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Payment is made only after you have completed your 1-on-1 session and are satisfied with your session. Enter the email address associated with your account, and we will email you a link to reset your password. Please read the case study and answer the questions on the second PDF. If the the responses go over 2 pages, I can adjust the cost. Firstly, Harnischfeger was involved in a long term business relationship with Kobe Steel Limited and had a common pool of sales. Besides, the company incorporated the financial statements of various international subsidiaries in their financial report.
Furthermore, Harnischfeger adopted a new method of calculating depreciation in They adopted a straight line method to report depreciation on various long term assets including machinery, equipment and plants.
The company also made significant adjustment on the residual values of the long term assets such as plants and machineries. This change is likely to affect the profits in the subsequent years because the depreciation expense will be much lower. Following the adoption of the straight line method the value of the long-term assets will decrease in the long-run. The annual depreciation expense is likely to reduce.
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Match with a Tutor Studypool matches you to the best tutor to help you with your question. Get Quality Help Your matched tutor provides personalized help according to your question details. No Results Found. Reset Password. Send Reset Link. Harnischfeger Corporation Case Study Questions. Tags: business analysis finance Finance Reporting and Analysis. Unformatted Attachment Preview Harnischfeger 1.
Describe clearly each the accounting changes Harnischfeger made in as stated in Note 2 of its financial statements 2. What is the monetary effect of the depreciation accounting method change on the reported income in ? What is the monetary effect of the depreciation lives change? Given the business conditions Harnischfeger was facing in its primary industries in , are these economic assumptions justified?
Compute the ratio of the allowance to gross receivables receivables before the allowance in and Do you think this change was motivated by business considerations or accounting considerations? Describe these changes as clearly as you can. What are the economic consequences of these changes to Harnischfeger and its workers? Are these changes likely to affect future profits? The financial accounting statements are used by: investors, lenders, customers, employees, and governments in dealing with Harnischfeger.
Be as specific as possible. Harvard Business School Rev. August 21, Harnischfeger Corporation In February , Peter Roberts, the research director of Exeter Group, a small Boston-based investment advisory service specializing in turnaround stocks, was reviewing the annual report of Harnischfeger Corporation Exhibit 4.
He knew that barely three years earlier the company had faced a severe financial crisis. Roberts was intrigued by Harnischfeger's rapid turnaround and wondered whether he should recommend the purchase of the company's stock see Exhibit 3 for selected data on Harnischfeger's stock. The company had originally been started as a partnership in and was incorporated in Wisconsin in under the name Pawling and Harnischfeger.
Its name was changed to the present one in The company went public in and was listed on the New York Stock Exchange. Harnischfeger was a leading producer of construction equipment. These were used in bridge and highway construction and for cargo and other material handling applications. In the s the construction equipment industry in general was experiencing declining margins.
Electric mining shovels and excavators constituted the principal products of the Mining and Electrical Equipment Division of Harnischfeger. The company had a dominant share of the mining machinery market. The company's products were used in coal, copper, and iron mining. A significant part of the division's sales were from the sale of spare parts.
Because of its large market share and the lucrative spare parts sales, the division was traditionally very profitable. Most of the company's future mining product sales were expected to occur outside the United States, principally in developing countries.
Professor Krishna Palepu prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
The division's products included overhead cranes, portal cranes, hoists, monorails, and components and parts. The demand for this equipment was expected to grow in the coming years as an increasing number of manufacturing firms emphasized cost reduction programs. Harnischfeger believed that the material handling equipment business would be a major source of its future growth. Harnischfeger Engineers was an engineering services division engaged in design, custom software development, and project management for factory and distribution automation projects.
The division engineered and installed complete automated material handling systems for a wide variety of applications on a fee basis. The company expected such automated storage and retrieval systems to play an increasingly important role in the "factory of the future. Financial Difficulties of The machinery industry experienced a period of explosive growth during the s.
The worldwide recession in the early s caused a significant drop in demand for the company's products starting in and culminated in a series of events that shook the financial stability of Harnischfeger.
Energy-related projects, which had been a major source of business of our Construction Equipment Division, have slowed significantly in the last year as a result of lower oil demand and subsequent price decline, not only in the U. Lack of demand for such basic minerals as iron ore, copper and bauxite have decreased worldwide mining activity, causing reduced sales for mining equipment, although coal mining remains relatively strong worldwide.
