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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 2000
Commission File number 33-51630:
CHIEFTAIN INTERNATIONAL FUNDING CORP.
(Exact name of registrant as specified in its charter)
NEVADA 98-0127391
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
-----------------------------------------------
1201 TD TOWER, 10088 - 102 AVENUE,
EDMONTON, ALBERTA, CANADA T5J 2Z1
---------------------------------- -------------
(Address of Registrant's principal (Postal code)
executive offices)
Registrant's telephone number, including area code: (780) 425-1950
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
$1.8125 Convertible Redeemable Preferred Stock American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (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 [ ]
This report contains forward-looking statements that are subject to risk factors
associated with the oil and gas business. The Company believes that the
expectations reflected in these statements are reasonable, but may be affected
by a variety of factors including, but not limited to: price fluctuations,
currency fluctuations, drilling and production results, imprecision of reserve
estimates, loss of market, industry competition, environmental risks, political
risks and capital restrictions.
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CHIEFTAIN INTERNATIONAL FUNDING CORP.
2000 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
Item 1. Business..................................................................... 1
Employees.................................................................... 1
Item 2. Properties................................................................... 1
Item 3. Legal Proceedings............................................................ 1
Item 4. Submission of Matters to a Vote of Security Holders.......................... 1
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters....... 2
Item 6. Selected Financial Data...................................................... 3
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 3
Item 8. Financial Statements and Supplementary Data.................................. 4
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 4
PART III
Item 10. Directors and Executive Officers............................................. 4
Item 11. Executive Compensation....................................................... 6
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 6
Item 13. Certain Relationships and Related Transactions............................... 7
PART IV
Item 14. Exhibits and Reports on Form 8-K............................................. 7
Signatures..................................................................................14
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PART I
ITEM 1. BUSINESS
Chieftain International Funding Corp. ("Funding Corp." or the "Company") is a
Nevada subsidiary of Chieftain International (U.S.) Inc. ("Chieftain U.S."), a
Nevada corporation which is, in turn, a wholly-owned subsidiary of Chieftain
International, Inc., an Alberta, Canada corporation. The primary purpose of
Funding Corp. is to finance business operations of Chieftain U.S.
On each of August 28, 1992 and November 5, 1992, Funding Corp. issued 100,000
common shares to Chieftain U.S. for total cash proceeds of $15.0 million.
Funding Corp. commenced operations on November 6, 1992 with the initial public
offering of 2,400,000 $1.8125 Convertible Redeemable Preferred Shares
("Preferred Shares"). An additional 326,700 Preferred Shares were issued
pursuant to the underwriter's exercise of an over-allotment option. Proceeds of
the issuance of Preferred Shares, net of offering costs of $4.7 million, were
$63.4 million. The Preferred Shares are redeemable at the option of the Company
at $25.2014 per share during 2001 and $25.00 per share after December 31, 2001,
plus accumulated and unpaid dividends. Each preferred share is convertible at
any time at the option of the holder into 1.25 common shares of Chieftain
International, Inc. (the ultimate parent company). Dividends on the Preferred
Shares are paid quarterly at the annual rate of $1.8125 per share.
On November 6, 1992, Funding Corp. purchased 2,840,000 $1.8125 Redeemable Class
B Preferred Shares of Chieftain U.S., its parent company, at $25.00 per share,
and subsequently purchased an additional 300,000 of such shares to hold a total
of 3,140,000 such shares. Funding Corp. receives quarterly dividends on such
shares at the annual rate of $1.8125 per share. The shares are redeemable at the
option of the issuer at $25.2014 per share during 2001 and $25.00 after December
31, 2001, plus accumulated and unpaid dividends.
Since December 31, 1992, Funding Corp. has, from time to time, purchased
short-term notes, payable by Chieftain U.S., with funds in excess of working
capital requirements. Such notes bear interest at competitive money market
rates.
Chieftain U.S. is engaged in the acquisition of natural gas and oil reserves
through exploration and development and through purchase and in natural gas and
oil production and sales in the United States. Its principal properties are
located in the US federal waters of the Gulf of Mexico and onshore in southeast
Utah and Louisiana. Reference is made to the information describing United
States properties and operations in the Form 10-K Annual Report of Chieftain
International, Inc. for the year ended December 31, 2000, which is attached as
Exhibit 28 hereto. Chieftain International, Inc. has guaranteed dividend,
conversion and redemption obligations of Funding Corp. with respect to the
Preferred Shares.
