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On March 3, 1998, Sunbeam Corporation announced the acquisition of three companies Coleman, Mr. Coffee, and Signature Brands - for a price of $1.8 billion. The move came five weeks after the company had announced record sales and earnings for the fourth quarter and full year 1997 and served to quiet some of the critics of Sunbeams CEO, Albert Dunlap. Both praised and defamed for his radical approach to turning around troubled enterprises, Dunlap took command of Sunbeam in July 1996, six months after completing the sale of Scott Paper and departing with $100 million compensation. Many expected a repeat of the Scott Paper model: aggressive cost-cutting through plant closings and lay-offs, sale of non-core business units, and a flurry of new product introductions, all generating increased investor interest, a rising stock price and sale of the company. The three acquisitions, however, coupled with a new three-year contract that Dunlap had signed a few weeks earlier, appeared to signal an intent to build, rather than sell, Sunbeam, and the CEO boasted of creating a potential Procter & Gamble of worldclass branded durable goods. This was his biggest accomplishment in a long career.

To Dunlap, the acquisitions offered a means to unleash a quantum leap in creating shareholder value and a way to achieve the sales and growth targets he had set in the fall of 1996. The market reacted to the March 3 news by driving up Sunbeam shares 24% in a week to a record $53, more than quadruple the price when Dunlap was hired (see Exhibit 1). Many analysts continued to recommend the stock, noting additional opportunities for Dunlap to cut costs from the acquired companies and citing Sunbeams increased ability to service large retail customers, which were eliminating smaller suppliers. One observer suggested that Dunlap had carved a kindlier image of himself: Al Dunlap, builder and that in recognition of his efforts, Equity Al be added to the less flattering monikers Chainsaw Al and Rambo in Pinstripes, which Dunlap had borne for many years. In spite of the positive press that accompanied Dunlaps achievements at Sunbeam, critics of his turn-around practices and business values remained. Many were skeptical of the long-term sustainability of Equity Als approach and the aggressive goals he had set for Sunbeam.

Sam Perkins prepared this case with the assistance of David Wylie, director of Babson College Case Publishing, under the direction of Professors Ross Petty, Virginia Soybel, Phyllis Schlesinger, and Al Anderson, all of Babson College, as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Copyright by Babson College 1999 and licensed for publication to Harvard Business School Publishing. To order copies or request permission to reproduce materials, call (800) 545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of copyright holders.

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Al Dunlap Background Albert J. Dunlap was born in 1937 and raised in Hoboken, New Jersey. He often boasted of his dirt-poor, working class roots where he had zero privilege, and he used the pain of his fathers job losses to demonstrate a connection with the personal hardships endured by victims of his cost-cutting lay-offs. The portrait of a struggling lower-class family was contradicted, however, by Dunlaps sister and ex-wife, who claimed that the family enjoyed a relatively prosperous middle-class existence and that Albert had created a self-serving fiction and turned his back on both the truth and family members. After high school, Dunlap attended West Point, graduating 537 out of a class of 550 in 1960, and then served as a paratrooper and executive officer of a nuclear missile installation in eastern Maryland. Dunlap credited military training with giving him discipline, organizational skills, competition and leadership and stated that West Point was all the training he needed for a life in business. Early Business Career

