##### 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 September 30, 2009
 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.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    56-2542838(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)9 Greenway Plaza, Suite 2200Houston, Texas
    
    77046(Address of principal executive offices)
    
    (Zip Code)
 (713) 350-5100
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    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 October 26, 2009114,649,249




---



##### 



HERCULES OFFSHORE, INC.
 INDEX
  Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets as of September 30, 2009 and December 31,
2008
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2009,
and September 30, 2008
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and
September 30, 2008
    
    
    5Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended
September 30, 2009, and September 30, 2008
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    44PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 6. Exhibits
    
    
    48Signatures
    
    
    49EX-31.1EX-31.2EX-32.1
 2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 HERCULES OFFSHORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)
    
    
    (As Adjusted)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    219,898
    
    
    $
    106,455Restricted Cash
    
    
    3,657
    
    
    
    Accounts Receivable, Net of Allowance for Doubtful Accounts of $10,701
and $7,756 as of September 30, 2009 and December 31, 2008, respectively
    
    
    192,967
    
    
    
    293,089Prepaids
    
    
    26,234
    
    
    
    23,033Current Deferred Tax Asset
    
    
    18,766
    
    
    
    17,379Assets Held for Sale
    
    
    
    
    
    
    39,623Other
    
    
    17,405
    
    
    
    19,946478,927
    
    
    
    499,525Property and Equipment, Net
    
    
    1,975,534
    
    
    
    2,049,030Other Assets, Net
    
    
    42,658
    
    
    
    42,340$
    2,497,119
    
    
    $
    2,590,895LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term Debt and Current Portion of Long-term Debt
    
    $
    9,000
    
    
    $
    11,455Insurance Note Payable
    
    
    14,838
    
    
    
    11,126Accounts Payable
    
    
    68,472
    
    
    
    99,823Accrued Liabilities
    
    
    78,968
    
    
    
    83,424Interest Payable
    
    
    13,923
    
    
    
    506Taxes Payable
    
    
    32,616
    
    
    
    32,440Other Current Liabilities
    
    
    37,410
    
    
    
    35,966255,227
    
    
    
    274,740Long-term Debt, Net of Current Portion
    
    
    942,727
    
    
    
    1,015,764Other Liabilities
    
    
    27,435
    
    
    
    35,529Deferred Income Taxes
    
    
    278,080
    
    
    
    339,547Commitments and ContingenciesStockholders Equity:Common Stock, $0.01 Par Value; 200,000 Shares Authorized; 114,837 and 89,459 Shares
Issued, Respectively; 113,334 and 87,976 Shares Outstanding, Respectively
    
    
    1,148
    
    
    
    895Capital in Excess of Par Value
    
    
    1,912,175
    
    
    
    1,785,462Treasury Stock, at Cost, 1,503 Shares and 1,483 Shares, Respectively
    
    
    (50,146
    )
    
    
    (50,081
    )Accumulated Other Comprehensive Loss
    
    
    (8,265
    )
    
    
    (14,932
    )Retained Deficit
    
    
    (861,262
    )
    
    
    (796,029
    )993,650
    
    
    
    925,315$
    2,497,119
    
    
    $
    2,590,895
  3




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(As Adjusted)
    
    
    
    
    
    
    (As Adjusted)Revenues
    
    $
    159,262
    
    
    $
    315,738
    
    
    $
    566,444
    
    
    $
    798,338Costs and Expenses:OperatingExpenses
    
    
    123,358
    
    
    
    180,978
    
    
    
    388,699
    
    
    
    470,138ImpairmentofPropertyandEquipment
    
    
    
    
    
    
    
    
    
    
    26,882
    
    
    
    DepreciationandAmortization
    
    
    51,802
    
    
    
    50,256
    
    
    
    151,739
    
    
    
    141,150GeneralandAdministrative
    
    
    16,814
    
    
    
    17,447
    
    
    
    48,556
    
    
    
    57,777191,974
    
    
    
    248,681
    
    
    
    615,876
    
    
    
    669,065Operating Income (Loss)
    
    
    (32,712
    )
    
    
    67,057
    
    
    
    (49,432
    )
    
    
    129,273Other Income (Expense):InterestExpense
    
    
    (24,131
    )
    
    
    (16,807
    )
    
    
    (54,481
    )
    
    
    (47,985
    )ExpenseofCreditAgreementFees
    
    
    (15,073
    )
    
    
    
    
    
    
    (15,073
    )
    
    
    GainonEarlyRetirementofDebt,Net
    
    
    
    
    
    
    
    
    
    
    13,747
    
    
    
    Other,Net
    
    
    70
    
    
    
    543
    
    
    
    2,760
    
    
    
    2,818Income (Loss) Before Income Taxes
    
    
    (71,846
    )
    
    
    50,793
    
    
    
    (102,479
    )
    
    
    84,106Income Tax Benefit (Provision)
    
    
    24,876
    
    
    
    (18,938
    )
    
    
    39,211
    
    
    
    (30,988
    )Income (Loss) from Continuing Operations
    
    
    (46,970
    )
    
    
    31,855
    
    
    
    (63,268
    )
    
    
    53,118Loss from Discontinued Operation, Net of Taxes
    
    
    (1,290
    )
    
    
    (168
    )
    
    
    (1,965
    )
    
    
    (766
    )Net Income (Loss)
    
    $
    (48,260
    )
    
    $
    31,687
    
    
    $
    (65,233
    )
    
    $
    52,352Basic Earnings (Loss) Per Share:Income(Loss)fromContinuingOperations
    
    $
    (0.48
    )
    
    $
    0.36
    
    
    $
    (0.69
    )
    
    $
    0.60LossfromDiscontinuedOperation
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.01
    )NetIncome(Loss)
    
    $
    (0.50
    )
    
    $
    0.36
    
    
    $
    (0.71
    )
    
    $
    0.59Diluted Earnings (Loss) Per Share:Income(Loss)fromContinuingOperations
    
    $
    (0.48
    )
    
    $
    0.36
    
    
    $
    (0.69
    )
    
    $
    0.60LossfromDiscontinuedOperation
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.01
    )Net Income (Loss)
    
    $
    (0.50
    )
    