EMPLOYEES
At December 31, 2000, Funding Corp. had no employees. Management services are
provided by Chieftain International, Inc.
ITEM 2. PROPERTIES
Funding Corp. owns no physical properties. Its assets consist of investments in
and advances to Chieftain U.S., its parent company.
ITEM 3. LEGAL PROCEEDINGS
Funding Corp. is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The high and low prices of the Chieftain International Funding Corp. $1.8125
Convertible Redeemable Preferred Shares (the "Preferred Shares") during each
quarter since December 31, 1998 are shown below.
Price History of Chieftain International Funding Corp. $1.8125
Convertible Redeemable Preferred Shares on the American Stock Exchange
High Low
---- ---
(US dollars)
1999
First quarter $ 25.25 $ 20.25
Second quarter 27.25 23.25
Third quarter 29.88 26.00
Fourth quarter 28.06 23.13
2000
First quarter 27.38 21.75
Second quarter 29.25 24.88
Third quarter 29.50 24.50
Fourth quarter 34.75 26.50
2001
January 35.00 29.63
February 32.55 30.12
March 1 to March 14 38.00 30.15
All of the Company's issued common shares are owned by its parent, Chieftain
International (U.S.) Inc. The Preferred Shares were held by 42 shareholders of
record on December 31, 2000.
The Company has made timely payment of quarterly dividends on the Preferred
Shares, amounting to $0.453125 per share, for each quarter since the shares were
issued in 1992.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for each of the five years in the period ended
December 31, 2000 has been derived from the financial statements of Funding
Corp. and should be read in conjunction with such financial statements and the
related notes.
CHIEFTAIN INTERNATIONAL FUNDING CORP.
YEAR ENDED DECEMBER 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands except shares and per share amounts)
INCOME STATEMENT DATA:
Revenue $ 6,251 $ 5,914 $ 5,897 $ 5,867 $ 5,826
General and administrative expenses 74 70 176 77 46
Income before dividends on preferred shares 6,004 5,790 5,710 5,755 5,748
Dividends on preferred shares 4,942 4,942 4,942 4,942 4,942
Net income applicable to common
shares 1,062 848 768 813 806
Net income per common share 5.31 4.24 3.84 4.07 4.03
Number of common shares outstanding 200,000 200,000 200,000 200,000 200,000
OTHER DATA:
Cash provided from operating
activities $ 1,064 $ 847 $ 768 $ 815 $ 993
BALANCE SHEET DATA (at end of period):
Working capital $ 6,598 $ 5,535 $ 4,687 $ 3,920 $ 3,106
Total assets $ 85,104 $ 84,041 $ 83,194 $ 82,425 $ 81,610
Preferred shares issued $ 63,403 $ 63,403 $ 63,403 $ 63,403 $ 63,403
Common shareholder's equity $ 21,695 $ 20,633 $ 19,785 $ 19,017 $ 18,203
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Funding Corp., a special purpose subsidiary of Chieftain International (U.S.)
Inc., was formed in 1992 for the primary purpose of financing the US business
operations of its parent.
ANALYSIS OF OPERATING RESULTS
Funding Corp.'s income is derived from dividends on preferred shares and
interest on short-term notes, all of which are issued by its parent company,
Chieftain International (U.S.) Inc.
Dividends received on 3,140,000 redeemable Class B preferred shares amounted to
$5,691,250 in each of the years 2000, 1999 and 1998. In addition to such
dividend income, interest of $559,987, $222,978 and $205,865 in 2000, 1999 and
1998, respectively, was earned on short-term investments.
Dividend income is expected to remain the same for 2001 while interest income is
expected to increase, assuming stable interest rates, reflecting the larger
amount of short-term investments held.
General and administrative expenses in 2000 were comparable to those in 1999.
General and administrative expenses decreased significantly in 1999 due to
non-recurring professional fees incurred in 1998 in respect of regulatory
matters.
Income taxes are calculated on interest income less general and administrative
costs. Dividends received from the parent are tax exempt.
Dividends in the amount of $4,942,144 were paid in 2000, unchanged from 1999 and
1998.
CAPITAL RESOURCES AND LIQUIDITY
Funding Corp. is dependent upon the dividend income from its investment in
preferred shares of its parent company to provide funds for payment of dividends
on its publicly-held preferred shares.
Funds provided from operations increased to $1,063,510 in 2000 compared to
$846,961 in 1999 and $768,418 in 1998. Most of these funds were invested in
short-term notes issued and payable by the parent company. Cash balances at
December 31, 2000 and 1999 were $27,488 and $147,982 respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of Chieftain International Funding Corp. are
included in Part IV of this report.
