CFO Resigns After Tissue Maker Reports Material Problems

Audit now being conducted at American Tissue. Plus, new finance chief at ACT Manufacturing faces tough task.
Jennifer CaplanSeptember 7, 2001
  • Managers at American Tissue Inc. announced today that CFO Edward Stein resigned after it became apparent that the company’s recent consolidated financial statements contained ”material inaccuracies.” The errors occurred in statements for the company’s fiscal years ended September 30, 1999 and 2000, as well those for each of the first three quarters of fiscal 2000 and 2001. PricewaterhouseCoopers LLP has been hired to conduct an investigation, company managers said in a statement.

    On August 21, management at American Tissue, the fourth largest tissue maker in the US, reported a 16 percent increase in revenues for the third quarter of fiscal 2001. Revenues for that quarter allegedly amounted to around $146 million, compared to $127 million for the third quarter of fiscal 2000. Earnings before interest, taxes, depreciation and amortization came in at $15.0 million, down slightly from $16.8 million during the same period the year prior. Gross profit increased $1.2 million, or 4.8 percent in the third quarter.

    Obviously, the accuracy of those numbers is now in doubt. Today’s announcement is just the latest in a series of warnings from American Tissue. In its quarterly report filed with the Securities and Exchange Commission late last month, the company reported that it has been experiencing some serious liquidity problems. The tissue maker has defaulted on its revolving credit facility, which has also caused it to default on the indenture governing its senior secured notes. This will make obtaining necessary future loans a Herculean task. Management claims that the cash shortage has been exacerbated by weakness in the pulp market, a drop in commodity grade paper prices, and increases in energy costs.

    In an attempt to reduce cash expenses and reduce inventories, the Hauppauge, NY-based company has temporarily shut down a number of wood pulp, tissue and uncoated free sheet paper mills.

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  • Narendra Pathipati has been named CFO of Hudson, Mass.-based contract manufacturer, ACT Manufacturing Inc. Pathipati was previously president and chief operating officer at Acadio Corp., an online learning services firm. Before that he was a financial executive at Weirton Steel Corp., a producer of flat-rolled carbon steel.

In the second quarter, revenues at the company came in at $345 million, a 36 percent increase from the same period the previous year. For the first half of the year, turnover at the company jumped to close to $800 million. Nevertheless, the company still recorded an $8 million net loss in the second quarter, and a $3.3 million loss for the first six months of the year. Last year, the company turned a $13 million net profit in the first half of the year.

Mounting losses might explain ACT’s trouble paying some of its suppliers. Earlier this summer, Toppan Electronics, a subsidiary of Tokyo-based Toppan Printing, sued ACT for allegedly failing and refusing to pay for $542,000 of goods it ordered from Toppan. The suit was filed on June 13 with the Superior Court of the State of California in San Diego. Compounding ACT’s woes: some of the company’s bigger clients have not been faring too well of late. ACT’s customers including Nortel and Emerson Electric, companies which have recently experienced declines in demand for their products.

  • Officials at Sequence Design Inc., a Santa Clara Calif.-based supplier of electronic design automation software for the semiconductor industry, appointed Mark Nelson the company’s first CFO. Most recently Nelson held the CFO post at Niku Corp., where he helped the company raise more than $220 million in its initial public offering last year. Nelson has also held executive finance positions at Synopsys, a supplier of electronic design automation software to the global electronics industry, and Plantronics, a maker of communications headsets. He began his career at KPMG and graduated with honors in accounting from Michigan State University in 1981.

    Sequence is a privately held company with sales and customer support offices worldwide. The company was formed in June 2000 by the merger of Frequency Technology and Sente Inc. In January, Sequence merged with Sapphire Design Automation, a maker of signal integrity and optimization technology.

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