Hercules Offshore Announces Second Quarter 2013 Results

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

June 30,

December 31,

2013

2012

(Unaudited)

ASSETS

Current Assets:

Cash and Cash Equivalents

$

40,658

$

259,193

Restricted Cash

2,027

2,027

Accounts Receivable, Net

178,835

167,936

Prepaids

39,105

16,135

Current Deferred Tax Asset

-

21,125

Assets Held for Sale

98,802

-

Other

22,968

12,191

382,395

478,607

Property and Equipment, Net

1,744,548

1,462,755

Equity Investment

-

38,191

Other Assets, Net

28,151

37,077

$

2,155,094

$

2,016,630

LIABILITIES AND EQUITY

Current Liabilities:

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

$

-

$

67,054

Accounts Payable

78,031

58,615

Accrued Liabilities

69,866

82,781

Interest Payable

17,085

17,367

Insurance Notes Payable

28,872

9,123

Other Current Liabilities

202,171

26,483

396,025

261,423

Long-term Debt, Net of Current Portion

805,508

798,013

Deferred Income Taxes

13,182

56,821

Other Liabilities

23,108

17,611

Commitments and Contingencies

Stockholders' Equity

894,964

882,762

Noncontrolling Interest

22,307

-

Total Equity

917,271

882,762

$

2,155,094

$

2,016,630

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2013

2012

2013

2012

Revenue

$211,456

$154,498

$397,651

$283,053

Costs and Expenses:

Operating Expenses

118,857

100,602

232,811

197,547

Asset Impairment

-

47,523

-

47,523

Depreciation and Amortization

37,928

36,321

72,866

73,297

General and Administrative

21,421

5,724

40,537

22,869

178,206

190,170

346,214

341,236

Operating Income (Loss)

33,250

(35,672)

51,437

(58,183)

Other Income (Expense):

Interest Expense

(18,040)

(18,627)

(35,135)

(36,612)

Loss on Extinguishment of Debt

-

(9,156)

-

(9,156)

Gain on Equity Investment

14,876

-

14,876

-

Other, Net

(1,511)

(921)

(1,315)

88

Income (Loss) Before Income Taxes

28,575

(64,376)

29,863

(103,863)

Income Tax Benefit (Provision)

(12,001)

11,917

27,009

17,704

Income (Loss) from Continuing Operations

16,574

(52,459)

56,872

(86,159)

Loss from Discontinued Operations, Net of Taxes

(43,953)

(2,612)

(49,089)

(7,254)

Net Income (Loss)

(27,379)

(55,071)

(93,413)

Loss attributable to Noncontrolling Interest

18

-

18

-

Net Income (Loss) attributable to Hercules Offshore, Inc.

$ (27,361)

$ (55,071)

$    7,801

$ (93,413)

Net Income (Loss) attributable to Hercules Offshore, Inc. Per Share:

Basic:

Income (Loss) from Continuing Operations

$

0.10

$    (0.33)

$     0.36

$    (0.58)

Loss from Discontinued Operations

(0.27)

(0.02)

(0.31)

(0.05)

Net Income (Loss)

$

(0.17)

$    (0.35)

$     0.05

$    (0.63)

Diluted:

Income (Loss) from Continuing Operations

$

0.10

$    (0.33)

$     0.35

$    (0.58)

Loss from Discontinued Operations

(0.27)

(0.02)

(0.30)

(0.05)

Net Income (Loss)

$

(0.17)

$    (0.35)

$     0.05

$    (0.63)

Weighted Average Shares Outstanding:

Basic 

159,574

158,515

159,252

148,861

Diluted

161,442

158,515

161,283

148,861

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30,

2013

2012

Cash Flows from Operating Activities:

Net Income (Loss)

$    7,801

$  (93,413)

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by

Operating Activities:

  Depreciation and Amortization

83,764

85,373

  Stock-Based Compensation Expense

5,169

3,274

  Deferred Income Taxes

(20,812)

(30,308)

  Provision (Benefit) for Doubtful Accounts Receivable

356

(7,625)

  Gain on Equity Investment

(14,876)

-

  Asset Impairment

44,370

47,523

  Other

5,328

(2,287)

Net Change in Operating Assets and Liabilities

(19,493)

