According to the Company’s Form 10-Q for the quarterly period ended February 28, 2004, on September 11, 2002, these actions were consolidated under the caption In re MSC Industrial Direct Co., Inc. Securities Litigation (CV No. 02 4422). On October 28, 2003, the parties entered into a Memorandum of Understanding to settle the matter for $1,250,000. On November 27, 2003, the parties filed a Stipulation and Agreement of Settlement. On March 16, 2004, the court held a settlement fairness hearing, approved the settlement, and dismissed the claims of the class with prejudice.
The complaint alleges that defendants issued materially false and misleading financial statements and press releases concerning MSM's revenues, income and earnings per share during the Class Period in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Specifically, the complaint alleges that commencing with a January 11, 1999 press release and continuing throughout the Class Period, Defendants issued numerous statements and filed quarterly and annual reports with the Securities and Exchange Commission which described MSC’s net income and financial performance. The complaint alleges that these statements were materially false and misleading because they failed to disclose the following adverse facts, among others: (i) that MSC had mis-stated its net income over a four-year period; (ii) that MSC had incorrectly accounted for inventory purchases; (iii) that MSC had incorrectly accounted for reserves and used reserves to “manage earnings”; and (iv) that as a result, the value of MSC’s net income and financial results were materially overstated at all relevant times during the Class Period.
The complaint further alleges that on August 5, 2002, MSC announced that it had discovered incorrect accounting entries associated with inventory purchases that overstated net income by approximately $8.3 million over the previous four years. Lead Plaintiff also alleged that the press release stated that MSC intended to restate its financial statements for fiscal years 1999, 2000, 2001 and year-to-date 2002, and that MSC expected that the restatement would reduce previously reported income by approximately $2.8 million in fiscal 1999, $4.2 million in fiscal 2000, $0.9 million in fiscal 2001 and $0.4 million in fiscal 2002. Lead Plaintiff further alleged that, upon this news, shares of MSC stock fell $4.99 per share to close at $10.51 per share, a one-day decline of 32%.