The significant operating losses recorded in and the credit losses experienced by its finance subsidiary caused Harnischfeger to default on certain covenants of its loan agreements. Harnischfeger Credit Corporation, an unconsolidated finance subsidiary, also defaulted on certain covenants of its loan agreements, largely due to significant credit losses relating to the financing of construction equipment sold to a large distributor.
The company was forced to stop paying dividends and began negotiations with its 2 Harnischfeger Corporation lenders to restructure its debt to permit operations to continue.
Price Waterhouse, the company's audit firm, qualified its audit opinion on Harnischfeger's annual report with respect to the outcome of the company's negotiations with its lenders. Corporate Recovery Plan Harnischfeger responded to the financial crisis facing the firm by developing a corporate recovery plan.
The plan consisted of four elements: 1 changes in the top management, 2 cost reductions to lower the break-even point, 3 reorientation of the company's business, and 4 debt restructuring and recapitalization. The actions taken in each of these four areas are described below.
To deal effectively with the financial crisis, Henry Harnischfeger, then chairman and chief executive officer of the company, created the position of chief operating officer. After an extensive search, the position was offered in August to William Goessel, who had considerable experience in the machinery industry. Another addition to the management team was Jeffrey Grade, who joined the company in as senior vice president of finance and administration and chief financial officer.
Grade's appointment was necessitated by the early retirement of the previous vice president of finance in The engineering, manufacturing, and marketing functions were also restructured to streamline the company's operations see Exhibits 1 and 2 for additional information on Harnischfeger's current management. To deal with the short-term liquidity squeeze, the company initiated a number of cost reduction measures. These included 1 reducing the workforce from 6, to 3,; 2 eliminating management bonuses and reducing of benefits and freezing wages of salaried and hourly employees; 3 liquidating excess inventories and stretching payments to creditors; and 4 permanent closure of the construction equipment plant at Escanaba, Michigan.
These and other related measures improved the company's cash position and helped to reduce the rate of loss during fiscal Concurrent with the above cost reduction measures, the new management made some strategic decisions to reorient Harnischfeger's business. First, the company entered into a long-term agreement with Kobe Steel, Ltd.
Under this agreement, Kobe agreed to supply Harnischfeger's requirements for construction cranes for sale in the United States as Harnischfeger phased out its own manufacture of cranes. This step was expected to significantly reduce the manufacturing costs of Harnischfeger's construction equipment, enabling it to compete effectively in the domestic market. Second, the company decided to emphasize the high technology part of its business by targeting for future growth the material-handling equipment and systems business.
To facilitate this strategy, the Industrial Technologies Group was created. As part of the reoreintation, the company stated that it would develop and acquire new products, technology, and equipment, and would expand its abilities to provide computer-integrated solutions to handling, storing, and retrieval in areas hitherto not pursued—industries such as distribution warehousing, food, pharmaceuticals, and aerospace.
While Harnischfeger was implementing its turnaround strategy, it was engaged at the same time in complex and difficult negotiations with its bankers. On January 6, , the company entered into agreements with its lenders to restructure its debt obligations into three-year term loans secured by fixed as well as other assets, with a one-year extension option. This agreement required, among other things, specified minimum levels of cash and unpledged receivables, working capital, and net worth. Based on the above developments during the year, in the annual report the management expressed confidence that the company would return to profitability soon.
By the time the corporation celebrates its th birthday on December 1, we are confident it will be operating profitably and attaining new levels of market strength and leadership. It also raised substantial new capital through a public offering of debentures and common stock. In the annual report the management commented on the company's performance as follows: was the Corporation's Centennial year and we marked the occasion by rededicating ourselves to excellence through market leadership, customer service and improved operating performance and profitability.
We move ahead with confidence and optimism. Our major markets have never been more competitive; however, we will strive to take advantage of any and all opportunities for growth and to attain satisfactory profitability.
Harnischfeger Corporation Case Solution & Answer
We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you! Published by Emma Collins Modified over 4 years ago. Policy changes: revenue recognition, inventory, depreciation Estimates: allowances for reserves, pension forecast, depreciation. Bad debt reserve is an estimate of accounts receivable that will not be collected.
Harnischfeger Corporation – Case Analysis Essay
Harnischfeger Corporation HC in order to survive in this critical situation decides to restructure its strategy for forthcoming years. Effects of change in accounting policies and accounting estimates. Changes in accounting policies and accounting estimates have a significant impact on reported profit. Some of the key accounting policies and accounting estimates changes by Harnischfeger in its financial statements includes the following:.