...Company History: Harnischfeger Industries, Inc. is a world leader in the manufacture, marketing, and servicing of mining equipment for both surface and underground operations. Until the year 2000, when it sold its Beloit Corporation subsidiary, Harnischfeger was also a major manufacturer of machinery for the pulp and paper industry. The company is represented in markets around the world, including Europe, Latin America, Australia, and Southeast Asia, and in South Africa, Canada, and the United States. Harnischfeger manufactures specialized equipment for underground mining of coal, as well as equipment for surface extraction of ores and minerals. A significant portion of the company's income comes from servicing mining equipment worldwide and providing spare parts. The company has a long history, punctuated in recent years by bankruptcy and near bankruptcy. After surviving a disastrous business downturn in the 1980s, the company made an impressive comeback, and then ended the 1990s in Chapter 11. Harnischfeger was forced to sell off its pulp and paper machinery manufacturing division to remain in business. 19th-Century Beginnings Like many century-old American enterprises, Harnischfeger traces its origins to an industrious immigrant with a dream. In 1884 Henry Harnischfeger was working at a sewing machine company in Milwaukee. Born in Germany, Harnischfeger had worked previously as a locksmith, a machinist, and a machine maker. He was a foreman in the sewing plant when the company...
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...1. Identify all the accounting policy changes and accounting estimates that Harnischfeger made during 1984. Estimate, as accurately as possible, the effect of these on the company’s 1984 reported profits. In early 1980s Harnischfeger Corporation, a machinery company based in Milwaukee, Wisconsin, faced a severe financial crisis. The company’s poor performance continued through 1983, however, the company reported net profit in 1984. This positive result was a consequence of a number of changes that have been made in, first of all, management, and, of course, accounting policies and estimates. * Depreciation method has been changed from accelerated to the straight-line. The cumulative effect of this change was increased 1984 net income by $11.0 million. * Estimated depreciation lives on certain U.S. plants have changed as well. This increased net income for 1984 by $3.2 million. * Liquidation of LIFO inventory quantities increased net income by $2.4 million in 1984. * Restructure of Retirement Plan brought $39.9 million actuarial gain to the company. Also, rate of return assumption for determining pension expense has changed from 7.5% in 1982 and 8% in 1983 to 9% in 1984 and together with restructuring of pension plan reduced pension expense by approximately $4.0 million in 1984 and $2.0 million in 1983, and the actuarial present value of accumulated plan benefits by approximately $60.0 million in 1984. * Allowance for doubtful accounts receivables decreased...
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...Week 3 case study: Harnischfeger Corporation 1. Identify all the accounting policy changes and accounting estimates that Harnischfeger made during 1984. Estimate, as accurately as possible, the effect of these on the company’s 1984 reported profits. * Harnischfeger retroactively changed its depreciation method from accelerated to straight-line for all depreciable assets. The cumulative effect of this accounting policy change, which not including the reduction in the current year’s depreciation expense, increased after-tax net income for 1984. * Harnischfeger changed its estimated depreciation lives on certain U.S. plants, machinery, and equipment and residual values on certain machinery and equipment. This change increased the net income for 1984 by $3.2 million. * Inventory reductions in 1984, 1983 and 1982 resulted in a liquidation of LIFO inventory quantities carried at lower costs compared with the current cost of their acquisitions. The effect was to increase net income by $2.4 million in 1984. * Effective November 1, 1983, the Corporation includes in its net sales products purchased from Kobe Steel, Ltd. And sold by the Corporation, to reflect more effectively the nature of the Corporation’s transactions with Kobe. Only the gross margin on Kobe-originated equipment was included in Harnischfeger’s financials. This change had the effect of increasing net sales by $5.4 million for the year ended October 31, 1984. * The company made agreement with...
