10-Q 1 junetext.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-17554 PATRIOT TRANSPORTATION HOLDING, INC. (Exact name of registrant as specified in its charter) Florida 59-2924957 (State or other jurisdiction of (I.R.S. Employer) incorporation or organization) Identification No.) 1801 Art Museum Drive, Jacksonville, Florida 32207 (Address of principal executive offices) (Zip Code) 904/396-5733 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES___ NO X Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 4, 2003: 2,932,708 shares of $.10 par value common stock. PATRIOT TRANSPORTATION HOLDING, INC. FORM 10-Q QUARTER ENDED JUNE 30, 2003 CONTENTS Page No. Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Income 2 Condensed Consolidated Statements of Cash Flows 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risks 14 Item 4. Controls and Procedures 14 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit 11 Computation of Earnings Per Share 21 Exhibit 31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 22 Exhibit 32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 25 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) June 30, September 30, 2003 2002 ASSETS Current assets: Cash and cash equivalents $ 1,572 529 Accounts receivable (including related party of $459 and $107) 7,881 7,817 Less allowance for doubtful accounts (552) (474) Prepaid expenses 2,501 2,977 Other current assets 912 641 Total current assets 12,314 11,490 Property, plant and equipment, at cost 221,082 209,275 Less accumulated depreciation and depletion (74,809) (70,908) Net property, plant and equipment 146,273 138,367 Other assets 5,832 5,606 Total assets $164,419 155,463 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable (including related party of $0 and $39) $ 2,577 5,771 Accrued liabilities 6,150 4,890 Long-term debt due within one year 1,518 1,311 Total current liabilities 10,245 11,972 Long-term debt 60,692 47,290 Deferred income taxes 10,069 10,062 Accrued insurance reserves 5,331 5,331 Other liabilities 1,722 1,648 Shareholders' equity: Preferred stock, no par value; 5,000,000 shares authorized - - Common stock, $.10 par value; 25,000,000 shares authorized, 2,932,708 and 3,159,008 shares issued and outstanding, respectively 293 316 Capital in excess of par value 6,064 11,748 Retained earnings 70,003 67,096 Total shareholders' equity 76,360 79,160 Total liabilities and shareholders' equity $164,419 155,463 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited) THREE MONTHS NINE MONTHS ENDED JUNE 30, ENDED JUNE 30, 2003 2002 2003 2002 Revenues: Related parties $ 2,034 1,335 5,309 5,349 Non-related parties 24,997 23,541 70,837 66,026 27,031 24,876 76,146 71,375 Cost of operations 21,913 19,418 62,783 55,884 Gross profit 5,118 5,458 13,363 15,491 Selling, general and administrative expenses: Related parties 110 116 330 232 Non-related parties 1,908 2,010 5,676 5,732 2,018 2,126 6,006 5,964 Recovery of non-recurring charges related to closed subsidiary (5) (100) (29) (100) Operating profit 3,105 3,432 7,386 9,627 Interest expense, net (899) (803) (2,623) (2,382) Income before income taxes 2,206 2,629 4,763 7,245 Provision for income taxes 860 1,052 1,857 2,898 Net income $ 1,346 1,577 2,906 4,347 Basic earnings per common share $ .45 .50 .95 1.38 Diluted earnings per common share $ .44 .50 .94 1.37 Number of shares used in computing: Basic earnings per share 3,015 3,145 3,067 3,141 Diluted earnings per share 3,054 3,178 3,098 3,166 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2003 AND 2002 (In thousands) (Unaudited) 2003 2002 Cash flows from operating activities: Net income $2,906 4,347 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation, depletion and amortization 8,963 8,182 Deferred income taxes (289) (273) Gain on disposition of real estate, property, plant and equipment (100) (251) Net changes in operating assets and liabilities: Accounts receivable 23 2,465 Prepaid expenses and other current assets 468 1,716 Assets held for sale - 1,191 Accounts payable and accrued liabilities (1,910) 2,266 Net change in insurance reserve and other liabilities 74 123 Other assets, net 47 31 Net cash provided by operating activities 10,182 19,797 Cash flows from investing activities: Purchase of property, plant and equipment (17,657) (10,678) Additions to other assets (502) (726) Proceeds from sale of property, plant and Equipment, and other assets 1,117 562 Net cash used in investing activities (17,042) (10,842) Cash flows from financing activities: Proceeds from long-term debt 50,400 10,200 Net decrease increase in short-term debt - (7,800) Repayment of long-term debt (36,791) (11,779) Repurchase of Company stock (6,118) (31) Exercise of employee stock options 412 123 Net cash provided by (used in) financing activities 7,903 (9,287) Net increase (decrease) in cash and cash equivalents 1,043 (332) Cash and cash equivalents at beginning of year 529 440 Cash and cash equivalents at end of the period $1,572 108 See accompanying