##### Table of Contents



_
    _
   UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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:
  Title of Each Class:

Name of Each Exchange on Which Registered:Class A Common Stock par
    value $.01 per share

New York Stock ExchangePreferred Share Purchase Rights

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF
    CONTENTS
  SUN-TIMES
    MEDIA GROUP, INC.
  2006
    FORM 10-K
  
  PagePART IItem 1.

Business


5Item 1A.

Risk
    Factors


12Item 1B.

Unresolved Staff
    Comments


19Item 2.

Properties


20Item 3.

Legal
    Proceedings


20Item 4.

Submission of
    Matters to a Vote of Security Holders


34PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


34Item 6

Selected Financial
    Data


37Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


39Item 7A.

Quantitative and
    Qualitative Disclosures about Market Risk


56Item 8.

Financial
    Statements and Supplementary Data


56Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


57Item 9A.

Controls and
    Procedures


57Item 9B.

Other
    Information


59PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


62Item 11.

Executive
    Compensation.


62Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


62Item 13.

Certain
    Relationships and Related Transactions


62Item 14.

Principal
    Accountant Fees and Services


62PART IVItem 15.

Exhibits and
    Financial Statement Schedules


62Description of Material Terms of CompensationSignificant SubsidiariesConsent of Independent Registered Public Accounting FirmCertification of Chief Executive OfficerCertification of Chief Financial Officer1350 Certification of Chief Executive Officer1350 Certification of Chief Financial Officer   2




---



##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
  Form 10-K 10-K)
  
    the resolution of certain United States and foreign tax matters;
    changes in the preferences of readers and advertisers,
    particularly in response to the growth of Internet-based media;
    actions of competitors, including price changes and the
    introduction of competitive service offerings;
    changes in prevailing economic conditions, particularly as they
    affect Chicago, Illinois and its metropolitan area;
    actions of the Companys controlling stockholder;
    the impact of insolvency filings of The Ravelston Corporation
    Limited (Ravelston) and Ravelston Management, Inc.
    (RMI) and certain related entities;
    adverse developments in pending litigation involving the Company
    and its affiliates, and current and former directors and
    officers;
    actions arising from continuing investigations by the Securities
    and Exchange Commission (SEC) and other government
    agencies in the United States and Canada principally of matters
    identified by the Special Committee formed on June 17, 2003
    to investigate related party transactions and other payments
    made to certain executives of the Company and its controlling
    stockholder, Hollinger Inc. (Hollinger Inc.), and
    other affiliates in connection with the sale of certain of the
    Companys assets and other transactions. The Company filed
    with the SEC the full text of the report of the Special
    Committee on such investigation as an exhibit to a current
    report on
    Form 8-K
    on August 31, 2004, as amended by a current report on
    Form 8-K/A
    filed with the SEC on December 15, 2004 (the
    Report).
    the effects of changing costs or availability of raw materials,
    primarily newsprint;
    changes in laws or regulations, including changes that affect
    the way business entities are taxed;
    changes in accounting principles or in the way such principles
    are applied; and
    other matters identified in Item 1A
     Risk Factors.  10-K
 3




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##### Table of Contents



10-K
  EXPLANATORY
    NOTE
         Selected Financial
    Data. Form 10-K Form 10-Q
   4




---



##### Table of Contents



Stock-basedCompensation





Stock-basedExpense, As





CompensationPreviously


Incremental


Expense, AsYear Ended December 31,

Reported


Expense (Credit)


Restated1999

$



$
14


$
142000


1,518



1,413



2,9312001


(1,369
)


(58
)


(1,427
)2002






(305
)


(305
)2003


6,722



4,049



10,7712004


10,588



928



11,5162005


1,056



(403
)


653Total

$
18,515


$
5,638


$
24,153       In-KindDividends, AsPreviously


Incremental


In-Kind Dividends,Year Ended December 31,

Reported


Increase


As Restated2001

$
7,301


$
1,011


$
8,3122002


4,376



625



5,001Total

$
11,677


$
1,636


$
13,313  PART I  Item 1.
    Business  Overview
  Chicago Sun-Times,
    Post-Tribune, Daily Southtown
   5




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##### Table of Contents



General
  (312) 321-2299.
  Business
    Strategy
  Pursue Revenue Growth by Leveraging the Companys
    Leading Market Position. The Daily Telegraph, The Sunday Telegraph, The Weekly
    Telegraph, telegraph.co.uk The Spectator Apollo The
    Jerusalem Post Chicago Sun-Times.
  Publish Relevant and Trusted High Quality
    Newspapers. Chicago Sun-Times
  Prudent Asset Management. The Jerusalem
    Post
  Strong Corporate Governance Practices.
  Recent
    Developments
     6




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##### Table of Contents



Cardinal Value Equity Partners L.P. v.
    Black, et al.
  Sun-Times
    Media Group
  Chicago
    Sun-Times Chicago
    Sun-Times 16-county
  Chicago Sun-Times Daily Southtown Star Post-Tribune
  Sources of Revenue. non-U.S. newspaper
  Year Ended December 31,2006


2005


2004(Dollars in thousands)Advertising

$
324,607



78
%

$
357,820



78
%

$
362,355



78
%Circulation


83,556



20



88,150



19



90,024



19Job printing and other


10,537



2



11,919



3



12,060



3Total

$
418,700



100
%

$
457,889



100
%

$
464,439



100
%   Advertising. run-of-press Chicago Sun-Times Chicago
    Sun-Times
 7




---



##### Table of Contents



Circulation. Chicago Sun-Times
    CirculationDaily/Weekly(1)


Saturday


Sunday


ABC Audit Report Period(2)Chicago Sun-Times (Chicago, IL)


382,796



263,781



333,490


26 weeks ending
    3/27/05Daily Southtown (Tinley Park, IL)


41,963



36,562



46,187


26 weeks ending
    9/25/05The Star (Tinley Park, IL)


36,212
(3)






36,835


26 weeks ending
    9/25/05The Beacon News (Aurora, IL)


26,900



26,376



28,781


12 months ending
    3/31/06The Courier News (Elgin, IL)


13,410



12,975



13,695


12 months ending
    3/31/06The Herald News (Joliet, IL)


41,532



40,050



44,376


12 months ending
    3/31/06Lake County News Sun (Waukegan, IL)


20,939







22,483


12 months ending
    3/31/06Naperville Sun (Naperville, IL)


17,897







16,433


12 months ending
    3/31/06Post Tribune (Merrillville, IN)


65,297



63,429



70,468


52 weeks ending
    6/25/06Pioneer Press Group (Glenview, IL)


176,642
(4)









52 weeks ending
    9/24/06The Doings Group (Hinsdale, IL)


17,168
(4)









52 weeks ending
    9/24/06Pioneer Press unaudited (Glenview,
    IL)


8,201
(5)









UnauditedFree Distribution Products
    (Suburban Chicago)


413,862
(6)









Unaudited     (1)
    
    Represents daily circulation unless otherwise noted. Daily
    circulation represents the Monday through Friday average(2)
    
    Circulation data is from the most currently available ABC audit
    reports for the period noted(3)
    
    Thursday circulation; semi-weekly publication(4)
    
    Wednesday or Thursday circulation; weekly publication(5)
    
    Average un-audited circulation for 4 Pioneer Press weeklies that
    are not members of ABC(6)
    
    Average un-audited circulation for 18 free distribution papers
    in Chicago suburbs that are not members of ABC   Legal
    Proceedings  The Chicago Sun-Times Circulation
    Cases, Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times
  Chicago Sun-Times 26-week 26-week
 8




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##### Table of Contents



Daily Southtown Star. 26-week
  Other Publications and Business
    Enterprises. Suntimes.com www.chicagojobs.com www.searchchicago.com/autos
  Sales and Marketing. Chicago Sun-Times on-site Chicago
    Sun-Times
  Distribution. Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times over-the-counter Daily Southtown Chicago Sun-Times Daily Southtown Daily Southtown The Star Post-Tribunes
  Printing. Chicago Sun-Times Chicago Sun-Times Post-Tribune
  Competition. Chicago Sun-Times
 9




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Chicago Tribune Chicago Sun-Times
  Employees and Labor Relations.
    Raw Materials.
  Reorganization Activities.
     10




---



##### Table of Contents



Charges for workforce reductions

$
9,027Additions to expense(1)


174Cash payments


(8,111
)Accrued expenses

$
1,090     (1)
    
    Restructuring costs increased due to the termination of certain
    employees that the Company originally expected to place into
    other positions.      Environmental
    Seasonality
    Intellectual
    Property
    Available
    Information
     11




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##### Table of Contents



1-800-SEC-0330.
  www.thesuntimesgroup.com. Form 10-K, Form 10-Q, Form 8-K
    www.thesuntimesgroup.com.
  Item 1A.
    Risk
    Factors    Risks
    Relating to the Companys Business and the
    Industry
  The
    Company has substantial potential tax liabilities.
  non-U.S. operations
     12




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The
    Company has substantial accruals for tax contingencies in a
    foreign jurisdiction; if payments are required, a portion may be
    paid with funds denominated in U.S. dollars.
    Competition
    in the newspaper industry originates from many sources. The
    advent of new technologies and industry practices, such as the
    provision of newspaper content on free Internet sites, may
    continue to result in decreased advertising and circulation
    revenue.
    The
    Companys revenue is dependent upon economic conditions in
    the Companys target markets and is seasonal.
     13




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##### Table of Contents



The
    Companys publications have experienced declines in
    circulation in the past and may do so
    in the future.
    The
    Company has implemented a reorganization and centralization that
    may have an adverse effect on operations and
    sales.
    The
    Company is a holding company and relies on the Companys
    subsidiaries to meet its financial obligations.
    The
    Companys internal control over financial reporting is not
    effective as of December 31, 2006 and weaknesses in the
    Companys internal controls and procedures could have a
    material adverse effect on the Company.
   Controls and Procedures.
      The
    Company may experience labor disputes, which could slow down or
    halt production or distribution of the Companys newspapers
    or other publications.
   14




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##### Table of Contents



Overstatement
    of circulation figures in the past may result in the loss of
    advertisers in the future.
  Chicago Sun-Times, Daily Southtown Star .  Legal Proceedings  The Chicago
    Sun-Times Circulation Cases. Chicago Sun-Times . Chicago Sun-Times
  Newsprint
    represents the Companys single largest raw material
    expense and changes in the price of newsprint could affect net
    income.
    All of
    the Companys operations are concentrated in one geographic
    area.
  The
    Jerusalem Post
  Risks
    Relating to Control and Improper Conduct by Controlling
    Stockholder
  The
    Companys controlling stockholder may cause actions to be
    taken that are not supported by the Companys Board of
    Directors or management and which might not be in the best
    interests of the Companys other
    stockholders.
   15




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##### Table of Contents



 Legal Proceedings 
    Receivership and CCAA Proceedings in Canada Involving the
    Ravelston Entities.
       16




---



##### Table of Contents



and/or
  The
    Company may face interference by its controlling stockholder
    that will prevent it from recovering on its
    claims.
    The
    results of ongoing SEC investigations may have a material
    adverse effect on the Companys business and results of
    operations.
   Legal
    Proceedings Form 10-K Form 10-Q and/or
  Pending
    litigation could have a material adverse effect on the
    Company.
  and/or  Legal Proceedings
  The
    Companys senior management team is required to devote
    significant attention to matters arising from actions of prior
    management.
   17




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##### Table of Contents



There
    could be a change of control of the Company through a change in
    control of Hollinger Inc. under circumstances not approved by
    the independent directors of the Company.
        The Companys controlling
    stockholder may cause actions to be taken that are not supported
    by the Companys Board of Directors or management and which
    might not be in the best interests of the Companys other
    stockholders
  The
    Company is a party to a Business Opportunities Agreement with
    Hollinger Inc., the terms of which limit the Companys
    ability to pursue certain business opportunities in certain
    countries.
  start-up, start-up,
   18




---



##### Table of Contents



If
    Hollinger Inc. sought protection from its creditors or became
    the subject of bankruptcy or insolvency proceedings there may be
    harm to, and there may be a change of control of, the
    Company.
  7 8 7 8
              Item 1B.
    Unresolved
    Staff Comments   19




