Harnischfeger Corporation Essay

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Harnischfeger’s corporate recovery plan was a four pronged approach that involved (1) changes in top management, (2) cost reductions to lower the break-even point, (3) reorientation of the company’s business and (4) debt restructuring and recapitalization. These changes at first glance appear to have allowed Harnischfeger to improve its financial performance from a net loss of $3.49 per share in 1983 to a net gain of $1.28 per share in 1984. In addition, Harnischfeger has appeared to have achieved a majority of its desired outcomes from each of its four changes as shown below. • Harnischfeger’s desired outcomes from hiring a new COO and Vice President of Finance and Administration were to re-build investor and creditor faith in the…show more content…
It would also reduce the risk of price increases by negotiating future prices. As shown previously, Harnischfeger was able to successfully reduce its cost to sales ratio. Through targeting new growth, emphasizing the high technology portion of its business and developing the Industrial Technologies Group, would create new business and ultimately increase sales for the company, which is shown in its financials, a 24% increase in sales from 1983 to 1984. • The desired outcome of its debt restructuring and recapitalization was to continue to receive credit from companies. After negotiations with its bankers, Harnischfeger was able to convince them to restructure its debt obligations into three year terms. Although Harnischfeger’s appears to have achieved a majority of its desired outcomes from its corporate recovery plan, you will see from the following in-depth financial analysis that Harnischfeger’s outcomes are really a result of creative financial manipulation. Question 2 a. Accounting Changes and the Effect to 1984 Reported Earnings Accounting changes Effect to 1984 reported earnings 1. Change to depreciation method from straight-line to accelerated Increase to net income of $11.0 million 2. Change estimated depreciation lives on certain U.S.

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