10KSB40 1 FIRST CAROLINA INVESTOR, INC. FORM 10KSB405 1 Form 10-KSB-Annual or Transitional Report (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1994 ----------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _____ to _____ Commission file number: 1-12904 FIRST CAROLINA INVESTORS, INC. ------------------------------ (Name of small business issuer in its charter) Delaware 56-1005066 ---------------------------- ----------------------- (State of other jurisdiction (I.R.S. Employer of incorporation or Identification Number) organization) Issuer's telephone number (704) 846-1066 -------------- Securities registered under Section 12 (b) of the Exchange Act: Title of each class Name of each exchanges on which registered -------------------------- -------------------------- -------------------------- -------------------------- Securities registered under Section 12 (g) of the Exchange Act: Common Stock, No Par Value ----------------------------------------------------------------------------- (Title of Class) ----------------------------------------------------------------------------- (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 ----- ----- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $4,724,000 ---------- State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. $14,893,000 as of March 7, 1995. ----------- State the number of shares outstanding of each of issuer's classes of common equity, as the latest practicable date. 1,090,848 as of March 15, 1995. ------------------------------ DOCUMENTS INCORPORATED BY REFERENCE PART I AND PART II - Annual Report to Stockholders for the year ended December 31, 1994. PART III - Proxy Statement dated April 17,1995. 2 PART I ITEM 1. DESCRIPTION OF BUSINESS (a) Business development First Carolina Investors, Inc. (the Company) was organized December 2, 1971 as an unincorporated business trust. On July 1, 1987 the Company incorporated. All treasury shares outstanding at July 1, 1987 were retired and outstanding shares of beneficial interest were converted into shares of common stock of the Company. The Company has never been part of a bankruptcy, receivership or similar proceeding. During the last 3 years the Company has not had a material reclassification, merger; consolidation, or purchase or sale of a significant asset not in the ordinary course of business. See item 1 (b) (12) below. (b) Business of issuer The Company's primary activity has historically been land development. The Company's principal product has been single family residential lots and has historically acquired large tracts of land and subdivided the property. The subdivision process includes land planning, obtaining necessary local, state or federal regulatory approval and installing water, sewer, and streets. The Company also coordinates the installation of gas and electricity with local utilities. The finished product is then sold to builders and/or individuals. The Company deals with a broad variety of small builders and also sells lots to the general public. Accordingly, there is not a dependence on one major customer or several major customers. During 1991 the national economy, and to a slightly lesser extent the Charlotte economy was in a recession. During 1992 sales improved and finished well ahead of 1991. However, there was considerable pressure on profit margins and the resulting gain on sale of real estate was quite disappointing. During 1993 and 1994 sales continued to improve and the pressure on profit margins eased. The Company has 7 full-time and 3-part-time employees. (1) Mortgage loans and real estate See Notes 2 and 3 of Notes to Consolidated Financial Statements and Schedules XI and XII. (2) Investments in other companies See Note 4 of Notes to Consolidated Financial Statements. (3) Investment in and advances to joint ventures See Note 5 of Notes to Consolidated Financial Statements. 1 3 (4) Notes payable to bank See Note 7 of Notes to Consolidated Financial Statements. (5) Mortgage note payable See Note 8 of Notes to Consolidated Financial Statements. (6) Geographical distribution of real estate investments At December 31, 1994, virtually all (95%) of the loans and real estate investments, including investment in and advances to joint ventures, held by the Company were in properties located in Mecklenburg and Union counties of North Carolina. (7) Competition The Company faces competition in its efforts to acquire properties and to develop or sell properties it has acquired. For future investments in real estate and related areas, the Company will compete with, among others, institutional investors and foreign investors for available real estate. During 1994 the company made no new loans, other than to finance the sale of owned real estate. (8) Taxation See Notes 1 (h) and 10 of Notes to Consolidated Financial Statements. (9) Ratios The weighted average return on all loans, including those made to joint ventures, during 1994 was 4.1 percent (See Management's Discussion on pages 3 through 8 of the 1994 Annual Report); the average rate of interest on borrowings outstanding under the notes payable to bank was 6.4 percent and total liabilities as a percentage of equity at December 31, 1994 was 36.5 percent. See Notes 1 (g), 5, 7, and 8 of Notes to Consolidated Financial Statements. (10) Subsidiaries There are six wholly-owned subsidiaries of the Company. They are First Carolina Investors of Mecklenburg, Inc., New Carolinas Realty Corporation, FCI Realty and Management, Inc., First Mecklenburg Investors, Inc. and Providence Country Club Realty, Inc. and FCI of Delaware, Inc. 2 4 (11) Miscellaneous The conversion of raw land into single family lots has become subject to new and/or expanded governmental regulation and compliance with environmental laws. This has generally increased both the time necessary to complete the development process and the development cost. To date, compliance has not been a significant hardship to the Company and it is not expected to be in the foreseeable future. The Company generally, but not always, has been able to pass most of the cost of compliance to its customers. The Company has no patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts. The Company does not conduct research and development. (12) Subsequent Event On January 3, 1995 a notification was filed with the Securities and Exchange Commission stating that the Company had become an investment company pursuant to the provisions of the Investment Company Act of 1940. For additional information see Note 15 to the Consolidated Financial Statements entitled Subsequent Event. Said footnote is contained in the 1994 Annual Report attached hereto and incorporated herein by reference. ITEM 2. DESCRIPTION OF PROPERTY See Notes 3 and 5 of Notes to Consolidated Financial Statements and Schedule XI for details as to the character and location of properties owned by the Company. ITEM 3. LEGAL PROCEEDINGS From time to time the Company is involved in legal proceedings which are considered ordinary, routine and incidental to its business. At December 31, 1994, the Company is not a party to any significant litigation. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS This item is not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The shares of common stock of First Carolina Investors, Inc. are listed on the Boston Stock Exchange, Inc. For market price, number of stockholders and dividend information see page 1 of the 1994 Annual Report attached hereto and incorporated herein by reference. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This information is on pages 4 through 9 of the 1994 Annual Report attached hereto and incorporated herein by reference. 3 5 ITEM 7. FINANCIAL STATEMENT. This information is on pages 11 through 24 of the 1994 Annual Report attached hereto and incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. This item is not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT. The information to be included in the section entitled "Election of Directors" in the Company's Proxy Statement to be filed pursuant to Regulation 14A in connection with the 1994 Annual Meeting of Stockholders of the Company is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION The information to be included in the section entitled "Executive Compensation" and "Directors Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information to be included in the sections "Election of Directors" and "Stock Ownership of Directors and Officers" in the Proxy Statement is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. This item is not applicable. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) (i) Index to Financial Statements The following consolidated Financial Statements appearing on pages 11 through 24 of the 1994 Annual Report are incorporated by reference in this Annual Report form 10-KSB: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1994 and 1993. 4 6 Consolidated Statements of Operations for the years ended December 31, 1994 and 1993. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1993. Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1993. Notes to Consolidated Financial Statements, December 31, 1994 and 1993. (ii) Index to Financial Statement Schedules The following Financial Statement Schedules are filed as a part of this report: Independent Auditors' Report on Financial Statement Schedules. Schedule X - Supplementary Income Statement information for the years ended December 31, 1994 and 1993. Schedule XI - Real Estate and Accumulated Depreciation, December 31, 1994. Schedule XII - Mortgage Loans on Real Estate, December 31, 1994. All other Financial Statement Schedules are omitted as the required information is inapplicable or it is presented in the consolidated Financial Statements or Notes thereto. (iii) Exhibit Index A listing of the exhibits to this Form 10-KSB is set forth below.