    $
    0.36
    
    
    $
    (0.71
    )
    
    $
    0.59Weighted Average Shares Outstanding:Basic
    
    
    97,159
    
    
    
    87,950
    
    
    
    91,298
    
    
    
    88,478Diluted
    
    
    97,159
    
    
    
    88,508
    
    
    
    91,298
    
    
    
    89,180
  4




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended September 30,2009
    
    
    2008(As Adjusted)Cash Flows from Operating Activities:Net Income (Loss)
    
    
    
    
    
    $
    (65,233
    )
    
    $
    52,352Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:DepreciationandAmortization
    
    
    
    
    
    
    151,739
    
    
    
    141,168Stock-BasedCompensationExpense
    
    
    
    
    
    
    6,208
    
    
    
    10,382DeferredIncomeTaxes
    
    
    
    
    
    
    (64,535
    )
    
    
    11,239ProvisionforDoubtfulAccountsReceivable
    
    
    
    
    
    
    4,468
    
    
    
    364AmortizationofDeferredFinancingFees
    
    
    
    
    
    
    2,851
    
    
    
    2,882AmortizationofOriginalIssueDiscount
    
    
    
    
    
    
    3,196
    
    
    
    2,598Non-CashLossonDerivatives
    
    
    
    
    
    
    5,554
    
    
    
    GainonInsuranceSettlement
    
    
    
    
    
    
    (8,700
    )
    
    
    GainonDisposalofAssets
    
    
    
    
    
    
    (58
    )
    
    
    (3,649
    )ExpenseofCreditAgreementFees
    
    
    
    
    
    
    15,073
    
    
    
    GainonEarlyRetirementofDebt,Net
    
    
    
    
    
    
    (13,747
    )
    
    
    ImpairmentofPropertyandEquipment
    
    
    
    
    
    
    26,882
    
    
    
    ExcessTaxBenefitfromStock-BasedArrangements
    
    
    
    
    
    
    (4,458
    )
    
    
    (5,469
    )(Increase)DecreaseinOperatingAssets-AccountsReceivable
    
    
    
    
    
    
    95,654
    
    
    
    (119,893
    )InsuranceClaimsReceivable
    
    
    
    
    
    
    (553
    )
    
    
    (369
    )PrepaidExpensesandOther
    
    
    
    
    
    
    21,647
    
    
    
    30,221Increase(Decrease)inOperatingLiabilities-AccountsPayable
    
    
    
    
    
    
    (32,815
    )
    
    
    6,124InsuranceNotePayable
    
    
    
    
    
    
    (19,612
    )
    
    
    (30,528
    )OtherCurrentLiabilities
    
    
    
    
    
    
    4,192
    
    
    
    21,246TaxSharingAgreementSettlement
    
    
    
    
    
    
    
    
    
    
    (4,000
    )OtherLiabilities
    
    
    
    
    
    
    (6,763
    )
    
    
    17,924NetCashProvidedbyOperatingActivities
    
    
    
    
    
    
    120,990
    
    
    
    132,592Cash Flows from Investing Activities:Acquisition of Assets
    
    
    
    
    
    
    
    
    
    
    (320,839
    )Additions of Property and Equipment
    
    
    
    
    
    
    (71,395
    )
    
    
    (184,843
    )Deferred Drydocking Expenditures
    
    
    
    
    
    
    (13,719
    )
    
    
    (13,547
    )Proceeds from Sale of Marketable Securities
    
    
    
    
    
    
    
    
    
    
    39,300Insurance Proceeds Received
    
    
    
    
    
    
    9,168
    
    
    
    29,229Proceeds from Sale of Assets, Net
    
    
    
    
    
    
    23,305
    
    
    
    14,584Increase in Restricted Cash
    
    
    
    
    
    
    (3,657
    )
    
    
    NetCashUsedinInvestingActivities
    
    
    
    
    
    
    (56,298
    )
    
    
    (436,116
    )Cash Flows from Financing Activities:Short-term Debt Borrowings (Repayments), Net
    
    
    
    
    
    
    (2,455
    )
    
    
    686Long-term Debt Borrowings
    
    
    
    
    
    
    
    
    
    
    350,000Long-term Debt Repayments
    
    
    
    
    
    
    (20,555
    )
    
    
    (106,720
    )Redemption of 3.375% Convertible Senior Notes
    
    
    
    
    
    
    (6,099
    )
    
    
    Common Stock Issuance (Repurchase)
    
    
    
    
    
    
    83,344
    
    
    
    (49,228
    )Proceeds from Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    5,127Excess Tax Benefit from Stock-Based Arrangements
    
    
    
    
    
    
    4,458
    
    
    
    5,469Payment of Debt Issuance Costs
    
    
    
    
    
    
    (9,931
    )
    
    
    (8,085
    )Other
    
    
    
    
    
    
    (11
    )
    
    
    NetCashProvidedbyFinancingActivities
    
    
    
    
    
    
    48,751
    
    
    
    197,249Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    
    
    
    
    113,443
    
    
    
    (106,275
    )Cash and Cash Equivalents at Beginning of Period
    
    
    
    
    
    
    106,455
    
    
    
    212,452Cash and Cash Equivalents at End of Period
    
    
    
    
    
    $
    219,898
    
    
    $
    106,177
  5




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(As Adjusted)
    
    
    
    
    
    
    (As Adjusted)Net Income (Loss)
    
    $
    (48,260
    )
    
    $
    31,687
    
    
    $
    (65,233
    )
    
    $
    52,352Other Comprehensive Income, Net of Taxes:ChangesRelatedtoHedgeTransactions
    
    
    5,085
    
    
    
    2,028
    
    
    
    6,667
    
    
    
    354Comprehensive Income (Loss)
    
    $
    (43,175
    )
    
    $
    33,715
    
    
    $
    (58,566
    )
    
    $
    52,706
  6




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
 1. General
     Recent Common Stock Offering
  Reclassifications
  7




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Revenue Recognition
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    2009
    
    2008Mobilization revenue deferred
    
    $
    130
    
    
    $
    11,050
    
    
    $
    12,130
    
    
    $
    19,327Mobilization expense deferred
    
    
    671
    
    
    
