P
ATRIOT TRANSPORTATION HOLDING, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In
thousands)
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and
cash equivalents
|
$
6,020
|
1
|
|
Treasury
bills available for sale
|
14,430
|
17,298
|
|
Accounts
receivable (net of allowance for
|
|
|
|
doubtful
accounts of $165 and $153, respectively)
|
7,472
|
7,866
|
|
Federal
and state taxes receivable
|
117
|
547
|
|
Inventory
of parts and supplies
|
944
|
895
|
|
Prepaid
tires on equipment
|
1,666
|
1,746
|
|
Prepaid
taxes and licenses
|
196
|
609
|
|
Prepaid
insurance
|
1,994
|
2,348
|
|
Prepaid
expenses, other
|
373
|
134
|
|
Total
current assets
|
33,212
|
31,444
|
|
|
|
|
|
Property and
equipment, at cost
|
93,729
|
94,710
|
|
Less accumulated
depreciation
|
59,678
|
60,799
|
|
Net property and
equipment
|
34,051
|
33,911
|
|
|
|
|
|
Goodwill
|
3,431
|
3,431
|
|
Intangible assets,
net
|
740
|
855
|
|
Other assets,
net
|
171
|
176
|
|
Total
assets
|
$
71,605
|
69,817
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
3,221
|
3,271
|
|
Bank
overdraft
|
—
|
625
|
|
Accrued
payroll and benefits
|
3,892
|
3,963
|
|
Accrued
insurance
|
2,339
|
1,896
|
|
Accrued
liabilities, other
|
310
|
408
|
|
Total
current liabilities
|
9,762
|
10,163
|
|
|
|
|
|
Deferred income
taxes
|
6,017
|
5,940
|
|
Accrued
insurance
|
204
|
204
|
|
Other
liabilities
|
1,096
|
1,104
|
|
Total
liabilities
|
17,079
|
17,411
|
|
Commitments and
contingencies
|
|
|
|
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;
3,347,329 and 3,328,466 shares issued
and outstanding,
respectively)
|
335
|
333
|
|
Capital
in excess of par value
|
37,966
|
37,436
|
|
Retained
earnings
|
16,041
|
14,472
|
|
Accumulated
other comprehensive income, net
|
184
|
165
|
|
Total
shareholders’ equity
|
54,526
|
52,406
|
|
Total liabilities
and shareholders’ equity
|
$
71,605
|
69,817
|
See
notes to consolidated financial statements.
P
ATRIOT TRANSPORTATION HOLDING, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Transportation
revenues
|
$
24,907
|
26,445
|
$
74,424
|
77,391
|
|
Fuel
surcharges
|
2,619
|
2,959
|
8,164
|
7,893
|
|
Total
revenues
|
27,526
|
29,404
|
82,588
|
85,284
|
|
|
|
|
|
|
|
Cost
of operations:
|
|
|
|
|
|
Compensation
and benefits
|
11,985
|
12,132
|
35,875
|
36,048
|
|
Fuel
expenses
|
3,988
|
4,623
|
12,268
|
13,049
|
|
Repairs
& tires
|
1,901
|
1,817
|
5,572
|
5,075
|
|
Other
operating
|
1,189
|
1,247
|
3,510
|
3,353
|
|
Insurance
and losses
|
2,211
|
2,614
|
7,155
|
8,499
|
|
Depreciation
expense
|
1,976
|
2,137
|
5,922
|
6,690
|
|
Rents,
tags & utilities
|
833
|
792
|
2,571
|
2,534
|
|
Sales,
general & administrative
|
2,479
|
2,465
|
7,508
|
7,229
|
|
Corporate
expenses
|
426
|
399
|
1,825
|
1,676
|
|
Loss
(gain) on disposition of PP&E
|
115
|
(175
)
|
(1,441
)
|
(674
)
|
|
Total cost of
operations
|
27,103
|
28,051
|
80,765
|
83,479
|
|
|
|
|
|
|
|
Total operating
profit
|
423
|
1,353
|
1,823
|
1,805
|
|
|
|
|
|
|
|
Interest income and
other
|
116
|
64
|
330
|
97
|
|
Interest
expense
|
(8
)
|
(10
)
|
(25
)
|
(29
)
|
|
|
|
|
|
|
|
Income before
income taxes
|
531
|
1,407
|
2,128
|
1,873
|
|
Provision for
(benefit from) income taxes
|
135
|
321
|
559
|
(2,617
