<PAGE> PAGE 1
000 B000000 12/31/96
000 C000000 0000811040
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 3.0.a
000 J000000 A
001 A000000 FIRST CAROLINA INVESTORS, INC.
001 B000000 811-8942
001 C000000 7048461066
002 A000000 5224 PROVIDENCE COUNTRY CLUB DRIVE
002 B000000 CHARLOTTE
002 C000000 NC
002 D010000 28277
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 N
007 B000000 0
007 C010100 1
007 C010200 2
007 C010300 3
007 C010400 4
007 C010500 5
007 C010600 6
007 C010700 7
007 C010800 8
007 C010900 9
007 C011000 10
012 A000001 CONTINENTAL STOCK TRANSFER & TRUST COMPANY
012 B000001 84-00034
012 C010001 NEW YORK
012 C020001 NY
012 C030001 10004
013 A000001 KPMG PEAT MARWICK, LLP
013 B010001 CHARLOTTE
013 B020001 NC
013 B030001 28282
014 A000001 TRUBEE COLLINS & CO., INC.
014 B000001 8-2142
015 A000001 FIRST UNION NATIONAL BANK OF N.C.
015 B000001 C
015 C010001 CHARLOTTE
015 C020001 NC
015 C030001 28288
015 C040001 0145
015 E010001 X
018 000000 N
<PAGE> PAGE 2
019 A000000 N
019 B000000 0
020 A000001 TRUBEE COLLINS & CO., INC.
020 B000001 16-1406627
020 C000001 6
020 C000002 0
020 C000003 0
020 C000004 0
020 C000005 0
020 C000006 0
020 C000007 0
020 C000008 0
020 C000009 0
020 C000010 0
021 000000 6
022 C000001 0
022 D000001 0
022 C000002 0
022 D000002 0
022 C000003 0
022 D000003 0
022 C000004 0
022 D000004 0
022 C000005 0
022 D000005 0
022 C000006 0
022 D000006 0
022 C000007 0
022 D000007 0
022 C000008 0
022 D000008 0
022 C000009 0
022 D000009 0
022 C000010 0
022 D000010 0
023 C000000 0
023 D000000 0
024 000000 N
025 D000001 0
025 D000002 0
025 D000003 0
025 D000004 0
025 D000005 0
025 D000006 0
025 D000007 0
025 D000008 0
026 A000000 N
026 B000000 Y
026 C000000 N
026 D000000 Y
026 E000000 N
<PAGE> PAGE 3
026 F000000 Y
026 G010000 N
026 G020000 N
027 000000 N
028 A010000 0
028 A020000 0
028 A030000 0
028 A040000 0
028 B010000 0
028 B020000 0
028 B030000 0
028 B040000 0
028 C010000 0
028 C020000 0
028 C030000 0
028 C040000 0
028 D010000 0
028 D020000 0
028 D030000 0
028 D040000 0
028 E010000 0
028 E020000 0
028 E030000 0
028 E040000 0
028 F010000 0
028 F020000 0
028 F030000 0
028 F040000 0
028 G010000 0
028 G020000 0
028 G030000 0
028 G040000 0
028 H000000 0
030 A000000 0
030 B000000 0.00
030 C000000 0.00
031 A000000 0
031 B000000 0
032 000000 0
033 000000 0
035 000000 0
036 B000000 0
038 000000 0
042 A000000 0
042 B000000 0
042 C000000 0
042 D000000 0
042 E000000 0
042 F000000 0
042 G000000 0
042 H000000 0
<PAGE> PAGE 4
043 000000 0
044 000000 0
045 000000 N
048 000000 0.000
048 A010000 0
048 A020000 0.000
048 B010000 0
048 B020000 0.000
048 C010000 0
048 C020000 0.000
048 D010000 0
048 D020000 0.000
048 E010000 0
048 E020000 0.000
048 F010000 0
048 F020000 0.000
048 G010000 0
048 G020000 0.000
048 H010000 0
048 H020000 0.000
048 I010000 0
048 I020000 0.000
048 J010000 0
048 J020000 0.000
048 K010000 0
048 K020000 0.000
055 A000000 N
055 B000000 N
057 000000 N
058 A000000 N
059 000000 Y
060 A000000 N
061 000000 0
062 A000000 N
062 B000000 0.0
062 C000000 0.0
062 D000000 0.0
062 E000000 0.0
062 F000000 0.0
062 G000000 0.0
062 H000000 0.0
062 I000000 0.0
062 J000000 0.0
062 K000000 0.0
062 L000000 0.0
062 M000000 0.0
062 N000000 0.0
062 O000000 0.0
062 P000000 0.0
062 Q000000 0.0
062 R000000 0.0
<PAGE> PAGE 5
063 A000000 0
063 B000000 0.0
066 A000000 Y
066 B000000 N
066 C000000 Y
066 D000000 N
066 E000000 N
066 F000000 N
066 G000000 N
067 000000 N
068 A000000 N
068 B000000 N
069 000000 N
070 A010000 Y
070 A020000 N
070 B010000 Y
070 B020000 N
070 C010000 Y
070 C020000 N
070 D010000 Y
070 D020000 N
070 E010000 Y
070 E020000 N
070 F010000 Y
070 F020000 N
070 G010000 Y
070 G020000 N
070 H010000 Y
070 H020000 N
070 I010000 N
070 I020000 N
070 J010000 Y
070 J020000 N
070 K010000 Y
070 K020000 N
070 L010000 Y
070 L020000 N
070 M010000 Y
070 M020000 N
070 N010000 Y
070 N020000 N
070 O010000 Y
070 O020000 Y
070 P010000 Y
070 P020000 N
070 Q010000 N
070 Q020000 N
070 R010000 N
070 R020000 N
071 A000000 605
071 B000000 1129
<PAGE> PAGE 6
071 C000000 65028
071 D000000 1
072 A000000 12
072 B000000 19
072 C000000 766
072 D000000 0
072 E000000 1822
072 F000000 0
072 G000000 0
072 H000000 539
072 I000000 18
072 J000000 2
072 K000000 4
072 L000000 18
072 M000000 38
072 N000000 0
072 O000000 368
072 P000000 12
072 Q000000 0
072 R000000 48
072 S000000 57
