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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, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-16005
CHILES OFFSHORE INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0656029
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
11200 RICHMOND, SUITE 490
HOUSTON, TEXAS, 77082-2618
(713) 339-3777
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of the Registrant's Principal Executive Offices)
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[ X ] No[ ]
The number of shares of the registrant's Common Stock, par value $.01
per share outstanding as of November 10, 2000 was 17,687,241.
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NY2:\980613\06\73293.0016
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILES OFFSHORE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 67,657,680 $ 3,951,739
Accounts receivable ................................ 8,719,380 3,753,431
Other current assets ............................... 1,414,676 231,799
------------- -------------
Total current assets .......................... 77,791,736 7,936,969
------------- -------------
PROPERTY AND EQUIPMENT:
Drilling rigs and equipment ........................ 197,043,908 194,237,362
Less: accumulated depreciation ..................... (7,830,849) (2,540,171)
------------- -------------
Net drilling rigs and equipment ............... 189,213,059 191,697,191
Rig under construction ............................. 15,990,215 -
------------- -------------
Total property and equipment .................. 205,203,274 191,697,191
DEFERRED DEBT ISSUANCE COSTS AND OTHER, net ............. 1,119,745 3,611,769
------------- -------------
Total assets .................................. $ 284,114,755 $ 203,245,929
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................... $ 5,661,816 $ 6,865,056
Accrued liabilities ................................ 6,527,482 1,380,421
Accrued interest ................................... 141,705 1,922,133
Deferred revenue ................................... - 1,500,000
------------- -------------
Total current liabilities ..................... 12,331,003 11,667,610
BANK LINE OF CREDIT ..................................... - 22,000,000
LONG-TERM DEBT .......................................... - 95,000,000
DEFERRED TAX LIABILITY .................................. 26,590,967 -
------------- -------------
Total liabilities ............................. 38,921,970 128,667,610
------------- -------------
STOCKHOLDERS' EQUITY:
Capital contributions, net of offering costs ....... - 78,677,375
Common stock, par value $0.01 per share; 100,000,000
shares authorized, 17,687,241 shares issued
and outstanding .................................. 176,872 -
Additional paid-in capital ......................... 274,027,387 -
Retained deficit ................................... (29,011,474) (4,099,056)
------------- -------------
Stockholders' equity ............................... 245,192,785 74,578,319
------------- -------------
Total liabilities and stockholders' equity .... $ 284,114,755 $ 203,245,929
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith.
2
<PAGE>
CHILES OFFSHORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the For the
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUE ............................ $ 16,015,321 $ 2,350,025 $ 38,670,395 $ 2,877,934
OPERATING EXPENSES:
Rig operating expenses ........... 4,879,608 1,666,486 12,473,423 2,069,107
Charter expenses ................. 2,468,525 - 3,929,831 -
General & administrative
expenses ..................... 701,558 382,303 2,047,596 826,421
Depreciation ..................... 1,801,082 874,321 5,324,540 1,096,448
------------ ------------ ------------ ------------
Operating income (loss) ...... 6,164,548 (573,085) 14,895,005 (1,114,042)
INTEREST INCOME .................... 207,476 55,229 359,940 778,659
INTEREST EXPENSE,
net of capitalized interest ..... (2,154,603) (1,018,109) (7,944,752) (1,393,498)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS ................. 4,217,421 (1,535,965) 7,310,193 (1,728,881)
PROVISION FOR INCOME TAXES:
Current .......................... - - - -
Deferred ......................... (27,614,462) - (27,614,462) -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS ................. (23,397,041) (1,535,965) (20,304,269) (1,728,881)
------------ ------------ ------------ ------------
EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF
DEBT, NET OF TAX ................... (1,819,548) - (1,819,548) -
------------ ------------ ------------ ------------
NET INCOME (LOSS) .................. $(25,216,589) $ (1,535,965) $(22,123,817) $ (1,728,881)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
Basic:
Income (Loss) before extraordinary
loss .......................... $ (2.49) $ (0.31) $ (2.61) $ (0.34)
Extraordinary loss ............... (0.20) - (0.24) -
------------ ------------ ------------ ------------
Net income (loss) ............. $ (2.69) $ (0.31) $ (2.85) $ (0.34)
============ ============ ============ ============
Diluted:
Income (Loss) before extraordinary
loss .......................... $ (2.49) $ (0.31) $ (2.61) $ (0.34)
Extraordinary loss ............... (0.20) - (0.24) -
------------ ------------ ------------ ------------
Net income (loss) ............. $ (2.69) $ (0.31) $ (2.85) $ (0.34)
============ ============ ============ ============
Weighted average common shares
outstanding: (restated to reflect
change in corporate form)
Basic ............................ 9,388,466 5,014,338 7,766,876 5,014,338
Diluted .......................... 9,388,466 5,014,338 7,766,876 5,014,338
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith.
3
<PAGE>
CHILES OFFSHORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CHILES OFFSHORE LLC CHILES OFFSHORE INC.
--------------------------------- -----------------------------------------------------
Retained Additional
Members' Earnings Common Paid In Retained
Equity (Deficit) Rights Stock Capital Deficit Total
--------- ------------ --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1999........... $78,221,235 $(4,099,056) $ 456,140 $ - $ - $ - $ 74,578,319
Capital contributions, May, 2000...... 32,789,883 - - - - - 32,789,883
Net income, January 1, 2000
through September 21, 2000............ - 6,887,657 - - - - 6,887,657
Exchange of membership interests for
shares of common stock, September 22,
2000................................. (111,011,118) - - 84,858 110,926,260 - -
Transfer Chiles Offshore LLC retained
earnings to Chiles Offshore Inc.
additional paid in capital............ - (2,788,601) - - 2,788,601 - -
Exercise of rights,
September 22, 2000.................... - - (456,140) 2,314 3,453,826 - 3,000,000
Net proceeds from public offering of
common stock, September 22, 2000...... - - - 89,700 156,858,700 - 156,948,400
Net loss, September 22, 2000 through
September 30, 2000.................... - - - - - (29,011,474) (29,011,474)
--------- ------------ --------- ----------- ------------ ------------ ------------
BALANCES, September 30, 2000.......... $ - $ - $ - $ 176,872 $274,027,387 $(29,011,474) $245,192,785
========= ============ ========= ============ ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement and should be read in conjunction herewith.