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...Harnischfeger 1.) Effective November 1, 1983 the corporation includes its net sales products purchased from Kobe Steel, Ltd and sold by the corporation transactions with Kobe. During the fiscal year 1984 such sales aggregated $28 million, previously only the gross margin on Kobe originated equipment. In 1984, Harnischfeger changed its accounting policy on depreciation. Previously before the corporation used an accelerated method for its US plants. The new policy employs a straight-line method for its plants, machinery, and equipment. 2.) In effect this policy shift retroactively resulted in an increase $11 million in net income or $0.93 per common and common equivalent share. Profits will improve. 3.) Also these changes resulted in the change of the depreciation lives on US plants, machinery and equipment. This had an effect on the residual values on certain machinery and equipment that increased net income for 1984 by $3.2 million or $0.27 per share. No income tax effect was applied to the change. Harnischfeger fixed assets useful life will increase as such profits will improve. 4.) The reduction in sales and the underutilization of plants, machinery, and equipment would have a prolonged effect on the assets useful life. 5.) The effect of LIFO inventory liquidation on its reported profits in 1984 are an increase in net income by $2.4 million or $0.20 per common share and a reduction in the net loss by $15.6 million. If a company performs LIFO liquidation...
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...machinery and equipment. They had previously been using an accelerated method. With these two changes, the company was able to report an increase of net income of about $16.4 million dollars. 2. The depreciation accounting method change on the reported income in 1984 caused a net income increase of about $11 million or $0.93 per common share. Since they were previously using the accelerated method, which would have lowered the amount they depreciate every year, now, by using the straight-line method, they must depreciate the same amount for the life of the asset. Due to the change to a straight-line method, its profits will decrease in future years. 3. The depreciation lives changes will decrease the annual depreciation expense. Harnischfeger will continue to use the plants, machinery and equipment for a longer period of time before it is replaced. This might have a negative effect on efficiency and productivity due to outdated equipment. It might also increase the probability of the machines to breakdown due to their age. This will cause future reported profits to lower, which will have a negative effect on the overall reported profits. 4. According to their statement of operations, it can be seen that the company’s revenue was decreasing from 1982-1984. This decrease in revenue depicts the decrease for the company’s product, which means that the company will reduce the use of machinery which will increase the life span of the machinery. Since there is an increase of...
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...CHAPTER 3 OVERVIEW OF ACCOUNTING ANALYSIS HARNISCHFEGER CORPORATION 1 Identify all the accounting policy changes and accounting estimates that Harnischfeger made during 1984. Estimate, as accurately as possible, the effect of these on the company’s 1984 reported profits. i. Harnischfeger Corporation had changed from accelerated to straight-line method for computing depreciation expenses on plants, machinery and equipment in 1984.The cumulative effect is that net income for 1984 increased by $11 million or $0.93 per common and equivalent share. As a result, this change applied on all assets previously subjected to accelerated depreciation, which has an insignificant effect. But in long term, he changes in depreciation policy would cause higher depreciation costs, so the maintenance costs would be higher in the future. ii. The company made a long-term contract about purchasing equipment with Kobe Steel, Ltd, As a result, the manufacturing costs are reduced, and both aggregate sales and cost of sales increased by $28 million. This change influenced on the quality of the earnings, which the profit margin was decreased to 1.44%. iii. Harnischfeger Corporation changed the inventories method to LIFO, thus increasing net income by $2.4 million. iv. Harnischfeger Corporation liquidated excess inventories and stretching payments to creditors. This can decrease the amount of debts and reduce the debts/equity ratio. As a result the company may get a unqualified audit...
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...Harnischfeger Corp. Case Harnischfeger Corp. is a large New York Stock Exchange company but with old-line, low-tech. This family-based old midwest company had a history for almost 100 years. When the recession hit the financial world during 1980-1981, Harnischfeger could hardly maintain its solid financial performance. Finally, it violated the bond covenants that significantly cause financial distress. In the year of 1984, a number of accounting policy changes were made by the new manager, Peter Roberts. The goals of our team are to figure out whether the company can truly turned around with respect to the Peter Roberts’ decisions. There were several managerial actions that affecting either accounting estimates or accounting policy in the year of 1984. First of all, Harnischfeger’s allowance for doubtful accounts as a percentage of gross accounts receivable dropped from 9.1% in 1983 to 6.3% in 1984 according to the Note 8. If we assume that the company continues to utilize its allowance for doubtful accounts at 9.1% of its gross accounts receivable at the end of 1984, its bad debt expense in 1984 would be $2.6 million more than expenses reported on the incomes statement. Because of the complexity of the components that affects the bad debt expense, it is possible that the management team could manipulate the balance. Then, in 1984, Harnischfeger began to sell products purchased from Kobe Steel in the market. However, a close inspection on the the financial statement reveals...
