Hercules Offshore Announces Fourth Quarter and Full Year 2012 Results

HOUSTON, Feb. 12, 2013 /PRNewswire/ -- Hercules Offshore, Inc. (Nasdaq: HERO) today reported income from continuing operations of $4.3 million, or $0.03 per diluted share, on revenue of $202.6 million for the fourth quarter 2012, compared with a loss from continuing operations of $21.5 million, or $0.16 per diluted share, on revenue of $162.8 million for the fourth quarter 2011.

For the twelve month period ended December 31, 2012, the Company reported a loss from continuing operations of $127.0 million, or $0.83 per diluted share, on revenue of $709.8 million, versus a loss from continuing operations of $66.5 million, or $0.51 per diluted share, on revenue of $655.4 million for the twelve month period ended December 31, 2011.  As outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, the twelve month period ended December 31, 2012 results include impairment charges on property and equipment, certain gains and debt refinancing and retirement costs. On a net after tax basis, these adjustments approximated a charge of $59.0 million, or $0.39 per diluted share.

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Market fundamentals in the U.S. Gulf of Mexico strengthened throughout 2012, to levels that, in many respects, are the best they have been in the long history of drilling in the region. This momentum continues through to today.  As we begin 2013, the visibility in our core domestic business is unsurpassed, with customer discussions already focusing on 2014 demand.  Given the limited availability of rigs and strong interest from customers, we have embarked on our first rig reactivation. Additional reactivations, as well as further growth in backlog and dayrates, are contingent on commodity prices, rig availability, and customer demand. We will remain disciplined in our capital allocation decisions, however, we are optimistic regarding our growth prospects based on current market dynamics in the U.S. Gulf of Mexico.

"Our international operations are in the early stages of a transformation, where we seek to expand our global footprint and high-grade our asset mix in key offshore markets.  The rebound in our domestic operations, along with our success in strengthening the balance sheet, will allow for opportunistic investments in this area. 

"While there are a number of positive catalysts for our Company to capitalize on, we also have challenges, including our ability to minimize shipyard time and control costs.  After the extreme market conditions that we have successfully navigated through over the past several years, I am confident that our organization is well-equipped to meet these future challenges."

Offshore

Revenue generated from Domestic Offshore for the fourth quarter 2012 increased by 21.9% to $91.1 million from $74.8 million in the fourth quarter 2011, as a result of improving dayrates partially offset by a reduction in utilization.  Average revenue per rig per day rose by 28.5% to $67,681 in the fourth quarter 2012 from $52,686 in the comparable 2011 period.  Utilization decreased to 81.3% in the fourth quarter 2012 from 85.7% in the fourth quarter 2011, due to shipyard downtime on the Hercules 205, Hercules 253, Hercules 263 and Hercules 350 related to capital upgrade and regulatory survey requirements.  Operating expenses of $60.9 million in the fourth quarter 2012 includes approximately $7.4 million of net gains from asset sales, compared to operating expenses of $45.7 million in the fourth quarter of 2011, which includes $15.0 million of gains from asset sales.  Excluding these gains, the overall increase in segment operating expense was driven by higher labor, repair and maintenance, and workers' compensation expense. Domestic Offshore generated operating income of $10.0 million in the fourth quarter 2012 compared to operating income of $9.0 million in the fourth quarter 2011.

International Offshore revenue of $49.8 million in the fourth quarter 2012, which includes a $10.0 million payment from Angola Drilling Company ("ADC") related to a prior contract on the Hercules 185, compares to $40.9 million in the fourth quarter 2011.  Average revenue per rig per day for the fourth quarter 2012 increased to $137,671 from $85,778 in the fourth quarter 2011, primarily on higher dayrates for the Hercules 260, the absence of the Hercules 258 and Platform Rig 3, which were previously contracted at below fleet average rates, and the impact of the ADC payment.  Operating days declined to 362 days in the fourth quarter 2012 compared to 477 days in the respective 2011 period, mainly as a result of the sale of Platform Rig 3 and contract expiration on the Hercules 258, partially offset by increased utilization on the Hercules 208, Hercules 261 and Hercules 262.  Operating expenses decreased to $27.1 million in the fourth quarter 2012 from $34.6 million in the fourth quarter 2011, from lower costs on the Hercules 208 and Hercules 260, the stacking of the Hercules 258 and Hercules 185, and the sale of Platform Rig 3.  International Offshore recorded operating income of $9.8 million in the fourth quarter 2012 compared to an operating loss of $6.0 million in the prior year period.

