TORONTO (Business Wire) -- Argus Corporation Limited ("Argus") (TSX:AR.PR.A) (TSX:AR.PR.D) (TSX:AR.PR.B) today provided a status update of developments since its last Status Update Report was filed on August 13, 2004.
This Status Update Report ("Report") is provided pursuant to the guidelines (the "Guidelines") by which an interim Management and Insider Cease Trade Order with respect to the management and insiders of Argus was issued by the Ontario Securities Commission on May 25, 2004 which was then made final on June 3, 2004 (together the "Order").
The Guidelines contemplate that Argus will normally provide bi-weekly updates on its affairs until it is able to be current with its public filing obligations.
This Report provides an update as to Argus' preparation and filing of financial statements and other related matters and additional information regarding Hollinger Inc. ("Hollinger") and Hollinger International Inc. ("International"), the subsidiary of Hollinger.
The Order was initially issued with respect to the management and insiders of Argus for its failure to file its financial statements for the First Quarter of 2004 which ended on March 31, 2004 together with its related Management's Discussion and Analysis ("MD&A"), which were due to have been filed on May 15, 2004. Since then, Argus was similarly unable to complete and file its financial statements and its related MD&A for the Second Quarter which ended on June 30, 2004, which were due on August 16, 2004.
It has been determined that Argus is required to consolidate its financial statements with those of Hollinger, though not with those of International, for fiscal periods commencing on and after January 1, 2004. Argus previously accounted for its investment in Hollinger using the market value method of accounting.
Argus does not have the financial information upon which to prepare such consolidated statements. Hollinger has not filed its financial statements for the year ended on December 31, 2003 and for the fiscal periods since then as International has not prepared or filed its financial statements for the same periods.
Argus desires to keep the public informed of its financial activities. It is accordingly attaching hereto its Special Purpose Interim Financial Statements for the 3 months ended on March 31, 2004 and the 3 months and 6 months ended on June 30, 2004.
These financial statements consolidate Argus and its subsidiaries other than its investment in Hollinger. For these special purpose financial statements, that investment in Hollinger is accounted for using the cost basis of accounting.
The financial statements are provided as alternative financial information pursuant to the Guidelines.
International's Special Committee has been investigating certain transactions and payments. It has been anticipated that its report will be released by August 20, 2004 though Argus is not aware if that release date will be met. International has advised that it will commence to prepare its audited financial statements for 2003 as soon as practicable after it receives the report from its Special Committee.
On completion by International of those financial statements, it is anticipated that Hollinger will be able to commence to prepare its audited financial statements for 2003 and its financial statements for subsequent periods. With those financial statements of Hollinger, Argus will then, in turn, be able to prepare its formal financial statements for filing for the fiscal periods since January 1, 2004.
Counterclaims of Hollinger, The Ravelston Corporation Limited ("Ravelston") and Ravelston Management Inc ("Management") against International for outstanding management fees and damages for oppression of Hollinger and intentional interference with Hollinger's economic relations were stayed by a decision of Mr. Justice James Farley of the Superior Court on August 11, 2004. By that decision, the request of Ravelston and Management that the jurisdiction of a Complaint commenced in Illinois by International claiming damages, including treble damages, of US $1.25 billion be moved from Illinois to Ontario was denied.
Notice of an Appeal of the decision of Mr. Justice Farley was filed August 18, 2004 by Ravelston, Management and Hollinger.
Argus owns 21,596,378 Retractable Common Shares of Hollinger with a market value at the close of trading on August 18, 2004 on the Toronto Stock Exchange of Cdn. $5.25 per share or Cdn. $113,380,985. Argus has Cdn $641,709 of cash or cash equivalents on hand as of today.
On August 12, 2004 Hollinger announced that is had approximately US $8.35 million cash or cash equivalents on hand. Further, it confirmed that it directly or indirectly owned 792,560 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock of International. Based on the August 18, 2004 closing price of the shares of Class A Common Stock of International on the New York Stock Exchange of US $17.00, the market value of Hollinger's direct and indirect holdings in International is US $268,303,520.