4
<PAGE>
CHILES OFFSHORE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Nine Months Nine Months
Ended Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $(22,123,817) $(1,728,881)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Deferred income taxes..................... 27,614,462 -
Depreciation.............................. 5,324,540 1,096,448
Amortization of deferred expenses......... 327,540 53,212
Extraordinary loss on extinguishment
of debt ................................ 1,819,548 -
Increase (decrease) in operating cash flows
resulting from-
Trade receivables......................... (4,965,949) (2,002,743)
Accounts payable.......................... (1,328,240) 1,850,600
Accrued liabilities....................... 5,147,061 415,762
Accrued interest payable.................. (1,780,428) 2,780,438
Deferred revenue.......................... (1,500,000) -
Prepaid expenses and other................ (1,861,436) 115,946
------------------ ------------------
Net cash provided by operating
activities.............................. 6,673,281 2,580,782
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......... (18,830,623) (69,981,605)
------------------ ------------------
Net cash used in investing activities... (18,830,623) (69,981,605)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Membership capital contributions, net........ 32,789,883 -
Exercise of warrants......................... 3,000,000 -
Proceeds from bank facility.................. 16,860,000 10,000,000
Repayment of bank facility .................. (38,860,000) -
Repurchase and retirement of senior notes.... (94,875,000) -
Net proceeds from public offering............ 156,948,400 -
------------------ ------------------
Net cash provided by financing activities 75,863,283 10,000,000
RESTRICTED CASH, beginning of period............. - 62,213,512
RESTRICTED CASH, end of period................... - -
------------------ ------------------
NET (INCREASE) DECREASE IN RESTRICTED CASH....... - 62,213,512
------------------ ------------------
NET INCREASE (DECREASE) IN CASH.................. 63,705,941 4,812,689
CASH AND CASH EQUIVALENTS, beginning of period... 3,951,739 -
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period......... $67,657,680 $ 4,812,689
------------------ ------------------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest, net of capitalized $(9,360,950) $(1,724,213)
interest....................................
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith
5
<PAGE>
CHILES OFFSHORE INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
Chiles Offshore Inc. (the "Company") is engaged in the construction and
operation of mobile offshore drilling rigs (each a "Rig," and collectively, the
"Rigs") with the current primary operating area in the U.S. Gulf of Mexico. The
Company presently operates three jackup drilling Rigs, two owned and one
chartered. The Company has two additional jackup drilling Rigs under
construction and an agreement to acquire the presently chartered rig in exchange
for a combination of stock of the Company and assumption of the then outstanding
debt related to the rig. The Company was originally formed as Chiles Offshore
LLC under the laws of the State of Delaware as a limited liability company on
August 5, 1997, and converted to a corporate form on September 22, 2000 in
conjunction with the Company's initial public common stock offering ("IPO"). In
connection with the conversion, the membership interests of the members of
Chiles Offshore LLC were converted at the rate of 52.7825 shares of common stock
of the Company for each membership interest, with a total 8,485,810 shares of
common stock issued to Chiles Offshore LLC members. The number of shares of
common stock of the Company received by each member of Chiles Offshore LLC was
in proportion to each member's previous membership interest in Chiles Offshore
LLC immediately prior to the IPO. In connection with the IPO, the Company sold
8,970,000 common shares for approximately $157 million of net proceeds and had
17,687,241 common shares outstanding at September 30, 2000. Immediately prior to
the IPO, rights for membership interests in Chiles Offshore LLC (representing
231,431 shares of common stock after the IPO) were exercised for $3 million. The
Company's common stock is traded on the American Stock Exchange under the
trading symbol "COD". The Company used approximately $99 million of the IPO
proceeds to repurchase and retire substantially all of its outstanding Senior
Notes (as defined in Note 5) and accrued interest, to repay $7 million on the
Bank Facility (as defined in Note 6) with accrued interest, and expects to use
the remaining IPO proceeds to fund a portion of the costs required to further
expand the rig fleet and for other corporate purposes.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue:
Drilling contracts are on a day rate basis, and revenue and drilling
expenses are recognized as work progresses. Mobilization revenue and expenses
are reported net and are included in revenue.
Restricted cash:
As of September 30, 2000, included in the Company's cash and cash
equivalents is $1.5 million restricted to use in the operations of the chartered
rig, the Tonala.
Capitalized interest:
The Company capitalizes interest applicable to the construction of
offshore drilling rigs as a cost of such assets. Capitalized interest for the
nine months ended September 30, 2000 and September 30, 1999 was $0.5 million and
$7 million, respectively. Interest expense is shown net of capitalized interest
in the Consolidated Statements of Operations.
Newly issued accounting standards:
In December 1999, SEC Staff Accounting Bulletin No. 101 - Revenue
Recognition in Financial Statements ("SAB 101") was issued. SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. SAB 101 has been
amended allowing the Company to defer its implementation of SAB 101 until the
fourth quarter of 2000. The Company is currently reviewing its accounting
practices and if any necessary adjustments are needed to comply, such
adjustments will be made in the fourth quarter of 2000.
6
<PAGE>
Income taxes:
Prior to September 22, 2000, the Company was a limited liability
company for Federal and state income tax purposes, and as a result, was not
subject to income taxes. On September 22, 2000, the limited liability company
status was terminated. On termination, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS No 109"). SFAS No 109 requires an asset and
liability based approach in accounting for income taxes. As a result of
termination of the limited liability company status, the Company recorded a net
deferred tax liability through a charge to earnings of $27.4 million in the
third quarter of 2000, attributable primarily to the difference in financial
reporting and tax reporting methods of accounting for depreciation. In addition,
the Company recognized income tax expense of $0.2 million (which represented an
effective tax rate of 36%) for the period from September 22, 2000 through
September 30, 2000, the period for which the Company was a taxable corporation.
