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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-8488
For the fiscal year ended December 31, 1996
TWENTY SERVICES, INC.
================================================================================
(Exact name of registrant as specified in its charter)
ALABAMA 63-0372577
- -------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
105 Vulcan Road
Birmingham, Alabama 35209
- -------------------------------- ----------------------
Registrant's telephone number, including area code (205) 945-1581
----------------
Securities registered pursuant to Section l2(g) of the Act:
Common Stock
7% Cumulative Preferred Stock*
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by checkmark whether the Registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during
the preceding twelve (l2) months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES [X] NO [ ]
As of December 31, 1996, the Registrant had issued and outstanding
l,283,068 shares of common stock, par value of $0.l0 per share, and as of
December 31, 1996, the aggregate market value of the voting stock of the
Registrant held by nonaffiliates of the Registrant, based upon the book value of
such shares as of such date, was approximately $l,429,000.
Documents incorporated by reference: None
- ----------
* Includes 7% Cumulative Series A-1980 Preferred Stock,
7% Cumulative Series A-198l Preferred Stock, 7% Cumulative
Series A-1982 Preferred Stock, and 7% Cumulative Series
A-1985 Preferred Stock.
Page 1 of 36
PART I
1. BUSINESS.
---------
(a) General Development of Business. Since its inception in 1955, Twenty
--------------------------------
Services, Inc. (hereinafter sometimes referred to as the "Registrant" or
"Company"), has been engaged principally in the general finance business,
including the purchase and sale of real estate. In October 1980, the
stockholders of the Registrant authorized the Board of Directors to redeploy the
Registrant's assets and reinvest the proceeds derived from such redeployment in
a business other than the general finance business. During 1982 and 1983, the
Company and an affiliate of Twenty Services Holding, Inc. ("Holding"), the owner
of approximately 54% of the Registrant's outstanding common stock, acquired an
interest in the common stock of The Statesman Group, Inc., an insurance holding
company based in Des Moines, Iowa ("Statesman"). The investment in Statesman
was sold in 1994. The Registrant invested the proceeds in equities and fixed
income securities that offer attractive returns commensurate with the risk
assumed. In 1995, the Company acquired an interest in the common stock of
American Equity Investment Life Holding Company, an insurance holding company
based in Des Moines, Iowa ("American Equity"). As of the date of this Annual
Report on Form 10-K the Registrant owns 79,000 shares of common stock of
American Equity.
Depending upon the financial condition of the Registrant, the opportunities
available to the Registrant and other matters, the Registrant may acquire
majority interests in, and thereafter direct the operations of, other
corporations or business entities engaged in one or more active businesses. The
Registrant will continue to engage in certain aspects of the general finance
business, including extending credit to certain persons and collecting its loan
receivables. As of the date of this annual report on Form 10-K, the Registrant
does not believe that the composition of its investments and the nature of its
business activities render it subject to the Investment Act of 1940, and the
Board of Directors of the Registrant intend that any future acquisitions by
and/or business activities of the Registrant will be structured in a manner so
that the Registrant will not become subject to the Investment Company Act of
1940.
(b) Financial Information Regarding Industry Segments.
--------------------------------------------------
The Registrant is not required to supply information respecting industry
segments. However, for certain information respecting the general finance and
other business activities of the Registrant, see the Financial Statements of
Twenty Services, Inc., including the notes thereto, which are included elsewhere
herein.
Page 2 of 36
(c) Narrative Description of Business.
----------------------------------
General Finance Business. As stated above, the Registrant historically has
-------------------------
engaged in the general finance business which has consisted of (i) extending
credit to finance various real estate projects, including the purchase of
single-family dwellings and commercial real estate, and to finance home
improvements (the "Real Estate Loans"), and (ii) extending credit for business
and miscellaneous purposes (the "Business and Miscellaneous Loans").
Loan Portfolio. The following tabulation sets forth the outstanding
---------------
balances of the Registrant's loan portfolio as of December 31 of each year
indicated below (including, if appropriate, unearned interest), classified
according to the types of loans comprising the Registrant's loan portfolio:
Type of Loans 1996 1995 1994 l993 l992
- --------------- -------- -------- -------- -------- --------
Real Estate $124,40l $l93,429 $l98,854 $205,820 $24l,045
Business and
Miscellaneous l53,l50 118,396 148,640 123,647 133,347
-------- -------- -------- -------- --------
Total: $277,55l $311,825 $347,494 $329,467 $374,292
As of December 3l, 1996, the duration of the Real Estate Loans ranged from 18
to 239 months, with such loans having an average duration of 154 months, and the
per annum interest rate of such loans ranged from 7.5% to l2.5% and the duration
of the Business and Miscellaneous Loans ranged from 3 to 36 months, with such
loans having an average duration of 3 months, and the per annum interest rate of
such loans ranged from 7% to 11%.
Of the Registrant's aggregate loan portfolio as of December 31, 1996,
approximately 45% was secured by mortgages on real estate and approximately 55%
was unsecured.
Notes Receivable - Related Parties
- ----------------------------------
The Chairman of the Board and the Executive Vice-President, individually or
together, have equity interests in four other entities which had transactions
with the Company during the year. As of December 31, 1996 the outstanding loans
totaled $403,648. One loan for $l40,500 to the company owned by the Executive
Vice-President has been fully reserved. The Company intends to pursue and
expects collection of this loan. One loan for $50,000 was paid
Page 3 of 36
Notes Receivable - Related Parties (continued)
- ----------------------------------------------
on March 31, 1997. One loan for $l89,000 is due in 1997 and is collateralized by
a second mortgage on an aircraft which is for sale. One remaining loan for
$24,148 is due in 1997 and is unsecured.
Allowance For Loan Losses and Delinquent Loans Receivable - Finance Receivables
- -------------------------------------------------------------------------------
The Registrant maintains an allowance or reserve for loan losses which is an
amount reflecting, in management's judgment, the maximum amount of outstanding
loans that ultimately may be charged off. Upon determining that a loan, or a
portion thereof, is uncollectible the Registrant charges its allowance or
reserve for loan losses in the amount deemed uncollectible by the Registrant.
As of December 31, 1996, approximately 12% of the dollar amount of the
Registrant's total loan portfolio, including accrued interest, was delinquent by
thirty (30) days or more with respect to one or more payments as compared to
comparable delinquencies of approximately 17% of the dollar amount of the
Registrant's total loan portfolio as of December 31, 1995. Of the Registrant's
delinquent loans as of December 31, 1996, one loan representing approximately
$32,000 was delinquent by more than ninety (90) days. At December 31, 1996, the
largest principal amount owed by a single debt or related borrower, which was
deemed to be delinquent, was $32,000. However, the foregoing figures reflect
the fact that the entire amount of a loan is classified as delinquent if any
portion of the scheduled payments are past due. At December 31, 1996, one (1)
loan was deemed delinquent. This loan is a first mortgage loan. The Registrant
believes the each loan deemed delinquent is adequately secured.