notes. PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2003 (Unaudited) (1) Basis of Presentation. The accompanying condensed consolidated financial statements include the accounts of Patriot Transportation Holding, Inc. and its subsidiaries (the "Company"). These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included. Operating results for the three months and nine months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2003. The accompanying condensed consolidated financial statements and the information included under the heading "Management's Discussion and Analysis" should be read in conjunction with the Company's consolidated financial statements and related notes included in the Company's Form 10-K for the year ended September 30, 2002. (2) Recent Accounting Pronouncements. In June 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). This statement addresses the accounting for intangible assets. The Company adopted SFAS No. 142 on October 1, 2002 and has determined no impairment of goodwill exists and has ceased amortization. Goodwill amortization in the third quarter and first nine months of 2002 was $10,000 and $30,000, respectively. Included in other assets on the Condensed Consolidated Balance Sheet is goodwill of $1,087,000 in both periods. In June 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143), which addresses financial accounting and reporting for obligations regarding the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. The Company adopted the provisions of SFAS 143 in the quarter ended December 31, 2002. Although the Company has significant mining assets, all properties are mined by third parties who are contractually responsible for the legal obligations associated with the retirement of the mining properties. As property owner, the Company is ultimately responsible for any obligations arising from the retirement of the mining properties. However, management has concluded that it is not probable that the Company will incur liabilities associated with retirement of the mines. In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement 123" (SFAS 148). The Company has adopted the provisions of SFAS 148 in the second quarter of 2003 and the required disclosures are contained in Footnote 7. In May 2003, the Financial Accounting Standards Board issued FASB Statement No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS 150 specifies that instruments within its scope embody obligations of the issuer and that, therefore, the issuer must classify them as liabilities. The Company does not expect SFAS 150 to have any impact on its financial Statements. (3) Business Segments. The Company has identified two business segments each of which is managed separately along product lines. All the Company's operations are in the United States. The transportation segment hauls liquid and dry commodities by motor carrier. The real estate segment owns real estate of which a substantial portion is under mining royalty agreements or leased. The real estate segment also holds certain other real estate for investment and is developing commercial and industrial properties. Operating results and certain other financial data for the Company's business segments are as follows (in thousands): Three Months ended Nine Months ended June 30, June 30, 2003 2002 2003 2002 Revenues: Transportation 23,079 21,280 65,057 60,239 Real estate (a) 3,952 3,596 11,089 11,136 27,031 24,876 76,146 71,375 Operating profit Transportation 967 1,748 2,035 4,293 Real estate (b) 2,486 2,036 6,462 6,392 Corporate expenses (348) (352) (1,111) (1,058) Operating profit 3,105 3,432 7,386 9,627 Identifiable assets June 30, Sept 30, 2003 2002 Transportation $ 45,540 47,519 Real estate 115,658 105,850 Cash items 1,572 529 Unallocated corporate assets 1,649 1,565 $164,419 155,463 (a) The three months ended June 30, 2003 and 2002 and the nine months ended June 30, 2003 and 2002 include revenues of $3,000, $199,000, $68,000 and $219,000, respectively, from the sale of real estate. (b) Operating profit from the sale or disposal of real estate was ($18,000), $153,000, $47,000 and $110,000 for the three months and the nine months ended June 30, 2003 and 2002, respectively. (4) Long-Term debt. Long-term debt is summarized as follows (in thousands): June 30, September 30, 2003 2002 Revolving Credit, Uncollateralized, payable in 2004 $ 22,500 12,500 5.7% to 9.5% mortgage note payable in installments through 2020 39,710 36,101 62,210 48,601 Less portion due in one year 1,518 1,311 $60,692 47,290 (5) Agreements to Sell Real Estate. In February 2002, a subsidiary of the Company signed an Agreement to sell 108 acres of land located in the northwest quadrant of I-395 and I-495 at Edsall Road in Springfield, Virginia to Florida Rock Industries, Inc. (FRI), a related party, for $15,000,000. Closing is subject to a title search and surveys and may occur within 45 days of the Company giving notice to FRI to close or, subsequent to June 30, 2003 within 45 days of either party giving notice to close. If