Hercules Offshore Announces Third Quarter 2013 Results

HOUSTON, Oct. 24, 2013 /PRNewswire/ -- Hercules Offshore, Inc. (Nasdaq: HERO) today reported income from continuing operations of $17.2 million, or $0.11 per diluted share, on revenue of $225.3 million for the third quarter 2013, compared with a loss from continuing operations of $37.2 million, or $0.23 per diluted share, on revenue of $160.2 million for the third quarter 2012. As outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, third quarter 2012 results include a non-cash charge of $60.7 million to reflect the impairment of the Hercules 252 and Hercules 258; a gain from the sale of Platform Rig 3 and related entities of $18.4 million; and a gain from the insurance settlement on the Hercules 185 of $27.3 million. On an after-tax basis, these items approximated $22.1 million, or $0.14 per diluted share. 

John T. Rynd, CEO and President of Hercules Offshore, states "The latest quarterly results reflect the positive momentum in the U.S. Gulf of Mexico and healthy conditions in the international drilling and liftboat markets.  We expect these trends to carry forward through 2014. Several positive long-term developments also occurred during the third quarter, including our consolidation of Discovery Offshore and subsequent contracting of the Hercules Triumph, five-year extensions on two of our rigs in the Middle East at significantly higher pricing, and successful refinancing of $300 million in senior notes which lowers our borrowing cost and strengthens our liquidity. These developments have led to a substantial growth of backlog, which currently exceeds $1 billion, and build upon our foundation for long-term growth and sustainability. Over the coming months, backlog is expected to grow further, as several new contracting opportunities exist in our domestic and international drilling operations."

Domestic Offshore

Revenue generated from Domestic Offshore for the third quarter 2013 increased by 51% to $139.0 million from $92.3 million in the third quarter 2012 primarily due to higher dayrates and utilization. Average revenue per rig per day increased by 44% to $91,311 in the third quarter 2013 from $63,203 in the comparable 2012 period. Operating days increased modestly by 62 days due to the addition of the Hercules 209 and reduced downtime on several rigs, partially offset by lost operating days on the Hercules 265. Operating expenses increased to $73.6 million in the third quarter 2013 from $61.9 million in the prior respective period, due to incremental cost for the Hercules 209, salvage cost incurred on the Hercules 265 of approximately $3.2 million, and higher labor, insurance and workers compensation expense. Domestic Offshore generated operating income of $44.3 million for the third quarter 2013 compared to an operating loss of $16.9 million in the third quarter 2012, which includes a non-cash charge of $25.5 million to reflect the impairment of the Hercules 252.

International Offshore

International Offshore generated revenue of $46.3 million in the third quarter 2013, an increase of 25% compared to $37.1 million in the third quarter 2012, as both utilization and dayrates improved. Utilization increased to 77.2% from 65.3%, due in part to the addition of the Hercules 266. Average revenue per rig per day for the third quarter 2013 increased to $108,707 from $94,377 in the third quarter 2012, primarily as a result of the addition of the Hercules 266 to the fleet, as well as the sale of Platform Rig 3 during third quarter 2012. Operating expenses for the third quarter 2013 declined to $28.2 million as compared to the third quarter 2012, after excluding the $27.3 million benefit from the insurance settlement gain on the Hercules 185 and the $18.4 million gain on the sale of Platform Rig 3. International Offshore recorded operating income of $2.5 million in the third quarter 2013 compared to operating income of $3.5 million, which includes the aforementioned gains and a non-cash charge of $35.2 million to reflect the impairment of the Hercules 258.

Liftboats

International Liftboats revenue increased by approximately 30% to $40.0 million in the third quarter 2013 from $30.8 million in the third quarter 2012. Utilization increased to 74.6% from 68.0%, and operating days increased by 264 days over the comparable periods. Average revenue per liftboat per day increased by 8% to $25,364 in the third quarter 2013 from $23,432 in the third quarter 2012. Much of the improvement in utilization and average dayrate can be attributable to the addition of the Bull Ray in West Africa and stronger performance from the Middle East vessels. Operating expenses during the third quarter 2013 were relatively flat at $21.0 million compared to $20.4 million in the third quarter 2012, despite the addition of the Bull Ray. International Liftboats recorded operating income of $12.8 million in the third quarter 2013 compared to operating income of $6.5 million in the third quarter 2012.         

