products and liquid chemicals.
PRINCIPLES OF CONSOLIDATION AND COMBINATION -
The consolidated and combined financial statements were
prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) and include the accounts,
certain assets, liabilities, and expenses of Patriot and its wholly
owned subsidiaries that comprise the Company. All significant
intercompany transactions within the consolidated and
combined entity have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers
all highly liquid debt instruments with maturities of three
months or less at time of purchase to be cash equivalents.
Bank overdrafts consist of outstanding checks not yet
presented to a bank for settlement, net of cash held in
accounts with right of offset.
INVENTORY - Inventory of parts and supplies is valued at the
lower of cost (first-in, first-out) or market.
TIRES ON EQUIPMENT - The value of tires on tractors and
trailers is accounted for as a prepaid expense and amortized
over the life of the tires as a function of miles driven.
REVENUE AND EXPENSE RECOGNITION - Transportation
revenue, including fuel surcharges, is recognized when the
services have been rendered to customers or delivery has
occurred, the pricing is fixed or determinable and collectibility
reasonably assured. Transportation expenses are
is
recognized as incurred.
ACCOUNTS RECEIVABLE - Accounts receivable are
recorded net of discounts and provisions for estimated
allowances. We estimate allowances on an ongoing basis by
considering historical and current trends. We record estimated
bad debts expense as a selling, general and administrative
expense. We estimate the net collectibility of our accounts
receivable and establish an allowance for doubtful accounts
based upon this assessment. Specifically, we analyze the
aging of accounts receivable balances, historical bad debts,
customer concentrations, customer credit-worthiness, current
economic trends and changes in customer payment terms. Any
trade accounts receivable balances written off are charged
against the allowance for doubtful accounts. The Company has
not experienced any significant credit-related losses in the past
three years.
PROPERTY AND EQUIPMENT - Property and equipment is
recorded at cost less accumulated depreciation. Provision for
depreciation of property and equipment is computed using
the straight-line method based on the following estimated
useful lives:
Buildings and improvements
Revenue equipment
Other equipment
Years
7-39
7-10
3-10
The Company recorded depreciation expenses for 2017, 2016
and 2015 of $10,089,000, $9,487,000 and $9,154,000,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company
periodically reviews its long-lived assets, which include
property and equipment and purchased intangible assets
subject to amortization, for potential impairment whenever
events or circumstances indicate the carrying amount of a
long-lived asset may not be recoverable. The analysis consists
of a review of future anticipated results considering business
prospects and asset utilization. If the sum of these future cash
flows (undiscounted and without interest charges) is less than
the carrying amount of the assets, the Company would record
an impairment loss based on the fair value of the assets with
the fair value of the assets generally based upon an estimate
of the discounted future cash flows expected with regards to
the assets and their eventual disposition.
GOODWILL - Goodwill represents the excess of the purchase
price over the estimated fair value of the net assets acquired
in the acquisition of a business. Goodwill is not amortized, but
rather is tested for impairment annually and when events or
changes in circumstances indicate that the fair value of a
reporting unit with goodwill has been reduced below carrying
value. The impairment test requires allocating goodwill and
other assets and liabilities to reporting units. The fair value of
each reporting unit is determined and compared to the book
value of the reporting unit. If the fair value of the reporting unit
17
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
is less than the book value, including goodwill, then the
recorded goodwill is impaired to its implied fair value with a
charge to operating expense.
INSURANCE - The Company has a $250,000 to $500,000
self-insured retention per occurrence in connection with certain
of its workers’ compensation, automobile liability, and general
liability insurance programs (“risk insurance”). The Company
is also self-insured for its employee health insurance benefits
and carries stop loss coverage for losses over $250,000 per
covered participant per year plus a $77,000 aggregate. The
Company has established an accrued liability for the estimated
cost in connection with its portion of its risk and health
insurance losses incurred and reported. Claims paid by the
Company are charged against the liability. Additionally, the
Company maintains an accrued liability for incurred but not
reported claims based on historical analysis of such claims.