    
    
    
    
    2,014
    
    
    
    3,398Mobilization revenue recognized
    
    
    4,371
    
    
    
    3,111
    
    
    
    12,520
    
    
    
    9,287Mobilization expense recognized
    
    
    1,295
    
    
    
    1,595
    
    
    
    2,688
    
    
    
    4,551
  Other Assets
   Other Intangible Assets
   Remainder of 2009
    
    $
    6502010
    
    
    1,5902011
    
    
    6582012
    
    
    2013
    
    
    
 8




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Cash and Cash Equivalents and Marketable Securities
   Restricted Cash
  2. Earnings Per Share
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    2009
    
    2008Denominator:Weighted average basic shares
    
    
    97,159
    
    
    
    87,950
    
    
    
    91,298
    
    
    
    88,478Add effect of stock equivalents
    
    
    
    
    
    
    558
    
    
    
    
    
    
    
    702Weighted average diluted shares
    
    
    97,159
    
    
    
    88,508
    
    
    
    91,298
    
    
    
    89,180
  3. Asset Acquisition
 Hercules 350 Hercules 261 Hercules 262
 4. Dispositions and Assets Held for Sale
 Hercules 100 Hercules 110 Hercules 100 Hercules 110 Hercules 100 Hercules 110 Hercules 110 Hercules 100 Hercules 110
 Hercules 256
 9




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  December 31,2008Other
    
    $
    123Property and Equipment, Net
    
    
    39,500Current Assets Held for Sale
    
    $
    39,623
 5. Debt
  September 30, 2009
    
    
    December 31, 2008(As Adjusted)Term Loan Facility, due July 2013
    
    $
    865,944
    
    
    $
    886,5003.375% Convertible Senior Notes due June 2038
    
    
    82,271
    
    
    
    134,7527.375% Senior Notes, due April 2018
    
    
    3,512
    
    
    
    3,512Foreign Overdraft Facility
    
    
    
    
    
    
    2,455Total Debt
    
    
    951,727
    
    
    
    1,027,219Less Short-term Debt and Current Portion of Long-term Debt
    
    
    9,000
    
    
    
    11,455Total Long-term Debt, Net of Current Portion
    
    $
    942,727
    
    
    $
    1,015,764
 Senior secured credit agreement
  July 2009 Credit Amendment
  10




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  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 and amend the maximum total leverage ratio following the expiration of the nine
month period to be more favorable to the Company;
    
    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;
    
    Revise the fixed charge coverage ratio definition and reduce the minimum fixed charge
coverage ratio that the Company must maintain in a manner that is more favorable to the
Company;
    
    Require mandatory prepayments of debt outstanding under the Credit Agreement with 100%
of excess cash flow 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.
    10.5% senior secured notes due 2017
    11




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
   
    
    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.
   Year
    
    Optional Redemption Price2013
    
    
    105.2500
    %2014
    
    
    102.6250
    %2015
    
    
    101.3125
    %2016 and thereafter
    
    
    100.0000
    %
  3.375% convertible senior notes due 2038
 Debt  Debt with Conversion and
Other Options
  12




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
    Other debt
   Fair value estimate
  September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(in millions)Term Loan Facility, due July 2013
    
    $
    865.9
    
    
    $
    844.3
    
    
    $
    886.5
    
    
    $
    571.83.375% Convertible Senior Notes due June 2038
    
    
    82.3
    
    
    
    71.6
    
    
    
    134.8
    
    
    
    77.27.375% Senior Notes, due April 2018 (a)
    
    
    3.5
    
    
    
    n/a
    
    
    
    3.5
    
    
    
    n/a
 
 (a)
    
    The 7.375% Senior Notes have not been traded in recent periods and the Company believes that
the fair value would not materially differ from the carrying value. 6. Derivative Instruments and Hedging
   13




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
     September 30, 2009
    
    
    December 31, 2008Balance Sheet
    
    Fair
    
    
    Balance Sheet
    
    FairClassification
    
    Value
    
    
    Classification
    
    ValueDerivatives(a):Interest rate contracts:Other
    
    $
    53
    
    
    Other
    
    $
    21Total Asset Derivatives
    
    $
    53
    
    
    Total Asset Derivatives
    
    $
    21Other Current Liabilities
    
    $
    15,286
    
    
    Other Current Liabilities
    
    $
    15,669Other Liabilities
    
    
    3,037
    
    
    Other Liabilities
    
    
    7,324Total Liability Derivatives
    
    $
    18,323
    
    
    Total Liability Derivatives
    
    $
    22,993
 
 (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. 14




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  I.
    
    
    
    III.
    
    
    
    V.Three Months
    
    
    
    Three Months
    
    
    
    Three MonthsEnded
    
    
    
    Ended
    
    
    
    EndedSeptember 30,
    
    
    
    September 30,
    
    
    
    September 30,Derivatives(a)
    
    2009
    
    2008
    
    II.
    
    2009
    
    2008
    
    IV.
    
    2009
    
    2008Interest rate contracts
    
    $
    2,226
    
    
    $
    65
    
    
    Interest Expense
    
    $
    (4,398
    )
    
    $
    (3,020
    )
    
    Interest Expense
    
    $
    (1,156
    )
    
    $
    
 I.
    
    
    
    III.
    
    
    
    V.Nine Months
    
    
    
    Nine Months
    
    
    
    Nine MonthsEnded
    
    
    
    Ended
    
    
    
    EndedSeptember 30,
    
    
    
    September 30,
    
    
    
    September 30,Derivatives(a)
    
    2009
    
    2008
    
    II.
    
    2009
    
    2008
    
    IV.
    
    2009
    
    2008Interest rate contracts
    
    $
    (1,654
    )
    
    $
    (4,383
    )
    
    Interest Expense
    
    $
    (12,801
    )
    
    $
    (7,287
    )
    
    Interest Expense
    
    $
    (1,156
    )
    
    $
    
 (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 on Derivative (Effective Portion)II.
    
    Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)III.
    
    Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)IV.
    
    Classification of Gain (Loss) Recognized in Income on DerivativeV.
    