072 T000000 0
072 U000000 0
072 V000000 3
072 W000000 578
072 X000000 1685
072 Y000000 0
072 Z000000 922
072AA000000 320
072BB000000 0
072CC010000 9721
072CC020000 0
072DD010000 639
072DD020000 0
072EE000000 0
073 A010000 0.6000
073 A020000 0.0000
073 B000000 0.0000
073 C000000 0.0000
074 A000000 708
074 B000000 0
074 C000000 0
074 D000000 163
074 E000000 0
074 F000000 74055
074 G000000 0
074 H000000 0
074 I000000 8264
074 J000000 0
074 K000000 0
074 L000000 143
<PAGE> PAGE 7
074 M000000 2705
074 N000000 86038
074 O000000 0
074 P000000 1498
074 Q000000 0
074 R010000 0
074 R020000 0
074 R030000 0
074 R040000 26249
074 S000000 0
074 T000000 58291
074 U010000 1095
074 U020000 0
074 V010000 53.24
074 V020000 0.00
074 W000000 0.0000
074 X000000 550
074 Y000000 0
075 A000000 0
075 B000000 52642
076 000000 44.00
077 A000000 Y
077 B000000 Y
078 000000 N
080 A000000 TRAVELERS/AETNA PROPERTY & CASUALTY
080 C000000 400
081 A000000 N
081 B000000 0
082 A000000 Y
082 B000000 25
083 A000000 N
083 B000000 0
084 A000000 N
084 B000000 0
085 A000000 N
085 B000000 N
086 A010000 0
086 A020000 0
086 B010000 9
086 B020000 339
086 C010000 0
086 C020000 0
086 D010000 0
086 D020000 0
086 E010000 0
086 E020000 0
086 F010000 0
086 F020000 0
087 A010000 NO PAR COMMON STOCK
087 A020000 319420-105
087 A030000 FCI
<PAGE> PAGE 8
088 A000000 N
088 B000000 N
088 C000000 N
088 D000000 N
SIGNATURE JAMES E. TRAYNOR
TITLE CHIEF FIN'L OFFICER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE 1996 ANNUAL REPORT
AND FORM N-SAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 1996 ANNUAL
REPORT TO STOCKHOLDERS AND FORM N-SAR.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 14,038,336
<INVESTMENTS-AT-VALUE> 74,055,100
<RECEIVABLES> 305,832
<ASSETS-OTHER> 8,264,000
<OTHER-ITEMS-ASSETS> 3,413,188
<TOTAL-ASSETS> 86,038,120
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,747,371
<TOTAL-LIABILITIES> 27,747,371
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,094,822
<SHARES-COMMON-PRIOR> 1,099,646
<ACCUMULATED-NII-CURRENT> 282,739
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 513,119
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,111,527
<NET-ASSETS> 58,290,749
<DIVIDEND-INCOME> 765,750
<INTEREST-INCOME> 18,529
<OTHER-INCOME> 1,822,540
<EXPENSES-NET> 1,685,091
<NET-INVESTMENT-INCOME> 921,728
<REALIZED-GAINS-CURRENT> 320,209
<APPREC-INCREASE-CURRENT> 9,721,317
<NET-CHANGE-FROM-OPS> 10,963,254
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 638,989
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 9,060
<SHARES-REINVESTED> 4,236<F2>
<NET-CHANGE-IN-ASSETS> 9,985,204
<ACCUMULATED-NII-PRIOR> 624,468
<ACCUMULATED-GAINS-PRIOR> 192,910
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 11,710
<GROSS-EXPENSE> 1,685,091
<AVERAGE-NET-ASSETS> 52,642,084
<PER-SHARE-NAV-BEGIN> 43.93
<PER-SHARE-NII> .84
<PER-SHARE-GAIN-APPREC> 9.15
<PER-SHARE-DIVIDEND> .58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.10)<F1>
<PER-SHARE-NAV-END> 53.24
<EXPENSE-RATIO> 3.20
<AVG-DEBT-OUTSTANDING> 150,000
<AVG-DEBT-PER-SHARE> 0.14
<FN>
<F1> THE $0.10 PER SHARE RETURN OF CAPITAL INDICATED ABOVE REPRESENTS SHARE
TRANSACTIONS AND NOT A RETURN OF CAPITAL OR OTHER DISTRIBUTION
<F2> THE 4,236 SHARES REINVESTED REPRESENT THE NET CHANGE IN ADDITIONAL SHARES
ATTRIBUTABLE TO STOCK OPTIONS.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.77b
KPMG Peat Marwick LLP
Suite 2800
Two First Union Center
Charlotte, NC 28282-8290
To the Board of Directors of
First Carolina Investors, Inc.:
In planning and performing our audit of the financial statements of First
Carolina Investors, Inc. for the year ended December 31, 1996, we considered
its internal control structure, including procedures for safegauarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on the internal control
structure.
The management of First Carolina Investors, Inc. is responsible for
establishing and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control structure policies
and procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operations may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
December 31, 1996.
This report is solely for the information and use of management and the
Securities and Exchange Commission.
February 14, 1997
<PAGE>
EXHIBIT 99.77b
FIRST CAROLINA
INVESTORS, INC.