During the year ended December 31, 1996, the Registrant did not charge off any
loan receivable. At December 31, 1996, the Registrant's allowance for loan
losses with respect to its loan portfolio was $27,293.
The following tabulation sets forth for each of the years indicated certain
information regarding charges to the Registrant's allowance or reserve for loan
losses and the salvage value of the collateral or other assets received during
each of such years with respect to loans previously charged off:
Percentage of
Principal Amount Loan Portfolio Other Assets
Year Charged Off Charged Off Received
- ------ ---------------- --------------- ------------
1996 $ -0- -0-% $ 0
1995 $ -0- -0-% $ 156
1994 -0- -0-% 369
1993 1,989 .6% l,907
Page 4 of 36
Interest Income. The following tabulation sets forth certain information
----------------
respecting the Registrant's net interest income for each of the years indicated:
1996 1995 1994
---- ---- ----
Interest Income (l) $ 82,903 $129,953 $59,532
Net Interest Income $ 82,903 $ 59,532 $55,043
(l) Includes income of $37,000, $105,757 and $39,24l, during 1996, 1995 and
1994 respectively, derived from sources other than the Registrant's loans
receivable.
The Registrant utilizes the interest (actuarial) method in recognizing
income attributable to interest charges. Accrual of interest income on finance
receivables is suspended when a loan is contractually delinquent for 90 days or
more and resumed when the loan becomes contractually current.
Other Business Activities. As described above, the Registrant's
--------------------------
stockholders have authorized the Registrant to redeploy the Registrant's assets
by conversion of such assets into cash and the reinvestment of the proceeds
thereof in other business entities. The Registrant intends to invest in
equities and fixed income securities that offer attractive returns commensurate
with the risk assumed. In December 1996, the Company acquired a 19.75% interest
in a newly formed insurance holding company, American Equity Investment Life
Holding Company. The Chairman of the Des Moines, Iowa based company is also the
Chairman of the Board of the Registrant. American Equity acquired a block of
individual and group insurance policies in 1995 and 1996. In 1996 American
Equity obtained additional equity financing from other investors which reduced
the Company's interest therein to 6.7%.
Depending upon the financial position of the Registrant, the opportunities
available to the Registrant and other matters, the Registrant may acquire
majority-owned or controlling interests of one (l) or more other corporations or
business entities engaged in one (l) or more active businesses. In the opinion
of the Registrant, the Registrant's composition of assets and business
activities do not subject the Registrant as of the date of this annual report on
Form 10-K to the Investment Company Act of 1940, and the Board of Directors of
the Registrant intends that future acquisitions and/or future business
activities of the Registrant will be structured in such manner so that
Registrant will not be subject to the Investment Company Act of 1940. As in the
past, the Registrant will continue to engage in certain aspects of general
finance business, including extending credit to certain persons and collecting
its loans receivable.
Page 5 of 36
Competition. With respect to the general finance business, the Registrant
------------
is in direct competition with banks and other finance companies located within
and without the State of Alabama. Many of these firms are substantially larger
than the Registrant, have more capital available for lending activities, pursue
more actively new loan activity and enjoy a distinct competitive advantage over
the Registrant.
Employees. During 1996 and 1995, the Registrant employed two (2) persons
----------
to fill two (2) positions; one (l) of such positions was an executive position,
and one (l) of such positions was a clerical/administrative position.
At March l5, 1997, the Registrant employed two (2) persons to fill two (2)
positions; one (l) of such positions was an executive position and one (l) of
such positions was a clerical/administrative position.
The Registrant considers its relationship with its employees to be good.
Certain Government Regulations. The Registrant is subject to federal and
-------------------------------
state regulations relating to consumer credit financing and is subject to
periodic examinations by officials of the State of Alabama charged with the
responsibility of enforcing such regulations. The last examination of the
Registrant by officials of the State of Alabama occurred on September 20, 1996.
As a result of such examination, the Registrant was found to be in compliance
with the regulations described above, and the Board of Directors of the
Registrant believes that the Registrant presently is in compliance with such
regulations. No material monetary claim has been made by any borrower against
the Registrant respecting failure to comply with such regulations.
The Registrant is not subject in any material way to regulations relating
to the discharge of materials into the environment.
Other Matters. The Registrant's business is not seasonal.
--------------
No material portion of the contracts or subcontracts of the Registrant is
subject to renegotiation by the United States Government.
The business of the Registrant is not dependent upon any raw materials, and
as of the date of this annual report on Form 10-K, the Registrant does not own
any material patent, trademark, license, franchise or concession. During the
last two (2) years, the Registrant has not spent any money on research and
development activities.
Page 6 of 36
Due to the nature of its business, the Registrant does not have backlogs of
orders believed to be firm. In addition, except as described in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Registrant does not follow any specified practice with respect to working
capital.
The Registrant is not dependent upon a single customer or related customers
or a very few customers, the loss of any one (l) or more of which would have a
materially adverse effect upon its business.
Financial Information Regarding Foreign and Domestic Operations and
-------------------------------------------------------------------
Export Sales. Substantially all of the Registrant's business activities have
- ------------
been conducted within the southeastern portion of the United States.
2. PROPERTIES.
-----------
The Registrant maintains its principal executive office in an office
facility located in Birmingham, Alabama, which it leases on a month-to-month
basis and for which it pays aggregate annual rentals of $7,200. The Registrant
believes its office facilities are adequate for its present needs.
The Registrant also owns approximately one (l) acre of undeveloped real
estate, and one parcel of residential property, obtained in 1989 as a result of
foreclosure.
3. LEGAL PROCEEDINGS.
------------------
As of the date of this annual report on Form 10-K, the Registrant is not a
party of any legal proceedings, other than routine collection matters arising in
the ordinary course of the Registrant's business.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
During the quarter ended December 31, 1996, no matter was submitted to a
vote of the security holders of the Registrant.
Page 7 of 36
PART II
5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
--------------------------------------------------------------
HOLDER MATTERS.
---------------
(a) Market Information. No broker or dealer makes an active market in the
------------------
shares of Common Stock or the Series A-Preferred Stock of the Registrant,
although the Common Stock is quoted from time to time in certain interdealer
quotations by brokers. Except for such transactions and sales in privately
negotiated transactions among stockholders, there is no established trading
market for the Common Stock or the Series A-Preferred Stock of the Registrant.
(b) Holder of Records. As of December 31, 1996 there were 1,994 holders
------------------
of record of the outstanding Common Stock of the Registrant, and 1,108 holders
of record of the outstanding Series A-Preferred Stock of the Registrant.
(c) Dividends. During the past two (2) years, no dividends have been paid
---------
respecting the shares of Common Stock of the Registrant. Under Alabama law,
cash dividends may be paid only out of earned surplus (or retained earnings) of
the Registrant, except that dividends respecting securities entitled to
preferential treatment in the payment of dividends may be paid out of capital
surplus of the Registrant. As of December 31, 1996, the Registrant reflected
earned surplus of $l,l69,946 and reflected capital surplus of $l,716,074.