There has been no other material change from the information contained in the Status Update Report of Argus issued on August 13, 2004.
Argus Corporation Limited
Special Purpose Interim Financial Statements
These financial statements consolidate Argus Corporation Limited and
its subsidiaries other than its investment in Hollinger Inc. that is
accounted for using the cost basis of accounting.
March 31, 2004 and June 30, 2004
(Unaudited)
Argus Corporation Limited
Special Purpose Balance Sheet
(In thousands of Canadian dollars)
---------------------------------------------------------------------
(unaudited)
Unaudited Unaudited Audited
March 31 June 30 Dec. 31
2004 2004 2003
$ $ $
(note 1)
--------- --------- --------
Assets
Current Assets
Cash and cash equivalents, including
short-term deposits $ 600 June 30, 2004
and $2,000 March 31, 2004 (2003- $2,250) 2,309 716 2,643
Due from related parties (note 8) 376 376 376
Investment in Hollinger Inc., carried at
market (note 5) - - 71,268
Investment in Hollinger Inc., carried at
cost (notes 3 & 5) 71,268 71,268 -
Due from parent company (note 8) 58,934 - 59,242
Prepaid insurance and other assets 112 93 125
--------- --------- --------
132,999 72,453 133,654
--------- --------- --------
--------- --------- --------
Liabilities
Current Liabilities
Accounts payable and accrued expenses 205 241 80
Due from parent company (note 8) - 308 -
Dividends payable (note 7) 252 252 252
--------- --------- --------
457 801 332
Future income taxes (notes 3 & 6) 12,063 12,063 12,063
Non-controlling interest (note 9) 19,638 19,638 19,638
Shareholders' Equity
Capital stock (note 7)
Authorized
22,324 Class A, non-voting, preference
shares, $2.50 series, cumulative
55,893 Class A, non-voting, preference
shares, $2.60 series, cumulative
1,000,000 Class B, non-voting,
preference shares, 1962, $2.70 series,
cumulative
Unlimited Class C, participating,
non-voting, preference shares
Unlimited common shares
Issued
22,324 Class A preference shares, $2.50
series 1,116 1,116 1,116
55,893 Class A preference shares, $2.60
series 2,795 2,795 2,795
298,400 Class B preference shares 1962,
$2.70 series 14,920 14,920 14,920
6,677,263 Class C preference shares 60,486 60,486 60,486
1,671,661 common shares 15,782 15,782 15,782
--------- --------- --------
95,099 95,099 95,099
--------- --------- --------
Contributed surplus 768 768 768
Retained earnings/(Deficit) 4,974 (55,916) 5,754
--------- --------- --------
100,841 39,951 101,621
--------- --------- --------
132,999 72,453 133,654
--------- --------- --------
--------- --------- --------
The accompanying notes form an integral part of these financial
statements.
Argus Corporation Limited
Special Purpose Income Statement
(In thousands of Canadian dollars, except per share amounts)
---------------------------------------------------------------------
(unaudited)
Unaudited Unaudited Unaudited Unaudited
3 months 3 months 6 months 6 months
ended ended ended ended
March 31 June 30 June 30 June 30
2004 2004 2004 2003
$ $ $ $
(note 1)
--------- --------- --------- ---------
Investment income
Interest and other income 15 6 21 1,049
Expenses
General, office and
administrative 543 402 945 206
--------- --------- --------- ---------
Operating income (loss) before
under-noted items (528) (396) (924) 843
Decrease in unrealized
appreciation of investments
(note 5) - - - (19,685)
--------- --------- --------- ---------
Loss before income taxes, non-
controlling interest, unusual
items and extraordinary items (528) (396) (924) (18,842)
--------- --------- --------- ---------
Non-controlling interest - - - 160
--------- --------- --------- ---------
Net loss (528) (396) (924) (19,002)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted loss per
Class C preference share and
common share ($0.09) ($0.07) ($.016) ($2.34)
Weighted average number of
Class C preference shares and
common shares outstanding-
basic and diluted 8,348,924 8,348,924 8,348,924 8,348,924
The accompanying notes form an integral part of these financial
statements.
