Document jyZw60g3Kww1r3zYvyaVXm2QN

SCM Corporation Annual Report 1973 :......................................................... \ .1 \ \ ; ti \ Contents to S-aieholders Ccit.ngsand Resins Typewr-ters and Appliances funds fullness f quipment Oemicals F'.iper Products 0*>trr Products operating Businesses f inanciai Review h r mandat Statements L Ten Year Statistical Summary f: Corporate Data 1 tie pictures m our annual report are ttve 'irst extensive use for graphic art purposes of a now technique, density 3 slicing and.c.utor coding Here's how rl works 7 A standard^..ack and white photograph, 11 the typewriter segment that appears on the cover. for example, is placed under 17 a television scanning camera which exam nosea. h minute part o! the photo ?\ and determines !. density (light or darkness) 1 Os data .;> `cd through an ?A anaiy/er that can cor vert each density into hundred:, of c. iters The result is a ?B picture where subtle shades of gray can tie converted to highly contrasting reds. 3? titles, greens and yellows 33 34 36 M A? 44 Gl D 3 0 V V 6 SCM Corporation is a diversified manufacturing company. While technical leadership is the key to success in many of our business es, skilled marketing is crucial in many others. Our 1973 sales of S980 million were divided among three broad segments of the economy: industrial, consumer and office products. Industrial products (coatings, industrial and institu tional foods, pigments and colors, metal powders, chemi cals. pulpand paperand industrial processing equipment) accounted for approximately 44 percent of the total, or $437 million. Consumer products (paints, typewriters and applij ances and foods) accounted for ; an additional 39 per cent of the I total or $379 million. Office products {copiers, calculators, business forms and telecom munications equipment) provided the balance of 17 percent or$164 million. ' f Twenty-one SCM business units serve customers in these three broad market areas. They range in size from Coat ings and Resins, the largest, to Walton Printing, the smallest self-contained business unit > in terms of sales. I ^or purposes of this report, * we have grouped our 21 . separate operating units into i six major lines of business. The ! sales, operating income and average assets for these ; seven groups over the past five years are reported on page 5, and the year's results are reviewed in detail in the following pages. fhisannual report is for 7,700 SCM shareholde 9.400 employees and t thousands of distributor, aealers around the work Financial Highlights (In thousands, except per share figures) Years ended June 30,1973 Net sales Income before income taxes United States and foreign income taxes Income before extraordinary loss Extraordinary loss Net income Earnings per share: Income before extraordinary loss Extraordinary loss Net income Fully diluted net income Additions to property, plant and equipment Depreciation Cash dividend per share (All dollars in thousands) $980,281 31,285 12,986 18,299 -- 18,299 At year end 2.00 ~ 2.00 1.91 39,966 27,210 .10 Working capital Properly, plant and equipment, net Long-term debt Shareholders' equity Number of shareholders Number of employees $229,941 187,362 149,439 242,314 47,700 29,400 1972 $917,817 17,591 7,264 10,327 10,176 151 1.13 1.11 .02 .02 25,228 23,769 -- $224,297 176,838 162,024 224,873 49.600 28,300 GLD30779 To the Shareholders In the year ended June 30,1973 we con tinued the improvement in earnings that began in fiscal 1971, Net income for 1973 increased 77 per cent to $18.3 million, or S2.00 per share, from income before extraordinary charges of $10.3 million, or SI .13 per share in fiscal 1972. Sales in 1973 increased 6.8 per cent to S980.3 million, from $917.8 million in 1972. We have now had ten successive yearto-year quarters of earnings improve ment and net income for 1973 was the nighest since 1969. Cashflow continued high and we kept tight control over working capital. In short. SCM has been restored to an acceptable level of profit ability. Improvement m both our net income and cash position made it possible for us to resume a cash dividend. On June 21. 1973 the Board of Directors declared a 10 cent per share quarterly dividend, the first dividend on our common stock since June 1970. The Economy: improvements of the past year were accomplished in an economic ciimate that was good for business. During the year, the economic expansion that began in 1971 continued and broadened on a world-wide basis. Markets in the industrial sector strength ened and operating rates improved as surplus capacity installed in the mid1960's began to be used up. 2 GLD30780 Consumer markets were strong during the year, influenced by high disposable income levels and high consumer con fidence. Studies indicated a rapid falling off m consumer buying plans toward the close of our fiscal year. As a result, most consumer goods sold well during the year but some were not so strong toward year end. Operating Highlights: The operations review section of this report discusses SCM operations in six major business categories: coatings and resins, type writers and appliances, foods, business equipment, chemicalsand paper products. Coatings and resins and typewriters and appliances provided the largest part of the company's profits. These profits are expected to increase but other opera tions will provide a greater share of total profits m the future. Allied Paper experienced the strong demand typical of the paper industry last year and had record sales and profits m all segments of its business. Ourchemicals business showed consid erable improvement over last year, with all operations now in the black. Our food operations also improved substantially. Those food products sold to consumers and to the away-fromhome eating market had a good year; our processing and sale of edible vegetable oil for industrial customers was also much improved. Assuming we can successfully cope with the Phase IV economic controls over food prices, we look for further improvement in fiscal 1974. Only the business equipment line had a less than successful year. While losses in calculators were much reduced from a year ago, supplier shortages and con tinuing downward pressure on calculator prices have kept us from operating profrtably. The loss in copior products was worse in 1973, although international copier operations continued profitable. The upgrading of copiers now in the field and heavy expenditure for development of plainpaoercopiers represent investments that wifi be major sources of future revenues. Detailed discussions of each of these businesses are contained in the review of operations. Outlook: We have now. at least to a modest degree, achieved our first cor porate priority--to pay a cash dividend. One of the principal objectives of any company is to increase profits. Over the next several years our primary means of accomplishing this will be by improving profit margins. Profit margins increased from 1.1 per cent in 1972to 1.9 per cent in 1973. This is a good improvement but not enough. One source of improved margins in the recent past has been disposal or radical alteration of several of our low margin businesses. This process is now about over. We will continue to examine and re examine our various businesses to determine the areas v/ith the greatest possibility of higher margins, rapid growth and a good market share. Our search is for market segments growing faster than others. Where we have the capabilities to do v/ell in such segments, we will concentrate our activities. Acquisitions have been an important strategy for SCM but one that will be supplementary in the future. Our policy is to fit relatively small acquisitions to the strategic objectives of our present businesses. We do not contemplate making the sizeable acquisitions that characterized our company in the late 1960's. International markets are another area where we see good growth potential. In 1973. lOpercentofourrevenuescame from outside the United States and Canada. This is still a relatively modest amount, but it is the highest we have ever attained. We are encouraged by the fact that growth opportunities for sev eral of our businesses are better overseas than they are in the United States. GL 0307 81 Over the next several years our primary source of profit growth and improved margins will be internally generated. To this end we are stepping up market ing expenditures and manufacturing capacity in areas where our present products are we)) established, and we are especiallyjncreasing research and development funds for new products, last year we spent $16.6 million on research and development. This amount, as a percentage of sales, and the resulting flow of new products were, by design, at record levels, and this emphasis will continue. Like most large companies, we are diverse. Ours is a well-balanced diversity and, properly looked at, represents a portfolio of opportunity that we expect to maximize for steadily improving results in the