Hercules Offshore Announces Third Quarter 2010 Results

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

September 30,

December 31,

2010

2009

(Unaudited)

ASSETS

Current Assets:

Cash and Cash Equivalents

$          134,644

$        140,828

Restricted Cash

13,124

3,658

Accounts Receivable, Net

144,423

133,662

Prepaids

24,157

13,706

Current Deferred Tax Asset

11,246

22,885

Other

20,349

6,675

347,943

321,414

Property and Equipment, Net

1,799,884

1,923,603

Other Assets, Net

29,489

32,459

$       2,177,316

$     2,277,476

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term Debt and Current Portion of Long-term Debt

$              4,924

$            4,952

Insurance Notes Payable

16,386

5,484

Accounts Payable

49,057

51,868

Accrued Liabilities

61,999

67,773

Interest Payable

23,625

6,624

Taxes Payable

-

5,671

Other Current Liabilities

25,160

34,229

181,151

176,601

Long-term Debt, Net of Current Portion

854,590

856,755

Other Liabilities

6,548

19,809

Deferred Income Taxes

198,941

245,799

Commitments and Contingencies

Stockholders' Equity

936,086

978,512

$       2,177,316

$     2,277,476

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010

2009

2010

2009

Revenues

$ 168,484

$ 159,262

$ 485,228

$ 566,444

Costs and Expenses:

Operating Expenses

109,230

123,358

326,187

388,699

Impairment of Property and Equipment

-

-

-

26,882

Depreciation and Amortization

46,154

51,802

144,758

151,739

General and Administrative

14,512

16,814

41,613

48,556

169,896

191,974

512,558

615,876

Operating Loss

(1,412)

(32,712)

(27,330)

(49,432)

Other Income (Expense):

Interest Expense

(21,384)

(24,131)

(64,382)

(54,481)

Expense of Credit Agreement Fees

-

(15,073)

-

(15,073)

Gain on Early Retirement of Debt, Net

-

-

-

13,747

Other, Net

(19)

70

3,150

2,760

Loss Before Income Taxes

(22,815)

(71,846)

(88,562)

(102,479)

Income Tax Benefit

7,754

24,876

38,561

39,211

Loss from Continuing Operations

(15,061)

(46,970)

(50,001)

(63,268)

Loss from Discontinued Operation, Net of Taxes

-

(1,290)

-

(1,965)

Net Loss

$ (15,061)

$ (48,260)

$ (50,001)

$ (65,233)

Basic Loss Per Share:

Loss from Continuing Operations

$     (0.13)

$     (0.48)

$     (0.44)

$     (0.69)

Loss from Discontinued Operation

-

(0.02)

-

(0.02)

Net Loss

$     (0.13)

$     (0.50)

$     (0.44)

$     (0.71)

Diluted Loss Per Share:

Loss from Continuing Operations

$     (0.13)

$     (0.48)

$     (0.44)

$     (0.69)

Loss from Discontinued Operation

-

(0.02)

-

(0.02)

Net Loss

$     (0.13)

$     (0.50)

$     (0.44)

$     (0.71)

Weighted Average Shares Outstanding:

Basic

114,774

97,159

114,742

91,298

Diluted

114,774

97,159

114,742

91,298

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,

2010

2009

Cash Flows from Operating Activities:

Net Loss

$ (50,001)

$ (65,233)

Adjustments to Reconcile Net Loss to Net Cash Provided by

Operating Activities:

Depreciation and Amortization

144,758

151,739

Stock-Based Compensation Expense

2,799

6,208

Deferred Income Taxes

(38,639)

(64,535)

Provision for Doubtful Accounts Receivable

80

4,468

Amortization of Deferred Financing Fees

2,493

2,851

Amortization of Original Issue Discount

3,041

3,196

Non-Cash Loss on Derivatives

1,987

5,554

Gain on Insurance Settlement

-

(8,700)

Gain on Disposal of Assets

(10,180)

(58)

Gain on Early Retirement of Debt, Net

-

(13,747)

Impairment of Property and Equipment

-

26,882

Excess Tax Benefits from Stock-Based Arrangements

(381)

(5,500)

