Vancouver-based Northwest Pipe Co. settles lawsuits for $13.25 million
Originally published August 10, 2012 at 11:16 a.m., updated August 10, 2012 at 3:36 p.m.
Vancouver-based Northwest Pipe Co. has agreed to pay $13.25 million to settle four lawsuits filed by shareholders, including a class-action complaint that accused the company and senior managers of accounting fraud.
In a quarterly financial report filed with the U.S. Securities and Exchange Commission this week, the company said the parties involved have agreed, “subject to court approval,” to settle a class-action lawsuit for $12.5 million and three other cases for $750,000.
The company said it also agreed “to make certain corporate governance modifications” as part of the settlement, according to its SEC filing.
The agreement, worth a total of $13.25 million, concludes legal battles stemming from the company’s announcement in late 2009 that it had delayed its third-quarter earnings report until it could resolve an internal investigation of accounting matters.
What followed were shareholder lawsuits, management shake-ups and stunning financial reports, including one in which the company said it had overstated its profits by $37 million to $47 million over the course of a number of years.
An SEC probe of the company remains under way, the company said in its Aug. 7 SEC filing. “We are cooperating fully with the SEC in connection with these matters,” the company said.
‘Material errors’ discovered
Northwest Pipe — which manufacturers steel pipe primarily for drinking water systems — has experienced more recent accounting hiccups and has run afoul of the Nasdaq stock exchange, on which it’s listed as NWPX.
In March, it announced new “material errors” with its accounting procedures, saying it would have to restate its books, including decreasing its retained earnings by up to $12 million.
The company has said that it has boosted its internal financial controls, among other changes, to address both its earlier financial missteps and its more recent ones.
The company also has previously received multiple delisting warnings from Nasdaq officials for failing to file its financial reports in a timely manner. The most recent warning came in March when the Nasdaq gave the company an April deadline to file its delayed earnings reports.
The company complied, issuing late and restated financial reports, including data for all of 2011 showing the company bounced back to profitability.
Despite its legal and other troubles, the company has scored business victories, including securing a deal — worth $69 million in revenue — to provide welded steel pipe for a water pipeline project in Texas. “The project is a significant part of our plans for 2012-2013,” Rich Roman, president and CEO of Northwest Pipe, said in a news release.
Stronger second half expected
Earlier this month, the company reported that its second-quarter profit was down. It posted a profit of $3.6 million, of 38 cents per share, for the three-month period ended June 30. That compares with a profit of $5 million, or 53 cents per share, for the second quarter of 2011.
The company’s net sales of $131 million were down by 8.9 percent, year-over-year. Although sales and profit were down, Roman said, the company expects a stronger second half of 2012.
In announcing this week that it has resolved its legal disputes, Northwest Pipe said the bulk of the $13.25 million settlement “will be paid by the company’s insurers” and has been included as part of its accrued liabilities.
The single $12.5 million lawsuit representing most of the total settlement amount was a class-action complaint led by Plumbers and Pipefitters Local No. 630 Pension-Annuity Trust Fund. It alleged that former Northwest Pipe executives and the company itself deliberately misled shareholders about when revenue was recognized, manipulated the assignment of costs to make unprofitable contracts look profitable and pressured plant managers to order steel before it was needed in order to inflate quarterly revenue.
In February 2011, attorneys for the company asked a U.S. District Court judge to throw out the lawsuit, arguing that “the facts and circumstances” of the case “point to accounting error, not accounting fraud.”
The judge denied the request. Subsequently, the parties involved in the lawsuit entered into a mediation process in January. During a second round of mediation talks in July, the parties reached a settlement of the class-action matter, and three other related lawsuits.