Auditors' Report
Balance Sheet as at December 31, 2000 and 1999
Statement of Income and Retained Earnings for the years ended December
31, 2000, 1999 and 1998
Statement of Cash Flows for the years ended December 31, 2000, 1999 and
1998
Notes to Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between Funding Corp. and Funding Corp.'s
auditors on accounting or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company consists of not less than three nor more
than ten directors. The number of directors within these limits is fixed from
time to time by resolution of the Board of Directors and is currently eight.
Directors are elected annually by the common stockholder to hold office until
the close of the next ensuing annual meeting.
Information is presented below with respect to the directors of the Company. The
information includes age as of the date hereof, present position with the
Company and other business experience during the past five years. Except as
noted, all of the directors of the Company have served as such since the
Company's formation in November, 1992 and all are also directors of Chieftain
International (U.S.) Inc., the immediate parent of the Company and Chieftain
International, Inc., the ultimate parent of the Company. S.C. Hurley became a
director of each of such companies in 1997. Also presented is information with
respect to directors' ownership of securities of the Company and its ultimate
parent, and the ownership of such securities by the directors and executive
officers as a group. A director need not be a shareholder of the Company.
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SHARES BENEFICIALLY OWNED AND PERCENT OF CLASS (1)
AS AT FEBRUARY 15, 2001
----------------------------------------------------------
COMMON SHARES PREFERRED SHARES
OF OF
CHIEFTAIN INTERNATIONAL, INC. CHIEFTAIN FUNDING (2)
----------------------------- --------------------
STEPHEN C. HURLEY, 51, Director
Senior Vice President and Chief Operating
Officer of Chieftain International, Inc. 107,992(3) -- -- --
HUGH J. KELLY, 75, Director
Corporate Director and
Energy Consultant. (4) 42,666(5) -- 10,000 --
JOHN E. MAYBIN, 76, Director
Corporate Director 42,666(6) -- -- --
STANLEY A. MILNER, A.O.E.,LLD., 72, Director
President and Chief Executive Officer of
Chieftain International, Inc. (7) 702,959(8) 4.3% 39,000 1.4%
DAVID E. MITCHELL, O.C., 74,
Chairman of the Board
Chairman Emeritus, Alberta Energy Company Ltd. 51,666(5) -- -- --
LOUIS G. MUNIN, 67, Director
Corporate Director and
Financial Consultant (9) 45,666(5) -- 2,000 --
ESTHER S. ONDRACK, 60, Director
Senior Vice President and Secretary of
Chieftain International, Inc. 117,964(10) -- -- --
STUART T. PEELER, 71, Director
Corporate Director and
Petroleum Industry Consultant 28,467(11) -- 27,500 --
DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP 1,247,638(12) 7.5% 78,500 2.9%
(1) Percentages of less than one are omitted.
(2) Each $1.8125 Convertible Redeemable Preferred Share of Chieftain
International Funding Corp. is convertible into 1.25 common shares of
Chieftain International, Inc.
(3) Includes options, exercisable within 60 days, to purchase 103,333
shares.
(4) H.J. Kelly is a director of Gulf Island Fabrication Inc.
(5) Includes options, exercisable within 60 days, to purchase 41,666 shares.
(6) Includes options, exercisable within 60 days, to purchase 41,166 shares.
(7) S.A. Milner is a director of Alberta Energy Company Ltd.
(8) Includes options, exercisable within 60 days, to purchase 153,332
shares. In addition, an associate of S.A. Milner owns 3,000 shares.
(9) L.G. Munin is a director of Lafarge Canada Inc.
(10) Includes options, exercisable within 60 days, to purchase 95,000 shares.
(11) Includes options exercisable within 60 days, to purchase 23,467 shares.
(12) Includes options, exercisable within 60 days, to purchase 606,296
shares.
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EXECUTIVE OFFICERS
The following table lists the name and age of each Executive Officer and all
positions and offices with the Company held by each such person. The officers
are appointed each year at the directors' meeting immediately following the
annual meeting of the shareholder. The next such meeting will be held on May 17,
2001.