Description Location ----------- -------- (1) Ex-3 Certificate of Incorporation Filed March 30, 1987 and Bylaws as Exhibits C and D to Form S-4 and herein incorporated by reference (2) Ex-13 Annual Report to Shareholders Filed herewith (3) Ex-99.1 First Carolina Investors, Inc. Filed March 18, 1988 as Exhibit A to Deferred Compensation Plan 1987 Annual Report Form 10-K and herein incorporated by reference
5 7 (4) Ex-99.2 Indemnification Contract of Filed March 30, 1987 as the Corporation Exhibit to Form S-4 and herein incorporated by reference. (5) Ex-99.3 Option and Grant Agreement Filed July 31, 1987 as Exhibit A to Form 10-Q and herein incorporated by reference. (6) Ex-99.4 Amendment to Option and Grant Filed March 18, 1988 as Agreement Exhibit B to 1987 Annual Report Form 10-K and herein incorporated by reference.
(7) Subsidiaries of the registrant Item 1 (b) (10) of the 1994 Annual Report Form 10-KSB. (b) Reports on Form 8-K No report on Form 8-K was filed during fourth quarter of 1994. 6 8 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST CAROLINA INVESTORS, INC. (Registrant) By: /s/ James E. Traynor --------------------- James E. Traynor Vice President and Treasurer (Principal Financial Officer) Date: February 24, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date --------- -------- ---- By:/s/ Brent D. Baird Chairman & Director February 24, 1995 ------------------ Brent D. Baird By:/s/ H. Thomas Webb III President & Director February 24, 1995 ---------------------- (Principal Executive H. Thomas Webb III Officer) By:/s/ Bruce C. Baird Director February 24, 1995 ------------------ Bruce C. Baird By:/s/ Patrick W.E. Hodgson Director February 24, 1995 ------------------------ Patrick W.E. Hodgson By:/s/ Theodore E. Dann, Jr. Director February 24, 1995 ------------------------- Theodore E. Dann, Jr.
7 EX-13 2 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 FIRST CAROLINA INVESTORS, INC. 1 9 9 4 ANNUAL REPORT 2 Company Profile FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Description of Business Stockholders' Meeting Table of Contents ----------------------- --------------------- ----------------- First Carolina Investors, The Annual Stockholders' Letter to Stockholders . . 2 (the Company) was Meeting will be held Management's Discussion organized December 2, 1971. on May 16, 1995 at and Analysis of The Company's primary The Holiday Inn, Financial Condition and activity is land development. Dingens & Rossler Streets Results of Operation . . . 3 Buffalo, New York See Note 15 of Notes to The meeting will convene Management's Report . . . . 9 Consolidated Financial at 2:00 p.m. Independent Auditor's Statements. Report . . . . . . . . . . 10 Consolidated Financial FORM 10-KSB Statements . . . . . . . . 11 A copy of the Company's Notes to Consolidated 1994 Annual Report on Financial Statements . . . 15 Securities and Exchange Commission Form 10-KSB will be furnished without charge to stockholders upon written request directed to the Secretary, First Carolina Investors, Inc., P.O. Box 33607, Charlotte, NC 28233
Quarterly Stock Prices and Dividends Paid Per Share
--------------------------------------------------------------------------- 1994 ---- --------------------------------------------------------------------------- Quarter First Second Third Fourth High Bid $25.50 26.50 28.00 28.00 Low Bid $25.00 25.00 26.50 27.00 Cash Dividends $0.125 - .10 .10
--------------------------------------------------------------------------- 1993 ---- --------------------------------------------------------------------------- Quarter First Second Third Fourth High Bid $22.50 23.50 24 24.50 Low Bid $21 22.50 23.50 24 Cash Dividends $0.125 - 0.125 - ---------------------------------------------------------------------------
There were approximately 643 record holders of Shares of Common Stock at December 31, 1994. The stock prices reflect interdealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. 1 3 Letter to Stockholders First Carolina Investors, Inc. and Subsidiaries TO OUR STOCKHOLDERS: First Carolina Investors, Inc. (FCI) earned $1,774,202 on $1.56 per share in 1994, compared to a $1,026,635 or $.88 per share in 1993. These earnings were largely the result of continued strength in lot sales. The cash flow from lot sales, plus the payoff of the note receivable from Providence Country Club, Inc. allowed us to fully retire bank debt and finish the year with slightly over $3,000,000 in cash and short term investments. During the year 31,748 shares of our stock were repurchased at an average cost of $27.37 per share. Eighty-seven lots were closed in our Providence Country Club community in 1994 with gross sales of $7,150,000. A 25 lot phase of high amenity lots was totally sold in 1994. A 38 lot phase completed in the second quarter also enjoyed strong sales. In January of 1995, a 53 lot phase was completed and will be the primary inventory for the first half of 1995. In September of 1994, a 11.5 acre tract of land was successfully rezoned to allow for a cluster home development in the Providence community. This development of 25 cluster sites, plus a contiguous 16 full size lots, will complete the overall development of Providence. This development should be accomplished in the third quarter of 1995. The remaining eight lots in Park Crossing were sold in 1994. The only assets remaining in Park Crossing are two parcels of raw land totalling 24 acres. These parcels are zoned for office and multi-family uses. Our Atlanta venture Goodsell-Carolinas Associates, enjoyed a profitable year with 7 lot sales generating $895,000 in gross sales proceeds, and $196,125 in pretax profit for FCI. 1995 shows signs of being another profitable year. However, we do not believe that 1995 real estate sales will reach the levels attained in 1994. As disclosed to you in January 1995, FCI is now an investment company. In early April, FCI will file its first report with the SEC as an investment company. Stockholders will also receive this report. At our Directors meeting in January, 1995 the regular $.10 per share dividend was declared. The dividend is payable April 17, 1995 to stockholders of record as of April 3, 1995. Respectfully submitted, Brent D. Baird Chairman H. Thomas Webb III February 24, 1995 President 2 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS First Carolina Investors, Inc. was formed December 2, 1971 as an unincorporated business trust and was subsequently incorporated in the State of Delaware. First Carolina Investors, Inc. and subsidiaries (the Company) has historically been active in land development and it holds equity securities of financial institutions and other entities. (For additional information see Footnote 15 of Notes to Consolidated Financial Statements attached hereto. Footnote 15 is entitled Subsequent Event.) During 1994 the Company completed the development of two new phases and started development on a third phase all within Providence Country Club. This represents a total of 116 lots which were either developed or substantially completed during 1994. This significant development activity was based on the strong lot demand experienced during 1993. Lot sales activity in Providence Country Club for 1994 exceeded 1993 levels. In 1994, 87 lots were sold as compared to 80 lots in 1993 with a 1994 gross sales volume of $7,150,000 versus 1993 volume of $5,684,000. The combined gross cash flow from Providence Country Club lot sales and repayment of advances to Providence Joint Venture during 1993 and 1994 exceeds $16,000,000. During 1994 the sellout of single family lots was completed at the Park Crossing community. Our Atlanta joint venture, Goodsell-Carolinas Associates sold 7 lots with gross proceeds of $895,000. Both the number of lots sold and the sales volume improved during 1994 as compared to 1993. During 1994 the Company made nominal increases in its holdings of two equity securities and began purchasing shares of an additional entity. The Company repaid both the bank credit line and the mortgage note payable in 1994. The Company enters 1995 with no bank debt and cash and short term investments of slightly over $3,000,000. During 1994 the Company completed its involvement with two joint ventures. The waste water treatment plant owned by First Providence Utilities was transferred to a municipality. The note receivable held by Providence Joint Venture was repaid. For additional information see Joint Ventures below. The stock repurchase program, which was instituted in 1980, continued during 1994. At December 31, 1994 there were 412,994 treasury shares acquired at an average cost of $18.17 per share. Net earnings for 1994 were $1,774,202 or $1.56 per share as compared to $1,026,635 or $.88 per share in 1993. The 1993 amounts included a pre-tax recovery of allowance for losses of $358,728. Book value per share, net of treasury stock and including the affect of the adoption of FASB statement No. 115, was $31.19 and $29.79 at December 31, 1994 and 1993, respectively. 