Argus Corporation Limited
Special Purpose Statements of Retained Earnings
(In thousands of Canadian dollars)
---------------------------------------------------------------------
(unaudited)
Unaudited Unaudited Audited
3 months 3 months 12 months
ended ended ended
March 31 June 30 Dec. 31
2004 2004 2003
$ $ $
(note 1)
--------- --------- ---------
Retained earnings - Beginning of period 5,754 4,974 35,002
Less:
Net loss for the period (528) (396) (28,231)
--------- --------- ---------
Dividends
Common shares - (60,242) -
Class A preference shares, $2.50 series (14) (14) (59)
Class A preference shares, $2.60 series (36) (36) (153)
Class B preference shares 1962, $2.70
series (202) (202) (805)
--------- --------- ---------
(252) (60,494) (1,017)
--------- --------- ---------
Retained earnings - End of period 4,974 (55,916) 5,754
--------- --------- ---------
--------- ---------
The accompanying notes form an integral part of these financial
statements.
Argus Corporation Limited
Special Purpose Statement of Cash Flows
(In thousands of Canadian dollars)
---------------------------------------------------------------------
(unaudited)
Unaudited Unaudited Unaudited Unaudited
3 months 3 months 6 months 6 months
ended ended ended ended
March 31 June 30 June 30 June 30
2004 2004 2004 2003
$ $ $ $
(note 1)
--------- --------- --------- ---------
Cash provided by (used in)
Operating activities
Net loss for the period (528) (396) (924) (19,002)
Non-cash items
Decrease in unrealized
appreciation of
investments - - - 19,685
Future income taxes - - - -
Non-controlling interest - - - 160
Change in non-cash working
capital related
to operations (note 7) 446 59,297 501 (49)
(82) 58,901 (423) 794
--------- --------- --------- ---------
Financing activities
Purchase for cancellation of
Class A preference shares - - - (75)
Dividends paid (252) (60,494) (1,504) (510)
--------- --------- --------- ---------
(252) (60,494) (1,504) (585)
Increase (decrease) in cash
and cash equivalents (334) (1,593) (1,927) 209
Cash and cash equivalents-
beginning of period 2,643 2,309 2,643 3,783
--------- --------- --------- ---------
Cash and cash equivalents-
end of period 2,309 716 716 3,992
--------- --------- --------- ---------
The accompanying notes form an integral part of these financial
statements.
Argus Corporation Limited
Notes to Special Purpose Financial Statements
March 31, 2004 and June 30, 2004
---------------------------------------------------------------------
(unaudited)
1 Basis of Presentation
The most recent audited annual financial statements of Argus (the "Company"), as at December 31, 2003 were prepared in accordance with generally accepted accounting principles ("GAAP") in Canada prevailing at the time and accordingly accounted for the Company's investment in Hollinger Inc. ("Hollinger") at market. The Company owns directly and indirectly 61.8% of Hollinger, which in turn owns directly and indirectly 18.2% (29.7% as of December 31, 2003) of the equity of Hollinger International Inc. ("International").
Effective January 1, 2004, and following extensive discussions with advisors and regulators, it has been determined that changes to GAAP require the Company to account for all controlled subsidiaries using the consolidated method of accounting including Hollinger, and that such changes be applied prospectively (see notes 3 and 11).
The Company is currently unable to provide financial statements prepared in accordance with GAAP so defined, in view of Hollinger's and International's failure to file their financial statements for the year ended on December 31, 2003 and the fiscal periods since then.