Inland

Inland generated revenue of $8.1 million in the fourth quarter 2012 compared to revenue of $6.9 million in the fourth quarter 2011, as a result of improvements in dayrates and utilization.  Fourth quarter 2012 average revenue per rig per day of $32,826 and utilization of 89.5%, compared favorably to $30,524 and 82.2% in the respective 2011 period.  Operating expenses for the fourth quarter 2012 were $5.2 million versus operating expenses of $6.3 million in the fourth quarter 2011.  Gains on asset sales reduced fourth quarter 2012 operating expenses by $1.4 million, compared to gains of $0.6 million in fourth quarter 2011.  Inland recorded an operating loss of $0.6 million in the fourth quarter 2012 compared to an operating loss of $3.1 million in the comparable prior year period. 

Liftboats

Domestic Liftboats revenue increased by 60.0% to $19.8 million in the fourth quarter 2012 from $12.4 million in the fourth quarter 2011, due to strong improvements in pricing and utilization.  Average revenue per liftboat per day increased by 21.7% to $9,327 in the fourth quarter 2012 from $7,662 in the fourth quarter 2011.  Operating days increased to 2,122 in the fourth quarter 2012 compared to 1,614 in the comparable 2011 period.  Operating expenses in the fourth quarter 2012 were $10.5 million, essentially flat with operating expenses in the fourth quarter 2011.  Domestic Liftboats recorded operating income of $4.7 million in the fourth quarter 2012 compared to an operating loss of $2.5 million in the fourth quarter 2011.

International Liftboats revenues increased by 21.5% to $33.8 million in the fourth quarter 2012 from $27.8 million in the prior year period.  Average revenue per liftboat per day increased to $22,961 in the fourth quarter 2012 from $21,595 in the respective 2011 period, while utilization increased to 74.8% from 60.9% in the same periods, respectively.  Operating expenses increased to $16.4 million in the fourth quarter 2012 from $15.0 million in the fourth quarter 2011, primarily due to higher labor costs.  International Liftboats recorded operating income of $11.6 million in the fourth quarter 2012 compared to operating income of $4.8 million in the prior year period.

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 loss from continuing operations 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 for, or superior to, income (loss) from continuing operations, operating income (loss), 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. Please see the attached Reconciliation of GAAP to Non-GAAP Financial Measures for a complete description of the adjustments made to Operating Loss, Loss From Continuing Operations and Diluted Loss per Share from Continuing Operations.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CST (11:00 a.m. EST) on February 12, 2013, to discuss its fourth quarter and full year 2012 financial results. To participate in the call, dial 866-510-0707 (domestic) or 617-597-5376 (international) and reference access code 76244795 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 February 12, 2013, beginning at 12:00 p.m. CST (1:00 p.m. EST), through February 19, 2013. The phone number for the conference call replay is 888-286-8010 (domestic) or 617-801-6888 (international) with access code 91770267. Additionally, the recorded conference call will be accessible through our website at http://www.herculesoffshore.com for 7 days after the conference call.

Additional Information

Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of 37 jackup rigs, 13 barge rigs and 63 liftboats. 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 several key shallow water provinces around the world. Hercules Offshore currently holds 32.1% of share capital in Discovery Offshore S.A., a pure play, ultra-high specification jackup rig company.  For more information, please visit our website 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 website at http://www.sec.gov or the Company's website 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)












December 31,


December 31,





2012


2011





(Unaudited)



ASSETS






Current Assets:







Cash and Cash Equivalents


$      259,193


$      134,351



Restricted Cash


2,027


9,633



Accounts Receivable, Net


167,936


153,688



Prepaids


16,135


16,352



Current Deferred Tax Asset


21,125


15,543



Other


12,191


20,435





478,607


350,002









Property and Equipment, Net


1,462,755


1,591,791


Equity Investment


38,191


34,735


Other Assets, Net


37,077


30,176





$   2,016,630


$   2,006,704








LIABILITIES AND STOCKHOLDERS' EQUITY






Current Liabilities:







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

$        67,054


$        22,130



Accounts Payable


58,615


49,370



Accrued Liabilities


82,781


70,421



Interest Payable


17,367


9,899



Insurance Notes Payable


9,123


5,218



Other Current Liabilities


26,483


18,366





261,423


175,404









Long-term Debt, Net of Current Portion


798,013


818,146


Deferred Income Taxes


56,821


83,503


Other Liabilities


17,611


21,098









Commitments and Contingencies













Stockholders' Equity


882,762


908,553





$   2,016,630


$   2,006,704

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)















Three Months Ended
December 31,


Twelve Months Ended
December 31,




2012


2011


2012


2011




(Unaudited)


(Unaudited)


(Unaudited)













Revenue


$  202,634


$  162,788


$  709,792


$  655,358











Costs and Expenses:










Operating Expenses


120,150


112,251


438,084


444,332


Asset Impairment


-


-


108,216


-


Depreciation and Amortization


40,248


43,872


166,426


172,571


General and Administrative


20,718


16,801


60,643


57,204




181,116


172,924


773,369


674,107











Operating Income (Loss)


21,518


(10,136)


(63,577)


(18,749)











Other Income (Expense):










