##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-51582
 
 HERCULES OFFSHORE, INC.
  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)
 
 
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
  Common Stock, par value $0.01 per share
    
    Outstanding as of April 27, 2011
137,436,781




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##### 



HERCULES OFFSHORE, INC.
 INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated
Balance Sheets as of March 31, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
    
    
    5Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2011 and 2010
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    49Item 4. Controls and Procedures
    
    
    49PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    50Item 1A. Risk Factors
    
    
    50Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 6. Exhibits
    
    
    51Signatures
    
    
    52EX-10.1EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 HERCULES OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 March 31,
    
    
    December 31,2011
    
    
    2010(Unaudited)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    162,966
    
    
    $
    136,666Restricted Cash
    
    
    11,129
    
    
    
    11,128Accounts Receivable, Net of Allowance for Doubtful Accounts of $22,228 and
$29,798 as of March 31, 2011 and December 31, 2010, Respectively
    
    
    157,684
    
    
    
    143,796Prepaids
    
    
    8,033
    
    
    
    17,142Current Deferred Tax Asset
    
    
    8,488
    
    
    
    8,488Other
    
    
    8,311
    
    
    
    11,794356,611
    
    
    
    329,014Property and Equipment, Net
    
    
    1,603,521
    
    
    
    1,634,542Equity Investment
    
    
    18,254
    
    
    
    Other Assets, Net
    
    
    38,304
    
    
    
    31,753$
    2,016,690
    
    
    $
    1,995,309LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term Debt and Current Portion of Long-term Debt
    
    $
    4,924
    
    
    $
    4,924Insurance Notes Payable
    
    
    736
    
    
    
    5,984Accounts Payable
    
    
    60,176
    
    
    
    52,279Accrued Liabilities
    
    
    62,071
    
    
    
    59,861Interest Payable
    
    
    24,003
    
    
    
    6,974Taxes Payable
    
    
    9,559
    
    
    
    Other Current Liabilities
    
    
    19,520
    
    
    
    16,716180,989
    
    
    
    146,738Long-term Debt, Net of Current Portion
    
    
    854,255
    
    
    
    853,166Other Liabilities
    
    
    24,117
    
    
    
    6,716Deferred Income Taxes
    
    
    118,294
    
    
    
    135,557Commitments and ContingenciesStockholders Equity:Common Stock, $0.01 Par Value; 200,000 Shares Authorized; 116,738 and 116,336 Shares
Issued, Respectively; 115,106 and 114,784 Shares Outstanding, Respectively
    
    
    1,167
    
    
    
    1,163Capital in Excess of Par Value
    
    
    1,925,115
    
    
    
    1,924,659Treasury Stock, at Cost, 1,632 Shares and 1,552 Shares, Respectively
    
    
    (50,671
    )
    
    
    (50,333
    )Retained Deficit
    
    
    (1,036,576
    )
    
    
    (1,022,357
    )839,035
    
    
    
    853,132$
    2,016,690
    
    
    $
    1,995,309
  3




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##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended March 31,2011
    
    
    2010Revenue
    
    $
    166,246
    
    
    $
    150,849Costs and Expenses:Operating Expenses
    
    
    112,246
    
    
    
    108,636Depreciation and Amortization
    
    
    42,911
    
    
    
    50,254General and Administrative
    
    
    13,149
    
    
    
    12,303168,306
    
    
    
    171,193Operating Loss
    
    
    (2,060
    )
    
    
    (20,344
    )Other Income (Expense):Interest Expense
    
    
    (19,034
    )
    
    
    (21,739
    )Expense of Credit Agreement Fees
    
    
    (455
    )
    
    
    Equity in Losses of Equity Investment
    
    
    (55
    )
    
    
    Other, Net
    
    
    318
    
    
    
    (14
    )Loss Before Income Taxes
    
    
    (21,286
    )
    
    
    (42,097
    )Income Tax Benefit
    
    
    7,067
    
    
    
    26,141Net Loss
    
    $
    (14,219
    )
    
    $
    (15,956
    )Loss Per Share:Basic
    
    $
    (0.12
    )
    
    $
    (0.14
    )Diluted
    
    
    (0.12
    )
    
    
    (0.14
    )Weighted Average Shares Outstanding:Basic
    
    
    114,906
    
    
    
    114,696Diluted
    
    
    114,906
    
    
    
    114,696
  4




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended March 31,2011
    
    
    2010Cash Flows from Operating Activities:Net Loss
    
    $
    (14,219
    )
    
    $
    (15,956
    )Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    42,911
    
    
    
    50,254Stock-Based Compensation Expense
    
    
    1,158
    
    
    
