<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-3
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Amendment to Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _______ to _______
Commission file number 1-6736.
STARRETT CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-5411123
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
909 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 751-3100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1.00 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports); and (2) has been subject
to the filing requirements for the past 90 days. YES X NO .
--- ---
<PAGE> 2
TABLE OF CONTENTS
TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report................................................................... 19
Statements of Consolidated Financial Position at December 31, 1995 and 1994.................... 20
Statements of Consolidated Operations for the Years Ended December 31, 1995,
1994 and 1993................................................................................. 21
Statements of Consolidated Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993............................................................... 22
Statements of Consolidated Cash Flows for the Years Ended December 31, 1995,
1994 and 1993................................................................................. 23
Notes to Consolidated Financial Statements..................................................... 24-38
Financial Statement Schedule of Condensed Financial Information of Registrant at
December 31, 1995 and 1994 and for the Years Ended December 31, 1995,
1994 and 1993................................................................................. 39-40
</TABLE>
Financial Statement Schedules, other than that listed above, are omitted because
of the absence of the conditions under which they are required, or because the
information required therein is set forth in the financial statements or the
notes thereto.
18
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Starrett Corporation
New York, New York
We have audited the consolidated financial statements and the related financial
statement schedule of Starrett Corporation and consolidated subsidiaries, listed
in the foregoing table of contents. These consolidated financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its consolidated
subsidiaries at December 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
March 18, 1996
New York, New York
19
<PAGE> 4
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Cash and Cash Equivalents ................................................ $ 10,762 $ 16,816
Receivables ........................................................ 32,590 25,918
Inventory of Real Estate.................................................. 59,052 52,332
Investments in Joint Ventures............................................. 6,527 6,701
Property and Equipment-Net................................................ 3,622 3,251
Land Held for Investment.................................................. 1,734 1,997
Other Assets ............................................................. 12,058 9,252
-------- --------
Total................................................................ $126,345 $116,267
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable Within One Year:
Accounts payable........................................................ $ 11,332 $ 10,874
Current portion of long-term obligations ............................... 7,387 4,526
Accrued liabilities..................................................... 13,326 11,268
-------- --------
Total Liabilities Payable Within One Year............................ 32,045 26,668
Deferred Income Taxes .................................................... 6,377 4,565
Other Liabilities ....................................................... 1,326 1,851
Long-Term Obligations .................................................... 34,459 36,066
-------- ---------
Total................................................................ 74,207 69,150
-------- ---------
Commitments and Contingencies
Stockholders' Equity:
Common stock-par value, $1.00; authorized,
18,000 shares.......................................................... 6,566 6,566
Capital in excess of par value.......................................... 23,933 23,933
Retained earnings....................................................... 24,822 19,022
Pension liability adjustment............................................ (1,593) (814)
Shares held in treasury-at cost......................................... (1,590) (1,590)
--------- ---------
Stockholders' Equity...................................................... 52,138 47,117
-------- ---------
Total................................................................ $126,345 $ 116,267
======== =========
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 5
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues .............................. $138,332 $141,335 $122,182
-------- -------- --------
Construction Costs .................... 73,090 82,859 73,015
-------- -------- --------
Income from Construction Contracts and
Related Revenues ..................... 65,242 58,476 49,167
-------- -------- --------
Expenses:
General and Administrative ........... 28,212 25,329 23,951
Security Service Labor and Other Costs 12,232 10,909 9,438
Selling .............................. 6,050 5,853 5,725
Mortgage and Closing Costs ........... 5,920 5,419 4,039
Interest ............................. 451 660 880
Loss from Rental Operations-Net ...... 546
-------- -------- --------
Total ............................ 52,865 48,170 44,579
-------- -------- --------
Income before Income Taxes ............ 12,377 10,306 4,588
Income Taxes .......................... 5,012 4,147 2,448
-------- -------- --------
Net Income ............................ $ 7,365 $ 6,159 $ 2,140
======== ======== ========
Earnings per Common Share:
Net Income ............................ $ 1.18 $ .98 $ .34
======== ======== ========
Weighted Average Number of Shares ..... 6,261 6,261 6,356
======== ======== ========
Cash Dividends per Share .............. $ .25 $ .125 None
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
21
<PAGE> 6
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
CAPITAL IN PENSION SHARES STOCK-
COMMON EXCESS OF RETAINED LIABILITY HELD IN HOLDERS'
