Your officers have also given their undivided attention to the liquidation of
all of our unsettled Government accounts and claims and the negotiations which
we have carried on during the past year have been very involved, and of long
duration. The heavy outlays which we were required to make in connection
with our Government contracts, have in the opinion of your officers been fully
justified and were absolutely necessary under conditions then existing. The
Officials in Washington, however, have not found it possible to recognize all of
our claims owing to various contract provisions and while there may be a possi¬
bility of further credits being allowed, the substantial part of our claims have been
liquidated and your officers have therefore thought it wise and conservative to clear
our accounts of all remaining unsettled items and we have charged against Surplus
Account the sum of $654,719.44, which entirely disposes of all of our Govern¬
ment claims.

The lack of purchasing of equipment by the railroads has prevented a sub¬
stantial liquidation of our inventories. We have, however, decHned to make pur¬
chases of material notwithstanding offers made to us at very advantageous prices
and our inventories, while stifl large, now amounting to $4,053,044.55, shows a
reduction of $251,105.94, over the previous year.

Very substantial progress has been made during the past six months in
effecting a more economical arrangement of our manufacturing facilities and sub¬
stantial reductions in our overhead costs. In common with other manufacturers
we were not able to effect reductions in our labor costs during the first six months,
but we feel that these are now on a basis which will permit of profitable opera¬
tions in the future.

It is indeed very gratifying to be able to report that the orders now on our
books are very substantial in amount with promising outlook for this year's volume,
and that our shipments during the first sixty days of 1922 are already on a basis
which assures a substantial profit unless unforeseen conditions arise which will result
in a termination of further buying on the part of the railroads.

While the operating showing for the past year has been very unsatisfactory,
we nevertheless feel that substantial progress has been made in the readjustment
of our affairs along the Hues already stated, and we look forward to the future as
holding great promise for satisfactory results.

C. A. STARBUCK,

President