---



##### Table of Contents



Item 2.
    Properties    Chicago Sun-Times. Chicago Sun-Times 15-year Chicago Sun-Times
  Post-Tribunes
        Item 3.
    Legal
    Proceedings  Overview
    of Investigation of Certain Related Party
    Transactions
  Black-Amiel (Black-Amiel), Form 10-K
 20




---



##### Table of Contents



Chicago Sun-Times
         21




---



##### Table of Contents



 Other Matters.
  Black-Amiel. Black-Amiel  Hollinger International
    Inc. v. Ravelston, RMI and Hollinger Inc.
    Stockholder
    Derivative Litigation
    Cardinal Value Equity Partners, L.P. v. Black,
    et al.
   Hollinger Inc. v. American Home
    Assurance Company and Chubb Insurance Company of
    Canada
     22




---



##### Table of Contents



 Litigation Involving Controlling
    Stockholder, Senior Management and Directors
  Stockholder
    Class Actions
  In
    re Hollinger International Inc. Securities Litigation No. 04C-0834. Chicago Sun-Times Chicago Sun-Times
    S-42.2,
 23




---



##### Table of Contents



Litigation
    Involving Controlling Stockholder, Senior Management and
    Directors
  Hollinger International Inc. v.
    Hollinger Inc., et al. No. 04C-0698
  7/8% Senior
     24




---



##### Table of Contents



Black-Amiel,
  Black v.
    Hollinger International Inc., filed on May 13,
    2005
    Hollinger
    International Inc. v. Conrad M. Black, Hollinger Inc., and
    504468 N.B. Inc.
      Hollinger
    International Inc. v. Ravelston, RMI and Hollinger
    Inc.
   25




---



##### Table of Contents



Black v.
    Breeden, et al.
   Hollinger International Inc. v.
    Conrad M. Black, Hollinger Inc. and 504468 N.B. Inc.
        United
    States Securities and Exchange Commission v. Hollinger
    International Inc.
  Form 10-K Form 10-Q Risk Factors
 26




---



##### Table of Contents



United
    States Securities and Exchange Commission v. Conrad M.
    Black, et al.
          Receivership
    and CCAA Proceedings in Canada involving the Ravelston
    Entities
   Litigation Involving Controlling
    Stockholder, Senior Management and Directors
 27




---



##### Table of Contents



28




---



##### Table of Contents



 Federal
    Indictment of Ravelston and Former Company Officials
        Black-Amiel,
     29




---



##### Table of Contents



Hollinger
    Inc. v. American Home Assurance Company and Chubb Insurance
    Company of Canada
   30




---



##### Table of Contents



20-22, 29-30
    The
    Chicago Sun-Times Circulation Cases
  Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times
  cy pres non-class
  Federal
    Indictment of Ravelston and Former Company
    Officials
   31




---



##### Table of Contents



Receivership and CCAA Proceedings
    in Canada involving the Ravelston Entities.
      Delaware
    Insurance Coverage Action
  Sun-Times Media Group, Inc. v.
    Sun-Alliance Insurance Company of Canada No. 06C-11-108 and/or
 32




---



##### Table of Contents



CanWest
    Arbitration
  18-22,
  CanWest
    and The National Post Company v. Hollinger Inc., Hollinger
    International Inc., the Ravelston Corporation Limited and
    Ravelston Management Inc.
      Other
    Matters
   33




---



##### Table of Contents



 Litigation Involving
    Controlling Stockholder, Senior Management and
    Directors.
  editor-in-chief Whyte v. Hollinger International Inc. No. 602321/05.
      Other Matters
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities   34




---



##### Table of Contents



CashPrice Range


DividendsCalendar Period

High


Low


Share2005First Quarter

$
15.93


$
10.75


$
5.55Second Quarter


11.01



9.06



0.05Third Quarter


10.60



9.51



0.05Fourth Quarter


9.84



8.45



0.052006First Quarter

$
9.54


$
8.25


$
0.05Second Quarter


8.40



6.95



0.05Third Quarter


8.35



6.58



0.05Fourth Quarter


6.99



4.65



0.052007Through March 13, 2007

$
6.05


$
3.82


$
         Equity
    Compensation Plan Information
  Number of Securities





Number of Securitiesto be Issued Upon


Weighted-Average


Remaining AvailableExercise of


Exercise Price of


for Future IssuanceOutstanding Options,


Outstanding Options,


Under EquityPlan Category

Warrants and Rights


Warrants and Rights


Compensation Plans(a)Equity compensation plans approved
    by security holders


698,460


$
8.11



4,257,302Equity compensation plans not
    approved by security holders










Total


698,460


$
8.11



4,257,302     (a)
    
    Excluding the securities reflected to be issued upon exercise of
    outstanding options, warrants and rights.    Recent
    Sales of Unregistered Securities
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
   35




---



##### Table of Contents



Stockholder
    Return Performance Graph
    Comparison
    of Cumulative Total Return of the
    Company, Peer Groups, Industry Indexes
    and/or Broad
    Markets
  
  
  Fiscal Year Ended December 31,2001


2002


2003


2004


2005


2006Sun-Times Media Group



100.00




89.24




139.68




164.47




120.68




67.45Hemscott Group Index



100.00




104.72




126.69




122.52




97.13




94.77NYSE Market Index



100.00




81.69




105.82




119.50




129.37




151.57   Source:
    Hemscott Inc.
    2108 Laburnum Avenue
    Richmond, VA 23227
    Phone:
    (301) 760-2609
    Fax:
    (240) 465-8989
   36




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Year Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share amounts)Restated(6)


Restated(6)


Restated(6)


Restated(6)Statement of Operations
    Data(1):Operating revenue:Advertising

$
324,607


$
357,820


$
362,355


$
352,029


$
341,262Circulation


83,556



88,150



90,024



86,532



89,427Job printing


8,260



9,194



8,648



7,903



7,237Other


2,277



2,725



3,412



4,325



3,852Total operating revenue


418,700



457,889



464,439



450,789



441,778Operating costs and expenses


423,772



437,083



464,169



457,406



391,248Depreciation and amortization


33,878



30,721



31,109



37,683



37,975Operating income (loss)


(38,950
)


(9,915
)


(30,839
)


(44,300
)


12,555Interest expense


(704
)


(935
)


(19,824
)


(30,835
)


(62,880
)Interest and dividend income


16,813



11,625



11,427



14,557



8,782Other income (expense), net(2)


2,642



(3,839
)


(87,790
)


58,236



(180,954
)Loss from continuing operations
    before income taxes


(20,199
)


(3,064
)


(127,026
)


(2,342
)


(222,497
)Income taxes


57,431



42,467



29,462



112,168



29,194Loss from continuing operations


(77,630
)


(45,531
)


(156,488
)


(114,510
)


(251,691
)Earnings from discontinued
    operations (net of income taxes)


20,957



33,965



390,228



36,153



21,367Net earnings (loss)

$
(56,673
)

$
(11,566
)

$
233,740


$
(78,357
)

$
(230,324
)Basic and diluted earnings per
    share:Loss from continuing operations

$
(0.91
)

$
(0.50
)

$
(1.73
)

$
(1.31
)

$
(2.62
)Earnings from discontinued
    operations


0.25



0.37



4.31



0.41



0.22Net earnings (loss)(3)

$
(0.66
)

$
(0.13
)

$
2.58


$
(0.90
)

$
(2.40
)Cash dividends per share paid on
    Class A and Class B Common Stock

$
0.20


$
5.70


$
0.20


$
0.20


$
0.41   As of December 31,2006


2005


2004


2003


2002(In thousands)Balance Sheet
    Data(1):Working capital (deficiency)(4)

$
(392,332
)

$
(369,572
)

$
(153,338
)

$
(390,403
)

$
(754,307
)Total assets(5)


899,859



1,065,328



1,738,898



1,785,104



2,161,433Long-term debt, less current
    installments


6,041



919



2,053



308,144



310,105Redeemable preferred stock


















8,650Total stockholders equity
    (deficit)


(359,783
)


(169,851
)


152,186



4,926



117,933     (1)
    
    The financial data for periods prior to 2006 have been adjusted
    as necessary for the effects of the restatements described in
    (6) below. The Companys Sun-Times News Group
    newspaper operations are on a 52 week/53 week
    accounting cycle. This generally results in a reporting of
    52 weeks or 364 days in each annual period. However,
    the year ended December 31, 2006 contains 53 weeks.
    This additional week added approximately 37




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##### Table of Contents



$5.0 million to advertising revenue, $1.5 million to
    circulation revenue, $6.6 million to total operating
    revenue, $6.1 million in total operating expenses and
    $0.5 million in operating income. The Statement of
    Operations Data above and the following discussions include the
    impact of the 53rd week. Note that Corporate and
    Indemnification, investigation and litigation costs, net are
    presented on a calendar year basis in all years.(2)
    
    The principal components of Other income (expense),
    net are presented below:  2006


2005


2004


2003


2002(In thousands)Loss on extinguishment of debt

$



$



$
(60,381
)

$
(37,291
)

$
(35,460
)Write-down of investments






(298
)


(365
)


(7,700
)


(40,150
)Write-down and expenses related to
    FDR Collection






(795
)






(6,796
)


Gain (loss) on Participation Trust
    and CanWest Debentures, including exchange gains and losses










(22,689
)


83,681



914Foreign currency gains (losses),
    net


2,943



(2,171
)


1,634



1,285



(95,337
)Losses on Total Return Equity Swap


















(15,237
)Legal settlement






(800
)










Settlements with former directors
    and officers










1,718



31,547



Gain (loss) on sale of investments


(76
)


2,511



1,709



2,129



Gain on sale of non-operating
    assets






31



1,090







4,295Write-down of property, plant and
    equipment














(5,622
)


Equity in losses of affiliates,
    net of dividends received


(259
)


(1,752
)


(3,897
)


(2,957
)


(1,265
)Other


34



(565
)


(6,609
)


(40
)


1,286$
2,642


$
(3,839
)

$
(87,790
)

$
58,236


$
(180,954
)    (3)
    
    The Companys basic and diluted earnings per share are
    calculated on the following number of shares outstanding (in
    thousands): 2006  85,681, 2005  90,875,
    2004  90,486, 2003  87,311 and
    2002  96,066.(4)
    
    Excluding escrow deposits and restricted cash, assets and
    liabilities of operations to be disposed of and current
    installments of long-term debt.(5)
    
    Includes goodwill and intangible assets, net of accumulated
    amortization, of $216.9 million at December 31, 2006,
    $221.1 million at December 31, 2005,
    $225.5 million at December 31, 2004,
    $231.9 million at December 31, 2003 and
    $245.3 million at December 31, 2002.(6)
    
    On February 26, 2007 the Special Committee delivered its
    report on an investigation it conducted on the Companys
    historical stock option granting practices. The Special
    Committee determined that certain options granted during 1999,
    2000, 2001 and 2002 were issued with prices at the originally
    stated grant dates that were lower than the prices on the most
    likely measurement dates.   38




---



##### Table of Contents



2005


2004


2003


2002(in thousands, except per share data)Operating costs and expenses as
    previously reported

$
437,486


$
463,241


$
453,357


$
391,553Incremental stock-based
    compensation expense (benefit)


(403
)


928



4,049



(305
)Restated operating costs and
    expenses

$
437,083


$
464,169


$
457,406


$
391,248Operating income (loss) as
    previously reported

$
(10,318
)

$
(29,911
)

$
(40,251
)

$
12,250Incremental stock-based
    compensation expense (benefit)


(403
)


928



4,049



(305
)Restated operating income (loss)

$
(9,915
)

$
(30,839
)

$
(44,300
)

$
12,555Loss from continuing operations as
    previously reported

$
(45,934
)

$
(155,560
)

$
(110,461
)

$
(251,996
)Incremental stock-based
    compensation expense (benefit)


(403
)


928



4,049



(305
)Restated loss from continuing
    operations

$
(45,531
)

$
(156,488
)

$
(114,510
)

