Hercules Offshore Announces Second Quarter 2008 Earnings

HOUSTON, July 29, 2008 /PRNewswire-FirstCall via COMTEX/ -- HERO | Quote | Chart | News | PowerRating -- Hercules Offshore, Inc. (Nasdaq: HERO | Quote | Chart | News | PowerRating) today reported net income of $20.0 million, or $0.22 per diluted share, before separation related charges, on revenues of $270.8 million for the second quarter 2008, compared to net income of $24.2 million, or $0.74 per diluted share, before charges, on revenues of $99.0 million for the second quarter 2007.

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Net income for the quarter ended June 30, 2008, inclusive of $3.6 million, after tax, in separation related costs, was $16.4 million, or $0.18 per diluted share. Net income for the second quarter of 2007 was $23.5 million, or $0.72 per diluted share, which includes $0.7 million, after tax, in severance-related costs and a net loss related to the early retirement of debt and an interest rate swap termination.

Sequentially, the company's second quarter diluted earnings per share, before non-recurring items, were $0.17 higher than the first quarter 2008 diluted earnings per share of $0.05.

John Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Our second quarter results reflect improving market conditions for our Domestic Offshore and Domestic Liftboat segments. The domestic offshore environment is expected to remain positive as current commodity prices are driving attractive well economics and higher capital spending by our customers."

"In keeping with our long-stated strategy, we are also continuing to expand our international operations. We are mobilizing the Amberjack liftboat to the Middle East from the U.S. Gulf of Mexico and we anticipate operations on this vessel will commence in the fourth quarter. This represents the third additional liftboat we will put into service internationally this year, in addition to the four additional jackups that we previously announced, providing substantial growth in our earnings over the next two years."

Offshore Highlights

During the second quarter 2008, Domestic Offshore revenues increased to $97.4 million from $28.3 million in the second quarter 2007 as a result of additional operating days stemming from the acquisition of TODCO in July 2007. While utilization increased to 79.6% from 68.7%, it was offset by a decline in average revenue per day per rig to $60,445 from $75,531 in the second quarters of 2008 and 2007, respectively. Domestic Offshore generated operating income of $23.6 million for the second quarter 2008 compared to operating income of $10.1 million in the second quarter of 2007.

International Offshore revenues were $74.2 million for the second quarter 2008 compared with $19.6 million for the prior year period. This increase was also largely due to increased operating days resulting from the TODCO acquisition as well as the activation of the Hercules 260. Average revenue per day per rig for the second quarter 2008 was $115,556 compared with $109,719 in the corresponding period of 2007, while utilization declined to 87.7% from 98.4% for the same periods largely due to downtime on the Hercules 110. Average operating expense per day per rig increased by $10,662 to $50,967 in the second quarter 2008 from $40,305 in the corresponding period of the prior year due to a significant increase in the amortization of mobilization expense and rental expense that is rebilled to the customer. Operating income increased by over 175% to $27.4 million in the second quarter of 2008.

Inland Highlights

Inland recorded revenues of $40.3 million and an operating loss of $2.9 million during the second quarter 2008. Average revenue per day per rig was $39,589 on utilization of 68.4%. The Company did not have inland barge operations prior to the third quarter of 2007.

Liftboat Highlights

Domestic Liftboats revenues declined to $22.3 million for the second quarter 2008, from $37.2 million in the second quarter 2007 due to a reduction in demand which adversely impacted both dayrates and utilization. Average revenue per day per liftboat declined to $9,030 in the second quarter of 2008 from $12,482 in the same period of 2007 while utilization decreased to 63.7% from 71.2% in the same periods, respectively. Operating income for the second quarter 2008 was $3.0 million compared with $14.8 million in the second quarter of the previous year.

