##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-K/A
 (Amendment No. 2)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year ended December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                             to
 Commission File No. 1-14164
 SUN-TIMES MEDIA GROUP, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    95-3518892(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)350 North Orleans Street, 10-SChicago, Illinois
    
    60654(Address of Principal Executive Office)
    
    (Zip Code)
 Registrants telephone number, including area code
(312) 321-2299
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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TABLE OF CONTENTS  EXPLANATORY NOTEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEX-23.1: CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRMEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 EXPLANATORY NOTE




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of
FASB Statements No. 87, 88, 106, and 132(R) Share-Based Payment.
 Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission
 KPMG LLP




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##### Table of Contents



SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
 2007
    
    
    2006(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    142,533
    
    
    $
    186,318Accounts receivable, net of allowance for doubtful accounts
of $12,276 in 2007 and $10,267 in 2006
    
    
    73,031
    
    
    
    73,346Inventories
    
    
    7,937
    
    
    
    9,643Escrow deposits and restricted cash
    
    
    35,641
    
    
    
    26,809Recoverable income taxes
    
    
    16,509
    
    
    
    34,672Other current assets
    
    
    7,034
    
    
    
    62,135Total current assets
    
    
    282,685
    
    
    
    392,923Loan to affiliate
    
    
    
    
    
    
    33,685Investments
    
    
    42,249
    
    
    
    6,422Property, plant and equipment, net of accumulated depreciation
    
    
    163,355
    
    
    
    178,368Intangible assets, net of accumulated amortization
    
    
    88,235
    
    
    
    92,591Goodwill
    
    
    124,301
    
    
    
    124,301Prepaid pension asset
    
    
    89,512
    
    
    
    49,645Other assets
    
    
    1,249
    
    
    
    21,924Total assets
    
    $
    791,586
    
    
    $
    899,859LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current installments of long-term debt
    
    $
    35
    
    
    $
    867Accounts payable and accrued expenses
    
    
    112,621
    
    
    
    110,168Amounts due to related parties
    
    
    8,852
    
    
    
    7,995Income taxes payable and other tax liabilities
    
    
    1,027
    
    
    
    627,385Deferred revenue
    
    
    10,060
    
    
    
    10,698Total current liabilities
    
    
    132,595
    
    
    
    757,113Long-term debt, less current installments
    
    
    3
    
    
    
    6,041Deferred income tax liabilities
    
    
    58,343
    
    
    
    26,974Other tax liabilities
    
    
    597,206
    
    
    
    385,436Other liabilities
    
    
    78,448
    
    
    
    84,078Total liabilities
    
    
    866,595
    
    
    
    1,259,642Stockholders equity (deficit):Class A common stock, $0.01 par value. Authorized 250,000,000
shares; 88,008,022 and 65,308,636 shares issued and
outstanding, respectively, at December 31, 2007 and
88,008,022 and 64,997,456 shares issued and outstanding,
respectively, at December 31, 2006
    
    
    880
    
    
    
    880Class B common stock, $0.01 par value. Authorized 50,000,000
shares; 14,990,000 shares issued and outstanding in 2007 and
2006
    
    
    150
    
    
    
    150Additional paid-in capital
    
    
    501,138
    
    
    
    502,127Accumulated other comprehensive income (loss):Cumulative foreign currency translation adjustments
    
    
    3,878
    
    
    
    6,576Unrealized gain on marketable securities
    
    
    141
    
    
    
    66Pension adjustment
    
    
    (29,718
    )
    
    
    (43,412
    )Accumulated deficit
    
    
    (325,451
    )
    
    
    (597,050
    )151,018
    
    
    
    (130,663
    )Class A common stock in treasury, at cost  22,699,386
shares at December 31, 2007 and 23,010,566 shares at December
31, 2006
    
    
    (226,027
    )
    
    
    (229,120
    )Total stockholders equity (deficit)
    
    
    (75,009
    )
    
    
    (359,783
    )Total liabilities and stockholders equity (deficit)
    
    $
    791,586
    
    
    $
    899,859




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##### Table of Contents



SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005(In thousands, except per share data)Operating revenue:Advertising
    
    $
    287,198
    
    
    $
    324,607
    
    
    $
    357,820Circulation
    
    
    77,629
    
    
    
    85,235
    
    
    
    89,527Job printing
    
    
    4,785
    
    
    
    8,260
    
    
    
    9,194Other
    
    
    2,646
    
    
    
    2,277
    
    
    
    2,725Total operating revenue
    
    
    372,258
    
    
    
    420,379
    
    
    
    459,266Operating costs and expenses:Cost of sales:Wages and benefits
    
    
    108,569
    
    
    
    110,329
    
    
    
    110,458Newsprint and ink
    
    
    50,619
    
    
    
    67,196
    
    
    
    72,004Other
    
    
    81,092
    
    
    
    80,883
    
    
    
    77,588Total cost of sales
    
    
    240,280
    
    
    
    258,408
    
    
    
    260,050Selling, general and administrative:Sales and marketing
    
    
    70,378
    
    
    
    66,499
    
    
    
    73,537Other operating costs
    
    
    82,282
    
    
    
    66,244
    
    
    
    47,834Corporate expenses
    
    
    79,658
    
    
    
    51,707
    
    
    
    43,406Indemnification, investigation and litigation costs, net of recoveries
    
    
    7,807
    
    
    
    (17,407
    )
    
    
    13,633Total selling, general and administrative
    
    
    240,125
    
    
    
    167,043
    
    
    
    178,410Depreciation
    
    
    20,407
    
    
    
    21,992
    
    
    
    18,664Amortization
    
    
    11,667
    
    
    
    11,886
    
    
    
    12,057Total operating costs and expenses
    
    
    512,479
    
    
    
    459,329
    
    
    
    469,181Operating loss
    
    
    (140,221
    )
    
    
    (38,950
    )
    
    
    (9,915
    )Other income (expense):Interest expense
    
    
    (603
    )
    
    
    (704
    )
    
    
    (935
    )Interest and dividend income
    
    
    17,811
    
    
    
    16,813
    
    
    
    11,625Other income (expense), net
    
    
    (27,844
    )
    
    
    2,642
    
    
    
    (3,839
    )Total other income (expense)
    
    
    (10,636
    )
    
    
    18,751
    
    
    
    6,851Loss from continuing operations before income taxes
    
    
    (150,857
    )
    
    
    (20,199
    )
    
    
    (3,064
    )Income tax expense (benefit)
    
    
    (420,888
    )
    
    
    57,431
    
    
    
    42,467Income (loss) from continuing operations
    
    
    270,031
    
    
    
    (77,630
    )
    
    
    (45,531
    )Discontinued operations, net of income taxes:Income from operations of business segments disposed of
    
    
    
    
    
    
    199
    
    
    
    1,062Gain from disposal of business segments
    
    
    1,599
    
    
    
    20,758
    
    
    
    32,903Income from discontinued operations
    
    
    1,599
    
    
    
    20,957
    
    
    
    33,965Net income (loss)
    
    $
    271,630
    
    
    $
    (56,673
    )
    
    $
    (11,566
    )Basic earnings (loss) per share:Earnings (loss) from continuing operations
    
    $
    3.36
    
    
    $
    (0.91
    )
    
    $
    (0.50
    )Earnings from discontinued operations
    
    
    0.02
    
    
    
