SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-57325
Chiles Offshore LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 76-0547408
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
<TABLE>
<S> <C> <C>
File No. 333-57325-01 File No. 333-57325-02 File No. 333-57325-03
Chiles Offshore Finance Corp. Chiles Columbus LLC Chiles Magellan LLC
(Exact Name of Registrant as (Exact Name of Registrant as (Exact Name of Registrant as
Specified in its Charter) Specified in its Charter) Specified in its Charter)
Delaware Delaware Delaware
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization)
76-0568691 76-0568690 76-0568689
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
</TABLE>
11200 Westheimer, Suite 410, Houston, Texas 77042-3227
(Address of Principal Executive Offices) (Zip Code)
(713) 339-3777
(Registrants' Telephone Number, Including Area Code)
Indicate by check mark whether each of the registrants: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes[ ] No[X]
The number of shares of common stock of Chiles Offshore Finance Corp.
outstanding on November 12, 1998 was 1,000 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CHILES OFFSHORE LLC
(A Delaware Limited Liability Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 32,341,117 $ 611,678
Cash restricted for interest payments........... - 11,061,111
Interest receivable............................. - 573,445
Prepaid expenses................................ 37,112 23,896
------------------------- ------------------------
Total current assets.................... 32,378,229 12,270,130
RIGS UNDER CONSTRUCTION AND EQUIPMENT................ 35,026,044 90,094,726
Less accumulated depreciation................... (5,953) (44,396)
------------------------- ------------------------
Net rigs under construction and equipment. 35,020,091 90,050,330
CASH RESTRICTED FOR RIGS UNDER
CONSTRUCTION.............................. - 72,216,102
OTHER ASSETS......................................... - 4,067,124
------------------------- ------------------------
TOTAL ASSETS............................ $ 67,398,320 $178,603,686
========================= ========================
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILILTIES:
Accounts payable................................ $ 3,950,236 $ -
Accrued liabilities............................. 26,489 4,913,310
------------------------- ------------------------
Total current liabilities............... 3,976,725 4,913,310
Commitments and contingencies........................ - -
10% senior notes..................................... - 110,000,000
MEMBERS' EQUITY:
Capital contributions, net of offering costs.... 63,730,707 63,730,707
Cumulative losses since inception............... (309,112) (40,331)
------------------------- ------------------------
Total members' equity................... 63,421,595 63,690,376
------------------------- ------------------------
Total Liabilities and Members' Equity... $ 67,398,320 $ 178,603,686
========================= ========================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CHILES OFFSHORE LLC
(A Delaware Limited Liability Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Period For the For the Period For the
from Inception Three Months from Inception Nine Months
(August 5, 1997) to Ended (August 5, 1997) to Ended
September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
REVENUE............................ - - - -
OPERATING EXPENSES:
General & administrative expenses. $ 931,140 $ 186,128 $ 114,521 $ 555,058
Depreciation..................... 44,392 17,400 514 38,433
-------------------- -------------------- -------------------- --------------------
Operating loss............... (975,532) (203,528) (115,035) (593,491)
INTEREST INCOME.................... 2,627,273 1,603,549 - 2,554,343
INTEREST EXPENSE................... (1,692,072) (857,240) - (1,692,072)
-------------------- -------------------- -------------------- --------------------
NET INCOME (LOSS).................. $ (40,331) $ 542,781 $ (115,035) $ 268,780
==================== ==================== ==================== ====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CHILES OFFSHORE LLC
(A Delaware Limited Liability Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Period For the For the Period For the
from Inception Three Months from Inception Nine Months
(August 5, 1997) to Ended (August 5, 1997) to Ended
September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1998
--------------------- ------------------- ---------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ (40,331) $ 542,781 $ (115,035) $ 268,780
Adjustments to reconcile net loss to net cash
