##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES
    EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2009
 Commission file
    number: 0-51582
  Hercules Offshore,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

56-2542838(I.R.S. Employer
    Identification No.)9 Greenway Plaza, Suite 2200
    Houston, Texas(Address of principal
    executive offices)

77046(Zip
    Code)   Registrants telephone number, including area code:
 (713) 350-5100
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.01 par value per share

NASDAQ Global Select MarketRights to Purchase Preferred Stock

NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


3Item 1A.


Risk Factors


15Item 1B.


Unresolved Staff Comments


30Item 2.


Properties


30Item 3.


Legal Proceedings


30Item 4.


Reserved


31PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


31Item 6.


Selected Financial Data


32Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


34Forward-Looking Statements


63Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


65Item 8.


Financial Statements and Supplementary Data


67Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


112Item 9A.


Controls and Procedures


112Item 9B.


Other Information


112PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


113Item 11.


Executive Compensation


113Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


113Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


113Item 14.


Principal Accountant Fees and Services


113PART IVItem 15.


Exhibits and Financial Statement Schedules


113EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   2




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##### Table of Contents



PART I  Item 1.
    Business  In this Annual Report on
    Form 10-K,
    we refer to Hercules Offshore, Inc. and its subsidiaries as
    we, the Company or Hercules
    Offshore, unless the context clearly indicates otherwise.
    Hercules Offshore, Inc. is a Delaware corporation formed in July
    2004, with its principal executive offices located at 9 Greenway
    Plaza, Suite 2200, Houston, Texas 77046. Hercules
    Offshores telephone number at such address is
    (713) 350-5100
    and our Internet address is www.herculesoffshore.com.
  Overview
    Hercules 191 Hercules 255
    Domestic Offshore
  International Offshore Hercules 110,
  Inland
  Domestic Liftboats
  International Liftboats
  Delta Towing
 3




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##### Table of Contents



Our
    Fleet
  Jackup
    Drilling Rigs
       4




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##### Table of Contents



well-to-well
    Maximum/Year

Minimum

RatedBuilt/

Water Depth

DrillingRig Name

Type

Upgraded(c)

Rating

Depth(a)

Location

Status(b)(Feet)

(Feet)Hercules 85

ILS

1982


85/9


20,000

U.S. GOM

Cold StackedHercules 101

MC

1980


100/20


20,000

U.S. GOM

Cold StackedHercules 120

MC

1958


120/22


18,000

U.S. GOM

ContractedHercules 150

ILC

1979


150/10


20,000

U.S. GOM

ContractedHercules 152

MC

1980


150/22


20,000

U.S. GOM

Cold StackedHercules 153

MC

1980/2007


150/22


25,000

U.S. GOM

Cold StackedHercules 156

ILC

1983


150/14


20,000

Gabon

Warm StackedHercules 170

ILC

1981/2006


170/16


16,000

Bahrain

Warm StackedHercules 173

MC

1971


173/22


15,000

U.S. GOM

ContractedHercules 185(f)

ILC

1982/2009


150/20


20,000

Gabon

Contracted/Stand-byHercules 200

MC

1979


200/23


20,000

U.S. GOM

ContractedHercules 201

MC

1981


200/23


20,000

U.S. GOM

ContractedHercules 202

MC

1981


200/23


20,000

U.S. GOM

ContractedHercules 203

MC

1982


200/23


20,000

U.S. GOM

Cold StackedHercules 204

MC

1981


200/23


20,000

U.S. GOM

ContractedHercules 205

MC

1979/2003


200/23


20,000

En route
    to U.S. GOM

En routeHercules 206

MC

1980/2003


200/23


20,000

U.S. GOM

Cold StackedHercules 207

MC

1981


200/23


20,000

U.S. GOM

Cold StackedHercules 208(d)

MC

1980/2008


200/22


20,000

Malaysia

ContractedHercules 211

MC

1980


200/23


18,000(e)

U.S. GOM

Cold StackedHercules 250

MS

1974


250/24


20,000

U.S. GOM

Cold StackedHercules 251

MS

1978


250/24


20,000

U.S. GOM

Ready StackedHercules 252

MS

1978


250/24


20,000

U.S. GOM

Cold StackedHercules 253

MS

1982


250/24


20,000

U.S. GOM

ContractedHercules 257

MS

1979


250/24


20,000

U.S. GOM

ContractedHercules 258

MS

1979/2008


250/24


20,000

India

ContractedHercules 260

ILC

1979/2008


250/12


20,000

India

ContractedHercules 261

ILC

1979/2008


250/12


20,000

Saudi Arabia

ContractedHercules 262

ILC

1982/2008


250/12


20,000

Saudi Arabia

ContractedHercules 350

ILC

1982


350/16


25,000

U.S. GOM

Contracted     (a)
    
    Rated drilling depth means drilling depth stated by the
    manufacturer of the rig. Depending on deck space and other
    factors, a rig may not have the actual capacity to drill at the
    rated drilling depth.(b)
    
    Rigs designated as Contracted are under contract
    while rigs described as Ready Stacked are not under
    contract but generally are ready for service. Rigs described as
    Warm Stacked may have a reduced number of crew, but
    only require a full crew to be ready for service. Rigs described
    as Cold Stacked are not actively marketed, normally
    require the hiring of an entire crew and require a maintenance
    review and refurbishment before they can function as a drilling
    rig. 5




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##### Table of Contents



(c)
    
    Dates shown are the original date the rig was built and the date
    of the most recent upgrade and/or major refurbishment, if any.(d)
    
    This rig is currently unable to operate in the U.S. Gulf of
    Mexico due to regulatory restrictions.(e)
    
    Rated workover depth. Hercules 211is currently
    configured for workover activity, which includes maintenance and
    repair or modification of wells that have already been drilled
    and completed to enhance or resume the wells production.(f)
    
    Hercules 185is currently contracted to a customer in
    Angola, however, the rig is currently on stand-by in Gabon.
    Currently it does not meet our revenue recognition criteria due
    to uncertainty surrounding collectability.  Other
    Drilling Rigs
        Maximum/Year

MinimumBuilt/

Water Depth

Rated DrillingRig Name

Type

Upgraded(c)

Rating

Depth(a)

Location

Status(b)(Feet)

(Feet)Hercules 75


Sub


1983


85/14



25,000


U.S. GOM

Cold StackedHercules 77


Sub


1982/2007


85/14



30,000


U.S. GOM

Cold StackedHercules 78


Sub


1985/2007


85/14



30,000


U.S. GOM

Cold StackedPlatform 3


Plat


1993


N/A



25,000


Mexico

Contracted     (a)
    
    Rated drilling depth means drilling depth stated by the
    manufacturer of the rig. Depending on deck space and other
    factors, a rig may not have the actual capacity to drill at the
    rated drilling depth.(b)
    
    Rigs described as Cold Stacked are not actively
    marketed, normally require the hiring of an entire crew and
    require a maintenance review and refurbishment before they can
    function as a drilling rig while rigs described as
    Contracted are under contract.(c)
    
    Dates shown are the original date the rig was built and the date
    of the most recent upgrade and/or major refurbishment, if any.  Barge
    Drilling Rigs
   6




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##### Table of Contents



YearBuilt/

Horsepower

Rated DrillingRig Name

Type

Upgraded(c)

Rating

Depth(a)

Location

Status(b)(Feet)1

Conv.

1980

2,000

20,000

U.S. GOM

Cold Stacked9

Posted

1981

2,000

25,000

U.S. GOM

Cold Stacked11

Conv.

1982

3,000

30,000

U.S. GOM

Cold Stacked15

Conv.

1981

2,000

25,000

U.S. GOM

Cold Stacked17

Posted

1981

3,000

30,000

U.S. GOM

Contracted19

Conv.

1974

1,000

14,000

U.S. GOM

Cold Stacked27

Posted

1979/2008

3,000

30,000

U.S. GOM

Cold Stacked28

Conv.

1980

3,000

30,000

U.S. GOM

Cold Stacked29

Conv.

1981

3,000

30,000

U.S. GOM

Cold Stacked41

Posted

1981

3,000

30,000

U.S. GOM

Contracted46

Posted

1979

3,000

30,000

U.S. GOM

Cold Stacked48

Posted

1982

3,000

30,000

U.S. GOM

Cold Stacked49

Posted

1980

3,000

30,000

U.S. GOM

Contracted52

Posted

1981

2,000

25,000

U.S. GOM

Cold Stacked55

Posted

1981

3,000

30,000

U.S. GOM

Cold Stacked57

Posted

1975

2,000

25,000

U.S. GOM

Cold Stacked64

Posted

1979

3,000

30,000

U.S. GOM

Cold Stacked     (a)
    
    Rated drilling depth means drilling depth stated by the
    manufacturer of the rig. Depending on deck space and other
    factors, a rig may not have the actual capacity to drill at the
    rated drilling depth.(b)
    
    Rigs designated as Contracted are under contract
    while rigs described as Cold Stacked are not
    actively marketed, normally require the hiring of an entire crew
    and require a maintenance review and refurbishment before they
    can function as a drilling rig.(c)
    
    Dates shown are the original date the rig was built and the date
    of the most recent upgrade and/or major refurbishment, if any.  Liftboats
    
    production platform construction, inspection, maintenance and
    removal;
    well intervention and workover;
    well plug and abandonment; and
    pipeline installation and maintenance.   7




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##### Table of Contents



YearBuilt/

Leg

Deck


Maximum



GrossLiftboat Name(1)

Upgraded(5)

Length

Area


Deck Load

Location

Tonnage(Feet)

(Square feet)


(Pounds)Whale Shark(4)

2005 /2009

260


8,170


729,000

Saudi Arabia


1,142Tiger Shark(3)

2001

230


5,300


1,000,000

Nigeria


469Kingfish(3)

1996

229


5,000


500,000

U.S. GOM


188Man-O-War(3)

1996

229


5,000


500,000

U.S. GOM


188Wahoo(3)

1981

215


4,525


500,000

U.S. GOM


491Blue Shark(4)

1981

215


3,800


400,000

Nigeria


1,182Amberjack(4)

1981

205


3,800


500,000

Saudi Arabia


417Bullshark(3)

1998

200


7,000


1,000,000

U.S. GOM


859Creole Fish(3)

2001

200


5,000


798,000

Nigeria


192Cutlassfish(3)

2006

200


5,000


798,000

Nigeria


183Black Jack(4)

1997/2008

200


4,000


480,000

Nigeria


777Swordfish(3)

2000

190


4,000


700,000

U.S. GOM


189Mako(3)

2003

175


5,074


654,000

Nigeria


168Leatherjack(3)

1998

175


3,215


575,850

U.S. GOM


168Oilfish(4)

1996

170


3,200


590,000

Nigeria


495Manta Ray(3)

1981

150


2,400


200,000

U.S. GOM


194Seabass(3)

1983

150


2,600


200,000

U.S. GOM


186F.J. Leleux(2)

1981

150


2,600


200,000

Nigeria


407Black Marlin(4)

1984

150


2,600


200,000

Nigeria


407Hammerhead(3)

1980

145


1,648


150,000

U.S. GOM


178Pilotfish(4)

1990

145


2,400


175,000

Nigeria


292Rudderfish(4)

1991

145


3,000


100,000

Nigeria


309Blue Runner(3)

1980

140


3,400


300,000

U.S. GOM


174Starfish(3)

1978

140


2,266


150,000

U.S. GOM


99Rainbow Runner(3)

1981

140


3,400


300,000

U.S. GOM


174Pompano(3)

1981

130


1,864


100,000

U.S. GOM


196Sandshark(3)

1982

130


1,940


150,000

U.S. GOM


196Stingray(3)

1979

130


2,266


150,000

U.S. GOM


99Albacore(3)

1985

130


1,764


150,000

U.S. GOM


171Moray(3)

1980

130


1,824


130,000

U.S. GOM


178Skipfish(3)

1985

130


1,116


110,000

U.S. GOM


91 8




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##### Table of Contents



YearBuilt/

Leg

Deck


Maximum



GrossLiftboat Name(1)

Upgraded(5)

Length

Area


Deck Load

Location

Tonnage(Feet)

(Square feet)


(Pounds)Sailfish(3)

1982

130


1,764


137,500

U.S. GOM


179Mahi Mahi(3)

1980

130


1,710


142,000

U.S. GOM


99Triggerfish(3)

2001

130


2,400


150,000

U.S. GOM


195Scamp(4)

1984

130


2,400


150,000

Nigeria


195Rockfish(3)

1981

125


1,728


150,000

U.S. GOM


192Gar(3)

1978

120


2,100


150,000

U.S. GOM


98Grouper(3)

1979

120


2,100


150,000

U.S. GOM


97Sea Robin(3)

1984

120


1,507


110,000

U.S. GOM


98Tilapia(3)

1976

120


1,280


110,000

U.S. GOM


97Charlie Cobb(2)

1980

120


2,000


100,000

Nigeria


229Durwood Speed(2)

1979

120


2,000


100,000

Nigeria


210James Choat(2)

1980

120


2,000


100,000

Nigeria


210Solefish(4)

1978

120


2,000


100,000

Nigeria


229Tigerfish(4)

1980

120


2,000


100,000

Nigeria


210Zoal Albrecht(2)

1982

120


2,000


100,000

Nigeria


213Barracuda(3)

1979

105


1,648


110,000

U.S. GOM


93Carp(3)

1978

105


1,648


110,000

U.S. GOM


98Cobia(3)

1978

105


1,648


110,000

U.S. GOM


94Dolphin(3)

1980

105


1,648


110,000

U.S. GOM


97Herring(3)

1979

105


1,648


110,000

U.S. GOM


97Marlin(3)

