PATRIOT TRANSPORTATION HOLDING, INC. (Form: 10-Q, Received: 02/01/2019 15:59:50)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018 .

[_]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________ to _________

Commission File Number: 001-36605

_____________________

PATRIOT TRANSPORTATION HOLDING, INC.

(Exact name of registrant as specified in its charter)

_____________________

Florida		47-2482414
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 W. Forsyth St., 7th Floor, Jacksonville, FL		32202
(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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [x] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]		Accelerated filer [_]

Non-accelerated filer [ ]		Smaller reporting company [x]

Emerging growth company [_]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

Indicate by check mark whether the registrant is a shell company (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 the latest practicable date.

	Class				December 31, 2018
	Common Stock				3,328,466

PATRIOT TRANSPORTATION HOLDING, INC.

FORM 10-Q

QUARTER ENDED DECEMBER 31, 2018

CONTENTS

Page No.

Preliminary Note Regarding Forward-Looking Statements		3

	Part I. Financial Information

Item 1.	Financial Statements
	Consolidated Balance Sheets	4
	Consolidated Statements of Income	5
	Consolidated Statements of Cash Flows	6
	Condensed Notes to consolidated financial statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures about Market Risks	19

Item 4.	Controls and Procedures	20

	Part II. Other Information

Item 1A.	Risk Factors	21

Item 2.	Purchase of Equity Securities by the Issuer	21

Item 6.	Exhibits	21

Signatures		22

Exhibit 31	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	24

Exhibit 32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	27

Preliminary Note Regarding 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.

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: 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.

PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

		December 31,	September 30,
Assets		2018		2018
Current assets:
Cash and cash equivalents	$	436		1
Treasury bills available for sale		19,766		17,298
Accounts receivable (net of allowance for
doubtful accounts of $151 and $153, respectively)		7,684		7,866
Federal and state taxes receivable		299		547
Inventory of parts and supplies		890		895
Prepaid tires on equipment		1,699		1,746
Prepaid taxes and licenses		397		609
Prepaid insurance		1,994		2,348
Prepaid expenses, other		116		134
Total current assets		33,281		31,444

Property and equipment, at cost		93,622		94,710
Less accumulated depreciation		60,636		60,799
Net property and equipment		32,986		33,911

Goodwill		3,431		3,431
Intangible assets, net		816		855
Other assets, net		181		176
Total assets	$	70,695		69,817

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,589		3,271
Bank overdraft		—		625
Accrued payroll and benefits		3,918		3,963
Accrued insurance		2,358		1,896
Accrued liabilities, other		237		408
Total current liabilities		10,102		10,163

Deferred income taxes		5,941		5,940
Accrued insurance		204		204
Other liabilities		1,100		1,104
Total liabilities		17,347		17,411
Commitments and contingencies (Note 8)
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; 3,328,466 and 3,328,466 shares issued
and outstanding, respectively)		333		333
Capital in excess of par value		37,492		37,436
Retained earnings		15,356		14,472
Accumulated other comprehensive income, net		167		165
Total shareholders’ equity		53,348		52,406
Total liabilities and shareholders’ equity	$	70,695		69,817

See notes to consolidated financial statements.

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)

(Unaudited)

	THREE MONTHS ENDED
	DECEMBER 31,
	2018			2017
Revenues:
Transportation revenues	$	24,980			25,570
Fuel surcharges		3,074			2,331
Total revenues		28,054			27,901

Cost of operations:
Compensation and benefits		12,038			11,873
Fuel expenses		4,276			4,122
Repairs & tires		1,665			1,573
Other operating		1,132			1,043
Insurance and losses		2,942			2,716
Depreciation expense		1,970			2,330
Rents, tags & utilities		847			855
Sales, general & administrative		2,468			2,322
Corporate expenses		532			487
Gain on disposition of PP&E		(923	)		(164	)
Total cost of operations		26,947			27,157

Total operating profit		1,107			744

Interest income and other		101			2
Interest expense		(10	)		(10	)

Income before income taxes		1,198			736
Provision for (benefit from) income taxes		314			(2,856	)

Net income	$	884			3,592

Unrealized investment gains, net		2			—
Tax reform gain on retiree health		—			32

Comprehensive Income	$	886			3,624

Earnings per common share:
Net Income-
Basic		0.27			1.09
Diluted		0.27			1.09

Number of shares (in thousands) used in computing:
-basic earnings per common share		3,328			3,303
-diluted earnings per common share		3,331			3,304

See notes to consolidated financial statements.