provided by (required by) operating
activities -
Depreciation.............................. 44,392 17,400 514 38,443
Amortization of deferred expenses......... 176,137 106,492 - 176,137
Increase (decrease) in operating cash flows
resulting from-
Interest receivable....................... (573,645) (573,445) - (573,445)
Accounts payable.......................... (67,602) (645,421) 72,073 (3,950,236)
Accrued liabilities....................... 4,913,310 2,799,920 161,843 4,886,821
Other..................................... (39,456) 1,549 (7,042) (5,044)
--------------------- ------------------- ---------------------------------------
Net cash provided by (used in) operating
activities.............................. 4,412,805 2,249,276 112,353 841,456
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......... (60,283,798) (21,146,675) (9,158,039) (55,068,682)
--------------------- ------------------- ---------------------------------------
Net cash required by investing activities (60,283,798) (21,146,675) (9,158,039) (55,068,682)
CASH FLOWS FROM FINANCING ACTIVITIES:
Membership capital contributions, net........ 33,984,884 - 9,214,000 -
Net proceeds from issuance of notes.......... - - - -
Net proceeds from issuance of senior notes... 105,775,000 (529,689) - 105,775,000
--------------------- ------------------- ---------------------------------------
Net cash provided by financing activities 139,759,884 (529,689) 9,214,000 105,775,000
RESTRICTED CASH, beginning of period............. - 95,908,713 - -
NET INCREASE (DECREASE) IN RESTRICTED CASH....... 83,277,213 (12,631,500) - 83,277,213
--------------------- ------------------- ---------------------------------------
RESTRICTED CASH, end of period................... 83,277,213 83,277,213 - 83,277,213
--------------------- ------------------- ---------------------------------------
NET INCREASE (DECREASE) IN CASH.................. 611,678 (6,795,588) 168,314 (31,729,439)
CASH AND CASH EQUIVALENTS, beginning of period... - 7,407,266 - 32,341,117
--------------------- ------------------- ---------------------------------------
CASH AND CASH EQUIVALENTS, end of period......... $ 611,678 $ 611,678 $ 168,314 $ 611,678
===================== =================== =======================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash investing activities -
Purchase of property in exchange for
membership interest....................... $21,260,000 - $12,641,716 -
Noncash financing activities -
Receipt of net assets in exchange for
membership interest....................... $ 8,486,000 - $ 8,486,000 -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
CHILES OFFSHORE LLC
(A Delaware Limited Liability Company in the Development Stage)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
SEPTEMBER 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Capitalized Interest
The Company capitalizes interest applicable to the construction of
offshore drilling rigs as a cost of such assets. Interest capitalized for the
three months ended September 30, 1998 and 1997 was $2.0 million and $0,
respectively, and for the nine months ended September 30, 1998 and the period
from inception (August 5, 1997) to September 30, 1997 was $3.1 million and $0,
respectively. Interest expense is shown net of interest capitalized in the
Consolidated Statement of Operations.
2. BASIS OF PRESENTATION
Chiles Offshore LLC (the "Company") is engaged in the construction of
offshore drilling rigs which will be contracted to oil and gas operators upon
completion of construction. The Company was formed under the laws of the State
of Delaware on August 5, 1997. The Company has operated as a development stage
company since its inception by devoting substantially all of its efforts to
designing, engineering and contracting with shipyards and vendors for two
offshore drilling rigs, raising capital and securing contracts for the rigs. The
Company has not generated revenues, nor is there any assurance that the Company
will generate significant revenues in the future. In addition, there can be no
assurance that the Company will successfully complete the transition from a
development stage company to successful operations. Additional risk factors
associated with the Company's operations include, but are not limited to, oil
and gas prices, capital expenditure plans of oil and gas operators, access to
capital, completion of construction of the rigs and competition. As a result of
the aforementioned factors, and the related uncertainties, there can be no
assurance of the Company's future success. The Company had a loss from
operations of $975,532 for the period from inception to September 30, 1998.
