[SOLVED] Holmes Corporation is a leading designer and

Holmes Corporation is a leading designer and manufacturer of material handling and processing equipment for heavy industry in the United States and abroad. Its sales have more than doubled, and its earnings have increased more than sixfold in the past five years. In material handling, Holmes is a major producer of electric overhead and gantry cranes, ranging from 5 tons in capacity to 600-ton giants, the latter used primarily in nuclear and conventional power-generating plants. It also builds underhung cranes and monorail systems for general industrial use carrying loads up to 40 tons, railcar movers, railroad and mass transit shop maintenance equipment, and a broad line of advanced package conveyors. Holmes is a world leader in evaporation and crystallization systems and furnishes dryers, heat exchangers, and filters to complete its line of chemical-processing equipment sold internationally to the chemical, fertilizer, food, drug, and paper industries. For the metallurgical industry, it designs and manufactures electric arc and induction furnaces, cupolas, ladles, and hot metal distribution equipment. The information here and on the following pages appears in the Year 15 annual report of Holmes Corporation

Managementâ€™s Report to Shareholders Year 15 was a pleasant surprise for all of us at Holmes Corporation. When the year started, it looked as though Year 15 would be a good year but not up to the record performance of Year 14. However, due to the excellent performance of our employees and the benefit of a favorable acquisition, Year 15 produced both record earnings and the largest cash dividend outlay in the companyâ€™s 93-year history. There is no doubt that some of the attractive orders received in late Year 12 and early Year 13 contributed to Year 15 profit. But of major significance was our organizationâ€™s favorable response to several new management policies instituted to emphasize higher corporate profitability. Year 15 showed a net profit on net sales of 6.4%, which not only exceeded the 6.0% of last year but represents the highest net margin in several decades. Net sales for the year were $102,698,836, down 6% from the $109,372,718 of a year ago but still the second largest volume in our history. Net earnings, however, set a new record at $6,601,908, or $3.62 per common share, which slightly exceeded the $6,583,360, or $3.61 per common share, earned last year. Cash dividends of $2,241,892 paid in Year 15 were 57% above the $1,426,502 paid a year ago. The record total resulted from your Boardâ€™s approval of two increases during the year. When we implemented the 5-for-4 stock distribution in June, Year 15, we maintained the quarterly dividend rate of $0.325 on the increased number of shares for the January payment. Then, in December, Year 15, we increased the quarterly rate to $0.375 per share. Year 15 certainly was not the most exuberant year in the capital equipment markets. Fortunately, our heavy involvement in ecology improvement, power generation, and international markets continued to serve us well, with the result that new orders of $95,436,103 were 18% over the $80,707,576 of Year 14. Economists have predicted a substantial capital spending upturn for well over a year, but, so far, our customers have displayed stubborn reluctance to place new orders amid the uncertainty concerning the economy. Confidence is the answer. As soon as potential buyers can see clearly the future direction of the economy, we expect the unleashing of a large latent demand for capital goods, producing a muchexpanded market for Holmesâ€™ products. Fortunately, the accelerating pace of international markets continues to yield new business. Year 15 was an excellent year on the international front as our foreign customers continue to recognize our technological leadership in several product lines. Net sales of Holmes products shipped overseas and fees from foreign licensees amounted to $30,495,041, which represents a 31% increase over the $23,351,980 of a year ago. Management fully recognizes and intends to take maximum advantage of our technological leader ship in foreign lands. The latest manifestation of this policy was the acquisition of a controlling inter est in SociÃ©tÃ© FranÃ§aise Holmes Fermont, our Swenson process equipment licensee located in Paris. Holmes and a partner started this firm 14 years ago as a sales and engineering organization to function in the Common Market. The company currently operates in the same mode. It owns no physical manufacturing assets, subcontracting all production. Its markets have expanded to include Spain and the East European countries. Holmes Fermont is experiencing strong demand in Europe. For example, in early May, a $5.5 million order for a large potash crystallization system was received from a French engineering company representing a Russian client. Management estimates that Holmes Fermont will contribute approximately $6 to $8 million of net sales in Year 16. Holmesâ€™ other wholly owned subsidiariesâ€”Holmes Equipment Limited in Canada; Ermanco Incorporated in Michigan; and Holmes International, Inc., our FSC (Foreign Sales Corporation)â€”again contributed substantially to the success of Year 15. Holmes Equipment Limited registered its secondbest year. However, capital equipment markets in Canada have virtually come to a standstill in the past two quarters. Ermanco achieved the best year in its history, while Holmes International, Inc., had a truly exceptional year because of the very high level of activity in our international markets. The financial condition of the company showed further improvement and is now unusually strong as a result of very stringent financial controls. Working capital increased to $23,100,863 from $19,029,626, a 21% improvement. Inventories decreased 6% from $18,559,231 to $17,491,741. The company currently has no long-term or short-term debt, and has considerable cash in short-term instruments. Much of our cash position, however, results from customersâ€™ advance payments, which we will absorb as we make shipments on the contracts. Shareholdersâ€™ equity increased 19% to $29,393,803 from $24,690,214 a year ago. Plant equipment expenditures for the year were $1,172,057, down 18% from $1,426,347 of Year 14. Several appropriations approved during the year did not require expenditures because of delayed deliveries beyond Year 15. The major emphasis again was on our continuing program of improving capacity and efficiency through the purchase of numerically controlled machine tools. We expanded the Ermanco plant by 50%, but since this is a leasehold arrangement, we made only minor direct investments. We also improved the Canadian operation by adding more manufacturing space and installing energy-saving insulation. Labor relations were excellent throughout the year. The Harvey plant continues to be nonunion. We negotiated a new labor