years immediately ahead. Paul H. Elicker, President 4 The table on the opposite page contains the sales, operating income and average assets of each of our major lines of busmess for trie past five years, show ing the contribution each has made during this period to overall sales and profits. The increases in revenues and average assets for Coatings and Resins are due in targe part to the acquisition of a paint company in Brazil. Paper products and chemicals both enjoyed a strong year in 1973, as each almost doubled the previous year's operating income. Last year interdivision sales made by the chemicals group were eliminated against the group's total sales. This year inter division sales are included in group totals and eliminated against the total sales forafl groups. Foods also improved sharply to a small profit m 1973 from its red figure of 1972. (Sec the Note to financial state ment, inventories." cage 41.) Sales, operating income and assets of typewriters sold outside the United States were previously included with the Business Equipment group in line with how we are organized. Because of the increasing size and importance of this business, it is now shown as a 1 ypewriters and Appliances product. In the following pages each of the major product group.ngs is reported on sepa rately. The tables at the beginning of each, section also snow the return on sales and the return on average assets. GL030782 Net Sates, Operating Income and Average Assets by Product Group (In millions) Years ended June 30 1973 1972 Net Sales Coatings and Resins Typewriters and Appliances Foods Business Equipment Chemicals Paper Products Other Products Eliminations Total Operating Income Coatings and Resins Typewriters and Appliances Foods Business Equipment Chemicals Paper Products Other Products Total Average Assets Coatings and Resins Typewriters and Appliances Foods Business Equipment Chemicals Paper Products Other Products Total $259.1 182.7 215.5 106.0 103.6 102.5 24.8 994.2 (13.9) S980.3 18.3 16.5 .2 (4-2) 5.5 7.8 ( .2) $43.9 144.4 107.0 97.0 52.6 78.9 39.2 14.8 $533.9 $229.2 181.8 211.4 110.4 84.6 86.1 26.5 930.0 (12.2) S917.8 17.2 12.1 (2.9) (3.3) 3.1 4.2 .4 $30.8 121.6 104.8 100.3 74.8 73.0 36.2 18.3 $529.0 1971 $207.8 169.0 205.0 112.3 76.1 86.1 29.1 885.4 (10.3) $875.1 13.8 8.2 5.8 0.9) 3.6 3.6 (2.2) $28.9 116.0 118.8 92.4 91.7 73.0 49.6 19.0 $560.5 1970 $198.5 172.2 183.8 113.5 77.0 88.5 30.8 864.3 (9.8) $854.5 9.1 7.9 8.6 (4.1) 6.4 3.2 (9.1) S22.0 109.7 123.0 76.0 94.7 68.6 53.8 25,4 $551.2 1969 $175.8 167.5 169.6 117.4 75.2 77.5 33.5 816.5 (8.9) $807.6 13 7 14 5 8.3 3.8 94 19 (1-3) . $50.3 95 2 111 0 67.5 93 4 57 1 47 7 25.2 $497.1 5 GL030783 3^ GL f)?>0784 Coatings and Resins (In millions) Net sales Operating income ftchiin on net sales Average assets f Jet urn cm average assets 1973 3769 1 $ 18.3 7.1% 8144. A 1? 7% 197? 3??9.? S 17.? 7.5% 61 ? 1.6 14.1% 1971 390/.8 3 13.8 0.0% SU6.0 11.9% 1970 3193.6 3 9.1 4.6% 3109.7 8.3% 19C9 3176.8 3 13.7 7.8% 3 96.? 14.4% I Glidden Coatings arid Ftesins is SCWs largest business. 1 he grout' produced 41.7 per cent of SOM's overall operating profit on P7.0 per cent of the company's average assets during the year. Com parable figures for 197? were 99.8 per cent of the operating profit on ?3.0 per cent of the average assets. Paints: Glidden is one of a few large point companies in an industry that, after years of consolidation, still has 1 600 or so members. Industry ealos consist of trade or consumer sales to painters, painting conductors and the do-ii-yomself home painter and sales of spcciali7od coatings and resins for industrial uses. Glidden is a major factor in both fields but is somewhat larger in Irado than in industrial sales. Coatings and resins bad record sales arid profits last year. Operating income increased 6.4 percent on a 13.0 percent increase in sales. Etoth trade end indus trial sales showed good gains, reflecting the continued strong economy in which we operated last year, although unfavor able weather, including the bad floods over a year ago.had an impact on track: sales, Glidden has 18 plants in the U.S and Canada Under construction is a new paint plant that is scheduled to begin turning out trade products this; year. Research for ail coatings takes place at Gliddcn's research center at Strongs ville, Otiio 1 his facility is outside Cleveland, headquarters for Glidden. Automotive finishes arc one of Gliddcn's major industrial products, Research and development feu this arid other products is canied out at Gliddcn's research center at Strongsville, near Cleveland. Pad ol the work of developing automotive finishes involves spraying samp'oa of paint on metal strips (left). 1 hose strips are then tested to determine how trie finish stands up to sun, water, abrasion arid other detrimental influences Gl 03 07 6b l?a&s Sates: Gl/dden "Spred ", our principal line of consumer paints, is a well known, established brand. Effective distribution is at the heart of our trade sales paint business. We have an extensive network of retail outlets including more than I3,000deaiers, 14? company - operated retail stores and 144 leased departments in large stores located primarily in suburban shopping centers. In addition, trade sales paints are manufactured for sale under private labels. Glidden. the fourth of six largo oamt manufacturers in the U $ . is an 'mportam supplier for the do-it-yourself home painter. 7 he growth of this market has been helped by water-thinned :ate> paints, originally developed by Gi dden. Because these paints are quick-drying, odor-free, arid aliow easy clean-up after application, they have been popular with the painter who wants to do a smcilc room or an entire home. 7 hose pa.nts are also widely used by painting cont'astors. Industrial Sales: Industrial coatings are sold in a large number of segmented markets, since most products are tailored to the specific needs of a customer. Major product lines include finishes for the automotive, appliance, steel container wood and general metal industries. Because ofthe wide variety of products for numerous industries, no single company is dominant in more than one ortwoindustrial products, Glidden has particular strength in electrocoating {a process of applying a positively charged coating to a negatively charged object); can coatings (including the clear finish applied to the inside of cans Our Puerto Rico operation markets coatings manufactured in the U.S. to prevent food products from coming in contact with the metal container,as well as a variety of exterior finishes); coil coatings (materials for coating rolls of Subsidiaries in Mexico. Ecuador, Brazil, Costa Rica and Guatemala manufacture and market trade and industrial prod ucts. Other operations in Centra! America metal from which prepainted parts can be fabricate reinforced fiberglass sanitary stamped without chipping or marring the fixtures and tanks and market galvanized finish) and mill appiiedwood finishes. sheet steel If distribution is one ofthe keys to success m trade sales, then technical service has the same role in the indus trial market. Ghdden has 22 technical During the year we purchased for cash majority control of our industrially oriented F rench licensee and the stock of 7 intas Ypiranga, primarily a consumer sou-ice representatives who work with customers to find or develop a product trial meets their needs. paint company, the second largest in Eirazil. The latter was our largest acqui sition during the year arid we have International: Coatings and Resins announced plans to construct a plant to directs trie operation of five wholly- produce industrial coatings at a location owned subsidiaries and five majority- near Sao Paulo. owned subsidiaries in Latin America and Europe accounting for 20 per cent of total sales. 7 he market for coatings and resins is growing faster overseas than domesti cally, offering us some of our better 7 he three European subsidiaries, in growth opportunities. Germany, F ranee and Italy, manufacture and market industrial coatings for the automotive metal decorating, wood, B appliance and polyester resin markets Gi 030787 Gi. D3 o? p.r (In millions) Net sales Operating income f return cm riot soles Average assets [ return on average; assets 1978 81887 8 10.6 8.0% 8107.0 16.4% 1978 8181.8 8 19.1 G.7% 810-1.8 11.6%. 1971 8109.0 8 8.9 4.9% 8118.8 0.9% . 1970 8179.9 8 7.9 4.6%' 8198.0 6.4% I960 8107.6 8 14,6 8.7% 8111 0 13.1% Smith-Corona is the only maker of portable typewriters iri the U.S. and produces more typewriters then any other manufacturer. We have gained arid field this position despite the increasing competition fi on i type writers imported from low- wage- rate areas through marketing ability, constant product innovation and strict attention to quality control. 8mith-Corona intro duced the first portable electric: typewriter in 19CV fotloweci try the automatic carriage return and the baimry powmed portable. Our latest irinovatiori islhe Oororiamatic: cartridge eoritainod rit>bon- for the first time ribbons can he changed in three seconds without touching the ribbon's inked surface. 