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(In thousands)

(Unaudited)

	Three months ended December 31,
		2018		2017
Cash flows from operating activities:
Net income	$	884		3,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		2,117		2,509
Deferred income taxes		—		(3,021	)
Gain on asset dispositions		(923	)	(164	)
Stock-based compensation		56		55
Net changes in operating assets and liabilities:
Accounts receivable		182		893
Inventory of parts and supplies		5		(54	)
Prepaid expenses		631		(312	)
Other assets		(92	)	34
Accounts payable and accrued liabilities		564		(2,123	)
Income taxes payable and receivable		248		114
Long-term insurance liabilities and other long-term
Liabilities		(3	)	3
Net cash provided by operating activities		3,669		1,526

Cash flows from investing activities:
Purchase of property and equipment		(1,661	)	(1,122	)
Purchase of Treasury bills		(5,371	)	—
Maturities of Treasury bills		3,000		—
Proceeds from the sale of property, plant and equipment		1,432		307
Net cash used in investing activities		(2,600	)	(815	)

Cash flows from financing activities:
Decrease in bank overdrafts		(625	)	—
Debt issue costs		(9	)	—
Net cash used in financing activities		(634	)	—

Net increase in cash and cash equivalents		435		711
Cash and cash equivalents at beginning of period		1		11,289
Cash and cash equivalents at end of the period	$	436		12,000

See notes to consolidated financial statements.

PATRIOT TRANSPORTATION HOLDING, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018

(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 December 31, 2018, we employed 541 revenue-producing drivers who operated our fleet of 380 company tractors (excluding 10 being placed in service and 3 being prepared for sale), 20 owner operators and 532 trailers from our 20 terminals and 6 satellite locations in Florida, Georgia, Alabama, South Carolina, 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 three months ended December 31, 2018 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. 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 October 1, 2018.

The consolidated statements of income reflect charges and/or allocation to FRP Holdings, Inc. for these services of $422,000 and $352,000 for the three months ended December 31, 2018 and 2017, 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 December 31, 2018 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 December 31, 2018, 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 3.522% on December 31, 2018. 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 December 31, 2018.

(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):

	Three Months ended
	December 31,
	2018		2017
Weighted average common shares
outstanding during the period
- shares used for basic
earnings per common share		3,328		3,303

Common shares issuable under
share based payment plans
which are potentially dilutive		3		1

Common shares used for diluted
earnings per common share		3,331		3,304

Net income	$	884		3,592

Earnings per common share:
-basic	$	0.27		1.09
-diluted	$	0.27		1.09

For the three months ended December 31, 2018, 165,409 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three months ended December 31, 2017, 178,519 shares 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 are 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.

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, 2015 with the same remaining terms. The number of common shares available for future issuance was 8,587 at December 31, 2018.

The realized tax benefit pertaining to options exercised and the remaining compensation cost of options previously granted are 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.

