Albert J. Dunlap Case
In April 1996, Sunbeam hired Albert J. Dunlap as its CEO. Dunlap led the company in a corporate restructuring. This restructuring provided a hefty reserve to protect against future earnings shortfalls. The restructuring reserve included the following: 1) $18.7 million of items that benefited future periods, 2) $12 million in litigation reserves which did not met the criteria of a loss contingency, and 3) $21.8 million in a cooperative advertising reserve which was approximately 25 percent higher than the previous year without a proportional increase in sales.
Sunbeam also implemented various methods of accelerating revenue recognition in an attempt to increase its stock price. These methods included recognizing revenue from the following:
1) bill and hold sales requested by Sunbeam, through the offering of discounts, which served no valid business purpose, and 2) guaranteed sales agreements in which no reserves were set up for possible future returns.
These accounting errors led to the eventual firing of Dunlap and a restatement of Sunbeam¡¦s financial statements for FY 1996, 1997, and the first quarter of FY 1998. The restatement did the following: 1) reduced the 1996 net loss by $20 million, 2) reduced 1997 net income by $71 million, and 3) increased 1998 earnings by $10 million. A total of $62 million of Sunbeam¡¦s 1997 reported $189 million pre-tax income was a result of fraud.
The following major points can be ascertained from the report:
X In 1996, Sunbeam¡¦s CEO and Chairman, Albert J. Dunlap led the company in a corporate restructuring which provided a hefty reserve to protect against future earnings shortfalls.
X Sunbeam also implemented methods of accelerating revenue recognition including improper bill and hold sales as well as guaranteed sales agreements in an attempt to increase its stock price.
X These methods led to the eventual firing of Dunlap and a restatement of Sunbeam¡¦s financial statements for FY 1996, 1997, and the first quarter of FY 1998.
X $62 million of Sunbeam¡¦s 1997 reported $189 million of pre-tax income was a result of fraud.
Sunbeam also implemented various methods of accelerating revenue recognition in an attempt to increase its stock price. These methods included recognizing revenue from the following:
1) bill and hold sales requested by Sunbeam, through the offering of discounts, which served no valid business purpose, and 2) guaranteed sales agreements in which no reserves were set up for possible future returns.
These accounting errors led to the eventual firing of Dunlap and a restatement of Sunbeam¡¦s financial statements for FY 1996, 1997, and the first quarter of FY 1998. The restatement did the following: 1) reduced the 1996 net loss by $20 million, 2) reduced 1997 net income by $71 million, and 3) increased 1998 earnings by $10 million. A total of $62 million of Sunbeam¡¦s 1997 reported $189 million pre-tax income was a result of fraud.
The following major points can be ascertained from the report:
X In 1996, Sunbeam¡¦s CEO and Chairman, Albert J. Dunlap led the company in a corporate restructuring which provided a hefty reserve to protect against future earnings shortfalls.
X Sunbeam also implemented methods of accelerating revenue recognition including improper bill and hold sales as well as guaranteed sales agreements in an attempt to increase its stock price.
X These methods led to the eventual firing of Dunlap and a restatement of Sunbeam¡¦s financial statements for FY 1996, 1997, and the first quarter of FY 1998.
X $62 million of Sunbeam¡¦s 1997 reported $189 million of pre-tax income was a result of fraud.