The attached unaudited interim Special Purpose Statements include the consolidation of Argus' investments except for its investment in Hollinger that was recorded using the cost basis of accounting. These Special Purpose Statements are therefore not prepared in accordance with GAAP defined as above. They include a Special Purpose Balance Sheet as at March 31, 2004 and June 30, 2004, a Special Purpose Statement of Retained Earnings for three months ended March 31, 2004 and three months ended June 30, 2004, a Special Purpose Income Statement and a Statement of Cash Flows for three months ended March 31, 2004 and for the three and six months ended June 30, 2004 (see note 3).
The financial information prepared prior to January 1, 2004 in these financial statements is not restated but is reformatted to conform to the cost format. Readers are cautioned that as previously reported information is not restated, it may significantly impact the comparability of results between the current and prior periods.
These interim financial statements are unaudited and have not been reviewed by the Company's auditors.
2 Ability to Continue Operations
The Company depends for its liquidity upon dividend income, the support of its controlling shareholder, The Ravelston Corporation Limited ("Ravelston") and Ravelston's subsidiary, Ravelston Management Inc. ("RMI") and the sale of investments.
The Ontario Securities Commission ("OSC") issued a Management and Insider Cease Trade Order ("MCTO") on May 25, 2004. The MCTO was issued as a result of the Company not being able to complete and file its financial statements for the first quarter of 2004 together with its related Management's Discussion and Analysis ("MD&A") when due on May 15, 2004 (see note 1).
The OSC issued similar orders on June 1, 2004 against each of Hollinger and International for their failure to file their audited financial statements for the year ended on December 31, 2003 and interim financial statements for the first Quarter of 2004 and related MD&A reports.
The MCTOs currently in place prohibit Ravelston and RMI from selling shares of Argus or Hollinger and therefore precludes them from raising funds for the Company's support in this way. Similarly, the MCTO's prohibit the Company from selling its shares of Hollinger or Hollinger from selling its share of International. Absent exemptive relief by the OSC from the provisions of the MCTO, the Company would not be able to achieve liquidity for itself through sales of any of its Hollinger shares.
3 Summary of significant accounting policies
Significant accounting policy changes
Argus is incorporated pursuant to the Canada Business Corporations Act. It has for many years reported its results as an investment company with its 61.8% holding of the common shares of its subsidiary Hollinger being valued and presented at market (akin to a closed end investment trust). As discussed in note 1, Argus is unable to continue its presentation of its financial statements based on the market value method of accounting for its interest in its investee, Hollinger. As the Company is unable to prepare consolidated financial statements, it is presenting these Special Purpose financial statements, covering the first two quarters of 2004, which have accounted for its investment in Hollinger using the cost method. Cost in this context is the market value at December 31, 2003.
Argus holds only shares in Hollinger and has no cross guarantees or other financial arrangements that would link its financial resources to Hollinger other than cross indemnities for Hollinger's directors and officers (see note 4). Argus is a holding company for shares in Hollinger that had a market value of $71.3 million at December 31, 2003 (March 31, 2004 $ 153.8 million, June 30, 2004 $112.3 million and August 11, 2004 $111.0 million).
Shareholders are encouraged to avail themselves of the Argus bi-weekly Status Reports provided to the Ontario Securities Commission and to the public via SEDAR (www.SEDAR.com) and to similarly avail themselves of the Hollinger and International counterparts on that same website. In addition, copies of press releases of all three companies are also found on SEDAR and may be referred to by investors. The Company believes that timely reviews of these various releases and filings offer the best way for investors to stay abreast of the rapid changes being experienced by Hollinger and International.
Cash equivalents
Cash equivalents consist of certain highly liquid investments with original maturities of three months or less.
Income taxes
Future income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively - enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized. Income tax expense is the sum of the Company's provision for current income taxes and the difference between opening and ending balances of future income tax assets and liabilities.
Loss per share
Basic loss per share is computed by dividing net loss, adjusted for dividends declared on the preference shares, by the weighted average of the shares outstanding during the year.
Use of estimates
The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, investments, income taxes, contingencies and litigation. The Company relies on experience and on various other assumptions that are believed to be reasonable under the circumstances in making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may be expected to differ from these estimates.