    Amount of Gain (Loss) Recognized in Income on Derivative  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 $4,480
    
    
    8,321Other comprehensive losses, net of tax of $891
    
    
    (1,654
    )Cumulative unrealized loss, net of tax of $4,451, as of September 30, 2009
    
    $
    (8,265
    )
 7. Fair Value Measurements
 Fair Value Measurements and Disclosures
 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.
 15




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  (A)
    
    Market approach  Uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities(B)
    
    Income approach  Uses valuation techniques to convert future amounts to a single
present amount based on current market expectations about those future amounts,
including present value techniques, option-pricing models and excess earnings method(C)
    
    Cost approach  Based on the amount that currently would be required to replace
the service capacity of an asset (replacement cost)
  Quoted Prices inTotal
    
    Active Markets forFair Value
    
    Identical Asset or
    
    Significant Other
    
    SignificantMeasurement
    
    Liability
    
    Observable Inputs
    
    Unobservable Inputs
    
    ValuationSeptember 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TechniqueDerivative Assets
    
    $
    53
    
    
    $
    
    
    
    $
    53
    
    
    $
    
    
    
    
    ADerivative Liabilities
    
    
    18,323
    
    
    
    
    
    
    
    18,323
    
    
    
    
    
    
    
    A
  Quoted Prices in
    
    SignificantTotal
    
    Active Markets for
    
    Other
    
    SignificantFair Value
    
    Identical Asset or
    
    Observable
    
    UnobservableMeasurement
    
    Liability
    
    Inputs
    
    Inputs
    
    Valuation
    
    TotalSeptember 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Technique
    
    Gain (Loss)Assets Held for Sale
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    A
    
    
    
    $(26,882)
 Hercules 110 Hercules 110
 8. Stock-based Compensation
     16




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 9. Supplemental Cash Flow Information
  Nine Months Ended September
30,2009
    
    2008(In thousands)Cash paid during the period for:Interest, net of
capitalized
interest of $333
and $5,378,
respectively
    
    $
    28,814
    
    
    $
    25,441Income taxes
    
    
    19,565
    
    
    
    39,785
 10. Income Tax
    17




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
   11. Segments
   Domestic Offshore
 International Offshore Hercules 110
 Inland
 Domestic Liftboats
 International Liftboats
 Delta Towing
  18




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  Three Months Ended September 30, 2009
    
    
    Nine Months Ended September 30, 2009Income (Loss)
    
    
    
    
    
    
    
    
    
    
    Income (Loss)from
    
    
    Depreciation &
    
    
    
    
    
    
    from
    
    
    Depreciation &Revenue
    
    
    Operations
    
    
    Amortization
    
    
    Revenue
    
    
    Operations
    
    
    AmortizationDomestic Offshore
    
    $
    18,959
    
    
    $
    (35,250
    )
    
    $
    15,118
    
    
    $
    115,110
    
    
    $
    (67,370
    )
    
    $
    45,250International
Offshore (a)
    
    
    90,041
    
    
    
    26,746
    
    
    
    16,769
    
    
    
    295,250
    
    
    
    86,806
    
    
    
    48,702Inland
    
    
    2,437
    
    
    
    (13,531
    )
    
    
    8,166
    
    
    
    15,446
    
    
    
    (47,147
    )
    
    
    24,442Domestic Liftboats
    
    
    19,268
    
    
    
    956
    
    
    
    5,048
    
    
    
    60,762
    
    
    
    4,187
    
    
    
    15,844International Liftboats
    
    
    22,320
    
    
    
    2,574
    
    
    
    4,010
    
    
    
    61,709
    
    
    
    17,812
    
    
    
    8,672Delta Towing
    
    
    6,237
    
    
    
    (3,922
    )
    
    
    1,892
    
    
    
    18,167
    
    
    
    (11,244
    )
    
    
    6,318159,262
    
    
    
    (22,427
    )
    
    
    51,003
    
    
    
    566,444
    
    
    
    (16,956
    )
    
    
    149,228Corporate
    
    
    
    
    
    
    (10,285
    )
    
    
    799
    
    
    
    
    
    
    
    (32,476
    )
    
    
    2,511Total Company
    
    $
    159,262
    
    
    $
    (32,712
    )
    
    $
    51,802
    
    
    $
    566,444
    
    
    $
    (49,432
    )
    
    $
    151,739
 
 (a)
    
    Income (Loss) from Operations for the Companys International Offshore Segment includes a
$26.9 million impairment of property and equipment charge for the nine months ended September 30, 2009. Three Months Ended September 30, 2008
    
    
    Nine Months Ended September 30, 2008Income (Loss)
    
    
    
    
    
    
    
    
    
    
    Income (Loss)from
    
    
    Depreciation &
    
    
    
    
    
    
    from
    
    
    Depreciation &Revenue
    
    
    Operations
    
    
    Amortization
    
    
    Revenue
    
    
    Operations
    
    
    AmortizationDomestic Offshore
    
    $
    112,733
    
    
    $
    31,334
    
    
    $
    17,546
    
    
    $
    272,618
    
    
    $
    53,021
    
    
    $
    49,085International Offshore
    
    
    95,283
    
    
    
    34,213
    
    
    
    9,498
    
    
    
    234,813
    
    
    
    95,987
    
    
    
    26,394Inland
    
    
    44,436
    
    
    
    (1,229
    )
    
    
    11,350
    
    
    
    124,966
    
    
    
    (6,083
    )
    
    
    31,530Domestic Liftboats
    
    
    25,351
    
    
    
    5,828
    
    
    
    5,135
    
    
    
    63,564
    
    
    
    4,250
    
    
    
    16,469International Liftboats
    
    
    20,323
    
    
    
    5,054
    
    
    
    3,143
    
    
    
    58,919
    
    
    
    19,954
    
    
    
    7,495Delta Towing
    
    
    17,612
    
    
    
    4,459
    
    
    
    2,782
    
    
    
    43,458
    
    
    
    6,420
    
    
    
    8,057315,738
    
    
    
    79,659
    
    
    
    49,454
    
    
    
    798,338
    
    
    
    173,549
    
    
    
    139,030Corporate
    
    
    
    
    
    
    (12,602
    )
    
    
    802
    
    
    