The Company recorded the following stock compensation expense in its consolidated statements of income (in thousands):

	Three Months ended
	December 31,
	2018		2017
Stock option grants	$	56		55
Annual director stock award		—		—
	$	56		55

A summary of Company stock options is presented below (in thousands, except share and per share amounts):

			Weighted	Weighted		Weighted
	Number		Average	Average		Average
	of		Exercise	Remaining		Grant Date
Options	Shares		Price	Term (yrs)		Fair Value

Outstanding at
October 1, 2018	175,551	$	21.52	6.3	$	1,419
Granted	29,920		20.10			240
Outstanding at
December, 2018	205,471	$	21.32	6.6	$	1,659
Exercisable at
December 31, 2018	120,540	$	22.02	5.1	$	983
Vested during
three months ended
December 31, 2018	19,724				$	174

The aggregate intrinsic value of exercisable Company options was $54,000 and the aggregate intrinsic value of all outstanding in-the-money options was $85,000 based on the Company’s market closing price of $19.71 on December 31, 2018 less exercise prices.

The realized tax benefit from option exercises during the first three months of fiscal 2019 was $28,000 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 December 31, 2018 was $653,000, which is expected to be recognized over a weighted-average period of 3.7 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 quarter ending December 31, 2018, 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 $2,000 was recorded as part of comprehensive income and was based on the market value (Level 1). The amortized cost of the investments was $19,776,000 and the carrying amount and fair value was $19,766,000 as of December 31, 2018.

At December 31, 2018 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 three months of fiscal 2019, the Company’s ten largest customers accounted for approximately 62% of our revenue and one of these customers accounted for 18.8% of our revenue. Accounts receivable from the ten largest customers was $4,485,000 and $4,875,000 at December 31, 2018 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.

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, is projected to decrease from 39.5% to 30.5% for fiscal 2018 and 27.5% for subsequent years.

ITEM 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 December 31, 2018, we employed 541 revenue-producing drivers who operated our fleet of 380 company tractors (excluding 10 being placed in service and 3 being prepared for sale), 20 owner operators and 532 trailers from our 20 terminals and 6 satellite locations in Florida, Georgia, Alabama, South Carolina, 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 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. 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 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	Q1 2019 vs. Q1 2018
Total Revenue	Up .5%
Transportation Revenue	Down 2.3%
Revenue Miles	Up .3%
PAFR	Increased from 2.05 to 2.69
Operating Ratio	Declined from 97.3% to 96.1%
Driver Turnover Rate	Increased from 62% to 70.3%
Avg. Driver Count incl. owner operators	Down 8.8%

Highlights of the First quarter of Fiscal 2019

Total revenue increased $153,000, or .5%.

The Company reported net income of $884,000, or $.27 per share, compared to net income of $3,592,000, or $1.09 per share, in the same quarter last year. First quarter 2018 net income included $3,041,000, or $.92 per share, due to revaluing the Company’s net deferred tax liabilities per the Tax Cuts and Jobs Act of 2017 . First quarter 2019 net income included $634,000, or $.19 per share, from gains on real estate sales.

Comparative Results of Operations for the Three Months ended December 31, 2018 and 2017

	Three months ended December 31
(dollars in thousands)		2018		%		2017		%

Revenue miles (in thousands)		9,277				9,252

Revenues:
Transportation revenue	$	24,980		89.0	%	25,570		91.6	%
Fuel surcharges		3,074		11.0	%	2,331		8.4	%
Total Revenues		28,054		100.0	%	27,901		100.0	%

Cost of operations:
Compensation and benefits		12,038		42.9	%	11,873		42.6	%
Fuel expenses		4,276		15.3	%	4,122		14.8	%
Repairs & tires		1,665		6.0	%	1,573		5.6	%
Other operating		1,132		4.0	%	1,043		3.7	%
Insurance and losses		2,942		10.5	%	2,716		9.7	%
Depreciation expense		1,970		7.0	%	2,330		8.4	%
Rents, tags & utilities		847		3.0	%	855		3.1	%
Sales, general & administrative		2,468		8.8	%	2,322		8.3	%
Corporate expenses		532		1.9	%	487		1.7	%
Gain on disposition of PP&E		(923	)	-3.3	%	(164	)	-0.6	%
Total cost of operations		26,947		96.1	%	27,157		97.3	%