1979

105


1,648


110,000

U.S. GOM


97Corina(3)

1974

105


953


100,000

U.S. GOM


98Pike(3)

1980

105


1,360


130,000

U.S. GOM


92Remora(3)

1976

105


1,179


100,000

U.S. GOM


94Wolffish(3)

1977

105


1,044


100,000

U.S. GOM


99Seabream(3)

1980

105


1,140


100,000

U.S. GOM


92Sea Trout(3)

1978

105


1,500


100,000

U.S. GOM


97Tarpon(3)

1979

105


1,648


110,000

U.S. GOM


97Palometa(3)

1972

105


780


100,000

U.S. GOM


99Jackfish(3)

1978

105


1,648


110,000

U.S. GOM


99Bonefish(4)

1978

105


1,344


90,000

Nigeria


97Croaker(4)

1976

105


1,344


72,000

Nigeria


82Gemfish(4)

1978

105


2,000


100,000

Nigeria


223Tapertail(4)

1979

105


1,392


110,000

Nigeria


100     (1)
    
    The Palometa, Wolffish and Skipfishare currently
    cold-stacked. All other liftboats are either available or
    operating.(2)
    
    We operate these vessels; however, they are owned by a third
    party.(3)
    
    Pursuant to U.S. Coast Guard documentation, international
    regulatory bodies or
    non-U.S.
    Flag states may calculate gross tonnage differently than the
    U.S. Coast Guard.(4)
    
    Pursuant to the registry documents issued by the Republic of
    Panama.(5)
    
    Dates shown are the original date the vessel was built and the
    date of the most recent upgrade and/or major refurbishment, if
    any. 9




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##### Table of Contents



Competition
    Customers
    For the Years Ending December 31,2009


2008


2007Oil and Natural Gas Corporation Limited


16
%


8
%



%Chevron Corporation


14



12



21Saudi Aramco


13







PEMEX Exploración y Producción (PEMEX)


10



8



3     Contracts
     10




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##### Table of Contents



Contract
    Backlog
    For the Years Ending December 31,Total


2010


2011


2012


2013


Thereafter(In thousands)Domestic Offshore

$
33,698


$
33,698


$



$



$



$
International Offshore


346,978



215,511



131,467











Inland


2,273



2,273















International Liftboats


16,782



16,782















Total

$
399,731


$
268,264


$
131,467


$



$



$
   Employees
      Insurance
   11




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Regulation
     12




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13




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##### Table of Contents



vessel-to-vessel vessel-to-shore
    
    it is organized under the laws of the United States or a state;
    each of its president or other chief executive officer and the
    chairman of its board of directors is a U.S. citizen;
    no more than a minority of the number of its directors necessary
    to constitute a quorum for the transaction of business are
    non-U.S. citizens; and
    at least 75% of the interest and voting power in the corporation
    is held by U.S. citizens free of any trust, fiduciary
    arrangement or other agreement, arrangement or understanding
    whereby voting power may be exercised directly or indirectly by
    non-U.S. citizens.  non-U.S. citizens
     14




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##### Table of Contents



non-U.S. operations
    Available
    Information
  www.herculesoffshore.com Form 10-K, Form 10-Q, Form 8-K, www.sec.gov
  Segment
    and Geographic Information
    Item 1A.
    Risk
    Factors  Our
    business depends on the level of activity in the oil and natural
    gas industry, which is significantly affected by volatile oil
    and natural gas prices.
   15




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##### Table of Contents




    the demand for oil and natural gas in the United States and
    elsewhere;
    the cost of exploring for, developing, producing and delivering
    oil and natural gas, and the relative cost of onshore production
    or importation of natural gas;
    political, economic and weather conditions in the United States
    and elsewhere;
    imports of liquefied natural gas;
    advances in exploration, development and production technology;
    the ability of the Organization of Petroleum Exporting
    Countries, commonly called OPEC, to set and maintain
    oil production levels and pricing;
    the level of production in non-OPEC countries;
    domestic and international tax policies and governmental
    regulations;
    the development and exploitation of alternative fuels, and the
    competitive, social and political position of natural gas as a
    source of energy compared with other energy sources;
    the policies of various governments regarding exploration and
    development of their oil and natural gas reserves;
    the worldwide military and political environment and uncertainty
    or instability resulting from an escalation or additional
    outbreak of armed hostilities or other crises in the Middle
    East, West Africa and other significant oil and natural gas
    producing regions; and
    acts of terrorism or piracy that affect oil and natural gas
    producing regions, especially in Nigeria, where armed conflict,
    civil unrest and acts of terrorism have recently increased.    The
    offshore service industry is highly cyclical and is currently
    experiencing low demand and low dayrates. The volatility of the
    industry, coupled with our short-term contracts, has resulted
    and could continue to result in sharp declines in our
    profitability.
   16




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##### Table of Contents



Maintaining
    idle assets or the sale of assets below their then carrying
    value may cause us to experience losses and may result in
    impairment charges.
    Our
    industry is highly competitive, with intense price competition.
    Our inability to compete successfully may reduce our
    profitability.
      We
    have a significant level of debt, and could incur additional
    debt in the future. Our debt could have significant consequences
    for our business and future prospects.
    
    we may not be able to obtain necessary financing in the future
    for working capital, capital expenditures, acquisitions, debt
    service requirements or other purposes and we may be required
    under the terms of the amendment to our credit facility to use
    the proceeds of any financing we obtain to repay or prepay
    existing debt;
    we will be required to dedicate a substantial portion of our
    cash flow from operations to payments of principal and interest
    on our debt;
    we may be exposed to risks inherent in interest rate
    fluctuations because 56 percent of our borrowings are at
    variable rates of interest, which will result in higher interest
    expense to the extent that we do not hedge such risk in the
    event of increases in interest rates;
    we could be more vulnerable during downturns in our business and
    be less able to take advantage of significant business
    opportunities and to react to changes in our business and in
    market or industry conditions; and
    we may have a competitive disadvantage relative to our
    competitors that have less debt.   17




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##### Table of Contents



If we
    are unable to comply with the restrictions and covenants in our
    credit agreement, there could be a default, which could result
    in an acceleration of repayment of funds that we have
    borrowed.
    Our
    Credit Agreement imposes significant additional costs and
    operating and financial restrictions on us, which may prevent us
    from capitalizing on business opportunities and taking certain
    actions.
    
    make certain types of loans and investments;
    pay dividends, redeem or repurchase stock, prepay, redeem or
    repurchase other debt or make other restricted payments;
    incur or guarantee additional indebtedness;
    use proceeds from asset sales, new indebtedness or equity
    issuances for general corporate purposes or investment into our
    current business;
    invest in certain new joint ventures;
    create or incur liens;
    place restrictions on our subsidiaries ability to make
    dividends or other payments to us;
    sell our assets or consolidate or merge with or into other
    companies;
    engage in transactions with affiliates; and
    enter into new lines of business.   18




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##### Table of Contents



The
    continuing worldwide economic problems have materially reduced
    our revenue, profitability and cash flows.
    We may
    require additional capital in the future, which may not be
    available to us or may be at a cost which reduces our cash flow
    and profitability.
    Asset
    sales are currently an important component of our business
    strategy for the purpose of reducing our debt. We may be unable
    to identify appropriate buyers with access to financing or to
    complete any sales on acceptable terms.
    Our
    contracts are generally short term, and we will experience
    reduced profitability if our customers reduce activity levels or
    terminate or seek to renegotiate our drilling or liftboat
    contracts or if we experience downtime, operational
    difficulties, or safety-related issues.
   19




---



##### Table of Contents



short-term
    An
    increase in supply of rigs or liftboats could adversely affect
    our financial condition and results of operations.
       20




---



##### Table of Contents



Our
    business involves numerous operating hazards and exposure to
    extreme weather and climate risks, and our insurance may not be
    adequate to cover our losses.
        A
    significant portion of our business is conducted in
    shallow-water areas of the U.S. Gulf of Mexico. The mature
    nature of this region could result in less drilling activity in
    the area, thereby reducing demand for our
    services.
    We can
    provide no assurance that our current backlog of contract
    drilling revenue will be ultimately realized.
   21




---



##### Table of Contents



Our
    insurance coverage has become more expensive, may become
    unavailable in the future, and may be inadequate to cover our
    losses.
        Our
    customers may be unable or unwilling to indemnify
    us.
    Our
    international operations are subject to additional political,
    economic, and other uncertainties not generally associated with
    domestic operations.
    
    political, social and economic instability, war and acts of
    terrorism; 22




---



##### Table of Contents




    potential seizure, expropriation or nationalization of assets;
    damage to our equipment or violence directed at our employees,
    including kidnappings and piracy;
    increased operating costs;
    complications associated with repairing and replacing equipment
    in remote locations;
    repudiation, modification or renegotiation of contracts,
    disputes and legal proceedings in international jurisdictions;
    limitations on insurance coverage, such as war risk coverage in
    certain areas;
    import-export quotas;
    confiscatory taxation;
    work stoppages or strikes, particularly in the West African and
    Mexican labor environments;
    unexpected changes in regulatory requirements;
    wage and price controls;
    imposition of trade barriers;
    imposition or changes in enforcement of local content laws,
    particularly in West Africa where the legislatures are active in
    developing new legislation;
    restrictions on currency or capital repatriations;
    currency fluctuations and devaluations; and
    other forms of government regulation and economic conditions
    that are beyond our control.      non-U.S. contract
 23




---



##### Table of Contents



A
    small number of customers account for a significant portion of
    our revenues, and the loss of one or more of these customers
    could adversely affect our financial condition and results of
    operations.
      Our
    jackup rigs are at a relative disadvantage to higher
    specification rigs, which may be more likely to obtain contracts
    than lower specification jackup rigs such as ours.
     24




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##### Table of Contents



We may
    consider future acquisitions and may be unable to complete and
    finance future acquisitions on acceptable terms. In addition, we
    may fail to successfully integrate acquired assets or businesses
    we acquire or incorrectly predict operating
    results.
        
    the risk of incorrect assumptions regarding the future results
    of acquired operations or assets or expected cost reductions or
    other synergies expected to be realized as a result of acquiring
    operations or assets;
    the risk of failing to integrate the operations or management of
    any acquired operations or assets successfully and
    timely; and
    the risk of diversion of managements attention from
    existing operations or other priorities.    Failure
    to retain or attract skilled workers could hurt our
    operations.
      Governmental
    laws and regulations, including those related to climate and
    emissions of greenhouse gases, may add to our costs
    or limit drilling activity and liftboat
    operations.
   25




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##### Table of Contents



Compliance
    with or a breach of environmental laws can be costly and could
    limit our operations.
    We may
    not be able to maintain or replace our rigs and liftboats as
    they age.
    Our
    operating and maintenance costs with respect to our rigs include
    fixed costs that will not decline in proportion to decreases in
    dayrates.
    Upgrade,
    refurbishment and repair projects are subject to risks,
    including delays and cost overruns, which could have an adverse
    impact on our available cash resources and results of
    operations.
   26




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##### Table of Contents




    unexpectedly long delivery times for, or shortages of, key
    equipment, parts and materials;
    shortages of skilled labor and other shipyard personnel
    necessary to perform the work;
    unforeseen increases in the cost of equipment, labor and raw
    materials, particularly steel;
    unforeseen design and engineering problems;
    latent damages to or deterioration of hull, equipment and
    machinery in excess of engineering estimates and assumptions;
    unanticipated actual or purported change orders;
    work stoppages;
    failure or delay of third-party service providers and labor
    disputes;
    disputes with shipyards and suppliers;
    delays and unexpected costs of incorporating parts and materials
    needed for the completion of projects;
    failure or delay in obtaining acceptance of the rig from our
    customer;
    financial or other difficulties at shipyards;
    adverse weather conditions; and
    inability or delay in obtaining customer acceptance or
    flag-state, classification society, certificate of inspection,
    or regulatory approvals.    We are
    subject to litigation that could have an adverse effect on
    us.
    TODCOs
    tax sharing agreement with Transocean may require continuing
    substantial payments.
   27




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##### Table of Contents



Changes
    in effective tax rates, taxation of our foreign subsidiaries,
    limitations on utilization of our net operating losses or
    adverse outcomes resulting from examination of our tax returns
    could adversely affect our operating results and financial
    results.
      Our
    business would be adversely affected if we failed to comply with
    the provisions of U.S. law on coastwise trade, or if those
    provisions were modified, repealed or waived.
    U.S.-flag U.S.-flag
  Our
    liquidity depends upon cash on hand, cash from operations and
    availability under our revolving credit facility.
   28




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##### Table of Contents



We are
    a holding company, and we are dependent upon cash flow from
    subsidiaries to meet our obligations.
      We
    limit foreign ownership of our company, which may restrict
    investment in our common stock and could reduce the price of our
    common stock.
  non-United U.S.-flagged non-United non-United
    We
    have no plans to pay regular dividends on our common stock, so
    investors in our common stock may not receive funds without
    selling their shares.
   29




---



##### Table of Contents



Provisions
    in our charter documents, stockholder rights plan or Delaware
    law may inhibit a takeover, which could adversely affect the
    value of our common stock.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties        Item 3.
    Legal
    Proceedings      Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit
    Court, Second Judicial District, Jones County, Mississippi.
 30




---



##### Table of Contents



Item 4.
    Reserved PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Quarterly
    Common Stock Prices and Dividend Policy
    PriceHigh


