<PAGE> 1
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Consolidated Statements of Assets and Liabilities
June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
Investments in securities, at fair value
(cost of $ 14,620,939 in 1996 and
$13,447,695 in 1995) $64,486,250 46,516,499
Cash, including short term investments
of $558,000 in 1995 329,849 815,426
Mortgage loans, secured by real estate 215,708 992,209
Real estate 8,499,000 8,244,000
Investment in joint venture 600,000 582,500
Accrued dividend and interest receivable 143,459 128,666
Other assets 2,207,839 2,108,457
----------- ----------
Total assets 76,482,105 59,387,757
----------- ----------
Liabilities
Notes payable to banks 250,000 -
Accounts payable and accrued liabilities 3,263,242 3,353,678
Federal and state income taxes payable 184,951 294,272
Deferred income taxes payable 20,467,060 13,874,306
----------- ----------
Total liabilities 24,165,253 17,522,256
----------- ----------
Deferred income 99,718 78,727
----------- ----------
Net Assets $52,217,134 41,786,774
=========== ==========
Net assets per share (3,500,000 no par
value common shares authorized,
1,506,542 shares issued and outstanding
shares of 1,095,919 in 1996 and
1,102,531 in 1995.) $ 47.65 37.90
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Consolidated Statements of Operations
For the six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
INCOME:
Dividends $ 377,250 310,538
Interest on mortgage loans 10,016 49,337
Gain of sale of real estate 627,523 1,358,625
Equity in earning of joint ventures 100,412 33,717
Other 148,411 202,134
---------- ---------
Total income 1,263,612 1,954,351
---------- ---------
EXPENSES:
Interest 2,289 1,214
General and administrative 320,534 619,282
Professional fees 44,610 42,960
Sales and marketing 105,438 190,463
Other 100,082 158,539
---------- ---------
Total expenses 572,953 1,012,458
---------- ---------
Earnings before income taxes and realized
and unrealized appreciation on investments 690,659 941,893
Provision for income taxes (224,000) (350,000)
---------- ---------
Net income before realized and unrealized
appreciation on investments 466,659 591,893
Gain realized on investments in other companies
(net of income tax provision of $1,000 in 1996
and $120,000 in 1995) 1,640 195,910
Change in unrealized appreciation of
investments for the period 3,865,787 3,642,324
---------- ---------
Net increase in net assets resulting $4,334,086 4,430,127
from operations ========== =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 3
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
For the six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Increase in net assets from operations
Investment income, net $ 466,659 591,893
Realized gain on investments, net 1,640 195,910
Change in unrealized appreciation 3,865,787 3,642,324
----------- ----------
Net increase in net assets resulting
from operations 4,334,086 4,430,127
Distributions to shareholders
Dividends of $0.20 per share (213,904) (215,950)
Treasury shares purchased (208,593) (414,618)
----------- ----------
Total increase 3,911,589 3,799,559
Net assets
Beginning of year 48,305,545 37,987,215
As of June 30 ----------- ----------
$52,217,134 41,786,774
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
INVESTMENTS IN SECURITIES
JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------------------- ---------------------
No. Shares Value No. Shares Value
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Common Stocks - 100%
Banking and insurance -
79% in 1996 and 1995
First Empire State Corporation 200,000 $48,200,000 200,000 $34,300,000
Merchants Group, Inc. 135,000 2,598,750 130,000 2,356,250
Shipbuilding -
8% in 1996 and 9% in 1995
Todd Shipyards Corporation 700,000 5,250,000 700,000 4,200,000
Manufacturing -
6% in 1996 and 5% in 1995
American Precision Industries, Inc. 300,000 3,712,500 205,000 2,152,500
Transportation and natural resources -
7% in 1996 and 1995
Oglebay Norton Company 80,000 3,660,000 80,000 2,740,000
Exolon-ESK Co. 42,600 1,065,000 41,500 767,749
----------- -----------
Total - 100% (cost $14,620,939 in 1996
and $13,447,695 in 1995) $64,486,250 $46,516,499
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 and 1995
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 on 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.
Financial information for periods prior to January 3, 1995 is available
by referring to quarterly filings on Form 10-Q, annual filing on Form
10-KSB and reports to stockholders.
(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.