$
(251,691
)Net earnings (loss) as previously
    reported

$
(11,969
)

$
234,668


$
(74,308
)

$
(230,629
)Incremental stock-based
    compensation expense


(403
)


928



4,049



(305
)Restated net earnings (loss)

$
(11,566
)

$
233,740


$
(78,357
)

$
(230,324
)Basic and diluted loss per share
    from continuing operations as previously reported

$
(0.51
)

$
(1.72
)

$
(1.27
)

$
(2.62
)Incremental stock-based
    compensation expense


0.01



(0.01
)


(0.04
)


0.00Restated basic and diluted loss
    per share from continuing operations

$
(0.50
)

$
(1.73
)

$
(1.31
)

$
(2.62
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  General
    Overview
  Chicago
    Sun-Times, Post Tribune, Daily Southtown, Naperville Sun
 39




---



##### Table of Contents



sub-groups:
          Developments
    Since December 31, 2006
    Cardinal Value Equity Partners, L.P. v.
    Black, et al.
 40




---



##### Table of Contents



 Selected
    Financial Data
  Significant
    Transactions in 2006
        Form 10-K
  Legal Proceedings  Black v.
    Hollinger International Inc., filed on May 13,
    2005.
 41




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##### Table of Contents



Incurred SinceYear Ended December 31,


Inception through2006


2005


2004


December 31, 2006(5)(In thousands)Special Committee investigation
    costs (1)

$
4,743


$
19,044


$
26,605


$
57,464Litigation costs(2)


6,376



3,601



15,522



26,945Indemnification fees and costs(3)


18,949



23,363



17,997



61,938Recoveries(4)


(47,475
)


(32,375
)






(79,850
)$
(17,407
)

$
13,633


$
60,124


$
66,497     (1)
    
    Costs and expenses arising from the Special Committees
    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 the
    Delaware Litigation. In 2006, these costs include a
    $3.5 million settlement paid to Tweedy Browne in the second
    quarter in settlement for legal fees.(3)
    
    Represents amounts the Company has been required to advance in
    fees and costs to indemnified parties, including the indirect
    controlling stockholders and their affiliates and associates who
    are defendants in the litigation brought by the Company or
    resulting from criminal proceedings.(4)
    
    Represents recoveries directly resulting from the investigation
    activities including approximately $47.5 million in a
    settlement with certain of the Companys directors and
    officers insurance carriers which is net of approximately
    $2.5 million paid to Cardinals counsel as attorney
    fees directly attributable to this settlement. This settlement
    was approved by the Delaware Court of Chancery in November 2006,
    and received by the Company in January 2007. In 2005, the
    Company received approximately $30.3 million in a
    settlement with Torys and $2.1 million in recoveries of
    indemnification payments from Black. Excludes settlements with
    former directors and officers, pursuant to a restitution
    agreement reached in November 2003, of approximately
    $1.7 million and $31.5 million for the years ended
    December 31, 2004 and 2003, respectively, which are
    included in Other income (expense), net in the
    Consolidated Statements of Operations. See Notes 19, 22(a)
    and 23(a) to the consolidated financial statements.(5)
    
    The Special Committee was formed on June 17, 2003. These
    amounts represent the cumulative net costs from that date.  Form S-8
   42




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##### Table of Contents



Cardinal Value Equity Partners L.P. v.
    Black, et al.
    Critical
    Accounting Policies and Estimates
      Accruals
    for Contingent Tax Liabilities
  non-U.S. operations.
 43




---



##### Table of Contents



Allowance
    for Doubtful Accounts
    Potential
    Impairment of Goodwill
    Valuation
    Allowance  Deferred Tax Assets
    Defined
    Benefit Pension Plans and Postretirement Benefits
     44




---



##### Table of Contents



Restatements
    and Reclassifications
   Selected Financial Data
 45




---



##### Table of Contents



Results
    of Operations for the Years ended December 31, 2006, 2005
    and 2004
    Year Ended December 31,2006


2005


2004(In thousands, except per share amounts)(Restated)


(Restated)Statement of Operations
    Data:Operating revenue:Advertising

$
324,607


$
357,820


$
362,355Circulation


83,556



88,150



90,024Job printing


8,260



9,194



8,648Other


2,277



2,725



3,412Total operating revenue


418,700



457,889



464,439Operating costs and expenses:Cost of sales:Wages and benefits


110,329



110,458



108,671Newsprint and ink


67,196



72,004



71,000Other


79,204



76,211



75,285Total cost of sales


256,729



258,673



254,956Selling, general and
    administrative:Sales and marketing


66,499



73,537



75,487Other operating costs(1)


66,244



47,834



7,051Corporate expenses(2)


51,707



43,406



66,551Indemnification, investigation and
    litigation costs, net of recoveries


(17,407
)


13,633



60,124Total selling, general and
    administrative


167,043



178,410



209,213Depreciation


21,992



18,664



19,257Amortization


11,886



12,057



11,852Total operating costs and expenses


457,650



467,804



495,278Operating loss


(38,950
)


(9,915
)


(30,839
)Interest expense


(704
)


(935
)


(19,824
)Interest and dividend income


16,813



11,625



11,427Other income (expense), net


2,642



(3,839
)


(87,790
)Loss from continuing operations
    before income taxes


(20,199
)


(3,064
)


(127,026
)Income taxes


57,431



42,467



29,462Loss from continuing operations


(77,630
)


(45,531
)


(156,488
)Earnings from discontinued
    operations (net of income taxes)


20,957



33,965



390,228Net earnings (loss)

$
(56,673
)

$
(11,566
)

$
233,740Loss per share from continuing
    operations

$
(0.91
)

$
(0.50
)

$
(1.73
)Net earnings (loss) per share

$
(0.66
)

$
(0.13
)

$
2.58  46




---



##### Table of Contents



(1)
    
    Included in Other operating costs are the following
    amounts that the Company believes may make meaningful comparison
    of results between periods difficult based on their nature,
    magnitude and infrequency. See Note 17 to the consolidated
    financial statements.  Year Ended December 31,2006


2005


2004(In thousands)Gain on sale of assets

$
(80
)

$
(67
)

$
(44,878
)Reorganization costs


9,201







Severance expense


2,642



117



1,242Restitution and settlement
    costs  circulation matters


505







2,880Write-down of intangible assets










1,833Write-down of capitalized software


882







Reserve for contract disputes


800







   (2)
    
    Included in Corporate expenses are the following
    amounts that the Company believes may make meaningful comparison
    of results between periods difficult based on their nature,
    magnitude and infrequency. See Note 17 to the consolidated
    financial statements.  Year Ended December 31,2006


2005


2004(In thousands)Management fees

$



$



$
500Aircraft costs










449Loss on sale of newspaper
    operations










7,900Directors and officers insurance
    fee










5,400Severance expense


6,954



1,125



224Unclaimed property costs


2,000







   Basis
    of Presentation
    2006
    Compared with 2005
  Loss from
    Continuing Operations  Overview
   47




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##### Table of Contents



Operating
    Revenue and Operating Loss  Overview
    Operating
    Revenue
        Operating
    Costs and Expenses
    Business  Recent Developments.
   48




---



##### Table of Contents



Interest
    and Dividend Income
    Other
    Income (Expense), Net
   49




---



##### Table of Contents



Income
    Taxes
    2005
    Compared with 2004
  Loss from
    Continuing Operations  Overview
    Operating
    Revenue and Operating Loss  Overview
    Operating
    Revenue
     50




---



##### Table of Contents



Operating
    Costs and Expenses
                 51




---



##### Table of Contents



Interest
    Expense
    Interest
    and Dividend Income
    Other
    Income (Expense), Net
    Income
    Taxes
   52




---



##### Table of Contents



Liquidity
    and Capital Resources
  Liquid
    Assets
    December 31,


December 31,2006


2005(In thousands)Cash and cash equivalents

$
186,318


$
198,388Short-term investments






57,650Settlement proceeds receivable
    included in Other current assets(1)


50,000



Total liquid assets

$
236,318


$
256,038     (1)
    
    Represents $50.0 million settlement included in Other
    current assets at December 31, 2006 in the
    Companys Consolidated Balance Sheet and which was received
    by the Company in January 2007. Approximately $2.5 million
    of this settlement was paid to Cardinals counsel as
    attorney fees in January 2007.      Factors
    That Are Expected to Affect Liquidity in the Future
  Potential
    Cash Outlays Related to Accruals for Income Tax Contingent
    Liabilities
    December 31,


December 31,2006


2005(In thousands)Classified as current liabilities

$
605,334


$
557,012Classified as non-current
    liabilities


385,436



363,495$
990,770


$
920,507    53




---



##### Table of Contents



non-U.S.
  Potential
    Cash Outflows Related to Operations
       Legal
    Proceedings
  Other
    Cash
    Flows
    short-term
 54




---



##### Table of Contents



Debt
    Leases
    Capital
    Expenditures
    Dividends
    and Other Commitments
    Off-Balance
    Sheet Arrangements
    Commercial
    Commitments and Contractual Obligations
      Due in1 Year or


Due between


Due between


Due overTotal


Less


1 and 3 Years


3 and 5 Years


5 Years(In thousands)9% Senior Notes

$
6,000


$



$



$
6,000


$
Other long-term debt


908



867



38



3



Operating leases


51,252



5,732



9,559



6,876



29,085Total contractual cash obligations

$
58,160


$
6,599


$
9,597


$
12,879


$
29,085    Legal Proceedings
 55




---



##### Table of Contents



Recent
    Accounting Pronouncements
      Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk  Newsprint.
  Inflation.
  Interest Rates.
  Foreign Exchange Rates. $0.8818/Cdn.
  Risk Factors  Risks Related
    to the Companys Business and the Industry  The
    Company has substantial accruals for tax contingencies in a
    foreign jurisdiction; if payments are required, a portion may be
    paid with funds denominated in U.S. dollars.
  Item 8.
    Financial
    Statements and Supplementary Data  10-K.
 56




---



##### Table of Contents



Item 9.  Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A.  Controls
    and Procedures (a)
    Evaluation
    of Disclosure Controls and Procedures  Rule 13a-15(e)
  Form 10-K
  Rules 13a-15(e) 15d-15(e)
  (b)
    Managements
    Report on Internal Control over Financial
    Reporting            Internal Control  Integrated
    Framework
 57




---



##### Table of Contents



Ineffective Control Environment:
  
    The Company lacked formal training programs, formal job
    descriptions or policy and procedure manuals to clearly
    communicate managements and employees roles and
    responsibilities in the Companys internal control over
    financial reporting.
    The controls related to the review of journal entries and
    account reconciliations were not operating effectively.
    Specifically, there were inconsistencies in the supporting
    documentation, and the retention thereof, related to journal
    entries and account reconciliations and in some cases the
    supporting documentation was not sufficient to evidence the
    adequacy
    and/or
    timeliness of the review.
    There were no formal written or consistent policies and
    procedures and an ineffective assignment of authority and
    responsibility for the initiation and processing of transactions
    in key areas. Although certain procedures and controls were
    established, compliance was not effectively monitored, and
    neither employees nor management demonstrated an understanding
    of the purpose or importance of the controls.
    The Company did not have formal code of conduct training
    programs or ethics training programs in place.
    The material weakness in information technology (IT)
    general controls, described below, weakened the Companys
    control environment and also results in a material weakness due
    to a design deficiency in controls relying on information,
    including reports, obtained from the Companys information
    systems.  IT General Controls:
  Income Taxes:
      (c)
    Changes
    in Internal Control over Financial Reporting and Other
    Remediation    
    A significant reorganization of the Companys operations
    was initiated, which includes a planned redesign of key
    operational processes in the Company.
    An internal audit plan was approved by the Audit Committee and
    executed. 58




