Hercules Offshore 4Q and 2008 Results
On Feb. 10, Hercules Offshore, Inc. (NASDAQ:HERO) reported income from continuing operations of $37.4m, or $0.42 per diluted share, on revenues of $313.5m for the fourth quarter 2008, excluding the effects of non-recurring items, compared with income from continuing operations of $32.8m, or $0.37 per diluted share, on revenues of $244.2m for the fourth quarter 2007.
Income from continuing operations for the twelve months ended December 31, 2008, was $95.7m, or $1.08 per diluted share, on revenues of $1.1b, excluding the effects of non-recurring items, compared to income from continuing operations of $139m, or $2.33 per diluted share, on revenues of $726.3m for the twelve months ended December 31, 2007, excluding the effects of non-recurring items.
When including the effects of non-recurring items, the Company reported a loss from continuing operations of $1.1b, or $12.10 per diluted share for the twelve month period ended December 31, 2008, versus income from continuing operations of $136m, or $2.28 per diluted share. The results from the twelve month period ended December 31, 2008, include a non-cash charge of $1.3b to reflect the impairment of goodwill and property and equipment, $7.5m of separation and benefit related costs associated with executive management changes, a $43.4m gain on the repurchase of $88.2m aggregate principal amount of the Company's 3.375% Convertible Senior Notes as well as the related write-off of unamortized issuance cost of $2.1m. On an after-tax basis, these adjustments approximated $1.2b, or $13.18 per diluted share. The results from the twelve month period ended December 31, 2007, include $3.1m in severance costs and other costs related to our July 2007 acquisition of TODCO, and a loss of $1.5m related to the early retirement of debt, net of a $0.7 million gain on interest rate derivatives. On an after-tax basis, these items approximated $3m, or $0.05 per diluted share.
John T. Rynd, Chief Executive Officer and President of Hercules Offshore said "We have continued to experience a rapid decline in demand for our domestic drilling rigs due to the combined effects of the sharp decline in commodity prices, the reduced availability of credit in the wake of the global financial crisis, and the weak outlook for energy consumption over at least the short-term. We have responded aggressively by stacking a number of inland and domestic rigs. We have also reduced our overhead and operating costs in a focused and meaningful way. We will continue to be vigilant in managing our cost structure during this cyclical downturn. With the reduced level of activity, and other factors, we have also recognized a significant impairment charge to our goodwill and long-lived assets. These non-cash charges largely reflect the cyclical nature of our drilling related segments and take into account the significant decline in our equity market capitalization."
Mr. Rynd continued, "While the outlook for 2009 drilling activity is weakening and international regions are not immune from reductions in capital spending and drilling activity, more than half of our international jackup fleet is currently contracted through at least late 2010, which should help to better insulate the International Offshore segment from experiencing the same extent of declining utilization levels that our domestic business has experienced in the last several months. We expect demand for liftboats to be more resilient as a result of the production and maintenance oriented nature of the work."
During the fourth quarter 2008, revenues from Domestic Offshore increased to $109.7m from $70.7 million in the comparable period in 2007. This increase was primarily driven by a tighter supply and demand balance in the region which led to stronger utilization and dayrates. Average revenue per day per rig increased to $72,008 in the fourth quarter 2008 from $62,796 in the fourth quarter 2007, while utilization increased to 75.3% from 55.6% in the same periods, respectively. Average operating expense per day increased to $30,132 in the fourth quarter 2008 from $23,408 in the comparable period in 2007 due to higher average labor costs during 2008, as well as the positive effect our warm-stacking of idle rigs had on our fourth quarter 2007 results. Operating income for the fourth quarter 2008 increased to $29.9m, before impairment charges, from $6.5m in the fourth quarter 2007.
International Offshore revenues increased to $93.2m in the fourth quarter 2008 from $53.8m in the comparable period in 2007 partly as a result of an increase in operating days to 728 from 601 reflecting the commencement of operations during 2008 of the Hercules 260, Hercules 208 and Hercules 261 and partly as a result of an increase in our average revenue per day per rig to $127,981 from $89,458 in the same periods, respectively. The significant increase in average revenue per day per rig reflects the aforementioned reactivations of Hercules 260, 208 and 261, which all achieved rates above the previous average, and an increase in dayrates on four of our other international rigs. Our average operating expense per day increased to $47,131 in the fourth quarter 2008 from $32,622 in the comparable quarter in 2007 which is partly due to rebilled marine package expense on Hercules 258 and Hercules 260 that commenced long-term contracts during 2008. Operating income increased by 76% to $43.3 million in the fourth quarter 2008, before impairment charge, from $24.6m in the prior year period.
During the fourth quarter 2008, our inland segment generated revenues of $37.5m, a decrease from the prior year period's revenue of $53.5m due to weak demand. Operating days declined to 951 in the fourth quarter 2008 from 1,130 in the year-ago period while average revenue per day per rig also decreased to $39,454 from $47,312 in the same periods, respectively. Including depreciation and amortization expense of $11.6m, this segment recorded an operating loss of $8.5m in the fourth quarter 2008, excluding the effect of impairment charges, compared with operating income of $14.1m in the fourth quarter of 2007.
Domestic Liftboats generated revenues of $31.2m in the fourth quarter 2008 versus $32.2m in the fourth quarter 2007. Average revenue per day per liftboat declined to $9,918 in the fourth quarter 2008 from $11,656 in the fourth quarter 2007, largely due to extremely low utilization in the first quarter of 2008, which led to a considerable decline in dayrates that did not fully recover to their 2007 high. Utilization, bolstered by repair work related to Hurricanes Gustav and Ike, increased to 81.4% in the fourth quarter 2008 from 65.2% in the comparable period in 2007. Operating income increased to $12.3m during the fourth quarter 2008 from $10.9m in the fourth quarter of the previous year.
International Liftboats revenues increased to $27m in the fourth quarter 2008 from $17.3m in the fourth quarter 2007 due largely to a substantial increase in average revenue per day per liftboat to $20,177 from $13,480 in the same periods, respectively. Utilization was relatively stable at 78.3% in the fourth quarter 2008 versus 81.8% in the fourth quarter 2007. Our average operating expense per day per liftboat increased to $6,643 in the fourth quarter 2008 compared with $5,648 in the comparable period in 2007 due to higher rentals and repairs and maintenance expense. Operating income increased to $10.9m during the fourth quarter 2008 from $5.2m in the fourth quarter 2007.
The company sold its nine land rigs and related equipment in the fourth quarter 2007. The results of the land rig operation are reflected as a discontinued operation for all periods presented.
The results from the fourth quarter include a non-cash charge of $1.3b to reflect the impairment of goodwill and property and equipment. The charge includes $950.3m, fully impairing goodwill and $202.1m and $174.6m reducing the carrying value of our property and equipment in the Inland and Domestic Offshore segments, respectively.
At December 31, 2008, the company had cash and equivalents totaling $106.5m and unused capacity of $221m under its revolving credit facility. During the fourth quarter, the company repurchased an aggregate principal amount of $88.2m of the Company's 3.375% Convertible Senior Notes at approximately 51% of the par value of the notes, bringing the total amount of debt retired for the fourth quarter to $103m. As of December 31, 2008, the Company's balance sheet reflects total debt of $1.05b.
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 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, or superior to, income from continuing operations, 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.
(www.herculesoffshore.com)