After three years of military service, Dunlap entered a management training program at Kimberly-Clark and was assigned to the companys plant in Neenah, Wisconsin. In four years he rose from superintendent to project leader, learning every phase of paper production and product and process R&D. Dunlap credited his boss, Frank Nobbe, with demonstrating leadership practices that strongly influenced his own emerging management approach: setting rigorous standards, demanding top performance, being tough on those who didnt measure up, walking the shop floor and talking to employees by name. Dunlap also acquired a strong disdain for the management bureaucracy he saw at Neenah and for the inability or reluctance of some managers to tackle difficult issues and make decisions. In 1966, Dunlap was hired by Sterling Paper as general superintendent at its plant in Eau Claire, Wisconsin and was given a mandate to resolve a host of labor and operating problems. He spent ten years at the plant and was credited with improving labor relations, cutting costs and boosting market share through new product development. Sterling sold the Eau Claire plant in 1977 and Dunlap took a job in strategic planning at American Can Company in Greenwich, CT., where he was promoted to senior vice president of the Performance Plastics Division and became a member of the management executive committee in 1981. Kohlberg, Kraft, Roberts, a Wall Street investment firm specializing in leveraged buyouts, recruited Albert Dunlap in 1983 to turn around Lily-Tulip, the second largest paper cup manufacturer in the US, which KKR had purchased in 1982 for $180 million. In moves that would become hallmarks of his rapid-fire approach, Dunlap fired most senior managers his first day and quickly embarked on a campaign to drastically cut headquarters staff and relocate HQ operations. He sold off several older plants, increased R&D spending and investment in automated equipment and introduced a new product line. Within twelve months the company was profitable, and by the end of 1984 CEO Dunlap had turned the 1982 loss of $11 million into a $23 million profit, while reducing debt from $165 million to $43 million. In 1986, Sir James Goldsmith, international businessman notorious for hostile takeovers, hired Dunlap as CEO of Crown-Zellerbach, an underperforming company with timberlands, pulp and paper plants and oil and gas resources. Again, HQ relocation, staff cuts, and plant process investment, coupled with a revamped timber cutting strategy, quickly boosted profits and earned Dunlap the opportunity to turn-around another of Goldsmiths forest products companies, Diamond International. Sir
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James coined the term Rambo in Pinstripes, intended as a positive appellation to signify Dunlaps ability to go into chaotic situations, clean them up and win the war. In 1991, Kerry Packer, an Australian businessman and friend of Goldsmiths, persuaded Dunlap to take on the challenge of revitalizing Australian National Industries, a engineering firm burdened with financial and strategic problems caused by diversification into manufacturing and equipment leasing. Dunlap reversed most of the expansion efforts and refocused the company on its core engineering expertise, selling off other business and reducing the workforce by half. He then took on Packers Consolidated Press Holdings, a behemoth with 431 businesses that lost $25 million in 1992. Although Dunlap succeeded in substantially increasing profits at CPH by selling all but 100 divisions and reducing costs, Packer terminated his five year contract after two years, apparently upset by asset sales that he thought were below market value. Nevertheless, Dunlaps reputation as a turn-around specialist had been firmly established and his Chainsaw Al nickname, initially intended to express positive attributes, was permanently attached.1 Scott Paper In 1994, Scott Paper, a 115-year-old $5 billion global forest-products company, was a stumbling giant. Since 1989, per share earnings had declined 61%, sales had been flat, and leading products, such as Scott Paper Towels and Tissues, had lost market share. The company had been saddled with an ill-timed 1990 capacity expansion in its coated paper division, S.D. Warren, and plagued by noncompetitive marketing against rivals Kimberly Clark and Procter and Gamble. CEO Phillip Lippincott presided over three restructurings between 1990 and 1994 with little apparent impact on problems or results. His final effort was announced in January 1994, shortly before his departure, and included plans to lay off 25% of the global workforce, 8,300 employees, over the following three years. Scotts Board of Directors turned to Albert Dunlap to rescue the foundering company and hired him in April 1995 after only six days of negotiations, which included an agreement for Scott to buy Dunlaps recently purchased $3.2 million Florida house. Reactions were mixed to the hiring of Dunlap, who arrived with his Chainsaw and Rambo nicknames and a reputation as a turn-around specialist who emphasized short-term cost cutting. Some industry observers were surprised that after all the restructurings of the previous years, the Scott Paper board hadnt brought in a morale builder, especially one with marketing and consumer packaging expertise. Wall Street analysts, however, generally applauded the move, though one disparaged the CEOs inability to remain in one job longer than a few years. Bruce Kirk of S.G. Warburg summarized the ambivalence that greeted Dunlaps arrival: Dunlap could really shake things up. It could be good. On the other hand, he could over-cut and over-demoralize, and at the end of five years, maybe you have reduced costs, but at the same time youve reduced the number of effective personnel and the quality of the organization.2

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John Aspinwall, a British personality, was credited with the description: Al is like a chainsaw. He goes in and cuts away all the fat and leaves a great sculpture. 2 Financial World, June 21, 1994, Ming the Merciless
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Restructuring Dunlap started at Scott Paper on April 19, 1994 and immediately sought to establish one of his core precepts - aligning management and shareholder interests - by purchasing $2 million of Scott stock on the open market at $38 per share. He also continued a tradition from earlier turn-arounds by immediately sacking most of the top management. In his first few days Dunlap attended several meetings of the 11-member executive committee and was not pleased by the evidence of plodding bureaucracy and lack of accountability and leadership. We went through this absolute nonsense. There were items on the agenda that Scotts managers had wrestled with for years. There was even a person there who was hired at an obscene salary to make sure everybody got along together. And I thought to myself: This cant be. This management has to go. A corporate morale officer? To hell with harmony - get rid of her.3