3 5 The operating budget for 1995 reflects another year of profitable operations and a significant cash flow. The budget is predicated upon stable interest rates and a good economic climate. It is projected that the 53 lot phase substantially completed in 1994 will be sold during 1995. The Company intends to complete the development of the remaining 46 sites in the Providence Country Club Community. It is anticipated that substantially all remaining Providence Country Club lots will be sold by the end of calendar year 1996. Plans for the 300 acres of undeveloped land contiguous to Providence Country Club have not yet been finalized. 1994 COMPARED TO 1993 Interest income earned by the Company on mortgage loans was virtually unchanged during 1994 as compared to 1993. The average outstanding loan balance during 1994 was less than during 1993. However, the average interest rate earned on loans increased. The weighted average interest rate earned on mortgage loans and advances to joint ventures was 4.1% in 1994 and 2.4% in 1993. For more information regarding the Company's joint venture activity see Joint Ventures below and Note 5 of Notes to Consolidated Financial Statements. Gain on sale of real estate increased significantly in 1994 as compared to 1993. The 1994 pre-tax gain consists of $3,245,203 on the sale of 87 lots in Providence Country Club and $100,165 on the sale of 7 lots in Park Crossing. The 1993 pre-tax gain consists of $1,902,000 on the sale of 80 lots in Providence Country Club and $251,000 on the sale of 18 lots in Park Crossing. Equity in earnings of joint ventures was $174,837 in 1994 and $146,513 in 1993. The 1994 earnings include $196,000 from Goodsell- Carolinas Associates and a loss of $21,000 from First Providence Utilities. The 1993 earnings include $139,000 from Goodsell- Carolinas Associates. The remaining earnings contribution is from First Providence Utilities. During 1994 Goodsell-Carolinas sold 7 lots at a total sales price of $895,000. During 1993 Goodsell-Carolinas sold 5 lots at a total sales price of $743,000. The Company's original investment in Goodsell-Carolinas has been repaid and all advances plus accrued interest has been repaid. There are 15 lots remaining to be sold in this venture. During 1994 the Company completed the transfer of ownership of First Providence Utility's waste water treatment plant. Other income increased significantly during 1994 as compared to 1993. In 1994 other income includes dividend income of $526,000, net commission income of $30,000, cash basis interest income of $325,000 as part of the repayment of amounts due from Providence Joint Venture, other interest income of $26,000 and miscellaneous income of $184,000. In 1993 other income includes dividend income of $478,000, net commission income of $101,000, interest income of $47,000 and miscellaneous income of $76,000. Interest expense declined in 1994 as compared to 1993. This is a result of the retirement of all outstanding indebtedness during the 3rd quarter of 1994. 4 6 General and administrative expenses increased in 1994 as compared to 1993. The increase is primarily due to the accrual of additional compensation payable pursuant to a management incentive program directly related to real estate profits. Sales and marketing expenses decreased slightly during 1994 as compared to 1993. Sales and marketing expenses include advertising, promotional and model home/sales office expenses in connection with the Providence Country Club community. Other operating expenses decreased slightly in 1994 as compared to 1993. Other operating expenses for 1994 include real estate taxes of $72,000, director's fees and expenses of $37,000, depreciation of $57,000, interest expense of $48,000, expenses associated with Providence Country Club of $47,000, and Park Crossing of $4,000, and miscellaneous expenses of $52,000. Other operating expenses for 1993 include real estate taxes of $95,000, director's fees and expenses of $32,000, depreciation of $37,000, interest expense of $47,000,expenses associated with Providence Country Club of $18,000 and Park Crossing of $14,000 and miscellaneous expenses of $89,000. The 1993 recovery of the allowance for losses in the amount of $358,728 is the result of greater than anticipated proceeds from a note receivable obtained in conjunction with the 1990 sale of a parcel of real estate. INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY The three major components of the Company's assets are real estate, investments in other companies and mortgage loans/advances to joint ventures. REAL ESTATE Land held for investment and land held for development should generally not be considered a source of current liquidity. Finished lots are held for sale in the ordinary course of business and are a source of liquidity. The number of finished lots that are likely to be sold in any particular period is heavily influenced by general real estate market conditions, interest rates and the availability of construction loans. These factors have improved steadily from 1992 to the current period. Interest rates, in spite of multiple increases in the prime rate during 1994, are still reasonable from a historic perspective. The availability of construction financing is good and indications are that the availability of funds will continue to be good. The availability of a broad variety of variable rate permanent loans combined with the home buying public's continued acceptance of this product contributed to the strong 1994 sales volume. As of the date of this report, the 1995 real estate market is expected to remain favorable. INVESTMENTS IN OTHER COMPANIES While investments in other companies consist of marketable securities, they are considered long-term investments and generally not a source of current liquidity. 5 7 MORTGAGE LOANS AND ADVANCES TO JOINT VENTURES At year-end the mortgage loan portfolio totaled $1,020,200. Advances to joint ventures have been repaid. The mortgage loans consist of condominium end loans, lot loans and a $800,000 mortgage loan made in conjunction with the sale of the Company's previous interest in Lake Norman Investors. Loans have terms ranging from less than one year to eight years. While all of the aforementioned loans could probably be sold, they are generally not considered a source of liquidity. The Company has an equity interest in one remaining joint venture. Discussions have been underway for sometime regarding the sale of the Company's interest in the venture. While there is no assurance that the sale of the venture interest will occur, this may be an additional source of liquidity. LINE OF CREDIT The Company has a $5 million line of credit with a bank. There is no debt outstanding pursuant to the credit line. Additionally at year end the Company has cash and short term investments slightly in excess of $3,000,000. These are the Company's most readily available sources of liquidity. See Note 7 of Notes to Consolidated Financial Statements. JOINT VENTURES PROVIDENCE JOINT VENTURE As part of the development plan for Providence Country Club, the Company and a former joint venture partner committed to, among other things, develop a golf course for a private club also known as Providence Country Club. All outstanding loans and advances to the venture were repaid during 1994. This joint venture has been terminated and accordingly the Company has no more obligations pursuant to this agreement. GOODSELL-CAROLINAS ASSOCIATES On December 17, 1984, the Company entered into a joint venture for the acquisition and development of a 500 acre farm in north Fulton County, Georgia. The development of the first phase of 59 lots was completed in 1987. Since that time the venture has sold a total of 44 lots and has also sold all but 10 acres of the remaining undeveloped land. At December 31, 1994 the venture has a finished lot inventory of 15 lots and has repaid all of the venture's outstanding debt to the Company. Additionally the venture has returned the Company's original $500,000 equity investment, leaving undistributed equity of $262,603. FIRST PROVIDENCE UTILITIES The Company owned a 50% interest in First Providence Utilities (FPU). FPU owned a waste water treatment facility and provided services to the Providence Country Club community. During 1994 the Company transferred ownership of the waste water treatment facility to a municipality. The Company reclassified its remaining investment in the joint venture to other assets. 