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001 B000000 811-8942
001 C000000 7043730501
002 A000000 1130 E. THIRD STREET, SUITE 410
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015 A000001 FIRST UNION NATIONAL BANK OF N.C.
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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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SIGNATURE CYNTHIA RABY
TITLE ASSISTANT SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the 12/31/99
Consolidated Financial Statements contained in the 1999 Annual Report and Form
NSAR and is qualified in its entirety by reference to such 1999 Annual Report of
Stockholders and Form NSAR.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 29,724,429
<INVESTMENTS-AT-VALUE> 87,337,663
<RECEIVABLES> 303,110
<ASSETS-OTHER> 1,502,000
<OTHER-ITEMS-ASSETS> 9,139,168
<TOTAL-ASSETS> 98,281,941
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,288,580
<TOTAL-LIABILITIES> 25,288,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 974,302
<SHARES-COMMON-PRIOR> 1,015,166
<ACCUMULATED-NII-CURRENT> 968,812
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,332,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,750,723
<NET-ASSETS> 72,993,361
<DIVIDEND-INCOME> 1,023,470
<INTEREST-INCOME> 527,551
<OTHER-INCOME> 1,844,527
<EXPENSES-NET> 1,705,051
<NET-INVESTMENT-INCOME> 1,690,497
<REALIZED-GAINS-CURRENT> 7,766,470
<APPREC-INCREASE-CURRENT> (13,480,247)
<NET-CHANGE-FROM-OPS> (4,023,280)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 959,737
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 40,300
<SHARES-REINVESTED> 564
<NET-CHANGE-IN-ASSETS> (7,801,958)
<ACCUMULATED-NII-PRIOR> 3,806,407
<ACCUMULATED-GAINS-PRIOR> 16,565,750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,705,051
<AVERAGE-NET-ASSETS> 80,146,276
<PER-SHARE-NAV-BEGIN> 79.59
<PER-SHARE-NII> 1.69
<PER-SHARE-GAIN-APPREC> (5.72)
<PER-SHARE-DIVIDEND> (0.96)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.32
<PER-SHARE-NAV-END> 74.92
<EXPENSE-RATIO> 2.13
<FN>
<F1>The $.032 per share return of capital indicated above represents share
transactions and not a return of capital or other distribution.
<F2>The 564 shares reinvested represents the net change in additional shares
attributable to stock options.
</FN>
</TABLE>
[KPMG LOGO]
401 South Tryon Street
Suite 2300
Charlotte, NC 28202-1911
Independent Auditor's Report
The the Shareholders and
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, 1999, we considered its
internal control, including control activities for safeguarding 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 internal control.
The management of First Carolina Investors, Inc. is responsible for establishing
and maintaining internal control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected benefits and
related costs of controls. Generally, controls that are relevant to an audit
pertain to the entity's objective of preparing financial statements for external
purposes that are fairly presented in conformity with generally accepted
accounting principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or fraud may occur
and not be detected. Also, projection of any evaluation of internal control 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 operation may
deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control 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 one or more
of the internal control components does not reduce to a relatively low level the
risk that misstatements caused by error or fraud 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
internal control and its operation, including controls for safeguarding
securities, that we consider to be material weaknesses as defined above as of
December 31, 1999.
This report is intended solely for the information and use of management, the
Board of Directors of First Carolina Investors, Inc., and the Securities and
Exchange Commission and is not intended to be and should not be used by anyone
other than these specified parties.
/s/ KPMG LLP
Charlotte, North Carolina
February 1, 2000
<PAGE>
FIRST CAROLINA INVESTORS, INC.
1999
ANNUAL REPORT
<PAGE>
Company Profile
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Description of Business
- -----------------------
First Carolina Investors (the Company) was organized
December 2, 1971. The
Company is a non-diversified, closed-end management
investment company under the Investment Company Act of 1940.
FORM N-SAR
- ----------
A copy of the Company's December 31, 1999 report on Securities and Exchange
Commission Form N-SAR will be furnished without charge to shareholders upon
written request directed to the Secretary, First Carolina Investors, Inc., P.O.
