Volume 6, Number 1
Sunbeam Corporation: A Forensic Analysis
Patricia Hatfield, Ph.D., Bradley University, USA
Shelly Webb, Ph. D., Xavier University, USA
The members of the Board of Directors at Sunbeam were completely bewildered. Al Dunlap, Sunbeam’s highly successful but controversial CEO was threatening to resign after almost two years of leading Sunbeam successfully out of a slump that had threatened the long-term viability of the company. Al Dunlap didn’t mince words. He angrily told the board, “We can’t fight a battle on two fronts. Either we get the support we should have or Russ [chief financial officer] and I are prepared to go…Just pay us.”1 The directors had always stood solidly behind their hardnosed, cost-cutting leader and had been rewarded handsomely for their allegiance. The directors were taken aback. Why would they stop now? What was going on? Was it possible that one of the lead investors had conspired against the success of Sunbeam? A sense of panic set in but the board members assured Al Dunlap that he had their full support.
Keywords: Financial Statements, Financial Analysis, Ratio Analysis, Quality of Earnings, Corporate Governance
unbeam was formed in 1897 as the Chicago Flexible Shaft Company. The company originally manufactured mechanical horse clippers. By 1910 the company introduced the iron as its first electrical home appliance. Later other appliances such as mixers, toasters and coffeemakers were introduced. Sunbeam came to be known as a recognized designer, manufacturer and marketer of innovative consumer products aimed at improving lifestyle. In 1946, the company changed its name to Sunbeam Corporation. In 1960, Sunbeam acquired Oster which allowed Sunbeam to expand into other home products such as hair dryers and health and beauty appliances. The company later added electric blankets, mattresses, humidifiers, vaporizers and thermostats, among other innovations. Sunbeam soon became the leading manufacturer of electric appliances. In 1981 , Sunbeam was acquired by Allegheny International (AI); and although Sunbeam was AI‟s most profitable unit, poor management caused Sunbeam to experience major financial difficulties, and the company was eventually forced into bankruptcy in 1988.
In 1990, Michael Price, manager of Mutual Shares, corporate turnaround executive Paul Kazarian, and hedge fund manager Michael Steinhardt purchased the bankrupt Sunbeam. Under their leadership, Sunbeam went public as Sunbeam-Oster in 1992. Despite these obstacles, the board at Sunbeam felt that a profitable future was ahead, and they just had to search for someone to lead them in the right direction. Kazarian, who then became CEO, and Price retained 44% ownership in the company. The years following were tumultuous ones for Sunbeam. Executives at Sunbeam grew increasingly agitated at Kazarian‟s no risk policies. Kazarian was reportedly hesitant to manufacture too much inventory in the event items would not sell making it difficult to fill retailer ‟s orders. More importantly, he was hesitant to invest in the development of new products, processes or facilities. This was particularly troubling to the board since Sunbeam‟s longevity was dependent on its abilities to create innovative products for consumers at the lowest possible cost. In January 1993, Kazarian was forced out of the company due to his erratic behavior and abrasive management style. His departure resulted in a number of lawsuits which led to a buyout giving Steinhardt and Price a 57% stake in Sunbeam.2 In August 1993, Roger Schipke, a former GE executive was hired to lead Sunbeam but was asked to resign in early 1996. Al Dunlap, a corporate turnaround artist, was recruited in 1996 by Michael Price, a 20% stockholder, to turn the fledgling company around and boost its languishi ng stock price. Dunlap and his team agreed to lead the company through...