Business Combination

9 Months Ended

Sep. 30, 2011

Business Combination [Abstract]

Business Combination

4. Business Combination

     On April 27, 2011, the Company completed its acquisition of 20 jackup rigs and related assets, accounts receivable, accounts payable and certain contractual rights from Seahawk for total consideration of approximately $150.3 million consisting of $25.0 million of cash and 22.1 million shares of Hercules common stock, net of a working capital adjustment. Seahawk operated a jackup rig business that provided contract drilling services to the oil and natural gas exploration and production industry in the Gulf of Mexico.

     The Seahawk Transaction expanded the Company’s jackup fleet and further strengthened the Company’s position as a leading shallow-water drilling provider. The fair value of the shares issued was determined using the closing price of the Company’s common stock of $5.68 on April 27, 2011. The results of Seahawk are included in the Company’s results from the date of acquisition.

     The Company accounted for this transaction as a business combination and accordingly the total consideration was allocated to Seahawk’s net tangible assets based on their estimated fair values. The Company is in the process of finalizing valuations of the property and equipment. Therefore, the valuations of property and equipment are preliminary and are subject to change upon the receipt and management’s review of the final valuations. In addition, certain of the Company’s tax positions are also being reviewed and the valuation of the Company’s deferred taxes are preliminary and are subject to change (See Note 11). The Company has recorded the accounts receivable at estimated fair value which does not include an allowance for doubtful accounts. Upon final valuation of net assets, the excess, if any, of the purchase price over the net assets will be recorded as goodwill, and conversely, if the purchase price is less than the fair value of the net assets, a gain from a bargain purchase will be recorded.

     The preliminary allocation of the consideration is as follows:

	April 27, 2011
	(In thousands)
	(Unaudited)
Accounts Receivable	$	15,366
Property and Equipment, Net		145,404
Total Assets		160,770
Accounts Payable		(10,441	)
Total Preliminary Purchase Price	$	150,329

     The following presents the consolidated financial information for the Company on a pro forma basis assuming the Seahawk Transaction had occurred as of the beginning of the periods presented. The historical financial information has been adjusted to give effect to pro forma items that are directly attributable to the acquisition, factually supportable and with respect to income, are expected to have a continuing impact on consolidated results. These items include adjustments to record the incremental depreciation expense related to the increase in fair value of the acquired assets, the elimination of amounts related to the operations of Seahawk that were not purchased in the transaction as well as the elimination of directly related transaction costs.

     The unaudited financial information set forth below has been compiled from historical financial statements and other information, but is not necessarily indicative of the results that actually would have been achieved had the transaction occurred on the dates indicated or that may be achieved in the future:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
				(In millions, except per share amounts)
Revenue	$	163.0		$	176.2		$	526.0		$	519.0
Net Loss		(16.6	)		(35.2	)		(52.8	)		(80.4	)
Basic loss per share		(0.12	)		(0.26	)		(0.38	)		(0.59	)
Diluted loss per share		(0.12	)		(0.26	)		(0.38	)		(0.59	)

     The amount of revenue and net income related to the net assets acquired from Seahawk included in the Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2011 is as follows (in millions):

	Three months		April 27, 2011
	ended		through
	September		September
	30, 2011		30, 2011
Revenue	$	24.8	$	42.0
Net income		1.1		2.7

     The Company incurred transaction costs in the amount of $0.5 million and $3.6 million for the three and nine months ended September 30, 2011 related to the Seahawk Transaction of which $0.5 million and $3.4 million in the same periods, respectively, are included in General and Administrative on the Consolidated Statements of Operations. The remaining $0.2 million in transaction costs are included in Operating Expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2011.