As of December 3l, 1996, the Registrant has issued and outstanding 505,ll0
shares of Series A-Preferred Stock, consisting of four (4) series of such
Preferred Stock issued in 1980, 198l, 1982 and 1985. The holders of the Series
A-Preferred Stock are entitled to cumulative dividends at the rate of $.07 per
share per annum before any dividend may be declared or paid respecting the
shares of Common Stock of the Registrant. During 1996 and 1995, the Registrant
paid a dividend of $.07 per share respecting the outstanding Series A-Preferred
Stock.
The Registrant intends, to the extent that future earnings and its capital
surplus permit, to pay dividends respecting the shares of Series A-Preferred
Stock. The Registrant believes it is unlikely that dividends will be paid in
the future respecting the shares of Common Stock of the Company, although such
payment will depend upon the future earnings and business prospects of the
Registrant.
Page 8 of 36
6. SELECTED FINANCIAL DATA
-----------------------
The following tabulation sets forth certain financial information respecting
the Registrant:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 182,303 $ 234,686 $ 118,337 $ 101,356 $ 72,217
========== ========== ========== ========== ==========
Net Income (Loss) $ (57,242) $ 70,513 $1,777,270 $ (26,137) $ (75,903)
========== ========== ========== ========== ==========
Earnings (Loss) Per Common Share:
Net Income (Loss) $ (.07) $ .03 $ 1.36 $ (.05) $ (.09)
========== ========== ========== ========== ==========
Total Assets $3,110,572 $3,210,614 $3,134,191 $1,355,001 $1,390,002
========== ========== ========== ========== ==========
Dividends
Declared:
Common Stock $ 0 $ 0 $ 0 $ 0 $ 0
========== ========== ========== ========== ==========
Preferred Stock $ 35,357/1/ $ 35,357/2/ $ 35,357/3/ $ 35,358/4/ $ 35,357/5/
========== ========== ========== ========== ==========
Total $ 35,357 $ 35,357 $ 35,358 $ 35,357 $ 35,358
========== ========== ========== ========== ==========
Book Value Per
Common Share Outstanding $ 1.98 $ 2.06 $ 1.96 $ .64 $ .68
========== ========== ========== ========== ==========
- -----------------------
/1/ Reflects dividend respecting Preferred Stock declared on February 10, 1997.
/2/ Reflects dividend respecting Preferred Stock declared on February 15, 1996.
/3/ Reflects dividend respecting Preferred Stock declared on February 4, 1995.
/4/ Reflects dividend respecting Preferred Stock declared on February 15, 1994.
/5/ Reflects dividend respecting Preferred Stock declared on January 17, 1993.
Page 9 of 36
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
Liquidity and Capital Resources. During 1996, the Registrant's liquidity
--------------------------------
remained virtually unchanged. The Company has no notes payable nor long term
debt and does not anticipate the need for borrowing in the near future. The
Registrant has sufficient cash and temporary cash investments to meet its short
term liquidity needs. Should long term liquidity needs exceed cash and
temporary cash investments, then the Registrant would dispose of marketable
securities as it deems appropriate. Current trends and known demands and
commitments do not create a need for liquidity in excess of the Company's
current abilities to generate liquidity.
The Company anticipates that its operating activities will continue to use
net cash flows, that its investing activities will continue to generate positive
net cash flows and that its financing activities will continue to use cash
flows.
Results of Operations. The Registrant reported a net loss of $57,242 in
----------------------
1996 as compared to net income of $70,513 in 1995. The decrease was primarily
due to provision for an estimated uncollectible note receivable, provision for
the Company's equity in the net loss of American Equity and a reduction in
interest income as a result of the Company's investment of $790,000 in American
Equity Investment Life Holding Company in December 1995.
General and administrative expenses decreased from $163,900 in 1995 to $138,000
in 1996 due primarily to a decrease of $20,000 in executive salaries.
During 1994, the Registrant reflected net income of $1,777,270, as compared
to a loss of $26,137 during 1993. The increase is due primarily to 1994
including a gain on sale of marketable securities net of taxes of approximately
$1,796,000.
During 1994, the Registrant's general and administrative expenses amounted
to $l20,315 as compared to $l13,979 during 1993. The increase resulted
primarily from increased costs for professional services.
Impact of Inflation. Inflation has an impact upon the Registrant's
--------------------
financial position. Inflationary pressures generally increase the cost of
borrowed funds to the Registrant, rendering it less economic for the Registrant
to borrow money for re-lending purposes.
Page 10 of 36
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The financial statements of the Registrant are set forth at page F-3
through F-13 hereof and are incorporated herein by reference.
9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
-----------------------------------------------------
There has been no disagreement between the Registrant and its independent
certified public accountants respecting any matter
of disclosure, during the past twenty-four (24) months.
Page 11 of 36
Part III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
(a)-(e) - Identification of Directors and Executive Officers and Other
------------------------------------------------------------
Matters. The following tabulation sets forth certain information respecting the
- --------
persons who are serving as the directors and executive officers of the
Registrant as of March 15, 1996.
Material Occupations and
Names and Positions Positions During
with the Registrant Age the last five (5) years
- ----------------------- --- -----------------------------------------------------------------
David J. Noble 65 Chairman of the Board of Directors, Twenty Services, of Directors
Chairman of the Board and Inc., Birmingham, Alabama (finance business), since 1980 and 1970
Director respectively; Chairman of Board of Directors, Treasurer and Director, Twenty Services
Holding, Inc., Birmingham, Alabama (holding company) since 1979; Chairman
of the Board of Directors and President of American Equity Investment Life
Holding Company since 1995; Vice-Chairman of the Board of Directors,
President and Director, The Statesman Group, Des Moines, Iowa 1982-1995,
1979-1995 and 1975-1995, repectively.
Dr. James P. Armatas 66 Director, Twenty Services, Inc., Birmingham, Alabama (general finance business)
since 1979; Director, Twenty Services Holding, Inc., Birmingham, Alabama
(holding company), since 1979; President, James P. Armatas & Associates,
Shawnee Mission, Kansas (consulting psychologist), since
Page 12 of 36
Material Occupations and
Names and Positions Positions During the last
with the Registrant Age Five (5) years
- ------------------------ --- -----------------------------------------------------------------
Dr. James P. Armatas 1972; President, Alvarado Manufacturing Company; Chino, California since 1985.
(continued)
Dr. A. J. Strickland, III 54 Director and Vice-Chairman of the Board of Directors, Twenty Services, Inc.,
Birmingham Alabama (general finance business), since 1977; Directors,
Twenty Services Holding, Inc., Birmingham, Alabama (holding company),
since 1970; Professor of Strategic Management School of Commerce,
University of Alabama, Tuscaloosa, Alabama since 1980; Director, The
Statesman Group, 1986-1995.
Thomas L. Hinson, Jr. 50 Executive Vice-President, Secretary and Treasurer, Twenty Services, Inc., since
1992; Certified Public Accountant, Birmingham, Alabama since 1973;
President, CTT Investment, Inc., Birmingham, Alabama (food services),
since 1989; President, Air Carriers, Inc., Birmingham, Alabama (air cargo),
since 1991; President, Vulcan Designs, Inc., Birmingham, Alabama (residential
construction) since 1991.
