##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 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)
 
 x  ̈
  Large accelerated filer x
    
    

    
    Accelerated filer oNon-accelerated filer
o     (Do not check if a smaller
reporting company)
    
    Smaller reporting company o
  ̈ x
  Common Stock, par value $0.01 per share
    
    Outstanding as of April 28, 200888,862,361




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##### 



HERCULES OFFSHORE, INC.
 INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    2Consolidated Statements of Operations for the three months ended March 31, 2008 and March 31, 2007
    
    
    3Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and March 31, 2007
    
    
    4Consolidated
Statements of Comprehensive Income (Loss) for the three months ended March 31, 2008 and March 31, 2007
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO pursuant to Section 906
  1




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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 31,2008
    
    
    2007(Unaudited)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    34,482
    
    
    $
    212,452Marketable Securities
    
    
    
    
    
    
    39,300Accounts Receivable, Net
    
    
    207,724
    
    
    
    221,663Insurance Claims Receivable
    
    
    10,880
    
    
    
    43,342Supplies
    
    
    2,489
    
    
    
    2,494Prepaids
    
    
    21,595
    
    
    
    31,417Current Deferred Tax Asset
    
    
    17,551
    
    
    
    17,551Other
    
    
    23,909
    
    
    
    23,565318,630
    
    
    
    591,784Property and Equipment, Net
    
    
    2,286,665
    
    
    
    2,060,224Goodwill
    
    
    942,138
    
    
    
    940,241Other Assets, Net
    
    
    52,583
    
    
    
    50,290$
    3,600,016
    
    
    $
    3,642,539LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term Debt and Current Portion of Long-term Debt
    
    $
    21,593
    
    
    $
    21,653Insurance Note Payable
    
    
    6,821
    
    
    
    16,931Accounts Payable
    
    
    102,659
    
    
    
    105,527Accrued Liabilities
    
    
    74,216
    
    
    
    80,138Taxes Payable
    
    
    2,148
    
    
    
    23,006Other Current Liabilities
    
    
    16,766
    
    
    
    16,845224,203
    
    
    
    264,100Long-term Debt, Net of Current Portion
    
    
    887,762
    
    
    
    890,013Other Liabilities
    
    
    26,996
    
    
    
    19,518Deferred Income Taxes
    
    
    449,464
    
    
    
    457,475Commitments and ContingenciesStockholders Equity:Common Stock, $0.01 Par Value; 200,000 Shares Authorized;
88,881 and 88,876 Shares 
Issued, Respectively; 88,861 and
88,857 Shares Outstanding, Respectively
    
    
    889
    
    
    
    889Capital in Excess of Par Value
    
    
    1,734,622
    
    
    
    1,731,882Treasury Stock, at Cost, 21 Shares and 19 Shares, Respectively
    
    
    (624
    )
    
    
    (582
    )Accumulated Other Comprehensive Loss
    
    
    (15,143
    )
    
    
    (8,117
    )Retained Earnings
    
    
    291,847
    
    
    
    287,3612,011,591
    
    
    
    2,011,433$
    3,600,016
    
    
    $
    3,642,539
  2




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
(Unaudited)
 Three Months Ended March 31,2008
    
    
    2007Revenues
    
    $
    213,386
    
    
    $
    110,464Costs and Expenses:Operating Expenses
    
    
    132,809
    
    
    
    41,527Depreciation and Amortization
    
    
    43,626
    
    
    
    11,730General and Administrative
    
    
    16,364
    
    
    
    9,163192,799
    
    
    
    62,420Operating Income
    
    
    20,587
    
    
    
    48,044Other Income (Expense):Interest Expense
    
    
    (15,960
    )
    
    
    (2,090
    )Other, Net
    
    
    2,207
    
    
    
    1,275Income Before Income Taxes
    
    
    6,834
    
    
    
    47,229Income Tax Provision
    
    
    (2,348
    )
    
    
    (13,838
    )Net Income
    
    $
    4,486
    
    
    $
    33,391Earnings Per Share:Basic
    
    $
    0.05
    
    
    $
    1.04Diluted
    
    $
    0.05
    
    
    $
    1.03Weighted Average Shares Outstanding:Basic
    
    
    88,859
    
    
    
    31,975Diluted
    
    
    89,572
    
    
    