    156Deferred Income Taxes
    
    
    (18,027
    )
    
    
    (22,657
    )Benefit for Doubtful Accounts Receivable
    
    
    (5,021
    )
    
    
    (1,472
    )Amortization of Deferred Financing Fees
    
    
    874
    
    
    
    873Amortization of Original Issue Discount
    
    
    1,089
    
    
    
    1,002Equity in Losses of Equity Investment
    
    
    55
    
    
    
    Non-Cash (Gain) Loss on Derivatives
    
    
    (155
    )
    
    
    3,561Gain on Disposal of Assets
    
    
    (702
    )
    
    
    (3,013
    )Expense of Credit Agreement Fees
    
    
    455
    
    
    
    Excess Tax Benefit from Stock-Based Arrangements
    
    
    (117
    )
    
    
    (374
    )(Increase) Decrease in Operating Assets -Accounts Receivable
    
    
    (8,867
    )
    
    
    (1,062
    )Prepaid Expenses and Other
    
    
    21,673
    
    
    
    10,397Increase (Decrease) in Operating Liabilities -Accounts Payable
    
    
    571
    
    
    
    (4,077
    )Insurance Notes Payable
    
    
    (5,248
    )
    
    
    (4,724
    )Other Current Liabilities
    
    
    21,221
    
    
    
    (7,733
    )Other Liabilities
    
    
    11,461
    
    
    
    (4,843
    )Net Cash Provided by Operating Activities
    
    
    49,112
    
    
    
    332Cash Flows from Investing Activities:Additions of Property and Equipment
    
    
    (10,277
    )
    
    
    (4,546
    )Deferred Drydocking Expenditures
    
    
    (4,124
    )
    
    
    (4,396
    )Cash Paid for Equity Investment
    
    
    (10,000
    )
    
    
    Proceeds from Sale of Assets, Net
    
    
    3,421
    
    
    
    3,616Increase in Restricted Cash
    
    
    (1
    )
    
    
    (3,370
    )Net Cash Used in Investing Activities
    
    
    (20,981
    )
    
    
    (8,696
    )Cash Flows from Financing Activities:Long-term Debt Repayments
    
    
    
    
    
    
    (2,050
    )Excess Tax Benefit from Stock-Based Arrangements
    
    
    117
    
    
    
    374Payment of Debt Issuance Costs
    
    
    (2,109
    )
    
    
    Other
    
    
    161
    
    
    
    9Net Cash Used in Financing Activities
    
    
    (1,831
    )
    
    
    (1,667
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    26,300
    
    
    
    (10,031
    )Cash and Cash Equivalents at Beginning of Period
    
    
    136,666
    
    
    
    140,828Cash and Cash Equivalents at End of Period
    
    $
    162,966
    
    
    $
    130,797
  5




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 Three Months Ended March 31,2011
    
    
    2010Net Loss
    
    $
    (14,219
    )
    
    $
    (15,956
    )Other Comprehensive Income, Net of Taxes:Changes Related to Hedge Transactions
    
    
    
    
    
    
    2,079Comprehensive Loss
    
    $
    (14,219
    )
    
    $
    (13,877
    )
  6




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 1. General
     Investigations
   Investment
  7




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
    Other Agreements
  Hull 110.
 Revenue Recognition
  Three Months Ended March 31,2011
    
    2010Revenue deferred
    
    $
    24,533
    
    
    $
    600Expense deferred
    
    
    1,349
    
    
    
    Deferred Revenue recognized
    
    
    5,232
    
    
    
    4,927Deferred Expense recognized
    
    
    586
    
    
    
    1,001
  8




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  As of
    
    As ofBalance Sheet
    
    March 31,
    
    December 31,Classification
    
    2011
    
    2010Assets:Deferred Expense-Current Portion
    
    Other
    
    $
    2,141
    
    
    $
    1,824Deferred Expense-Non-Current Portion
    
    Other Assets, Net
    
    
    3,618
    
    
    
    3,172Liabilities:Deferred Revenue-Current Portion
    
    Other Current Liabilities
    
    
    15,002
    
    
    
    12,628Deferred Revenue-Non-Current Portion
    
    Other Liabilities
    
    
    16,927
    
    
    
    
 Percentage-of-Completion
  Accounts Receivable and Allowance for Doubtful Accounts
  Other Assets
   Cash and Cash Equivalents
  Restricted Cash
  9




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 2. Earnings Per Share
  3. Equity Investment
  4. Asset Purchase
  5. Dispositions
 Hercules
190 Hercules 254 Hercules 78 Hercules 190 Hercules 254 Hercules 78
 Hercules 152
  6. Debt
  10