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Dunlap believed that large committees were unproductive and political, and by May 1 he had created a new operating committee of five, comprised of two current senior managers and three former associates from his days at Lily-Tulip and Goldsmiths firm, GOSL Acquisition. Russell Kersh, SVP Finance and Administration, John Murtaugh, SVP and General Counsel, and Jack Dailey, VP Procurement, Distribution and Logistics, rejoined Dunlap within ten days of his start. Dunlap saw the overhaul of senior management as part of a necessary change in corporate culture. I want to totally change Scotts culture, from one of just getting by to a dynamic business that takes responsibility and overcomes obstacles with a high level of discipline and accountability. You have to get rid of people who represent the old culture, or they will fight you4. With the assistance of C. Don Burnett from Coopers and Lybrand, who had consulted on a half-dozen projects over 14 years, Dunlap and his new management team spent several months developing a turn-around plan. Unveiled in July, the plan was set to be implemented by December 31, 1994. Dunlap was passionate about the benefits of rapid rather than prolonged restructuring, the latter of which he believed created unrest, a lack of commitment and a bit of paranoia. You have a window of one year, and I passionately believe at the end of a year the window comes down like a steel door. If by then you havent shown great leadership, dealt with the restructuring and determined what business youre in, its over.5 If you ever see a CEO quoted that hes going to restructure over two or three years, forget it. Itll never happen. Period. I told the board that I was going to restructure the business the same year I was hired, to get it behind us. 6
Across the Board, February 1995, Tough Guy Pulp & Paper, December 1994, Scott Paper Co.: Four step program restructures operations 5 Forbes, August 28, 1995, You want somebody to like you, get a dog 6 Across the Board, February 1995, Tough Guy
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The four-point plan included the same generic elements Dunlap had employed in previous efforts: new management team, assets sales, restructuring (cost reduction), and strategic investment. To complete his management overhaul, Dunlap brought in one new senior executive, Dick Nicolosi, a 20-year veteran from Procter and Gamble, to head up consumer marketing. By the end of 1994, the other three components of the plan were substantially complete. Asset sales - Focus on Core Business Dunlap was a fervent critic of the conglomerate concept, and a theme common to all his turn-around efforts was the strategy of determining a companys core business and divesting all non-core operations. He believed that Scott could not support two capital-intensive businesses and decided to focus on paper products, where Scott, despite market share losses, still held the number one position. Within a month Dunlap put S.D. Warren, the coated papers division, up for sale and by December 1994 it was sold to a South African company for $1.6 billion. Other asset sales in 1994 included a power plant in Mobile Alabama for $350 million, and Scotts health care and food services units for $110 million. Also noteworthy as part of Dunlaps effort to change the corporate culture were the sale of the corporate jet and the expansive 55-acre headquarters campus outside Philadelphia. Believing that the success of a corporation is inversely proportionate to the size of its headquarters, Dunlap moved the HQ into 30,000 leased square feet in Florida. Proceeds of the asset sales were employed to reduce debt by $1.5 billion and to invest in core operations. Restructuring - Facility Closing and Workforce Reductions By the end of 1994, Dunlap oversaw the largest proportionate restructuring of a US corporation, including a 34% reduction in headcount and the sale or closure of 41 of the companys 60 facilities. According to Dunlap, his team eschewed the concept of across-theboard percentage cuts and instead spent three months almost full time talking to every department head, analyzing the functions.7 Over the course of this effort, Dunlap claimed to have traveled the equivalent of 2.6 times around the globe, visiting every facility and shaking hands with 7 to 11 thousand employees. More than 11,000 employees were eliminated from Scotts payroll. The headquarters staff was reduced by 71%, salaried management by 50%, and hourly employees by 20%. Many functions, such as Washington lobbyists, real estate, HR and IT were either eliminated entirely or outsourced. Additional cost reductions came from ending the use of most outside consultants ($30 million) and putting services such as auditing out to bid ($1.5 million annual savings). Further, Dunlap ended a tradition of Scott contributing $3 to $4 million a year to community organizations, terminated the practice of matching employee contributions to United Way and reportedly canceled the last $50,000 of a long-term commitment to the Philadelphia Museum of Fine Arts. As CFO Basil Anderson commented: The focus on shareholder value allows you to make better judgments on those kinds of expenses.8 Total pre-tax savings from the restructuring were projected at $340 million.