    32,471
  3




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Three Months Ended March 31,2008
    
    
    2007Cash Flows from Operating Activities:Net Income
    
    $
    4,486
    
    
    $
    33,391Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    43,626
    
    
    
    11,730Stock-Based Compensation Expense
    
    
    2,413
    
    
    
    1,151Deferred Income Taxes
    
    
    1,218
    
    
    
    3,261Amortization of Deferred Financing Fees
    
    
    760
    
    
    
    180Gain on Disposal of Assets
    
    
    (45
    )
    
    
    (296
    )Excess Tax Benefit from Stock-based Arrangements
    
    
    (324
    )
    
    
    (715
    )(Increase) Decrease in Operating AssetsAccounts Receivable
    
    
    13,939
    
    
    
    5,900Insurance Claims Receivable
    
    
    (42
    )
    
    
    (3,626
    )Prepaid Expenses and Other
    
    
    7,020
    
    
    
    3,243Increase (Decrease) in Operating LiabilitiesAccounts Payable
    
    
    (2,868
    )
    
    
    6,383Insurance Note Payable
    
    
    (10,110
    )
    
    
    (6,058
    )Other Current Liabilities
    
    
    (16,712
    )
    
    
    (1,700
    )Other Liabilities
    
    
    1,297
    
    
    
    (209
    )Net Cash Provided by Operating Activities
    
    
    44,658
    
    
    
    52,635Cash Flows from Investing Activities:Acquisition of Assets
    
    
    (230,045
    )
    
    
    Investment in Marketable Securities
    
    
    
    
    
    
    (34,000
    )Proceeds from Sale of Marketable Securities
    
    
    39,300
    
    
    
    Additions of Property and Equipment
    
    
    (45,813
    )
    
    
    (13,719
    )Deferred Drydocking Expenditures
    
    
    (5,546
    )
    
    
    (5,486
    )Insurance Proceeds Received
    
    
    19,355
    
    
    
    Proceeds from Sale of Assets, Net
    
    
    2,047
    
    
    
    610Net Cash Used in Investing Activities
    
    
    (220,702
    )
    
    
    (52,595
    )Cash Flows from Financing Activities:Long-term Debt Repayments
    
    
    (2,250
    )
    
    
    (350
    )Proceeds from Exercise of Stock Options
    
    
    
    
    
    
    960Excess Tax Benefit from Stock-Based Arrangements
    
    
    324
    
    
    
    715Net Cash Provided by (Used in) Financing Activities
    
    
    (1,926
    )
    
    
    1,325Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (177,970
    )
    
    
    1,365Cash and Cash Equivalents at Beginning of Period
    
    
    212,452
    
    
    
    72,772Cash and Cash Equivalents at End of Period
    
    $
    34,482
    
    
    $
    74,137Cash Paid for Interest
    
    $
    14,476
    
    
    $
    2,196Cash Paid for Taxes
    
    $
    22,332
    
    
    $
    8,273
  4




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (In thousands)
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Net Income
    
    $
    4,486
    
    
    $
    33,391Other Comprehensive Loss, Net of Tax:Unrealized Losses on Hedge Transactions
    
    
    (7,026
    )
    
    
    (160
    )Comprehensive Income (Loss)
    
    $
    (2,540
    )
    
    $
    33,231
  5




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
 1. General
    Revenue Recognition
  Three Months Ended March 31,2008
    
    
    2007Mobilization revenue deferred
    
    $
    3,827
    
    
    $
    Mobilization expense deferred
    
    
    3,398
    
    
    
    Mobilization revenue recognized
    
    
    1,970
    
    
    
    1,755Mobilization expense recognized
    
    
    814
    
    
    
    1,171
 6




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
   Other Assets
   Other Intangible Assets
   Remainder of 2008
    
    $
    5,8972009
    
    
    4,6582010
    
    
    1,6912011
    
    
    6072012
    
    
    
 Cash and Cash Equivalents and Marketable Securities
   7




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 2. Earnings Per Share
  Three Months Ended March 31,2008
    
    
    2007Numerator:Net income
    
    $
    4,486
    
    
    $
    33,391Denominator:Weighted average basic shares
    
    
    88,859
    
    
    
    31,975Add effect of stock equivalents
    
    
    713
    
    
    
    496Weighted average diluted shares
    
    
    89,572
    
    
    