Payments made under a captive agreement for each year’s
in advance using actuarial
loss
methodology. The captive agreement provides that we will
share in the underwriting results, good or bad, within a
$250,000 per occurrence layer of loss through retrospective
premium adjustments. The method of calculating the accrual
liability is subject to inherent uncertainty. If actual results are
less favorable than the estimates used to calculate the
liabilities, the Company would have to record expenses in
excess of what has been accrued.
fund are scheduled
INCOME TAXES - 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. The Company recognizes
liabilities for uncertain tax positions based on a two-step
process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be
sustained on audit. The second step is to estimate and
measure the tax benefit as the largest amount that is more
than 50% likely to be realized upon ultimate settlement. It is
inherently difficult and subjective to estimate such amounts, as
the amounts rely upon the determination of the probability of
various possible outcomes. The Company reevaluates these
uncertain tax positions on a quarterly basis. This evaluation is
based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law and expiration of statutes
of limitations, effectively settled issues under audit, and audit
activity. Such a change in recognition or measurement would
result in the recognition of a tax benefit or an additional charge
to the tax provision. It is the Company’s policy to recognize as
additional income tax expense the items of interest and
penalties directly related to income taxes.
STOCK BASED COMPENSATION – The Company accounts
for compensation related to share based plans by recognizing
the grant date fair value of stock options and other equity-
based compensation issued to Company employees in
18
Patriot’s income statement over the requisite employee service
period using the straight-line attribution model. In addition,
compensation expense must be recognized for the change in
fair value of any awards modified, repurchased or cancelled
after the grant date. The fair value of each grant is estimated
on the date of grant using the Black-Scholes option-pricing
model. The assumptions used in the model and related impact
are discussed in Footnote 6.
PENSION PLAN - The Company accounts for its pension plan
the requirements of FASB ASC Topic 715,
following
“Compensation – Retirement Benefits”, which requires an
employer to: (a) recognize in its statement of financial position
the funded status of a benefit plan; (b) measure defined benefit
plan assets and obligations as of the end of the employer’s
fiscal year (with limited exceptions); and (c) recognize as a
component of other comprehensive income, net of tax, the
gains or losses and prior service costs or credits that arise but
are not recognized as components of net periodic benefit costs
pursuant to prior existing guidance.
EARNINGS PER COMMON SHARE - Basic earnings per
common share are based on the weighted average number of
common shares outstanding during the periods. Diluted
earnings per common share are based on the weighted
average number of common shares and potential dilution of
securities that could share in earnings. The differences
between basic and diluted shares used for the calculation
are the effect of employee and director stock options and
restricted stock.
USE OF ESTIMATES - The preparation of financial statements
in conformity with accounting principles generally accepted in
the United States 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.
Certain accounting policies and estimates are of more
significance in the financial statement preparation process than
others. The most critical accounting policies and estimates
include the economic useful lives and salvage values of our
vehicles and equipment, provisions for uncollectible accounts
receivable, estimates of exposures related to our insurance
claims plans, and estimates for taxes. To the extent that actual,
final outcomes are different than these estimates, or that
additional facts and circumstances result in a revision to these
estimates, earnings during that accounting period will
be affected.
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 for the estimated amount of
expected environmental assessments and/or remedial efforts.
Estimation of such liabilities includes an assessment of
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
engineering estimates, continually evolving governmental laws
and standards, and potential involvement of other potentially
responsible parties.
COMPREHENSIVE INCOME – Comprehensive income
consists of net income and other comprehensive income
(loss). Other comprehensive income (loss) refers to expenses,
gains, and losses that are not included in net income,
but
in shareholder’s
recorded directly
equity/net investment.
rather are
NET INVESTMENT BY PARENT – The Net investment by
former Parent represents a net balance reflecting FRP’s initial
investment in the Company and subsequent adjustments
resulting from the operations of the Company and various
transactions between the Company and FRP.
RECENTLY ISSUED ACCOUNTING STANDARDS – In May
2014, the FASB issued ASU No. 2014-09, “Revenue from
Contracts with Customers” which replaces existing revenue
recognition standards and significantly expand the disclosure
requirements for revenue arrangements. It may be adopted
either retrospectively or on a modified retrospective basis to
new contracts and existing contracts with remaining
performance obligations as of the effective date. The new
standard is effective beginning with the first quarter of fiscal
2019. The Company currently does not expect the adoption of
its
this guidance
financial statements.
in a material
impact on
to result
In November 2015, the FASB issued ASU 2015-17, “Balance
Sheet Classification of Deferred Taxes”. The guidance requires
that all deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the
balance sheet. The guidance becomes effective for annual
reporting periods beginning after December 15, 2016 with
early adoption permitted. The Company adopted this guidance
retrospectively as of October 1, 2015 and reclassified
$309,000 of deferred tax liability as of September 30, 2015
from current to long term.
including significant
In February 2016, the FASB issued ASU No. 2016-02,
“Leases”, which requires lessees to recognize a right-to-use
asset and a lease obligation for all leases. Lessees are
permitted to make an accounting policy election to not
recognize an asset and liability for leases with a term of twelve
months or less. Additional qualitative and quantitative
disclosures,
judgments made by
management, will be required. The new standard will become
effective for the Company beginning with the first quarter 2020
and requires a modified retrospective transition approach and
includes a number of practical expedients. Early adoption of
the standard is permitted. The Company is currently evaluating
the impacts the adoption of this accounting guidance will have
on the consolidated financial statements. The Company has
relatively few leases extending over 12 months, the total gross
contractual obligation for lease payments greater than 12
months at September 30, 2016 was $1,722,000.
