There are TWO parts to this examination. Part 1 = 13 points. Part 2 = 7 points. Total = 20 points.
Write your answers in Standard English.
Separately label each of your answers.
SUNBEAM COMPLETES RECORD YEAR
FOR SALES, EARNINGS & GLOBAL EXPANSION
DELRAY BEACH, FLORIDA JANUARY 28, 1998- Sunbeam Corporation (NYSE:SOC) todayannounced record sales and earnings for its fourth quarter and full year 1997.
Sales for the quarter were $338 million, reflecting a 30.6% increase over the prior year period on a comparable basis. Before the 1996 special charges taken by the Company to restructure and reposition Sunbeam, earnings per share
(diluted) from continuing operations of $0.47
were $0.50 ahead of the loss of
$0.03 reported in the fourth quarter last
year.
Including
these
charges
earnings per share (diluted) rose $2.76 above the reported $2.29
loss
reported
in 1996. On a year to date basis, revenue of
$1.168
billion was 22.4% above
1996 on a comparable basis.
Albert J. Dunlap, Sunbeam’s Chairman and Chief Executive Officer, said “I
am very proud of the dramatic turnaround that
we have achieved
at Sunbeam in
such a short period of time as we continue to execute against our three year growth plans. Our continuous sales increases of 13%, 17%, 28% and 31% in the
four quarters of
1997, for an overall sales
increase of 22% for the year, are a
clear indication
that our strategy is working.”
The Company’s three year strategy
to
achieve
$1
billion
in
revenue
growth, which it embarked upon in 1997,
was
fueled
by
the
addition
of 25
international distribution/license agreements,
the introduction
of
35 new U.S.
products and 54 new international products along with the contribution from 22 factory outlet stores. “We experienced sales growth in all major channels of distribution, in all regions of the world and in each of our five global businesses, and we gained market share in all of our key product categories, reversing a three year downward trend, ” said Mr. Dunlap.
Required:
PART 1 -There are a number of interesting differences between Sunbeam’s1997 and 1996 balance sheets (e.g., receivables increased by $82 million, inventories increased by $94 million, and pre-paid expenses decreased by $23
million, while long- term productive assets and liabilities remained relatively unchanged). Similarly, there are interesting differences between Sunbeams 1997 and 1996 income statements (e.g., during 1997 the company engaged in a number of “buy and hold” transactions, gross margin increased dramatically and SG&A declined).
a. (maximum 7 points out of 13) – Adjust Sunbeam’s 1997 Earnings
before
interest and taxes for one-time events and apparent changes
(e.g.,
doubtful accounts, depreciation expense, and etc.)
in
accounting policy.
You may want to compute some comparative ratios to facilitate your analysis. Be sure to provide the details of and clearly label any
computations.
b. (maximum 4 points out of 13)- Utilizing your adjusted numbersfrom1)a. (above) re- compute Sunbeams operating cash flows for 1997
(i.e., compute a new cash flows amount based on your adjustments to the original data). Clearly label the components of your
computations.
c. (maximum 2 points out of 13) – Summarize your findings in 1)a. and 1)b.(above), paying particular attention to any evidence of fraud
(be careful not to let 20- 20 hindsight i.e., do NOT use information that you are aware of, but is not included in this case
to influence your conclusions).
PART 2
(7
Points)
Michael Porter identifies
as
You read
in
your text about the factors that
influencing
and directing
competitive strategy. You also provided such
an
analysis
for your project
company. Following
the model for your project
complete
the following:
Required:
a) (maximum 4 out of 7 points) identify each of those specific factors that influence competitive strategy.
b) (maximum 3 out of 7 points) provide specific examples of accounting informationthat might be useful for assessing eachfactor notedabove. Be sure to explain specifically how each example might be used in assessing the elements of of a firms strategy.
SELECTED DATA FROM: SUNBEAM CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10 -K
GENERAL
Sunbeam Corporation is a leading designer, manufacturer and marketer of branded consumer products. The Company’s primary business is the manufacture, marketing and distribution of durable household consumer products through mass market and other distributors in the United States and internationally.
RESTRUCTURING AND GROWTH PLAN
In the Fall of 1996, under newly elected Chairman, Albert J. Dunlap, the Company announced a major restructuring and growth plan. The restructuring portion of the plan was completed during 1997, resulting in a significant reduction in employees, facilities and costs, all of which is anticipated to
generate approximately $ 225 million in annual savings for the Company. The Company’s restructuring plan included the closure of 18 factories, 43 warehouses and 5 headquarters, resulting in the consolidation of all corporate
offices
into a single headquarters office located in Delray Beach,
Florida
and
an operations center at its Hattiesburg manufacturing and
distribution
facility.
The Company’s operating results for 1996 include the effects of a pre-tax
special
charge of $337.6 million recorded in conjunction
with
the
implementation of its restructuring and growth plan announced in November 1996. Approximately 20% of the charge was for cash items primarily for severance costs and lease and other facility exit costs.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales of Outdoor Cooking products increased in 1997 after three straight years of declines as a result of increased merchandising and advertising programs, new distribution and the introduction of an entirely new line of
grills and accessories for the 1998 season that began to ship in the fourth quarter of 1997 under a new “early buy” marketing program that included among other things, extended credit terms with due dates in the second quarter of 1998. The Company sold approximately $50.0 million of Outdoor Cooking Products under this program in the fourth quarter of 1997. The early buy program for Outdoor Cooking products is designed to improve customer service levels and production efficiencies with more level seasonal production and distribution activities that have historically peaked in the first half of each year and to
drive additional retail sell-through
of Outdoor Cooking products by
reducing
the likelihood of retail stock-outs
during
the important
first and second
quarter 1998 selling season.
