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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, DC 20549




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Form 10-K

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
        OF THE SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the Fiscal Year ended December 31,
        2001                                             
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
        15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |  | For the transition period
        from           to                                             

Commission File No. 0-24004




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Hollinger International Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                                             |  |                                                
|------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------
|Delaware                                                                                                     |  | 95-3518892                                     
|(State or other jurisdiction of
        incorporation or organization)                                       |  | (I.R.S. Employer
        Identification Number)
|                                                                                                            
|401 North Wabash Avenue,
        Suite 740, Chicago, Illinois(Address of Principal Executive
        Office) |  | 60611(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 Exchange                   
|9 1/4% Senior Subordinated Notes due 2006     |  | New York Stock Exchange                   
|8 5/8% Senior Notes due 2005                  |  | New York Stock Exchange                   
|9 1/4% Senior Subordinated Notes due 2007     |  | New York Stock Exchange                   

Securities registered pursuant to
Section 12(g) of the Act:


None


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been
subject to such filing requirements for the past
90 days.     Yes þ          No o


Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o


The aggregate market value of Class A Common
Stock held by non-affiliates as of March 5, 2002, was
approximately $888,251,000. As of such date, non-affiliates held
no shares of Class B Common Stock. There is no active
market for the Class B Common Stock.


The number of outstanding shares of each class of
the registrants common stock as of March 5, 2002 was
as follows: 85,778,367 shares of Class A Common Stock
and 14,990,000 shares of Class B Common Stock.


DOCUMENTS INCORPORATED BY REFERENCE


|                                                                                                                                                   |  |          |          | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -------- | 
|Document                                                                                                                                           |  | Location
|                                                                                                                                                   |  |         
|Proxy Statement for 2002 Annual Meeting of
        Stockholders filed pursuant to Regulation 14A under the
        Securities Exchange Act of 1934 |  |          | Part III | 



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TABLE OF CONTENTS



|                             |                                                                                               |  |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                      
|                             | Item 1. Business                                                                             
|                             | Item 2. Properties                                                                           
|                             | Item 3. Legal Proceedings                                                                    
|                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                     
|                             | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                             | Item 6. Selected Financial Data                                                              
|                             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                             | Item 7A. Quantitative and Qualitative Disclosure about Market Risk                           
|                             | Item 8. Financial Statements and Supplementary Data                                          
|                             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                    
|                             | Item 10. Directors and Executive Officers of the Registrant                                  
|                             | Item 11. Executive Compensation                                                              
|                             | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                             | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                     
|                             | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                  
|Independent Auditors Report
|Exhibit 21.1                
|Exhibit 23.1                



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##### Table of Contents



HOLLINGER INTERNATIONAL INC.

2001 FORM 10-K

|         |  |                                                                                               |  |      |    | 
|-------- |  | --------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                               |  | Page
|         |  |                                                                                               |  |     
|PART I  
|Item 1.  |  | Business                                                                                      |  |      | 2  | 
|Item 2.  |  | Properties                                                                                    |  |      | 12 | 
|Item 3.  |  | Legal Proceedings                                                                             |  |      | 13 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
        Holders                                   |  |      | 14 | 
|PART II 
|Item 5.  |  | Market for the Registrants Common Equity
        and Related Stockholder Matters             |  |      | 17 | 
|Item 6.  |  | Selected Financial Data                                                                       |  |      | 18 | 
|Item 7.  |  | Managements Discussion and Analysis of
        Financial Condition and Results of Operations |  |      | 20 | 
|Item 7A. |  | Quantitative and Qualitative Disclosure about
        Market Risk                             |  |      | 40 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                                   |  |      | 41 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure  |  |      | 41 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                            |  |      | 41 | 
|Item 11. |  | Executive Compensation                                                                        |  |      | 41 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
        and Management                        |  |      | 41 | 
|Item 13. |  | Certain Relationships and Related Transactions                                                |  |      | 41 | 
|PART IV 
|Item 14. |  | Exhibits, Financial Statement Schedules and
        Reports on Form 8-K                       |  |      | 42 | 

1



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##### Table of Contents






PART I






Item 1.     Business


Overview

Hollinger International Inc. (the
Company), through subsidiaries and affiliated
companies, is a global publisher with English-language
newspapers in the United States, the United Kingdom, Canada and
Israel. Its assets include The Daily Telegraph, the
Chicago Sun-Times, The Jerusalem Post, a large number of
community newspapers in the Chicago area, and a portfolio of new
media investments. The Companys Canadian newspapers are
primarily in British Columbia and are owned through Hollinger
Canadian Newspapers, Limited Partnership (Hollinger
L.P.), in which the Company has approximately an 87%
interest.

During 2001, the Company sold most of its
remaining Canadian newspapers in three separate transactions,
its 50% interest in The National Post Company (National
Post), its approximate 15.6% equity interest in CanWest
Global Communications Corp. (CanWest) and its last
remaining United States community newspaper. In addition, the
Company sold participation interests in most of the debentures
received from CanWest in 2000 as part of the proceeds on the
sale of Canadian newspaper properties.

The operations of the Company for the year ended
December 31, 2001 consisted of the Chicago Group, Community
Group, U.K. Newspaper Group, and Canadian Newspaper Group, which
accounted for 39%, 2%, 42% and 17%, respectively, of the
Companys total operating revenues of $1,146.3 million.

Unless the context requires otherwise, all
references herein to the Company mean Hollinger
International Inc., its predecessors and consolidated
subsidiaries, Publishing refers to Hollinger
International Publishing Inc. and Hollinger Inc.
refers to Hollinger Inc.



| |              
| | -------------
| | Chicago Group

The Companys Chicago Group consists of more
than 100 titles in the greater Chicago metropolitan area
including the Chicago Sun-Times, the fifth largest
metropolitan daily newspaper in the United States in terms of
daily readership and the ninth largest in terms of circulation,
the Post Tribune in northwest Indiana and the Daily
Southtown. The Chicago Sun-Times is published in a
tabloid format and continues to be Chicagos best read
newspaper, attracting almost 1.7 million readers every day.
The suburban papers include Pioneer Newspapers Inc.
(Pioneer Press), which currently publishes
57 weekly newspapers in Chicagos north and northwest
suburbs, Midwest Suburban Publishing Inc. (Midwest
Suburban Publishing) which currently publishes the
Daily Southtown, 12 weekly newspapers,
23 biweekly newspapers and four free distribution papers,
primarily in Chicagos south and southwest suburbs and Fox
Valley Publications Inc. (Chicago Suburban
Newspapers) which publishes four daily newspapers, The
Herald News, The Beacon News, The Courier News
and The News Sun.



| |                
| | ---------------
| | Community Group

During 2001, the Company sold its last remaining
United States community newspaper. For accounting and management
purposes, the Community Group continues to include the
Companys wholly-owned subsidiary Jerusalem Post
Publications Limited (Jerusalem Post) which
publishes The Jerusalem Post, Israels most
important English-language daily newspaper, with a daily and
weekend readership of 223,000. The paid circulation of all
Jerusalem Post products, including The International Jerusalem
Post and French edition worldwide, is over 110,000.



| |                     
| | --------------------
| | U.K. Newspaper Group

The Companys U.K. Newspaper Group consists
of its wholly-owned subsidiary, The Telegraph Group Limited and
its consolidated subsidiaries (The Telegraph). The
Telegraph publishes The Daily Telegraph, which was
launched in 1855. The Telegraph also publishes The Sunday
Telegraph, The Weekly Telegraph,
telegraph.co.uk, and The Spectator magazine.
The Daily Telegraph is the largest circulation quality
daily newspaper in the United Kingdom with an average daily
circulation of approximately 1,021,000, representing a 36% share
of the quality daily newspaper market, a substantially greater
share than that of its nearest direct competitor. The Daily
Telegraphs Saturday edition has the highest average
daily circulation (approximately 1,218,000) among quality daily
newspapers in the United Kingdom. The Sunday Telegraph is
the second largest circulation quality Sunday newspaper in the
United Kingdom with an average Sunday circulation of
approximately 812,000.

2



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| |                         
| | ------------------------
| | Canadian Newspaper Group

At December 31, 2001 the Companys
Canadian Newspaper Group primarily consisted of Hollinger
Canadian Publishing Holdings Co. (HCPH Co.) and
an 87% interest in Hollinger L.P.. During 2001 HCPH Co.
(formerly Hollinger Canadian Publishing Holdings Inc.
(HCPH)) became the successor to the operations of
XSTM Holdings (2000) Inc. (formerly Southam Inc.
(Southam)).

At December 31, 2001 HCPH Co. and
Hollinger L.P. owned ten daily and 25 non-daily
newspaper properties and the Business Information Group
(formerly Southam Magazine and Information Group) which
publishes Canadian business magazines and tabloids for the
automotive, trucking, construction, natural resources,
manufacturing and other industries.



| |                     
| | --------------------
| | Bank Credit Facility

During 2001, the Company entered into a new
credit facility in the amount of $120 million. Amounts
borrowed under this facility were repaid during 2001. At
December 31, 2001, the Companys Restated Credit
Facility, of which borrowings of $972 million had been
repaid in 2000, had a reduced limit of $5 million. At
December 31, 2001, no amounts were owing under the Restated
Credit Facility and no amounts could be borrowed pursuant to the
Hollinger International Publishing Inc. Trust Indentures related
to the Senior and Senior Subordinated Notes.



| |                            
| | ---------------------------
| | Ownership by Hollinger Inc.

At December 31, 2001, Hollinger Inc.
directly and indirectly owned 32.1% of the combined equity
interest and 71.8% of the combined voting power of the
outstanding Class A Common Stock and Class B Common
Stock of the Company (without giving effect to the future
issuance of Class A Common Stock upon conversion of the
Companys Series E Preferred Stock). As a result,
Hollinger Inc. will continue to be able to control the outcome
of any election of directors and to direct management policy,
strategic direction and financial decisions of the Company and
its subsidiaries. Hollinger Inc. owns all of the outstanding
Series E Preferred Stock of the Company, which is
convertible at any time into shares of Class A Common Stock
based on the conversion formula set forth in its Certificate of
Designations.

Hollinger Inc. is effectively controlled by Lord
Black of Crossharbour, PC(C), OC, KCSG, Chairman of the Board of
Directors and Chief Executive Officer of both Hollinger Inc. and
the Company, through his direct and indirect ownership and
control of Hollinger Inc.s securities. Lord Black has
advised the Company that Hollinger Inc. does not presently
intend to reduce its voting power in the Companys
outstanding Common Stock to less than 50%. Furthermore, Lord
Black has advised the Company that he does not presently intend
to reduce his voting control over Hollinger Inc. such that a
third party would be able to exercise effective control over it.



| |        
| | -------
| | General

The Company was incorporated in the State of
Delaware on December 28, 1990 and its wholly owned
subsidiary Hollinger International Publishing Inc.
(Publishing) was incorporated in the State of
Delaware on December 12, 1995. Each of the Company and
Publishing has its executive offices at 401 North Wabash
Avenue, Chicago, Illinois 60611, telephone number
(312) 321-2299.

Business Strategy

The Companys strategy for achieving growth
in its newspaper business is based on achieving improvements in
the cash flow and profitability of its newspapers principally
through cost reductions and revenue enhancements. The approach
of both the Company and Hollinger Inc. to improving
profitability typically includes measures to reduce costs,
improve efficiency and enhance product quality, including the
visual quality of printed pages.

In Chicago, with the acquisition in 2000 of
Chicago Suburban Newspapers, significant emphasis will continue
to be placed on building revenues by taking advantage of the
extensive network of combined Chicago Group publications. The
Chicago Group also will continue its focus on cost reduction.
The opportunities to achieve cost savings through joint
distribution and sales programs are very encouraging. The full
conversion to the new Chicago Sun-Times state of the art
printing facility has been completed. This facility will enable
the group to enhance the quality of the printed product. The
group continues to put a strong emphasis on online products and
has developed partnerships with other media organizations,
including TV and radio, that will strengthen both the newspaper
and web products.

3



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The focus for The Daily Telegraph will
continue to be to retain its circulation dominance in its market
and to increase the resulting advertising revenue. The
successful prepaid subscription program will continue and the
Company will focus on maintaining and increasing the circulation
for The Sunday Telegraph. Operationally, efficiencies in
producing the newspapers are expected to continue at the West
Ferry and Trafford Park printing operations.

At the Canadian Newspaper Group, following the
asset sales completed during 2000 and 2001, the Company
continues to own a group of community newspapers in British
Columbia and the Business Information Group, which publishes
Canadian business magazines. It is expected that these remaining
community newspapers and magazines will be sold during 2002.

The Company and Hollinger Inc. have historically
agreed that the Company will be Hollinger Inc.s principal
vehicle for engaging in and effecting acquisitions in the
newspaper business and in related media businesses in the United
States, Israel, the United Kingdom and the rest of the European
Community. Hollinger Inc. reserved the ability to pursue all
media (including newspaper) acquisition opportunities outside
these areas and all media acquisition opportunities unrelated to
the newspaper business throughout the world.

The Company has developed a comprehensive
internet and technology strategy. These activities fall into
three main areas: (1) websites related to the various print
publications, which are 100% owned and reported within the
traditional newspaper segments; (2) joint ventures between
its print publications and unrelated outsiders, where each adds
value and where the Company has a certain amount of control; and
(3) minority venture capital investments in unrelated third
parties.

The print-related and joint venture strategies
represent an opportunity to fortify the newspapers in their
local markets by providing them with the necessary tools to
offer a complete suite of online and print options for their
clients. The Company has stayed competitive by building
significant websites at all its major newspapers. The strategy
is specifically designed to achieve rapid acceleration of the
Web activities. The Company has built a solid foundation for
expansion and growth, and for technology and services which
further strengthens the print and online publications. The
Company has virtually ceased making minority investments in
unrelated third party Internet and technology companies.

Risks

Certain statements contained in this report under
various sections, including but not limited to Business
Strategy and Managements Discussion and
Analysis, are forward-looking statements that involve
risks and uncertainties. Such statements are subject to the
following important factors, among others, which in some cases
have affected, and in the future could affect, the
Companys actual results and could cause the Companys
actual consolidated results for the first quarter of 2002, and
beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | International Holding Company
        Structure  The Company is an international holding
        company and its assets consist solely of investments in its
        subsidiaries and affiliated companies. As a result, the
        Companys ability to meet its future financial obligations
        is dependent upon the availability of cash flows from its United
        States and foreign subsidiaries through dividends, intercompany
        advances, management fees and other payments. Similarly, the
        Companys ability to pay dividends on its common stock and
        its preferred stock may be limited as a result of its dependence
        upon the distribution of earnings of its subsidiaries and
        affiliated companies. The Companys subsidiaries and
        affiliated companies are under no obligation to pay dividends
        and, in the case of Publishing and its principal United States
        and foreign subsidiaries, are subject to statutory restrictions
        and restrictions in debt agreements that limit their ability to
        pay dividends. Substantially all of the shares of the
        subsidiaries of the Company have been pledged to lenders of the
        Company. The Companys right to participate in the
        distribution of assets of any subsidiary or affiliated company
        upon its liquidation or reorganization will be subject to the
        prior claims of the creditors of such subsidiary or affiliated
        company, including trade creditors, except to the extent that
        the Company may itself be a creditor with recognized claims
        against such subsidiary or affiliated company. As at
        December 31, 2001, the Company did not meet a financial
        test set out in the Trust indentures for Publishings
        Senior and Senior Subordinated notes. As a result, Publishing
        and its subsidiaries are unable to incur additional
        indebtedness, pay dividends, make advances to the Company or
        make other distributions on their capital stock. The Company
        currently has sufficient cash to meet its current anticipated
        obligations.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Growth Strategy  The Companys
        strategy is to achieve growth through improvements in the cash
        flow and profitability of its newspapers, principally through
        cost reductions. The Companys growth strategy presents
        risks inherent in evaluating the costs of new growth
        opportunities at existing operations and in managing the
        numerous publications it has acquired and improving their
        operating efficiency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Restrictions in Debt Agreements and Other
        Restrictive Arrangements   The Company and its
        subsidiaries have substantial leverage and substantial debt
        service obligations as well as obligations under the preferred
        stock of the Company. The instruments governing the terms of the
        principal indebtedness and redeemable preferred stock of the
        Company, Publishing and its principal United States and foreign
        subsidiaries, contain various covenants, events of default and
        other provisions that could limit the financial flexibility of
        the Company, including the payment of dividends with respect to
        outstanding common stock and preferred stock and the
        implementation of its growth strategy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Cyclicality of Revenues  Advertising
        and, to a lesser extent, circulation revenues of the Company, as
        well as those of the newspaper industry in general, are cyclical
        and dependent upon general economic conditions. Historically,
        increases in advertising revenues have corresponded with
        economic recoveries while decreases, as well as changes in the
        mix of advertising, have corresponded with general economic
        downturns and regional and local economic recessions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Newsprint Costs  Newsprint represents
        the single largest raw material expense of the Companys
        newspapers and, together with employee costs, is one of the most
        significant operating costs. Newsprint costs vary widely from
        time to time and could continue to show significant variations
        during 2002. During the first half of 2001, newsprint prices in
        North America were at their highest price per tonne since 1994
        and 1995. However, the recessional climate in 2001 caused a
        significant decline in industry consumption and this, coupled
        with an abundant supply of competitively priced newsprint
        resulted in a downward trend in prices during the second half of
        2001. This downward trend has continued into the early part of
        2002 and there are indications that prices will stabilize at
        their current levels. In the United Kingdom, newsprint prices
        payable by the Company in 2002, which are subject to longer-term
        contracts, will be less than the average prices paid in 2001.
        Although the Company has implemented measures in an attempt to
        offset a rise in newsprint prices, such as reducing page width
        where practical, and managing its return policy, price increases
        have had an adverse effect on the Companys results of
        operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Foreign Operations and Currency Exchange
        Rates  Operations outside of the United States
        accounted for approximately 61.4% of the Companys
        operating revenues and approximately 65.9% of the Companys
        operating loss for the year ended December 31, 2001.
        Generally, the Company does not hedge against foreign currency
        exchange rate risks except through borrowings in those
        currencies. As a result, the Company may experience economic
        loss and a negative impact on earnings with respect to its
        investments and on earnings of its foreign subsidiaries, solely
        as a result of currency exchange rate fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Newspaper Industry Competition 
        Revenues in the newspaper industry are dependent primarily upon
        advertising revenues and paid circulation. Competition for
        advertising and circulation revenue comes from local and
        regional newspapers, radio, broadcast and cable television,
        direct mail, and other communications and advertising media that
        operate in the Companys markets. The extent and nature of
        such competition is, in large part, determined by the location
        and demographics of the markets and the number of media
        alternatives in those markets. Some of the Companys
        competitors are larger and have greater financial resources than
        the Company. For example, in the Chicago metropolitan area, the
        Chicago Sun-Times competes with a large established
        metropolitan daily and Sunday newspaper that is the fifth
        largest metropolitan paid daily and Sunday newspaper in the
        United States in terms of circulation. In the United Kingdom,
        The Daily Telegraph competes with other national
        newspapers, principally The Times, which over the
        past several years has from time to time substantially reduced
        its cover price in an effort to increase its circulation. The
        Telegraph has met this competition and has engaged in its own
        price reduction or promotional initiatives. Electronic media has
        become an important factor in newspaper industry competition.
        Management holds the view that newspapers will continue to be an
        important business segment. Among educated and affluent people,
        indications are that strong newspaper readership will continue.
        Alternate forms of information delivery such as the Internet
        could impact newspapers, but recognition of the Internets
        potential combined with a strong newspaper franchise could be a
        platform for Internet operations. Newspaper readers can be
        offered a range of Internet services as varied as the content.
        Virtually all newspapers are now published on the Internet as
        well as in the traditional newsprint format. These competitive
        activities can and have from time to time had an adverse effect
        on revenues and operating costs.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | General Economic Outlook  The
        Companys dependence on advertising sales, which generally
        have a short lead-time, means that it has only a limited ability
        to predict results for the fiscal year. Newspaper advertising
        revenue has been negatively impacted by the softening and
        uncertain economic environment especially following the events
        of September 11, 2001. At this time, the Company is unable
        to predict whether the current advertising slowdown represents a
        short-term decline in demand that will be reversed in the next
        six months, or whether, instead, reduced demand will continue
        for an extended period. If the current slowdown continues, the
        Company expects that overall newsprint demand will remain low
        and the Companys usage and costs would decline.

Chicago Group

Sources of Revenue.The following table sets forth the
sources of revenue and the percentage such sources represent of
total revenues for the Chicago Group during the past three years.

|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|---------------------- |  | ----------------------- | ------- | ---- |  | ---- | --- | - |  | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                       |  |                        
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  |                         |         |      |  |      |     |   |  |  
|                       |  |                         |         |      |  |     
|                       |  | 2001                    |         | 2000 |  | 1999
|                       |  |                         |         |      |  |     
|                       |  |                        
|                       |  | (dollars in thousands) 
|Advertising            |  | $                       | 338,521 |      |  |      | 76  | % |  | $ | 305,027 |  |  |  | 76  | % |  | $ | 294,124 |  |  |  | 75  | %
|Circulation            |  |                         | 92,716  |      |  |      | 21  |   |  |   | 80,261  |  |  |  | 20  |   |  |   | 80,551  |  |  |  | 21  |  
|Job printing and other |  |                         | 11,647  |      |  |      | 3   |   |  |   | 16,129  |  |  |  | 4   |   |  |   | 15,798  |  |  |  | 4   |  
|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|Total                  |  | $                       | 442,884 |      |  |      | 100 | % |  | $ | 401,417 |  |  |  | 100 | % |  | $ | 390,473 |  |  |  | 100 | %
|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  

Advertising.Substantially all advertising revenues
are derived from local and national retailers and classified
advertisers. Advertising rates and rate structures vary among
the publications and are based, among other things, on
circulation, penetration and type of advertising (whether
classified, national or retail). In 2001, retail advertising
accounted for the largest share of advertising revenues (49%),
followed by classified (40%) and national (11%).

The Chicago Sun-Times offers a variety of
advertising alternatives, including full-run advertisements,
geographically zoned issues, special interest pull-out sections
and advertising supplements in addition to regular sections of
the newspaper targeted to different readers, such as arts, food,
real estate, TV listings, weekend, travel and special sections.
The Chicago area suburban newspapers also offer similar
alternatives for their daily and weekly publications. The
Chicago Group operates the Reach Chicago Newspaper Network, an
advertising vehicle that can reach the combined readership base
of all the Chicago Group publications. The Chicago Group
continues to strengthen its online dominance. The
www.classifiedschicago.com regional classified-advertising
website, which was created through a partnership with Paddock
Publications, pools classified advertisements from all Chicago
Group publications, as well as Paddock Publications
metropolitan daily to create a valuable new venue for
advertisers, readers and on-line users. Additionally,
www.DriveChicago.com continues to be a leader in automotive
websites. During 2000, the Chicago Group joined Paddock
Publications and the Chicago Automobile Trade Association to
create this website that pools the automotive classified
advertising of three of the Chicago metropolitan areas
biggest dailies with the automotive inventories of many of
Chicagos metropolitan car dealerships.

Circulation.Circulation revenues are derived from
single copy newspaper sales made through retailers and vending
racks and home delivery newspaper sales to subscribers.
Approximately 67% of the copies of the Chicago Sun-Times
sold in 2001 were single copy sales. Approximately 54% of 2001
circulation revenues of the Chicago area suburban newspapers
were derived from subscription sales.

The average paid daily and Sunday circulation of
the Chicago Sun-Times is approximately 480,000 and
383,000, respectively. The Chicago Sun-Times has had consecutive
increases over the past two years in paid daily circulation. The
daily and Sunday paid circulation of the Daily Southtown
is approximately 48,000 and 55,000, respectively. The daily and
Sunday paid circulation of the Post-Tribune is
approximately 64,000 and 69,000, respectively. The aggregate
daily and Sunday paid circulation of the Chicago Suburban
Newspapers is approximately 98,000 and 111,000, respectively.
The aggregate free circulation and bi-weekly paid circulation of
the Chicago Suburban Newspapers is approximately 472,000 and
20,000, respectively.

