Free Essay

Harnischfeger

In: Business and Management

Submitted By SimonTT
Words 3775
Pages 16
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 appeared about to go under. Forming a partnership with Alonzo Pawling, a pattern maker in the same plant, Harnischfeger launched a small machine and pattern shop in Milwaukee.
It was a modest beginning. The company had one milling machine, one drill press, one planer, and two lathes. After each snowstorm, someone had to shovel the flat roof so it would not collapse. Wind whistled in through the building's cracks. Milwaukee was bustling at the time, however, and before long Pawling and Harnischfeger's reputations as craftsmen brought business to their door. Located in the midst of many booming manufacturing companies on Walker's Point, Pawling and Harnischfeger soon were building machines for knitting, grain-drying, stamping, brick-making, and milking, as well as conducting their regular repair work. The company was called Pawling & Harnischfeger and was commonly known as P & H. Soon, the small shop was expanding.
Harnischfeger's dream was to build a line of machinery that the company could produce and market itself. His chance came in 1887 after a tragedy occurred at a nearby plant, when another manufacturer's overhead crane fell, killing a workman. An engineer at that plant, H.A. Shaw, designed a more durable, safer crane powered by three electric motors. P & H soon hired Shaw, and their first electric overhead crane was shipped in 1888. It was a risky investment for the small company, which had built a three-story brick plant and large foundry and hired more workers.
In 1892 Shaw left with his patent to form his own company, and 1893 saw the onset of a severe economic downturn. Struggling beneath debt and with little work, the foundry was kept in operation by an order from the Pabst Brewery for six grain-dryers. A few years later Shaw lost exclusive rights to manufacture the electric crane, and Pawling & Harnischfeger immediately jumped back into production. Adding a line of electric hoists--essentially, smaller versions of the crane&mdash well as electric motors and controls, the company was prospering by the turn of the century, with nearly 100 employees.
Growing Product Lines in the Early 20th Century
In 1903 a fire destroyed Harnischfeger's main shop; the following year the company built a new plant in West Milwaukee on land that had been purchased for expansion. Covering 20 acres, the plant was state-of-the-art at the time; it eventually became the world's leading manufacturer of overhead cranes. Soon after moving to the new facility, Harnischfeger began streamlining its operations and making the parts it had previously purchased from suppliers. Eventually the company designed, manufactured, and repaired every component of every product it sold, demonstrating self-reliance and accountability that brought repeat business from its customers.
Throughout the company's growth, Harnischfeger oversaw the business affairs while Pawling handled the engineering. Pawling's health declined in 1911, and he asked Harnischfeger to buy out his share of the business. Three years later, Pawling died and the company became Harnischfeger Corporation, retaining P & H as its trademark out of respect for its cofounder.
The heavy equipment industry is notoriously cyclical, alternating boom with bust. The year Pawling's health began to fail was a bust year. During those times, the company was saved by an order from J.I. Case Company for 1,000 gasoline tractor engines. The demand for cranes resumed in 1913, then skyrocketed with the start of World War I a year later.
In the meantime, Henry Harnischfeger was looking for other products to help even out the cycles of the heavy equipment market, and he eventually settled on excavating and mining equipment. After the war, the company's engineers designed the world's first gasoline-powered dragline, a truck-mounted machine that could lift, pile-drive, clam, and drag. They also created a backhoe and a shovel-type excavator mounted on crawlers. With ample applications in both mining and construction, the products were instantly successful, and Harnischfeger became well known in those industries throughout the world. The main plant was expanded to handle this manufacturing; by 1930 the number of employees had grown to 1,500.
This modest diversification, however, did not offset the effects of the Great Depression. There was no market for Harnischfeger products, and the company lost money every year from 1931 to 1939. Harnischfeger was forced to offer used equipment--returned because customers could not afford to keep it--at fire-sale prices just to raise cash. In 1937 and 1938 the company's workers struck and, eventually, formed a union.
Founder Henry Harnischfeger had died in 1930, and his son Walter became president. Despite the weak market demand, Walter Harnischfeger continued to innovate and improve the company's products. Harnischfeger replaced the rivets in its cranes with all-welded design and fabrication in the 1930s, creating cranes and excavators that were stronger, lighter, and less costly. Harnischfeger also sought more ways to diversify in the 1930s and 1940s, making welding machines, welding electrodes, diesel engines, and even prefabricated houses. Other Harnischfeger innovations changed the industry, while not exactly becoming household words. These included the electromagnetic brake and control system, Magnetorque, designed by Harnischfeger's engineers in 1946.
