Hercules Offshore Announces Second Quarter 2012 Results

Jul 27, 2012, 07:30 ET from Hercules Offshore, Inc.

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HOUSTON, July 27, 2012 /PRNewswire/ -- Hercules Offshore, Inc. (Nasdaq: HERO) today reported a loss from continuing operations of $55.1 million, or $0.35 per diluted share, on revenue of $179.0 million for the second quarter 2012, compared with a loss from continuing operations of $14.3 million, or $0.11 per diluted share, on revenue of $170.2 million for the second quarter 2011. As outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, second quarter 2012 results include the following pre-tax items:

  • A non-cash charge of $47.5 million to reflect the impairment of the Hercules 185 and related deferred costs;
  • A $6.4 million expense related to the April 2012 debt refinancing; and
  • A non-cash charge of $1.4 million and $1.3 million related to the termination of the Company's prior term loan facility and the early retirement of a portion of the Company's  3.375% Convertible Senior Notes, respectively.

On an after-tax basis, these items approximated $36.8 million, or $0.23 per diluted share. 

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Our second quarter results, excluding the impairment of the Hercules 185, reflect improvements in revenue and operating income for each segment from first quarter 2012 levels. A continuation of the strong drilling fundamentals in the U.S. Gulf of Mexico has led to a fifth consecutive quarter of revenue growth in our Domestic Offshore segment. Discussions with customers suggest solid jackup rig demand in the U.S. Gulf of Mexico well into 2013.  We are also encouraged by the strong bidding activity at the latest Central Gulf of Mexico Lease Sale, which is another positive indicator of future rig demand by E&P companies active in the region.  

"International Offshore performance was limited by shipyard downtime largely related to contract specific work and the idling of the Hercules 185. The decision to impair the book value of the Hercules 185 was prompted by our belief that it is unfeasible to repair the damage and return the rig to service. We are working with the customer and insurance underwriters on options for the Hercules 185, and we are hopeful for a timely resolution. While year-to-date results in our international drilling operation have been impacted during this transitional period marked by heavy shipyard projects, our work will establish a strong base to build upon in future years, especially as we seek to expand our drilling presence outside the U.S."

Offshore

Domestic Offshore revenue for the second quarter 2012 increased by 85.2% to $90.1 million from $48.6 million in the same period in 2011, due to an improvement in dayrates, higher overall utilization, and a full quarter of operations from the acquired Seahawk rigs. Average revenue per rig per day improved by 32.2% to $60,734 for the second quarter 2012 compared to $45,933 in the second quarter 2011, while operating days increased by 40.0% to 1,483 days from 1,059 days in the same periods, respectively. Operating expenses increased to $55.5 million in the second quarter 2012 from $46.2 million in the respective 2011 period, due in part to a full quarter of operations from the Seahawk rigs, higher labor and repair and maintenance expense, as well as a $2.3 million accrual for state sales and use tax, partially offset by $3.0 million of additional asset sale gains in 2012 compared to 2011 and a reduction in workers' compensation costs. Overall, Domestic Offshore generated operating income of $15.1 million in the second quarter 2012 as compared to an operating loss of $17.2 million in the second quarter 2011.

International Offshore revenue declined to $30.1 million in the second quarter 2012 from $70.0 million in the second quarter 2011. Operating days declined to 329 days in the second quarter 2012 from 564 days in the same prior year period, due to downtime on the Hercules 185, contract expiration on the Hercules 258, and shipyard upgrade work on the Hercules 261 and Hercules 262. Average revenue per rig per day decreased to $91,404 in the second quarter 2012 from $124,197 in the comparable prior year period. The majority of our current contracts for our international rigs were signed during 2011 when market rates were considerably lower than previously contracted rates signed during 2008. Operating expenses declined to $28.8 million in the second quarter 2012 from $36.9 million in the prior year period. Year ago expenses included approximately $8.0 million for expenses related to the permanent importation of Rig 3 into Mexico. International Offshore's operating loss of $51.6 million in the second quarter 2012 includes a $47.5 million non-cash asset impairment charge related to the Hercules 185, and compares to operating income of $18.2 million in the comparable 2011 period.

Inland

During the second quarter 2012, Inland generated revenue of $8.2 million compared to revenue of $7.6 million in the second quarter 2011. Average revenue per rig per day increased by 9.7% to $30,753 during the second quarter 2012, from $28,033 during the second quarter 2011. Utilization remained relatively flat at 98.0% during the same periods, respectively. Second quarter 2012 operating expenses of $8.5 million includes a $2.3 million accrual for state sales and use tax.  Inland recorded an operating loss of $3.7 million in the second quarter 2012 compared to an operating loss of $2.2 million in the second quarter 2011.