6



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##### Table of Contents



Competition.Each of
the Companys Chicago area newspapers competes in varying
degrees with radio, television, direct marketing and other
communications and advertising media as well as with other
newspapers having local, regional or national circulation. The
Chicago metropolitan region is comprised of Cook County and six
surrounding counties and is served by eight local daily
newspapers of which the Company owns six.

The Chicago Sun-Times competes in the
Chicago region with the Chicago Tribune, a large
established metropolitan daily and Sunday newspaper, which is
the fifth largest metropolitan daily newspaper in the United
States based on circulation. The Chicago-Sun Times is the
ninth largest metropolitan daily newspaper in the United States,
based on circulation. In addition, the Chicago Sun-Times
and other Chicago Group newspapers face competition from other
newspapers published in adjacent or nearby locations and
circulated in the Chicago metropolitan area market.

Employees and Labor Relations.As of March 5, 2002, the Chicago
Group employed approximately 3,559 employees (including
approximately 725 part-time employees). Approximately 1,000
employees are represented by 24 collective bargaining units.
Employee costs (including salaries, wages, fringe benefits,
employment-related taxes and other direct employee costs)
equaled approximately 40% of the Chicago Groups revenues
in the year ended December 31, 2001. There have been no
strikes or general work stoppages at any of the Chicago
Groups newspapers in the past five years. The Chicago
Group believes that its relationships with its employees are
generally good.

Raw Materials.The
basic raw material for newspapers is newsprint. In 2001
approximately 127,000 tonnes were consumed and, newsprint costs
equaled approximately 17% of the Chicago Groups revenues
in 2001. Average newsprint prices for the Chicago Group
increased about 11% in 2001 from 2000. The Chicago Group is not
dependent upon any single newsprint supplier. The Chicago
Groups access to Canadian, United States and offshore
newsprint producers ensures an adequate supply of newsprint. The
Chicago Group, like other newspaper publishers in North America,
has not entered into any long-term fixed price newsprint supply
contracts in the current environment of newsprint costs. The
Chicago Group believes that its sources of supply for newsprint
are adequate for its anticipated needs.

Environmental.The
Company, in common with other newspaper companies engaged in
similar operations, is subject to a wide range of federal, state
and local environmental laws and regulations pertaining to air
and water quality, storage tanks, and the management and
disposal of wastes at its major printing facilities. These
requirements are becoming increasingly more stringent. The
Company believes that compliance with these laws and regulations
will not have a material adverse effect on the Company.

Community Group

During 2001, the Community Group consisted of one
United States community newspaper, which was sold in August 2001
and The Jerusalem Post in Israel.

Sources of Revenue.The following table sets forth the
sources of revenue and the percentage that such sources
represented of total revenues for the Community Group, including
Jerusalem Post, during the past three years.

|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  
|---------------------- |  | ----------------------- | ------ | ---- |  | ---- | --- | - |  | - | ------ |  |  |  | --- | - |  | - | ------ |  |  |  | --- | -
|                       |  |                        
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  |                         |        |      |  |      |     |   |  |  
|                       |  |                         |        |      |  |     
|                       |  | 2001                    |        | 2000 |  | 1999
|                       |  |                         |        |      |  |     
|                       |  |                        
|                       |  | (dollars in thousands) 
|Advertising            |  | $                       | 5,806  |      |  |      | 30  | % |  | $ | 38,294 |  |  |  | 57  | % |  | $ | 57,535 |  |  |  | 60  | %
|Circulation            |  |                         | 7,751  |      |  |      | 41  |   |  |   | 19,168 |  |  |  | 28  |   |  |   | 26,618 |  |  |  | 27  |  
|Job printing and other |  |                         | 5,558  |      |  |      | 29  |   |  |   | 9,874  |  |  |  | 15  |   |  |   | 12,521 |  |  |  | 13  |  
|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  
|Total                  |  | $                       | 19,115 |      |  |      | 100 | % |  | $ | 67,336 |  |  |  | 100 | % |  | $ | 96,674 |  |  |  | 100 | %
|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  

Jerusalem Post.Approximately 42.1% of Jerusalem
Posts revenues of $18.3 million in 2001 were derived
from circulation, with 30.1% from job printing and other and
27.8% from advertising. Jerusalem Post derives a relatively high
percentage of its revenues from job printing as a result of a
long-term contract to print and bind copies of the Golden Pages,
Israels equivalent of a Yellow Pages telephone directory.
Newsprint costs relating to publication of The Jerusalem
Post equaled approximately 11.1% of Jerusalem Posts
revenues in 2001. Newsprint used in producing the Golden Pages
is provided by the owners of that publication.

7



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##### Table of Contents



Newspapers in Israel are required by law to
obtain a license from the countrys interior minister, who
is authorized to restrain publication of certain information if,
among other things, it may endanger public safety. To date,
Jerusalem Post has not experienced any difficulties in
maintaining its license to publish or been subject to any
efforts to restrain publication. In addition, all written media
publications in Israel are reviewed by Israels military
censor prior to publication in order to prevent the publication
of information that could threaten national security. Such
censorship is considered part of the ordinary course of business
in the Israeli media and has not adversely affected Jerusalem
Posts business in any significant way.

Environmental.The
Company, in common with other newspaper companies engaged in
similar operations, is subject to a wide range of environmental
laws and regulations pertaining to air and water quality,
storage tanks, and the management and disposal of wastes at its
major printing facilities. These requirements are becoming
increasingly more stringent. The Company believes that
compliance with these laws and regulations will not have a
material adverse effect on the Company.

U.K. Newspaper Group

The
Telegraph

The United Kingdom National Newspaper
Industry.The newspaper market in the
United Kingdom is segmented and, within each segment, highly
competitive. The market segment in which The Daily
Telegraph competes is generally known as the quality daily
newspaper segment. This segment consists of all the broadsheets
and none of the tabloid daily newspapers. The Daily
Telegraph and its competitors in this market segment appeal
to the middle and upper end of the demographic scale.

Newspapers in the United Kingdom differ from
their counterparts in North America in several respects. First,
they traditionally have had substantially fewer pages although
the number of pages has been increasing steadily over the past
few years. The Daily Telegraph is printed in two sections
on Mondays, Tuesdays, Wednesdays and Fridays, three sections on
Thursdays, and nine sections plus a magazine and television
guide on Saturdays. The Sunday Telegraph is published in
seven sections with one magazine. Second, pre-printed
advertising inserts, which have been a major source of revenue
growth in North America, are less common in the United Kingdom,
but there has been an increase in advertiser interest in such
supplements. Third, the advertising to news ratio in British
newspapers is lower. Fourth, British national newspapers more
closely resemble North American magazines in that they have
broad distribution and readership across the country and derive
a much larger portion of their advertising revenue from national
advertisers  unlike North American newspapers which,
because of their relatively small geographical distribution,
derive a substantial portion of their advertising from local
advertisers. Finally, newspapers in the United Kingdom generally
have charged higher cover prices, which in turn leads to higher
circulation revenues than North American newspapers with similar
circulation bases. However, since September 1993, when The
Times, the nearest direct competitor to The Daily
Telegraph, first substantially reduced its cover price on
its weekday newspaper, the national newspaper market in the
United Kingdom has experienced intense cover price competition.

Sources of Revenue.The following table sets forth the
sources of revenue and their percentage of total revenues for
the Telegraph during the past three years.

|            |  |                                           |          |      |  |      |     |   |  |  |          |  |  |  |     |   |  |  |          |  |  |  |     |  
|----------- |  | ----------------------------------------- | -------- | ---- |  | ---- | --- | - |  |  | -------- |  |  |  | --- | - |  |  | -------- |  |  |  | --- | -
|            |  |                                          
|            |  | Year Ended December 31,                  
|            |  |                                          
|            |  |                                           |          |      |  |      |     |   |  | 
|            |  |                                           |          |      |  |     
|            |  | 2001                                      |          | 2000 |  | 1999
|            |  |                                           |          |      |  |     
|            |  |                                          
|            |  | (in thousands of British pounds sterling)
|Advertising |  |                                           | £228,715 |      |  |      | 68  | % |  |  | £255,945 |  |  |  | 69  | % |  |  | £225,326 |  |  |  | 66  | %
|Circulation |  |                                           | 94,502   |      |  |      | 28  |   |  |  | 95,690   |  |  |  | 26  |   |  |  | 98,071   |  |  |  | 29  |  
|Other       |  |                                           | 14,252   |      |  |      | 4   |   |  |  | 19,020   |  |  |  | 5   |   |  |  | 16,575   |  |  |  | 5   |  
|            |  |                                           |          |      |  |      |     |   |  |  |          |  |  |  |     |   |  |  |          |  |  |  |     |  
|Total       |  |                                           | £337,469 |      |  |      | 100 | % |  |  | £370,655 |  |  |  | 100 | % |  |  | £339,972 |  |  |  | 100 | %
|            |  |                                           |          |      |  |      |     |   |  |  |          |  |  |  |     |   |  |  |          |  |  |  |     |  



---



|    |                                                
|--- | -----------------------------------------------
|(1) | Financial data is in accordance with U.K. GAAP.

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Advertising.Advertising is the largest source of
revenue at The Telegraph. The Telegraphs display
advertising strengths are in the financial, automobile and
travel sections. The level of classified advertisements,
especially recruitment advertisements, fluctuates with the
economy. The Telegraphs strategy with respect to
classified advertising is to improve volume and yield in four
sectors: recruitment, property, travel and automobiles.
Classified advertising revenue, which represents 28% of total
advertising revenue, decreased in 2001 primarily due to a 25%
decrease in recruitment advertising. Recruitment advertising is
the largest classified advertising category, representing about
45% of all classified advertising in terms of revenue.

Circulation.The
target audience of The Telegraphs newspapers is generally
conservative, middle and upper income readers, with a continuing
emphasis on gaining new younger readers. The editorial strengths
of The Telegraphs newspapers provide national and
international news, financial news and features and
comprehensive sports coverage.

In May 1996 the Telegraph introduced the first
United Kingdom national advance purchase subscription program.
In the past, newspaper subscribers in the U.K. dealt directly
with independent newsagents for the purchase of newspapers. A
significant portion of newspaper readers did not take the paper
every day and this was especially true for Sunday. This program
has proven successful in driving circulation increases although
there has been some inevitable cannibalization of circulation
revenues. By the end of 1996, the plan had added about 100,000
new weekday and 200,000 new Sunday average sales and the average
prepaid subscription was for a period of about 40 weeks. In
order to gain broad acceptance of this revolutionary plan, the
subscriptions were offered at a significant discount. The amount
of that discount was reduced throughout 1997 and continued to be
reduced thereafter. The program currently has approximately
315,000 subscribers.

Other Publications and Business Enterprises.The Telegraph is involved in several
other publications and business enterprises, including The
Spectator, The Weekly Telegraph and telegraph.co.uk
(formerly Electronic Telegraph). telegraph.co.uk
has approximately 3.2 million unique users with some
30 million page impressions per month. The Telegraph
utilizes its brand in developing third party revenue
opportunities being primarily Reader Offers covering travel,
financial products, household products and books.

During 1999, the Company, in cooperation with The
Boots Company plc, the UKs leading beauty and health
retailer, launched a new web site focusing on the womens
on-line market, www.handbag.com. The site deals with, among
other things, health, beauty and the arts.

Competition.In
common with other national newspapers in the United Kingdom, The
Telegraphs newspapers compete for advertising revenue with
other forms of media, particularly television, magazine, direct
mail, posters and radio. In addition, total gross advertising
expenditures, including financial, display and recruitment
classified advertising, are affected by economic conditions in
the United Kingdom.

Employees and Labor Relations.At March 5, 2002, The Telegraph
and its subsidiaries employed approximately 1,250 persons and
the joint venture printing companies employed an additional 920
persons. Collective agreements between The Telegraph and the
trade unions representing certain portions of The
Telegraphs workforce expired on June 30, 1990 and
have not been renewed or replaced. The absence of such
collective agreements has had no adverse effect on The
Telegraphs operations and, in managements view, is
unlikely to do so in the foreseeable future.

The Telegraphs joint venture printing
companies, West Ferry Printers and Trafford Park Printers, each
have in-house collective agreements with the unions
representing their employees and certain provisions of these
collective agreements are incorporated into the employees
individual employment contracts. In contrast to the union
agreements that prevailed on Fleet Street when Hollinger Inc.
acquired control of The Telegraph, these collective agreements
provide that there shall be flexibility in the duties carried
out by union members and that staffing levels and the deployment
of staff are the sole responsibility of management. Binding
arbitration and joint labor-management standing committees are
key features of each of the collective agreements. These
collective agreements may be terminated by either party by six
months prior written notice.

At West Ferry Printers a redundancy program was
approved in November 2001. Approximately 91 of the 750 positions
were made redundant. This was as a result of the reduction in
third party contract revenue, reduced work from the joint
venture partners due to declines in advertising revenue,
increases in costs and an overall review of the efficiencies of
the plant.

There have been no strikes or general work
stoppages involving employees of The Telegraph or the joint
venture printing companies in the past five years. Management of
the Telegraph believes that its relationships with its employees and the relationships of the
joint venture printing companies with their employees are
generally good.

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##### Table of Contents



Raw Materials.Newsprint represents the single
largest raw material expense of The Telegraphs newspapers
and, next to employee costs, is the most significant operating
cost. Approximately 170,000 metric tons are consumed annually
and in 2001 the total cost was approximately 19% of its
newspaper revenues. Prices are fixed throughout 2002 at levels
some 10% below the average price paid during 2001. Inventory
held at each printing location is sufficient for three to four
days production and in addition, suppliers stock held in
the United Kingdom normally represents a further four to five
weeks consumption.

Paper Purchase and Management Limited (PPML) was
formed on October 17, 2001. It is a joint venture between
The Telegraph and Guardian Media Group plc and has as its main
purpose the control of specifications, sourcing and the
monitoring of usage of newsprint throughout the printing plants
operated by the joint venture partners, and other locations
where the partners publications are printed on a contract
basis. It is expected to start trading on April 1, 2002.
The setting up of this joint venture followed the members
voluntary liquidation of Newsprint Management and Supply
Services Limited (NMSS), a joint venture between The Telegraph
and Express Newspapers. Under the terms of the NMSS Joint
Venture Agreement, The Telegraph served one years notice
on March 21, 2001. However, it was agreed that with effect
from October 22, 2001 newsprint purchasing would revert to
each of the joint venture partners.

Printing.The
majority of copies of The Daily Telegraph and The
Sunday Telegraph are printed by The Telegraphs two 50%
owned joint venture printing companies, West Ferry Printers and
Trafford Park Printers. The Telegraph has a very close
involvement in the management of the joint venture companies and
regards them as being important to The Telegraphs
day-to-day operations. The magazine sections of the Saturday
edition of The Daily Telegraph and of The Sunday
Telegraph are printed under contract by external magazine
printers. The Telegraph also prints the majority of its overseas
copies under contracts with external printers in Northern
Ireland, Spain and Belgium.

The managements of both joint venture printing
companies continually seek to improve production performance.
Major capital expenditures require the approval of the boards of
directors of the joint venture partners. There is high
utilization of the plants at West Ferry and Trafford Park
Printers, with little spare capacity. At Trafford Park Printers,
revenue earned from contract printing for third parties has a
marginal effect on The Telegraphs printing costs. West
Ferry Printers also undertakes some contract printing for third
parties, which results in increased profitability.

West Ferry Printers has 18 presses, six of which
are configured for The Telegraphs newspapers, eight are
used for the newspapers published by The Telegraphs joint
venture partner, Express Newspapers, and the remaining four for
contract printing customers. Trafford Park Printers has four
presses, two of which are used primarily for The
Telegraphs newspapers.

On November 22, 2000, United News &
Media plc sold their interest in Express Newspapers to Northern
& Shell Media Holdings Ltd. As a result of this change of
control, under the terms of the West Ferry Printers Joint
Venture Agreement, The Telegraph had an option to purchase
Express Newspapers interest in West Ferry Printers. The
Telegraph made an offer for the shares in January 2001 which was
rejected by Express Newspapers in February 2001. Express
Newspapers subsequently commenced arbitration proceedings
pursuant to the Joint Venture Agreement to determine the option
price.

In April 2001, Express Newspapers commenced two
actions against The Telegraph, a Claim for Specific Performance,
seeking an order that The Telegraph buy out Express
Newspapers interest in West Ferry, and a Petition under
Section 459, Companies Act 1985, claiming unfair prejudice.
Express Newspapers lost the Specific Performance proceedings and
the s459 Petition was struck out. Express Newspapers appealed
both decisions.

The appeal hearing took place in March 2002.
Again, the Claim for Specific Performance was rejected by the
courts. However, the court determined that the option for The
Telegraph to purchase Express Newspapers interest had
expired on January 3, 2001. Express Newspapers
directors will now be reappointed to the West Ferry Board. Leave
was given for Express Newspapers to continue with the s459
Petition. If Express Newspapers are successful with the s459
Petition, The Telegraph could be required to purchase Express
Newspapers 50% interest in West Ferry at a price to be
determined independently. It is managements view that
Express Newspapers will not be successful in their s459 Petition.

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Distribution.Since
1988, The Telegraphs newspapers have been distributed to
wholesalers by truck under a contract with a subsidiary of TNT
Express (UK) Limited (TNT). During 1996, the Express
titles and The Daily Telegraph
and The Sunday Telegraph, which are all printed at West
Ferry Printers in London, began distribution to wholesalers on
the same trucks. At Trafford Park Printers in Manchester, where
The Daily Telegraph, The Sunday Telegraph and The
Guardian are printed, a joint distribution service was
arranged. Previously, the Express titles and the Guardian were
distributed separately from the Telegraph titles. The
Telegraphs arrangements with wholesalers contain
performance provisions to ensure minimum standards of copy
availability while controlling the number of unsold copies. On
May 25, 2001, a new contract was entered into by each of
the major publishers at West Ferry Printers with TNT. That
contract is for a minimum term of five years and six months and
commenced on May 27, 2001.

Wholesalers distribute newspapers to retail news
outlets. The number of retail news outlets throughout the United
Kingdom has increased as a result of a 1994 ruling by the
British Department of Trade and Industry that prohibits
wholesalers from limiting the number of outlets in a particular
area. More outlets do not necessarily mean more sales and The
Telegraphs circulation department has continued to develop
its control of wastage while taking steps to ensure that copies
remain in those outlets with high single copy sales. In addition
to single copy sales, many retail news outlets offer home
delivery services. In 2001 home deliveries accounted for 43% of
sales of both The Daily Telegraph and The Sunday
Telegraph.

Historically, wholesalers and retailers have been
paid commissions based on a percentage of the cover price. Prior
to June 1994 when competitive pressures caused The Telegraph to
reduce its cover price, wholesaler and retailer commissions
amounted to approximately 34% of the then cover price.
Notwithstanding the reduction of the cover price, the
commissions paid were not reduced. In line with other national
newspapers, The Telegraph has recently moved away from a
commission paid on a percentage of cover price to a fixed price
in pence per copy and has reduced the amount paid to wholesalers
and retailers in terms of pence per copy.

Environmental
Matters.The Telegraph and its joint
venture printing companies, West Ferry Printers and Trafford
Park Printers, in common with other newspaper publishers and
printers, are subject to a wide range of environmental laws and
regulations promulgated by United Kingdom and European
authorities. These laws are becoming increasingly more
stringent. Management of The Telegraph believes that compliance
with these laws and regulations will not have a material adverse
effect on The Telegraph.

Canadian Newspaper Group

Sources of Revenue.On November 16, 2000, the Company completed the sale to
CanWest of 50% of National Post, the Canadian Newspaper Group
metropolitan newspapers, a large number of community newspapers
and certain operating Internet properties. During 2001, the
Company sold most of its remaining Canadian newspapers in three
separate transactions and its remaining 50% interest in the
National Post. Operating revenue for the years ended
December 31, 2001 and 2000 for operations not sold at
December 31, 2001 was Cdn. $113.7 million and
Cdn. $116.8 million, respectively. The following table
sets forth the sources of revenue and the revenue mix of the
total Canadian Newspaper Group, including operations sold,
during the past three years:

|                        |                        |                                    |          |          |  |      |     |    |   |      |            |            |  |  |     |    |   |      |            |            |  |  |     |    |  
|----------------------- | ---------------------- | ---------------------------------- | -------- | -------- |  | ---- | --- | -- | - | ---- | ---------- | ---------- |  |  | --- | -- | - | ---- | ---------- | ---------- |  |  | --- | -- | -
|                        |                        |                                   
|                        |                        | Year Ended December 31,           
|                        |                        |                                   
|                        |                        |                                    |          |          |  |      |     |    |   |     
|                        |                        |                                    |          |          |  |     
|                        |                        | 2001                               |          | 2000     |  | 1999
|                        |                        |                                    |          |          |  |     
|                        |                        |                                   
|                        |                        | (in thousands of Canadian dollars)
|Newspapers:             |                        |                                    |          |          |  |      |     |    |   |      |            |            |  |  |     |    |   |      |            |            |  |  |     |   
|                        | Advertising            |                                    | Cdn.     | $171,032 |  |      |     | 56 | % |      | Cdn.       | $1,158,678 |  |  |     | 73 | % |      | Cdn.       | $1,207,673 |  |  |     | 73 | %
|                        | Circulation            |                                    |          | 53,030   |  |      |     | 17 |   |      |            | 287,513    |  |  |     | 18 |   |      |            | 313,817    |  |  |     | 19 |  
|                        | Job printing and other |                                    |          | 35,249   |  |      |     | 12 |   |      |            | 70,809     |  |  |     | 5  |   |      |            | 69,380     |  |  |     | 4  |  
|Business Communications |                        |                                    | 45,763   |          |  |      | 15  |    |   |      | 62,193     |            |  |  | 4   |    |   |      | 56,350     |            |  |  | 4   |   
|                        |                        |                                    |          |          |  |      |     |    |   |      |            |            |  |  |     |    |   |      |            |            |  |  |     |   
|Total                   |                        | Cdn.                               | $305,074 |          |  |      | 100 | %  |   | Cdn. | $1,579,193 |            |  |  | 100 | %  |   | Cdn. | $1,647,220 |            |  |  | 100 | % 
|                        |                        |                                    |          |          |  |      |     |    |   |      |            |            |  |  |     |    |   |      |            |            |  |  |     |   

Advertising.Newspaper advertising revenue in 2001, for operations not sold
at December 31, 2001, totalled Cdn. $46.7 million.
Advertisements are carried either within the body of the
newspapers, and referred to as run-of-press (ROP) advertising,
or as inserts and other. ROP, which represented 81% of total
advertising revenue in 2001, for operations not sold, is
categorized as either retail, classified or national. The three
categories represented 68%, 15% and 17%, respectively, of ROP
advertising revenue in 2001, for operations not sold at
December 31, 2001.

11



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##### Table of Contents



Circulation.Virtually all newspaper circulation revenue in 2001, for
operations not sold at December 31, 2001, was from
subscription sales.

Competition.The
majority of revenues are from advertising. Advertising linage in
the newspapers is affected by a variety of factors including
competition from print, electronic and other media as well as
general economic performance and the level of consumer
confidence. Specific advertising segments such as real estate,
automotive and help wanted will be significantly affected by
local factors.

Employees and Labor
Relations.As of March 5, 2002,
the Canadian Newspaper Group had approximately
931 employees. The Canadian Newspaper Group has union
contracts in place at approximately 11 of the 19 newspaper
operating locations. The percentage of unionized employees
varies widely from paper to paper. With the large number of
contracts being renegotiated every year, labor disruptions are
always possible, but no single disruption would have a material
effect on the Company.

Raw Materials.The
basic raw material for newspapers is newsprint. Newsprint
consumption in 2001, for operations not sold at
December 31, 2001, was approximately 13,200 tonnes.
The newspapers within the Canadian Newspaper Group have access
to adequate supplies to meet anticipated production needs. They
are not dependent upon any single newsprint supplier. The
Canadian Newspaper Group, like other newspaper publishers in
North America, has not entered into any long-term fixed price
newsprint supply contracts in the current environment of
newsprint costs.