Box 33607, Charlotte, NC 28233
Table of Contents
- -----------------
<TABLE>
<S> <C>
Management's Discussion and Analysis
of Financial Conditions and Results
of Operations...................... 1
Management's Report.................. 4
Independent Auditor's Report......... 5
Consolidated Financial Statements.... 6
Notes to Consolidated Financial
Statements......................... 9
Per Share Data and Ratios............ 15
</TABLE>
Quarterly Stock Prices (Boston Stock Exchange) and Dividends Paid Per Share
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
<S> <C> <C> <C> <C>
High Bid $70.00 71.00 73.00 67.00
Low Bid $68.00 60.00 67.00 65.00
Cash Dividends $ 0.25 .25 .25 .25
</TABLE>
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
<S> <C> <C> <C> <C>
High Bid $68.00 70.00 75.00 71.25
Low Bid $60.00 67.00 70.00 70.00
Cash Dividends $ 0.25 .25 .25 .25
</TABLE>
- --------------------------------------------------------------------------------
There were approximately 450 record holders of Shares of Common Stock at January
3, 2000.
<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.
1999 OPERATION COMPARED TO 1998
The net asset value of the Company decreased by $4,023,280 or $4.67 per share
during 1999 as compared to an increase of $5,489,873 or $4.52 per share during
1998. During 1999 the value of the Company's investment in M & T Bank
Corporation, the Company's largest security holding, decreased by $13,085,875 as
compared to an increase of $8,090,000 during 1998. At the end of 1999 the value
of the Company's investment in M & T Bank Corporation was $51,781,250.
During 1999 the Company reported the sale of its holdings of 25,000 shares of M
& T Bank Corporation at an after tax gain of $7,830,578. During 1999 the Company
made four new investments. The Company purchased 755,800 shares of Bell
Industries, Inc. at an average cost of $4.60 per share. Bell Industries, Inc.
distributes electronic components, graphics, and imaging products. The firm is
located in El Segundo, California. The Company also purchased 1,200,000 shares
of First Union Real Estate & Mortgage Investments, located in Cleveland, Ohio.
First Union Real Estate is a real estate investment trust (REIT). The average
cost per share was $4.24. Tandycrafts, Inc., a firm located in Fort Worth,
Texas, manufactures and markets products for the home and office. The Company
purchased 606,011 shares at an average cost of $3.26. The Company purchased
$2,445,000 of Sizeler Property Investors, Inc. debentures at an average cost of
$917.60 per $1,000. Sizeler Property Investors is engaged in ownership and
rental of retail shopping center properties and apartment properties.
During both 1999 and 1998 real estate operations contributed to earnings. The
Company's Charlotte real estate investments contributed $1,135,532 to total
income during 1999 as compared to $1,513,284 during 1998. (See gains on sale of
real estate below).
Net income before realized and unrealized appreciation on investments was
$1,690,497 for 1999 as compared to $1,951,431 for 1998. The net gain realized on
investments in other companies was $7,766,470 in 1999 versus $15,072,700 in
1998. The decrease in net unrealized appreciation of investments was $13,480,247
in 1999 as compared to $11,534,258 in 1998. These components combined to produce
a net decrease in net assets resulting from operations of $(4,023,280) in 1999
compared to an increase of $5,489,873 in 1998.
At year end net asset value per share was $74.92 in 1999 and $79.59 in 1998.
Dividend income increased during 1999 as compared to 1998. An increase in the
purchase of shares of First Union Real Estate Equity & Mortgage Investment and
dividends paid by Ecology & Environment, Inc. were the primary reasons for the
increase in dividend income. For additional information, including a detailed
list of dividends paid see Note 2 of Notes To Consolidated Financial Statements.
At the end of 1999 seven of the Company's investees did not pay dividends as
compared to six in 1998, and are therefore considered non-income producing.
Interest income for 1999 was $527,551 as compared to $790,596 for 1998.