22,079

    Net Cash Provided by Operating Activities

91,607

24,616

Cash Flows from Investing Activities:

Acquisition of Assets, Net of Cash Acquired

(178,136)

(40,000)

Investment in Marketable Securities, Net

-

(30,000)

Additions of Property and Equipment

(74,912)

(47,478)

Deferred Drydocking Expenditures

(5,787)

(7,285)

Insurance Proceeds Received

-

20,639

Proceeds from Sale of Assets, Net

8,797

10,405

Decrease in Restricted Cash

-

1,622

  Net Cash Used in Investing Activities

(250,038)

(92,097)

Cash Flows from Financing Activities:

Long-term Debt Borrowings

-

500,000

Long-term Debt Repayments

-

(452,909)

Redemption of 3.375% Convertible Senior Notes

(61,274)

(27,606)

Common Stock Issuance

-

96,696

Payment of Debt Issuance Costs

-

(7,717)

Other

1,170

139

  Net Cash Provided by (Used In) Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

(218,535)

41,122

Cash and Cash Equivalents at Beginning of Period

259,193

134,351

Cash and Cash Equivalents at End of Period

$  40,658

$ 175,473

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA

(Dollars in thousands, except per day amounts)

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2013

2012

2013

2012

Domestic Offshore:

Number of rigs (as of end of period)

29

35

29

35

Revenue

$ 126,998

$   90,068

$ 248,113

$ 172,386

Operating expenses

65,559

54,730

125,310

114,468

Depreciation and amortization expense

19,636

19,240

39,480

38,252

General and administrative expenses

1,902

1,185

3,467

3,837

Operating income

$   39,901

$   14,913

$   79,856

$   15,829

International Offshore:

Number of rigs (as of end of period)

11

10

11

10

Revenue

$   48,753

$   30,072

$   80,527

$   48,120

Operating expenses

33,667

28,750

65,578

52,877

Asset impairment

-

47,523

-

47,523

Depreciation and amortization expense

12,767

12,386

22,787

24,727

General and administrative expenses

5,652

(6,953)

7,664

(4,524)

Operating loss

$   (3,333)

$ (51,634)

$ (15,502)

$ (72,483)

International Liftboats:

Number of liftboats (as of end of period)

24

24

24

24

Revenue

$   35,705

$   34,358

$   69,011

$   62,547

Operating expenses

19,631

17,122

41,923

30,202

Depreciation and amortization expense

4,799

4,063

9,151

9,053

General and administrative expenses

1,338

1,233

2,848

2,783

Operating income

$     9,937

$   11,940

$   15,089

$   20,509

Total Company:

Revenue

$ 211,456

$ 154,498

$ 397,651

$ 283,053

Operating expenses

118,857

100,602

232,811

197,547

Asset impairment

-

47,523

-

47,523

Depreciation and amortization expense

37,928

36,321

72,866

73,297

General and administrative expenses

21,421

5,724

40,537

22,869

Operating income (loss)

33,250

(35,672)

51,437

(58,183)

     Interest expense

(18,040)

(18,627)

(35,135)

(36,612)

     Loss on extinguishment of debt

-

(9,156)

-

(9,156)

     Gain on equity investment

14,876

-

14,876

-

     Other, net

(1,511)

(921)

(1,315)

88

Income (loss) before income taxes

28,575

(64,376)

29,863

(103,863)

     Income tax benefit (provision)

(12,001)

11,917

27,009

17,704

Income (loss) from continuing operations

16,574

(52,459)

56,872

(86,159)

Loss from discontinued operations, net of taxes

(43,953)

(2,612)

(49,089)

(7,254)

Net income (loss)

(27,379)

(55,071)

(93,413)

Loss attributable to noncontrolling interest

18

-

18

-

Net income (loss) attributable to Hercules Offshore, Inc.