Regulatory Matters.The publication, distribution and sale of newspapers and
magazines in Canada is regarded as a cultural
business under the Investment Canada Act and consequently,
any acquisition of control of the Canadian Newspaper Group by a
non-Canadian investor would be subject to the prior review and
approval by the Minister of Industry of Canada. Because no such
acquisition of control of Hollinger International Inc. or
Hollinger Inc. has occurred, the current ownership is acceptable.

Relationship with Hollinger
Inc.The Company and Hollinger Inc.
directly own a combined 100% interest in HCPH Co.. During 2001,
HCPH Co. became the successor to the operations of XSTM Holdings
(2000) Inc. (formerly Southam). Publishing and Hollinger
Inc. own, directly or indirectly, the following interests;
(i) Publishing and its subsidiaries own 100% of the
non-voting equity shares and non-voting preference shares and
(ii) each of Publishing and Hollinger Inc. (through its
wholly-owned subsidiary) own 50% of the voting preference shares
which have only nominal equity value. It is anticipated that
Hollinger Inc. will pledge its interest in HCPH Co. as
collateral for bank financing arrangements of the Company and
its subsidiaries. The Company indirectly owns an 87.0% interest
in Hollinger L.P. Under the Canadian Income Tax Act, there are
limits on non-Canadian ownership of Canadian Newspapers. At
present, the Company does not meet those limits and, if this
continues beyond a specified cure period, there could be adverse
effects on advertising revenue. The Company will take the
necessary steps to ensure that it is in compliance before the
cure period expires.




Item 2.     Properties

The Companys management believes that its
properties and equipment are in generally good condition,
well-maintained, and adequate for current operations.

Chicago
Group

The Chicago Sun-Times conducts its
editorial, pre-press, marketing, sales and administrative
activities in a 535,000 square foot, seven-story building in
downtown Chicago. The Company has completed the full conversion
of its Chicago Sun-Times production operations to a new
320,000 square foot state of the art printing facility, at a
total construction cost of approximately $115.0 million. It
is intended that new facilities will be identified to house the
Chicago Sun-Times non-production activities and the
downtown Chicago building will be redeveloped. Agreement in
principal has been reached for a joint development of the
downtown Chicago building under which, if it proceeds, the
Chicago Group will receive the first $75 million of
consideration and will share in future profits. Progress is
being made towards finalizing the arrangements but, unless and
until final binding agreements are signed, there can be no
assurance that this joint development will proceed.

12



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##### Table of Contents



Pioneer Press utilizes and owns a building in
north suburban Chicago for editorial, pre-press, sales and
administrative activities. Pioneer leases several outlying
satellite offices for its editorial and sales staff in
surrounding suburbs. Production currently occurs at a 65,000
square foot leased building in a neighboring suburb. Midwest
Suburban Publishing utilizes one building for editorial,
pre-press, marketing, sales and administrative activities.
Production activities occur at a separate facility. Both
facilities are located in Chicagos south suburbs. The
Post-Tribune editorial, pre-press, marketing, sales and
administrative activities are housed in the newly completed facility in Merrillville, Indiana and
production activities continue at its facility in Gary, Indiana.
The headquarters for Chicago Suburban Newspapers is in
Plainfield, Illinois. This 172,000 square foot owned facility
houses the press and administrative activities as well as
certain sales and marketing functions. The editorial and sales
activities are housed at five facilities located in surrounding
suburbs.

Community
Group

The Jerusalem Postis produced and distributed in Israel from a three-story
building in Jerusalem owned by Jerusalem Post. The Jerusalem
Post also leases a sales office in Tel Aviv and a sales and
distribution office in New York.

U.K.
Newspaper Group

The Telegraph occupies five floors of a tower on
Canary Wharf in Londons Docklands under a 25-year
operating lease expiring in 2017. Printing of The
Telegraphs newspaper titles is carried out at fifty
percent owned joint venture printing plants in Londons
Docklands and in Trafford Park, Manchester.

Canadian
Newspaper Group

The Canadian Newspaper Groups newspapers
and magazines are published at numerous facilities throughout
Canada.




Item 3.     Legal
Proceedings

The Company becomes involved from time to time in
various claims and lawsuits incidental to the ordinary course of
its business, including such matters as libel, defamation and
invasion of privacy actions. In addition, the Company is
involved from time to time in various governmental and
administrative proceedings with respect to employee terminations
and other labor matters, environmental compliance, tax and other
matters.

Management believes that the outcome of any
pending claims or proceedings will not have a material adverse
effect on the Company taken as a whole. See Note 16 to the
Consolidated Financial Statements.

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Item 4.     Submission
of Matters to a Vote of Security Holders

None

Executive Officers of the Company

The following table sets forth the names and ages
(as of March 5, 2002) of each of the Companys current
executive officers, followed by a description of their principal
occupations during the past five years and current directorships
of public reporting companies and investment companies in the
United States, Canada, the United Kingdom and Israel. Unless
otherwise indicated, each of the executive officers has held his
or her position with the Company, or a similar position with the
Company, for at least the past five years.

|                                                    |  |     |    |                           |  |                                                                                                           
|--------------------------------------------------- |  | --- | -- | ------------------------- |  | ----------------------------------------------------------------------------------------------------------
|Name                                                |  | Age |    | Position with the Company
|                                                    |  |     |    |                          
|Lord Black of Crossharbour,
        PC(C), OC, KCSG |  |     | 57 |                           |  | Chairman of the Board, Chief Executive Officer
        and Director                                       
|                                                   
|F. David Radler                                     |  |     | 59 |                           |  | Deputy Chairman, President, Chief Operating
        Officer and Director                                  
|                                                   
|Daniel W. Colson                                    |  |     | 54 |                           |  | Vice Chairman and Director, Deputy Chairman,
        Chief Executive Officer and Director of The Telegraph
|                                                   
|J. A. Boultbee                                      |  |     | 58 |                           |  | Executive Vice President                                                                                  
|                                                   
|Frederick A. Creasey                                |  |     | 51 |                           |  | Group Corporate Controller                                                                                
|                                                   
|Barbara Amiel Black                                 |  |     | 61 |                           |  | Vice President, Editorial and Director                                                                    
|                                                   
|Paul B. Healy                                       |  |     | 38 |                           |  | Vice President, Corporate Development and
        Investor Relations                                      
|                                                   
|Peter Y. Atkinson                                   |  |     | 55 |                           |  | Vice President                                                                                            
|                                                   
|Mark S. Kipnis                                      |  |     | 54 |                           |  | Vice President, Corporate Counsel and Secretary                                                           
|                                                   
|John D. Ferguson                                    |  |     | 60 |                           |  | Vice President, Production                                                                                
|                                                   
|Robert T. Smith                                     |  |     | 58 |                           |  | Treasurer                                                                                                 
|                                                   
|Jerry J. Strader                                    |  |     | 65 |                           |  | President, Suburban Chicago Newspaper Division                                                            

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Lord Black of Crossharbour, PC(C), OC,
KCSG,Chairman of the Board of
Directors, Chief Executive Officer and Director, Hollinger
International Inc., New York, Chicago; Hollinger Inc., Toronto;
Argus Corporation Ltd., Toronto. Lord Black has held these or
equivalent or similar positions since 1978. He currently serves
as the Chairman and a director of The Telegraph, London, United
Kingdom, and as a director of the Jerusalem Post and The
Spectator (London). Lord Black is also a director of Brascan
Limited, the Canadian Imperial Bank of Commerce and CanWest
Global Communications Corp. all of which are public reporting
companies in Canada, and as a director of Sothebys
Holdings, Inc. Lord Black is Chairman of the Advisory Board of
The National Interest (Washington) and a member of the
International Advisory Board of The Council on Foreign Relations
(New York).

F. David
Radler,Deputy Chairman,
President, Chief Operating Officer and Director. Mr. Radler
has served as President and Chief Operating Officer since
October 25, 1995, as Deputy Chairman since May 1998, and as
a director since 1990. Mr. Radler was Chairman of the Board
of Directors from 1990 to October 25, 1995. Mr. Radler
currently serves as President, Chief Operating Officer and
Deputy Chairman of Hollinger Inc. and as a director of The
Telegraph. Mr. Radler also serves as a director of Argus,
Dominion Malting Limited, West Fraser Timber Co. Ltd., and
CanWest Global Communications Corp. all of which are Canadian
public reporting companies. Mr. Radler also serves as a
director of the Jerusalem Post.

Daniel W.
Colson,Vice Chairman and
Director, Deputy Chairman, Chief Executive Officer and director
of The Telegraph. Mr. Colson has served as a director of
the Company since February 1995 and Vice Chairman since May
1998. He has served as Deputy Chairman of The Telegraph since
1995 and as Chief Executive Officer of The Telegraph since 1994
and was Vice Chairman of The Telegraph from 1992 to 1995.
Mr. Colson also currently serves as Chairman and as a
director of Hollinger Telegraph New Media Ltd. and as Vice
Chairman and director of Hollinger Digital Inc. He also serves
as Vice Chairman and as a director of Hollinger Inc. and as a
director of Argus, Molson Inc. and Macyro Group Inc. (Canada),
all of which are Canadian public reporting companies.
Mr. Colson also served as Deputy Chairman and director of
Interactive Investor International plc from 1998 to 2001.

J. A.
Boultbee,Executive Vice
President. Mr. Boultbee has served as Executive Vice
President since June 14, 1996 and as Chief Financial
Officer from 1995 to 1999. Mr. Boultbee served as a Vice
President of the Company from 1990 to June 13, 1996.
Mr. Boultbee served as a director from 1990 to
October 25, 1995. Mr. Boultbee has served for the past
five years as a director and as the Vice-President, Finance and
Treasury and Executive Vice President and Chief Financial
Officer of Hollinger Inc. Mr. Boultbee also serves as a
director of Argus, IAMGOLD Corporation and Consolidated Enfield
Corporation, all of which are Canadian public reporting
companies.

Frederick A.
Creasey,Group Corporate
Controller. Mr. Creasey has served as Group Corporate
Controller since June 14, 1996. Mr. Creasey also has
served for the past five years as the Controller of Hollinger
Inc.

Barbara Amiel Black (Lady
Black), Vice President, Editorial
and Director. Barbara Amiel Black has served as Vice President,
Editorial since September 1995 and as a director since February
1996 and is the wife of Lord Black. After an extensive career in
both on and off-camera television production, she was the editor
of The Toronto Sun from 1983 to 1985; columnist of The
Times and senior political columnist of The Sunday
Times of London from 1986 to 1994; and columnist of The
Telegraph from 1994 to present. She has been a columnist of
Macleans magazine since 1977. Barbara Amiel Black
also serves as a director of Hollinger Inc. and The Jerusalem
Post. She is the author of two books: By Persons
Unknown (Co-author), which won the Mystery Writers of
America Edgar Award for best non-fiction in 1978, and
Confessions, a book of political essays published in
1980, which won the Canadian periodical publishers prize.

Paul B.
Healy,Vice President, Corporate
Development and Investor Relations. Mr. Healy has served as
Vice President, Corporate Development and Investor Relations
since October 25, 1995. Mr. Healy was a Vice President
of The Chase Manhattan Bank, N.A. for more than five years prior
to October 1995, serving as a corporate finance specialist in
the media and communications sector.

Peter Y.
Atkinson,Vice President.
Mr. Atkinson has served as Vice President since 1997.
Mr. Atkinson has served as Vice President and Corporate
Counsel of Hollinger Inc. since 1996. Mr. Atkinson was
previously a partner at the law firm of Aird & Berlis, which
he joined in 1976.

Mark S.
Kipnis,Vice President and
Secretary. Mr. Kipnis has served as Vice President and
Secretary since January 1998 and as a director of the Jerusalem
Post since 1999. Mr. Kipnis also serves as a director of
CoBiz Inc., a NASDAQ publicly traded company. Mr. Kipnis
was previously a partner at the law firm of Holleb & Coff,
which he joined in 1974.

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##### Table of Contents



John D.
Ferguson,Vice President,
Production. Mr. Ferguson has served as Vice President,
Production since 1996. Mr. Ferguson served as Vice
President, Production at Southam from 1993 to 1996.
Mr. Ferguson was previously Deputy Managing Director of
Mirror Group PLC, which he joined in 1966.

Robert T.
Smith,Treasurer. Mr. Smith
has served as Treasurer since May 1998. Mr. Smith was Vice
President of Chase Securities, Inc. and The Chase Manhattan Bank
in the Media and Telecommunications Group from 1987 to 1998 and
1976 through 1982. From 1983 to 1987, Mr. Smith served as
Assistant Treasurer for AT&T Long Lines and AT&T
Communications, AT&Ts long distance subsidiary.

Jerry J.
Strader,President, Suburban
Chicago Newspaper Division. Mr. Strader was appointed
President of the Companys Suburban Chicago Newspaper
Division in September of 2000. He served as President of the
Companys Community Group (American Publishing
Company) from February 1996 until August 2000. He served
as Senior Vice President of American Publishing Company from
1994 to 1996 and as a Regional Manager of American Publishing
Company and as publisher of The Meridian Star, one of the
Companys daily newspapers from 1990 to 1994.

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##### Table of Contents






PART II




Item 5.     Market
for the Registrants Common Equity and Related Stockholder
Matters

The Class A Common Stock is listed on the
New York Stock Exchange under the trading symbol
HLR. At March 5, 2002 there were 85,778,367
shares of Class A Common Stock outstanding and held by
approximately 250 holders of record and approximately 4,000
beneficial owners. The Class B Common Stock of the Company
is not publicly traded. As of March 5, 2002, 14,990,000
shares of Class B Common Stock were outstanding and owned
by Hollinger Inc. The 93,206 shares of Series E Preferred
Stock, held by Hollinger Inc., are convertible into 614,289
shares of Class A Common Stock (as of March 5, 2002).

The following table sets forth for the periods
indicated the high and low sales prices for the Class A
Common Stock, as reported by the New York Stock Exchange
Composite Transactions Tape for the period since January 1,
2000, and the cash dividends paid per share on the
Class A Common Stock.

|                                      |  |             |        |           |  |           |        |  |  |   |        | 
|------------------------------------- |  | ----------- | ------ | --------- |  | --------- | ------ |  |  | - | ------ | 
|                                      |  |             |        | Cash     
|                                      |  | Price Range |        | Dividends
|                                      |  |             |        | Paid     
|Calendar Period                       |  | High        |        | Low       |  | Per Share
|                                      |  |             |        |           |  |          
|2000                                  |  |             |        |           |  |           |        |  |  |   |        | 
|First Quarter                         |  | $           | 13.625 |           |  | $         | 10.063 |  |  | $ | 0.1375 | 
|Second Quarter                        |  |             | 14.750 |           |  |           | 9.688  |  |  |   | 0.1375 | 
|Third Quarter                         |  |             | 17.063 |           |  |           | 13.375 |  |  |   | 0.1375 | 
|Fourth Quarter                        |  |             | 16.875 |           |  |           | 13.875 |  |  |   | 0.1375 | 
|2001                                  |  |             |        |           |  |           |        |  |  |   |        | 
|First Quarter                         |  | $           | 16.490 |           |  | $         | 14.210 |  |  | $ | 0.1375 | 
|Second Quarter                        |  |             | 16.120 |           |  |           | 13.700 |  |  |   | 0.1375 | 
|Third Quarter                         |  |             | 14.800 |           |  |           | 10.250 |  |  |   | 0.1375 | 
|Fourth Quarter                        |  |             | 11.710 |           |  |           | 9.080  |  |  |   | 0.1375 | 
|2002                                  |  |             |        |           |  |           |        |  |  |   |        | 
|First Quarter (through March 5, 2002) |  | $           | 12.480 |           |  | $         | 11.000 |  |  | $ | 0.1375 | 

On March 5, 2002, the closing price of the
Class A Common Stock was $12.35 per share. Each share of
Class A Common Stock and Class B Common Stock is
entitled to receive dividends if, as and when declared by the
Board of Directors of the Company. Dividends must be paid
equally, share for share, on both the Class A Common Stock
and the Class B Common Stock at any time that dividends are
paid.

As an international holding company, the
Companys ability to declare and pay dividends in the
future with respect to its Common Stock will be dependent, among
other factors, upon its results of operations, financial
condition and cash requirements, the ability of its United
States and foreign subsidiaries to pay dividends and make
payments to the Company under applicable law and subject to
restrictions contained in existing and future loan agreements,
the prior payments of dividends to holders of Series E
Preferred Stock, and other financing obligations to third
parties relating to such United States or foreign subsidiaries
of the Company, as well as foreign and United States tax
liabilities with respect to dividends and payments from those
entities.

17



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##### Table of Contents






Item 6.     Selected
Financial Data

|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |           | 
|-------------------------------------------------------------------------------------- | ----------------------------- | ---------------------------------------- | --------- | --------- |  | ---- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | - | - | --------- | --------- | 
|                                                                                       |                               |                                         
|                                                                                       |                               | Year Ended December 31,                 
|                                                                                       |                               |                                         
|                                                                                       |                               | 2001                                     |           | 2000      |  | 1999 |           | 1998      |   | 1997
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |     
|                                                                                       |                               |                                         
|                                                                                       |                               | (In thousands, except per share amounts)
|Statement of Operations Data(1):                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Operating revenues:                                                                    |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                                                                                       | Advertising                   |                                          | $         | 804,462   |  |      | $         | 1,543,882 |   |      | $         | 1,557,033 |   |   | $         | 1,565,790 |   |   | $         | 1,567,897 | 
|                                                                                       | Circulation                   |                                          |           | 278,321   |  |      |           | 447,050   |   |      |           | 487,002   |   |   |           | 517,629   |   |   |           | 523,591   | 
|                                                                                       | Job printing                  |                                          |           | 25,092    |  |      |           | 59,089    |   |      |           | 48,207    |   |   |           | 70,461    |   |   |           | 80,024    | 
|                                                                                       | Other                         |                                          |           | 38,446    |  |      |           | 45,998    |   |      |           | 55,160    |   |   |           | 43,880    |   |   |           | 40,018    | 
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Total operating revenues                                                               |                               |                                          | 1,146,321 |           |  |      | 2,096,019 |           |   |      | 2,147,402 |           |   |   | 2,197,760 |           |   |   | 2,211,530 |          
|Operating costs and expenses                                                           |                               |                                          | 1,092,598 |           |  |      | 1,742,169 |           |   |      | 1,787,146 |           |   |   | 1,774,661 |           |   |   | 1,783,995 |          
|Stock-based compensation                                                               |                               |                                          | (1,369    | )         |  |      | 1,518     |           |   |      |          |           |   |   |          |           |   |   |          |          
|Infrequent items                                                                       |                               |                                          | 21,734    |           |  |      | 7,950     |           |   |      | 22,046    |           |   |   | 26,172    |           |   |   | 25,243    |          
|Depreciation and amortization                                                          |                               |                                          | 73,728    |           |  |      | 122,634   |           |   |      | 125,408   |           |   |   | 114,848   |           |   |   | 114,570   |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Operating income (loss)                                                                |                               |                                          | (40,370   | )         |  |      | 221,748   |           |   |      | 212,802   |           |   |   | 282,079   |           |   |   | 287,722   |          
|Interest expense                                                                       |                               |                                          | (78,639   | )         |  |      | (142,713  | )         |   |      | (131,600  | )         |   |   | (105,841  | )         |   |   | (113,558  | )        
|Amortization of debt issue costs                                                       |                               |                                          | (10,367   | )         |  |      | (10,469   | )         |   |      | (16,209   | )         |   |   | (5,869    | )         |   |   | (13,466   | )        
|Equity in earnings (loss) of affiliates                                                |                               |                                          | (15,098   | )         |  |      | (20,340   | )         |   |      | (2,106    | )         |   |   | (1,199    | )         |   |   | 5,807     |          
|Other income (expense), net(2)                                                         |                               |                                          | (217,146  | )         |  |      | 500,839   |           |   |      | 349,939   |           |   |   | 337,470   |           |   |   | 77,644    |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Earnings (loss) before income taxes, minority
        interest and extraordinary items |                               |                                          | (361,620  | )         |  |      | 549,065   |           |   |      | 412,826   |           |   |   | 506,640   |           |   |   | 244,149   |          
|Income taxes (recovery)                                                                |                               |                                          | (10,201   | )         |  |      | 374,898   |           |   |      | 155,203   |           |   |   | 223,099   |           |   |   | 93,655    |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Earnings (loss) before minority interest and
        extraordinary items               |                               |                                          | (351,419  | )         |  |      | 174,167   |           |   |      | 257,623   |           |   |   | 283,541   |           |   |   | 150,494   |          
|Minority interest                                                                      |                               |                                          | (13,913   | )         |  |      | 50,760    |           |   |      | 7,088     |           |   |   | 81,562    |           |   |   | 45,973    |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Earnings (loss) before extraordinary items                                             |                               |                                          | (337,506  | )         |  |      | 123,407   |           |   |      | 250,535   |           |   |   | 201,979   |           |   |   | 104,521   |          
|Extraordinary items                                                                    |                               |                                          |          |           |  |      | (6,332    | )         |   |      | (5,183    | )         |   |   | (5,067    | )         |   |   |          |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Net earnings (loss)                                                                    |                               | $                                        | (337,506  | )         |  | $    | 117,075   |           |   | $    | 245,352   |           |   | $ | 196,912   |           |   | $ | 104,521   |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Basic earnings (loss) per share                                                        |                               | $                                        | (3.42     | )         |  | $    | 1.10      |           |   | $    | 2.30      |           |   | $ | 1.65      |           |   | $ | 0.93      |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Cash dividends declared per common share                                               |                               | $                                        | 0.55      |           |  | $    | 0.55      |           |   |      | 0.55      |           |   | $ | 0.475     |           |   | $ | 0.40      |          
|                                                                                       |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Balance Sheet Data(1):                                                                 |                               |                                          |           |           |  |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                                                                                       | Working capital (deficit)     |                                          | $         | 195,712   |  |      | $         | (257,506  | ) |      | $         | (113,115  | ) |   | $         | (141,688  | ) |   | $         | 56,365    | 
|                                                                                       | Total assets(3)               |                                          |           | 1,981,751 |  |      |           | 2,737,214 |   |      |           | 3,503,024 |   |   |           | 3,251,724 |   |   |           | 3,023,921 | 
|                                                                                       | Minority interest             |                                          |           | 15,977    |  |      |           | 89,228    |   |      |           | 155,901   |   |   |           | 107,002   |   |   |           | 203,034   | 
|                                                                                       | Total long-term debt          |                                          |           | 812,660   |  |      |           | 812,248   |   |      |           | 1,653,936 |   |   |           | 1,499,518 |   |   |           | 1,428,415 | 
|                                                                                       | Redeemable preferred stock    |                                          |           | 8,582     |  |      |           | 13,088    |   |      |           | 13,591    |   |   |           | 31,562    |   |   |           | 75,891    | 
|                                                                                       | Total stockholders equity(4) |                                          |           | 325,775   |  |      |           | 857,197   |   |      |           | 902,225   |   |   |           | 817,921   |   |   |           | 687,602   | 

(Footnotes following tables)