International Liftboats revenues increased $6.4 million to $20.3 million in the second quarter 2008 from $13.9 million in the second quarter 2007 due to strong demand in West Africa and the completion of the reactivation of the Black Jack vessel. Average revenue per day per liftboat increased by 38% in the second quarter 2008 to $15,255 from $11,090 in the prior year period on slightly higher utilization. Operating Income increased to $6.8 million in the second quarter of 2008 from $3.5 million in the same prior year period.

Other Highlights

Our Other segment includes the results of our wholly-owned subsidiary, Delta Towing, and the results associated with the completion of the fourth quarter sale of our land rigs, which were acquired as part of the TODCO acquisition. This segment recorded operating income of $2.3 million on revenues of $16.4 million in the second quarter 2008.

Balance Sheet Highlights

At June 30, 2008, the Company's balance sheet reflected total assets of $3.9 billion, including cash and equivalents totaling $98.0 million, total debt of $1.2 billion and stockholders' equity of $2.0 billion. During the quarter, the Company improved liquidity significantly through an increase in the commitments on its revolving credit facility to $250 million from $150 million and the issuance of $250 million in principal amount of 3.375% Convertible Senior Notes due 2038. The notes will be convertible under certain circumstances into shares of Hercules Offshore common stock at a rate which is equal to a conversion price of approximately $50.08 per share. The Company utilized approximately $49.2 million of the proceeds from the offering to repurchase 1.45 million shares of its common stock and $100 million to repay amounts outstanding under its revolving credit facility.

Non-GAAP

Certain non-GAAP performance measures and corresponding reconciliations to GAAP financial measures for the company have been provided for meaningful comparisons between current results and prior operating periods. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. In order to fully assess the financial operating results, management believes that the adjusted net income figures included in this release are appropriate measures of the continuing and normal operations of the company. However, these measures should be considered in addition to, and not as a substitute, or superior to, net income, operating income, cash flows from operations, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table that follows the financial statements.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CDT (11:00 a.m. EDT) on Tuesday, July 29, 2008, to discuss its second quarter 2008 financial results. To participate in the call, dial 866-800-8649 (domestic) or 617-614-2703 (international) and reference access code 61787325 approximately 10 minutes prior to the start of the call. The conference call will also be broadcast live via the Internet at http://www.herculesoffshore.com.

A replay of the conference call will be available by telephone on Tuesday, July 29, 2008, beginning at 12:00 p.m. CDT (1:00 p.m. EDT), through Tuesday, August 5, 2008. The phone number for the conference call replay is 888-286-8010 (domestic) or 617-801-6888 (international) with reference code 49089675. Additionally, the recorded conference call will be accessible through our Web site at http://www.herculesoffshore.com for 28 days after the conference call.

Additional Information

Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of 35 jackup rigs, 27 barge rigs, 65 liftboats, three submersible rigs, one platform rig and a fleet of marine support vessels, and has operations in nine different countries on four continents. The company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in shallow waters.

For more information, please visit our Web site at http://www.herculesoffshore.com.

The news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are subject to a number of risks, uncertainties and assumptions, including the factors described in Hercules Offshore's most recent periodic reports and other documents filed with the Securities and Exchange Commission, which are available free of charge at the SEC's Web site at http://www.sec.gov or the company's Web site at http://www.herculesoffshore.com. Hercules Offshore cautions you that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected or implied in these statements.