World War II rocked the world, but revived the American economy. By 1940 Harnischfeger's plant was operating at full capacity again, and it had spent millions on plant additions. The company's cranes lifted tanks and heavy artillery in defense plants, its hoists positioned planes on aircraft carriers, and its excavators dug foundations for new buildings. Despite the burgeoning demand, chronic material shortages, a lack of skilled workers, and increased government regulation made it a difficult time for the company.
Postwar Expansion
Harnischfeger hit its stride during the postwar industrial boom. From $29 million in sales in 1946, Harnischfeger grew steadily to $86 million by 1957, despite periodic economic downturns. New plants were built in Michigan, Illinois, and California, and plants were added and expanded in Milwaukee. Harnischfeger also had developed a market overseas, and companies were licensed abroad to build Harnischfeger cranes and excavators. Agreements were signed with Rheinstahl Union Brueckenbau of West Germany in 1952 and Kobe Steel, Ltd., of Japan in 1955.
Growth begets growth. In 1951 Harnischfeger borrowed $5 million to develop better products. In 1956 it joined the American Exchange, opening itself up to more shareholders. Previously, the company had been primarily a family-owned company, though listed on the Midwest Stock Exchange.
In 1959 Walter Harnischfeger became chairman of the company and his son, Henry, became president. During this period industries were becoming more complex, and Henry Harnischfeger felt challenged to choose between being an average competitor in several tough fields or the leader in two or three. Between 1964 and 1968, Harnischfeger streamlined its operations. The prefabricated home and diesel engine lines were dropped, and road-building equipment and welding product divisions were all dropped or sold. By the late 1960s Harnischfeger had two divisions. The Construction and Mining Division produced digging and lifting machines, such as electric and hydraulic excavators, and truck- and crawler-mounted cranes, while the Industrial and Electrical Division manufactured overhead cranes and hoists, as well as the electrical motors and controls needed to power them. The two divisions were run, essentially, as separate companies, with individuated engineering and marketing responsibilities.
From there, product lines were broadened and improved, especially for the larger products. Between 1969 and 1979 the average capacity of Harnischfeger's mining equipment doubled. In 1964 the company introduced stacker cranes to serve material handling markets. In 1967 it offered a new line of hydraulic backhoes and cranes for the booming hydraulic construction equipment market. Easier to operate and more mobile, these machines were very successful in the industry.
Global Company in the 1960s and 1970s
Harnischfeger's global presence also grew, with 25 percent of its production being exported in 1965 and 40 percent of American output being exported a decade later. The company's licensed overseas partners and subsidiaries continued to grow, the largest being Harnischfeger GmbH, based in Germany, with distribution in Europe, the Middle East, and North Africa.
The restructuring of the 1960s left the company well poised for growth in the 1970s. After the oil embargo of 1973, new coal reserves were opened and oil pipelines and mass transit systems were built, increasing sales of Harnischfeger machinery. Annual sales grew from $150 million in 1970 to $646 million in 1981, excluding nearly $200 million sourced from overseas licensees. The company's stock was listed on the New York Stock Exchange for the first time in 1971. The company continued to borrow funds to fuel growth, pouring nearly $200 million into upgrading its plants and equipment, as well as into research and development, between 1975 and 1980. In the late 1970s, however, economic recession and high interest rates hit the company hard. Unhappy with its balance sheet, Harnischfeger sought to bring its debt-equity ratio into better focus by lowering capital requirements and cutting production costs. In 1979 Harnischfeger's interest bills alone came to about $28 million, and debt was roughly 40 percent of total capital in 1980.
From Bust to Boom in the 1980s
The heavy equipment industry was hit hard by the recession, and Harnischfeger lost money for the first time since the end of the Depression in 1938. Harnischfeger also fell victim to political change abroad: the company had been about to ship a $20 million order to Iran when the Ayatollah Ruhollah Khomeini came to power, halting all trade between Iran and other countries. At the same time, the inflated deutsche mark was dulling the competitive edge of Harnischfeger's German subsidiary.
The recession spread across the globe and by 1981 had depressed many of Harnischfeger's primary markets. In 1982 sales dropped by a third, and the company reported a $77 million loss; staving off bankruptcy, the company went into technical default on some of its loan agreements. In 1983 sales fell to less than half of 1981 sales and the company lost another $35 million, some of the losses due to plant closings and discontinued product lines. The company's workforce plunged from 8,000 in 1979 to 3,800 in 1982. Harnischfeger was no longer concerned about growth; it was concerned about survival.