Liftboats

Domestic Liftboats revenue declined 3.7% to $16.2 million in the second quarter 2012 compared to $16.9 million in the second quarter 2011. Average revenue per liftboat per day increased by 6.9%, or over $500 per day, to an average of $8,580 per day. The improvement in pricing was offset by a reduction in the number of marketed vessels and lower utilization.  Operating days declined to 1,893 in the second quarter 2012, compared to 2,100 operating days during the second quarter 2011. Second quarter 2012 operating expenses were $11.2 million compared to operating expense of $10.6 million during the comparable period of 2011. Domestic Liftboats recorded operating income of $583,000 in the second quarter 2012 compared to operating income of $1.9 million in the second quarter 2011.

International Liftboats generated revenue of $34.4 million in the second quarter 2012 compared to $27.0 million in the second quarter 2011, as a result of increases in both utilization and dayrates. Operating days increased to 1,379 in the second quarter 2012, from 1,270 operating days in the second quarter 2011. Average revenue per liftboat per day increased to $24,915 in the second quarter 2012 from $21,280 in the same period in 2011. Second quarter 2012 operating expense was $17.1 million, compared to operating expense of $14.6 million during the second quarter 2011, primarily due to incremental costs associated with the mobilization of the Kingfish to the Middle East and higher workers compensation expenses. International Liftboats recorded operating income of $11.9 million in the second quarter 2012 compared to operating income of $6.0 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. CDT (11:00 a.m. EDT) on July 27, 2012, to discuss its second quarter 2012 financial results. To participate in the call, dial 800-599-9795 (domestic) or 617-786-2905 (international) and reference access code 88431631 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 July 27, 2012, beginning at 12:00 p.m. CDT (1:00 p.m. EDT), through August 3, 2012. The phone number for the conference call replay is 888-286-8010 (domestic) or 617-801-6888 (international) with access code 91451546. Additionally, the recorded conference call will be accessible through our Web site at http://www.herculesoffshore.com for 7 days after the conference call.

Additional Information

Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of 42 jackup rigs, 16 barge rigs, 63 liftboats, two submersible rigs, and one platform rig. 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 28.0% of share capital in Discovery Offshore, 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)

June 30,

December 31,

2012

2011

(Unaudited)

ASSETS

Current Assets:

Cash and Cash Equivalents

$           175,473

$           134,351

Marketable Securities

30,000

-

Restricted Cash

8,011

9,633

Accounts Receivable, Net

140,773

153,688

Prepaids

36,723

16,352

Current Deferred Tax Asset

15,543

15,543

Other

20,559

20,435

427,082

350,002

Property and Equipment, Net

1,546,435

1,591,791

Equity Investment

34,359

34,735

Other Assets, Net

40,641

30,176

$       2,048,517

$       2,006,704

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

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

$            65,605

$            22,130

Accounts Payable

65,409

49,370

Accrued Liabilities

64,958

70,421

Interest Payable

17,277

9,899

Insurance Notes Payable

24,149

5,218

Other Current Liabilities

24,038

18,366

261,436

175,404

Long-term Debt, Net of Current Portion

797,588

818,146

Deferred Income Taxes

54,225

83,503

Other Liabilities

22,051

21,098

Commitments and Contingencies

Stockholders' Equity

913,217

908,553

$        2,048,517

$        2,006,704

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,

2012

2011

2012

2011

Revenue

$     178,951

$     170,201

$     322,270

$     329,579

Costs and Expenses:

Operating Expenses

121,089

114,328

232,326

220,709

Asset Impairment

47,523

-

47,523

-

Depreciation and Amortization

42,395

43,011

85,373

84,804

General and Administrative

6,513

16,820

24,187

29,646

217,520

174,159

389,409

335,159

Operating Loss

(38,569)

(3,958)

(67,139)

(5,580)

Other Income (Expense):

Interest Expense

(20,293)

(20,140)

(39,962)

(38,646)

Loss on Extinguishment of Debt

(9,156)

-

(9,156)

-

Other, Net

(921)

(1,474)

88

(1,668)

Loss Before Income Taxes

(68,939)

(25,572)

(116,169)

(45,894)

Income Tax Benefit

13,868

11,269

22,756

17,948

Loss from Continuing Operations

(55,071)

(14,303)

(93,413)

(27,946)

Loss from Discontinued Operations, Net of Taxes

-

(9,127)

-

(9,703)

Net Loss

$     (55,071)

