What's ahead for Sunbeam after 'Chainsaw Al' Future deemed uncertain after profit restatement

The Outlook

October 25, 1998|By William Patalon III

SUNBEAM CORP., a one-time competitor and nemesis of locally based Black & Decker Corp., recently fired Chief Executive Officer "Chainsaw Al" Dunlap and restated its 1997 earnings last week, wiping out its record profit for last year.

The company seems to have the cash and available credit to avoid a bankruptcy filing -- a possibility that had spooked Wall Street -- but its long-term prospects remain unclear. The following are some views about what lies ahead for Sunbeam.

Efraim Levy

Analyst, Standard & Poor's Corp., New York

In a word, relief. Wall Street hates uncertainty. Longer-term, they have good brands, but a difficult operating environment, a highly competitive market and slow growth. I have it rated as an "avoid." If you're an investor, that means stay away.

Jerry W. Levin

President and CEO, Sunbeam Corp., Delray Beach, Fla.

With the restatement behind us, we will now be able to fully focus our efforts on growing the business and restoring profitability. Our financial results for the remainder of 1998 will be negatively affected by significant charges related to operational changes, excess inventory and other nonrecurring items.

The adjustments and the charges for this year will be largely noncash and therefore will not have a significant effect on Sunbeam's liquidity. In addition, an agreement with our lenders to modify covenant requirements through April 10, 1999, will provide financial resources to run our business and meet our obligations.

Al Alaimo

High-yield bond analyst for NationsBanc Montgomery Securities LLC, Chicago

Near-term, when they do report second- and third-quarter results for the rest of 1998, the operating results are going to be horrible.

Operating income and [cash flow] are going to be off substantially vs. last year. And if this is due to excess inventory they have, as well as the excess inventory that's in the retail channel, it limits their ability to sell product. I think that the old management apparently may have cut some unfavorable deals with retailers to sell product and that will hurt profit margins.

The overall company has been in disarray for much of this year. [Dunlap's] whole turnaround was a sham.

Now they have to pay the piper. I think it's a tossup whether this company ends up in Chapter 11. They leveraged up this company's balance sheet with over $2 billion in debt.

I have serious reservations about whether this company could handle its debt load.

Albert J. "Chainsaw Al" Dunlap

Deposed head of Sunbeam

I am heartened by the results of Sunbeam's long-awaited restatement, for it confirms what I have been saying for the past four months: There were no improprieties or illegalities in the manner in which either I or my management team conducted Sunbeam's business.

The items at issue in Sunbeam's restatement are items that were fully disclosed to and examined by Sunbeam's outside auditors, Arthur Andersen, before they certified Sunbeam's 1996 and 1997 financial statements, and the conclusions certified by Arthur Andersen were fully reviewed by Sunbeam's Audit Committee prior to their release.

Most, if not all, of Sunbeam's restatement corrections appear to be after-the-fact alterations to management estimates rather than errors or misstatements.

However, these technical accounting issues are ultimately resolved -- and my consultants from PricewaterhouseCoopers will closely scrutinize and test each of the restated items once we obtain the underlying documents to which we have thus far been denied access. There has been no allegation of any management wrongdoing.

Pub Date: 10/25/98

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