    
    
    
    
    (44,276
    )
    
    
    2,120Total Company
    
    $
    315,738
    
    
    $
    67,057
    
    
    $
    50,256
    
    
    $
    798,338
    
    
    $
    129,273
    
    
    $
    141,150
 Total AssetsSeptember 30,
    
    
    December 31,2009
    
    
    2008Domestic Offshore
    
    $
    831,574
    
    
    $
    930,988International Offshore
    
    
    1,010,583
    
    
    
    955,911Inland
    
    
    166,609
    
    
    
    217,477Domestic Liftboats
    
    
    97,526
    
    
    
    148,307International Liftboats
    
    
    164,524
    
    
    
    168,356Delta Towing
    
    
    63,689
    
    
    
    92,371Corporate
    
    
    162,614
    
    
    
    77,485Total Company
    
    $
    2,497,119
    
    
    $
    2,590,895
 19




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 12. 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
  20




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
    Surety Bonds and Unsecured Letters of Credit
   13. 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 , Fair Value Measurements and Disclosures-Overall
 21




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Subsequent Events Subsequent Events
 Interim Disclosures about Fair
Value of Financial Instruments Financial Instruments Disclosures about Fair Value of Financial Instruments Interim Financial
reporting
 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 Fair
Value Measurements and Disclosures
 Debt 
Debt with Conversion and Other Options .
 Disclosures about Derivative Instruments and
Hedging Activities Derivatives and
Hedging Accounting for Derivative Instruments and
Hedging Activities
 Fair Value
Measurements and Disclosures Effective Date of FASB Statement No. 157 Fair Value Measurements and Disclosures
 14. Subsequent Events
  
    
    In September 2009, the Company sold 17,500,000 shares of its common stock in a
public offering (See Note 1). On October 9, 2009, the Company sold an additional
1,313,590 shares of its common stock pursuant to the partial exercise of the
underwriters over-allotment option and raised an additional $6.3 million in net
proceeds (See Note 1). The Company used
 22




---



##### Table of Contents



HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 50% of the net proceeds from these sales of common stock to
repay a portion of its outstanding indebtedness under its term loan facility, and may
use some or all of the remaining proceeds to repay additional indebtedness.
    
    In October 2009, the Company sold $300.0 million of Senior Secured Notes due 2017
through a private placement, which will bear interest at a rate of 10.5% per annum. The
notes were sold at 97.383% of their face amount to yield 11.0%. The Company used the
net proceeds from the offering to repay a portion of the indebtedness outstanding under
its term loan facility (See Note 5).
    
    Subsequent to September 30, 2009, the Company made the following payments on its
term loan facility:
 (i)
    
    the Company used the net proceeds from the partial exercise of
the underwriters over-allotment option and the Senior Secured Notes due 2017,
which approximated $287.5 million, to repay a portion of the outstanding balance
on the Companys term loan facility; and(ii)
    
    the Company utilized approximately $94.3 million of cash on hand
which is reflected in the Companys September 30, 2009 Balance Sheet, to repay a
portion of the outstanding balance on the Companys term loan facility.
 
    
    As of October 29, 2009, the balance outstanding under the Companys term loan
facility totaled $484.1 million, which reduces the margin
applicable to the Companys
outstanding term loan facility borrowings under Eurodollar Loans from 6.50% to 4.00%
and under ABR Loans from 5.50% to 3.00%.
 23




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
    Domestic Offshore
 International Offshore Hercules 110
 Inland
 Domestic Liftboats
 International Liftboats
 Delta Towing
  24




---



##### Table of Contents



25




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)(As
Adjusted)

    
    
    
    
    
    
(As
Adjusted)Domestic Offshore:Number of rigs (as of end of period) (a)
    
    
    23
    
    
    
    27
    
    
    
    23
    
    
    
    27Revenues
    
    $
    18,959
    
    
    $
    112,733
    
    
    $
    115,110
    
    
    $
    272,618Operating expenses
    
    
    36,476
    
    
    
    62,849
    
    
    
    131,635
    
    
    
    166,896Depreciation and amortization expense
    
    
    15,118
    
    
    
    17,546
    
    
    
    45,250
    
    
    
    49,085General and administrative expenses
    
    
    2,615
    
    
    
    1,004
    
    
    
    5,595
    
    
    
    3,616Operating income (loss)
    
    $
    (35,250
    )
    
    $
    31,334
    
    
    $
    (67,370
    )
    
    $
    53,021International Offshore:Number of rigs (as of end of period) (b)
    
    
    11
    
    
    
    12
    
    
    
    11
    
    
    
    12Revenues
    
    $
    90,041
    
    
    $
    95,283
    
    
    $
    295,250
    
    
    $
    234,813Operating expenses
    
    
    44,209
    
    
    
    50,518
    
    
    
    127,478
    
    
    
    110,618Impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    26,882
    
    
    
    Depreciation and amortization expense
    
    
    16,769
    
    
    
    9,498
    
    
    
    48,702
    
    
    
    26,394General and administrative expenses
    
    
    2,317
    
    
    
    1,054
    
    
    
    5,382
    
    
    
    1,814Operating income
    
    $
    26,746
    
    
    $
    34,213
    
    
    $
    86,806
    
    
    $
    95,987Inland:Number of barges (as of end of period) (a)
    
    
    17
    
    
    
    27
    
    
    
    17
    
    
    
    27Revenues
    
    $
    2,437
    
    
    $
    44,436
    
    
    $
    15,446
    
    
    $
    124,966Operating expenses
    
    
    7,442
    
    
    
    33,437
    
    
    
    36,563
    
    
    
    96,669Depreciation and amortization expense
    
    
    8,166
    
    
    
    11,350
    
    
    
    24,442
    
    
    
    31,530General and administrative expenses
    
    
    360
    
    
    
    878
    
    
    
    1,588
    
    
    
    2,850Operating loss
    
    $
    (13,531
    )
    
    $
    (1,229
    )
    
    $
    (47,147
    )
    
    $
    (6,083
    )Domestic Liftboats:Number of liftboats (as of end of period) (c)
    
    
    41
    
    
    
    45
    
    
    
    41
    
    
    