    0.25
    
    
    
    0.37Net earnings (loss)
    
    $
    3.38
    
    
    $
    (0.66
    )
    
    $
    (0.13
    )Diluted earnings (loss) per share:Earnings (loss) from continuing operations
    
    $
    3.35
    
    
    $
    (0.91
    )
    
    $
    (0.50
    )Earnings from discontinued operations
    
    
    0.02
    
    
    
    0.25
    
    
    
    0.37Net earnings (loss)
    
    $
    3.37
    
    
    $
    (0.66
    )
    
    $
    (0.13
    )Weighted average shares outstanding:Basic
    
    
    80,446
    
    
    
    85,681
    
    
    
    90,875Diluted
    
    
    80,661
    
    
    
    85,681
    
    
    
    90,875




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##### Table of Contents



SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005(In thousands)Restated(Note 1(q))Net income (loss)
    
    $
    271,630
    
    
    $
    (56,673
    )
    
    $
    (11,566
    )Other comprehensive income (loss):Foreign currency translation
adjustments, net of related tax
provision of $106 (2006  net of
related tax provision of $4; 2005
 net of related tax benefit of
$757)
    
    
    (2,698
    )
    
    
    (1,948
    )
    
    
    (17,215
    )Reclassification adjustment for
realized foreign exchange (gains)
losses upon the substantial
reduction of net investment in
foreign operations
    
    
    
    
    
    
    (11,571
    )
    
    
    1,241(2,698
    )
    
    
    (13,519
    )
    
    
    (15,974
    )Unrealized gains (losses) on
marketable securities arising
during the year, net of a related
tax provision of $2 (2006  net
of related tax provision of $4;
2005  net of related tax
benefit of $616)
    
    
    75
    
    
    
    16
    
    
    
    (951
    )Reclassification adjustment for
realized gains reclassified out
of accumulated other
comprehensive income (loss), net
of related taxes of $nil (2006 
net of related tax provision of
$661; 2005  net of related tax
benefit of $1,851)
    
    
    
    
    
    
    870
    
    
    
    (3,212
    )75
    
    
    
    886
    
    
    
    (4,163
    )Pension adjustment, net of
related tax provision of $8,166
(2006  net of related tax
provision of $3,117; 2005  net
of related tax benefit of $1,430
and recovery of minority interest
of $36)
    
    
    13,694
    
    
    
    4,675
    
    
    
    (821
    )11,071
    
    
    
    (7,958
    )
    
    
    (20,958
    )Comprehensive income (loss)
    
    $
    282,701
    
    
    $
    (64,631
    )
    
    $
    (32,524
    )




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##### Table of Contents



SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
For the Years Ended December 31, 2007, 2006 and 2005
 AccumulatedCommon
    
    
    Additional
    
    
    OtherStock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Accumulated
    
    
    TreasuryClass A & B
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Stock
    
    
    Total(In thousands)Balance at January 1, 2005
    
    $
    1,030
    
    
    $
    500,006
    
    
    $
    21,456
    
    
    $
    (221,497
    )
    
    $
    (148,809
    )
    
    $
    152,186Stock-based compensation
    
    
    
    
    
    
    653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    653Dividends payable in cash  Class A and
Class B, $3.20 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (290,166
    )
    
    
    
    
    
    
    (290,166
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    (821
    )
    
    
    
    
    
    
    
    
    
    
    (821
    )Change in cumulative foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    (15,974
    )
    
    
    
    
    
    
    
    
    
    
    (15,974
    )Change in unrealized loss on securities, net
    
    
    
    
    
    
    
    
    
    
    (4,163
    )
    
    
    
    
    
    
    
    
    
    
    (4,163
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,566
    )
    
    
    
    
    
    
    (11,566
    )Balance at December 31, 2005
    
    
    1,030
    
    
    
    500,659
    
    
    
    498
    
    
    
    (523,229
    )
    
    
    (148,809
    )
    
    
    (169,851
    )Stock-based compensation
    
    
    
    
    
    
    2,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,580Dividends payable in cash  Class A and
Class B, $0.15 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,678
    )
    
    
    
    
    
    
    (12,678
    )Pension adjustment related to the adoption
of SFAS No. 158
    
    
    
    
    
    
    
    
    
    
    (29,310
    )
    
    
    
    
    
    
    
    
    
    
    (29,310
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    4,675
    
    
    
    
    
    
    
    
    
    
    
    4,675Change in cumulative foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    (13,519
    )
    
    
    
    
    
    
    
    
    
    
    (13,519
    )Change in unrealized gain on securities, net
    
    
    
    
    
    
    
    
    
    
    886
    
    
    
    
    
    
    
    
    
    
    
    886Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95,744
    )
    
    
    (95,744
    )Issuance of treasury stock in respect of
stock options exercised and deferred stock
units
    
    
    
    
    
    
    (1,112
    )
    
    
    
    
    
    
    (4,470
    )
    
    
    15,433
    
    
    
    9,851Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,673
    )
    
    
    
    
    
    
    (56,673
    )Balance at December 31, 2006
    
    
    1,030
    
    
    
    502,127
    
    
    
    (36,770
    )
    
    
    (597,050
    )
    
    
    (229,120
    )
    
    
    (359,783
    )Stock-based compensation
    
    
    
    
    
    
    2,432
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,432Issuance of treasury stock in respect of
deferred stock units
    
    
    
    
    
    
    (3,421
    )
    
    
    
    
    
    
    (31
    )
    
    
    3,093
    
    
    
    (359
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    13,694
    
    
    
    
    
    
    
    
    
    
    
    13,694Change in cumulative foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    (2,698
    )
    
    
    
    
    
    
    
    
    
    
    (2,698
    )Change in unrealized gain on securities, net
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271,630
    
    
    
    
    
    
    
    271,630Balance at December 31, 2007
    
    $
    1,030
    
    
    $
    501,138
    
    
    $
    (25,699
    )
    
    $
    (325,451
    )
    
    $
    (226,027
    )
    
    $
    (75,009
    )




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##### Table of Contents



SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005(In thousands)Cash Flows From Continuing Operating Activities:Net income (loss)
    
    $
    271,630
    
    
    $
    (56,673
    )
    
    $
    (11,566
    )Income from discontinued operations
    
    
    (1,599
    )
    
    
    (20,957
    )
    
    
    (33,965
    )Income (loss) from continuing operations
    
    
    270,031
    
    
    
    (77,630
    )
    
    
    (45,531
    )Adjustments to reconcile income (loss) from continuing operations to net
cash provided by (used in) continuing operating activities:Depreciation and amortization
    
    
    32,074
    
    
    
    33,878
    
    
    
    30,721Deferred income taxes
    
    
    147,454
    
    
    
    9,777
    
    
    
    29,903Collection of proceeds from directors and officers insurance settlement
    
    
    50,000
    
    
    
    
    
    
    
    Loss on sale of newspaper operations
    
    
    13,603
    
    
    
    
    
    
    
    Write-off of capitalized direct response advertising costs
    
    
    15,191
    
    
    
    
    
    
    
    Reduction of tax liabilities
    
    
    (586,686
    )
    
    
    
    
    
    
    Bad debt expense related to loan to subsidiary of Hollinger Inc.
    