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 March 31,
    
    
    December 31,2011
    
    
    2010Term Loan Facility, due July 2013
    
    $
    475,156
    
    
    $
    475,15610.5% Senior Secured Notes, due October 2017
    
    
    293,113
    
    
    
    292,9353.375% Convertible Senior Notes, due June 2038
    
    
    87,399
    
    
    
    86,4887.375% Senior Notes, due April 2018
    
    
    3,511
    
    
    
    3,511Total Debt
    
    
    859,179
    
    
    
    858,090Less Short-term Debt and Current Portion of Long-term Debt
    
    
    4,924
    
    
    
    4,924Total Long-term Debt, Net of Current Portion
    
    $
    854,255
    
    
    $
    853,166
 Senior secured Credit Agreement
     11




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 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 adjusted by an amount not to exceed $110.0 million during the term of the credit
facility to be deducted from capital expenditures, all as defined in the Credit
Agreement. As of March 31, 2011, the Companys fixed charge coverage ratio was 1.76 to
1.00.
 
    
    In addition, the Company is required to make mandatory prepayments of debt outstanding under the Credit Agreement
with 50% of excess cash flow as defined in the Credit Agreement for the fiscal
years ending December 31, 2011 and 2012, and with proceeds from:
 -
    
    unsecured debt issuances, with the exception of refinancing;-
    
    secured debt issuances;-
    
    casualty events not used to repair damaged property;-
    
    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.
 March 2011 Credit Amendment
  -
    
    Allow for the use of cash to purchase assets from Seahawk,
to the extent set forth in the Companys previously disclosed Asset
Purchase Agreement with Seahawk;-
    
    Exempt the pro forma treatment of historical results from the Seahawk assets with
respect to the calculation of the financial covenants in the Credit Agreement;-
    
    Increase the Companys investment basket to $50 million from $25 million; and-
    
    Revise the covenant threshold levels of the Total Leverage Ratio, as defined in the
Credit Agreement, to the following schedule:
 12




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Amended TotalTest Date
    
    Previous Total Leverage Ratio
    
    Leverage RatioMarch 31, 2011
    
    7.00 to 1.00
    
    No ChangeJune 30, 2011
    
    6.75 to 1.00
    
    No ChangeSeptember 30, 2011
    
    6.00 to 1.00
    
    7.50 to 1.00December 31, 2011
    
    5.50 to 1.00
    
    7.75 to 1.00March 31, 2012
    
    5.25 to 1.00
    
    7.50 to 1.00June 30, 2012
    
    5.00 to 1.00
    
    7.25 to 1.00September 30, 2012
    
    4.75 to 1.00
    
    6.75 to 1.00December 31, 2012
    
    4.50 to 1.00
    
    6.25 to 1.00March 31, 2013
    
    4.25 to 1.00
    
    6.00 to 1.00June 30, 2013
    
    4.00 to 1.00
    
    5.75 to 1.00
 -
    
    At March 31, 2011, the Companys total leverage
ratio was 4.69 to 1.00.
   Other Terms and Conditions
    13




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
    10.5% senior secured notes due 2017
     
    
    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 its affiliates; and
    
    consolidate, merge or transfer all or substantially all of its assets.
  14




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 3.375% convertible senior notes due 2038
     Other debt
  7. Derivative Instruments and Hedging
  15




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
       March 31, 2011Balance Sheet
    
    FairClassification
    
    ValueDerivatives:Warrants:Other Assets, Net
    
    $
    5,215
 16




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  Three Months Ended March 31,2011
    
    2010
    
    
    
    
    
    2011
    
    2010
    
    
    
    
    
    2011
    
    2010Derivatives
    
    I.
    
    II.
    
    III.
    
    IV.
    
    V.Interest rate contracts(a)
    
    $
    
    
    
    $
    
    
    
    Interest Expense
    
    $
    
    
    
    $
    (3,198
    )
    
    Interest Expense
    
    $
    
    
    
    $
    (363
    )Warrants
    
    $
    
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    
    
    
    Revenue
    
    $
    31
    
    
    $
    Warrants
    
    $
    
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    
    
    
    Other Income
    
    $
    155
    
    
    $
    
 
 (a)
    
    These interest rate contracts were designated as cash flow hedges through July 27, 2009.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 8. Fair Value Measurements
 Fair Value Measurements and
Disclosures
  Level 1
    
    
    
    Inputs are quoted prices in active markets for identical assets or liabilities.Level 2
    
    
    
    Inputs are quoted prices for similar assets or liabilities in an active
market, quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are
observable and market-corroborated inputs which are derived principally from
or corroborated by observable market data.Level 3
    