Gain on sale of real estate was $1,135,532 during 1999 as compared to $1,513,284
during 1998. During 1999, three (3) lots were sold in the Providence Country
Club community at a total gross sales price of
1
<PAGE>
$211,900 and a gain of $187,580. Also during 1999 the release payment on the
forty-seven (47) acres of undeveloped land in Union County produced a gain of
$726,093 and the recognition of $214,500 in deferred income and other gains on
property. Other miscellaneous gains of $7,359 were recognized in 1999. During
1998 four (4) lots were sold in the Providence Country Club community at a total
gross sales price of $327,850 and a gain of $198,696. Also during 1998 the
release payment on the 63 acres of undeveloped land in Union County produced a
gain of $975,492 and 3.9 acres at Park Crossing was sold at a gain of $339,095.
At December 31, 1999 the Company had one remaining lot to sell in the Providence
Country Club community, five (5) acres at Park Crossing and thirty (30) acres in
Union County contiguous to Providence Country Club.
Equity earnings of joint venture were $71,484 in 1999 as compared to $152,903 in
1998. The Company owns a 1/3 interest in the joint venture Goodsell/Carolinas
Associates. During 1999 the venture sold 2 lots at a total gross sales price of
$310,000. During 1998 the venture sold 2 lots and 1 outparcel at a total gross
sales price of $622,000.
Other income was $637,511 during 1999 as compared to $347,596 during 1998. Other
income for 1999 includes income of $610,000 attributable to assets held in the
deferred compensation plan and miscellaneous income of $27,000. For 1998 other
income includes $44,000 of interest income recognized due to 1993 and 1994 North
Carolina intangibles tax refunds, income of $224,000 attributable to assets held
in the deferred compensation plan and miscellaneous income of $80,000.
General and administrative expense decreased in 1999 to $255,675 as compared to
$446,043 during 1998. For both years personnel costs were the largest component
of the category and totaled approximately $181,076 in 1999 as compared to
$333,542 in 1998. The reason for the decrease during 1999 is due to payments due
pursuant to an incentive compensation plan. Also included in general
administrative expenses are various taxes, principally franchise taxes of
$99,000 in 1999 and $78,000 in 1998. A contingency of $61,582 was reversed
during 1999.
Sales and marketing expense for 1998 are related to the marketing of the
Providence Country Club sales office, which was sold in the fourth quarter.
Other expenses increased in 1999. Other expenses for 1999 include directors fees
and expenses of $65,000, expenses of $610,000 which corresponds with and offsets
income earned by assets in the deferred compensation plan, real estate taxes of
$19,000 and miscellaneous expense of $53,000. Other expenses of 1998 include
real estate taxes of $24,000, directors fees and expenses of $40,000, expenses
of $224,000 which corresponds with and offsets income earned by assets in the
deferred compensation plan and miscellaneous expenses of $85,000.
Gain realized on investments in other companies, net of income taxes, was
$7,766,470 for 1999 as compared to $15,072,700 for 1998. These amounts are net
of income taxes of $5,080,000 in 1999 and $9,960,000 in 1998. The gain is the
result of the sale of the Company's 25,000 shares in 1999 and 50,000 shares in
1998 of M & T Bank Corporation.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
The three major components of the Company's assets are investments in other
companies, cash, including short term investments, and real estate.
INVESTMENTS IN OTHER COMPANIES
While investments 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. The general liquidity of any real estate investment is heavily
influenced by 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 quite favorable during 1999 and 1998. The
availability of construction financing has been good during both years and
indications are that the availability will continue to be good. As of the date
of this report, the 2000 real estate market is expected to remain favorable;
however, as the Company continues its transition away from real estate
investments, real estate will continue to become less significant to overall
operations.
2
<PAGE>
CASH, INCLUDING SHORT TERM INVESTMENTS
At December 31, 1999, the Company held cash and short term investments of
$6,312,199. The short term investments of $5,628,357 are highly liquid and
accordingly are the Company's best sources of liquidity.
COMMITMENTS FOR CAPITAL EXPENDITURES
At December 31, 1999 the Company had contractual and other commitments of
approximately $250,000 related to real estate.
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.
YEAR 2000 COMPLIANCE
The Company has upgraded its current computer system to be Year 2000 compliant
at a cost of $4,500. The Company's operations do not significantly rely on any
non-information technology systems as defined by the Securities and Exchange
Commission.
SUMMARY
In its fourth year as an investment company, the Company continued its
transition away from real estate assets.