(Topic
In March 2016, the FASB issued ASU No. 2016-09,
718):
“Compensation—Stock Compensation
Improvements
to Employee Share-Based Payment
Accounting”. The ASU includes multiple provisions intended to
simplify various aspects of the accounting for share-based
payments. Excess tax benefits for share-based payments are
recorded as a reduction of income taxes and reflected in
operating cash flows upon the adoption of this ASU. Excess
tax benefits were recorded in equity and as financing activity
prior to adoption of this ASU. In addition, the guidance allows
for a policy election to account for forfeitures as they occur
rather than on an estimated basis. This guidance is effective
for annual and interim reporting periods of public entities
beginning after December 15, 2016 with early adoption
permitted. The Company adopted this guidance prospectively
as of October 1, 2016. As a result of this adoption we recorded
a reduction of income tax expense from excess tax benefits on
stock option exercises of $38,000 and $427,000 for the three
and twelve months ended September 30, 2017, respectively.
2. Related Party Agreements.
The Company is party to a Transition Services Agreement
which resulted from our January 30, 2015 spin-off transaction
from FRP Holdings, Inc. (FRP). The Transition Services
Agreement sets forth the terms on which the Company will
provide to FRP certain services that were shared prior to the
Spin-off, including the services of certain shared executive
officers. The boards of the respective companies amended and
extended this agreement for one year effective April 1, 2017.
The consolidated and combined statements of income reflect
charges and/or allocation to FRP Holdings, Inc. for these
services of $1,606,000, $1,542,000, and $2,211,000 for fiscal
2017, 2016 and 2015, respectively. Included in the charges
above are amounts recognized for corporate executive stock-
based compensation expense. These charges are reflected as
a reduction to corporate expenses.
To determine these allocations between FRP and Patriot as
set forth in the Transition Services Agreement, we generally
employed the same methodology historically used by the
Company pre Spin-off to allocate said expenses and thus we
believe that the allocations to FRP are a reasonable
approximation of the costs related to FRP’s operations but any
such related-party transactions cannot be presumed to be
carried out on an arm’s-length basis as the terms were
negotiated while Patriot was still a subsidiary of FRP.
information
Patriot provides
technology services and
previously subleased office space to Bluegrass Materials
Company, LLC (“Bluegrass”). Mr. John Baker, brother of
Edward L. Baker and uncle of Thompson S. Baker II, serves
as Chairman of Bluegrass, and his son, Edward L. Baker II,
serves as its Chief Executive Officer. Messrs. John Baker and
Edward L. Baker II have a beneficial ownership interest in
Bluegrass. Bluegrass paid $16,000, $599,000 and $490,000
to the Company for fiscal 2017, 2016 and 2015 respectively
for such information technology services and office space. The
services to Bluegrass ceased on December 31, 2016. Patriot
19
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
paid $7,000 to Bluegrass for information technology services
for fiscal 2017.
3. Debt.
The Company had no long-term debt outstanding at
September 30, 2017 and September 30, 2016.
Prior to the Spin-off, the Company was permitted to borrow
under FRP's credit agreement with Wells Fargo Bank, N.A. (the
"FRP Credit Agreement"). On January 30, 2015, the Company
entered into a new $25 million, five year, revolving credit
agreement with Wells Fargo Bank, N.A. and assumed and
refinanced $5.1 million then outstanding on the FRP Credit
Agreement into this new revolver. As of September 30, 2017,
we had no outstanding debt borrowed on this revolver,
letters of credit and
$2,180,000 outstanding under
$22,820,000 available for additional borrowings. The letter of
credit fee is 1% and the applicable interest rate would have
been 3.235% on September 30, 2017.