Management is currently pursuing a business strategy which includes obtaining
drilling contracts with oil and gas operators, employment of rig personnel,
selection and procurement of drilling equipment and overseeing the construction
of the rigs and installation of drilling equipment. There is no assurance that
this business strategy will be achieved. While pursuing this business strategy,
the Company will experience cash flow deficits until the rig construction is
completed and the rigs are placed in operation. As a result of the
aforementioned factors and related uncertainties, there is substantial doubt as
to the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal and recurring adjustments necessary to present a fair statement
of the results for the periods included herein) have been made and the
disclosures contained herein are adequate to make the information presented not
misleading. Operating results for the three and nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Registration Statement on Form S-4 (No. 333-57325). Chiles Offshore LLC has
three wholly owned subsidiaries, Chiles Offshore Finance Corp. ("Finance"),
Chiles Columbus LLC ("Columbus") and Chiles Magellan LLC ("Magellan").
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3. NOTES PAYABLE
Long-term debt at September 30, 1998 consisted solely of 10% Senior
Notes (the "Notes") due 2008 in the aggregate principal amount of $110.0
million. The Notes were co-issued by the Company jointly with Finance (the
"Issuers"). The Notes are guaranteed by Columbus and Magellan, jointly and
severally, on an unsecured basis. The Issuers received net proceeds from the
Notes of approximately $105.8 million after deducting estimated offering-related
expenses. The net proceeds of the Notes have been placed in escrow to partially
fund the construction of two rigs and pay the first two semi-annual interest
installments. The Notes are redeemable in May 2003, at a premium to par, except
that until May 2001, up to 35% of the Notes may be redeemable with the proceeds
of a public equity offering, also at a premium to par, both at the option of the
Issuers.
4. BANK FACILITY
The Company has entered into an agreement with two banks to provide a
revolving credit facility of $25.0 million (the "Bank Facility"). The Bank
Facility will be available to the Company upon delivery of the first of the two
rigs. The Bank Facility will bear interest at the rate of LIBOR plus 1.25% and
matures on December 31, 2004, at which time the outstanding principal amount
will be due. The Bank Facility is guaranteed by Columbus and Magellan.
5. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with a shipyard and various
equipment vendors for delivery of two mobile offshore drilling rigs, Chiles
Columbus and Chiles Magellan, at a combined cost of approximately $171.3
million, exclusive of interest during construction and costs associated with
arranging financing. At September 30, 1998, the Company had outstanding purchase
commitments of approximately $82.0 million with respect to these rigs and
equipment. These amounts will become payable in future periods in accordance
with terms of the construction contract and vendor agreements. The Chiles
Columbus is scheduled for delivery in the second quarter of 1999 and the Chiles
Magellan is scheduled for delivery in the third quarter of 1999. The Company
expects to finance these costs with the net cash proceeds of the equity
financing completed in 1997, the issuance of the Notes and the Bank Facility.
Although availability under the Bank Facility will commence only upon the first
delivery of a rig, the Company expects that with the net cash proceeds from the
sale of equity and Notes in combination with the Bank Facility, it will be able
to finance the construction and outfitting cost required to place the rigs in
service.
6. COMPREHENSIVE INCOME
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), was issued. SFAS established
standards for reporting and display of comprehensive income and its component in
a full set of general purpose financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. The Company has
no non-owner changes in equity during the nine months ended September 30, 1998
and therefore, no reporting and display of comprehensive income was required.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company (including the Notes thereto)
included elsewhere in this Quarterly Report on Form 10-Q.