1 ho typewriters and appliances group ing find record sales and profits laslyear and produced 37.6 per cent of SCM's overall operating profit on ?0.0 per cent of average assets in the year. Com parable figures a year ago were 39.3 per cent arid 19.8 per c-ent. 7 his group is responsible for the manufacture and sale of Smith-Corona typewriters and ProctorSilo: appliances. These major businesses benefitted from continued consumer spending, the introduction of several new products arid continued emphasis on higher-margin products. Typewriters: Smith-Corona typewriters continued fo contribute the largest pari of sales arid profit of this SCM fine of business 1 tic youth market in the United States (the 1 -d to 34 bracket), long the principal outlet for portable typewriters, will show only slight growth for the near term and the projected year-to-year increase in the number of high school seniors is small. Despite this, sales of electric port ables, particularly full featured models Gl f>307 89 Gl. 030/90 F'roclor-Silcx is a leading manufacture; irt the k>iI!ion dollar electric housewares incius.try. Most homes in this country have &n iron, toaster and coffee maker; about haif have blenders, electric: try pans and can openers. 1 tic top selling appli ances are irons, coffee rnekeraand toasters. f'roctor-Silex's production is peared to high volume. Irons, like: the new "Super Steam" (left), arc produced at out plant at Southern pines. N.C.1 his single product-line plant has the capacity to make 10,000 irons a day. at the- liieu end of the product line, cue still expanding at very satisfactory rates 1 his is an a: cm pioneered and still led ! iy Smili i Corona Smith Coen;! accounted tor the? largos! sKme of loo lornl U.S market of slightly (ive: two mTion units las! year, even though c ompeiitivc typewriters are a'I impoi loci (tom lev; wage areas and sell at tower prices. We do wo!* in portable typewriters because wc: iiave consistently Peon the leader in developing new products that grow mom rapidly than ihp market as a whom. F or example, in January wo introduced a now typuwn!et with a car lodge-contained ribbon. 1 tils is the: first system that makes it pow. bk: to change ribbons in three second;;. ;r- often as desired; to change c c>!ors,, cr in replace a ribbon instantly wilhou! touching the ribbon's inked sm face. '1 Mis important innovation was introduced on a com ('act office type v.riier. I etor in die year the concepf was extended to electric, portables. Although the market for laige electric: office- typewriters is dominated by IPM, Smitn Corona compact office electric typewiiters, designed fur medium office use, have found a special place in the maiket arid have been profitable each year since them introduction in 19G0. Gnnth Corona continues to manufacture most models in Cortland. New-York. Over the years, skilled marketing and continuing programs of product improve merit, automation and manufacturing efficiency have enabled us to stay competitive. International: l v.copt in Canada , where our position is similar to that in the U.S . wc have only a modest position in foreign markets wficie tariff barriers fend to disenminaic against U.S. typewriter in favor of protected home producers. Omrorilly we supply bofh U.S. and some foreign markets with loss expensive models from two plants in i ngland. Outside the U.S., again excepting Can ada, portable typewriter sales are mostly of low -end, non-electric, portables and low-cosi manufacturing is essentia! to kO'fS'i g U1- compete in these markets. We believe tastes will change and that larger models will become more popular here, too. We view these foreign markets, in the aggregate slightly larger than the U.S. market, as a good prospect for growth. 7o compete in tins market we are build ing a plant in Singapore where we will produce- a new model Smith-Corona portable aimed at international markets. 1 his plant will employ about 600 people and should begin production during calendar 1974. direct to retailers, including catalog showrooms. In Canada appliances are sold by Proctor-Lev/yt. our Canadian operation, to that nation's leading chain stores and mass merchandisers. FYoclor-Silex has long concentrated on a volume-oriented, fairly rtarrow product line selling in the middle price range. As a result, our reputation among con sumers Is one of good value for the dollar. Volume is important to us and we want to maintain it, but we also hope to Appliances: F'ructor-Siicx had a good increase in profits last year. A part of this gain came from motor-driven appliances: ice cream freezers, blenders and juicers All three are usually discretionary pur chases and the increase in sales of these items reflects a high level of discretionary spending and changing tastes. Toasters and irons are our two major product lines arid continued to provide the major part of our appliance profits m 1973. increase profit margins by concentrating further in higher priced products. Some of the higher end products will be extensions of existing products such as the "Super Steam" iron and "poly" rim glass percolator introduced last year. But trie majoriiy wilt be new products. We have increased development ex penses substantially to accelerate their introduction. 1 he phaseout of our Shetland lloorcan: business, announced in 197?, pro ceeded in an orderly manner last year. 1 here were no "distress" sales of Shetland products and warranty service was at a satisfactory level as a result of carefully planning the phaseout Proctor-Silex has concentrated its efforts on a relatively small ranged household electric appliances, It has the largest sham of the toaster market, a good market position in electric irons and a moderate but growing, share of the blender business. Our share of the toaster oven market is small but growing arid we are the largest maker of glass coffee percolators, which account for about ti per cent of the total electric coffee maker market. On a smaller scale, Proctor-Silcx also has large shares of the ice cream freo?er, electric juicer and ironing table markets. Proctor-Siiex products are nationally advertised arid are found in most chain and discount stores under the ProctorS'lex or one of several private brands Sales are largely made through whole 14 salers or distributors, but increasingly, The market for office typewriters is dominated by one company. Rather than trying to compete head on, SmithCorona designed the intermediate office model in 1960 and in doing so carved a new niche in the market Our inter mediate office model is aimed aUhe more than three million small businesses in toe country. With few exceptions, our office model can handle afl typing assignments of the larger, more expen sive models. In January we introduced the Coronamatic 7000, featuring the f .rst cartridge ribbon changing system. Cl 0 3079 ? C-LO^oyc. 3 (In millions) Net sales Operating income Return on rid sales Average assets Ftelurn on average assets 1973 S?1b.b $ .? .1 % 8 97.0 .?% 197? 8?11.4 8 {? 9) 8 f 00 3 1971 $?oc>.o 8 6.8 ?.8% 8 9? 4 6.3% 1970 SI 83.8 $ 8.6 4.7% 8 70.0 11.3% 1909 $169.6 S 8.3 4.9% 8 67.6 1?.4% Riirkce F cods includes llueo units: Consumer f oocis, Industrial F oods arid f ood Service. f oocJ oporalions were in the black last year alter losing money in 197? due to problems in the Industrial F oods and F ood Service areas, f oods provided 6 per cent of SOM profit on 18 ? per cent of total overage assets. Consumer Foods: Consumer F oods. which accounts for about 30 per cent of Durkee sales;was on its way to a record year when our Dethlehem. F'ennsylvania plant was closed by an 11 week strike that began May 1. Despite the work stoppage. Hits operation had a good year. Major Durkee product lines include spices (we arc one of three major processors competing in the U.S.), extracts, sauces and gravy mixes, canned and dry packed potato slicks and french fried onions, pickles, olives, coconuf and frozen hors d'oeuvres. Spices, especially pepper, sauces and gravy mixes and coconut, account for the largest part of this group's sales. Our pioducts are marketed directly to retailers by company-employed sales- , ,, .. , .i - i, , u ,; \ . . (, .. ,,i ; : - , , i . ;i , , t M. .. ; ,. it| ; , , j,' :k ij-, :. : c- ;; i,.- , i k 17 0103079 ?> men and food brokers. They are distributed nationally, but with varying degrees of coverage. Industrial Foods: This group, account ing for more than half of Durkee sales, refines and processes edible tats and oils for the food industry. Our product lines are shortenings, saiad and margarine oils, hard butters, frac tionated products, emulsifiers, coconut and commercial spices, flavorings, and seasoning blends. 