The credit agreement contains certain conditions, affirmative
financial covenants and negative covenants
including
limitations on paying cash dividends. The Company was
loan covenants as of
in compliance with all of
September 30, 2017.
its
4. Operating Leases.
The Company leases certain assets under operating leases,
which primarily consist of real estate leases for the corporate
office and some of our terminal locations. Certain operating
leases provide for renewal options, which can vary by lease
and are typically offered at their fair rental value. The Company
has not made any residual value guarantees related to its
operating leases; therefore, there is no corresponding liability
recorded on the Balance Sheets.
Future minimum annual lease payments for assets under
operating leases as of September 30, 2017 are as follows (in
thousands):
Fiscal Year
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Total
302
309
314
318
323
190
1,756
$
$
Aggregate expense under operating leases was $804,000,
$759,000 and $742,000 for 2017, 2016 and 2015, respectively.
Certain operating leases include rent escalation provisions,
which are recognized as expense on a straight-line basis.
5. Earnings Per Share.
Basic earnings per common share are based on the weighted
average number of common shares outstanding during the
periods. Diluted earnings per common share are based on the
weighted average number of common shares and potential
in earnings.
dilution of securities
The differences between basic and diluted shares used for
that could share
20
the calculation are the effect of employee and director
stock options.
On January 30, 2015, 3,242,524 shares of our common stock
were distributed to the shareholders of FRP in connection with
the Spin-off and distribution. For comparative purposes,
we have assumed this amount to be outstanding as of
the beginning of each period prior to the Spin-off and
distribution presented in the calculation of weighted average
shares outstanding.
The following details the computations of the basic and diluted
earnings per common share. (dollars and shares in thousands,
except per share amounts.)
Years Ended September 30
2017
2016
2015
Common shares:
Weighted average common shares
outstanding during the period -
shares used for basic earnings
per common share
3,299
3,283
3,268
Common shares issuable under share
based payment plans which are
potentially dilutive
3
2
7
Common shares used for diluted
earnings per common share
Net income
Earnings per common share
3,302
$ 1,829
3,285
5,705
Basic
Diluted
$
$
.55
.55
1.74
1.74
3,275
3,339
1.02
1.02
For 2017 and 2016, 121,449 and 80,669 shares, respectively,
attributable to outstanding stock options were excluded from
the calculation of diluted earnings per share because their
inclusion would have been anti-dilutive.
6. Stock-Based Compensation Plans.
PARTICIPATION IN FRP PLANS – The Company's directors,
officers and key employees previously were eligible to
participate in FRP's 2000 Stock Option Plan and the 2006
Stock Option Plan under which options for shares of common
stock were granted to directors, officers and key employees.
All related compensation expense has been fully allocated to
the Company (rather than FRP) and included in corporate
expenses. Corporate expense also reflects an offsetting credit
for the Transition Services Agreement allocation to FRP. All
outstanding options held by company directors, officers and
key employees on January 30, 2015 were cancelled and
replaced by an equal number of FRP options at 75.14% of the
previous exercise price based upon the market value of FRP
less the when issued market value of the Company on that day.
PATRIOT INCENTIVE STOCK PLAN – In January 2015, the
Board of Directors of the Company adopted the Patriot
Transportation Holding, Inc. Incentive Stock Plan. Grants were
issued based upon all outstanding FRP options held by
company directors, officers and key employees on January 30,
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
2015 with the same remaining terms. The grants were based
upon the FRP options outstanding at 24.86% of the previous
exercise price based upon the when issued market value of
the Company compared to the market value of FRP on that
day. Simultaneously, the number of shares were divided by 3
and the exercise price multiplied by 3 to adjust for the Spin-off
distribution of 1 for 3 shares of FRP. The number of
common shares available for future issuance was 87,131 at
September 30, 2017.
the Black-Scholes valuation model
for
Patriot utilizes
estimating fair value of stock compensation for options
awarded to officers and employees. Each grant is evaluated
based upon assumptions at the time of grant. The assumptions
are no dividend yield, expected volatility between 26% and
46%, risk-free interest rate of .3 to 3.9% and expected life of
3.0 to 7.0 years.
The dividend yield of zero is based on the fact that Patriot does
not pay cash dividends and has no present intention to pay
cash dividends. Expected volatility is estimated based on
FRP’s historical experience over a period equivalent to the
expected life in years. The risk-free interest rate is based on
the U.S. Treasury constant maturity interest rate at the date of
grant with a term consistent with the expected life of
the options granted. The expected life calculation is based
on the observed and expected time to exercise options by
the employees.
Subsequent to Spin-off, the realized tax benefit pertaining to
options exercised and the remaining compensation cost of
options previously granted prior to the Spin-off will be
recognized by FRP or Patriot based on the employment
location of the related employee or director.