Page 13 of 36
- ---------------
There is no family relationship between any of the persons named above.
Directors of the Registrant are elected at each annual meeting of the
stockholders of the Registrant and serve until their successors have been
elected and qualified. Executive officers of the Registrant are elected at a
meeting of the Board of Directors immediately following each annual meeting of
the stockholders of the Registrant. Mr. Noble was elected director of the
Registrant in November 1979 pursuant to a resolution adopted by the Board of
Directors of the Registrant stating that if Twenty Services Holding, Inc.
acquired approximately 20% of the outstanding Common Stock of the Registrant,
the Registrant would make available to nominees of Twenty Services, Inc.
Holding, Inc. two (2) places on the Registrant's Board of Directors.
(F) Involvement in Certain Legal Proceedings.
-----------------------------------------
During the past ten (l0) years, no officer or director of the Registrant
has been involved in any event of the type described in Item 3(f) of the
Regulations S-K of the Securities Exchange Act of 1934.
11. EXECUTIVE COMPENSATION
----------------------
Current Remuneration. During 1994 no officer or director of the Registrant
---------------------
received aggregate direct remuneration from the Registrant in excess of $60,000.
The following tabulation sets forth certain information concerning all
remuneration paid by the Registrant to all officers and directors of the
Registrant during the year ended December 31, 1996.
Salaries, fees,
Name of Individuals directors' fees,
or number of persons Capacities commission and
in group which served bonuses
- ---------------------- ------------- ----------------
All directors and Directors and $37,400
officers as a group Officers
(five (5) persons)
REMUNERATION IN THE FUTURE. As of December 31, 1996, no officer or
--------------------------
directors of the Registrant has any contact or other arrangement with the
Registrant relating to any future remuneration, except that as long as such
officers and directors continue to serve in such capacity, they will receive
from the Registrant the customary fees and salaries at a rate to be agreed upon
by the Registrant and such persons.
Directors' Remuneration. All directors of the Registrant receive $200,
------------------------
plus expenses, for each meeting of the Board of Directors and each meeting of
any committee of the Board of Directors which they attend (except the Executive
Committee of the Board of Directors). Members of the Executive Committee
receive compensation of $300 per month.
Page 14 of 36
Options, Warrants, or Rights. The Registrant does not maintain any plan
-----------------------------
pursuant to which persons are entitled to acquire any equity securities of the
Registrant.
Termination of Employment. Except as otherwise described in Item 11 of
--------------------------
this annual report on Form 10-K, there are no plans or arrangements relating to
payments to be made to any officer, or director of the Registrant, which
resulted or will result from any person's resignation, retirement, or
termination or employment with the Registrant.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners.
------------------------------------------------
As of the date of this annual report on Form 10-K, the only person who owns
of record and directly more than 5% of the Registrant's outstanding voting
securities is Twenty Services Holding, Inc., a Delaware corporation, whose
principal business address is 105 Vulcan Road, Birmingham, Alabama. As of such
date, Twenty Services Holding, Inc. and an affiliate of Holding own 704,312
shares of Common Stock of the Registrant and approximately 39% of the combined
outstanding shares of Common Stock and Series A Preferred Stock of the
Registrant. Exccept as otherwise requred by Alabama law and except for certain
rights accorded by the Registrant's Certificate of Incorporation in the event
that dividends respecting the Series A-Preferred tock are not paid the holders
of the Series A-Preferred Stock are entitled to vote respecting matters coming
before any meeting of the stockholders of the Registrant.
By virtue of his ownership of Common Stock of Twenty Services, Holding,
Inc., Mr. David J. Noble, the Chairman of the Board or Directors of the
Registrant, owns indirectly and beneficially approximately 51% of the
outstanding Common Stock of the Registrant.
(b) Security Ownership of Management. The following tabulation sets forth
--------------------------------
certain information regarding the shares of equity securities of the Registrant.
Approximate Amount Percent
Title of Name of and Nature of of
Class Beneficial Owner Beneficial Owner Class
- -------------- ------------------- --------------------- --------
Common Stock David J. Noble 648,877 Indirect(l) 50.57%
Common Stock A.J. Strickland,III 48,204 Indirect(l) 3.76%
Page 15 of 36
- -----------------------------------
(l) Reflects each person's interest in the shares of common stock
of the Registrant owned by Twenty Services Holding, Inc. based upon such
person's ownership of the outstanding shares of common stock of Twenty
Services Holding, Inc. as of March 15, 1997, excluding 6,000 shares of
common stock of Twenty Services Holding, Inc. held by the Registrant.
Twenty Services Holding, Inc. owns 704,312 shares or approximately 55% of
the outstanding shares of common stock.
- ------------------------------------
As of March 15, 1997, all officers and directors of the Registrant as a
group beneficially owned, based upon their ownership of the outstanding common
stock of Twenty Services Holding, Inc. ("Holding"), and excluding adjustment for
the shares of common stock of Holding, held by the Registrant, 697,08l shares of
common stock of the Registrant, or approximately 54% of the outstanding common
stock of the Registrant as of such date.
(c) Changes in Control. There are no arrangements known to the Registrant
------------------
which subsequently could result in a change of control of the Registrant.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The Chairman of the Board and the Executive Vice-President, indivdually or
together, have equity interests in four other entities which had transactions
with the Company during the year. As of December 3l, 1996, the outstanding
loans totaled $403,648. One loan for $l40,500 to the company owned by the
Executive Vice-President has been fully reserved. The Company intends to pursue
and expects collection of this loan. One loan for $50,000 was paid on March 31,
1997. One loan for $l89,000 is due in 1997 and is collateralized by a second
mortgage on an aircraft which is for sale. One remaining loan for $24,l48 is
due in 1997 and is unsecured.
There were no transactions during 1996 nor are there any currently proposed
transactions between any pension, retirement, savings or similar plan of the
Registrant and its affiliates, on the other hand, and the Registrant and its
affiliates, any officer, director or principal stockholder of the Registrant, or
any person who has been nominated as a director of the Registrant, on the other
hand.
Page 16 of 36
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) (l) - (a) (2) - Financial Statements and Financial Statement Schedules.
-------------------------------------------------------
The financial statements and the financial statement schedules required to be
filed as part of this report are listed in the accompanying Index to Financial
Statements and Financial Statement Schedules, and are set forth at the pages
shown in such Index.
(a) (d) - Exhibits. The Certificate of Incorporation of the Registrant, as
--------
amended, the By Law of the Registrant, as amended, and Resolutions of the Board
of Directors of the Registrant creating the 7% Cumulative Series A-1980
Preference Stock, the 7% Cumulative Series A-1981 Preference Stock, the 7%
Cumulative Series A-1985 Preference Stock, which were filed as exhibits to the
Registrant's Annual Report on Form 10-K for the years ended December 3l, 1980,
December 3l, 1981, December 3l, 1982 and 1985, and the Registrant's report on
Form 8-K dated as of April 10 1984, are incorporated by reference.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the year.