    
    
    Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable.
 Improving Disclosures about Fair Value Measurements
  17




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 March 31,2011Strike Price (USD)
    
    $
    2.00Target Price (USD)
    
    $
    4.12Stock Value (USD)
    
    $
    2.30Expected Volatility (%)
    
    
    50.0
    %Risk-free Interest Rate (%)
    
    
    2.13
    %Expected Life of Warrants (years)
    
    
    5.0Number of Warrants
    
    
    5,000,000
   Quoted Prices inTotal
    
    Active Markets forFair Value
    
    Identical Asset or
    
    Significant Other
    
    SignificantMeasurement
    
    Liability
    
    Observable Inputs
    
    Unobservable InputsMarch 31, 2011
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Warrants
    
    $
    5,215
    
    
    $
    
    
    
    $
    5,215
    
    
    $
    
   Total
    
    Quoted Prices in
    
    SignificantFair Value
    
    Active Markets for
    
    Other
    
    SignificantMeasurement
    
    Identical Asset or
    
    Observable
    
    UnobservableDecember 31,
    
    Liability
    
    Inputs
    
    Inputs
    
    Total2010
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Gain (Loss)Property and Equipment, Net
    
    $
    27,848
    
    
    $
    
    
    
    $
    
    
    
    $
    27,848
    
    
    $
    (125,136
    )
   18




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Fair Value of Financial Instruments
   March 31, 2011
    
    December 31, 2010Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(in millions)Term Loan Facility, due July 2013
    
    $
    475.2
    
    
    $
    469.1
    
    
    $
    475.2
    
    
    $
    443.710.5% Senior Secured Notes, due October 2017
    
    
    293.1
    
    
    
    307.7
    
    
    
    292.9
    
    
    
    245.13.375% Convertible Senior Notes, due June 2038
    
    
    87.4
    
    
    
    90.9
    
    
    
    86.5
    
    
    
    69.17.375% Senior Notes, due April 2018
    
    
    3.5
    
    
    
    3.0
    
    
    
    3.5
    
    
    
    2.2
 9. Long-Term Incentive Awards
 Stock-based Compensation
     Liability Retention Awards
   19




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
    March 31,2011Dividend Yield
    
    
    Expected Price Volatility
    
    
    50
    %Risk-Free Interest Rate
    
    
    1.3
    %Stock Price
    
    $
    6.61Fair Value
    
    $
    3.32
  10. Supplemental Cash Flow Information
  Three Months Ended March 31,2011
    
    2010(In thousands)Cash paid (received), net during the period for:Interest
    
    $
    41
    
    
    $
    60Income taxes
    
    
    (4,199
    )
    
    
    11,321
 11. Income Tax
  20




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
     12. Segments
   Domestic Offshore
 International Offshore
 Inland
 Domestic Liftboats
 International Liftboats
 21




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##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Delta Towing
   Three Months Ended March 31, 2011Income (Loss)
    
    
    Depreciation &Revenue
    
    
    from Operations
    
    
    AmortizationDomestic Offshore
    
    $
    33,799
    
    
    $
    (25,130
    )
    
    $
    15,082International Offshore
    
    
    77,119
    
    
    
    32,674
    
    
    
    13,300Inland
    
    
    5,502
    
    
    
    (6,379
    )
    
    
    4,621Domestic Liftboats
    
    
    10,631
    
    
    
    (3,369
    )
    
    
    3,641International Liftboats
    
    
    32,327
    
    
    
    11,601
    
    
    
    4,498Delta Towing
    
    
    6,868
    
    
    
    (438
    )
    
    
    1,118166,246
    
    
    
    8,959
    
    
    
    42,260Corporate
    
    
    
    
    
    
    (11,019
    )
    
    
    651Total Company
    
    $
    166,246
    
    
    $
    (2,060
    )
    
    $
    42,911
 Three Months Ended March 31, 2010Income (Loss)
    
    
    Depreciation &Revenue
    
    
    from Operations
    
    
    AmortizationDomestic Offshore
    
    $
    28,962
    
    
    $
    (30,126
    )
    
    $
    16,539International Offshore
    
    
    73,442
    
    
    
    22,486
    
    
    
    14,931Inland
    
    
    4,751
    
    
    
    (5,307
    )
    
    
    7,506Domestic Liftboats
    
    
    11,443
    
    
    
    (2,566
    )
    
    
    4,200International Liftboats
    
    
    25,962
    
    
    
    5,303
    
    
    
    4,691Delta Towing
    
    
    6,289
    
    
    
    (941
    )
    