STOCK PAR VALUE EARNINGS ADJUSTMENT TREASURY EQUITY
------ ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992
(6,566,402 common shares
issued and 167,227 shares
in Treasury)............................... $6,566 $23,933 $11,506 $(866) $41,139
Net Income.................................. 2,140 2,140
Pension Liability
Adjustment................................. $(736) (736)
Purchase of Treasury Shares................. (724) (724)
------ ------- ------- ------- ------- -------
Balance, December 31, 1993
(6,566,402 common shares
issued and 305,427 shares
in Treasury)............................... 6,566 23,933 13,646 (736) (1,590) 41,819
Net Income.................................. 6,159 6,159
Dividends to common
stockholders ($.125 per share)............. (783) (783)
Pension Liability
Adjustment................................. (78) (78)
------ ------- ------- ------- ------- -------
Balance, December 31, 1994
(6,566,402 common shares
issued and 305,427 shares
in Treasury)............................... 6,566 23,933 19,022 (814) (1,590) 47,117
Net Income.................................. 7,365 7,365
Dividends to common
stockholders ($.25 per share).............. (1,565) (1,565)
Pension Liability
Adjustment................................. (779) (779)
------ ------- ------- ----- ------- -------
Balance, December 31, 1995
(6,566,402 common shares
issued and 305,442 shares
in Treasury)............................... $6,566 $23,933 $24,822 $(1,593) $(1,590) $52,138
====== ======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
22
<PAGE> 7
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ....................................................... $ 7,365 $ 6,159 $ 2,140
Adjustments to Reconcile Net Income to Net Cash (Used In)
Provided by Operating Activities:
Depreciation and Amortization ................................. 3,086 2,978 3,013
Deferred Income Taxes ......................................... 1,812 519 (1,087)
Equity in (Earnings) Losses in Joint Ventures ................. (4,032) (1,736) 595
Changes in Operating Assets and Liabilities:
Receivables ................................................. (6,672) (3,194) 5,088
Inventories ................................................. (6,457) 8,536 2,444
Accounts Payable ............................................ 458 (1,979) 1,290
Other Assets ................................................ (6,451) (1,702) (854)
Accrued Liabilities ......................................... 1,279 (299) 955
Deferred Revenue ............................................ (506) (409) (708)
-------- -------- --------
Net Cash (Used in) Provided by Operating Activities .............. (10,118) 8,873 12,876
-------- -------- --------
INVESTING ACTIVITIES:
Investment in Joint Ventures ..................................... (2,740) (6,466) (1,828)
Distributions from Joint Ventures ................................ 6,946 3,517 22
Purchase of Property and Equipment ............................... (1,389) (853) (1,002)
Proceeds and Payments Relating to Sale of Rental and
Property and Equipment, Net ..................................... 1,559 6 4,260
-------- -------- --------
Net Cash (Used in) Provided by Investing Activities .............. 4,376 (3,796) 1,452
-------- -------- --------
FINANCING ACTIVITIES:
Repayment of Long-Term Obligations ............................... (18,310) (16,460) (22,099)
Proceeds from Long-Term Obligations .............................. 19,563 9,523 3,769
Payment of Cash Dividend to Common Stockholders .................. (1,565) (391)
Purchase of Treasury Shares ...................................... (724)
-------- -------- --------
Net Cash Used In Financing Activities ............................ (312) (7,328) (19,054)
-------- -------- --------
Net (Decrease) in Cash and Cash Equivalents ...................... (6,054) (2,251) (4,726)
Cash and Cash Equivalents Beginning of Year ...................... 16,816 19,067 23,793
-------- -------- --------
Cash and Cash Equivalents End of Year ............................ $ 10,762 $ 16,816 $ 19,067
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE> 8
STARRETT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company:
The Company's operations consist of (i) the development,
management and ownership of real estate properties principally in the
New York City Metropolitan area; (ii) the single-family home and garden
apartment business conducted through its Levitt subsidiary in Florida
and Puerto Rico; and (iii) the supplying of construction services
through its HRH subsidiary principally in the New York City
Metropolitan area.
Principles of Consolidation:
The consolidated financial statements include the accounts of
Starrett Corporation and subsidiaries (the "Company"). Intercompany
accounts and transactions have been eliminated in the consolidated
financial statements.
Recognition of Income:
The Company follows the percentage-of-completion method of
recording revenues and related costs from construction contracts using
the cost-to-cost method and provides currently for estimated losses on
uncompleted contracts. Profits relating to sales of limited partnership
interests and development fees are recognized on the
percentage-of-completion method and full accrual method as appropriate.
Revenues from house sales and all related costs and expenses
are recognized upon passage of title to the buyer and receipt of an
adequate down payment.
Mortgage operations include loan origination and other fees
received for the processing and closing of mortgage loans. Revenues
from mortgage operations are primarily for houses constructed and sold
by the Company and are recorded when the transfer of the corresponding
mortgages to third parties has been consummated.
Revenues from cost-plus fee contracts are recognized on the
basis of costs incurred during the period plus the fee earned.
Use of 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.
24
<PAGE> 9
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure about Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the consolidated
statement of financial position of the Company, for which it is
practicable to estimate fair value. The estimated fair values of
financial instruments which are presented herein have been determined
by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of amounts the Company could realize in a current market
exchange.