The Company is a development stage company formed in August 1997 for
the purpose of constructing, owning and operating a fleet of state-of-the-art
premium jackup offshore drilling rigs. At formation of the Company, COI, LLC
(an entity formed by members of management of the Company and certain other
investors) contributed $0.36 million in cash to the capital of the Company and
assets with an agreed-upon value of $8.5 million and a historical cost of $2.3
million. The difference of $6.2 million between such agreed-upon value and
historical cost has been recorded on the balance sheet of the Company as rigs
6
<PAGE>
under construction and equipment. At formation of the Company and in the final
phase of the Company's equity financing, which was completed in December 1997
(the "Equity Financing"), SEACOR SMIT Inc. contributed an aggregate of $35.0
million in cash. Other accredited investors contributed $20.0 million in cash
in the Equity Financing.
In April 1998, the Company completed a private placement of $110.0
million of 10% Senior Notes due 2008 (the "Notes") issued by the Company and
Chiles Offshore Finance Corp., a wholly-owned subsidiary of the Company. The
Company received net proceeds of $105.8 million from the issuance and sale of
the Notes. Also in April 1998, the Company entered into a $25.0 million credit
agreement with two banks (the "Bank Facility"). In September 1998, the Company
completed a registered exchange offer for the Notes issued in the private
placement (the "Exchange Offer"). In the Exchange Offer, all of the Notes
issued in the private placement were exchanged for substantially identical
Notes that were registered under the Securities Act of 1933, as amended.
The Company is constructing two jackup drilling rigs, the Chiles
Columbus and the Chiles Magellan (the "Rigs"), at a shipyard in Brownsville,
Texas. The Chiles Columbus is scheduled for delivery at the end of April 1999
and the Chiles Magellan is scheduled for delivery in September 1999. The Company
is currently engaged in Rig-related design, engineering, procurement and
financing activities and is preparing for the commencement of business
operations of the Rigs. As of September 30, 1998, the Company had approximately
$83.9 million of cash on hand, of which amount $83.3 million was restricted for
construction of the Rigs and the first two semi-annual interest payments on the
Notes. The Company has been informed by the shipyard that, as of September 30,
1998, construction of the Chiles Columbus is approximately 65% complete and the
Chiles Magellan is approximately 23% complete.
On October 31, 1998, the Company's letter of intent with a group of
equity funds for a potential equity investment in the Company, and related
negotiations, terminated.
Development Stage Company
The Company has operated as a development stage company since inception
by devoting substantially all of its efforts to designing, engineering and
contracting with shipyards and vendors for the Rigs, raising capital and
securing contracts for the Rigs. The Company has not generated operating
revenues, nor is there any assurance that the Company will generate significant
operating revenues in the future. In addition, there can be no assurance that
the Company will successfully complete the transition from a development stage
company to successful operations. Additional risk factors associated with the
Company's operations include, but are not limited to, oil and gas prices,
capital expenditure plans of oil and gas operators, access to capital,
completion of construction of the Rigs and competition. As a result of the
aforementioned factors and the related uncertainties, there can be no assurance
of the Company's future success.
The Company had a loss from operations of approximately $0.59 million
and $0.98 million for the nine months ended September 30, 1998 and for the
period from inception to December 31, 1997, respectively. The Company's
management is currently pursuing a business strategy that includes obtaining
drilling contracts with oil and gas operators, employment of rig personnel,
completing the construction of the Rigs and the purchase of drilling equipment,
and overseeing the construction of the Rigs and installation of the drilling
equipment. There can be no assurance that this business strategy will be
achieved. While pursuing this business strategy, the Company will experience
cash flow deficits until construction is completed and the Rigs are placed in
operation. As a result of the aforementioned factors and related uncertainties,
there is substantial doubt as to the Company's ability to continue as a going
concern. The Company's financial statements included elsewhere herein do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Results of Operations
Since inception, the Company has engaged in no operations other than
managing construction of the Rigs and related matters. The Company has not
generated any operating revenues to date. From inception to September 30, 1998,
the Company has had a net loss of approximately $0.04 million as a result of
general and administrative expenses and depreciation in excess of interest
income. For the nine months ended September 30, 1998, the Company had net income
7
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of approximately $0.3 million as a result of interest income in excess of
general and administrative expenses, depreciation and interest expense. For the
three months ended September 30, 1998, the Company had net income of
approximately $0.5 million as a result of interest income in excess of general
and administrative expenses, depreciation and interest expense.