    45Revenues
    
    $
    19,268
    
    
    $
    25,351
    
    
    $
    60,762
    
    
    $
    63,564Operating expenses
    
    
    12,725
    
    
    
    13,788
    
    
    
    39,277
    
    
    
    41,128Depreciation and amortization expense
    
    
    5,048
    
    
    
    5,135
    
    
    
    15,844
    
    
    
    16,469General and administrative expenses
    
    
    539
    
    
    
    600
    
    
    
    1,454
    
    
    
    1,717Operating income
    
    $
    956
    
    
    $
    5,828
    
    
    $
    4,187
    
    
    $
    4,250International Liftboats:Number of liftboats (as of end of period) (c)
    
    
    24
    
    
    
    20
    
    
    
    24
    
    
    
    20Revenues
    
    $
    22,320
    
    
    $
    20,323
    
    
    $
    61,709
    
    
    $
    58,919Operating expenses
    
    
    14,457
    
    
    
    10,660
    
    
    
    31,677
    
    
    
    27,776Depreciation and amortization expense
    
    
    4,010
    
    
    
    3,143
    
    
    
    8,672
    
    
    
    7,495General and administrative expenses
    
    
    1,279
    
    
    
    1,466
    
    
    
    3,548
    
    
    
    3,694Operating income
    
    $
    2,574
    
    
    $
    5,054
    
    
    $
    17,812
    
    
    $
    19,954
 
 (a)
    
    In January 2009, we retired four Domestic Offshore rigs and ten Inland barges.(b)
    
    In August 2009, we sold Hercules 110which was cold-stacked in Trinidad.(c)
    
    The number of liftboats as of September 30, 2009 reflects the transfer of four
liftboats from our Domestic Liftboats segment to our International Liftboats segment. The
financial results of these four vessels are reflected in International Liftboats from the
date of transfer which occurred during the three months ended September 30, 2009. 26




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)(As Adjusted)

    
    
    
    (As Adjusted)Delta Towing:Revenues
    
    $
    6,237
    
    
    $
    17,612
    
    
    $
    18,167
    
    
    $
    43,458Operating expenses
    
    
    8,049
    
    
    
    9,726
    
    
    
    22,069
    
    
    
    27,051Depreciation and amortization expense
    
    
    1,892
    
    
    
    2,782
    
    
    
    6,318
    
    
    
    8,057General and administrative expenses
    
    
    218
    
    
    
    645
    
    
    
    1,024
    
    
    
    1,930Operating income (loss)
    
    $
    (3,922
    )
    
    $
    4,459
    
    
    $
    (11,244
    )
    
    $
    6,420Total Company:Revenues
    
    $
    159,262
    
    
    $
    315,738
    
    
    $
    566,444
    
    
    $
    798,338Operating expenses
    
    
    123,358
    
    
    
    180,978
    
    
    
    388,699
    
    
    
    470,138Impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    26,882
    
    
    
    Depreciation and amortization expense
    
    
    51,802
    
    
    
    50,256
    
    
    
    151,739
    
    
    
    141,150General and administrative expenses
    
    
    16,814
    
    
    
    17,447
    
    
    
    48,556
    
    
    
    57,777Operating income (loss)
    
    
    (32,712
    )
    
    
    67,057
    
    
    
    (49,432
    )
    
    
    129,273Interest expense
    
    
    (24,131
    )
    
    
    (16,807
    )
    
    
    (54,481
    )
    
    
    (47,985
    )Expense of Credit Agreement Fees
    
    
    (15,073
    )
    
    
    
    
    
    
    (15,073
    )
    
    
    Gain on early retirement of debt, net
    
    
    
    
    
    
    
    
    
    
    13,747
    
    
    
    Other, net
    
    
    70
    
    
    
    543
    
    
    
    2,760
    
    
    
    2,818Income (loss) before income taxes
    
    
    (71,846
    )
    
    
    50,793
    
    
    
    (102,479
    )
    
    
    84,106Income tax benefit (provision)
    
    
    24,876
    
    
    
    (18,938
    )
    
    
    39,211
    
    
    
    (30,988
    )Income (loss) from continuing operations
    
    
    (46,970
    )
    
    
    31,855
    
    
    
    (63,268
    )
    
    
    53,118Loss from discontinued operation, net of taxes
    
    
    (1,290
    )
    
    
    (168
    )
    
    
    (1,965
    )
    
    
    (766
    )Net income (loss)
    
    $
    (48,260
    )
    
    $
    31,687
    
    
    $
    (65,233
    )
    
    $
    52,352
  Three Months Ended September 30, 2009AverageAverage
    
    OperatingOperating
    
    Available
    
    
    
    Revenue
    
    ExpenseDays
    
    Days
    

Utilization (1)
    
    per Day (2)
    
    per Day (3)Domestic Offshore
    
    
    424
    
    
    
    1,012
    
    
    
    41.9
    %
    
    $
    44,715
    
    
    $
    36,043International Offshore
    
    
    768
    
    
    
    1,006
    
    
    
    76.3
    %
    
    
    117,241
    
    
    
    43,945Inland
    
    
    116
    
    
    
    276
    
    
    
    42.0
    %
    
    
    21,009
    
    
    
    26,964Domestic Liftboats
    
    
    2,466
    
    
    
    3,596
    
    
    
    68.6
    %
    
    
    7,813
    
    
    
    3,539International Liftboats
    
    
    1,149
    
    
    
    1,840
    
    
    
    62.4
    %
    
    
    19,426
    
    
    
    7,857
 Three Months Ended September 30, 2008AverageAverage
    
    OperatingOperating
    
    Available
    
    
    
    Revenue
    
    ExpenseDays
    
    Days
    

Utilization (1)
    
    per Day (2)
    
    per Day (3)Domestic Offshore
    
    
    1,673
    
    
    
    2,116
    
    
    
    79.1
    %
    
    $
    67,384
    
    
    $
    29,702International Offshore
    
    
    729
    
    
    
    773
    
    
    
    94.3
    %
    
    
    130,704
    
    
    
    65,353Inland
    
    
    1,142
    
    
    
    1,472
    
    
    
    77.6
    %
    
    
    38,911
    
    
    