)
|
|
|
|
|
|
|
|
Net
income
|
$
396
|
1,086
|
$
1,569
|
4,490
|
|
|
|
|
|
|
|
Unrealized
investment gains, net
|
7
|
—
|
19
|
—
|
|
Tax reform gain on
retiree health
|
—
|
—
|
—
|
32
|
|
|
|
|
|
|
|
Comprehensive
income
|
$
403
|
1,086
|
$
1,588
|
4,522
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
Net
Income -
|
|
|
|
|
|
Basic
|
$
0.12
|
0.33
|
.47
|
1.35
|
|
Diluted
|
$
0.12
|
0.33
|
.47
|
1.35
|
|
|
|
|
|
|
Number of shares (in thousands) used in computing:
|
|
|
-basic earnings per
common share
|
3,347
|
3,324
|
3,339
|
3,315
|
|
-diluted earnings
per common share
|
3,348
|
3,328
|
3,340
|
3,316
|
See
notes to consolidated financial statements.
P
ATRIOT TRANSPORTATION HOLDING, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED JUNE 30, 2019 AND 2018
(In
thousands)
(Unaudited)
|
|
Nine months
ended June 30,
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
Net
income
|
$
1,569
|
4,490
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
provided
by operating activities:
|
|
|
|
Depreciation
and amortization
|
6,373
|
7,226
|
|
Deferred
income taxes
|
77
|
(3,950
)
|
|
Gain
on asset dispositions
|
(1,441
)
|
(687
)
|
|
Stock-based
compensation
|
532
|
534
|
|
Net
changes in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
394
|
440
|
|
Inventory
of parts and supplies
|
(49
)
|
(24
)
|
|
Prepaid
expenses
|
608
|
(254
)
|
|
Other
assets
|
(292
)
|
38
|
|
Accounts
payable and accrued liabilities
|
224
|
(1,983
)
|
|
Income
taxes payable and receivable
|
430
|
718
|
|
Long-term insurance liabilities and other long-term
|
|
|
|
Liabilities
|
(8
)
|
—
|
|
Net cash provided
by operating activities
|
8,417
|
6,548
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Purchase of
property and equipment
|
(7,603
)
|
(2,269
)
|
|
Purchase of
Treasury bills
|
(14,810
)
|
—
|
|
Maturities of
Treasury bills
|
18,000
|
—
|
|
Proceeds from
the sale of property, plant and equipment
|
2,649
|
1,338
|
|
Net cash used in
investing activities
|
(1,764
)
|
(931
)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Decrease in bank
overdrafts
|
(625
)
|
—
|
|
Debt issue
costs
|
(9
)
|
—
|
|
Proceeds from
exercise of employee stock options
|
—
|
126
|
|
Net cash (used in)
provided by financing activities
|
(634
)
|
126
|
|
|
|
|
|
Net increase in
cash and cash equivalents
|
6,019
|
5,743
|
|
Cash and cash
equivalents at beginning of period
|
1
|
11,289
|
|
Cash and cash
equivalents at end of the period
|
$
6,020
|
17,032
|
See
notes to consolidated financial statements.
P
ATRIOT TRANSPORTATION HOLDING, INC. AND
SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
(Unaudited)
(1) Description of Business and Basis of
Presentation
.
Description of Business
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 86% 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 14% 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 June
30, 2019, we employed 527 revenue-producing drivers who operated
our fleet of 369 company tractors (excluding 21 being placed in
service and 24 being prepared for sale), 22 owner operators and 518
trailers from our 19 terminals and 6 satellite locations in
Florida, Georgia, Alabama, North Carolina and
Tennessee.