1 9 9 6
ANNUAL REPORT
2
<PAGE>
Company Profile
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Description of Business FORM N-SAR Table of Contents
- ----------------------- ---------- -----------------
<S> <C> <C>
First Carolina Investors,(the
Company) was organized December 2, A copy of the Company's December 31, Letter to Stockholders. . . . . . .2
1971. The Company is a non- 1996 report on Securities and Management's Discussion
diversified, closed-end management Exchange Commission Form N-SAR will and Analysis of Financial
investment company under the be furnished without charge to Condition and Results of
Investment Company Act of 1940. stockholders upon written request Operation. . . . . . . . . . . .3
directed to the Secretary, First Management's Report . . . . . . . .6
Carolina Investors, Inc., P.O. Box Independent Auditor's
33607 Charlotte, NC 28233 Report . . . . . . . . . . . . .7
Consolidated Financial
Statements . . . . . . . . . . .8
Noted to Consolidated
Financial Statements . . . . . 11
Per Share Data and
Ratios . . . . . . . . . . . . 16
</TABLE>
Quarterly Stock Prices and Dividends Paid Per Share
<TABLE>
<CAPTION>
1996
----
Quarter First Second Third Fourth
<S> <C> <C> <C> <C>
High Bid $37.00 37.00 39.00 42.00
Low Bid $34.50 36.50 36.75 38.00
Cash Dividends $0.30 .10 .10 .10
</TABLE>
<TABLE>
<CAPTION>
1995
----
Quarter First Second Third Fourth
<S> <C> <C> <C> <C>
High Bid $28.50 28.50 31.00 33.50
Low Bid $27.00 27.75 28.00 30.00
Cash Dividends $0.30 .10 .10 .10
</TABLE>
There were approximately 550 record holders of Shares of Common Stock at
January 2, 1997. The stock prices reflect interdealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
1
<PAGE>
Letter to Stockholders
First Carolina Investors, Inc. and Subsidiaries
TO OUR STOCKHOLDERS:
During our second year as an investment company the net asset value of First
Carolina Investors, Inc. (FCI) increased by $10,963,254 to $58,290,749 or
$53.24 per share. Net income before realized and unrealized appreciation on
investments was $921,728 or $0.84 per share in 1996 versus $1,270,486 or $1.16
per share in 1995.
The twenty percent increase in net asset value achieved in 1996 is largely due
to the increase in the market value of First Empire State Corporation. As was
the case in 1995, First Empire, our largest holding, experienced an outstanding
year in operations and market valuation.
The gain on sale from real estate operations declined significantly in 1996 as
we neared the completion of our Providence Country Club community. Expenses
associated with real estate activities also declined significantly.
FCI intends to sell the majority of its real estate holdings in 1997. While
these endeavors will continue to be a function of market conditions, we remain
optimistic given the present economic climate in the greater Charlotte area.
The success of these efforts will materially impact the 1997 operations and
cash flow of FCI.
Pursuant to our share repurchase program, we purchased 9,060 shares in 1996 at
an average cost of $37.42 per share.
Respectfully submitted,
Brent D. Baird
Chairman
H. Thomas Webb III
February 14, 1997 President
2
<PAGE>
Management's Discussion and Analysis of Financial Conditions and
Results of Operations
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
First Carolina Investors, Inc. (the Company) was organized December 2, 1971 as
a South Carolina unincorporated business trust. On July 1, 1987 the Company
incorporated by merging into a wholly owned subsidiary (First Carolina
Investors, Inc.) established solely for this purpose. The Company was
incorporated November 24, 1986 under the laws of the state of Delaware.
From the inception of operations through December 31, 1975 the Company operated
as a real estate investment trust ("REIT") as defined in the Internal Revenue
Code. Subsequently the Company became active in land development through both
direct ownership and joint ventures as well as investments in equity securities
of financial and other entities. Real estate activities continued to be the
Company's primary business through the end of 1994. On January 3, 1995 the
Company, pursuant to the requirements of the Investment Company Act of 1940,
filed notification of registration.
The Company is a closed-end, non-diversified management investment company.
As a closed-end, non-diversified management investment company, the Company
values assets and liabilities at estimated fair value. This represents a
significant change from the Company's prior accounting policies and financial
statement presentation. As an investment company, the Company now prepares
consolidated statements of assets and liabilities, consolidated statement of
operations, consolidated statement of changes in net assets and a statement of
investments in securities. The most significant changes from the December 31,
1994 balance sheet included in the 1994 annual report Form 10-K, and the
accompanying consolidated Statement of Assets and Liabilities are as follows:
Real estate - The Board of Directors and management of the Company
value its real property investments at estimated fair values.
Procedures utilized to determine the estimated fair value include
appraisals by an independent appraiser, estimated net cash flows,
utilization of fair market comparables in existing subdivisions
developed by the Company and other market comparables.
Investment in joint venture - The Board of Directors and management
of the Company value the investment in joint venture at its
estimated fair value. The procedure to determine the estimated
fair value utilizes fair market comparables in the existing
subdivision developed by the joint venture, other market
comparables and estimated net cash flow.
Deferred income taxes payable - Deferred income taxes payable were
increased to reflect the income tax liability on unrealized gains
in real estate and in investment in joint venture as included in
the accompanying Consolidated State of Assets and Liabilities.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt and Equity
Securities" (Statement 115) prior to 1994. Accordingly the Company's
investments in securities had previously been recorded at fair value.
Due to the lack of comparability between financial statements prepared before
and after the Company became an investment company, the reader is directed to
refer to prior years financial statements for such information. (A copy of the
1994 annual report and/or Form 10K will be provided upon written request to the
Secretary of the Company).
1996 OPERATIONS COMPARED TO 1995
The net asset value of the Company increased by $9,985,204 or $9.31 per share
during 1996 as compared to an increase of $10,318,330 or $9.96 per share during
1995. The increase in net asset value for both periods is primarily
attributable to a significant increase in the market value of the Company's
largest security holding - First Empire State Corporation. During 1996 the
value of this investment increased by $14,000,000 as compared to a increase of
$16,400,000 during 1995. At the end of 1996 the value of the Company's
investment in First Empire State Corporation was $57,600,000.
During both 1996 and 1995 real estate operations were a significant contributor
to earnings. The Company's Charlotte real estate investment known as
Providence Country Club contributed $1,061,606 to total income during 1996 as
compared to $2,463,376 during 1995. (See gains on sale of real estate below)
3
<PAGE>
During the early part of 1996 the Company purchased an additional 50,000 shares
of American Precision Industries, Inc. bringing the total number of shares
owned to 300,000. American Precision is a manufacturer of heat transfer,
electronics components and motion control products and is based in Buffalo, NY.
Late in the year, the Company sold 60,000 shares at an after tax gain of
$318,568.
During 1995 the Company made significant investments in two companies. The
Company purchased 135,000 shares of Merchant Group, Inc., at an average cost of
$15.19 per share. Merchants Group, Inc. is a casualty insurance firm based in
Buffalo, NY. The Company also significantly increased its investment in
American Precision Industries by acquiring 236,700 shares at an average cost of
$9.40 per share.