Expense of Credit Agreement Fees

-

15,073

Net Change in Operating Assets and Liabilities

(36,277)

61,750

Net Cash Provided by Operating Activities

19,680

119,948

Cash Flows from Investing Activities:

Additions of Property and Equipment

(16,353)

(71,395)

Deferred Drydocking Expenditures

(10,972)

(13,719)

Insurance Proceeds Received

-

9,168

Proceeds from Sale of Assets, Net

15,764

23,305

Increase in Restricted Cash

(9,466)

(3,657)

Net Cash Used in Investing Activities

(21,027)

(56,298)

Cash Flows from Financing Activities:

Short-term Debt Repayments

-

(2,455)

Long-term Debt Repayments

(5,233)

(20,555)

Redemption of 3.375% Convertible Senior Notes

-

(6,099)

Common Stock Issuance

-

83,344

Excess Tax Benefits from Stock-Based Arrangements

381

5,500

Payment of Debt Issuance Costs

-

(9,931)

Other

15

(11)

Net Cash Provided by (Used in) Financing Activities

(4,837)

49,793

Net Increase (Decrease) in Cash and Cash Equivalents

(6,184)

113,443

Cash and Cash Equivalents at Beginning of Period

140,828

106,455

Cash and Cash Equivalents at End of Period

$ 134,644

$ 219,898

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA

(Dollars in thousands, except per day amounts)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010

2009

2010

2009

Domestic Offshore:

Number of rigs (as of end of period)

25

23

25

23

Revenues

$           25,058

$         18,959

$     88,163

$      115,110

Operating expenses

38,701

36,476

115,082

131,635

Depreciation and amortization expense

17,277

15,118

50,986

45,250

General and administrative expenses

1,146

2,615

4,807

5,595

Operating loss

$          (32,066)

$       (35,250)

$   (82,712)

$       (67,370)

International Offshore:

Number of rigs (as of end of period)

9

11

9

11

Revenues

$           74,429

$         90,041

$   221,364

$      295,250

Operating expenses

31,065

44,209

98,394

127,478

Impairment of property and equipment

-

-

-

26,882

Depreciation and amortization expense

14,404

16,769

43,808

48,702

General and administrative expenses

2,067

2,317

5,546

5,382

Operating income

$           26,893

$         26,746

$     73,616

$        86,806

Inland:

Number of barges (as of end of period)

17

17

17

17

Revenues

$             5,745

$           2,437

$     15,676

$        15,446

Operating expenses

8,279

7,442

20,359

36,563

Depreciation and amortization expense

4,991

8,166

18,736

24,442

General and administrative expenses

1,103

360

(1,756)

1,588

Operating loss

$            (8,628)

$       (13,531)

$   (21,663)

$       (47,147)

Domestic Liftboats:

Number of liftboats (as of end of period)

41

41

41

41

Revenues

$           24,612

$         19,268

$     53,950

$        60,762

Operating expenses

11,314

12,725

31,481

39,277

Depreciation and amortization expense

3,314

5,048

11,182

15,844

General and administrative expenses

560

539

1,436

1,454

Operating income

$             9,424

$              956

$       9,851

$          4,187

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010

2009

2010

2009

International Liftboats:

Number of liftboats (as of end of period)

24

24

24

24

Revenues

$           27,765

$         22,320

$     80,914

$        61,709

Operating expenses

12,951

14,457

42,310

31,677

Depreciation and amortization expense

4,199

4,010

13,258

8,672

General and administrative expenses

1,184

1,279

4,119

3,548

Operating income

$             9,431

$           2,574

$     21,227

$        17,812

Delta Towing:

Revenues

$           10,875

$           6,237

$     25,161

$        18,167

Operating expenses

6,920

8,049

18,561

22,069

Depreciation and amortization expense

1,172

1,892

4,376

6,318

General and administrative expenses

354

218

1,018

1,024

Operating income (loss)

$             2,429

$         (3,922)

$       1,206

$       (11,244)

Total Company:

Revenues

$         168,484

$       159,262

$   485,228

$      566,444

Operating expenses

109,230

123,358

326,187

388,699

Impairment of property and equipment

-

-

-

26,882

Depreciation and amortization

46,154

51,802

144,758

151,739

General and administrative

14,512

16,814

41,613

48,556

Operating loss

(1,412)

