-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BYmdT+osfD2L2or+mcKQd7ltm7gfHzYZieJ/iBluN1T3g/RTJQ2PYM0Lov/89vSY BjeHQPTUjBRF/TbWbVKxEw== 0000950144-97-001865.txt : 19970227 0000950144-97-001865.hdr.sgml : 19970227 ACCESSION NUMBER: 0000950144-97-001865 CONFORMED SUBMISSION TYPE: NSAR-B PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970226 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CAROLINA INVESTORS INC CENTRAL INDEX KEY: 0000811040 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 561005066 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: NSAR-B SEC ACT: 1940 Act SEC FILE NUMBER: 811-08942 FILM NUMBER: 97544601 BUSINESS ADDRESS: STREET 1: 5224 PROVIDENCE COUNTRY CLUB DRIVE STREET 2: PO BOX 33607 CITY: CHARLOTTE STATE: NC ZIP: 28277 BUSINESS PHONE: 7048461066 MAIL ADDRESS: STREET 1: 5224 PROVIDENCE COUNTRY CLUB DRIVE CITY: CHARLOTTE STATE: NC ZIP: 28277 NSAR-B 1 N-SAR (3.0.A) PAGE 1 000 B000000 12/31/96 000 C000000 0000811040 000 D000000 N 000 E000000 NF 000 F000000 Y 000 G000000 N 000 H000000 N 000 I000000 3.0.a 000 J000000 A 001 A000000 FIRST CAROLINA INVESTORS, INC. 001 B000000 811-8942 001 C000000 7048461066 002 A000000 5224 PROVIDENCE COUNTRY CLUB DRIVE 002 B000000 CHARLOTTE 002 C000000 NC 002 D010000 28277 003 000000 N 004 000000 N 005 000000 N 006 000000 N 007 A000000 N 007 B000000 0 007 C010100 1 007 C010200 2 007 C010300 3 007 C010400 4 007 C010500 5 007 C010600 6 007 C010700 7 007 C010800 8 007 C010900 9 007 C011000 10 012 A000001 CONTINENTAL STOCK TRANSFER & TRUST COMPANY 012 B000001 84-00034 012 C010001 NEW YORK 012 C020001 NY 012 C030001 10004 013 A000001 KPMG PEAT MARWICK, LLP 013 B010001 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TRAYNOR TITLE CHIEF FIN'L OFFICER EX-27 2
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE 1996 ANNUAL REPORT AND FORM N-SAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 1996 ANNUAL REPORT TO STOCKHOLDERS AND FORM N-SAR. 1 US DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 14,038,336 74,055,100 305,832 8,264,000 3,413,188 86,038,120 0 0 27,747,371 27,747,371 0 0 1,094,822 1,099,646 282,739 0 513,119 0 35,111,527 58,290,749 765,750 18,529 1,822,540 1,685,091 921,728 320,209 9,721,317 10,963,254 0 638,989 0 0 0 9,060 4,236 9,985,204 624,468 192,910 0 0 0 11,710 1,685,091 52,642,084 43.93 .84 9.15 .58 0 (.10) 53.24 3.20 150,000 0.14 THE $0.10 PER SHARE RETURN OF CAPITAL INDICATED ABOVE REPRESENTS SHARE TRANSACTIONS AND NOT A RETURN OF CAPITAL OR OTHER DISTRIBUTION THE 4,236 SHARES REINVESTED REPRESENT THE NET CHANGE IN ADDITIONAL SHARES ATTRIBUTABLE TO STOCK OPTIONS.