    
    1,590150,849
    
    
    
    (11,151
    )
    
    
    49,457Corporate
    
    
    
    
    
    
    (9,193
    )
    
    
    797Total Company
    
    $
    150,849
    
    
    $
    (20,344
    )
    
    $
    50,254
 Total AssetsMarch 31,
    
    
    December 31,2011
    
    
    2010Domestic Offshore
    
    $
    785,683
    
    
    $
    772,950International Offshore
    
    
    743,054
    
    
    
    712,988Inland
    
    
    127,933
    
    
    
    136,229Domestic Liftboats
    
    
    80,823
    
    
    
    86,013International Liftboats
    
    
    168,079
    
    
    
    167,561Delta Towing
    
    
    53,312
    
    
    
    56,631Corporate
    
    
    57,806
    
    
    
    62,937Total Company
    
    $
    2,016,690
    
    
    $
    1,995,309
 22




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##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 13. Commitments and Contingencies
 Legal Proceedings
 Contingencies  Loss Contingencies
   Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit Court, Second Judicial District,
Jones County, Mississippi.
   Insurance
  23




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
        Surety Bonds, Bank Guarantees and Unsecured Letters of Credit
  24




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  Sales Tax Audits
  14. Accounting Pronouncements
 Disclosure of Supplementary Pro Forma
Information for Business Combinations (
  15. Subsequent Events
 Investigations
   Shareholder Derivative Suit
  Asset Purchase
  25




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Insurance Renewal
      26




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
 Recent
Developments
 Investment
    27




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##### Table of Contents



Domestic
Offshore
 International Offshore
 Inland
 Domestic Liftboats
 International Liftboats
 Delta Towing
 Hercules 190 Hercules 254 Hercules
78 Hercules 190 Hercules 254 Hercules 78
 Hercules 152
  Hull 110
  28




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RECENT DEVELOPMENTS
 Investigations
  29




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##### Table of Contents



Asset Purchase
  Insurance Renewal
     30




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31




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RESULTS OF OPERATIONS
  Three Months EndedMarch 312011
    
    
    2010(Dollars in thousands)Domestic Offshore:Number of rigs (as of end of period)
    
    
    25
    
    
    
    25Revenue
    
    $
    33,799
    
    
    $
    28,962Operating expenses
    
    
    41,002
    
    
    
    39,152Depreciation and amortization expense
    
    
    15,082
    
    
    
    16,539General and administrative expenses
    
    
    2,845
    
    
    
    3,397Operating loss
    
    $
    (25,130
    )
    
    $
    (30,126
    )International Offshore:Number of rigs (as of end of period)
    
    
    9
    
    
    
    9Revenue
    
    $
    77,119
    
    
    $
    73,442Operating expenses
    
    
    33,828
    
    
    
    34,719Depreciation and amortization expense
    
    
    13,300
    
    
    
    14,931General and administrative expenses
    
    
    (2,683
    )
    
    
    1,306Operating income
    
    $
    32,674
    
    
    $
    22,486Inland:Number of barges (as of end of period)
    
    
    17
    
    
    
    17Revenue
    
    $
    5,502
    
    
    $
    4,751Operating expenses
    
    
    7,030
    
    
    
    5,717Depreciation and amortization expense
    
    
    4,621
    
    
    
    7,506General and administrative expenses
    
    
    230
    
    
    
    (3,165
    )Operating loss
    
    $
    (6,379
    )
    
    $
    (5,307
    )Domestic Liftboats:Number of liftboats (as of end of period)
    
    
    41
    
    
    
    41Revenue
    
    $
    10,631
    
    
    $
    11,443Operating expenses
    
    
    9,864
    
    
    
    9,314Depreciation and amortization expense
    
    
    3,641
    
    
    
    4,200General and administrative expenses
    
    
    495
    
    
    
    495Operating loss
    
    $
    (3,369
    )
    
    $
    (2,566
    )International Liftboats:Number of liftboats (as of end of period)
    
    
    24
    
    
    
    24Revenue
    
    $
    32,327
    
    
    $
    25,962Operating expenses
    
    
    14,657
    
    
    
    14,462Depreciation and amortization expense
    
    
    4,498
    
    
    
    4,691General and administrative expenses
    
    
    1,571
    
    
    
    1,506Operating income
    
    $
    11,601
    
    
    $
    5,303
 32




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Three Months EndedMarch 31,2011
    
    
    2010(Dollars in thousands)Delta Towing:Revenue
    
    $
    6,868
    
    
    $
    6,289Operating expenses
    
    
    5,865
    
    
    
    5,272Depreciation and amortization expense
    
    
    1,118
    
    
    
