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)
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…
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