EX-99.77B 3 EXHIBIT 99.77b KPMG Peat Marwick LLP Suite 2800 Two First Union Center Charlotte, NC 28282-8290 To the Board of Directors of First Carolina Investors, Inc.: In planning and performing our audit of the financial statements of First Carolina Investors, Inc. for the year ended December 31, 1996, we considered its internal control structure, including procedures for safegauarding securities, in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-SAR, not to provide assurance on the internal control structure. The management of First Carolina Investors, Inc. is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. Two of the objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit preparation of financial statements in conformity with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that it may become inadequate because of changes in conditions or that the effectiveness of the design and operations may deteriorate. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. However, we noted no matters involving the internal control structure, including procedures for safeguarding securities, that we consider to be material weaknesses as defined above as of December 31, 1996. This report is solely for the information and use of management and the Securities and Exchange Commission. February 14, 1997 EXHIBIT 99.77b FIRST CAROLINA INVESTORS, INC. 1 9 9 6 ANNUAL REPORT 2 Company Profile FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Description of Business FORM N-SAR Table of Contents - ----------------------- ---------- ----------------- First Carolina Investors,(the Company) was organized December 2, A copy of the Company's December 31, Letter to Stockholders. . . . . . .2 1971. The Company is a non- 1996 report on Securities and Management's Discussion diversified, closed-end management Exchange Commission Form N-SAR will and Analysis of Financial investment company under the be furnished without charge to Condition and Results of Investment Company Act of 1940. stockholders upon written request Operation. . . . . . . . . . . .3 directed to the Secretary, First Management's Report . . . . . . . .6 Carolina Investors, Inc., P.O. Box Independent Auditor's 33607 Charlotte, NC 28233 Report . . . . . . . . . . . . .7 Consolidated Financial Statements . . . . . . . . . . .8 Noted to Consolidated Financial Statements . . . . . 11 Per Share Data and Ratios . . . . . . . . . . . . 16
Quarterly Stock Prices and Dividends Paid Per Share
1996 ---- Quarter First Second Third Fourth High Bid $37.00 37.00 39.00 42.00 Low Bid $34.50 36.50 36.75 38.00 Cash Dividends $0.30 .10 .10 .10
1995 ---- Quarter First Second Third Fourth High Bid $28.50 28.50 31.00 33.50 Low Bid $27.00 27.75 28.00 30.00 Cash Dividends $0.30 .10 .10 .10
There were approximately 550 record holders of Shares of Common Stock at January 2, 1997. The stock prices reflect interdealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. 1 Letter to Stockholders First Carolina Investors, Inc. and Subsidiaries TO OUR STOCKHOLDERS: During our second year as an investment company the net asset value of First Carolina Investors, Inc. (FCI) increased by $10,963,254 to $58,290,749 or $53.24 per share. Net income before realized and unrealized appreciation on investments was $921,728 or $0.84 per share in 1996 versus $1,270,486 or $1.16 per share in 1995. The twenty percent increase in net asset value achieved in 1996 is largely due to the increase in the market value of First Empire State Corporation. As was the case in 1995, First Empire, our largest holding, experienced an outstanding year in operations and market valuation. The gain on sale from real estate operations declined significantly in 1996 as we neared the completion of our Providence Country Club community. Expenses associated with real estate activities also declined significantly. FCI intends to sell the majority of its real estate holdings in 1997. While these endeavors will continue to be a function of market conditions, we remain optimistic given the present economic climate in the greater Charlotte area. The success of these efforts will materially impact the 1997 operations and cash flow of FCI. Pursuant to our share repurchase program, we purchased 9,060 shares in 1996 at an average cost of $37.42 per share. Respectfully submitted, Brent D. Baird Chairman H. Thomas Webb III February 14, 1997 President 2 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. (the Company) was organized December 2, 1971 as a South Carolina unincorporated business trust. On July 1, 1987 the Company incorporated by merging into a wholly owned subsidiary (First Carolina Investors, Inc.) established solely for this purpose. The Company was incorporated November 24, 1986 under the laws of the state of Delaware. From the inception of operations through December 31, 1975 the Company operated as a real estate investment trust ("REIT") as defined in the Internal Revenue Code. Subsequently the Company became active in land development through both direct ownership and joint ventures as well as investments in equity securities of financial and other entities. Real estate activities continued to be the Company's primary business through the end of 1994. On January 3, 1995 the Company, pursuant to the requirements of the Investment Company Act of 1940, filed notification of registration. The Company is a closed-end, non-diversified management investment company. As a closed-end, non-diversified management investment company, the Company values assets and liabilities at estimated fair value. This represents a significant change from the Company's prior accounting policies and financial statement presentation. As an investment company, the Company