    32,471Basic earnings per share
    
    $
    0.05
    
    
    $
    1.04Diluted earnings per share
    
    $
    0.05
    
    
    $
    1.03
  3. Asset Acquisition and Business Combination
    4. Dispositions
  8




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 5. Debt
  March 31, 2008
    
    
    December 31, 2007Term Loan Facility, due July 2013
    
    $
    893,250
    
    
    $
    895,5009.5% Senior Notes, due December 2008
    
    
    10,371
    
    
    
    10,4327.375% Senior Notes, due April 2018
    
    
    3,513
    
    
    
    3,5136.95% Senior Notes, due April 2008
    
    
    2,221
    
    
    
    2,221Foreign Line of Credit
    
    
    
    
    
    
    Total Debt
    
    
    909,355
    
    
    
    911,666Less Short-term Debt and Current Portion of Long-term Debt
    
    
    21,593
    
    
    
    21,653Total Long-term Debt, Net of Current Portion
    
    $
    887,762
    
    
    $
    890,013
 Senior secured credit agreement
      Senior notes and other debt
  6. Derivative Instruments and Hedging
  9




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
   April 1, 2008-June 30, 2008
    
    $
    300,000July 1, 2008-September 30, 2008
    
    
    200,000October 1, 2008-December 31, 2008
    
    
    100,000January 1, 2009-March 31, 2009
    
    
    50,000
 Accounting for Derivative Instruments and Hedging Activities Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133) Amendment of Statement 133 on Derivative Instruments and
Hedging Activities
  March 31,
    
    
    December 31,2008
    
    
    2007Fair value included in Other Assets, Net
    
    $
    142
    
    
    $
    322Fair value included in Other Liabilities
    
    
    23,440
    
    
    
    12,809Cumulative unrealized loss, net of tax
of 8,155 and 4,371, respectively
included in Accumulated Other
Comprehensive Loss
    
    
    (15,143
    )
    
    
    (8,117
    )
 Recognized Gain (Loss) inConsolidated Statements ofOperations for the Three MonthsEnded March 31,2008
    
    
    2007Realized gains (losses) included in Interest Expense
    
    $
    (549
    )
    
    $
    207
  10




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  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.
  (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
    
    
    ValuationMarch 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TechniqueDerivative Assets
    
    $
    142
    
    
    $
    
    
    
    $
    142
    
    
    $
    
    
    
    
    ADerivative
Liabilities
    
    $
    23,440
    
    
    $
    
    
    
    $
    23,440
    
    
    $
    
    
    
    
    A
 7. Stock-based Compensation
     11




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  8. Supplemental Cash Flow Information
  Three Months Ended March 31,2008
    
    
    2007Change in fair value of derivative instruments
    
    $
    7,026
    
    
    $
    160
 9. Income Tax
      12




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  10. Segments
  Domestic Offshore
 International Offshore
 Inland

 Domestic Liftboats
 International Liftboats
 Other

  13




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
  Three Months Ended March 31, 2008Income (Loss)
    
    
    Depreciationfrom
    
    
    &Revenue
    
    
    Operations
    
    
    AmortizationDomestic Offshore
    
    $
    62,447
    
    
    $
    (1,890
    )
    
    $
    15,335International Offshore
    
    
    65,343
    
    
    
    34,350
    
    
    
    7,586Inland
    
    
    40,268
    
    
    
    (1,940
    )
    
    
    9,660Domestic Liftboats
    
    
    15,944
    
    
    
    (4,551
    )
    
    
    5,952International Liftboats
    
    
    18,291
    
    
    
    8,148
    
    
    
    1,984Other
    
    
    11,093
    
    
    
    (1,269
    )
    
    
    2,575213,386
    
    
    
    32,848
    
    
    
    43,092Corporate
    
    
    
    
    
    
    (12,261
    )
    
    
    534Total Company
    
    $
    213,386
    
    
    $
    20,587
    
    
    $
    43,626
 Three Months Ended March 31, 2007Income
    
    
    Depreciationfrom
    
    
    &Revenue
    
    
    Operations
    
    
    AmortizationDomestic Offshore
    
    $
    42,831
    
    
    $
    24,765
    
    
    $
    2,561International Offshore
    
    
    20,876
    
    
    
    11,595
    
    
    
    1,368Inland
    
    
    
    
    