The stock repurchase program, which was instituted in 1980, continued during
1996 and 1995. During 1996 the Company purchased 9,060 shares at an average
cost of $37.42 per share. During 1995, the Company purchased 21,626 shares at
an average cost of $28.14 per share. At December 31, 1996 the Company held
443,680 shares as treasury shares at an average cost of $19.05 per share.
Net income before realized and unrealized appreciation on investments was
$921,728 for 1996 as compared to $1,270,486 for 1995. The net gain realized on
investments in other companies was $320,209 in 1996 versus $192,910 in 1995.
The increase in net unrealized appreciation and investments was $9,721,317 as
compared to $10,109,432 during 1995. These components combined to produce a
net increase in net assets resulting from operations of $10,963,254 and
$11,572,828 for 1996 and 1995, respectively.
At year end net asset value per share is $53.24 in 1996 and $43.93 in 1995.
Dividend income increased during 1996 as compared to 1995. An increase in the
dividend rate of First Empire State Corporation was a major contributor to the
increase in dividend income. For additional information, including a detailed
list of dividend income, see Note 2 of Notes to Consolidated Financial
Statements. At the end of 1996 two of the Company's investees did not pay
dividends and are therefore considered non-income producing. At the December
31, 1995, three of the Company's investees did not pay dividends.
Interest on mortgage loans was $18,524 during 1996 as compared to $92,803
during 1995. This decrease is attributable to the repayment of a mortgage note
receivable in December 1995.
Gain on sale of real estate was $1,061,606 during 1996 as compared to
$2,463,376 during 1995. During 1996 twenty-three (23) lots were sold in the
Providence Country Club community at a total gross sales price of $1,862,000.
These sales produced the 1996 gain. During 1995, sixty-six (66) lots were sold
in the Providence Country Club community at a total gross sales price of
$4,897,000 and a gain of $2,422,607. Also during 1995 the Company completed
the sale of its last remaining lot in the Park Crossing community. This final
lot sale produced a gain of $40,769. Lot sales have been a significant
contributor to the Company's earnings. At December 31, 1996, the Company has
thirty (30) remaining lots to sell in the Providence Country Club community.
Equity in earnings of joint venture was $139,443 in 1996 as compared to
$133,651 in 1995. The Company owns a 1/3 interest in the joint venture
Goodsell/Carolinas Associates. During 1996 the venture sold 3 lots at a total
gross sales price of $570,000. During 1995 the venture sold three lots at a
total gross sales price of $620,000.
Other income was $621,496 during 1996 and compared to $565,262 during 1995.
Other income for 1996 includes net commissions of $71,000, income of $269,000
related to a partial reimbursement of costs associated with a waste water
treatment plant, income of $109,000 attributable to assets held in the deferred
compensation plan, fee income of $121,000 from Providence Country Club
operations and miscellaneous income of $51,000. For 1995 other income includes
net commissions of $62,000, income of $193,000 attributable to assets held in
deferred income compensation plan, fee income of $200,000 from Providence
Country Club operations and miscellaneous income of $110,000.
General and administrative expenses declined during 1996 to $792,402 as
compared to $1,102,335 during 1995. For both years personnel costs are the
largest component of this category and total approximately $590,000 and
$850,000 for 1996 and 1995 respectively. Also included are various taxes,
principally franchise taxes, of $82,000 in 1996 and $125,000 in 1995.
Sales and marketing expenses declined significantly in 1996 as compared to
1995. The reduction in 1996 expenses is indicative of the completion of the
development of Providence Country Club and the reduced lot inventory levels.
Sales and marketing expenses for both years are related to the Providence
Country Club community and include advertising,
4
<PAGE>
promotional, model home and sales office expenses. The 1995 amounts also
included approximately $75,000 of expenses associated with hosting a home tour
during the fall of 1995.
Other expenses decreased significantly during 1996 as compared to 1995. Other
expenses for 1996 include real estate taxes of $54,000, directors fee and
expenses of $42,000, depreciation of $1,000, expenses associated with the
Providence Country Club community of $38,000, expenses of $109,000 which
corresponds with and offsets income earned by assets in the deferred
compensation plan, and miscellaneous expenses of $57,000. Other expenses
totaled $538,915 for 1995. Other expenses included real estate taxes of
$55,000, directors fees and expenses of $53,000, depreciation of $101,000,
expenses associated with the Providence Country Club community of $72,000,
expenses of $193,000 which corresponds with and offsets income earned by assets
in the deferred compensation plan, and miscellaneous expenses of $65,000.
Gain realized on investments in other companies was $320,209 for 1996 as
compared to $192,910 in 1995. These amounts are net of income taxes of
$203,000 in 1996 and $123,000 in 1995. The 1996 gain is the result of the sale
of a portion of the Company's holdings of American Precision Industries. The
1995 gain represents the liquidation of the Company's total investment in a
financial entity.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
The three major components of the Company's assets are investments in other
companies, real estate and mortgage loans/investment in joint venture.
INVESTMENT IN OTHER COMPANIES
While investment in other companies consist of marketable securities, they are
considered mid to long-term investments and are generally not a source of
current liquidity.
REAL ESTATE
Land held for investment should generally not be considered a source of current
liquidity. Finished lots are held for sale in the ordinary course of business
and are a source of liquidity. The number of finished lots that are likely to
be sold in any particular period is heavily influenced by general real estate
market conditions, interest rates and the availability of construction loans.
These factors were positive during the past several years. Long term interest
rates were favorable during 1996 and 1995. The availability of construction
financing has been quite good during 1996 and 1995 and indications are that the
availability will continue to be good. As of the date of this report, the 1997
real estate market is expected to remain favorable.
MORTGAGE LOAN AND INVESTMENT IN JOINT VENTURE
The mortgage loan portfolio totaled $163,301 and $136,320 at December 31, 1996
and 1995, respectively. The mortgage loans consists of condominium end loans
and lot loans. The condominium loans are due in 2002. The lot loans typically
have a term of 9-18 months. While these loans could be sold, they are
generally not considered sources of liquidity. The Company has an interest in
an Atlanta joint venture. As the ventures sells lots, the Company will receive
1/3 of the earnings. Accordingly the Company's interest in the venture is
considered to be a source of liquidity. However, the venture's lot sales are
subject to the same conditions and limitations which were previously discussed
regarding finished lots.