During 1999 the net decrease in net assets resulting from operations was
$4,023,280 as compared to an increase of $5,489,873 for 1998. At December 31,
1999 net assets per share are $74.92. This is an decrease of $4.67 per share
from the December 31, 1998 net assets per share of $79.59.
The 1999 decrease in net asset value is due in large measure to the reduction in
market value of the Company's holdings in M & T Bank Corporation.
3
<PAGE>
- --------------------------------------------------------------------------------
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, 1999, 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 audited by KPMG LLP, independent
certified public accountants, in accordance with generally accepted auditing
standards. Their audit includes consideration 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.
Brent D. Baird H. Thomas Webb III
Chairman President
4
<PAGE>
Independent Auditors' Report
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Directors and Shareholders
First Carolina Investors, Inc.
We have audited the accompanying consolidated statements of assets and
liabilities and investments in securities of First Carolina Investors, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations and the statements of changes in net assets for the
years then ended and the selected per share data and ratios for each of the
years in the five year period ended December 31, 1999. 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. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers. 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, 1999 and 1998 and the results of their operations and the changes
in its net assets for the years then ended and the selected per share data
ratios for each of the years in the five year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
KPMG LLP
Charlotte, North Carolina
February 1, 2000
5
<PAGE>
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Assets and Liabilities
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Assets
Investments in securities, at value (note 2) (cost of
$29,724,429 in 1999 and $21,516,823 in 1998) $87,337,663 100,780,644
Cash, including short term investments of $5,638,357 in
1999 and $9,208,851 in 1998 6,312,199 9,656,341
Mortgage loans, secured by real estate (note 3) 53,292 74,579
Real estate (note 4) 1,353,000 2,600,000
Investment in joint venture (note 5) 149,000 250,000
Receivables
Accrued dividend and interest receivable 23,747 3,126
Amounts due from sale of securities 226,071 --
Other assets (note 6) 2,826,969 2,217,985
----------- -----------
Total assets 98,281,941 115,582,675
----------- -----------
Liabilities
Accounts payable and accrued liabilities (note 7) 3,623,166 3,428,776
Federal and state income taxes payable 846,943 107,605
Deferred income taxes payable (note 8) 20,818,471 31,131,475
----------- -----------
Total liabilities 25,288,580 34,667,856
----------- -----------
Deferred Income (note 9) -- 119,500
----------- -----------
Net Assets $72,993,361 80,795,319
=========== ===========
Net assets per share (3,500,000 no par value common
shares authorized, 978,602 and 1,015,666 shares
issued, 974,302 and 1,015,166 shares outstanding, in
1999 and 1998, respectively) $ 74.92 79.59
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
INCOME
Dividends $ 1,023,470 873,200
Interest 527,551 790,596
Gain on sale of real estate 1,135,532 1,513,284
Equity in earnings of joint venture 71,484 152,903
Other 637,511 347,596
------------ -----------
Total income 3,395,548 3,677,579
------------ -----------
EXPENSES
General and administrative 255,675 446,043
Professional fees 97,402 67,203
Sales and marketing -- 6,933
Other 747,974 372,969
------------ -----------
Total expenses 1,101,051 893,148
------------ -----------
Earnings before income taxes and realized and
unrealized appreciation on investments 2,294,497 2,784,431
Provision for income taxes (604,000) (833,000)
------------ -----------
Net income before realized and unrealized
appreciation on investments 1,690,497 1,951,431
Gain realized on investments in other companies
(net of income tax provision of $5,080,000 in
1999 and $9,960,000 in 1998) 7,766,470 15,072,700
Change in unrealized appreciation of investments