now prepares consolidated statements of assets and liabilities, consolidated statement of operations, consolidated statement of changes in net assets and a statement of investments in securities. The most significant changes from the December 31, 1994 balance sheet included in the 1994 annual report Form 10-K, and the accompanying consolidated Statement of Assets and Liabilities are as follows: Real estate - The Board of Directors and management of the Company value its real property investments at estimated fair values. Procedures utilized to determine the estimated fair value include appraisals by an independent appraiser, estimated net cash flows, utilization of fair market comparables in existing subdivisions developed by the Company and other market comparables. Investment in joint venture - The Board of Directors and management of the Company value the investment in joint venture at its estimated fair value. The procedure to determine the estimated fair value utilizes fair market comparables in the existing subdivision developed by the joint venture, other market comparables and estimated net cash flow. Deferred income taxes payable - Deferred income taxes payable were increased to reflect the income tax liability on unrealized gains in real estate and in investment in joint venture as included in the accompanying Consolidated State of Assets and Liabilities. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investment in Debt and Equity Securities" (Statement 115) prior to 1994. Accordingly the Company's investments in securities had previously been recorded at fair value. Due to the lack of comparability between financial statements prepared before and after the Company became an investment company, the reader is directed to refer to prior years financial statements for such information. (A copy of the 1994 annual report and/or Form 10K will be provided upon written request to the Secretary of the Company). 1996 OPERATIONS COMPARED TO 1995 The net asset value of the Company increased by $9,985,204 or $9.31 per share during 1996 as compared to an increase of $10,318,330 or $9.96 per share during 1995. The increase in net asset value for both periods is primarily attributable to a significant increase in the market value of the Company's largest security holding - First Empire State Corporation. During 1996 the value of this investment increased by $14,000,000 as compared to a increase of $16,400,000 during 1995. At the end of 1996 the value of the Company's investment in First Empire State Corporation was $57,600,000. During both 1996 and 1995 real estate operations were a significant contributor to earnings. The Company's Charlotte real estate investment known as Providence Country Club contributed $1,061,606 to total income during 1996 as compared to $2,463,376 during 1995. (See gains on sale of real estate below) 3 During the early part of 1996 the Company purchased an additional 50,000 shares of American Precision Industries, Inc. bringing the total number of shares owned to 300,000. American Precision is a manufacturer of heat transfer, electronics components and motion control products and is based in Buffalo, NY. Late in the year, the Company sold 60,000 shares at an after tax gain of $318,568. During 1995 the Company made significant investments in two companies. The Company purchased 135,000 shares of Merchant Group, Inc., at an average cost of $15.19 per share. Merchants Group, Inc. is a casualty insurance firm based in Buffalo, NY. The Company also significantly increased its investment in American Precision Industries by acquiring 236,700 shares at an average cost of $9.40 per share. The stock repurchase program, which was instituted in 1980, continued during 1996 and 1995. During 1996 the Company purchased 9,060 shares at an average cost of $37.42 per share. During 1995, the Company purchased 21,626 shares at an average cost of $28.14 per share. At December 31, 1996 the Company held 443,680 shares as treasury shares at an average cost of $19.05 per share. Net income before realized and unrealized appreciation on investments was $921,728 for 1996 as compared to $1,270,486 for 1995. The net gain realized on investments in other companies was $320,209 in 1996 versus $192,910 in 1995. The increase in net unrealized appreciation and investments was $9,721,317 as compared to $10,109,432 during 1995. These components combined to produce a net increase in net assets resulting from operations of $10,963,254 and $11,572,828 for 1996 and 1995, respectively. At year end net asset value per share is $53.24 in 1996 and $43.93 in 1995. Dividend income increased during 1996 as compared to 1995. An increase in the dividend rate of First Empire State Corporation was a major contributor to the increase in dividend income. For additional information, including a detailed list of dividend income, see Note 2 of Notes to Consolidated Financial Statements. At the end of 1996 two of the Company's investees did not pay dividends and are therefore considered non-income producing. At the December 31, 1995, three of the Company's investees did not pay dividends. Interest on mortgage loans was $18,524 during 1996 as compared to $92,803 during 1995. This decrease is attributable to the repayment of a mortgage note receivable in December 1995. Gain on sale of real estate was $1,061,606 during 1996 as compared to $2,463,376 during 1995. During 1996 twenty-three (23) lots were sold in the Providence Country Club community at a total gross sales price of $1,862,000. These sales produced the 1996 gain. During 1995, sixty-six (66) lots were sold in the Providence Country Club community at a total gross sales price of $4,897,000 and a gain of $2,422,607. Also