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Kidicious
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Diety of Kidiverse
Mar 2003
time: 21:34
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Ok, how about this.....
To illustrate how important truthful and accurate revenue recognition is take the case of Al Dunlap, previously CEO of Sunbeam Corporation. Sunbeam was desperate in 1996. Its earnings and stock price had been declining for years. That’s when they hired Al Dunlap, also known as Chainsaw Al as well as other names that describe his willingness to do anything to improve a companies stock price, as CEO because he had a reputation for being the greatest CEO at turning around companies and improving their stock prices drastically. Dunlap had a reputation for having no ethical responsibility at all. He did, however, have a reputation for holding shareholder wealth in very high regard. Immediately after Dunlap was hired, in July of 1996, the stock price went through the roof on the expectations that Dunlap would turn around another company. On the very day he was hired the stock price increased 49%, from 121/2 to 185/8. By March 1998 the stock price was up to $52 pre share based on the expectations that Chainsaw Al was turning the company around like he always had.1
In April, Andrew Shore, a stock analyst at Paine Webber, started to notice some things that didn’t seem right. For example, Sunbeam reported a sharp increase in sales of electric blankets in the third quarter, not the forth quarter when people usually buy more electric blankets. Another example, the corporation reported sales of grills increasing in the forth quarter when one would expect them to increase in the summer when people use grills the most. The analyst advised selling Sunbeam’s stock just before the corporation reported a quarterly loss of $44.6 million. Sunbeam’s stock fell 25% that day as investors started to become disillusioned with Chainsaw Al Dunlap and Sunbeam Corporation.
Millions of dollars of wealth were wiped out and investor confidence in the financial system was diminished.
Sunbeam had been using a method of revenue recognition called “bill and hold,” which is not necessarily illegal. However, done illegally, or not, it misinforms investors and can cause chaos.
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05-04-2005 07:38
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