LINE OF CREDIT
The Company has a $5,000,000 line of credit with a bank. There is no debt
outstanding pursuant to the credit line. Additionally, at year-end the Company
has cash and short term investments of $707,575. These are the Company's most
readily available sources of liquidity. See Note 7 of Notes to Consolidated
Financial Statements.
COMMITMENTS FOR CAPITAL EXPENDITURES
At December 31, 1996 the Company had contractual and other commitments of
approximately $200,000 related to real estate development at Providence Country
Club.
While the Company has no contractual commitments to purchase additional equity
securities, the Company may from time-to-time make significant expenditures
for this purpose.
The Company's stock repurchase program has been in effect since 1980. Although
it has no contractual obligation to repurchase its shares, the Company
currently intends to repurchase shares subject to availability and price.
SUMMARY
The operating results for 1996 and 1995 were considered satisfactory. In its
second year as an investment company, the Company continued its transition away
from real estate related investments to investments in securities.
5
<PAGE>
During 1996 the net increase in net assets resulting from operations was
$10,963,254 as compared to $11,572,828 for 1995. At December 31, 1996 net
assets per share are $53.24. This is an increase of $9.31 per share from the
December 31, 1995 net assets per share of $43.93.
The Company's investments in securities had solid performances for both 1996
and 1995. The increase in earnings and market value of First Empire State
Corporation led the way for the Company's overall results for both years. We
are cautiously optimistic about 1997. The 1997 budgeted income before realized
and unrealized appreciation on investments reflects a year of profitable
operations and positive cash flow. The budget is predicated upon stable
interest rates and a generally good economic climate. It is projected that the
30 remaining lots in the Providence Country Club community will be sold by the
end of calendar year 1997. The Company continues to review alternatives for
the 300 acres of undeveloped land contiguous to Providence Country Club.
Management's Report
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
The Management of First Carolina Investors, Inc. is responsible for the
preparation, integrity and objectivity of the financial statements and other
information in the accompanying Annual Report. These financial statements have
been prepared in accordance with generally accepted accounting principles and
necessarily include some estimates which are based upon Management's judgment.
Management is also responsible for establishing and maintaining a system of
internal controls to provide reasonable assurance that assets are safeguarded,
transactions are properly executed and financial records are adequate and
reliable for the preparation of financial statements.
The system of internal controls, while restricted due to a very small number of
employees, provides for certain divisions of responsibilities. Management
monitors the system for compliance and performs analytical reviews for
reasonableness. Management believes that, as of December 31, 1996, the
Company's system of internal controls is adequate to accomplish the objectives
discussed herein.
The Audit Committee of the Board of Directors meets periodically with
Management and the independent certified public accountants to review matters
relating to the quality of financial reporting, internal accounting control and
the results of the annual independent audit. The independent certified public
accountants have direct and unlimited access to the Audit Committee with or
without Management present.
The accompanying financial statements have been examined by KPMG Peat Marwick
LLP, independent certified public accountants, in accordance with generally
accepted auditing standards. Their examination includes a study and evaluation
of the Company's system of internal accounting controls in order to establish a
basis for reliance thereon in determining the nature, extent and timing of
auditing procedures required to support their opinion on the financial
statements.
H. Thomas Webb III James E. Traynor
President Vice President
6
<PAGE>
Independent Auditors' Report
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
The Directors and Stockholders
First Carolina Investors, Inc.
We have audited the accompanying consolidated statement of assets and
liabilities of First Carolina Investors, Inc. and subsidiaries including the
schedule of portfolio investments as of December 31, 1996 and 1995 and the
related consolidated statement of operations and the statement of changes in
net assets for each of the two years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and per share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per
share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and selected per share
data and ratios referred to above present fairly, in all material respects, the
financial position of First Carolina Investors, Inc. and subsidiaries as of
December 31, 1996 and 1995 and the results of their operations for the years
then ended, and the changes in its net assets for each of the two years in the
period then ended, and the selected per share data and ratios for each of the
two years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
February 14, 1997.
7
<PAGE>
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Consolidated Statements of Assets and Liabilities
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
---- ----
<S> <C> <C>
Investments in securities, at value (note 2)
(cost of $14,038,332 in 1996 and $14,037,955 in 1995) $74,055,100 56,892,025
Cash, including short term
investments of $120,710 in 1996 and $1,014,998 in 1995 707,575 1,342,225
Mortgage loans, secured by real estate (note 3) 163,301 136,320
Real estate (note 4) 7,724,000 9,649,000
Investment in joint venture (note 5) 540,000 520,000
Accrued dividend and interest receivable 142,531 141,663
Other assets (note 6) 2,705,613 2,044,406
----------- -----------
Total assets 86,038,120 70,725,639
----------- -----------
Liabilities
Accounts payable and accrued liabilities (note 8) 3,460,745 4,338,136
Federal and state income taxes payable (note 9) 48,863
Deferred income taxes payable (note 9) 24,210,647 17,997,287
----------- -----------
Total liabilities 27,671,392 22,384,286
----------- -----------
Deferred Income (note 10) 75,979 35,808
----------- -----------
Net Assets $58,290,749 48,305,545
=========== ===========
Net assets per share (3,500,000 no par value common
shares authorized, 1,506,542 shares issued,
1,094,822 and 1,099,646 shares outstanding in
1996 and 1995, respectively) $ 53.24 43.93
=========== ===========
</TABLE>
See accompaning notes to consolidated financial statements
8
<PAGE>
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Consolidated Statements of Operations