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 income (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, income (loss) from continuing operations, and not as a substitute for, or superior to, net income (loss), 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 Income (Loss), Income (Loss) from Continuing Operations and Diluted Earnings (Loss) per Share.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CDT (11:00 a.m. EDT) on October 24, 2013, to discuss its third quarter 2013 financial results. To participate in the call, dial 877-703-6104 (domestic) or 857-244-7303 (international) and reference access code 49019073 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 October 24, 2013, beginning at 12:00 p.m. CDT (1:00 p.m. EDT), through October 31, 2013. The phone number for the conference call replay is 888-286-8010 (domestic) or 617-801-6888 (international) with access code 77382955. 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 40 jackup rigs, including two Keppel FELS Super A high-specification, harsh-environment jackup rigs, and 24 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. 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)










September 30,


December 31,




2013


2012




(Unaudited)



ASSETS






Current Assets:







Cash and Cash Equivalents


$        365,839


$       259,193



Restricted Cash


2,027


2,027



Accounts Receivable, Net


187,812


167,936



Prepaids


30,561


16,135



Current Deferred Tax Asset


-


21,125



Other


12,584


12,191




598,823


478,607








Property and Equipment, Net


1,772,148


1,462,755


Equity Investment


-


38,191


Other Assets, Net


32,464


37,077




$     2,403,435


$    2,016,630







LIABILITIES AND EQUITY






Current Liabilities:







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


$                      -


$         67,054



Accounts Payable


83,826


58,615



Accrued Liabilities


75,931


82,781



Interest Payable


43,662


17,367



Insurance Notes Payable


19,175


9,123



Other Current Liabilities


29,179


26,483




251,773


261,423








Long-term Debt, Net of Current Portion


1,205,800


798,013


Deferred Income Taxes


4,201


56,821


Other Liabilities


19,289


17,611


Commitments and Contingencies






Stockholders' Equity


922,372


882,762




$     2,403,435


$    2,016,630

 

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,




2013


2012


2013


2012











Revenue


$225,308


$160,157


$622,959


$ 443,490











Costs and Expenses:










Operating Expenses


122,728


68,523


355,539


266,503


Asset Impairment


-


60,693


-


108,216


Depreciation and Amortization


38,040


34,529


110,906


108,143


General and Administrative


19,284


14,686


59,821


37,555




180,052


178,431


526,266


520,417











Operating Income (Loss)


45,256


(18,274)


96,693


(76,927)











Other Income (Expense):










Interest Expense


(19,360)


(18,249)


(54,495)


(54,915)


Loss on Extinguishment of Debt


-


-


-


(9,156)


Gain on Equity Investment


-


-


14,876


-


Other, Net


(337)


676


(1,652)


764











Income (Loss) Before Income Taxes


25,559


(35,847)


55,422


(140,234)

Income Tax Benefit (Provision)


(8,400)


(1,319)


18,609


16,829

Income (Loss) from Continuing Operations


17,159


(37,166)


74,031


(123,405)

Income (Loss) from Discontinued Operations, Net of Taxes


8,093


(692)


(40,996)


(7,866)

Net Income (Loss)


25,252


(37,858)


33,035


(131,271)

Loss attributable to Noncontrolling Interest


21


-


39


-

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


$  25,273


$ (37,858)


$  33,074


$(131,271)











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









Basic:










Income (Loss) from Continuing Operations


$       0.11


$     (0.23)


$       0.46


$      (0.81)


Income (Loss) from Discontinued Operations


0.05


(0.01)


(0.25)


(0.05)


Net Income (Loss)


$       0.16


$     (0.24)


$       0.21


$      (0.86)

Diluted:










Income (Loss) from Continuing Operations


$       0.11


$     (0.23)


$      0.46


$      (0.81)


Income (Loss) from Discontinued Operations


0.05


(0.01)


(0.26)


(0.05)


Net Income (Loss)


$       0.16


$     (0.24)


$      0.20


$      (0.86)











Weighted Average Shares Outstanding:










Basic 


159,743


158,573


159,416


152,098


Diluted


161,851


158,573


161,472


152,098

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)










Nine Months Ended September 30,




2013


2012

Cash Flows from Operating Activities:






Net Income (Loss)


$     33,074


$   (131,271)