6 8 This investment is in the form of prepaid sewer tap fees and will be amortized as the remaining lots in the Providence Country Club Community are sold. COMMITMENTS FOR CAPITAL EXPENDITURES At December 31, 1994, the Company had contractual commitments of approximately $500,000 primarily related to the ongoing development at Providence Country Club. This represents the only contractual commitment. However, the ongoing lot development process will require additional capital expenditure. In the opinion of Management, the full profit potential of the Company's remaining land holdings cannot be realized without making these expenditures. The timing and amount of these expenditures will be evaluated in light of market conditions before the expenditures are made. While the Company has no contractual commitment for the purchase of additional equity securities, the Company may from time-to-time, make significant expenditures for this purpose. The Company's stock repurchase program has been in effect since 1980. Although it has no contractual obligation to repurchase its shares, the Company currently intends to repurchase shares subject to availability and price. SUMMARY The operating results for 1994 were satisfactory and significantly ahead of 1993. This continues the upward trend in the market from its low point during 1991. The sale of 87 lots at Providence Country Club was approximately 10% ahead of last year's results in terms of number of lots sold and was approximately 26% ahead of 1993 based on sales volume. The demand for finished lots by both individuals and builders continued to be strong. Once again we experienced improved profit margins as a result of the strong demand. Management now believes that the completion of the development of the Providence Country Club community will be accomplished during 1995 and substiantially all lots will be sold by the end of 1996. 1994 produced several milestones in the recent history of the Company. Perhaps first and foremost is the completion of the sale of all remaining single family lots in Park Crossing. Also during 1994, the Company completed its involvement with and commitment to Providence Joint Venture (PJV). It will be recalled that PJV was formed to develop the country club amenity. Finally the Company completed the transfer of the waste water treatment plant owned by First Providence Utilities. As we look towards 1995 and 1996 indications are favorable for continued strong earnings and cash flow. 1994 also saw a significant improvement in the value of two entities in which the Company has an investment. As discussed in Note 15 of the Notes to Consolidated Financial Statements,on January 3, 1995 the Company filed a notification with the Securities and Exchange Commission that it had become an investment company pursuant to the Investment Company Act of 1940. 7 9 This was brought about by the continued liquidation of real estate holdings combined with a significant increase in both the number of investments and an increase in the fair market value of investments in other companies. The Company is a management company and is a closed-end, non-diversified investment company. Under the investment company act all assets are to be valued at market and net income will include not only realized gains and losses but also unrealized gains and losses due to changes in the market value of assets. Gains on sale of real estate have been significant contributors to profitability in prior years. The Company still has significant real estate holdings contiguous to both the Park Crossing community and the Providence Country Club community. No decision has been made as to whether or not the land adjacent to Providence Country Club will be developed or sold as raw land. However, as the Company continues the transition away from real estate and towards equity investments, the volatility of earnings may increase. 8 10 Management's Report FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES The Management of First Carolina Investors, Inc. is responsible for the preparation, integrity and objectivity of the financial statements and other information in the accompanying Annual Report. These financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include some estimates which are based upon Management's judgment. Management is also responsible for establishing and maintaining a system of internal controls to provide reasonable assurance that assets are safeguarded, transactions are properly executed and financial records are adequate and reliable for the preparation of financial statements. The system of internal controls, while restricted due to a very small number of employees, provides for certain divisions of responsibilities. Management monitors the system for compliance and performs analytical reviews for reasonableness. Management believes that, as of December 31, 1994, the Company's system of internal controls is adequate to accomplish the objectives discussed herein. The Audit Committee of the Board of Directors meets periodically with Management and the independent certified public accountants to review matters relating to the quality of financial reporting, internal accounting control and the results of the annual independent audit. The independent certified public accountants have direct and unlimited access to the Audit committee with or without Management present. The accompanying financial statements have been examined by KPMG Peat Marwick LLP, independent certified public accountants, in accordance with generally accepted auditing standards. Their examination includes a study and evaluation of the Company's system of internal accounting controls in order to establish a basis for reliance thereon in determining the nature, extent and timing of auditing procedures required to support their opinion on the financial statements. H. Thomas Webb III James E. Traynor President Vice President 9 11 Independent Auditors' Report FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES The Directors and Stockholders First Carolina Investors, Inc. We have audited the accompanying consolidated balance sheets of First Carolina Investors, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used, significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Carolina Investors, Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. As discussed in note 1(f) to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", on December 31, 1993. KPMG PEAT MARWICK LLP Charlotte, North Carolina February 24, 1995. 10 12 FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1994 and 1993