during 1995 the Company completed the sale of its last remaining lot in the Park Crossing community. This final lot sale produced a gain of $40,769. Lot sales have been a significant contributor to the Company's earnings. At December 31, 1996, the Company has thirty (30) remaining lots to sell in the Providence Country Club community. Equity in earnings of joint venture was $139,443 in 1996 as compared to $133,651 in 1995. The Company owns a 1/3 interest in the joint venture Goodsell/Carolinas Associates. During 1996 the venture sold 3 lots at a total gross sales price of $570,000. During 1995 the venture sold three lots at a total gross sales price of $620,000. Other income was $621,496 during 1996 and compared to $565,262 during 1995. Other income for 1996 includes net commissions of $71,000, income of $269,000 related to a partial reimbursement of costs associated with a waste water treatment plant, income of $109,000 attributable to assets held in the deferred compensation plan, fee income of $121,000 from Providence Country Club operations and miscellaneous income of $51,000. For 1995 other income includes net commissions of $62,000, income of $193,000 attributable to assets held in deferred income compensation plan, fee income of $200,000 from Providence Country Club operations and miscellaneous income of $110,000. General and administrative expenses declined during 1996 to $792,402 as compared to $1,102,335 during 1995. For both years personnel costs are the largest component of this category and total approximately $590,000 and $850,000 for 1996 and 1995 respectively. Also included are various taxes, principally franchise taxes, of $82,000 in 1996 and $125,000 in 1995. Sales and marketing expenses declined significantly in 1996 as compared to 1995. The reduction in 1996 expenses is indicative of the completion of the development of Providence Country Club and the reduced lot inventory levels. Sales and marketing expenses for both years are related to the Providence Country Club community and include advertising, 4 promotional, model home and sales office expenses. The 1995 amounts also included approximately $75,000 of expenses associated with hosting a home tour during the fall of 1995. Other expenses decreased significantly during 1996 as compared to 1995. Other expenses for 1996 include real estate taxes of $54,000, directors fee and expenses of $42,000, depreciation of $1,000, expenses associated with the Providence Country Club community of $38,000, expenses of $109,000 which corresponds with and offsets income earned by assets in the deferred compensation plan, and miscellaneous expenses of $57,000. Other expenses totaled $538,915 for 1995. Other expenses included real estate taxes of $55,000, directors fees and expenses of $53,000, depreciation of $101,000, expenses associated with the Providence Country Club community of $72,000, expenses of $193,000 which corresponds with and offsets income earned by assets in the deferred compensation plan, and miscellaneous expenses of $65,000. Gain realized on investments in other companies was $320,209 for 1996 as compared to $192,910 in 1995. These amounts are net of income taxes of $203,000 in 1996 and $123,000 in 1995. The 1996 gain is the result of the sale of a portion of the Company's holdings of American Precision Industries. The 1995 gain represents the liquidation of the Company's total investment in a financial entity. INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY The three major components of the Company's assets are investments in other companies, real estate and mortgage loans/investment in joint venture. INVESTMENT IN OTHER COMPANIES While investment in other companies consist of marketable securities, they are considered mid to long-term investments and are generally not a source of current liquidity. REAL ESTATE Land held for investment 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 were positive during the past several years. Long term interest rates were favorable during 1996 and 1995. The availability of construction financing has been quite good during 1996 and 1995 and indications are that the availability will continue to be good. As of the date of this report, the 1997 real estate market is expected to remain favorable. MORTGAGE LOAN AND INVESTMENT IN JOINT VENTURE The mortgage loan portfolio totaled $163,301 and $136,320 at December 31, 1996 and 1995, respectively. The mortgage loans consists of condominium end loans and lot loans. The condominium loans are due in 2002. The lot loans typically have a term of 9-18 months. While these loans could be sold, they are generally not considered sources of liquidity. The Company has an interest in an Atlanta joint venture. As the ventures sells lots, the Company will receive 1/3 of the earnings. Accordingly the Company's interest in the venture is considered to be a source of liquidity. However, the venture's lot sales are subject to the same conditions and limitations which were previously discussed regarding finished lots. LINE OF CREDIT The Company has a $5,000,000 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 of $707,575. These are the Company's most readily available sources of liquidity. See Note 7 of Notes to Consolidated Financial Statements. COMMITMENTS FOR CAPITAL EXPENDITURES At December 31, 1996 the Company had contractual and other commitments of approximately $200,000 related to real estate development at Providence Country Club. While the Company has no contractual commitments to purchase 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 1996 and 1995 were considered satisfactory. In its second year as an investment company, the Company continued its transition away from real estate related investments to investments in securities. 