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Management Review, July 1995, Turnaround is fair play CFO, July 1995, How many masters can you serve
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Strategic Focus and Investment The fourth element of the turn-around plan consisted of global expansion initiatives, facility investment, and a massive marketing campaign, all well underway by the end of 1994. A joint venture with Shanghai Paper Ltd. made Scott the first major international tissue company to develop a presence in China, and a $148 million expansion project for 50%-owned Mexican affiliate provided capacity to support marketing efforts in Central and South America. Other investment included construction of $40 million facility in Yucca, Arizona, and $580 million for a new tissue machine in Owensboro, Kentucky. In 1994 and 1995, Scotts marketing initiatives included the launch of over 100 new products world wide, packaging redesign of virtually every product and major re-branding efforts in Europe. Management Principles In his accounts of the activities at Scott, Dunlap propounded a series of principles that guided the turn-around program and many of his actions. x Increasing shareholder value: Dunlaps mantra was: shareholders are the #1 constituency. He openly derided the trend, increasingly adopted by many major US corporations, to consider impacts on multiple stakeholders. Show me an annual report that lists 6 or 7 constituencies, and Ill show you a mismanaged company.9 x Aligning management and governance of the company with interests of shareholders: Dunlap expressed profound dislike for what he termed corpocracy, entrenched, incompetent management, with lavish perks and compensation unrelated to performance Americas aristocracy. He believed that linking management and directors intimately with the success of the company helped to ensure that shareholder value would become the primary goal. In addition to the $2 million Dunlap invested in April 1994, he purchased an additional $2 million of Scott Paper stock in late 1994 at $50 per share. He also persuaded senior management to follow his example, and claimed that they invested $2.5 million to purchase more than 40,000 shares. Dunlap forced changes in the make-up of the Board, persuading 7 of 13 Board members not to seek re-election. He also instituted a program of compensating outside Board members solely with stock -1,000 shares annually, replacing the common practice of paying directors fees and providing retirement benefits, stock options and other perks. At the time, Scott Paper was only the second US company to adopt such a Board compensation policy. x Disdain for management theories, fads and buzzwords: Dunlap showed a strong distaste for flavor of the day management theories, claiming that such concepts as quality and empowerment were nonsense. He believed that consensus management was a clear formula for mediocrity that takes you down to the lowest common denominator. 10 He did, however, give value to the buzzword culture. Every corporation has a culture. If its

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CFO, July 1995, How many masters can you serve Chief Executive, March 1995, Papers tiger
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a good one, nourish it and grow it; if its a bad one, dont send it into remission, eradicate it.11 Results - Praise and Criticism After little more than a half year into the turn-around plan, Dunlaps efforts appeared successful. Operating income for 1994 increased to $264.1 million, compared to a 1993 operating loss of $237.8 million, including restructuring charges, and both Moodys and S&P upgraded Scotts debt by two points. True to Dunlaps mantra of increasing shareholder value, the price of Scotts shares rose from $38 when Dunlap took over to $60 at the end of 1994 and $90 by June 1995. The business press and Wall Street generally praised Dunlaps efforts, heralding him as a turn-around champion and helping to boost Scotts stock to record highs. Shareholder activist groups also lauded Dunlap for his strongly-worded criticisms of the perks of entrenched management and for his directors stock compensation plan. Critics of Dunlaps tenure at Scott cited the harshness and heartlessness of the sudden massive layoffs and their impacts on communities - leaving tangible holes in the civic and social fabric. The swift reductions in headcount produced numerous anecdotes of loyal employees who saw jobs disappear in a single afternoon. Many claimed to have lost substantial pensions they would have received if they had stayed on a few more years. Bruce Arnold, who worked for 35 years as an engineer and production manager for Scott, expressed the pain. I gave a great deal of my life to trying to build a strong, viable corporation. To get whacked unceremoniously - you hear about the fact that the jobs gone away and youre asked to leave that afternoon - thats pretty damn hurtful.12 Additionally, former executives contradicted many of Dunlaps claims, from the speed in which he terminated the executive committee to his taking credit for signing JV agreements and investing in new facilities, projects which had been in the works long before he arrived. Some also belittled the claims of 100 new product introductions which included many minor, cosmetic changes in numerous different countries. Critics also charged that Scott was losing market share in three product fields in 1995 and had made serious marketing gaffes, such as eliminating strong local brand names in Europe in an attempt to create global Scott brands. Dunlap insisted that he accelerated and augmented many investments whose plans had been languishing. He defended the speed and size of the lay-offs as being necessary to save the remaining jobs and to re-direct the company as quickly as possible. When Newsweek asked 50 CEOs to comment on corporate restructuring, he was the only one willing to submit a response. You have to take risks in reducing staff. When in doubt cut it out. You can always add staff later if necessary. But you cant go back and take it out again. You paralyze the organization.13