The following methods and assumptions were used to estimate
fair value:
- The carrying amounts of cash and cash equivalents,
receivables, accounts payable and accrued liabilities
approximate fair value due to their short term nature.
- The carrying amounts of notes and mortgages payable
approximate fair value as the terms of the credit facilities
generally require periodic market adjustment of interest
rates.
Inventory of Real Estate:
Inventory of real estate is stated at the lower of cost or
estimated net realizable value. Cost includes direct acquisition,
development and construction costs, interest and other indirect
construction costs. Estimated net realizable value is defined as an
estimate of sales proceeds less all estimated costs of carrying,
completing and disposing of the property. Interest is capitalized at
the effective interest rates paid on borrowings for interest costs
incurred on real estate inventory components during the preconstruction
and planning stage and the periods that projects are under development.
Capitalization of interest is discontinued if development ceases at a
project.
Land and land development, are accumulated by specific area
and allocated proportionately to homes within the respective area.
Construction costs are charged to individual homesites based on
specific identification.
Land Held for Investment:
Land parcels for which the Company has no formal plans to
develop or sell are classified as land held for investment. Land
purchased for investment is carried at cost. Land parcels previously
included in inventory of real estate and reclassified to land held for
investment are carried at the lower of acquisition cost or fair value
at the time of transfer. The carrying value of land held for investment
is evaluated for other than temporary declines in value. For the years
1995, 1994 and 1993, no adjustments for other than temporary declines
were recorded.
25
<PAGE> 10
Property and Equipment:
Property and equipment are carried at cost less accumulated
depreciation and are depreciated using the straight-line method over
the estimated useful lives of the assets which range from three to five
years. Expenditures for maintenance and repairs are charged to expense
as incurred. Costs of major renewals and betterments which extend
useful lives are capitalized.
Capitalized Costs:
Interest incurred, real estate taxes, and sales costs incurred
in connection with certain properties are capitalized in order to
achieve better matching of costs with revenues. Interest incurred on
loans was $3,778,000 in 1995, $3,435,000 in 1994 and $3,893,000 in
1993, of which $3,327,000 in 1995, $2,775,000 in 1994 and $2,959,000 in
1993 was capitalized. Amortization of capitalized interest of
$3,789,000 in 1995, $4,941,000 in 1994 and $5,802,000 in 1993 was
charged to construction costs.
Costs related to predevelopment activities associated with the
Company's various development projects, such as architect and
engineering fees, legal costs, etc., are capitalized to the extent that
management believes such costs are recoverable from the estimated
earnings of the project.
Certain costs incurred that are used directly throughout the
selling period to aid in the sale of units, such as model furnishings
and decorations, sales office furnishings and facilities, exhibits,
displays and signage, are capitalized as deferred selling costs and
amortized over the number of units to be delivered. Costs incurred
during the initial and due diligence phases of a project, such as land
deposits and studies, are capitalized as preacquisition costs. The
unrecovered preacquisition costs are written off in the period the
Company ceases development of the project.
Investments in Partnerships and Joint Ventures:
Investments in partnerships and joint ventures in which the
Company does not have a controlling interest are accounted for at cost
and investments in partnerships in which the Company does have a
controlling interest are accounted for on the equity method. Under the
equity method, the Company's initial investment is recorded at cost and
is subsequently adjusted to recognize its share of the earnings or
losses. Distributions received reduce the carrying amount of the
investment.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
26
<PAGE> 11
Income Taxes:
As required by Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes", deferred taxes are provided for the
temporary differences between the tax bases of the assets and
liabilities and the amounts reported in the financial statements.
Recently Issued Accounting Pronouncement:
In March 1995, The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", (SFAS 121), which is effective January 1, 1996. This
standard specifies when assets should be reviewed for impairment, how
to determine if an asset is impaired, how to measure an impairment
loss, and what disclosures are necessary in the financial statements.
SFAS No. 121 will apply to the Company for the year ended December 31,
1996. The Company does not believe that this statement would have had a
material effect on its financial position or the results of its
operations had it been applied in 1995.
Reclassifications:
Certain prior year amounts have been reclassified in the
financial statements and segment information to conform with the 1995
presentation.
2. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ------
(Dollars in Thousands)
<S> <C> <C>
Accounts............................................. $ 18,011 $12,787
Mortgage notes....................................... 11,392 9,893
Notes................................................ 3,663 3,714
--------- --------
Total........................................... 33,066 26,394
Less allowance for doubtful
accounts............................................ 476 476
--------- ---------
Net............................................. $ 32,590 $25,918
======== =======
</TABLE>
It is expected that the receivables at December 31, 1995 as
set forth above will be realized as follows: $24,957,000 in 1996,
$2,978,000 in 1997, $37,000 in 1998, $41,000 in 1999, $46,000 in 2000
and $4,531,000 thereafter. At December 31, 1995, approximately
$1,600,000 ($1,700,000 at December 31, 1994) of these mortgage notes
receivable have been pooled into GNMA certificates, which have been
guaranteed by the United States Government. The Company has pledged
these mortgage notes as collateral to borrow funds from institutions at
interest rates lower than those earned on the mortgage notes receivable
and as collateral for GNMA matched payment serial
27
<PAGE> 12
notes (Note 8). The remaining mortgage notes receivable have been
originated by the Company under firm commitments for sale to various
third parties. The Company receives certain fees for the origination
and processing of these mortgages.