In December 2016, the Company approved and issued a long-
term performance incentive to an officer in the form of stock
appreciation rights. The Company granted 80,000 stock
appreciation rights. The market price was $23.13 on the date
of grant and the executive will get a cash award at age 65
based upon the stock price at that date compared to the stock
price at the date of grant but in no event will the award be less
than $500,000. The Company plans to expense the fair value
of the award over the 9.1 year vesting period to the officer’s
attainment of age 65.
In March 2017, in recognition of Thompson S. Baker II's
outstanding service to FRP, the Board approved the vesting of
all of Mr. Baker's outstanding FRP stock options, which expired
90 days following the termination of his employment. The
vesting of Mr. Baker’s outstanding FRP options that were
issued prior to the spin-off required modification stock
compensation expense of $150,000. FRP reimbursed Patriot
for this cost under the transition services agreement.
The annual director stock grant was 14,449 shares in fiscal
2017 at $25.50, 16,549 shares in fiscal 2016 at $21.81, and
14,280 shares in fiscal 2015 at $24.00 based on the market
prices indicated on the date of the grants.
The Company recorded the following stock compensation
expense for FRP and Patriot options (including allocations in
periods prior to the Spin-off) in its consolidated statements of
income (in thousands):
Years Ended September 30
Stock option grants
Annual Director stock award
2017
$ 440
368
$ 808
2016
384
361
745
2015
274
343
617
A summary of Company stock options is presented below (in
thousands, except share and per share amounts):
Weighted Weighted
Weighted
Average
Number Average Average Grant Date
Exercise Remaining Fair Value
Price
Term (yrs)
(000’s)
Of
Shares
91,315 $ 20.31
(16,000) $ 12.62
5.6
$ 761
(95)
$
Options
Grants substituted on
January 30, 2015
Exercised
Outstanding at
September 30, 2015
Granted
Forfeited
Outstanding at
75,315 $ 21.95
23.78
38,794
24.24
(3,298)
5.8
6.2
$ 666
362
(29)
$ 999
272
September 30, 2016 110,811 $ 22.52
21.25
Granted
40,780
Outstanding at
September 30, 2017
151,591 $ 22.18
6.3
$ 1,271
Exercisable at
September 30, 2017
95,901 $ 21.83
5.0
$ 758
Vested during
twelve months ended
September 30, 2017 127,852
$ 210
The following table summarizes information concerning stock
options outstanding at September 30, 2017:
Range of Exercise
Prices per Share
Non-exercisable:
$16.50 - $20.63
$20.64 - $25.78
$25.79 - $32.23
Exercisable:
$16.50 - $20.63
$20.64 - $25.78
$25.79 - $32.23
Total
Shares
under
Option
1,984
46,813
6,893
55,690
38,078
45,498
12,325
95,901
151,591
Weighted
Average
Weighted
Average
Exercise Price Remaining Life
19.54
22.11
28.27
$22.78
18.50
22.71
28.86
$21.83
$22.18
5.2
8.8
6.8
8.4 years
3.4
5.9
6.7
5.0 years
6.3 years
The aggregate intrinsic value of exercisable Company options
was $55,000 and the aggregate intrinsic value of all
outstanding in-the-money options was $56,000 based on the
21
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
Company’s market closing price of $19.94 on September 29,
2017 less exercise prices.
The realized tax benefit from option exercises during fiscal
2017 was $849,000 which pertained to FRP options exercised
that were granted prior to the Spin-off to persons employed by
Patriot. The unrecognized compensation expense of Patriot
options granted as of September 30, 2017 was $471,000,
which is expected to be recognized over a weighted-average
period of 3.1 years.
7. Income Taxes.
The provision for income taxes for continuing operations for
fiscal years ended September 30 consists of the following (in
thousands):
Current:
Federal
State
Deferred
Total
2017
2016
2015
$739
164
903
(434)
$469
1,247
334
1,581
2,067
3,648
2,315
408
2,723
(588)
2,135
A reconciliation between the amount of tax shown above and
the amount computed at the statutory Federal income tax rate
follows (in thousands):
Amount computed at
statutory Federal rate
State income taxes (net of
Federal income tax benefit)
Excess tax benefits from
stock option exercises
Other, net
2017
2016
2015
$781
3,180
1,862
108
440
257
(427)
7
-
28
-
16
Provision for income taxes
$469
3,648
2,135
In this reconciliation, the category “Other, net” consists of
changes in permanent tax differences related to non-
deductible expenses, special tax rates and tax credits, interest
and penalties, and adjustments to prior year estimates.