---



##### Table of Contents




    A vice-president of information technology was hired to oversee
    and restructure all areas of the Companys information
    technology function. Certain key managers were also hired to
    enhance the capabilities and improve general controls within
    this function.
    The Company engaged an outside service provider to perform an
    assessment of current anti-fraud activities and to review the
    methods of communication related to anti-fraud measures.
    The Companys Audit Committee was reconstituted and all
    three members of the Committee possess significant financial
    expertise.
    A director of internal audit was hired to oversee the internal
    audit function staffed by an outside service provider. This
    function reports directly to the Audit Committee.    
    The Company completed implementation of a new
    whistleblower hotline through an outside service
    provider which assures confidential reporting, if requested, and
    internet reporting and tracking capabilities.
    The Company hired two additional internal auditors to supplement
    the staffing provided by an outside service provider.    
    A significant process redesign and documentation effort related
    to the Companys most significant business processes was
    initiated, which includes a planned redesign of key revenue
    processes in the Company.
    An outside service provider was selected to develop an ethics
    and code of conduct training program which will incorporate the
    importance of maintaining effective internal control over
    financial reporting and the role employees and managers have in
    such controls. A director of training and development was also
    hired to oversee this and other training efforts and employee
    performance management.  Item 9B.
    Other
    Information   59




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Internal Control  Integrated Framework issued by
    the Committee of Sponsoring Organizations of the Treadway
    Commission Sun-Times
          Ineffective Control Environment:
  
    The Company lacked formal training programs, formal job
    descriptions or policy and procedure manuals to clearly
    communicate managements and employees roles and
    responsibilities in the Companys internal control over
    financial reporting.
    The controls related to the review of journal entries and
    account reconciliations were not operating effectively.
    Specifically, there were inconsistencies in the supporting
    documentation, and the retention thereof, related to journal
    entries and account reconciliations and in some cases the
    supporting documentation was not sufficient to evidence the
    adequacy
    and/or
    timeliness of the review. 60




---



##### Table of Contents




    There were no formal written or consistent policies and
    procedures and an ineffective assignment of authority and
    responsibility for the initiation and processing of transactions
    in key areas. Although certain procedures and controls were
    established, compliance was not effectively monitored, and
    neither employees nor management demonstrated an understanding
    of the purpose or importance of the controls.
    The Company did not have formal code of conduct training
    programs or ethics training programs in place.
    The material weakness in information technology (IT)
    general controls, described below, weakened the Companys
    control environment and also result in a material weakness due
    to a design deficiency in controls relying on information,
    including reports, obtained from the Companys information
    systems.  IT General Controls:
  Income Taxes:
    Internal
    Control  Integrated Framework issued by the Committee
    of Sponsoring Organizations of the Treadway Commission Internal Control  Integrated
    Framework issued by the Committee of Sponsoring Organizations of
    the Treadway Commission
  KPMG
    LLP
    61




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Regulation S-K, Regulation S-K,
  Regulation S-K
    www.thesuntimesgroup.com.
  Item 11.
    Executive
    Compensation  Regulation S-K
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Regulation S-K
  Item 13.
    Certain
    Relationships and Related Transactions  Regulation S-K
  Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Documents filed as part of this report
  Consolidated Financial Statements and Supplemental
    Schedules.
 62




---



##### Table of Contents



List of Exhibits
    ExhibitNo.

Description of Exhibit

Prior Filing3
.1

Restated Certificate of
    Incorporation.

Incorporated by reference to
    Exhibit 3.1 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.3
.1.2

Certificate of Amendment to
    Restated Certificate of Incorporation.

Incorporated by reference to
    Exhibit 3.1.2 to Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 filed on August 9,
    2006.3
.2

Bylaws of Hollinger International
    Inc., as amended.

Incorporated by reference to
    Exhibit 3.2 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.4
.1

Rights Agreement between Hollinger
    International Inc. and Mellon Investor Services LLC as Rights
    Agent, dated as of January 25, 2004.

Incorporated by reference to
    Exhibit 4.1 to Item 5 of Current Report on
    Form 8-K
    dated January 26, 2004.4
.2

Amendment No. 1 to the Rights
    Agreement between Hollinger International Inc. and Mellon
    Investor Services LLC as Rights Agent, dated May 10, 2005.

Incorporated by reference to
    Exhibit 4.1 to Item 1.01 of Current Report on
    Form 8-K
    dated May 11, 2005.4
.3

First Supplemental Indenture among
    Hollinger International Publishing Inc., the Company and
    Wachovia Trust Company, dated as of July 13, 2004.

Incorporated by reference to
    Exhibit 99.1 to Item 5 of the Current Report on
    Form 8-K
    dated August 2, 2004.4
.4

Indenture dated as of
    December 23, 2002 among Hollinger International Publishing
    Inc., the Company and Wachovia Trust Company, National
    Association.

Incorporated by reference to
    Exhibit 10.21 to Annual Report on
    Form 10-K
    for the year ended December 31, 2002.10
.1

Stock Purchase Agreement by and
    among Mirkaei Tikshoret Ltd., American Publishing Holdings, Inc.
    and Hollinger International Inc. dated as of November 16,
    2004.

Incorporated by reference to
    Exhibit 10.1 of Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.2

Facilitation Agreement by and
    between Hollinger International Inc., Hollinger Canadian
    Newspapers, Limited Partnership, 3815668 Canada Inc., Hollinger
    Canadian Publishing Holdings Co., HCN Publications Company and
    CanWest Global Communications Corp. dated as of October 7,
    2004.

Incorporated by reference to
    Exhibit 10.2 of Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.3

Agreement dated November 15,
    2003 between Conrad M. Black and Hollinger International
    Inc.

Incorporated by reference to
    Exhibit 99.1 to Item 5 of Current Report on
    Form 8-K
    dated January 6, 2004.10
.4

Business Opportunities Agreement
    between Hollinger Inc. and Hollinger International Inc., as
    amended and restated as of February 7, 1996.

Incorporated by reference to
    Exhibit 10.19 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.5

Agreement, dated as of
    May 12, 2005, by and between Hollinger International Inc.
    and RSM Richter Inc., in its capacity as court appointed
    receiver and monitor of Ravelston Corporation Limited and
    Ravelston Management Inc.

Incorporated by reference to
    Exhibit 10.7 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006. 63




---



##### Table of Contents



ExhibitNo.

Description of Exhibit

Prior Filing10
.6

Amended Agreement of Compromise
    and Release of Outside Director Defendants Conditioned on Entry
    of Appropriate Order dated June 27, 2005.

Incorporated by reference to
    Exhibit 10.8 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.7

Release and Settlement Agreement
    between Peter Y. Atkinson and Hollinger International Inc. dated
    April 27, 2004, as amended.

Incorporated by reference to
    Exhibit 10.20 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005 and to Exhibit 10.1 to Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended March 31, 2004 filed on
    May 19, 2005.10
.8

Option Exercise and Escrow
    Agreement between Peter Y. Atkinson and Hollinger International
    Inc. dated as of April 27, 2004.

Incorporated by reference to
    Exhibit 10.21 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.9

Consulting Agreement between Peter
    Y. Atkinson and Hollinger International Inc. dated as of
    April 27, 2004.

Incorporated by reference to
    Exhibit 10.22 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.10

Second Consulting Agreement
    between Peter Y. Atkinson and Hollinger International Inc. dated
    as of February 23, 2005.

Incorporated by reference to
    Exhibit 10.12 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.11

Compromise Agreement among
    Hollinger International Inc., Telegraph Group Limited and Daniel
    William Colson dated March 23, 2004.

Incorporated by reference to
    Exhibit 10.23 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.12

Amended and Restated Employment
    Agreement by and between Gordon A. Paris and Hollinger
    International Inc. dated as of January 31, 2006.

Incorporated by reference to
    Exhibit 10.14 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.13

Amended and Restated Employment
    Agreement by and between James R. Van Horn and Hollinger
    International Inc. dated as of January 31, 2006.

Incorporated by reference to
    Exhibit 10.17 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.14

Amended and Restated Employment
    Agreement by and between John Cruickshank and Hollinger
    International Inc. dated as of January 31, 2006.

Incorporated by reference to
    Exhibit 10.18 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.15

Amended and Restated Employment
    Agreement by and between Gregory A. Stoklosa and Hollinger
    International Inc., dated as of January 31, 2006.

Incorporated by reference to
    Exhibit 10.19 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.16

Amended and Restated Deferred
    Stock Unit Agreement between Gordon A. Paris and Hollinger
    International Inc. dated as of January 31, 2006.

Incorporated by reference to
    Exhibit 10.21 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.17

Form of Hollinger International
    Inc. Deferred Stock Unit Agreement.

Incorporated by reference to
    Exhibit 99.1 to Item 8.01 of Current Report on
    Form 8-K
    dated February 22, 2005.10
.18

Amended Form of Hollinger
    International Inc. Deferred Stock Unit Agreement.

Incorporated by reference to
    Exhibit 99.2 to Item 1.01 of Current Report on
    Form 8-K
    dated January 25, 2006.10
.19

Summaries of Principal Terms of
    2004 Key Employee Retention Plan and Key Employee Severance
    Program.

Incorporated by reference to
    Exhibit 10.25 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005. 64




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##### Table of Contents



ExhibitNo.

Description of Exhibit

Prior Filing10
.20

Notice dated April 13, 2004
    to Option Plan Participants under Hollinger International Inc.
    1994 Stock Option Plan, 1997 Stock Incentive Plan, and 1999
    Stock Incentive Plan.

Incorporated by reference to
    Exhibit 10.26 to Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed on
    January 18, 2005.10
.21

Hollinger International Inc. 1999
    Stock Incentive Plan.

Incorporated by reference to
    Annex A to Report on Form DEF 14A dated March 24, 1999.10
.22

Hollinger International Inc. 1997
    Stock Incentive Plan.

Incorporated by reference to
    Annex A to Report on Form DEF 14A dated March 28, 1997.10
.23

American Publishing Company 1994
    Stock Option Plan.

Incorporated by reference to
    Exhibit 10.10 to Registration Statement on
    Form S-1
    (No.
    33-74980).10
.24

Agreement of Compromise and
    Release among Cardinal Value Equity Partners, L.P., Hollinger
    International Inc., Dwayne O. Andreas, Richard R. Burt, Raymond
    G. Chambers, Henry A. Kissinger, Marie-Josee Kravis, Shmuel
    Meitar, Robert S. Strauss, A. Alfred Taubman, James R. Thompson,
    Lord Weidenfeld of Chelsea, Leslie H. Wexner, Gordon A. Paris,
    Graham W. Savage and Raymond G.H. Seitz dated May 4, 2005.

Incorporated by reference to
    Exhibit 10.1 to Item 1.01 of Current Report on
    Form 8-K
    dated May 5, 2005.10
.25

Release and Settlement Agreement
    between Hollinger International Inc. and Torys LLP dated
    December 6, 2005.

Incorporated by reference to
    Exhibit 10.30 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.26

Share Purchase Agreement between
    HCPH Canadian Newspaper Holdings Co., Glacier Ventures
    International Corp., 6490239 Canada Inc., Hollinger
    International Inc. and Jamison Newspapers Inc. dated
    December 19, 2005.

Incorporated by reference to
    Exhibit 10.31 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.27

Share Purchase Agreement between
    Glacier Ventures International Corp., HCPH Canadian Newspaper
    Holdings Co. and Hollinger International Inc. dated
    December 19, 2005.

Incorporated by reference to
    Exhibit 10.32 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.28

Share Purchase Agreement between
    0744062 B.C. Ltd., Glacier Ventures International Corp.,
    Hollinger Canadian Publishing Holdings Co. and Hollinger
    International Inc. dated January 11, 2006.

Incorporated by reference to
    Exhibit 10.33 to Annual Report on
    Form 10-K
    for the year ended December 31, 2005 filed on
    March 31, 2006.10
.29

Hollinger International Inc. 2006
    Long-Term Incentive Plan.

Incorporated by reference to
    Exhibit 99.1 to Item 1.01 of Current Report on
    Form 8-K
    dated January 25, 2006.10
.30

Separation Agreement between
    Sun-Times Media Group, Inc. and Gordon A. Paris dated
    September 13, 2006.

Incorporated by reference to
    Exhibit 10.1 to Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 filed on
    November 9, 2006.10
.31

Amendment, dated November 14,
    2006, to Separation Agreement between Sun-Times Media Group,
    Inc. and Gordon A. Paris dated September 13, 2006.