The mortgage notes receivable, which result primarily from
sales of homes in Puerto Rico, are payable in monthly installments and
earned interest at stated interest rates which ranged from 6.75% to
9.88% in 1995 and 1994.
3. INVENTORY OF REAL ESTATE
Inventory of real estate is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ------
(Dollars in Thousands)
<S> <C> <C>
Land and land development costs...................... $43,815 $41,508
Construction costs - houses.......................... 15,237 10,824
------- --------
Total............................................. $59,052 $52,332
======= =======
</TABLE>
4. INVESTMENTS IN JOINT VENTURES
The Company owns investments in joint ventures that are
engaged in homebuilding and development of residential rental
apartments. Condensed financial information is as follows:
Combined Balance Sheets
<TABLE>
<CAPTION>
1995 1994
-------- -------
(Dollars in Thousands)
<S> <C> <C>
Combined Assets
Current Assets ...................................... $ 4,104 $ 1,247
Inventory of real estate ............................ 32,815 29,281
Other assets ........................................ 1,590 1,574
------- -------
$38,509 $32,102
======= =======
Combined Liabilities and Partner's Capital
Current liabilities ................................ $ 2,709 $ 2,607
Customer deposits on house sales ................... 4,794 3,097
Mortgage notes payable ............................. 20,593 19,070
Partners' capital accounts ......................... 10,413 7,328
------- -------
$38,509 $32,102
======= =======
</TABLE>
During 1995 and 1994, in accordance with the partnership
agreements, the Company made capital contributions to the joint
ventures in excess of its proportionate ownership interests. The
Partnership agreements provide for the Company to receive preferential
income and cash distributions until the Company's invested capital is
proportionate to its ownership interests.
28
<PAGE> 13
Combined Statements of Operations
<TABLE>
<CAPTION>
1995 1994
-------- -------
(Dollars in Thousands)
<S> <C> <C>
Revenues
House sales ......................................... $51,748
Sale of rental apartment property 15,205 $14,650
Other Income ........................................ 1,153 425
------- -------
68,106 15,075
Cost and Expenses
Cost of house sales ................................. 42,871
Cost of sale of rental apartment
property ............................................ 12,570 10,822
Other expenses ...................................... 5,048 808
------- -------
60,489 11,630
------- -------
Net Income ........................................... $ 7,617 $ 3,445
======= =======
</TABLE>
The Company's equity in earnings of joint ventures is included in
Revenues in the Statements of Consolidated Operations.
During 1994, the Company's homebuilding joint ventures acquired land,
commenced land development and home construction activity. Through December 31,
1994, no homes were delivered and, accordingly, no revenues from house sales
were recognized.
In addition, the Company had an ownership interest in a joint venture
that owns a self-storage warehouse in New York. The joint venture had $8,943,000
and $9,138,000 in assets with $8,183,000 and $8,627,000 in liabilities at
December 31, 1995 and 1994, respectively. The Company sold the warehouse on
March 15, 1996. The loss on sale of the warehouse is included in the Statement
of Operations for the year ended December 31, 1995.
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ------
(Dollars in Thousands)
<S> <C> <C>
Machinery and equipment............................. $2,103 1,905
Furniture, fixtures and leasehold
improvements........................................ 9,347 8,586
------- -------
Total........................................... 11,450 10,491
Less accumulated depreciation....................... 7,828 7,240
------- -------
Net............................................. $3,622 $3,251
====== ======
</TABLE>
29
<PAGE> 14
6. OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(Dollars in Thousands)
<S> <C> <C>
Investments in and advances to
partnerships ........................... $ 52 $ 1,287
Prepaid development costs .............. 4,938 2,704
Deferred selling costs ................. 1,738 2,208
Preacquisition costs ................... 1,751 407
Other .................................. 3,579 2,646
------- -------
Total ............................... $12,058 $ 9,252
======= =======
</TABLE>
On December 14, 1995, a limited partnership in which the
Company is a general partner owning a HUD financed housing project on
the upper West Side of Manhattan refinanced the project. At the
closing, the Company received approximately $3,000,000 most of which
represents fees, with the remainder attributable to repayment of sums
owed, return of capital, and partnership distributive share of
refinancing proceeds.
7. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated
federal income tax return. The provision for income taxes consists of
the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
(Dollars in Thousands)
<S> <C> <C> <C>
Federal taxes:
Current ............... $ 108
Deferred .............. 2,272 $ 161 $(1,302)
State and foreign taxes:
Current ............... 2,568 3,628 3,535
Deferred .............. 64 358 215
------- ------- -------
Total ............... $ 5,012 $ 4,147 $ 2,448
======= ======= =======
</TABLE>
At December 31, 1995 the Company had a net tax operating loss
carryforward, which can be utilized against future taxable income, of
approximately $8,937,000 expiring in 2005 through 2009. There is no net
operating loss carryforward for financial statement reporting purposes.
Cash payments for income taxes during the years ended December
31, 1995, 1994 and 1993 were $2,630,000, $5,195,000 and $2,251,000,
respectively.
30
<PAGE> 15
The effective tax rate was different from the statutory
Federal tax rate for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory Federal tax rate ....... 34.0% 34.0% 34.0%
Increase in taxes resulting
from state and foreign taxes,
net of Federal tax benefit....... 6.5 6.2 19.3
------ ------ ------
Effective tax rate ............... 40.5% 40.2% 53.3%
====== ====== ======
</TABLE>
Deferred income taxes result from temporary differences in the
recognition of revenue and expense for tax and financial reporting
purposes. The tax effect of each type of temporary difference that gave
rise to the Company's net deferred tax liability is as follows:
<TABLE>
<CAPTION>
December 31 December 31
1995 1994
------- ------
Asset (Liability)
(In Thousands)
<S> <C> <C>
Investments in and sales of limited
partnership interests ............ $(11,576) $(10,043)
Net tax operating loss carryforward 3,107 5,337
Capitalized interest and overhead . (838) (802)
Alternative minimum tax and other
miscellaneous Federal tax credits 2,712 2,558
Deferred selling costs ............ (831) (1,063)
Pension liability adjustment ...... 1,073 548
Other ............................. (24) (1,100)
-------- --------
Net deferred income tax liability . $ (6,377) $ (4,565)
======== ========
</TABLE>
Total deferred tax assets and liabilities were $10,288,000 and
$16,665,000, respectively, at December 31, 1995 and $11,942,000 and
$16,507,000, respectively, at December 31, 1994. No valuation allowance
was required for deferred tax assets.
31
<PAGE> 16
8. DEBT
Notes, mortgages payable and long-term obligations are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- ------
(Dollars in Thousands)
<S> <C> <C>
Subordinated promissory notes, at a
rate of 15% per annum, payable 1996
through 1997 (A) ............................ $ 2,934 $ 4,400
Note payable under credit facility
agreement, 1.3/4% over LIBOR (interest rate
of 7.5% at December 31, 1995) (B) ........... 14,400 16,400
Notes payable under credit facility
agreement, interest rate that approximates
1% under prime, (interest rate of 7.67% at
December 31, 1995)(C) ....................... 10,000 14,550
GNMA matched payments serial notes
at rates between 9% and 10% with
remaining maturities up to 20
years (D) ................................... 1,571 1,732
Mortgage notes payable, interest rate of 1%
over prime (interest rate of 9.5% at
December 31, 1995) (E) ...................... 6,000
Mortgage notes payable, interest rate of 1%
over prime (interest rate of 9.5% at
December 31, 1995) (F) ...................... 3,516 2,212
Note payable under credit facility agreement,
interest rate that approximates 1% under
prime (interest rate of 7.67% at
December 31, 1995) (G) ...................... 2,500
Other mortgage notes payable at interest rates
between 6.75% and 9.5% due in installments
through April, 1997 ......................... 925 1,298
------- -------
Total ..................................... $41,846 $40,592
======= =======
Classified in statements of consolidated
financial position as:
Current portion of long-term
obligations ................................ $ 7,387 $ 4,526
Long-term obligations ....................... 34,459 36,066
------- -------
Total ..................................... $41,846 $40,592
======= =======
</TABLE>
(A) On December 31, 1990, the Company redeemed all of its $5.81
cumulative convertible preferred stock and issued to the preferred
shareholders six equal subordinated promissory notes in the aggregate
principal amount of $8,800,000, maturing 1992 through 1997. The notes
bear simple interest at the rate
32
<PAGE> 17
of 15% per annum. In January 1996 the fifth promissory note in the
amount of $1,466,667 was paid.
(B) In January 1996, a subsidiary of the Company repaid this note from
proceeds of a $10,000,000 unsecured term note and from working capital.
The unsecured term note requires semi-annual principal payments of
$1,000,000 and $1,500,000 in July and January, respectively, through
January 2000. The term note credit agreement requires the Company to
maintain certain financial covenants during the term of the loan.
(C) In March 1996 the Company renewed its unsecured revolving credit
agreement through March 31, 1997 to finance its Puerto Rico
homebuilding operations. The credit agreement provides for available
loans up to $15,000,000. The credit agreement requires the Company's
Puerto Rico subsidiary to maintain certain financial covenants during
the term of the agreement. As of December 31, 1995 and 1994,
$10,000,000 and $13,000,000 respectively, were outstanding under this
facility.