Low2009Fourth Quarter

$
6.60


$
4.21Third Quarter


7.28



3.02Second Quarter


5.64



1.54First Quarter


5.92



1.07   31




---



##### Table of Contents



PriceHigh


Low2008Fourth Quarter

$
14.94


$
3.06Third Quarter


39.35



13.08Second Quarter


39.47



24.07First Quarter


27.52



20.00     Issuer
    Purchases of Equity Securities
    TotalNumber of


MaximumShares


Number ofPurchased


Shares thatTotal





as Part of a


may yet beNumber of


Average


Publicly


PurchasedShares


Price Paid


Announced


Under thePeriod

Purchased(1)


per Share


Plan(2)


Plan(2)October 1 - 31, 2009


653


$
5.13



N/A



N/ANovember 1 - 30, 2009


133



5.28



N/A



N/ADecember 1 - 31, 2009


158



5.01



N/A



N/ATotal


944



5.13



N/A



N/A     (1)
    
    Represents the surrender of shares of our common stock to
    satisfy tax withholding obligations in connection with the
    vesting of restricted stock issued to employees under our
    stockholder-approved long-term incentive plan.(2)
    
    We did not have at any time during 2009, 2008 or 2007, and
    currently do not have, a share repurchase program in place.  Item 6.
    Selected
    Financial Data  Form 10-K Form 8-K Form 10-K,
   32




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##### Table of Contents



Year Ended


Year Ended


Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,


December 31,


December 31,2009(a)


2008(b)


2007


2006


2005(In thousands, except per share data)Statement of Operations Data:Revenues

$
742,851


$
1,111,807


$
726,278


$
344,312


$
161,334Operating income (loss)


(92,146
)


(1,120,913
)


225,642



158,057



55,859Income (loss) from continuing operations


(90,149
)


(1,081,870
)


136,012



119,050



27,456Earnings (loss) per share from continuing operations:Basic

$
(0.93
)

$
(12.25
)

$
2.31


$
3.80


$
1.10Diluted


(0.93
)


(12.25
)


2.28



3.70



1.08Balance Sheet Data (as of end of period):Cash and cash equivalents

$
140,828


$
106,455


$
212,452


$
72,772


$
47,575Working capital


144,813



224,785



367,117



110,897



70,083Total assets


2,277,476



2,590,895



3,643,948



605,581



354,825Long-term debt, net of current portion


856,755



1,015,764



890,013



91,850



93,250Total stockholders equity


978,512



925,315



2,011,433



394,851



215,943Cash dividends per share


















     (a)
    
    Includes $26.9 million ($13.1 million, net of taxes or
    $0.13 per diluted share) of impairment charges related to the
    write-down of the Hercules 110to fair value less costs
    to sell during the second quarter of 2009. The sale of the rig
    was completed in August 2009. In addition, 2009 includes
    $31.6 million ($20.5 million, net of taxes or $0.21
    per diluted share) related to an allowance for doubtful accounts
    receivable of approximately $26.8 million, associated with
    a customer in our International Offshore segment, a non-cash
    charge of approximately $7.3 million to fully impair the
    related deferred mobilization and contract preparation costs,
    partially offset by a $2.5 million reduction in previously
    accrued contract related operating costs that are not expected
    to be settled if the receivable is not collected. 33




---



##### Table of Contents



(b)
    
    Includes $950.3 million ($950.3 million, net of taxes
    or $10.76 per diluted share) and $376.7 million
    ($236.7 million, net of taxes or $2.68 per diluted share)
    in impairment of goodwill and impairment of property and
    equipment charges, respectively.  Year Ended


Year Ended


Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,


December 31,


December 31,2009


2008


2007


2006


2005(In thousands)Other Financial Data:Net cash provided by (used in):Operating activities

$
138,919


$
269,948


$
175,741


$
124,241


$
54,762Investing activities


(60,510
)


(515,787
)


(825,007
)


(149,983
)


(174,952
)Financing activities


(44,036
)


139,842



788,946



50,939



153,305Capital expenditures


76,141



585,084
(a)


155,390



204,456



168,038Deferred drydocking expenditures


15,646



17,269



20,772



12,544



7,369     (a)
    
    Includes the purchase of Hercules 350, Hercules 262and Hercules 261as well as related equipment.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis of our financial
    condition and results of operations should be read in
    conjunction with the accompanying consolidated financial
    statements as of December 31, 2009 and 2008 and for the
    years ended December 31, 2009, 2008 and 2007 included in
    Item 8 of this annual report. The following discussion and
    analysis contains forward-looking statements that involve risks
    and uncertainties. Our actual results may differ materially from
    those anticipated in these forward-looking statements as a
    result of certain factors, including those set forth under
    Risk Factors in Item 1A and elsewhere in this
    annual report. See Forward-Looking Statements.
  OVERVIEW
    Hercules 191 Hercules 255
   34




---



##### Table of Contents



Domestic Offshore
  International Offshore Hercules 110
  Inland
  Domestic Liftboats
  International Liftboats
  Delta Towing
         35




---



##### Table of Contents



RESULTS
    OF OPERATIONS
     36




---



##### Table of Contents



Year Ended December 31,2009


2008


2007(Dollars in thousands)Domestic Offshore:Number of rigs (as of end of period)


24



27



27Revenues

$
140,889


$
382,358


$
241,452Operating expenses


175,473



227,884



122,131Impairment of goodwill






507,194



Impairment of property and equipment






174,613



Depreciation and amortization expense


60,775



66,850



35,143General and administrative expenses


6,496



4,673



6,105Operating income (loss)

$
(101,855
)

$
(598,856
)

$
78,073International Offshore:Number of rigs (as of end of period)


10



12



10Revenues

$
393,797


$
327,983


$
144,778Operating expenses


169,418



147,899



59,593Impairment of goodwill






150,886



Impairment of property and equipment


26,882







Depreciation and amortization expense


63,808



37,865



15,513General and administrative expenses


35,694



2,980



1,863Operating income (loss)

$
97,995


$
(11,647
)

$
67,809Inland:Number of barges (as of end of period)


17



27



27Revenues

$
19,794


$
162,487


$
107,100Operating expenses


44,593



125,656



56,636Impairment of goodwill






205,474



Impairment of property and equipment






202,055



Depreciation and amortization expense


32,465



43,107



16,264General and administrative expenses


1,831



8,347



533Operating income (loss)

$
(59,095
)

$
(422,152
)

$
33,667Domestic Liftboats:Number of liftboats (as of end of period)


41



45



47Revenues

$
75,584


$
94,755


$
137,745Operating expenses


48,738



54,474



59,902Depreciation and amortization expense


20,267



21,317



24,969General and administrative expenses


2,039



2,386



2,190Operating income

$
4,540


$
16,578


$
50,684International Liftboats:Number of liftboats (as of end of period)


24



20



18Revenues

$
88,537


$
85,896


$
63,282Operating expenses


48,240



39,122



31,879Depreciation and amortization expense


12,880



9,912



7,619General and administrative expenses


4,990



5,990



3,888Operating income

$
22,427


$
30,872


$
19,896  37




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##### Table of Contents



Year Ended December 31,2009


2008


2007(Dollars in thousands)Delta Towing:Revenues

$
24,250


$
58,328


$
31,921Operating expenses


27,674



36,676



16,050Impairment of goodwill






86,733



Depreciation and amortization expense


7,917



10,926



4,598General and administrative expenses


1,336



4,058



1,011Operating income (loss)

$
(12,677
)

$
(80,065
)

$
10,262Total Company:Revenues

$
742,851


$
1,111,807


$
726,278Operating expenses


514,136



631,711



346,191Impairment of goodwill






950,287



Impairment of property and equipment


26,882



376,668



Depreciation and amortization expense


201,421



192,894



104,634General and administrative expenses


92,558



81,160



49,811Operating income (loss)


(92,146
)


(1,120,913
)


225,642Interest expense


(77,986
)


(63,778
)


(34,859
)Expense of credit agreement fees


(15,073
)






Gain (loss) on early retirment of debt


12,157



26,345



(2,182
)Other, net


3,967



3,315



6,483Income (loss) before income taxes


(169,081
)


(1,155,031
)


195,084Income tax benefit (provision)


78,932



73,161



(59,072
)Income (loss) from continuing operations


(90,149
)


(1,081,870
)


136,012Income (loss) from discontinued operation, net of taxes


(1,585
)


(1,520
)


510Net income (loss)

$
(91,734
)

$
(1,083,390
)

$
136,522     Year Ended December 31, 2009AverageAverage


OperatingOperating


Available





Revenue


ExpenseDays


Days


Utilization(1)


per Day(2)


per Day(3)Domestic Offshore


2,676



4,544



58.9
%

$
52,649


$
38,616International Offshore


3,100



3,714



83.5
%


127,031



45,616Inland


651



1,578



41.3
%


30,406



28,259Domestic Liftboats


9,535



14,804



64.4
%


7,927



3,292International Liftboats


4,293



7,209



59.6
%


20,624



6,692   38




---



##### Table of Contents



Year Ended December 31, 2008AverageAverage


OperatingOperating


Available





Revenue


ExpenseDays


Days


Utilization(1)


per Day(2)


per Day(3)Domestic Offshore


5,907



8,166



72.3
%

$
64,730


$
27,906International Offshore


2,753



3,005



91.6
%


119,137



49,218Inland


4,048



5,885



68.8
%


40,140



21,352Domestic Liftboats


10,343



15,785



65.5
%


9,161



3,451International Liftboats


5,028



6,501



77.3
%


17,084



6,018   Year Ended December 31, 2007AverageAverage


OperatingOperating


Available





Revenue


ExpenseDays


Days


Utilization(1)


per Day(2)


per Day(3)Domestic Offshore


3,265



4,958



65.9
%

$
73,952


$
24,633International Offshore


1,549



1,625



95.3
%


93,465



36,673Inland


2,279



2,941



77.5
%


46,994



19,257Domestic Liftboats


11,265



16,749



67.3
%


12,228



3,576International Liftboats


5,077



6,149



82.6
%


12,464



5,184     (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. Included in
    Domestic Offshore revenue is a total of $0.4 million
    related to amortization of contract specific capital
    expenditures reimbursed by the customer for the year ended
    December 31, 2007. There was no such revenue in the years
    ended December 31, 2009 and 2008. Included in International
    Offshore revenue is a total of $16.3 million,
    $11.6 million and $3.2 million related to amortization
    of deferred mobilization revenue and contract specific capital
    expenditures reimbursed by the customer for the years ended
    December 31, 2009, 2008 and 2007, respectively. Included in
    International Liftboats revenue is a total of $0.2 million
    and $0.3 million related to amortization of deferred
    mobilization revenue for the years ended December 31, 2009
    and 2008, respectively. There was no such revenue in the year
    ended December 31, 2007.(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. Included in
    International Offshore operating expense is a total of
    $6.3 million, $5.6 million and $2.8 million
    related to amortization of deferred mobilization expenses for
    the years ended December 31, 2009, 2008 and 2007,
    respectively. Included in the International Offshore 2009
    amortization is a $2.6 million charge to impair the
    deferred mobilization costs related to one international
    contract. Included in International Liftboats operating expense
    is a total of $0.2 million related to amortization of
    deferred mobilization expenses for the year ended
    December 31, 2009. There was no such operating expense in
    the years ended December 31, 2008 and 2007, respectively. 39




---



##### Table of Contents



2009
    Compared to 2008
  Revenues
  Consolidated.
  Domestic Offshore.
  International Offshore. Hercules 260 Hercules 258 Hercules 208 Hercules 261 Hercules 262 Hercules 156 Hercules 170 Hercules 206 Hercules 110 Hercules
    205 Hercules 185 Hercules 261 Hercules 208 Hercules 262 Hercules 205 Hercules
    206, Hercules 156 Hercules 185
  Inland.
  Domestic Liftboats.
  International Liftboats.
 40




---



##### Table of Contents



Delta Towing.
  Operating
    Expenses
  Consolidated.
  Domestic Offshore.
  International Offshore. Hercules 156 Hercules 170 start-up Hercules 261 Hercules 262
  Inland.
  Domestic Liftboats.
  International Liftboats. Whale Shark Amberjack
  Delta Towing.
 41




---



##### Table of Contents



Impairment
    of Property and Equipment
  Hercules 110
  Depreciation
    and Amortization
  Hercules 260 Hercules 350 Hercules 208 Hercules 261 Hercules 262
  General
    and Administrative Expenses
    Interest
    Expense
    Expense
    of Credit Agreement Fees
    Gain
    (Loss) on Early Retirement of Debt, Net
    Other
    Income
   42




---



##### Table of Contents



Income
    Tax Benefit
    2008
    Compared to 2007
  Revenues
  Consolidated.
  Domestic Offshore.
  International Offshore. Hercules 260
  Inland.
  Domestic Liftboats.
 43




---



##### Table of Contents



International Liftboats.
  Delta Towing.
  Operating
    Expenses
  Consolidated.
  Domestic Offshore.
  International Offshore.
  Inland.
  Domestic Liftboats.
  International Liftboats.
 44




---



##### Table of Contents



Delta Towing.
  Impairment
    of Goodwill
    Impairment
    of Property and Equipment
    Depreciation
    and Amortization
    General
    and Administrative Expenses
    Interest
    Expense
    Gain
    (Loss) on Early Retirement of Debt, Net
    Other
    Income
    Income
    Tax Benefit (Provision)
   45




---



##### Table of Contents



Discontinued
    Operation
    Non-GAAP Financial
    Measures
  General Rules Regarding Disclosure of
    Non-GAAP Financial Measures day-to-day
 46




---



##### Table of Contents



For the Years Ended December 31,2009


2008


2007Operating Income (Loss)

$
(92,146
)

$
(1,120,913
)

$
225,642Adjustments:Property and equipment impairment


26,882



376,668



Goodwill impairment






950,287



Executive separation and benefit related charges






7,468



3,090Total adjustments


26,882



1,334,423



3,090Adjusted Operating Income (Loss)