Basis of Presentation
These
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and
do not include all the information and footnotes required by
accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of
management, all adjustments (primarily consisting of normal
recurring accruals) considered necessary for a fair statement of
the results for the interim periods have been included. Operating
results for the nine months ended June 30, 2019 are not necessarily
indicative of the results that may be expected for the fiscal year
ending September 30, 2019. The accompanying consolidated financial
statements and the information included under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the
audited financial statements and notes for the year ended September
30, 2018.
(2)
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. The new standard
requires an entity to recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the
consideration the entity expects to receive in exchange for those
goods or services. This update also requires additional disclosure
about the nature, amount, timing, and uncertainty of revenue and
cash flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract. 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. Management has identified
that a legally enforceable contract with its customers is executed
by both parties at the point of pickup of the shipper’s
product, as evidenced by the bill of lading. Although the Company
may have master agreements with its customers, these master
agreements only establish terms. There is no financial obligation
to the shipper until the Company takes possession of the load.
Revenue is recognized for each individual load and the amount of
revenue in progress at the end of each quarter is insignificant.
There is no significant amount of judgment or uncertainty in
recording revenue. The Company adopted this standard on October 1,
2018, and its adoption of this guidance did not result in a
material impact on its financial statements.
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, including significant 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, primarily the corporate office and 30 leased tractors. The
total gross contractual obligation for leases with commitments
greater than 12 months at September 30, 2018 was
$3,875,000.
(3)
Related Party Agreements.
The Company provides FRP Holdings, Inc. (FRP) certain services
including the services of certain shared executive officers. FRP
may be considered a related party due to common significant
shareholder ownership and shared common officers. A written
agreement exists outlining the terms of such services and the
boards of the respective companies amended and extended this
agreement for one year effective April 1, 2019.
The
consolidated statements of income reflect charges and/or allocation
to FRP Holdings, Inc. for these services of $328,000 and $371,000
for the three months ended June 30, 2019 and 2018, and $1,051,000
and $1,081,000 for the nine months ended June 30, 2019 and 2018,
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.
We
employ an allocation method 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.
(4)
Long-Term debt.
The Company
had no long-term debt outstanding at June 30, 2019 and September
30, 2018. On December 28, 2018 the Company entered into a First
Amendment to the 2015 Credit Agreement (the "Credit Agreement")
with Wells Fargo Bank, N.A. ("Wells Fargo"), effective December 14,
2018. The Credit Agreement modifies the Company's prior Credit
Agreement with Wells Fargo, dated January 30, 2015. The Credit
Agreement establishes a five year revolving credit facility with a
maximum facility amount of $35 million, with a separate sublimit
for standby letters of credit. The credit facility limit may be
increased to $50 million upon request by the Company, subject to
the lender's discretion and the satisfaction of certain conditions.
The interest rate under the Credit Agreement will be a maximum of
1.50% over LIBOR, which may be reduced quarterly to 1.25% or 1.0%
over LIBOR if the Company meets a specified ratio of consolidated
total debt to consolidated total capital. A commitment fee of
0.144% per annum is payable quarterly on the unused portion of the
commitment but the amount may be reduced to 0.1145% or 0.086% if
the Company meets a specified ratio of consolidated total debt to
consolidated total capital. The Credit Agreement contains certain
conditions, affirmative financial covenants and negative covenants.
As of June 30, 2019, we had no outstanding debt borrowed on this
revolver, $3,043,000 in commitments under letters of credit and
$31,957,000 available for additional borrowings. The letter of
credit fee is 1% and the applicable interest rate would have been
3.402% on June 30, 2019. This credit agreement contains certain
conditions, affirmative financial covenants and negative covenants
including a minimum tangible net worth. The Company was in
compliance with all of its loan covenants as of June 30,
2019.
(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 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.