Total operating profit	$	1,107		3.9	%	744		2.7	%

Total revenues for the quarter were $28,054,000, up $153,000 from the same quarter last year. Transportation revenues (excluding fuel surcharges) were $24,980,000, down $590,000 mainly due to a $.07 per mile decrease on a higher average haul length. Miles increased by 25,000 to 9,277,000 over the same quarter last year partially offsetting the impact of the lower revenue per mile ($67,000). Fuel surcharge revenue was $3,074,000, up $743,000 from the same quarter last year due to higher diesel prices. Several locations were impacted during the quarter by Hurricane Michael, and in particular our Panama City location experienced severe damage and an extended shutdown period in which we lost significant revenue that negatively impacted our operating profit (~$50,000).

Compensation and benefits increased $165,000, or 2 cents per mile, mainly due to increased driver training pay ($135,000) as average drivers in training increased from 29 in the first quarter last year

to 38 in this year’s first quarter. Owner operator count increased from 13 to 20 this quarter versus the same quarter last year which increased our compensation and benefits cost. We pay owner operators a higher percentage of the reveunes they generate offset by lower variable costs (e.g. fuel, maintenance) paid directly by the owner operator. Fuel expenses increased $154,000, or 1 cent per mile, on higher average diesel prices offset by improved fuel economy due to our longer average haul length and more owner operators paying directly for their fuel. Repair and tire expense increased $92,000 due to several high dollar repairs. Other operating expenses were up $89,000 due to increased tolls, increased driver hiring and travel expense and some site maintenance at a few of our terminal offices. Insurance and losses increased $226,000 primarily due to one very high dollar health claim ($334,000 in this quarter) partially offset by reduced wreck repair expense ($119,000). Depreciation expense was down $360,000 as a result of down sizing our fleet and placing twenty three full service lease trucks in certain markets where we do not have maintenance shops. However, during the quarter we carried some excess equipment that we are currently in the process of selling and that negatively impacted the quarter’s results (~$100,000). Sales, general & administrative costs increased $146,000 due mainly to accruals for bonus compensation ($99,000) and higher IT and Payroll expense to support the changes we are making to our systems and the way we compensate drivers. Corporate expenses were up due mainly to non-recurring legal fees in connection with becoming a “smaller reporting company” under new SEC guidelines. Gain on sale of assets increased $759,000 due primarily to a gain of $866,000 on the sale of a prior terminal site in Ocoee, Florida that was relocated to Orlando, FL.

As a result, operating profit this quarter was $1,107,000 (which includes the $866,000 gain from land sales and a $303,000 loss on health insurance) compared to operating profit of $744,000 in the same quarter last year. Operating ratio was 96.1 this quarter versus 97.3 in the same quarter 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 December 31, 2018, 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):

	Three months
	Ended December 31,
	2018			2017
Total cash provided by (used for):
Operating activities	$	3,669			1,526
Investing activities		(2,600	)		(815	)
Financing activities		(634	)		—
Increase in cash and cash equivalents	$	435			711

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 $3,669,000 for the three months ended December 31, 2018, compared to $1,526,000

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 $3,859,000 versus the same period last year. These changes are described above under "Comparative Results of Operations." Trade accounts receivable decreased $182,000 compared to a decrease of $893,000 in the same period last year. Deferred income tax decreased $3,021,000 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 favorably impacted cash provided due to the timing of payments made in the same period last year related to equipment purchases and lower bonus payments paid during the quarter 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 year ended December 31, 2018, we spent $2,600,000 on investing activities which included $229,000 for the purchase of plant, property and equipment net of proceeds from retirements and $5,371,000 for the purchase of Treasury bills offset by $3,000,000 in proceeds on maturities of Treasury bills. For the three months ended December 31, 2017 we spent $815,000 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 three months ended December 31, 2018, cash used in financing activities was $634,000 versus no financing activities for the three months ended December 31, 2017 due to bank overdrafts in the prior year and debt issue costs related to a revised and restated revolver credit agreement. We had no outstanding long-term debt on December 31, 2018 or December 31, 2017.