In 1982 Henry Harnischfeger became chairman and CEO, and the position of president was assumed by William Goessel, formerly of Beloit Corporation, a manufacturer of papermaking machinery headquartered in Beloit, Wisconsin. For the first time in its nearly 100 years, Harnischfeger's president was not a Harnischfeger. The year Goessel became president was one of the company's darkest, with some plants operating at less than 20 percent of capacity. In his first week on the job, Goessel was told the company would run out of cash in six weeks; then he learned that the company was in technical default on $175 million of debt. Goessel closed some operations, slashed the workforce, sold off excess inventory, and set about restructuring Harnischfeger's finances. He shifted the focus of operations from old technologies to computerized systems. The ailing construction equipment business, which had accounted for about half of Harnischfeger sales at one point, was sold.
The heavy equipment industry was going through vital changes at the same time, with the crane market shrinking while competition was increasing both at home and abroad. Leveraged buyouts and closings threatened several of the major construction crane manufacturers. In 1984 Harnischfeger announced that it would be buying virtually all of its construction cranes from Kobe Steel, which then owned about ten percent of Harnischfeger's stock. Family interest in Harnischfeger had been reduced to five percent. Between debt restructuring, public stock offerings, and cash from liquidations, Harnischfeger was able to pay its debts to private lenders by 1984 and report a profit that year. With the wolves gone from the door, at least until the ten-year notes came due in 1994, the company was again free to shift its focus back to growth.
The new focus was material handling. In 1983 sales of mining, construction, and material handling equipment and systems were about equal, but the automated factory systems market seemed to be booming. Many factories were modernizing and retooling, using computerized systems to upgrade efficiency in production lines. In 1984 Harnischfeger formed a new subsidiary--Harnischfeger Engineers&mdashø tap this market; by year's end General Motors and Nabisco Brands were customers.
Automated material handling systems are computer controlled complexes of machinery that unload raw materials at the receiving dock, steer work through the factory, and send finished goods out for shipping. The systems include stacking cranes that retrieve parts in inventory and vehicles that are automatically guided by electric wires embedded in a factory floor. Harnischfeger seemed an unlikely competitor in the industry, but by the end of 1984 Harnischfeger Engineers was building a $5 million automated warehouse at a General Electric jet engine plant in Massachusetts.
One of the company's most notable milestones was the 1986 acquisition of Beloit Corporation. A manufacturer of pulp and papermaking machinery, Beloit was founded in 1858 and was also family run. The purchase was made for $175 million during a down cycle in the paper industry. About seven months later, at the onset of a boom in papermaking equipment and pulp and paper systems, the newly formed holding company, Harnischfeger Industries, sold a 20 percent stake in Beloit to Mitsubishi for $60 million. By 1988 Beloit was Harnischfeger's largest and most profitable unit, and by 1990 Beloit's sales were nearly $1.1 billion. It was a brilliant acquisition for Harnischfeger Industries and gave the parent company cash to reinvest in all its units.
Also purchased that same year was Syscon Corporation, for $92 million. This company provided software to the defense industry and was a leader in information systems integration. Harnischfeger's Systems Group--which included Syscon and Harnischfeger Engineers--was conceived as a counterbalance to the cyclical nature of mining equipment and papermaking machinery sales. Much of Syscon's work was with the U.S. Department of Defense, making it vulnerable to military cutbacks, but the company's work increasingly involved computer-based information systems designed to reduce paperwork and, therefore, could be of use in all federal departments as well as large companies. By 1990 Syscon was developing systems for the U.S. Departments of Labor and Education.
Harnischfeger was prospering in 1988, thanks to these acquisitions, the paper boom, and the improving climate in the mining industry. It was a record year, ending with doubled earnings. Two more common stock offerings were made in 1987 and 1988 to help bolster the balance sheet. In 1989 income from operations was up 65 percent over 1988. By 1990 roughly 60 percent of Harnischfeger's sales and earnings stemmed from papermaking machinery. Beloit equipment was used in producing 70 percent of the world's newsprint and writing and printing grade papers, as well as half of the world's tissues, towels, and napkins. Replacement parts for these machines was a thriving business as well.
Harnischfeger had clearly weathered its storms. The company announced in 1990 that it was shopping for new acquisitions. That same year, the paper cycle began a cyclical downturn. Although orders for papermaking machines dropped, a quarter of Beloit's paper machine manufacturing had been subcontracted to avoid the expense of expanding, so even with business decreasing, Beloit maintained presentable margins. Meanwhile, the Mining Equipment Division was still expanding, with sales of its massive electric-powered shovels growing nearly 20 percent in the first half of 1990. The poorest performing unit was still the material handling business, which supplied overhead cranes and hoists. Harnischfeger announced plans to buy a stake in Measurex Corporation in 1990, but not more than 20 percent due to a seven-year 'standstill' agreement between the companies. A Cupertino, California company, Measurex made industrial process-control systems, primarily for the paper industry. Beloit and Measurex entered a joint agreement on marketing, sales, and development.