$
(65,264
)

$
213,510


$
228,732Income (Loss) from Continuing Operations

$
(90,149
)

$
(1,081,870
)

$
136,012Adjustments:Property and equipment impairment


26,882



376,668



Goodwill impairment






950,287



Executive separation and benefit related charges






7,468



3,090(Gain) loss on early retirement of debt, net


(12,157
)


(26,345
)


1,524Expense of credit agreement fees


15,073







Tax impact of adjustments


(14,799
)


(133,331
)


(1,615
)Total adjustments


14,999



1,174,747



2,999Adjusted Income (Loss) from Continuing Operations

$
(75,150
)

$
92,877


$
139,011Diluted Earnings (Loss) per Share from Continuing Operations

$
(0.93
)

$
(12.25
)

$
2.28Adjustments:Property and equipment impairment


0.28



4.26



Goodwill impairment






10.76



Executive separation and benefit related charges






0.08



0.05(Gain) loss on early retirement of debt, net


(0.13
)


(0.30
)


0.03Expense of credit agreement fees


0.16







Tax impact of adjustments


(0.15
)


(1.51
)


(0.03
)Total adjustments


0.16



13.29



0.05Adjusted Diluted Earnings (Loss) per Share from Continuing
    Operations

$
(0.77
)

$
1.04


$
2.33Income (Loss) from Continuing Operations

$
(90,149
)

$
(1,081,870
)

$
136,012Interest expense


77,986



63,778



34,859Income tax (benefit) provision


(78,932
)


(73,161
)


59,072Depreciation and amortization


201,421



192,894



104,634EBITDA


110,326



(898,359
)


334,577Adjustments:Property and equipment impairment


26,882



376,668



Goodwill impairment






950,287



Executive separation and benefit related charges






7,468



3,090(Gain) loss on early retirement of debt, net


(12,157
)


(26,345
)


1,524Expense of credit agreement fees


15,073







Total adjustments


29,798



1,308,078



4,614Adjusted EBITDA

$
140,124


$
409,719


$
339,191  47




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##### Table of Contents



Critical
    Accounting Policies
      Cash
    and Cash Equivalents
    Other
    Intangible Assets
      Property
    and Equipment
   48




---



##### Table of Contents



Hercules 110
 49




---



##### Table of Contents



Revenue
    Recognition
    Income
    Taxes
          Allowance
    for Doubtful Accounts
   50




---



##### Table of Contents



Deferred
    Charges
    Stock-Based
    Compensation
  Compensation  Stock Compensation
    OUTLOOK
  Offshore
       51




---



##### Table of Contents



52




---



##### Table of Contents



Inland
      Liftboats
       53




---



##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
  Sources
    and Uses of Cash
    2009


2008Net Cash Provided by Operating Activities

$
138.9


$
269.9Net Cash Provided by (Used in) Investing Activities:Acquisition of Assets






(320.8
)Additions of Property and Equipment


(76.1
)


(264.2
)Deferred Drydocking Expenditures


(15.6
)


(17.3
)Sale of Marketable Securities






39.3Proceeds from Sale of Assets, Net


25.8



17.0Insurance Proceeds Received


9.1



30.2Increase in Restricted Cash


(3.7
)


Total


(60.5
)


(515.8
)Net Cash Provided by (Used in) Financing Activities:Short-term Debt Borrowings (Repayments), Net


(2.5
)


2.5Long-term Debt Borrowings


292.1



350.0Long-term Debt Repayments


(403.6
)


(121.5
)Redemption of 3.375% Convertible Senior Notes


(6.1
)


(44.8
)Common Stock Issuance (Repurchase)


89.6



(49.2
)Proceeds from Exercise of Stock Options






5.1Excess Tax Benefit from Stock-Based Arrangements


4.6



5.9Payment of Debt Issuance Costs


(18.1
)


(8.1
)Total


(44.0
)


139.9Net Increase (Decrease) in Cash and Cash Equivalents

$
34.4


$
(106.0
)   Sources
    of Liquidity and Financing Arrangements
     54




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##### Table of Contents



Cash
    Requirements and Contractual Obligations
  Debt
          Principal Amount Outstanding

Margin Applicable to:Less than or equal to:

Greater than:

Eurodollar Loans

ABR Loans$
882.00


$
684.25



6.50
%


5.50
%684.25



484.25



5.00
%


4.00
%484.25







4.00
%


3.00
%     
    Eliminate the requirement that we comply with the total leverage
    ratio financial covenant for the nine month period commencing
    October 1, 2009 and ending on June 30, 2010.
    Amend the maximum total leverage ratio that we must comply with
    to the following schedule. The total leverage ratio for any test
    period is calculated as the ratio of consolidated indebtedness
    on the test date to consolidated EBITDA for the trailing twelve
    months, all as defined in the Credit Agreement.  MaximumTest Date

Total Leverage RatioSeptember 30, 2010

8.00 to 1.00December 31, 2010

7.50 to 1.00March 31, 2011

7.00 to 1.00June 30, 2011

6.75 to 1.00September 30, 2011

6.00 to 1.00December 31, 2011

5.50 to 1.00March 31, 2012

5.25 to 1.00June 30, 2012

5.00 to 1.00September 30, 2012

4.75 to 1.00December 31, 2012

4.50 to 1.00March 31, 2013

4.25 to 1.00June 30, 2013

4.00 to 1.00   -
    At December 31, 2009, our total leverage ratio was 5.32. 55




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##### Table of Contents




    Require us to maintain a minimum level of liquidity, measured as
    the amount of unrestricted cash and cash equivalents we have on
    hand and availability under the revolving credit facility, of
    (i) $100.0 million for the period between
    October 1, 2009 through December 31, 2010,
    (ii) $75.0 million during calendar year 2011 and
    (iii) $50.0 million thereafter. As of
    December 31, 2009, as calculated pursuant to our Credit
    Agreement, our total liquidity was $305.8 million.
    Revise the consolidated fixed charge coverage ratio definition
    and reduce the minimum fixed charge coverage ratio that we must
    maintain to the following schedule:  Fixed ChargePeriod

Coverage RatioJuly 1, 2009





December 31, 2011


1.00 to 1.00January 1, 2012





March 31, 2012


1.05 to 1.00April 1, 2012





June 30, 2012


1.10 to 1.00July 1, 2012 and thereafter








1.15 to 1.00   
    The consolidated fixed charge coverage ratio for any test period
    is defined as the sum of consolidated EBITDA for the test period
    plus an amount that may be added for the purpose of calculating
    the ratio for such test period, not to exceed
    $130.0 million in total during the term of the credit
    facility, to consolidated fixed charges for the test period, all
    as defined in the Credit Agreement. As of December 31,
    2009, our fixed charge coverage ratio was 1.0.  
    Require mandatory prepayments of debt outstanding under the
    Credit Agreement with 100% of excess cash flow as defined in the
    Credit Agreement for the fiscal year ending December 31,
    2009 and 50% of excess cash flow thereafter and with proceeds
    from:  
    unsecured debt issuances, with the exception of refinancing,
    through June 30, 2010;
    secured debt issuances;
    sales of assets in excess of $25 million annually; and
    unless we have achieved a specified leverage ratio, 50% of
    proceeds from equity issuances, excluding those for permitted
    acquisitions or to meet the minimum liquidity requirements.     56




---



##### Table of Contents



floating-to-fixed
  360-day 30-day
     57




---



##### Table of Contents




    incur additional indebtedness or issue certain preferred stock;
    pay dividends or make other distributions;
    make other restricted payments or investments;
    sell assets;
    create liens;
    enter into agreements that restrict dividends and other payments
    by restricted subsidiaries;
    engage in transactions with our affiliates; and
    consolidate, merge or transfer all or substantially all of our
    assets.        Year

Optional Redemption Price2013


105.2500
%2014


102.6250
%2015


101.3125
%2016 and thereafter


100.0000
%        58




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##### Table of Contents



December 31, 2009


December 31, 2008Carrying


Fair


Carrying


FairValue


Value


Value


Value(In millions)Term Loan Facility, due July 2013

$
482.9


$
468.4


$
886.5


$
571.810.5% Senior Secured Notes, due October 2017


292.3



315.8



n/a



n/a3.375% Convertible Senior Notes due June 2038


83.1



76.8



134.8



77.27.375% Senior Notes, due April 2018


3.5



3.0



3.5



2.5    59




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##### Table of Contents



Common
    Stock Offering
    Capital
    Expenditures
         60




---



##### Table of Contents



Contractual
    Obligations
      Payments due by PeriodContractual Obligations and

Less than


1-3


4-5


After 5Contingent Commitments

1 Year


Years


Years


Years


Total(In thousands)Recorded Obligations:Long-term debt obligations

$
4,952


$
9,904


$
563,919


$
303,508


$
882,283Insurance notes payable


5,484















5,484Interest on debt and notes payable(c)


16,936















16,936Tax liabilities(b)


18,554















18,554Purchase obligations(a)


3,574















3,574Other


2,756















2,756Unrecorded Obligations:Interest on debt and notes payable(c)


59,739



138,160



83,918



95,406



377,223Letters of credit


1,099



9,961











11,060Surety bonds


37,469















37,469Management compensation obligations


3,293



6,318











9,611Purchase obligations(a)


4,546















4,546Operating lease obligations


5,578



5,526



4,235



6,490



21,829Total contractual obligations

$
163,980


$
169,869


$
652,072


$
405,404


$
1,391,325     (a)
    
    A purchase obligation is defined as an agreement to
    purchase goods or services that is enforceable and legally
    binding on the company and that specifies all significant terms,
    including: fixed or minimum quantities to be purchased; fixed,
    minimum or variable price provisions; and the approximate timing
    of the transaction. These amounts are primarily comprised of
    open purchase order commitments to vendors and subcontractors.(b)
    
    Tax liabilities of $9.3 million have been excluded from the
    table above as a reasonably reliable estimate of the period of
    cash settlement cannot be made.(c)
    
    Estimated Interest on our Term Loan Facility and Interest Rate
    Collar is based on 3 month LIBOR reset quarterly and
    extrapolated from the forward curve dated as of the balance
    sheet date. There was $482.9 million outstanding under our
    Term Loan Facility as of December 31, 2009 and the interest
    estimates above assume the reduction in principal related to
    scheduled principal payments. The remaining interest estimates
    are based on the rates associated with the respective fixed rate
    instrument. 61




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
  Guarantees
    Letters
    of Credit and Surety Bonds
    Accounting
    Pronouncements
  The
    FASB Accounting Standards Codification and the Hierarchy of
    Generally Accepted Accounting Principles, a replacement of FASB
    Statement No. 162
  Accounting Standards Update
    (ASU)
    No. 2009-05,
    Fair Value Measurements and Disclosures (Topic
    820) Measuring Liabilities at Fair Value No. 2009-5) , 820-10, Fair Value Measurements and Disclosures-Overall No. 2009-5 No. 2009-5 No. 2009-5
  Subsequent Events Subsequent
    Events
 62




---



##### Table of Contents



No. FAS 107-1 28-1 Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1), Financial
    Instruments Disclosures about
    Fair Value of Financial Instruments Interim Financial reporting FSP 107-1
  No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity
    for the Asset and Liability Have Significantly Decreased and
    Identifying Transactions That Are Not Orderly (FSP 157-4) Fair Value
    Measurements and Disclosures FSP 157-4
  Disclosures about Derivative Instruments and Hedging
    Activities Derivatives and Hedging Accounting for Derivative Instruments
    and Hedging Activities
 FORWARD-LOOKING
    STATEMENTS  Form 10-K
  
    our levels of indebtedness, covenant compliance and access to
    capital under current market conditions;
    our ability to enter into new contracts for our rigs and
    liftboats and future utilization rates and dayrates for the
    units;
    our ability to renew or extend our long-term international
    contracts, or enter into new contracts, when such contracts
    expire;
    demand for our rigs and our liftboats and our earnings;
    activity levels of our customers and their expectations of
    future energy prices;
    sufficiency and availability of funds for required capital
    expenditures, working capital and debt service;
    levels of reserves for accounts receivable;
    success of our cost cutting measures and plans to dispose of
    certain assets;
    expected completion times for our refurbishment and upgrade
    projects;
    our plans to increase international operations;
    expected useful lives of our rigs and liftboats; 63




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##### Table of Contents




    future capital expenditures and refurbishment, reactivation,
    transportation, repair and upgrade costs;
    our ability to effectively reactivate rigs that we have recently
    stacked;
    liabilities and restrictions under coastwise laws of the United
    States and regulations protecting the environment;
    expected outcomes of litigation, claims and disputes and their
    expected effects on our financial condition and results of
    operations; and
    expectations regarding offshore drilling activity and dayrates,
    market conditions, demand for our rigs and liftboats, operating
    revenues, operating and maintenance expense, insurance coverage,
    insurance expense and deductibles, interest expense, debt levels
    and other matters with regard to outlook.    
    oil and natural gas prices and industry expectations about
    future prices;
    levels of oil and gas exploration and production spending;
    demand and supply for offshore drilling rigs and liftboats;
    our ability to enter into and the terms of future contracts;
    the worldwide military and political environment, uncertainty or
    instability resulting from an escalation or additional outbreak
    of armed hostilities or other crises in the Middle East, West
    Africa and other oil and natural gas producing regions or acts
    of terrorism or piracy;
    the impact of governmental laws and regulations;
    the adequacy and costs of sources of credit and liquidity;
    uncertainties relating to the level of activity in offshore oil
    and natural gas exploration, development and production;
    competition and market conditions in the contract drilling and
    liftboat industries;
    the availability of skilled personnel in view of recent
    reductions in our personnel;
    labor relations and work stoppages, particularly in the West
    African and Mexican labor environments;
    operating hazards such as hurricanes, severe weather and seas,
    fires, cratering, blowouts, war, terrorism and cancellation or
    unavailability of insurance coverage or insufficient coverage;
    the effect of litigation and contingencies; and
    our inability to achieve our plans or carry out our strategy.   64