7 hose products are sold to food manufacturers who make margarine, salad oil, bread, biscuits and crackers, confectioneries, cake mixes, coffee whitoners, vegetable dairy prod ucts, saiad dressings arid potato chips arid other snacks. Coconut is one of Durkee Consumer f cods' best selling products, in addition to seeking cut new products, Durkee also looks for extensions of existing products. L sst year we introduced such a brand extension, coconut in various colors and flavors. Coconut is automatically pack aged and hermetically sealed (right) in cur plant at Bethlehem. F'a. In addition to this facility, food manufacturing and processing is carried out in four other plants in this country and one in Spain panies with captive markets, we are the largest independent seller of oils in the industry. Manufacturing is at refineries at Louisville, Kentucky: Joliet, Illinois and Berkeley, California. An important pari of our Industrial We incurred additional expense last f cods business is procuring adequate year closing our refinery in Chicago. quantities of raw oils at competitive 7 his cider facility was in need prices on commodities markets. of modernizing and it was decided that Our trading operation has over the strutting it down was advisable. years minimized the impact of com modity price fluctuations on our ediok oils business. However in 1973with almost complete.- chaos in commodities markets over tne summer months, with demand far exceeding supply, and with the added problem of price controls, it is difficult to predict what will be the effects of these factors on this group's operations in fiscal 197*1. Food Service: f ooti Service had record sales and profits last year. Good gains were shov/n by Dolphin Seafood and our lines of frozen doughs and frozen hors d'oeuvres. 7 his group, accounting for about a quarter of our food sales, markets nationally a broad line of food products through a network of 1200 independent food service distributors. Sales are to We use soybean, corn and cottonseed hotels, schools and other institutions and oils as well as a variety of other lesser many fast food and away-from-home known oils,many of which are imported. food operations. Some oils, such as those used for salad oil and margarine, undergo relatively simple refining. These oils account for the bulk of Industrial F cods' volume and sell at modest markups. In the casoof other oils, we use various methods to alter their basic characteristics so they suit the individual needs of specific customers. A maker of frozen baked goods, for example, may need an oil that reacts well to freezing. 1 hese oils arc, of course, sold in smaller volume, require more sophisticated processing, but sell at considerably higher margins. 1 hese products are used as snorleriings.-lngrediont extenders and as baking catalysts. In addition to supplying the trade with fals and oils and the other food products discussed above, f cod Service supplies a line of frozen doughs, specialty dough products arid institutional frozen hors d'oeuvres and canapes; pro-portioned frozen fish and seafood products and pre-portioned seafood entrees: and frozen pre-plateo' meals and other specialty frozen and canned products. The markets served by f ood Service continue to require new labor-saving products. We are placing emphasis, for example, on items that will allow Food Service customers to feature preprepared "party foods" such as salads, 18 Although there are three larger corn- canapes, hors d'oeuvres and cakes. C1. P 3079 7 01 0 307*' & (In millions) Nel sales Operating income F'Cluni cm net sales Average assets flctuin on average assets 1973 9100.0 s M?: $ o? <; i97;-` 9110.4 9 (3-3) 9 74.3 1971 9119 3 9 (3.9) 9 91.7 1970 9113 0 9 (4,1) 9 9-1.7 1909 9117.4 9 3.8 3.93;9 93.4 4.1 Business equipment was tliC only one c*f six major linos of business that operated a! & loss last year. 1 bis cn emp iric! includes Merchant Calculators find SCM Copier Products. Despite a sub stantial improvement in calculators the: loss for the entire ptoup wan Mpher them host year's due principally to increased expenditures for future products, both in copiers end in other new product areas Business equipment assets amount to 9.9 per cent of total 9CM assets Calculators: As a resat of a decision made in 197?, Merchant Calculators- has undercione a major realipnmerit Cur rently'. calculators of our dearon are manufactured by other companies arid sold under the Merchant name by more than 400 dealers. Prior to the renlicinmcnt Marcher it manufactured calculators sold through company-owned branches. 1 tie major problem at Merchant in fiscal 1973 was the failure by companies with which we had contracted to deliver sufficient numbers of calculators on schedule Marcher it's inability to pet 9CM s Cup- - - r PiuducU- [it uup sells ci-ivc Uy I hut jph s-wnc 70 brunches find on ad'iiiiuunM 7 calcs offices throuqhnut tl iC U.9. In addition two eetepories of ciuoi-an. hnri ,ii;- ti ic BOM copier line: "f-jli line" d-oai-cn- handle all 9CM Copm: piud.i: !- in in !-.; me - set facias not t ovc led by t'n-- e 'Min-p 0 re el sales ui era' n ml :u:i c in "sj iCciaHy [ uoduCr-'' d(S- Sf !/; d-'-'U - !u,u copiers fa ui lul f>.-: i p :p;':: In' < - impel dive n lachino-. 'I ho lu'iu; an- in (M; : v.a-' n there fur BOM d n---i !>m:i' V" ,-r wu! as in o-ha: cilia- delivery of the quantities of calculators required by its dealers reflects the rapid growth in demand for components, many of which are used in other electronic products. During the year Merchant introduced several new calculator models, most relatively high-priced machines retailing from $759 to $1,495. Most Marchant calculators are complex machines designed for business, scientific or technical uses. Some of them are preprogrammed to simplify a specific function. Marchant docs not sell inexpensive calculators designed for consumer use, a business still marked by intense price cutting. Our profitable service organization, un changed by the realignment, continues to provide prompt service for Marchant end Copier products from its nearly 300 customer service centers across the U.S. Copier Products: Copier Products operated at a loss last year despite an increase in revenues. 1 he loss is due to increased depreciation taken on copiers and a sizable increase in our research and development budget. A large part of the latter went toward devel opment of a plain paper copier. Wc are working with the Minolta Camera Com pany of Osaka, Japan to develop a plain paper copier that should be on the market before rnid-1975. On July 31,1973 SCM filed an anti trust suit against Xerox Corporation in federal court, charging Xerox with unlaw ful monopolization and restraint of trade. 1 fie lawsuit seeksto open the plain paper copying business to full and fair competition and justify a substantial investment by SCM in that business. Coated paper copiers are expected to continue to grow at about 10 per cent a year and we expect to do at least that well until the mid-1970's. the plain paper part of the copier market is expected to grow at a faster rate. Our long range plan calls for marketing both plain paper and coated paper copiers as re quired for different types of copying. Cop er Products' business consists of the Copy Service program, which pro vides Hie customer with the copier, paper, supplies and service as a package, on a cost per copy basis, and a fast-growing dealer business. Copy Service is favored by large users of copiers who also benefit from a nationwide sales and service net work. Almost 1,000 dealers also handle complete lines of SCM copiers, papers and toners and sell direct to the user. SCM copier products are manufactured in Cortland, New York and Phoenixville and Hazleton, Pennsylvania. Some copiers manufactured by Minolta are sold and serviced by SCM in this country. International: In addition to these domestic activities wo maintain direct and distributor operations in 100 countries. Revenues from these operations are about equal to domestic revenues. During the year these operations were strengthened by the purchase for cash of facilities to manufacture toners (the liquid or powder ink-like substance that forms the image on the copy paper) in Hazleton, Pa., and of an established distribution organization that operates in Sweden and Finland. SCM pioneered the development of copiers that use zinc oxide coated paper and introduced the first machine to use a liquid toner to make dry copies. Copiers using coated paper have the advantage of simplicity, dependability of operation and lower cost. The com plicated process of applying zme oxide to paper is carried out at our plant at Phoenixville, Pa. In addition to supplying paper for our own copiers, Copier Products also sells paper and other products for competitive machines. CU>30800 G LD'U'80 3 (In millions) Not sales Operating income Return on net sales Average assets Return on average assets 1973 $103.6 $ 5.6 6.3% $ 78.9 7.0% 197? $ 84.6 $ 3.1 3,7 % $ 73.0 4.3% 1971 $ 76.1 $ 3.6 4.7% S 73.0 4.9% 1970 $ 77.0 $ 6.4 8.3% $ 68.6 9.3% 1969 $ 75.? $ 9.4 1?.5% $ 57.1 16'6% I Ghdden Chemicals is active in (our areas, each requiring sophisticated chemical techniques 1 hey are: Pigments and Colors. Organic Chemicals, Ceram ics arid Metal Powders. As a whole the group produced 1?.5 percent of SCM operating profits on 14.8 per cent of average assets. A year ago, chemicals produced 10.1 percent of operating profit on 13.8 per cent of average assets. 