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ibid. Across the Board, April 1996, After the fall 13 Forbes, August 28, 1995, You want somebody to like you, get a dog
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I think that, despite my hatchet-man nicknames, it was done by keeping intact the dignity of the people and the integrity of the organization.14 Sale of Scott Paper In July 1995, Scott announced an agreement to be acquired by Kimberly-Clark through a $47.7 billion stock swap that valued Scott shares at $51 ($102 pre-split). The shares had risen more than 150% in the fourteen months since Dunlap took over, creating $6.5 billion in shareholder value. The deal closed on December 31, 1995, and Dunlap retired with a $100 million compensation package, including $12 million salary (paid immediately), $60 million in stock options, a $20 million non-compete agreement, and the balance from sale of his own Scott shares. While critics contrasted the amount with the unemployment checks of those he had fired, Dunlap defended his earnings, claiming that he was a superstar in his field and comparing himself to Michael Jordan. Observers speculated on where he might land next, and Dunlap himself mentioned two possible situations - Westinghouse and Kmart, that could benefit from his turn-around expertise. Sunbeam Corporation The modern incarnation of Sunbeam as an independent enterprise dated to 1990 when financier Paul Kazarian teamed up with fund managers Michael Price and Michael Steinhardt and purchased the company for $135 million when it was in Chapter 11 bankruptcy as part of Allegheny Corporation. The investors sold shares to the public in 1992 at $12.50 per share for a total of $236 million but retained 42% of the stock. Price and Steinhardt took control in 1993, moved the headquarters from Rhode Island to Florida and hired Roger Schipke, former GE executive, as Chairman and CEO. After several years of prosperity, the manufacturer of kitchen appliances and a host of durable goods stumbled in 1995, losing share in core markets and seeing earnings fall. Price and Steinhardt hired Merrill Lynch to sell their stake at $17 per share but found no interest. With the stock hitting a low of $12, down from $26 a few years before, they fired Schipke and hired Al Dunlap for $1 million salary, options on 2.5 million shares with a strike price of $12.25 and a grant of 1 million restricted shares. Fresh from the large gains in Scott Paper, Wall Street greeted the news with expected enthusiasm, bidding the shares up 6 points - 50% -in one day. As he had with Scott, Dunlap dug into his own pocket to purchase stock, again trumpeting his alignment with shareholders. Contrary to the July 18th press report of the hiring, however, that stated Dunlap will invest $3 million of his own funds in Sunbeam stock, he actually acquired the stock before the press release at $12, purchasing treasury shares directly from the corporation to avoid the possibility of insider trading. The moral equivalent of frontrunning according to Sarah Teslik, the head of the Council of Institutional Investors.15

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In spite of the upsurge in the stock price, some observers, noting differences between Scott and Sunbeam, were skeptical of Dunlaps ability to achieve a fast turnaround and dramatic improvement in financial performance. While Scott had been bloated with debt and overhead, Sunbeam had recently been through bankruptcy and extensive cost-cutting. Compared to Scotts
Across the Board, February 1995. Tough Guy Money, September 1996, What Sunbeam isnt saying about its savior CEO and its50% stock spurt
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1600 corporate staff, Sunbeam had 120. Rising paper prices enabled the sale of S. D. Warren at top prices. Sunbeam competed in a crowded industry with strong foreign competition, low margins and products that were difficult to differentiate. Low cost producers quickly coped innovative features. Sunbeams large, national customers, such as such as WalMart, Target, and Kmart were gaining power and reducing the use of second tier suppliers, a level Sunbeam was approaching in various product categories. These customers also expected raw materials savings to be passed along to them and often required their suppliers to absorb retail markdowns. Many industry analysts expected a replay of Scott Paper: massive cost cutting to boost earnings and prepare Sunbeam for sale. One analyst speculated on the use of accounting maneuvers, such as massive write-offs of inventory, goodwill and capital investments for 1996 to conjure up the image of dramatically improved earnings the following year. First Actions and Turn-Around Plan Two days after he took charge at Sunbeam, Dunlap presided over a conference call with company analysts. Notwithstanding his lack of time at his new post, the CEO belittled the nonsense excuses of previous management, who he would have hung. Following the pattern of earlier turn-around projects, Dunlap moved quickly to fire most top executives and install new management. The Sunbeam Dream Team comprised a mixture of current talent, new recruits and several former associates from Scott, including Newt White, and Russell Kersh, who was on the job three days after his mentor. In typical fashion, the new CEO seemed to relish ousting those who did not immediately heed his call to action. When I took the job, it was a Thursday and I called a meeting for Monday. One person called me up and said: Im going on vacation. I said: Fine. Go on vacation and stay on vacation. On November 12, 1996 --less than 5 months after he was hired, Dunlap announced details of the turn-around plan, crafted by 17 management teams and the guidance of C. Don Burnett. Planned like the invasion of Normandy, it had proportionately more job cuts than at Scott. The plan called for the elimination of 50% of the total workforce (6,000 employees), closing 18 of 26 factories, 37 of 61 warehouses, and consolidation of 6 regional offices into a single headquarters in Florida. Non-core functions, such as the IS department, were cut or outsourced. Non-core business units that manufactured such products as outdoor furniture, bathroom scales, bedding and thermometers were targeted for sale. Dunlap also pledged to cut the number of products Sunbeam offered by 81% from 11,000 to 1,500. The moves were projected to save $225 million annually, and the company planned to take a $300 million pre-tax charge to cover the restructuring. The plans for massive job cuts sparked severe reaction from numerous critics of Dunlaps methods. Even the US Secretary of Labor, Robert Reich, commented that There is no excuse for treating employees as if they are disposable pieces of equipment.16 Alan Downs, a specialist on the drawbacks of downsizing, opined that a reduction of the size planned at Sunbeam could ravage workers morale, efficiency and productivity. You dont cut that dramatically without

