Case Analysis of Sunbeam Corporation
Analysis of case 1.4
Sunbeam: The Revenue Recognition Principle
1. Company history
← In April 1996, Sunbeam appointed Albert Dunlap as its CEO and chairman.
← Immediately, the CEO began replacing nearly all of the upper management team and led the company into aggressive corporate restructuring.
← As at end of March 1997, the company arranged special sales contract with the wholesaler provided that the wholesaler could return all of the merchandise, with Sunbeam paying all costs of shipment and storage. This represented a new distribution channel for the company.
← By the 4th quarter of 1997, Sunbeam had recognized $29 million in revenues from bill and hold sales after it began promoting this program. This contributed an additional $4.5 million toward net income in bill and hold sales.
← Bill and hold sales contributed to 10% of the 4th quarter’s revenue of 1997.
← In May 1998, Sunbeam disappointed investors with its announcement that it had earned a worse-than-expected loss of $44.6 million in the 1st quarter of 1998.
← The CEO and chairman Dunlap was fired in June 1998.
← In Oct. 1998 Sunbeam restated its financial statements for 1996, 1997, and 1998.
2. Sunbeam’s Revenue Recognition practice
➢ The SEC found that Sunbeam’s bill and hold sales were not requested by its customers and served no business purpose other than to accelerate revenue recognition by Sunbeam. Accordingly, the company had recognized revenue of $29 million from bill and hold sales in 1997.
➢ Sunbeam encourages the sales to occur long before the customer actually needed the goods, through offering financial incentives such as discounted pricing to its customers.
➢ Sunbeam holds the product until delivery was requested by the customer.
➢ Sunbeam’s customers had the right to return the unsold product.
➢ Sunbeam was unable to set an appropriate level of
Sunbeam: The Revenue Recognition Principle
1. Company history
← In April 1996, Sunbeam appointed Albert Dunlap as its CEO and chairman.
← Immediately, the CEO began replacing nearly all of the upper management team and led the company into aggressive corporate restructuring.
← As at end of March 1997, the company arranged special sales contract with the wholesaler provided that the wholesaler could return all of the merchandise, with Sunbeam paying all costs of shipment and storage. This represented a new distribution channel for the company.
← By the 4th quarter of 1997, Sunbeam had recognized $29 million in revenues from bill and hold sales after it began promoting this program. This contributed an additional $4.5 million toward net income in bill and hold sales.
← Bill and hold sales contributed to 10% of the 4th quarter’s revenue of 1997.
← In May 1998, Sunbeam disappointed investors with its announcement that it had earned a worse-than-expected loss of $44.6 million in the 1st quarter of 1998.
← The CEO and chairman Dunlap was fired in June 1998.
← In Oct. 1998 Sunbeam restated its financial statements for 1996, 1997, and 1998.
2. Sunbeam’s Revenue Recognition practice
➢ The SEC found that Sunbeam’s bill and hold sales were not requested by its customers and served no business purpose other than to accelerate revenue recognition by Sunbeam. Accordingly, the company had recognized revenue of $29 million from bill and hold sales in 1997.
➢ Sunbeam encourages the sales to occur long before the customer actually needed the goods, through offering financial incentives such as discounted pricing to its customers.
➢ Sunbeam holds the product until delivery was requested by the customer.
➢ Sunbeam’s customers had the right to return the unsold product.
➢ Sunbeam was unable to set an appropriate level of