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 (in thousands):
2017
2016
Deferred tax liabilities:
Property and equipment
Prepaid expenses
Gross deferred tax liabilities
Deferred tax assets:
Insurance liabilities
Employee benefits and other
Gross deferred tax assets
Net deferred tax liability
$11,568
121
11,689
159
1,485
1,644
$ 10,045
12,156
134
12,290
184
1,627
1,811
10,479
22
The Company has no unrecognized tax benefits.
Patriot tax returns in the U.S. and various states that include
the Company are subject to audit by taxing authorities. As of
September 30, 2017, the earliest tax year that remains open
for audit in the Unites States is 2012.
8. Accrued Insurance.
The Company has established an accrued liability for the
estimated cost in connection with its portion of its risk and
health insurance losses incurred and reported. Payments
made under a captive agreement for each year’s risk loss fund
are scheduled in advance using actuarial methodology.
Captive insurance assets available to us to settle risk
insurance liabilities are not reported on our balance sheet as
we do not control or consolidate the captive.
The accrued insurance liability at September 30 is summarized
as follows (in thousands):
Accrued insurance, current portion
Prepaid insurance claims
Accrued insurance, non-current
Total accrued insurance
Captive agreement assets
Gross accrued insurance
$
2017
558
(501)
193
250
4,506
$ 4,756
$
2016
700
-
184
884
3,669
4,553
9. Employee Benefits.
The Company and certain subsidiaries have a savings/profit
sharing plan for the benefit of qualified employees. The savings
feature of the plan incorporates the provisions of Section
401(k) of the Internal Revenue Code under which an eligible
employee may elect to save a portion (within limits) of their
compensation on a tax deferred basis. Patriot 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 discretionary
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 allocated
cost was $768,000 in 2017, $792,000 in 2016 and $718,000
in 2015.
The Company has a Management Security Plan (MSP) for
certain key employees. The accruals for future benefits are
based upon the remaining years to retirement of the
participating employees and other actuarial assumptions. The
expense allocated to the Company for fiscal 2017, 2016 and
2015 was $23,000, $25,000 and $28,000, respectively.
The accrued benefit related to the Company under this plan
as of September 30, 2017 and 2016 was $658,000 and
$702,000, respectively.
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
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
while working for Patriot. The plan is contributory and
unfunded. The Company accrues its allocated estimated cost
of retiree health benefits over the years that the employees
render service. The accrued postretirement benefit obligation
for this plan related to the Company as of September 30, 2017
and 2016 was $192,000 and $180,000, respectively. The net
periodic postretirement benefit credit or cost allocated to the
Company was ($33,000), $16,000 and $12,000 for fiscal 2017,
2016 and 2015, respectively. The discount rate used in
determining the Net Periodic Postretirement Benefit Cost was
3.7% for 2017, 3.7% for 2016 and 4.0% for 2015. The discount
rate used in determining the Accumulated Postretirement
Benefit Obligation (APBO) was 3.73% for 2017, 4.25% for
2016, and 4.25% for 2015. No medical trend is applicable
because the Company’s share of the cost is frozen.
10. Fair Value Measurements.
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair
value hierarchy prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. Level 1
means the use of quoted prices in active markets for identical
assets or liabilities. Level 2 means the use of values that
are derived principally from or corroborated by observable
market data. Level 3 means the use of inputs are those
that are unobservable and significant to the overall fair
value measurement.
As of September 30, 2017 the Company had no assets
or liabilities measured at fair value on a recurring or non-
recurring basis.
At September 30, 2017 and 2016, the carrying amount
reported in the consolidated and combined balance sheets for
cash and cash equivalents, accounts receivable, accounts
payable and other financial instruments approximate their fair
value based upon the short-term nature of these items. We
believe the fair value of the allocated outstanding debt
obligations approximate their carrying value as the related debt
agreements reflect present market terms and as certain debt
obligations contain certain interest rates that reset periodically
based on current market indices.
11. Contingent Liabilities.
The Company is involved in litigation on a number of matters
and is subject to certain claims which arise in the normal
course of business. The Company has retained certain self-
insurance risks with respect to losses for third party liability and
property damage. There is a reasonable possibility that the
Company’s estimate of vehicle and workers’ compensation
liability may be understated or overstated but the possible
range cannot be estimated. The liability at any point in time
depends upon the relative ages and amounts of the individual
open claims. In the opinion of management none of these
matters are expected to have a material adverse effect on
the Company’s financial condition, results of operations or
cash flows.