    
    33,685
    
    
    
    
    
    
    
    Equity in losses of affiliates
    
    
    184
    
    
    
    259
    
    
    
    1,752Loss (gain) on sales of investments
    
    
    (1,019
    )
    
    
    76
    
    
    
    (2,511
    )Gain on sales of property, plant and equipment
    
    
    (269
    )
    
    
    (80
    )
    
    
    (202
    )Write-down of investments
    
    
    12,200
    
    
    
    
    
    
    
    298Write-down of property, plant and equipment
    
    
    1,487
    
    
    
    882
    
    
    
    Other
    
    
    11,997
    
    
    
    (1,497
    )
    
    
    (2,547
    )Changes in current assets and liabilities, net of dispositions:Accounts receivable
    
    
    3,715
    
    
    
    18,338
    
    
    
    (6,028
    )Inventories
    
    
    1,706
    
    
    
    2,957
    
    
    
    (1,147
    )Other current assets
    
    
    240
    
    
    
    (47,890
    )
    
    
    8,366Recoverable income taxes
    
    
    18,163
    
    
    
    (34,672
    )
    
    
    Accounts payable and accrued expenses
    
    
    (18,892
    )
    
    
    (18,680
    )
    
    
    (8,464
    )Income taxes payable and other tax liabilities
    
    
    11,724
    
    
    
    61,390
    
    
    
    (142,089
    )Deferred revenue and other
    
    
    (12,113
    )
    
    
    (7,776
    )
    
    
    (8,347
    )Cash provided by (used in) continuing operating activities
    
    
    4,475
    
    
    
    (60,668
    )
    
    
    (145,826
    )Cash Flows From Investing Activities:Purchase of property, plant and equipment
    
    
    (11,645
    )
    
    
    (9,134
    )
    
    
    (16,626
    )Proceeds from sale of property, plant and equipment
    
    
    4,808
    
    
    
    231
    
    
    
    281Investments, intangibles and other non-current assets
    
    
    (6,523
    )
    
    
    (7,592
    )
    
    
    (9,174
    )Collection of notes receivable pursuant to settlement with a former officer
    
    
    8,460
    
    
    
    
    
    
    
    Sale of short-term investments, net
    
    
    
    
    
    
    57,650
    
    
    
    474,400Purchase of investments
    
    
    (48,200
    )
    
    
    
    
    
    
    Proceeds on disposal of investments and other assets
    
    
    2,039
    
    
    
    18,237
    
    
    
    4,550Proceeds from the sale of newspaper operations, net of cash disposed
    
    
    2,664
    
    
    
    86,609
    
    
    
    38,677Other
    
    
    370
    
    
    
    (266
    )
    
    
    Cash provided by (used in) investing activities
    
    
    (48,027
    )
    
    
    145,735
    
    
    
    492,108Cash Flows From Financing Activities:Repayment of debt and premium on debt extinguishment
    
    
    (6,976
    )
    
    
    (1,193
    )
    
    
    (6,304
    )Escrow deposits and restricted cash
    
    
    (5,366
    )
    
    
    3,678
    
    
    
    (2,569
    )Net proceeds from issuance of equity securities
    
    
    
    
    
    
    9,851
    
    
    
    Repurchase of common stock
    
    
    
    
    
    
    (95,744
    )
    
    
    Dividends paid
    
    
    
    
    
    
    (17,212
    )
    
    
    (516,858
    )Other
    
    
    3,046
    
    
    
    (1,528
    )
    
    
    (3,140
    )Cash used in financing activities
    
    
    (9,296
    )
    
    
    (102,148
    )
    
    
    (528,871
    )Net cash provided by (used in) discontinued operations:Operating cash flows
    
    
    
    
    
    
    (387
    )
    
    
    54,622Investing cash flows
    
    
    
    
    
    
    
    
    
    
    (4,680
    )Financing cash flows
    
    
    
    
    
    
    7,143
    
    
    
    53,717Net cash provided by discontinued operations
    
    
    
    
    
    
    6,756
    
    
    
    103,659Effect of exchange rate changes on cash
    
    
    9,063
    
    
    
    (1,745
    )
    
    
    2,523Net decrease in cash and cash equivalents
    
    
    (43,785
    )
    
    
    (12,070
    )
    
    
    (76,407
    )Cash and cash equivalents at beginning of year
    
    
    186,318
    
    
    
    198,388
    
    
    
    274,795Cash and cash equivalents at end of year
    
    $
    142,533
    
    
    $
    186,318
    
    
    $
    198,388




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##### Table of Contents



SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
 (1) Significant Accounting Policies
 (a) Description of Business
  (b) Principles of Presentation and Consolidation
    (c) Use of Estimates
  (d) Cash Equivalents
  (e) Accounts Receivable, Net of Allowance for Doubtful Accounts
  2007
    
    
    2006
    
    
    2005(In thousands)Balance at beginning of year
    
    $
    10,267
    
    
    $
    11,756
    
    
    $
    11,654Provision
    
    
    4,448
    
    
    
    3,820
    
    
    
    4,598Write-offs
    
    
    (3,113
    )
    
    
    (6,419
    )
    
    
    (5,886
    )Recoveries and other
    
    
    674
    
    
    
    1,110
    
    
    
    1,390Balance at end of year
    
    $
    12,276
    
    
    $
    10,267
    
    
    $
    11,756




---



##### Table of Contents



(f) Inventories
  (g) Long-Lived Assets
    (h) Derivative Financial Instruments
  (i) Investments




---



##### Table of Contents



(j) Goodwill and Other Intangible Assets
     (k) Pension Plans and Other Postretirement Benefits
 General
      Long-Term Rate of Return on Assets




---



##### Table of Contents



Discount Rate
   (l) Income Taxes
  (m) Revenue Recognition
  (n) Foreign Currency Translation




---



##### Table of Contents



(o) Earnings (Loss) per Share
  (p) Stock-based Compensation
    Year Ended December 31,2007
    
    
    2006
    
    
    2005(In thousands)Total stock-based compensation expense included in income (loss) from continuing operations
    
    $
    2,432
    
    
    $
    2,580
    
    
    $
    653
  2005(In thousands, exceptper share amounts)Loss from continuing operations, as reported
    
    $
    (45,531
    )Add: stock-based compensation expense, as reported
    
    
    653Deduct: pro forma stock-based compensation expense
    
    
    (1,384
    )Pro forma loss from continuing operations
    
    $
    (46,262
    )Basic loss from continuing operations per share, as reported
    
    $
    (0.50
    )Diluted loss from continuing operations per share, as reported
    
    $
    (0.50
    )Pro forma basic loss from continuing operations per share
    
    $
    (0.51
    )Pro forma diluted loss from continuing operations per share
    
    $
    (0.51
    )
 (q) Reclassifications and Correction of Error




---



##### Table of Contents



(2) Dispositions and Discontinued Operations
        Year Ended December 31,2006
    
    
    2005(In thousands)Operating revenue:Advertising
    
    $
    4,101
    
    
    $
    75,246Circulation
    
    
    972
    
    
    
    12,908Job printing and other
    
    
    569
    
    
    
    12,684Total operating revenue
    
    
    5,642
    
    
    
    100,838Operating costs and expenses:Newsprint
    
    
    383
    
    
    
    8,624Compensation
    
    
    2,896
    
    
    
    41,653Other operating costs
    
    
    2,041
    
    
    
    31,404Depreciation and amortization
    
    
    159
    
    
    