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Exposure
          December 31, 2009


December 31, 2008Carrying


Fair


Carrying


FairValue


Value


Value


Value(In millions)Term Loan Facility, due July 2013

$
482.9


$
468.4


$
886.5


$
571.810.5% Senior Secured Notes due October 2017


292.3



315.8



n/a



n/a3.375% Convertible Senior Notes due June 2038


83.1



76.8



134.8



77.27.375% Senior Notes, due April 2018


3.5



3.0



3.5



2.5   Interest
    Rate Swaps and Derivatives
  Liquidity and Capital Resources
   65




---



##### Table of Contents



66




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
           14-1,
    ERNST &
    YOUNG LLP
    67




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 ERNST &
    YOUNG LLP
    68




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  December 31,2009


2008(In thousands, except par value)ASSETSCurrent Assets:Cash and Cash Equivalents

$
140,828


$
106,455Restricted Cash


3,658



Accounts Receivable, Net of Allowance for Doubtful Accounts of
    $38,522 and $7,756 as of December 31, 2009 and 2008,
    respectively


133,662



293,089Prepaids


13,706



23,033Current Deferred Tax Asset


22,885



17,379Assets Held for Sale






39,623Other


6,675



19,946321,414



499,525Property and Equipment, Net


1,923,603



2,049,030Other Assets, Net


32,459



42,340$
2,277,476


$
2,590,895LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term Debt and Current Portion of Long-term Debt

$
4,952


$
11,455Insurance Notes Payable


5,484



11,126Accounts Payable


51,868



99,823Accrued Liabilities


67,773



83,424Interest Payable


6,624



506Taxes Payable


5,671



32,440Other Current Liabilities


34,229



35,966176,601



274,740Long-term Debt, Net of Current Portion


856,755



1,015,764Other Liabilities


19,809



35,529Deferred Income Taxes


245,799



339,547Commitments and ContingenciesStockholders Equity:Common Stock, $0.01 Par Value;
    200,000 Shares Authorized; 116,154 and
    89,459 Shares Issued, Respectively; 114,650 and
    87,976 Shares Outstanding, Respectively


1,162



895Capital in Excess of Par Value


1,921,037



1,785,462Treasury Stock, at Cost, 1,504 Shares and
    1,483 Shares, Respectively


(50,151
)


(50,081
)Accumulated Other Comprehensive Loss


(5,773
)


(14,932
)Retained Deficit


(887,763
)


(796,029
)978,512



925,315$
2,277,476


$
2,590,895    69




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2009


2008


2007(In thousands, except per share data)Revenues

$
742,851


$
1,111,807


$
726,278Costs and Expenses:Operating Expenses


514,136



631,711



346,191Impairment of Goodwill






950,287



Impairment of Property and Equipment


26,882



376,668



Depreciation and Amortization


201,421



192,894



104,634General and Administrative


92,558



81,160



49,811834,997



2,232,720



500,636Operating Income (Loss)


(92,146
)


(1,120,913
)


225,642Other Income (Expense):Interest Expense


(77,986
)


(63,778
)


(34,859
)Expense of Credit Agreement Fees


(15,073
)






Gain (Loss) on Early Retirement of Debt, Net


12,157



26,345



(2,182
)Other, Net


3,967



3,315



6,483Income (Loss) Before Income Taxes


(169,081
)


(1,155,031
)


195,084Income Tax Benefit (Provision)


78,932



73,161



(59,072
)Income (Loss) from Continuing Operations


(90,149
)


(1,081,870
)


136,012Income (Loss) from Discontinued Operation,Net of Taxes


(1,585
)


(1,520
)


510Net Income (Loss)

$
(91,734
)

$
(1,083,390
)

$
136,522Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations

$
(0.93
)

$
(12.25
)

$
2.31Income (Loss) from Discontinued Operation


(0.01
)


(0.01
)


0.01Net Income (Loss)

$
(0.94
)

$
(12.26
)

$
2.32Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations

$
(0.93
)

$
(12.25
)

$
2.28Income (Loss) from Discontinued Operation


(0.01
)


(0.01
)


0.01Net Income (Loss)

$
(0.94
)

$
(12.26
)

$
2.29Weighted Average Shares Outstanding:Basic


97,114



88,351



58,897Diluted


97,114



88,351



59,563    70




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  December 31, 2009


December 31, 2008


December 31, 2007Shares


Amount


Shares


Amount


Shares


Amount(In thousands)Common Stock:Balance at Beginning of Period


89,459


$
895



88,876


$
889



32,008


$
320Exercise of Stock Options










478



5



250



3Issuance of Common Stock, Net


26,569



266











56,618



566Issuance of Restricted Stock


126



1



105



1







Balance at End of Period


116,154



1,162



89,459



895



88,876



889Capital in Excess of Par Value:Balance at Beginning of Period






1,785,462







1,731,882







243,157Exercise of Stock Options














5,122







2,052Issuance of Common Stock, Net






122,762















1,471,379Issuance of Restricted Stock






(1
)






(1
)






Compensation Expense Recognized






8,257







12,535







7,680Adjustment due to Convertible Debt Accounting Change (See
    Note 1)














30,070







Compensation Capitalized as part of the Purchase Price Allocation






















3,778Excess Tax Benefit From Stock-Based Arrangements






4,571







5,860







3,836Other






(14
)






(6
)






Balance at End of Period






1,921,037







1,785,462







1,731,882Treasury Stock:Balance at Beginning of Period


(1,483
)


(50,081
)


(19
)


(582
)


(6
)


(220
)Repurchase of Common Stock


(21
)


(70
)


(1,464
)


(49,499
)


(13
)


(362
)Balance at End of Period


(1,504
)


(50,151
)


(1,483
)


(50,081
)


(19
)


(582
)Accumulated Other Comprehensive Income (Loss):Balance at Beginning of Period






(14,932
)






(8,117
)






755Change in Unrealized Gain (Loss) on Hedge Transactions, Net of
    Tax of $(4,932), $3,669 and $4,778, Respectively






9,159







(6,815
)






(8,872
)Balance at End of Period, Net of Tax of $3,108, $8,040 and
    $4,371, Respectively






(5,773
)






(14,932
)






(8,117
)Retained Earnings (Deficit):Balance at Beginning of Period






(796,029
)






287,361







150,839Net Income (Loss)






(91,734
)






(1,083,390
)






136,522Balance at End of Period






(887,763
)






(796,029
)






287,361Total Stockholders Equity


114,650


$
978,512



87,976


$
925,315



88,857


$
2,011,433    71




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
  Year Ended December 31,2009


2008


2007(In thousands)Net Income (Loss)

$
(91,734
)

$
(1,083,390
)

$
136,522Other Comprehensive Income (Loss):Reclassification of (Gains) Losses, Net included in Net Income
    (Loss)


10,813



5,034



(897
)Other Comprehensive Losses, Net


(1,654
)


(11,849
)


(7,975
)Comprehensive Income (Loss)

$
(82,575
)

$
(1,090,205
)

$
127,650    72




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2009


2008


2007(In thousands)Cash Flows from Operating Activities:Net Income (Loss)

$
(91,734
)

$
(1,083,390
)

$
136,522Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
    by Operating Activities:Depreciation and Amortization


201,421



192,918



109,064Stock-Based Compensation Expense


8,257



12,535



7,680Deferred Income Taxes


(89,295
)


(118,685
)


2,841Provision for Doubtful Accounts Receivable


32,912



6,167



Amortization of Original Issue Discount


4,120



4,292



Amortization of Deferred Financing Fees


3,594



4,036



1,805Non-Cash Loss on Derivatives


1,429







Gain on Insurance Settlement


(8,700
)






Gain on Disposal of Assets


(970
)


(3,029
)


(4,491
)Expense of Credit Agreement Fees


15,073







(Gain) Loss on Early Retirement of Debt, Net


(12,157
)


(26,345
)


2,182Impairment of Goodwill






950,287



Impairment of Property and Equipment


26,882



376,668



Excess Tax Benefit from Stock-Based Arrangements


(4,571
)


(5,860
)


(3,836
)(Increase) Decrease in Operating Assets -Accounts Receivable


126,515



(78,510
)


58,827Insurance Claims Receivable


(402
)


(840
)


(13,565
)Prepaid Expenses and Other


39,889



53,635



9,263Increase (Decrease) in Operating Liabilities -Accounts Payable


(37,256
)


(5,482
)


(6,794
)Insurance Notes Payable


(28,966
)


(45,173
)


(25,301
)Other Current Liabilities


(35,281
)


17,125



15,239Tax Sharing Agreement Payment






(4,000
)


(116,003
)Other Liabilities


(11,841
)


23,599



2,308Net Cash Provided by Operating Activities


138,919



269,948



175,741Cash Flows from Investing Activities:Acquisition of Business, Net of Cash Acquired










(728,396
)Acquisition of Assets






(320,839
)


Additions of Property and Equipment


(76,141
)


(264,245
)


(155,390
)Deferred Drydocking Expenditures


(15,646
)


(17,269
)


(20,772
)Investment in Marketable Securities










(151,675
)Proceeds from Sale of Marketable Securities






39,300



112,375Insurance Proceeds Received


9,168



30,221



4,285Proceeds from Sale of Assets, Net


25,767



17,045



109,745(Increase) Decrease in Restricted Cash


(3,658
)






4,821Net Cash Used in Investing Activities


(60,510
)


(515,787
)


(825,007
)Cash Flow from Financing Activities:Short-term Debt Borrowings (Repayments), Net


(2,455
)


2,455



(1,395
)Long-term Debt Borrowings


292,149



350,000



900,000Long-term Debt Repayments


(403,648
)


(121,427
)


(97,750
)Redemption of 3.375% Convertible Senior Notes


(6,099
)


(44,848
)


Common Stock Issuance (Repurchase)


89,600



(49,228
)


Proceeds from Exercise of Stock Options






5,127



2,054Excess Tax Benefit from Stock-Based Arrangements


4,571



5,860



3,836Payment of Debt Issuance Costs


(18,143
)


(8,097
)


(17,753
)Other


(11
)






(46
)Net Cash Provided by (Used in) Financing Activities


(44,036
)


139,842



788,946Net Increase (Decrease) in Cash and Cash Equivalents


34,373



(105,997
)


139,680Cash and Cash Equivalents at Beginning of Period


106,455



212,452



72,772Cash and Cash Equivalents at End of Period

$
140,828


$
106,455


$
212,452    73




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Nature of
    Business and Significant Accounting Policies  Organization
    Hercules 350 Hercules 261 Hercules 262
        Adjustment
    for Retrospective Application of FSP APB
    14-1,
    Primarily Codified into Financial Accounting Standards
    Boards (FASB) Codification Topic
    470-20,
    Debt  Debt with Conversion and Other
    Options
  470-20, Debt  Debt with Conversion and Other Options
 74




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  470-20, Debt  Debt with Conversion and Other Options
  Principles
    of Consolidation
    Common
    Stock Offering
    Reclassifications
  Hercules 100 Hercules 110
  Cash
    and Cash Equivalents
    Restricted
    Cash
    Revenue
    Recognition
   75




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2009


2008


2007Mobilization revenue deferred

$
12,180


$
33,727


$
6,517Mobilization expense deferred


3,468



7,490



3,340Mobilization revenue recognized


16,491



11,860



3,060Mobilization expense recognized(a)


6,514



5,550



2,839     (a)
    
    Includes a $2.6 million write-off of deferred mobilization
    costs in 2009 due to an impairment related to one international
    contract.      Balance Sheet

As of December 31,Classification

2009


2008Assets:Deferred Mobilization and Contract Preparation Costs-Current
    Portion

Other

$
1,092


$
5,387Deferred Mobilization and Contract Preparation Costs-Non-Current
    Portion

Other Assets, Net


1,651



2,999Liabilities:Deferred Mobilization Revenue-Current Portion

Other Current Liabilities


19,406



16,811Deferred Mobilization Revenue-Non-Current Portion

Other Liabilities


12,628



24,198   Stock-Based
    Compensation
  Compensation  Stock Compensation
   76




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounts
    Receivable and Allowance for Doubtful Accounts
    Insurance
    Claims Receivable
  Hercules 205
  Prepaid
    Expenses
    Property
    and Equipment
        YearsDrilling rigs and marine equipment (salvage value of 10)%


15Drilling machinery and equipment


312Furniture and fixtures


3Computer equipment


37Automobiles and trucks


3    77




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           78




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hercules 110
  Goodwill
          Domestic


International





DeltaOffshore


Offshore


Inland


Towing


TotalAs of December 31, 2007

$
513,602


$
133,046


$
206,264


$
87,329


$
940,241Purchase Price and Other Adjustments


(6,408
)


17,840



(790
)


(596
)


10,046Impairment


(507,194
)


(150,886
)


(205,474
)


(86,733
)


(950,287
)As of December 31, 2008

$



$



$



$



$
   Other
    Intangible Assets
   79




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other
    Assets
      Income
    Taxes
     80




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Use of
    Estimates
    Fair
    Value of Financial Instruments
      Accounting
    Pronouncements
  The
    FASB Accounting Standards Codification and the Hierarchy of
    Generally Accepted Accounting Principles, a replacement of FASB
    Statement No. 162
 81