for the period, net of deferred taxes (benefit)
of ($8,810,654) in 1999 and ($5,865,293) in
1998 (13,480,247) (11,534,258)
------------ -----------
Net increase (decrease) in net assets resulting
from operations $ (4,023,280) 5,489,873
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Increase in net assets from operations
Investment income, net $ 1,690,497 $ 1,951,431
Realized gain on investments, net 7,766,470 15,072,700
Change in unrealized appreciation, net (13,480,247) (11,534,258)
------------ ------------
Net increase (decrease) in net assets resulting
from operations (4,023,280) 5,489,873
Distributions to shareholders of $1.00 per share in 1999 and
in 1998 from investment income, net (959,737) (1,038,087)
Treasury shares purchased (2,818,941) (4,406,556)
------------ ------------
Total increase (decrease) (7,801,958) 45,230
Net assets
Beginning of year 80,795,319 80,750,089
------------ ------------
End of period $ 72,993,361 $ 80,795,319
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
INVESTMENTS IN SECURITIES
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Principal Principal
Amount Amount
or Shares Fair Value or Shares Fair Value
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Common Stocks - 97.5% in 1999 and 100% in
1998
Financial Services
62.3% in 1999 and 80% in 1998
M & T Bank Corporation 125,000 $51,781,250 150,000 $ 77,840,625
Merchants Group, Inc. 135,000 2,632,500 135,000 2,775,937
Manufacturing
18.1% in 1999 and 10.5% in 1998
Acme Electric Corporation 1,000,000 5,750,000 785,900 3,733,025
Exolon-ESK Company 64,700 970,500 64,700 1,949,088
Marine Transport Corporation 700,000 1,837,500 700,000 1,575,000
Todd Shipyards Corporation 700,000 5,468,750 700,000 3,325,000
Tandycrafts, Inc. 606,011 1,855,909 -- --
Services
4.3% in 1999 and 5.6% in 1998
Barrister Information Systems, Corp. 1,380,510 1,466,792 1,598,100 1,498,219
Ecology & Environment, Inc. 425,000 2,257,813 425,000 3,931,250
Roy F. Weston -- -- 70,000 192,500
Diversified
12.8% in 1999 and 3.9% in 1998
Bell Industries, Inc. 727,400 5,410,037 -- --
First Union Real Estate Equity & Mortgage
Investments 1,200,000 5,700,000 -- --
Oglebay Norton Company -- -- 160,000 3,960,000
----------- ------------
Total Common Stocks (cost of $27,414,987 in
1999 and $21,516,823 in 1998) 85,131,050 100,780,644
Debentures - 2.5% in 1999 and 0% in 1998
Sizeler Property Investors, Inc. $2,445,000 2,206,613 -- --
----------- ------------
Total - 100% (cost of $29,724,429 in 1999 and
$21,516,823 in 1998) $87,337,663 $100,780,644
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
FIRST CAROLINA INVESTORS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
(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.
(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.
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.
(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 estimated net cash flows
and 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 fair market comparables in the existing
subdivision developed by the venture in valuing its investment at its
estimated fair value.
(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 securities 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.
9
<PAGE>
(i) Amortization Policies
The discount on debentures is amortized to cost over the life of the
debentures at the effective rate of interest.
(j) 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.
(k) Reclassification
Certain amounts on the 1998 consolidated statement of operations have
been reclassified to conform to the 1999 presentation.
(2) INVESTMENTS IN SECURITIES
The Company's investments in common stocks and debentures, which are stated at
market value, are as follows:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------------------------
Principal Gross Gross
Amount or 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>
Common Stocks
M & T Bank Corporation 125,000 70.9 $ 1,987,500 49,793,750 -- 51,781,250 586,020
Merchants Group, Inc. 135,000 3.6 2,051,021 581,479 -- 2,632,500 47,250
*Acme Electric Corporation 1,000,000 7.8 4,887,846 862,154 -- 5,750,000 --
*Exolon-ESK Company 64,700 1.3 1,477,419 -- (506,919) 970,500 --
*Marine Transport Corporation 700,000 2.5 1,651,305 186,195 -- 1,837,500 --