--------------------
Page 17 of 36
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Index to Financial Statements and Financial Statement Schedule
December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Statements of Cash Flows....................... F-4 & F-5
Consolidated Statements of Changes in Stockholders' Equity.. F-6
Notes to Consolidated Financial Statements.................. F-7 - F-16
Consolidated Financial Statement Schedule:
Schedule I - Marketable Securities - Other Investments..... F-17
[LETTERHEAD OF BORLAND, BENEFIELD, CRAWFORD AND WEBSTER, P.C. APPEARS HERE]
Independent Auditors' Report
----------------------------
The Shareholders and
the Board of Directors
Twenty Services, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Twenty Services, Inc. (the Company) and subsidiary at
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and
1994, listed in the index on page F-1 of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Twenty Services,
Inc. and subsidiary at December 31, 1996, 1995, and 1994, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1996, 1995, and 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for investments in
debt and equity securities.
BORLAND, BENEFIELD, CRAWFORD & WEBSTER, P.C.
/s/ Borland, Benefield, Crawford & Webster, P.C.
April 14, 1997
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
1996 1995
---------- ----------
Assets
Cash and Temporary Investments........................ $ 95,438 $ 41,379
Marketable Securities................................. 1,597,040 1,532,614
Finance Receivables, Net.............................. 248,750 277,059
Notes Receivable - Related Parties, Net............... 263,148 95,000
Receivable - American Equity Investment Life Holding
Company.............................................. 0 410,000
Other Receivables..................................... 71,581 19,277
Investment - American Equity Investment Life Holding
Company.............................................. 713,700 790,000
Property Held for Sale................................ 13,205 13,205
Property and Equipment, Net........................... 38,310 21,080
Prepaid Income Taxes.................................. 4,500 11,000
Deferred Income Tax Benefit........................... 64,900 0
---------- ----------
Total Assets.......................................... $3,110,572 $3,210,614
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts Payable and Accrued Expenses.............. $ 20,211 $ 11,637
Deferred Income Taxes.............................. 25,000 31,000
---------- ----------
Total Liabilities............................... 45,211 42,637
---------- ----------
Stockholders' Equity:
Preferred Stock, Cumulative Nonvoting, Par Value
$.10; 2,500,000 Shares Authorized; 505,110 Shares
Issued and Outstanding (Involuntary Liquidation
Value $530,366).................................. 50,511 50,511
Common Stock, Par Value $.10; 2,500,000 Shares
Authorized, 1,283,068 Shares Issued and
Outstanding...................................... 128,307 128,307
Additional Paid-In Capital......................... 1,716,074 1,716,074
Retained Earnings.................................. 1,169,946 1,262,545
Net Unrealized Gain on Available-for-Sale
Securities, Net of $25,000 and $31,000 Deferred
Income Taxes in 1996 and 1995, Respectively....... 60,523 70,540
Less Investment in Twenty Services Holding, Inc.... (60,000) (60,000)
---------- ----------
Net Stockholders' Equity........................ 3,065,361 3,167,977
---------- ----------
Total Liabilities and Stockholders' Equity............ $3,110,572 $3,210,614
========== ==========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. F-2
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Consolidated Statements of Operations
For the Years Ended
December 31,
1996 1995 1994
----------- --------- -----------
Revenues:
Interest.................................. $ 82,903 $129,953 $ 59,532
Rentals................................... 9,289 2,901 28,251
Dividends................................. 90,111 101,781 30,221
Other..................................... 0 51 333
--------- -------- ----------
Total Revenues.......................... 182,303 234,686 118,337
--------- -------- ----------
Expenses:
General and Administrative................ 138,019 163,900 120,315
Depreciation.............................. 7,268 2,818 19,677
Provision for Doubtful Notes Receivable... 140,500 0 0
--------- -------- ----------
Total Expenses.......................... 285,787 166,718 139,992
--------- -------- ----------
Gain (Loss) from Operations................ (103,484) 67,968 (21,655)
--------- -------- ----------
Other Income (Loss):
Gain on Sale of Marketable Securities..... 21,142 8,575 2,411,908
Gain on Sale of Property.................. 0 2,970 1,967
Provision for Recovery of Prior Year
Income Taxes............................. 43,000 0 0
Provision for Equity in Loss of American
Equity................................... (76,300) 0 0
--------- -------- ----------
Total Other Income (Loss)............... (12,158) 11,545 2,413,875
--------- -------- ----------
Income (Loss) Before Income Taxes.......... (115,642) 79,513 2,392,220
Provision for Income Taxes................. 58,400 (9,000) (615,000)
--------- -------- ----------
Net Income (Loss).......................... $ (57,242) $ 70,513 $1,777,220
========= ======== ==========
Income (Loss) Per Common Share............. $(.07) $.03 $1.36
========= ======== ==========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. F-3
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
For the Years Ended
December 31,
1996 1995 1994
---------- ------------- ------------
Cash Flows From Operating Activities:
Interest and Dividends Received.................. $ 156,069 $ 253,158 $ 58,940
Rental Income.................................... 9,289 2,901 28,251
Other Income..................................... 0 51 333
Cash Paid to Suppliers and Employees............. (136,713) (163,241) (125,268)
Income Taxes Paid................................ 0 (110,000) (525,000)
--------- ----------- -----------
Net Cash Provided (Used) by Operating
Activities........................................ 28,645 (17,131) (562,744)
--------- ----------- -----------
Cash Flows From Investing Activities:
Principal Collected on Loans..................... 159,408 215,782 96,467
Loans Made to Customers.......................... (22,566) (177,100) (118,597)
Loans Made to Related Parties.................... (398,648) (95,000) 0
Principal Collected on Held-to-Maturity
Securities...................................... 0 1,075,675 1,591
Purchases of Held-to-Maturity Securities......... 0 0 (1,310,476)
Proceeds from Sale of Available-for-Sale
Securities...................................... 191,578 463,115 3,240,850
Purchases of Available-for-Sale Securities....... (254,503) (461,861) (1,077,443)
Initial Investment in American Equity
Investment Life Holding Company................. 0 (1,200,000) 0
Collection of Account Receivable from
American Equity Investment Life Holding
Company......................................... 410,000 0 0
Proceeds From Sale of Investment and
Other Property and Equipment.................... 0 2,970 40,824
Purchases of Property and Equipment.............. (24,498) (20,985) (2,461)
--------- ----------- -----------
Net Cash Provided (Used) by Investing
Activities........................................ 60,771 (197,404) 870,755
--------- ----------- -----------
Cash Flows From Financing Activities -
Preferred Stock Dividends Paid................... (35,357) (35,357) (35,357)
--------- ----------- -----------
Net Increase (Decrease) in Cash.................... 54,059 (249,892) 272,654
Cash and Temporary Investments -
Beginning of Year................................. 41,379 291,271 18,617
--------- ----------- -----------
Cash and Temporary Investments -
End of Year....................................... $ 95,438 $ 41,379 $ 291,271
========= =========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. F-4
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Consolidated Statements of Cash Flows (Continued)
- --------------------------------------------------------------------------------
For the Years Ended
December 31,
1996 1995 1994
--------- ----------- -----------