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






Operating Activities:






   Depreciation and Amortization


121,804


126,178


   Stock-Based Compensation Expense


7,464


5,141


   Deferred Income Taxes


(29,792)


(33,120)


   Provision (Benefit) for Doubtful Accounts Receivable


356


(8,841)


   Gain on Equity Investment


(14,876)


-


   Asset Impairment


44,370


108,216


   Gain on Insurance Settlement


-


(30,668)


   Gain on Disposal of Assets, Net


(3,140)


(24,563)


   Other


4,667


7,537


Net Change in Operating Assets and Liabilities


15,476


40,604


      Net Cash Provided by Operating Activities


179,403


59,213







Cash Flows from Investing Activities:






Acquisition of Assets, Net of Cash Acquired


(200,957)


(40,000)


Additions of Property and Equipment


(307,135)


(82,150)


Deferred Drydocking Expenditures


(7,519)


(9,814)


Cash Paid for Equity Investment


-


(4,288)


Insurance Proceeds Received


1,430


54,139


Proceeds from Sale of Assets, Net


107,404


49,854


Other


2,214


1,621


      Net Cash Used in Investing Activities


(404,563)


(30,638)







Cash Flows from Financing Activities:






Long-term Debt Borrowings


400,000


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


(8,208)


(7,717)


Other


1,288


160


      Net Cash Provided by Financing Activities


331,806


108,624







Net Increase in Cash and Cash Equivalents


106,646


137,199

Cash and Cash Equivalents at Beginning of Period


259,193


134,351

Cash and Cash Equivalents at End of Period


$   365,839


$   271,550

 

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,




2013


2012


2013


2012

Domestic Offshore:










Number of rigs (as of end of period)


29


34


29


34


Revenue


$ 138,975


$   92,277


$ 387,088


$  264,663


Operating expenses


73,577


61,939


198,887


176,407


Asset impairment


-


25,502


-


25,502


Depreciation and amortization expense


19,811


19,678


59,291


57,930


General and administrative expenses


1,238


2,099


4,705


5,936


Operating income (loss)


$   44,349


$ (16,941)


$ 124,205


$     (1,112)











International Offshore:










Number of rigs (as of end of period)


11


8


11


8


Revenue


$   46,309


$   37,090


$ 126,836


$    85,210


Operating expenses


28,191


(13,816)


93,769


39,061


Asset impairment


-


35,191


-


82,714


Depreciation and amortization expense


12,768


10,360


35,555


35,087


General and administrative expenses


2,843


1,842


10,507


(2,682)


Operating income (loss)


$     2,507


$     3,513


$ (12,995)


$   (68,970)











International Liftboats:










Number of liftboats (as of end of period)


24


24


24


24


Revenue


$   40,024


$   30,790


$ 109,035


$    93,617


Operating expenses


20,960


20,400


62,883


51,035


Depreciation and amortization expense


4,721


3,819


13,872


13,189


General and administrative expenses


1,539


72


4,387


2,855


Operating income


$   12,804


$     6,499


$   27,893


$    26,538











Total Company:










Revenue


$ 225,308


$ 160,157


$ 622,959


$  443,490


Operating expenses


122,728


68,523


355,539


266,503


Asset impairment


-


60,693


-


108,216


Depreciation and amortization expense


38,040


34,529


110,906


108,143


General and administrative expenses


19,284


14,686


59,821


37,555


Operating income (loss)


45,256


(18,274)


96,693


(76,927)


     Interest expense


(19,360)


(18,249)


(54,495)


(54,915)


     Loss on extinguishment of debt


-


-


-


(9,156)


     Gain on equity investment


-


-


14,876


-


     Other, net


(337)


676


(1,652)


764


Income (loss) before income taxes


25,559


(35,847)


55,422


(140,234)


     Income tax benefit (provision)


(8,400)


(1,319)


18,609


16,829


Income (loss) from continuing operations


17,159


(37,166)


74,031


(123,405)


Income (loss) from discontinued operations, net of taxes..