    2,493Total operating costs and expenses
    
    
    5,479
    
    
    
    84,174Operating income
    
    $
    163
    
    
    $
    16,664




---



##### Table of Contents



(3) Reorganization Activities
    Charges for workforce reductions
    
    $
    6,352Cash payments
    
    
    (7
    )Accrued expenses
    
    $
    6,345
 (4) Other Current Assets
   (5) Investments
 December 31,2007
    
    
    2006(In thousands)Available-for-sale securities, at fair value:Asset-backed commercial paper(a)
    
    $
    36,000
    
    
    $
    Equity securities
    
    
    114
    
    
    
    80Other non-marketable investments, at cost
    
    
    4,876
    
    
    
    4,32840,990
    
    
    
    4,408Equity accounted companies, at equity:Internet related companies
    
    
    7
    
    
    
    44Other
    
    
    1,252
    
    
    
    1,9701,259
    
    
    
    2,014$
    42,249
    
    
    $
    6,422




---



##### Table of Contents



December 31,2007
    
    
    2006(In thousands)Gross unrealized holding gains on available-for-sale securities:Equity securities
    
    $
    158
    
    
    $
    78Less  deferred tax expense
    
    
    (17
    )
    
    
    (12
    )Unrealized gains on available-for-sale securities included in stockholders equity (deficit)
    
    $
    141
    
    
    $
    66
 (a)




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##### Table of Contents



(6) Property, Plant and Equipment
 December 31,2007
    
    
    2006(In thousands)Land
    
    $
    9,053
    
    
    $
    9,510Building and leasehold interests
    
    
    93,681
    
    
    
    101,122Machinery and equipment
    
    
    204,192
    
    
    
    194,903Construction in progress
    
    
    2,599
    
    
    
    6,428Less: accumulated depreciation
    
    
    (146,170
    )
    
    
    (133,595
    )$
    163,355
    
    
    $
    178,368
  (7) Goodwill and Intangible Assets
  Total(In thousands)Balance as of January 1, 2006
    
    $
    124,104Adjustments of excess acquisition reserves
    
    
    (69
    )Acquisition
    
    
    266Balance as of December 31, 2006 and 2007
    
    $
    124,301
  December 31,2007
    
    
    2006(In thousands)Subscriber and advertiser relationships:Gross carrying amount
    
    $
    135,880
    
    
    $
    135,880Accumulated amortization
    
    
    (47,645
    )
    
    
    (43,289
    )Net book value
    
    $
    88,235
    
    
    $
    92,591
  (8) Other Assets
 December 31,2007
    
    
    2006(In thousands)Deferred financing costs
    
    $
    
    
    
    $
    123Capitalized direct response advertising costs, net of accumulated amortization (Note 16(b))
    
    
    
    
    
    
    16,193Receivable from Bradford Publishing Co. (Note 22(f))
    
    
    
    
    
    
    3,430Other
    
    
    1,249
    
    
    
    2,178$
    1,249
    
    
    $
    21,924
 (9) Accounts Payable and Accrued Expenses
 December 31,2007
    
    
    2006(In thousands)Accounts payable
    
    $
    34,067
    
    
    $
    30,821Accrued expenses:Labor and benefits
    
    
    28,665
    
    
    
    30,543Accrued interest
    
    
    
    
    
    
    30Professional fees
    
    
    9,848
    
    
    
    19,070Current pension and postretirement liability
    
    
    6,478
    
    
    
    6,455Other
    
    
    33,563
    
    
    
    23,249$
    112,621
    
    
    $
    110,168




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##### Table of Contents



(10) Long-Term Debt
 December 31,2007
    
    
    2006(In thousands)Hollinger International Publishing Inc.:9% Senior Notes due 2010
    
    $
    
    
    
    $
    6,000Other debt
    
    
    38
    
    
    
    90838
    
    
    
    6,908Less:Current portion included in current liabilities
    
    
    35
    
    
    
    867$
    3
    
    
    $
    6,041
   (11) Leases
   (In thousands)2008
    
    $
    5,5602009
    
    
    4,7602010
    
    
    3,9352011
    
    
    3,7842012
    
    
    3,880Thereafter
    
    
    28,397$
    50,316
 (12) Financial Instruments
 (a) Fair Values
    (b) Derivative Financial Instruments




---



##### Table of Contents



(13) Stockholders Equity
 Preferred Stock
  Class A and Class B Common Stock
  Shareholder Rights Plan (SRP)
     Common Stock Repurchases and Issuance of Treasury Stock




---



##### Table of Contents



Dividends and Dividends Payable
   (14) Stock-Based Compensation
 Stock Options




---



##### Table of Contents



Weighted-
    
    
    Weighted-Average
    
    
    Average
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term
    
    
    Value(Months)
    
    
    (In thousands)Options outstanding at December 31, 2006
    
    
    698,460
    
    
    $
    8.11Options granted
    
    
    
    
    
    $
    Options exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Options forfeited
    
    
    (302,735
    )
    
    $
    (8.01
    )Options expired
    
    
    
    
    
    $
    Options outstanding at December 31, 2007
    
    
    395,725
    
    
    $
    8.19
    
    
    
    42
    
    
    $
    Options exercisable at December 31, 2007
    
    
    395,725
    
    
    $
    8.19
    
    
    
    42
    
    
    $
    
  Options
    
    
    
    
    
    Options ExercisableNumber
    
    Outstanding
    
    
    
    
    
    NumberOutstanding at
    
    Weighted-Average
    
    
    
    
    
    Exercisable atDecember 31,
    
    Remaining
    
    Weighted Average
    
    December 31,
    
    Weighted-AverageRange of Exercise Prices
    
    2007
    
    Contractual Life
    
    Exercise Price
    
    2007
    
    Exercise Price$6.69  $8.67
    
    
    293,093
    
    
    3.88 years
    
    $
    7.45
    
    
    
    293,093
    
    
    $
    7.45$10.17  $10.66
    
    
    102,632
    
    
    2.53 years
    
    $
    10.29
    
    
    
    102,632
    
    
    $
    10.29$6.69  $10.66
    
    
    395,725
    
    
    3.53 years
    
    $
    8.19
    
    
    
    395,725
    
    
    $
    8.19
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(In thousands)Total intrinsic value of stock options exercised
    
    $
    
    
    
    $
    1,047
    
    
    $
    
    Deferred Stock Units




---



##### Table of Contents



Weighted-Average
    
    
    
    
    
    
    AggregateNumber of
    
    
    Grant Date
    
    
    Weighted-Average
    
    
    IntrinsicUnits
    
    
    Fair Value
    
    
    Remaining Term
    
    
    Value(Months)
    
    
    (In thousands)Unvested at December 31, 2006
    
    
    215,335
    
    
    $
    7.97DSUs granted
    
    
    2,631,954
    
    
    $
    1.50DSUs vested
    
    
    (513,342
    )
    
    $
    (4.63
    )
    
    
    
    
    
    $
    1,551DSUs forfeited
    
    
    (17,672
    )
    
    $
    (9.99
    )Unvested at December 31, 2007
    
    
    2,316,275
    
    
    $
    1.34
    
    
    
