there are two parts to this examination part 1 13 points part 2 7 points total 20 po 249651

ACG6175 – Final Examination

• 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) today

announced 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’s

1997 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

Sunbeam’s 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 numbers from

1)a. (above) re-compute Sunbeam’s 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)

You read in your text about the factors that Michael Porter identifies as

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

information that might be useful for assessing each factor noted

above. Be sure to explain specifically how each example might be

used in assessing the elements of of a firm’s 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

As of December 28, 1997, the Company had cash and cash equivalents of

$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 &

administrative expense 131.1 214.0(b) 32.7 94.(b)

Restructuring, impairment

and other costs – 154.9 – 154.9

———— ———— ———— ————

Operating earnings/(loss) 199.4 (285.3) 66.7 (289.4)

% of sales 17.1% -29.0% 19.7% -107.6%

Interest expense and

other, net 10.2 17.3 4.1 4.0

———— ———— ———— ————

Earnings (loss) from continuing operations

before income taxes 189.2 (302.6) 62.6 (293.4)

Income taxes (benefit) 66.1 (105.9) 20.9 (103.0)

———— ———— ———— ————

EARNINGS (LOSS) FROM

CONTINUING OPERATIONS 123.1 (196.7) 41.7 (190.4)

Earnings (loss) from discontinued operations,

net of tax (13.7) (32.4) – (32.4)

———— ———— ———— ————

Loss on sale of discontinued

operations, net (13.7) (32.4) – (32.4)

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 28, December 29,

1997 1996

———— ————

ASSETS

Current assets:

Cash and cash equivalents $52.4 $11.5

Receivables, net 295.5 213.4

Inventories 256.2 162.3

Net assets of discontinued operations and other assets

held for sale – 102.

Deferred income taxes 36.7 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

Trademarks and trade names, net 194.4 200.3

Other assets 27.0 28.2

———— ————

$1,120.3 $1,072.7

============ ============

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable 105.6 107.3

Restructuring accrual 10.9 63.8

Other current liabilities 81.6 100.4

———— ————

Total current liabilities 198.1 271.5

Long-term debt 194.6 201.1

Deferred income taxes 54.6 52.3

Non-operating and other long-term liabilities 141.1 152.5

Shareholders’ equity 531.9 395.3

———— ————

$1,120.3 $1,072.7

============ ============

SUNBEAM CORPORATION AND SUBSIDIARIES – CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

FISCAL YEARS ENDED DECEMBER 28, DECEMBER 29, DECEMBER 31,

1997 1996 1995 _

OPERATING ACTIVITIES:

Net earnings (loss) ……. $ 109,415 $ (228,262) $ 50,511

Adjustments to reconcile net earnings (loss) to net cash provided by (used in)

operating activities:

Depreciation and amortization 38,577 47,429 44,174

Restructuring, impairment & other — 154,869 —

Other non-cash special charges — 128,800 —

Loss on sale of discontinued

operations, net of taxes … 13,713 32,430 —

Deferred income taxes ……. 57,783 (77,828) 25,146

Increase (decrease) in cash from changes

in working capital:

Receivables, net ………… (84,576) (13,829) (4,499)

Inventories …………….. (100,810) (11,651) (4,874)

Account payable …………. (1,585) 14,735 9,245

Restructuring accrual ……. (43,378) — —

Prepaid expenses and other current

Assets and liabilities ….. (9,004) 2,737 (8,821)

Income taxes payable …….. 52,844 (21,942) (18,452)

Payment of other long-term and

non-operating liabilities .. (14,682) (27,089) (21,719)

Other, net ……………… (26,546) 13,764 10,805

Net cash provided by (used in)

operating activities ……. (8,249) 14,163 81,516

INVESTING ACTIVITIES:

Capital expenditures ……. (58,258) (75,336) (140,053)

Decrease in restricted investments — — 45,755

Proceeds from sale of divested

Operations and other assets 90,982 — —

Purchase of businesses — — (13,053)

Other, net …………….. — (860) —

Net cash provided by (used in)

investing activities …… 32,724 (76,196) (107,351)

FINANCING ACTIVITIES:

Net borrowings (revolving credit) 5,000 30,000 40,000

Issuance of long-term debt . — 11,500 —

Payments of debt obligations (12,157) (1,794) (5,417)

Proceeds from exercise of

stock options …………. 26,613 4,684 9,818

Purchase of treasury stock.. — — (13,091)

Sale of treasury stock ….. — 4,578 —

Payments of common dividends (3,399) (3,318) (3,268)

Other financing activities . 320 (364) (264)

Net cash provided by financing 16,377 45,286 27,778

Net increase (decrease) in

cash and cash equivalents . 40,852 (16,747) 1,943

Cash and cash equivalents

at beginning of year …… 11,526 28,273 26,330

Cash and cash equivalents

at end of year ………… $ 52,378 $ 11,526 $ 28,273

SUNBEAM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenues from product sales principally at the time

of shipment to customers. In limited circumstances, at the customers request

the Company may sell seasonal product on a bill and hold basis provided that

the goods are completed, packaged and ready for shipment, such goods are

segregated and the risks of ownership and legal title have passed to the

customer. The amount of such bill and hold sales at December 29, 1997 was

approximately 3% of consolidated revenues.