Related party transactions
The Company's related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed by the related parties and, for material amounts, has been approved by the Company's Audit Committee.
Financial instruments
The carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values because of the immediate or short-term maturity of these financial instruments. Fair value estimates are not necessarily indicative of the amounts the Company might pay or receive in actual market transactions.
4 Risks and uncertainties
Litigation risk
The Company is involved in significant litigation, the outcome of which is uncertain (see note 12).
Regulatory risk
The Company and Hollinger are the subject of regulatory actions (see notes 2 and 12). As noted above, this inhibits the Company's ability to provide liquidity to itself. If these orders were to be extended to Issuer Cease Trade Orders (which is not presently contemplated by the OSC), it would, on the one hand, prevent shareholders from realizing on their investment and, on the other hand, eliminate (at least temporarily) the market value of the Company's investment in Hollinger.
Credit risk
The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are on deposit at major financial institutions.
The Company evaluates the collectibility of its accounts receivable on an ongoing basis based upon various factors including the financial condition and payment history of its debtors, an overall review of collections experience on all of its accounts and economic factors or events expected to affect the Company's future collections.
Interest rate risk
Interest rate risk arises because of the exposure to the effects of future changes in the prevailing level of interest rates. The Company has little direct exposure to interest rate risk on its short-term deposits. However, it is exposed to indirect risk arising from the interest rate risk borne by its investee, Hollinger and Hollinger's investee International with respect to their long term debt at their respective maturities. This risk may have significant effect on the market value of the Company's investment in Hollinger (see note 12).
Foreign currency risk
Foreign currency risk arises because of the exposure to the effects of future changes in the prevailing level of currency exchange rates primarily between the US and Canadian dollars. The Company has little direct exposure to foreign currency risk, however, it is indirectly exposed to risk borne by its investee, Hollinger and by Hollinger's investee International with respect to their dividend income and certain foreign expenses incurred. This risk may have significant effect on the market value of the Company's investment in Hollinger (see note 12).
Market value risk
The Company's only significant asset is its investment in Hollinger. This investment is exposed to changes in the market price, which may or may not be influenced by changes in the market price of Hollinger's investee, International.
Directors and officers insurance
The Company did not renew its previous conventional directors and officers liability insurance which expired on June 30, 2004 as such coverage had become prohibitively expensive. The Company will instead bear all of the costs of any future claims and will set up indemnities for all its directors and officers whereby each will be fully indemnified by the Company and by certain of its affiliates. In addition, the Company will provide to the directors and officers of Hollinger (and to its subsidiaries other than International) cross-indemnification from Argus. This arrangement will help to ensure that the Company's independent directors and officers may continue to fulfill their duties and to preserve value in the Company's investee.
5 Investment in Hollinger Inc.
Argus owns 21,596,378 retractable common shares of Hollinger (61.8%), which are carried on the books at $71.3 million (December 31, 2003, $71.3 million, March 31, 2004, $71.3 million). While the financial statements describe the $71.3 million as "cost", this cost as prescribed by changes to GAAP effective January 1, 2004 is the market value at December 31, 2003.
6 Income Taxes
March 31 June 30 Dec 31
2004 2004 2003
(note 1)
$ $ $
Income tax liability:
Current - - -
Future 12,063 12,063 12,063
-------- -------- --------
$ 12,063 $ 12,063 $ 12,063
The income tax liability results from an unrealized gain recorded while the Company was accounting for its investment in Hollinger using the market value method. Under the cost method of accounting, this amount will be unaffected by changes in the market value of Hollinger shares until disposition of any of these shares when it will be adjusted to reflect the actual proceeds of the disposition of shares.