*Todd Shipyards Corporation 700,000 7.4 2,931,250 2,537,500 -- 5,468,750 --
*Barrister Information Systems,
Inc. 1,380,510 2.0 738,063 728,729 -- 1,466,792 --
*Ecology & Environment, Inc. 425,000 3.0 2,257,813 -- -- 2,257,813 136,000
*Bell Industries, Inc. 727,400 7.4 2,367,522 3,042,515 -- 5,410,037 --
First Union Real Estate Equity &
Mortgage Investments 1,200,000 7.8 5,090,534 609,466 -- 5,700,000 186,000
Oglebay Norton Company -- -- -- -- -- 68,200
*Tandycrafts, Inc. 606,011 2.5 1,974,714 -- (118,805) 1,855,909 --
Debentures
Sizeler Property Investors, Inc. $2,445,000 3.0 2,309,442 -- (102,830) 2,206,612 --
----------- ---------- -------- ---------- ---------
$29,724,429 58,341,788 (728,554) 87,337,663 1,023,470
=========== ========== ======== ========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------------
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>
M & T Bank Corporation 150,000 96.3 $ 2,385,000 75,455,625 -- 77,840,625 653,600
Merchants Group, Inc. 135,000 3.4 2,051,021 724,916 -- 2,775,937 27,000
*Acme Electric Corporation 785,900 4.6 3,847,482 -- (114,457) 3,733,025 --
*Exolon-ESK Company 64,700 2.4 1,477,419 471,669 -- 1,949,088 --
*Marine Transport Corporation 700,000 1.9 1,651,305 -- (76,305) 1,575,000 --
*Todd Shipyards Corporation 700,000 4.1 2,931,250 393,750 -- 3,325,000 --
*Barrister Information Systems,
Inc. 1,598,100 1.9 799,050 699,169 -- 1,498,219 --
*Ecology & Environment, Inc. 425,000 4.9 3,931,250 -- -- 3,931,250 45,600
Roy F. Weston, Inc. 70,000 0.2 198,918 -- (6,418) 192,500 --
Olgebay Norton Company 160,000 4.9 2,244,128 1,715,872 -- 3,960,000 128,000
----------- ---------- -------- ----------- -------
$21,516,823 79,461,001 (197,180) 100,780,644 854,200
=========== ========== ======== =========== =======
</TABLE>
- ---------------
* Investments in affiliated companies in which the Company owns more than 5% of
voting shares.
Purchases and sales of investment securities were $14,034,791 and $3,171,208
during 1999 and $9,674,612 and $795,120 during 1998. The net gain on sale of
investments in other companies was $7,766,470 and $15,072,700 for 1999 and 1998,
respectively. In addition, during 1999 and 1998 the Company reduced to fair
value its cost basis in an equity security. The realized loss was $1,673,437 for
1999 and $696,864 for 1998 and is included in net gain on sale of investments. A
liquidating dividend of $982,540 reduced the cost basis of an equity security in
1999. Net gains are computed using the average cost method. Dividend income of
$68,200 in 1999 and $19,000 in 1998 was received on securities sold during 1999.
10
<PAGE>
(3) MORTGAGE LOANS
The Company's investments in mortgage loans as of December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Permanent loans on condominiums $53,292 $55,079
Junior loans on lots -- 19,500
------- -------
Total mortgage loans, net $53,292 $74,579
======= =======
</TABLE>
(4) REAL ESTATE
The estimated fair value of real estate owned at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Fair Fair
Description Quantity Value Quantity Value
----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Land under contract:
Providence Country Club -- $ -- 47 acres $1,077,000
Land held for investment:
Providence Country Club 30 acres 853,000 30 acres 853,000
Park Crossing 5 acres 500,000 5 acres 500,000
Finished lot inventory 1 lot -- 4 lots 170,000
---------- ----------
Total real estate, net $1,353,000 $2,600,000
========== ==========
</TABLE>
During 1999, payment was received for the remaining 47 acres. During 1997, the
Company entered into a contract for the sale of 195 acres of land held for
investment. Payment in full was received for 85 acres and a purchase money
mortgage was received for the remaining 110 acres. The 110 acre transaction did
not qualify as a sale pursuant to the accounting policy described in note 1(d)
and was reflected in the accompanying Consolidated Financial Statements as land
under contract.
(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.
At December 31, 1999, the venture owns 5 lots at a cost of $226,666 and a fair
market value of $490,000. At December 31, 1998, the venture owned 7 lots at a
cost of $293,236 and a fair market value of $795,000.