Assets 1994 1993 ---- ---- Mortgage loans, secured by real estate, net (note 2) $ 1,020,200 1,320,299 Real estate, net (note 3) 4,683,409 6,964,811 Investments in other companies 35,398,875 34,541,000 at fair value (note 4) Investment in and advances to joint ventures (note 5) 262,603 3,065,535 Cash, including short term investments of $2,780,070 in 1994 3,090,027 286,058 Accrued interest receivable 17,222 9,178 Other assets (note 6) 2,193,584 1,716,047 ----------- ---------- $46,665,920 47,902,928 =========== ========== LIABILITIES, DEFERRED INCOME AND STOCKHOLDERS' EQUITY Liabilities: Notes payable to bank (note 7) $ - 2,100,000 Mortgage notes payable (note 8) - 300,000 Accounts payable and accrued liabilities (note 9) 2,944,068 2,180,160 Federal and state income taxes payable (note 10) 448,983 642,595 Deferred income taxes payable 9,050,000 8,875,000 ----------- ---------- Total liabilities 12,443,051 14,097,755 ----------- ---------- Deferred income (note 11) 118,296 277,111 ----------- ---------- Stockholders' Equity: Shares of common stock, no par value. Authorized shares 3,500,000 issued 1,506,542 shares in 1994 and 1993 13,844,976 13,844,976 Net unrealized gain on equity securities (note 4) 15,280,778 14,947,028 Retained earnings 12,483,303 11,371,610 ----------- ---------- 41,609,057 40,163,614 Less: Cost of treasury stock - 412,994 shares in 1994 and 381,246 shares in 1993 (7,504,484) (6,635,552) ----------- ---------- Total stockholders' equity 34,104,573 33,528,062 ----------- ---------- Contingencies and commitments (notes 3, 14 and 15) $46,665,920 47,902,928 =========== ==========
See accompanying notes to consolidated financial statements. 11 13 FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES Consolidated Statement of Operations For the Years ended December 31, 1994 and 1993
1994 1993 ---------- --------- INCOME: Interest on mortgage loans $ 112,743 112,511 Gain on sale of real estate 3,345,368 2,153,206 Equity in earnings of joint ventures 174,837 146,513 Other 1,091,265 702,187 ---------- --------- Total income 4,724,213 3,114,417 ---------- --------- EXPENSES: Interest 63,730 261,983 General and administrative 1,295,706 985,887 Professional fees 91,688 80,999 Sales and marketing 256,536 285,258 Other 317,351 332,383 Recovery of allowance for losses - (358,728) ---------- --------- Total expenses 2,025,011 1,587,782 Earnings before income taxes 2,699,202 1,526,635 Provision for income taxes (note 10) 925,000 500,000 ---------- --------- Net earnings $1,774,202 1,026,635 ========== ========= Earnings per share of common stock (note 13) $ 1.56 0.88 ========== =========
See accompanying notes to consolidated financial statements. 12 14 FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholder's Equity Years Ended December 31, 1994 and 1993
Net Unrealized Total Shares of Retained Treasury Gain on Stockholders' Common Stock Earnings Stock Equity Securities Equity ------------ -------- -------- ----------------- ------------- Balance December 31, 1992: $13,844,976 10,630,895 (5,580,542) 18,895,329 Net earnings : 1,026,635 1,026,635 Cash dividends declared $.25 per share (285,920) (285,920) Purchase of 43,474 treasury shares (1,055,010) (1,055,010) Increase in net unrealized gain 14,947,028 14,947,028 Balance ----------- ---------- ---------- ---------- ---------- December 31, 1993 $13,844,976 11,371,610 (6,635,552) 14,947,028 33,528,062 Net earnings 1,774,202 1,774,202 Cash dividends declared $.50 per share (662,509) (662,509) Purchase of 31,748 treasury shares (868,932) (868,932) Increase in net unrealized gain 333,750 333,750 Balance ----------- ---------- ---------- ---------- ---------- December 31, 1994 $13,844,976 12,483,303 (7,504,484) 15,280,778 34,104,573 =========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 13 15 FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Years Ended December 31, 1994 and 1993
1994 1993 ----------- ---------- Cash flows from operating activities: Net earnings $ 1,774,202 1,026,635 Adjustments to reconcile net earnings to net cash provided by operating activities: Accretion of loan discount (8,352) (744) Equity in (earnings) loss of joint ventures (174,837) (146,513) Proceeds from sale of real estate, net of gain 3,983,416 3,989,787 Additions to real estate (1,099,546) (851,816) Cash distribution from joint venture 302,000 - Gain realized on investments in other companies - - (Increase) decrease in accrued interest receivable (8,045) (439) (Increase) decrease in other assets (131,327) 469,525 Increase (decrease) in accounts payable and accrued liabilities (598,822) (418,764) Decrease in deferred income (12,549) (24,075) Increase (decrease) in income taxes payable (193,612) 596,140 Net cash provided (used) by operating ----------- ---------- activities 3,832,528 4,639,736 ----------- ---------- Cash flows from investing activities: Repayments on mortgage loans 420,577 525,291 Proceeds from sale of investments in other companies - - Purchases of investments in other companies (310,415) (3,510,177) Advances on loans to joint ventures (11,848) - Repayments on loans to joint ventures 2,616,880 778,914 Net cash provided (used) by investing ----------- ---------- activities 2,715,194 (2,205,972) ----------- ---------- Cash flows from financing activities: Net borrowings (repayments) on notes payable to bank (2,100,000) (900,000) Repayments on mortgage notes payable (300,000) (200,000) Purchase of treasury stock (868,932) (1,055,010) Dividends paid (474,821) (291,930) Net cash provided (used) by financing ----------- ---------- activities (3,743,753) (2,446,940) ----------- ---------- Net decrease in cash and cash equivalents 2,803,969 (13,176) Cash and cash equivalents at beginning of year 286,058 299,234 ----------- ---------- Cash and cash equivalents at end of period $ 3,090,027 286,058 =========== ========== Supplemental Disclosures of Cash Flow Information: Interest paid during the period $ 63,730 264,567 =========== ========== Income taxes paid (refunded) $ 1,340,228 (96,140) =========== ========== Supplemental schedule of noncash investing and financing activities: Cumulative effect of change in accounting principle (net of tax effect of $9,555,000 in 1993) $ - 14,947,028 =========== ==========
See accompanying notes to consolidated financial statements. 14 16 FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1994 and 1993 (1) Summary of significant accounting policies, financial statement presentation and organization (a) Organization First Carolina Investors, Inc. was organized December 2, 1971 as an unincorporated business trust. On July 1, 1987 the company incorporated. All shares of treasury stock outstanding at that date were retired. Outstanding shares of beneficial interest were converted into shares of common stock. (b) Principles of consolidation The accompanying consolidated financial statements include First Carolina Investors, Inc. and its subsidiaries (the Company), all of which are wholly-owned. In consolidation, all significant intercompany accounts and transactions have been eliminated. (c) Interest Income Interest income is recognized on the accrual basis. The Company generally does not recognize accrued interest as income when foreclosure proceedings are in process or when management determines that collection is uncertain. The recognition of income is resumed when it is evident that the principal and interest will be collected. (d) Real Estate Land held for development is recorded at initial acquisition cost plus costs of improvements, including interest. Interest costs during the development period associated with real estate are capitalized as a project cost. Interest costs incurred during times other than the development period are expensed as incurred. The Company carries real estate at the lower of cost or market. The Company accounts for sales of real estate in accordance with Statement of Financial Accounting Standards No.66, "Accounting for Sales of Real Estate." 