7 hree cf the four operations showed gains over 197?. Pigments and Colors: 1 his product line was profitable last year after losing money in 197?. 1 he main product of this group is titanium dioxide, awhile pigment, sold to the paint, paper, plastic, and rubber industries and used as a whitener and opacifier, Prices are now firm due to a worldwide shortage of titanium dioxide. Our two plants in Baltimore have a capacity of about 80,000 tons, making Gliddcn the fourth largest of six U.S. producers of titanium dioxide. ?4 7 itanium dioxide is produced by either the sulfate process or the newer chloride process that produces a somewhat h igher quality, higher priced end product We make approximately 63,000 Ions by trie sulfate process, arid the rest by the chloride method. SCM's future plant expansion in this business is expected to he for chloride capacity, 1 he current tight supply results partly from a combination of depressed prices and stricter enforcement of air and water pollution control regulations which caused some companies to discontinue certain titanium dioxide production Gl'Cidc a Orgvr-c C'lCmiCr:!-.' Jackson ville. F la plan: i rig11 .; has the capacity to ref,r,c men than on*; mi!'.on gallons of t rum sue':.:-: Imp-: ohne morif:!/. 7 ri'1. cm ir**.'re;'ri no p'oocse we men.icc me ,,.eb a:c : torn is ia.v mme-us i usee t ^ mnor meoj'ar tucm tun. uU <; vu. ;i-' range o' products 7 nc vane.;-. p\..;i. Civ. produced a! Jar nv.kc rang,;- jr, [ince from a hall com a pound is over $97 a pound for perfume ar;d f;svor components. CU>3( 80? (;t EK-iOflO** facilities, amounting to about 140,000 tons in 197?. Organic Chemicals: Glidden Organic Chemicals also increased its profits and operated at capacity. Glidden is the country's largest refiner of crude tali oil and crude sulfate turpentine. Our crude tall oil refinery at Port St. Joe, F lorida was doubled in size this year in a joint venture with St. Regis F'apcr Company and began production in July. 1 he refinery's annual capacity has been expanded to more than 100,000 tons. 1 he Port St. Joe refinery produces tall oil products used in making plastic rosins, paint resins and soaps. The Jacksonville refinery, which has an annual capacity of 1? million gallons, produces basic terpcnc products, including pine oil. caruphene and pinenc, and fine chemicals, including perfume arid flavor ingredients, vitamin intermediates and synthesized essential oils. Our terpono chemistry involves fractionating and catalytic cracking and reforming turpentine to create materials with varying properties of taste, smell and consistency. 1 hrough synthesizing we duplicate natural flavors such as lemon oil, spearmint, peppermint and cinna mon, An important part of our business is the manufacture of intermediates for Vitamins A and B now in heavy worldwide demand. Ceramics: Ceramics had record sales and a high level of profits in 1973, Profits declined somewhat front the record levels of 197?, due m large part to sub stantial increases in rav/ materials costs Because of expanding technology, the market for metal powders, especially non-ferrous and specialty iron powders, is experiencing rapid growth. Parts, such as gears, bushings and cogwheels, for example, can tie formed by com pressing a metal powder and treating it at very high temperatures. 1 his technique has resulted in the replacement of largo numbers of parts previously formed by machining. 1 he metal stock being measured (left) by a micrometer, to make sure it meets rigid standards, was compacted from metal powder. that could riot be recovered. SCM's Glidden Ceramics produces ceramic and porcelain glazes used in the manufacture of household appliances, tiles, dinnerware and enamel-covered products. 1 he group's Etaitimore plant serves the U.S. market for these materials 1 he market for the Ceramic group's products fias a moderate growth rate. Wo arc the second of four producers in the field and have an established repu tation as a quality supplier. Sales of our ceramic products arc influenced by home construction and appliance sales and have been cyclically slrong smee the end of the 1971 recession. Research and development has resulted in a new material for continuous clean ing oven linings. Another new product is a glaze for dinnerware that is tough enough to go directly from the freezer to the oven, and attractive enough to be used in the dining room, Metal Powders: SCM Glidden Metals had a record year. Strong demand for our products, primarily those used by the automotive and appliance industries, and a good export business were chiefly responsible for this performance. 1 he Metals Group produces copper and bronze powder and a wide range of stainless steel and non-ferrous meta! and metal oxide powders. 1 hese prod ucts are produced at the group's two plants at I larnmond, Indiana and Johns town. F'enrisylvania. About two-thirds of sales are from nonfenous and alloy compacting powders sold to manufacturers who use these materials to make powder metallurgy parts which are lighter, stronger and more durable than machined parts. 1 ho remainder of the group's sales con sists of specialty products. SCM Glidden Metals has the strongest marketing, manufacturing and technical organization in the non-ferrous powder metallurgy field. In June we announced a major expansion of our facilities at Johnstown, and intro duced "GlicJCop", the fust commercially available dispersion strengthened copper, -i y~*CT* ( i. (>3080 4 i&m Ot.!> "*080 (In millions) Net sales Operating income Return on net sales Average assets Return on average assets 1973 $10?.$ $ 7.8 ' 7,6% $ 39.?' 19.9% 1972 $ 86.1 $ 4.? 4.9% $ 36.2 11.7% 1971 $ 86-1 $ 3-6 4.?% $ 49.6 7.3% 1970 $ 88.6 3.2 3.6% $ 53.8 5.9% 1969 S 77.5 $ 1.9 2.4% $ 47.7 il>% Allied Paper and Histacount had record Alned reaper normally produces about sales arid profits last year. 1 he operation 179,000 tons of pulp annually, marketing earned $7.8 million on $39.? million Of from 40.000 to 70,000 tons and using the average assets. This is equivalent to 17.8 jest lor its own pcipermeking require per cool of the company's earnings on 7.3 ments. We purchase another $0,000 tons per cent of the assets. Pulp arid paper, of Canadian pulp annually, most of being Allied/f pry and Walton Easiness forms used to make specialty grades of paper. arid office and school supplies were al! In recent years Allied nas been con significantly ahead of 197?. F or the first centrating its efforts on manufacturing time in several yearn, demand caught up specialty papers. 7 he greater technology with arid, in some areas, exceeded and higher costs of p'oducuon of these supply. Our pulp and paper operations evades me compensated by higher prices benefitted from higher demand arid than for commodity grades. A large operated at capacity throughout the year. amount of our specially papers are used Pulp and Paper: Allied operates in four areas puip. paper, business forms and to pnnt rubles, encyclopedia? and other reference arid general interest books. office and school supplies 1 tie division is headquartered m Kalamazoo. Michigan where it operates two paper mills. It also operates an inteprated pulp and paper mill at Jackson, Alabama Easiness forms plants are at Cienison. 7 exas: t mpsic, Ohio: F'etersburci. West Virginia arid Ruena Park California 1 he paper industry is emerging from a penod of over-capacity that tied a de- cin?oeo? rimosoa pressing effect on earnings over several years. Al icd has lessened this impact by increasing emphasis on specialised papers with demanding technical require ments. However, paper companies are expected to do well for at least the next several years, in view of the acute short age of capacity in the industry reflecting economic and environmental problems. Book publishing grades of paper, par ticularly lightweight grades, are Allied's specialty. We are the largest producer of lightweight "Etiolo" papers, a light but opaque paper used in Efibles and reference books. Other specialty items are electrostatic offset master paper and cigarette tipping papers, a field wc recently entered. 