Incorporated by reference to
    Exhibit 99.2 to Item 5.02 of Current Report on
    Form 8-K
    dated November 15, 2006.10
.32

Separation Agreement between
    Sun-Times Media Group, Inc. and James Van Horn dated
    September 13, 2006.

Incorporated by reference to
    Exhibit 10.2 to Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 filed on
    November 9, 2006. 65




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##### Table of Contents



ExhibitNo.

Description of Exhibit

Prior Filing10
.33

Separation Agreement between
    Sun-Times Media Group, Inc. and Robert T. Smith dated
    September 13, 2006.

Incorporated by reference to
    Exhibit 10.3 to Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 filed on
    November 9, 2006.10
.34

Description of Material Terms of
    Compensation of Cyrus F. Freidheim, Jr. dated
    November 14, 2006.

Incorporated by reference to
    Exhibit 99.1 to Item 5.02 of Current Report on
    Form 8-K
    dated November 15, 2006.10
.35

Description of Material Terms of
    Compensation of William Barker III dated February 28, 2007.21
.1

Significant Subsidiaries of
    Sun-Times Media Group, Inc.23
.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.  66




---



##### Table of Contents



SIGNATURES
  10-K
     By:
    /s/  CYRUS
    F. FREIDHEIM, JR.   President and Chief Executive Officer
      Signature

Title

Date/s/  CYRUS
    F.
    FREIDHEIM, JR.Cyrus
    F. Freidheim, Jr.

President and Chief Executive
    Officer Director (Principal Executive Officer)

March 16, 2007/s/  THOMAS
    L. KRAMThomas
    L. Kram

Controller and Chief Accounting
    Officer(Principal Financial and Accounting Officer)

March 16, 2007/s/  RAYMOND
    G. H. SEITZRaymond
    G. H. Seitz

Chairman of the Board of Directors

March 16, 2007/s/  JOHN
    F. BARDJohn
    F. Bard

Director

March 16, 2007Herbert
    A. Denton

Director

March   , 2007/s/  JOHN
    M.
    OBRIENJohn
    M. OBrien

Director

March 16, 2007/s/  GORDON
    A. PARISGordon
    A. Paris

Director

March 16, 2007Graham
    W. Savage

Director

March   , 2007/s/  RAYMOND
    S. TROUBHRaymond
    S. Troubh

Director

March 16, 2007  67




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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
  /s/  KPMG
    LLP    68




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 December 31,
    2006 and 2005
  2006


2005(In thousands, exceptshare data)Restated(Note 2)ASSETSCurrent assets:Cash and cash equivalents

$
186,318


$
198,388Short-term investments






57,650Accounts receivable, net of
    allowance for doubtful accounts of $10,267 in 2006 and $11,756
    in 2005


73,346



90,951Inventories


9,643



12,600Escrow deposits and restricted cash


26,809



13,350Assets of operations to be disposed
    of






21,418Deferred tax asset


34,672



Other current assets


62,135



6,785Total current assets


392,923



401,142Loan to affiliate


33,685



29,284Investments


6,422



23,037Property, plant and equipment, net
    of accumulated depreciation


178,368



194,354Intangible assets, net of
    accumulated amortization


92,591



96,981Goodwill


124,301



124,104Prepaid pension asset


49,645



95,346Non-current assets of operations to
    be disposed of






73,391Other assets


21,924



27,689Total assets

$
899,859


$
1,065,328LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current installments of long-term
    debt

$
867


$
7,148Accounts payable and accrued
    expenses


110,168



125,007Dividends payable






4,534Amounts due to related parties


7,995



7,987Income taxes payable and other tax
    liabilities


627,385



586,734Liabilities of operations to be
    disposed of






12,531Deferred revenue


10,698



11,684Total current liabilities


757,113



755,625Long-term debt, less current
    installments


6,041



919Deferred income taxes and other tax
    liabilities


412,410



360,524Non-current liabilities of
    operations to be disposed of






15,141Other liabilities


84,078



102,970Total liabilities


1,259,642



1,235,179Stockholders equity (deficit):Class A common stock,
    $0.01 par value. Authorized 250,000,000 shares;
    88,008,022 and 64,997,456 shares issued and outstanding,
    respectively, at December 31, 2006 and 88,008,022 and
    75,687,055 shares issued and outstanding, respectively, at
    December 31, 2005


880



880Class B common stock,
    $0.01 par value. Authorized 50,000,000 shares;
    14,990,000 shares issued and outstanding in 2006 and 2005


150



150Additional paid-in capital


502,127



500,659Accumulated other comprehensive
    income (loss):Cumulative foreign currency
    translation adjustments


6,576



20,095Unrealized gain (loss) on
    marketable securities


66



(820
)Pension adjustment


(43,412
)


(18,777
)Accumulated deficit


(597,050
)


(523,229
)(130,663
)


(21,042
)Class A common stock in
    treasury, at cost  23,010,566 shares at
    December 31, 2006 and 12,320,967 shares at
    December 31, 2005


(229,120
)


(148,809
)Total stockholders equity
    (deficit)


(359,783
)


(169,851
)Total liabilities and
    stockholders equity (deficit)

$
899,859


$
1,065,328    69




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 For the
    Years Ended December 31, 2006, 2005 and 2004
  2006


2005


2004(In thousands, except per share data)Restated


Restated(Note 2)


(Note 2)Operating revenue:Advertising

$
324,607


$
357,820


$
362,355Circulation


83,556



88,150



90,024Job printing


8,260



9,194



8,648Other


2,277



2,725



3,412Total operating revenue


418,700



457,889



464,439Operating costs and
    expenses:Cost of sales:Wages and benefits


110,329



110,458



108,671Newsprint and ink


67,196



72,004



71,000Other


79,204



76,211



75,285Total cost of sales


256,729



258,673



254,956Selling, general and
    administrative:Sales and marketing


66,499



73,537



75,487Other operating costs


66,244



47,834



7,051Corporate expenses


51,707



43,406



66,551Indemnification, investigation and
    litigation costs, net of recoveries


(17,407
)


13,633



60,124Total selling, general and
    administrative


167,043



178,410



209,213Depreciation


21,992



18,664



19,257Amortization


11,886



12,057



11,852Total operating costs and expenses


457,650



467,804



495,278Operating loss


(38,950
)


(9,915
)


(30,839
)Other income
    (expense):Interest expense


(704
)


(935
)


(19,824
)Interest and dividend income


16,813



11,625



11,427Other income (expense), net


2,642



(3,839
)


(87,790
)Total other income (expense)


18,751



6,851



(96,187
)Loss from continuing operations
    before income taxes


(20,199
)


(3,064
)


(127,026
)Income taxes


57,431



42,467



29,462Loss from continuing operations


(77,630
)


(45,531
)


(156,488
)Discontinued operations, net of
    income taxes:Earnings from operations of
    business segments disposed of


199



1,062



7,378Gain from disposal of business
    segments


20,758



32,903



382,850Earnings from discontinued
    operations


20,957



33,965



390,228Net earnings (loss)

$
(56,673
)

$
(11,566
)

$
233,740Basic and diluted earnings per
    share:Weighted average shares outstanding


85,681



90,875



90,486Loss from continuing operations

$
(0.91
)

$
(0.50
)

$
(1.73
)Earnings from discontinued
    operations


0.25



0.37



4.31Net earnings (loss)

$
(0.66
)

$
(0.13
)

$
2.58    70




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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, 2006, 2005 and 2004
  2006


2005


2004(In thousands)Restated


Restated(Note 2)


(Note 2)Net earnings (loss)

$
(56,673
)

$
(11,566
)

$
233,740Other comprehensive income (loss):Foreign currency translation
    adjustments, net of related tax benefit of
    $4 (2005  provision of $757; 2004 
    provision of $176)


(1,948
)


(17,215
)


(24,796
)Reclassification adjustment for
    realized foreign exchange (gains) losses upon the substantial
    reduction of net investment in foreign operations


(11,571
)


1,241



114,111(13,519
)


(15,974
)


89,315Unrealized gain (loss) on
    marketable securities arising during the year, net of a related
    tax benefit of $4 (2005  net of related tax benefit
    of $616; 2004  net of related tax provision of $2,250)


16



(951
)


3,993Reclassification adjustment for
    realized gains reclassified out of accumulated other
    comprehensive income (loss), net of related tax benefit of $661
    (2005  net of related tax benefit of $1,851;
    2004  net of related tax benefit of $3,544 and
    recovery of $1,665)


870



(3,212
)


(11,825
)886



(4,163
)


(7,832
)Pension adjustment, net of related
    tax provision of $13,915 (2005  net of related tax
    provision of $1,430 and recovery of minority interest of $36;
    2004  net of related tax provision of $12,665 and
    minority interest of $119)


(24,635
)


(821
)


28,463(37,268
)


(20,958
)


109,946Comprehensive income (loss)

$
(93,941
)

$
(32,524
)

$
343,686    71




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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, 2006, 2005 and 2004
  AccumulatedCommon


Additional


OtherStock


Paid-In


Comprehensive


Accumulated


TreasuryClass A & B


Capital


Income (Loss)


Deficit


Stock


Total(In thousands)Restated





Restated(Note 2)





(Note 2)Balance at January 1, 2004,
    as previously reported

$
999


$
444,826


$
(88,490
)

$
(203,600
)

$
(148,809
)

$
4,926Effect of restatements






6,749







(6,749
)






Balance at January 1, 2004,
    as restated


999



451,575



(88,490
)


(210,349
)


(148,809
)


4,926Stock options exercised


31



36,915















36,946Stock-based compensation, as
    restated






11,516















11,516Dividends payable in
    cash  Class A and Class B, $2.70 per
    share














(244,888
)






(244,888
)Minimum pension liability
    adjustment










28,463











28,463Change in cumulative foreign
    currency translation adjustments










89,315











89,315Change in unrealized gain on
    securities, net










(7,832
)










(7,832
)Net earnings, as restated














233,740







233,740Balance at December 31, 2004,
    as restated


1,030



500,006



21,456



(221,497
)


(148,809
)


152,186Stock-based compensation, as
    restated






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, as restated














(11,566
)






(11,566
)Balance at December 31, 2005,
    as restated


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 including
    adoption of SFAS No. 158 (Note 16)










(24,635
)










(24,635
)Change in cumulative foreign
    currency translation adjustments










(13,519
)










(13,519
)Change in unrealized loss 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
)    72




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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, 2006, 2005 and 2004
  2006


2005


2004(In thousands)Restated


Restated(Note 2)


(Note 2)Cash Flows From Continuing
    Operating Activities:Net earnings (loss)

$
(56,673
)

$
(11,566
)

$
233,740Earnings from discontinued
    operations


(20,957
)


(33,965
)


(390,228
)Loss from continuing operations


(77,630
)


(45,531
)


(156,488
)Adjustments to reconcile loss from
    continuing operations to net cash provided by (used in)
    continuing operating activities:Depreciation and amortization


33,878



30,721



31,109Deferred income taxes


9,777



29,903



19,708Amortization of deferred financing
    costs


27



26



780Premium on debt extinguishments










50,617Equity in losses of affiliates


259



1,752



3,897Loss (gain) on sales of investments


76



(2,511
)


(1,709
)Gain on sales of property, plant
    and equipment


(80
)


(202
)


(45,918
)Write-down of investments






298



365Write-down of property, plant and
    equipment


882







Loss on Participation Trust and
    CanWest Debentures










22,689Other


(1,524
)


(2,573
)


12,887Changes in current assets and
    liabilities, net of dispositions:Accounts receivable


18,338



(6,028
)


7,458Inventories


2,957



(1,147
)


(2,141
)Other current assets


(47,890
)


8,366



(1,728
)Accounts payable and accrued
    expenses


(18,680
)


(8,464
)


24,104Income taxes payable and other tax
    liabilities


26,718



(142,089
)


23,839Deferred revenue and other


(7,776
)


(8,347
)


(13,232
)Cash used in continuing operating
    activities


(60,668
)


(145,826
)


