E17.14. A Financial Statement Restatement: Sunbeam (Hard) By the mid-1990s, Sunbeam Corporation, the once celebrated household appliance manu- facturer, was reporting lackluster sales and losses. New management, engaged in 1996 to turn the company around, implemented a major restructuring and trumpeted higher sales and prof- itability. The fam's stock price rose 50 percent over 1997 as results confirmed the predictions. In 1998, the firm restated its annual reports for 1996 and 1997 with the following introduction: Subsequent to the issuance of the Company's Consolidated Financial Statements for the fiscal years ended December 28, 1997, and December 29, 1996, it was determined that the reported results generally inflated 1997 results at the expense of 1996 results. The firm's stock price dropped from $50 to $10 after the announcement of the restatement. Part of the restatement had to do with improperly recognized sales. Net sales for 1997 were restated from $1.168 billion down to $1.073 billion but those for 1996 were un- changed. Expenses in both years were affected, however. Exhibits 17.2 and 17.3 are the original and restated cash flow from operations. What were the aspects of the original reports that had to be restated?

Operating activities Net earnings (loss) SUNBEAM CORPORATION Adjustments to reconcile net earnings (loss) 1997 1996 $109,415 $228,262) to net cash provided by (used in) operating activities Depreciation and amortization 38,577 47,429 Restructuring, impairment, and other costs 154,869 Other noncash special charges 128,800 Loss on sale of discontinued operations, net of taxes 13,713 32,430 Deferred income taxes 57,783 (77,828 Increase (decrease) in cash from changes in working capital Receivables, net (84,576) (13,829) Inventories (100,810) (11,651) Accounts payable (1,585) 14,735 Restructuring accrual (43,378) Prepaid expenses and other current assets and liabilities Income taxes payable Payment of other long-term and nonoperating abilities Other, net Net cash provided by (used in) operating activities (9,004) 2,737 52,844 (21,942) (14,682) (27,089) (26,546) 13,764 $ (8.249) $ 14,163 Operating activities Net earnings(os) SUNBEAM CORPORATION Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities Restated Restated 1997 1996 $38,301 $(208,481) Depreciation and amortization 39,757 47,429 Restructuring and asset impairment (benefits) charges (14,582) 110,122 Other noncash special charges 70,847 Loss on sale of discontinued operations, net of taxes 14,017 39,140 Deferred income taxes 38,824 (69,206) Increase (decrease) in cash from changes in operating assets and liabilities from continuing operations Receivables, net (57,843) (845) Proceeds from accounts receivable securitization 58,887 Inventories (140,555) 11,289 Accounts payable 4,261 11,029 Restructuring accrual (31,957) Prepaid expenses and other current assets and liabilities (16,092) 39,657 Income taxes payable 52,052 (21,942) Payment of other long-term and nonoperating liabilities Other, net (1,401) (27,089) 10,288 12,213 Net cash (used in) provided by operating activities $ (6.043) $ 14,163