8,093


(692)


(40,996)


(7,866)


Net income (loss)


25,252


(37,858)


33,035


(131,271)


Loss attributable to noncontrolling interest


21


-


39


-


Net income (loss) attributable to Hercules Offshore, Inc


$   25,273


$ (37,858)


$   33,074


$ (131,271)

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)












Three Months Ended September 30, 2013


Operating Days


Available Days


Utilization (1)


Average
Revenue per
Day (2)


Average
Operating
Expense per
Day (3)











Domestic Offshore

1,522


1,678


90.7%


$         91,311


$           43,848

International Offshore

426


552


77.2%


108,707


51,071

International Liftboats

1,578


2,116


74.6%


25,364


9,905












Three Months Ended September 30, 2012


Operating Days


Available Days


Utilization (1)


Average
Revenue per
Day (2)


Average
Operating
Expense per
Day (3)











Domestic Offshore

1,460


1,656


88.2%


$         63,203


$           37,403

International Offshore

393


602


65.3%


94,377


(22,950)

International Liftboats

1,314


1,932


68.0%


23,432


10,559












Nine Months Ended September 30, 2013


Operating Days


Available Days


Utilization (1)


Average
Revenue per
Day (2)


Average
Operating
Expense per
Day (3)











Domestic Offshore

4,576


4,993


91.6%


$         84,591


$           39,833

International Offshore

1,115


1,540


72.4%


113,754


60,889

International Liftboats

4,503


6,220


72.4%


24,214


10,110












Nine Months Ended September 30, 2012


Operating Days


Available Days


Utilization (1)


Average
Revenue per
Day (2)


Average
Operating
Expense per
Day (3)











Domestic Offshore

4,414


4,932


89.5%


$         59,960


$           35,768

International Offshore

969


1,876


51.7%


87,936


20,821

International Liftboats

3,911


5,702


68.6%


23,937


8,950


(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 nine months ended September 30, 2013 and the three and nine months ended September 30, 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
September 30,


Nine Months Ended
September 30,



2012


2013


2012









    Operating Income (Loss):







      GAAP Operating Income (Loss)

$                 (18,274)


$                96,732


$             (76,927)


      Adjustment

15,075

(a)

-


62,598

(d)

      Non-GAAP Operating Income (Loss)

$                   (3,199)


$                96,732


$             (14,329)









    Other Expense:







      GAAP Other Expense

$                 (17,573)


$              (41,271)


$             (63,307)


      Adjustment

-


(14,876)

(b)

9,156

(e)

      Non-GAAP Other Expense  

$                 (17,573)


$              (56,147)


$             (54,151)









   Benefit (Provision) for Income Taxes:







      GAAP Benefit (Provision) for Income Taxes

$                   (1,319)


$                18,609


$               16,829


      Tax Adjustment

7,042


(37,729)

(c)

(12,796)


      Non-GAAP Benefit (Provision) for Income Taxes

$                     5,723


$              (19,120)


$                 4,033









    Income (Loss) from Continuing Operations 







      attributable to Hercules Offshore, Inc.:







      GAAP Income (Loss) from Continuing Operations

$                 (37,166)


$                74,070


$           (123,405)


      Total Adjustment

22,117


(52,605)


58,958


      Non-GAAP Income (Loss) from Continuing Operations

$                 (15,049)


$                21,465


$             (64,447)









    Diluted Earnings (Loss) per Share:







      GAAP Diluted Earnings (Loss) per Share

$                     (0.23)


$                    0.46


$                  (0.81)


      Adjustment per Share

0.14


(0.33)


0.39


      Non-GAAP Diluted Earnings (Loss) per Share

$                     (0.09)


$                    0.13


$                  (0.42)



(a)

This amount represents a non-cash charge of $35.2 million related to the impairment of the Hercules 258; a non-cash charge of $25.5 million related to the impairment of the Hercules 252; an $18.4 million gain on the sale of Platform Rig 3 and a $27.3 million gain on the Hercules 185 insurance settlement. On an after-tax basis, these adjustments approximated $22.1 million.    



(b)

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.



(c)

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.



(d)

This amount represents a non-cash charge of $47.5 million related to the impairment of the Hercules 185 and related unamortized deferred costs; a non-cash charge of $35.2 million related to the impairment of the Hercules 258; a non-cash charge of $25.5 million related to the impairment of the Hercules 252; an $18.4 million gain on the sale of Platform Rig 3 and a $27.3 million gain on the Hercules 185 insurance settlement. On an after-tax basis, these adjustments approximated $53.0 million.       



(e)

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.

SOURCE Hercules Offshore, Inc.



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