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##### Table of Contents



|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |           |  
|----------------------------- | ------------------------------ | ----------------------- | --------- | ------- | - | ---- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                              |                                |                        
|                              |                                | Year Ended December 31,
|                              |                                |                        
|                              |                                | 2001                    |           | 2000    |   | 1999 |           | 1998      |   | 1997
|                              |                                |                         |           |         |   |      |           |           |   |     
|                              |                                |                        
|                              |                                | (In thousands)         
|Segment Data(1):              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Operating Revenues:           |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                              | Chicago Group                  |                         | $         | 442,884 |   |      | $         | 401,417   |   |      | $         | 390,473   |   |   | $         | 379,109   |   |   | $         | 341,368   |  
|                              | Community Group                |                         |           | 19,115  |   |      |           | 67,336    |   |      |           | 96,674    |   |   |           | 210,107   |   |   |           | 292,265   |  
|                              | U.K. Newspaper Group           |                         |           | 486,374 |   |      |           | 562,068   |   |      |           | 550,474   |   |   |           | 550,525   |   |   |           | 492,270   |  
|                              | Canadian Newspaper Group       |                         |           | 197,948 |   |      |           | 1,065,198 |   |      |           | 1,109,781 |   |   |           | 1,058,019 |   |   |           | 1,085,627 |  
|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Total Operating Revenues      |                                | $                       | 1,146,321 |         |   | $    | 2,096,019 |           |   | $    | 2,147,402 |           |   | $ | 2,197,760 |           |   | $ | 2,211,530 |          
|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Operating Income (Loss)(6):   |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                              | Chicago Group                  |                         | $         | 9,759   |   |      | $         | 36,018    |   |      | $         | 47,840    |   |   | $         | 35,966    |   |   | $         | 39,376    |  
|                              | Community Group                |                         |           | (3,617  | ) |      |           | 3,456     |   |      |           | 10,194    |   |   |           | 39,392    |   |   |           | 54,750    |  
|                              | U.K. Newspaper Group           |                         |           | 30,913  |   |      |           | 89,542    |   |      |           | 73,526    |   |   |           | 69,177    |   |   |           | 51,408    |  
|                              | Canadian Newspaper Group       |                         |           | (37,337 | ) |      |           | 116,766   |   |      |           | 117,758   |   |   |           | 174,615   |   |   |           | 177,243   |  
|                              | Investment and Corporate Group |                         |           | (19,723 | ) |      |           | (14,566   | ) |      |           | (14,470   | ) |   |           | (10,899   | ) |   |           | (9,812    | )
|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Total Operating Income (Loss) |                                | $                       | (20,005   | )       |   | $    | 231,216   |           |   | $    | 234,848   |           |   | $ | 308,251   |           |   | $ | 312,965   |          
|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|EBITDA (Loss)(5)(6):          |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                              | Chicago Group                  |                         | $         | 47,647  |   |      | $         | 59,757    |   |      | $         | 67,490    |   |   | $         | 56,030    |   |   | $         | 54,414    |  
|                              | Community Group                |                         |           | (1,476  | ) |      |           | 9,647     |   |      |           | 19,210    |   |   |           | 58,479    |   |   |           | 81,011    |  
|                              | U.K. Newspaper Group           |                         |           | 50,747  |   |      |           | 106,659   |   |      |           | 92,044    |   |   |           | 88,231    |   |   |           | 69,204    |  
|                              | Canadian Newspaper Group       |                         |           | (25,509 | ) |      |           | 190,542   |   |      |           | 194,293   |   |   |           | 229,781   |   |   |           | 231,462   |  
|                              | Investment and Corporate Group |                         |           | (17,686 | ) |      |           | (12,755   | ) |      |           | (12,781   | ) |   |           | (9,422    | ) |   |           | (8,556    | )
|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Total EBITDA                  |                                | $                       | 53,723    |         |   | $    | 353,850   |           |   | $    | 360,256   |           |   | $ | 423,099   |           |   | $ | 427,535   |          
|                              |                                |                         |           |         |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The financial data presented is derived from the
        Consolidated Financial Statements of the Company and
        Managements Discussion and Analysis of Financial Condition
        and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | Other income (expense), net, primarily includes
        gains and losses on sales of publishing interests, gains and
        losses on sales of assets, a gain related to the dilution of
        interest in Hollinger L.P., the write-down of investments,
        equity in earnings or losses of affiliates, the effect of the
        Total Return Equity Swap, foreign currency gains and losses and
        interest and dividend income.                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Includes intangible assets, net of accumulated
        amortization, which amounted to $674,645,000 at
        December 31, 2001 and $938,314,000 at December 31,
        2000. Such intangible assets consist of the value of goodwill,
        acquired subscriber and advertiser lists, noncompetition
        agreements and archives. The amortization periods for intangible
        assets do not exceed 40 years.                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) | See Consolidated Statements of Stockholders
        Equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(5) | EBITDA represents earnings before interest
        expense, interest and dividend income, income taxes,
        depreciation and amortization, minority interest, equity in
        earnings of affiliates, amortization of debt issue costs,
        foreign currency gains and losses, extraordinary items, other
        income (expense), net, infrequent items and stock-based
        compensation. EBITDA is not intended to represent an alternative
        to operating income (as determined in accordance with generally
        accepted accounting principles) as an indicator of the
        Companys operating performance, or to cash flows from
        operating activities (as determined in accordance with generally
        accepted accounting principles) as a measure of liquidity.
|   
|(6) | Excludes infrequent items and stock-based
        compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

19



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##### Table of Contents






Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Overview

The Companys business is concentrated in
the publication of newspapers in the United States, Canada,
United Kingdom, and Israel. Revenues are derived principally
from advertising, paid circulation and, to a lesser extent, job
printing. Of the Companys total operating revenues in
2001, approximately 39% were attributable to the Chicago Group,
2% to the Community Group, 42% to the U.K. Newspaper Group, and
17% to the Canadian Newspaper Group. The Companys Chicago
Group is comprised of the Chicago Sun-Times and other
daily and weekly newspapers in the greater Chicago metropolitan
area. The Companys Community Group included
The Jerusalem Post and one United States community
newspaper, until it was sold in August 2001. The Companys
U.K. Newspaper Group consists of the operations of The
Telegraph, its subsidiaries and joint ventures. The Canadian
Newspaper Group consists of the operations of HCPH Co. and the
Companys 87% investment in Hollinger L.P..

During 2001, the Company sold most of its
remaining Canadian newspapers and its 50% interest in the
National Post, its approximate 15.6% equity interest in CanWest
and its last remaining United States community newspaper. In
addition, the Company sold participation interests in most of
the debentures received from CanWest in 2000 as part of the
proceeds on the sale of Canadian newspaper properties.

Over the past few years, the Company has
developed a comprehensive Internet strategy. Internet activities
fall into three main areas: (1) websites related to the
various print publications, which are 100% owned and reported
within the traditional newspaper segments; (2) joint
ventures between the Companys print publications and
unrelated outsiders, where each adds value and over which the
Company has a certain amount of control; and (3) minority
venture capital investments in unrelated third parties. The
print-related and joint venture strategies represent an
opportunity to fortify the newspapers in their local markets by
providing them with the necessary tools to offer a complete
suite of online and print options for their clients. The Company
has remained competitive by building significant websites at all
its major divisions. During 2001, the Company substantially
reduced its activity in making new minority investments in
unrelated third party Internet and technology companies.

The Consolidated Financial Statements include the
accounts of the Company and its majority-owned subsidiaries and
other controlled entities. The Companys interest in
Hollinger L.P. was 87.0%, 87.0% and 85.0% at December 31,
2001, 2000 and 1999, respectively. The Companys interest
in National Post was 50.0% and 100.0% at December 31, 2000
and 1999, respectively. All significant intercompany balances
and transactions have been eliminated on consolidation.

The preparation of consolidated financial
statements requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, investments,
intangible assets, income taxes, restructuring, pensions and
other post-retirement benefits, and contingencies and
litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.

The Company believes the following critical
accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.

The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. If the financial
condition of the Companys customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances could be required.

The Company holds minority interests in both
publicly traded and not publicly traded internet-related
companies. Some of the publicly traded companies have highly
volatile share prices. The Company records an investment
impairment charge when it believes an investment has experienced
a decline in value that is other than temporary. Future adverse
changes in market conditions or poor operating results of
underlying investments may not be reflected in an
investments current carrying value, thereby requiring an
impairment charge in the future.

20



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##### Table of Contents



The Company has significant intangible assets
recorded in its accounts. Certain of the Companys
newspapers operate in highly competitive markets. The Company
has estimated the useful lives of its goodwill and identifiable
intangible assets for these newspapers and its other newspapers,
based on industry trends and existing competitive pressures. Future adverse
changes in long-term readership patterns in its newspapers could
result in a material impairment of its intangible assets in the
future.

Significant Transactions

In January 2001, Hollinger L.P. completed the
sale of UniMédia Company to Gesca Limited, a subsidiary of
Power Corporation of Canada. The publications sold represented
the French language newspapers of Hollinger L.P. including three
paid circulation dailies and 15 weeklies published in
Quebec and Ontario. A pre-tax gain of approximately
$47.5 million was recognized on this sale.

On June 1, 2001, the Company converted all
the Series C Preferred Stock at the conversion ratio of
8.503 shares of Class A Common Stock per share of
Series C Preferred Stock into 7,052,464 shares of
Class A Common Stock. The Series C Preferred Stock was
held by Hollinger Inc. On September 6, 2001, the Company
purchased for cancellation, from Hollinger Inc., the 7,052,464
shares of Class A Common Stock for a total cost of
$92.2 million.

In two separate transactions in July and November
2001, the Company and Hollinger L.P. completed the sale of most
of its remaining Canadian newspapers to Osprey Media Group Inc.
(Osprey) for total sale proceeds of approximately
Cdn. $255.0 million ($166.0 million) plus closing
adjustments primarily for working capital. Included in these
sales were community newspapers in Ontario such as The
Kingston Whig-Standard, The Sault Star, the
Peterborough Examiner, the Chatham Daily News and
The Observer (Sarnia). Pre-tax gains of approximately
$0.8 million were recognized on these sales.

In August 2001, the Company entered into an
agreement to sell to CanWest its 50% interest in the National
Post. In accordance with the agreement, the Companys
representatives resigned from their executive positions at the
National Post effective September 1, 2001. Accordingly,
from September 1, 2001, the Company had no influence over
the operations of the National Post and the Company no longer
consolidates or records on an equity basis its share of earnings
or losses. The results of operations of the National Post are
included in the consolidated results to August 31, 2001. A
pre-tax loss of approximately $78.2 million was recognized
on the sale.

In August and December 2001, the Company sold
participation interests (Participations) in
Cdn. $540.0 million ($350.0 million) and Cdn.
$216.8 million ($140.5 million) principal amounts of
CanWest debentures to a special purpose trust
(Participation Trust). Units of the Participation
Trust were sold by the Participation Trust to arms length
third parties. These transactions resulted in net proceeds to
the Company of $401.2 million and have been accounted for
as sales in accordance with Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. The net loss on these transactions, including
realized holding losses on the underlying debentures, amounted
to $62.1 million and has been recognized in other income.

The Company had arrangements with four banks
pursuant to which the banks had purchased shares of the
Companys Class A Common Stock and the Company had the
option to buy the shares from the banks at the same cost or have
the banks resell those shares in the open market. In August
2001, the Company purchased for cancellation from one of the
banks 3,602,305 shares of Class A Common Stock for
$50.0 million or $13.88 per share. The market value of
these shares on the date of purchase was $47.0 million or
$13.05 per share. In November 2001, one of the banks sold in the
open market 3,556,513 shares of Class A Common Stock for
$34.2 million or an average price of $9.62 per share. This
resulted in a loss by the bank of $15.8 million which, in
accordance with the arrangement, was paid in cash by the
Company. The losses relating to these transactions have been
included in income during the year.

On September 27, 2001, the Company redeemed
40,920 shares of Series E Preferred Stock at the redemption
price of Cdn. $146.63 per share for a total cash payment of
$3.8 million. The Series E shares were held by
Hollinger Inc.

On November 28, 2001, the Company sold
2,700,000 multiple voting preferred shares and 27,000,000
non-voting shares in CanWest for total cash proceeds of
approximately Cdn. $271.3 million ($172.4 million).
The sale resulted in a realized pre-tax loss of
$99.2 million which is included in income.

In January 2000, 706,469 shares of the
Companys Preferred Redeemable Increased Dividend Equity
Securities (PRIDES), the last remaining PRIDES not
held by related parties, were converted into 596,189 shares
of Class A Common Stock of the Company.

21



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##### Table of Contents



On February 17, 2000, Interactive Investor
International (III), in which the Company owned
51.7 million shares or a 47.0% equity interest acquired at
a cost of approximately $15.0 million, had its initial
public offering (IPO), issuing 52 million
shares and raising £78.0 million
($125.8 million). The IPO reduced the Companys equity
ownership interest to 33% and resulted in the recognition of a
dilution gain of $17.0 million. Subsequently, the Company
sold five million shares of its holding, reducing its equity
interest to 28.5%, and resulting in a pre-tax gain of
$1.6 million. In 2001, the remaining interest in III was
sold for cash proceeds of $21.4 million and the sale
resulted in a pre-tax gain of $14.2 million.

On November 16, 2000, the Company and its
affiliates, Southam and Hollinger L.P. (Hollinger
Group) completed the sale of most of its Canadian
newspapers and related assets to CanWest. Included in the sale
were the following assets of the Hollinger Group:



| |   |                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a 50% interest in National Post, with the Company
        continuing as managing partner;                                                                                                                                                                                                                                                                            
|
| |  | the metropolitan and a large number of community
        newspapers in Canada (including the Ottawa Citizen, The
        Vancouver Sun, The Province (Vancouver), the Calgary
        Herald, the Edmonton Journal, The Gazette
        (Montreal), The Windsor Star, the Regina Leader
        Post, the Star Phoenix and the Times-Colonist
        (Victoria); and
|
| |  | the operating Canadian Internet properties,
        including canada.com.                                                                                                                                                                                                                                                                                            

The sale resulted in the Hollinger Group
receiving approximately Cdn. $1.7 billion
($1.1 billion) cash, approximately Cdn. $425 million
($277 million) in voting and non-voting shares of CanWest
at fair value (representing an approximate 15.6% equity interest
and 5.7% voting interest) and subordinated non-convertible
debentures of a holding company in the CanWest group at fair
value of approximately Cdn. $697 million
($456 million). The aggregate sale price of these
properties at fair value was approximately Cdn.
$2.8 billion ($1.8 billion), plus closing adjustments
for working capital at August 31, 2000 and cash flow and
interest for the period September 1 to November 16,
2000 which, in total, approximated an additional
$40.7 million at December 31, 2000. $972 million
of the cash proceeds from this sale were used to pay down the
Companys Bank Credit Facility.

During 2000, the Company sold most of its
remaining U.S. community newspaper properties including 11
paid dailies, three paid non-dailies and 31 free distribution
publications for total proceeds of approximately
$215.0 million. Pre-tax gains totaling $91.2 million
were recognized on these sales.

In December 2000, the Company acquired four paid
daily newspapers, one paid non-daily and 12 free distribution
publications in the Chicago suburbs, for total consideration of
$111.0 million.

In November 2000, Southam converted a promissory
note from Hollinger L.P. in the principal amount of Cdn.
$225.8 million ($147.9 million) into 22,575,324
limited partnership units of Hollinger L.P., thereby increasing
its interest in Hollinger L.P. to 87.0%.

In January 1999, Hollinger Canadian Publishing
Holdings Inc. (HCPH) acquired 19,845,118 outstanding
Southam common shares which had been tendered pursuant to
HCPHs offer to all Southam shareholders to acquire the
shares for Cdn. $25.25 cash per share after payment by Southam
of a special dividend of Cdn. $7.00 per share. The aggregate
consideration paid was $327.5 million and this purchase of
shares brought the Companys ownership interest in Southam
to approximately 97%. The purchase price was funded through
HCPHs portion of the Southam special dividend together
with borrowings by HCPH under the Bank Credit Facility. In
February 1999, HCPH purchased the remaining Southam common
shares pursuant to applicable Canadian law for aggregate
consideration of $36.5 million.

During 1999, the Company solicited consents from
the registered holders of the Senior Notes and Senior
Subordinated Notes to amend the indentures covering said notes
to (i) make the limitation on restricted payments covenant
less restrictive, (ii) make the consolidated cash flow
ratio under the limitation on indebtedness covenant more
restrictive, and (iii) make the limitation on sale of
assets covenant less restrictive. The requisite consents were
obtained in March 1999 and the indentures governing the Senior
Notes and Senior Subordinated Notes were so amended.

In February 1999, the Company completed the sale
of 45 U.S. community newspaper properties for approximately
$460.0 million, of which approximately $441.0 million
was cash. The proceeds from the sale were used to pay down
outstanding debt on the Bank Credit Facility. A pre-tax gain
resulting from this transaction of approximately
$249.2 million was recognized on this transaction.

22



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##### Table of Contents



During 1999, the Company sold to Horizon
Publications Inc. 33 U.S. community newspapers for
$43.7 million resulting in a pre-tax gain of approximately
$20.7 million. Horizon Publications Inc. is managed by
former Community Group executives and owned by current and
former Hollinger International Inc. executives. Throughout 1999,
the Company acquired five community newspapers in the
U.S. for total consideration of $24.5 million.

In April 1999, the Company formed Hollinger L.P..
Hollinger L.P. acquired 48 daily newspapers, 180 non-daily
newspapers and shopping guides and 106 magazines and specialty
publications located across Canada from Southam, UniMédia
Inc. and Sterling Newspapers Company in exchange for convertible
promissory notes due April 29, 2020 of $309.5 million
(Cdn. $451.2 million) and 135,945,972 units in Hollinger
L.P.. The transfer of properties to Hollinger L.P. was accounted
for at historical carrying values and no gain was recognized on
the transfer.

On April 30, 1999, Hollinger L.P. completed
a Cdn. $200.0 million ($137.2 million) private
placement and investors subsequently received 20 million
partnership units of Hollinger L.P.. During July 1999 Hollinger
L.P. completed its initial public offering issuing four million
units at Cdn. $10 per unit for total proceeds of Cdn.
$40.0 million ($27.0 million). All partnership units,
including the 20 million units issued through the
April 30, 1999 private placement, are listed on The Toronto
Stock Exchange. After the initial public offering the Company
continued to hold indirectly approximately 85% of the equity of
Hollinger L.P.. The net proceeds of the offerings were applied
to reduce bank debt of the Hollinger Group. The reduction in the
Companys indirect ownership interest in Hollinger L.P. due
to the sales of partnership units resulted in the recognition of
dilution gains of $77.3 million.

On April 30, 1999, Hollinger International
Publishing Inc. (Publishing), HCPH, Telegraph,
Southam, HIF Corp. (HIF) and a group of financial
institutions entered into a Fourth Amended and Restated Credit
Facility (Restated Credit Facility) for a total of
$725.0 million consisting of a $475.0 million
revolving credit line maturing on September 30, 2004 and a
$250.0 million term loan maturing on December 31,
2004. This facility replaced the previous Bank Credit Facility.
The loans under the Restated Credit Facility bore interest, at
the option of the respective borrower, at a rate per annum tied
to specified floating rates or a reserve adjusted Eurocurrency
rate, in each case plus a specified margin determined based on
leverage ratios. On June 4, 1999, the revolving credit line
was increased by $50.0 million. On September 30, 1999,
the Restated Credit Facility was increased to
$875.0 million when the revolving credit line and the term
loan were each increased by $50.0 million. As noted
elsewhere, this facility was substantially repaid in November
2000 with the facility being reduced to $5.0 million. The
Restated Credit Facility is secured by the collateralization of
$5.0 million of the Companys positive cash which is
included in prepaids and other current assets at
December 31, 2001. At December 31, 2001 and 2000, no
amounts were owing under the Restated Credit Facility.

23



---



##### Table of Contents



The following tables set forth, for the periods
indicated, certain items and related percentage relationships
included in the Companys Consolidated Statements of
Operations.

|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |      |  
|----------------------------- | ------------------------------ | ------------------------ | --------- | ------- | - | ---- | --------- | --------- | - | ---- | --------- | --------- | - |  | ----- | ------ | -- |  | ----- | ---- | - |  | ----- | ---- | -
|                              |                                |                         
|                              |                                | Years Ended December 31,
|                              |                                |                         
|                              |                                | 2001                     |           | 2000    |   | 1999 |           | 2001      |   | 2000 |           | 1999     
|                              |                                |                          |           |         |   |      |           |           |   |      |           |          
|                              |                                |                         
|(dollars in thousands)       
|Operating revenues:           |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|                              | Chicago Group                  |                          | $         | 442,884 |   |      | $         | 401,417   |   |      | $         | 390,473   |   |  |       | 38.6   | %  |  |       | 19.2 | % |  |       | 18.2 | %
|                              | Community Group                |                          |           | 19,115  |   |      |           | 67,336    |   |      |           | 96,674    |   |  |       | 1.7    |    |  |       | 3.2  |   |  |       | 4.5  |  
|                              | U.K. Newspaper Group           |                          |           | 486,374 |   |      |           | 562,068   |   |      |           | 550,474   |   |  |       | 42.4   |    |  |       | 26.8 |   |  |       | 25.6 |  
|                              | Canadian Newspaper Group       |                          |           | 197,948 |   |      |           | 1,065,198 |   |      |           | 1,109,781 |   |  |       | 17.3   |    |  |       | 50.8 |   |  |       | 51.7 |  
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|Total operating revenues      |                                | $                        | 1,146,321 |         |   | $    | 2,096,019 |           |   | $    | 2,147,402 |           |   |  | 100.0 | %      |    |  | 100.0 | %    |   |  | 100.0 | %   
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|Operating income (loss)(4):   |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|                              | Chicago Group                  |                          | $         | 9,759   |   |      | $         | 36,018    |   |      | $         | 47,840    |   |  |       | (48.8  | )% |  |       | 15.6 | % |  |       | 20.4 | %
|                              | Community Group                |                          |           | (3,617  | ) |      |           | 3,456     |   |      |           | 10,194    |   |  |       | 18.1   |    |  |       | 1.5  |   |  |       | 4.3  |  
|                              | U.K. Newspaper Group           |                          |           | 30,913  |   |      |           | 89,542    |   |      |           | 73,526    |   |  |       | (154.5 | )  |  |       | 38.7 |   |  |       | 31.3 |  
|                              | Canadian Newspaper Group       |                          |           | (37,337 | ) |      |           | 116,766   |   |      |           | 117,758   |   |  |       | 186.6  |    |  |       | 50.5 |   |  |       | 50.1 |  
|                              | Investment and Corporate Group |                          |           | (19,723 | ) |      |           | (14,566   | ) |      |           | (14,470   | ) |  |       | 98.6   |    |  |       | (6.3 | ) |  |       | (6.1 | )
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|Total operating income (loss) |                                | $                        | (20,005   | )       |   | $    | 231,216   |           |   | $    | 234,848   |           |   |  | 100.0 | %      |    |  | 100.0 | %    |   |  | 100.0 | %   
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|EBITDA (loss)(2)(4):          |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|                              | Chicago Group                  |                          | $         | 47,647  |   |      | $         | 59,757    |   |      | $         | 67,490    |   |  |       | 88.7   | %  |  |       | 16.9 | % |  |       | 18.7 | %
|                              | Community Group                |                          |           | (1,476  | ) |      |           | 9,647     |   |      |           | 19,210    |   |  |       | (2.7   | )  |  |       | 2.7  |   |  |       | 5.3  |  
|                              | U.K. Newspaper Group           |                          |           | 50,747  |   |      |           | 106,659   |   |      |           | 92,044    |   |  |       | 94.5   |    |  |       | 30.1 |   |  |       | 25.5 |  
|                              | Canadian Newspaper Group       |                          |           | (25,509 | ) |      |           | 190,542   |   |      |           | 194,293   |   |  |       | (47.5  | )  |  |       | 53.8 |   |  |       | 53.9 |  
|                              | Investment and Corporate Group |                          |           | (17,686 | ) |      |           | (12,755   | ) |      |           | (12,781   | ) |  |       | (33.0  | )  |  |       | (3.5 | ) |  |       | (3.4 | )
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|Total EBITDA                  |                                | $                        | 53,723    |         |   | $    | 353,850   |           |   | $    | 360,256   |           |   |  | 100.0 | %      |    |  | 100.0 | %    |   |  | 100.0 | %   
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|EBITDA Margin(3):             |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     
|                              | Chicago Group                  |                          |           |         |   |      |           |           |   |      |           |           |   |  |       | 10.8   | %  |  |       | 14.9 | % |  |       | 17.3 | %
|                              | Community Group                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       | Neg.   |    |  |       | 14.3 | % |  |       | 19.9 | %
|                              | U.K. Newspaper Group           |                          |           |         |   |      |           |           |   |      |           |           |   |  |       | 10.4   | %  |  |       | 19.0 | % |  |       | 16.7 | %
|                              | Canadian Newspaper Group       |                          |           |         |   |      |           |           |   |      |           |           |   |  |       | Neg.   |    |  |       | 17.9 | % |  |       | 17.5 | %
|                              | Investment and Corporate Group |                          |           |         |   |      |           |           |   |      |           |           |   |  |       | N/A    |    |  |       | N/A  |   |  |       | N/A  |  
|Total EBITDA                  |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  | 4.7   | %      |    |  | 16.9  | %    |   |  | 16.8  | %   
|                              |                                |                          |           |         |   |      |           |           |   |      |           |           |   |  |       |        |    |  |       |      |   |  |       |     