(6) OTHER ASSETS
The components of other assets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred compensation, funded (note 7) $2,802,327 $2,191,947
Miscellaneous 24,642 26,038
---------- ----------
$2,826,969 $2,217,985
========== ==========
</TABLE>
The deferred compensation includes $2,802,327 and $2,191,947 at December 31,
1999 and 1998, respectively, owed to affiliated persons pursuant to a deferred
compensation plan. The deferred compensation has accrued over fifteen years.
Contributions are no longer being made to the plan.
11
<PAGE>
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Trade accounts payable $ 485,185 $ 803,551
Deferred compensation (note 6) 2,802,327 2,191,947
Dividends payable 234,641 244,716
Miscellaneous accruals and payables 101,013 188,562
-- --
---------- ----------
$3,623,166 $3,428,776
========== ==========
</TABLE>
(8) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1999 and
1998 are allocated as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
Earnings Earnings
(loss) (loss)
before before
Income Tax Income Tax Income Tax Income Tax
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Investment income $ 2,294,497 604,000 2,784,431 833,000
Gains realized on investments in
other companies 12,846,470 5,080,000 25,032,700 9,960,000
Change in unrealized appreciation of
investments (22,290,901) (8,810,654) (17,399,551) (5,865,293)
------------ ---------- ----------- ----------
$ (7,149,934) (3,126,654) 10,417,580 4,927,707
============ ========== =========== ==========
</TABLE>
The components of Federal and state income tax expense (benefit) from continuing
operations are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Current:
Federal $ 5,932,313 9,006,578
State 1,254,037 1,993,422
------------ ----------
7,186,350 11,000,000
Deferred (10,313,004) (6,072,293)
------------ ----------
$ (3,126,654) 4,927,707
============ ==========
</TABLE>
Income tax expense (benefit) for the years presented was different than the
amounts computed by applying the statutory Federal income tax rate to earnings
(loss) before income taxes. The sources of these differences and the tax effects
of each are as follows:
<TABLE>
<CAPTION>
1999 % 1998 %
----------- ------ --------- -----
<S> <C> <C> <C> <C>
Income tax expense (benefit) at Federal rate $(2,502,477) (35.0%) 3,646,153 35.0%
Change in Federal tax rate affecting taxable
temporary differences -- -- 952,110 9.1%
Change in the beginning of the year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense -- -- (9,000) (0.1%)
State income tax net of Federal tax benefit (325,322) (4.6%) 490,928 4.7%
Dividend exclusion (269,365) (3.8%) (266,503) (2.6%)
Other, net (29,490) (0.3%) 114,019 1.2%
----------- ------ --------- -----
Provision for income taxes $(3,126,654) (43.7%) 4,927,707 47.3%
=========== ====== ========= =====
</TABLE>
12
<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, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation liability, principally due to accrual
for financial reporting purposes $ 1,111,864 $ 870,000
Other 24,580 --
State net operating loss carryforwards 7,000 6,154
------------ ------------
Total gross deferred tax assets 1,143,444 876,154
Less valuation allowance (7,000) (7,000)
------------ ------------
Net deferred tax assets 1,136,444 869,154
------------ ------------
Deferred tax liabilities:
Real estate investments, principally due to unrealized gains (188,966) (444,838)
Investments in securities, principally due to unrealized
gains on securities (21,765,949) (31,270,991)
Other -- (284,800)
------------ ------------
Total gross deferred tax liabilities $(21,954,915) $(32,000,629)
------------ ------------
Net deferred tax liability $(20,818,471) $(31,131,475)
============ ============
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1999 was
$7,000. The net change in the total valuation allowance for the years ended
December 31, 1999 and 1998 was zero and a decrease of $9,000, respectively. The
valuation allowance primarily relates to state net operating loss carry
forwards. 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 1996 and subsequent
years are subject to examination by the Internal Revenue Service and various
other taxing authorities.
(9) 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, 1998 the Company had deferred income relating to such
sales of $119,500. There was no deferred income at December 31, 1999.
(10) 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, 1999, all the
options are fully vested and exercisable but no options have been exercised.
(11) 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, 974,302 at
December 31, 1999 and 1,015,166 on December 31, 1998. The computation assumes
that outstanding stock options were exercised and the proceeds used to purchase
common stock.