The Company has non-capital losses carried forward for tax purposes of $3.0 million, the tax benefit of which has not been reflected in the accounts. These losses expire as follows:
$ ('000)
2004 1,213
2005 272
2006 318
2007 265
2008 292
2009 334
2010 314
-------
$ 3,008
-------
7 Capital stock
The Class A and Class B preference shares are issuable in series. The issued Class A and Class B preference shares carry cumulative dividends and are redeemable at the option of the corporation at $52.50 per share plus accrued dividends.
The Class C preference shares, subject to the prior rights of the Class A and Class B preference shares, participate equally with the common shares in: (a) any dividends paid in any fiscal year after $0.30 per share has been paid on each Class C preference share and common share; and (b) any distribution of assets.
On April 7, 2004, the Board of Directors declared and paid a dividend in the aggregate amount of $60.2 million on the Company's outstanding common shares and Class C preference shares. Concurrently, the holder of these shares, being Ravelston, offset its indebtedness to the Company of $59.2 million and the rest of the dividend amounting to $1.0 million was paid in cash. While this divided was paid soon after the quarter end, it is not recorded in "dividends payable" in the Balance Sheet at March 31, 2003 as it was not declared until after the quarter ended.
On June 25, 2004, the Board of Directors of the Company approved a regular quarterly dividend for the preferred shares of Argus in the amount of $251,700 that was paid on August 1, 2004.
The conditions of the Class A preference shares include that the Corporation shall purchase 3,750 shares of each of the $2.50 Series and $2.60 Series in the market on an annual basis. The Corporation is not obligated to purchase these shares at a price, including costs of purchase, exceeding $50 per share (being the paid up amount per share). The conditions of the shares provide that the Corporation is not in default in the event that it fails in the reasonable exercise of its discretion to purchase shares in any year.
There were no re-purchases of either the Class A preference shares, $2.50 series or Class A preference shares, $2.60 series during the three or six month periods ended June 30, 2004 compared with re-purchases in 2003 of 100 shares of the $2.50 series and 1,000 shares of the $2.60 series in the first quarter and of 100 shares of the $2.50 series and 300 shares of the $2.60 series in the second quarter.
8 Amounts due from/to Related Parties
Amounts due from related parties include the following:
March 31 June 30 Dec 31
2004 2004 2003
(note 1)
$ $ $
Due from Ravelston to the Company (a) 58,934 - 59,242
Due from Hollinger to the Company (b) 376 376 376
-------- -------- --------
$ 59,310 $ 376 $ 59,618
-------- -------- --------
(a) The Company advances cash to its parent company, Ravelston, on an
unsecured and non-interest bearing basis. As at December 31,
2003, the Company had advanced $59,242,189. A dividend was
declared and the amount was repaid April 7, 2004 (see note 12).
(b) The amount due from Hollinger of $375,802 at December 31, 2003
represents an overpayment of directors' and officers' insurance
premiums resulting from an adjustment of premiums previously
allocated to the Company. This amount was subsequently collected
in July, 2004.
9 Non-controlling interest
The non-controlling interest at March 31, 2004 and June 30, 2004 consists of a non-controlling interest in the net assets of 509646 New Brunswick Inc. (a subsidiary of Argus). There was no change in the non-controlling interest since December 31, 2003. The non-controlling interest in Hollinger, however, is not recorded herein as the Company's interest in Hollinger is recorded at cost equal to the market value at December 31, 2003 rather than being consolidated, as explained above (see note 3).
10 Supplemental Information
The following is a reconciliation of the numerators used in computing basic loss per share.