    
    
    
    
    
    Domestic Liftboats
    
    
    32,703
    
    
    
    12,455
    
    
    
    6,070International Liftboats
    
    
    14,054
    
    
    
    4,459
    
    
    
    1,704Other
    
    
    
    
    
    
    
    
    
    
    110,464
    
    
    
    53,274
    
    
    
    11,703Corporate
    
    
    
    
    
    
    (5,230
    )
    
    
    27Total Company
    
    $
    110,464
    
    
    $
    48,044
    
    
    $
    11,730
 Total AssetsMarch 31, 2008
    
    
    December 31, 2007Domestic Offshore
    
    $
    1,475,674
    
    
    $
    1,504,548International Offshore
    
    
    934,654
    
    
    
    681,742Inland
    
    
    629,908
    
    
    
    646,120Domestic Liftboats
    
    
    164,473
    
    
    
    186,568International Liftboats
    
    
    130,346
    
    
    
    149,813Other
    
    
    208,831
    
    
    
    229,979Corporate
    
    
    56,130
    
    
    
    243,769Total Company
    
    $
    3,600,016
    
    
    $
    3,642,539
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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 11. Commitments and Contingencies
 Legal Proceedings
 Accounting for Contingencies
 Frank
Donio v. Jan Rask, et al. th Robert Foster v. Jan Rask, et al. rd
 th
   Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit Court, Second Judicial District,
Jones County, Mississippi.
 15




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
    Insurance
    16




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 Surety Bonds and Unsecured Letters of Credit
   2005 Hurricanes
 Hercules 205
 12. Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging Activities
 ,
Business Combinations Business
Combinations Accounting for Costs Associated with Exit or Disposal Activities Accounting for Contingencies.
 Fair Value Measurements Effective
Date of FASB Statement No. 157
 17




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HERCULES OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
UNAUDITED
 ,The Fair Value Option for Financial Assets and Financial Liabilities
 13. Subsequent Events
  18




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  OVERVIEW
     Domestic Offshore
 International Offshore
 Inland
 Domestic Liftboats
 International Liftboats
 Other
  19




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RECENT DEVELOPMENTS
  RESULTS OF OPERATIONS
  20




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##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Domestic Offshore:Number of rigs (as of end of period)
    
    
    28
    
    
    
    6Revenues
    
    $
    62,447
    
    
    $
    42,831Operating expenses
    
    
    47,772
    
    
    
    13,563Depreciation and amortization expense
    
    
    15,335
    
    
    
    2,561General and administrative expenses
    
    
    1,230
    
    
    
    1,942Operating income (loss)
    
    $
    (1,890
    )
    
    $
    24,765International Offshore:Number of rigs (as of end of period)
    
    
    11
    
    
    
    3Revenues
    
    $
    65,343
    
    
    $
    20,876Operating expenses
    
    
    22,792
    
    
    
    7,383Depreciation and amortization expense
    
    
    7,586
    
    
    
    1,368General and administrative expenses
    
    
    615
    
    
    
    530Operating income
    
    $
    34,350
    
    
    $
    11,595Inland:Number of barges (as of end of period)
    
    
    27
    
    
    
    Revenues
    
    $
    40,268
    
    
    $
    Operating expenses
    
    
    31,926
    
    
    
    Depreciation and amortization expense
    
    
    9,660
    
    
    
    General and administrative expenses
    
    
    622
    
    
    
    Operating loss
    
    $
    (1,940
    )
    
    $
    Domestic Liftboats:Number of liftboats (as of end of period)
    
    
    47
    
    
    
    47Revenues
    
    $
    15,944
    
    
    $
    32,703Operating expenses
    
    
    13,894
    
    
    
    13,640Depreciation and amortization expense
    
    
    5,952
    
    
    
    6,070General and administrative expenses
    
    
    649
    
    
    
    538Operating income (loss)
    
    $
    (4,551
    )
    
    $
    12,455International Liftboats:Number of liftboats (as of end of period)
    
    
    18
    
    
    
    17Revenues
    
    $
    18,291
    
    
    $
    14,054Operating expenses
    
    
    7,220
    
    
    
    6,941Depreciation and amortization expense
    
    
    1,984
    
    
    
    1,704General and administrative expenses
    
    
    939
    
    
    