    1,590General and administrative expenses
    
    
    323
    
    
    
    368Operating loss
    
    $
    (438
    )
    
    $
    (941
    )Total Company:Revenue
    
    $
    166,246
    
    
    $
    150,849Operating expenses
    
    
    112,246
    
    
    
    108,636Depreciation and amortization
    
    
    42,911
    
    
    
    50,254General and administrative
    
    
    13,149
    
    
    
    12,303Operating loss
    
    
    (2,060
    )
    
    
    (20,344
    )Interest expense
    
    
    (19,034
    )
    
    
    (21,739
    )Expense of credit agreement fees
    
    
    (455
    )
    
    
    Equity in
losses of equity investment
    
    
    (55
    )
    
    
    Other, net
    
    
    318
    
    
    
    (14
    )Loss before income taxes
    
    
    (21,286
    )
    
    
    (42,097
    )Income tax benefit
    
    
    7,067
    
    
    
    26,141Net loss
    
    $
    (14,219
    )
    
    $
    (15,956
    )
  Three Months Ended March 31, 2011AverageAverage
    
    OperatingOperating
    
    Available
    
    
    
    
    
    Revenue
    
    ExpenseDays
    
    Days
    
    Utilization (1)
    
    per Day (2)
    
    per Day (3)Domestic Offshore
    
    
    788
    
    
    
    990
    
    
    
    79.6
    %
    
    $
    42,892
    
    
    $
    41,416International Offshore
    
    
    582
    
    
    
    720
    
    
    
    80.8
    %
    
    
    132,507
    
    
    
    46,983Inland
    
    
    205
    
    
    
    270
    
    
    
    75.9
    %
    
    
    26,839
    
    
    
    26,037Domestic Liftboats
    
    
    1,330
    
    
    
    3,420
    
    
    
    38.9
    %
    
    
    7,993
    
    
    
    2,884International Liftboats
    
    
    1,395
    
    
    
    2,070
    
    
    
    67.4
    %
    
    
    23,173
    
    
    
    7,081
 Three Months Ended March 31, 2010AverageAverage
    
    OperatingOperating
    
    Available
    
    
    
    
    
    Revenue
    
    ExpenseDays
    
    Days
    
    Utilization (1)
    
    per Day (2)
    
    per Day (3)Domestic Offshore
    
    
    823
    
    
    
    990
    
    
    
    83.1
    %
    
    $
    35,191
    
    
    $
    39,547International Offshore
    
    
    527
    
    
    
    869
    
    
    
    60.6
    %
    
    
    139,359
    
    
    
    39,953Inland
    
    
    240
    
    
    
    270
    
    
    
    88.9
    %
    
    
    19,796
    
    
    
    21,174Domestic Liftboats
    
    
    1,727
    
    
    
    3,420
    
    
    
    50.5
    %
    
    
    6,626
    
    
    
    2,723International Liftboats
    
    
    1,174
    
    
    
    2,160
    
    
    
    54.4
    %
    
    
    22,114
    
    
    
    6,695
 
 (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, 33




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##### Table of Contents



are not counted as available days. Days during which our liftboats are in the
shipyard undergoing drydocking or inspection are considered available days for the purposes of
calculating utilization.(2)
    
    Average revenue per rig or liftboat per day is defined as revenue earned by our rigs or
liftboats, as applicable, in the period divided by the total number of operating days for our
rigs or liftboats, as applicable, in the period.(3)
    
    Average operating expense per rig or liftboat per day is defined as operating expenses,
excluding depreciation and amortization, incurred by our rigs or liftboats, as applicable, in
the period divided by the total number of available days in the period. We use available days
to calculate average operating expense per rig or liftboat per day rather than operating days,
which are used to calculate average revenue per rig or liftboat per day, because we incur
operating expenses on our rigs and liftboats even when they are not under contract and earning
a dayrate. In addition, the operating expenses we incur on our rigs and liftboats per day when
they are not under contract are typically lower than the per day expenses we incur when they
are under contract. For the Three Months Ended March 31, 2011 and 2010
 Revenue
 Consolidated.
 Domestic Offshore .
 International Offshore . Hercules 185
 Inland.
 Domestic Liftboats.
 International Liftboats.
 Delta Towing.
 34




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Operating Expenses
 Consolidated .
 Domestic Offshore .
 International Offshore. Hercules 205 Hercules 156 Hercules 185 Hercules
170
 Inland.
 Domestic Liftboats.
 International Liftboats.
 Delta Towing.
 Depreciation and Amortization
  General and Administrative Expenses
  35