---

(Footnotes following tables)

24



---



##### Table of Contents



The following tables set forth, for the periods
indicated, certain items and related percentage relationships
included in the Companys Consolidated Statements of
Operations.

|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |       |      |  
|---------------------- | ----------------------------- | ------------------------ | - | ------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- |  |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                       |                               |                         
|                       |                               | Years Ended December 31,
|                       |                               |                         
|                       |                               | 2001                     |   | 2000    |         | 1999 |   | 2001    |         | 2000 |   | 1999   
|                       |                               |                          |   |         |         |      |   |         |         |      |   |        
|                       |                               |                         
|(dollars in thousands)
|Chicago Group          |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Operating revenues:           |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                       |                               | Advertising              |   | $       | 338,521 |      |   | $       | 305,027 |      |   | $       | 294,124 |  |  |       | 76.4 | % |  |       | 76.0 | % |  |       | 75.4 | %
|                       |                               | Circulation              |   |         | 92,716  |      |   |         | 80,261  |      |   |         | 80,551  |  |  |       | 20.9 |   |  |       | 20.0 |   |  |       | 20.6 |  
|                       |                               | Job printing and other   |   |         | 11,647  |      |   |         | 16,129  |      |   |         | 15,798  |  |  |       | 2.7  |   |  |       | 4.0  |   |  |       | 4.0  |  
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Total operating revenues      |                          |   | 442,884 |         |      |   | 401,417 |         |      |   | 390,473 |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Operating costs(1)(4)         |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                       |                               | Newsprint                |   |         | 76,399  |      |   |         | 69,238  |      |   |         | 64,408  |  |  |       | 17.3 |   |  |       | 17.2 |   |  |       | 16.5 |  
|                       |                               | Compensation costs       |   |         | 178,672 |      |   |         | 150,874 |      |   |         | 147,258 |  |  |       | 40.3 |   |  |       | 37.6 |   |  |       | 37.7 |  
|                       |                               | Other operating costs    |   |         | 140,166 |      |   |         | 121,548 |      |   |         | 111,317 |  |  |       | 31.6 |   |  |       | 30.3 |   |  |       | 28.5 |  
|                       |                               | Depreciation             |   |         | 17,955  |      |   |         | 10,907  |      |   |         | 8,766   |  |  |       | 4.1  |   |  |       | 2.7  |   |  |       | 2.2  |  
|                       |                               | Amortization             |   |         | 19,933  |      |   |         | 12,832  |      |   |         | 10,884  |  |  |       | 4.5  |   |  |       | 3.2  |   |  |       | 2.8  |  
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Total operating costs         |                          |   | 433,125 |         |      |   | 365,399 |         |      |   | 342,633 |         |  |  | 97.8  |      |   |  | 91.0  |      |   |  | 87.7  |     
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Operating income(1)(4)        |                          | $ | 9,759   |         |      | $ | 36,018  |         |      | $ | 47,840  |         |  |  | 2.2   | %    |   |  | 9.0   | %    |   |  | 12.3  | %   
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|Community Group        |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       |                               | Operating revenues:      |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |       |      |  
|                       |                               | Advertising              |   | $       | 5,806   |      |   | $       | 38,294  |      |   | $       | 57,535  |  |  |       | 30.4 | % |  |       | 56.9 | % |  |       | 59.5 | %
|                       |                               | Circulation              |   |         | 7,751   |      |   |         | 19,168  |      |   |         | 26,618  |  |  |       | 40.5 |   |  |       | 28.4 |   |  |       | 27.5 |  
|                       | Job printing and other        |                          |   | 5,558   |         |      |   | 9,874   |         |      |   | 12,521  |         |  |  | 29.1  |      |   |  | 14.7  |      |   |  | 13.0  |     
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Total operating revenues      |                          |   | 19,115  |         |      |   | 67,336  |         |      |   | 96,674  |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Operating costs(1)(4)         |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                       |                               | Newsprint                |   |         | 2,031   |      |   |         | 6,027   |      |   |         | 9,355   |  |  |       | 10.6 |   |  |       | 9.0  |   |  |       | 9.7  |  
|                       |                               | Compensation costs       |   |         | 9,817   |      |   |         | 24,934  |      |   |         | 35,473  |  |  |       | 51.4 |   |  |       | 37.0 |   |  |       | 36.7 |  
|                       |                               | Other operating costs    |   |         | 8,743   |      |   |         | 26,728  |      |   |         | 32,636  |  |  |       | 45.7 |   |  |       | 39.7 |   |  |       | 33.8 |  
|                       |                               | Depreciation             |   |         | 1,268   |      |   |         | 2,836   |      |   |         | 3,911   |  |  |       | 6.6  |   |  |       | 4.2  |   |  |       | 4.0  |  
|                       |                               | Amortization             |   |         | 873     |      |   |         | 3,355   |      |   |         | 5,105   |  |  |       | 4.6  |   |  |       | 5.0  |   |  |       | 5.3  |  
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Total operating costs         |                          |   | 22,732  |         |      |   | 63,880  |         |      |   | 86,480  |         |  |  | 118.9 |      |   |  | 94.9  |      |   |  | 89.5  |     
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      
|                       | Operating income (loss)(1)(4) |                          | $ | (3,617  | )       |      | $ | 3,456   |         |      | $ | 10,194  |         |  |  | (18.9 | )%   |   |  | 5.1   | %    |   |  | 10.5  | %   
|                       |                               |                          |   |         |         |      |   |         |         |      |   |         |         |  |  |       |      |   |  |       |      |   |  |      



---

(Footnotes following tables)

25



---



##### Table of Contents



The following tables set forth, for the periods
indicated, certain items and related percentage relationships
included in the Companys Consolidated Statements of
Operations.

|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |       |      |  
|------------------------ | ----------------------------- | ------------------------ | - | ------- | ------- | ---- | - | --------- | ------- | ---- | - | --------- | ------- |  |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                         |                               |                         
|                         |                               | Years Ended December 31,
|                         |                               |                         
|                         |                               | 2001                     |   | 2000    |         | 1999 |   | 2001      |         | 2000 |   | 1999     
|                         |                               |                          |   |         |         |      |   |           |         |      |   |          
|(dollars in thousands)  
|U.K. Newspaper Group     |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Operating revenues:           |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         |                               | Advertising              |   | $       | 329,758 |      |   | $         | 388,283 |      |   | $         | 365,005 |  |  |       | 67.8 | % |  |       | 69.1 | % |  |       | 66.3 | %
|                         |                               | Circulation              |   |         | 136,093 |      |   |           | 145,099 |      |   |           | 158,683 |  |  |       | 28.0 |   |  |       | 25.8 |   |  |       | 28.8 |  
|                         |                               | Job printing and other   |   |         | 20,523  |      |   |           | 28,686  |      |   |           | 26,786  |  |  |       | 4.2  |   |  |       | 5.1  |   |  |       | 4.9  |  
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Total operating revenues      |                          |   | 486,374 |         |      |   | 562,068   |         |      |   | 550,474   |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Operating costs(1)(4)         |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         |                               | Newsprint                |   |         | 93,225  |      |   |           | 91,836  |      |   |           | 97,045  |  |  |       | 19.2 |   |  |       | 16.3 |   |  |       | 17.6 |  
|                         |                               | Compensation costs       |   |         | 88,314  |      |   |           | 96,492  |      |   |           | 90,870  |  |  |       | 18.1 |   |  |       | 17.2 |   |  |       | 16.5 |  
|                         |                               | Other operating costs    |   |         | 254,088 |      |   |           | 267,081 |      |   |           | 270,515 |  |  |       | 52.2 |   |  |       | 47.5 |   |  |       | 49.1 |  
|                         |                               | Depreciation             |   |         | 10,728  |      |   |           | 7,532   |      |   |           | 8,287   |  |  |       | 2.2  |   |  |       | 1.3  |   |  |       | 1.5  |  
|                         |                               | Amortization             |   |         | 9,106   |      |   |           | 9,585   |      |   |           | 10,231  |  |  |       | 1.9  |   |  |       | 1.8  |   |  |       | 1.9  |  
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Total operating costs         |                          |   | 455,461 |         |      |   | 472,526   |         |      |   | 476,948   |         |  |  | 93.6  |      |   |  | 84.1  |      |   |  | 86.6  |     
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Operating income(1)(4)        |                          | $ | 30,913  |         |      | $ | 89,542    |         |      | $ | 73,526    |         |  |  | 6.4   | %    |   |  | 15.9  | %    |   |  | 13.4  | %   
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|Canadian Newspaper Group |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Operating revenues:           |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         |                               | Advertising              |   | $       | 130,377 |      |   | $         | 812,278 |      |   | $         | 840,369 |  |  |       | 65.9 | % |  |       | 76.3 | % |  |       | 75.8 | %
|                         |                               | Circulation              |   |         | 41,761  |      |   |           | 202,522 |      |   |           | 221,150 |  |  |       | 21.1 |   |  |       | 19.0 |   |  |       | 19.9 |  
|                         |                               | Job printing and other   |   |         | 25,810  |      |   |           | 50,398  |      |   |           | 48,262  |  |  |       | 13.0 |   |  |       | 4.7  |   |  |       | 4.3  |  
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Total operating revenues      |                          |   | 197,948 |         |      |   | 1,065,198 |         |      |   | 1,109,781 |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Operating costs(1)(4)         |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         |                               | Newsprint                |   |         | 32,769  |      |   |           | 137,076 |      |   |           | 140,042 |  |  |       | 16.6 |   |  |       | 12.9 |   |  |       | 12.6 |  
|                         |                               | Compensation costs       |   |         | 81,392  |      |   |           | 385,977 |      |   |           | 406,917 |  |  |       | 41.1 |   |  |       | 36.2 |   |  |       | 36.7 |  
|                         |                               | Other operating costs    |   |         | 109,296 |      |   |           | 351,603 |      |   |           | 368,529 |  |  |       | 55.2 |   |  |       | 33.0 |   |  |       | 33.2 |  
|                         |                               | Depreciation             |   |         | 6,661   |      |   |           | 42,038  |      |   |           | 42,286  |  |  |       | 3.4  |   |  |       | 3.9  |   |  |       | 3.8  |  
|                         |                               | Amortization             |   |         | 5,167   |      |   |           | 31,738  |      |   |           | 34,249  |  |  |       | 2.6  |   |  |       | 3.0  |   |  |       | 3.1  |  
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Total operating costs         |                          |   | 235,285 |         |      |   | 948,432   |         |      |   | 992,023   |         |  |  | 118.9 |      |   |  | 89.0  |      |   |  | 89.4  |     
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      
|                         | Operating income (loss)(1)(4) |                          | $ | (37,337 | )       |      | $ | 116,766   |         |      | $ | 117,758   |         |  |  | (18.9 | )%   |   |  | 11.0  | %    |   |  | 10.6  | %   
|                         |                               |                          |   |         |         |      |   |           |         |      |   |           |         |  |  |       |      |   |  |       |      |   |  |      



---

(Footnotes following tables)

26



---



##### Table of Contents



The following table sets forth, for
the periods indicated, certain items and related percentage
relationships included in the Company's Consolidated Statements of
Operations.

|                               |                          |                          |   |         |        |      |   |         |       |  |   |         |       | 
|------------------------------ | ------------------------ | ------------------------ | - | ------- | ------ | ---- | - | ------- | ----- |  | - | ------- | ----- | 
|                               |                          |                         
|                               |                          | Years Ended December 31,
|                               |                          |                         
|(dollars in
thousands)         |                          | 2001                     |   | 2000    |        | 1999
|                               |                          |                          |   |         |        |     
|Investment and Corporate Group |                          |                          |   |         |        |      |   |         |       |  |   |        
|                               | Operating revenues:      |                          |   |         |        |      |   |         |       |  |   |         |      
|                               |                          | Advertising              |   | $       |       |      |   | $       |      |  |   | $       |      | 
|                               |                          | Circulation              |   |         |       |      |   |         |      |  |   |         |      | 
|                               |                          | Job printing and other   |   |         |       |      |   |         |      |  |   |         |      | 
|                               |                          |                          |   |         |        |      |   |         |       |  |   |        
|                               | Total operating revenues |                          |   |        |        |      |   |        |       |  |   |        |      
|                               |                          |                          |   |         |        |      |   |         |       |  |   |        
|                               | Operating costs(4)       |                          |   |         |        |      |   |         |       |  |   |         |      
|                               |                          | Newsprint                |   |         |       |      |   |         |      |  |   |         |      | 
|                               |                          | Compensation costs       |   |         | 4,142  |      |   |         | 4,074 |  |   |         | 3,847 | 
|                               |                          | Other operating costs    |   |         | 13,544 |      |   |         | 8,681 |  |   |         | 8,934 | 
|                               |                          | Depreciation             |   |         | 1,356  |      |   |         | 1,233 |  |   |         | 903   | 
|                               |                          | Amortization             |   |         | 681    |      |   |         | 578   |  |   |         | 786   | 
|                               |                          |                          |   |         |        |      |   |         |       |  |   |        
|                               | Total operating costs    |                          |   | 19,723  |        |      |   | 14,566  |       |  |   | 14,470  |      
|                               |                          |                          |   |         |        |      |   |         |       |  |   |        
|                               | Operating loss(4)        |                          | $ | (19,723 | )      |      | $ | (14,566 | )     |  | $ | (14,470 | )    
|                               |                          |                          |   |         |        |      |   |         |       |  |   |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Percentage relationships are expressed as a
        percentage of total operating revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | EBITDA represents earnings before interest
        expense, interest and dividend income, income taxes,
        depreciation and amortization, minority interest, equity in
        earnings or losses of affiliates, amortization of debt issue
        costs, foreign currency gains and losses, extraordinary items,
        other income (expense), net, infrequent items and stock- based
        compensation. EBITDA is not intended to represent an alternative
        to operating income (as determined in accordance with generally
        accepted accounting principles) as an indicator of the
        Companys operating performance, or cash flows from
        operating activities (as determined in accordance with generally
        accepted accounting principles) as a measure of liquidity.
|   
|(3) | EBITDA Margin represents EBITDA divided by
        related operating revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Excludes infrequent items and stock-based
        compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Results of Operations

2001 Compared
with 2000

Net Earnings.The
Company had a net loss of $337.5 million or a loss of $3.42
per share in 2001 compared with net earnings of
$117.1 million or earnings of $1.10 per share in 2000. The
net loss in 2001 and the net earnings in 2000 included a large
number of infrequent, unusual and non-recurring items. Excluding
infrequent, unusual and non-recurring items, and the effect of
changes in accounting in 2000 with respect to repriced options,
the net loss for the year ended December 31, 2001 was
$33.7 million or a loss of $0.33 per diluted share compared
with net earnings of $52.7 million or earnings of $0.47 per
diluted share in 2000. Infrequent items are disclosed separately
in the Statements of Operations, and unusual and non-recurring
items are primarily included in other income (expense), net.

Operating Income (Loss).Operating loss in 2001 was
$40.4 million compared with income of $221.7 million
in 2000, a decrease of $262.1 million. The decrease in
operating income was primarily due to the sales of newspaper
properties in the Canadian Newspaper Group in both 2000 and 2001
and in the Community Group in 2000. In addition, lower operating
results across all the Companys remaining operations
contributed to the decrease in operating income. In 2001,
infrequent items included a one-time expense related to a
pension and post-retirement plan liability adjustment of
$12.4 million.

Operating Revenues.Operating revenues were
$1,146.3 million in 2001 compared with
$2,096.0 million in 2000, a decrease of
$949.7 million. The overall decrease in revenue is
primarily due to the sale of Canadian newspaper properties in
both 2000 and 2001 and the 2000 sale of Community newspaper
properties. In addition, lower operating revenues at the U.K.
Newspaper Group and the Chicago Group, on a same store basis,
contributed to the decrease. The acquisition of Fox Valley
Publications Inc. (formerly Copley Group) in December 2000 has,
however, increased Chicago Group operating revenues in total.

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Operating Expenses.Total operating costs and expenses
were $1,186.7 million in 2001 compared with
$1,874.3 million in 2000, a decrease of
$687.6 million. Newsprint expense was $204.4 million
in 2001 compared with $304.2 million in 2000, a decrease of
$99.8 million or 32.8%. The decrease was primarily due to
lower consumption at the U.K. Newspaper Group and the Chicago
Group and due to the sales of Canadian newspaper properties in
both 2000 and 2001 and the sale of Community newspaper
properties in 2000. Average newsprint prices at both the U.K.
Newspaper Group and Chicago Group year over year were higher.
Compensation costs decreased year over year by
$294.9 million or 44.5%, and other operating costs
decreased year over year by $254.9 million or 32.9%. These
reductions are mainly due to the sales of properties.
Depreciation in 2001 was $38.0 million compared with
$64.5 million in 2000. Lower depreciation resulting from
the sales of properties in both the Community Group and Canadian
Newspaper Group was in part offset by increased depreciation at
the Chicago Group related to the new printing facility and the
Fox Valley Publication Inc. acquisition in December 2000.
Amortization in 2001 was $35.8 million compared with
$58.1 million in 2000. The decrease results from the sales
of properties offset in part by amortization related to the
December 2000 acquisition of Fox Valley Publications Inc.
Infrequent items in 2001 amounted to $21.7 million compared
with $8.0 million in 2000. Infrequent items in both years
included duplicated costs resulting from operating two plants
during start-up of the new plant in Chicago. In addition,
infrequent items in 2001 included a one-time expense related to
a pension and post-retirement plan liability adjustment of
$12.4 million in respect of retired former Southam
employees.

Interest Expense.Interest expense was
$78.6 million in 2001 compared with $142.7 million in
2000, a decrease of $64.1 million. This decrease results
from the significantly lower debt levels during 2001 compared
with 2000. In November 2000, the Company repaid
$972.0 million of its Bank Credit Facility with the
proceeds from the sale of properties to CanWest.

Interest and Dividend Income.Interest and dividend income in 2001
was $64.9 million compared with $18.5 million in 2000,
an increase of $46.4 million. Interest and dividend income
in 2001 included interest on the CanWest debentures until the
sale of Participations in August and December, interest on the
remaining CanWest debentures, dividends on CanWest shares and
bank interest on the significant cash balance primarily
accumulated from the proceeds of the sale in 2001 of Canadian
newspaper properties and the sales of CanWest shares and
debentures. In 2000, interest and dividend income on CanWest
investments was received only for the period November 17 to
December 31.

Foreign Currency Gains (Losses).Foreign currency losses in 2001 were
$1.3 million compared with $16.0 million in 2000. The
2000 loss resulted entirely from the translation of amounts
borrowed under the Bank Credit Facility in U.S dollars by a
Canadian subsidiary and which were repaid in November 2000.

Other Income (Expense), Net.Other expense in 2001 amounted to
$295.9 million and included a net loss on the sale of
assets of $145.9 million being primarily the loss on sale
of Participations in CanWest debentures and a loss on sale of
CanWest shares, a net loss of $1.2 million on sale of
publishing interests including the $78.2 million loss on
sale of National Post offset primarily by gains on sales of
Canadian properties, a $48.0 million write-down of
investments, a $73.9 million loss in respect of the Total
Return Equity Swap and $15.1 million losses from equity
accounted companies. Net other income in 2000 totalled
$478.0 million and included $493.2 million gains on
sales of publishing interests, $32.6 million gains on sales
of investments, a $17.0 million dilution gain in respect of
the investment in Interactive Investor International, a
$16.3 million loss in respect of the Total Return Equity
Swap, a $20.6 million write-down of investments and
$20.3 million losses from equity accounted companies.

Minority Interest.Minority interest in 2001 was a
recovery of $13.9 million compared with an expense in 2000
of $50.8 million. The recovery in 2001 results primarily
from the minoritys share of National Post losses to
August 31, 2001 offset by the minoritys share of
earnings of Hollinger L.P. Minority interest in 2000 included
the minoritys share of Hollinger L.P., including the gain
on sale of newspaper properties to CanWest, $10.9 million
related to the amount paid on mandatory retirement of HCPH
Special shares in excess of the recorded book amounts and the
minoritys share of the National Post loss subsequent to
November 16, 2000.

Chicago
Group

Operating revenues for the year ended
December 31, 2001, were $442.9 million compared with
$401.4 million in 2000, an increase of $41.5 million.
Chicago Group results are based on standard accounting periods,
which for 2000 resulted in a 53-week year for the reported
results of the Chicago Group only. The effect of the 53rd week
in 2000 was to add $6.0 million to operating revenue and
$6.2 million to operating costs and expenses. On
December 15, 2000, the acquisition of Chicago Suburban
Newspapers from Copley Group was completed and operating results
of this group have been included since that time. Revenues for
operations owned in both years, excluding Chicago Suburban Newspapers (same
store) and based on a 52-week year in 2000, were
$363.6 million for 2001,

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compared with $392.0 million
in 2000. Advertising revenue for the year ended
December 31, 2001, on a same store 52-week basis, was
$20.0 million or 6.7% lower than in 2000. Circulation
revenue on a same store 52-week basis, for the year ended
December 31, 2001, was $2.7 million or 3.5% lower than
in 2000. Chicago Sun-Times average daily circulation in
2001 was higher than in 2000; however, circulation revenue for
2001 was lower than in 2000 as a result of price discounting to
build and maintain market share in response to competitive
activity. Printing and other revenue, on a same store 52-week
basis was $10.1 million in 2000 compared with
$15.8 million in 2000, a decrease of $5.7 million.


Total operating costs and expenses, excluding
infrequent items, were $433.1 million in 2001 compared with
$365.4 million in 2000. On a same store 52-week basis,
operating costs and expenses, excluding infrequent items, were
$350.0 million compared with $356.3 million in 2000, a
decrease of $6.3 million or 1.8%. Same store newsprint
expense in 2001 was $67.5 million, compared to
$67.6 million in 2000. Average newsprint prices in 2001
were approximately 11% higher than in 2000. In 2001, newsprint
consumption was significantly less than in 2000 as a result of
lower page counts due to reduced advertising revenue, a
reduction in commercial printing, and general cost controls. On
a same store 52-week basis, compensation and other costs
decreased $10.9 million or 4.1% year over year. The lower
compensation costs result from staff reductions across the
Chicago Group offset in part by increased medical costs and
workers compensation costs. Other operating costs are lower as a
result of reduced commercial printing production costs and
general cost reductions across all areas. On a same store basis
depreciation and amortization increased $4.7 million mainly
as a result of higher depreciation charges related to the new
Chicago printing facility.

On a same store 52-week basis, operating income
was $13.6 million in 2001 compared with $35.7 million
in 2000, a decrease of $22.1 million. The decrease results
primarily from lower operating revenues, increased depreciation
and amortization offset in part by lower compensation and other
operating costs. The acquisition of Chicago Suburban Newspapers
added $79.3 million to operating revenues and an operating
loss of $3.8 million in 2001.