Outlook
The Company's business and operations are materially dependent upon the
condition of the oil and natural gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. Due to the Company's
initial focus on the Gulf of Mexico, the Company's business and operations will
be particularly dependent upon the condition of the oil and natural gas industry
in the Gulf of Mexico and on the exploration and production expenditures of oil
and gas companies there. The offshore contract drilling industry historically
has been and is expected to continue to be highly competitive and cyclical.
Depressed product prices in the oil and gas industry have resulted in declining
dayrates and decreased utilization, primarily in the shallow waters of the Gulf
of Mexico, and excess supply in the current jackup market. Although the first of
the two Rigs is not scheduled for delivery until the end of April 1999, the
current trends in market conditions could have a material adverse effect on the
Company's future results of operations, although the extent of such effect
cannot be accurately predicted.
Liquidity and Capital Resources
Since inception, the Company has had negative cash flow, excluding
interest income, and has financed its operations with a combination of the sale
of equity interests in the Company and the issuance and sale of the Notes. From
October 1, 1998 through the scheduled delivery dates of the Rigs, the Company
expects to incur approximately $86.5 million in aggregate costs to complete
construction and outfitting of the Rigs, including internal construction costs
and excluding net capitalized interest. The shipyard construction contracts are
fixed-price contracts, except for any approved change orders, and approximately
95% of the aggregate cost of owner furnished equipment is fixed under firm
delivery contracts with various vendors. The Company expects to finance these
costs with the net cash proceeds of the Equity Financing completed in l997, the
net proceeds from the issuance and sale of the Notes and the Bank Facility.
Although availability under the Bank Facility will commence only upon the
delivery of the first of the two Rigs, the Company expects that with the net
cash proceeds from the sale of equity interests and the Notes, in combination
with the Bank Facility, it will be able to finance the construction and
outfitting costs required to place the Rigs in service. As of September 30,
1998, the Company had approximately $83.9 in million cash on hand, of which
amount $83.3 million was restricted for construction of the Rigs and the first
two semi-annual interest payments on the Notes. As of September 30, 1998, the
Company had $110.0 million of long term debt related to the Notes. Additionally,
when the first Rig is placed in operation, any cash flow from operations of such
Rig and borrowings under the Bank Facility would be available to cover the
remaining construction, outfitting and overhead costs and working capital
requirements associated with the second Rig.
Because the Rigs are newbuilds, the Company does not expect to incur
material additional capital expenditures associated with the Rigs in the
foreseeable future. The Company has not budgeted for any mobilization of either
rig from the Gulf of Mexico to another market which, if it occurs, could
materially increase Rig operating expense levels and reduce revenues while
either Rig is in transit and not working. Any unanticipated capital expenditures
or mobilizations could adversely affect cash flow from operations and operating
income in the period incurred, although the Company believes that availability
under the Bank Facility would be adequate to address any short-term capital or
liquidity needs created by such an event.
In addition to capital requirements associated with Rig construction,
the Company has significant debt service obligations, principally with respect
to the Notes. As the Notes bear interest at a rate of 10% per annum, the Company
will require $11.0 million per year to cover interest on the Notes as long as
all of the Notes are outstanding. Semi-annual interest payments on the Notes are
due on May 1 and November 1, commencing November 1, 1998. Interest on the Notes
through the first two semi-annual interest payment dates will be paid from
amounts held in restricted cash accounts. Thereafter, the Company expects to
finance debt service on the Notes and on borrowings outstanding under the Bank
Facility with cash flow from operations and, if necessary, additional borrowings
under the Bank Facility.