$ (27,361)

$ (55,071)

$     7,801

$ (93,413)

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)

Three Months Ended June 30, 2013

Operating Days

Available Days

Utilization (1)

Average

 Revenue per

Day (2)

Average
Operating

 Expense per
Day (3)

Domestic Offshore

1,506

1,695

88.8%

$      84,328

$       38,678

International Offshore

420

538

78.1%

116,079

62,578

International Liftboats

1,475

2,093

70.5%

24,207

9,379

Three Months Ended June 30, 2012

Operating Days

Available Days

Utilization (1)

Average

Revenue per

Day (2)

Average
Operating
Expense per
Day (3)

Domestic Offshore

1,483

1,638

90.5%

$       60,734

$      33,413

International Offshore

329

637

51.6%

91,404

45,133

International Liftboats

1,379

1,826

75.5%

24,915

9,377

Six Months Ended June 30, 2013

Operating Days

Available Days

Utilization (1)

Average

Revenue per

 Day (2)

Average
Operating
Expense per
Day (3)

Domestic Offshore

3,054

3,315

92.1%

$        81,242

$       37,801

International Offshore

689

988

69.7%

116,875

66,374

International Liftboats

2,925

4,104

71.3%

23,594

10,215

Six Months Ended June 30, 2012

Operating Days

Available Days

Utilization (1)

Average

Revenue per

Day (2)

Average
Operating
Expense per
Day (3)

Domestic Offshore

2,954

3,276

90.2%

$       58,357

$      34,941

International Offshore

576

1,274

45.2%

83,542

41,505

International Liftboats

2,581

3,662

70.5%

24,234

8,247

(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.

(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.

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, net income 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 six months ended June 30, 2013 and 2012. 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
June 30,

Six Months Ended
June 30,

2013

2012

2013

2012

    Operating Income (Loss):

      GAAP Operating Income (Loss)

$

33,268

$

(35,672)

$

51,455

$

(58,183)

      Adjustment

-

47,523

(b)

-

47,523

(b)

      Non-GAAP Operating Income (Loss)

$

33,268

$

11,851

$

51,455

$

(10,660)

    Other Expense:

      GAAP Other Expense

$

(4,675)

$

(28,704)

$

(21,574)

$

(45,680)

      Adjustment

(14,876)

(a)

9,156

(c)

(14,876)

(a)

9,156

(c)

      Non-GAAP Other Expense  

$

(19,551)

$

(19,548)

$

(36,450)

$

(36,524)

   Benefit (Provision) for Income Taxes:

      GAAP Benefit (Provision) for Income Taxes

$

(12,001)

$

11,917

$

27,009

$

17,704

      Tax Adjustment

-

(19,838)

(37,729)

(d)

(19,838)

      Non-GAAP Provision for Income Taxes

$

(12,001)

$

(7,921)

$

(10,720)

$

(2,134)

    Income (Loss) from Continuing Operations 

    attributable to Hercules Offshore, Inc.:

      GAAP Income (Loss) from Continuing Operations

$

16,592

$

(52,459)

$

56,890

$

(86,159)

      Total Adjustment

(14,876)

36,841

(52,605)

36,841

      Non-GAAP Income (Loss) from Continuing Operations

$

1,716

$

(15,618)

$

4,285

$

(49,318)

    Diluted Earnings (Loss) per Share:

      GAAP Diluted Earnings (Loss) per Share

$

0.10

$

(0.33)

$

0.35

$

(0.58)

      Adjustment per Share

(0.09)

0.23

(0.32)

0.25

      Non-GAAP Diluted Earnings (Loss) per Share

$

0.01

$

(0.10)

$

0.03

$

(0.33)

(a)

This amount represents a non-cash gain of $14.9 million related to the adjustment of our investment in Discovery Offshore to fair market value at the date our controlling interest was obtained.

(b)

This amount represents a non-cash charge of $47.5 million related to the impairment of the Hercules 185 and related unamortized deferred costs. On an after-tax basis, this adjustment approximated $30.9 million.

(c)

This amount represents (i) a charge of $6.4 million related to our debt refinancing in April 2012; (ii) a non-cash charge of $1.4 million related to the write-off of unamortized issuance costs in connection with the April 2012 termination of our prior term loan and (iii) a $1.3 million loss on the retirement of a portion of our 3.375% convertible senior notes. On an after-tax basis, these adjustments approximated $6.0 million.

(d)

This amount represents a tax benefit recognized of $37.7 million related to the change in characterization of the Seahawk acquisition for tax purposes from a purchase of assets to a reorganization.