The
following details the computations of the basic and diluted
earnings per common share (dollars and shares in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares
|
|
|
|
|
|
outstanding during
the period
|
|
|
|
|
|
- shares used for
basic
|
|
|
|
|
|
earnings per
common share
|
3,347
|
3,324
|
3,339
|
3,315
|
|
|
|
|
|
|
|
Common shares
issuable under
|
|
|
|
|
|
share based
payment plans
|
|
|
|
|
|
which are
potentially dilutive
|
1
|
4
|
1
|
1
|
|
|
|
|
|
|
|
Common shares used
for diluted
|
|
|
|
|
|
earnings per
common share
|
3,348
|
3,328
|
3,340
|
3,316
|
|
|
|
|
|
|
|
Net
income
|
$
396
|
1,086
|
1,569
|
4,490
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
-basic
|
$
0.12
|
0.33
|
0.47
|
1.35
|
|
-diluted
|
$
0.12
|
0.33
|
0.47
|
1.35
|
For the three and nine months ended June 30, 2019, 181,983 and
185,983 shares attributable to outstanding stock options,
respectively, were excluded from the calculation of diluted
earnings per share because their inclusion would have been
anti-dilutive. For the three and nine months ended June 30, 2018,
139,688 and 158,718 shares attributable to outstanding stock
options, respectively, 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
Prior
to the Company’s spin-off from FRP Holdings, Inc. (FRP) in
January 2015, 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.
Post Spin-Off Patriot Incentive Stock Plan
As part
of the spin-off transaction, the Board of Directors of the Company
adopted the Patriot Transportation Holding, Inc. Incentive Stock
Plan (“Patriot Plan”) in January, 2015. In exchange for
all outstanding FRP options held on January 30, 2015, existing
Company directors, officers and key employees holding option grants
in the FRP Stock Option Plan(s) were issued new grants in the
Patriot and FRP Plans based upon the relative value of Patriot and
FRP immediately following the completion of the spin-off with the
same remaining terms. All related compensation expense has been
allocated to the Company (rather than FRP) and included in
corporate expenses. The number of common shares available for
future issuance in the Patriot Plan was 271,043 at June 30,
2019.
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.
The
Company recorded the following stock compensation expense in its
consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
grants
|
$
57
|
56
|
169
|
166
|
|
Annual director
stock award
|
—
|
—
|
363
|
368
|
|
|
$
57
|
56
|
532
|
534
|
A
summary of Company stock options is presented below (in thousands,
except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
|
|
|
|
|
|
October 1,
2018
|
173,095
|
$
21.49
|
6.3
|
$
1,398
|
|
Granted
|
29,920
|
20.10
|
|
240
|
|
Forfeited
|
(10,000
)
|
18.24
|
|
(76
)
|
|
Outstanding
at
|
|
|
|
|
|
June 30,
2019
|
193,015
|
$
21.44
|
6.5
|
$
1,562
|
|
Exercisable
at
|
|
|
|
|
|
June 30,
2019
|
108,084
|
$
22.32
|
5.0
|
$
885
|
|
Vested
during
|
|
|
|
|
|
nine months
ended
|
|
|
|
|
|
June 30,
2019
|
19,724
|
|
|
$
174
|
The
aggregate intrinsic value of exercisable Company options was $3,000
and the aggregate intrinsic value of all outstanding in-the-money
options was $3,000 based on the Company’s market closing
price of $16.97 on June 28, 2019 less exercise prices.
The
realized tax benefit from option exercises during the first nine
months of fiscal 2019 was $52,000 which pertained to FRP options
exercised that were granted to persons employed by Patriot. The
unrecognized compensation expense of Patriot options granted as of
June 30, 2019 was $551,000, which is expected to be recognized over
a weighted-average period of 3.3 years.
(7)
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.
During
the nine months ending June 30, 2019, the Company invested in
treasury bills with maturities at time of purchase of 3 months to 1
year. The unrealized gains on these investments of $19,000 was
recorded as part of comprehensive income and was based on the
market value (Level 1). The amortized cost of the investments was
$14,417,000 and the carrying amount and fair value was $14,430,000
as of June 30, 2019.
At June
30, 2019 and September 30, 2018, the carrying amount reported in
the consolidated 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.
(8)
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.
(9)
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 the first nine months
of fiscal 2019, the Company’s ten largest customers accounted
for approximately 63.1% of our revenue and one of these customers
accounted for 18.9% of our revenue. Accounts receivable from the
ten largest customers was $4,877,000 and $4,875,000 at June 30,
2019 and September 30, 2018 respectively. The loss of any one of
these customers could have a material adverse effect on the
Company’s revenues and income.