In June 1994, the previous credit agreement was
amended to provide for an additional short-term $7,000,000 secured
facility. This facility was secured by certain developed and
undeveloped lots. The Company has drawn and repaid $5,000,000 under
this facility through December 31, 1995. As of December 31, 1994,
$1,550,000 was outstanding under this facility. The facility expires in
March 1996.
(D) On December 31, 1995, the Company had loans totaling $1,600,000
(secured by a pledge of GNMA certificates in the same amount) through
the issuance of long-term debentures by a subsidiary of a non-profit
community development corporation in Puerto Rico. Both the short-term
loans and debentures, which are secured by mortgage notes receivable
pooled into GNMA certificates, bear interest at rates lower than the
interest rates on such mortgage receivables.
(E) During 1995, the Company entered into a loan agreement to provide
financing for the acquisition and site improvement of property and
financing for construction of residential units. The loan agreement
provides for advances on a revolving loan basis up to a maximum
outstanding balance of $11,250,000 and is secured by a mortgage on the
property including all improvements. Principal payments are required as
homes are delivered. The loan matures in September 1998.
(F) During 1994, the Company entered into a loan agreement to provide
financing for the acquisition and site improvement of property and
financing for construction of residential units. The loan agreement
provides for advances on a revolving loan basis up to a maximum
outstanding balance of $6,300,000 and is secured by a mortgage on the
property including all improvements. Principal payments are required as
homes are delivered. The loan matures in April 1998.
(G) During 1995, the Company entered into a credit agreement to provide
an unsecured revolving line of credit of $3,000,000 to finance its
Puerto Rico mortgage operations. The credit agreement requires the
Company's Puerto Rico subsidiary to maintain certain financial ratios
and provides other restrictions. The loan matures in October 1997.
Notes and mortgages payable were collateralized by
real estate and mortgage notes receivable with net carrying values
aggregating $33,851,000 and $23,240,000 at December 31, 1995 and 1994,
respectively.
33
<PAGE> 18
Certain of the debt instruments associated with joint
ventures require guarantees of the related indebtedness by the Company.
At December 31, 1995 and 1994, the Company's guarantees on outstanding
joint venture indebtedness were $2,405,000 and $300,000, respectively.
Debt obligations are scheduled to mature as follows:
$7,387,000 in 1996, $16,942,000 in 1997, $12,057,000 in 1998,
$2,546,000 in 1999, $1,550,000 in 2000 and $1,364,000 thereafter.
Certain mortgage notes contain provisions for reducing the principal as
individual homes are sold by the Company.
Interest paid for the years ended December 31, 1995,
1994 and 1993 was $3,722,000, $3,402,000 and $4,321,000, respectively.
The weighted average interest rate on the Company's debt was 9.22% and
7.93% for the years ended December 31, 1995 and 1994, respectively.
As of December 31, 1995, the Company had outstanding
letters of credit totalling approximately $140,000 on which there are
service charges ranging from 0.5% to 1% on the outstanding balances.
The Company in the normal course of business obtains payment and
performance bonds and financial security bonds in connection with its
construction and development activities.
9. PENSION PLAN
The Company and certain of its subsidiaries have a
noncontributory defined benefit pension plan (the "Plan") covering
employees not represented by a union. The benefits are based on years
of service and the employees' compensation over the last five years.
Effective July 31, 1992, the Board of Directors
amended the Plan to freeze accrued benefits for all participants. The
Company will continue to fund the Plan as required, including any
interest at the assumed average rate of return on Plan assets.
As of December 31, 1995, the Plan held equity
securities, fixed income securities, life insurance policies and
short-term investments. Assumed average future rate of return on Plan
assets was 8.75% for the years ended December 31, 1995 and 1994,
respectively, and the projected benefit obligation was based on 7.25%
and 8.75% assumed discount rates at December 31, 1995 and 1994,
respectively.
The net periodic pension benefit was $2,000 for the
year ended December 31, 1993. The components of net periodic pension
cost for the years ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Cost component: 1995 1994
--------- -------
<S> <C> <C>
Interest cost ............... $ 548,000 $ 601,000
Actual return on plan assets (714,000) 124,000
Net amortization and deferral 270,000 (584,000)
--------- ---------
Net periodic pension cost ... $ 104,000 $ 141,000
========= =========
</TABLE>
34
<PAGE> 19
The following table sets forth the Plan's funded
status as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- -------
<S> <C> <C>
Actuarial present value accumulated
benefit obligation:
Vested ............................ $ 8,204,000 $ 6,376,000
Nonvested ......................... 16,000 46,000
----------- -----------
Total .......................... $ 8,220,000 $ 6,422,000
=========== ===========
Projected benefit obligation for service
rendered to date .......................... $ 8,220,000 $ 6,422,000
Plan assets at fair value .................. 6,197,000 5,250,000
----------- -----------
Projected benefit obligation in excess
of plan assets ............................ 2,023,000 1,172,000
Unrecognized net loss ...................... (2,833,000) (1,573,000)
Unrecognized net asset at date of transition 167,000 211,000
Additional minimum liability ............... 2,666,000 1,362,000
----------- -----------
Accrued pension cost ....................... $ 2,023,000 $ 1,172,000
=========== ===========
</TABLE>
In accordance with Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," an additional
minimum pension liability, representing the excess of accumulated
benefits over plan assets and accrued pension costs, was recognized at
December 31, 1995 and 1994. A corresponding amount, net of income tax
benefit of $548,000 and $525,000 was recorded as a separate reduction
to stockholders' equity in 1995 and 1994, respectively.