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 December 31, 2018, the tangible net worth covenant would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of $20.8 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 . We sold an excess parcel of land in Ocoee, FL for $1,268,000 which

benefitted operating profit this quarter, increased our cash and reduced our capital employed in the transportation business. This quarter was negatively impacted by the large loss we experienced on health claims. We have implemented some recent changes, in particular to our pharamacy and wellness plans, and expect to see meaningful savings from those changes. The driver shortage and high driver turnover remains a problem for the industry. With our number of drivers in training improving over the prior several quarters, we are hopeful that our initiatives are having their desired impact on attracting new drivers. Demand for our services is still very high and we are continuing to allocate our available resources to fulfill the needs of those customers who are willing to partner with us on both pricing and efficiently managing the day to day operation of our business.

Our team did an outstanding job throughout Hurricane Michael and its aftermath and we are especially greatful for their dedication and perseverance. We are in the process of repairing the damages to the Panama City terminal and working with our insurance company to determine the insured value applicable to the losses. At this point, we do not anticipate a material negative financial impact from the damages we sustained.

We are not pleased with the bottom line operating results for this first quarter but we do see several positive trends. Our balance sheet improved during the quarter as we increased our cash and investments since September 30, 2018 by $2,903,000, increased shareholder equity by $942,000 and remained debt free. We have seen a sustained improvement in the number of drivers in training and are hopeful that will lead to an increase in our driver count. There has been positive improvement in the market on pricing and there are plenty of opportunities today to increase our business levels at better rates if we can obtain additional driver capacity. We are in the process of selling excess equipment which will reduce our depreciation, maintenance, tire and tag expense. The recent changes we made to our pharmacy and wellness plans are expected to generate material recurring savings on our health expense. Management expects all of our IT system related upgrades to be fully implemented during the second quarter of fiscal 2019 and anticipate these changes will greatly enhance the capabilities of our field personnel and our back office staff to provide improved customer service. We are optimistic that the strategic plan we have in place will lead to the improved operating profit we targeted for this fiscal year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk - We are exposed to the impact of interest rate changes through our variable-rate borrowings under the credit agreements. Under the Wells Fargo revolving credit line of credit, the applicable spread for borrowings at December 31, 2018 was 1.0% over libor. The applicable margin for such borrowings will be reduced or increased in the event that our debt to capitalization ratio as calculated under the credit agreement exceeds target levels.

Commodity Price Risk - The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, global politics and other market factors. Historically, we have been able to recover a significant portion of fuel price increases from our customers in the form of fuel surcharges. The typical fuel surcharge table provides some margin contribution at higher diesel fuel prices but also results in some margin erosion at the lower diesel fuel prices. The price and availability of diesel fuel can be unpredictable as well as the extent to which fuel surcharges can be collected to offset such increases.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

The Company also maintains a system of internal accounting controls over financial reporting that are designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving the desired control objectives.

As of December 31, 2018, the Company, under the supervision and with the participation of the Company's management, including the CEO, CFO and CAO, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company’s CEO, CFO and CAO concluded that the Company's disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in periodic SEC filings.

There have been no changes in the Company’s internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. PURCHASES OF EQUITY SECURITIES BY THE ISSUER

(c)

Total

Number of

(d)

Purchased

Approximate

(a)

As Part of

Dollar Value of

Total

(b)

Publicly

Shares that May

Number of

Average

Announced

Yet Be Purchased

Price Paid

Plans or

Under the Plans

Period

Purchased

per Share

Programs

or Programs (1)

October 1

Through

October 31

—

5,000,000

November 1

Through

November 30

—

5,000,000

December 1

Through

December 31

—

5,000,000

Total

—

(1) On February 4, 2015, the Board of Directors authorized management to expend up to $5,000,000 to repurchase shares of the Company’s common stock from time to time as opportunities arise. To date, the Company has not repurchased any common stock of the Company.