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People Weekly, November 25, 1996, The terminator: Chainsaw Al Dunlaps success secret? He fires people
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creating chaos.17 Sunbeams Board of Directors, briefed on the plan only hours before it was made public, strongly endorsed Dunlap and the need to take strong action. During the November 12 conference call, Dunlap also spelled out specific growth and profitability targets for the following three years, including: doubling revenues to $2 billion (after divestitures), increasing international sales to $600 million, from $150 million in 1995, and increasing operating margins to 20% from 2.5% in 1995. He announced the goal of launching 30 new products a year, and introduced a new line of microchip-based logic products, such as Toast Logic Toaster and the Blanket with a Brain. Dunlap pledged to invest significantly in advertising to boost holiday sales of the new high-tech line. To spur international sales, Sunbeam planned to launch 40 products for 220-volt markets where it had been trying to push 110-volt (US standard) models.

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Many analysts and industry participants expressed skepticism about Dunlaps ability to reach his sales and profitability goals in a market where total growth was measured in single digits and where products quickly became commoditized. Top companies in similar businesses, such as Black and Decker and Newall, did not enjoy 20% margins. A top executive at Rival, a kitchen appliance manufacturer, commented that: Wed be laughed out of Wall Street if we made the same claims of future performance that Dunlap has made.18 According to published reports, Dunlap pushed his sales targets hard internally among senior executives and shouted down managers who questioned whether his goals were realistic. By his own admission, Dunlap liked to set tough standards and meet them: I wont accept losing. I dont believe theres anything you cant do within reason. It doesn't matter what it is; I want to win.19 Russ Kersh, who worked with Dunlap for 14 years, defended his bosss style and the environment he fostered: Sure he drives people hard, but thats how he gets the best out of us. People dont see the camaraderie that exists at Sunbeam -- that while we set high goals and hold ourselves to high standards, we share in our goals and can laugh at each other.20 Turn-around Results

By January 1997, two months after announcing its plan, Sunbeam had cut 3,000 jobs and sold one business. According to Andrew Shore, a Paine Webber analyst who recommended Sunbeam shares, the company was right on target, even earlier. In February, Dunlap purchased an additional $2 million worth of common stock on the open market. The April release of first quarter results showed earnings of $ .24 a share on a 10% sales gain, exceeding analystss estimates. Articles in the Wall Street Journal and Barrons, however, drew attention to
The Wall Street Journal, November 13, 1996, Dunlaps Ax Falls 6,000 Times at Sunbeam Barrons, June 16, 1997, High Noon at Sunbeam: does Chainsaw Al have a truly revived operation or something else in his sights? 19 Sales and Marketing Management, January 1998, Dog eat dog world 20 The Wall Street Journal, May 9, 1997, Letters to the Editor: Your Story Missed All the Good Parts
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end-of-quarter sales tactics, accounting issues and questionable elements of the $337 million 1995 restructuring charge that helped to boost those results. The analyses noted heavy discounting, examples of pressure on customers to purchase extra merchandise, and inventory write-downs. Even some company executives commented on the extreme measures taken to meet sales targets and the difficulty of replicating the feat. With such tactics not uncommon in the merchandising business, however, most investors ignored the warnings, focused on the positive earnings, and continued to bid up the price of the stock. Earnings hit $26.2 million for the 2nd quarter on a sales gain of 13%, up from $7.2 million in 96, and by August 1997, the stock climbed to 40, up 250% in a little more than a year of Dunlaps reign. Third quarter results, announced in October, showed earnings of $34.5 million on a 25% gain in sales. Later that month, the Wall Street Journal reported that Sunbeam had retained Morgan Stanley to study possible takeover candidates or the companys sale. Black & Decker, Whirlpool, Maytag and Rubbermaid were all cited as potential merger partners or takeover targets. With the rise in Sunbeams stock price to 47, analysts were doubtful Sunbeam would be bought at such a premium.21 No purchaser was found.

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By January 1998, with enhanced expectations of 4th quarter and full year results, Wall Street bid up the stock to 50, and a growing contingent of analysts was predicting a major acquisition. Press reports noted the evidence of a successful turn-around that showed deeper improvements at the company which set the foundation for continued growth. Among the items noted in a Fortune article (1/12/98) were:22 x Strong sales growth driven by truly innovative new products launched at a record rate and a 25-fold increase in ad spending. x A more efficient product development process with closer attention to end-users' needs. x Independent surveys which documented that Sunbeam has risen in status faster than any brand - from near irrelevance to consumers to one of the most admired brands in its market.23 x Improved service and speedier deliveries. On January 28, Sunbeam announced preliminary results for the 4th quarter and full year, which were slightly below analysts estimates but continued the pace of improvement shown in previous quarters. Sales increased 30.6% for the quarter and earnings per share from continuing operations hit $ .47. Albert Dunlap exulted in his achievement and outlined goals for 1998: 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 plan. 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.24

