As reported by the Company’s Form 10-K for the fiscal year ended October 30, 2004, in January 2004, the Company entered into an agreement to settle the lawsuits, without admitting any of the allegations against the Company or its officers, and agreed to pay $7.0 million for the dismissal of all claims, which is within the Company’s insurance coverage limits and has been agreed to by the Company’s insurance carriers. On June 10, 2004, the court agreed to the settlement and issued a final order dismissing the case with prejudice.
Earlier, according to the same SEC filing, several class action lawsuits were filed against the Company and certain of the Company’s current officers in the United States District Court for the Southern District of Texas, commencing in April 2001. The lawsuits were consolidated into one class action lawsuit on August 16, 2001, and the plaintiffs filed a consolidated amended complaint on February 1, 2002. In the consolidated complaint the plaintiffs alleged, among other things, that during the financial periods that were restated, the Company made materially false and misleading statements about the status and effectiveness of a management information and accounting system used by the Company’s components division and costs associated with that system, failed to assure that the system maintained books and records accurately reflecting inventory levels and costs of goods sold, failed to maintain internal controls on manual accounting entries made to certain inventory-related accounts in an effort to correct the data in the system, otherwise engaged in improper accounting practices that overstated earnings, and issued materially false and misleading financial statements. The plaintiffs further alleged that the individual defendants traded in the Company’s common stock while in possession of material, non-public information regarding the foregoing. The plaintiffs in the consolidated complaint asserted various claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and sought unspecified amounts of compensatory damages, interest and costs, including legal fees. On March 15, 2002, the Company filed a motion to dismiss plaintiffs’ consolidated complaint and a memorandum in support.
The origianl class action complaint alleges NCI and two of its former top officers with knowingly or recklessly engaging in improper accounting practices that forced the company to restate its financial statements for the fiscal year that ended October 31, 2000, and for the quarter that ended January 31, 2001. In addition, the company said that those same "accounting errors" could result in changes to financial statements for the third and fourth quarters of 1999. The complaint further alleges that NCI said that a computer system installed in May of 1999 routinely processaed some accounting entries incorrectly - and that employees later altered the company's books manually to mask the errors made by the automated system. The company says it fired the employees responsible for the accounting irregularities.