5 During 1996 the net increase in net assets resulting from operations was $10,963,254 as compared to $11,572,828 for 1995. At December 31, 1996 net assets per share are $53.24. This is an increase of $9.31 per share from the December 31, 1995 net assets per share of $43.93. The Company's investments in securities had solid performances for both 1996 and 1995. The increase in earnings and market value of First Empire State Corporation led the way for the Company's overall results for both years. We are cautiously optimistic about 1997. The 1997 budgeted income before realized and unrealized appreciation on investments reflects a year of profitable operations and positive cash flow. The budget is predicated upon stable interest rates and a generally good economic climate. It is projected that the 30 remaining lots in the Providence Country Club community will be sold by the end of calendar year 1997. The Company continues to review alternatives for the 300 acres of undeveloped land contiguous to Providence Country Club. 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, 1996, 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 6 Independent Auditors' Report FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES The Directors and Stockholders First Carolina Investors, Inc. We have audited the accompanying consolidated statement of assets and liabilities of First Carolina Investors, Inc. and subsidiaries including the schedule of portfolio investments as of December 31, 1996 and 1995 and the related consolidated statement of operations and the statement of changes in net assets for each of the two years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and per share data and ratios 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 and per share data and ratios 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 and 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 and selected per share data and ratios referred to above present fairly, in all material respects, the financial position of First Carolina Investors, Inc. and subsidiaries as of December 31, 1996 and 1995 and the results of their operations for the years then ended, and the changes in its net assets for each of the two years in the period then ended, and the selected per share data and ratios for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Charlotte, North Carolina February 14, 1997. 7 FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES Consolidated Statements of Assets and Liabilities December 31, 1996 and 1995
Assets 1996 1995 ---- ---- Investments in securities, at value (note 2) (cost of $14,038,332 in 1996 and $14,037,955 in 1995) $74,055,100 56,892,025 Cash, including short term investments of $120,710 in 1996 and $1,014,998 in 1995 707,575 1,342,225 Mortgage loans, secured by real estate (note 3) 163,301 136,320 Real estate (note 4) 7,724,000 9,649,000 Investment in joint venture (note 5) 540,000 520,000 Accrued dividend and interest receivable 142,531 141,663 Other assets (note 6) 2,705,613 2,044,406 ----------- ----------- Total assets 86,038,120 70,725,639 ----------- ----------- Liabilities Accounts payable and accrued liabilities (note 8) 3,460,745 4,338,136 Federal and state income taxes payable (note 9) 48,863 Deferred income taxes payable (note 9) 24,210,647 17,997,287 ----------- ----------- Total liabilities 27,671,392 22,384,286 ----------- ----------- Deferred Income (note 10) 75,979 35,808 ----------- ----------- Net Assets $58,290,749 48,305,545 =========== =========== Net assets per share (3,500,000 no par value common shares authorized, 1,506,542 shares issued, 1,094,822 and 1,099,646 shares outstanding in 1996 and 1995, respectively) $ 53.24 43.93 =========== ===========
See accompaning notes to consolidated financial statements 8 FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES Consolidated Statements of Operations For the year ended December 31, 1996 and 1995
INCOME 1996 1995 -------------- ------------- Dividends $ 765,750 672,238 Interest on mortgage loans 18,524 92,803 Gain on sale of real estate 1,061,606 2,463,376 Equity in earnings of joint venture 139,443 133,651 Other 621,496 565,262 ----------- ----------- Total income 2,606,819 3,927,330 ----------- ----------- EXPENSES General and administrative 792,402 1,102,335 Professional fees 104,703 92,230 Sales and marketing 189,322 434,712 Interest 11,770 1,652 Other 300,894 538,915 ----------- ----------- Total expenses 1,399,091 2,169,844 ----------- ----------- Earnings before income taxes and realized and unrealized appreciation on investments 1,207,728 1,757,486 Provision for income taxes (note 9) (286,000) (487,000) ----------- ----------- Net income before realized and unrealized appreciation on investments 921,728 1,270,486 Gain realized on investments in other companies (net of income tax provision of $204,000 in 1996 and $123,000 in 1995) 320,209 192,910 Change in unrealized appreciation of investments for the period (net of deferred taxes of $6,214,034 in 1996 and $6,463,413 in 1995) 9,721,317 10,109,432 ----------- ----------- Net increase in net assets resulting from operations $10,963,254 11,572,828 =========== ===========
See accompanying notes to consolidated financial statements. 9 FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES Consolidated Statements of Changes in Net Assets For the year ended December 31, 1996 and 1995