15 17 (e) Allowance for possible losses Management performs a review of substantially all investments in its portfolio on an individual basis in order to provide for possible losses. Although management considers a variety of information in arriving at the value of the Company's investments, adjustments may be necessary if factors affecting affecting the Company's investments differ substantially from those assumed by management. In the opinion of management, no allowance is necessary at December 31, 1994 and 1993. (f) Investments in other companies The Company accounts for investments in other companies in accordance with the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115). Pursuant to categories contained in Statement 115, the Company classifies its equity securities as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and, until realized, are reported as a separate component of stockholders' equity. A decline in the market value of any available-for-sale security below cost, that is deemed other than temporary, results in a charge to earnings and the establishment of a new cost basis for the security. (g) Investment in and advances to joint ventures The Company has interests in joint ventures which are engaged in the acquisition, development and sale of real estate. The investments in the joint ventures are accounted for by the equity method. When the Company provides acquisition and development financing to the joint venture, interest incurred by the joint venture on the loan is capitalized during the land development period and is also deferred by the Company until the venture's lots are sold. Interest income is included in the interest on mortgage loans in the accompanying Consolidated Statements of Operations. Profits and losses on transactions with the joint venture, including interest to the extent of the Company's ownership interest in the ventures,are eliminated. 16 18 (h) Income taxes First Carolina Investors, Inc. is subject to Federal and state corporate income taxes. The Company files a consolidated Federal income tax return. The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (i) Statements of cash flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. (2) Mortgage Loans The Company's investments in mortgage loans as of December 31, 1994 and 1993 are summarized as follows:
1994 1993 ---------- --------- Permanent loans on condominums . . . . . . . $ 119,983 154,909 Intermediate loans . . . . . . . . . . . . . 800,000 850,000 Junior loans on lots (note 11) . . . . . . . 111,000 334,525 Unearned discount . . . . . . . . . . . . . . (10,783) (19,135) ---------- --------- Total mortgage loans, net . . . . . . . . . . $1,020,200 1,320,299 ========== =========
(3) Real Estate Real estate owned at December 31, 1994 and 1993 is summarized as follows:
1994 1993 ---------- --------- Land held for investment: Providence Country Club $3,035,819 3,035,819 Park Crossing 378,656 378,656 Land held for development 484,334 1,059,413 Finished lot inventory: Providence Country Club 784,600 2,346,519 Finished lot inventory at Park Crossing - 144,404 ---------- --------- Total real estate, net $4,683,409 6,964,811 ========== =========
17 19 During 1994 and 1993 interest expense of $63,730 and $261,983, respectively, was incurred. No interest was capitalized. The details of the Providence Country Club community finished lot inventory at December 31, 1994 and 1993 are as follows:
1994 1993 ----------------------- ----------------------- Number of Number of Lots Cost Lots Cost --------- -------- --------- ---------- Phase I - $ - 3 $ 252,804 Phase II 3 - 11 399,400 Phase III 2 - 5 374,057 Phase III-A 7 129,285 10 279,885 Phase IV 6 319,354 11 605,959 Phase V - - 2 23,070 Phase VI 1 50,759 1 50,759 Phase VII-A 2 45,607 13 360,585 Phase VII-B 9 239,595 - - -- -------- -- ---------- Total finished lot inventory 30 $784,600 56 $2,346,519 == ======== == ==========
During 1994 and 1993, $1,674,624 and $2,286,539, respectively, was reclassified from land held for development to finished lot inventory. The details of the Park Crossing community finished lot inventory at December 1993 is as follows:
1993 ----------------------- Number of Lots Cost --------- -------- Tresanton-Phase II 4 $ 55,530 Tresanton-Phase III 4 88,874 - -------- Total finished lot inventory 8 $144,404 = ========
There were no lots in inventory in Park Crossing at December 31, 1994. In connection with the development and sale of land in the Park Crossing community, the Company entered into a contract in which a management agent earns certain fees including one-third of the project's earnings before income taxes. Such fees are paid monthly. During 1994 and 1993, fees of $33,756 and $101,034 respectively, were charged to gain on sale of real estate in the accompanying Consolidated Statements of Operations. The activity in the allowance for possible losses during 1993 is as follows:
1993 -------- Balance at beginning of year $370,784 Charges against allowance (12,056) Recovery of allowance (358,728) -------- Balance at the end of year $ - ========
There was no activity in the allowance for possible losses during 1994. 18 20 (4) Investments in other companies The Company's investments in the common stock of financial and other entities, which are stated at the lower of aggregate cost or market value, are as follows:
December 31, 1994 -------------------------------------------------------------------------- Gross Gross Unrealized Unrealized Number % Holding Holding Fair of shares owned Cost Gains Losses Value --------- ----- ---- ---------- ---------- ------ First Empire State Corp. 200,000 3.0 $ 3,180,120 24,019,880 - 27,200,000 Oglebay Norton Company 80,000 3.2 2,244,128 195,872 - 2,440,000 US Bancorp 44,800 1.8 632,894 308,106 - 941,000 Todd Shipyards Corp. 700,000 5.8 3,469,036 555,964 - 4,025,000 Miscellaneous - - 823,209 - 30,209 793,000 ----------- ---------- ------ ---------- $10,349,387 25,079,822 30,209 35,399,000 =========== ========== ====== ==========
December 31, 1993 -------------------------------------------------------------------------- Gross Gross Unrealized Unrealized Number % Holding Holding Fair of shares owned Cost Gains Losses Value --------- ----- ---- ---------- ---------- ----- First Empire State Corp. 200,000 3.0% $ 3,180,120 24,969,880 - 28,150,000 Oglebay Norton Company 70,000 2.8 2,092,125 - 405,125 1,687,000 US Bancorp 44,800 0.9 632,894 431,106 - 1,064,000 Todd Shipyards Corp. 688,500 5.8 3,413,833 - 573,833 2,840,000 Miscellaneous - - 720,000 80,000 - 800,000 ----------- ---------- ------- ---------- $10,038,972 25,480,986 978,958 34,541,000 =========== ========== ======= ==========
Dividend income of $558,612 and $477,632 for 1994 and 1993, respectively, has been classified as other income in the accompanying Consolidated Statements of Operations. (5) Investment in and advances to joint ventures During 1994 all advances to Providence Joint Venture were repaid and the venture was terminated. Also during 1994, pursuant to the terms of the First Providence Utility joint venture agreement, the venture was terminated. At December 31, 1993, the company's investment in and advances to joint ventures are as follows:
Ownership Investment Advances % in venture to venture --------- ---------- ---------- Providence Joint Venture 85% $1,000 $2,527,880 First Providence Utilities 50 500 367,849 Goodsel/Carolinas 33 1/3 - - ------ ---------- $1,500 $2,895,729 ====== ==========
All joint ventures account for land under development in the same manner as the Company. See not 1(d). 19 21 Unaudited combined condensed balance sheets as of December 31, 1994 and 1993 and unaudited combined condensed statements of operations for the years ended December 31, 1994 and 1993 are presented below. Combined Condensed Balance Sheets
1994 1993 -------- --------- Mortgage note receivable . . . . . . . . . . . $ - 2,527,880 Finished lots . . . . . . . . . . . . . . . . . 821,920 1,032,240 Cash . . . . . . . . . . . . . . . . . . . . . 15,601 129,925 Waste water utility system . . . . . . . . . . - 334,317 Accrued interest receivable . . . . . . . . . . - 503,969 Other assets . . . . . . . . . . . . . . . . . - 7,200 -------- --------- 837,521 4,535,531 ======== ========= Mortgage notes payable . . . . . . . . . . . . $ - 2,527,880 Other liabilities . . . . . . . . . . . . . . . 2,000 1,054,102 Partners' equity . . . . . . . . . . . . . . . 835,521 953,549 -------- --------- $837,521 4,535,531 ======== =========
Combined Condensed Statements of Operations