Tumultuous 1990s
William Goessel passed the reins to Jeffery T. Grade in 1991. Grade, then president, became CEO, and Goessel stayed on as chairman of the board. The paper slump continued and Beloit's paper machine orders suffered in 1992, hurt by industry overcapacity and a lingering global recession. Mining equipment sales were strong that year, while the material handling division had an increase in sales but a dip in operating profits. Stalled defense contracts hurt Syscon in 1992, but caused the company to broaden its commercial and federal agency business bases. Goessel retired as chairman in early 1993, and Grade became chairman and CEO.
Grade was by all accounts a dashing and flamboyant leader, who claimed to have been a fighter pilot in Vietnam, hero of dangerous night landings on aircraft carriers, who had been shot down deep in enemy territory and fought his way to safety. He was a notoriously flashy dresser, with three company cars and a company jet at his disposal. He enraged Wall Street by continually falling short of earnings expectations, a feat he accomplished for 14 out of 24 quarters while he was CEO. A profile in Barron's for July 12, 1999 revealed that Grade had no Navy record, and Grade revised his story to say that he had been a passenger on some practice flights while a college student enrolled in the Navy ROTC. By the time his false war record was exposed, Grade already had led Harnischfeger into bankruptcy.
Part of Harnischfeger's 1990s disaster came about because a string of acquisitions led to unwieldy debt. The company bought Joy Technologies in 1994, a company that made equipment for underground mining. This was a new area for Harnischfeger, but Grade's ultimate goal was to get into areas that would balance the dangerous cyclicity of its paper equipment and other product lines. In 1996, Harnischfeger bought an ailing British mining equipment firm, Dobson Park Industries, for $322 million. Neither Dobson nor Joy were doing particularly well, and Joy's slump caused it to close nine plants in 1996. Whereas Grade's predecessor William Goessel had cut Harnischfeger's debt as much as he could, Grade expanded it. The company's debt-to-overall-capital ratio climbed to 45 percent at the end of Grade's first year as CEO, up to 53 percent by 1997. That year Harnischfeger launched an unsuccessful hostile takeover bid for a machine-tool manufacturer, Giddings & Lewis, taking the company to court to force its board to consider the deal. Harnischfeger's stock began to fall in spite of record quarterly earnings, and Grade insisted Wall Street was overreacting to an announced year-end earnings shortfall. 'We are the global leaders in everything we do. ... We haven't lost any customers; we haven't lost any market share,' Grade insisted to the Milwaukee Journal Sentinel (May 22, 1997). Nevertheless, the company's stock slid as news came in of a disastrous deal the company had undertaken in Indonesia. Harnischfeger had sold the Singapore-based Asia Pulp & Paper four huge paper making machines, and the company was so eager to make the sale that it agreed to manage construction of the plants in Indonesia for which the machines were destined. This was not something Harnischfeger had done before, and soon complications forced sizable cost overruns, leading Asia Pulp & Paper to stall on payments. The Asian economic downturn of 1998 made the situation worse. A disastrous third quarter loss in 1998 led Harnischfeger to lay off 20 percent of its workforce. By January 1999, Harnischfeger's stock was ranked the worst-performing on the S & P 500. In May 1999, Jeffery Grade was out, and in June Harnischfeger filed for reorganization under Chapter 11 of the U.S. bankruptcy code. John Nils Hanson succeeded Grade and worked to put the company back together.
In 1998 Harnischfeger had sold off 80 percent of its material handling division to Chartwell Investments. The company's mining equipment division was still profitable, though far less so in 1998 than it had been in 1997, dropping from more than $200 million in operating profit to $82 million. The pulp and paper division, stung by the ongoing Indonesian fiasco, lost more than $368 million. To get out of bankruptcy, Harnischfeger put its pulp and paper division, Beloit Corp., up for sale. Beloit was sold off piecemeal in 2000, with proceeds going to the company's creditors. By late 2000, Harnischfeger had filed a plan to emerge from Chapter 11 as a pared-down company concentrating on the manufacture of mining equipment. Its two principal divisions were P & H Mining Equipment, for surface mining, and Joy Mining Machinery, making and servicing equipment for underground mining. The company's stock moved off the New York Stock Exchange and began trading over the counter. Even without its paper making equipment unit, Harnischfeger remained a large company with a strong global presence. It seemed possible that Harnischfeger could move on from its disastrous 1990s and prove itself all over again in the next century.
Principal Subsidiaries: Harnischfeger Corporation; Harnischfeger Engineers, Inc.; Syscon Corporation.
Principal Divisions: Joy Mining Machinery; P & H Mining Equipment; Mining Group.
Principal Competitors: Caterpillar Inc.; Bucyrus International, Inc.