Interest Expense


(19,341)


(20,143)


(79,172)


(79,178)


Loss on Extinguishment of Debt


-


-


(9,156)


-


Other, Net


1,132


(671)


1,896


(3,934)











Income (Loss) Before Income Taxes


3,309


(30,950)


(150,009)


(101,861)

Income Tax Benefit


958


9,420


23,005


35,341

Income (Loss) from Continuing Operations


4,267


(21,530)


(127,004)


(66,520)

Income (Loss) from Discontinued Operations, Net of Taxes

-


43


-


(9,608)

Net Income (Loss)


$     4,267


$  (21,487)


$ (127,004)


$  (76,128)





















Basic Income (Loss) Per Share:










Income (Loss) from Continuing Operations


$       0.03


$     (0.16)


$      (0.83)


$      (0.51)


Income (Loss) from Discontinued Operations


-


-


-


(0.07)


Net Income (Loss)


$       0.03


$     (0.16)


$      (0.83)


$     (0.58)





















Diluted Income (Loss) Per Share:










Income (Loss) from Continuing Operations


$       0.03


$     (0.16)


$      (0.83)


$     (0.51)


Income (Loss) from Discontinued Operations


-


-


-


(0.07)


Net Income (Loss)


$       0.03


$     (0.16)


$      (0.83)


$     (0.58)











Weighted Average Shares Outstanding:










Basic 


158,594


137,894


153,722


130,474


Diluted


160,459


137,894


153,722


130,474

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)











Twelve Months Ended December 31,




2012


2011




 (Unaudited) 



Cash Flows from Operating Activities:






Net Loss


$         (127,004)


$         (76,128)


Adjustments to Reconcile Net Loss to Net Cash Provided by






Operating Activities:






Depreciation and Amortization


166,426


174,227


Stock-Based Compensation Expense


6,243


5,283


Deferred Income Taxes


(33,236)


(59,187)


Benefit for Doubtful Accounts Receivable


(8,847)


(13,623)


Amortization of Deferred Financing Fees


3,174


3,871


Amortization of Original Issue Discount


4,122


4,433


Gain on Insurance Settlement


(30,668)


-


Gain on Disposal of Assets, Net


(33,396)


(10,079)


Non-Cash Portion of Loss on Extinguishment of Debt


2,738


-


Asset Impairment


108,216


-


Other


(1,776)


3,245


Net Change in Operating Assets and Liabilities


12,371


19,983


Net Cash Provided by Operating Activities


68,363


52,025







Cash Flows from Investing Activities:






Acquisition of Assets


(40,000)


(25,000)


Additions of Property and Equipment


(127,180)


(39,483)


Deferred Drydocking Expenditures


(11,425)


(15,739)


Cash Paid for Equity Investment


(4,288)


(34,155)


Insurance Proceeds Received


54,139


-


Proceeds from Sale of Assets, Net


72,897


80,362


Decrease in Restricted Cash


3,588


1,495


Net Cash Used in Investing Activities


(52,269)


(32,520)







Cash Flows from Financing Activities:






Long-term Debt Borrowings


500,000


-


Long-term Debt Repayments


(452,909)


(22,247)


Redemption of 3.375% Convertible Senior Notes


(27,606)


-


Common Stock Issuance


96,696


-


Payment of Debt Issuance Costs


(7,717)


(2,109)


Other


284


2,536


Net Cash Provided by (Used in) Financing Activities


108,748


(21,820)







Net Increase (Decrease) in Cash and Cash Equivalents


124,842


(2,315)

Cash and Cash Equivalents at Beginning of Period


134,351


136,666

Cash and Cash Equivalents at End of Period


$          259,193


$        134,351

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA

(Dollars in thousands, except per day amounts)

(Unaudited)














Three Months Ended
December 31,


Twelve Months Ended
December 31,




2012


2011


2012


2011











Domestic Offshore:










Number of rigs (as of end of period)


29


38


29


38


Revenue


$            91,099


$            74,762


$         355,762


$         217,450


Operating expenses


60,928


45,742


238,674


186,132


Asset impairment


-


-


25,502


-


Depreciation and amortization expense


17,972


18,226


72,938


68,146


General and administrative expenses


2,194


1,776


8,130


9,275


Operating income (loss)


$            10,005


$              9,018


$           10,518


$         (46,103)











International Offshore:










Number of rigs (as of end of period)


8


9


8


9


Revenue


$            49,837


$            40,916


$         135,047


$         237,047


Operating expenses


27,083


34,636


66,144


134,439


Asset impairment


-


-


82,714


-


Depreciation and amortization expense


10,490


12,809


45,577


52,278


General and administrative expenses


2,499


(544)


(183)


(7,512)


Operating income (loss)


$              9,765


$            (5,985)


$         (59,205)


$           57,842











Inland:










Number of barges (as of end of period)