1994 1993 -------- --------- Income: Gain on sale of real estate . . . . . . . . . $644,158 $ 495,347 Other income . . . . . . . . . . . . . . . . - 116,868 -------- --------- Total income . . . . . . . . . . . . . . . 644,158 612,215 -------- --------- Expenses: Management fees . . . . . . . . . . . . . . . - 51,600 Other . . . . . . . . . . . . . . . . . . . . 77,071 135,439 -------- --------- Total Expenses . . . . . . . . . . . . . . 77,071 187,039 -------- --------- Net income of joint ventures . . . . . . . . . 567,087 425,176 Partners' portion of income . . . . . . . . . . (392,250) (278,663) -------- --------- The Company's equity in earnings of joint venture . . . . . . . . . . . . . . $174,837 146,513 ======== =========
The components of the Company's investment in and advances to joint ventures, which at December 31, 1994 consisted of Goodsell-Carolinas Associates, as shown on the accompanying consolidated balance sheets are as follows:
1994 1993 -------- --------- Capital investment in ventures . . . . . . . . $ - 1,500 Advances to ventures . . . . . . . . . . . . . - 2,895,729 Equity in earnings net of distribution . . . . . . . . . . . . . . . . 279,506 199,211 Intercompany capitalized interest eliminated . . . . . . . . . . . . . . . . . (16,903) (30,906) -------- --------- $262,603 3,065,534 ======== =========
20 22 (6) Other assets The components of other assets at December 31, 1994 and 1993 are as follows:
1994 1993 ---------- --------- Deferred compensation, funded . . . . . $1,359,222 941,834 Sales center . . . . . . . . . . . . . . 492,080 492,080 Furniture & fixtures, net . . . . . . . 54,305 78,543 Residential lots . . . . . . . . . . . . - 145,499 Sewer tap fees and misc . . . . . . . . 287,977 58,091 ---------- --------- $2,193,584 1,716,047 ========== =========
(7) Notes payable to bank At December 31, 1994 the Company had a $5,000,000 line of credit with a bank. The credit line, which is unsecured, is payable on demand and is subject to a quarterly review by the bank. Borrowings under this credit line bear interest at the prime rate (8.5% at December 31, 1994). There was no outstanding bank indebtedness at December 31, 1994. At December 31, 1993, outstanding borrowings were $2,100,000. Additional information relating to bank debt is as follows:
1994 1993 ---------- ---------- Weighted average interest rate of indebtedness outstanding during the year . . . . . . . . . . . . . . . . 6.4% 6.3% ---------- ---------- Maximum amount of indebtedness outstanding at any month end during the year . . . . . . . . . . . . $2,475,000 5,075,000 ---------- ---------- Approximate average aggregate indebtedness outstanding during the year . . . . . . . . . . . . . . . . $1,000,000 4,177,000 ========== ==========
(8) Mortgage note payable At December 31,1993 the mortgage note payable consisted of a first mortgage loan due on demand with interest at the prime rate payable monthly. The mortgage was secured by the sales center with a carrying value of approximately $492,000 at December 31, 1993. The mortgage loan was repaid in 1994. 21 23 (9) Accounts payable and accrued liabilities The components of accounts payable and accrued liabilities at December 31, 1994 and 1993 are as follows:
1994 1993 ---------- --------- Trade accounts payable . . . . . . . . . $ 610,471 527,227 Deferred compensation . . . . . . . . . 1,359,222 941,834 Dividends payable . . . . . . . . . . . 329,654 140,862 Miscellaneous accruals and payable . . . 596,879 477,682 Cash held in escrow . . . . . . . . . . 47,842 92,555 ---------- --------- $2,944,068 2,180,160 ========== =========
(10) Income taxes Total income tax expense for the years ended December 31, 1994 and 1993 is allocated as follows:
1994 1993 ---------- -------- Income from continuing operations . . . . . . . $ 925,000 500,000 Stockholders' equity, for unrealized holding gains and losses on available- for-sale securities . . . . . . . . . . . . . 213,000 325,000 ---------- ------- $1,138,000 825,000 ========== =======
The components of Federal and state income tax expense (benefit) from continuing operations are summarized as follows:
1994 1993 --------- -------- Current: Federal . . . . . . . . . . . . . . . . . . $ 781,000 525,000 State . . . . . . . . . . . . . . . . . . . 182,000 115,000 --------- -------- 963,000 640,000 Deferred . . . . . . . . . . . . . . . . . . . (38,000) (140,000) --------- -------- $ 925,000 500,000 ========= ========
Income tax expense for the years presented was different than the amounts computed by applying the statutory Federal income tax rate to earnings before income taxes. The sources of these differences and the tax effects of each are as follows:
1994 % 1993 % --------- ----- -------- ----- Income tax expense at Federal rate . . . . . . . . . . . $917,700 34.0% 519,100 34.0% Change in the beginning of the year balance of the valuation allowance for deferred tax assets allocated to income tax expense . . . . . . . . . . . . . (40,000) (1.5%) (42,000) (2.7) State income tax net of Federal tax benefit . . . . . . . . . . . . . 143,000 5.3% 75,900 5.0 Equity in (income) loss of non-consolidated subsidiary . . . . . 7,200 .3% (2,400) (.2) Dividend exclusion . . . . . . . . . . (136,300) (5.0%) (117,300) (7.7) Other, net . . . . . . . . . . . . . . 33,400 1.2% 66,700 4.4 -------- ---- -------- ---- Provision for income taxes . . . . . . . . . . . . . . . $925,000 34.3% $500,000 32.8% ======== ==== ======== ====
22 24 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are presented below:
December 31, December 31, Deferred tax assets: 1994 1993 ------------ ------------ Real estate, principally due to differences in capitalized interest . . . . . . . . . . . . . . . . . $ 231,900 227,600 Investments in and advances to joint ventures, principally due to differences in recognizing interest income . . . . . . . . . . . . . . . . . . . . 17,600 32,200 Deferred compensation liability, principally due to accrual for financial reporting purposes . . . . 530,100 448,900 State net operating loss carryforwards . . . . . . . . . 86,000 130,100 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 53,200 96,100 ----------- ----------- Total gross deferred tax assets . . . . . . . . . . . . . 918,800 934,900 Less valuation allowance . . . . . . . . . . . . . . . . (190,000) (230,000) ----------- ----------- Net deferred tax assets . . . . . . . . . . . . . . . . . 728,800 704,900 ----------- ----------- Deferred tax liabilities: Equipment, principally due to differences in depreciation . . . . . . . . . . . . . . . . . . . . (10,800) (24,900) Investments in other companies, principally due to unrealized gains on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . (9,768,000) (9,555,000) ----------- ----------- Total gross deferred tax liabilities . . . . . . . . . . (9,778,800) (9,579,900) ----------- ----------- Net deferred tax asset (liability) . . . . . . . . . . . . . . (9,050,000) (8,875,000) =========== ===========
A portion of the change in the net deferred tax liability relates to unrealized gains and losses on available-for-sale securities. The related current period deferred tax expense of approximately $213,000 has been recorded directly to stockholder's equity. The balance of the change of the net deferred tax liability results from the current period deferred tax benefit of $38,000 charged to income tax expense. The valuation allowance for deferred tax assets as of January 1, 1993 was $272,000. The net change in the total valuation allowance for the years ended December 31, 1994 and 1993 was a decrease of $40,000 and $42,000, respectively. The valuation allowance primarily relates to certain state temporary differences and state net operating loss carryforwards. It is management's belief that the realization of the net deferred tax asset is more likely than not based upon the Company's history of taxable income and estimated future income. Federal and state income tax returns of the Company for 1991 and subsequent years are subject to examination by the Internal Revenue Service and various other taxing authorities. (11) Deferred income When sales of real estate do not meet the requirements for profit recognition, the gain on the sale is deferred until the requirements for recognition have been met. At December 31, 1994 and 1993, the Company had deferred income relating to such sales of $90,000 and $225,378 respectively. Also included in deferred income is $28,296 and $51,733 at December 31, 1994 and 1993, respectively, of interest on loans to a joint venture which was deferred in accordance with the Company's accounting policy described in Note 1(g). (12) Stock option plan During 1987 options for 45,000 shares of common stock were awarded to certain employees. These options are exercisable at the rate of 20% per year beginning July 1, 1988 at a price of $12.75 per share which was equal to the market price at the date of the adoption of the amended plan. At December 31, 1994, all the options are fully vested and exercisable but no options have been exercised. 