NEC to Pay Out $11.8 Million to Settle Lawsuits : Litigation: To end action brought by stockholders, the company also agrees to redo its 1989 financial statement to reflect greater losses.
IRVINE — National Educational Corp. said Wednesday that it has agreed to pay $11.8 million to settle class-action lawsuits brought by stockholders who allege that they had been misled last year about the company’s financial condition.
As a result of the settlement, which must be approved in court, the struggling company said it would restate its 1989 financial statement to reflect bigger losses for the fourth quarter and year.
The company, which provides vocational education training and services, said it lost $28.3 million for the three months ended Dec. 31, up from the previously reported loss of $20.5 million. For 1989, NEC lost $29.3 million, up from a loss of $21.5 million previously reported.
The lawsuits, which name the company and four current or former officers and directors as defendants, were brought by stockholders who charged that the company withheld crucial financial information. The suits allege that company officials painted a rosy picture of the company’s earnings potential even though they knew the company was having problems.
NEC spokesman Jerry Derloshon said the company believes that the lawsuits are without merit. But the firm agreed to the settlement to quickly resolve the issue, he said.
“The settlement closes the door on the lawsuits, and it rids the company of further devotion of effort and energy†to the litigation, Derloshon said.
The company also said in a statement that it will “vigorously pursue a claim for recovery against its directors’ and officers’ liability insurance carrier for failure to contribute to the settlement.â€
The company’s problems prompted a management shake-up, cost-cutting steps and layoffs last year. NEC ousted H. David Bright as its chairman, president and chief executive.
Most of the losses have been attributed to troubles in the Applied Learning International subsidiary in Naperville, Ill. Among the problems were computer snafus that resulted in overbilling or under-billing of customers--or not sending them a bill at all.
The company cut the subsidiary’s work force and brought in its executive vice president, Ronald N. Tapper, to head Applied Learning. Derloshon said cash flow has improved and the unit is now more efficient.
NEC’s stock closed at $5.375, down 25 cents in Wednesday’s trading. But Wall Street analysts looked with general favor of news of the settlement.
“I think they wanted to get it out of the way,†said Fred Anschel of Dean Witter Reynolds. “My guess--and I emphasize that it is a very rough guess--is that if they are able to cut the losses of Applied Learning, as well as cut corporate expense and other parts of the business continue to stay profitable,†the company as a whole has a “fairly good chance to breaking even†this year.
Jeff Kessler, an analyst for Shearson Lehman Hutton, said the cost of settling the lawsuits was within the expected range. He said the settlement is not a “major problem†for the company, but that “there is one remaining loose end to be tiedâ€--the settlement of Bright’s employment contract, which cost the company up to $9 million.
Still, Kessler said he is generally optimistic. “The worst is behind them, but how fast the present unfolds is still kind of cloudy,†he said.
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.