Unaudited Unaudited Unaudited Unaudited
Three Three Six Six
months months months months
ended ended ended ended
March 31 June 30 June 30 June 30
2004 2004 2004 2003
$ $ $ $
(note 1)
--------- --------- --------- ---------
Loss per share:
Numerator:
Net loss (528) (396) (924) (19,002)
Less dividends paid to
preferred shareholders (252) (252) (504) (510)
--------- --------- --------- ---------
Loss attributable to common
shareholders (780) (648) (1,428) (19,512)
--------- --------- --------- ---------
Basic loss per Class C
preference share and common
share (0.09) (0.07) (0.16) (2.34)
--------- --------- --------- ---------
11 Recent accounting pronouncements
Investment Company
In January, 2004, the CICA issued Accounting Guideline 18, "Investment Companies" ("AcG 18"). AcG 18 presents the views of the Accounting Standards Board on the measurement by an investment company of its investments, the determination of whether an enterprise is an investment company and when the parent company of an investment company should account for the investment company's investments in a manner consistent with the accounting by the investment company. AcG 18 permits investment companies to measure their investments in subsidiaries at fair value if certain criteria for determination of whether an enterprise qualifies as an investment company are met. This guideline is effective for fiscal years beginning on or after July 1, 2003 and may be applied prospectively or retroactively with early adoption encouraged. Upon further analysis and discussions with regulators, the Company does not meet the criteria of an investment company as defined in AcG18. See "Generally Accepted Accounting Principles" note below for implications.
Generally Accepted Accounting Principles
In July, 2003, the Canadian Institute of Chartered Accountants ("CICA") issued Handbook Section 1100, ("Section 1100"). This section establishes standards for financial reporting in accordance with GAAP and describes what constitutes Canadian GAAP and its sources. Section 1100 eliminates using industry practice as a means of determining GAAP. It requires a company to look to analogous situations in the Handbook or GAAP in other countries when Canadian GAAP does not provide guidance on an accounting matter. Section 1100 is effective for interim and annual periods beginning on or after October 1, 2003 and any changes in accounting policy as a result of adopting this section are to be applied prospectively. As of January, 2004, CICA Section 1100, CICA 1000, CICA 1580, CICA 1851,CICA 1590, CICA 1600 and CICA 3050 together with Emerging Issues Abstract 147 impact on the ability of the Company to continue to record its investment in Hollinger at market value (See note 3).
Consolidation of variable interest entities
The CICA issued accounting guideline AcG-15, Consolidation of Variable Interest Entities ("VIEs"), which will be effective for all fiscal periods beginning on or after November 1, 2004. The guideline requires the Company to identify VIEs in which the Company has an interest, determine whether the Company is the primary beneficiary of such entities and, if so, to consolidate the VIE. A VIE is an entity that is structured such that either (a) the equity is not sufficient to permit the entity to finance its activities without external support, or (b) equity investors lack either direct or indirect ability to make decisions about the entity's activities, an obligation to absorb expected losses or the right to receive expected residual returns. A primary beneficiary is an enterprise that will absorb a majority of the VIE's expected losses, receive a majority of its expected residual returns, or both. The Company is currently in the process of identifying any potential impact on its consolidated financial statements and is planning to implement this standard in 2005.
12 Subsequent events
The Company
As reported in Argus' December 31, 2003 Annual Financial Report, the Company is aware of three class action complaints filed in Chicago, Illinois, for unspecified amounts. Numerous parties including International, Hollinger, Ravelston, Ravelston Management Inc. and the Company and certain directors and senior officers of those companies, and KPMG LLP have been named as defendants. On August 2, 2004 a consolidated amended class action complaint was filed in Chicago, Illinois. It is not possible to quantify the impact, if any, that this litigation may have on the Company.
Hollinger Inc. and Hollinger International
On July 30, 2004, International announced the completion of the sale of the Telegraph Group, whose assets include The Daily Telegraph and the Sunday Telegraph, for approximately US$1.21 billion. The announcement added that a portion of the proceeds of the sale was used to repay outstanding credit facilities and to satisfy a repurchase offer of approximately $300 million in long-term debt. This transaction helps reduce the Company's indirect exposure to interest rate and foreign currency risks (see note 4). While the Company currently does not have control over or access to the remaining proceeds, it anticipates the decision of International's board as to its plans for the proceeds of the sale.
Argus Corporation Limited
Monique L. Delorme
Chief Financial Officer
(416) 363-8721
OR
Argus Corporation Limited
Peter G. White
Executive Vice-President and Secretary
(416) 363-8721