Similar Documents

Premium Essay

Harnischfeger

...1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. Note 2 (pg. 17) states that in 1984 Harnischfeger changed their depreciation method that was being used to expense their plants, machinery and equipment from the direct method to the straight-line method for financial reporting purposes. An adjustment of the residual values on certain machinery and equipment was made. Harnischfeger also included the products purchased from Kobe Steel, LTD and sold by them in their net sales instead of stating only the gross margin per unit. 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? Harnischfeger is adjusting its depreciation policy to the straight-line method from accelerated method they were using previously, which let the company increase net income as the adjustments are being applied retroactively. This change increased the net income to 11 million for 1984. Furthermore, 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. This change will decrease profit going forward, because with the accelerated method the depreciation...

Words: 1541 - Pages: 7

Premium Essay

Harnischfeger

...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...

Words: 881 - Pages: 4

Premium Essay

Harnischfeger

...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...

Words: 674 - Pages: 3

Premium Essay

Harnischfeger

...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...

Words: 390 - Pages: 2

Premium Essay

Harnischfeger

...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...

Words: 1162 - Pages: 5

Premium Essay

Harnischfeger Corporation

...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...

Words: 550 - Pages: 3

Premium Essay

Harnischfeger Corporation

...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...

Words: 1634 - Pages: 7

Premium Essay

Harnischfeger Corporation

...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...

Words: 1475 - Pages: 6

Premium Essay

Harnischfeger

...|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) ...

Words: 1348 - Pages: 6

Premium Essay

Harnischfeger Corporation

...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...

Words: 806 - Pages: 4

Premium Essay

Harnischfeger Corporation

...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. ...

Words: 965 - Pages: 4

Premium Essay

Harnischfeger Case

...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. | ...

Words: 1267 - Pages: 6

Premium Essay

Harnischfeger Case

...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...

Words: 1266 - Pages: 6

Premium Essay

Harnischfeger Case

...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...

Words: 778 - Pages: 4

Premium Essay

Harnischfeger Inc.

...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...

Words: 1118 - Pages: 5