The following pro forma data is presented to apply the Company's
effective tax rate to the income (loss) before income taxes and extraordinary
loss as if the Company had been a taxable entity for the following periods
presented:
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary loss .......... $ 4,217,421 $(1,535,965) $ 7,310,193 $(1,728,881)
Pro forma income tax (provision)
benefit ......................... (1,518,272) 552,947 (2,631,669) 622,397
----------- ----------- ----------- -----------
Pro forma income (loss) before .. $ 2,699,149 $ (983,018) $ 4,678,524 $(1,106,484)
=========== =========== =========== ===========
extraordinary loss
Pro forma income (loss) before
extraordinary loss per common
share:
Basic ....................... $ 0.29 $ (0.20) $ 0.60 $ (0.22)
=========== =========== =========== ===========
Diluted ..................... $ 0.29 $ (0.20) $ 0.60 $ (0.22)
=========== =========== =========== ===========
Pro forma weighted average
common shares outstanding:
Basic
9,388,466 5,014,338 7,766,876 5,014,338
Diluted
9,428,543 5,014,338 7,792,262 5,014,338
</TABLE>
Reclassification:
Certain prior period amounts in the consolidated financial statements
have been reclassified for comparative purposes. Such reclassifications had no
effect on the net income (loss) or the overall financial condition of the
Company.
3. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company 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 and have not been audited by its
independent public accountants. 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 month and nine month periods ended
September 30, 2000 are not necessarily indicative of the results that will be
realized for the year ended December 31, 2000. These consolidated financial
7
<PAGE>
statements should be read in conjunction with the Company's audited consolidated
financial statements included in the Company's Form S-1. Unless the context
otherwise indicates, any references in the Quarterly Report on Form 10-Q to the
"Company" refer to Chiles Offshore Inc. and its consolidated subsidiaries.
4. BUSINESS AND INDUSTRY CONDITIONS
From inception (August 1997) until July 1999, the Company operated as a
development stage company, devoting substantially all of its efforts to
constructing the Rigs, raising capital and securing contracts for the Rigs. In
the third quarter of 1999, the Company completed its development stage activity
and the Company is no longer reported as a development stage company.
Because the Company's Rigs are new construction, the Company does not
expect to incur material additional capital expenditures associated with the
Rigs in the foreseeable future, unless specific requests for modifications are
made by a customer in connection with a drilling contract. Any unanticipated
capital expenditures could adversely affect cash in the period such expenditures
are incurred. Mobilization costs of the Company's Rigs from one drilling
location to another drilling location or to another market are normally not
budgeted because, under normal conditions, such mobilization costs are recovered
from the customer; however, any unrecovered mobilization costs, if they are
incurred, could materially increase Rig operating expense levels, reduce
revenues while the Rig is in transit and not working, and adversely affect cash
flow from operations and operating income in the period in which such expenses
are incurred.
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 are
and will continue to be particularly dependent upon the condition of the oil and
natural gas industry and on the exploration and production expenditures of oil
and gas companies operating in the Gulf of Mexico. The offshore contract
drilling industry historically has been and is expected to continue to be highly
competitive and cyclical. Sustained weak commodity prices, economic problems in
countries outside the United States, and a number of other factors beyond the
Company's control could curtail spending by oil and gas companies. The Company
cannot predict whether or not current market conditions will continue at
favorable levels and if so, to what extent.
While the Company anticipates that it will continue to obtain drilling
contracts for the Rigs, no assurance can be given that additional drilling
contracts will be obtained, or obtained on a timely basis. Nor can the Company
predict that the dayrates payable under any drilling contract will be equal to
or greater than the operating costs of the Rigs, other fixed costs, and current
liabilities, including interest payable with respect to borrowings. The Company
expects existing cash and cash equivalents, borrowings under the Bank Facility,
subject to the terms and conditions of the Bank Facility, the Discovery Loan (as
defined in Note 7), and cash from operations to be sufficient to meet operating
costs, construction costs and other current liabilities for the next twelve
months.
5. NOTES PAYABLE
In December 1999, the Company repaid and retired $15 million of the
Company's 10% Senior Notes due 2008 (the "Senior Notes"). In September 2000 in
connection with the IPO, the Company repaid and retired approximately $95
million of the Senior Notes and $4 million of accrued interest, which was
substantially all of the remaining outstanding Senior Notes, and recorded an
extraordinary loss of $1.8 million, net of an income tax benefit of $1 million,
to write off the related unamortized debt issuance cost.
6. BANK FACILITY
The Company has entered into an agreement with two banks to provide a
senior secured revolving credit facility of $40 million (the "Bank Facility").
The Bank Facility bears interest at the rate of LIBOR plus 1.375% per annum and
matures on December 31, 2006, at which time any outstanding principal amount and
any unpaid interest will be due. Borrowings under the Bank Facility may be
repaid and reborrowed during the term thereof. The Bank Facility is guaranteed
by two of the rig-owning subsidiaries of the Company. The Company is required to
8
<PAGE>
pay quarterly, in arrears, a commitment fee equal to 0.50% per annum on the
undrawn amount of the Bank Facility. At September 30, 2000, there were no
borrowings under the Bank Facility. The Company has received a commitment to
increase the Bank Facility up to a maximum of $120 million and the Company
expects to enter into final loan documentation on the increased Bank Facility
during the fourth quarter of 2000.
7. COMMITMENTS AND CONTINGENCIES
In April 2000, the Company entered into an agreement with Keppel FELS
Limited ("Keppel") of Singapore, and various equipment vendors for delivery of a
rig named the Chiles Discovery, at a cost estimated not to exceed $110 million
excluding interest and other capitalized costs. At September 30, 2000, the
Company had outstanding purchase commitments of approximately $90 million with
respect to the construction of the Chiles Discovery. These amounts will become
payable in future periods in accordance with terms of the construction contract
and vendor agreements. As part of the construction agreement with Keppel, the
Company entered into an option agreement that provides the Company the right to
require Keppel, or its wholly owned subsidiary AMFELS, Inc. ("AMFELS"), of
Brownsville, Texas, to construct up to three additional rigs similar to the
Chiles Discovery. In connection with the construction agreement for the Chiles
Discovery, the Company signed a commitment letter, with a non-U.S. lender that
is affiliated with Keppel, to provide up to $82 million of financing toward the
construction cost of the Chiles Discovery (the "Discovery Loan"). The Discovery
Loan will be non-recourse to the Company, but full recourse to the Chiles
Discovery and all assets owned by the borrower, which is a 100% owned subsidiary
of the Company. The Company expects to execute the Discovery Loan agreement in
the fourth quarter of 2000.