8
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Year 2000 Issues
The Company has initiated and is in the process of carrying out an
assessment of Year 2000 ("Y2K") compliance issues. Although the Company has been
in existence only since August 1997, and since its inception the Company has
acquired only new systems, equipment, components and related software, a full
assessment of the Company's Y2K compliance is now underway. The Y2K assessment
being undertaken by the Company is designed to review all of the Company's
systems and equipment with respect to Y2K compliance. This assessment includes a
review of both information technology ("IT") systems (e.g., computer hardware
and software) and non-information technology ("non-IT") systems (e.g., embedded
technology such as microcontrollers). As part of the assessment, the Company is
seeking to obtain certification of Y2K compliance from its vendors and
suppliers. The Company's administrative IT systems are stand-alone, standard
products that have not been custom developed or modified. The Company will seek
to obtain certifications from the vendors of such systems as to their Y2K
compliance. The Company will also acquire certain specialized IT systems and
expects to obtain certification of their Y2K compliance prior to acquisition and
installation of such specialized IT systems. Those vendors that are unable to
provide Y2K compliance certification, if any, will be requested to provide
replacement components or systems that are Y2K compliant under warranty
provisions of the Company's purchase agreements. This phase of the Company's Y2K
assessment is expected to be completed, with respect to the Company's currently
existing vendor relationships, during the second quarter of 1999. The Company
also has a program underway requesting Y2K compliance certifications from its
suppliers. This program is expected to be completed during the second quarter of
1999.
As the Company is a development stage company, it presently does not
have any operating revenues or customers. The Company will initiate a program to
identify any other third parties with whom a material relationship exists. The
Company will seek to obtain certification of Y2K compliance from any such third
parties. If any such third parties are unable to provide such certification, the
Company will seek to minimize any negative effect of such non-compliance on the
Company until the third party becomes Y2K compliant or until an alternative
relationship is established.
As of September 30, 1998, the Company has incurred nominal
administrative cost in conducting its Y2K compliance program. Early results of
this program have not identified any system, equipment, component or software
owned or used by the Company that is not Y2K compliant. Although the total cost
to complete the Company's Y2K program cannot be determined at this time, it is
not expected to be material because all of the Company's IT and non-IT equipment
has been purchased within the last two years, and the procurement arrangements
of the Company for such equipment require vendors to provide only Y2K compliant
items. Such procurement arrangements also require that any such equipment that
is not Y2K compliant be replaceable under the applicable warranty provisions.
The Company is in the process of developing contingency plans which are
intended to address worst-case business interruptions, such as future
interruptions of drilling services aboard the Rigs after they begin operations
or interruptions in the delivery of equipment and materials to be utilized in
the Company's future drilling operations. The Company anticipates that its
contingency planning phase will be completed by mid-1999. The Company's failure
to fully implement its Y2K program or the occurrence of an unexpected Y2K
problem could result in the disruption of normal business activities or
operations and have a material adverse effect on the Company's results of
operations, liquidity or financial condition. However, based upon the work
performed to date and the anticipated completion of the Company's Y2K program by
mid-1999, the Company does not believe that such matters will have a material
adverse effect on its results of operations. However, with respect to third
parties there can be no assurance that their systems will be rendered Y2K
complaint on a timely basis or that any resulting Y2K issues would not have a
material adverse effect on the results of operations of the Company.
Forward-Looking Statements
Certain written and oral statements made or incorporated by reference
from time to time by the Company or its representatives are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any statement
that may project, indicate or imply future results, performance or achievements,
and may contain the words "expect," "intend," "plan," "anticipate," "estimate,"
"believe," "will be," "will continue," "will likely result," and similar
expressions. Such statements inherently are subject to a variety of risks and
9
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uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, operating difficulties arising from shortages of
equipment or qualified personnel or as a result of other causes, casualty
losses, industry fleet capacity, changes in foreign and domestic oil and gas
exploration and production activity, competition, changes in foreign political,
social and economic conditions, regulatory initiatives and compliance with
governmental regulations, the ability to attract and retain qualified personnel,
customer preferences and various other matters, many of which are beyond the
Company's control. The list of risks included here is not exhaustive. Other
sections of this Report and the Company's other filings with the Securities and
Exchange Commission include additional factors that could adversely impact the
Company's business and financial performance. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements. The forward-looking statements in this Report speak only as of the
date of this Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any
forward-looking statement is based.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
None.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index for a list of the exhibits to this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by any of the Registrants during the
quarterly period covered by this Report.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, each of the Registrants has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHILES OFFSHORE LLC
CHILES OFFSHORE FINANCE CORP.