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting Standards Update
    (ASU)
    No. 2009-05,
    Fair Value Measurements and Disclosures (Topic
    820) Measuring Liabilities at Fair Value No. 2009-5) , 820-10, Fair Value Measurements and Disclosures-Overall No. 2009-5 No. 2009-5 No. 2009-5
  Subsequent Events Subsequent
    Events
  No. FAS 107-1 28-1 Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1), Financial
    Instruments Disclosures about
    Fair Value of Financial Instruments, Interim Financial reporting FSP 107-1
  No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity
    for the Asset and Liability Have Significantly Decreased and
    Identifying Transactions That Are Not Orderly (FSP 157-4) Fair Value
    Measurements and Disclosures FSP 157-4
  Disclosures about Derivative Instruments and Hedging
    Activities Derivatives and Hedging Accounting for Derivative Instruments
    and Hedging Activities
 82




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2.
    Property
    and Equipment, Net    December 31,2009


2008Drilling rigs and marine equipment

$
2,224,799


$
2,206,051Drilling machinery and equipment


80,185



46,408Leasehold improvements


11,209



10,615Automobiles and trucks


2,540



1,812Computer equipment


17,787



15,294Furniture and fixtures


1,553



1,484Total property and equipment, at cost


2,338,073



2,281,664Less accumulated depreciation


(414,470
)


(232,634
)Total property and equipment, net

$
1,923,603


$
2,049,030   3.
    Earnings
    Per Share    Year Ended December 31,2009


2008


2007Denominator:Weighted average basic shares


97,114



88,351



58,897Add effect of stock equivalents










666Weighted average diluted shares


97,114



88,351



59,563     4.
    Asset
    Acquisitions and Business Combination   83




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Year EndedDecember 31,2007(In millions,except pershare amounts)Revenues

$
1,182.4Net Income


193.8Basic earnings per share


2.19Diluted earnings per share


2.16   Hercules 350 Hercules 261 Hercules 262
  5.
    Dispositions
    and Assets Held for Sale  Hercules 191 Hercules 255
  Hercules 100 Hercules 110 Hercules 100 Hercules 110 Hercules 100 Hercules 110 Hercules 110 Hercules
    100 Hercules 110 Hercules 100 Hercules 110
  Hercules
    256
 84




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,2008Other

$
123Property and Equipment, Net


39,500Current Assets Held for Sale

$
39,623   6.
    Discontinued
    Operation    470-20, Presentation of Financial Statements  Discontinued
    Operations
    Year Ended December 31,2009


2008


2007Revenues

$
240


$
1,818


$
40,515Income (Loss) Before Income Taxes

$
(2,440
)

$
(2,341
)

$
4,429Income Tax (Provision) Benefit


855



821



(3,919
)Income (Loss) from Discontinued Operation, Net of Taxes

$
(1,585
)

$
(1,520
)

$
510   7.
    Stock-based
    Compensation  Compensation  Stock Compensation
   85




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            2009


2008


2007Dividend yield










Expected price volatility


45.00
%


40.8
%


35.0
%Risk-free interest rate


2.08
%


2.85
%


4.58
%Expected life of options (in years)


6.0



6.0



5.9Weighted-average fair value of options granted

$
0.75


$
6.35


$
11.18    86




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-Weighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicOptions

Shares


Price


Term


Value(In thousands)Outstanding at January 1, 2009


2,746,210


$
17.73



7.96


$
643Granted


1,803,125



1.70Exercised






n/aForfeited


(97,014
)


12.01Outstanding at December 31, 2009


4,452,321



11.36



6.58



6,145Vested or Expected to Vest at December 31, 2009


4,357,647



11.40



6.56



5,985Exercisable at December 31, 2009


2,016,835



17.34



3.89



810       Weighted-AverageRestricted


Grant DateStock


Fair ValueNon-Vested at January 1, 2009


492,304


$
25.93Granted


5,000



4.82Vested


(125,896
)


27.24Forfeited


(22,331
)


26.10Non-Vested at December 31, 2009


349,077



25.15     8.
    Accrued
    Liabilities    December 31,2009


2008Accrued Liabilities:Taxes other than Income

$
9,435


$
17,610Accrued Payroll and Employee Benefits


29,283



36,160Accrued Self-Insurance Claims


28,768



29,541Other


287



113$
67,773


$
83,424  87




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    Benefit
    Plans    10.
    Debt    December 31,


December 31,2009


2008Term Loan Facility, due July 2013

$
482,852


$
886,50010.5% Senior Secured Notes due October 2017


292,272



3.375% Convertible Senior Notes due June 2038


83,071



134,7527.375% Senior Notes, due April 2018


3,512



3,512Foreign Overdraft Facility






2,455Total Debt


861,707



1,027,219Less Short-term Debt and Current Portion of Long-term Debt


4,952



11,455Total Long-term Debt, Net of Current Portion

$
856,755


$
1,015,764     2010

$
4,9522011


4,9522012


4,9522013


551,0672014


Thereafter


295,784$
861,707   Senior
    secured Credit Agreement
     88




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    July
    2009 Credit Amendment
    Principal Amount Outstanding

Margin Applicable to:Less than or equal to:

Greater than:

Eurodollar Loans

ABR Loans$
882.00


$
684.25



6.50%



5.50%684.25



484.25



5.00%



4.00%484.25







4.00%



3.00%     
    Eliminate the requirement that the Company comply with the total
    leverage ratio financial covenant for the nine month period
    commencing October 1, 2009 and ending on June 30, 2010.
    Amend the maximum total leverage ratio that we must comply with
    to the following schedule. The total leverage ratio for any test
    period is calculated as the ratio of consolidated indebtedness
    on the test date to consolidated EBITDA for the trailing twelve
    months, all as defined in the Credit Agreement.  MaximumTest Date

Total Leverage RatioSeptember 30, 2010

8.00 to 1.00December 31, 2010

7.50 to 1.00March 31, 2011

7.00 to 1.00June 30, 2011

6.75 to 1.00September 30, 2011

6.00 to 1.00December 31, 2011

5.50 to 1.00March 31, 2012

5.25 to 1.00June 30, 2012

5.00 to 1.00September 30, 2012

4.75 to 1.00December 31, 2012

4.50 to 1.00March 31, 2013

4.25 to 1.00June 30, 2013

4.00 to 1.00   -
    At December 31, 2009, the Companys total leverage
    ratio was 5.32. 89




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Require maintenance of a minimum level of liquidity, measured as
    the amount of unrestricted cash and cash equivalents on hand and
    availability under the revolving credit facility, of
    (i) $100.0 million for the period between
    October 1, 2009 through December 31, 2010,
    (ii) $75.0 million during calendar year 2011 and
    (iii) $50.0 million thereafter. As of
    December 31, 2009, as calculated pursuant to the Credit
    Agreement, the Companys total liquidity was
    $305.8 million.
    Revise the consolidated fixed charge coverage ratio definition
    and reduce the minimum fixed charge coverage ratio that the
    Company must maintain to the following schedule:  Fixed ChargePeriod

Coverage RatioJuly 1, 2009





December 31, 2011


1.00 to 1.00January 1, 2012





March 31, 2012


1.05 to 1.00April 1, 2012





June 30, 2012


1.10 to 1.00July 1, 2012 and thereafter








1.15 to 1.00   
    The consolidated fixed charge coverage ratio for any test period
    is defined as the sum of consolidated EBITDA for the test period
    plus an amount that may be added for the purpose of calculating
    the ratio for such test period, not to exceed
    $130.0 million in total during the term of the credit
    facility, to consolidated fixed charges for the test period, all
    as defined in the Credit Agreement. As of December 31,
    2009, the Companys fixed charge coverage ratio was 1.0.  
    Require mandatory prepayments of debt outstanding under the
    Credit Agreement with 100% of excess cash flow as defined in the
    Credit Agreement for the fiscal year ending December 31,
    2009 and 50% of excess cash flow thereafter and with proceeds
    from:  
    unsecured debt issuances, with the exception of refinancing,
    through June 30, 2010;
    secured debt issuances;
    sales of assets in excess of $25 million annually; and
    unless the Company has achieved a specified leverage ratio, 50%
    of proceeds from equity issuances, excluding those for permitted
    acquisitions or to meet the minimum liquidity requirements.       90




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      10.5% senior
    secured notes due 2017
  360-day 30-day
        
    incur additional indebtedness or issue certain preferred stock;
    pay dividends or make other distributions;
    make other restricted payments or investments;
    sell assets; 91




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    create liens;
    enter into agreements that restrict dividends and other payments
    by restricted subsidiaries;
    engage in transactions with its affiliates; and
    consolidate, merge or transfer all or substantially all of its
    assets.        Year

Optional Redemption Price2013


105.2500
%2014


102.6250
%2015


101.3125
%2016 and thereafter


100.0000
%     3.375%
    convertible senior notes due 2038
   92




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      470-20, Debt  Debt with Conversion and Other Options
       93




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    debt
      Fair
    value estimate
    December 31, 2009


December 31, 2008Carrying


Fair


Carrying


FairValue


Value


Value


Value(In millions)Term Loan Facility, due July 2013

$
482.9


$
468.4


$
886.5


$
571.810.5% Senior Secured Notes, due October 2017


292.3



315.8



n/a



n/a3.375% Convertible Senior Notes due June 2038


83.1



76.8



134.8



77.27.375% Senior Notes, due April 2018


3.5



3.0



3.5



2.5   11.
    Derivative
    Instruments and Hedging       94




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          December 31, 2009


December 31, 2008Balance Sheet

Fair


Balance Sheet

FairClassification

Value


Classification

ValueDerivatives(a):Interest rate contracts:Other

$



Other

$
21Total Asset Derivatives

$



Total Asset Derivatives

$
21Other Current Liabilities

$
10,312


Other Current Liabilities

$
15,669Other Liabilities





Other Liabilities


7,324Total Liability Derivatives

$
10,312


Total Liability Derivatives

$
22,993     (a)
    
    These interest rate contracts were designated as cash flow
    hedges through July 27, 2009. 95




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     I.


II.

III.


IV.


V.Year Ended December 31,




Year Ended December 31,





Year Ended December 31,Derivatives(a)

2009


2008


2007




2009


2008


2007





2009


2008


2007Interest rate contracts

$
(1,654
)

$
(11,849
)

$
(7,975
)

Interest Expense

$
(16,636
)

$
(7,745
)

$
239



Interest Expense


$
(1,706
)

$



$
Other, Net










658     (a)
    
    These interest rate contracts were designated as cash flow
    hedges through July 27, 2009 at which point they became
    ineffective and are no longer designated as such.    I.
    Amount of Gain (Loss), Net of Taxes Recognized in Other
    Comprehensive Income (Loss) on Derivative (Effective Portion)II.
    Classification of Gain (Loss) Reclassified from Accumulated
    Other Comprehensive Income (Loss) into Income (Loss) (Effective
    Portion)III.
    Amount of Gain (Loss) Reclassified from Accumulated Other
    Comprehensive Income (Loss) into Income (Loss) (Effective
    Portion)IV.
    Classification of Gain (Loss) Recognized in Income (Loss) on
    DerivativeV.
    Amount of Gain (Loss) Recognized in Income (Loss) on
    Derivative    Cumulative unrealized income, net of tax of $407 as of
    December 31, 2006

$
755Reclassification of gains into net income, net of tax of $483


(897
)Other comprehensive losses, net of tax of $4,295


(7,975
)Cumulative unrealized loss, net of tax of $4,371, as of
    December 31, 2007

$
(8,117
)Reclassification of losses into net income, net of tax of $2,711


5,034Other comprehensive losses, net of tax of $6,380


(11,849
)Cumulative unrealized loss, net of tax of $8,040, as of
    December 31, 2008

$
(14,932
)Reclassification of losses into net income, net of tax of $5,823


10,813Other comprehensive losses, net of tax of $891


(1,654
)Cumulative unrealized loss, net of tax of $3,108, as of
    December 31, 2009

$
(5,773
)   12.
    Fair
    Value Measurements  820-10, Fair Value Measurements and Disclosures
  820-10, Fair Value Measurements and Disclosures
 96




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Market approach 
  Income approach 
  Cost approach 
    Total


Quoted Prices in


SignificantFair Value


Active Markets for


Other


SignificantMeasurement


Identical Asset or


Observable


UnobservableDecember 31,


Liability


Inputs


Inputs


Valuation2009


(Level 1)


(Level 2)


(Level 3)


TechniqueDerivative Liabilities

$
10,312


$



$
10,312


$




A     Total


Quoted Prices in


SignificantFair Value


Active Markets for


Other


SignificantMeasurement


Identical Asset or


Observable


UnobservableDecember 31,


Liability


Inputs


Inputs


Valuation


Total2009


(Level 1)


(Level 2)


(Level 3)


Technique


Gain (Loss)Assets Held for Sale

$



$



$



$




A


$
(26,882
)   Hercules 110 Hercules 110
 97




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    Supplemental
    Cash Flow Information    Year EndedDecember 31,2007Fair Value of Assets, net of cash acquired

$
1,974,086Goodwill


940,241Common Stock Issuance


(1,475,763
)Total Liabilities


(710,168
)Cash Consideration, net of cash acquired

$
728,396   Year Ended December 31,2009


2008


2007(In thousands)Cash paid during the period for:Interest, net of capitalized interest

$
62,297


$
55,865


$
36,426Income taxes


26,942



42,854



45,893       14.
    Concentration
    of Credit Risk           98




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    15.
    Sales to
    Major Customers    Year Ended December 31,2009


2008


2007Oil and Natural Gas Corporation Limited


16
%


8
%



%Chevron Corporation


14



12



21Saudi Aramco


13







PEMEX Exploración y Producción (PEMEX)