1 hese products arc the result of an intensified product develop ment program that we are continuing to expand. Our Jackson mill normally produces 175.000 tons of pulp annually, most of which is used for our products. Produc tion of pulp at this mill has been reduced somewhat while we install a new recovery boiler, 1 he new recovery boiler will enable us to meet new stricter pollution control regulations and is expected to be compiled early in fiscal 1975. Duong the year, our Southern mill was forced to curiaij its use of natural gas and to substitute higher priced fuel oil. 1 ms situation, an aspect of the so calico "energy crisis" in America, is expected to continue. Histacount. a separate operating umt within the paper products category, sells specialised forms, stationery and related items by catalog to the med cal and a variety of cither professions 1 he operation continued its high and stable level of performance in 1973. Office and School Supplies: 1 his is the smallest of Allied's businesses. School supp'ics arc sold under the "Penrite" label and office supplies are sofd under the "Gates'' label. School arid home use supplies are also sold under private labels in discount houses, major variety, drug and super market chains, with our marketing con centrated in the midwest. Gates office supplies, including pads, adding machine rolls, index cards, and mimeograph, duplicator and bond papers are dis tributed nationally through retail and wholesale office supply dealers, whole sale school supply dealers and paper merchants. Business Forms: 1 he Allicd/E gry and Walton groups of Alfied Paper produce business forms. Our operations in the forms business have more of a regional character than those of our larger competitors. Allicd/E gry is located in the east central part of the country. Walton, which specialises in custom business forms, is located in Southern California Allied/E gry's strength is its ability to produce very large quantities of stock or custom forms at competitive costs. In the new fiscal year it will open a new plant at Gainesville, Georgia to provide hotter service to customers in the southeast. Allied Paper's A!Iied/E gry and Walton groups manufacture and sell a wide range of forms. 1 he SI.? billion forms market has an average annual growth rate in excess of 10 per cent, and a somewhat higher rate for computer forms. Wc have produced several hun dred nv llion copies of various forms for office use at our plant in Denison, 1 exas (left). Direct distribution through more than 70 salesmen accounts for 80 per cent of our sales; the remainder is sold to dealers through a small sales force. Gin-lOSOO (In millions) Net sales Operating income Other Products Return on net sales Average assets Return on average assets 1973 $ 24.8 S (.2) S 14.8 -- 1972 $ 26.5 $ .4 1.5% $ 18.3 2.0% 1971 $ 29.1 $ (2.2) -- $ 19.0 -- 1970 $ 30.8 $ (9.1) -- $ 25.4 -- 1969 $ 33.5 $ (1.3) $ 25.2 -- Other products consists of Proctor Kleinschmidt; This operation designs & Schwartz and Kleinschmidt and is the and manufactures telecommunications smallest of SCM's business groups. equipment, principally for the U.S. Army, Sales of the Proctor & Schwartz at its headquarters and plant at and Kleinschmidt operations totalled Deerfield, Illinois. $24.8 million in 1973. Kleinschmidt's basic military telecom Proctor & Schwartz: SCM's industrial munications business is increasingly process machinery group manufactures being supplemented by sales of and sells large industrial drying ma commercial data handling equipment. chines used in the food, chemical and While Kleinschmidt's loss was greater tobacco industries and machines used than a year ago, it is significant that to process fibers prior to weaving. It had these losses resulted mostly from the record sales and profits last year. writing down and disposal of The company has plants at Lexington, considerable amounts of obsolete N.C. and Philadelphia, Pa. International inventory, and not from losses on normal operations are handled by Proctor - operations. We expect Kieinschmidt's Dalglish with a plant and headquarters continuing work on a new generation in Glasgow. Scotland. high speed telecommunications system In the past decade Proctor & Schwartz has sold more than $100 million of for the military to be profitable ascontract work progresses. equipment domestically and this has This new teletypewriter, known as the For generated a profitable parts and service ward Area Tactical Teletypewriter (FATT) business. will replace the Army's existing network Proctor-Dalglish is particularly success of teletypewriters. Currently the FATT ful in selling Continental and Eastern program is in the advanced production Bloc countries and we have exported engineering stage with completion from the United Kingdom a substantial expected next year. We expect that volume of goods to these nations. production contracts will follow. The growing trade with the Soviet Union should provide us with growth opportunities. While Kleinschmidt's government business is important, we have been placing increasing emphasis on products New and improved product development with commercial application. The first is vital for continued growth. The of these, a 600 line per minute line fastest growing part of the textile printer, was introduced in May and market is the area of non-woven fabrics. shortly after we received an order for We have developed an oven for 720 to be delivered over a three-year drying non-woven batting. Another new period. product is a band oven used in the manufacture of cookies, crackers and 32 snack items. GLD30810 Operating Businesses Consumer Products Division 299 Park Avenue New York, N.Y. 10017 George F. Burns, President -Smith-Corona Group PaulJ. Uebbing Vice President-General Manager -Proctor-Silex Group (Philadelphia, Pennsylvania) E. Peter Larmer Vice President-General Manager Business Equipment Division 299 Park Avenue New York, N.Y. 10017 GeorgeS. Warner, President -Copier Products Group John J. Reilly Vice President-General Manager -Marchant Group Matthew E. Meek Vice President-Genera! Manager -International Group Francis D. De Maio Vice President-General Manager -Histacount, Inc. (Melville, N.Y.) Joseph Gebbia, President Kleinschmidt Division Lake Cook Road Deerfield, Illinois 60015 Harry S. Gaples, President Glidden-Durkee Division 900 Union Commerce Building Cleveland, Ohio 44115 Paul W. Neidhardt, President -Coatings and Resins Group William D. Kinsell, Jr. Vice President Robert E. Dorfmeyer Vice President and Assistant to the President -Industrial Foods Group Adrian J. Lathe, Vice President -Food Service Group W, A. Hagen, Vice President --Metals Group W. E. Jones, Vice President -Organic Chemicals Group (Jacksonville, Florida) R. P. T. Young, Vice President John H. Lathe, Jr. Vice President and Assistant to the President -Consumer Foods Group William A. Miller, Vice President William L. Rodich (Baltimore, Maryland) Vice President -Pigments and Colors Group (Baltimore, Maryland) L. C. Byrne, Vice President --Ceramics Group (Baltimore, Maryland) William A. Hubbard Vice President -Proctor & Schwartz (Philadelphia, Pennsylvania) J. R. Johnson, Vice President Allied Paper Division 1608 Lake Street Kalamazoo. Michigan 49003 Ernest J. Klimczak, President -Kalamazoo Paper Mill Group E. J. Gilman, Vice PresidentManufacturing --John Nisbet Vice President-Sales -Southern Mill Group (Jackson. Alabama) Ralph V. Zepp Vice President-Resident Manager --Allied/EgryGroup (Dayton, Ohio) G.W. Underwood, President --Walton Printing Group (Los Angeles, California) R. L. Walton, President --Office and School Supplies Group (Marion, Indiana) W. R. Gates, President GLD3082I Financial Review CLD3081? Sales and Earnings: Net sales for 1973 were $980.3 million, up 6.8 per cent over last year's $917.8 million. Operating income was $43.9 million, up 42.5 per cent, or $13.1 million over last year's $30.8 million. Operating income was 4.5 per cent of net sales in 1973 compared to 3.4 percent in 1972. Details of these changes by product group are explained in the review of operations. Pretax income of S31.3 million was up 78 per cent over last year's pretax income before extra ordinary loss of $17.6 million. Net income of $2.00 per share was up 77 per cent over last year's $1.13 per share before extraordinary items. Quarterly sales, income and earnings per share for the last two fiscal years are summarized in the table below. Income Taxes: Provision for United States and foreign income taxes was S million, an effective rate of 42 per cent compared to last year's 41 per cent rat Without the investment credit of $800.C (In millions) Sales Ouarter . .. 