Wall Street Journal, October 24, 1997, Sunbeam to Study Takeovers or Own Sale. Fortune, January 12, 1998, Can Chainsaw Al really be a builder? 23 ibid. 24 Business Wire, January 28, 1998, Sunbeam Completes Record Year for Sales, Earnings & Global Expansion
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We have established sales growth goals (for 1998) that should exceed the impressive results reported in 1997.25 In mid-February, Dunlap negotiated a new three-year contract doubling his base salary to $2 million per year and giving him 300,000 shares and 3.75 million stock options, one of the largest stock option grants ever. The agreement also increased his potential severance pay fivefold. Similarly, Russell Kersh's salary jumped from $425,000 to $875,000 and he received 150,000 shares of stock. Building Sunbeam

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On March 3, 1998, Sunbeam ended speculation about its destiny by announcing the triple acquisition of Coleman, Mr. Coffee, and Signature Brands. With one stroke, Sunbeam added global positions in camping gear, coffeemakers, smoke detectors and other products to its leadership in gas grills and kitchen appliances. Dunlap proclaimed that Sunbeam could become the Procter and Gamble of world-class branded durable goods.26 Analysts praised the potential synergies of the combined companies and the opportunities for Dunlap to restructure and cut costs. As one remarked: Coleman, with revenues of $1.2 billion, becomes Dunlaps next turnaround gig. Only he bought it instead of being hired.27 The stock price, which had slipped since hitting its January high of 50, rose 24% in the week after the acquisition announcements, reaching a new high of $53 and giving Albert Dunlap paper profits of $73 million on his new contract. A few weeks later, the company released its 1997 Annual Report and 10K (see Exhibit 2 for financial statements). In his letter to shareholders, Albert Dunlap recounted the successful restructuring of the company and return to growth and profitability. We had an amazing year. We set new records in almost every facet of the companys operations. We experienced significant sales growth and concurrently increased margins and earnings. Most importantly, however, we improved the underlying operations of the business.

ibid. Time, Marsh 16, 1998, Is that you, Al? A famous cost cutter decides to build, not sell. 27 ibid.
12

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Exhibit 1 Sunbeam Corp Stock Price

January, 1995 March, 1998

1/ 31 /9 5 4/ 30 /9 5 7/ 31 /9 10 5 /3 1/ 95 1/ 31 /9 6 4/ 30 /9 6 7/ 31 /9 10 6 /3 1/ 96 1/ 31 /9 7 4/ 30 /9 7 7/ 31 /9 10 7 /3 1/ 97 1/ 31 /9 8 3/ 31 /9 8

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60 50 40 30 20 10 0

Sunbeam Corp Stock Price 1/95 - 3/98

Albert Dunlap hired 6/96

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Exhibit 2 Financial Statements Balance Sheet

December 28, 1997

December 29, 1996

ASSETS Current Assets Cash and cash equivalents Receiveables, net Inventories $ 52,378 295,550 256,180 36,706 17,191 658,005 240,897 194,372 27,010 $ 1,120,284 $ 11,526 213,438 162,252 102,847 93,689 40,411 624,163 220,088 200,262 28,196 $ 1,072,709

O
Prop, Plant & Equip Other Assets Total Assets Accounts payable Long-term debt Paid-in Capital

Net assets of discontinued operations and other assets held for sale Deferred income taxes Prepaid expenses and other current assets

Trademarks and trade names, net

LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities Short-term detb and current portion of long-term debt Restructuring accrual Other current liabilities Total current liabilities

Other long-term liabilities Deferred income Taxes Commitments and contingencies (Note 12)

Stockholders' Equity Preferred stock (2,000,000 shares authorized, none outstanding) Common stock (issued 89,984,425 and 88,441,479 shares) Retained Earnings Other Treasury stock, at cost (4,454,394 and 4,478,814) Total Stkhlders' Equity Total Liabilities and Stockholder's Equity

N
Total current assets

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14

$ 668 105,580 10,938 80,913 198,099

921 107,319 63,834 99,509 271,583 201,115 152,451 52,308

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194,580 141,109 54,559 900 483,384 141,134 (30,436) 594,982 531,937 (63,045) 1,120,284

884 447,948 35,118

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(25,310) 458,640 395,252 (63,388) 1,072,709

Albert Dunlap and Corporate Transformation (A)

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Exhibit 2 (continued) Financial Statements Income Statement

(in millions, except per share data) December 28, 1997 December 29, 1996 December 31, 1995

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Net Sales Current Defered Diluted Diluted Diluted

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Cost of goods sold Interest expense Income taxes (benefit):

$ 1,168,182 837,683 131,056

$ 984,236 900,573 214,029 154,869

$ 1,016,883 809,130 137,508

Selling, general and administrative expense Restructuring, impairment and other costs Operating earnings (loss) Other (income) expense, net