Item 6. EXHIBITS

(a)

Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", on page 23.

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.

		PATRIOT TRANSPORTATION HOLDING, INC.


Date: February 1, 2019	By	ROBERT E. SANDLIN
		Robert E. Sandlin
		President and Chief Executive Officer
		(Principal Executive Officer)


	By	MATTHEW C. MCNULTY
		Matthew C. McNulty
		Vice President and Chief Financial Officer
		(Principal Financial Officer)


	By	JOHN D. KLOPFENSTEIN
		John D. Klopfenstein
		Controller and Chief Accounting
		Officer (Principal Accounting Officer)

PATRIOT TRANSPORTATION HOLDING, INC.

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2018

EXHIBIT INDEX

(10.1)

First Amendment to the 2015 Credit Agreement, dated December 28,2018 and effective December 14, 2018, between Patriot Transportation Holding, Inc. and Wells Fargo Bank, N.A.

(14)

Financial Code of Ethical Conduct between the Company, Chief Executive Officers, and Financial Managers (incorporated by reference to Form 8-K filed February 2, 2015).

(31)(a)

Certification of Robert E. Sandlin .

(31)(b)

Certification of Matthew C. McNulty

(31)(c)

Certification of John D. Klopfenstein .

(32)

Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer under Section 906 of the Sarbanes-Oxley Act of 2002 .

101.INS	XBRL Instance Document
101.XSD	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

FIRST AMENDMENT TO 2015 CREDIT AGREEMENT

THIS FIRST AMENDMENT TO 2015 CREDIT AGREEMENT (the "Amendment") is dated as of the 14 day of December, 2018 (and shall be effective as of such date unless otherwise provided herein), by and between PATRIOT TRANSPORTATION HOLDING, INC., a Florida corporation (“Borrower”), and WELLS FARGO BANK, N.A., a national banking association ("Wells Fargo").

Preliminary Statement

A. Borrower and Wells Fargo entered into that certain 2015 Credit Agreement dated as of January 30, 2015 (as amended, the "Credit Agreement"), whereby Wells Fargo extended a revolving credit facility (including letter of credit sub-facility) for the benefit of Borrower.

B. Borrower has requested Wells Fargo to renew, increase and extend the expiration date of such revolving credit facility, and Wells Fargo has agreed to do, on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, the parties agree that the Credit Agreement is hereby amended as follows:

Article 1. General Applicability of Credit Agreement

1.1. Certain Defined Terms .

(a) As used in this Amendment, all terms defined and all abbreviations used in the Credit Agreement shall, when capitalized herein, have the same meanings and use in this Amendment, unless the context clearly indicates to the contrary.

(b) The term "Agreement" as used in the Credit Agreement shall include this Amendment.

(c) The term "Loan Documents," as defined in Section 1.1 of the Credit Agreement, shall hereafter include this Amendment and all acknowledgements, affidavits, certificates and other documents executed and delivered in connection with this Amendment (collectively, for convenience, the Amendment and such additional documents are sometimes herein called the "Additional Loan Documents").

(d) The term “First Amendment Effective Date” shall mean December 14, 2018.

1.2. Continuing Effect of Credit Agreement . Except as previously modified in writing and as further expressly amended and modified herein, the Credit Agreement, and the terms and provisions thereof, and each Loan Document described therein, shall remain unchanged and in full force and effect, and, except to the extent contradictory to or inconsistent with this Amendment, shall govern the Additional Loan Documents.

1.3. Reaffirmation of Warranties and Representations . Borrower hereby reaffirms each of the warranties and representations made by Borrower to Wells Fargo in the Credit Agreement, as amended hereby, to the same extent and with the same force and effect as if fully restated in this Amendment.

1.4. Waivers; Absence of Defenses . Borrower hereby warrants and represents that, as of the date hereof:

(a) No Event of Default has occurred and is continuing under the Credit Agreement or any other Loan Document.

