Harnischfeger Corporation

Case Study: Harnischfeger Corporation

1)

• The corporation included in its net sales products purchased from Kobe Steel Ltd., and sold by the corporation. In previous years, only the gross margin on Kobe-originated equipment was included.

o Increased revenue by $28.0 million.

• The financial statements of certain foreign subsidiaries are included on the basis of their fiscal years ended July 31.

o Increased net sales by $5.4 million.

• The depreciation method was changed from accelerated to straight-line, applied retroactively to all assets.

o Increased net income by $11 million

• The corporation also changed estimated depreciation lives on certain U.S. plants, machinery and equipment and residual values on certain machinery and equipment.

o Increased net income by $3.2 million.

• Inventory reductions and changes to the use of LIFO resulted in liquidation of LIFO inventory quantities carried at lower costs compared with the current cost of their acquisitions.

o Increased net income by $2.4 million in 1984.

• The corporation changed its rate of return assumption for determining pension expense to 9 percent and restructured its pension plan.

o Reduced pension expense by approximately $4.0 million.

o $3.93 million pretax gain from amortisation of $39.3 million cash gain from pension restructuring.

2)

• Performance compared to competitors

o Depreciation method and depreciation lives were changed to conform to those used by other competitors to compete on a level ground.

• Debt