FRI fails to close by December 31, 2003, at no fault of the Company, the Company may retain the $100,000 binder deposit and be under no further obligation to close. FRI has the right to terminate this Agreement prior to receiving the Company's notice to close if there shall exist or the consummation of the sale would cause a default in the Credit Agreement among FRI and Wachovia Bank, et. al. The Agreement was approved by a committee of independent directors of the Company after review of a development feasibility study and other materials, consultation with management and advice of independent counsel. The Company intends to structure this transaction as a tax deferred exchange under Section 1031 of the United States Internal Revenue Code and the Treasury Regulations promulgated thereunder. If the transaction closes, the Company will recognize a gain on the sale of approximately $7,772,000 net of income taxes, or $2.52 per diluted share. The tract is being rented to a subsidiary of FRI and the Company has received rental income of approximately $488,000 for the nine months ended June 30, 2003. In April, 2003, the Company announced that a subsidiary has agreed to sell 796 acres of land located in St. Mary's County, Maryland to FRI for $1,836,000. FRI has 120 days to inspect and investigate the property and may, in its sole discretion, terminate the Agreement during the inspection period without penalty. If the Agreement is not terminated during the inspection period or valid extensions thereof, closing is to occur no later than December 15, 2003. The Agreement was approved by a committee of independent directors of the Company after receipt of an appraisal and consultation with management. If this transaction closes, the Company will recognize a gain on the sale of approximately $647,000 net of income taxes, or $.21 per diluted common share. On May 7, 2003, the Company announced that a subsidiary has agreed to sell a 935 acre parcel of property in Miami, Florida to FRI for $1,638,000. The property is principally composed of mined-out lakes, mitigation areas, 145 acres of mineable land and 32 acres of roads and railroad track right-of-ways. The closing of the sale is subject to a definitive agreement with closing to occur no later than December 15, 2003. The terms of the agreement were approved by the Company's Audit Committee which, is comprised of independent directors, after considering, among other factors, the terms of the existing lease agreement and consultation with management. If this transaction closes, the Company will recognize a gain of approximately $999,000, net of income taxes, or $.32 per diluted common share. (6) Repurchase of Company Stock. During the first quarter of Fiscal 2003, the Company repurchased and retired 111,300 shares of its common stock for $2,485,000. In the third quarter, the Company repurchased and retired 135,000 shares of its common stock for $3,633,000. As of August 6, 2003, the Board of Directors has authorized Management to repurchase $3,000,000 of the Company's common stock. (7) Stock-Based Compensation Plan. The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation. Three Months ended Nine Months ended June 30, June 30, 2003 2002 2003 2002 Net income, as reported $ 1,346 1,577 2,906 4,347 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 129 87 423 269 Pro forma net income $ 1,217 1,490 2,483 4,078 Earnings per share: Basic-as reported $ .45 .50 .95 1.38 Basic-pro forma $ .41 .47 .81 1.30 (8) Contingent Liabilities. Certain of the Company's subsidiaries are involved in litigation on a number of matters and are subject to certain claims that arise in the normal course of business. The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage. In the opinion of management, based upon the advice of outside legal counsel, none of these matters are expected to have a materially adverse effect on the Company's consolidated financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Operating Results For the third quarter of Fiscal 2003, consolidated revenues were $27,031,000, an increase of $2,155,000 or 8.7% over the same quarter last year. The transportation segment's revenues for the third quarter of Fiscal 2003 were $23,079,000, an increase of $1,799,000 or 8.5% over the same quarter last year. Approximately $1,375,000 of this increase was a result of a 6.7% increase in miles hauled in the third quarter of 2003 over the same quarter last year. The balance of the increase was primarily due to higher fuel surcharges billed to mitigate rising fuel costs. The increase in miles hauled resulted primarily from new business generated from the May 30, 2002 acquisition of the operating assets of Infinger Transportation, Inc. (Infinger) and a 9.8% increase in miles in the flatbed operations, from the same quarter last year. Real estate revenues were $3,952,000 for the third quarter of Fiscal 2003, an increase of $356,000 or 9.9% from the third quarter of Fiscal 2002. Royalties from mining contracts increased $483,000 or 