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...Harnischfeger Corporation Introduction Harnischfeger Corporation is a machinery company in Milwaukee, Wisconsin. Harnischfeger was founded in 1884 as a partnership and was incorporated in Wisconsin in 1910 under the name Pawling and Harnischfeger. There were two major segments in this company, Construction Equipment and the Mining and Electrical Equipment divisions and Material Handling Equipment and the Harnischfeger Engineers divisions. Harnischfeger experienced a rapidly growth during the 1970s. However, the worldwide recession in the early 1980s caused a significant drop in demand for the company’s products starting in 1981 and Culminated in a series of events that shook the financial stability of Harnischfeger. (Palepu & Healy, 2013) So the Harnischfeger management decided to make some changes to respond to the financial crisis. Strategy Analysis Rivalry among existing firms Harnischfeger was a leading producer of construction equipment. The company had a dominant share of machinery market. In construction equipment market, Harnischfeger had market shares of about 20% in hydraulic cranes and 30% in lattice boom cranes. In the 1980s the construction equipment industry in general was experiencing declining margins. So the industry growth rate is low. The concentration of the construction equipment industry is quite low. Now there are only about 670 companies in the construction machinery manufacturing industry. The switching costs of this industry...
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...Harnischfeger Corporation, a large New York Stock Exchange company, faced a financial crisis in 1982. New management was appointed to turn the company around and as part of its restructuring strategy, the new management team made a number of financial reporting policy changes and accounting estimates in fiscal year 1984. Listed below are all of the changes and analysis on whether they might be real earnings management activities. In addition, the effect of these changes on the company’s revenue, pre-tax profits and cash flows for the year 1984 will also be shown. 1. Depreciation method of its US operating plants was changed from accelerated methods to straight line method for financial reporting purposes (Note 2).This change in depreciation accounting method increased the 1984 income by $11 million. Harnischfeger’s management explained that this change was to conform to the industry standard. Under normal circumstances, this change would be perfectly reasonable. However, in this case, the timing of this policy change is questionable. It occurred when Harnischfeger was in the midst of negotiating its debt restructuring process with the banks. And since changing to a straight line method will improve the company’s financial strength in the short run, it strongly suggests that move was performed by the management to artificially improve the balance sheet in favour of the negotiations. 2. As a result from the change in depreciation method, there was also an adjustment of the residual...
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...|1. |Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the | | |market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to | | |maturity? | | | | | | |2. |Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate| | |(rd) is 4.75%, based on semiannual compounding. What is the bond’s price? | | | | | | | | | | | | | | |Long-term debt (bonds, at par) |$10,000,000 | | | | |Preferred stock |2,000,000 | | | | |Common stock ($10 par) ...
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...ACCT5910 Business Analysis and Valuation Summary of Case This case is talking about Harnischfeger Corporation, leading producer of Construction Equipment, Mining and Electrical Equipment, Material Handling Equipment and Harnischfeger Engineer, based in Milwaukee, Wisconsin. The main topic of this case is the accounting policy changes after financial difficulties and its effect on financial reporting and the motive of these changes. Questions 1. Identify all accounting policy changes and accounting estimates that Harnischfeger made during 1984. Estimate, as accurately as possible, the effect of these on the company’s 1984 reported profit. Harnischfeger made the following accounting policy changes and accounting estimates during the year 1984. - There was a change in the recognition of some types of sales. This resulted in a change in sales calculation. Harnischfeger incorporated products purchased from Kobe Steel, which were re-sold by the company, into its net sales. This increased aggregate sales and cost of sales by $28 million. - There was a change in the fiscal year for some foreign subsidiaries. - There was a change in the depreciation methods on assets. The depreciation policy for financial reporting purposes was changed to a straight-line method from a principally accelerated method. - There was a change in the use of last-in, first-out (LIFO) liquidation in inventory valuation. - There was a change in the allowance for doubtful accounts. ...
