MELVILLE, N.Y. — Following a stream of accounting scandals at publicly traded companies, distributor MSC Industrial Direct Co., Inc. announced on August 5 that it had overstated its income by $8.3 million over the past four years. Since the company discovered the errors, its independent board of directors has investigated them and improvements in internal control have been made, company leaders said.

MSC's net income was over $170 million during the period in question, therefore the restatement represents a change of less than five percent. In a press release, MSC said the company's previous reports as well as those of its former independent auditor, Arthur Anderson LLP, should not be relied upon. Auditor Ernst & Young LLP is conducting an audit and will file the restated reports.

The company's stock price plummeted by nearly one-third of its value in the days following the restatement announcement. In accordance with a November 2000 authorization to repurchase up to five million shares of common stock, the company purchased 416,600 shares on August 7. This was in addition to one million shares previously purchased under this program.

CFO Shelly Boxer echoed CEO Mitchell Jacobson, stating that the purchase reflected MSC's confidence in the long-term value of the company and that the shares were undervalued at the time of the repurchase.

"MSC expects the restatement to have no material impact on position, prospects or growth," said Boxer. "[MSC] has sound business fundamentals, including essentially no debt and nearly $80 million in invested cash."

US Bancorp Piper Jaffray analyst Stephen Jacobs said it's mostly a case of unfortunate timing. A manually entered class of transactions was misstated on MSC's income statements. Jacobs said these errors should have been found during Anderson's routine audits. The company, by bringing more of its transactions online, had been reducing the impact of the error on an annual basis.

"The company's internal systems caught the errors," said Jacobs. "There was no malfeasance or fraud."

Jacobs noted that several law firms are trying to mount class action litigation on behalf of shareholders.

"Don't expect the lawsuits to go anywhere, though. There is little substance to any claims of wrongdoing" said Jacobs. "A year ago this wouldn't have even been an issue."

MSC has nonetheless been hit hard by Wall Street and the entire industrial economy is sluggish, but Jacobs said MSC is performing well and exceeding expectations.