56.0% primarily resulting from a 31.3% increase in tons mined and an increase in average royalty per ton mined as compared to the same quarter last year. Revenues from flex office-warehouse properties increased $56,000 or 2.7%, primarily due to an 8.2% increase in average leased square feet and minimal price increases. The real estate group had property sales of $3,000 in the third quarter of 2003 compared to property sales of $199,000 in the third quarter of 2002. Consolidated gross profit for the third quarter of 2003 was $5,118,000, a decrease of $340,000 or 6.2% from the third quarter of last year. Gross profit in the transportation segment decreased $790,000 or 23.1% primarily due to higher risk insurance premiums and claims expense related to prior years' workers compensation occurrences. Additionally, depreciation expense is higher as a result of the Infinger asset additions and a newer trucking fleet. Gross profit in the real estate segment increased $450,000 or 22.1% from the third quarter of 2002 due to increased royalties from mining operations and improved gross profit from developed properties, partially offset by reduced profit from property sales. Selling, general and administrative expense decreased $108,000 or 5.1% for the third quarter of 2003 compared to the same period last year. Selling, general and administrative expenses, as a percent of consolidated revenues excluding property sales, was 7.5% as compared to 8.6% last year. Interest expense, net of capitalized interest, increased $96,000 for the third quarter due primarily to an increase in the average debt outstanding. The provision for income taxes was 39% of income before taxes in the third quarter of 2003 and 40% in the third quarter of 2002. Net income was $1,346,000 or $.44 per diluted share for the third quarter of Fiscal 2003 compared to $1,577,000 or $.50 per diluted share for the same quarter last year. Nine Months Operating Results. For the nine months of Fiscal 2003, consolidated revenues were $76,146,000, an increase of $4,771,000 or 6.7% over the same period last year. The transportation segment's revenues for the nine months of Fiscal 2003 were $65,057,000, an increase of $4,818,000 or 8.0% over the same period last year. Approximately $2,771,000 of this increase resulted from a 4.5% increase in miles hauled primarily due to the Infinger acquisition on May 30, 2002, partially offset by the loss of a major customer. The balance of the increase was primarily due to higher fuel surcharges as a result of rising fuel costs. Real estate revenues were $11,089,000 for the first nine months of 2003, a decrease of $47,000 or 0.4% from the first nine months of 2002. Royalties from mining contracts decreased $365,000 or 7.3% primarily resulting from completion of mining at two locations during the third quarter of 2002. Revenues from flex office- warehouse properties increased $468,000 or 7.9%, primarily due to a 7.9% increase in leased square feet and modest price increases. Property sales were $68,000 in the nine months of 2003 as compared to property sales of $219,000 during the nine months of 2002. Consolidated gross profit decreased $2,128,000 or 13.7% for the nine months as compared to the same period last year. Gross profit in the transportation segment decreased $2,198,000 or 24.2% as a result of higher fuel costs per mile and higher risk insurance premiums and claims expense related to prior years' workers compensation occurrences. Additionally, depreciation expense was higher as a result of the Infinger asset additions and a newer trucking fleet. Gross profit in the real estate segment increased $70,000 or 1.1% from the nine months of 2002 due to a $458,000 increase in gross profit from newly developed properties, which was mostly offset by decreased royalties from mining operations. Selling, general and administrative expense increased $42,000 or 0.7% for the nine months of 2003 compared to the same period last year. The increase is primarily attributed to a benefit in the first nine months of last year of $177,000 related to the recovery of a closed subsidiary's accounts receivable in excess of amounts anticipated. A similar benefit of $49,000 was recorded in the first nine months of 2003. On a comparative basis, selling, general and administrative expenses, exclusive of these benefits, as a percent of consolidated revenues excluding property sales was 8.0% compared to 8.6% last year. Interest expense, net of capitalized interest, increased $241,000 for the nine months due to an increase in the average debt outstanding. The provision for income taxes was 39% of income before taxes in the first nine months of 2003 and 39% in the first nine months of 2002. Net income was $2,906,000 or $.94 per diluted share for the first nine months of 2003 compared to $4,347,000 or $1.37 per diluted share for the same period last year. Summary and Outlook The Company's real estate development operations have continued to benefit from a favorable national interest rate environment and