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...Overview For this assignment, purchase and read the case file “Harnischfeger Corp.” You can purchase the reading from Harvard Business Publishing Web site. After reading the case, answer the questions on page three of this document. Submit your assignment by the end of Week 2. Rubric Use this rubric to guide your work. |Tasks |Accomplished |Proficient |Needs Improvement |Not Acceptable | |Assignment |Insightful response |Reasonable response |Response demonstrates some |Superficial response | |(5 points) |demonstrates ample evidence |demonstrates evidence of |evidence of having read the |demonstrates no evidence of | | |of having read the article |having read the article and |article and reflected on the |having read the article or | | |and reflected carefully on |reflected on the underlying |underlying economic activity |reflection and is poorly | | |the underlying economic |economic activity and is |and is adequately written, |written, with numerous | | |activity and is concise, |concise, well-written, |contains one error, and |errors, and does not meet the| | |well-written, error-free, and|error-free, and within |within requirements. |requirements. | ...
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...History Industrial artisans Alonzo Pawling and Henry Harnischfeger started the manufacturing business that would evolve into P&H Mining Equipment in 1884 in Milwaukee, Wisconsin USA. Alonzo Pawling. Henry Harnischfeger. Pawling was a castings pattern maker. Harnischfeger was a locksmith machinist with some engineering training. Both individuals served within the Whitehill Sewing Machine Company factory in Milwaukee starting in 1881.[1] Concerned that Whitehill business operations were drifting toward failure, Pawling exited the firm to start a small gear machining and pattern making shop in 1883. Needing more gear machining expertise and capital, Pawling persuaded Harnischfeger to join his firm as an equal partner. Their Pawling & Harnischfeger Machine and Pattern Shop officially began on December 1, 1884. Components and Assemblies Suppliers Pawling and Harnischfeger initially supplied industrial machinery components and assembly service support to large manufacturing operations in Milwaukee. Their customers included industrial knitting machine manufacturers, brick makers, grain drying equipment manufacturers and beer brewers. When an overloaded overhead bridge-type crane collapsed within the foundry operations of a nearby heavy equipment manufacturer known as the Edward P. Allis Manufacturing Company, Pawling and Harnischfeger rebuilt the crane with an improved and simplified design. Pawling & Harnischfeger...
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...Harnischfeger 1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements In 1984 they changed the depreciation method they were using to expense their plants, machinery and equipment to the straight-line method for financial reporting purposes. This change included a adjustment of the residual values on certain machinery and equipment. They also included the products purchased from Kobe Steel, LTD and sold by them in their net sales. Furthermore they also included the financial statements of some foreign subsidiaries. 2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years? This change increased the net income to 11 million for 1984. This change will decrease profit in future years, because with the accelerated method, in the future years the depreciation expense would have been lower, and with the straight line they will continue to depreciate in the same amount for the life of the asset. 3. What is the effect of the depreciation lives change? How will this change affect future reported profits? The depreciation live increase decreases the annual depreciation expense causing an increase in future profits reported. 4. The depreciation accounting changes assume that Harnischfeger’s plant and machinery will last longer and will lose their value more slowly. Given the business conditions Harnischfeger was facing...
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...1. Identify all the accounting policy changes and the accounting estimates that Harnischfeger made during 1984. Estimate, as accurately as possible, the effect of these on the company’s 1984 reported profits. a. Changes that affect the Harnischfeger Revenues: • The company start to account Kobe Steel sales in US, previously it only add the gross margin in the financial statement. (this sales represents $28 millions) Following are the accounting policy changes and accounting estimates that Harnischfeger made during 1984 : • Starting November 1, 1983, products purchased from Kobe Steel, Ltd. and sold by the Corporation were included in its net sales., previously only the gross margin on Kobe-originated equipment was included in the financial statement. During fiscal year 1984 such sales aggregated $28 million. • Sales to a foreign subsidiary starts to be consolidated as a net revenues (this sales represents $5,4 millions) • Foreign consolidated subsidiaries are effectively included in the financial statement in fiscal year 1984. (This change increased the net sales by $5.4 million. (tax) ) b. Changes that affect the Harnischfeger profitability: • Change in the depreciation accounting method from accelerated to straight line method. Increase of $11 million in 1984 income • Change on the company’s net residual value. Increased net income in $ 3,4millions • Harnischfeger reduced its inventory level in 1984, 1983 and 1982, resulting in a liquidation of LIFO inventory. This...
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