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troops,” demonstrating to employees what they could earn in
bonuses, deferred income, and profit sharing under a new plan if
they worked hard, HII had a lot of luck, and everything fell into
place.
HII’s projections historically have been unreliable,
particularly with respect to net income, because of the
difficulty in predicting the costs to complete contracts for
large custom machines.9 HII’s projections were even more
unreliable for the years 1996 through 1998. HII did not use the
1996-98 projections for purposes of analyzing cashflow to finance
plant expansion. Instead, it greatly reduced net income in its
cashflow analysis because it knew the goals in the projections
probably would not be reached.
On paper, HII had an outstanding year in 1995, exceeding by
more than $2 million its budgeted sales of $62.23 million. HII
9For example, HII originally budgeted net income for the
fiscal year ending July 31, 1992, at $4,287,948. For the first 6
months of that fiscal year, its actual net income was only
$973,917. HII made a midyear adjustment of budgeted net income
to $2,809,895. Its actual net income for the fiscal year ending
July 31, 1992, was $1,851,347 (only 43 percent of the original
budgeted net income and 66 percent of the midyear adjusted net
income). For the fiscal year ending July 31, 1994, HII budgeted
first quarter net income at $597,655. It actually suffered a
loss of $282,794 for the first quarter. For the first 6 months
of fiscal year 1994, HII had a net loss of $293,890, as opposed
to budgeted net income of $1,186,800. At the end of 8 months,
HII had net income of $82,044, as compared with budgeted net
income for that period of $2,384,217. For fiscal year 1995,
HII’s budgeted net income was $5,380,000. Its actual reported
net income was $4.17 million, a shortfall of 22 percent.
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