For the year ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
INCOME
1996 1995
-------------- -------------
<S> <C> <C>
Dividends $ 765,750 672,238
Interest on mortgage loans 18,524 92,803
Gain on sale of real estate 1,061,606 2,463,376
Equity in earnings of
joint venture 139,443 133,651
Other 621,496 565,262
----------- -----------
Total income 2,606,819 3,927,330
----------- -----------
EXPENSES
General and administrative 792,402 1,102,335
Professional fees 104,703 92,230
Sales and marketing 189,322 434,712
Interest 11,770 1,652
Other 300,894 538,915
----------- -----------
Total expenses 1,399,091 2,169,844
----------- -----------
Earnings before income taxes and realized
and unrealized appreciation on investments 1,207,728 1,757,486
Provision for income taxes (note 9) (286,000) (487,000)
----------- -----------
Net income before realized and unrealized
appreciation on investments 921,728 1,270,486
Gain realized on investments in other companies
(net of income tax provision of $204,000 in 1996
and $123,000 in 1995) 320,209 192,910
Change in unrealized appreciation of investments
for the period (net of deferred taxes of $6,214,034
in 1996 and $6,463,413 in 1995) 9,721,317 10,109,432
----------- -----------
Net increase in net assets resulting
from operations $10,963,254 11,572,828
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
For the year ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Increase in net assets from operations 1996 1995
------------ ------------
<S> <C> <C>
Investment income, net $921,728 1,270,486
Realized gain on investments, net 320,209 192,910
Change in unrealized appreciation, net 9,721,317 10,109,432
----------- ----------
Net increase in net assets resulting
from operations 10,963,254 11,572,828
Distributions to shareholders of $0.60 per share
from investment income, net (638,989) (646,018)
Treasury shares purchased (339,061) (608,480)
----------- ----------
Total increase 9,985,204 10,318,330
Net assets
Beginning of year 48,305,545 37,987,215
----------- ----------
End of year $58,290,749 48,305,545
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
INVESTMENTS IN SECURITIES
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
No. Fair No. Fair
Shares Value Shares Value
------ ----- ------ -----
Common Stocks - 100%
<S> <C> <C> <C> <C>
Banking and insurance - 81.2%
First Empire State Corporation 200,000 $57,600,000 200,000 43,600,000
Merchants Group, Inc. 135,000 2,497,500 135,000 2,396,250
Shipbuilding - 6.1%
Todd Shipyards Corporation 700,000 4,550,000 700,000 4,112,500
Manufacturing - 6.5
American Precision Industries, Inc. 240,000 4,800,000 250,000 2,781,250
Transportation and chemical - 6.2%
Oglebay Norton Company 80,000 3,500,000 80,000 2,980,000
Exolon-Esk Co. 42,600 1,107,600 41,600 998,400
Other - 0.0% - 23,625
----------- ----------
Total - 100% (cost of $14,038,332 in 1996
and $14,037,955 in 1995) $74,055,100 56,892,025
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL STATEMENT
PRESENTATION AND ORGANIZATION
(a) Organization
First Carolina Investors, Inc. was organized December 2, 1971
and subsequently incorporated in the state of Delaware July 1,
1987. On January 3, 1995 First Carolina Investors, Inc.
registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940.
(b) Principles of consolidation and financial statement presentation
The accompanying consolidated financial statements include
First Carolina Investors, Inc. and its subsidiaries (the
Company), all of which are wholly-owned. In consolidation, all
significant intercompany accounts and transactions have been
eliminated.
The Company became an investment company on January 3, 1995,
and accordingly has prepared its consolidated financial
statements on a fair value basis. Prior to this time the
Company prepared its consolidated financial statements on a
historical cost basis. Consequently the Company has not
presented comparative consolidated financial statements before
the year ended December 31, 1995. Prior period information is
available by referring to quarterly filings on Form 10-Q,
annual filing on Form 10-KSB and reports to stockholders.
As a result of becoming an investment company, all investments
are required to be carried at fair value. Unrealized
appreciation and/or depreciation is included in the statement
of operations, net of the effective tax rate, to arrive at the
change in net assets. The effect of the change on January 3,
1995 was to increase the fair value of real estate by
$6,002,591, increase the deferred tax payable by $2,485,345,
and to increase net assets by $3,88,642 or $3.55 per share.
The unrealized appreciation as of January 3, 1995 was
$19,163,420 net of tax.
(c) Security valuation
Investments in securities traded on a national securities
exchange (or reported on the NASDAQ national market) are stated
at the last reported sales price on the day of valuation; other
securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are
stated at the last quoted bid price.
(d) Real estate
The Board of Directors and management of the Company value its
real property investments at estimated fair value. Procedures
utilized to determine the estimated fair value include
appraisals by an independent appraiser, estimated net cash
flows, utilization of fair market comparables in existing
subdivisions developed by the Company and other market
comparables.
The Company accounts for sales of real estate in accordance
with Statement of Financial Accounting Standards No.66,
"Accounting for Sales of Real Estate."
(e) Investment in joint venture
The Company has an interest in a joint venture which is engaged
in the development and sale of real estate. The Board of
Directors and management have used both fair market comparables
in the existing subdivision developed by the venture and
discounted net cash flows in valuing its investment at its
estimated fair value.
11
<PAGE>
(f) Income taxes
The Company is subject to Federal and state corporate income
taxes. The Company files a consolidated Federal income tax
return. The Company accounts of income taxes in accordance
with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Deferred income taxes payable have been increased to reflect
the estimated Federal and state income tax liabilities on
unrealized gains in real estate, investments in other companies
and investment in joint venture in the accompanying
Consolidated Statement of Assets and Liabilities.
(g) Distributions to Shareholders
Dividends payable to shareholders are recorded on the
declaration date.
(h) Management's use of estimates
The preparation of financial statements in conformity with
generally accepted account principals requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results may differ from these
estimates.
(i) Other
The Company follows the industry practice of recording security
transactions on the trade date. Interest income is recognized
on the accrual basis. Dividend income is recognized on the
ex-dividend date.