(23,763
)Cash Flows From Investing
    Activities:Purchase of property, plant and
    equipment


(9,134
)


(16,626
)


(29,331
)Proceeds from sale of property,
    plant and equipment


231



281



87,207Investments, intangibles and other
    non-current assets


(7,592
)


(9,174
)


(10,106
)Sale (purchase) of short-term
    investments, net


57,650



474,400



(512,650
)Proceeds on disposal of investments
    and other assets


18,237



4,550



57,837Proceeds from the sale of newspaper
    operations, net of cash disposed


86,609



38,677



1,204,036Other


(266
)






588Cash provided by investing
    activities


145,735



492,108



797,581Cash Flows From Financing
    Activities:Repayment of debt and premium on
    debt extinguishment


(1,193
)


(6,304
)


(346,593
)Change in borrowings with related
    parties


(1,528
)


(3,140
)


24,346Escrow deposits and restricted cash


3,678



(2,569
)


(10,781
)Net proceeds from issuance of
    equity securities


9,851







36,946Repurchase of common stock


(95,744
)






Dividends paid


(17,212
)


(516,858
)


(17,940
)Cash used in financing activities


(102.148
)


(528,871
)


(314,022
)Net cash provided by (used in)
    discontinued operations:Operating cash flows


(387
)


54,622



(49,807
)Investing cash flows






(4,680
)


82,127Financing cash flows


7,143



53,717



(276,412
)Net cash provided by (used in)
    discontinued operations


6,756



103,659



(244,092
)Effect of exchange rate changes on
    cash


(1,745
)


2,523



369Net increase (decrease) in cash and
    cash equivalents


(12,070
)


(76,407
)


216,073Cash and cash equivalents at
    beginning of year


198,388



274,795



58,722Cash and cash equivalents at end of
    year

$
186,318


$
198,388


$
274,795    73




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For the Years Ended December 31, 2006, 2005 and 2004
  (1) Significant
    Accounting Policies
  (a)
    Description
    of Business    (b)
    Principles
    of Presentation and Consolidation        (c)
    Use of
    Estimates    (d)
    Cash
    Equivalents and Short-Term Investments     74




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (e)
    Accounts
    Receivable, Net of Allowance for Doubtful Accounts    2006


2005


2004(In thousands)Balance at beginning of year

$
11,756


$
11,654


$
14,381Provision


3,820



4,598



2,241Write-offs


(6,419
)


(5,886
)


(7,336
)Recoveries


1,110



1,390



2,368Balance at end of year

$
10,267


$
11,756


$
11,654   (f)
    Inventories  first-in,
  (g)
    Long-Lived
    Assets    93-7 11-year
     75




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (h)
    Derivative
    Financial Instruments    (i)
    Investments  available-for-sale available-for-sale available-for-sale
          (j)
    Goodwill
    and Other Intangible Assets       76




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     (k)
    Deferred
    Financing Costs    (l)  Pension
    Plans and Other Postretirement Benefits
  General
              Long-Term
    Rate of Return on Assets
     77




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   year-to-year
  Discount
    Rate
      (m)
    Income
    Taxes    (n)
    Revenue
    Recognition    (o)
    Foreign
    Currency Translation   78




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (p)
    Earnings
    (Loss) per Share    (q)
    Stock-based
    Compensation        Year Ended December 31,2006

2005

2004Restated

Restated(Note 2)

(Note 2)Total stock-based compensation
    expense included in loss from continuing operations

$
2,580


$
653


$
11,516     2005


2004(In thousands, except per share amounts)Restated


Restated(Note 2)


(Note 2)Loss from continuing operations,
    as reported

$
(45,531
)

$
(156,488
)Add: stock-based compensation
    expense, as reported


653



11,516Deduct: pro forma stock-based
    compensation expense


(1,384
)


(6,320
)Pro forma loss from continuing
    operations

$
(46,262
)

$
(151,292
)Basic loss from continuing
    operations per share, as reported

$
(0.50
)

$
(1.73
)Diluted loss from continuing
    operations per share, as reported

$
(0.50
)

$
(1.73
)Pro forma basic loss from
    continuing operations per share

$
(0.51
)

$
(1.67
)Pro forma diluted loss from
    continuing operations per share

$
(0.51
)

$
(1.67
)  79




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (r)
    Reclassifications      (2)  Restatements
  (a)
    Stock
    Option Granting Practices         80




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Stock-basedCompensation





Stock-basedExpense, As





CompensationPreviously


Incremental


Expense, AsYear Ended December 31,

Reported


Expense (Credit)


Restated1999

$



$
14


$
142000


1,518



1,413



2,9312001


(1,369
)


(58
)


(1,427
)2002






(305
)


(305
)2003


6,722



4,049



10,7712004


10,588



928



11,5162005


1,056



(403
)


653Total

$
18,515


$
5,638


$
24,153       In-KindDividends, AsPreviously


Incremental


In-Kind Dividends,Year Ended December 31,

Reported


Increase


As Restated2001

$
7,301


$
1,011


$
8,3122002


4,376



625



5,001Total

$
11,677


$
1,636


$
13,313       BeforeRestated


Restatement(In thousands)Additional paid-in capital

$
500,659


$
493,385Accumulated deficit


(523,229
)


(515,955
)Total stockholders equity
    (deficit)


(169,851
)


(169,851
)  81




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Additional paid-in capital as
    previously reported

$
493,385Incremental stock-based
    compensation expense


5,638Incremental in-kind dividends


1,636Restated additional paid-in capital

$
500,659Accumulated deficit as previously
    reported

$
(515,955
)Incremental stock-based
    compensation expense


5,638Incremental in-kind dividends


1,636Restated accumulated deficit

$
(523,229
)     2005


Before


2004


BeforeRestated


Restatement


Restated


Restatement(In thousands,


(In thousands,except per share data)


except per share data)Corporate expenses

$
43,406


$
43,809


$
66,551


$
65,623Operating loss


(9,915
)


(10,318
)


(30,839
)


(29,911
)Loss from continuing operations


(45,531
)


(45,934
)


(156,488
)


(155,560
)Net earnings (loss)


(11,566
)


(11,969
)


233,740



234,668Basic and diluted earnings (loss)
    per share from continuing operations


(0.50
)


(0.51
)


(1.73
)


(1.72
)  82




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005


2004(In thousands,except per share data)Corporate expense as previously
    reported

$
43,809


$
65,623Incremental stock-based
    compensation expense (benefit)


(403
)


928Restated corporate expense

$
43,406


$
66,551Operating loss as previously
    reported

$
(10,318
)

$
(29,911
)Incremental stock-based
    compensation expense (benefit)


(403
)


928Restated operating loss

$
(9,915
)

$
(30,839
)Loss from continuing operations as
    previously reported

$
(45,934
)

$
(155,560
)Incremental stock-based
    compensation expense (benefit)


(403
)


928Restated loss from continuing
    operations

$
(45,531
)

$
(156,488
)Net earnings (loss) as previously
    reported

$
(11,969
)

$
234,668Incremental stock-based
    compensation expense (benefit)


(403
)


928Restated net earnings (loss)

$
(11,566
)

$
233,740Basic and diluted loss per share
    from continuing operations as previously reported

$
(0.51
)

$
(1.72
)Incremental stock-based
    compensation


0.01



(0.01
)Restated basic and diluted
    earnings (loss) per share from continuing operations

$
(0.50
)

$
(1.73
)   (b)
    Gain
    from Disposal of a Business Segment    (3)  Dispositions
    and Discontinued Operations
    The Daily
    Telegraph, The Sunday Telegraph, The Weekly Telegraph,
    telegraph.co.uk The Spectator Apollo
 83




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           The Jerusalem Post, The Jerusalem Report
     84




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Year Ended December 31,2006


2005


2004(In thousands)Operating revenue:Advertising

$
4,101


$
75,246


$
66,286Circulation


972



12,908



12,504Job printing and other


569



12,684



10,709Total operating revenue


5,642



100,838



89,499Operating costs and expenses:Newsprint


383



8,624



7,640Compensation


2,896



41,653



38,806Other operating costs


2,041



31,404



30,422Depreciation and amortization


159



2,493



1,631Total operating costs and expenses


5,479



84,174



78,499Operating income

$
163


$
16,664


$
11,000     (4)  Reorganization
    Activities
   85




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Charges for workforce reductions

$
9,027Additions to expense(1)


174Cash payments


(8,111
)Accrued expenses

$
1,090     (1)
    
    Restructuring costs increased due to the termination of certain
    employees that the Company had expected to place into other
    positions.       86




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (5)  Other
    Current Assets
      (6)  Investments
  December 31,2006


2005(In thousands)Available-for-sale
    securities, at fair value:Equity securities

$
80


$
6,265Other non-marketable investments,
    at cost:Internet and technology related
    companies






3,089Other


4,328



11,5404,328



14,629Equity accounted companies, at
    equity:Internet related companies


44



184Other


1,970



1,9592,014



2,143$
6,422


$
23,037   December 31,2006


2005(In thousands)Gross unrealized holding gains
    (losses) on
    available-for-sale
    securities:Equity securities

$
78


$
(1,469
)Less  deferred tax
    benefit (expense)


(12
)


649Unrealized gain (loss) on
    available-for-sale
    securities included in stockholders equity

$
66


$
(820
)     1 8 1 8
   87




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             88




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (7)  Property,
    Plant and Equipment
  December 31,2006


2005(In thousands)Land

$
9,510


$
9,819Building and leasehold interests


101,122



106,888Machinery and equipment


194,903



179,549Construction in progress


6,428



15,458Less: accumulated depreciation


(133,595
)


(117,360
)$
178,368


$
194,354       (8)  Goodwill
    and Intangible Assets
    Total(In thousands)Balance as of January 1, 2005

$
124,166Adjustments of excess acquisition
    reserves


(62
)Balance as of December 31,
    2005

$
124,104Adjustments of excess acquisition
    reserves


(69
)Acquisition


266Balance as of December 31,
    2006

$
124,301     December 31,2006


2005(In thousands)Subscriber and advertiser
    relationships:Gross carrying amount

$
135,880


$
135,914Accumulated amortization


(43,289
)


(38,933
)Net book value

$
92,591


$
96,981    89




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (9)  Other
    Assets
  December 31,2006


2005(In thousands)Deferred financing costs

$
123


$
150Capitalized telemarketing costs,
    net of accumulated amortization


16,193



16,203Receivable from Bradford
    Publishing Co. (Note 23(f))


3,430



3,430Receivable from Horizon
    Publications Inc. (Note 23(g))






4,700Intangible asset 
    pension (Note 16)






1,464Other


2,178



1,742$
21,924


$
27,689   (10)  Accounts
    Payable and Accrued Expenses
  December 31,2006


2005(In thousands)Accounts payable

$
30,821


$
42,860Accrued expenses:Labor and benefits


30,543



22,637Accrued interest


30



71Accrued restitution and settlement
    costs  circulation matters(a)


2,919



14,357Professional fees


19,070



23,233Current pension and postretirement
    liability


6,455



624Other


20,330



21,225$
110,168


$
125,007     (a)
    
    As disclosed in Notes 17(a) and 22(a), the Companys
    Audit Committee of its Board of Directors (the Audit
    Committee) completed its investigation of circulation
    matters at the Chicago Sun-Times. The Company has reached
    settlements with a majority of its advertisers regarding
    restitution and recognized a charge related to additional fees
    and expenses of $0.5 million in 2006.  (11)  Long-Term
    Debt
  December 31,2006


2005(In thousands)Hollinger International Publishing
    Inc.:9% Senior Notes due 2010(b)

$
6,000


$
6,000Other debt


908



2,0676,908



8,067Less:Current portion included in
    current liabilities


867



7,148$
6,041


$
919  90




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Early

EarlyInterest








Redemption

RedemptionPrincipal

Rate


Issue Date

Status

Maturity

Date

Price(In thousands)$6,000


9
%(a)