    24
    
    
    $
    5,096
 Year Ended December 31,2007
    
    
    2006
    
    
    2005(In thousands)Total fair value of DSUs granted
    
    $
    3,938
    
    
    $
    975
    
    
    $
    4,036Intrinsic value of DSUs vested
    
    $
    1,551
    
    
    $
    1,481
    
    
    $
    483
 (15) Employee Benefit Plans
 Defined Contribution Plans
  Defined Benefit Plans




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005(In thousands)Service cost
    
    $
    1,305
    
    
    $
    1,526
    
    
    $
    2,169Interest cost
    
    
    18,456
    
    
    
    18,653
    
    
    
    17,625Expected return on plan assets
    
    
    (26,158
    )
    
    
    (25,609
    )
    
    
    (22,471
    )Amortization of losses
    
    
    2,666
    
    
    
    2,825
    
    
    
    3,126Settlement and curtailment (gain) loss
    
    
    458
    
    
    
    (67
    )
    
    
    Amortization of transitional obligation
    
    
    112
    
    
    
    112
    
    
    
    112Amortization of prior service costs
    
    
    183
    
    
    
    198
    
    
    
    190Net periodic benefit cost (credit)
    
    $
    (2,978
    )
    
    $
    (2,362
    )
    
    $
    751
  December 31,2007
    
    
    2006(In thousands)Benefit obligation at the beginning of the year
    
    $
    348,179
    
    
    $
    342,036Service cost
    
    
    1,305
    
    
    
    1,526Interest cost
    
    
    18,456
    
    
    
    18,653Participant contributions
    
    
    5
    
    
    
    81Currency translation differences
    
    
    43,770
    
    
    
    (189
    )Settlements and transfers
    
    
    (1,380
    )
    
    
    1,152Actuarial (gain) loss
    
    
    (16,029
    )
    
    
    17,780Curtailment gain
    
    
    
    
    
    
    (224
    )Benefits paid
    
    
    (30,934
    )
    
    
    (32,636
    )Benefit obligation at the end of the year
    
    
    363,372
    
    
    
    348,179Fair value of plan assets at the beginning of the year
    
    
    351,624
    
    
    
    348,296Actual return on plan assets
    
    
    34,628
    
    
    
    31,337Currency translation differences
    
    
    51,271
    
    
    
    24Settlements and transfers
    
    
    (1,388
    )
    
    
    1,190Employer contributions
    
    
    7,249
    
    
    
    3,332Participant contributions
    
    
    5
    
    
    
    81Benefits paid
    
    
    (30,934
    )
    
    
    (32,636
    )Fair value of plan assets at the end of the year
    
    
    412,455
    
    
    
    351,624Funded status
    
    $
    49,083
    
    
    $
    3,445




---



##### Table of Contents



December 31,2007
    
    2006(In thousands)Prepaid pension asset
    
    $
    89,512
    
    
    $
    49,645Pension liability included in current liabilities
    
    $
    (3,993
    )
    
    $
    (4,489
    )Pension liability included in noncurrent liabilities
    
    $
    (36,436
    )
    
    $
    (41,711
    )Accumulated other comprehensive loss, before income taxes
    
    $
    59,070
    
    
    $
    78,826
  December 31,2007
    
    
    2006(In thousands)Net actuarial losses
    
    $
    56,907
    
    
    $
    76,521Prior service costs
    
    
    1,240
    
    
    
    1,270Net transition obligation
    
    
    923
    
    
    
    1,035$
    59,070
    
    
    $
    78,826
    December 31,2007
    
    2006(In thousands)Projected benefit obligation
    
    $
    111,084
    
    
    $
    117,229Accumulated benefit obligation
    
    $
    107,841
    
    
    $
    113,754Fair value of plan assets
    
    $
    70,655
    
    
    $
    71,029
  December 31,2007
    
    2006(In thousands)Projected benefit obligation
    
    $
    252,288
    
    
    $
    230,950Accumulated benefit obligation
    
    $
    252,288
    
    
    $
    230,950Fair value of plan assets
    
    $
    341,800
    
    
    $
    280,595
 Assumptions
  December 31,2007
    
    2006
    
    2005Discount rate
    
    
    5.50  6.25
    %
    
    
    5.00  5.75
    %
    
    
    5.50  6.25
    %Expected return on plan assets
    
    
    5.50  8.00
    %
    
    
    5.50  8.25
    %
    
    
    5.25  8.25
    %Compensation increase
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.0%  4.0
    %




---



##### Table of Contents



Pension Benefits2007
    
    2006Discount rate
    
    
    5.67
    %
    
    
    5.18
    %Rate of compensation increase
    
    
    2.53
    %
    
    
    2.47
    %
  Pension Benefits2007
    
    2006
    
    2005Discount rate
    
    
    5.67
    %
    
    
    5.18
    %
    
    
    5.49
    %Expected long-term return on plan assets
    
    
    6.53
    %
    
    
    7.22
    %
    
    
    7.23
    %Rate of compensation increase
    
    
    2.53
    %
    
    
    2.47
    %
    
    
    3.02
    %
  Pension Plan Assets
  Plan Assets atDecember 31,Asset Category
    
    2007
    
    2006Equity securities
    
    
    55.9
    %
    
    
    48.2
    %Debt securities
    
    
    38.2
    %
    
    
    46.7
    %Other
    
    
    5.9
    %
    
    
    5.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    Historically competitive investment returns and risks;
    
    Stability and financial soundness of companies offering funds;
    
    Desirability of offering funds run by different managers; and
    
    Managers investment philosophy and style.
  Postretirement and Postemployment Benefits




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005(In thousands)Service cost
    
    $
    10
    
    
    $
    27
    
    
    $
    21Interest cost
    
    
    1,103
    
    
    
    1,357
    
    
    
    1,325Amortization of gains
    
    
    (1,782
    )
    
    
    (788
    )
    
    
    (907
    )Net periodic postretirement benefit cost (credit)
    
    $
    (669
    )
    
    $
    596
    
    
    $
    439
  December 31,2007
    
    
    2006(In thousands)Accumulated postretirement benefit obligation at the beginning of the year
    
    $
    29,476
    
    
    $
    36,754Service cost
    
    
    10
    
    
    
    27Interest cost
    
    
    1,103
    
    
    
    1,357Actuarial gains
    
    
    (2,495
    )
    
    
    (6,171
    )Benefits paid
    
    
    (2,146
    )
    
    
    (2,032
    )Currency translation differences
    
    
    4,977
    
    
    
    (459
    )Accumulated postretirement benefit obligation at the end of the year
    
    
    30,925
    
    
    
    29,476Fair value of plan assets at the end of the year
    
    
    2,008
    
    
    
    2,005Unfunded status
    
    $
    28,917
    
    
    $
    27,471
  December 31,2007
    
    
    2006(In thousands)Unfunded status, included in current liabilities
    
    $
    2,400
    
    
    $
    1,966Unfunded status, included in other liabilities
    
    $
    26,517
    
    
    $
    25,505Unrecognized net gain, included in accumulated other comprehensive income, net of tax
    
    $
    11,515
    
    
    $
    6,011
    2007
    
    2006Healthcare cost trend assumed next year
    
    
    7.4
    %
    
    
    8
    %Rate to which the cost trend is assumed to decline (the ultimate trend rate)
    
    
    5
    %
    
    
    5
    %Year that rate reaches ultimate trend rate
    
    
    2012
    
    
    