Deposits
: Cash and cash equivalents are
comprised of cash at Wells Fargo Bank, N.A. The balances may
exceed FDIC limits.
(10)
Unusual or Infrequent Items
Impacting Quarterly Results
.
First
quarter 2019 net income included $634,000, or $.19 per share, from
gains on real estate sales. Second quarter 2019 net income included
$179,000 or $.05 per share, from a gain of $247,000 on the
insurance settlement for hurricane damages and losses sustained at
our Panama City, Florida location in this year’s first
quarter.
First
quarter 2018 net income included $3,041,000, or $.92 per share, due
to a deferred tax benefit resulting from revaluing the
company’s net deferred tax liabilities per the
Tax Cuts and Jobs Act of 2017.
As the
Company has a September 30 fiscal year-end, the lower corporate
income tax rate will be phased in, resulting in a U.S. statutory
federal rate of approximately 24.28% for our fiscal year ending
September 30, 2018, and 21% for subsequent fiscal years. The
effective tax rate including the effect of state income taxes, but
not including excess tax benefits from stock option exercises,
decreased from 39.5% to 30.5% for fiscal 2018 and is projected to
be 27.5% for subsequent years.
I
TEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with the
consolidated financial information and related notes that appear in
Part I, Item 1 of this Quarterly Report on Form 10-Q.
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 86% 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 14% 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 June
30, 2019, we employed 527 revenue-producing drivers who operated
our fleet of 369 company tractors (excluding 21 being placed in
service and 24 being prepared for sale), 22 owner operators and 518
trailers from our 19 terminals and 6 satellite locations in
Florida, Georgia, Alabama, North Carolina and Tennessee. We
experience increased seasonal demand in Florida in 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, (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.
Our
industry is experiencing a severe driver shortage. 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 software program, we have
enhanced our ability to quickly identify, communicate with and
ultimately hire qualified drivers.
There
are several opportunities available today in our markets that will
allow us to execute on our 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.
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.
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 23 or drivers
without at least one year of driving experience, auto and
workers’ compensation accident frequencies and severity,
administrative costs, and group health claims
experience.
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.
●
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 category 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 Disposition of
Property, Plant & Equipment
- Our financial results for any period may be
impacted by any gain or loss that we realize on the sale of used
equipment, losses on wrecked equipment, and disposition of other
assets. 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.
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
(excluding drivers related to Charlotte closure) and average driver
count (defined as average number of revenue producing drivers
including owner operators (O.O.) under employment over the
specified time period) as compared to the same period in the prior
year.
|
ITEM
|
|
Nine Months 2019
vs. 2018
|
|
Total
Revenue
|
|
Down
3.2%
|
|
Transportation
Revenue
|
|
Down
3.8%
|
|
Revenue
Miles
|
|
Down
4.3%
|
|
PAFR
|
|
Improved
from 2.01 to 1.91
|
|
Operating
Ratio
|
|
Improved
from 97.9% to 97.8%
|
|
Driver
Turnover Rate
|
|
Increased
from 67.7% to 72.9%
|
|
Avg.
Driver Count incl. owner operators
|
|
Down
7.3%
|
Highlights of the Third quarter of Fiscal 2019
●
The Company
reported net income of $396,000, or $.12 per share, compared to
$1,086,000, or $.33 per share, in the same quarter last
year.
●
Transportation
revenues (excludes fuel surcharges) were down $1,538,000 on 865,000
fewer miles due primarily to running approximately 30 less average
drivers this year versus last year.