(b) There exists no defense, claim, counterclaim or setoff whatsoever in favor of Borrower with respect to the obligations of Borrower under the Credit Agreement or any other Loan Document or, to the extent any such defense, claim, counterclaim or setoff may exist, it is hereby waived and released.

Article 2. Modifications of Credit Agreement

2.1. The table included in the definition of “Applicable Margin” in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

LEVEL	Leverage Ratio	Applicable Margin (basis points per annum)
		Base Rate	LIBOR ^[1]	Commitment Fee
I	>=.45 to .55	100.0	150.0	14.40
II	>=.35 to <.45	75.0	125.0	11.45
III	<.35	25.0	100.0	8.60

2.2. The definition of “Commitment Termination Date” in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

“ Commitment Termination Date ” shall mean the earliest of (i) December 13, 2023, (ii) the date on which the Revolving Commitment is terminated pursuant to Section 2.8 or (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise).

2.3. The last sentence of the definition of “Indebtedness” in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

“The Indebtedness of any Person shall (i) include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor, and (ii) exclude any operating leases required to be classified as debt under GAAP.”

2.4. The definition of “Revolving Commitment” in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

“ Revolving Commitment ” shall mean the obligation of the Lender, subject to the terms and conditions hereof, and notwithstanding the face amount of the Revolving Credit Note, to make Revolving Loans to or for the account of the Borrower in an aggregate principal amount not exceeding $35,000,000; provided, however , that Borrower may at any time and from time to time request an increase of the Revolving Commitment to Fifty Million Dollars ($50,000,000) by providing written notice to Lender, which notice shall be irrevocable once given; provided further, that any such increase of the Revolving Commitment shall be subject to the prior written approval of Lender, which may be granted or withheld by Lender in its sole and absolute discretion. Effecting an increase in the Revolving Commitment is subject to the following conditions precedent: (x) no Event of Default (as defined herein), and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist, (y) the representations and warranties made or deemed made by the Borrower in this Agreement and the other Loan Documents shall be true and correct in all material respects on the effective date of such increase except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct on and as of such earlier date), and (z) if requested, Lender shall have received copies certified by the Secretary or Assistant Secretary of Borrower of all corporate action taken by Borrower to authorize such increase and the borrowing of Revolving Loans thereunder, in form and substance satisfactory to Lender. In the event Lender shall approve Borrower’s request for an increase in the Revolving Commitment, Borrower shall execute and deliver such documents and agreements as Lender shall reasonably require. Any additional credit extended by Lender as a result of an approved increase in the Revolving Commitment shall be secured by, and entitled to the benefits of, the guaranties made by the Guarantors, and the Guarantors shall so reaffirm at the time of, and as a condition precedent to, any such increase in the Revolving Commitment.”

2.5. Section 2.22 of the Credit Agreement is hereby amended to read in its entirety as follows:

Section 2.22 Letter of Credit Commitment

. Subject to the terms and conditions set forth herein and provided no Default exists, the Lender agrees to issue Letters of Credit from time to time during the Availability Period; provided, however, that (a) no Letter of Credit shall have a stated expiration date later than five (5) New York Business Days prior to the Commitment Termination Date, as it may be extended, (b) the aggregate Available Amount of all Letters of Credit outstanding at any time shall not exceed the lesser of (i) $10,000,000.00 and (ii) the difference between the Revolving Commitment and the Revolving Credit Exposures of the Lender.

2.6. Section 5.6 of the Credit Agreement is hereby amended to read in its entirety as follows:

Section 5.6 Books and Records

. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of Borrower in conformity with GAAP. If at any time any change in GAAP would affect the computation of any covenant (including the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Loan Document, Borrower and Bank shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of such change; provided, that, until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance with the application of GAAP prior to such change and (ii) Borrower shall provide to Bank a written reconciliation in form and substance reasonably satisfactory to Bank, between calculations of such covenant and/or pricing grid made before and after giving effect to such change in GAAP.