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Interest Expense
  Expense of Credit Agreement Fees
  Income Tax Benefit
  Non-GAAP Financial Measures
 General Rules Regarding Disclosure of Non-GAAP Financial Measures
 36




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##### Table of Contents



For the Three MonthsEnded March 31,2011
    
    
    2010Net Loss
    
    $
    (14,219
    )
    
    $
    (15,956
    )Interest expense
    
    
    19,034
    
    
    
    21,739Income tax benefit
    
    
    (7,067
    )
    
    
    (26,141
    )Depreciation and amortization
    
    
    42,911
    
    
    
    50,254EBITDA
    
    
    40,659
    
    
    
    29,896
 CRITICAL ACCOUNTING POLICIES
    OUTLOOK
 Offshore
   37




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Liftboats
   38




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Sources and Uses of Cash
  Net Cash Provided by Operating Activities
    
    $
    49.1Net Cash Provided by (Used in) Investing Activities:Additions of Property and Equipment
    
    
    (10.3
    )Deferred Drydocking Expenditures
    
    
    (4.1
    )Cash Paid for Equity Investment
    
    
    (10.0
    )Proceeds from Sale of Assets, Net
    
    
    3.4Total
    
    
    (21.0
    )Net Cash Provided by (Used in) Financing Activities:Payment of Debt Issuance Costs
    
    
    (2.1
    )Excess Tax Benefits from Stock-Based Arrangements
    
    
    0.1Other
    
    
    0.2Total
    
    
    (1.8
    )Net Increase in Cash and Cash Equivalents
    
    $
    26.3
 Asset Purchase
  Equity Investment and Derivative Asset
  Percentage-of-Completion
  39




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Sources of Liquidity and Financing Arrangements
   Cash Requirements and Contractual Obligations
 Debt
   40




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##### Table of Contents



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 adjusted by an amount not to exceed $110.0 million during the term of the
credit facility to be deducted from capital expenditures, all as defined in the Credit
Agreement. As of March 31, 2011, our fixed charge coverage ratio
was 1.76 to 1.00.
 
    
    In addition, we are required to make mandatory prepayments of debt outstanding under the Credit Agreement with
50% of excess cash flow as defined in the Credit Agreement for the fiscal
years ending December 31, 2011 and 2012, and with proceeds from:
 -
    
    unsecured debt issuances, with the exception of refinancing;-
    
    secured debt issuances;-
    
    casualty events not used to repair damaged property;-
    
    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.
 March 2011 Credit Amendment
  -
    
    Allow for the use of cash to purchase assets from Seahawk,
to the extent set forth in our previously disclosed Asset Purchase
Agreement with Seahawk;
 41




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##### Table of Contents



-
    
    Exempt the pro forma treatment of historical results from the Seahawk assets with
respect to the calculation of the financial covenants in the Credit Agreement;-
    
    Increase our investment basket to $50 million from $25 million; and-
    
    Revise the covenant threshold levels of the Total Leverage Ratio, as defined in the
Credit Agreement, to the following schedule:
 Amended TotalTest Date
    
    Previous Total Leverage Ratio
    
    Leverage RatioMarch 31, 2011
    
    7.00 to 1.00
    
    No ChangeJune 30, 2011
    
    6.75 to 1.00
    
    No ChangeSeptember 30, 2011
    
    6.00 to 1.00
    
    7.50 to 1.00December 31, 2011
    
    5.50 to 1.00
    
    7.75 to 1.00March 31, 2012
    
    5.25 to 1.00
    
    7.50 to 1.00June 30, 2012
    
    5.00 to 1.00
    
    7.25 to 1.00September 30, 2012
    
    4.75 to 1.00
    
    6.75 to 1.00December 31, 2012
    
    4.50 to 1.00
    
    6.25 to 1.00March 31, 2013
    
    4.25 to 1.00
    
    6.00 to 1.00June 30, 2013
    
    4.00 to 1.00
    
    5.75 to 1.00
 -
    
    At March 31, 2011, our total leverage ratio was 4.69 to 1.00.
    42




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##### Table of Contents




    
    incur additional indebtedness or issue certain preferred stock;
    
    pay dividends or make other distributions;
    
    make other restricted payments or investments;
 43




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##### Table of Contents




    
    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.
      44




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March 31, 2011
    
    Decenber 31, 2010Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(in millions)Term Loan Facility, due July 2013
    
    $
    475.2
    
    
    $
    469.1
    
    
    $
    475.2
    
    
    $
    443.710.5% Senior Secured Notes, due October 2017
    
    
    293.1
    
    
    
    307.7
    
    
    
    292.9
    
    
    