199,443 11,381 (1,218)

(285,235) 13,588 3,738

70,245 9,437 173

Earnings (loss) from continuing operations before income taxes

Earnings (loss) from continuing operations Earnings (loss) from discontinued operations, net of taxes Loss on sale of discontinued operations, net of taxes Net earnings (loss) Earnings (loss) per share of common stock from continuing operations: Basic

Earnings (loss) per share of common stock: Basic

Weighted average common shares outstanding: Basic

189,280 8,369 57,783 66,152 123,128

(302,561) (28,062) (77,828) (105,890) (196,671) 839 (32,430) ($ 228,262)

60,635 (2,105) 25,146 23,041 37,594 12,917

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(13,713) $ 109,415 1.45 1.41 1.29 1.25 84,945 87,542

$ 50,511

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(2.37) (2.37) (2.75) (2.75) 82,925 82,925

0.46 0.45 0.62 0.61 81,626 81,829

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Albert Dunlap and Corporate Transformation (A)

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Exhibit 2 (continued) Financial Statements - Cash Flow

December 28, 1997 $ 109,415 December 29, 1996 ($ 228,262) December 31, 1995 $ 50,511

Operating Activities Net earnings (loss) Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and Amortization Restructuring, impairment and other costs Other non-cash special charges Loss on sale of discontionued operations, net of taxes Deferred income taxes Increase (decrease) in cash from changes in working capital Receivables, net Inventories

O
Accounts payable Restructuring accrual Income taxes payable Other, net Investing activities Capital expenditures Purchase of businesses Other. net Sale of treasury stock

38,577

47,429 154,869 128,800

44,174

13,713 57,783 (84,576) (100,810) (1,585) (43,378) (9,004) 52,844 (14,682) (26,546) (8,249)

32,430 (77,828) (13,829) (11,651) 14,735 2,737 (21,942) (27,089) 13,764 14,163 25,146 (4,499) (4,874) 9,245 (8,821) (18,452) (21,719) 10,805 81,516

Prepaid expenses and other current assets and liabilities Payment of other long-term and non-operating liabilities

Net cash provided by (used in) operating activities

Decrease in investments restricted for plant construction proceeds from sale of divested operations and other assets 90,982

Net cash provided by (used in) investing activities Financing activities Net borrowings under revolving credit facility Issuance of long-term debt Payments of debt obligations Proceeds from exercise of stock options Purchase of common stock for treasury Payments of dividends on common stock Other financing activities Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

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16

(58,258)

(75,336)

(140,053) 45,755 (13,053) (107,351)

CO
(860) 32,724 (76,196) 5,000 30,000 11,500 4,684 (12,157) 26,613 (1,794) 4,578 (3,399) 320 16,377 40,852 11,526 $ 52,378 (3,318) (364) 45,286 28,273 (16,747) $ 11,526

40,000 (5,417) 9,818 (13,091) (3,268)

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(264) 27,778 26,330 1,943 $ 28,273

Albert Dunlap and Corporate Transformation (A)

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Bibliography Anonymous, Pulp & Paper; Scott Paper Co.: Four-step program restructures operations, San Francisco, December 1994, Birchard, Bill, CFO, How many masters can you serve, Boston, July 1995

Burton, Jonathon, Chief Executive, Papers tiger, New York, March 1995

Business Wire, Sunbeam Completes Record Year for Sales, Earnings & Global Expansion, January 28, 1998 Byrne, John A., Chainsaw: The Notorious Career of Al Dunlap in the Era of Profit-At-AnyPrice, Harper Collins, New York, 1999. Cassel, Andrew, Across the Board, After the fall, New York, April 1996

Ellis, Junius, Money, What Sunbeam isnt saying about its savior CEO and its50% stock spurt, Chicago, September 1996 Ettorre, Barbara, Management Review, Turnaround is fair play, New York, July 1995 Frank, Robert and Joann S. Lublin, The Wall Street Journal, Dunlaps Ax Falls 6,000 Times at Sunbeam, November 13, 1996 Laing, Jonathon R., Barrons, High Noon at Sunbeam: does Chainsaw Al have a truly revived operation or something else in his sights? June 16, 1997 Linden, Dana Wechsler, Forbes, You want somebody to like you, get a dog, New York, August 28, 1995 Marchetti, Michele, Sales and Marketing Management, Dog eat dog world, January 1998 Sellers, Patricia, Fortune, Can Chainsaw Al really be a builder, New York, January 12, 1998 Sider, Don, People Weekly, The terminator: Chainsaw Al Dunlaps success secret? He fires people, November 25, 1996 Sparks, Debra, Financial World, Ming the Merciless, New York, June 21, 1994 Vogl, A. J., Across the Board, Tough Guy, New York, February 1995

The Wall Street Journal, Letters to the Editor: Your Story Missed All the Good Parts, May 9, 1997

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