Financial analysis of Sunbeam Corporation

Sunbeam Analysis

There are some clear and fairly glaring changes in accounting policy and listing of expenses occurring at Sunbeam between the years 1996 and 1997. Some potential areas of discrepancy and outright fraud are more subtle and complex, and cannot be fully ascertained or accounted for, but even the most glaring and concrete examples make it clear that some substantial financial finagling has taken place to depress 1996's numbers and inflate performance in 1997.

First, the two special charges (listed on the spreadsheet and here by their footnote denotations) that supposedly occurred in the final quarter of 1996, if reversed, begin to bring the posted earnings of the two years closer in line. As posted, the cost of goods sold is 71% of sales for 1997 (70.6% for the fourth quarter), but a substantially larger 91.5% for 1996 (and a whopping 115% for the fourth quarter of 1996). Simply removing Special Charge A from the cost of goods sold brings 1996's cost of goods sold to 82.1% (80.7% for the fourth quarter). Selling expenses, which in 1996 were affected by Special Charge B, show a similar pattern. These expenses formed 11.2% of sales in 1997 (9.7% for the fourth quarter) but 21.7% in 1996 as reported (35% for the fourth quarter); removing the amount from Special Charge B. still leaves a significant gap between 1996 and 1997 but closes it substantially, with this ratio dropping 17.4% after the adjustment (with a more substantial drop, down to 19.2%, in the fourth quarter of 1996). The earnings (or loss) before taxes can also be adjusted simply by eliminating the special charges to show more similar performance between 1996 and 1997 than initially appears to be the case, though there is still a loss in 1996.

There is an additional restructuring charge of $154.9 million listed in 1996 as well, and removing this cost all but eliminates the loss that occurred in 1996, the majority of which still occurred in the fourth quarter when all of the special charges entered the picture. All of the above effects would be magnified still further if the reported charges in 1996 were removed from earnings in 1997, or were split between the two years. That is, it appears as though false losses were created in 1996 to make 1997 look better, and it would make sense that these false losses were then reported as part of earnings in 1997. If this is the case, performance in both years would be even closer in value and would be generally lower -- especially in 1997 -- than reported.