U.K.
Newspaper Group

Operating revenues for the U.K. Newspaper Group
were $486.4 million in 2001 compared with
$562.1 million in 2000, a decrease of $75.7 million or
13.5%. In pounds sterling, operating revenues in 2001 were
£337.5 million compared with £370.7 million
in 2000, a decrease of 9.0%. The decrease in revenue was almost
entirely the result of lower advertising revenue, which, in
local currency, was lower by 10.6% compared with 2000.
Circulation revenue, in local currency, for the year ended
December 31, 2001, was £94.5 million compared
with £95.7 million in 2000, a decrease of
£1.2 million or 1.2%. On September 5, 2001, the
price of The Daily Telegraph on Monday to Friday
increased from 45p to 50p and on September 8, 2001, the
price of The Daily Telegraph on Saturday increased from
75p to 85p. These price increases improved circulation revenue
in the last quarter of 2001.

Total operating costs and expenses, excluding
infrequent items, were $455.5 million in 2001 compared with
$472.5 million in 2000, a decrease of $17.0 million or
3.6%. Newsprint expense in local currency was
£64.7 million in 2001 compared with
£60.6 million in 2000, an increase of
£4.1 million or 6.8%. This increase results from the
significant increase in newsprint prices in 2001 compared to
2000, offset in part by 4% lower consumption in 2001 compared to
2000. In pounds sterling, compensation and other costs were 1%
lower in 2001 than in 2000.

Operating income, excluding infrequent items, was
$30.9 million in 2001 compared with $89.5 million in
2000, a decrease of $58.6 million. The decrease results
from lower operating revenue, primarily advertising revenue and
increased newsprint costs offset in part by lower compensation
costs and other operating costs. In addition, the decrease in
operating income was made greater by the change in exchange
rates. In 2001 the average exchange rate for the pound sterling
into U.S. dollars was 1.45 compared with 1.52 in 2000.

Canadian
Newspaper Group

Operating revenues in the Canadian Newspaper
Group were $197.9 million in 2001 compared with
$1,065.2 million in 2000 and in 2001 there was an operating
loss, excluding infrequent items, of $37.3 million compared
with operating income of $116.8 million in 2000. The
significant decrease in both operating revenues and operating
income results primarily from the sale of newspaper assets in
2000 to CanWest, the sale of UniMédia Company completed in
January 2001, the July and November 2001 sales of operations to
Osprey, and the September 1, 2001 sale of the National
Post.

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On a same store basis, operating revenues and
operating income, excluding infrequent items, of the remaining
operations were Cdn. $113.7 million and a loss of Cdn.
$12.5 million in 2001 compared with Cdn.
$116.8 million and a loss of Cdn. $9.4 million in
2000. Included in the Cdn. $12.5 million operating loss for
the year ended December 31, 2001, are overhead costs of
approximately Cdn. $3.8 million that are not expected to be
incurred in 2002. Also included is a Cdn. $8.3 million
expense in respect of employee benefit costs of retired former
Southam employees.

Community
Group

Operating revenues and operating income,
excluding infrequent items, were $19.1 million and a loss
of $3.6 million in 2001, compared to $67.3 million and
operating income of $3.5 million in 2000. The significant
decrease in both operating revenue and operating income results
almost entirely from the sales of Community Group properties
that occurred primarily during 2000. During the third quarter of
2001, the last remaining U.S. Community Group property was
sold. At December 31, 2001, The Jerusalem Post was the only
Community Group property still owned by the Company.

Investment
and Corporate Group

Operating costs, excluding stock-based
compensation, of the Investment and Corporate Group were
$19.7 million, compared with $14.6 million in 2000, an
increase of $5.1 million. The increase is due mainly to
management fees charged to this division in 2001 that were
charged to other operating divisions in 2000.

2000 Compared
with 1999

Net Earnings.The
Company had net earnings of $117.1 million, or $1.10 per
share in 2000, compared with net earnings of
$245.4 million, or $2.30 per share in 1999. Earnings in
2000 and 1999 included a number of infrequent and non-recurring
items and the results for 2000 have been affected by changes in
accounting standards with respect to repriced options and the
Companys Total Return Equity Swap. Excluding infrequent
and non-recurring items, and the effects of changes in
accounting standards, earnings for the year ended
December 31, 2000 were $52.7 million compared with
$62.1 million in 1999 and diluted earnings per share were
$0.47 in 2000 compared with $0.53 in 1999.

Operating Income.Operating income in 2000 was
$221.7 million compared with $212.8 million in 1999,
an increase of $8.9 million. The increase in operating
income was due to several factors. Improved operating results at
the U.K. Newspaper Group and National Post were partly offset by
a decrease in operating income at the Chicago Group and sales of
newspaper properties in the Community Group in both 1999 and
2000, and in the Canadian Newspaper Group in 2000, reduced
operating income in 2000 compared with 1999. In addition, in
1999 infrequent items included a one-time expense related to a
pension and post-retirement plan liability adjustment of
$11.9 million.

Operating Revenues.Operating revenues were
$2,096.0 million in 2000 compared to $2,147.4 million
in 1999, a decrease of $51.4 million. The overall decrease
in revenue was primarily due to the 1999 and 2000 sales of
Community Group newspapers and the November 16, 2000 sale
to CanWest of certain Canadian newspaper properties. The effects
of these sales more than offset increased operating revenues at
the U.K. Newspaper Group and the National Post.

Operating Expenses.Total operating costs and expenses
were $1,874.3 million in 2000 compared to
$1,934.6 million in 1999. Newsprint expense decreased year
over year by 2.1%. This decrease was primarily due to lower
consumption of newsprint resulting from the sale of Community
newspaper properties during both 1999 and 2000 and the
November 16, 2000 sale of Canadian properties to CanWest.
In addition average newsprint prices in pounds sterling at the
U.K. Newspaper Group in 2000 were approximately 4% lower than in
1999. These decreases were partly offset by increased
consumption at the U.K. Newspaper Group and an increase of 7% in
the 2000 average newsprint price compared with 1999 at the
Chicago Group. Compensation costs decreased year over year by
$22.0 million or 3.2% and other operating costs decreased
year over year by $16.3 million or 2.1%. These reductions
were mainly due to the sales of properties. Depreciation in 2000
was $64.5 million compared with $64.2 million in 1999.
Lower depreciation resulting from the sales of properties in
both the Community Group and Canadian Newspaper Group was offset
by increased depreciation at the Chicago Group related to the
new printing facility. Amortization in 2000 was
$58.1 million compared with $61.3 million in 1999, a
decrease of $3.2 million. This decrease resulted from the
sales of properties. Operating expenses included infrequent
items of $8.0 million in 2000, which primarily consisted of
duplicated costs resulting from operating two plants during the
start-up of the new plant in Chicago. The

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production facility
was expected to be fully completed during 2001. In 1999, infrequent
items totaled $22.0 million and consisted primarily of
costs related to the start-up of the new plant in Chicago and
accounting adjustments related to pension liabilities. In
addition, stock-based compensation expense in 2000 totaled
$1.5 million and related to a change in the interpretation
of accounting principles in 2000 in respect of stock options
that were repriced in 1999. There was no similar expense in 1999.


Interest Expense.Interest expense was
$142.7 million in 2000 compared with $131.6 million in
1999, an increase of $11.1 million or 8.4%. This increase
resulted from higher debt levels until November 16, 2000
when the Bank Credit Facility was repaid, increased interest
rates throughout 2000 and the impact of expensing rather than
capitalizing pre-production interest costs related to the new
Chicago printing plant.

Amortization of Debt Issue Costs.Amortization of debt issue costs in
2000 amounted to $10.5 million and represented debt issue
costs on the Senior Notes, Senior Subordinated Notes and on the
Bank Credit Facility until November 16, 2000. Amortization
of debt issue costs in 1999 totaled $16.2 million and
included both regular amortization of these costs and a one-time
write-off of issue costs related to debt incurred to buyout the
Southam minority in January 1999.

Interest and Dividend Income.Interest and dividend income in 2000
amounted to $18.5 million compared with $7.7 million
in 1999, an increase of $10.8 million. This increase
primarily resulted from interest on the CanWest debentures from
November 17 to December 31, 2000.

Foreign Currency Gains and Losses.Foreign currency losses in 2000
totaled $16.0 million and in 1999 foreign currency gains
totaled $13.8 million. The 2000 loss resulted entirely from
the translation of amounts borrowed under the Bank Credit
Facility in U.S. dollars by a Canadian subsidiary and which
were repaid in November 2000. In 1999, $8.8 million of the
gain resulted from translation of the same U.S. dollar
borrowings under the Bank Credit Facility.

Other Income (Expense), net.Net other income in 2000 totaled
$478.0 million and included $493.2 million gains on
sales of publishing interests, $32.6 million gains on sales
of assets, a $17.0 million dilution gain in respect of the
investment in Interactive Investor International, a
$16.3 million loss in respect of the Total Return Equity
Swap, a $20.6 million write-down of investments and
$20.3 million losses from equity accounted companies. Net
other income of $326.3 million in 1999 consisted primarily
of gains on sales of publishing interests at the Community Group
of $270.0 million and a $77.3 million gain on the
dilution of the Companys interest in Hollinger L.P.

Minority Interest.Minority interest in 2000 amounted to
$50.8 million compared with $7.1 million in 1999.
Minority interest in 2000 included the minoritys share of
Hollinger L.P., including the gain on sale of newspaper
properties to CanWest, $10.9 million related to the amount
paid on mandatory retirement of HCPH Special shares in excess of
the recorded book amounts and the minoritys share of the
National Post loss subsequent to November 16, 2000.

Minority interest in 1999 represented the
minoritys share of Hollinger L.P. for May to December and
the minoritys share of net earnings of Southam prior to
the Company acquiring the remaining minority share of Southam in
January and February 1999.

Chicago
Group

Operating revenues for the Chicago Group were
$401.4 million in 2000 compared with $390.5 million in
1999. Chicago Group results are based on standard accounting
periods which for 2000 resulted in a 53 week year for the
Chicago Group only. The effect of the 53rd week was to add
$6.0 million to operating revenues and $6.2 million to
operating costs and expenses. Operating revenues for operations
owned in both years based on a 52 week year were
$389.2 million in 2000 compared with $390.5 million in
1999. Advertising revenue was up 0.4% while circulation revenue
decreased 3.0% from 1999, primarily at the Chicago
Sun-Times. The Audit Bureau of Circulation reported average
daily circulation for the Chicago Sun-Times for the
fourth quarter of 2000 reflected an increase of approximately
6,000 compared with the fourth quarter of 1999. However,
circulation revenue was lower resulting from price discounting
to build and maintain market share.

Total operating costs and expenses, excluding
infrequent items, were $365.4 million compared with
$342.6 million in 1999. On a same store basis operating
costs and expenses were $359.3 million in 2000 compared
with $342.6 million in 1999. This increase results from the
impact of the 53rd week, newsprint price increases, increased
Internet costs and higher depreciation charges related to the
new printing facility.

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On a same store basis, excluding the 53rd week
and Internet results, operating income was $39.2 million in
2000 compared with $49.0 million in 1999. The effect of the
53rd week on same store operating income was negligible.
Increases in newsprint expense and a decline in revenue on a
52-week basis resulted in a $5.2 million decline in
operating income with the balance of the decline coming
primarily from depreciation and amortization.

Community
Group

Operating revenue and operating income in 2000
for the Community Group was $67.3 million and
$3.5 million, respectively, compared with
$96.7 million and $10.2 million, respectively, in
1999. The significant decrease in both operating revenue and
operating income resulted entirely from the sales in both 1999
and 2000 of Community Group newspaper properties. At
December 31, 2000 only one U.S. Community Group
newspaper and The Jerusalem Post were still owned by the
Company.

U.K.
Newspaper Group

Operating revenues for the U.K. Newspaper Group
were $562.1 million in 2000 compared with
$550.5 million in 1999, an increase of 2.1%. However, in
British pounds sterling, total operating revenue increased 9.0%
and advertising revenue increased by 13.6%. Display advertising
at the Telegraph increased by 16% year on year and this included
a 29% increase in financial advertising. Recruitment revenue
increased by almost 15% year on year. Other classified
advertising performed well. The launch of a new travel section
in the Sunday Telegraph assisted in the increase in travel
revenues of 11.5%. Property, Automobile and Gardening
advertising increased by 34%, 11.8% and 20.8% year on year,
respectively, reflecting the continued strength of the economy
in the U.K.

In British pounds sterling, circulation revenue
was down 2.4% year over year primarily as a result of an
increase in sales to subscribers and a decline in weekday
newsstand sales.

Total operating costs, excluding infrequent
items, were $472.5 million in 2000 compared with
$476.9 million in 1999. Newsprint expense was
$91.8 million in 2000 compared with $97.0 million in
1999. This reflected a year over year newsprint price decrease
offset in part by increased consumption resulting from the
increase in advertising. The newsprint price decrease reflected
the longer-term purchasing methodology in the U.K. which usually
causes a delay in realizing the effect of newsprint price
changes. Compensation and other costs increased in pounds
sterling compared with 1999, primarily from higher production
and editorial costs, higher marketing and promotion costs and an
increase in Internet costs. EBITDA, excluding infrequent items
in 2000, was $106.7 million compared with
$92.0 million in 1999, an increase of 16.0%. In pounds
sterling EBITDA, excluding infrequent items, in 2000 was
£70.0 million compared with £56.7 million in
1999, an increase of 23.5%. In 2000 the average exchange rate
for the pound sterling into U.S. dollars was 1.52 compared
with 1.62 in 1999.

Canadian
Newspaper Group

Operating revenues in the Canadian Newspaper
Group were $1,065.2 million in 2000 compared with
$1,109.8 million in 1999 and operating income was
$116.8 million in 2000 compared with $117.8 million in
1999. The reported results included the results of operations
sold to CanWest for the period January 1 to
November 16, 2000 and for all of 1999. The National Post,
which is included throughout both years, had revenue and EBITDA
losses of $90.9 million and $28.9 million,
respectively, in 2000 compared with $70.3 million and
$44.3 million, respectively, in 1999.

Operating revenues and EBITDA for Canadian
operations not sold at December 31, 2000, excluding
National Post, and reported in the year ended December 31,
2000 were Cdn. $390.9 million and Cdn. $67.9 million
as compared to Cdn. $384.1 million and Cdn.
$67.8 million in 1999.

These amounts included operating revenues and
EBITDA of Canadian operations sold subsequent to
December 31, 2000 of Cdn. $127.5 million and Cdn.
$20.2 million for 2000 and Cdn. $126.5 million and
Cdn. $19.5 million for 1999. Included in Canadian
operations not sold were costs for Internet operations retained
of Cdn. $2.6 million in 2000 and Cdn. $2.4 million in
1999.

Investment
and Corporate Group

The operating loss, excluding stock-based
compensation, of the Investment and Corporate Group was
$14.6 million in 2000 compared with $14.5 million in
1999.

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Liquidity and Capital Resources

Working Capital.Working capital consists of current
assets less current liabilities. Current assets were
$762.3 million and $472.5 million at December 31,
2001 and 2000, respectively. Current liabilities, excluding debt
obligations, were $563.6 million and $725.3 million,
respectively, at December 31, 2001 and 2000. The
Companys consolidated working capital, excluding debt
obligations, at December 31, 2001 was $198.7 million
and at December 31, 2000 was a deficit of
$252.8 million. The increase in working capital is
primarily due to increased cash and cash equivalents resulting
from the sales of properties and CanWest investments and a
reduction in current taxes payable. Included in current
liabilities are income taxes that have been provided on gains on
sales of assets computed on tax bases that result in higher
gains for tax purposes than for accounting purposes. Strategies
have been and may be implemented that may also defer and/or
reduce these taxes but the effects of these strategies have not
been reflected in the accounts.

The Company is an international holding company
and its assets consist solely of investments in its subsidiaries
and affiliated companies. As a result, the Companys
ability to meet its future financial obligations is dependent
upon the availability of cash flows from its United States and
foreign subsidiaries through dividends, intercompany advances,
management fees and other payments. Similarly, the
Companys ability to pay dividends on its common stock and
its preferred stock may be limited as a result of its dependence
upon the distribution of earnings of its subsidiaries and
affiliated companies. The Companys subsidiaries and
affiliated companies are under no obligation to pay dividends
and, in the case of Publishing and its principal United States
and foreign subsidiaries, are subject to statutory restrictions
and restrictions in debt agreements that limit their ability to
pay dividends. Substantially, all of the shares of the
subsidiaries of the Company have been pledged to lenders of the
Company. The Companys right to participate in the
distribution of assets of any subsidiary or affiliated company
upon its liquidation or reorganization will be subject to the
prior claims of the creditors of such subsidiary or affiliated
company, including trade creditors, except to the extent that
the Company may itself be a creditor with recognized claims
against such subsidiary or affiliated company. As at
December 31, 2001, the Company did not meet a financial
test set out in the Trust indentures for Publishings
Senior and Senior Subordinated Notes. As a result, until and
unless the test is met in the future, Publishing and its
subsidiaries will be unable to borrow, make restricted
investments, make advances, pay dividends or make other
distributions to the Company. Meeting the test will depend on
improvements in future income. The Company currently has
sufficient cash to meet its current anticipated obligations.

EBITDA.EBITDA,
which represents the Companys earnings before interest
expense, interest and dividend income, foreign currency gains
and losses, income taxes, depreciation and amortization,
minority interest, equity in earnings of affiliates,
amortization of debt issue costs, other income (expense), net,
and extraordinary items was $33.4 million in 2001,
$344.4 million in 2000 and $338.2 million in 1999,
respectively. The Company believes that EBITDA largely
determines its ability to fund current operations and to service
debt. EBITDA excluding infrequent items and stock-based
compensation was $53.7 million, $353.9 million and
$360.3 million in 2001, 2000 and 1999, respectively.

Cash Flows.Cash
flows used in operating activities were $146.7 million in
2001, and cash flows provided by operating activities were
$59.8 million and $106.2 million in 2000 and 1999,
respectively. The cash flows used in operating activities in
2001 largely resulted from lower operating results and the
non-cash interest income received on CanWest debentures.

Cash flows provided by investing activities were
$756.7 million in 2001 principally reflecting the proceeds
on disposal of CanWest investments and on sale of properties,
reduced in part by capital expenditures on fixed assets and
additions to investments. Cash flows provided by investing
activities in 2000 were $1,080.8 million principally
reflecting the proceeds on disposal of investments, the proceeds
on disposal of newspaper properties at the Community Group and
to CanWest, offset in part, by the acquisition cost of
newspapers in the Chicago suburbs, by capital expenditures on
fixed assets and by additions to investments. Cash flows used in
investing activities were $59.6 million in 1999 principally
reflecting the capital expenditures at the Chicago Group for the
new production facility, acquisition of the remaining minority
of Southam and Internet related spending offset, in part, by
proceeds from the disposition of certain U.S. community
newspapers.

Cash flows used in financing activities in 2001
were $258.7 million primarily reflecting dividend payments
and the purchase for cancellation of Class A Common Stock
from Hollinger Inc. and from a bank pursuant to the Total Return
Equity Swap. Cash flows used in financing activities in 2000
were $1,040.2 million primarily reflecting the repayment of
debt, the redemption of HCPH Special shares and dividend
payments. Cash flows used in financing activities in 1999 were
$91.0 million, principally reflecting the payment by
Southam of a special dividend, the repurchase of Class A
Common Stock by the Company offset, in part, by the issuance of
partnership units by Hollinger L.P..

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Based on current economic conditions, the Company
expects cash flows from existing operations to improve as a
result of cost reductions that have been implemented and
declining newsprint prices. Full recovery of earnings levels
would require a significant improvement in advertising activity
and it is impossible to forecast when and to what extent, such a
recovery will occur. Management believes that the cash flow
provided by operating subsidiaries, under current economic
conditions, will be sufficient to meet future cash requirements
including capital expenditures. However, there is no assurance
that any excess cash flow could be distributed by Publishing and
its subsidiaries to the Company. However, as at March 5,
2002, the Company has sufficient cash on hand to meet its
current anticipated obligations.

Capital Expenditures and Acquisition
Financing.In the past three years the
Chicago Group, the Community Group, the U.K. Newspaper Group and
the Canadian Newspaper Group have funded their capital
expenditures and acquisition and investment activities out of
cash provided by their respective operating activities and, in
1999 and 2000, through borrowings under their bank credit
facilities.

Capital expenditures at the Chicago Group
amounted to $12.1 million, $25.7 million and
$40.9 million in 2001, 2000 and 1999, respectively. The
Company began construction of a new printing facility in Chicago
during 1998 which became partially operational in 2000 and fully
operational in 2001. The capital expenditures in 1999, 2000 and
2001 are primarily related to the construction of this
production facility.

Capital expenditures at the Community Group
amounted to $3.3 million and $4.9 million in 2000 and
1999, respectively.

Capital expenditures at the Telegraph were
$17.1 million, $14.5 million and $5.6 million in
2001, 2000 and 1999, respectively.

Capital expenditures at the Canadian Newspaper
Group were $2.8 million, $28.8 million and
$72.4 million in 2001, 2000 and 1999, respectively. The
capital expenditures in 1999 included new presses at Montreal,
Saskatoon, Regina and new equipment at the Vancouver press
facility.

Capital expenditures at the Investment and
Corporate Group were $12.2 million, $1.6 million and
$1.4 million in 2001, 2000 and 1999, respectively.
Expenditures in 2001 were primarily in respect of a new airplane
to replace an older airplane that was sold in 2002.

Debt Obligations.The Company, Publishing and its
principal subsidiaries are parties to various debt agreements
that have been entered into to fund acquisitions, working
capital requirements and other corporate purposes. At
December 31, 2001, the indebtedness of the Company was
$812.7 million.

1997 Note
Offering.On March 4, 1997,
Publishing filed both a Prospectus and a Prospectus Supplement
offering $200 million of Senior Notes due 2005 (the
Senior Notes) and $200 million of Senior
Subordinated Notes due 2007 (the Senior Subordinated
Notes). On March 12, 1997, Publishing increased the
size of the offerings to $550.0 million, closing on
March 18, 1997. Both the Senior Notes and the Senior
Subordinated Notes are guaranteed by the Company.

The Senior Notes are unsecured and senior
obligations of Publishing and rank pari-passu with all other
senior unsecured indebtedness of Publishing including
Publishings bank credit facilities, mature on
March 15, 2005 and bear interest at 8.625% per annum. The
Senior Subordinated Notes are unsecured senior subordinated
obligations of Publishing and rank pari-passu with all other
senior subordinated indebtedness of Publishing including the
existing 9.25% Senior Subordinated Notes due 2006. The Senior
Subordinated Notes mature on March 15, 2007 and bear
interest payable semi-annually at a rate of 9.25% per annum. The
Indentures relating to the Senior Notes and the Senior
Subordinated Notes contain financial covenants and negative
covenants that limit Publishings ability to, among other
things, incur indebtedness, pay dividends or make other
distributions on its capital stock.

Publishing and its restricted subsidiaries
utilized the proceeds of these offerings to repay bank
indebtedness, to repay the redeemable preference shares of DT
Holdings Limited and First DT Holdings Limited and for general
working capital.

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On February 14, 2002, Publishing commenced a
cash tender offer for any and all of its outstanding 8.625%
Senior Notes due 2005. The tender offer was made upon the terms
and conditions set forth in the Offer to Purchase and Consent
Solicitation Statement dated February 14, 2002. Under the
terms of the offer, the Company offered to purchase the
outstanding notes at a price to be determined three business
days prior to the expiration date of the tender offer by reference to a fixed
spread of 87.5 basis points over the yield to maturity of the
7.50% U.S. Treasury Notes due February 15, 2005, plus
accrued and unpaid interest up to but not including the day of
payment for the notes. The purchase price totalled $1,101.34 for
each $1,000 principal amount of notes. Included in the purchase
price was a consent payment equal to $40 per $1,000 principal
amount of the notes, payable to those holders who validly
consented to the proposed amendments to the indenture governing
the notes. In connection with the tender offer, the Company
solicited consents from the holders of the notes to amend the
indenture governing the notes by eliminating most of the
restrictive provisions. On March 15, 2002,
$248.9 million in the aggregate principal amount had been
validly tendered pursuant to the offer and on March 18,
2002, these noteholders were paid out in full.