23 25 (13) Earnings per share Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding, after deducting treasury stock, 1,134,455 for 1994 and 1,173,766 for 1993. The computation assumes that outstanding stock options were exercised and the proceeds used to purchase common stock. (14) Commitments and contingencies The Company has $500,000 of undisbursed contractual commitments in connection with land under development. In order to protect its investments, the Company may be required to furnish amounts in excess of its current investments or commitments. The future development of the Company's land holdings may require substantial expenditures. The Company is not a party to any significant litigation. (15) Subsequent event (unaudited) On January 3, 1995 a notification was filed with the Securities and Exchange Commission stating that the Company had become an investment company pursuant to the provisions of the Investment Company Act of 1940. A registration statement (Form N-2) will be filed by the second quarter of 1995. 24 26 First Carolina Investors, Inc. Directors Brent D. Baird* Private Investor Bruce C. Baird President Belmont Management Co., Inc. Patrick W.E. Hodgson*+ Chairman & CEO Todd Shipyards Corporation Theodore E. Dann, Jr. + Secretary, Treasurer & General Counsel Ferro Alloys Services, Inc. H.Thomas Webb III* President First Carolina Investors, Inc. *Member of Executive Committee +Member of the Audit Committee Officers: Brent D. Baird Chairman H. Thomas Webb III President James E. Traynor Vice President, Secretary & Treasurer Karen K. Sides Assistant Secretary Registrar, Transfer and Disbursing Agent Continental Stock Transfer and Trust Company 2 Broadway New York, NY 10004 General Counsel Waggoner, Hamrick, Hasty & Montieth First Union Center, Suite 2500 Charlotte, NC 28282 Auditors KPMG Peat Marwick LLP 2800 Two First Union Center Charlotte, NC 28282 27 Independent Auditor's Report The Board of Directors and Stockholders First Carolina Investors, Inc. Under the date of February 24, 1995, we reported on the consolidated balance sheets of First Carolina Investors, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended, as contained in the 1994 annual report to stockholders. These consolidated financial statements and our report theron are incorporated by reference in the annual report on Form 10-KSB for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the consolidated financial statement schedules as listed in Item 13(a)(ii) of this Form 10-KSB. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in note 1(f) to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", on December 31, 1993. KPMG Peat Marwick LLP Charlotte, N.C. February 24, 1995 28 Schedule X FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION Years Ended December 31, 1994, and 1993
Charged to Costs and Expenses ----------------------------- Years Ended December 31 ----------------------------- 1994 1993 -------- ------- Advertising costs . . . . . . . . . . . . . $210,713 237,151 Taxes, other than payroll and income taxes . . . . . . . . . . . . . . 277,279 249,037 Depreciation . . . . . . . . . . . . . . . 57,312 37,020
There were no expenditures in excess of 1 percent of total income for maintenance and repairs, amortization of intangible assets, preoperating costs and similar deferrals or royalties. 29 SCHEDULE XI FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
Cost Gross Lfe on which capitalized amount at depreciation (sales) which in latest subsequent to carrried at income Initial cost acquisition, close of year Accumulated Date of Date statement Description to Company net (note 1) Depreciation Construction Acquired is computed ------------- -------------- ------------- ------------ ------------ -------- ------------- Land held for investment; Charlotte North Carolina $ 1,586,100 (1,207,444) 378,656 - July, 1979 Charlotte, North Carolina 3,031,492 4,327 3,035,819 - June, 1989 ----------------------------------------------------------------- 4,617,592 (1,203,117) 3,414,475 - ----------------------------------------------------------------- Land held for development: Charlotte, North Carolina (note 4).. 5,297,372 (4,813,038) 484,334 - June, 1989 Finished lot inventory; Charlotte, North Carolina 1,600,000 (1,280,646) 319,354 - November, 1989 Charlotte, North Carolina 530,000 (479,241) 50,759 - December, 1990 Charlotte, North Carolina 400,425 (271,140) 129,285 - June, 1983 Charlotte, North Carolina 1,226,802 (1,181,195) 45,607 - September, 1993 Charlotte, North Carolina 1,204,474 (964,879) 239,595 - June 1994 ------------ ----------- ------------ $ 10,259,073 (8,990,139) 1,268,934 ============ =========== ============
Notes: (1) The gross carrying value for Federal income tax purposes aggregated approximately 4,900,000 at December 31, 1994. (2) Following is a summary of activity in real estate owned and the related accumulated depreciation for the two years ended December 31, 1994.
Investment in Real Estate ------------- --------------- 1994 1993 ------------- --------------- Balance at beginning of year.. $6,964,811 10,249,482 Additions during year: Improvements, etc.............. 1,099,546 851,816 ------------- --------------- 8,064,357 11,101,298 Deductions during year: Cost of real estate sold....... (3,380,948) (4,136,487) ------------- --------------- Balance at end of year.......... $4,683,409 $6,964,811 ========== ==========
(3) Costs capitalized subsequent to the acquisition of land held for development is net of transfers to finished lot inventory of $1,674,624 and $2,286,539 for 1994 and 1993, respectively. 30 SCHEDULE XII FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1994
Principal amount Carrying of loans subject Final Periodic Face amount of to delinquent Interest maturity payment amount of mortgages principal Description Rate date terms mortgages (note 2) or interest ------------- -------- -------- --------- --------- --------- --------------- First mortgage permanent loans Raleigh, North Carolina Condominium Monthly (note 4) 16% 12/2002 installments $ 132,775 $119,983 - Intermediate mortgage loans: Huntersville, North Carolina undeveloped land 8% 12/1995 - 1,050,000 800,000 - Junior mortgage loans: Charlotte, North Carolina Residential prime lots 8% 4/1996 - 111,000 111,000 - Unearned discount (note 4) (10,783) ---------- Total mortgage loans, net $1,020,200 ==========
31 Schedule XII Cont. FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES MORTGAGE LOANS ON REAL ESTATE (CONTINUED) DECEMBER 31, 1994 Notes: (1) A summary of mortgage loan activity for the two years ended December 31, 1994 is as follows:
1994 1993 ---------- --------- Net Balance at beginning of year . . . . . . . $1,320,299 1,431,847 Additions during the year: New mortgage loans . . . . . . . . . . . . . . 112,125 413,000 Accretion of loan discount . . . . . . . . . . 8,352 743 ---------- --------- 1,440,776 1,845,590 Deductions during the year: Collections of principal . . . . . . . . . . . 420,576 525,291 ---------- --------- Net balance at end of year . . . . . . . . . . $1,020,200 1,320,299 ========== =========
(2) The aggregate carrying value of the mortgage loans for Federal income tax purposes is approximately the same as book value at December 31, 1994. (3) See notes 1(e) of Notes to Consolidated Financial Statements for information regarding the allowance for possible losses.