HERCULES OFFSHORE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 2008 2007 (unaudited) ASSETS Current Assets: Cash and Cash Equivalents $98,026 $212,452 Marketable Securities - 39,300 Accounts Receivable, Net 262,501 221,663 Insurance Claims Receivable 4,209 43,342 Supplies 2,489 2,494 Prepaids 53,278 31,417 Current Deferred Tax Asset 17,551 17,551 Other 28,460 23,565 466,514 591,784 Property and Equipment, Net 2,424,203 2,060,224 Goodwill 952,740 940,241 Other Assets, Net 47,139 50,290 $3,890,596 $3,642,539 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term Debt and Current Portion of Long-term Debt $20,400 $21,653 Insurance Note Payable 32,148 16,931 Accounts Payable 104,203 105,527 Accrued Liabilities 80,805 80,138 Taxes Payable 7,137 23,006 Other Current Liabilities 25,979 16,845 270,672 264,100 Long-term Debt, Net of Current Portion 1,137,762 890,013 Other Liabilities 34,494 19,518 Deferred Income Taxes 447,776 457,475 Commitments and Contingencies Stockholders' Equity 1,999,892 2,011,433 $3,890,596 $3,642,539 HERCULES OFFSHORE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues $270,830 $99,044 $484,216 $209,508 Costs and Expenses: Operating Expenses 158,870 44,396 291,679 85,923 Depreciation and Amortization 47,280 12,209 90,906 23,939 General and Administrative 23,966 9,335 40,330 18,498 230,116 65,940 422,915 128,360 Operating Income 40,714 33,104 61,301 81,148 Other Income (Expense): Interest Expense (14,579) (1,379) (30,539) (3,469) Loss on Early Retirement of Debt - (870) - (870) Other, Net 67 1,246 2,274 2,521 Income Before Income Taxes 26,202 32,101 33,036 79,330 Income Tax Provision (9,759) (8,635) (12,107) (22,473) Net Income $16,443 $23,466 $20,929 $56,857 Earnings Per Share: Basic $0.19 $0.73 $0.24 $1.77 Diluted $0.18 $0.72 $0.23 $1.74 Weighted Average Shares Outstanding: Basic 88,625 32,099 88,742 32,037 Diluted 89,461 32,813 89,516 32,642 HERCULES OFFSHORE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 2008 2007 Cash Flows from Operating Activities: Net Income $20,929 $56,857 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 90,906 23,939 Stock-based Compensation Expense 7,932 2,881 Deferred Income Taxes 6,243 5,031 Amortization of Deferred Financing Fees 1,712 293 Gain on Disposal of Assets (1,911) (296) Excess Tax Benefit from Stock-based Arrangements (5,447) (1,731) Loss on Early Retirement of Debt - 870 (Increase) Decrease in Operating Assets - Accounts Receivable (41,755) 14,146 Insurance Claims Receivable (142) (5,853) Prepaid Expenses and Other 14,069 2,482 Increase (Decrease) in Operating Liabilities - Accounts Payable (885) 1,703 Insurance Note Payable (21,077) (6,058) Other Current Liabilities (4,846) (7,898) Other Liabilities 3,126 (284) Net Cash Provided by Operating Activities 68,854 86,082 Cash Flows from Investing Activities: Acquisition of Assets (320,839) - Additions of Property and Equipment (130,528) (38,133) Deferred Drydocking Expenditures (9,151) (9,864) Investment in Marketable Securities - (61,500) Proceeds from Sale of Marketable Securities 39,300 37,600 Insurance Proceeds Received 25,332 - Proceeds from Sale of Assets, Net 12,649 610 Net Cash Used in Investing Activities (383,237) (71,287) Cash Flows from Financing Activities: Short-term Debt Borrowings (Repayments), Net 1,086 - Long-term Debt Borrowings 350,000 - Long-term Debt Repayments (104,470) (37,700) Share Repurchases (49,228) - Proceeds from Exercise of Stock Options 5,127 1,510 Excess Tax Benefit from Stock-based Arrangements 5,447 1,731 Payment of Debt Issuance Costs (8,005) (441) Other - (46) Net Cash Provided by (Used In) Financing Activities 199,957 (34,946) Net Decrease in Cash and Cash Equivalents (114,426) (20,151) Cash and Cash Equivalents at Beginning of Period 212,452 72,772 Cash and Cash Equivalents at End of Period $98,026 $52,621 HERCULES OFFSHORE, INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA (Dollars in thousands, except per day amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Domestic Offshore: Number of rigs (as of end of period) 27 6 27 6 Revenues $97,438 $28,325 $159,885 $71,156 Operating expenses 56,275 13,899 104,047 27,462 Depreciation and amortization expense 16,204 2,691 31,539 5,252 General and administrative expenses 1,382 1,611 2,612 3,553 Operating income $23,577 $10,124 $21,687 $34,889 International Offshore: Number of rigs (as of end of period) 12 3 12 3 Revenues $74,187 $19,640 $139,530 $40,516 Operating expenses 37,308 7,335 60,100 14,718 Depreciation and amortization expense 9,310 1,363 16,896 2,731 General and administrative expenses 145 1,015 760 1,545 Operating income $27,424 $9,927 $61,774 $21,522 Inland: Number of barges (as of end of period) 27 - 27 - Revenues $40,262 $ - $80,530 $ - Operating expenses 31,306 - 63,232 - Depreciation and amortization expense 10,520 - 20,180 - General and administrative expenses 1,350 - 1,972 - Operating loss $(2,914) $ - $(4,854) $ - Domestic Liftboats: Number of liftboats (as of end of period) 45 47 45 47 Revenues $22,269 $37,195 $38,213 $69,898 Operating expenses 13,446 15,639 27,340 29,279 Depreciation and amortization expense 5,382 6,192 11,334 12,262 General and administrative expenses 468 539 1,117 1,077 Operating income (loss) $2,973 $14,825 $(1,578) $27,280 HERCULES OFFSHORE, INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA - (Continued) (Dollars in thousands, except per day amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 International Liftboats: Number of liftboats (as of end of period) 20 18 20 18 Revenues $20,305 $13,884 $38,596 $27,938 Operating expenses 9,896 7,523 17,116 14,464 Depreciation and amortization expense 2,368 1,938 4,352 3,642 General and administrative expenses 1,289 882 2,228 1,832 Operating income $6,752 $3,541 $14,900 $8,000 Other: Revenues $16,369 $ - $27,462 $ - Operating expenses 10,639 - 19,844 - Depreciation and amortization expense 2,712 - 5,287 - General and administrative expenses 703 - 1,285 - Operating income $2,315 $ - $1,046 $ - Total Company: Revenues $270,830 $99,044 $484,216 $209,508 Operating expenses 158,870 44,396 291,679 85,923 Depreciation and amortization expense 47,280 12,209 90,906 23,939 General and administrative expenses 23,966 9,335 40,330 18,498 Operating income 40,714 33,104 61,301 81,148 Interest expense (14,579) (1,379) (30,539) (3,469) Loss on early retirement of debt - (870) - (870) Other income 67 1,246 2,274 2,521 Income before income taxes 26,202 32,101 33,036 79,330 Income tax provision (9,759) (8,635) (12,107) (22,473) Net income $16,443 $23,466 $20,929 $56,857 HERCULES OFFSHORE, INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA - (Continued) (Dollars in thousands, except per day amounts) (Unaudited) Three Months Ended June 30, 2008 Average Average Operating Operating Available Utilization Revenue per Expense Days Days (1) Day (2) per Day (3) Domestic Offshore 1,612 2,024 79.6% $60,445 $27,804 International Offshore 642 732 87.7% 115,556 50,967 Inland 1,017 1,486 68.4% 39,589 21,067 Domestic Liftboats 2,466 3,871 63.7% 9,030 3,474 International Liftboats 1,331 1,590 83.7% 15,255 6,224 Three Months Ended June 30, 2007 Average Average Operating Operating Available Utilization Revenue per Expense Days Days (1) Day (2) per Day (3) Domestic Offshore 375 546 68.7% $75,531 $25,455 International Offshore 179 182 98.4% 109,719 40,305 Inland - - - - - Domestic Liftboats 2,980 4,186 71.2% 12,482 3,736 International Liftboats 1,252 1,547 80.9% 11,090 4,862 Six Months Ended June 30, 2008 Average Average Operating Operating Available Utilization Revenue per Expense Days Days (1) Day (2) per Day (3) Domestic Offshore 2,710 