December 23,

Senior

December 15,

December 15,

2006-104.50%2002



2010

2006 or

2007-102.25%thereafter

2008-100.00%           (In thousands)2007

$
8672008


382009


32010


6,000$
6,908     (12)  Leases
   91




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     (In thousands)2007

$
5,7322008


5,0052009


4,5542010


3,5112011


3,365Thereafter


29,085$
51,252   (13)  Financial
    Instruments
  (a)
    Fair
    Values        2006


2005Carrying


Fair


Carrying


FairValue


Value


Value


Value(In thousands)Long-term debt (Note 11)

$
6,908


$
6,906


$
8,067


$
7,874     (b)
    Derivative
    Financial Instruments      mark-to-market
 92




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (14)  Stockholders
    Equity
  Preferred
    Stock
    Class A
    and Class B Common Stock
  share-for-share share-for-share
  Shareholder
    Rights Plan (SRP)
         93




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Common
    Stock Repurchases and Issuance of Treasury Stock
  Form 10-K.
      Number of Shares


Value(In thousands)Common stock repurchases during
    2006


12,188,915


$
95,744Issuance of Treasury Stock for
    stock-based awards


(1,499,316
)


(15,433
)2006 common stock repurchases, net


10,689,599


$
80,311   Dividends
    and Dividends Payable
       94




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (15)  Stock-Based
    Compensation
  Stock
    Options
            EITF 96-18.
  Form S-8
 95




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-


Weighted-Average


Average


AggregateNumber of


Exercise


Remaining


IntrinsicOptions


Price


Term


Value(Months)


(In thousands)Options outstanding at
    December 31, 2005


4,211,580


$
8.19Options granted





$
Options exercised


(1,472,907
)

$
(7.25
)





$
1,047Options forfeited


(2,049,876
)

$
(8.89
)Options expired


(5,653
)

$
(6.87
)Other adjustments


15,316


$
7.70Options outstanding at
    December 31, 2006


698,460


$
8.11



55


$
Options exercisable at
    December 31, 2006


633,118


$
8.26



53


$
     Options





Options ExercisableNumber


Outstanding





NumberOutstanding at


Weighted-Average





Exercisable atDecember 31,


Remaining


Weighted Average


December 31,


Weighted-AverageRange of Exercise Prices

2006


Contractual Life


Exercise Price


2006


Exercise Price$ 6.69 - $ 8.67


527,641



4.84 years


$
7.41



462,299


$
7.52$10.17 - $11.54


170,819



3.66 years


$
10.28



170,819


$
10.28$ 6.69 - $11.54


698,460



4.55 years


$
8.11



633,118


$
8.26     Year Ended December 31,2006


2005


2004Total intrinsic value of stock
    options exercised

$
1,047


$



$
19,800        96




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Review
    of Past Stock Option Practices
    Deferred
    Stock Units
           97




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-Average





AggregateNumber of


Grant Date


Weighted-Average


IntrinsicUnits


Fair Value


Remaining Term


Value(Months)


(In thousands)Unvested at December 31, 2005


357,000


$
9.50DSUs granted


162,140


$
6.01DSUs vested


(257,763
)

$
(8.49
)





$
1,481DSUs forfeited


(46,042
)

$
(9.98
)Unvested at December 31, 2006


215,335


$
7.97



27


$
1,057   Year Ended December 31,(In thousands)2006


2005


2004Total fair value of DSUs
    granted

$
975


$
4,036


$
2,292Intrinsic value of DSUs
    vested

$
1,481


$
483


$
2,292   (16)  Employee
    Benefit Plans
  Defined
    Contribution Plans
    Defined
    Benefit Plans
     98




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Before


Adjustments


AfterApplication of


to Adopt


Application ofSFAS No. 158


SFAS No. 158


SFAS No. 158(in thousands)Prepaid pension asset

$
101,908


$
(52,263
)

$
49,645Other assets

$
23,194


$
(1,270
)

$
21,924Total assets

$
953,392


$
(53,533
)

$
899,859Account payable and accrued
    expenses

$
104,336


$
5,832


$
110,168Total current liabilities

$
751,281


$
5,832


$
757,113Deferred income taxes and other
    tax liabilities

$
429,442


$
(17,032
)

$
412,410Other liabilities

$
97,101


$
(13,023
)

$
84,078Total liabilities

$
1,283,865


$
(24,223
)

$
1,259,642Accumulated other comprehensive
    income (loss):Pension adjustment

$
(14,102
)

$
(29,310
)

$
(43,412
)Total stockholders equity
    (deficit)

$
(330,473
)

$
(29,310
)

$
(359,783
)Total liabilities and
    stockholders equity (deficit)

$
(953,392
)

$
(53,533
)

$
899,859           2006


2005


2004(In thousands)Service cost

$
1,526


$
2,169


$
1,805Interest cost


18,653



17,625



17,496Expected return on plan assets


(25,609
)


(22,471
)


(19,518
)Amortization of losses


2,825



3,126



4,897Special termination benefits










154Curtailment loss


(67
)






Amortization of transitional
    obligation


112



112



121Amortization of prior service costs


198



190



181Net periodic benefit cost (credit)

$
(2,362
)

$
751


$
5,136  99




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005(In thousands)Benefit obligation at the
    beginning of the year

$
342,036


$
331,584Service cost


1,526



2,169Interest cost


18,653



17,625Participant contributions


81



335Other, including currency
    translation differences


963



7,704Actuarial loss


17,780



10,883Curtailment gain


(224
)


Benefits paid


(32,636
)


(28,264
)Benefit obligation at the end of
    the year


348,179



342,036Fair value of plan assets at the
    beginning of the year


348,296



323,770Actual return on plan assets


31,337



37,488Other, including currency
    translation differences


1,214



8,870Employer contributions


3,332



6,097Participant contributions


81



335Benefits paid


(32,636
)


(28,264
)Fair value of plan assets at the
    end of the year


351,624



348,296Funded status

$
3,445



6,260Unrecognized net actuarial loss






67,094Unrecognized prior service cost






1,464Unrecognized net transition
    obligation






1,147Prepaid benefit cost





$
75,965     December 31,2006


2005(In thousands)Prepaid pension asset

$
49,645


$
95,346Pension liability included in
    current liabilities

$
(4,489
)

$
(624
)Pension liability included in
    other liabilities

$
(41,711
)

$
(51,239
)Intangible asset included in other
    assets

$



$
1,464Accumulated other comprehensive
    income (loss)

$
78,826


$
31,018    100




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005(In thousands)Minimum pension liability

$



$
31,018Net actuarial losses


76,521



Prior service costs


1,270



Net transition obligation


1,035



$
78,826


$
31,018     December 31,2006


2005(In thousands)Projected benefit obligation

$
117,229


$
133,635Accumulated benefit obligation

$
113,754


$
127,873Fair value of plan assets

$
71,029


$
77,612     December 31,2006


2005(In thousands)Projected benefit obligation

$
230,950


$
208,401Accumulated benefit obligation

$
230,950


$
207,098Fair value of plan assets

$
280,595


$
270,684   Assumptions
    December 31,2006

2005

2004Discount rate

5.00 - 5.75%

5.50 - 6.25%

5.75% - 7.0%Expected return on plan assets

5.50 - 8.25%

5.25 - 8.25%

6.25% - 8.25%Compensation increase

3.0%

3.0 - 4.0%

3.0% - 4.0%     Pension Benefits2006


2005Discount rate


5.18
%


5.49
%Rate of compensation increase


2.47
%


3.02
%  101




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension Benefits2006


2005


2004Discount rate


5.18
%


5.49
%


5.75
%Expected long-term return on plan
    assets


7.22
%


7.23
%


7.21
%Rate of compensation increase


2.47
%


3.02
%


3.09
%     Pension
    Plan Assets
    Plan Assets atDecember 31,Asset Category

2006


2005Equity securities


48.2
%


58.0
%Debt securities


46.7
%


35.5
%Other


5.1
%


6.5
%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
   102




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       2006


2005


2004(In thousands)Service cost

$
27


$
21


$
18Interest cost


1,357



1,325



1,273Amortization of gains


(788
)


(907
)


(649
)Net periodic postretirement
    benefit cost

$
596


$
439


$
642     December 31,2006


2005(In thousands)Accumulated postretirement benefit
    obligation at the beginning of the year

$
36,754


$
35,430Service cost


27



21Interest cost


1,357



1,325Actuarial (gains) losses


(6,171
)


1,176Benefits paid


(2,032
)


(2,355
)Other, including currency
    translation differences


(459
)


1,157Accumulated postretirement benefit
    obligation at the end of the year


29,476



36,754Fair value of plan assets at the
    end of the year


2,005



2,609Unfunded status

$
27,471


$
34,145    103




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005(In thousands)Unfunded status included in
    current liabilities

$
1,966


$
Unfunded status, included in other
    liabilities

$
25,505


$
34,145Unrecognized net gain (as of
    December 31, 2006, included in other comprehensive income,
    net of tax)






4,150Accrued postretirement benefit
    cost, included in other liabilities

$
25,505


$
38,295Unrecognized net gain, included in
    other comprehensive income, net of tax

$
6,011


$
     2006


2005Healthcare cost trend assumed next
    year


8
%


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



2009     Pension
    and Other Benefit Payments
    Pension


PostretirementYear

Benefits


Benefits(In thousands)2007

$
29,917


$
1,9662008

$
27,991


$
2,0352009

$
27,398


$
2,0992010

$
26,980


$
2,1492011

$
26,541


$
2,1892012-2016

$
126,197


$
11,160  104




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (17)  Other
    Operating Costs and Corporate Expenses
  Items
    Included in Other Operating Costs
    Year Ended December 31,2006


2005


2004(In thousands)Gain on sale of assets(a)

$
(80
)

$
(67
)

$
(44,878
)Reorganization costs (Note 4)


9,201







Severance expense


2,642



117



1,242Restitution and settlement
    costs  circulation matters(b)


505







2,880Write-down of intangible assets
    (Note 8)










1,833Write-down of capitalized
    software(c)


882







Reserve for contract disputes


800







   (a)
    Gain on
    Sale of Assets  Chicago Sun-Times Chicago Sun-Times
  (b)
    Restitution
    and Settlement Costs  Circulation Matters  Chicago Sun-Times. Chicago Sun-Times
  (c)
    Write-down
    of Capitalized Software    Items
    Included in Corporate Expenses
    105




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2006


2005


2004(In thousands)Management fees paid to related
    parties

$



$



$
500Aircraft costs










449Loss on sale of newspaper
    operations(a)










7,900Directors and officers insurance
    fee(b)










5,400Severance expense


6,954



1,125



224Unclaimed property costs


2,000







   (a)
    Loss on
    Sale of Newspaper Operations    (b)
    Directors
    and Officers Insurance Fee    (18)  Indemnification,
    Investigation and Litigation Costs, Net of Recoveries
    Incurred SinceYear Ended December 31,


Inception through2006


2005


2004


December 31, 2006(5)(In thousands)Special Committee investigation
    costs(1)

$
4,743


$
19,044


$
26,605


$
57,464Litigation costs(2)


6,376



3,601



15,522



26,945Indemnification fees and costs(3)


18,949



23,363



17,997



61,938Recoveries(4)


(47,475
)


(32,375
)






(79,850
)$
(17,407
)

$
13,633


$
60,124


$
66,497     (1)
    
    Costs and expenses arising from the Special Committees
    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). 106




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (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.(4)
    
    Represents recoveries directly resulting from the investigation
    activities including $47.5 million in a settlement with
    certain of the Companys directors and officers insurance
    carriers, which is net of $2.5 million paid to Cardinal
    Value Equity Partners (Cardinal) counsel as attorney
    fees directly attributable to this settlement. This settlement
    was approved by the Delaware Court of Chancery in November 2006,
    and the proceeds were received by the Company in January 2007.
    The $50.0 million settlement is included in Other
    current assets in the accompanying Consolidated Balance
    Sheet at December 31, 2006. See Note 5. In 2005, the
    Company received approximately $30.3 million in a
    settlement with Torys LLP (Torys) and
    $2.1 million in recoveries of indemnification payments from
    Black. Excludes settlements with former directors and officers,
    pursuant to a restitution agreement reached in November 2003, of
    approximately $1.7 million and $31.5 million for the
    years ended December 31, 2004 and 2003, respectively, which
    are included in Other income (expense), net in the
    Consolidated Statements of Operations. See Note 19, 22(a)
    and 23(a) to the consolidated financial statements.(5)
    