On July 20, 2000, the Company entered into an agreement with
Perforadora Central, S.A. de C.V. and related parties ("Perforadora Central") to
acquire, through a series of transactions, all of the shares of capital stock of
a newly formed entity that will own the Tonala (the "Tonala Agreement"), which
the Company has operated under a bareboat charter since the completion of its
construction and final commissioning in April 2000 (the "Tonala Bareboat
Charter"). Under the terms of the Tonala Agreement, the Company will issue
2,679,723 shares of common stock and assume approximately $64.6 million of debt
guaranteed by the U.S. Maritime Administration ("Marad"). The Tonala Agreement
is subject to, among other things, the consent and approval by Marad regarding
the terms of the assumption of the debt. The Company currently expects to close
the acquisition by the second quarter of 2001. Upon completion of the Tonala
acquisition, the Company will have an estimated 20,366,964 common shares issued
and outstanding, of which Perforadora Central will hold approximately 13%. The
agreements contain provisions designed to adjust payments under the Tonala
Bareboat Charter such that from a commercial standpoint, the Company shall be
treated as if it owned the Tonala on July 20, 2000, with the Company being
credited for cash flow and charged for debt service payments made after such
date. On November 10, 2000, the Company and Perforadora Central entered into
certain amendments to the Tonala Agreement and the Tonala Bareboat Charter. See
"--Subsequent Events" below.
The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse affect on the
Company's consolidated financial position, results of operations or cash flows.
In September 2000, the Company was served a legal action which was filed by an
offshore worker employed by another drilling contractor on behalf of himself and
those similarly situated, naming most offshore drilling contractors as
defendants, including the Company. The action was filed in the U.S. District
Court, Southern District, Galveston Division, seeking to have the court certify
a nationwide class and to recover damages to be proved, as well as treble
damages, attorneys' fees, expenses, costs and other relief deemed appropriate,
for alleged violations of federal and state antitrust laws and for engaging in
alleged unfair trade practices by suppressing wages and benefits of offshore
workers. The Company believes that it has valid defenses in this matter, intends
to defend its interest vigorously with respect to same and does not believe,
based on information currently available, the ultimate outcome of this matter
will have a material adverse effect on the results of operations or financial
condition of the Company.
9
<PAGE>
8. OPERATING SEGMENTS
The Company has only a single line of business in a single geographic
area. The Company derived revenue for the quarter ended September 30, 2000, from
three customers of $5.8 million, $5.5 million and $4.7 million, comprising 36
percent, 34 percent and 30 percent of total revenues, respectively. The Company
derived revenue for the nine months ended September 30, 2000, from three
customers of $14.2 million, $9.1 million and $8 million, comprising 37 percent,
24 percent and 21 percent of total revenues, respectively.
9. EARNINGS PER SHARE
Earnings per share consist of the Company's historical net income
divided by the weighted average number shares of common stock outstanding. For
the time prior to the IPO on September 22, 2000, weighted average number of
common shares includes the conversion of membership interest to an equivalent
number of common shares. There were 524,359 options that have been excluded from
the following calculation as anti-dilutive for the periods presented. The
following table summarizes the basic and diluted per share computations for loss
before extraordinary loss for the three and nine month periods ended September
30, 2000 and 1999 (in thousands, except share and per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Income (Loss) before extraordinary loss ........... $ (23,397) $ (1,536) $ (20,304) $ (1,729)
Extraordinary loss ................................ (1,820) - (1,820) -
----------- ----------- ----------- -----------
Net loss ...................................... $ (25,217) $ (1,536) $ (22,124) $ (1,729)
=========== =========== =========== ===========
Denominator:
Weighted average common shares
outstanding - basic and diluted ................... 9,388,466 5,014,338 7,766,876 5,014,338
Net income (loss) per common share
before extraordinary loss:
Basic ......................................... $ (2.49) $ (0.31) $ (2.61) $ (0.34)
Diluted ....................................... $ (2.49) $ (0.31) $ (2.61) $ (0.34)
</TABLE>
10. RELATED PARTY TRANSACTION
As of September 30, 2000, SEACOR Offshore Rigs Inc. ("SEACOR Rigs"),
which is a wholly owned subsidiary of SEACOR SMIT Inc. ("SEACOR"), a New York
Stock Exchange listed company, owns approximately 27% of the common stock of the
Company. Upon completion of the Tonala transaction noted above, SEACOR Rigs will
own approximately 24% of the Company. Upon delivery of the Chiles Discovery, the
Company will pay SEACOR a commission of $1 million. One of the Company's
directors is a partner in Bassoe Offshore A/S, a brokerage and market research
firm serving the offshore drilling and service industry. The Company paid Bassoe
Offshore (USA), Inc., an affiliate of Bassoe Offshore A/S, (and taken together
as "Bassoe"), approximately $1.0 million in commissions related to the delivery
of the Chiles Magellan and Chiles Columbus and will pay Bassoe a commission of
$0.5 million upon delivery of the Chiles Discovery. Additionally, the Company
will be obligated to pay Bassoe a commission equal to approximately 0.1% of the
value of the Tonala transaction upon the closing. The Company has signed a
commitment letter with a non-U.S. lender that is affiliated with a shareholder
of the Company to provide a maximum of $82 million of financing towards the
construction cost of the Chiles Discovery. At the time of the IPO, SEACOR held
approximately $26.7 million aggregate principal amount of the Senior Notes and
also held an indirect economic interest in substantially all of the Company's
remaining outstanding Senior Notes. Subsequent to the IPO, the Company purchased
from SEACOR and the other noteholders and retired substantially all of the
outstanding Senior Notes at a price equal to par plus accrued interest. The
10
<PAGE>
Company has been advised by SEACOR that SEACOR will report a pre-tax gain of
approximately $6.6 million as a result of this transaction.