(12) SHARE REPURCHASE PROGRAM
At December 31, 1999 the Company has repurchased 568,480 shares as treasury
shares at a cost of $16,821,945. During 1999 and 1998, the Company repurchased
40,300 and 61,900 shares at an average cost of $69.95 and $71.19 per share,
respectively.
During 1999 and 1998 the Company cancelled and retired 36,500 and 527,680
shares, respectively. The cumulative shares cancelled and retired at December
31, 1999 was 564,180.
13
<PAGE>
(13) ACCUMULATED UNDISTRIBUTED INCOME
At December 31, 1999 accumulated undistributed investment income-net was
$4,528,092 accumulated undistributed net realized gains on investment
transactions was $24,332,220 and net unrealized appreciation in value of
investments was $30,750,723.
(14) COMMITMENTS AND CONTINGENCIES
The Company has $250,000 of undisbursed contractual commitments in connection
with real estate. 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.
14
<PAGE>
- --------------------------------------------------------------------------------
Selected Per Share Data and Ratios
For the Years Ended December 31
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA AND RATIOS*
Investment income $ 3.40 $ 3.48 $ 5.38 $ 2.38 $ 3.55
Expenses (including income
taxes) (1.71) (1.63) (2.60) (1.54) (2.40)
------- --------- --------- --------- ---------
Investment income -net 1.69 1.85 2.78 0.84 1.15
Distributions from investment
income -net (0.96) (0.98) (0.97) (0.58) (0.58)
Net realized and unrealized
gain (loss) on securities (5.72) 3.35 19.96 9.15 9.31
Share transactions 0.32 0.30 0.06 (0.10) 0.08
------- --------- --------- --------- ---------
Net increase (decrease) in net
asset value (4.67) 4.52 21.83 9.31 9.96
Net asset value:
Beginning of year 79.59 75.07 53.24 43.93 33.97
------- --------- --------- --------- ---------
End of year $ 74.92 $ 79.59 $ 75.07 $ 53.24 $ 43.93
======= ========= ========= ========= =========
RATIOS
Ratio of expenses to average net
assets 2.13% 1.07% 4.23% 3.20% 6.30%
Ratio of investment income - net
to average net assets 4.24% 2.34% 8.77% 1.75% 3.01%
Portfolio turnover 3.29% 8.31% 2.55% 0.93% 1.36%
AVERAGE SHARES OUTSTANDING 997,549 1,056,454 1,083,696 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
Basic and Diluted
For the Year Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C> <C> <C>
BASIC
Net Asset $72,993,361 $80,795,319
=========== ===========
Shares Outstanding 938,062 978,362
=========== ===========
Net Asset Value per Share $ 77.81 $ 82.58
=========== ===========
DILUTED
Options 45,000 45,000
Exercise Price $12.75 $12.75
Market Price 65.50 (8,760) 71.25 (8,196)
----------- -----------
Additional Shares Attributable to Stock
Options 36,240 36,804
Shares Outstanding 938,062 978,362
----------- -----------
974,302 1,015,166
=========== ===========
Net Asset Value per Share $ 74.92 $ 79.59
=========== ===========
</TABLE>
15
<PAGE>
First Carolina Investors, Inc.
- --------------------------------------------------------------------------------
DIRECTORS
Brent D. Baird*
Private Investor
Bruce C. Baird
President
Belmont Contracting Co., Inc.
Patrick W.E. Hodgson*+
President of Cinnamon Investments Ltd. and
Chairman of Todd Shipyards Corporation
Theodore E. Dann, Jr.+
President
Buffalo Technologies Corporation
James E. Traynor+
President
Clear Springs Development Co., LLC
H. Thomas Webb III*
Senior Vice-President
Crescent Resources, Inc.
*Member of Executive Committee
+Member of the Audit Committee
OFFICERS:
Brent D. Baird
Chairman
H. Thomas Webb III
President
Bruce C. Baird
Vice President, Secretary & Treasurer
Cynthia Raby
Assistant Secretary
REGISTRAR, TRANSFER AND DISBURSING AGENT
Continental Stock Transfer and Trust Company
2 Broadway
New York, NY 10004
AUDITORS
KPMG LLP
401 South Tryon Street
Charlotte, NC 28202