Comparative
Results of Operations for the Three Months ended June 30, 2019 and
2018
|
|
Three months
ended June 30
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
miles (in thousands)
|
8,947
|
|
9,812
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Transportation
revenue
|
$
24,907
|
90.5
%
|
26,445
|
89.9
%
|
|
Fuel
surcharges
|
2,619
|
9.5
%
|
2,959
|
10.1
%
|
|
Total
Revenues
|
27,526
|
100.0
%
|
29,404
|
100.0
%
|
|
|
|
|
|
|
|
Cost
of operations:
|
|
|
|
|
|
Compensation
and benefits
|
11,985
|
43.6
%
|
12,132
|
41.3
%
|
|
Fuel
expenses
|
3,988
|
14.5
%
|
4,623
|
15.7
%
|
|
Repairs &
tires
|
1,901
|
6.9
%
|
1,817
|
6.2
%
|
|
Other
operating
|
1,189
|
4.3
%
|
1,247
|
4.2
%
|
|
Insurance and
losses
|
2,211
|
8.0
%
|
2,614
|
8.9
%
|
|
Depreciation
expense
|
1,976
|
7.2
%
|
2,137
|
7.3
%
|
|
Rents, tags
& utilities
|
833
|
3.0
%
|
792
|
2.7
%
|
|
Sales,
general & administrative
|
2,479
|
9.0
%
|
2,465
|
8.4
%
|
|
Corporate
expenses
|
426
|
1.6
%
|
399
|
1.3
%
|
|
Gain on
disposition of PP&E
|
115
|
0.4
%
|
(175
)
|
-0.6
%
|
|
Total cost of
operations
|
27,103
|
98.5
%
|
28,051
|
95.4
%
|
|
|
|
|
|
|
|
Total operating
profit
|
$
423
|
1.5
%
|
1,353
|
4.6
%
|
Total
revenues for the quarter were $27,526,000, down $1,878,000 from the
same quarter last year. Transportation revenues (excludes fuel
surcharges) were $24,907,000, down $1,538,000. The decrease in
transportation revenues is primarily due to the decrease of 865,000
miles over the same quarter last year as we have continually been
running with ~30 less average drivers this year versus last year.
Transportation revenue per mile was up $.08 due to increased
freight rates which has helped to offset the negative impact of
fewer miles. Fuel surcharge revenue was $2,619,000, down $340,000
from the same quarter last year.
Compensation
and benefits decreased $147,000 mainly due to lower company miles
partially offset by higher driver training pay and more owner
operators. Fuel expenses decreased $635,000 due to lower company
miles and lower cost per gallon. Repair and tire expense increased
$84,000 due to several high dollar repairs. Insurance and losses
decreased $403,000 primarily due to lower health and workers’
compensation claims. The lower health claims are partly
attributable to the new Specialty Drug program we implemented
January 1, 2019 which has resulted in ~$25,000 of monthly savings
since implementation. Depreciation expense was down $161,000 as a
result of downsizing our fleet. Loss on disposition of assets was
($115,000) this quarter versus a gain of $175,000 in the same
quarter last year due primarily to a loss from a single vehicle
rollover accident during the quarter and lower equipment sales
activity. During the month of May, we closed our Charlotte
terminal. Charlotte has been a very tough driver market as well as
a low freight rate environment for the past several years. As a
result, Management determined it was in the Company’s best
financial interest to exit the market. In the quarter, the
Charlotte terminal generated an operating loss before overhead
allocation of ($121,000) versus ($7,000) last quarter and ($20,000)
in the same quarter last year primarily due to the added expense
associated with the closure (e.g. severance, relocating equipment,
etc.).
As a
result, operating profit this quarter was $423,000 compared to
$1,353,000 in the same quarter last year. Operating ratio was 98.5
this quarter versus 95.4 in the same quarter last
year.