12. Concentrations.
MARKET – The Company primarily serves customers in the
petroleum industry in the Southeastern U.S. Significant
economic disruption or downturn in this geographic region or
within these industries could have an adverse effect on our
financial statements.
CUSTOMERS – During fiscal 2017, the Company’s ten largest
customers accounted for approximately 58.8% of our revenue
and one of these customers accounted for 19.6% of our
revenue. Accounts receivable from the ten largest customers
was $4,070,000 and $3,998,000 at September 30, 2017 and
September 30, 2016 respectively. The loss of any one of these
ten customers could have a material adverse effect on the
Company’s revenues and income.
DEPOSITS – The Company places its cash and cash
equivalents with Wells Fargo Bank, N.A. At times, such
amounts may exceed FDIC limits.
13. Unusual or Infrequent Items Impacting Results.
On September 30, 2016, the Company received $1,330,000
for an easement granted to the state of Florida over the
Company's 25.2 acre terminal facility in Tampa, Florida
resulting in a $1,277,000 gain. The easement prohibits
residential development on the site and prohibits hotel
development on a portion of the site.
On October 20, 2015, the Company received notice from the
Claims Administrator for the Deepwater Horizon Economic and
Property Damages Settlement Program that the Company’s
claim in the amount of $2,106,281 qualifies for payment under
the terms of the Economic and Property Damages Settlement
Agreement. On December 18, 2015 BP accepted the
Company’s proposal of $2,047,651. The Company received
payment of $1,687,085 on January 6, 2016 net of all
contingency fees. This amount is included in other income.
An impairment charge of $2,074,000 was recorded in second
quarter 2015 related to the recorded customer relationship
intangible asset fair value pertaining to the Pipeline acquisition
in November 2013.
14. Goodwill and Intangible Assets.
The changes in gross carrying amounts of goodwill are as
follows (in thousands):
October 1, 2014
No activity
September 30, 2015
No activity
September 30, 2016
No activity
September 30, 2017
Goodwill
$
$
3,431
-
3,431
-
3,431
-
3,431
The Company assesses goodwill for impairment on an annual
basis in the fourth quarter, or more frequently if events or
changes in circumstances indicate that the asset might
be impaired.
23
Notes to Consolidated Financial Statements Continued
Patriot Transportation Holding, Inc.
trade name and non-compete agreements,
The Company reviews intangible assets, including customer
for
value,
impairment, whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be
recoverable. Recoverability of long-lived assets is measured
by a comparison of the carrying amount of the asset group to
the future undiscounted net cash flows expected to be
generated by those assets. If such assets are considered to
be impaired, the impairment charge recognized is the amount
by which the carrying amounts of the assets exceeds the fair
value of the assets.
The gross amounts and accumulated amortization (including
impairment) of identifiable intangible assets are as follows (in
thousands):
September 30, 2017
Gross
Accumulated Gross Accumulated
Amount Amortization Amount Amortization
September 30, 2016
The Company recorded an impairment charge related to the
recorded customer relationship intangible asset resulting from
the Pipeline acquisition of $2,074,000, with an after tax impact
to net income of $1,265,000, in its consolidated and combined
financial statements for the quarter ended March 31, 2015. The
impairment charge was calculated utilizing the assistance of a
third party valuation expert. The Company's conclusion that an
impairment charge was necessary in second quarter 2015 was
a the result of (i) the loss of certain Pipeline customers over
the course of the first nine months of calendar 2014, and then
(ii) the notification from another customer during the second
quarter that we would not be able to retain a sizeable piece of
the business we acquired from Pipeline at the rates we quoted
them during a competitive bid process.
Amortization expense for intangible assets was $177,000 for 2017
and it is included in sales, general and administrative expense.
Estimated amortization expense for the five succeeding years follows
(in thousands):
4,004
2,997
4,004
2,844
72
72
72
62
4,138
$
$
48
3,117 $
62
4,138 $
60
36
2,940
2018
2019
2020
2021
2022
Total
Amount
166
154
153
153
153
779
$
$
Amortizable intangible
assets:
Customer value
(useful life 10.5 years)
Trade name
(useful life 3.5 years)
Non-compete
(useful life 5 years)
24
Management’s Report on Internal Control Over Financial Reporting
Patriot Transportation Holding, Inc.
is
responsible
The management of Patriot
for
establishing and maintaining adequate internal control
over financial reporting. Patriot's internal control system
was designed to provide reasonable assurance to the
Company's management and Board of Directors
regarding the preparation and fair presentation of
published financial statements in accordance with U.S.
generally accepted accounting principles. All internal
control systems, no matter how well designed have
inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable
assurance with respect to financial statement preparation
and presentation. Patriot's management assessed the
effectiveness of the Company's internal control over
financial reporting as of September 30, 2017 based on
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
the Internal Control-Integrated Framework (2013). Based
on this assessment, management believes that, as of
September 30, 2017, the Company's internal control over
financial reporting is effective.