    2012




---



##### Table of Contents



Pension and Other Benefit Payments
  Pension
    
    PostretirementYear
    
    Benefits
    
    Benefits(In thousands)2008
    
    $
    33,489
    
    
    $
    2,4002009
    
    $
    31,109
    
    
    $
    2,4752010
    
    $
    30,549
    
    
    $
    2,5342011
    
    $
    29,993
    
    
    $
    2,5822012
    
    $
    29,554
    
    
    $
    2,6152013-2017
    
    $
    139,462
    
    
    $
    13,159
 (16) Other Operating Costs and Corporate Expenses
 Items Included in Other Operating Costs
  Year Ended December 31,2007
    
    2006
    
    2005(In thousands)Reorganization costs (Note 3)
    
    $
    6,352
    
    
    $
    9,201
    
    
    $
    Severance expense
    
    
    405
    
    
    
    2,642
    
    
    
    117Write-off of capitalized direct response advertising costs(a)
    
    
    15,191
    
    
    
    
    
    
    
    Write-off of capitalized software(b)
    
    
    1,487
    
    
    
    882
    
    
    
    Costs related to outsourcing of certain newspaper distribution activities, including severance
    
    
    1,770
    
    
    
    
    
    
    
    
 Write-off of Capitalized Direct Response Advertising Costs
   Write-off of Capitalized Software




---



##### Table of Contents



Items Included in  Corporate Expenses 
  Year Ended December 31,2007
    
    2006
    
    2005(In thousands)Bad debt expense related to loan to subsidiary of Hollinger Inc.(a)
    
    $
    33,685
    
    
    $
    
    
    
    $
    Loss on sale of newspaper operations(b)
    
    
    13,603
    
    
    
    
    
    
    
    Severance expense
    
    
    (176
    )
    
    
    6,954
    
    
    
    1,125Unclaimed property costs
    
    
    
    
    
    
    2,000
    
    
    
    
 
 (a)
    
    Bad Debt Expense Related to Loan to Subsidiary of Hollinger Inc.  (b)
    
    Loss on Sale of Newspaper Operations
  (17) Indemnification, Investigation and Litigation Costs, Net of Recoveries
   Incurred SinceYear Ended December 31,
    
    
    Inception through2007
    
    
    2006
    
    
    2005
    
    
    December 31, 2007(5)(In thousands)Special Committee investigation costs(1)
    
    $
    6,216
    
    
    $
    4,743
    
    
    $
    19,044
    
    
    $
    63,680Litigation costs(2)
    
    
    1,533
    
    
    
    6,376
    
    
    
    3,601
    
    
    
    28,478Indemnification fees and costs(3)
    
    
    47,776
    
    
    
    18,949
    
    
    
    23,363
    
    
    
    109,714Recoveries(4)
    
    
    (47,718
    )
    
    
    (47,475
    )
    
    
    (32,375
    )
    
    
    (127,568
    )$
    7,807
    
    
    $
    (17,407
    )
    
    $
    13,633
    
    
    $
    74,304
 
 (1)
    
    Costs and expenses arising from the Special Committee investigation. These amounts include the fees and costs of
the Special Committees members, counsel, advisors and experts.(2)
    
    Largely represents legal and other professional fees to defend the Company in litigation that has arisen as a
result of the issues the Special Committee has investigated, including costs to defend the counterclaims of
Hollinger Inc. and Black in Hollinger International Inc. v. Conrad M. Black, Hollinger Inc., and 504468 N.B. Inc.
described in the Companys previous filings (the Delaware Litigation).




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##### Table of Contents



(3)
    
    Represents amounts the Company has been required to advance in fees and costs to indemnified parties, including
former officers and directors and their affiliates and associates who are defendants in the litigation brought by
the Company or in the criminal proceedings. See Note 21(a) Black v. Hollinger International Inc.(4)
    
    Represents recoveries including $47.7 million related to a settlement with Radler described above, $47.5 million
in a settlement with certain of the Companys directors and officers insurance carriers in 2006, $30.3 million in
a settlement with Torys LLP in 2005 and $2.1 million in recoveries of indemnification payments from Black in 2005.
Excludes settlements with former directors and officers, pursuant to a restitution agreement reached in November
2003, of $1.7 million and $31.5 million recognized in 2004 and 2003, respectively, which were recorded in Other
income (expense), net, and interest related to various recoveries and settlements of $15.8 million which was
recorded in Interest and dividend income. Total recoveries, including interest, aggregate $176.6 million. In
addition, the Radler settlement resulted in the collection of $8.5 million of notes receivable.(5)
    
    The Special Committee was formed on June 17, 2003. These amounts represent the cumulative net costs from that date. (18) Other Income (Expense), Net
 December 31,2007
    
    
    2006
    
    
    2005(In thousands)Loss on extinguishment of debt(a)
    
    $
    (60
    )
    
    $
    
    
    
    $
    Expenses related to FDR Collection(b)
    
    
    
    
    
    
    
    
    
    
    (795
    )Write-down of investments(c)
    
    
    (12,200
    )
    
    
    
    
    
    
    Foreign currency gains (losses), net
    
    
    (16,569
    )
    
    
    2,943
    
    
    
    (2,171
    )Legal settlement
    
    
    
    
    
    
    
    
    
    
    (800
    )Gain (loss) on sale of investments
    
    
    1,019
    
    
    
    (76
    )
    
    
    2,254Equity in losses of affiliates
    
    
    (184
    )
    
    
    (259
    )
    
    
    (1,752
    )Other
    
    
    150
    
    
    
    34
    
    
    
    (575
    )$
    (27,844
    )
    
    $
    2,642
    
    
    $
    (3,839
    )
 
 (a)
    
    In 2007, the Company retired $6.0 million of its 9% Senior Notes and recognized a premium for early redemption. See
Note 10.(b)
    
    In 2005, the Company paid the State of New York approximately $0.8 million to settle a claim that the Company was
liable for sales taxes related to acquisitions of papers and other memorabilia of President Franklin Delano Roosevelt.(c)
    
    In 2007, the Company recorded a $12.2 million impairment charge related to the valuation of its Canadian CP. See Note 5. (19) Income Taxes
  2007
    
    
    2006
    
    
    2005(In thousands)Income tax expense (benefit) allocated to:Loss from continuing operations before income taxes
    
    $
    (420,888
    )
    
    $
    57,431
    
    
    $
    42,467Income from discontinued operations
    
    
    1,066
    
    
    
    35,173
    
    
    
    13,778Other comprehensive income (loss)  foreign currency translation adjustments
    
    
    106
    
    
    
    (4
    )
    
    
    757Other comprehensive income (loss)  unrealized holding gain (loss) on marketable securities
    
    
    2
    
    
    
    (665
    )
    
    
    (2,467
    )Other comprehensive income (loss)  pension adjustment
    
    
    8,166
    
    
    
    3,117
    
    
    
    (1,430
    )$
    (411,548
    )
    
    $
    95,052
    
    
    $
    53,105




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##### Table of Contents



Current
    
    
    Deferred
    
    
    Total(In thousands)Year ended December 31, 2007:U.S. federal
    
    $
    (11,509
    )
    
    $
    116,590
    
    
    $
    105,081Foreign
    
    
    (556,833
    )
    
    
    460
    
    
    
    (556,373
    )State and local
    
    
    
    
    
    
    30,404
    
    
    
    30,404$
    (568,342
    )
    
    $
    147,454
    
    
    $
    (420,888
    )Year ended December 31, 2006U.S. federal
    
    $
    3,910
    
    
    $
    12,091
    
    
    $
    16,001Foreign
    
    
    43,138
    
    
    
    (5,222
    )
    
    
    37,916State and local
    
    
    606
    
    
    
    2,908
    
    
    
    3,514$
    47,654
    
    
    $
    9,777
    
    
    $
    57,431Year ended December 31, 2005:U.S. federal
    
    $
    (4,279
    )
    
    $
    22,327
    
    
    $
    18,048Foreign
    
    
    19,442
    
    
    
    4,327
    
    
    
    23,769State and local
    
    
    (2,599
    )
    
    
    3,249
    
    
    
    650$
    12,564
    
    
    $
    29,903
    
    
    $
    42,467
  2007
    
    
    2006
    
    
    2005(In thousands)U.S.
    