(32,712)

(27,330)

(49,432)

    Interest expense

(21,384)

(24,131)

(64,382)

(54,481)

    Expense of Credit Agreement Fees

-

(15,073)

-

(15,073)

    Gain on early retirement of debt, net

-

-

-

13,747

    Other, net

(19)

70

3,150

2,760

Loss before income taxes

(22,815)

(71,846)

(88,562)

(102,479)

    Income tax benefit

7,754

24,876

38,561

39,211

Loss from continuing operations

(15,061)

(46,970)

(50,001)

(63,268)

Loss from discontinued operation, net of taxes

-

(1,290)

-

(1,965)

Net loss

$          (15,061)

$       (48,260)

$   (50,001)

$       (65,233)

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)

Three Months Ended September 30, 2010

Operating Days

Available Days

Utilization (1)

Average Revenue per Day (2)

Average Operating Expense per Day (3)

Domestic Offshore

637

1,012

62.9%

$     39,338

$        38,242

International Offshore

538

828

65.0%

138,344

37,518

Inland

269

276

97.5%

21,357

29,996

Domestic Liftboats

3,203

3,496

91.6%

7,684

3,236

International Liftboats

1,198

2,116

56.6%

23,176

6,121

Three Months Ended September 30, 2009

Operating Days

Available Days

Utilization (1)

Average Revenue per Day (2)

Average Operating Expense per Day (3)

Domestic Offshore

424

1,012

41.9%

$     44,715

$        36,043

International Offshore

768

1,006

76.3%

117,241

43,945

Inland

116

276

42.0%

21,009

26,964

Domestic Liftboats

2,466

3,596

68.6%

7,813

3,539

International Liftboats

1,149

1,840

62.4%

19,426

7,857

Nine Months Ended September 30, 2010

Operating Days

Available Days

Utilization (1)

Average Revenue per Day (2)

Average Operating Expense per Day (3)

Domestic Offshore

2,426

3,074

78.9%

$     36,341

$        37,437

International Offshore

1,598

2,516

63.5%

138,526

39,107

Inland

759

819

92.7%

20,653

24,858

Domestic Liftboats

7,433

10,374

71.7%

7,258

3,035

International Liftboats

3,596

6,430

55.9%

22,501

6,580

Nine Months Ended September 30, 2009

Operating Days

Available Days

Utilization (1)

Average Revenue per Day (2)

Average Operating Expense per Day (3)

Domestic Offshore

1,994

3,532

56.5%

$     57,728

$        37,269

International Offshore

2,351

2,763

85.1%

125,585

46,138

Inland

414

1,302

31.8%

37,309

28,082

Domestic Liftboats

7,349

11,308

65.0%

8,268

3,473

International Liftboats

3,072

5,279

58.2%

20,088

6,001

(1)

Utilization is defined as the total number of days our rigs or liftboats, as applicable, were under contract, known as operating days, in the period as a percentage of the total number of available days in the period.  Days during which our rigs and liftboats were undergoing major refurbishments, upgrades or construction, and days during which our rigs and liftboats are cold-stacked, are not counted as available days. Days during which our liftboats are in the shipyard undergoing drydocking or inspection are considered available days for the purposes of calculating utilization.

(2)

Average revenue per rig or liftboat per day is defined as revenue earned by our rigs or liftboats, as applicable, in the period divided by the total number of operating days for our rigs or liftboats, as applicable, in the period.  Included in International Offshore revenue is a total of $3.7 million and $11.0 million related to amortization of deferred mobilization revenue for the three and nine months ended September 30, 2010, respectively and $4.3 million and $12.3 million for the three and nine months ended September 30, 2009, respectively. Included in International Liftboats revenue is a total of $0.6 million related to amortization of deferred mobilization revenue for the nine months ended September 30, 2010 and $0.1 million and $0.2 million for the three and nine months ended September 30, 2009, respectively. There was no such revenue in the three months ended September 30, 2010 for International Liftboats.

