More EMS news, this time about ACTM -
Add a Lawsuit to Payment Issues Plaguing ACT
By Peter Eavis
Senior Columnist
6/27/01 4:46 PM ET
URL: thestreet.com
More evidence is emerging that ACT Manufacturing (ACTM:Nasdaq), the Hudson, Mass.-based electronics contract manufacturer, is struggling hard to pay its bills.
In a May 16 column, Detox looked at complaints from unnamed suppliers that ACT hadn't paid them for shipments dispatched months earlier.
Now, San Diego-based Toppan Electronics is suing ACT because the company has allegedly "failed and refused" to pay for $542,000 of goods it ordered from
Toppan. The suit, filed on June 13 with the Superior Court of the State of California in San Diego, alleges that Toppan, a subsidiary of Tokyo-based Toppan
Printing, is still awaiting payment for goods that were shipped between January and April.
Toppan wasn't among the ACT suppliers contacted for the May 16 column.
Neither ACT nor Toppan returned calls seeking comment. ACT has until the middle of July to respond to the suit, says Rick Norton, a partner of Norton & Grimes,
the Oceanside, Calif.-based law firm that's representing Toppan. If the judge allows the case to go forward, Norton & Grimes would begin the discovery phase of the
legal proceedings.
Tony Boase, an A.G. Edwards' analyst who has defended ACT in the past, cautions that the Toppan lawsuit doesn't necessarily mean ACT can't pay its suppliers.
Instead, ACT may not want to pay because it's in a dispute with ACT over the goods it supplied, Boase says. (He rates ACT maintain, and A.G. Edwards hasn't done
underwriting for the company.)
ACT's stock is down nearly 50% since Detox first wrote about it on May 7, focusing on accounting issues. The company has experienced a sharp drop-off in demand
for its products as many of its biggest customers have hit hard times.
Big buyers of ACT products include Spectrian (SPCT:Nasdaq), which issued an earnings warning on June 8, and Cidco (CDCO:Nasdaq), which recently warned of a
dwindling cash position and also had to restate financial results after probing its own accounts.
Other customers include Nortel (NT:NYSE), Emerson Electric (EMR:NYSE) and France's Netgem, all of which have experienced declines in demand for their
products.
There are other issues hanging over ACT. The company has been without a chief financial officer for nine months. Jeffrey Lavin left that post in September 2000.
Boase, who recently slashed his earnings estimates for ACT, has recently chatted with the company's management. He says ACT told him that, despite pressure to pay
off its suppliers, cash on hand should be $16 million at the end of the second quarter, roughly the same as at the end of the first quarter. ACT "vehemently denied"
rumors that it owes some $50 million to its two biggest suppliers, Arrow (ARW:NYSE) and Avnet (AVT:NYSE), he adds.
ACT closed down 9 cents, or 0.92%, to $9.70 Wednesday. Analysts expect it to make $1.41 in profits in 2001, according to Thomson Financial/First Call. That gives
the company a price-to-earnings ratio of 7, which appears very cheap. However, if payment issues signal serious cash-flow problems at the company, the stock could
feasibly drop further. In the electronics sector, distressed companies have seen their stocks fall to around tangible book value, which is shareholder equity minus
intangible assets, like goodwill. At the end of the first quarter, ACT's tangible book value was about $4.60 on a per share basis. |