    $
    (121,511
    )
    
    $
    (29,351
    )
    
    $
    (6,241
    )Foreign
    
    
    (29,346
    )
    
    
    9,152
    
    
    
    3,177$
    (150,857
    )
    
    $
    (20,199
    )
    
    $
    (3,064
    )
   2007
    
    
    2006
    
    
    2005(In thousands)Income tax benefit at federal statutory rate
    
    $
    (52,800
    )
    
    $
    (7,070
    )
    
    $
    (1,073
    )Impact of taxation at different foreign rates
    
    
    4,191
    
    
    
    (1,725
    )
    
    
    143U.S. state and local income tax benefit, net of federal tax impact
    
    
    (8,298
    )
    
    
    (1,462
    )
    
    
    (550
    )Tax impacts of the disposition and liquidation of Canadian operations, including
book and tax basis differences, foreign exchange differences and related items
    
    
    
    
    
    
    (10,551
    )
    
    
    (7,431
    )Provision for tax contingencies
    
    
    
    
    
    
    29,042
    
    
    
    607Reduction of tax contingency accruals due to the resolution of uncertainties(a)
    
    
    (578,530
    )
    
    
    (39,297
    )
    
    
    (16,194
    )Reversal of U.S. deferred tax benefits related to disposition and liquidation of
Canadian operations(b)
    
    
    157,344
    
    
    
    
    
    
    
    Interest on tax contingency accruals, net of federal tax benefit on a portion thereof
    
    
    47,967
    
    
    
    81,523
    
    
    
    53,680Items non-deductible or non-includible for income tax purposes
    
    
    4,228
    
    
    
    831
    
    
    
    (2,817
    )U.S. income tax expense (benefit) on intercompany and other transactions involving
non-U.S. operations(a)
    
    
    (28,797
    )
    
    
    2,241
    
    
    
    4,621Increase in valuation allowance, net(c)
    
    
    35,374
    
    
    
    5,366
    
    
    
    8,894Other, net
    
    
    (1,567
    )
    
    
    (1,467
    )
    
    
    2,587Income tax expense (benefit) allocated to loss from continuing operations
    
    $
    (420,888
    )
    
    $
    57,431
    
    
    $
    42,467
 
 (a)
    
    During 2007, the Company reached an agreement with the Canada Revenue
Agency (CRA) settling certain tax issues largely related to the
disposition of certain Canadian operations in 2000. As a result of the
settlement, the Company reduced its tax contingency accruals by $571.8
million and recorded a U.S. tax benefit of $14.9 million related to
the deduction arising from the settlement.




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##### Table of Contents



(b)
    
    The Company had recorded deferred tax assets for the U.S. tax benefits
that were related to the 2000 disposition and liquidation of Canadian
operations. Upon the settlement of the Canadian tax issues with the
CRA, the Company reversed the U.S. deferred tax asset of $157.3
million and the corresponding valuation allowance.(c)
    
    The net increase in the valuation allowance in 2007 includes the
effects of the following significant transactions. The Company
recorded $193.5 million of increases in the valuation allowance to
conform with its accounting policy that requires deferred tax assets
be reduced to a level where they are more likely than not to be
realized. The Company recorded a reduction of the valuation allowance
in the amount of $157.3 million as described in (b) above.  December 31,2007
    
    
    2006(In thousands)Deferred tax liabilities
    
    $
    106,907
    
    
    $
    139,240Deferred tax assets, net of valuation allowance
    
    
    (48,564
    )
    
    
    (112,266
    )$
    58,343
    
    
    $
    26,974
  December 31,2007
    
    
    2006(In thousands)Deferred tax assets attributable to:Accounts receivable, principally due to allowance for doubtful accounts
    
    $
    2,087
    
    
    $
    1,304Bad debt allowance on loan to subsidiary of Hollinger Inc.
    
    
    13,474
    
    
    
    Accrued expenses
    
    
    20,502
    
    
    
    13,012Postretirement obligations
    
    
    15,365
    
    
    
    18,198Investments
    
    
    20,796
    
    
    
    12,911Net operating loss carryforwards
    
    
    38,508
    
    
    
    5,261Claims for restitution
    
    
    43,964
    
    
    
    58,252U.S. tax benefit related to disposition and liquidation of Canadian operations
    
    
    10,849
    
    
    
    167,140Accrued interest and state income tax effects related to income tax
contingent liabilities included in Other tax liabilities(a)
    
    
    93,000
    
    
    
    Capital loss carryovers
    
    
    6,745
    
    
    
    17,521Other
    
    
    20,898
    
    
    
    14,180Deferred tax assets
    
    
    286,188
    
    
    
    307,779Less valuation allowance
    
    
    (237,624
    )
    
    
    (195,513
    )Net deferred tax assets
    
    $
    48,564
    
    
    $
    112,266Deferred tax liabilities attributable to:Property, plant and equipment, principally due to differences in depreciation
and deferred gain on exchange of assets
    
    $
    59,649
    
    
    $
    76,249Pension assets
    
    
    23,502
    
    
    
    11,148Deferred gain on disposition of Canadian Newspaper Operations
    
    
    21,146
    
    
    
    21,146Deferred tax on settlement
    
    
    
    
    
    
    20,047Other
    
    
    2,610
    
    
    
    10,650Deferred tax liabilities
    
    $
    106,907
    
    
    $
    139,240
 
 (a)
    
    At December 31, 2006, deferred tax assets of $75.6 million
attributable to the U.S. Federal tax benefit related to interest and
state income tax temporary differences had been netted directly
against the accruals for those income tax contingent liabilities in
Other tax liabilities.




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##### Table of Contents



Balance at January 1, 2007(a)
    
    $
    717,067Reduction due to settlement with CRA
    
    
    (377,798
    )Additions for tax provisions of prior year(b)
    
    
    16,891Reclassification of recoverable income taxes(c)
    
    
    12,102Balance at December 31, 2007
    
    $
    368,262
 
 (a)
    
    At January 1, 2007, the unrecognized tax benefits were included in
Income taxes payable and other tax liabilities ($627.4 million) and
Other tax liabilities ($385.4 million). U.S. federal deferred tax
assets of $75.6 million attributable to interest and state income tax
temporary differences had been presented as reductions of the income
tax contingency accruals. (At December 31, 2007, the corresponding
U.S. deferred tax assets of $93.0 million are presented as gross
deferred tax assets).(b)
    
    Gives effect to contingent tax liabilities for tax positions that
relate only to matters involving the timing of tax return inclusion.
Because of deferred tax accounting, changes in the timing of inclusion
of items in tax returns would not have a material impact on annual
effective tax rates.(c)
    
    Gives effect to the reclassification of recoverable income taxes that
had been presented as a reduction of Income taxes payable and other
tax liabilities at January 1, 2007.