11. SUBSEQUENT EVENTS
In October 2000, the Company exercised the first option under the
agreement with Keppel, for the construction of a rig by AMFELS, at a cost
estimated not to exceed $112 million, exclusive of interest and other
capitalized costs. As part of the option exercise an initial payment of $11.4
million was made to AMFELS. Financing of the rig will be provided by a
combination of debt, up to $81 million raised under a Marad guarantee for
construction and term financing, and equity raised through the IPO. Upon
delivery of the rig, the Company will be obligated to pay commissions of
approximately $1 million and $0.2 million to SEACOR and Bassoe, respectively, in
accordance with pre-existing agreements.
In October 2000, the Company's Board of Directors authorized a
repurchase program of the Company's common stock of up to a total amount of $25
million. The repurchase of any of the Company's common stock may be effected
from time to time through open market purchases, privately negotiated
transactions or otherwise, depending upon market conditions.
Pursuant to amendments to the Tonala Agreement and the Tonala Bareboat
Charter, each dated November 10, 2000, the parties have agreed, subject to
receipt of Marad approval, to simplify their commercial payment arrangements, by
providing that the Company will pay $1.00 per month as hire under the Tonala
Bareboat Charter for the period between July 20, 2000 and the consummation of
the transactions contemplated by the Tonala Agreement, with the Company also
agreeing to advance all regularly scheduled payments of debt service as the same
become due and payable to Marad for the indebtedness relating to the Tonala
during such period. Under such amendments, such advances will be deemed to have
been satisfied if such transactions are consummated. The term of the Tonala
Bareboat Charter was extended to October 31, 2002 by such amendment provided the
Company is not in default of its obligation to make advances. If the Tonala
Agreement were to be terminated prior to such consummation, a retroactive
adjustment will be made under the Tonala Bareboat Charter so that the parties
will account to each other as if such amendment had never taken effect.
On November 13, 2000, the Company amended the 2000 Chiles Offshore Inc.
Stock Option Plan (the "2000 Option Plan") to permit the assumption of the
outstanding options under the Chiles Offshore LLC 1998 Equity Option Plan by the
2000 Option Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL, INCLUDING FORWARD LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words, "expects," "intends",
"anticipates," "believes", "estimates," and analogous expressions are intended
to identify forward-looking statements. Such statements inherently are subject
to a variety of risks and uncertainties that could cause actual results to
differ materially from those projected. Such risks and uncertainties include,
amount others, general economic and business conditions, industry fleet
capacity, changes in oil and gas exploration activity, competition, regulatory
initiatives and compliance with governmental regulations, customer preferences
and various other matters, many of which are beyond the Company's control. These
forward-looking statements speak only as of the date of this Quarterly Report on
Form 10-Q. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which any
statement is based. The following discussion should be read in conjunction with
the Condensed Consolidated Financial Statements of Chiles Offshore Inc. (the
"Company") (including the Notes thereto) included elsewhere in this Quarterly
Report on Form 10-Q.
The Company was formed in August 1997 as Chiles Offshore LLC for the
purpose of constructing, owning and operating a fleet of ultra-premium offshore
jackup drilling rigs. In 1997, the Company ordered two ultra-premium jackup
drilling rigs, the Chiles Columbus and the Chiles Magellan. The Company took
delivery of the Chiles Columbus in May 1999 and the Chiles Magellan in October
1999. The Company has also bareboat chartered and operated the rig Tonala since
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<PAGE>
its delivery and final commissioning in April 2000. The Company now operates two
owned rigs and one chartered rig.
In July 2000, the Company entered into an agreement with Perforadora
Central, S.A. de C.V. and related parties ("Perforadora Central") to acquire,
through a series of transactions, all of the shares of capital stock of a newly
formed entity that will own the Tonala (the "Tonala Agreement"), which the
Company has operated under a bareboat charter since the completion its
construction and final commissioning in April 2000 (the "Tonala Bareboat
Charter"). Under the terms of the Tonala Agreement, the Company will issue
2,679,723 shares of common stock and assume approximately $64.6 million of debt
guaranteed by the U.S. Maritime Administration ("Marad"). The Tonala Agreement
is subject to, among other things, the consent and approval by Marad regarding
the terms of the assumption of the debt. The Company currently expects to close
the acquisition by the second quarter of 2001. Upon completion of the Tonala
acquisition, the Company would have an estimated 20,366,964 common shares issued
and outstanding, of which Perforadora Central will hold approximately 13%. The
agreements contain provisions designed to adjust payments under the Tonala
Bareboat Charter such that from a commercial standpoint, the Company shall be
treated as if it owned the Tonala on July 20, 2000, with the Company being
credited for cash flow and charged for debt service payments made after such
date. On November 10, 2000, the Company and Perforadora Central entered into
certain amendments to the Tonala Agreement and the Tonala Bareboat Charter. See
"--Subsequent Events" below. On September 22, 2000, the Company completed its
initial public offering of 8,970,000 common shares and converted to a corporate
form from a limited liability company.
The number of rigs operated by the Company is a function of rigs
delivered to service through the Company's capital expenditure program, and rigs
placed in operation under charter. The Company typically operates its rigs on
well-to-well contracts that last approximately 30 to 90 days. Presently, all of
the Company's rigs are contracted and operating in the U.S. Gulf of Mexico. The
Company has two rigs under construction, one in Singapore, which is expected to
be completed during the second quarter of 2002, and one in Texas, which is
expected to be completed during the third quarter of 2002.
RESULTS OF OPERATIONS
Revenue. The Company's revenue is primarily a function of the number of
rigs operated by the Company, the rates per day ("dayrates") paid by the oil and
gas company customers of the Company for the use of one of the Company's rigs to
drill an oil or gas well in an offshore location, and the level of utilization
of the Company's rig fleet. Dayrates and utilization are largely dependent upon
the capital expenditure programs of the Company's oil and gas company customers,
which are dependent upon the prevailing and expected levels of oil and gas
prices and the other factors discussed in "--Outlook" below.
