Reduction in Tax Rate Permits Scan-Tron to Post Record Net for Year

Although its pretax earnings declined almost 8.5%, Scan-Tron Corp. was able to report record net earnings of $3.4 million for its fiscal 1987 because of a reduced federal income tax rate. Net income was up 21% from the company’s fiscal 1986 earnings of $2.8 million.

Sales for the year totaled $28.6 million, up 11% from $25.7 million in Scan-Tron’s fiscal 1986.

For the fourth quarter, the Tustin-based maker of test-scoring equipment and data-entry terminals reported a 15% drop in pretax earnings but posted net earnings of $1.5 million, up 36% from the year-earlier $1.1 million. Sales for the final three months were $8.9 million, up 15% from $7.8 million.

Financial figures for Scan-Tron’s fiscal 1986 have been re-stated to reflect a 5-for-4 stock split distributed Sept. 30.

Stephen Kroll, Scan-Tron’s vice president for finance, said the annual and quarterly increases in net earnings occurred largely because Scan-Tron is not required to pay federal taxes on income from its Puerto Rican subsidiary, Scantron Caribe, or the Swiss company Datascan, in which it acquired a 50% interest at the beginning of its 1987 fiscal year.

Before taxes, Scan-Tron reported fiscal 1987 earnings of $4.6 million, compared with $5 million the previous year. Fourth-quarter pretax earnings were $1.7 million, down from $2 million a year earlier.

The tax break on its foreign income enabled Scan-Tron to lower its federal income taxes by $1 million for the year, including $654,000 in the fourth quarter.

Kroll said the full-year and fourth quarter drops in pretax earnings occurred because of increased interest expense and the cost of marketing and product-development programs at Scan-Tron and its Datascan affiliate. In addition, he said, Scan-Tron’s gross earnings were affected by the costs of relocating the company’s corporate headquarters to Orange County early last year.