Increase in net assets from operations 1996 1995 ------------ ------------ Investment income, net $921,728 1,270,486 Realized gain on investments, net 320,209 192,910 Change in unrealized appreciation, net 9,721,317 10,109,432 ----------- ---------- Net increase in net assets resulting from operations 10,963,254 11,572,828 Distributions to shareholders of $0.60 per share from investment income, net (638,989) (646,018) Treasury shares purchased (339,061) (608,480) ----------- ---------- Total increase 9,985,204 10,318,330 Net assets Beginning of year 48,305,545 37,987,215 ----------- ---------- End of year $58,290,749 48,305,545 =========== ==========
See accompanying notes to consolidated financial statements. FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES INVESTMENTS IN SECURITIES December 31, 1996 and 1995
1996 1995 No. Fair No. Fair Shares Value Shares Value ------ ----- ------ ----- Common Stocks - 100% Banking and insurance - 81.2% First Empire State Corporation 200,000 $57,600,000 200,000 43,600,000 Merchants Group, Inc. 135,000 2,497,500 135,000 2,396,250 Shipbuilding - 6.1% Todd Shipyards Corporation 700,000 4,550,000 700,000 4,112,500 Manufacturing - 6.5 American Precision Industries, Inc. 240,000 4,800,000 250,000 2,781,250 Transportation and chemical - 6.2% Oglebay Norton Company 80,000 3,500,000 80,000 2,980,000 Exolon-Esk Co. 42,600 1,107,600 41,600 998,400 Other - 0.0% - 23,625 ----------- ---------- Total - 100% (cost of $14,038,332 in 1996 and $14,037,955 in 1995) $74,055,100 56,892,025 =========== ==========
See accompanying notes to consolidated financial statements. 10 FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION (a) Organization First Carolina Investors, Inc. was organized December 2, 1971 and subsequently incorporated in the state of Delaware July 1, 1987. On January 3, 1995 First Carolina Investors, Inc. registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940. (b) Principles of consolidation and financial statement presentation 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. The Company became an investment company on January 3, 1995, and accordingly has prepared its consolidated financial statements on a fair value basis. Prior to this time the Company prepared its consolidated financial statements on a historical cost basis. Consequently the Company has not presented comparative consolidated financial statements before the year ended December 31, 1995. Prior period information is available by referring to quarterly filings on Form 10-Q, annual filing on Form 10-KSB and reports to stockholders. As a result of becoming an investment company, all investments are required to be carried at fair value. Unrealized appreciation and/or depreciation is included in the statement of operations, net of the effective tax rate, to arrive at the change in net assets. The effect of the change on January 3, 1995 was to increase the fair value of real estate by $6,002,591, increase the deferred tax payable by $2,485,345, and to increase net assets by $3,88,642 or $3.55 per share. The unrealized appreciation as of January 3, 1995 was $19,163,420 net of tax. (c) Security valuation Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are stated at the last quoted bid price. (d) Real estate The Board of Directors and management of the Company value its real property investments at estimated fair value. Procedures utilized to determine the estimated fair value include appraisals by an independent appraiser, estimated net cash flows, utilization of fair market comparables in existing subdivisions developed by the Company and other market comparables. The Company accounts for sales of real estate in accordance with Statement of Financial Accounting Standards No.66, "Accounting for Sales of Real Estate." (e) Investment in joint venture The Company has an interest in a joint venture which is engaged in the development and sale of real estate. The Board of Directors and management have used both fair market comparables in the existing subdivision developed by the venture and discounted net cash flows in valuing its investment at its estimated fair value. 11 (f) Income taxes The Company is subject to Federal and state corporate income taxes. The Company files a consolidated Federal income tax return. The Company accounts of income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes payable have been increased to reflect the estimated Federal and state income tax liabilities on unrealized gains in real estate, investments in other companies and investment in joint venture in the accompanying Consolidated Statement of Assets and Liabilities. (g) Distributions to Shareholders Dividends payable to shareholders are recorded on the declaration date. (h) Management's use of estimates The preparation of financial statements in conformity with generally accepted account principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates. (i) Other The Company follows the industry practice of recording security transactions on the trade date. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date. (2) INVESTMENTS IN OTHER COMPANIES The Company's investments in the common stock of financial and other entities, which are stated at market value, are as follows:
December 31, 1996 ----------------------------------------------------------------------------------------- Gross Gross Fair Value Unrealized Unrealized Number as a % of Holding Holding Fair Dividend of shares Net Assets Cost Gains Losses Value Income --------- ---------- ----------- ---------- ---------- ----- --------- First Empire State Corp 200,000 98.8 $ 3,180,120 54,419,880 - 57,600,000 560,000 Oglebay Norton Company 80,000 6.0 2,244,128 1,255,872 - 3,500,000 104,000 Todd Shipyards Corp. 700,000 7.8 3,469,036 1,080,964 - 4,550,000 - American Precision 240,000 8.2 2,332,799 2,467,201 - 4,800,000 74,750 Merchants Group, Inc. 135,000 4.3 2,051,021 446,479 - 2,497,500 27,000 Miscellaneous - 1.9 761,228 346,372 - 1,107,600 - ----------- ---------- ---------- ---------- --------- $14,038,332 60,016,768 - 74,055,100 765,750 =========== ========== ========== ========== =========