(2) INVESTMENTS IN OTHER COMPANIES
The Company's investments in the common stock of financial and other entities,
which are stated at market value, are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------------------------------
Gross Gross
Fair Value Unrealized Unrealized
Number as a % of Holding Holding Fair Dividend
of shares Net Assets Cost Gains Losses Value Income
--------- ---------- ----------- ---------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First Empire State Corp 200,000 98.8 $ 3,180,120 54,419,880 - 57,600,000 560,000
Oglebay Norton Company 80,000 6.0 2,244,128 1,255,872 - 3,500,000 104,000
Todd Shipyards Corp. 700,000 7.8 3,469,036 1,080,964 - 4,550,000 -
American Precision 240,000 8.2 2,332,799 2,467,201 - 4,800,000 74,750
Merchants Group, Inc. 135,000 4.3 2,051,021 446,479 - 2,497,500 27,000
Miscellaneous - 1.9 761,228 346,372 - 1,107,600 -
----------- ---------- ---------- ---------- ---------
$14,038,332 60,016,768 - 74,055,100 765,750
=========== ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------------------------
Gross Gross
Fair Value Unrealized Unrealized
Number as a % of Holding Holding Fair Dividend
of shares Net Assets Cost Gains Losses Value Income
--------- ---------- ----------- ---------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First Empire State Corp 200,000 90.3 $ 3,180,120 40,419,880 - 43,600,000 500,000
Oglebay Norton Company 80,000 6.2 2,244,128 735,872 - 2,980,000 96,000
Todd Shipyards Corp. 700,000 8.5 3,469,036 643,464 - 4,112,500 -
American Precision 250,000 5.8 2,327,581 453,669 - 2,781,250 34,088
Merchants Group, Inc. 135,000 5.0 2,051,021 345,229 - 2,396,250 19,750
Miscellaneous 2.0 766,069 255,956 - 1,022,025 -
----------- ---------- ----------- ---------- ---------
$14,037,955 42,854,070 - 56,892,025 649,838
=========== ========== =========== ========== ==========
</TABLE>
Purchases and sales of investment securities were $604,878 and $1,128,709
during 1996 and $4,321,462 and $632,894 during 1995. The net gain on sale of
investments in other companies was $320,209 and $192,910 for 1996 and 1995,
respectively. Net gains are computed using the average cost method. Dividend
income of $22,400 was received on securities sold during 1995.
12
<PAGE>
(3)MORTGAGE LOANS
The Company's investments in mortgage loans as of December 31, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Permanent loans on condominiums $ 82,701 117,873
Junior loans on lots (note 10) 80,600 28,750
Unearned discount ( - ) ( 10,303)
---------- ----------
Total mortgage loans, net $ 163,301 136,320
========== ==========
</TABLE>
(4)REAL ESTATE
The estimated fair value of real estate owned at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
Description Quantity Fair Value Quantity Fair Value
- ----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Land held for investment:
Providence Country Club 300 acres $3,967,000 300 acres $3,865,000
Park Crossing 24 acres 2,024,000 24 acres 2,024,000
Finished lot inventory 30 lots 1,733,000 54 lots 3,760,000
---------- ----------
Total real estate, net $7,724,000 $9,649,000
========== ==========
</TABLE>
(5)INVESTMENT IN AND ADVANCES TO JOINT VENTURE
The Company has a 1/3 ownership interest in a joint venture Goodsell-Carolinas.
The Company's initial investment in and all advances to the venture have been
repaid.
The venture owns 12 lots at a cost of $533,730 and a fair value of $1,620,000
at December 31, 1996.
(6)OTHER ASSETS
The components of other assets at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Deferred compensation, funded $1,724,596 1,549,869
Sales center 492,080 492,080
Model home 233,246 -
Income tax receivable 200,774 -
Miscellaneous 54,917 2,457
----------- -----------
$2,705,613 2,044,406
=========== ===========
</TABLE>
The deferred compensation includes $1,498,000, and $1,312,000 at December 31,
1996 and 1995, respectively, owed to affiliated persons pursuant to a deferred
compensation plan. The deferred compensation has accrued over thirteen years.
(7)NOTE PAYABLE TO BANK
At December 31, 1996 and 1995 the Company had a $5,000,000 line of credit with
a bank. The credit line, which is unsecured, is payable on demand and is
subject to a quarterly review by the bank. Borrowing under this credit line
bear interest at the prime rate (8.25% at December 31, 1996). There was no
outstanding bank indebtedness at December 31, 1996 and 1995, and for the years
then ended the Company was in compliance with all covenants of said agreement.
Additional information relating to bank debt is as follows:
<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 $ 515,000 $ 200,000
----------- -----------
Approximate average aggregate indebtedness
outstanding during the year $ 150,000 $ 15,000
=========== ===========
</TABLE>
13
<PAGE>
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities at December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Trade accounts payable $1,246,578 2,331,197
Deferred compensation (note 6) 1,724,596 1,549,869
Dividends payable 319,069 321,877
Miscellaneous accruals and payable 140,735 78,105
Cash held in escrow 29,767 57,088
---------- ----------
$3,460,745 4,338,136
========== ==========
</TABLE>
(9) INCOME TAXES
Total income tax expense for the years ended December 31, 1996 and 1995 are
allocated as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- --------------------------------
Earnings Earnings
before before
Income Tax Income Tax Income Tax Income Tax
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Investment income $ 1,207,728 286,000 1,757,486 487,000
Gains realized on
investments in other
companies 524,209 204,000 315,910 123,000
Change in unrealized
appreciation of investments 15,935,351 6,214,034 16,572,845 6,463,413
----------- ---------- ----------- ----------
$17,667,288 6,704,034 18,646,241 7,073,413
=========== ========== =========== ==========
</TABLE>
The components of Federal and state income tax expense (benefit) from
continuing operations are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current:
Federal $ 420,659 444,552
State 70,015 163,919
---------- ----------
490,674 608,471
Deferred 6,213,360 6,464,942
---------- ----------
$6,704,034 7,073,413
========== ==========
</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>
1996 % 1995 %
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Income tax expense at Federal rate $6,006,878 34.0% 6,339,722 34.0%
Change in the beginning of the year
balance of the valuation allowance
for deferred tax assets allocated
to income tax expense (30,000) (0.2%) (130,000) (.7%)
State income tax net of Federal tax
benefit 861,643 4.9% 950,005 5.1%
Dividend exclusion (157,643) (0.9%) (166,770) (.9%)
Other, net 23,156 0.1% 80,456 .4%
---------- ----- ---------- ----
Provision for income taxes $6,704,034 37.9% 7,073,413 37.9%
========== ===== ========== ====
</TABLE>
14
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1995
------------- -------------
<S> <C> <C>
Deferred compensation liability, principally
due to accrual for financial reporting purposes $ 677,805 638,961
State net operating loss carryforwards 27,822 58,074
------------- -------------
705,627 697,035
Total gross deferred tax assets
Less valuation allowance ( 30,000) ( 60,000)
------------- -------------
Net deferred tax assets 675,627 637,035
------------- -------------
Deferred tax liabilities:
Real estate investments, principally due to
unrealized gains ( 1,200,057) ( 1,679,475)
Investments in other companies, principally due
to unrealized gains on securities ( 23,407,427) ( 16,713,975)
------------- -------------
Other ( 278,790) ( 240,872)
------------- -------------
Total gross deferred tax liabilities ( 24,886,274) ( 18,634,322)
------------- -------------
Net deferred tax liability ($24,210,647) ( 17,997,287)
============= =============
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 was
$190,000. The net change in the total valuation allowance for the years ended
December 31, 1995 and 1996 was a decrease of $130,000 and $30,000,
respectively. The valuation allowance primarily relates to certain state
temporary differences and state net operating loss carryforwards. It is
management's belief that the realization of the net deferred tax asset is more
likely than not based upon the Company's history of taxable income and
estimated future income.