Rig operating expenses. The Company's operating expenses are primarily
a function of fleet size and utilization. The most significant operating
expenses are compensation and related personnel expenses, maintenance and
repairs, insurance, supplies and charter hire. The Company's other operating
charges are depreciation of rigs and other property and equipment.
General and administrative expenses. General and administrative
expenses primarily consist of corporate management, administration, marketing
and legal expenses.
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<PAGE>
The following table provides revenue, expense and operating profit
information and utilization, average daily revenue and available rig days
information, for the periods indicated (in thousands except rig utilization,
average daily revenue and available rig days):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue................................ $ 16,015 $ 2,350 $ 38,670 $ 2,878
General & administrative expense....... $ 702 $ 382 $ 2,048 $ 826
Operating income (loss)............. $ 6,165 $ (573) $ 14,895 $ (1,114)
Interest expense, net................. $ 1,947 $ 963 $ 7,585 $ 615
Provision for income tax............... $ 27,614 $ - $ 27,614 $ -
Income (loss) before extraordinary
loss................. $ (23,397) $ (1,536) $ (20,304) $ (1,729)
Rig utilization 100% 98% 100% 99%
Average daily revenue $ 58,027 $ 26,024 $ 53,563 $ 25,464
Available rig days 276 92 720 114
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
The three rigs operated by the Company were delivered into service in
June 1999 for the Chiles Columbus, October 1999 for the Chiles Magellan, and
April 2000 for the Tonala, and as a result of these rig deliveries, the
available rig days have increased by 184 days. The rig utilization increased to
100% from 98% for the three months ended September 30, 2000 compared to the
three months ended September 30, 1999.
The Company's revenue increased $13.7 million for the three months
ended September 30, 2000 compared to the three months ended September 30, 1999.
The increased revenue is a result of increasing the rig fleet operated by the
Company through the delivery of rigs into service from construction and charter,
and an increase in average daily revenue of $32,003 to $58,027 for the three
months ended September 30, 2000, as compared with $26,024 for the three months
ended September 30, 1999. The increase in average daily revenue is a combination
of, among other things, the increase in prices for oil and natural gas
commodities and the related increase in drilling activity of oil and gas
operators, the successful entrance of the Company into the U.S. Gulf of Mexico
offshore drilling market with recently constructed rigs, and the level of
performance of the services achieved by the Company.
The Company's operating profit increased $6.7 million for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999, as a result of increasing the number of rigs operated by the Company, and
increasing the average daily rig rate while holding variable unit operating
expenses level, offset by the charter expense for the Tonala and the
depreciation expense for the Chiles Columbus and Chiles Magellan resulting from
the commencement of operations of these three rigs.
The Company's general and administrative expense increased $0.3 million
for the three months ended September 30, 2000 compared to the three months ended
September 30, 1999 as corporate expenses associated with marketing and other
administrative costs associated with operating three rigs increased as the
Company completed its development stage activity.
The Company's net interest expense increased $1 million for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999, as interest was no longer capitalized with respect to debt incurred for
the rigs under construction after delivery of the Chiles Magellan in October
1999.
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<PAGE>
Prior to its conversion to a corporation, the Company operated as a
limited liability company and generally was not subject to U.S. federal and
state income taxes. The members of the Company while it was a limited liability
company were taxed on their proportionate share of the member's taxable income
or loss. Effective September 22, 2000, the Company became subject to U.S.
federal and state income taxes and provided deferred income taxes of $27.6
million.
In September 2000, the Company repurchased and retired substantially
all of the $95 million outstanding Senior Notes due 2008 (the "Senior Notes") of
the Company and recorded an extraordinary loss of $1.8 million, net of income
taxes of $1 million, to write off the related unamortized debt issuance costs.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The three rigs operated by the Company were delivered into service in
June 1999 for the Chiles Columbus, October 1999 for the Chiles Magellan, and
April 2000 for the Tonala, and as a result of these rig deliveries, the
available rig days have increased by 606 days. The rig utilization increased to
100% from 99% for the nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999.
The Company's revenue increased $35.8 million for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999. The
increased revenue is a result of increasing the rig fleet operated by the
Company through the delivery of rigs into service from construction and charter,
and an increase in average daily revenue of $28,099 to $53,563 for the nine
months ended September 30, 2000, as compared with $25,464 for the nine months
ended September 30, 1999. The increase in average daily revenue is a combination
of, among other things, the increase in prices for oil and natural gas
commodities and the related increase in drilling activity of oil and gas
operators, the successful entrance of the Company into the U.S. Gulf of Mexico
offshore drilling market with recently constructed rigs, and the level of
performance of the services achieved by the Company.
The Company's operating profit increased $16 million for the nine
months ended September 30, 2000 compared to the nine months ended September 30,
1999, as a result of increasing the number of rigs operated by the Company, and
increasing the average daily rig rate while holding variable unit operating
expenses level, offset by the charter expense for the Tonala and depreciation
expense for the Chiles Columbus and Chiles Magellan resulting from the
commencement of operations of these three rigs.
The Company's general and administrative expense increased $1.2 million
for the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999 as corporate expenses associated with marketing and other
administrative costs associated with operating three rigs increased as the
Company completed its development stage activity .
The Company's net interest expense increased $7 million for the nine
months ended September 30, 2000 compared to the nine months ended September 30,
1999 as interest was no longer capitalized with respect to debt incurred for the
rigs under construction after delivery of the Chiles Columbus in May 1999 and
Chiles Magellan in October 1999.
Prior to its conversion to a corporation, the Company operated as a
limited liability company and generally was not subject to U.S. federal and
state income taxes. The members of the Company while it was a limited liability
company were taxed on their proportionate share of the member's taxable income
or loss. Effective September 22, 2000, the Company became subject to U.S.
federal and state income taxes and provided deferred income taxes of $27.6
million.