Reconciliation of Net Income to Net Cash
Provided (Used) by Operating Activities:
Net Income (Loss)................................ $ (57,242) $ 70,513 $ 1,777,220
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation and Amortization.................. 7,268 2,818 19,677
Provision for Doubtful Notes Receivable........ 140,500 0 0
Provision for Equity in Loss of American
Equity........................................ 76,300 0 0
Provision for Recovery of Prior Year
Income Taxes.................................. (43,000) 0 0
Provision for Deferred Income Tax Benefits..... (64,900) 0 0
Gain on Sale of Marketable Securities.......... (21,142) (8,575) (2,411,908)
Gain on Sale of Property....................... 0 (2,970) (1,967)
Amortization of Bond Premium and
Discount, Net................................. 826 866 (5,273)
(Increase) Decrease in Accrued
Investment Interest........................... (18,039) 20,558 (25,540)
Increase (Decrease) in Accounts
Payable and Accrued Liabilities............... 8,574 659 (4,953)
Increase (Decrease) in Income Taxes
Payable....................................... (500) (101,000) 90,000
--------- ----------- -----------
Net Cash Provided (Used) by Operating
Activities........................................ $ 28,645 $ (17,131) $ (562,744)
========= =========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. F-5
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Investment
Unrealized in Twenty
Additional Retained Gain (Loss) on Services
Preferred Common Paid-In Earnings Available-for-Sale Holding,
Stock $.10 Stock $.10 Capital (Deficit) Securities Inc. Total
---------- ---------- ----------- ----------- ------------------- ----------- ------------
Balance - December 31,
1993.......................... $50,511 $128,307 $1,751,431 $ (549,831) $ 0 $(60,000) $ 1,320,418
Adjustment to Beginning
Balance for Change in
Accounting Principle, Net
of Deferred Income
Taxes of $615,000............. 1,326,325 1,326,325
Net Income..................... 1,777,220 1,777,220
Dividends on Preferred
Stock, ($.07 Per Share)....... (35,357) (35,357)
Change in Unrealized Gain
(Loss) on Available-for-Sale
Securities, Net of Deferred
Income Taxes of $634,000...... (1,355,393) (1,355,393)
------------------ -----------
Balance - December 31,
1994.......................... 50,511 128,307 1,716,074 1,227,389 (29,068) (60,000) 3,033,213
Net Income..................... 70,513 70,513
Dividend on Preferred
Stock ($.07 Per Share)....... (35,357) (35,357)
Change in Unrealized Gain
(Loss) on Available-for-Sale
Securities, Net of Deferred
Income Tax of $50,000......... 99,608 99,608
------------------ -----------
Balance, December 31,
1995.......................... 50,511 128,307 1,716,074 1,262,545 70,540 (60,000) 3,167,977
Net Loss....................... (57,242) (57,242)
Dividend on Preferred
Stock ($.07 Per Share)........ (35,357) (35,357)
Change in Unrealized
Loss on Available-for-
Sale Securities, Net of
Deferred Income Tax
of $25,000.................... (10,017) (10,017)
------------------ -----------
Balance - December 31,
1996.......................... $50,511 $128,307 $1,716,074 $1,169,946 $ 60,523 $ 60,000 $ 3,065,361
======= ======== ========== ========== ================== ========== ===========
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. F-6
TWENTY SERVICES, INC. AND SUBSIDIARY
------------------------------------
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 1 - Accounting Policies
Principles of Consolidation - The accompanying consolidated financial
---------------------------
statements include the accounts of Twenty Services, Inc. (the Company)
and its wholly-owned subsidiary TSI Development Corporation. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Income Recognition - Interest income from finance receivables is
------------------
recognized using the interest (actuarial) method. Accrual of interest
income on finance receivables is suspended when a loan is contractually
delinquent for 90 days or more and resumed when the loan becomes
contractually current.
Estimates - The preparation of financial statements in conformity with
---------
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Credit Losses - Provisions for credit losses are charged to income in
-------------
amounts sufficient to maintain the allowance at a level considered
adequate to cover the losses of principal and interest in the existing
portfolio. The Company's charge-off policy is based on a loan-by-loan
review for all receivables which are charged off when they are deemed
uncollectible.
Cash Equivalents - Holdings of highly liquid investments with original
----------------
maturities of three months or less and investments in money market funds
are considered to be cash equivalents.
Marketable Securities - On January 1, 1994, the Company adopted the
---------------------
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". In
accordance with the Statement, prior period financial statements have not
been restated to reflect the change in accounting principle. The
cumulative effect as of January 1, 1994, of adopting Statement 115 was an
increase in stockholders' equity of $1,326,325 (net of $615,000 in
deferred income taxes) to reflect the net unrealized gain on securities
classified as available-for-sale that were previously carried at the
lower of amortized cost or market.
- --------------------------------------------------------------------------------
F-7
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 1 - Accounting Policies (Continued)
Management determines the appropriate classification of its investment in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. The Company's securities are
classified in two categories and accounted for as follows:
. Securities Held-to-Maturity. Bonds, notes, certain preferred stocks
and other debt securities for which the Company has the positive
intent and ability to hold to maturity are reported at cost, adjusted
for amortization of premiums and accretion of discounts which are
recognized in interest income using methods which approximate level
yields over the period to maturity.
. Securities Available-for-Sale. Bonds, notes and certain preferred
stocks not classified as held-to-maturity and common stocks are
reported at fair value.
Declines in the fair value of individual held-to-maturity and available-
for-sale securities below their cost that are other than temporary,
result in write-downs of the individual securities to their fair value.
The write-downs are included in earnings as realized losses.
Unrealized holding gains and losses, net of deferred income taxes, on
securities available-for-sale are reported as a net amount in a separate
component of stockholders' equity until realized.
Realized gains and losses on the sale of securities available-for-sale
are determined using the specific-identification method.
Investment - American Equity Investment Life Holding Company - This
------------------------------------------------------------
investment is accounted for on the "Equity Basis."
Property and Equipment - Property and equipment are stated at cost.
----------------------
Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the
lives of assets are capitalized. Upon sale or other retirement of
depreciable property, the cost and accumulated depreciation are removed
from the related accounts and any gain or loss is reflected in
operations.
Depreciation is provided primarily by the straight-line method over the
estimated useful lives of the depreciable assets, which range from 3 to
10 years.
- --------------------------------------------------------------------------------
F-8
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 1 - Accounting Policies (Continued)
Income Taxes - Deferred income taxes are recognized for the effects
------------
of temporary differences between financial statement and tax reporting.
Earnings Per Common Share - Earnings per common share are determined by
-------------------------
dividing net income (loss), after giving effect to preferred stock
dividends, by the weighted average number of common shares outstanding
during the year. The weighted average number of common shares
outstanding for each of the years ended December 31, 1996, 1995, and
1994 was 1,283,068.