Comparative
Results of Operations for the Nine Months ended June 30, 2019 and
2018
|
|
Nine months
ended June 30
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
miles (in thousands)
|
27,199
|
|
28,418
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Transportation
revenue
|
$
74,424
|
90.1
%
|
77,391
|
90.7
%
|
|
Fuel
surcharges
|
8,164
|
9.9
%
|
7,893
|
9.3
%
|
|
Total
Revenues
|
82,588
|
100.0
%
|
85,284
|
100.0
%
|
|
|
|
|
|
|
|
Cost
of operations:
|
|
|
|
|
|
Compensation
and benefits
|
35,875
|
43.4
%
|
36,048
|
42.3
%
|
|
Fuel
expenses
|
12,268
|
14.9
%
|
13,049
|
15.3
%
|
|
Repairs &
tires
|
5,572
|
6.7
%
|
5,075
|
6.0
%
|
|
Other
operating
|
3,510
|
4.2
%
|
3,353
|
3.9
%
|
|
Insurance and
losses
|
7,155
|
8.7
%
|
8,499
|
10.0
%
|
|
Depreciation
expense
|
5,922
|
7.2
%
|
6,690
|
7.8
%
|
|
Rents, tags
& utilities
|
2,571
|
3.1
%
|
2,534
|
3.0
%
|
|
Sales,
general & administrative
|
7,508
|
9.1
%
|
7,229
|
8.5
%
|
|
Corporate
expenses
|
1,825
|
2.2
%
|
1,676
|
1.9
%
|
|
Gain on
disposition of PP&E
|
(1,441
)
|
-1.7
%
|
(674
)
|
-0.8
%
|
|
Total cost of
operations
|
80,765
|
97.8
%
|
83,479
|
97.9
%
|
|
|
|
|
|
|
|
Total operating
profit
|
$
1,823
|
2.2
%
|
1,805
|
2.1
%
|
The
Company reported net income of $1,569,000, or $.47 per share,
compared to net income of $4,490,000, or $1.35 per share in the
same period last year. Income before income taxes was $2,128,000
versus $1,873,000 in the same period last year. The first nine
months of 2019 income included $634,000, or $.19 per share, from
gains on real estate sales. The first nine months of 2018 net
income included $3,041,000, or $.92 per share, due to a deferred
tax benefit resulting from revaluing the company’s net
deferred tax liabilities per the
Tax Cuts and Jobs Act of
2017.
Total
revenues for the first nine months were $82,588,000, down
$2,696,000 from the same period last year. Transportation revenues
(excludes fuel surcharges) were $74,424,000, down $2,967,000. Miles
declined by 1,219,000 to 27,199,000 versus 28,418,000 in the same
period last year.
Net
fuel expense (i.e. gross fuel expenses less fuel surcharges)
decreased by $1,052,000 due to fewer miles driven and higher fuel
surcharges in the early part of the period. Repair and tire expense
increased $497,000 due to several high dollar repairs and the
expensing of prepaid tires as we purchased more tractors and
trailers in this period versus the same period last year. Other
operating expenses were up $157,000 due to increased tolls, driver
hiring and driver travel expense. Insurance and losses were down
$1,344,000 due mainly to lower auto liability ($1,117,000) and
lower health ($223,000) claims. Depreciation expense was down
$768,000 as we sold excess equipment to right size our fleet.
Sales, general & administrative costs increased $279,000 due
mainly to increased driver recruiting efforts and higher IT expense
(on-going system upgrades). Gain on disposition of assets increased
$767,000 due primarily to a gain of $866,000 on the sale of a prior
terminal site in Ocoee, Florida and a gain of $231,000 on the
insurance settlement for hurricane damages and losses sustained at
our Panama City, Florida location.
As a
result, operating profit was $1,823,000 compared to $1,805,000 in
the same period last year. Operating ratio was 97.8 versus 97.9
last year.
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
June 30, 2019, we had no debt outstanding on this revolver,
$3,043,000 letters of credit and $31,957,000 available for
additional borrowings. The Company expects our fiscal year 2019
cash generation to cover the cost of our operations and all 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):
|
|
|
|
|
|
|
|
|
|
|
Total cash provided
by (used for):
|
|
|
|
Operating
activities
|
$
8,417
|
6,548
|
|
Investing
activities
|
(1,764
)
|
(931
)
|
|
Financing
activities
|
(634
)
|
126
|
|
Increase in cash
and cash equivalents
|
$
6,019
|
5,743
|
|
|
|
|
|
Outstanding debt at
the beginning of the period
|
—
|
—
|
|
Outstanding debt at
the end of the period
|
—
|
—
|
Operating Activities -
Net cash provided by operating
activities (as set forth in the cash flow statement) was $8,417,000
for the nine months ended June 30, 2019, compared to $6,548,000 in
the same period last year. The total of net income plus
depreciation and amortization and less gains on sales of property
and equipment decreased $4,528,000 versus the same period last
year. These changes are described above under "Comparative Results
of Operations." Deferred income tax decreased $3,950,000 in the
same period last year primarily due to a reduction in income tax
expense related to the enactment of the Tax Cuts and Jobs Act.
