10-K 1 o05423e10-k.txt FORM 10-K 1 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. 2 CHIEFTAIN INTERNATIONAL FUNDING CORP. 2000 FORM 10-K ANNUAL REPORT Table of Contents

3 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. 1 4 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

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. 2 5 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.

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. 3 6 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. 4 7

(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. 5 8 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.

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.

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". 6 9 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. 7 10 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 8 11 CHIEFTAIN INTERNATIONAL FUNDING CORP. (a subsidiary of Chieftain International (U.S.) Inc.) BALANCE SHEET

APPROVED BY THE BOARD /s/ S.A. Milner Director -------------------------------------------- /s/ L.G. Munin Director -------------------------------------------- 9 12 CHIEFTAIN INTERNATIONAL FUNDING CORP. STATEMENT OF INCOME AND RETAINED EARNINGS

10 13 CHIEFTAIN INTERNATIONAL FUNDING CORP. STATEMENT OF CASH FLOWS

11 14 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 12 15 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:

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. 13 16 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

14 17 Index to Exhibits

CHIEFTAIN INTERNATIONAL FUNDING CORP 10-K