Note 2 - Nature of Operations, Risks, and Uncertainties
The Company is primarily engaged in the general finance business. The
Company grants commercial and personal real estate loans and general
business and personal loans to customers located primarily in Alabama.
The majority of the loan portfolio is secured by various types of
collateral including mortgages and security interests in equipment and
other property with a significant concentration in loans collateralized
by residential real estate.
Note 3 - Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheet, for which
it is practicable to estimate that value. The following sets forth a
comparison of fair values and carrying values of the Company's
financial instruments subject to the provisions of SFAS No. 107.
1996 1995
---------------------- ----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
Cash and Temporary
Investments................ $ 95,438 $ 95,438 $ 41,379 $ 41,379
Marketable Securities....... 1,597,040 1,602,467 1,532,614 1,546,064
Finance Receivables, Net.... 248,750 248,750 277,059 277,059
Notes Receivable - Related
Parties.................... 263,148 263,148 95,000 95,000
Other Receivables........... 28,581 28,581 429,277 429,277
- --------------------------------------------------------------------------------
F-9
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 3 - Fair Values of Financial Instruments (Continued)
The following methods and assumptions were used by the Company in
estimating the fair values of financial instruments:
. Short-term financial instruments are carried at their carrying
amounts reported in the balance sheet which are reasonable estimates
of fair values due to the relatively short period to maturity of the
instruments. This approach applies to cash and temporary
investments, finance receivables, notes receivable from related
parties and other receivables.
. Marketable securities are valued at quoted market values.
. The investment in American Equity Investment Life Holding Company is
not valued since it is a relatively new company and the shares are
not traded.
Note 4 - Marketable Securities
The amortized cost and aggregate fair values of investments in
securities are as follows:
December 31, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
Available-for-Sale Securities:
Equity Securities............... $1,192,351 $86,277 $753 $1,277,875
========== ========== ========== ==========
Held-to-Maturity Securities:
Obligations of U.S. Government
Corporations and Agencies...... $ 319,165 $ 6,027 $ 0 $ 325,192
========== ========== ========== ==========
- --------------------------------------------------------------------------------
F-10
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 4 - Marketable Securities (Continued)
December 31, 1995
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
Available-for-Sale Securities -
Equity Securities............... $1,108,465 $101,360 $0 $1,209,825
========== ========== ========== ==========
Held-to-Maturity Securities -
Obligations of U.S. Government
Corporations and Agencies...... $ 322,789 $ 13,451 $0 $ 336,240
========== ========== ========== ==========
The amortized cost and aggregate fair value of debt securities at
December 31, 1996, by contractual maturity, are as follows. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call
prepayment penalties.
Amortized Fair
Cost Value
--------- -----
Held-to-Maturity Securities:
Due After Zero Years Through Five Years $319,165 $325,192
======== ========
Proceeds from the sale of available-for-sale securities were $191,578 for
the year ended December 31, 1996. Gross gains of $21,142 were realized on
these sales. There were no sales of held-to-maturity securities during
the year ended December 31, 1996.
Proceeds from the sale of available-for-sale securities were $463,115 for
the year ended December 31, 1995. Gross gains of $32,095 were realized
on these sales. Proceeds from the sale of held-to-maturity securities
were $1,075,673 for the year ended December 31, 1995. Gross losses of
$23,520 were realized. Held-to-maturity securities were sold prior to
maturity to provide funds for investment in other securities which
offered a greater long-term return.
- --------------------------------------------------------------------------------
F-11
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 5 - Finance Receivables and Allowance for Credit Losses
Finance receivables consisted of the following at December 31:
1996 1995
--------- ---------
Real Estate...................................................................................... $124,401 $193,429
Business and Other............................................................................... 153,150 118,396
-------- --------
Total Finance Receivables........................................................................ 277,551 311,825
Less Unearned Interest........................................................................... (1,508) (7,473)
Less Allowance for Credit Losses................................................................. (27,293) (27,293)
-------- --------
Finance Receivables, Net......................................................................... $248,750 $277,059
======== ========
At December 31, 1996, the accrual of
interest income was suspended on $32,002 of
real estate loans.
At December 31, 1996, contractual maturities
of finance receivables were as follows:
1997 1998 1999 2000 2001 After Total
-------- ------- ------ ------ ------- -------- --------
Real Estate.............................................. $ 5,200 $ 6,300 $7,700 $9,200 $10,200 $ 85,801 $124,401
Business and Other....................................... 147,653 5,497 0 0 0 0 153,150
-------- ------- ------ ------ ------- -------- --------
Totals................................................... $152,853 $11,797 $7,700 $9,200 $10,200 $ 85,801 $277,551
======== ======= ====== ====== ======= ======== ========
Changes in the allowance for credit losses on finance receivables for the
years ended December 31, 1996, 1995, and 1994 are as follows:
Balance - December 31, 1993................................................................................. $26,768
Recoveries of Write-offs in Prior Years..................................................................... 369
-------
Balance - December 31, 1994................................................................................. 27,137
Recoveries of Write-offs in Prior Years..................................................................... 156
-------
Balance - December 31, 1996 and 1995........................................................................ $27,293
=======
- --------------------------------------------------------------------------------
F-12
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 6 - Notes Receivable - Related Parties
The Chairman of the Board of the Company and the Executive Vice
President, individually or together, have equity interests in four other
entities which had transactions with the Company during the years. The
activity in this account was as follows for the year ended December 31:
1996 1995
---------- -------
Balance, January 1......................... $ 95,000 $ 0
Advances................................... 398,648 95,000
Reductions................................. (90,000) 0
Provision for Possible Uncollectible Note.. (140,500) 0
--------- -------
Balance December 31........................ $ 263,148 $95,000
========= =======
One note for $140,500 which is due from a company owned by the Executive
Vice President has been fully reserved at December 31, 1996. The Company
intends to pursue collection of this note; however, such collection,
while anticipated, cannot be assured at this time. One note for $50,000
was paid on March 31, 1997. One note for $189,000 is due in 1997 and is
collateralized by a second mortgage on an aircraft which is for sale.
One remaining note for $24,148 is due in 1997 and is unsecured.
Note 7 - Investment - American Equity Investment Life Holding Company
On December 27, 1995, the Company invested $790,000 in American Equity
Investment Life Holding Company (American). This was a new company
formed by the Chairman of the Board of Twenty Services, Inc. He is
Chairman and Chief Executive Officer of American. American acquired
some blocks of life insurance as of December 31, 1995. This investment
represented a 19.75% ownership of the common stock. The Company's pro-
rata share of American's net worth at December 31, 1995 approximated its
investment.
During 1996, American had a 100 for 1 stock split. Subsequently, it
issued 780,000 shares of common stock through a private placement for net
proceeds of $7,493,050. These transactions caused the Company's
percentage ownership to decrease from 19.75% to 6.7%.