Federal and state income tax returns of the Company for 1993 and subsequent
years are subject to examination by the Internal Revenue Service and various
other taxing authorities.
(10) DEFERRED INCOME
When sales of real estate do not meet the requirements for profit recognition,
the gain on the sale is deferred until the requirements for recognition have
been met. At December 31, 1996 and 1995, the Company had deferred income
relating to such sales of $75,979 and $23,738, respectively. Also included in
deferred income at December 31, 1995 is $12,070 of interest on loans to a joint
venture which was deferred in proportion to the Company's ownership interest.
(11) OTHER INCOME
Other income includes $268,893 received from a municipality in final settlement
of amounts due from the transfer of title to a waste water treatment plant.
(12) STOCK OPTION PLAN
During 1987 options for 45,000 shares of common stock were awarded to certain
employees. These options are exercisable at the rate of 20% per year beginning
July 1, 1988 at a price of $12.75 per share which was equal to the market price
at the date of the adoption of the amended plan. At December 31, 1996, all the
options are fully vested and exercisable but no options have been exercised.
(13) NET ASSETS PER SHARE
Net assets per share are based on the number of shares of common stock and
common stock equivalents outstanding, after deducting treasury stock, 1,094,822
at December 31, 1996 and 1,099,646 on December 31, 1995. The computation
assumes that outstanding stock options were exercised and the proceeds used to
purchase common stock.
(14) SHARE REPURCHASE PROGRAM
At December 31, 1996 the Company has repurchased 443,680 shares as treasury
shares at a cost of $8,452,025. During 1996 the Company repurchased 9,060
shares at an average cost of $37.42 per share. Said repurchase price
represents a weighted average discount of 22% per share relative to net asset
value.
15
<PAGE>
(15) ACCUMULATED UNDISTRIBUTED INCOME
At December 31, 1996 accumulated undistributed investment income-net was
$907,207, accumulated undistributed net realized gains on investment
transactions was $513,119, and net unrealized appreciations in value of
investments was $35,111,527.
(16) COMMITMENTS AND CONTINGENCIES
The Company has $200,000 of undisbursed contractual commitments in connection
with real estate development. In order to protect its investments, the Company
may be required to furnish amounts in excess of its current investments or
commitments.
The Company is involved in various legal actions arising in the ordinary course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's financial
position, results of operation, or liquidity.
Selected Per Share Data and Ratios
For the Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
PER SHARE DATA AND RATIOS* 1996 1995
- -------------------------- ------ ------
<S> <C> <C>
Investment income $2.38 3.55
Expenses (including income taxes) ( 1.54) (2.40)
------- ------
Investment income - net 0.84 1.15
Distributions from investment income - net ( 0.58) (0.58)
Net realized and unrealized gain on securities 9.15 9.31
Share transactions ( 0.10) 0.08
------- ------
Net increase in net asset value 9.31 9.96
Net asset value:
Beginning of year 43.93 33.97
------- -------
End of year $53.24 43.93
======= =======
RATIOS
- ------
Ratio of expenses to average net assets 3.20% 6.30%
Ratio of investment income - net to average net assets 1.75% 3.01%
Portfolio turnover 0.93% 1.36%
AVERAGE SHARES OUTSTANDING 1,097,032 1,106,052
</TABLE>
*Per share data is based upon the average number of shares outstanding for the
year. The computation assumes that outstanding stock options were exercised
and the proceeds used to purchase common stock.
Computation of Net Asset Value per Share
Primary and Fully Diluted
For the Year Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------------------- -----------------------
PRIMARY
- -------
<S> <C> <C> <C> <C>
Net Asset $58,290,749 $48,305,545
============ ============
Shares Outstanding 1,062,862 1,071,922
============ ============
Net Asset Value per Share $54.84 $45.06
============ ============
FULLY DILUTED
- -------------
Options 45,000 45,000
Exercise Price $12.75 $12.75
Market Price 44.00 ( 13,040) 33.21 ( 17,276)
----------- ------------
Additional Share Attributable to
Stock Options 31,960 27,724
Shares Outstanding 1,062,862 1,071,922
----------- ------------
1,094,822 1,099,646
=========== ============
Net Asset Value per Share $53.24 $43.93
=========== ============
</TABLE>
16
<PAGE>
First Carolina Investors, Inc.
DIRECTORS
- ---------
Brent D. Baird*
Private Investor
Bruce C. Baird
President
Belmont Management Co., Inc.
Patrick W.E. Hodgson*+
Chairman & CEO
Todd Shipyards Corporation
Theodore E. Dann, Jr. +
Secretary, Treasurer & General Counsel
Ferro Alloys Services, Inc.
H. Thomas Webb III*
President
First Carolina Investors, Inc.
*Member of Executive Committee
+Member of the Audit Committee
OFFICERS:
- ---------
Brent D. Baird
Chairman
H. Thomas Webb III
President
James E. Traynor
Vice President, Secretary & Treasurer
Karen K. Sides
Assistant Secretary
REGISTRAR, TRANSFER AND DISBURSING AGENT
- ----------------------------------------
Continental Stock Transfer and Trust Company
2 Broadway
New York, NY 10004
GENERAL COUNSEL
- ---------------
Waggoner, Hamrick, Hasty & Montieth
First Union Center, Suite 2750
Charlotte, NC 28282
AUDITORS
- --------
KPMG Peat Marwick, LLP
2800 Two First Union Center
Charlotte, NC 28282