encouraging tenant occupancy. Positive market acceptance continues for the Company's flexible office-warehouse product, implying further development expansion. Overall freight demand for the Company's transportation group has gradually strengthened, though still somewhat muted in markets served by the tank truck operations as an uncertain national economy has dampened travel and resulting fuel consumption. Freight rate increases and improved efficiencies from equipment utilization will both be pursued to offset chronic increases in risk and health insurance expenses. Liquidity and Capital Resources For the first nine months of Fiscal 2003, a combination of operating cash flow, additional long term debt, and borrowings under the $37,000,000 revolving credit agreement (Revolver) funded the Company's purchase of additional property, plant and equipment of $17,657,000 and the repurchase of Company stock for $6,118,000. At June 30, 2003, $14,500,000 was available under the Revolver. As of June 30, 2003, the Company is committed to spend an additional $2,731,000 to complete construction of a bulk warehouse which is preleased to a tenant for 15 years. Construction is expected to be completed by October 2003. These expenditures will be financed in the interim from cash flow from operating activities and funds available under the Revolver. The Company has obtained a commitment for a first mortgage loan of $8,500,000 to be collateralized by this building. The loan which is subject to building completion and other normal conditions is for a period of 15 years with level monthly payments of principal and interest at 5.69%. The proceeds will be used to reduce amounts owed on the Revolver. During the third quarter of 2003, a subsidiary of the Company obtained a first mortgage loan in the amount of $4,600,000 collateralized by a building. The loan is for a period of 20 years with level monthly payments of principal and interest at 5.68%. The proceeds were used to reduce amounts owed on the Revolver. In January 2003, the Company obtained a $2,280,000 one-year irrevocable Letter of Credit which will be automatically extended for additional one-year periods unless notified not less than thirty days before the expiration date. The Letter of Credit replaced cash collateral with an insurance company in a like amount which was used to reduce the outstanding balance under the Revolver. The Board of Directors has authorized Management to repurchase shares of the Company's common stock from time to time as opportunities arise. During Fiscal 2003, the Company repurchased 246,300 shares of its common stock for $6,118,000. On August 6, 2003 the Board of Directors increased the current authorization to repurchase the Company's common stock up to $3,000,000. 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. Based on current expectations, management believes that its internally generated cash flow and access to existing credit facilities are sufficient to meet the liquidity requirements necessary to fund operations, capital requirements and debt service. Related Party Transactions Five of the Company's directors are also directors of Florida Rock Industries, Inc. ("FRI"). Such directors own approximately 27.6% of the stock of FRI and 46.6% of the stock of the Company. Accordingly, FRI and the Company are considered related parties. The Company, through its transportation subsidiaries, hauls commodities in tank trucks for FRI and customers of FRI. It also hauls diesel fuel and other supplies for FRI. Charges for these services are based on prevailing market prices. Other wholly owned subsidiaries lease certain construction aggregates mining and other properties and provides construction management services to FRI. In addition, the Company outsources certain functions to FRI, including some administrative, human resources, legal and risk management services. A subsidiary of the Company signed an agreement to sell land to FRI for $15,000,000. If the sale occurs, the Company will recognize a gain on the sale of approximately $7,722,000 net of income taxes or $2.52 per diluted share. A subsidiary of the Company has also agreed to sell two other parcels of land to FRI for $1,836,000 and $1,638,000, respectively. Reinvestment of the proceeds from these transactions is expected to facilitate the Company's long-term plan to build and own a portfolio of successful rental properties. If these sales occur, the Company will recognize a gain, net of income taxes, of $647,000 or $.21 per share and $999,000 or $.32 per share, respectively. For additional information see Note 5 of Notes to Condensed Consolidated Financial Statements. Other During Fiscal 2002, the transportation segment's ten largest customers accounted for approximately 45.5% of the transportation segment's revenue. The loss of one or more of any one of these customers could have an adverse effect on the Company's revenue and income. During the fourth quarter of Fiscal 2002, the Company reported that one of its ten largest customers