Case - Harnischfeger Corporation
Harnischfeger Corporation
• Includes in net sales products purchased from Kobe Steel. Financial Statements of certain foreign subsidiaries are included on the basis of their fiscal years ended July 31. Although this has no significant impact on net income, it did increased net sales by $5.4 million.
• Perhaps one of the most significant accounting changes would be changing the method for depreciation expenses on plants, machinery and equipment – from principally accelerated methods to straight line method. Although there was no significant reduction in depreciation expense in 1984, this change has brought about an increased after tax net income by $11m.
• The estimated depreciation lives on certain U.S. plants, machinery and equipment and residual values on certain machinery and equipment was changed, which increased net income by $3.2 million
• Changing the inventories method to LIFO, thus increasing net income by $2.4 million.
• Rate of return for pension expense was also increased to 9% from 8% in 1983 (and 7 ¼ % in 1982). With the restructuring of the salaried employees’ plan, the pension expense was reduced by approx. $4 million in 1984.
2)
• Note new 1985 Executive incentive plan: “only if specific net after-tax profit objective” = Meet earnings target for top management compensation plan
• Boost stock price for the company to raise new capital
• Debt covenant
• Repair brand name to debtors, clients and shareholders.
3) Yes, turnaround strategy quite effective.
• Cost cutting measures very aggressive
• Manipulation may be just to tide over the bad times
• Need to research more on the considerations and long term effects from cutting on R&D expense, changing depreciation expense, bigger return rate for pension
• Includes in net sales products purchased from Kobe Steel. Financial Statements of certain foreign subsidiaries are included on the basis of their fiscal years ended July 31. Although this has no significant impact on net income, it did increased net sales by $5.4 million.
• Perhaps one of the most significant accounting changes would be changing the method for depreciation expenses on plants, machinery and equipment – from principally accelerated methods to straight line method. Although there was no significant reduction in depreciation expense in 1984, this change has brought about an increased after tax net income by $11m.
• The estimated depreciation lives on certain U.S. plants, machinery and equipment and residual values on certain machinery and equipment was changed, which increased net income by $3.2 million
• Changing the inventories method to LIFO, thus increasing net income by $2.4 million.
• Rate of return for pension expense was also increased to 9% from 8% in 1983 (and 7 ¼ % in 1982). With the restructuring of the salaried employees’ plan, the pension expense was reduced by approx. $4 million in 1984.
2)
• Note new 1985 Executive incentive plan: “only if specific net after-tax profit objective” = Meet earnings target for top management compensation plan
• Boost stock price for the company to raise new capital
• Debt covenant
• Repair brand name to debtors, clients and shareholders.
3) Yes, turnaround strategy quite effective.
• Cost cutting measures very aggressive
• Manipulation may be just to tide over the bad times
• Need to research more on the considerations and long term effects from cutting on R&D expense, changing depreciation expense, bigger return rate for pension