The significant increase in accrued pension cost is
directly attributable to the use of a lower discount rate in
calculating the projected benefit obligation due to the dramatic drop
in interest rates during 1995.
The Plan made significant lump sum distributions
during 1994 resulting in a settlement of the Plan as defined by
Statement of Financial Accounting Standards No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination of Benefits". As a result, the Company
recorded an additional expense of $451,000 for the year ended December
31, 1994.
The Company does not provide postretirement or
postemployment benefits other than pensions to employees. Therefore,
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" have no impact on the
Company's financial statements.
10. SEGMENT INFORMATION
35
<PAGE> 20
The Company's operations consist of (i) the
development, management and ownership of real estate properties; (ii)
the single-family home and garden apartment business conducted through
its Levitt subsidiary; and (iii) the supplying of construction services
through its HRH subsidiary. The Company groups its business into these
three segments. The following table sets forth the Company's revenues
and operating profit attributable to the respective segments of its
operations for each of the years 1993 through 1995, and the
identifiable assets attributable to the respective segments as at the
end of each of those years:
<TABLE>
<CAPTION>
DEVELOPMENT HRH
MANAGEMENT AND LEVITT CONSTRUCTION
OWNERSHIP CORPORATION CORPORATION CONSOLIDATED
-------------- ----------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1995
Revenues .................... $ 26,647 $102,768 $ 8,917 $138,332
======== ======== ======== ========
Operating profit (1) ........ $ 1,533 $ 10,823 $ 3,241 $ 15,597
======== ======== ======== ========
General corporate expenses... 3,220
--------
Income from operations
before income taxes ........ $ 12,377
========
Identifiable assets ......... $ 17,373 $ 95,631 $ 13,341 $126,345
======== ======== ======== ========
1994
Revenues .................... $ 25,635 $111,422 $ 4,278 $141,335
======== ======== ======== ========
Operating profit (1) ........ $ 2,575 $ 10,085 $ 309 $ 12,969
======== ======== ======== ========
General corporate expenses... 2,663
--------
Income from operations
before income taxes ........ $ 10,306
========
Identifiable assets ......... $ 20,539 $ 85,423 $ 10,305 $116,267
======== ======== ======== ========
1993
Revenues .................... $ 24,504 $ 93,678 $ 4,000 $122,182
======== ======== ======== ========
Operating profit (loss) (1).. $ 2,600 $ 4,257 $ (372) $ 6,485
======== ======== ======== ========
General corporate expenses... 1,897
--------
Income from operations
before income taxes ........ $ 4,588
========
Identifiable assets ......... $ 25,797 $ 86,300 $ 8,187 $120,284
======== ======== ======== ========
</TABLE>
(1) Operating profit is comprised of revenues less operating expenses. In
computing operating profit, general corporate expenses and income
taxes have not been deducted.
36
<PAGE> 21
(2) There were no customers from which the Company derived more than 10% of
its revenues in 1995, 1994 or 1993.
11. COMMITMENTS AND CONTINGENCIES
Roosevelt Island Associates ("RIA"), a partnership in
which a Company subsidiary is one of several partners, has provided
guaranteed payments to the investor partner. The Company's share of
such guarantees is approximately $100,000 each year until 2005, which
will be paid by the Company if project cash flow is insufficient to
cover these amounts. In connection with this project, the Company also
provided cash flow guarantees from which it will be released if the
project achieves a certain cash flow level over a specified period of
time. The Company believes it has adequately provided for any future
obligations under this guarantee.
The Company's Levitt subsidiary provides for
estimated warranty costs when homes are sold and continuously monitors
its warranty exposure and service program.
Rent expense for the years ended December 31, 1995,
1994 and 1993 was $1,336,000, $1,133,000 and $1,004,000, respectively.
At December 31, 1995 the Company and its subsidiaries are committed
under long-term leases expiring at various dates through 2000. The
minimum rentals are $1,280,000 in 1996, $637,000 in 1997, $557,000 in
1998, $401,000 in 1999, and $210,000 in 2000, or an aggregate of
$3,085,000.