    950Operating income
    
    $
    8,148
    
    
    $
    4,459
 21




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##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007Other:Revenues
    
    $
    11,093
    
    
    $
    Operating expenses
    
    
    9,205
    
    
    
    Depreciation and amortization expense
    
    
    2,575
    
    
    
    General and administrative expenses
    
    
    582
    
    
    
    Operating loss
    
    $
    (1,269
    )
    
    $
    Total Company:Revenues
    
    $
    213,386
    
    
    $
    110,464Operating expenses
    
    
    132,809
    
    
    
    41,527Depreciation and amortization expense
    
    
    43,626
    
    
    
    11,730General and administrative expenses
    
    
    16,364
    
    
    
    9,163Operating income
    
    
    20,587
    
    
    
    48,044Interest expense
    
    
    (15,960
    )
    
    
    (2,090
    )Other, net
    
    
    2,207
    
    
    
    1,275Income before income taxes
    
    
    6,834
    
    
    
    47,229Income tax provision
    
    
    (2,348
    )
    
    
    (13,838
    )Net income
    
    $
    4,486
    
    
    $
    33,391
  Three Months Ended March 31, 2008AverageAverage
    
    
    OperatingOperating
    
    
    Available
    
    
    
    
    
    
    Revenue
    
    
    ExpenseDays
    
    
    Days
    
    
    Utilization (1)
    
    
    per Day (2)
    
    
    per Day (3)Domestic Offshore
    
    
    1,098
    
    
    
    2,002
    
    
    
    54.8
    %
    
    $
    56,873
    
    
    $
    23,862International Offshore
    
    
    654
    
    
    
    709
    
    
    
    92.2
    %
    
    
    99,913
    
    
    
    32,147Inland
    
    
    938
    
    
    
    1,547
    
    
    
    60.6
    %
    
    
    42,930
    
    
    
    20,637Domestic Liftboats
    
    
    1,600
    
    
    
    4,186
    
    
    
    38.2
    %
    
    
    9,965
    
    
    
    3,319International Liftboats
    
    
    1,217
    
    
    
    1,547
    
    
    
    78.7
    %
    
    
    15,030
    
    
    
    4,667
 Three Months Ended March 31, 2007AverageAverage
    
    
    OperatingOperating
    
    
    Available
    
    
    
    
    
    
    Revenue
    
    
    ExpenseDays
    
    
    Days
    
    
    Utilization (1)
    
    
    per Day (2)
    
    
    per Day (3)Domestic Offshore
    
    
    474
    
    
    
    540
    
    
    
    87.8
    %
    
    $
    90,363
    
    
    $
    25,117International Offshore
    
    
    180
    
    
    
    180
    
    
    
    100.0
    %
    
    
    115,978
    
    
    
    41,016Inland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Domestic Liftboats
    
    
    2,667
    
    
    
    4,099
    
    
    
    65.1
    %
    
    
    12,262
    
    
    
    3,328International Liftboats
    
    
    1,162
    
    
    
    1,474
    
    
    
    78.8
    %
    
    
    12,095
    
    
    
    4,709
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##### Table of Contents



(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 $2.0 million and $1.8 million related to amortization of
deferred mobilization revenue and contract specific capital
expenditures reimbursed by the customer for the three months ended
March 31, 2008 and 2007, respectively.(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
$0.8 million and $1.2 million related to amortization of deferred
mobilization expenses for the three months ended March 31, 2008 and
2007, respectively.
 23




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##### Table of Contents



For the Three Months Ended March 31, 2008 and 2007
 Revenues
 Consolidated.
 Domestic Offshore .
 International Offshore .
 Inland.
 Domestic Liftboats.
 International Liftboats.
 Other.
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##### Table of Contents



Operating Expenses
 Consolidated .
 Domestic Offshore .
 International Offshore.
 Inland.
 Domestic Liftboats.
 International Liftboats.
 Other.
 Depreciation and Amortization
  General and Administrative Expenses
  Interest Expense
  Other Income
  25




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##### Table of Contents



Income Tax Provision
  CRITICAL ACCOUNTING POLICIES
   OUTLOOK
 Offshore
    Hercules 261 Hercules 350
  26




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##### Table of Contents



Inland
   Liftboats
    Labor Markets
  27




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Sources and Uses of Cash
  Net Cash Provided by Operating Activities
    