1973 . ...1972 First Second Third Fourth $227.7 241.2 246.7 26^.7 S223.0 228.4 226.6 239.8 $9so.:- $917 8 Income 1973 1972 S 3.3 5.8 35 57 $ 2.0 3.3 1.4 3.6 $18 3 SiO 3 Per Shar. 1973 19 S .36 .63 .38 .63 C;2 09 $ C,1 Total Borrowings (in millions] 250 1969 1970 1971 1972 1973 ^Long-term tiebt HHloans payable and long-term debt payments due in one year_______ in 1973. the effective tax rate would have increased $5.6 million as a result of been 44 per cent. foreign business acquisitions and growth In accordance with current accounting practices, U.S. income taxes have been provided on that part of foreign earnings expected to be repatriated in the future. of the company generally. This increase is reflected in both accounts receivable and inventories, offset by an increase in current liabilities. U.S. income taxes have not been pro Debt: No additional financing was re vided on $27.1 million of retained earn quired during 1973. Long-term debt ings of foreign subsidiariesat June30,1973 declined $22.9 million to $151.0 million. since these earnings are considered to Short-term bank borrowings increased be permanently invested, if these earnings $4.3 million during the year. In total, were to be remitted to the parent company. borrowings were reduced by Si 8.6 U.S. tax liability would be substan million during the year. tially reduced by available foreign tax credits. At June 30,1973 total debt, short-term and long-term, was 39.6 per cent of total irking Capital: During 1973, working capital turnover improved by approxi- debt plus equity compared to 44.1 per cent at June 30,1972. mately 8 per cent, with the greatest inn - Provement in inventories. Working capital Capital Expenditures: Capital expendi tures, including $5.0 million related to foreign acquisitions, were $40.0 million in 1973 compared to $25.2 million in 1972. At the end of the fiscal year many capital projects were underway that will be completed or near completion by the end of fiscal 1974 and. therefore, capitalexpenditures for the coming fiscal year are expected to exceed fiscal 1973 levels. Depreciation was $27.2 million in 1973 compared to $23.8 million in 1972. Dividends: In June the Board of Directors declared a 10C dividend resuming the quarterly dividend policy that was dis continued in June 1970. This decision to resume quarterly dividend payments resulted from the company's consider ably improved cash position and the much improved earnings. GLD30813 4- (In thousands) (In thousands) 36 Statement of Consolidated Income Years ended June 30 Net sales Costofsales Gross profit Selling, administrative and research expenses Operating income Other income (expense), net interest expense, net Income before income taxes and extraordinary loss United States and foreign income taxes income before extraordinary loss Extraordinary loss Net income Earnings per share: Income before extraordinary loss Extraordinary loss Net income Fully diluted net income Statement of Consolidated Retained Earnings Years ended June 30 Balance, beginning of year Net income Cash dividend ($.10 per share) Balance, end of year 1973 $980,281 708,946 271.335 227.481 43,854 (576) 11.993 31,285 12,986 18,299 $ 18,299 $ 2.00 $ 2.00 $ 1,91 1972 $917,817 671.894 245.923 215.141 30,782 284 13,475 17,591 7,264 10,327 10,176 S 151 $ 1.13 1.11 $ .02 $ .02 1973 $ 67,799 18.299 (915) $ 85,183 1972 $ 67,648 151 $ 67,799 See accompanying notes to financial statements. GLD30814 4 Statement of Changes in Consolidated Financial Position iin thousands) Sources: Applications: Changes in Working Capital; Years ended June 30 Operations: income before extraordinary loss Add expenses not requiring working capital: Depreciation Deferred pension expense Amortization of deferred charges Deferred income taxes--non-current Total Extraordinary ioss adjusted fordeferred taxes and other charges not affecting working capital Working capital provided by operations Disposal of property, plant and equipment Sale of common stock Total Additions to property, plant and equipment Reduction of long-term debt Cash dividend Other changes in non-current items Change in working capita) Total Curront assets: Cash and marketable securities Accountsreoeivable.net Inventories Deferred income taxes and prepaid expenses Tota!x Current liabilities: Loans and long-term debt payable within one year Accounts payable and accrued liabilities United States and foreign income taxes Deferred revenue on maintenance agreements Total increase (Decrease) in working capita! See accompanying notes to financial statements. 1973 $18,299 27,210 2,410 361 3 701 51,981 51.981 2.232 57 $54,270 $39,966 12.585 915 (4,840) 5,644 $54,270 $(7,773) 18,616 17,389 (2) 28,230 6,015 (21.185) (7,512) 96 (22,586) $ 5,644 1972 $10,327 23.769 1,475 279 4,170 40,020 (6,632) 33,388 3,022 26 $36,436 $25,228 16,398 1,225 (6,415) $36,436 $ (394) 6,059 (32,340) 7,290 (19,385) 17,973 (8,348) 2,725 620 12,970 $(6,415) 3) GLD30815 Consolidated Balance Sheet Assets (in thousands) June 30 1973 Current assets: Cash Marketable securities (at cost which approximates market value) S 6,168 3,223 Accounts receivable Less allowance for doubtful accounts 157,537 4,606 Inventories: Raw materials and work in process Finished goods 152,931 85,996 91,979 177,975 Deferred income taxes and prepaid expenses Total current assets 16,263 356,560 Property, plant and equipment: Cost: Land and buildings Machinery and other equipment 110,805 289,389 Less accumulated depreciation 400,194 212,832 Other assets 187,362 8,785 Total $552,707 $ 1( e 13E i 13^ 66 94 16C ie 328 10C 268 369 192 176 9 $518 38 See accompanying notes to financial statements, GLD30B16  -- ' Shareholders' Equity (in thousands) Current liabilities: Loans payable Accounts payable and accrued liabilities United States and foreign income taxes Deferred revenue on maintenance agreements Long-term debt payments due within one year Total current liabilties Pension and other liabilities Long-term debt Deferred income taxes Shareholders' equity: Common stock Additional paid-in capital Retained earnings Total June 30 t973 $ 7,698 101,063 9,374 6,952 1,532 126,619 17,177 149,439 17,158 183,774 45,782 111,349 85,183 242,314 $552,707 1972 $ 3,401 79,878 1,862 7,048 11,844 104.033 10,762 162,024 13,457 186,243 45,753 111,321 67,799 224,873 $515,149 See accompanying notes to financial statements. 3$ GLD30817 t ' Notes To Fi nancial Statements Accounting Policies: Principles of Consolidation: The con solidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. Investments of 20 per cent or more in minority-owned affiliates are adjusted to recognize SCM's share of their income or losses. Differ ences between cost and net asset value of businesses acquired are amortized over a maximum of forty years. Product Development Cost: Costs asso ciated with thedevelopment of new prod ucts and changes (o existing products are charged to operations as incurred. Income Taxes: Income taxes are pro vided in the year transactions affect net income regardless of when such trans actions are recognized for tax purposes. Investment tax credits are included as reductions of income tax expense in the year such credits become deductible. Translation of Foreign Currencies: Assets and liabilities of foreign subsidi aries and affiliates are stated in United States dollars at rates of exchange pre vailing at the end of the period, except net property, plant and equipment which is stated at rates prevailing at date of acquisition. Foreign operating results (except depreciation) are stated at aver age rates of exchange. Net unrealized gains resulting from currency fluctuations are credited to a reserve which is avail able to absorb future foreign exchange losses. lnventories:lnventories are stated generally at the lower of average cost or market. Retirement Plans: SCM has several retirement plans that provide pensions for substantially all of its employees. Contributions to pension funds are made when actuarial computations prescribe such funding. Earnings Per Share: Earnings per share are computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Fully diluted earn ings per share are computed based on the assumption that convertible debt obligations were converted and all dilutive outstanding stock options were exercised as of the beginning of the fiscal year. Property, Plant and Equipment:Depreciation is provided generally on a straightline basis at rates based on estimated useful lives. At the time properties are retired or otherwise disposed of, the property and related accumulated depre ciation accounts are relieved of the applicable amounts, and any profit or loss is included in current operations. Retirement Plans: Pension expense, including interest on unfunded prior service liabilities, was approximately $10,000,000 for the year ended June 30, 1973 and $6,900,000 for the year ended June 30,1972. The increase in pension expense was due to improvement in benefits and the amortization of the Maintenance and Repairs: Routine maintenance and repairs are charged against operations as incurred. Expendi tures that materially increase capacities or extend useful lives are capitalized. 