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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
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[ ] 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.
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(Name of small business issuer in its charter)
Delaware 56-1005066
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(State of other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
Issuer's telephone number (704) 846-1066
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Securities registered under Section 12 (b) of the Exchange Act:
Title of each class Name of each exchanges on
which registered
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-------------------------- --------------------------
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, No Par Value
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(Title of Class)
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(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
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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
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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.
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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.
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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.
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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.
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(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.
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(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.
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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.
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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.
<TABLE>
<CAPTION>
Description Location
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<S> <C>
(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
</TABLE>
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<TABLE>
<S> <C>
(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.
</TABLE>
(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.
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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
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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.
<TABLE>
<CAPTION>
Signature Capacity Date
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<S> <C> <C>
By:/s/ Brent D. Baird Chairman & Director February 24, 1995
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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
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Bruce C. Baird
By:/s/ Patrick W.E. Hodgson Director February 24, 1995
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Patrick W.E. Hodgson
By:/s/ Theodore E. Dann, Jr. Director February 24, 1995
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Theodore E. Dann, Jr.
</TABLE>
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EXHIBIT 13
FIRST CAROLINA
INVESTORS, INC.
1 9 9 4
ANNUAL REPORT
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Company Profile
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Description of Business Stockholders' Meeting Table of Contents
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<S> <C> <C> <C>
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
</TABLE>
Quarterly Stock Prices and Dividends Paid Per Share
<TABLE>
<CAPTION>
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1994
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Quarter First Second Third Fourth
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
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1993
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Quarter First Second Third Fourth
<S> <C> <C> <C> <C>
High Bid $22.50 23.50 24 24.50
Low Bid $21 22.50 23.50 24
Cash Dividends $0.125 - 0.125 -
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</TABLE>
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.
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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
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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.
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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.
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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.
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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.
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 12
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
---- ----
<S> <C> <C>
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
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 13
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
For the Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 14
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Net Unrealized Total
Shares of Retained Treasury Gain on Stockholders'
Common Stock Earnings Stock Equity Securities Equity
------------ -------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
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
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 15
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
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
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
(3) Real Estate
Real estate owned at December 31, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
17
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993
----------------------- -----------------------
Number of Number of
Lots Cost Lots Cost
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
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
== ======== == ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1993
-----------------------
Number of
Lots Cost
--------- --------
<S> <C> <C>
Tresanton-Phase II 4 $ 55,530
Tresanton-Phase III 4 88,874
- --------
Total finished
lot inventory 8 $144,404
= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Balance at beginning of year $370,784
Charges against allowance (12,056)
Recovery of allowance (358,728)
--------
Balance at the end of year $ -
========
</TABLE>
There was no activity in the allowance for possible losses during 1994.
18
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
Number % Holding Holding Fair
of shares owned Cost Gains Losses Value
--------- ----- ---- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
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
=========== ========== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
--------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
Number % Holding Holding Fair
of shares owned Cost Gains Losses Value
--------- ----- ---- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
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
=========== ========== ======= ==========
</TABLE>
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:
<TABLE>
<CAPTION>
Ownership Investment Advances
% in venture to venture
--------- ---------- ----------
<S> <C> <C> <C>
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
====== ==========
</TABLE>
All joint ventures account for land under development in the same manner as the
Company. See not 1(d).
19
<PAGE> 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
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
Combined Condensed Statements of Operations
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
20
<PAGE> 22
(6) Other assets
The components of other assets at December 31, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
(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:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
(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
<PAGE> 23
(9) Accounts payable and accrued liabilities
The components of accounts payable and accrued liabilities at December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
(10) Income taxes
Total income tax expense for the years ended December 31, 1994 and
1993 is allocated as follows:
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
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
========== =======
</TABLE>
The components of Federal and state income tax expense (benefit) from
continuing operations are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . $ 781,000 525,000
State . . . . . . . . . . . . . . . . . . . 182,000 115,000
--------- --------
963,000 640,000
Deferred . . . . . . . . . . . . . . . . . . . (38,000) (140,000)
--------- --------
$ 925,000 500,000
========= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1994 % 1993 %
--------- ----- -------- -----
<S> <C> <C> <C> <C>
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%
======== ==== ======== ====
</TABLE>
22
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, December 31,
Deferred tax assets: 1994 1993
------------ ------------
<S> <C> <C>
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)
=========== ===========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 28
Schedule X
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended December 31, 1994, and 1993
<TABLE>
<CAPTION>
Charged to Costs and Expenses
-----------------------------
Years Ended December 31
-----------------------------
1994 1993
-------- -------
<S> <C> <C>
Advertising costs . . . . . . . . . . . . . $210,713 237,151
Taxes, other than payroll and
income taxes . . . . . . . . . . . . . . 277,279 249,037
Depreciation . . . . . . . . . . . . . . . 57,312 37,020
</TABLE>
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.
<PAGE> 29
SCHEDULE XI
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
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
------------- -------------- ------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
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
============ =========== ============
</TABLE>
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.
<TABLE>
<CAPTION>
Investment in Real Estate
------------- ---------------
1994 1993
------------- ---------------
<S> <C> <C>
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
========== ==========
</TABLE>
(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.
<PAGE> 30
SCHEDULE XII
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
<TABLE>
<CAPTION>
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
------------- -------- -------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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
==========
</TABLE>
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
(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.