    $
    44.7Net Cash Provided by (Used in) Investing ActivitiesAcquisition of Rigs
    
    
    (230.0
    )Sale of Marketable Securities
    
    
    39.3Additions to Property and Equipment
    
    
    (45.8
    )Deferred Drydocking Expenditures
    
    
    (5.5
    )Proceeds from Sale of Assets, Net
    
    
    1.9Insurance Proceeds Received
    
    
    19.4Total
    
    
    (220.7
    )Net Cash Provided by (Used in) Financing ActivitiesLong-term Debt Payments
    
    
    (2.3
    )Other
    
    
    0.3Total
    
    
    (2.0
    )Net Decrease in Cash and Cash Equivalents
    
    $
    (178.0
    )
  Sources of Liquidity and Financing Arrangements
    Cash Requirements and Contractual Obligations
 Asset Acquisition
  28




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##### Table of Contents



Debt
        Capital Expenditures
 Hercules 185 Hercules 208 Hercules 258 Hercules 260, Hercules 300 Hercules 350
  29




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##### Table of Contents



Contractual Obligations
   Off-Balance Sheet Arrangements
 Guarantees
  Letters of Credit and Surety Bonds
  Accounting Pronouncements
  30




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    our ability to enter into new contracts for our rigs and liftboats and future utilization rates for the units;
    
    the correlation between demand for our rigs and our liftboats and our
earnings and customers expectations of energy prices;
    
    future capital expenditures and refurbishment, repair and upgrade costs;
    
    expected completion times for our refurbishment and upgrade projects;
    
    sufficiency of funds for required capital expenditures, working capital and debt service;
    
    our plans regarding increased international operations;
    
    expected useful lives of our rigs and liftboats;
    
    liabilities under laws and regulations protecting the environment;
    
    expected outcomes of litigation, claims and disputes and their
expected effects on our financial condition and results of operations;
    
    expectations regarding improvements in offshore drilling activity and
dayrates, continuation of current market conditions, demand for our
rigs and liftboats, operating revenues, operating and maintenance
expense, 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 jackup 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 and other oil and
natural gas producing regions or further acts of terrorism in the
United States, or elsewhere;
    
    the impact of governmental laws and regulations;
    
    the adequacy of sources of liquidity;
    
    uncertainties relating to the level of activity in offshore oil and
natural gas exploration, development and production;
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##### Table of Contents




    
    competition and market conditions in the contract drilling and liftboat industries;
    
    the availability of skilled personnel;
    
    labor relations and work stoppages, particularly in the West African labor environments;
    
    operating hazards such as severe weather and seas, fires, cratering,
blowouts, war, terrorism and cancellation or unavailability of
insurance 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
     Interest Rate Swaps and Derivatives
 Liquidity and Capital Resources
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##### Table of Contents



April 1, 2008-June 30, 2008
    
    $
    300,000July 1, 2008-September 30, 2008
    
    
    200,000October 1, 2008-December 31, 2008
    
    
    100,000January 1, 2009-March 31, 2009
    
    
    50,000
 
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  33




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    Maximum Number ofTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    Shares That May Yet Beof Shares
    
    
    Average Price
    
    
    Part of a Publicly
    
    Purchased UnderPeriod
    
    Purchased (1)
    
    
    Paid per Share
    
    
    Announced Plan (2)
    
    Plan (2)January 1 - 31, 2008
    
    
    
    
    
    $
    
    
    
    N/A
    
    N/AFebruary 1 - 29, 2008
    
    
    1,728
    
    
    
    24.44
    
    
    N/A
    
    N/AMarch 1 - 31, 2008
    
    
    
    
    
    
    
    
    
    N/A
    
    N/ATotal
    
    
    1,728
    
    
    
    24.44
    
    
    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
 10.1
    
    Increase Joinder, dated as of April 28, 2008, among Hercules, as borrower, its subsidiaries party thereto, the
incremental lenders and other lenders party thereto, and UBS AG Stamford Branch, as administrative agent for
the lenders party thereto (incorporated by reference to Exhibit 10.1 to Hercules Current Report on Form 8-K
dated April 30, 2008 (File No. 0-51582)).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
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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/ Randall D. StilleyRandall D. StilleyPresident and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ Lisa W. RodriguezLisa W. RodriguezSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
  35




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##### Table of Contents



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