2.7. Section 6.3 of the Credit Agreement is hereby amended to read in its entirety as follows:

Section 6.3 Tangible Net Worth . The Borrower will, at all times, maintain a Tangible Net Worth of not less than $40,000,000, with such minimum Tangible Net Worth (i) to increase as of the end of each fiscal year, commencing September 30, 2018, by an amount equal to thirty-three and four-tenths of one percent (33.4%) of Borrower’s positive net income for the fiscal year then ending, and (ii) to decrease by an amount equal to the lesser of (x) aggregate dividends paid from time to time by the Borrower from and after the First Amendment Effective Date, and (y) $13,500,000. This covenant shall be tested quarterly. “Tangible

Net Worth” shall mean Consolidated Net Worth, provided that the aggregate amount of any intangible assets, including, without limitation, merchant contracts, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks, and brand names, shall be subtracted from total assets.

Article 3. Miscellaneous

3.1. Closing Costs and Expenses . The modifications contemplated in this Amendment, including the execution, delivery and, where applicable, the recording of the Additional Loan Documents, will be made without expense to Wells Fargo. Borrower agrees to pay all expenses incurred by Wells Fargo incidental to the closing of all of the transactions contemplated herein, including reasonable fees of attorneys employed by Wells Fargo, taxes (including any interest and penalties) whether originally thought to be due or not, and recording fees, if any.

3.2. Authorization . Borrower shall execute and deliver reasonably satisfactory evidence to Wells Fargo that all Additional Loan Documents executed by such party have been validly and duly executed, that the execution and delivery of such documents is properly authorized, and that such Additional Loan Documents are enforceable against such parties in accordance with their respective terms.

3.3. Counterparts . This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument.

[ Signature Page Follows ]

IN WITNESS WHEREOF , the parties have caused this Amendment to be executed and delivered, and their respective seals affixed, effective the day and year first above written.

WELLS FARGO BANK, N.A., a national banking association

By:

Name: John B. Duce, III

Its: Vice President

("Wells Fargo")

PATRIOT TRANSPORTATION HOLDING, INC.., a Florida corporation

By:
Name: Matthew C. McNulty

Title: Vice President and Chief Financial Officer

("Borrower")

^[1] Applies to both Daily One Month LIBOR Loans or Eurodollar Loans.

CERTIFICATIONS Exhibit 31(a)

I, Robert E. Sandlin, certify that:

I have reviewed this report on Form 10-Q of Patriot Transportation Holding, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial report; and

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 1, 2019 /s/Robert E. Sandlin

President and Chief Executive Officer

CERTIFICATIONS Exhibit 31(b)

I, Matthew C. McNulty, certify that:

I have reviewed this report on Form 10-Q of Patriot Transportation Holding, Inc.;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 1, 2019 /s/Matthew C. McNulty

Vice President and Chief Financial Officer

CERTIFICATIONS Exhibit 31(c)

I, John D. Klopfenstein, certify that:

I have reviewed this report on Form 10-Q of Patriot Transportation Holding, Inc.;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 1, 2019 /s/John D. Klopfenstein

Controller and Chief Accounting Officer

Exhibit 32

CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Patriot Transportation Holding, Inc.

		PATRIOT TRANSPORTATION HOLDING, INC.


Date: February 1, 2019	By	/s/ROBERT E. SANDLIN
		Robert E. Sandlin
		President and Chief Executive Officer



	By	/s/MATTHEW C. MCNULTY
		Matthew C. McNulty
		Vice President and Chief Financial Officer



	By	/s/JOHN D. KLOPFENSTEIN
		John D. Klopfenstein
		Controller and Chief Accounting Officer

A signed original of this written statement required by Section 906 has been provided to Patriot Transportation Holding, Inc. and will be retained by Patriot Transportation Holding, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification accompanies the issuer’s Quarterly report on Form 10-Q and is not filed as provided in SEC Release Nos. 33-8212, 34-4751 and IC-25967, dated June 30, 2003.