<PAGE> 6
(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. The venture owns
16 lots at a cost of $567,599 at June 30, 1996 and owned 20 lots at a
cost of $776,718 at June 30, 1995.
(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 for 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 Statements of Assets and
Liabilities.
(G) Management's use of estimates
-----------------------------
The preparation of financial statements in conformity with generally
accepted accounting 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.
(H) Other
-----
The Company follows the industry practice of recording security
transactions on the trade date. Dividend income is recognized on the
ex-dividend date. Interest income is recognized on the accrual basis.
2. Investment Transactions
Purchases and sales of investment securities were $604,878 and $21,897
respectively in 1996 and $3,731,202 and $632,894 respectively in 1995.
The net gain on sale of investments in other companies was $1,640 in
1996 and $195,910 in 1995. The gross unrealized gain on investments in
other companies totaled $49,865,311 and $33,068,805 for the 6 months
ended June 30, 1996 and 1995, respectively. There were no unrealized
losses.
<PAGE> 7
3. Mortgage loans
The Company's investments in mortgage loans as of June 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Interest Maturity Outstanding Interest Maturity Outstanding
Rate Date Balance Rate Date Balance
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Permanent first
mortgage loans on
condominiums 16% 12/2002 $106,358 16% 12/2002 $108,459
Intermediate first
mortgage loan on
undeveloped land - - - 9.5% 9/96 800,000
Junior mortgage loans
secured by residential lots 8% 12/97 109,350 8% 12/96 83,750
-------- --------
$215.708 $992.209
======== ========
</TABLE>
4. Real Estate
The estimated fair value of real estate owned at June 30, 1996 and
1995, respectively is $8,499,000 and $8,244,000. It consists of 324
acres of land held for investment for both periods and 41 developed
lots at June 30, 1996 and 26 developed lots at June 30, 1995. The
aggregate cost for Federal income tax purposes is approximately
$5,200,000 and $5,000,000 at June 30, 1996 and 1995 respectively.
Land held for investment is considered non-income producing.
5. Other Assets
The components of other assets at June 30, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred compensation, funded $1,637,986 1,360,572
Sales center 492,080 492,080
Receivables - other 5,736 98,866
Miscellaneous 72,037 156,939
---------- =========
$2,207,839 2,108,457
========== =========
</TABLE>
The deferred compensation includes $1,400,000 and $1,239,000 at June
1996 and 1995 respectively, that is owed to affiliated persons pursuant
to a deferred compensation plan. The balance of deferred compensation
is owed to 2 former directors. The deferred compensation has accrued
over twelve years.
6. Line of credit
At June 30, 1996 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. At June 30, 1996 there
was an outstanding balance of $250,000 and at June 30, 1995 there was
no outstanding balance.
<PAGE> 8
Additional information relating to bank debt is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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 $250,000 200,000
-------- -------
Approximate average aggregate indebtedness
outstanding during the period $ 82,000 29,000
-------- --------
</TABLE>
7. Accounts payable and accrued liabilities
The components of accounts payable and accrued liabilities at June 30,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade accounts payable $1,373,748 1,668,826
Deferred compensation (note 5) 1,637,986 1,360,572
Dividends payable 106,712 107,895
Miscellaneous accruals and payable 92,759 171,507
Cash held in escrow 52,037 44,878
---------- ----------
$3,263,242 3,353,678
========== ==========
</TABLE>
8. 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 1,095,919 and 1,102,531 at June 30, 1996 and 1995, respectively.
The computation assumes that outstanding stock options were exercised
and the proceeds used to purchase common stock resulting in the
issuance of an additional 29,597 shares of common stock at June 30,
1996 and 24,509 shares at June 30, 1995.
At June 30, 1996 accumulated undistributed net investment income, is
$877,223; accumulated and undistributed net realized gains on
investment transactions are $194,550 and the net unrealized
appreciation in value of investments is $29,255,997.
9. Share repurchase program
At June 30, 1996 the Company has repurchased 440,220 shares as treasury
shares at a cost of $8,321,557. During 1996 through June 30, the
Company has repurchased 5,600 shares at an average cost of $37.25 per
share on the Boston Stock Exchange, the exchange on which the Company's
shares are traded. Said repurchase price represents a weighted average
discount of 21.8% per share relative to net asset value. At the May
16, 1996 Board of Directors meeting, the directors authorized the
continuation of the share repurchase program.