$     (23,430)

$     (93,413)

$     (37,649)

Basic and Diluted Loss Per Share:

Loss from Continuing Operations

$         (0.35)

$         (0.11)

$         (0.63)

$         (0.23)

Loss from Discontinued Operations

-

(0.07)

-

(0.08)

Net Loss

$         (0.35)

$         (0.18)

$         (0.63)

$         (0.31)

Basic and Diluted Weighted Average Shares Outstanding

158,515

131,208

148,861

123,057

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30,

2012

2011

Cash Flows from Operating Activities:

Net Loss

$                (93,413)

$                 (37,649)

Adjustments to Reconcile Net Loss to Net Cash Provided by

Operating Activities:

Depreciation and Amortization

85,373

86,460

Stock-Based Compensation Expense

3,274

2,748

Deferred Income Taxes

(30,308)

(36,332)

Benefit for Doubtful Accounts Receivable

(7,625)

(4,200)

Amortization of Deferred Financing Fees

1,727

1,871

Amortization of Original Issue Discount

2,249

2,170

Gain on Insurance Settlement

(3,400)

-

(Gain) Loss on Disposal of Assets and Businesses, Net

(5,507)

11,002

Non-Cash Portion of Loss on Extinguishment of Debt

2,738

-

Asset Impairment

47,523

-

Other

(94)

996

Net Change in Operating Assets and Liabilities

22,079

10,809

Net Cash Provided by Operating Activities

24,616

37,875

Cash Flows from Investing Activities:

Acquisition of Assets

(40,000)

(25,000)

Investment in Marketable Securities, Net

(30,000)

-

Additions of Property and Equipment

(47,478)

(25,821)

Deferred Drydocking Expenditures

(7,285)

(8,661)

Cash Paid for Equity Investment

-

(21,894)

Insurance Proceeds Received

20,639

-

Proceeds from Sale of Assets and Businesses, Net

10,405

38,917

Decrease in Restricted Cash

1,622

1,532

Net Cash Used in Investing Activities

(92,097)

(40,927)

Cash Flows from Financing Activities:

Long-term Debt Borrowings

500,000

-

Long-term Debt Repayments

(452,909)

(16,231)

Redemption of 3.375% Convertible Senior Notes

(27,606)

-

Common Stock Issuance

96,696

-

Payment of Debt Issuance Costs

(7,717)

(2,109)

Other

139

2,500

Net Cash Provided by (Used in) Financing Activities

108,603

(15,840)

Net Increase (Decrease) in Cash and Cash Equivalents

41,122

(18,892)

Cash and Cash Equivalents at Beginning of Period

134,351

136,666

Cash and Cash Equivalents at End of Period

$               175,473

$                117,774

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,

2012

2011

2012

2011

Domestic Offshore:

Number of rigs (as of end of period)

35

44

35

44

Revenue

$            90,068

$            48,643

$   172,386

$           82,442

Operating expenses

55,532

46,204

115,403

87,206

Depreciation and amortization expense

18,253

16,861

36,271

31,943

General and administrative expenses

1,185

2,745

3,837

5,590

Operating income (loss)

$            15,098

$          (17,167)

$     16,875

$         (42,297)

International Offshore:

Number of rigs (as of end of period)

10

9

10

9

Revenue

$            30,072

$            70,047

$     48,120

$         147,166

Operating expenses

28,750

36,877

52,877

70,705

Asset impairment

47,523

-

47,523

-

Depreciation and amortization expense

12,386

13,256

24,727

26,556

General and administrative expenses

(6,953)

1,707

(4,524)

(976)

Operating income (loss)

$          (51,634)

$            18,207

$   (72,483)

$           50,881

Inland:

Number of barges (as of end of period)

17

17

17

17

Revenue

$              8,211

$              7,625

$     12,544

$           13,127

Operating expenses

8,535

6,128

14,214

13,158

Depreciation and amortization expense

3,208

3,407

6,417

8,028

General and administrative expenses

133

283

176

513

Operating loss

$            (3,665)

$            (2,193)

$     (8,263)

$           (8,572)

Domestic Liftboats:

Number of liftboats (as of end of period)

39

41

39

41

Revenue

$            16,242

$            16,860

$     26,673

$           27,491

Operating expenses

11,150

10,554

19,630

20,418

Depreciation and amortization expense

3,853

3,860

7,640

7,501

General and administrative expenses

656

536

1,142

1,031

Operating income (loss)

$                 583

$              1,910

$     (1,739)

$           (1,459)

International Liftboats:

Number of liftboats (as of end of period)