NAME AGE POSITION/OFFICE
- ---- --- ---------------
S.A. Milner 72 Director, President and Chief Executive Officer
S.C. Hurley 51 Director, Senior Vice President and Chief Operating Officer
E.S. Ondrack 60 Director, Senior Vice President and Secretary
S.J. Milner 43 Vice President, Drilling and Production
R.J. Stefure 53 Vice President and Controller
R.P. Boyd 44 Vice President, Investor Relations
With the following exceptions all of the officers have held positions as
officers of the Company since its incorporation in 1992 and each officer
presently holds and has held for more than five years positions as officers of
Chieftain International, Inc. and Chieftain International (U.S.) Inc., the
former, in each case, being his or her principal occupation. S.C. Hurley joined
Chieftain in September, 1995 prior to which time he was the Vice President
Exploration of a US based integrated oil company. S.J. Milner and R.J. Stefure
were appointed officers of the Company in June, 1995 and prior thereto held
management positions with the Company and its immediate and ultimate parents.
R.P. Boyd joined the Company in 1999 prior to which time he was Chief Financial
Officer and Controller of a Canadian independent oil and gas company.
There are no family relationships among the executive officers and directors
except between S.A. Milner and D.E. Mitchell who are first cousins and between
S.A. Milner and S.J. Milner who are father and son.
ITEM 11. EXECUTIVE COMPENSATION
The directors and officers, including the chief executive officer, receive no
compensation in their capacities as directors and officers of Funding Corp. All
of the officers are employees of and receive remuneration from Chieftain
International, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the share ownership in the voting securities of the
Company of each person or company beneficially owning, or exercising control or
direction over, more than five per cent of the outstanding shares of the
Company.
Class Number of shares Percent of
Name and address of beneficial owner of shares beneficially owned class owned
- ------------------------------------ --------- ------------------ -----------
Chieftain International (U.S.) Inc.
1201 TD Tower, 10088 - 102 Avenue
Edmonton, Alberta T5J 2Z1
Canada Common 200,000 100%
Information with respect to shares beneficially owned in the registrant and its
ultimate parent, Chieftain International, Inc., by directors and executive
officers of the Company, is presented in Item 10, "Directors and Executive
Officers".
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of an informal understanding between the Company and Chieftain
International, Inc. ("Chieftain Canada"), Chieftain Canada provides management
services as required to enable the Company to carry on its business.
Chieftain Canada has unconditionally guaranteed certain obligations of the
Company with respect to the Preferred Shares. The Preferred Shares are
redeemable, at the option of the Company, at $25.2014 per share during 2001 and
$25.00 per share after December 31, 2001 plus accumulated and unpaid dividends.
Each Preferred Share has a liquidation preference of $25.00 and is convertible
at any time into 1.25 common shares of Chieftain Canada at the option of the
holder. Reference is made to Exhibits 4(a), "Form of Certificate of Designation
of Preferred Stock of Funding Corp.", and 4(b), "Form of Subordinated Guarantee
Agreement of Chieftain International, Inc.".
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
The following is a listing of the financial statements which are included in
this Form 10-K report.
FINANCIAL STATEMENTS
Reference is made to the list of financial statements on page 4 of this report.
EXHIBITS
Reference is made to the Index to Exhibits on page 15 of this report.
REPORTS ON FORM 8-K
The registrant filed no reports on Form 8-K during the fourth quarter of the
year ended December 31, 2000.
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AUDITORS' REPORT
To the Shareholders of
Chieftain International Funding Corp.
We have audited the balance sheets of Chieftain International Funding Corp. as
at December 31, 2000 and 1999 and the statements of income and retained earnings
and cash flows for each of the years in the three-year period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2000 and 1999
and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2000 in accordance with Canadian
generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
Edmonton, Alberta
February 1, 2001
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CHIEFTAIN INTERNATIONAL FUNDING CORP.
(a subsidiary of Chieftain International (U.S.) Inc.)
BALANCE SHEET
December 31, 2000 1999
- -------------------------------------------------------------------------------------------------------------
(US $)
ASSETS
Current assets:
Cash $ 27,488 $ 147,982
Due from affiliated companies 6,576,734 5,392,730
----------- -----------
6,604,222 5,540,712
Investment in preferred shares of Chieftain International (U.S.) Inc.