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##### Table of Contents



(20) Earnings (Loss) per Share
  Year Ended December 31, 2007Earnings
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    Amount(In thousands, except per share amounts)Basic EPSIncome from continuing operations
    
    $
    270,031
    
    
    
    80,446
    
    
    $
    3.36Effect of dilutive securities
    
    
    
    
    
    
    215
    
    
    
    Diluted EPSIncome from continuing operations
    
    $
    270,031
    
    
    
    80,661
    
    
    $
    3.35
  Year Ended December 31, 2006Loss
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    Amount(In thousands, except per share amounts)Basic EPSLoss from continuing operations
    
    $
    (77,630
    )
    
    
    85,681
    
    
    $
    (0.91
    )Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Diluted EPSLoss from continuing operations
    
    $
    (77,630
    )
    
    
    85,681
    
    
    $
    (0.91
    )
  Year Ended December 31, 2005Loss
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    Amount(In thousands, except per share amounts)Basic EPSLoss from continuing operations
    
    $
    (45,531
    )
    
    
    90,875
    
    
    $
    (0.50
    )Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    Diluted EPSLoss from continuing operations
    
    $
    (45,531
    )
    
    
    90,875
    
    
    $
    (0.50
    )
  (21) Commitments and Contingencies
 (a) Litigation
 Litigation Involving Controlling Stockholder, Senior Management and Directors
 Hollinger International Inc. v. Hollinger Inc., et al.




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##### Table of Contents








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##### Table of Contents



Black v. Hollinger International Inc.
 Hollinger International Inc.
v. Conrad M. Black, Hollinger Inc., and 504468 N.B. Inc.
 
Federal Indictment of Ravelston and Former Company Officials
   Hollinger International Inc. v. Ravelston, RMI and Hollinger Inc.




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##### Table of Contents



Black v. Breeden, et al.
     United States Securities and Exchange Commission v. Hollinger International Inc.
   United States Securities and Exchange Commission v. Conrad M. Black, et al.




---



##### Table of Contents



CanWest Arbitration
  CanWest and The National Post Company v. Hollinger Inc., Hollinger International Inc., the
Ravelston Corporation Limited and Ravelston Management Inc.
 National Post




---



##### Table of Contents



Class Action Settlement
    Other Matters
   Other Matters
 (b) Guarantees or Indemnifications
 (i) Dispositions




---



##### Table of Contents



(ii) Letters of Credit
  (iii) Other
  (c) Canadian Ownership Matters
    (d) Commitments
  (22) Related-party Transactions




---



##### Table of Contents



(a)
  (b)  Hollinger International Inc. v. Ravelston, RMI and Hollinger Inc.
  (c)




---



##### Table of Contents



(d) National Post
 (e)
 (f)




---



##### Table of Contents



(g)
 (h)
  (i)
 (j)
 (k)
 (l)
 (23) Liquidity Considerations
 Cash and Cash Equivalents
  Investments




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##### Table of Contents



Corporate Structure
  Factors That Are Expected to Affect Liquidity in the Future
 Potential Cash Outlays Related to Accruals for Income Tax Contingent Liabilities
  December 31, 2007(In thousands)Income taxes payable
    
    $
    1,027Deferred income tax liabilities
    
    
    58,343Other tax liabilities
    
    
    597,206$
    656,576
   Potential Cash Outflows Related to Operations




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##### Table of Contents



Other
  (24) Quarterly Financial Data (Unaudited)
  2007First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share data)Total operating revenue(a)
    
    $
    91,717
    
    
    $
    94,744
    
    
    $
    92,539
    
    
    $
    93,258Operating income (loss)
    
    $
    5,679
    
    
    $
    (80,639
    )
    
    $
    (23,227
    )
    
    $
    (42,034
    )Income (loss) from continuing operations
    
    $
    (4,823
    )
    
    $
    527,980
    
    
    $
    (193,991
    )
    
    $
    (59,135
    )Net income (loss)
    
    $
    (4,823
    )
    
    $
    527,980
    
    
    $
    (192,392
    )
    
    $
    (59,135
    )Earnings (loss) from continuing operations per basic share(a)
    
    $
    (0.06
    )
    
    $
    6.57
    
    
    $
    (2.41
    )
    
    $
    (0.73
    )Earnings (loss) from continuing operations per diluted share
    
    $
    (0.06
    )
    
    $
    6.56
    
    
    $
    (2.41
    )
    
    $
    (0.73
    )Net earnings (loss) per basic share(b)
    
    $
    (0.06
    )
    
    $
    6.57
    
    
    $
    (2.39
    )
    
    $
    (0.73
    )Net earnings (loss) per diluted share
    
    $
    (0.06
    )
    
    $
    6.56
    
    
    $
    (2.39
    )
    
    $
    (0.73
    )
 2006First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share data)Total operating revenue(a)
    
    $
    102,794
    
    
    $
    107,788
    
    
    $
    99,485
    
    
    $
    110,312Operating income (loss)
    
    $
    (24,270
    )
    
    $
    (13,711
    )
    
    $
    (22,418
    )
    
    $
    21,449Income (loss) from continuing operations
    
    $
    (26,593
    )
    
    $
    20,121
    
    
    $
    (34,865
    )
    
    $
    (36,293
    )Net income (loss)
    
    $
    (7,755
    )
    
    $
    20,574
    
    
    $
    (34,865
    )
    
    $
    (34,627
    )Earnings (loss) from continuing operations per basic and diluted share(a)
    
    $
    (0.29
    )
    
    $
    0.23
    
    
    $
    (0.43
    )
    
    $
    (0.45
    )Net earnings (loss) per basic and diluted share(b)
    
    $
    (0.09
    )
    
    $
    0.24
    
    
    $
    (0.43
    )
    
    $
    (0.43
    )
 
 (a)
    
    Certain amounts previously netted against revenue in the first and
second quarters of 2007 and in 2006 have been reclassified to expense
to conform with the current years presentation.(b)
    
    Earnings (loss) per share is computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings
(loss) per share does not necessarily equal the total for the year.




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##### Table of Contents



Item 15. Exhibits and Financial Statement Schedules
 ExhibitNo.
    
    Description of Exhibit23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of Chief Executive Officer pursuant to
Rule 13a-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to
Rule 13a-14(a).32.1
    
    Certificate of Chief Executive Officer pursuant to Rule 13a-14(b)
and Section 1350 of Chapter 63 of Title 18 of the United States
Code.32.2
    
    Certificate of Chief Financial Officer pursuant to Rule 13a-14(b)
and Section 1350 of Chapter 63 of Title 18 of the United States
Code.




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##### Table of Contents



SIGNATURES
  SUN-TIMES MEDIA GROUP, INC.
RegistrantBy:
    /s/  Cyrus F. Freidheim, Jr.Cyrus F. Freidheim, Jr.President and Chief Executive OfficerDate: November 6, 2008By:
    /s/  William G. Barker IIIWilliam G. Barker IIISenior Vice President and Chief Financial Officer