24

24

24

24

Revenue

$            34,358

$            27,026

$     62,547

$           59,353

Operating expenses

17,122

14,565

30,202

29,222

Depreciation and amortization expense

4,063

4,976

9,053

9,474

General and administrative expenses

1,233

1,525

2,783

3,096

Operating income

$            11,940

$              5,960

$     20,509

$           17,561

Total Company:

Revenue

$          178,951

$          170,201

$   322,270

$         329,579

Operating expenses

121,089

114,328

232,326

220,709

Asset impairment

47,523

-

47,523

-

Depreciation and amortization expense

42,395

43,011

85,373

84,804

General and administrative expenses

6,513

16,820

24,187

29,646

Operating loss

(38,569)

(3,958)

(67,139)

(5,580)

     Interest expense

(20,293)

(20,140)

(39,962)

(38,646)

     Loss on extinguishment of debt

(9,156)

-

(9,156)

-

     Other, net

(921)

(1,474)

88

(1,668)

Loss before income taxes

(68,939)

(25,572)

(116,169)

(45,894)

     Income tax benefit

13,868

11,269

22,756

17,948

Loss from continuing operations

(55,071)

(14,303)

(93,413)

(27,946)

Loss from discontinued operations, net of taxes

-

(9,127)

-

(9,703)

Net loss

$          (55,071)

$          (23,430)

$   (93,413)

$         (37,649)

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)

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

$           33,902

International Offshore

329

637

51.6%

91,404

45,133

Inland

267

273

97.8%

30,753

31,264

Domestic Liftboats

1,893

2,959

64.0%

8,580

3,768

International Liftboats

1,379

1,826

75.5%

24,915

9,377

Three Months Ended June 30, 2011

Operating Days

Available Days

Utilization (1)

Average

Revenue

per Day (2)

Average

Operating

Expense per

Day (3)

Domestic Offshore

1,059

1,453

72.9%

$     45,933

$           31,799

International Offshore

564

728

77.5%

124,197

50,655

Inland

272

273

99.6%

28,033

22,447

Domestic Liftboats

2,100

3,215

65.3%

8,029

3,283

International Liftboats

1,270

2,093

60.7%

21,280

6,959

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

$           35,227

International Offshore

576

1,274

45.2%

83,542

41,505

Inland

404

546

74.0%

31,050

26,033

Domestic Liftboats

3,235

6,053

53.4%

8,245

3,243

International Liftboats

2,581

3,662

70.5%

24,234

8,247

Six Months Ended June 30, 2011

Operating Days

Available Days

Utilization (1)

Average

Revenue

per Day (2)

Average

Operating

Expense per

Day (3)

Domestic Offshore

1,847

2,443

75.6%

$     44,636

$           35,696

International Offshore

1,146

1,448

79.1%

128,417

48,829

Inland

477

543

87.8%

27,520

24,232

Domestic Liftboats

3,430

6,635

51.7%

8,015

3,077

International Liftboats

2,665

4,163

64.0%

22,271

7,019

(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, 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 six months ended June 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 June 30,

Six Months Ended June 30,

2012

2012

    Operating Income (Loss):

      GAAP Operating Loss

$                  (38,569)

$                  (67,139)

      Adjustment

47,523

(a)

47,523

(a)

      Non-GAAP Operating Income (Loss)

$                      8,954

$                  (19,616)

    Other Expense:

      GAAP Other Expense

$                  (30,370)

$                  (49,030)

      Adjustment

9,156

(b)

9,156

(b)

      Non-GAAP Other Expense  

$                  (21,214)

$                  (39,874)

   Benefit (Provision) for Income Taxes:

      GAAP Benefit for Income Taxes

$                    13,868

$                    22,756

      Tax Impact of Adjustment

(19,838)

(19,838)

      Non-GAAP Benefit (Provision) for Income Taxes

$                    (5,970)

$                      2,918

    Loss from Continuing Operations:

      GAAP Loss from Continuing Operations

$                  (55,071)

$                  (93,413)

      Total Adjustment, Net of Tax

36,841

36,841

      Non-GAAP Loss from Continuing Operations

$                  (18,230)

$                  (56,572)

    Diluted Loss per Share from Continuing Operations:

      GAAP Diluted Loss per Share from Continuing Operations

$                      (0.35)

$                      (0.63)

      Adjustment per Share

0.23

0.25

      Non-GAAP Diluted Loss per Share from Continuing Operations

$                      (0.12)

$                      (0.38)

 

(a)

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.

(b)

 

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.



RELATED LINKS

http://www.herculesoffshore.com