Risk & Compliance

Hornbeck Opens Books, Suit Stops

The company chairman says proprietary documents played a part in convincing the plaintiffs to drop their lawsuit.
Stephen TaubSeptember 12, 2007

Hornbeck Offshore Services announced that lead plaintiffs in a shareholder lawsuit have voluntarily dropped their charges against the company and senior executives, including Chief Financial Officer James Harp. The lawsuit had accused the defendants, which also included company chairman, president and CEO Todd Hornbeck, and Chief Operating Officer Carl Annessa, of making false and misleading statements in regulatory filings.

Details regarding the plaintiff’s decision to drop the suit were not disclosed by the company. In addition, neither Harp, who was listed as the Hornbeck contact for the case, or the plaintiffs were immediately available to comment on the case. However, in a press statement, Todd Hornbeck noted that the company voluntarily provided the shareholders with access to documents and key personnel “not otherwise available to the plaintiffs so that they could fully reconsider their allegations.” After conducting an eight-month investigation, “the plaintiffs concluded that it was in their best interest to dismiss their complaint,” added Hornbeck.

In January, several class-action lawsuits were filed against Hornbeck Offshore, alleging that the company and the executives violated federal securities laws by making false and misleading statements and omissions related to the company’s operations and expected earnings for the fourth quarter of 2006, and for fiscal 2007. According to the suits, on November 1, 2006, Hornbeck reaffirmed its guidance for fiscal 2007, and endorse its projections for earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter of 2006 to range of between $39 million and $41 million.

Five days later, the company announced an offering of $200 million in convertible senior notes with an over-allotment of $30 million in principal for additional notes. By November 13, Hornbeck Offshore announced that it had closed the note offering. “These aggressive projections were crucial to the completion of the note offering, but have the effect of artificially inflating the price of the stock,” the lawsuit asserted.

On January 10, the company lowered its EBITDA and diluted earnings-per-share guidance for the fourth quarter of 2006 and calendar 2006. The stock traded down 22 percent on the day of the announcement. “During the latter half of the fourth quarter we experienced even more volatility than we expected,” said Todd Hornbeck, in a press release at the time. He cited several reasons for the disappointing news, including softer market demand – partially attributable to shipyard delays for regulatory drydockings and unscheduled repairs – downtime related to the positioning and outfitting of one of its offshore supply vessels for specialty service, an unexpected supplemental insurance premium in late November, and costs tied to a series of vessel incidents and related repairs that occurred during late November and December.

The lawsuit targeted Hornbeck’s statement, specifically asserting that the company was forced to admit that it had knowledge over the previous several months that operating issues had negatively impacted the company’s financial performance.” Despite their ealier claims, however, the plaintiffs dropped the suit, according to Hornbeck Offshore.

An order granting the dismissal of the case was entered by the United States District Court for the Eastern District of Louisiana. Hornbeck Offshore, which transports supplies and equipment to offshore oil and gas rigs, said no payments were made by the company or its insurers. “From the outset, we firmly believed that the allegations against the company and our executive team were without any factual or legal merit,” declared Todd Hornbeck.”