1996 Note
Offering.Publishing sold
$250 million aggregate principal amount of Notes (the
Notes) on February 7, 1996. The Notes mature on
February 1, 2006, and are unsecured senior subordinated
obligations of Publishing. Each Note bears interest at the rate
of 9.25% per annum payable semi-annually on February 1 and
August 1 of each year, which commenced on August 1,
1996. The Notes may be redeemed at any time on or after
February 1, 2001, at the option of Publishing, in whole or
in part, at a price of 104.625% of the principal amount thereof,
declining ratably to par on or after February 1, 2004,
together with accrued and unpaid interest to the redemption
date. Payment of the principal, premium, and interest on the
Notes is guaranteed by the Company on a senior subordinated
basis (the Guarantee). The Notes and the Guarantee
are expressly subordinated to all senior indebtedness of
Publishing and the Company, including all indebtedness and other
obligations under the Publishing Credit Facility and the
Companys guarantee thereof.

The indenture relating to the Notes (the
Indenture) contains covenants that, among other
things, limit the ability of Publishing and the Restricted
Subsidiaries (defined to include the United States subsidiaries
of Publishing, the Telegraph, the Canadian Newspapers and
Jerusalem Post) to incur indebtedness, pay dividends or make
other distributions on their capital stock, subject in each case
to certain exceptions.

Consent Solicitation.On February 19, 1997,
Publishing completed a solicitation of consents from the holders
of the 9.25% Notes with respect to certain amendments (the
Amendments) to the Indenture governing the 9.25%
Notes dated as of February 1, 1996. The primary purpose of
the Amendments was to facilitate the inclusion of certain
international subsidiaries of the Company as Restricted
Subsidiaries of Publishing and to enhance its corporate and
financing flexibility.

During 1999, the Company solicited consents from
the registered holders of the Notes, Senior Notes and Senior
Subordinated Notes to amend the indentures covering said notes
to (i) make the limitation on restricted payments covenant
less restrictive, (ii) make the consolidated cash flow
ratio under the limitation on indebtedness covenant more
restrictive, and (iii) make the limitation on sale of
assets covenant less restrictive. The requisite consents were
obtained in March 1999 and the indentures governing the Notes,
Senior Notes and Senior Subordinated Notes were so amended.

Bank Credit Facility.On April 30, 1999,
Publishing, HCPH, Telegraph, Southam, HIF Corp.
(HIF) and a group of financial institutions entered
into a Fourth Amended and Restated Credit Facility
(Restated Credit Facility) for a total of
$725.0 million consisting of a $475.0 million
revolving credit line maturing on September 30, 2004 and a
$250.0 million term loan maturing on December 31,
2004. This facility replaced the previous Bank Credit Facility.
The loans under the Restated Credit Facility bear interest, at
the option of the respective borrower, at a rate per annum tied
to specified floating rates or a reserve adjusted Eurocurrency
rate, in each case plus a specified margin determined based on
leverage ratios. On June 4, 1999, the revolving credit line
was increased by $50.0 million. On September 30, 1999,
the Restated Credit Facility was increased to
$875.0 million when the revolving credit line and the term
loan were each increased by $50.0 million.

In June 2000, Publishing, HCPH, Telegraph,
Southam, HIF and a group of financial institutions increased the
term loan component of the Restated Credit Facility by
$100.0 million to $975.0 million. On November 16,
2000, using the proceeds from the CanWest transaction,
$972.0 million of borrowings were repaid and the Restated
Credit Facility was reduced to $5.0 million. The Restated
Credit Facility is secured by the collateralization of
$5.0 million of the Companys positive cash which is
included in prepaids and other assets at December 31, 2001.
At December 31, 2001, no amounts were owing under the
Restated Credit Facility.

During 2001, the Company entered into a new
credit facility in the amount of $120.0 million. Amounts
borrowed under this facility were repaid during 2001.

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Off Balance Sheet Arrangements

Hollinger Participation
Trust.As part of its agreement with
CanWest, the Company was prohibited from selling the CanWest
debentures prior to May 15, 2003. In order to monetize this
investment, during August and December 2001, the Company sold
participations in Cdn. $540.0 million
(U.S. $350.0 million) and Cdn $216.8 million
($140.5 million) principal amounts of CanWest debentures to
a special purpose trust (Participation Trust). Units
of the Participation Trust were sold by the Participation Trust
to arms length third parties. These transactions resulted
in net proceeds to the Company of $401.2 million and have
been accounted for as sales in accordance with SFAS
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. The
net loss on the transactions, including realized holding losses
on the underlying debentures, amounted to $62.1 million and
has been included in Other income (expense), net.

The Company has not retained an interest in the
participation Trust nor does it have any ongoing involvement in
the Participation Trust. The Participation Trust and its
investors have no recourse to the Companys other assets in
the event that CanWest defaults on its debentures. Under the
terms of the Participation Trust, the interest payments received
by the Company in respect of the underlying CanWest debentures
will be paid to the Participation Trust. However, after
May 15, 2003, the Company may be required to deliver to the
Participation Trust, CanWest debentures with a face value
equivalent to $490.5 million. Given that the CanWest
debentures are denominated in Canadian dollars, the Company has
entered into a forward exchange contract to mitigate part of its
currency exposure. The foreign currency contract requires the
Company to sell Cdn. $666.6 million on May 15, 2003 at
a forward rate of 0.6423. The mark-to-market gain on the forward
contract and the foreign exchange loss on the residual
obligation have resulted in a net foreign currency loss at
December 31, 2001 of $0.4 million. This amount has
been charged to earnings and the net liability is included in
other liabilities. In March 2002, the Company realized on Cdn.
$199 million of the foreign currency contract and has since
entered into another Cdn. $50 million foreign currency
contract to replace part of the contract realized.

In addition, in accordance with the terms of the
participation agreement, the Company cannot transfer to an
unaffiliated third party, until November 4, 2005, the
equivalent of $50 million (Cdn. $79.6 million at
December 31, 2001) principal amount of CanWest debentures.

Total Return Equity Swap.During 1998 and 1999, the Company had
arrangements with four banks, pursuant to which the banks
purchased a total of 14,109,905 shares of the Companys
Class A Common Stock at an average price of $14.17. The
Company had the option, quarterly, up to and including
September 30, 2000 to buy the shares from the banks at the
same cost or to have the banks resell those shares in the open
market. The arrangement was extended until June 30, 2001.
In the event the banks resold the shares, any gain or loss
realized by the banks would be for the Companys account.
Until the Company purchases the shares, dividends paid on the
shares belonged to the Company and the Company paid interest to
the banks at the rate of LIBOR plus a spread.

On November 16, 2000, the Emerging Issues
Task Force (EITF) issued EITF Issue No. 00-19 which
clarified the accounting for derivative financial instruments
indexed to, and potentially settled in a companys own
stock, that require a cash payment by the issuer upon the
occurrence of future events outside the control of the issuer.
The EITF applies to new contracts entered into after
September 30, 2000. Consequently the extension of the
contracts on October 1, 2000 is accounted for under EITF
Issue No. 00-19. Accordingly, effective October 1,
2000, the above contracts have been accounted for using the
asset and liability method. Since the contracts can require cash
settlement, in the event of bankruptcy, the contracts must be
accounted for on an income basis rather than as equity.
Regardless, the amount of cash required for settlement does not
change, but any change in value of the Companys own shares
that could be used to settle the obligation gives rise to a gain
or loss that is recorded in income. The derivative forward
contract has been marked to market after October 1, 2000.
The $35.3 million gain inherent in the old contracts at
October 1, 2000, based on the September 30, 2000
market value of Class A Common Stock of $16.75, net of
previously deferred costs associated with the old contracts, has
been recorded as an adjustment to additional paid in capital.
The loss resulting from marking the contracts to market during
the period October 1 to December 31, 2000, together
with the interest paid to the banks, totalled $16.3 million
and was reported in earnings as Other income (expense), net.

In August 2001, the Company purchased for
cancellation from one of the banks 3,602,305 shares of
Class A Common Stock for $50.0 million or $13.88 per
share. The market value of these shares on the date of purchase
was $47.0 million or $13.05 per share.

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In November 2001, one of the banks sold in the
open market 3,556,513 shares of Class A Common Stock for
$34.2 million or an average price of $9.62 per share. This
resulted in a loss to the bank of $15.8 million which, in
accordance with the arrangement, was paid in cash by the Company.

The losses resulting from marking these
arrangements to market during the year ended December 31,
2001, including the realized losses above, together with the
interest paid to the banks, totalled $73.9 million, and was
reported in earnings as Other income (expense), net. Dividends,
in respect of the shares purchased by the banks, after
September 30, 2000, have not been included in cash
dividends as a deduction from retained earnings.

At December 31, 2001, the Company had two
arrangements remaining with banks each of which had been
extended from July 1, 2001. One arrangement in respect of
3,348,782 shares at an average price of $14.93 was extended
until June 30, 2003 on the same terms and conditions that
applied previously. The other arrangement in respect of
3,602,305 shares at an average price of $13.88, was extended
until December 31, 2001. The Company retained the option to
buy the shares from the bank at the original cost or have the
bank resell the shares in the open market, for which the Company
could settle the net amount due with either cash or by issuing
additional shares. In addition, the bank had the option if the
market price of the shares dropped by 20% or more, to sell the
shares on the open market and reduce the notional amount of the
swap. Under the terms of the agreement as at December 31,
2001, 3,602,305 shares and $7.5 million of cash have been
deposited with the escrow agent. The $7.5 million of
restricted cash is included in prepaids and other current assets
at December 31, 2001.

If the Companys stock price falls below the
average purchase price of these shares, the Company is required
to deposit cash or shares into an escrow account as additional
security. During 2001, 2000 and 1999, the Company issued
4,882,590, 5,160,577 and 4,063,359 shares of Class A Common
Stock as additional security, of which 5,011,628 shares were
required to be deposited in the escrow account at
December 31, 2001. The balance of shares issued as
additional security have been returned to the Company and are
included in treasury until cancelled. The shares held in escrow
are shown as a deduction from stockholders equity. Until
September 30, 2000, when the original contacts expired, the
total interest paid to the banks, net of dividends paid on the
shares, was shown as a reduction to additional paid in capital.

HCPH Special Shares.HCPH issued 6,552,425 Cdn. $10
Non-Voting Special shares in July 1997 for a total issue price
of Cdn. $65.5 million ($47.6 million).

On July 18, 1997 HCPH, the Company and
Montreal Trust Company of Canada as trustee, entered into an
Exchange Indenture providing for the exchange of the HCPH
Special shares at the option of the holder (Optional
Exchange) at any time after December 23, 1997 but
prior to June 26, 2000, into Class A Common Stock of
the Company based on an exchange ratio set out in the Exchange
Indenture.

On June 12, 2000, the Company exercised its
option to pay cash on the mandatory exchange of HCPH Special
shares. Pursuant to the terms of the indenture governing the
Special shares, each Special share was exchanged for $8.88 cash
resulting in a payment in July 2000 to holders of Special shares
of $58.2 million. This payment was $10.9 million in
excess of the recorded amount and this excess is presented as
minority interest in the Statement of Operations.

Commercial Commitments and Contractual
Obligations.The Telegraph has
guaranteed the printing joint venture partners share of
leasing obligations to third parties, which amounted to
$1.2 million (£0.8 million) at December 31,
2001. These obligations are also guaranteed jointly and
severally by each joint venture partner.

In connection with the Companys insurance
program, letters of credits are required to support certain
projected workers compensation obligations. At
December 31, 2001, letters of credit in the amount of
$0.6 million were outstanding.

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Set out below is a summary of the amounts due and
committed under contractual cash obligations at
December 31, 2001:

|                                   |  |                |         |           |  |             |        |             |  |          |        |  |  |   |         |  |  |   |         | 
|---------------------------------- |  | -------------- | ------- | --------- |  | ----------- | ------ | ----------- |  | -------- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                   |  |                |         | Due in    |  | Due between |        | Due between |  |         
|                                   |  |                |         | 1 year or |  | 1 and       |        | 4 and       |  | Due over
|                                   |  | Total          |         | less      |  | 3 years     |        | 5 years     |  | 5 years 
|                                   |  |                |         |           |  |             |        |             |  |         
|                                   |  |               
|                                   |  | (in thousands)
|Long-term debt                     |  | $              | 807,993 |           |  | $           | 1,481  |             |  | $        | 3,052  |  |  | $ | 511,912 |  |  | $ | 291,548 | 
|Capital lease obligations          |  |                | 4,667   |           |  |             | 1,527  |             |  |          | 3,140  |  |  |   |        |  |  |   |        | 
|Operating leases                   |  |                | 148,574 |           |  |             | 12,313 |             |  |          | 21,627 |  |  |   | 20,441  |  |  |   | 94,193  | 
|                                   |  |                |         |           |  |             |        |             |  |          |        |  |  |   |         |  |  |   |         | 
|Total contractual cash obligations |  | $              | 961,234 |           |  | $           | 15,321 |             |  | $        | 27,819 |  |  | $ | 532,353 |  |  | $ | 385,741 | 
|                                   |  |                |         |           |  |             |        |             |  |          |        |  |  |   |         |  |  |   |         | 

Related Party Transactions

Net amounts due from related companies at
December 31, 2001 totalled $32.2 million and included
a $36.8 million loan to a subsidiary of Hollinger Inc., net
of amounts payable in respect of management and administrative
expenses billed by Hollinger Inc. and corporate affiliates of
Hollinger Inc. Hollinger Inc. and its affiliates billed the
Company for allocable expense amounting to $34.3 million,
$41.0 million and $38.2 million for 2001, 2000 and
1999, respectively (principally including management fees that
were approved by the audit committee). On July 11, 2000,
the Company loaned $36.8 million to a subsidiary of
Hollinger Inc. in connection with the cash purchase by Hollinger
Inc. of HCPH Special shares. The loan is payable on demand and
to December 31, 2001, interest was payable at the rate of
13% per annum. Effective January 1, 2002, the interest rate
was adjusted to LIBOR plus 3% per annum.

Lord Black indirectly has voting control of the
Company. During each of 2001, 2000 and 1999 remuneration paid
directly by the Company and its subsidiaries to Lord Black was
$817,000, $2,477,000 and $640,000, respectively.

In two separate transactions in July and
November, 2001, the Company and Hollinger L.P. completed the
sale of most of its remaining Canadian newspapers to Osprey for
total sale proceeds of approximately Cdn. $255 million
($166 million) plus closing adjustments primarily for
working capital. The former Chief Executive Officer of Hollinger
L.P. is a minority shareholder of Osprey. The Companys
independent directors have approved the terms of these
transactions.

In connection with the two above sales of
Canadian newspaper properties to Osprey, to satisfy a closing
condition, the Company, Hollinger Inc., and Lord Black and three
senior executives entered into non-competition agreements with
Osprey pursuant to which each agreed not to compete directly or
indirectly in Canada with the Canadian businesses sold to Osprey
for a five-year period, subject to certain limited exceptions,
for aggregate consideration of Cdn. $7.9 million
($5.1 million). Such consideration was paid to Lord Black
and the three senior executives and has been approved by the
Companys independent directors.

On November 16, 2000, the Company and its
affiliates, Southam and Hollinger L.P. (Hollinger
Group) completed the sale of most of its Canadian
newspapers and related assets to CanWest. The aggregate sale
price of these properties at fair value was approximately
Cdn. $2.8 billion ($1.8 billion), plus closing
adjustments for working capital at August 31, 2000 and cash
flow and interest for the period September 1 to
November 16, 2000 which in total at December 31, 2000
approximated an additional $40.7 million.

In connection with the sale to CanWest,
Ravelston, a holding company controlled by Lord Black through
which most of his interest in the company is ultimately
controlled, entered into a management services agreement with
CanWest and National Post pursuant to which it agreed to
continue to provide management services to the Canadian
businesses sold to CanWest in consideration for an annual fee of
Cdn. $6 million ($4 million) payable by CanWest. In
addition, CanWest will be obligated to pay Ravelston a
termination fee of Cdn. $45 million, in the event that
CanWest chooses to terminate the management services agreement
or Cdn. $22.5 million, in the event that Ravelston chooses
to terminate the agreement (which cannot occur before
December 31, 2002). Also, as required by CanWest as a
condition to the transaction, the Company, Ravelston, Hollinger
Inc., Lord Black and three senior executives entered into
non-competition agreements with CanWest pursuant to which each
agreed not to compete directly or indirectly in Canada with the
Canadian business sold to CanWest for a five-year period,
subject to certain limited exceptions, for aggregate
consideration of Cdn. $80 million ($53 million) paid
by CanWest in addition to the purchase price referred to above
of which Cdn. $38 million ($25.2 million) was paid to
Ravelston and Cdn. $42 million ($27.8 million) was
paid to Lord Black and the three senior executives. The
Companys independent directors have approved the terms of
these payments.

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During 2000, the Company sold most of its
remaining U.S. community newspaper properties, for total
proceeds of approximately $215 million. In connection with
the sales of United States newspaper properties in 2000, to
satisfy a closing condition, the Company, Lord Black and three
senior executives entered into non-competition agreements with
the purchasers to which each agreed not to compete directly or
indirectly in the United States with the United States
businesses sold to purchasers for a fixed period, subject to
certain limited exceptions, for aggregate consideration paid in
2001 of $0.6 million. These amounts were in addition to the
aggregate consideration paid in respect of these non-competition
agreements in 2000 of $15 million. Such amounts were paid
to Lord Black and the three senior executives. The
Companys independent directors have approved the terms of
these payments.

Included in the above sale, the Company sold four
U.S. Community Newspapers for an aggregate consideration of
$38 million to Bradford Publishing Company, a company
formed by a former U.S. Community Group executive and in
which some of the Companys directors are shareholders. The
terms of this transaction were approved by the independent
directors of the Company.

During 1999, the Company sold to Horizon
Publications Inc. 33 U.S. community newspapers for
$43.7 million. During 2001, the Company transferred two
publications to Horizon Publications Inc. in exchange for net
working capital. Horizon Publications Inc. is managed by former
Community Group executives and controlled by certain members of
the Board of Directors of the Company. The terms of these
transactions were approved by the independent directors of the
Company.

The Company issued to Hollinger Inc. in
connection with the 1995 Reorganization in which the Company
acquired Hollinger Inc.s interest in The Telegraph and
Southam, 739,500 shares of Series A Preferred Stock. The
Series A Preferred Stock was subsequently exchanged for
Series D Preferred Stock. During 1998, 408,551 shares of
Series D Preferred Stock were converted into 2,795,165
shares of Class A Common Stock. In February 1999, 196,823
shares of Series D Preferred Stock were redeemed for cash
of $19.4 million. In May 1999, the remaining 134,126 shares
of Series D Preferred Stock were converted into 134,126
shares of Series E Preferred Stock. In September 2001,
40,920 shares of Series E Preferred Stock were redeemed for
cash of $3.8 million. The shares of Series E Preferred
Stock are redeemable in whole or in part, at any time and from
time to time, subject to restrictions in the Companys
credit facilities, by the Company or by a holder of such shares.

Pursuant to a January 1997 transaction wherein
the Company acquired Canadian publishing assets from Hollinger
Inc., the Company issued 829,409 shares of Series C
Preferred Stock. The stated value of each share was $108.51. On
June 1, 2001, the Company converted all the Series C
Preferred Stock at the conversion ratio of 8.503 shares of
Class A Common Stock per share of Series C Preferred
Stock into 7,052,464 shares of Class A Common Stock. On
September 5, 2001, the Company purchased for cancellation,
from Hollinger Inc., the 7,052,464 shares of Class A Common
Stock for a total cost of $92.2 million or $13.07 per share
which represented 98% of the September 5, 2001 closing
price.

Recent Accounting Pronouncements

Business combinations, goodwill and other
intangible assets.In July 2001, the
Financial Accounting Standards Board (FASB) issued
SFAS 141 Business Combinations and SFAS 142
Goodwill and Other Intangible Assets. SFAS 141
requires that the purchase method of accounting be used for all
business combinations. SFAS 141 also specifies criteria that
intangible assets acquired in a business combination must meet
to be recognized and reported separately from goodwill. SFAS 141
will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for
impairment at least annually by comparing carrying value to the
respective fair value in accordance with the provisions of SFAS
142. SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment by assessing the recoverability of the
carrying value.

The Company adopted the provisions of SFAS 141 as
of July 1, 2001 and SFAS 142 is effective January 1,
2002. As of the date of adoption of SFAS 142, the Company
expects to have unamortized goodwill and unamortized
identifiable intangible assets in the amount of
$674.6 million, which will be subject to the transition
provisions of SFAS 142. Amortization expense related to goodwill
and intangibles was $35.8 million and $58.1 million
for the years ended December 31, 2001 and 2000,
respectively. Because of the extensive effort needed to comply
with adopting SFAS 142, it is not practicable to reasonably
estimate the impact of adopting SFAS 142 on the Companys
financial statements at the date of this report, including
whether there will be any transitional impairment losses
recognized as a cumulative effect of a change in accounting
principles.

39



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Accounting for the impairment or disposal of
long-lived assets.SFAS 144
Accounting for the Impairment or Disposal of Long-Lived
Assets was issued in October 2001. The statement
supersedes SFAS 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of
 and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (Opinion
30), for the disposal of a segment of a business (as previously
defined in that Opinion). SFAS 144 retains the fundamental
provisions in SFAS 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets
to be disposed of by sale. It also provides guidance on how a
long-lived asset that is used as part of a group should be
evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting
for a long-lived asset that will be disposed of other than by
sale. SFAS 144 retains the basic provisions of Opinion 30 on how
to present discontinued operations in the income statement but
broadens that presentation to include a component of an entity
(rather than a segment of a business). SFAS 144 is effective
January 1, 2002. The Company has not determined the impact
of adopting SFAS 144 in the Companys financial statements.




Item 7A.     Quantitative
and Qualitative Disclosure about Market Risk

Newsprint.Newsprint
prices continued to fluctuate throughout 2001 and on a
consolidated basis newsprint expense amounted to
$204.4 million ($304.2 million in 2000 and
$310.9 million in 1999). Management believes that newsprint
prices may vary widely from time to time and could continue to
show significant price variations in the future. During the
first half of 2001, newsprint prices in North America were at
their highest price per tonne since 1994 and 1995. However, the
recessional climate in 2001 caused a significant decline in
industry consumption and this, coupled with an abundant supply
of competitively priced newsprint resulted in a downward trend
in prices during the second half of 2001. This downward trend
has continued into the early part of 2002 and there are
indications that prices will stabilize at their current levels.
In the United Kingdom, newsprint prices payable by the Company
in 2002, which are subject to longer-term contracts, will be
less than the average prices paid in 2001. Operating divisions
take steps to ensure that they have sufficient supply of
newsprint and have mitigated cost increases by adjusting
pagination and page sizes and printing and distributing
practices. For the Company and subsidiaries, total newsprint
usage in 2001, for operations still owned at December 31,
2001, was about 314,000 tonnes. At those levels of usage, a
change in the price of newsprint of $50 per tonne would increase
or decrease net income by about $9.8 million.

Total Return Equity Swap.Under the terms of the Total Return
Equity Swap, a decline in the value of the Companys share
price could result in the Company having to issue additional
shares or pay a cash settlement of any loss suffered by the
counterparties to the swap contracts. A decrease in the
Companys share price of $1.00 per share would result in an
amount due to the counterparties of approximately
$7 million.

Inflation.During
the past three years, inflation has not had a material effect on
the Companys newspaper business in the United States,
United Kingdom and Canada.

Interest Rates.At
December 31, 2001, the Company had no debt on which
interest is calculated at floating rates. Interest paid to the
banks under the Total Return Equity Swap is at floating rates. A
1% change in the interest rate would result in a change in
interest cost, in respect of the Total Return Equity Swap of
$1.0 million per year.