Accounts Payable and Accrued Liabilities decreased $1,983,000 in
the same period last year due to the timing of payments related to
equipment purchases and lower bonus payments paid for the prior
fiscal 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, purchase and maturity of
Treasury bills, any business acquisitions and proceeds from sales
of property and equipment upon retirement. For the nine months
ended June 30, 2019, we spent $1,764,000 on investing activities
which included $4,954,000 for the purchase of plant, property and
equipment net of proceeds from retirements and $14,810,000 for the
purchase of Treasury bills offset by $18,000,000 in proceeds on
maturities of Treasury bills. For the nine months ended June 30,
2018 we spent $931,000 on equipment net of
retirements.
Financing Activities
– Financing activities primarily
include net changes to our outstanding revolving debt and proceeds
from the sale of shares of common stock through employee equity
incentive plans. For the nine months ended June 30, 2019, cash used
in financing activities was $634,000 versus cash provided by
financing activities of $126,000 for the nine months ended June 30,
2018 due to bank overdrafts in the prior year, debt issue costs
related to a revised and restated revolver credit agreement and
stock option exercises in the prior year. We had no outstanding
long-term debt on June 30, 2019 or June 30, 2018.
Credit Facilities -
On December 28, 2018 the Company entered
into a First Amendment to the 2015 Credit Agreement (the "Credit
Agreement") with Wells Fargo Bank, N.A. ("Wells Fargo"), effective
December 14, 2018. The Credit Agreement modifies the Company's
prior Credit Agreement with Wells Fargo, dated January 30, 2015.
The Credit Agreement establishes a five year revolving credit
facility with a maximum facility amount of $35 million, with a
separate sublimit for standby letters of credit. The credit
facility limit may be increased to $50 million upon request by the
Company, subject to the lender's discretion and the satisfaction of
certain conditions. The interest rate under the Credit Agreement
will be a maximum of 1.50% over LIBOR, which may be reduced
quarterly to 1.25% or 1.0% over LIBOR if the Company meets a
specified ratio of consolidated total debt to consolidated total
capital. A commitment fee of 0.144% per annum is payable quarterly
on the unused portion of the commitment but the amount may be
reduced to 0.1145% or 0.086% if the Company meets a specified ratio
of consolidated total debt to consolidated total capital. The
credit agreement contains certain conditions, affirmative financial
covenants and negative covenants, including a minimum tangible net
worth. As of June 30, 2019, the tangible net worth covenant would
have limited our ability to pay dividends or repurchase stock with
borrowed funds to a maximum of $22.1 million combined.
Cash Requirements
- The Company currently expects its fiscal
2019 capital expenditures to be approximately $10 million for the
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
Summary and Outlook
. Our balance sheet remains solid with
$20,000,000 of cash and investments and zero debt. We have
grown our shareholder equity by $2,100,000 thus far this fiscal
year. This quarter was negatively impacted by the lower driver
count resulting in lower revenue miles. Although we continue to see
a higher number of drivers in training our turnover rate has not
improved resulting in a flattening of our driver count this year
versus the decline we saw throughout last year. Management believes
the biggest challenge we face today is driver retention and we are
keenly focused on continuing to develop our strategy around
improving retention. There is plenty of business available in many
of our markets that we believe we can add if we can grow the driver
count in those markets. Management is pleased with the efforts this
year to improve freight rates which resulted in an increase of $.08
per mile on transportation revenue quarter over quarter. The cost
of hiring and retaining drivers continues to rise as do insurance
premiums across the transportation industry. As a result, we are
optimistic that freight rates will continue in a positive direction
for the foreseeable future.
The
decrease in equipment is producing significant recurring savings as
are the recent changes we made to our specialty drug and wellness
plans. We are in the early stages of renegotiating our pharmacy and
health plan agreements and thus far we are optimistic about
potential recurring savings moving into fiscal 2020. We will
continue to pursue relationships with those customers who are
willing to properly compensate us for the safe, reliable service we
provide, particularly during this severe driver shortage. We are
optimistic that the strategic plan we have in place will lead to
improved operating profits.