(3)

Average operating expense per rig or liftboat per day is defined as operating expenses, excluding depreciation and amortization, incurred by our rigs or liftboats, as applicable, in the period divided by the total number of available days in the period.  We use available days to calculate average operating expense per rig or liftboat per day rather than operating days, which are used to calculate average revenue per rig or liftboat per day, because we incur operating expenses on our rigs and liftboats even when they are not under contract and earning a dayrate. In addition, the operating expenses we incur on our rigs and liftboats per day when they are not under contract are typically lower than the per day expenses we incur when they are under contract.  Included in International Offshore operating expense is a total of $0.2 million and $0.6 million related to amortization of deferred mobilization expenses for the three and nine months ended September 30, 2010, respectively and $1.3 million and $2.7 million for the three and nine months ended September 30, 2009, respectively. Included in International Liftboats operating expense is a total of $1.2 million related to amortization of deferred mobilization expenses for the nine months ended September 30, 2010. There was no such operating expense for the three months ended September 30, 2010, nor the three and nine months ended September 30, 2009 for International Liftboats.

Hercules Offshore, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(In thousands, except per share data)

We report our financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP performance measures and ratios may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Non-GAAP financial measures we may present from time to time are operating income, income from continuing operations or diluted earnings per share excluding certain charges or amounts. These adjusted income amounts are not a measure of financial performance under GAAP. Accordingly, they should not be considered as a substitute for operating income, income from continuing operations, net income, earnings per share or other income data prepared in accordance with GAAP.  See the table below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and nine months ended September 30, 2009. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the following table:

Three Months Ended

Nine Months Ended

September 30, 2009

September 30, 2009

   Operating Loss:

     GAAP Operating Loss

$                  (32,712)

$                  (49,432)

     Adjustment

-

(a)

26,882

(b)

     Non-GAAP Operating Loss

$                  (32,712)

$                  (22,550)

   Other Expense:

     GAAP Other Expense

$                  (39,134)

$                  (53,047)

     Adjustment

15,073

(a)

1,326

(b)

     Non-GAAP Other Expense  

$                  (24,061)

$                  (51,721)

  Benefit for Income Taxes:

     GAAP Benefit for Income Taxes

$                   24,876

$                   39,211

     Tax Impact of Adjustment

(5,276)

(a)

(14,242)

(b)

     Non-GAAP Benefit for Income Taxes

$                   19,600

$                   24,969

   Loss from Continuing Operations:

     GAAP Loss from Continuing Operations

$                  (46,970)

$                  (63,268)

     Total Adjustment, Net of Tax

9,797

(a)

13,966

(b)

     Non-GAAP Loss from Continuing Operations

$                  (37,173)

$                  (49,302)

   Diluted Loss per Share from Continuing Operations:

     GAAP Diluted Loss per Share from Continuing Operations

$                      (0.48)

$                      (0.69)

     Adjustment per Share

0.10

(a)

0.15

(b)

     Non-GAAP Diluted Loss per Share from Continuing Operations

$                      (0.38)

$                      (0.54)

(a) These amounts represent (i) a $10.8 million charge due to the write-off of previously deferred unamortized debt issuance costs in connection with the amendment of our Credit Agreement and (ii) a $4.3 million charge related to certain fees paid to third-parties associated with the amendment of our Credit Agreement.  On an after-tax basis, these adjustments approximated $9.8 million, or ten cents per diluted share, for the three months ended September 30, 2009.

(b) These amounts represent (i) a non-cash charge of $26.9 million to reflect the impairment of the Hercules 110; (ii) a $10.7 million gain on the repurchase of $20.0 million aggregate principal amount of our 3.375% Convertible Senior Notes offset by the write-off of unamortized issuance cost of $0.4 million; (iii) a $4.4 million gain on the retirement of $45.8 million aggregate principal amount of our 3.375% Convertible Senior Notes in exchange for 7,755,440 of our common shares offset by the write-off of unamortized issuance cost of $1.0 million; (iv) a $10.8 million charge due to the write-off of previously deferred unamortized debt issuance costs in connection with the amendment of our Credit Agreement and (v) a $4.3 million charge related to certain fees paid to third-parties associated with the amendment of our Credit Agreement.  On an after-tax basis, these adjustments approximated $14.0 million, or 15 cents per diluted share, for the nine months ended September 30, 2009.