contract at the Canadian plant, which extends to March 1, Year 17. The Pioneer Division in Alabama has a labor contract that does not expire until April, Year 16. While the union contract at Ermanco expired June 1, Year 15, work continues while negotiation proceeds on a new contract. We anticipate no difficulty in reaching a new agreement. We exerted considerable effort during the year to improve Holmesâ€™ image in the investment community. Management held several informative meetings with security analyst groups to enhance the awareness of our activities and corporate performance. The outlook for Year 16, while generally favorable, depends in part on the course of capital spending over the next several months. If the spending rate accelerates, the quickening pace of new orders, coupled with present backlogs, will provide the conditions for another fine year. On the other hand, if general industry continues the reluctant spending pattern of the last two years, Year 16 could be a year of maintaining market positions while awaiting better market conditions. Management takes an optimistic view and thus looks for a successful Year 16. The achievement of record earnings and the highest profit margin in decades demonstrates the capability and the dedication of our employees. Management is most grateful for their efforts throughout the excellent year. T. R. Varnum T. L. Fuller President Chairman March 15, Year 16 Review of Operations Year 15 was a very active year although the pace was not at the hectic tempo of Year 14. It was a year that showed continued strong demand in some product areas but a dampened rate in others. The product areas that had some special economic circumstances enhancing demand fared well. For example, the continuing effort toward ecological improvement fostered excellent activity in Swenson processing equipment. Likewise, the energy concern and the need for more electrical power generation capacity boded well for large overhead cranes. On the other hand, Holmesâ€™ products that relate to general industry and depend on the overall capital spending rate for new equipment experienced lesser demand, resulting in lower new orders and reduced backlogs. The affected products were small cranes, underhung cranes, railcar movers, and metallurgical equipment. Year 15 was the first full year of operations under some major policy changes instituted to improve Holmesâ€™ profitability. The two primary revisions were the restructuring of our marketing effort along product division lines and the conversion of the product division incentive plans to a profit-based formula. The corporate organization adapted extremely well to the new policies. The improved profit margin in Year 15, in substantial part, was a result of the changes. International activity increased markedly during the year. Surging foreign business and the expressed objective to capitalize on Holmesâ€™ technological leadership overseas resulted in the elevation of Mr. R. E. Foster to officer status as Vice Presidentâ€“International. The year involved heavy commitments of the product division staffs, engineering groups, and manufacturing organization to such important contracts as the $14 million Swenson order for Poland, the $8 million Swenson project for Mexico, the $2 million crane order for Venezuela, and several millions of dollars of railcar movers for all areas of the world. The acquisition of control and commencement of operating responsibility of SociÃ©tÃ© FranÃ§aise Holmes Fermont, the Swenson licensee in Paris, was a major milestone in our international strategy. This organization has the potential of becoming a very substantial contributor in the years immediately ahead. Its long-range market opportunities in Europe and Asia are excellent. Material Handling Products Material handling equipment activities portrayed conflicting trends. During the year, when total backlog decreased, the crane division backlog increased. This was a result of several multimillion-dollar contracts for power plant cranes. The small crane market, on the other hand, experienced depressed conditions during most of the year as general industry withheld appropriations for new plant and equipment. The underhung crane market experienced similar conditions. However, as congressional attitudes and policies on investment unfold, we expect capital spending to show a substantial upturn. The Transportation Equipment Division secured the second order for orbital service bridges, a new product for the containment vessels of nuclear power plants. This design is unique and allows considerable cost savings in erecting and maintaining containment shells. The Ermanco Conveyor Division completed its best year with the growing acceptance of the unique XenoROL design. We expanded the Grand Haven plant by 50% to effect further cost reduction and new concepts of marketing. The railcar moving line continued to produce more business from international markets. We installed the new 11TM unit in six domestic locations, a product showing signs of exceptional performance. We shipped the first foreign 11TM machine to Sweden. Processing Equipment Products Processing equipment again accounted for slightly more than half of the yearâ€™s business. Swenson activity reached an all-time high level with much of the divisionâ€™s effort going into international projects. The large foreign orders required considerable additional work to cover the necessary documentation, metrification when required, and general liaison. We engaged in considerably more subcontracting during the year to accommodate one-piece shipment of the huge vessels pioneered by Swenson to effect greater equipment economies. The division continued to expand the use of computerization for design work and contract administration. We developed more capability during the year to handle the many additional tasks associated with turnkey projects. Swensonâ€™s research and development efforts accelerated in search of better technology and new products. We conducted pilot plant test work at our facilities and in the field to convert several sales prospects into new contracts. The metallurgical business proceeded at a slower pace in Year 15. However, with construction activity showing early signs of improvement and automotive and farm machinery manufacturers increasing their operating rates, we see intensified interest in metallurgical equipment. Financial Statements The financial statements of Holmes Corporation and related notes appear in Exhibits 12.20 to12.22. Exhibit 12.23 presents five-year summary operating information for Holmes. Notes to Consolidated Financial Statements Year 15 and Year 14 Note Aâ€”Summary of Significant Accounting Policies. Significant accounting policies consistently applied appear below to assist the reader in reviewing the companyâ€™s consolidated financial statements contained in this report.

Question: Holmes Corporation is a leading designer and