    22,715Domestic Liftboats
    
    
    3,132
    
    
    
    3,864
    
    
    
    81.1
    %
    
    
    8,094
    
    
    
    3,568International Liftboats
    
    
    1,143
    
    
    
    1,656
    
    
    
    69.0
    %
    
    
    17,780
    
    
    
    6,437
 27




---



##### Table of Contents



Nine Months Ended September 30, 2009AverageAverage
    
    OperatingOperating
    
    Available
    
    
    
    Revenue
    
    ExpenseDays
    
    Days
    

Utilization (1)
    
    per Day (2)
    
    per Day (3)Domestic Offshore
    
    
    1,994
    
    
    
    3,532
    
    
    
    56.5
    %
    
    $
    57,728
    
    
    $
    37,269International Offshore
    
    
    2,351
    
    
    
    2,763
    
    
    
    85.1
    %
    
    
    125,585
    
    
    
    46,138Inland
    
    
    414
    
    
    
    1,302
    
    
    
    31.8
    %
    
    
    37,309
    
    
    
    28,082Domestic Liftboats
    
    
    7,349
    
    
    
    11,308
    
    
    
    65.0
    %
    
    
    8,268
    
    
    
    3,473International Liftboats
    
    
    3,072
    
    
    
    5,279
    
    
    
    58.2
    %
    
    
    20,088
    
    
    
    6,001
 Nine Months Ended September 30, 2008AverageAverage
    
    OperatingOperating
    
    Available
    
    
    
    Revenue
    
    ExpenseDays
    
    Days
    

Utilization (1)
    
    per Day (2)
    
    per Day (3)Domestic Offshore
    
    
    4,383
    
    
    
    6,142
    
    
    
    71.4
    %
    
    $
    62,199
    
    
    $
    27,173International Offshore
    
    
    2,025
    
    
    
    2,214
    
    
    
    91.5
    %
    
    
    115,957
    
    
    
    49,963Inland
    
    
    3,097
    
    
    
    4,505
    
    
    
    68.7
    %
    
    
    40,351
    
    
    
    21,458Domestic Liftboats
    
    
    7,198
    
    
    
    11,921
    
    
    
    60.4
    %
    
    
    8,831
    
    
    
    3,450International Liftboats
    
    
    3,691
    
    
    
    4,793
    
    
    
    77.0
    %
    
    
    15,963
    
    
    
    5,795
 
 (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 International Offshore
revenue is a total of $4.3 million and $12.3 million related to amortization of deferred
mobilization revenue and contract specific capital expenditures reimbursed by the customer
for the three and nine months ended September 30, 2009, respectively and $3.1 million and
$9.3 million for the three and nine months ended September 30, 2008, respectively.
Included in International Liftboats revenue is a total of $0.1 million and $0.2 million
related to amortization of deferred mobilization revenue for the three and nine months
ended September 30, 2009, respectively. There was no such revenue in the three nor the
nine months ended September 30, 2008 for International Liftboats.(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 $1.3 million and $2.7 million related to amortization of
deferred mobilization expenses for the three and nine months ended September 30, 2009,
respectively and $1.6 million and $4.6 million for the three and nine months ended
September 30, 2008, respectively. For the Three Months Ended September 30, 2009 and 2008
 Revenues
 Consolidated.
 Domestic Offshore .
 28




---



##### Table of Contents



International Offshore . Hercules 156 Hercules 170 Hercules 205 Hercules 260 Hercules 208 Hercules 261 Hercules 262 Hercules 156, Hercules 205 Hercules 206,
 Inland.
 Domestic Liftboats.
 International Liftboats.
 Delta Towing.
 Operating Expenses
 Consolidated .
 Domestic Offshore .
 International Offshore. Hercules 156 Hercules 170 Hercules 185
 Inland.
 Domestic Liftboats.
 29




---



##### Table of Contents



International Liftboats. Whale Shark Amberjack
 Delta Towing.
 Depreciation and Amortization
 Hercules 208 Hercules 261 Hercules 262 Hercules 110
 General and Administrative Expenses
  Interest Expense
  Expense of Credit Agreement Fees
  Income Tax Benefit (Provision)
  30




---



##### Table of Contents



Discontinued Operation
  For the Nine Months Ended September 30, 2009 and 2008
 Revenues
 Consolidated.
 Domestic Offshore .
 International Offshore . Hercules 260 Hercules 258 Hercules 208 Hercules 261 Hercules 262 Hercules 185 Hercules 156 Hercules
170 Hercules 110 Hercules 205 Hercules 261 Hercules 262 Hercules 205 Hercules 206
 Inland.
 Domestic Liftboats.
 International Liftboats.
 Delta Towing.
 Operating Expenses
 Consolidated .
 Domestic Offshore .
 31




---



##### Table of Contents



International Offshore. Hercules 156
 Inland.
 Domestic Liftboats.
 International Liftboats. Whale Shark Amberjack
 Delta Towing.
 Impairment of Property and Equipment
 Hercules
110 Hercules 110
 Depreciation and Amortization
 Hercules 260 Hercules 350 Hercules 208 Hercules 261 Hercules 262
 General and Administrative Expenses
  32




---



##### Table of Contents



Interest Expense
  Expense of Credit Agreement Fees
  Gain on Early Retirement of Debt, Net
  Income Tax Benefit (Provision)
  Discontinued Operation
  CRITICAL ACCOUNTING POLICIES
    33




---



##### Table of Contents



OUTLOOK
 Offshore
         34




---



##### Table of Contents



Inland
   Liftboats
      35




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Recent Developments
 Common Stock Offering
  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 our affiliates; and
    
    consolidate, merge or transfer all or substantially all of
our assets.
  36




---



##### Table of Contents



Year
    
    Optional Redemption Price2013
    
    
    105.2500
    %2014
    
    
    102.6250
    %2015
    
    
    101.3125
    %2016 and thereafter
    
    
    100.0000
    %
  Term Loan Facility Repayment
  (i)
    
    we used the net proceeds from the partial exercise of the underwriters
over-allotment option and the Senior Secured Notes due 2017, which
approximated $287.5
million, to repay a portion of the outstanding balance on our term loan facility; and(ii)
    
    we utilized approximately $94.3 million of cash on hand which is reflected in our
September 30, 2009 Balance Sheet, to repay a portion of the outstanding balance on our
term loan facility.
  Sources and Uses of Cash
  Net Cash Provided by Operating Activities
    