40 average market performance of the trust fund securing such pensions. At June 3C 1973, unfunded priorservice liabilities approximated $38,900,000. Trust fund assets, together with the liability accruec in the Consolidated Balance Sheet, exceeded the actuarialiy computed valui of ail benefits actually vested in partici pants under the plans. Income Taxes: The 1973 current pro vision of $9,376,000 for United States anc foreign income taxes has been reduced by investment credits of $800,000. At June 30,1973, provision for income taxes has not been made on $27,100.00C of undistributed earnings of foreign subsidiaries since these earnings are considered to be permanently invested. Provision has been made for income taxes that will become payable when earnings of foreign subsidiaries not con sidered to be permanently invested are remitted to the United States. Inventories: In recognition of a con tinually volatile market in edible oils, the Company established, at approximately the lowest prices experienced during the year, a value on that portion of its inven tory necessary for continuing normal operations. This resulted-in a decrease ir 1973 after tax earnings of approximately $1,400,000 or $.15 per share of common stock. Although the effect of this change in method on any one prior year is impracticable to determine, it has no cumulative effect on prior periods. GLD30818 Auditors Report *: Capital Stock: The authorized capi tal stock of the Company consists of 500.000 shares of preferred stock, par value S50 each and 15,000,000 shares 0f common stock, par value $5 each. /U June 30,1973.9.156,485 shares of common stock were outstanding; 458,277 shares were reserved for issuance under Ihe Company's stock option plans; 891,946 shares were reserved for issu ance upon conversion of the 5 Vi % subordinated debentures due 19781988; and 322,234 shares were reserved for issuance upon conversion of the 5Vd % subordinated debentures due 1979-1989. Under SCM's stock option plans, shares of common stock have been made avail able to certain employees at the fair market value at the date the options were granted, except thatcertain options ("tandem options") have been granted at the lower of market price on the date of grant or the exercise price of the basic option to which they are related. Tandem options are `'non-qualified" options exercisable at the same time as, or after the expiration of, the basic "qualified" options. During 1973 options to purchase 142,500 shares of common stock were granted; options for 41,566 shares expired; and options for 5,845 shares were exercised. Options exercised during 1973 contrib uted S29.000 to Common Stock (1972Si 1,000) and $28,000 to Additional Paid-in Capital (1972--Si 5,000). At June 30.1973, options for 385,175 shares were outstanding. Long-Term Debt: (in thousands) 514% sinking fund debenturesdue 1976-1983 5%% sinking fund debentures due 1975-1987 71/4% sinking fund debenturesdue 1975-1988 914% sinking fund debentures due 1975-1990 Other loans--interest at rates from 5% to 83A% 514 % convertible subordinated debentures due 1978-1988 514 % convertible subordinated debentures due 1979-1989 $ 13,255 16,174 17,508 35,000 11,018 41,484 15,000 Total long-term debt $149,439 During the next five years, approximate long-term debt maturities will be: 1974--$1,500,000; 1975-$3,400,000; f976-56,500,000; 1977-S6,500.000; 1978S6.000.000, Under the most restrictive provisions of the indentures related to long-term debt, Retained Earnings of SI 0,600,000 was available at June 30, 1973 for declaration of cash dividends. Extraordinary Item: The extraordinary loss of $10.176,000,net of tax,in 1972 resulted primarily from a realignment of calculator operations and discontinuance of the floorcare operations. Commitments: At June 30.1973 the Company's annual rental for real property under long-term leases was approximately $12,000,000. These leases have varying expiration dates through 2007. Haskms & Se!d Cert f-ed P.;h! : Accountants T,.vo B'on'l ay New Ycr* No-:. York ''0004 To the Shareholders SCM CorporationWe have examined tne consolidated balance sneet of SCM Corporation and subsidiary companies at June 30,1973 and the related statements of consoli dated income and retained earnings, and changes m consolidated financial position for the year then ended. Our exaniinahcn was made m accordance with generally acceoted au:i ting standards, anc accord ng . ncluded such tests of Ce accounting records and Sucn crer auditing procedures as ,ve considered necessary m the sircumstances. n our ooin cn. such finance1 statements .ore sen; fa -'> me financial position of :ne cornpan.es at June 30,1973 and tne resu'tsof their operations and the changes :re:r f.nancal position for the year then ended, in conformity with gene'-Tlv accepted accounting princi ples 3c o,;ed cn a basis consistent in all matenai . .-.pacts with that of the oreced'.ng .ear. Haskms d Se-.'s August 16. 1973 41 GLD30819 r i Ten-Year Statistical Summary Income Per Common Share Financial Position Other Statistics 42 1973 Net sales i ncome before income taxes U.S. and foreign income taxes income before extraordinary items Extraordinary items, net of tax Net income (loss) Dividends income reinvested Depreciation $980,281 31,285 12,986 18,299 -- 18,299 915 17,384 27,210 Income before extraordinary items Net income (loss) Cash dividends Stock dividends Book value $ 2.00 2.00 .10 -- 26.47 Working capital Property, plant and equipment, net Total assets $229,941 187,362 552.707 Additions to property, plant and equipment S 39.966 Income before extraordinary items: Return on average equity Return on net sales Current ratio Number of employees Number of shareholders Average common shares outstanding 7.6% 1.9% 2.82 29,400 47,700 9.154,000 1972 1971 $917,817 17,591 7,264 10,327 (10,176) 151 -- 151 23,769 $875,138 13,073 6,012 7,061 (9,252) (2,191) -- (2,191) 22,439 $ 1.13 .02 -- -- 24,57 $ .77 (.24) -- -- 24.56 $224,297 176,838 515,149 $230,712 184,122 542,881 $ 25,228 $ 25,543 4.6% 1.1% 3,16 28,300 49,600 9,149,000 3.1% .8% 2.97 28,600 53,400 9,146,000 All dollars in thousands, except figures given on a per share basis. GL030820 T970" 7 884 1 446 6 438 (4 542) 1 896 5 421 (3 525) 21.832 S -71 .21 .60 2% 24.81 S233.976 197,112 578,107 S 54,527 2.8% .8% 2.72 31,100 53,500 9.014,000 1969 $807,648 39,391 18.752 20,639 -- 20.639 5.136 15,503 19,372 $ 2.37 2.37 .60 2% 25.54 ' $231,785 168,310 524,232 $ 40,764 9.5% 2.6% 3.08 33,500 50,000 8,716,000 1968 $744,758 30,820 13,061 17.759 (4,700) 13.059 4.763 8,296 17,807 $ 2.13 1.58 .60 3% 24.24 $221,718 148,152 470,009 S 32,188 9.2% 2.4% 3.50 33,200 47,500 8,616,000 1967 S705.160 43,626 18,550 25,076 -- 25.076 8,479 16,294 15.384 S 2.90 2.90 .40 3% 22.24 $207,068 138,141 451,402 $ 36,116 12.8% 3.6% 3.10 33,100 45,600 8,158,000 1966 S644.787 40,408 18,956 21.452 1,207 22,659 7,666 14,474 12,835 $ 2.56 2.72 .30 2.5% 25.57 $165,245 108,680 382,329 $ 22,435 10.6% 3.3% 2.84 31,300 47,000 7.756,000 1965 S558.393 29,431 14,070 15,361 403 15,764 5.547 8,934 11,821 $ 1.96 2.02 -- 5% 24.83 $143,484 107.727 331,223 $ 14,701 8.5% 2.8% 3.03 29,900 42.500 6,649,000 1964 $470,633 22,921 11,140 11,781 -- 11,781 4,920 5,624 11,484 $ 1.47 1.47 -- 3% 24.85 $138,389 104,028 319,261 $ 11,631 7.0% 2.5% 3.08 25,900 37,500 6.458,000 L~ GLD3082X SCM Corporate Data Directors and Principal Occupation Richard C. Bond*, President, Board of Trustees, John Wanamaker Philadelphia, Inc. John T. Booth, Executive Vice President, Blyth Eastman Dillon & Co. Incorporated George F. Bums, Vice President of SCM; President, Consumer Products Division Lewis H. Durland, Chairman, First National Bank and Trust Company of Ithaca, New York Paul H. Elicker*, President and Chief Executive of SCM George E. Hail*, Senior Vice PresidentAdministration of SCM George D. Kennedy, Executive Vice President, International Minerals & Chemical Corporation Wallace W. Knox*, Senior Partner. Knox, Ricksen & Robbins Paul W. Neidhart*, Senior Vice President of SCM; President, GliddenDurkee Division Crocker Nevin*. Consultant and former Chairman of the Board, Marine Midland Bank-New York William W. Quinn, President, Quinn Associates Management Consultants E. Everett Smith, Senior Director, McKinsey & Company George S. Warner, Vice President of SCM; President, Business Equipment Division Member of Executive Committee Directors Emeritus James M. Symes, Chairman of the Board--retired, Pennsylvania Railroad Company William!. Myers, Dean of the College of Agriculture--retired, Cornell University Corporate Officers Paul H. Elicker, President and Chief Executive George E. Hall, Senior Vice PresidentAdministration ; Secretary Paul W. Neidhart, Senior Vice President; President, Glidden-Durkee Division James Balph, Vice President-Employee Relations George F. Burns, Vice President; President. Consumer Products Division William V. Cawley, Vice President-Treasurer Herbert H. Egli, Vice President-Finance and Controller Ernest J. Klimczak, Vice President; President, Allied Paper, Inc. Robert L. Lozon, Vice President Richard Sexton, Vice President-General Counsel George S. Warner, Vice President; President, Business Equipment Division Transfer Agents Marine Midland Bank-New York, 140 Broadway, New York, New York 10015 Bank of America National Trust & Savings Association, 300 Montgomery Street, San Francisco, California 94104 Registrars Manufacturers Hanover Trust Company, 4 New York Plaza, New York, New York 10004 United California Bank, 95 Hawthorne Street. San Francisco, California 94104 Corporate Headquarters 299 Park Avenue, New York, New York 10017, Telephone: (212) 752-2700 Annual Meeting The Annua! Meeting of shareholders will be held at 9:30 a.m. on October 25,1973 at the Continental Illinois Bank, 231 South LaSalle Street, Chicago, Illinois. GLD30822 |; O.D30M3 SCM Corporation <299 Park Avenue iNev.-York, N.Y. 10017 GLD30824