10. Distribution to Stockholders
Two dividends of $0.10 per share were declared during the six months
ended June 30, 1996 and 1995. The dividends are taxable to
stockholders as ordinary income.
<PAGE> 9
11. Renumeration
Each Director, except the President of the Company, receives fees of
$2,500 per directors' meeting attended and $100 per audit committee
meeting attended. The Chairman also receives a $1,500 monthly fee. For
the six months ended June 30, 1996 and 1995 directors' fees totaled
$29,400 and $34,700, respectively.
Aggregate renumeration paid to or set aside for all officers during
this six month period was $102,000 and $352,000 for 1996 and 1995
respectively.
The Company paid brokerage fees of $2,565 and $24,155 to Trubee,
Collins & Co., Inc. for the six months ended June 30, 1996 and 1995,
respectively. Mr. Baird, Chairman of the Company, is an employee of
Trubee, Collins & Co., Inc.
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. All options are fully vested and exercisable but no
options have been exercised.
13. Commitments and Contingencies
At June 30, 1996 the Company has approximately $100,000 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 contractual investments or
commitments. The future development of the Company's land holdings may
require substantial expenditures.
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
operations, or liquidity.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Computation of Net Asset Value per Share
Primary and Fully Diluted
For the Six Months Ended June 30, 1996 and 1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Primary 1996 1995
- ------- ---- ----
<S> <C> <C>
Net Assets $52,217,134 41,786,774
=========== ==========
Shares Outstanding 1,066,322 1,078,022
=========== ==========
Net Asset Value per Share $ 48.97 38.76
=========== ==========
Fully Diluted
- -------------
Options 45,000 45,000
Exercise Price of $12.75
Market Price of $37.25 in 1996 and $28.00 in 1995 (15,403) (20,491)
----------- ----------
Additional Shares Attributable to Stock Options 29,597 24,509
Shares Outstanding 1,066,322 1,078,022
----------- ----------
1,095,919 1,102,531
=========== ==========
Net Asset Value per Share $ 47.65 37.90
=========== ==========
</TABLE>
<PAGE> 10
Annual Meeting Summary
On May 16, 1996 the annual stockholders meeting was held in Buffalo, New York.
At the meeting, five directors were elected to serve a one year term. In
addition, the appointment of the Company's independent public accountants was
ratified. The votes were as follows:
<TABLE>
<CAPTION>
Directors Name For Withheld
-------------- --- --------
<S> <C> <C>
Brent D. Baird 993,889 125
Bruce C. Baird 993,889 125
Theodore E. Dann, Jr. 993,887 127
Patrick W. E. Hodgson 993,889 125
H. Thomas Webb III 993,887 127
</TABLE>
To ratify the appointment of KPMG Peat Marwick LLP the votes were as follows:
<TABLE>
For Against Abstain
--- ------- -------
<S> <C> <C>
991,821 702 1,491
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Selected Per Share Data and Ratios
For the six months ended June 30, 1996 and 1995
Per Share Data and Ratios *
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Investment income $1.15 1.80
Expenses (including income taxes) (.73) (1.25)
------ -----
Investment income, net .42 .55
Distributions from investment income, net (.20) (.20)
Net realized and unrealized gain on securities 3.52 3.53
Share transactions (.02) .05
------ -----
Net increase in net asset value 3.72 3.93
Net asset value:
Beginning of year 43.93 33.97
------ -----
End of period $47.65 37.90
====== =====
Ratios
Ratio of expenses to average net assets 1.56% 3.42%
Ratio of investment income, net to
average net assets 0.92% 1.48%
Portfolio turnover 0.04% 1.54%
</TABLE>
*Per Share data is based upon 1,099,413 and 1,086,783 shares outstanding for
the six months ended June 30, 1996 and 1995, respectively. This represents the
average number of shares outstanding for the 6 month periods. The computation
assumes that outstanding stock options were exercised and the proceeds used to
purchase common stocks.
<PAGE> 11
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 & Monteith
First Union Center, Suite 2500
Charlotte, NC 28282
Auditors
- --------
KPMG Peat Marwick LLP
2800 Two First Union Center
Charlotte, NC 28282
