Hercules Offshore Q3 2009 Results
Hercules Offshore, Inc. (NASDAQ:HERO) reported a loss from continuing operations of $7.6 million, or $0.09 per diluted share, on revenues of $183.7 million for the second quarter 2009, excluding the effects of non-recurring items, compared with income from continuing operations of $20.0 million, or $0.22 per diluted share, on revenues of $270.1 million for the second quarter 2008, also excluding non-recurring items.
When including the effect of non-recurring items, the Company reported a loss from continuing operations of $11.8 million, or $0.13 per diluted share for the second quarter 2009, compared with income from continuing operations of $16.4 million, or $0.18 per diluted share for the second quarter 2008. The second quarter 2009 results include a non-cash charge of $26.9 million to reflect the impairment of the Hercules 110 and a $13.7 million gain on the retirement of $65.8 million aggregate principal amount of our 3.375% Convertible Senior Notes, net of the related write-off of unamortized issuance cost. On an after-tax basis, these adjustments approximated $4.2 million, or $0.04 per share. The second quarter 2008 results include $5.5 million of separation and benefit related costs associated with the Company's executive management changes, or $3.6 million on an after-tax basis.
John T. Rynd, Chief Executive Officer and President of Hercules Offshore (HERO), stated, "While nearly every facet of our business has been impacted by the cyclical downturn in our industry, we have acted quickly and broadly to mitigate its effects. Since late 2008, we have taken numerous actions to dramatically reduce our cost structure and improve our cash flow, including cold stacking idle rigs and reducing capital spending. Our opportunistic retirement of debt at a discount to par, and the sale of non-core assets are recent measures that exemplify our commitment to strengthening our capital structure."
Rynd continued, "Further, today we are pleased to announce that we have reached an agreement with our lenders to amend our senior secured credit facility to provide the financial covenant relief that we believe will provide us with the flexibility needed to operate through the trough of this business cycle."
Rynd added, "We remain confident in the industry's positive long-term fundamentals; however, we do not anticipate a meaningful upswing in the near-term. Jackup demand in the U.S. Gulf of Mexico is weak, with current demand running at approximately half that of previous historical lows. International demand and pricing are largely still showing signs of slowing; however, we were recently able to extend our contracts on Platform 3 and Hercules 206 in Mexico. These additional contract days add to our solid international backlog which will also help us weather this downturn."
On July 22, 2009, the company received the lender consents necessary to amend its Credit Agreement related to its $882.0 million term loan and $250.0 million revolving credit facility. The Amendment is subject to certain closing conditions, including a reduction of the revolving credit facility, which is currently unfunded, to $175 million, but is expected to close within the next few business days.
The Amendment modifies certain covenants of the Credit Agreement to, among other things:
• Eliminate the total leverage ratio financial covenant for the nine month period commencing October 1, 2009 and ending on June 30, 2010 and increase the total leverage ratio that we must maintain following the expiration of the nine month period to 8.0x for the quarter ended September 30, 2010, with step-downs thereafter
• Revise the fixed charge coverage ratio definition and the minimum ratio that we must maintain to be more favorable to the Company,
• Add a minimum liquidity covenant, requiring the company to maintain the sum of unrestricted cash and equivalents and revolving credit availability of at least $100 million through December 31, 2010, declining to $75 million through December 31, 2011, and declining to $50 million thereafter.
The initial interest rate of the amended facility will be 6.5% over LIBOR, with a 2.0% floor on LIBOR. The interest rate on the facility will decline by 1.5%, to 5.0% over LIBOR once the principal on the term loan is reduced by approximately $200.0 million to $684.3 million or less. The interest rate will decline further by an additional 1.0%, to 4.0% over LIBOR as the principal on the term loan is reduced by an additional $200.0 million to $484.3 million or less.