10



8



3     16.
    Income
    Taxes      Year Ended December 31,2009


2008


2007United States

$
(271,879
)

$
(1,267,606
)

$
111,064Foreign


102,798



112,575



84,020Total

$
(169,081
)

$
(1,155,031
)

$
195,084     Year Ended December 31,2009


2008


2007Current-United
    States

$
(16,335
)

$
11,733


$
23,262Current-foreign


35,144



31,103



11,217Current-state


(9,302
)


1,867



3,284Current income tax provision


9,507



44,703



37,763Deferred-United
    States


(80,458
)


(103,077
)


23,315Deferred-foreign


61



(5,683
)


(159
)Deferred-state


(8,042
)


(9,104
)


(1,847
)Deferred income tax (benefit) provision


(88,439
)


(117,864
)


21,309Total income tax (benefit) provision

$
(78,932
)

$
(73,161
)

$
59,072  99




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2009


2008Deferred tax assets:Net operating loss carryforward (Federal, State &
    Foreign)

$
108,307


$
53,868Credit carryforwards


14,677



31,180Accrued expenses


14,329



15,698Unearned income


3,417



6,370Intangibles


5,440



3,569Stock Based Compensation


7,046



4,523Other


12,622



9,123Deferred tax assets


165,838



124,331Deferred tax liabilities:Fixed assets


(369,639
)


(428,427
)Convertible Notes


(7,018
)


(10,957
)Deferred expenses


(7,602
)


(2,612
)Other


(4,493
)


(4,503
)Deferred tax liabilities


(388,752
)


(446,499
)Net deferred tax liabilities

$
(222,914
)

$
(322,168
)     Year Ended December 31,2009


2008


2007Statutory rate


35.0
%


35.0
%


35.0
%Effect of:Impairment of Goodwill






(29.3
)


State income taxes


8.7



0.7



0.1Taxes on foreign earnings at greater (lesser) than the U.S.
    statutory rate


3.8



(0.4
)


(4.4
)Other


(0.8
)


0.3



(0.4
)Effective rate


46.7
%


6.3
%


30.3
%      100




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Accounting for
    Uncertainty in Income Taxes, Income Taxes
   101




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance as of December 31, 2007

$
Increases related to current year tax positions


5,467Increases related to tax positions taken in earlier periods


8,009Balance as of December 31, 2008

$
13,476Increases related to current year tax positions


141Increases related to tax positions taken in earlier periods


Settlements


(88
)Balance as of December 31, 2009

$
13,529          102




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    17.
    Segments    Hercules 191 Hercules 255
    Domestic Offshore
  International Offshore Hercules 110
  Inland
  Domestic Liftboats
  International Liftboats
  Delta Towing
   103




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31, 2009


Year Ended December 31, 2008Income (Loss)


Depreciation





Income (Loss)


Depreciationfrom


and





from


andRevenue


Operations


Amortization


Revenue


Operations


AmortizationDomestic Offshore(a)

$
140,889


$
(101,855
)

$
60,775


$
382,358


$
(598,856
)

$
66,850International Offshore(b)


393,797



97,995



63,808



327,983



(11,647
)


37,865Inland(c)


19,794



(59,095
)


32,465



162,487



(422,152
)


43,107Domestic Liftboats


75,584



4,540



20,267



94,755



16,578



21,317International Liftboats


88,537



22,427



12,880



85,896



30,872



9,912Delta Towing(d)


24,250



(12,677
)


7,917



58,328



(80,065
)


10,926$
742,851


$
(48,665
)

$
198,112


$
1,111,807


$
(1,065,270
)

$
189,977Corporate






(43,481
)


3,309







(55,643
)


2,917Total Company

$
742,851


$
(92,146
)

$
201,421


$
1,111,807


$
(1,120,913
)

$
192,894     (a)
    
    2008 Income (Loss) from Operations includes $507.2 million
    and $174.6 million in impairment of goodwill and impairment
    of property and equipment charges, respectively.(b)
    
    2009 Income (Loss) from Operations includes an impairment of
    property and equipment charge of $26.9 million as well as
    an allowance for doubtful accounts receivable of approximately
    $26.8 million, related to a customer in West Africa that is
    contracted to utilize one rig in its International Offshore
    segment, a non-cash charge of approximately $7.3 million to
    fully impair the related deferred mobilization and contract
    preparation costs, partially offset by a $2.5 million
    reduction in previously accrued contract related operating costs
    that are not expected to be settled if the receivable is not
    collected. In addition, 2008 Income (Loss) from Operations
    includes an impairment of goodwill charge of $150.9 million.(c)
    
    2008 Income (Loss) from Operations includes $205.5 million
    and $202.1 million in impairment of goodwill and impairment
    of property and equipment charges, respectively.(d)
    
    2008 Income (Loss) from Operations includes an impairment of
    goodwill charge of $86.7 million.  Year Ended December 31, 2007Income


Depreciationfrom


andRevenue


Operations


AmortizationDomestic Offshore

$
241,452


$
78,073


$
35,143International Offshore


144,778



67,809



15,513Inland


107,100



33,667



16,264Domestic Liftboats


137,745



50,684



24,969International Liftboats


63,282



19,896



7,619Delta Towing


31,921



10,262



4,598$
726,278


$
260,391


$
104,106Corporate






(34,749
)


528Total Company

$
726,278


$
225,642


$
104,634   104




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Total AssetsDecember 31,


December 31,2009


2008Domestic Offshore

$
870,723


$
930,988International Offshore


860,252



955,911Inland


160,354



217,477Domestic Liftboats


88,942



148,307International Liftboats


164,221



168,356Delta Towing


62,563



92,371Corporate


70,421



77,485Total Company

$
2,277,476


$
2,590,895   Year Ended December 31,2009


2008(a)


2007Capital Expenditures and Deferred Drydocking Expenditures:Domestic Offshore

$
8,665


$
139,893


$
22,720International Offshore


46,246



390,732



78,455Inland


9,886



39,739



17,145Domestic Liftboats


11,025



12,362



16,950International Liftboats


15,717



8,302



20,183Delta Towing


248



4,125



4,024Corporate






7,200



16,685Total Company

$
91,787


$
602,353


$
176,162     (a)
    
    Includes the purchase of Hercules 350, Hercules 262and Hercules 261as well as related equipment (See
    Note 4).    Year Ended December 31,2009


2008


2007Operating Revenues:United States

$
258,868


$
697,930


$
514,911Saudi Arabia


109,256



371



India


122,016



93,544



52,501Mexico


77,245



90,815



28,364Nigeria


75,016



83,141



60,384Malaysia


47,006



17,367



Other(a)


53,444



128,639



70,118Total

$
742,851


$
1,111,807


$
726,278   105




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  As of December 31,2009


2008Long-Lived Assets:United States

$
1,122,294


$
1,224,564Saudi Arabia


311,365



301,147India


147,497



157,686Mexico


50,728



101,429Nigeria


115,656



79,886Malaysia


58,965



74,840Other(a)


149,557



151,818Total

$
1,956,062


$
2,091,370     (a)
    
    Other represents countries in which we operate that individually
    had operating revenues or long-lived assets representing less
    than 4% of total operating revenues or total long-lived assets.  18.
    Commitments
    and Contingencies  Operating
    Leases
    Years Ended December 31,2010

$
5,5782011


3,1362012


2,3902013


2,1442014


2,091Thereafter


6,490Total

$
21,829     Legal
    Proceedings
  450-20, Contingencies  Loss Contingencies
     106




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit
    Court, Second Judicial District, Jones County, Mississippi.
      Insurance
   107




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Surety
    Bonds and Unsecured Letters of Credit
      Insurance
    Claims
  Hercules 205
 108




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   19.
    Unaudited
    Interim Financial Data    Quarter EndedMarch 31


June 30(a)


September 30


December 31(b)2009Revenues

$
223,491


$
183,691


$
159,262


$
176,407Operating Income (Loss)


9,109



(25,829
)


(32,712
)


(42,714
)Loss from Continuing Operations


(4,511
)


(11,787
)


(46,970
)


(26,881
)Income (Loss) from Discontinued Operation, Net of Taxes


(433
)


(242
)


(1,290
)


380Net Loss

$
(4,944
)

$
(12,029
)

$
(48,260
)

$
(26,501
)Basic Loss Per Share:Loss from Continuing Operations

$
(0.05
)

$
(0.13
)

$
(0.48
)

$
(0.23
)Income (Loss) from Discontinued Operation


(0.01
)


(0.01
)


(0.02
)


Net Loss

$
(0.06
)

$
(0.14
)

$
(0.50
)

$
(0.23
)Diluted Loss Per Share:Loss from Continuing Operations

$
(0.05
)

$
(0.13
)

$
(0.48
)

$
(0.23
)Income (Loss) from Discontinued Operation


(0.01
)


(0.01
)


(0.02
)


Net Loss

$
(0.06
)

$
(0.14
)

$
(0.50
)

$
(0.23
)     (a)
    
    Includes approximately $26.9 million of impairment charges
    related to the write-down of Hercules 110to fair value
    less costs to sell during the second quarter of 2009 (See
    Notes 5 and 12). The sale was completed in August 2009.(b)
    
    Includes an allowance for doubtful accounts receivable of
    approximately $26.8 million as of December 31, 2009,
    related to a customer in West Africa that is contracted to
    utilize one rig in the Companys International Offshore
    segment, a non-cash charge of approximately $7.3 million to
    fully impair the related deferred mobilization and contract
    preparation costs, partially offset by a $2.5 million
    reduction in previously accrued contract related operating costs
    that are not expected to be settled if the receivable is not
    collected (See Notes 1 and 14).  109




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Quarter EndedMarch 31


June 30


September 30


December 31(a)2008Revenues

$
212,494


$
270,106


$
315,738


$
313,469Operating Income (Loss)


21,364



40,852



67,057



(1,250,186
)Income (Loss) from Continuing Operations


4,875



16,388



31,855



(1,134,988
)Loss from Discontinued Operation, Net of Taxes


(389
)


(209
)


(168
)


(754
)Net Income (Loss)

$
4,486


$
16,179


$
31,687


$
(1,135,742
)Basic Earnings (Loss) Per Share:Income (Loss) from Continuing Operations

$
0.05


$
0.18


$
0.36


$
(12.90
)Loss from Discontinued Operation














(0.01
)Net Income (Loss)

$
0.05


$
0.18


$
0.36


$
(12.91
)Diluted Earnings (Loss) Per Share:Income (Loss) from Continuing Operations

$
0.05


$
0.18


$
0.36


$
(12.90
)Loss from Discontinued Operation














(0.01
)Net Income (Loss)

$
0.05


$
0.18


$
0.36


$
(12.91
)     (a)
    
    Includes $950.3 million and $376.7 million in
    impairment of goodwill and impairment of property and equipment
    charges, respectively (See Note 1).  20.
    Related
    Parties    
    The Companys Chairman of the Board and its Senior Vice
    President and Chief Financial Officer are members of the Board
    of Directors for T-3 Energy Services, Inc., an oil field
    equipment and services company.
    The Companys current Chairman of the Board of Directors is
    also a Senior Advisor to Lime Rock Partners, who owns a
    controlling interest in IDM Group, Ltd. (Cyprus) who purchased
    Louisiana Electric Rig Services, Inc., an equipment
    manufacturing and service company, and Southwest Oilfield
    Products, Inc., an oilfield equipment manufacturing company, in
    December 2008 and June 2008, respectively, and who holds an
    investment interest in Allis-Chalmers Energy Inc., an oilfield
    equipment and services company. In addition, the Companys
    former Chairman of the Board of Directors is a Managing Director
    of Lime Rock Partners.
    Another member of the Companys Board of Directors serves
    on the Board of Directors for Peregrine Oil & Gas LP,
    an exploration and production company, and is the Chairman of
    the Board for Carrizo Oil & Gas, Inc., an exploration
    and production company. In addition, another of the
    Companys directors serves on the Board of Directors for
    Carrizo Oil & Gas, Inc. 110




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##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    A member of the Companys Board of Directors is a member of
    the Board of Directors of HCC Insurance Holdings, a specialty
    insurance group.
    The Company holds a three percent investment in each of
    Hall-Houston Exploration II, L.P. and Hall-Houston Exploration
    III, L.P., exploration and production funds.  21.
    Subsequent
    Event   111




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item
    9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15
    Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
      Item 9B.
    Other
    Information   112




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Code of
    Business Conduct and Ethical Practices
  www.herculesoffshore.com www.herculesoffshore.com
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Financial Statements
  Consolidated Financial Statement Schedule on
    page 117 of this Report.
  The Exhibits of the Company listed below in
    Item 15(b)
 113




---



##### Table of Contents



Exhibits
  ExhibitNumber



Description1
.1



Underwriting Agreement, dated September 24, 2009, by and
    between Hercules Offshore, Inc. and Morgan Stanley &
    Co. Incorporated and UBS Securities LLC, as representatives of
    the underwriters named in Schedule A thereto (incorporated
    by reference to Exhibit 1.1 to Hercules Current
    Report on
    Form 8-K
    dated September 30, 2009).2
.1



Plan of Conversion (incorporated by reference to
    Exhibit 2.1 to Hercules Registration Statement on
    Form S-1
    (Registration
    No. 333-126457),
    as amended (the
    S-1
    Registration Statement), originally filed on July 8,
    2005).2
.2



Amended and Restated Agreement and Plan of Merger, dated
    effective as of March 18, 2007, by and among Hercules, THE
    Hercules Offshore Drilling Company LLC and TODCO (incorporated
    by reference to Annex A to the Joint Proxy/Statement
    Prospectus included in Part I of Hercules
    Registration Statement on
    Form S-4
    (Registration
    No. 333-142314),
    as amended (the
    S-4
    Registration Statement), originally filed April 24,
    2007).3
.1