December 31, 1995 ----------------------------------------------------------------------------------------- Gross Gross Fair Value Unrealized Unrealized Number as a % of Holding Holding Fair Dividend of shares Net Assets Cost Gains Losses Value Income --------- ---------- ----------- ---------- ---------- ----- --------- First Empire State Corp 200,000 90.3 $ 3,180,120 40,419,880 - 43,600,000 500,000 Oglebay Norton Company 80,000 6.2 2,244,128 735,872 - 2,980,000 96,000 Todd Shipyards Corp. 700,000 8.5 3,469,036 643,464 - 4,112,500 - American Precision 250,000 5.8 2,327,581 453,669 - 2,781,250 34,088 Merchants Group, Inc. 135,000 5.0 2,051,021 345,229 - 2,396,250 19,750 Miscellaneous 2.0 766,069 255,956 - 1,022,025 - ----------- ---------- ----------- ---------- --------- $14,037,955 42,854,070 - 56,892,025 649,838 =========== ========== =========== ========== ==========
Purchases and sales of investment securities were $604,878 and $1,128,709 during 1996 and $4,321,462 and $632,894 during 1995. The net gain on sale of investments in other companies was $320,209 and $192,910 for 1996 and 1995, respectively. Net gains are computed using the average cost method. Dividend income of $22,400 was received on securities sold during 1995. 12 (3)MORTGAGE LOANS The Company's investments in mortgage loans as of December 31, 1996 and 1995 are summarized as follows:
1996 1995 ---------- ---------- Permanent loans on condominiums $ 82,701 117,873 Junior loans on lots (note 10) 80,600 28,750 Unearned discount ( - ) ( 10,303) ---------- ---------- Total mortgage loans, net $ 163,301 136,320 ========== ==========
(4)REAL ESTATE The estimated fair value of real estate owned at December 31, 1996 and 1995 are summarized as follows:
1996 1995 ---------------------------- ---------------------------- Description Quantity Fair Value Quantity Fair Value - ----------- -------- ---------- -------- ---------- Land held for investment: Providence Country Club 300 acres $3,967,000 300 acres $3,865,000 Park Crossing 24 acres 2,024,000 24 acres 2,024,000 Finished lot inventory 30 lots 1,733,000 54 lots 3,760,000 ---------- ---------- Total real estate, net $7,724,000 $9,649,000 ========== ==========
(5)INVESTMENT IN AND ADVANCES TO JOINT VENTURE The Company has a 1/3 ownership interest in a joint venture Goodsell-Carolinas. The Company's initial investment in and all advances to the venture have been repaid. The venture owns 12 lots at a cost of $533,730 and a fair value of $1,620,000 at December 31, 1996. (6)OTHER ASSETS The components of other assets at December 31, 1996 and 1995 are as follows:
1996 1995 ---------- ----------- Deferred compensation, funded $1,724,596 1,549,869 Sales center 492,080 492,080 Model home 233,246 - Income tax receivable 200,774 - Miscellaneous 54,917 2,457 ----------- ----------- $2,705,613 2,044,406 =========== ===========
The deferred compensation includes $1,498,000, and $1,312,000 at December 31, 1996 and 1995, respectively, owed to affiliated persons pursuant to a deferred compensation plan. The deferred compensation has accrued over thirteen years. (7)NOTE PAYABLE TO BANK At December 31, 1996 and 1995 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. Borrowing under this credit line bear interest at the prime rate (8.25% at December 31, 1996). There was no outstanding bank indebtedness at December 31, 1996 and 1995, and for the years then ended the Company was in compliance with all covenants of said agreement. Additional information relating to bank debt is as follows:
1996 1995 ----------- ----------- Weighted average interest rate of indebtedness outstanding during the year 8.25% 8.5% ----------- ----------- Maximum amount of indebtedness outstanding at any month end during the year $ 515,000 $ 200,000 ----------- ----------- Approximate average aggregate indebtedness outstanding during the year $ 150,000 $ 15,000 =========== ===========
13 (8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities at December 31, 1996 and 1995 are as follows:
1996 1995 ---------- ---------- Trade accounts payable $1,246,578 2,331,197 Deferred compensation (note 6) 1,724,596 1,549,869 Dividends payable 319,069 321,877 Miscellaneous accruals and payable 140,735 78,105 Cash held in escrow 29,767 57,088 ---------- ---------- $3,460,745 4,338,136 ========== ==========
(9) INCOME TAXES Total income tax expense for the years ended December 31, 1996 and 1995 are allocated as follows:
1996 1995 ------------------------------- -------------------------------- Earnings Earnings before before Income Tax Income Tax Income Tax Income Tax ----------- ---------- ----------- ---------- Investment income $ 1,207,728 286,000 1,757,486 487,000 Gains realized on investments in other companies 524,209 204,000 315,910 123,000 Change in unrealized appreciation of investments 15,935,351 6,214,034 16,572,845 6,463,413 ----------- ---------- ----------- ---------- $17,667,288 6,704,034 18,646,241 7,073,413 =========== ========== =========== ==========
The components of Federal and state income tax expense (benefit) from continuing operations are summarized as follows:
1996 1995 ---------- ---------- Current: Federal $ 420,659 444,552 State 70,015 163,919 ---------- ---------- 490,674 608,471 Deferred 6,213,360 6,464,942 ---------- ---------- $6,704,034 7,073,413 ========== ==========
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:
1996 % 1995 % ---------- ------- ---------- ------- Income tax expense at Federal rate $6,006,878 34.0% 6,339,722 34.0% Change in the beginning of the year balance of the valuation allowance for deferred tax assets allocated to income tax expense (30,000) (0.2%) (130,000) (.7%) State income tax net of Federal tax benefit 861,643 4.9% 950,005 5.1% Dividend exclusion (157,643) (0.9%) (166,770) (.9%) Other, net 23,156 0.1% 80,456 .4% ---------- ----- ---------- ---- Provision for income taxes $6,704,034 37.9% 7,073,413 37.9% ========== ===== ========== ====
14 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below:
Deferred tax assets: 1996 1995 ------------- ------------- Deferred compensation liability, principally due to accrual for financial reporting purposes $ 677,805 638,961 State net operating loss carryforwards 27,822 58,074 ------------- ------------- 705,627 697,035 Total gross deferred tax assets Less valuation allowance ( 30,000) ( 60,000) ------------- ------------- Net deferred tax assets 675,627 637,035 ------------- ------------- Deferred tax liabilities: Real estate investments, principally due to unrealized gains ( 1,200,057) ( 1,679,475) Investments in other companies, principally due to unrealized gains on securities ( 23,407,427) ( 16,713,975) ------------- ------------- Other ( 278,790) ( 240,872) ------------- ------------- Total gross deferred tax liabilities ( 24,886,274) ( 18,634,322) ------------- ------------- Net deferred tax liability ($24,210,647) ( 17,997,287) ============= =============
The valuation allowance for deferred tax assets as of January 1, 1995 was $190,000. The net change in the total valuation allowance for the years ended December 31, 1995 and 1996 was a decrease of $130,000 and $30,000, 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 1993 and subsequent years are subject to examination by the Internal Revenue Service and various other taxing authorities. (10) 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, 1996 and 1995, the Company had deferred income relating to such sales of $75,979 and $23,738, respectively. Also included in deferred income at December 31, 1995 is $12,070 of interest on loans to a joint venture which was deferred in proportion to the Company's ownership interest. (11) OTHER INCOME Other income includes $268,893 received from a municipality in final settlement of amounts due from the transfer of title to a waste water treatment plant. (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, 1996, all the options are fully vested and exercisable but no options have been exercised. (13) NET ASSETS PER SHARE Net assets per share are based on the number of shares of common stock and common stock equivalents outstanding, after deducting treasury stock, 1,094,822 at December 31, 1996 and 1,099,646 on December 31, 1995. The computation assumes that outstanding stock options were exercised and the proceeds used to purchase common stock. (14) SHARE REPURCHASE PROGRAM At December 31, 1996 the Company has repurchased 443,680 shares as treasury shares at a cost of $8,452,025. During 1996 the Company repurchased 9,060 shares at an average cost of $37.42 per share. Said repurchase price represents a weighted average discount of 22% per share relative to net asset value. 15 (15) ACCUMULATED UNDISTRIBUTED INCOME At December 31, 1996 accumulated undistributed investment income-net was $907,207, accumulated undistributed net realized gains on investment transactions was $513,119, and net unrealized appreciations in value of investments was $35,111,527. (16) COMMITMENTS AND CONTINGENCIES The Company has $200,000 of undisbursed contractual commitments in connection with real estate development. In order to protect its investments, the Company may be required to furnish amounts in excess of its current investments or commitments. The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operation, or liquidity. Selected Per Share Data and Ratios For the Years ended December 31, 1996 and 1995
PER SHARE DATA AND RATIOS* 1996 1995 - -------------------------- ------ ------ Investment income $2.38 3.55 Expenses (including income taxes) ( 1.54) (2.40) ------- ------ Investment income - net 0.84 1.15 Distributions from investment income - net ( 0.58) (0.58) Net realized and unrealized gain on securities 9.15 9.31 Share transactions ( 0.10) 0.08 ------- ------ Net increase in net asset value 9.31 9.96 Net asset value: Beginning of year 43.93 33.97 ------- ------- End of year $53.24 43.93 ======= ======= RATIOS - ------ Ratio of expenses to average net assets 3.20% 6.30% Ratio of investment income - net to average net assets 1.75% 3.01% Portfolio turnover 0.93% 1.36% AVERAGE SHARES OUTSTANDING 1,097,032 1,106,052
*Per share data is based upon the average number of shares outstanding for the year. The computation assumes that outstanding stock options were exercised and the proceeds used to purchase common stock. Computation of Net Asset Value per Share Primary and Fully Diluted For the Year Ended December 31, 1996 and 1995
1996 1995 ---------------------- ----------------------- PRIMARY - ------- Net Asset $58,290,749 $48,305,545 ============ ============ Shares Outstanding 1,062,862 1,071,922 ============ ============ Net Asset Value per Share $54.84 $45.06 ============ ============ FULLY DILUTED - ------------- Options 45,000 45,000 Exercise Price $12.75 $12.75 Market Price 44.00 ( 13,040) 33.21 ( 17,276) ----------- ------------ Additional Share Attributable to Stock Options 31,960 27,724 Shares Outstanding 1,062,862 1,071,922 ----------- ------------ 1,094,822 1,099,646 =========== ============ Net Asset Value per Share $53.24 $43.93 =========== ============
16 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 2750 Charlotte, NC 28282 AUDITORS - -------- KPMG Peat Marwick, LLP 2800 Two First Union Center Charlotte, NC 28282 -----END PRIVACY-ENHANCED MESSAGE-----