CHILES COLUMBUS LLC
CHILES MAGELLAN LLC
By: /s/ Dick H. Fagerstal
--------------------------------------------
Dick H. Fagerstal
Senior Vice President, Chief Financial
Officer and Secretary
By: /s/ William A. Thorogood
--------------------------------------------
William A. Thorogood
Vice President - Controller
Dated: November 13, 1998
11
<PAGE>
EXHIBIT INDEX
3.1 Limited Liability Company Certificate of Chiles Offshore LLC
(incorporated by reference to Exhibit 3.1 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))
3.2 Amended and Restated Operating Agreement, dated as of December 16,
1997, among the members of Chiles Offshore LLC (incorporated by
reference to Exhibit 3.2 to the Registrants' Registration Statement on
Form S-4 (Registration No. 333-57325))
3.3 Amendment No. 1, dated effective as of April 28, 1998, to Amended and
Restated Operating Agreement of Chiles Offshore LLC, among the members
of Chiles Offshore LLC (incorporated by reference to Exhibit 3.3 to the
Registrants' Registration Statement on Form S-4 (Registration No.
333-57325))
3.4 Certificate of Incorporation of Chiles Offshore Finance Corp.
(incorporated by reference to Exhibit 3.4 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))
3.5 Bylaws of Chiles Offshore Finance Corp. (incorporated by reference to
Exhibit 3.5 to the Registrants' Registration Statement on Form S-4
(Registration No. 333-57325))
3.6 Certificate of Formation of Chiles Columbus LLC (incorporated by
reference to Exhibit 3.6 to the Registrants' Registration Statement on
Form S-4 (Registration No. 333-57325))
3.7 Limited Liability Company Agreement of Chiles Columbus LLC
(incorporated by reference to Exhibit 3.7 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))
3.8 Certificate of Formation of Chiles Magellan LLC (incorporated by
reference to Exhibit 3.8 to the Registrants' Registration Statement on
Form S-4 (Registration No. 333-57325))
3.9 Limited Liability Company Agreement of Chiles Magellan LLC
(incorporated by reference to Exhibit 3.9 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))
4.1 Indenture, dated as of April 29, 1998, among the Registrants and U.S.
Bank Trust National Association, as Trustee (incorporated by reference
to Exhibit 4.1 to the Registrants' Registration Statement on Form S-4
(Registration No. 333-57325))
4.2 Form of Note (included in Exhibit 4.1 as Exhibit B thereto)
4.3 Registration Rights Agreement, dated as of April 29, 1998, among the
Registrants, Credit Suisse First Boston Corporation and Wasserstein
Perella Securities, Inc. (incorporated by reference to Exhibit 4.4 to
the Registrants' Registration Statement on Form S-4 (Registration No.
333-57325))
27.1 Financial Data Schedule (filed herewith)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHILES OFFSHORE LLC CONTAINED IN THE ACCOMPANYING
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 612
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,270
<PP&E> 90,095
<DEPRECIATION> 44
<TOTAL-ASSETS> 178,603
<CURRENT-LIABILITIES> 4,913
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> 63,731
<TOTAL-LIABILITY-AND-EQUITY> 178,603
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,692
<INCOME-PRETAX> 269
<INCOME-TAX> 0
<INCOME-CONTINUING> 269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
