Net income for the year ended December 31, 2006 was $119.1 million, or $3.70 per diluted share, on revenues of $344.3 million, compared to net income of $27.5 million, or $1.08 per diluted share, on revenues of $161.3 million for the year ended December 31, 2005. A one-time gain of $18.6 million, net of tax, ($0.58 per diluted share) was recorded in 2006 related to an insurance claim settlement on the loss of Rig 25 in Hurricane Katrina. Excluding this gain, net income for 2006 was $100.4 million, or $3.12 per diluted share. Net income for 2005 excluding the deferred income tax expense described above was $39.6 million, or $1.56 per diluted share.
At December 31, 2006, the Company's balance sheet reflected total assets of $605.6 million, including cash and cash equivalents of $72.8 million, total debt of $93.3 million and stockholders' equity of $394.9 million.
Randy Stilley, Chief Executive Officer and President of Hercules Offshore, Inc., commented on the results and outlook: "Looking back on 2006, I am proud of the company's significant growth, international diversification and successful integration of several acquisitions. While these efforts should benefit us throughout 2007, we are continuing to seek strategic growth opportunities that will generate attractive returns for the company and our shareholders."
"International demand for both our jackup rigs and liftboats remains strong. While demand for jackups in the U.S. Gulf of Mexico has declined over the last several quarters, it has been largely offset by reductions in supply. We believe the trend for rigs to migrate to international markets will continue and will ultimately improve market conditions during 2007. The outlook for our domestic liftboat business remains solid, although we are currently experiencing a return to the seasonal weather-related downtime, which was not experienced last year due to unusually calm weather and the unique market conditions experienced in the immediate aftermath of the 2005 hurricanes."
Contract Drilling Services Highlights
During the fourth quarter of 2006, revenues from Domestic Contract Drilling Services were $49.1 million, a 104% percent increase over revenues of $24.0 million in the fourth quarter of 2005, which resulted from an increase in operating days and higher average daily revenue per rig. Operating days increased to 549 from 409. The average daily revenue per rig in the segment increased to $89,359 in the fourth quarter of 2006, compared to $58,611 in the fourth quarter of 2005. Fourth quarter operating income increased to $30.4 million in 2006 from $9.5 million in the prior year period. Utilization was 99.5% during the fourth quarter of 2006, compared to 88.9% during the fourth quarter of 2005.
International Contract Drilling Services revenues and operating income were $18.3 million and $8.6 million, respectively, in the fourth quarter of 2006, which included the commencement of operations of Rig 31 late in the third quarter of 2006. Prior to the start-up of Rig 16's operations offshore Qatar during the second quarter of 2006, we did not have international drilling operations. The average daily revenue per rig was $106,403 in the fourth quarter of 2006, and utilization was 93.5%.
Marine Services Highlights
Domestic Marine Services revenues were $38.1 million in the fourth quarter of 2006, up from $21.9 million in the fourth quarter of 2005. Operating income increased to $17.2 million in the fourth quarter of 2006 from $8.0 million in the fourth quarter of 2005. The average daily revenue per liftboat increased to $12,398 in the fourth quarter of 2006 from $7,840 in the fourth quarter of 2005. Utilization for the Company's domestic liftboats decreased to 74.2% in the fourth quarter of 2006 from 82.5% in the fourth quarter of 2005. The total number of operating days increased to 3,072 from 2,787, which reflected the acquisition of six additional liftboats in the second quarter of 2006 and a full quarter of operation for three liftboats acquired in November 2005.
International Marine Services revenues were $9.2 million in the fourth quarter of 2006, up from $2.2 million in the fourth quarter of 2005 reflecting the successful execution of our West Africa liftboat acquisitions. Operating income increased to $2.2 million in the fourth quarter of 2006 from $0.6 million in the fourth quarter of 2005. The average daily revenue per liftboat increased to $11,277 in the fourth quarter of 2006 from $10,243 in the fourth quarter of 2005. Utilization for the Company's international liftboats decreased to 89.2% in the fourth quarter of 2006 from 100.0% in the fourth quarter of 2005. The total number of operating days increased to 818 from 212, which included the acquisition of eight wholly-owned liftboats and the securing of the rights to operate five additional vessels, as well as a full quarter of operation for the four liftboats acquired in November 2005.
Tax and Other
The Company's effective tax rate was 35.1% for the year ended December 31, 2006 and 31.2% for the fourth quarter of 2006. The lower effective tax rate for the fourth quarter as compared to the full-year period was primarily driven by the increasing component of international earnings.
The Company is providing 2006 net income before the gain on the insurance settlement of Rig 25 and 2005 net income before the deferred income tax charge because management believes that these measures better reflect the normal operations of the Company, as these measures exclude significant, one-time items that materially affect period-to-period comparability. The adjusted net income and earnings per share amounts are non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles ("GAAP"). In order to fully assess the Company's financial operation results, management believes that the adjusted net income figures included in this release are appropriate measures of the Company's continuing and normal operations. However, these measures should be considered in addition to, and not as a substitute, or superior to, net income, operating income, cash flows from operations, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table that follows the financial statements.
Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of nine jackup drilling rigs and 64 liftboats. The Company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in shallow waters.
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