    $
    121.0Net Cash Provided by (Used in) Investing Activities:Additions of Property and Equipment
    
    
    (71.4
    )Deferred Drydocking Expenditures
    
    
    (13.7
    )Insurance Proceeds Received
    
    
    9.1Proceeds from Sale of Assets, Net
    
    
    23.3Increase in Restricted Cash
    
    
    (3.7
    )Total
    
    
    (56.4
    )Net Cash Provided by (Used in) Financing Activities:Debt Repayments, Net
    
    
    (23.0
    )Redemption of 3.375% Convertible Senior Notes
    
    
    (6.1
    )Common Stock
Issuance
    
    
    83.3Payment of Debt Issuance Costs
    
    
    (9.9
    )Excess Tax Benefit from Stock-Based Arrangements
    
    
    4.5Total
    
    
    48.8Net Increase in Cash and Cash Equivalents
    
    $
    113.4
 Hercules 100 Hercules 110 Hercules 100 Hercules 110 Hercules 100 Hercules 110
 Sources of Liquidity and Financing Arrangements
  37




---



##### 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
and amend the maximum total leverage ratio that we must comply with following the
expiration of the nine month period to be more favorable to us;
 
    
    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;
    
    Revise the fixed charge coverage ratio definition and reduce the minimum fixed charge
coverage ratio that we must maintain in a manner that is more favorable to us;
    
    Require mandatory prepayments of debt outstanding under the Credit Agreement with 100%
of excess cash flow 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.
 38




---



##### Table of Contents



39




---



##### Table of Contents



September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(in millions)Term Loan Facility, due July 2013
    
    $
    865.9
    
    
    $
    844.3
    
    
    $
    886.5
    
    
    $
    571.83.375% Convertible Senior Notes due June 2038
    
    
    82.3
    
    
    
    71.6
    
    
    
    134.8
    
    
    
    77.27.375% Senior Notes, due April 2018 (a)
    
    
    3.5
    
    
    
    n/a
    
    
    
    3.5
    
    
    
    n/a
 
 (a)
    
    The 7.375% Senior Notes have not been traded in recent periods and we believe that the fair
value would not materially differ from the carrying value. self-insured self-insured
  Capital Expenditures
    40




---



##### Table of Contents



Off-Balance Sheet Arrangements
 Guarantees
  Letters of Credit and Surety Bonds
  Contractual Obligations
  
    
    Retired $65.8 million aggregate principal amount of the 3.375% Convertible Senior Notes;
    
    Repaid $20.6 million of our term loan facility outstanding at December 31, 2008;
    
    Settled the $11.1 million insurance note payable outstanding at December 31, 2008; and
    
    Financed $23.3 million related to the renewal of certain of our insurance policies.
   Accounting Pronouncements
  FORWARD-LOOKING STATEMENTS
  41




---



##### Table of Contents




    
    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;
 
    
    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;
 
    
    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;
 
    
    demand 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;
 42




---



##### Table of Contents




    
    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.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Exposure
     September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(in millions)Term Loan Facility, due July 2013
    
    $
    865.9
    
    
    $
    844.3
    
    
    $
    886.5
    
    
    $
    571.83.375% Convertible Senior Notes due June 2038
    
    
    82.3
    
    
    
    71.6
    
    
    
    134.8
    
    
    
    77.27.375% Senior Notes, due April 2018 (a)
    
    
    3.5
    
    
    
    n/a
    
    
    
    3.5
    
    
    
    n/a
 
 (a)
    
    The 7.375% Senior Notes have not been traded in recent periods and we believe that the fair
value would not materially differ from the carrying value. Interest Rate Swaps and Derivatives
  43




---



##### Table of Contents



Liquidity and Capital Resources
    
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 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.
  44




---



##### 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;
    
    expectations regarding future commodity prices;
    
    advances in exploration, development and production technology;
    
    the ability of the Organization of Petroleum Exporting Countries, commonly
called OPEC, to set and maintain 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 our areas of operations, 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.
  Maintaining idle rigs or the sale of assets below their then carrying value may cause us to
experience losses and may result in impairment charges.
  45




---



##### Table of Contents



Our amended 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.
  If we are unable to comply with the restrictions and covenants in our amended credit agreement,
there could be a default, which could result in an acceleration of repayment of funds that we have
borrowed.
  46




---



##### Table of Contents



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.
    We can provide no assurance that our current backlog of contract drilling revenue will be
ultimately realized.
  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.
  47




---



##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number ofShares Purchased
    
    Maximum Numberas Part of a
    
    of Shares ThatTotal Number of
    
    
    
    
    
    Publicly
    
    May Yet BeShares of
    
    Average Price
    
    Announced Plan
    
    Purchased UnderPeriod
    
    Purchased (1)
    
    Paid per Share
    
    (2)
    
    Plan (2)July 1-31, 2009
    
    
    2,647
    
    
    $
    3.25
    
    
    
    N/A
    
    
    
    N/AAugust 1-31, 2009
    
    
    1,400
    
    
    
    4.62
    
    
    
    N/A
    
    
    
    N/ASeptember 1-30, 2009
    
    
    618
    
    
    
    5.08
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    4,665
    
    
    
    3.90
    
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    Represents the surrender of shares of 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. 
 ITEM 6. EXHIBITS
 1.1
    
    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).4.1
    
    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).4.2
    
    Form of 10.50% Senior Secured Note due 2017 (incorporated by reference to Exhibit 4.2 to
Hercules Current Report on Form 8-K dated October 26, 2009).4.3
    
    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).4.4
    
    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).10.1
    
    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).10.2
    
    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).
 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 48




---



##### 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/ Lisa W. RodriguezLisa W. RodriguezSenior Vice President
and Chief Financial Officer(Principal Financial Officer)By:
    /s/ Troy L. CarsonTroy L. CarsonVice President and Corporate Controller
(Principal Accounting Officer)  49