In September 2000, the Company repurchased and retired substantially
all of the $95 million outstanding Senior Notes of the Company and recorded an
extraordinary loss of $1.8 million, net of income taxes of $1 million, to write
off the related unamortized debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased $4.1 million for
the nine month period ended September 30, 2000 as compared to the same period
ended September 30, 1999 as a result of placing the Chiles Magellan and Tonala
14
<PAGE>
in service. Net cash used for investing activities decreased $51.2 million for
the nine month period ended September 30, 2000 as compared to the same period
ended September 30, 1999 as the rig construction programs for the Chiles
Columbus and Chiles Magellan were completed and offset by the initial payment
for the Chiles Discovery construction contract. Net cash from financing
activities increased by $65.9 million for the nine month period ended September
30, 2000 as compared to the same period ended September 30, 1999 as net proceeds
of approximately $157 million were received from the IPO, $32.8 million was
received from the sale of additional membership interests in May 2000, and $3
million was received from the exercise of rights prior to the IPO, all of which
were offset by the repurchase and retirement of substantially all of the $95
million outstanding Senior Notes and the repayment of $22 million under the Bank
Facility.
As of September 30, 2000, the Company had approximately $67.7 million
in cash on hand and had no borrowings under its $40 million Bank Facility and
has received a commitment to increase the Bank Facility up to $120 million. The
Company has remaining purchase commitments related to the construction of the
Chiles Discovery of approximately $90 million. In connection with the
construction agreement for the Chiles Discovery, the Company signed a commitment
letter, with a non-U.S. lender that is affiliated with Keppel, to provide up to
$82 million of financing towards the construction cost of the Chiles Discovery
(the "Discovery Loan"). The Discovery Loan will be non-recourse to the Company,
but full recourse to the Chiles Discovery and all assets owned by the borrower,
which is a 100% owned subsidiary of the Company. The Company expects to execute
the Discovery Loan agreement in the fourth quarter of 2000.
Because the Company's fleet is composed of newly constructed rigs, the
Company does not expect to incur material additional capital expenditures
associated with the rig fleet in the foreseeable future, unless specific
requests for modifications are made by a customer in connection with a drilling
contract. Any unanticipated capital expenditures could adversely affect cash in
the period such expenditures are incurred. Mobilization costs of the Company's
rigs from one drilling location to another drilling location or to another
market are normally not budgeted because, under normal conditions, such
mobilization costs are recovered from the customer; however, any unrecovered
mobilization costs, if they are incurred, could materially increase rig
operating expense levels, reduce revenues while the rig is in transit and not
working, and could adversely affect cash flow from operations and operating
income in the period in which such expenses are incurred.
SUBSEQUENT EVENTS
In October 2000, the Company exercised the first option under its
agreement with Keppel FELS Limited ("Keppel") for the construction of a rig by
AMFELS, Inc. ("AMFELS") at a cost estimated not to exceed $112 million,
exclusive of interest and other capitalized costs. As part of the option
exercise, a payment of $11.4 million was made to AMFELS. Financing of the rig
will be provided by a combination of debt, up to $81 million raised under a
Marad guarantee for construction and term financing, and equity raised through
the IPO. Upon delivery of the rig, the Company will be obligated to pay
commissions of $1 million and $0.2 million to SEACOR SMIT Inc. ("SEACOR") and
Bassoe Offshore (USA), Inc., respectively.
In October 2000, the Company's Board of Directors authorized a
repurchase program of the Company's common stock of up to a total amount of $25
million. The repurchase of any of the Company's common stock may be effected
from time to time through open market purchases, privately negotiated
transactions or otherwise, depending upon market conditions.
Pursuant to amendments to the Tonala Agreement and the Tonala Bareboat
Charter, each dated November 10, 2000, the parties have agreed, subject to
receipt of Marad approval, to simplify their commercial payment arrangements, by
providing that the Company will pay $1.00 per month as hire under the Tonala
Bareboat Charter for the period between July 20, 2000 and the consummation of
the transactions contemplated by the Tonala Agreement, with the Company also
agreeing to advance all regularly scheduled payments of debt service as the same
become due and payable to Marad for the indebtedness relating to the Tonala
during such period. Under such amendments, such advances will be deemed to have
been satisfied if such transactions are consummated. The term of the Tonala
Bareboat Charter was extended to October 31, 2002 by such amendment provided the
Company is not in default of its obligation to make advances. If the Tonala
Agreement were to be terminated prior to such consummation, a retroactive
15
<PAGE>
adjustment will be made under the Tonala Bareboat Charter so that the parties
will account to each other as if such amendment had never taken effect.
On November 13, 2000, the Company amended the 2000 Chiles Offshore Inc.
Stock Option Plan (the "2000 Option Plan") to permit the assumption of the
outstanding options under the Chiles Offshore LLC 1998 Equity Option Plan by the
2000 Option Plan.
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 are
and will continue to 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. During 1998, the decline in commodity prices in the
oil and gas industry resulted in significantly reduced dayrates and decreased
utilization, particularly in the Gulf of Mexico jackup market, and excess supply
of rigs. Since 1999, crude oil prices have recovered but there can be no
assurance that demand for drilling rigs will increase. Sustained weak commodity
prices, economic problems in countries outside the United States, and a number
of other factors beyond the Company's control could further curtail spending by
oil and gas companies. The Company cannot predict whether or not current market
conditions will continue their favorable levels and if so, to what extent. A
sustained period of depressed market conditions would have a material adverse
effect on the Company's future results of operations.
While the Company anticipates that it will continue to obtain drilling
contracts for its rig fleet, no assurance can be given that additional drilling
contracts will be obtained, or obtained on a timely basis, nor can the Company
predict that the dayrates payable under any drilling contract will be equal to
or greater than the operating costs of the rigs and other fixed costs, and
current payment liabilities, including interest payable with respect to drawings
under the Bank Facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no fixed rate debt as of September 30, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse affect on the
Company's consolidated financial position, results of operations or cash flows.
