Financial Reporting and Analysis

Financial Reporting and Analysis

The objective of this report is to carry out the financial reporting and analysis of Sunbeam Corporation. To carry out the analysis, the paper adjusts Sunbeam's 1997 financial statements to reveal the fraud perpetuated by the company in its 1997 financial statements.

Adjustment of Sunbeam's 1997 Earning

The report adjusts Sunbeam's 1997 Earning before taxes and interests. This includes depreciation expenses, and doubtful accounts. After the issuance of the Sunbeam Consolidated Financial Statement for December 28, 1997 fiscal year, it is revealed that the company generally inflated the financial results of 1997 at the expense of 1996 fiscal year's results. This report reveals that certain revenue was not properly recognized, as there were principally bill and bold transactions.

Moreover, there are certain costs that were not properly accrued and recorded. For example, the principal allowances such as the cooperative advertising, principal allowances for returns, warranty expense, reserves for product liability and other certain costs were not properly included. Thus, Consolidated Financial Statements for December 28, 1997 and December 29, 1996 fiscal year present doubtful financial records as being revealed in Table 1.

Table 1: Adjustments of Sunbeam 1997 Financial Statements

Previously reported December 1997

($Thousand)

Adjustment 1997

Previously reported 1996

Adjustment 1996

Net sales

$1,168,182

$1,073,090

$984,236

$984,236

Cost of goods sold

837,683

830,956

900,573

896,938

Selling, Administrative & General expense

131,056

152,653

214,029

221,655

Restructuring & asset impairment

(benefit) charges

(14,582)

154,869

110,122

Operating earnings (loss)

199,443

104,063

(285,235)

(244,479)

Interest expense

11,381

11,381

13,588

13,588

Other net (income) expense,

(1,218)

12

3,738

3,738

Earnings or (loss) from continuing operations before the income taxes .

189,280

92,670

(302,561)

(261,805)

Income taxes (benefit)

66,152

40,352

(105,890)

(91,625)

Earnings or (loss) from continuing operations

123,128

52,318

(196,671)

(170,180)

Net Loss from discontinued operations,

(13,713)

(14,017)

(31,591)

(38,301)

Net earnings (loss)

109,415

38,301

$ (228,262)

$ (208,481)

Earnings (loss) per share (of the common stock from continuing operations):

Basic

1.45

0.62

(2.37)

(2.05)

Diluted

1.41

0.60

(2.37)

(2.05)

Loss from the discontinued operations:

Basic

(0.16)

(0.17)

(0.38)

(0.46)

Diluted

(0.16)

(0.16)

(0.38)

(0.46)

Net earnings or (loss) per share of common stock:

Basic

1.29

0.45

(2.75)

(2.51)

Diluted

1.25

0.44

(2.75)

(2.51)

b. The changes in the Sunbeam 1997 financial statements necessitate the changes in the company operating cash flow within the same period. Thus, the report utilizes the adjusted numbers to present the 1997 Operating Cash Flow Statements.

Sunbeam New Operating Cash Flow Statements for 1997 ($ Thousands).

Cash Flow Operating Activities

DECEMBER 28, 1997

Adjustment DECEMBER 28, 1997

Net earnings (loss)

$109,415

$38,301

Adjustments in reconciling net earnings or (loss) to net cash that has been provided by (used in) operating activities:

Depreciation & amortization

38,577

39,757

Restructuring, impairment & other

(14,582)

Other non-cash and special charges

Loss on sale of net of taxes and discontinued operations,

13,713

14,017

Deferred income taxes

57,783

38,824

Increase or (decrease) in cash from changes in the working capital:

Receivables, net

(84,576)

(57,843)

Inventories

(100,810)

(140,555)

Account payable

(1,585)

4,261

Restructuring accrual

(43,378)

(31,957)

Prepaid expenses & other current Assets and liabilities

(9,004)

(16,092)

Income taxes payable

52,844

52,052

Payment of other long-term & non-operating liabilities

(14,682)

(1,401)

Other, net

(26,546)

10,288

Net cash provided by operating activities

(8,249)

(6,043)

C. Summary of the Findings

The findings reveal that Sunbeam Corporation deliberately overstated its sales to increase the 1997 net income. To increase the overall earning, the company understated its general, selling and administrative expenses. The manipulated financial data results in understated inventory, overstated accounts receivable, as well as understated other current liabilities. Thus, the company generally overstatement much of its revenue through "bill and hold" transactions.

In the company balance between 1997 and 1996, the company receivables increased by $82 million. The inventories also increased by $94 million while the pre-paid expenses decreased by $23 million. Typically, the long-term productive assets and liabilities relative unchanged. Moreover, the company 1997 and 1996 income statements revealed the number of buy and hold" transactions because the SG&A declined and gross margin increased dramatically.

Based on the misappropriation of the company financial statements, Sunbeam required to restate the revenue of the fiscal year 1997 to $1,073.1 million, versus the reported revenue of $1,168.2 million. Moreover, the company needs to restate the earning from continuing operations of $52.3 million vs. The original reported earning of $123.1 million in 1997. The restated net income in 1997 was $38.3 million vs. The $109.4 million, income original recorded. More importantly, the company increased 1997 earnings from continue operations to $59 Million. In actual fact, the company ought to have recorded a loss of $6.4 million from continuing operations in 1997.

Moreover, change in the company financial statements leads to the changes in the operating cash flow. Typically, the company recorded net earning of $109.4 Million, however, in the actual fact, the company net earning ought to be $38 Million after adjustment of operating cash flow. The company did not record cost for Restructuring, and impairment. However, the company incurred costs of $14.5 Million for restructuring, and impairment. Thus, the overall net cash loss for operating activities was 6 Million compared to $8 Million that the company recorded in 1997.

PART 2

a. Strategic Analysis

Michael Porter Strategic Analysis focuses on the strategic planning, strong entrepreneurship, firm core competencies and business model. An organization will be able to deliver value to its customer and enhance competitive market advantages by applying its core competencies within the industry. Typically, Porter (2008) argues that brand equity, and customer loyalty are very critical for company to achieve competitive market advantages. In the financial world, strategic analysis is very applicable in mitigating, identifying, reporting and measuring financial risks. Typically, mitigating financial risks is very critical to achieve organization financial goals and assist a company to enhance financial health.

b.