- --------------------------------------------------------------------------------
F-13
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 7 - Investment - American Equity Investment Life Holding Company
(Continued)
The following is a summary of the audited balance sheets and statements
of operations of American:
1996 1995
------------ ------------
Available for sale fixed maturity securities, at
market........................................... $22,195,922 $ 6,833,363
Cash and cash equivalents......................... 5,475,395 2,846,603
Property, furniture and equipment, net............ 2,160,717 0
Value of insurance in force acquired.............. 1,725,000 1,500,000
Other assets...................................... 3,657,563 2,047,288
----------- -----------
Total Assets...................................... $35,214,597 $13,227,254
=========== ===========
Liabilities:
Policy benefit reserves.......................... $11,846,566 $ 4,251,306
Notes payable.................................... 10,000,000 4,000,000
Other liabilities................................ 3,230,929 1,991,367
----------- -----------
Total Liabilities................................. 25,077,495 10,242,673
Stockholders' Equity.............................. 10,137,102 2,984,581
----------- -----------
Total Liabilities and Stockholders' Equity........ $35,214,597 $13,227,254
=========== ===========
Revenues.......................................... $15,419,869 $ 5,830
Benefits and Expenses............................. 16,558,842 21,249
----------- -----------
Net Loss.......................................... $(1,138,973) $ (15,419)
=========== ===========
As required by the equity method of accounting, the Company's investment
of $790,000 has been reduced by $76,300 which is 6.7% of American's loss.
The management of both companies believe that this decline is temporary
and will be recovered in the very near future. This assumption is based
upon their expectation that American will reflect a net income in 1997
and, also, they expect to make another substantial private placement in
1997 at a rate per share greater than current book value.
- --------------------------------------------------------------------------------
F-14
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 8 - Property and Equipment
Property and equipment consisted of the following at December 31:
1996 1995
--------- ---------
Equipment, Furniture and Automobiles......................................................... $ 78,195 $ 53,697
Less Accumulated Depreciation................................................................ (39,885) (32,617)
-------- --------
Net Property, Plant and Equipment............................................................ $ 38,310 $ 21,080
======== ========
Note 9 - Income Taxes
The provision for income taxes was as follows for the years ended December 31:
1996 1995 1994
-------- -------- --------
Current:
Federal......................................................................... $ 3,000 $ 7,000 $510,000
State........................................................................... 3,500 2,000 105,000
Deferred Benefit................................................................ (64,900) 0 0
-------- -------- --------
Total Provision for Income Taxes................................................ $(58,400) $ 9,000 $615,000
======== ======== ========
The principal differences between the provision for income taxes and the
amount of income taxes computed at the federal statutory rate of 34% are
state income taxes, dividends received deduction, and the use of
available net operating tax loss carryforwards.
The deferred tax benefit of $64,900 included in the balance sheet is
related to the provisions for doubtful notes receivable and the
provision for equity in the loss of American Equity.
The net deferred tax liability of $25,000 included in the accompanying
balance sheet at December 31, 1996, is related to the unrealized gain on
marketable securities available-for-sale.
- --------------------------------------------------------------------------------
F-15
TWENTY SERVICES, INC. AND SUBSIDIARY
- ------------------------------------
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
Note 10 - Stockholders' Equity
The preferred stock has a cumulative dividend of $.07 per share and is
redeemable at the Company's option of $1.05 per share. In the event of
liquidation, the preferred stockholders receive $1.05 per share before
any distributions are made to common stockholders. The 1993 dividend
(approximately $35,400) was declared in February 1994 and paid in March
1994. The 1994 dividend (approximately $35,400) was declared in
February 1995 and paid in March 1995. The 1995 dividend (approximately
$35,400) was declared in February 1996 and paid in March 1996.
Note 11 - Investment in Twenty Services Holding, Inc.
The Company owns 6,000 shares of common stock of Twenty Services
Holding, Inc. (the Holding Company), a holding company which owns
approximately 54% of the Company's outstanding common stock. The amount
paid for the Holding Company's common stock ($60,000) has been deducted
from stockholders' equity in the accompanying balance sheet.
TWENTY SERVICES, INC., AND SUBSIDIARY
-------------------------------------
Schedule I - Marketable Securities - Other Investments
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Amount at which
each portfolio of
Number of equity security issues
shares or Market value and each other
Name of Issuer units-principal of each issue security issue
and title of amount of bonds Cost of at balance carried in the
each issue and notes each issue sheet date balance sheet
--------------- --------------- ---------- ------------- ----------------------
Equity Securities Available-for-Sale:
James River Corp. PFD 8.25%......... 10,000 $ 254,503 $ 253,750 $ 253,750
Berkley W R Corp Dep Shs
Repstg 1/6 Cum PFD Ser A
7.375%............................ 7,000 147,815 181,125 181,125
Chase Manhattan Corp. PFD
8.375%............................. 6,000 148,682 151,500 151,500
Yld 8.375%........................
Citicorp Dep Shs Repstg 1/10
PFD Ser 20 Non Cum 8.3%........... 6,000 145,818 160,500 160,500
Merrill Lynch & Co Inc 9%
Dep Shs Rep Ser A 1/400
Cum PFD........................... 2,000 50,000 58,500 58,500
Pacificorp Perp PFD Yld 7.92%....... 6,000 145,533 153,750 153,750
CitCorp 8.5% Non-Cum PFD............ 6,000 150,000 162,000 162,000
Bankers Trust 7.75% PFD............. 150,000 156,750 156,750
---------- ---------- ----------------------
Total Equity Securities-for-Sale....... 1,192,351 1,277,875 1,277,875
---------- ---------- ----------------------
Debt Securities Held-to-Maturity:
Fed Natl Mtg Assn Mtn
CPN 8.420% Due 10/20/04
DTD 10/20/94 FC 4/20/95
Call 10/20/97 @100.000............ 300,000 301,098 307,125 301,098
GNMA Mortgage
Backed Certificates, Due 2012........ 18,067 18,067 18,067
---------- ---------- ----------------------
Total Debt Securities.................. 319,165 325,192 319,165
---------- ---------- ----------------------
Totals................................. $1,511,516 $1,603,067 $1,597,040
========== ========== ======================
- --------------------------------------------------------------------------------
F-17
SIGNATURES
Pursuant to the requirements of Section 13 or l5() of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TWENTY SERVICES, INC.
By: /s/ David J. Noble
------------------------------------
David J. Noble
President
Dated: April 14, 1997
------------------------
Signature Capacity Date
- --------- -------- ----
/s/ David J. Noble Chairman and Director April 14, 1997
- ------------------------ of Twenty Services, Inc. --------------
David J. Noble (the Registrant).
(Principal Executive
Officer)
/s/ Mary C. Daniel Assistant Secretary April 14, 1997
- ------------------------ --------------
Mary C. Daniel
/s/ A.J. Strickland, III Vice-Chairman and , 1997
- ------------------------ Director of the --------------
A.J. Strickland, III Registrant
Director of the , 1997
- ------------------------ Registrant --------------
James P. Armatas
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