The Company is involved in litigation and claims
incident to the normal conduct of its business. Management believes
that such litigation and claims will not have a materially adverse
effect on the Company's consolidated financial position or results of
operations.
37
<PAGE> 22
12. QUARTERLY FINANCIAL DATA (Unaudited)
The quarterly financial data are set forth below
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1995 1995 1995 Annual
March 31 June 30 Sept. 30 Dec. 31 Amount
--------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 30,281 $ 23,401 $ 32,805 $ 51,845 $138,332
Income from construction contracts
and related revenues.............. 13,379 13,356 15,751 22,756 65,242
Income before income
taxes ............................ 1,735 1,955 3,017 5,670 12,377
Net income ........................ 989 1,114 1,796 3,466 7,365
Earnings per common and
common equivalent share - Net
income ........................... $ .16 $ .18 $ .28 $ .56 $ 1.18
</TABLE>
<TABLE>
<CAPTION>
1994 1994 1994 1994 Annual
March 31 June 30 Sept. 30 Dec. 31 Amount
--------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 27,395 $ 28,042 $ 32,868 $ 53,030 $141,335
Income from construction contracts
and related revenues.............. 11,980 13,436 14,382 18,678 58,476
Income before income
taxes ............................ 1,300 1,906 2,481 4,619 10,306
Net income ........................ 695 1,031 1,488 2,945 6,159
Earnings per common and
common equivalent share - Net
income ........................... $ .11 $ .17 $ .23 $ .47 $ .98
</TABLE>
Certain quarterly amounts have been reclassified to
conform with the annual presentation.
38
<PAGE> 23
SCHEDULE III
STARRETT CORPORATION
(Parent Company Only)
CONDENSED STATEMENTS OF FINANCIAL POSITION
December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Assets:
Cash and cash equivalents ......... $ 2,162 $ 6,137
Investments in subsidiaries, at
equity in underlying net assets .. 84,800 77,592
Other assets ...................... 8,689 8,097
------- -------
TOTAL ...................... $95,651 $91,826
======= =======
Liabilities and Stockholders' Equity:
Liabilities payable within one year... $ 3,682 $ 6,403
Advances from subsidiaries ........... 31,539 30,276
Deferred income taxes ................ 5,499 3,246
Other liabilities .................... 1,326 1,851
Long-term obligations ................ 1,467 2,933
Stockholders' equity ................. 52,138 47,117
------- -------
TOTAL ........................ $95,651 $91,826
======= =======
</TABLE>
STARRETT CORPORATION
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Revenues ............................. $ 1,053 $ 1,046 $ 2,035
General and administrative expenses... (3,220) (2,663) (1,897)
Other costs .......................... (899) (33) (104)
Interest ............................. (451) (660) (880)
Income taxes ......................... 1,455 1,111 132
------- ------- -------
Loss before equity in earnings
of subsidiaries ..................... (2,062) (1,199) (714)
Equity in earnings of subsidiaries.... 9,427 7,358 2,854
------- ------- -------
Net Income ................. $ 7,365 $ 6,159 $ 2,140
======= ======= =======
</TABLE>
39
<PAGE> 24
SCHEDULE III
STARRETT CORPORATION
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ................................. $ 7,365 $ 6,159 $ 2,140
Adjustments to Reconcile Net Income to
Net Cash (Used In) Provided by
Operating Activities:
Changes not affecting cash ................ (8,340) (7,488) (2,484)
Changes in Operating Assets and Liabilities:
Liabilities payable within one year ....... (2,333) 228 (995)
Advances from subsidiaries ................ 1,263 (1,242) 2,176
Other assets .............................. (592) 106 314
Other liabilities ......................... (525) (1,089) (709)
-------- -------- --------
Net Cash (Used In) Provided by
Operating Activities ...................... (3,162) (3,326) 442
-------- -------- --------
FINANCING ACTIVITIES:
Payment of Promissory Notes ................ (1,466) (1,467) (5,846)
Payment of Cash Dividend to Common
Stockholders .............................. (1,565) (391)
Distributions from subsidiaries ............ 2,218 540
Purchase of Treasury Stock ................. (724)
-------- -------- --------
Net Cash used in Financing Activities ...... (813) (1,858) (6,030)
-------- -------- --------
Net (Decrease) in Cash and
Cash Equivalents .......................... (3,975) (5,184) (5,588)
Cash and Cash Equivalents
Beginning of Year .......................... 6,137 11,321 16,909
-------- -------- --------
Cash and Cash Equivalents End of Year ...... $ 2,162 $ 6,137 $ 11,321
======== ======== ========
</TABLE>
40
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned,thereunto duly authorized.
STARRETT CORPORATION
By /s/ Lewis A. Weinfeld
----------------------------------------
Lewis A. Weinfeld, Executive Vice
President, Chief Financial Officer and
Secretary
November 27, 1996
----------------------------------------
Date