Report of Independent Registered Certified Public Accounting Firm
The Shareholders and Board of Directors
Patriot Transportation Holding, Inc.
We have audited the accompanying consolidated
and combined balance sheets of Patriot
Transportation Holding, Inc. as of September 30,
2017 and 2016, and the related consolidated and
combined statements of income, comprehensive
income, shareholder’s equity/net investment, and
cash flows for the years ended September 30, 2017,
2016 and 2015. These consolidated and combined
financial statements are the responsibility of the
Company’s management. Our responsibility is to
express an opinion on these consolidated and
combined financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting
Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. The
Company is not required to have, nor were we
engaged to perform, an audit of its internal control
over
included
consideration of internal control over financial
reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the
financial reporting. Our audits
effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and
disclosures in the financial statements, assessing
the accounting principles used and significant
estimates made by management, as well as
evaluating
statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
the overall
financial
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated and combined financial position of
Patriot Transportation Holding, Inc. as of September
30, 2017 and 2016, and the consolidated and
combined results of its operations and its cash flows
for the years ended September 30, 2017, 2016 and
2015 in conformity with accounting principles
generally accepted in the United States of America.
Hancock Askew & Co., LLP
Savannah, Georgia
December 1, 2017
25
Directors and Officers
Patriot Transportation Holding, Inc.
Directors
Officers
Robert E. Sandlin
President and Chief Executive Officer
Matthew C. McNulty.
Vice President and Chief Financial Officer
John D. Milton, Jr.
Executive Vice President, General Counsel,
Treasurer, and Secretary
John D. Klopfenstein
Controller and Chief Accounting Officer
James N. Anderson IV
Vice President of Safety and Risk Management
Thompson S. Baker II (1)
Chairman of the Board of the Company
Senior Vice President, Vulcan Materials
Edward L. Baker (1)
Chairman Emeritus
John E. Anderson (2)(3)(4)
Former President and Chief Executive
Officer of Patriot Transportation Holding, Inc.
Luke E. Fichthorn III (2)(3)(4)
Private Investment Banker,
Twain Associates
Charles D. Hyman (2)(3)(4)
President/Founder
Charles D. Hyman & Company
________________
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee
26
Other Information
Patriot Transportation Holding, Inc.
Patriot Transportation Holding, Inc.
200 West Forsyth Street, 7th Floor
Jacksonville, Florida, 32202
Telephone: (904) 396-5733
Common Stock Listed
The Nasdaq Stock Market
(Symbol: PATI)
Annual Meeting
Shareholders are cordially invited to attend the Annual
Shareholders Meeting which will be held at 10 a.m. local
time, on Wednesday, January 31, 2018, at the River Club,
Ortega Room, on the 34th Floor of the Wells Fargo
Building, One Independent Drive, Jacksonville, Florida
32202.
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
Telephone: 1-800-937-5449
General Counsel
Nelson Mullins Riley & Scarborough LLP
Jacksonville, Florida
Independent Registered Certified
Public Accounting Firm
Hancock Askew & Co., LLP
Savannah, Georgia
Form 10-K
Shareholders may receive without charge a copy of
Patriot Transportation Holding, Inc.’s annual report on
Form 10-K for the fiscal year ended September 30, 2017
as filed with the Securities and Exchange Commission
by writing to the Treasurer at 200 West Forsyth Street,
7th Floor, Jacksonville, Florida 32202. The most recent
certifications by our Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 are
filed as exhibits to our Form 10-K.
Company Website
The Company’s website may be accessed at
www.patriottrans.com. All of our filings with the Securities
and Exchange Commission can be accessed through
our website promptly after filing. This includes annual
reports on Form 10-K, proxy statements, quarterly
reports on Form 10-Q, current reports filed or furnished
on Form 8-K and all related amendments.
27
Patriot Transportation Holding, Inc.
28
Safely Delivering Our Customers’
NASDAQ: PATI
Products On Time and
Accurately
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PATRIOT TRANSPORTATION HOLDING, INC.
200 W. FORSYTH STREET, 7TH FLOOR
JACKSONVILLE, FLORIDA 32202
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