Selling, general and administrative (“SG&A”)
expenses,
excluding
the
impact of special charges described
above,
were
17.6%
of
sales
in
1996
primarily as a result of an inflated cost structure that has been realigned for 1997 and beyond. In addition, a $12.0 million fourth quarter 1996 media advertising campaign and one-time expenditures for market research, new
packaging, and
other growth
plan initiatives
resulted in higher than normal
SG&A spending
in 1996. Also
included in 1996
SG&A costs were $7.7 million of
compensation expense resulting from restricted stock awards made in connection with the employment of a new senior management team.
LIQUIDITY AND CAPITAL RESOURCES
the
Company
had cash and cash equivalents of
As of December
28,
1997,
$52.4 million and
total
debt
of
$195.2
million. Cash used in operating
activities during 1997 was $8.2 million compared to $14.2 million provided by operating activities in 1996. This decrease is primarily attributable to an
increase in earnings before non-cash charges in 1997 and the utilization of tax benefits generated from the implementation of the Company’s restructuring plan, offset by higher accounts receivable due to increased sales in 1997 and certain seasonal dating terms, increased inventory levels in 1997 necessary to support continued anticipated sales growth and the Company’s initiatives to improve customer service levels and 1997 cash expenditures required to implement the restructuring plan.
In addition, cash used in operating activities reflects $59 million of proceeds from the sale of trade accounts receivable under the Company’s
revolving trade accounts receivable securitization program entered into in December 1997 as more fully described in Note 3 to the Company’s consolidated financial statements.
Cash
provided
by investing activities also reflects
$91.0
million
in
proceeds
from
sales of businesses, assets and product categories determined to
be non-core to the
Company’s ongoing operations in conjunction with the 1996
restructuring
plan.
Cash
used
in investing activities for
1995 includes
the
purchase
of
a portion
of
the Company’s furniture business,
which
was
subsequently divested in full in March 1997.
Cash provided by financing activities totaled $16.4 million in 1997 and reflects net borrowings of $5.0 million under the Company’s revolving credit facility, $12.2 million of debt repayments related to the divested furniture
operations and other assets sold and $26.6
million
in cash
proceeds
from
the
exercise of stock options, substantially
all by
former
employees
of
the
Company. In 1996, cash provided by financing activities of
$45.3
million
was
primarily from increased revolving credit facility
borrowings
to
support
working capital and capital spending requirements,
$11.5
million
in
new
issuances of long -term debt and $4.6 million in proceeds from the sale of treasury shares to certain executives of the Company. In July 1997, the Company reduced the amount of available borrowings under its September 1996 unsecured five year revolving credit facility from $500 million to $250 million.
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except EPS)
YEAR ENDED
THREE MONTHS ENDED
—————————
—————————
DECEMBER 28,
DECEMBER 29,
DECEMBER 28,
DECEMBER 29,
1997
1996
1997
1996
————
————
————
————
Net sales
$1,168.2
$984.2
$338.1
$268.9
Cost of goods sold
837.7
900.6(a)
238.7
309.3(a)
————
————
————
————
Gross profit (deficit)
330.5
83.6
99.4
(40.4)
% of sales
28.3%
8.5%
29.4%
-15.0%
Selling, general &
131.1
214.0(b)
32.7
94.(b)
administrative expense
Restructuring, impairment
–
154.9
–
154.9
and other costs
————
————
————
————
Operating earnings/(loss) 199.4
(285.3)
66.7
(289.4)
% of sales
17.1%
-29.0%
19.7%
-107.6%
Interest expense and
10.2
17.3
4.1
4.0
other, net
————
————
————
————
Earnings (loss) from continuing operations
62.6
(293.4)
before income taxes
189.2
(302.6)
Income taxes (benefit)
66.1
(105.9)
20.9
(103.0)
EARNINGS (LOSS) FROM
————
————
————
————
123.1
(196.7)
41.7
(190.4)
CONTINUING OPERATIONS
Earnings (loss) from discontinued operations,
–
(32.4)
net of tax
(13.7)
(32.4)
————
————
————
————
Loss on sale of discontinued
(32.4)
–
(32.4)
operations, net
(13.7)
Net earnings (loss)
$109.4
($228.3)
$41.7
($234.7)
============
============
============
============
(a) Includes special charges of $92.3
(b) Includes special charges of $42.5
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
December 29,
December 28,
1997
1996
————
————
ASSETS
Current assets:
$52.4
$11.5
Cash and cash equivalents
Receivables, net
295.5
213.4
Inventories
256.2
162.3
Net assets of discontinued operations and other assets
–
102.
held for sale
36.7
Deferred income taxes
93.7
Prepaid expenses and other current assets
17.2
40.4
————
————
Total current assets
658.0
624.1
Property, plant and equipment, net
240.9
220.1