indicated it was moving a majority of the business it was doing with the Company to other carriers. The Company estimates lost revenues from this customer to be approximately 6% of the transportation segment's revenues for Fiscal 2002. The loss of this revenue has had an adverse effect on the Company's operating income in 2003, but has been mostly offset by additional revenues from existing and new customers as well as revenue generated from the acquisition of the operating assets of Infinger on May 30, 2002. The Company owns two parcels of undeveloped real estate in the southeast quadrant of Washington D.C. on the banks of the Anacostia River and has been working with the District of Columbia Zoning Commission to obtain appropriate zoning for development. In 2003, the Zoning Commission granted preliminary approval of the size and scope of a proposed Planned Unit Development (PUD) and gave the Company until May of 2004 to submit modified drawings that would conform to the approved design guidelines. The design guidelines provide for a maximum allowable commercial development of 625,000 square feet and a minimum residential development of 440,000 square feet. If approval of the redesign is obtained, the Company will have an additional two years to begin development of the site in accordance with the approved PUD. For more information on this property see Item 2 of the Company's Annual Report on Form 10-K. Forward-Looking Statements. Certain matters discussed in this report contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from these indicated by such forward-looking statements. These forward-looking statements relate to, among other things, capital expenditures, liquidity, capital resources and competition and may be indicated by words or phrases such as "anticipate", "estimate", "plans", "projects", "continuing", "ongoing", "expects", "management believes", "the Company believes", "the Company intends" and similar words or phrases. The following factors and others discussed in the Company's periodic reports and filings with the Securities and Exchange Commission are among the principal factors that could cause actual results to differ materially from the forward-looking statements: driver availability and cost; availability and terms of financing; freight demand for petroleum products including recessionary and terrorist impacts on travel in the Company's markets; freight demand for building and construction materials in the Company's markets; risk insurance markets; competition; general economic conditions; demand for flexible warehouse/office facilities; restructuring charges; interest rates; levels of construction activity in FRI's markets; fuel costs; and inflation. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS There are no material changes to the disclosures made in Form 10-K for the fiscal year ended September 30, 2002 with respect to this item. ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. As required by Rule 13A-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The evaluation conducted by the Company's President and Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer has provided them with reasonable assurance that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rule and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer as appropriate, to allow timely decisions regarding required disclosures. Changes in internal controls. There have been no changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", starting on page 11. (b) Reports on Form 8-K. On April 29, 2003, the Company filed a Form 8-K reporting under Item 7, a press release announcing its earnings for the second quarter of 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. August 7, 2003 PATRIOT TRANSPORTATION HOLDING, INC. John E. Anderson John E. Anderson President and Chief Executive Officer Ray M. Van Landingham Ray M. Van Landingham Vice President Finance & Administration and Chief Financial Officer Gregory B. Lechwar Gregory B. Lechwar Controller and Chief Accounting Officer PATRIOT TRANSPORTATION HOLDING, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003 EXHIBIT INDEX (3)(a)(1) Articles of Incorporation of Patriot Transportation Holding Inc., incorporated by reference to the corresponding exhibit filed with Form S-4 dated December 13,1988. File No. 33-26115. (3)(a)(2) Amendment to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of Florida on February 19, 1991 incorporated by reference to the corresponding exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. (3)(a)(3) Amendments to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of Florida on February 7,1995, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (3)(a)(4) Amendment to the Articles of Incorporation of Patriot Transportation Holding, Inc., filed with the Florida Secretary of State on May 6, 1999 incorporated by reference to a form of such amendment filed as Exhibit 4 to the Company's Form 8-K dated May 5, 1999. File No. 33-26115. (3)(a)(5) Amendment to the