at cost (Note 2) 78,500,000 78,500,000
----------- -----------
$85,104,222 $84,040,712
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued $ 6,600 $ 5,305
Preferred shares issued (Note 3) 63,402,903 63,402,903
Common shareholder's equity:
Share capital (Note 4)
Authorized
10,000,000 common shares, par value $0.01 each
Issued
200,000 common shares 2,000 2,000
Additional paid in capital 14,998,000 14,998,000
Retained earnings 6,694,719 5,632,504
----------- -----------
21,694,719 20,632,504
----------- -----------
$85,104,222 $84,040,712
=========== ===========
APPROVED BY THE BOARD
/s/ S.A. Milner Director
- --------------------------------------------
/s/ L.G. Munin Director
- --------------------------------------------
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CHIEFTAIN INTERNATIONAL FUNDING CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
Year ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
(US $)
Revenue
Dividends $ 5,691,250 $ 5,691,250 $ 5,691,250
Interest 559,987 222,978 205,865
----------- ----------- -----------
6,251,237 5,914,228 5,897,115
General and administrative expenses 73,878 70,085 176,120
----------- ----------- -----------
Income before income taxes and dividends on preferred
shares 6,177,359 5,844,143 5,720,995
Income taxes (Note 5) 173,000 54,000 11,000
----------- ----------- -----------
Income before dividends on preferred shares 6,004,359 5,790,143 5,709,995
Dividends on preferred shares (4,942,144) (4,942,144) (4,942,144)
----------- ----------- -----------
Net income applicable to common shares 1,062,215 847,999 767,851
Retained earnings, beginning of period 5,632,504 4,784,505 4,016,654
----------- ----------- -----------
Retained earnings, end of period $ 6,694,719 $ 5,632,504 $ 4,784,505
=========== =========== ===========
Net income per common share $ 5.31 $ 4.24 $ 3.84
----------- ----------- -----------
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CHIEFTAIN INTERNATIONAL FUNDING CORP.
STATEMENT OF CASH FLOWS
Year ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
(US $)
Operating activities:
Net income applicable to common shares $ 1,062,215 $ 847,999 $ 767,851
Change in non-cash working capital
Current liabilities 1,295 (1,038) 567
----------- ----------- -----------
1,063,510 846,961 768,418
Investing activities:
Advances to affiliated companies (1,184,004) (820,474) (692,274)
----------- ----------- -----------
Change in cash (120,494) 26,487 76,144
Cash, beginning of year 147,982 121,495 45,351
----------- ----------- -----------
Cash, end of year $ 27,488 $ 147,982 $ 121,495
=========== =========== ===========
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CHIEFTAIN INTERNATIONAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Chieftain International Funding Corp. ("Funding Corp."), a special purpose
subsidiary of Chieftain International (U.S.) Inc., was formed in 1992 for the
primary purpose of financing the US business operations of its parent. Funding
Corp.'s income is derived from dividends on preferred shares and interest on
short-term notes, all of which are issued by its parent company, Chieftain
International (U.S.) Inc. The financial statements are expressed in US currency
since the assets and operations of Funding Corp. are denominated in US dollars.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
The financial statements of Funding Corp. are prepared in conformity with
Canadian generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make informed judgements and estimates. Actual results may differ
from those estimates. Material differences between Canadian and US accounting
principles which affect Funding Corp. are specifically referred to in these
Notes to Financial Statements.
FINANCIAL ASSETS AND LIABILITIES
Funding Corp.'s financial instruments that are included in the Balance Sheet are
comprised of cash, intercompany receivables, all current liabilities and
preferred shares issued, the fair values of which, other than the preferred
shares issued (see Note 3), approximate their carrying amounts due to their
short-term or demand nature.
INCOME TAXES
Funding Corp. and its parent company file corporate income tax returns on a
consolidated basis. As a result, income taxes payable have been offset by the
parent company's tax losses and are reflected in the amount due from the parent
company.
Income taxes are recorded using the liability method. Applying this method,
deferred income taxes are recognized, using applicable, enacted, or
substantively enacted, income tax rates, for the future income tax consequences
attributable to differences between the financial statement carrying values and
their respective income tax bases. The effect of a change in tax rates on
deferred income tax assets and liabilities is included in income in the period
that includes the enactment date. Deferred income tax assets are evaluated and
if realization is considered "more likely than not", no valuation allowance is
provided.
2. INVESTMENT IN PREFERRED SHARES OF PARENT
On November 6, 1992, Funding Corp. purchased 2,840,000 $1.8125 Redeemable Class
B Preferred Shares at $25.00 per share of Chieftain International (U.S.) Inc.,
its parent company. Subsequent to that date, Funding Corp. purchased an
additional 300,000 of such shares to hold a total of 3,140,000 shares. The
shares pay quarterly dividends at the annual rate of $1.8125 per share. The
shares are redeemable at the option of the parent company at $25.2014 per share
during 2001 and $25.00 per share after December 31, 2001, plus accumulated and
unpaid dividends.