Certificate of Incorporation of Hercules (incorporated by
    reference to Exhibit 3.1 to Hercules Current Report
    on
    Form 8-K
    dated November 1, 2005 (File
    No. 0-51582)
    (the 2005
    Form 8-K)).3
.2



Amended and Restated Bylaws (effective December 31, 2009)
    (incorporated by reference to Exhibit 3.1 to Hercules
    Current Report on
    Form 8-K
    dated December 8, 2009).4
.1



Form of specimen common stock certificate (incorporated by
    reference to Exhibit 4.1 to the
    S-1
    Registration Statement).4
.2



Rights Agreement, dated as of October 31, 2005, between
    Hercules and American Stock Transfer &
    Trust Company, as rights agent (incorporated by reference
    to Exhibit 4.1 to the 2005
    Form 8-K).4
.3



Amendment No. 1 to Rights Agreement, dated as of
    February 1, 2008, between Hercules and American Stock
    Transfer & Trust Company, as rights agent.4
.4



Certificate of Designations of Series A Junior
    Participating Preferred Stock (incorporated by reference to
    Exhibit 4.2 to the 2005
    Form 8-K).4
.5



Credit Agreement dated as of July 11, 2007 among Hercules,
    as borrower, its subsidiaries party thereto, as guarantors, UBS
    AG, Stamford Branch, as issuing bank, administrative agent and
    collateral agent, Amegy Bank National Association and Comerica
    Bank, as co-syndication agents, Deutsche Bank AG Cayman Islands
    Branch and Jefferies Finance LLC, as co-documentation agents,
    and the lenders party thereto (incorporated by reference to
    Exhibit 10.1 to the Current Report on
    Form 8-K
    dated July 11, 2007 (File
    No. 0-51582)).
    Hercules and its subsidiaries are parties to several debt
    instruments that have not been filed with the SEC under which
    the total amount of securities authorized does not exceed 10% of
    the total assets of Hercules and its subsidiaries on a
    consolidated basis. Pursuant to paragraph 4(iii)(A) of
    Item 601(b) of
    Regulation S-K,
    Hercules agrees to furnish a copy of such instruments to the SEC
    upon request.4
.6



Indenture, dated as of June 3, 2008, by and between the
    Company and the Trustee (incorporated by reference to
    Exhibit 4.1 to Hercules Current Report on
    Form 8-K
    dated June 3, 2008
    (File No.-0-51582)).4
.7



Form of Note (included in Exhibit 4.6).4
.8



Amendment No. 2 dated as of July 23, 2009, to the
    Credit Agreement dated July 11, 2007, among Hercules
    Offshore, Inc., as borrower, its subsidiaries party thereto, as
    guarantors, and UBS AG, Stamford Branch, as issuing bank,
    administrative agent and collateral agent, and the lenders party
    thereto (incorporated by reference to Exhibit 4.1 to
    Hercules Quarterly Report on
    Form 10-Q
    dated July 29, 2009).4
.9



Indenture dated as of October 20, 2009, by and among
    Hercules Offshore, Inc., the Guarantors named therein and U.S.
    Bank National Association as Trustee and Collateral Agent
    (incorporated by reference to Exhibit 4.1 to Hercules
    Current Report on
    Form 8-K
    dated October 26, 2009).4
.10



Form of 10.50% Senior Secured Note due 2017 (included in
    Exhibit 4.9).4
.11



Security Agreement dated as of October 20, 2009, by and
    among Hercules Offshore, Inc. and the Guarantors party thereto
    and U.S. Bank National Association as Collateral Agent
    (incorporated by reference to Exhibit 4.3 to Hercules
    Current Report on
    Form 8-K
    dated October 26, 2009).4
.12



Registration Rights Agreement dated as of October 20, 2009,
    by and among Hercules Offshore, Inc., the Guarantors named
    therein and the Initial Purchasers party thereto (incorporated
    by reference to Exhibit 4.4 to Hercules Current
    Report on
    Form 8-K
    dated October 26, 2009). 114




---



##### Table of Contents



ExhibitNumber



Description10
.1



Executive Employment Agreement dated as of December 15,
    2008, between Hercules and John T. Rynd (incorporated by
    reference to Exhibit 10.2 to the 2008
    Form 8-K).10
.2



Executive Employment Agreement dated as of June 20, 2008,
    between Hercules Offshore, Inc. and John T. Rynd (incorporated
    by reference to Exhibit 10.2 to Hercules Current
    Report on
    Form 8-K
    dated June 23, 2008 (File No.-0-51582)).10
.3



Employment Agreement, dated as of December 15, 2008, by and
    between Hercules and Lisa W. Rodriguez (incorporated by
    reference to Exhibit 10.3 to the 2008
    Form 8-K).10
.4



Executive Employment Agreement, dated December 15, 2008,
    between Hercules and James W. Noe (incorporated by reference to
    Exhibit 10.4 to the 2008
    Form 8-K).10
.5



Executive Employment Agreement, dated December 15, 2008,
    between Hercules and Terrell L. Carr (incorporated by reference
    to Exhibit 10.5 to the 2008
    Form 8-K).10
.6



Executive Employment Agreement, dated December 15, 2008,
    between Hercules and Todd Pellegrin (incorporated by reference
    to Exhibit 10.6 to the 2008
    Form 8-K).10
.7



Executive Employment Agreement, dated December 15, 2008,
    between Hercules and Troy L. Carson (incorporated by reference
    to Exhibit 10.7 to the 2008
    Form 8-K).10
.8



Expatriate Employment Agreement, dated November 1, 2006,
    between Hercules and Don P. Rodney (incorporated by reference to
    Exhibit 10.2 to Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).10
.9



Extension Letter between Hercules and Don P. Rodney, dated
    December 31, 2008 (incorporated by reference to
    Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated January 6, 2009 (File
    No. 0-51582)).10
.10



Waiver of Executive Employment Agreement between the Company and
    John T. Rynd, dated April 27, 2009 (incorporated by
    reference to Exhibit 10.1 to Hercules Current Report
    on
    Form 8-K
    dated April 28, 2009).10
.11



Waiver of Executive Employment Agreement between the Company and
    Lisa W. Rodriguez, dated April 27, 2009 (incorporated by
    reference to Exhibit 10.2 to Hercules Current Report
    on
    Form 8-K
    dated April 28, 2009).10
.12



Waiver of Executive Employment Agreement between the Company and
    James W. Noe, dated April 27, 2009 (incorporated by
    reference to Exhibit 10.3 to Hercules Current Report
    on
    Form 8-K
    dated April 28, 2009).10
.13



Waiver of Executive Employment Agreement between the Company and
    Terrell L. Carr, dated April 27, 2009 (incorporated by
    reference to Exhibit 10.4 to Hercules Current Report
    on
    Form 8-K
    dated April 28, 2009).10
.14



Waiver of Executive Employment Agreement between the Company and
    Todd A. Pellegrin, dated April 27, 2009 (incorporated by
    reference to Exhibit 10.5 to Hercules Current Report
    on
    Form 8-K
    dated April 28, 2009).10
.15



Form of Indemnification Agreement (incorporated by reference to
    Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated April 7, 2006 (File
    No. 0-51582)).10
.16



Amended and Restated Hercules Offshore 2004 Long-Term Incentive
    Plan (incorporated by reference to Annex E to the Joint
    Proxy Statement/Prospectus included in Part I of the
    S-4
    Registration Statement).10
.17



First Amendment to Hercules Offshore Inc. Amended and Restated
    2004 Long-Term Incentive Plan (incorporated by reference to
    Exhibit 10.4 to Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2008 (File
    No. 0-51582)).10
.18



Form of Stock Option Award Agreement (incorporated by reference
    to Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated March 3, 2009).10
.19



Form of Stock Option Agreement.10
.20



Form of Restricted Stock Agreement for Employees and Consultants.10
.21



Form of Restricted Stock Agreement for Directors (incorporated
    by reference to Exhibit 10.14 to Hercules Annual
    Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.22



Hercules Offshore, Inc. Amended and Restated Deferred
    Compensation Plan. 115




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##### Table of Contents



ExhibitNumber



Description10
.23



Registration Rights Agreement, dated as of July 8, 2005,
    between Hercules and the holders listed on the signature page
    thereto (incorporated by reference to Exhibit 10.9 to
    Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (File
    No. 0-51582)).10
.24



Increase Joinder, dated as of April 28, 2008, among
    Hercules, as borrower, its subsidiaries party thereto, the
    incremental lenders and other lenders party thereto, and UBS AG
    Stamford Branch, as administrative agent for the lenders party
    thereto (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated April 30, 2008 (File
    No. 0-51582)).10
.25



Purchase Agreement, dated May 28, 2008, by and between the
    Company and Goldman, Sachs & Co., Banc of America
    Securities LLC and UBS Securities LLC, as representatives of the
    Initial Purchasers (incorporated by reference to
    Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated June 3, 2008 (File No.-0-51582)).10
.26



Asset Purchase Agreement, dated April 3, 2006, by and
    between Hercules Liftboat Company, LLC and Laborde Marine Lifts,
    Inc. (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated April 3, 2006 (File
    No. 0-51582)).10
.27



Asset Purchase Agreement, dated as of August 23, 2006, by
    and among Hercules International Holdings, Ltd., Halliburton
    West Africa Ltd. and Halliburton Energy Services Nigeria Limited
    (incorporated by reference to Exhibit 10.1 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 (File
    No. 0-51582)).10
.28



First Amendment to Asset Purchase Agreement, dated as of
    November 1, 2006, by and among Hercules International
    Holdings, Ltd., Hercules Oilfield Services Ltd., Halliburton
    West Africa Ltd. and Halliburton Energy Services Nigeria Limited
    (incorporated by reference to Exhibit 10.2 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 (File
    No. 0-51582)).10
.29



Earnout Agreement, dated November 7, 2006, by and among
    Hercules Oilfield Services, Ltd., Halliburton West Africa Ltd.
    and Halliburton Energy Services Nigeria Limited (incorporated by
    reference to Exhibit 10.3 to Hercules Current Report
    on
    Form 8-K
    dated November 7, 2006 (File
    No. 0-51582)).10
.30



Basic Form of Exchange Agreement between the Company and certain
    holders of our 3.375% Convertible Senior Notes due 2038
    (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated June 18, 2009).10
.31



Purchase Agreement, dated October 8, 2009, by and among
    Hercules Offshore, Inc., the guarantors party thereto, UBS
    Securities LLC, Banc of America Securities LLC, Deutsche Bank
    Securities Inc. and Morgan Stanley & Co. Incorporated,
    as representatives of the initial purchasers named in
    Schedule I thereto (incorporated by reference to
    Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated October 14, 2009).10
.32



Intercreditor Agreement dated as of October 20, 2009, among
    Hercules Offshore, Inc., the subsidiaries party thereto as
    guarantors, UBS AG, Stamford Branch, as Bank Collateral Agent
    and U.S. Bank National Association, as Notes Collateral Agent
    (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated October 26, 2009).*21
.1



Subsidiaries of Hercules.*23
.1



Consent of Ernst & Young LLP.*31
.1



Certification of Chief Executive Officer of Hercules pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*31
.2



Certification of Chief Financial Officer of Hercules pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*32
.1



Certification of the Chief Executive Officer and the Chief
    Financial Officer of Hercules pursuant to Section 901 of
    the Sarbanes-Oxley Act of 2002.     *
    
    Filed herewith.
    
    Compensatory plan, contract or arrangement.  Financial Statement Schedules
  Valuation and Qualifying Accounts and Allowances
 116




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##### Table of Contents



SCHEDULE II
    HERCULES OFFSHORE, INC. AND SUBSIDIARIES
    VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
    FOR THE THREE YEARS ENDED DECEMBER 31, 2009
  AdditionsBalance at


Charged to








Balance atBeginning


Costs and


Collections/





End ofDescription

of Period


Expenses


Adjustments


Deductions


Period(In thousands)Year Ended December 31, 2009:Allowance for uncollectible accounts receivable

$
7,756


$
32,912


$
78


$
(2,224
)

$
38,522Year Ended December 31, 2008:Allowance for uncollectible accounts receivable


634



6,167



965



(10
)


7,756Year Ended December 31, 2007:Allowance for uncollectible accounts receivable










762



(128
)


634    117




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##### Table of Contents



SIGNATURES
      By:
    /s/  JOHN
    T. RYND  John T. Rynd
 Chief Executive Officer and President
     Signatures

Title/s/  JOHN
    T. RYNDJohn
    T. Rynd

Chief Executive Officer, President and Director (Principal
    Executive Officer)/s/  LISA
    W. RODRIGUEZLisa
    W. Rodriguez

Senior Vice President and Chief Financial Officer (Principal
    Financial Officer)/s/  TROY
    L. CARSONTroy
    L. Carson

Vice President and Corporate Controller
    (Principal Accounting Officer)/s/  THOMAS
    R. BATES, JR.Thomas
    R. Bates, Jr.

Chairman of the Board/s/  THOMAS
    N. AMONETTThomas
    N. Amonett

Director/s/  SUZANNE
    V. BAERSuzanne
    V. Baer

Director/s/  THOMAS
    M HAMILTONThomas
    M Hamilton

Director/s/  THOMAS
    J. MADONNAThomas
    J. Madonna

Director/s/  F.
    GARDNER PARKERF.
    Gardner Parker

Director/s/  THIERRY
    PILENKOThierry
    Pilenko

Director/s/  STEVEN
    A. WEBSTERSteven
    A. Webster

Director  118