Articles of Incorporation of Patriot Transportation Holding, Inc. filed with the Secretary of State of Florida on February 21, 2000, incorporated by reference to the corresponding exhibit filed with Form 10-Q for the quarter ended March 31, 2000. File No. 33-26115. (3)(b)(1) Restated Bylaws of Patriot Transportation Holding, Inc. adopted December 1, 1993, incorporated by reference to the corresponding exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. (3)(b)(2) Amendment to the Bylaws of Patriot Transportation Holding, Inc. adopted August 3, 1994, incorporated by reference to the corresponding exhibit filed with Form 10-K for the fiscal year ended September 30, 1994. File No. 33-26115. (3)(b)(3) Amendment to the Bylaws of Patriot Transportation Holding, Inc. adopted December 5, 2001, incorporated by reference to the corresponding exhibit filed with Form 10-Q for the quarter ended December 31, 2001. File No. 33-26115. (4)(a) Articles III, VII and XII of the Articles of Incorporation of Patriot Transportation Holding, Inc., incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. And amended Article III, incorporated by reference to an exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. And Articles XIII and XIV, incorporated by reference to an appendix filed with the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (4)(b) Specimen stock certificate of Patriot Transportation Holding, Inc., incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (4)(c) Revolving Credit Agreement dated as of January 9, 2002 among Patriot Transportation Holding, Inc. as Borrower, the Lenders from time to time party hereto and SunTrust Bank as Administrative Agent, incorporated by reference to an exhibit filed with Form 10-Q for the quarter ended December 31, 2001. File No. 33-26115. (4)(d) The Company and its consolidated subsidiaries have other long-term debt agreements which do not exceed 10% of the total consolidated assets of the Company and its subsidiaries, and the Company agrees to furnish copies of such agreements and constituent documents to the Commission upon request. (4)(e) Rights Agreement, dated as May 5, 1999 between the company and First Union National Bank, incorporated by reference to Exhibit 4 to the Company's Form 8-K dated May 5, 1999. File No. 33-26115. (10)(a) Various lease backs and mining royalty agreements with Florida Rock Industries, Inc., none of which are presently believed to be material individually, except for the Mining Lease Agreement dated September 1, 1986, between Florida Rock Industries Inc. and Florida Rock Properties, Inc., successor by merger to Grandin Land, Inc. (see Exhibit (10)(c)), but all of which may be material in the aggregate, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(b) License Agreement, dated June 30, 1986, from Florida Rock Industries, Inc. to Florida Rock & Tank Lines, Inc. to use "Florida Rock" in corporate names, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(c) Mining Lease Agreement, dated September 1, 1986, between Florida Rock Industries, Inc. and Florida Rock Properties, Inc., successor by merger to Grandin Land, Inc., incorporated by reference to an exhibit previously filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(d) Summary of Medical Reimbursement Plan of Patriot Transportation Holding, Inc., incorporated by reference to an exhibit filed with Form 10-K for the fiscal year ended September 30, 1993. File No. 33-26115. (10)(e) Summary of Management Incentive Compensation Plans, incorporated by reference to an exhibit filed with Form 10-K for the fiscal year ended September 30, 1994. File No. 33-26115. (10)(f) Management Security Agreements between the Company and certain officers, incorporated by reference to a form of agreement previously filed (as Exhibit (10)(I)) with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(g)(1) Patriot Transportation Holding, Inc. 1989 Employee Stock Option Plan, incorporated by reference to an exhibit filed with Form S-4 dated December 13, 1988. File No. 33-26115. (10)(g)(2) Patriot Transportation Holding, Inc. 1995 Stock Option Plan, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1994. File No. 33-26115. (10)(g)(3) Patriot Transportation Holding, Inc. 2000 Stock Option Plan, incorporated by reference to an appendix to the Company's Proxy Statement dated December 15, 1999. File No. 33-26115. (10)(h) Purchase and Sale Agreement dated February 6, 2002 between Florida Rock Industries, Inc. and Florida Rock Properties, Inc., incorporated by reference to an exhibit filed with Form 10-Q for the quarter ended December 31, 2001. File No. 33-26115. (10)(i) Purchase and Sale Agreement dated May 7, 2003 between Maryland Rock Industries, Inc. and Florida Rock Industries, Inc. and Florida Rock Properties, Inc. (11) Computation of Earnings Per Common Share. (31)(a) Certification of John E. Anderson. (31)(b) Certification of Ray M. Van Landingham. (31)(c) Certification of Gregory B. Lechwar. (32) Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 20