1. Analyze the changes that Al Dunlap had initiated at Sunbeam after being hired from a strategic perspective. Did the changes started by Dunlap allow him opportunities to manage earnings?
2. Focus on the allegations made by Barron's about Sunbeam's accounting. Do you find any red flags that may support these allegations by looking at the "as reported" financials of Sunbeam?
3. Compare the "as reported" and "restated" financials of Sunbeam. Do you see any evidence supporting the allegations in the differences between these statements?
1. Prior to the appointment of Albert Dunlap, Sunbeam’s operation was managed through four groups: Household, Outdoor Leisure, International and Corporate where Sunbeam manufactures and distributes durable household and outdoor leisure consumer products.
After Dunlap was hired, several dramatic restructuring plans were initiated by him:
1) The existing senior management team was fired and replaced by managers previously worked with Dunlap (on the Scott Paper turnaround). For example, Dunlap’s close lieutenant Kersh was appointed as the vice-chairman in charge of finance, MIS, purchasing functions, etc. The new management team has provided Dunlap with full operational control since his decisions would now unlikely get challenged. This provides him the opportunity to manage earnings.
2) A huge restructuring of $337.6 million (pre-tax) was announced in November 1996. The large amount of the restructuring and asset impairment charges resulted in a great decrease on the company’s income and the company’s value.
3) A few strategic changes were made in order to cut costs. The company’s core business was redefined and all non-core businesses were marked for divestiture. In addition, regional headquarters and back office administrative functions were consolidated as well as the production facilities. Overall personnel were reduced by 50%. The cut in costs might result in higher profits since wages expense and