3. PREFERRED SHARES
The Articles of Funding Corp. authorize the issue of a maximum of 10,000,000
preferred shares with a par value $1.00 each.
On November 6, 1992, Funding Corp. sold 2,400,000 shares of $1.8125 convertible
redeemable preferred stock at $25.00 per share through an underwritten public
offering in the United States. On December 2, 1992, Funding Corp. sold an
additional 326,700 preferred shares pursuant to an over-allotment option granted
to the underwriters, resulting in a total issuance of 2,726,700 shares. Proceeds
of the issuance of preferred shares, net of offering costs of $4.7 million, were
$63.4 million. The preferred shares are redeemable, at the option of Funding
Corp., at $25.2014 per share during 2001 and $25.00 per share after December 31,
2001, plus accumulated and unpaid dividends. Each preferred share has a
liquidation preference of $25.00 and is convertible at any time at the
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option of the holder into 1.25 common shares of Chieftain International, Inc.
(the ultimate parent company). Chieftain International, Inc. has guaranteed
dividend, conversion and redemption obligations of Funding Corp. with respect to
the preferred shares.
Canadian generally accepted accounting principles require the disclosure of the
fair value of a financial instrument of this nature and define the fair value as
the amount at which the instrument could be exchanged in a current transaction
between willing parties. The estimated fair value of Funding Corp.'s preferred
shares at December 31, 2000 is $94,156,359, which is the market value of the
securities into which these shares are convertible, and $69,530,850 at December
31, 1999, which is the market value of these preferred shares.
4. SHARE CAPITAL
On August 28, 1992, Funding Corp. issued 100,000 common shares, par value $0.01
each, for net cash proceeds of $1,000 and, on November 5, 1992 issued 100,000
common shares, par value $0.01 each, to its parent for net cash proceeds of
$14,999,000.
5. INCOME TAXES
The actual tax rate differed from the expected tax rate for the following
reason:
Year ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------
Expected percentage 35.5% 35.5% 35.5%
Deduct the effect of dividends from the parent
received by the company on a "tax-free" basis 32.7 34.6 35.3
------ ------ ------
Actual percentage of income tax expense on
pre-tax income 2.8% 0.9% 0.2%
====== ====== ======
6. TRANSACTIONS WITH AFFILIATES
All dividend and interest income of Funding Corp. is received from Chieftain
International (U.S.) Inc. Certain administrative services are provided to
Funding Corp. by Chieftain International, Inc.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHIEFTAIN INTERNATIONAL FUNDING CORP.
By: /s/ STANLEY A. MILNER
------------------------------------
Stanley A. Milner, A.O.E., LL.D.
President and Chief Executive Officer
Principal Executive and Financial Officer
Dated: March 14, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ D.E. MITCHELL Director March 14, 2001
- -------------------------
D.E. Mitchell O.C.
/s/ S.A. MILNER President, Chief Executive Officer and March 14, 2001
- ------------------------- Director; Principal Executive and
S.A. Milner, A.O.E., Financial Officer
LL.D.
/s/ S.C. HURLEY Director March 14, 2001
- -------------------------
S.C. Hurley
/s/ H.J. KELLY Director March 14, 2001
- -------------------------
H.J. Kelly
/s/ J.E. MAYBIN Director March 14, 2001
- -------------------------
J.E. Maybin
/s/ L.G. MUNIN Director March 14, 2001
- -------------------------
L.G. Munin
/s/ E.S. ONDRACK Director March 14, 2001
- -------------------------
E.S. Ondrack
/s/ S.T. PEELER Director March 14, 2001
- -------------------------
S.T. Peeler
/s/ R.J. STEFURE Vice President and Controller March 14, 2001
- ------------------------- Principal Accounting Officer
R.J. Stefure
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Index to Exhibits
Exhibit
Number Exhibit
------ -------
** 3 (e) Articles of Incorporation of Funding Corp.
** 3 (f) Amended Articles of Incorporation of Funding Corp.
** 3 (g) Bylaws of Funding Corp.
** 4 (a) Form of Certificate of Designation of Preferred Stock of
Funding Corp.
** 4 (b) Form of Subordinated Guarantee Agreement of Chieftain
International, Inc.
**** 99 Form 10-K report of Chieftain International, Inc. for the year
ended December 31, 2000.
** Previously filed as an exhibit to the Registration Statement of the
registrant on Form S-1/S-3, File No. 33-51630.
**** Filed herewith.
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