    The Special Committee was formed on June 17, 2003. These
    amounts represent the cumulative net costs from that date.  (19)  Other
    Income (Expense), Net
  December 31,2006


2005


2004(In thousands)Loss on extinguishment of debt(a)

$



$



$
(60,381
)Write-down of investments










(365
)Expenses related to FDR
    Collection(b)






(795
)


Loss on Participation Trust and
    CanWest Debentures, including exchange gains and losses(c)
    (Note 6)










(22,689
)Foreign currency gains (losses),
    net


2,943



(2,171
)


1,634Legal settlement






(800
)


Settlements with former directors
    and officers (Note 23(a))










1,718Gain (loss) on sale of investments


(76
)


2,254



1,709Equity in losses of affiliates


(259
)


(1,752
)


(3,897
)Other


34



(575
)


(5,519
)$
2,642


$
(3,839
)

$
(87,790
)     (a)
    
    In 2004, the Company retired $294.0 million of its
    9% Senior Notes and recognized losses, including the
    write-off of deferred financing fees, of approximately
    $60.4 million. See Note 11.(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 (the
    FDR Collection).(c)
    
    The Company had a loss of $22.7 million related to the
    Participation Trust and CanWest Debentures in 2004 (excluding
    $8.2 million included in Earnings from operations of
    business segments disposed of). This loss was largely due
    to foreign exchange gains recorded in prior years and not
    ultimately realized upon liquidation in 2004. See Note 6. 107




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (20)  Income
    Taxes
    2006


2005


2004(In thousands)Income taxes allocated to:Loss from continuing operations
    before income taxes

$
57,431


$
42,467


$
29,462Earnings from discontinued
    operations


35,173



13,778



213,424Other comprehensive income
    (loss)  foreign currency translation adjustments


(4
)


757



176Other comprehensive income
    (loss)  unrealized holding gain (loss) on marketable
    securities


(665
)


(2,467
)


(1,294
)Other comprehensive income
    (loss)  pension adjustment


(13,915
)


(1,430
)


12,665$
78,020


$
53,105


$
254,433     Current


Deferred


Total(In thousands)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


$
42,467Year ended December 31, 2004:U.S. federal

$
(10,873
)

$
(4,283
)

$
(15,156
)Foreign


25,622



24,630



50,252State and local


(4,995
)


(639
)


(5,634
)$
9,754


$
19,708


$
29,462     2006


2005


2004(In thousands)Restated


Restated(Note 2)


(Note 2)U.S.

$
(29,351
)

$
(6,241
)

$
(145,454
)Foreign


9,152



3,177



18,428$
(20,199
)

$
(3,064
)

$
(127,026
)  108




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004(In thousands)Restated


Restated(Note 2)


(Note 2)Income tax benefit at federal
    statutory rate

$
(7,070
)

$
(1,073
)

$
(44,459
)Impact of taxation at different
    foreign rates


(1,725
)


143



383U.S. state and local income
    tax benefit, net of federal tax impact


(1,462
)


(550
)


(5,413
)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
)


(10,472
)Provision for tax contingencies


29,042



607



6,520Reduction of tax contingency
    accruals due to the resolution of uncertainties (includes
    $10.8 million reduction of related interest accrual in 2006)


(39,297
)


(16,194
)


(10,695
)Interest on tax contingency
    accruals, net of federal tax benefit on a portion thereof


81,523



53,680



48,236Items non-deductible or
    non-includible for income tax purposes


831



(2,817
)


6,231U.S. income tax expense on
    intercompany and other transactions involving non-U.S. operations


2,241



4,621



12,290Non-U.S. tax
    impacts related to Telegraph Group, principally surrender of tax
    losses










(10,526
)Increase in valuation allowance


5,366



8,894



38,639Other, net


(1,467
)


2,587



(1,272
)Total

$
57,431


$
42,467


$
29,462       December 31,2006


2005(In thousands)Income taxes payable

$
22,051


$
29,722Other tax liabilities


605,334



557,012$
627,385


$
586,734  109




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005(In thousands)Deferred tax liabilities

$
139,240


$
115,613Other tax liabilities


385,436



363,495Deferred tax assets, net of
    valuation allowance


(112,266
)


(118,584
)$
412,410


$
360,524       December 31,2006


2005(In thousands)Deferred tax assets attributable
    to:Accounts receivable, principally
    due to allowance for doubtful accounts

$
1,304


$
2,004Accrued expenses


13,012



17,500Postretirement obligation


18,198



21,601Investments


12,911



23,966Net operating loss carryforwards


5,261



6,820Claims for restitution


58,252



58,252U.S. tax benefit related to
    disposition and liquidation of Canadian operations


167,140



167,532Capital loss carryovers


17,521



Other


14,180



11,161Deferred tax assets


307,779



308,836Less valuation allowance


(195,513
)


(190,252
)Net deferred tax assets

$
112,266


$
118,584Deferred tax liabilities
    attributable to:Property, plant and equipment,
    principally due to differences in depreciation and deferred gain
    on exchange of assets

$
76,249


$
74,493Pension asset


11,148



30,124Deferred gain on disposition of
    Canadian Newspaper Operations


21,146



Deferred tax on settlement
    (Note 18)


20,047



Other


10,650



10,996Deferred tax liabilities

$
139,240


$
115,613  110




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    non-U.S. operations. and/or
        (21)  Loss
    per Share
    Year Ended December 31, 2006Loss


Shares


Per-Share(Numerator)


(Denominator)


Amount(In thousands, except per share amounts)Basic and 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)Restated





RestatedNote 2





Note 2Basic and diluted EPSLoss from continuing operations

$
(45,531
)


90,875


$
(0.50
)  111




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31, 2004Loss


Shares


Per-Share(Numerator)


(Denominator)


Amount(In thousands, except per share amounts)Restated





RestatedNote 2





Note 2Basic and diluted EPSLoss from continuing operations

$
(156,488
)


90,486


$
(1.73
)     (22)  Commitments
    and Contingencies
  (a)
    Litigation  Overview
    of Investigation of Certain Related Party Transactions
  Black-Amiel (Black-Amiel), Form 10-K
   112




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Chicago Sun-Times
           Other Matters.
 113




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Black-Amiel. Black-Amiel  Hollinger International
    Inc. v. Ravelston, RMI and Hollinger Inc.
    Stockholder
    Derivative Litigation
    Cardinal Value Equity Partners, L.P. v. Black,
    et al.
   Hollinger
    Inc. v. American Home Assurance Company and Chubb Insurance
    Company of Canada
     114




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Litigation Involving
    Controlling Stockholder, Senior Management and
    Directors
  Stockholder
    Class Actions
  In re
    Hollinger International Inc. Securities Litigation No. 04C-0834. Chicago Sun-Times Chicago Sun-Times
    S-42.2,
 115




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Litigation
    Involving Controlling Stockholder, Senior Management and
    Directors
  Hollinger International Inc. v.
    Hollinger Inc., et al. No. 04C-0698
  7/8% Senior
     116




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Black-Amiel,
  Black v.
    Hollinger International Inc., filed on May 13,
    2005
         117




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Hollinger
    International Inc. v. Ravelston, RMI and Hollinger
    Inc.
      Black v.
    Breeden, et al.
   Hollinger International Inc. v.
    Conrad M. Black, Hollinger Inc. and 504468 N.B. Inc.
        United
    States Securities and Exchange Commission v. Hollinger
    International Inc.
   118




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-K Form 10-Q Risk Factors
    United
    States Securities and Exchange Commission v. Conrad M.
    Black, et al.
         119




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Hollinger
    Inc. v. American Home Assurance Company and Chubb Insurance
    Company of Canada
    20-22, 29-30
    The
    Chicago Sun-Times Circulation Cases
  Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times
   120




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  cy pres non-class
  Delaware
    Insurance Coverage Action
  Sun-Times Media Group, Inc. v.
    Sun-Alliance Insurance Company of Canada No. 06C-11-108 and/or
  CanWest
    Arbitration
  18-22,
  CanWest
    and The National Post Company v. Hollinger Inc., Hollinger
    International Inc., the Ravelston Corporation Limited and
    Ravelston Management Inc.
   121




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other
    Matters
   Litigation Involving
    Controlling Stockholder, Senior Management and
    Directors.
  editor-in-chief Whyte v. Hollinger International Inc. No. 602321/05.
   122




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other Matters
  (b)
    Guarantees
    or Indemnifications  (i)  Dispositions
  and/or
      (ii)  Letters
    of Credit
    (iii)  Other
    (c)
    Canadian
    Ownership Matters     123




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (23)  Related-party
    Transactions
    (a)
    (b) Black-Amiel Black-Amiel
 124




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Hollinger International Inc. v.
    Ravelston, RMI and Hollinger Inc.
    (c)
    7 8
 125




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (d) National
    Post
  (e)
  (f)
 126




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (g)
  (h) The National Interest The National Interest. The National Interest.
  (i)
    (j)
  (24) Liquidity
    Considerations
  Liquid
    Assets
    December 31,


December 31,2006


2005(In thousands)Cash and cash equivalents

$
186,318


$
198,388Short-term investments






57,650Settlement proceeds receivable
    included in Other current assets(1)


50,000



Total liquid assets

$
236,318


$
256,038     (1)
    
    Represents $50.0 million settlement included in Other
    current assets at December 31, 2006 in the
    Companys Consolidated Balance Sheet and which was received
    by the Company in January 2007. Approximately $2.5 million
    of this settlement was paid to Cardinals counsel as
    attorney fees in January 2007. 127




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Factors
    That Are Expected to Affect Liquidity in the Future
  Potential
    Cash Outlays Related to Accruals for Income Tax Contingent
    Liabilities
    December 31,


December 31,2006


2005(In thousands)Classified as current liabilities

$
605,334


$
557,012Classified as non-current
    liabilities


385,436



363,495$
990,770


$
920,507   non-U.S.
  Potential
    Cash Outflows Related to Operations
   128




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Legal
    Proceedings
  Other
    (25)  Quarterly
    Financial Data (Unaudited)
    2006First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterRestated(b)(In thousands, except per share data)Total operating revenue

$
102,424


$
107,391


$
99,051


$
109,834Operating income (loss)

$
(24,270
)

$
(13,711
)

$
(22,418
)

$
21,449Earnings (loss) from continuing
    operations

$
(26,593
)

$
20,121


$
(34,865
)

$
(36,293
)Net earnings (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(a)

$
(0.09
)

$
0.24


$
(0.43
)

$
(0.43
)   2005First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In thousands, except per share data)Restated(Note 2(a))Total operating revenue

$
109,383


$
117,718


$
113,590


$
117,198Operating income (loss)

$
(15,839
)

$
(4,166
)

$
(7,829
)

$
17,919Earnings (loss) from continuing
    operations

$
(20,543
)

$
(20,399
)

$
(10,759
)

$
6,170Net earnings (loss)

$
(18,509
)

$
(15,542
)

$
(9,124
)

$
31,609Earnings (loss) from continuing
    operations per basic and diluted share(a)

$
(0.23
)

$
(0.22
)

$
(0.12
)

$
0.07Net earnings (loss) per basic and
    diluted share(a)

$
(0.20
)

$
(0.17
)

$
(0.10
)

$
0.35  129




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (a)
    
    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.(b)
    
    The net earnings (loss) for the first quarter of 2006 has been
    restated from the amount reported in the Companys
    quarterly report on
    Form 10-Q
    to correct an error in the gain from disposal of a business
    segment. The correction increased the gain from disposal of
    business segment from $14,712 as previously reported by $3,927
    to $18,639 and decreased the net loss from $11,682 as previously
    reported by $3,927 to $7,755. The error relates to certain tax
    liabilities in respect of the Canadian Newspaper Operations that
    should have been included in the gain on sale and which were not
    appropriately evaluated until the fourth quarter of 2006. 130