    245.13.375% Convertible Senior Notes, due June 2038
    
    
    87.4
    
    
    
    90.9
    
    
    
    86.5
    
    
    
    69.17.375% Senior Notes, due April 2018
    
    
    3.5
    
    
    
    3.0
    
    
    
    3.5
    
    
    
    2.2
      45




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Recent Developments
 Capital Expenditures
      Off-Balance Sheet Arrangements
 Guarantees
  Bank Guarantees, Letters of Credit, and Surety Bonds
  46




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##### Table of Contents



Contractual Obligations
   Accounting Pronouncements
  FORWARD-LOOKING STATEMENTS
  
    
    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, at current dayrates when such contracts expire;
    
    demand for our rigs and our liftboats;
    
    activity levels of our customers and their expectations of future energy prices and
ability to obtain drilling permits;
    
    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;
    
    future capital expenditures and refurbishment, reactivation, transportation, repair and
upgrade costs;
 47




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##### Table of Contents




    
    our ability to effectively reactivate rigs that we have stacked;
    
    liabilities and restrictions under coastwise and other laws of the United States and
regulations protecting the environment;
    
    expected outcomes of litigation, investigations, 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, our earnings, operating revenue, operating and
maintenance expense, insurance coverage, insurance expense and deductibles, interest
expense, debt levels and other matters with regard to outlook.
 :
 
    
    the ability of our customers in the U.S. Gulf of Mexico to obtain drilling permits;
    
    oil and natural gas prices and industry expectations about future prices;
    
    levels of oil and gas exploration and production spending;
    
    demand for and supply of 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, North Africa, West Africa and other oil and natural gas producing regions or
acts of terrorism or piracy;
    
    the impact of governmental laws and regulations, including new laws and regulations in
the U.S. Gulf of Mexico arising out of the Macondo well blowout incident;
    
    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, investigations and contingencies; and
    
    our inability to achieve our plans or carry out our strategy.
 48




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Exposure
     March 31, 2011
    
    December 31, 2010Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(in millions)Term Loan Facility, due July 2013
    
    $
    475.2
    
    
    $
    469.1
    
    
    $
    475.2
    
    
    $
    443.710.5% Senior Secured Notes, due October 2017
    
    
    293.1
    
    
    
    307.7
    
    
    
    292.9
    
    
    
    245.13.375% Convertible Senior Notes, due June 2038
    
    
    87.4
    
    
    
    90.9
    
    
    
    86.5
    
    
    
    69.17.375% Senior Notes, due April 2018
    
    
    3.5
    
    
    
    3.0
    
    
    
    3.5
    
    
    
    2.2
 Fair Value of Warrants and Derivative Asset
  Increase/(Decrease)(In thousands)25% increase in stock price
    
    $
    2,38550% increase in stock price
    
    
    4,96010% increase in assumed volatility
    
    
    86025% decrease in stock price
    
    
    (2,130
    )50% decrease in stock price
    
    
    (3,860
    )10% decrease in assumed volatility
    
    
    (970
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  49




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Shareholder Derivative Suit
  
 ITEM 1A. RISK FACTORS
  Any violation of the Foreign Corrupt Practices Act or similar laws and regulations could result in
significant expenses, divert management attention, and otherwise have a negative impact on us.
  Our
international operations may subject us to political and regulatory
risks and uncertainties.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    Maximum NumberShares Purchased
    
    of Shares ThatTotal Number
    
    
    
    
    
    as Part of a
    
    May Yet Beof Shares
    
    Average Price
    
    Publicly
    
    Purchased UnderPeriod
    
    Purchased (1)
    
    Paid per Share
    
    Announced Plan (2)
    
    Plan (2)January 1-31, 2011
    
    
    
    
    
    $
    
    
    
    
    N/A
    
    
    
    N/AFebruary 1-28, 2011
    
    
    79,368
    
    
    
    4.24
    
    
    
    N/A
    
    
    
    N/AMarch 1-31, 2011
    
    
    212
    
    
    
    5.79
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    79,580
    
    
    
    4.25
    
    
    
    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 the quarter, and currently do not have, a share
repurchase program in place. 50




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##### Table of Contents



ITEM 6. EXHIBITS
 10.1*
    
    Form of Restricted Stock Agreement (Performance Grant).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 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 51




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##### Table of Contents



SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 HERCULES OFFSHORE, INC.By:
    /s/ John T. RyndJohn T. RyndChief Executive Officer and President
(Principal Executive Officer)By:
    /s/ Stephen M. ButzStephen M. ButzSenior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)By:
    /s/ Troy L. CarsonTroy L. CarsonChief Accounting Officer
(Principal Accounting Officer)  52