4,026 67.3% $58,998 $25,844 International Offshore 1,296 1,441 89.9% 107,662 41,707 Inland 1,955 3,033 64.5% 41,192 20,848 Domestic Liftboats 4,066 8,057 50.5% 9,398 3,393 International Liftboats 2,548 3,137 81.2% 15,148 5,456 Six Months Ended June 30, 2007 Average Average Operating Operating Available Utilization Revenue per Expense Days Days (1) Day (2) per Day (3) Domestic Offshore 849 1,086 78.2% $83,812 $25,287 International Offshore 359 362 99.2% 112,857 40,659 Inland - - - - - Domestic Liftboats 5,647 8,285 68.2% 12,378 3,534 International Liftboats 2,414 3,021 79.9% 11,573 4,788 (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 Domestic Offshore revenue is a total of $0.1 million related to amortization of contract specific capital expenditures reimbursed by the customer for the three and six months ended June 30, 2007. There was no such revenue in the three and six months ended June 30, 2008. Included in International Offshore revenue is a total of $4.2 million and $6.2 million related to amortization of deferred mobilization revenue and contract specific capital expenditures reimbursed by the customer for the three and six months ended June 30, 2008, respectively, and $0.7 million and $2.5 million for the three and six months ended June 30, 2007, respectively. (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 $2.1 million and $3.0 million related to amortization of deferred mobilization expenses for the three and six months ended June 30, 2008, respectively, and $0.4 million and $1.6 million for the three and six months ended June 30, 2007, respectively. 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. One such non-GAAP financial measure we may present from time to time is operating income or net income excluding certain charges or amounts. This adjusted income amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for operating income, net income 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, 2008 and 2007. 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, 2008 2007 2008 2007 Operating Income: GAAP Operating Income $40,714 $33,104 $61,301 $81,148 Adjustment 5,509 (a) 505 (b) 5,509 (a) 505 (b) Non-GAAP Operating Income $46,223 $33,609 $66,810 $81,653 Other Income (Expense): GAAP Other Income (Expense) $(14,512) $(1,003) $(28,265) $(1,818) Adjustment - (a) 564 (b) - (a) 564 (b) Non-GAAP Other Income (Expense) $(14,512) $(439) $(28,265) $(1,254) Provision for Income Taxes: GAAP Provision for Income Taxes $(9,759) $(8,635) $(12,107) $(22,473) Tax Impact of Adjustment (1,928)(a) (374)(b) (1,928)(a) (374)(b) Non-GAAP Provision for Income Taxes $(11,687) $(9,009) $(14,035) $(22,847) Net Income: GAAP Net Income $16,443 $23,466 $20,929 $56,857 Total Adjustment, Net of Tax 3,581 (a) 695 (b) 3,581 (a) 695 (b) Non-GAAP Net Income $20,024 $24,161 $24,510 $57,552 Diluted Earnings per Share: GAAP Diluted Earnings per Share $0.18 $0.72 $0.23 $1.74 Adjustment per Share 0.04 (a) 0.02 (b) 0.04 (a) 0.02 (b) Non-GAAP Diluted Earnings per Share $0.22 $0.74 $0.27 $1.76 (a) These amounts represent $5.5 million of separation and benefit related costs associated with the Company's executive management changes. On an after-tax basis, these adjustments approximated $3.6 million, or four cents per diluted share, for the three and six months ended June 30, 2008. (b) These amounts represent $0.5 million of severance related costs incurred in anticipation of an acquisition and a loss of $0.6 million related to the early retirement of debt, net of a $0.3 million interest rate swap gain. On an after-tax basis, these adjustments approximated $0.7 million, or two cents per diluted share, for the three and six months ended June 30, 2007.

SOURCE Hercules Offshore, Inc.

http://www.herculesoffshore.com

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