In September 2000, the Company was served a legal action which was filed by an
offshore worker employed by another drilling contractor on behalf of himself and
those similarly situated, naming most of the offshore drilling contractors as
defendants, including the Company. The action was filed in the U.S. District
Court, Southern District, Galveston Division, seeking to have the court certify
a nationwide class and to recover damages to be proved, as well as treble
damages, attorneys' fees, expenses, costs and other relief deemed appropriate,
for alleged violations of federal and state antitrust laws and for engaging in
alleged unfair trade practices by suppressing wages and benefits of offshore
workers. The Company believes that it has valid defenses in this matter, intends
to defend its interest vigorously with respect to same and does not believe,
based on information currently available, the ultimate outcome of this matter
will have a material adverse effect on the results of operations and financial
condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On September 22, 2000, rights for membership interests in Chiles
Offshore LLC (representing 231,431 shares of common stock after the IPO) were
exercised for an aggregate purchase price of $3 million. There were no
16
<PAGE>
underwriters, brokers or finders employed in connection with this transaction.
The sale of these securities was deemed to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
Section 4(2) of the Securities Act as a transaction by an issuer not involving a
public offering.
On May 2, 2000, Chiles Offshore LLC issued $20.5 million in Group "G"
Membership Units to accredited investors and $12.5 million in Group "F"
Membership Units to a foreign accredited investor. There were no underwriters,
brokers or finders employed in connection with this transaction. The sale of
these securities was deemed to be exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act as a transaction by an
issuer not involving a public offering.
On November 30, 1999, Chiles Offshore LLC issued $15 million in Group
"E" Membership Units and rights to acquire additional $3 million in Group "E"
Membership Units, each to accredited investors. There were no underwriters,
brokers or finders employed in connection with this transaction. The sale of
these securities was deemed to be exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act as a transaction by an
issuer not involving a public offering.
On December 16, 1997, Chiles Offshore issued $26.15 million in Group
"A" Membership Interests to a founder and $20 million in Group "C" Membership
Units exclusively to accredited investors. There were no underwriters, brokers
or finders employed in connection with this transaction. The sale of these
securities was deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act as a transaction by an issuer not
involving a public offering.
(d) Pursuant to Rule 463 and Item 701(f) of Regulation S-K promulgated
under the Securities Act, the following information is provided in this report:
(1) The Registration Statement on Form S-1 of Chiles Offshore Inc.
(File No. 333-39418) (the "Registration Statement") was declared effective
by the Securities and Exchange Commission on September 18, 2000.
(2) The offering contemplated by the prospectus contained in the
Registration Statement (the "Offering") was consummated on September 22,
2000.
(3) The managing underwriters in the Offering were Credit Suisse
First Boston and Salomon Smith Barney.
(4) The Registration Statement related to shares of the Company's
common stock, $0.01 par value ("Common Stock").
(5) The Registration Statement registered an aggregate of
8,970,000 shares of Common Stock; the aggregate gross offering price of the
amount of shares registered and sold by the Company was $170.4 million.
1,170,000 of such shares of Common Stock registered under the Registration
Statement were the subject of an underwriters' over-allotment option that
was exercised by the underwriters.
(6) Through the date of this report, the Company has incurred
estimated expenses (including underwriters' discount) of approximately
$13.5 million in connection with the Offering, which included approximately
$11.5 million in underwriters' discount and commissions and approximately
$2 million of other expenses (including filing fees related to the
Registration Statement and the National Association of Securities Dealers,
Inc. and accounting, legal, printing and engraving and miscellaneous
expenses). None of such payments were made to directors, officers, or 10
percent security holders of the Company.
(7) Through the date of this report, approximately $95 million of
the net proceeds were used to repurchase the Company's outstanding Senior
Notes. All of such net proceeds to repurchase the senior notes were paid to
SEACOR, the Company's largest shareholder, or to an entity through which
SEACOR held an indirect economic interest in the Senior Notes.
Approximately $7 million of the net proceeds were used to repay outstanding
amounts under the Bank Facility. Approximately $45 million of the net
proceeds, which are being held in temporary investments (consisting of
overnight eurodollar deposits) will be used to fund a portion of the costs
17
<PAGE>
required to further expand the Company's fleet of rigs. The remainder of
the net proceeds of the Offering are being held in temporary investments
(consisting of overnight eurodollar deposits) for working capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Designation of
Exhibits in this
Report Description of Exhibits
------ -----------------------
10.1* Amendment No. 1 to the Chiles Offshore Inc. 2000 Stock Option Plan.
10.2* Amendment to Bareboat Charter, dated November 10, 2000, between Chiles
Offshore Inc. and Perforadora Central, S.A. de C.V.
10.3* Amendment No. 1 to Agreement with Respect to Ownership of the Tonala,
dated November 10, 2000, among Chiles Offshore Inc., Perforadora
Central, S.A. de C.V., Grupo Industrial Atlantida, S.A. de C.V.,
Patricio Alvarez Morphy, Javier Alvarez Morphy, Luis Alvarez Morphy and
Enrique Chavez Quintana.
27.1* Financial Data Schedule.
-----------------
* Filed herewith.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CHILES OFFSHORE INC.
By: /s/ Dick Fagerstal
--------------------------------------------
Dick Fagerstal
Senior Vice President, Chief Financial
Officer and Secretary
Dated: November 14, 2000
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<PAGE>
EXHIBIT INDEX
10.1* Amendment No. 1 to the Chiles Offshore Inc. 2000 Stock Option Plan.
10.2* Amendment to Bareboat Charter, dated November 10, 2000, between Chiles
Offshore Inc. and Perforadora Central, S.A. de C.V.
10.3* Amendment No. 1 to Agreement with Respect to Ownership of the Tonala,
dated November 10, 2000, among Chiles Offshore Inc., Perforadora
Central, S.A. de C.V., Grupo Industrial Atlantida, S.A. de C.V.,
Patricio Alvarez Morphy, Javier Alvarez Morphy, Luis Alvarez Morphy and
Enrique Chavez Quintana.
27.1* Financial Data Schedule.
-----------------
* Filed herewith.
20