RECLASSIFICATION

In December 1997, the Company entered into a revolving trade accounts

receivable securitization program to sell without recourse, through a whollyowned subsidiary, certain trade accounts receivable. The maximum amount of

receivables that can be sold through this program is $70 million. At December

28, 1997, the Company had received approximately $59 million from the sale of

trade accounts receivable. The proceeds from the sale were used to reduce

borrowings under the Company’s revolving credit facility. Costs of the program,

which primarily consist of the purchaser’s financing cost of issuing commercial

paper backed by the receivables, totaled $.2 million during 1997, and have been

classified as interest expense in the accompanying Consolidated Statements of

Operations. The Company, as agent for the purchaser of the receivables, retains

collection and administrative responsibilities for the purchased receivables.

7. SUPPLEMENTARY FINANCIAL STATEMENT DATA

Supplementary Balance Sheet data at the end of each fiscal year is as

follows (in thousands):

1997 1996 _

Receivables:

Trade …………………………….. $ 305,219 $ 227,043

Sundry ……………………………. 7,794 2,412 _

313,013 229,455

Valuations allowances ………………. (17,463) (16,017)_

$ 295,550 $ 213,438 _

Inventories:

Finished goods ……………………… $ 142,976 $ 84,813

Work in process …………………….. 26,237 25,167

Raw materials and supplies …………… 86,967 52,272_

$ 256,180 $ 162,252_

Property, plant and equipment:

Land ……………………………….. $ 1,793 $ 2,524

Buildings and improvements ……………. 98,054 95,619

Machinery and equipment ………………. 245,824 258,199_

345,671 356,342

Accumulated depreciation and amortization .. (104,774) (136,254)

$ 240,897 $ 220,088_

Trademarks and trade names:

Gross ……………………………….. $ 237,095 $ 245,307

Accumulated amortization ………………. (42,723) (45,045)_

$ 194,372 $ 200,262 _

8. RESTRUCTURING, IMPAIRMENT AND OTHER COSTS

Amounts included in Restructuring, Impairment and Other Costs in 1996 in

the accompanying Consolidated Statement of Operations include cash items such

as severance and other employee costs of $43.0 million, lease obligations and

other exit costs associated with facility closures of $12.6 million, $7.5

million of start-up costs on back office outsourcing initiatives and other

costs related to the implementation of the restructuring and growth plan. Noncash Restructuring, Impairment and Other Costs in 1996 include $91.8 million

related to asset [property, plant & equipment] write-downs to net realizable

value for disposals of excess facilities and equipment and non-core product

lines, write-offs of redundant computer systems from the administrative backoffice consolidations and outsourcing initiatives and intangible, packaging and

other asset write-downs related to exited product lines and SKU reductions.

9. DISCONTINUED OPERATIONS AND OTHER ASSETS HELD FOR SALE

As part of the restructuring plan and redefinition of its core businesses,

the Company also announced the divestiture of the furniture business, by a sale

of assets. In February 1997, the Company entered into an agreement to sell the

business to U.S. Industries, Inc. which was completed on March 17, 1997. In

connection with the sale of these assets (primarily inventory, property, plant

and equipment), the Company received $69 million in cash. The Company retained

accounts receivable related to the furniture business of approximately $50.0

million as of the closing date.

11. CUSTOMER AND GEOGRAPHIC DATA

Classes of products which contributed more than 10% to consolidated sales

were outdoor home use durable products $325.8 million in 1997 and $256.9

million in 1996, and indoor home use durable products $769.6 million in 1997

and $680.7 million in 1996. Sales of outdoor cooking products accounted for

approximately 34% of the Company’s domestic net sales in 1997. The Company’s

largest customer (Wal-Mart) accounted for approximately 21% of consolidated net

sales in 1997 and 19% in 1996 and 1995.

VALUATION AND QUALIFYING ACCOUNTS: FISCAL YEARS 1997, 1996 AND 1995

(DOLLARS IN THOUSANDS)

BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT

BEGINNING COSTS AND END OF

OF PERIOD EXPENSES PERIOD _

Allowance for doubtful

accounts and cash discounts: $ (2,000)(a)

Fiscal year ended 8,948 (b)

December 28, 1997.. $16,017 $ 8,411 17 (c) $17,463

$ (233)(a)

Fiscal year ended 19,911 (b)

December 29, 1996 …… $12,326 $23,369 — (c) $16,017

$ 715(a)

Fiscal year ended 6,988 (b)

December 31, 1995 …… $ 9,416 $10,651 38 (c) $12,326

—————-

Notes: (a) Reclassified to/from accrued liabilities for customer deductions.

(b) Accounts written off as uncollectible.

(c) Foreign currency translation adjustment.

Attachments:

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