Foreign Exchange Rates.A substantial portion of the
Companys income is earned outside of the United States in
currencies other than the United States dollar. As a result, the
Companys income is vulnerable to changes in the value of
the United States dollar. Increases in the value of the United
States dollar can reduce net earnings and declines can result in
increased earnings. Based on 2001 earnings and ownership levels,
a $0.05 change in the important foreign currencies would have
the following effect on the Companys reported earnings:

|               |  |              |            |                    |  |   |            | 
|-------------- |  | ------------ | ---------- | ------------------ |  | - | ---------- | 
|               |  | Actual 2001  |            |                   
|               |  | Average Rate |            | Increase/ Decrease
|               |  |              |            |                   
|United Kingdom |  | $            | 1.45/£     |                    |  | $ | 476,000    | 
|Canada         |  | $            | 0.65/Cdn.$ |                    |  | $ | 10,450,000 | 
|               |  |              |            |                    |  |   |            | 

As a result of the sale of Canadian properties in
2000 and 2001, the Company is significantly less vulnerable to
changes in the value of the Canadian dollar compared with the
United States dollar.

40



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##### Table of Contents



In 2001, the Company sold Participations in Cdn.
$756.8 million principal amount of CanWest debentures to a
special purpose trust (Participation Trust). In
respect of these debentures, the Company will eventually be
 required to deliver to the Participation Trust
$490.5 million which equates to a fixed rate of exchange of
0.6482 United States dollars to each Canadian dollar. Given that
the CanWest debentures are denominated in Canadian dollars, the
Company has entered into a forward foreign exchange contract to
mitigate part of the currency exposure. The foreign currency
contract requires the Company to sell Cdn. $666.6 million
on May 15, 2003 at a forward rate of 0.6423. A $0.05 change
in the U.S. dollar to Canadian dollar exchange rate applied
to the unhedged portion of the obligation in the amount of Cdn.
$90.2 million ($56.6 million) at December 31,
2001 would result in a $4.5 million change in the amount
available for delivery to the Participation Trust. In March
2002, the Company sold Cdn. $199 million of its foreign
currency contract at a time when the exchange rate was 0.6308.
The Company has entered into another Cdn. $50 million
foreign currency contract at the exchange rate of 0.6338 to
replace part of the contract sold.

Electronic Media.Management continues to hold the view
that newspapers will continue to be an important business
segment. Among educated and affluent people, indications are
that strong newspaper readership will continue. Alternate forms
of information delivery such as the Internet could impact
newspapers, but recognition of the Internets potential
combined with a strong newspaper franchise could be a platform
for Internet operations. Newspaper readers can be offered a
range of Internet services as varied as the content. Virtually
all newspapers are now published on the Internet as well as in
the traditional newsprint format.




Item 8.     Financial
Statements and Supplementary Data

The information required by this item appears
beginning at page F-1 of this Form 10-K.




Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

The information required by this item is
incorporated by reference to the Companys Proxy Statement
for the 2002 Annual Meeting of Stockholders.




Item 11.     Executive
Compensation

The information required by this item is
incorporated by reference to the Companys Proxy Statement
for the 2002 Annual Meeting of Stockholders.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by this item is
incorporated by reference to the Companys Proxy Statement
for the 2002 Annual Meeting of Stockholders.




Item 13.     Certain
Relationships and Related Transactions

The information required by this item is
incorporated by reference to the Companys Proxy Statement
for the 2002 Annual Meeting of Stockholders.

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##### Table of Contents






PART IV






Item 14.     Exhibits,
Financial Statement Schedules, and Reports on
Form 8-K


(a) Documents filed as part of this report.



(1) Financial Statements and Supplemental
        Schedules.

The consolidated financial statements filed as
part of this report appear beginning at page F-1.

(2) Exhibits.

|            |     |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                           
|----------- | --- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|            |     |                        |  | Prior Filing or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Exhibit No. |     | Description of Exhibit |  | Sequential Page Number                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |     |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 2.4 |                        |  | Purchase Agreement relating to the Senior Notes,
        dated March 12, 1997                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Incorporated by reference to Exhibit 1.01 to
        Current Report on Form 8-K dated March 18, 1997.                                                     
|           
|            | 2.5 |                        |  | Purchase Agreement relating to the Senior
        Subordinated Notes, dated March 12, 1997                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Incorporated by reference to Exhibit 1.02 to
        Current Report on Form 8-K dated March 18, 1997.                                                     
|           
|            | 3.1 |                        |  | Restated Certificate of Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Incorporated by reference to Exhibit 3.1 to
        Current Report on Form 8-K dated October 13, 1995.                                                    
|           
|            | 3.2 |                        |  | Bylaws, as amended and restated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Incorporated by reference to Exhibit 3.2 to
        Registration Statement on Form S-1 (No. 33-74980).                                                    
|           
|            | 3.3 |                        |  | Certificate of Designations for Series B
        Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Incorporated by reference to Exhibit 3.01 to
        Current Report on Form 8-K dated August 7, 1996.                                                     
|           
|            | 4.1 |                        |  | Fourth Amended and Restated Credit Agreement
        dated April 30, 1999 among Hollinger International
        Publishing Inc., Telegraph Group Limited, Hollinger Canadian
        Publishing Holdings Inc., Southam Inc., HIF Corp., various
        financial institutions, The Toronto Dominion Bank, as
        Issuing Bank, the Bank of Nova Scotia, as Syndication
        Agent, Canadian Imperial Bank of Commerce, as Documentation
        Agent, and Toronto Dominion (Texas), Inc., as Administrative
        Agent. |  | Pursuant to S-K 601(b)(4)(iii), the Registrant
        has not filed a copy of this exhibit but will furnish a copy
        upon the Commissions request.
|           
|            | 4.2 |                        |  | Senior Indenture, dated as of March 18, 1997                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Incorporated by reference to Exhibit 4.01 to
        Current Report on Form 8-K dated March 18, 1997.                                                     
|           
|            | 4.3 |                        |  | Senior Subordinated Indenture, dated as of
        March 18, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Incorporated by reference to Exhibit 4.03 to
        Current Report on Form 8-K dated March 18, 1997.                                                     
|           
|            | 4.4 |                        |  | Exchange Indenture, dated July 17, 1997,
        among Hollinger Canadian Publishing Holdings Inc., Hollinger
        International Inc. and Montreal Trust Company of Canada.                                                                                                                                                                                                                                                                                                                                                      |  | Incorporated by reference to Exhibit 4.01 to
        Registration Statement on Form S-3 (No. 333-35619).                                                  

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|            |       |                        |  |                                                                                                                                                                                       |  |                                                                                                                       
|----------- | ----- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|            |       |                        |  | Prior Filing or                                                                                                                                                                      
|Exhibit No. |       | Description of Exhibit |  | Sequential Page Number                                                                                                                                                               
|            |       |                        |  |                                                                                                                                                                                      
|            | 4.5   |                        |  | Indenture dated as of February 7, 1996 among
        Hollinger International Publishing Inc., Hollinger International
        Inc. and Fleet National Bank of Connecticut as Trustee. |  | Incorporated by reference to Exhibit 10.4 to
        Current Report on Form 8-K Dated February 7, 1996.               
|           
|            | 10.4  |                        |  | American Publishing Company 1994 Stock Option
        Plan.                                                                                                                           |  | Incorporated by reference to Exhibit 10.10
        to Registration Statement on Form S-1
        (No. 33-74980).      
|           
|            | 10.5  |                        |  | Hollinger International Inc. 1997 Stock Incentive
        Plan.                                                                                                                       |  | Incorporated by reference to Annex A to
        Report on Form DEF 14A dated March 28, 1997.                          
|           
|            | 10.12 |                        |  | Hollinger International Inc. 1999 Stock Incentive
        Plan.                                                                                                                       |  | Incorporated by reference to Annex A to
        Report on Form DEF 14A dated March 24, 1999.                          
|           
|            | 10.15 |                        |  | CanWest Transaction Agreement dated July 30,
        2000 and Amending Agreement thereto dated November 15, 2000.                                                                     |  | Incorporated by reference to Exhibit 2.1 and
        2.2 to Current Report on Form 8-K Dated December 1,
        2000.
|           
|            | 21.1  |                        |  | Significant Subsidiaries of Hollinger
        International Inc.                                                                                                                      |  |                                                                                                                       
|           
|            | 23.1  |                        |  | Consent of KPMG LLP.                                                                                                                                                                  |  |                                                                                                                       

(b) Reports on Form 8-K.

The Company did not file any report on
Form 8-K in 2001.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                             
| | ----------------------------
| | HOLLINGER INTERNATIONAL INC.
| | (Registrant)                



| |     |                    
| | --- | -------------------
| | By: | /s/ CONRAD M. BLACK

| |                                             
| | --------------------------------------------
| |                                             
| | Lord Black of Crossharbour, PC(C), OC, KCSG,
| | Chairman and Chief Executive Officer        

Date: March 28, 2002

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities on the dates indicated.

|                                                          |  |                                                                                      |  |                |  | 
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | -------------- |  | 
|                                                          |  |                                                                                      |  |               
|Signature                                                 |  | Title                                                                                |  | Date          
|                                                          |  |                                                                                      |  |               
|                                                         
|/s/ CONRAD M. BLACKConrad M. Black                        |  | Chairman, Chief Executive Officer and Director
        (Principal Executive Officer) |  | March 28, 2002
|                                                         
|/s/ JOHN A BOULTBEEJohn A Boultbee                        |  | Executive Vice President
        (Principal Financial Officer)                       |  | March 28, 2002
|                                                         
|/s/ FREDERICK A. CREASEYFrederick A. Creasey              |  | Group Corporate Controller
        (Principal Accounting Officer)                    |  | March 28, 2002
|                                                         
|/s/ F. DAVID RADLERF. David Radler                        |  | Deputy Chairman, President,
        Chief Operating Officer and Director             |  | March 28, 2002
|                                                         
|/s/ DANIEL W. COLSONDaniel W. Colson                      |  | Vice Chairman and Director                                                           |  | March 28, 2002
|                                                         
|/s/ BARBARA AMIEL BLACKBarbara Amiel Black                |  | Vice President  Editorial and Director                                              |  | March 28, 2002
|                                                         
|/s/ DWAYNE O. ANDREASDwayne O. Andreas                    |  | Director                                                                             |  | March 28, 2002
|                                                         
|/s/ RICHARD R. BURTRichard R. Burt                        |  | Director                                                                             |  | March 28, 2002
|                                                         
|/s/                                   Raymond G. Chambers |  | Director                                                                             |  | March 28, 2002
|                                                         
|/s/ HENRY A. KISSINGERHenry A. Kissinger                  |  | Director                                                                             |  | March 28, 2002
|                                                         
|/s/ MARIE-JOSEE KRAVISMarie-Josee Kravis                  |  | Director                                                                             |  | March 28, 2002

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|                                                        |  |          |  |                |  | 
|------------------------------------------------------- |  | -------- |  | -------------- |  | 
|                                                        |  |          |  |               
|Signature                                               |  | Title    |  | Date          
|                                                        |  |          |  |               
|                                                       
|/s/                                   Shmuel Meitar     |  | Director |  | March 28, 2002
|                                                       
|/s/ RICHARD N. PERLERichard N. Perle                    |  | Director |  | March 28, 2002
|                                                       
|/s/ ROBERT S. STRAUSSRobert S. Strauss                  |  | Director |  | March 28, 2002
|                                                       
|/s/                                   A. Alfred Taubman |  | Director |  | March 28, 2002
|                                                       
|/s/ JAMES R. THOMPSONJames R. Thompson                  |  | Director |  | March 28, 2002
|                                                       
|/s/                                   Lord Weidenfeld   |  | Director |  | March 28, 2002
|                                                       
|/s/ LESLIE H. WEXNERLeslie H. Wexner                    |  | Director |  | March 28, 2002

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INDEPENDENT AUDITORS REPORT

To the Board of Directors of

Hollinger International Inc.:


We have audited the accompanying consolidated
balance sheets of Hollinger International Inc. and subsidiaries
as of December 31, 2001 and 2000, and the related
consolidated statements of operations, comprehensive income
(loss), stockholders equity, and cash flows for each of
the years in the three-year period ended December 31, 2001.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Hollinger International Inc.
and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America.



/s/ KPMG LLP



February 21, 2002

Chicago, Illinois


F-1



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

STATEMENT OF SIGNIFICANT ACCOUNTING
POLICIES

For the Years Ended December 31, 2001, 2000
and 1999


1.   Principles of Presentation
and Consolidation

Hollinger International Inc. (the
Company) is a subsidiary of Hollinger Inc., a
Canadian corporation. At December 31, 2001, Hollinger Inc.
owned 32.1% of the combined equity and 71.8% of the combined
voting power of the outstanding Common Stock of the Company,
without giving effect to conversion of the Series E
Redeemable Convertible Preferred Stock (Series E
Preferred Stock).

The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries and
other controlled entities. The Companys interest in
Hollinger Canadian Newspapers, Limited Partnership
(Hollinger L.P.) was 87.0%, 87.0% and 85.0% at
December 31, 2001, 2000 and 1999, respectively (see Note
1(j) of Notes to Consolidated Financial Statements for
discussion of partnership formation). The Companys
interest in The National Post Company (National
Post) was 50.0% and 100.0% at December 31, 2000 and
1999, respectively (see Note 1(c) of Notes to Consolidated
Financial Statements for discussion of sale of National Post).
All significant intercompany balances and transactions have been
eliminated on consolidation.

2.   Description of
Business

The Company is principally engaged in the
publishing, printing and distribution of newspapers and
magazines through subsidiaries and affiliates primarily in the
United States, the United Kingdom, Canada and Israel. In
addition, the Company has developed a strategic online new media
presence. The Companys raw materials, mainly newsprint and
ink, are not dependent on a single or limited number of
suppliers. Customers range from individual subscribers to local
and national advertisers.

3.   Critical Accounting
Policies and Estimates

The preparation of consolidated financial
statements requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, investments,
intangible assets, income taxes, restructuring, pensions and
other post-retirement benefits, and contingencies and
litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.

The Company believes the following critical
accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.

The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. If the financial
condition of the Companys customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances could be required.

The Company holds minority interests in both
publicly traded and not publicly traded internet-related
companies. Some of the publicly traded companies have highly
volatile share prices. The Company records an investment
impairment charge when it believes an investment has experienced
a decline in value that is other than temporary. Future adverse
changes in market conditions or poor operating results of
underlying investments may not be reflected in an
investments current carrying value, thereby possibly
requiring an impairment charge in the future.

F-2



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
 (Continued)

The Company has significant intangible assets
recorded in its accounts. Certain of the Companys
newspapers operate in highly competitive markets. The Company
has estimated the useful lives of its goodwill and identifiable
intangible assets for these newspapers and its other newspapers,
based on industry trends and existing competitive pressures.
Future adverse changes in long-term readership patterns in its
newspapers could result in a material impairment of its
intangible assets in the future.

4.   Cash Equivalents

Cash equivalents consist of certain highly liquid
investments with original maturities of three months or less.

5.   Inventories

Inventories consist principally of newsprint that
is valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.

6.   Impairment of Long-Lived
Assets

The Company assesses the recoverability of its
long-lived assets, such as property, plant and equipment and
intangible assets, whenever events or changes in business
circumstances indicate the carrying amount of the assets, or
related group of assets, may not be fully recoverable. The
assessment of recoverability is based on managements
estimate of undiscounted future operating cash flows of its
long-lived assets. If the assessment indicates that the
undiscounted operating cash flows do not exceed the net book
value of the long-lived assets, then a permanent impairment has
occurred. The Company would record the difference between the
net book value of the long-lived asset and the fair value of
such asset as a charge against income in the consolidated
statements of operations, if such a difference arose. The
Company has determined that no material permanent impairments
had occurred at December 31, 2001.

7.   Derivatives

The Company is a limited user of derivative
financial instruments to manage risks generally associated with
interest rate and foreign currency exchange rate market
volatility. The Company does not hold or issue derivative
financial instruments for trading purposes. In 1999 and 2000
amounts receivable under interest rate cap agreements were
accrued as a reduction of interest expense and amounts payable
were accrued as interest expense. Interest rate differentials on
all other swap arrangements were accrued as interest rates
changed over the contract periods. Amounts receivable under
foreign currency forward purchase or sale agreements were
accrued as foreign exchange gains and amounts payable were
accrued as foreign exchange losses. In 2001, all derivatives are
recorded at their fair value with changes in fair value
reflected in the consolidated statement of operations.

8.   Property, Plant and
Equipment

Property, plant and equipment are recorded at
cost. Routine maintenance and repairs are expensed as incurred.
Depreciation is calculated under the straight-line method over
the estimated useful lives of the assets, principally 25 to
40 years for buildings and improvements and 3 to 10 years
for machinery and equipment. Leasehold improvements are
amortized using the straight-line method over the shorter of the
estimated useful life of the asset and the lease term.
Construction in progress for production facilities is not
depreciated until the facilities are in use.

9.   Investments

Investments consist of corporate debt and equity
securities. Debt and marketable equity securities which are
classified as available-for-sale are recorded at fair value.
Unrealized holding gains and losses, net of the related tax and
minority interest effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component
of other comprehensive income until realized. Realized gains and
losses from the sale of available-for-sale securities are
determined on a specific identification basis. All other
corporate debt and equity securities are recorded at cost.

F-3



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
 (Continued)

A decline in the market value of any security
below cost that is deemed to be other than temporary results in
a reduction in the carrying amount to fair value. The impairment
is charged to earnings and a new cost basis for the security is
established. Dividend and interest income are recognized when
earned.

10.  Investments in Affiliated
Companies

Investments in the common stock of affiliated
companies are accounted for by the equity method. The excess of
cost of the investment over the Companys share of net
assets at the acquisition date is being amortized on a
straight-line basis over five years.

11.  Intangible Assets

Intangible assets consist of the excess of
acquisition costs over estimated fair value of net assets
acquired (goodwill), non-competition agreements with former
owners of acquired newspapers and circulation related assets.
Amortization is calculated using the straight-line method over
the respective estimated useful lives to a maximum of 40 years.

12.  Deferred Financing Costs

Deferred financing costs consist of costs
incurred in connection with debt financings. Such costs are
amortized on a straight-line basis over the remaining term of
the related debt, up to 10 years.

13.  Deferred Revenue

Deferred revenue represents subscription payments
that have not been earned and are recognized on a straight-line
basis over the term of the related subscription.

14.  Income Taxes

Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the
difference between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.

15.  Foreign Currency
Translation

Foreign operations of the Company have been
translated into U.S. dollars in accordance with the principles
prescribed in Statement of Financial Accounting Standards
No. 52, Foreign Currency Translation. All
assets, liabilities and minority interests are translated at
year-end exchange rates, stockholders equity is translated
at historical rates, and revenues and expenses are translated at
the average rates of exchange prevailing throughout the year.
Translation adjustments are included in the accumulated other
comprehensive income component of stockholders equity.
Translation adjustments are not included in earnings unless they
are actually realized through a sale or upon complete or
substantially complete liquidation of the Companys net
investment in the foreign subsidiary. Gains and losses arising
from the Companys foreign currency transactions are
reflected in net earnings.

16.  Earnings Per Share

Earnings per share is computed in accordance with
Statement of Financial Accounting Standards No. 128. See
note 10 for a reconciliation of the numerator and denominator
for the calculation of basic and diluted earnings per share.

F-4



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
 (Continued)

17.  Stock-Based Compensation

The Company utilizes the intrinsic value based
method of accounting for its stock-based compensation
arrangements. Stock options granted to employees of The
Ravelston Corporation Limited (Ravelston), the
 parent company of Hollinger Inc., are recorded
using the fair value based method and are reflected in the
consolidated statements of stockholders equity as a
dividend in kind.

18.  Reclassifications

Certain 2000 and 1999 amounts in the consolidated
financial statements have been reclassified to conform to the
2001 presentation.

F-5



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000


|                                                                                                    |                                                                                                            |                |           |         |  |   |           |         | 
|--------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | -------------- | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                    |                                                                                                            | 2001           |           | 2000   
|                                                                                                    |                                                                                                            |                |           |        
|                                                                                                    |                                                                                                            |               
|                                                                                                    |                                                                                                            | (in thousands)
|Assets                                                                                             
|Current assets:                                                                                     |                                                                                                            |                |           |         |  |   |           |        
|                                                                                                    | Cash and cash equivalents                                                                                  |                | $         | 479,514 |  |   | $         | 137,671 | 
|                                                                                                    | Accounts receivable, net of allowance for
        doubtful accounts of $16,366 in 2001 and $16,925 in 2000 |                |           | 203,442 |  |   |           | 275,806 | 
|                                                                                                    | Amounts due from related companies, net                                                                    |                |           | 32,228  |  |   |           | 25,929  | 
|                                                                                                    | Inventories                                                                                                |                |           | 21,209  |  |   |           | 21,834  | 
|                                                                                                    | Prepaid expenses and other current assets (notes
        4(b) and 11)                                      |                |           | 25,910  |  |   |           | 11,289  | 
|                                                                                                    |                                                                                                            |                |           |         |  |   |           |        
|Total current assets                                                                                |                                                                                                            |                | 762,303   |         |  |   | 472,529   |        
|Investments (note 2)                                                                                |                                                                                                            |                | 200,906   |         |  |   | 899,078   |        
|Property, plant and equipment, net of accumulated
        depreciation (note 3)                     |                                                                                                            |                | 309,272   |         |  |   | 360,596   |        
|Intangible assets, net of accumulated
        amortization of $163,200 in 2001 and $159,224 in 2000 |                                                                                                            |                | 674,645   |         |  |   | 938,314   |        
|Deferred financing costs and other assets                                                           |                                                                                                            |                | 34,625    |         |  |   | 66,697    |        
|                                                                                                    |                                                                                                            |                |           |         |  |   |           |        
|                                                                                                    |                                                                                                            | $              | 1,981,751 |         |  | $ | 2,737,214 |        
|                                                                                                    |                                                                                                            |                |           |         |  |   |           |        
|(continued)                                                                                        

F-6



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##### Table of Contents



|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |          |          |  
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | --------- | -------- | -------- | - | --------- | -------- | -------- | -
|                                                   |                                                                                                                                                                               | 2001                                               |           | 2000    
|                                                   |                                                                                                                                                                               |                                                    |           |         
|                                                   |                                                                                                                                                                               |                                                   
|                                                   |                                                                                                                                                                               | (in thousands)                                    
|Liabilities and Stockholders
        Equity      
|Current liabilities:                               |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|                                                   | Current installments of long-term debt (note 4)                                                                                                                               |                                                    | $         | 3,008    |          |   | $         | 4,753    |         
|                                                   | Accounts payable                                                                                                                                                              |                                                    |           | 97,097   |          |   |           | 133,496  |         
|                                                   | Accrued expenses                                                                                                                                                              |                                                    |           | 134,691  |          |   |           | 145,102  |         
|                                                   | Income taxes payable                                                                                                                                                          |                                                    |           | 290,587  |          |   |           | 386,678  |         
|                                                   | Deferred revenue                                                                                                                                                              |                                                    |           | 41,208   |          |   |           | 60,006   |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Total current liabilities                          |                                                                                                                                                                               |                                                    | 566,591   |          |          |   | 730,035   |         
|Long-term debt, less current installments (note 4) |                                                                                                                                                                               |                                                    | 809,652   |          |          |   | 807,495   |         
|Deferred income taxes (note 18)                    |                                                                                                                                                                               |                                                    | 163,050   |          |          |   | 185,846   |         
|Other liabilities                                  |                                                                                                                                                                               |                                                    | 92,124    |          |          |   | 54,325    |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Total liabilities                                  |                                                                                                                                                                               |                                                    | 1,631,417 |          |          |   | 1,777,701 |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Minority interest (note 6)                         |                                                                                                                                                                               |                                                    | 15,977    |          |          |   | 89,228    |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Redeemable preferred stock (note 7)                |                                                                                                                                                                               |                                                    | 8,582     |          |          |   | 13,088    |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Stockholders equity (note 8):                     |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|                                                   | Convertible preferred stock                                                                                                                                                   |                                                    |           |         |          |   |           |         |         
|                                                   | Class A common stock, $0.01 par value.
        Authorized 250,000,000 shares; issued and outstanding
        96,837,179 and 105,987,298 shares in 2001 and 2000, respectively |                                                    |           | 968      |          |   |           | 1,060    |         
|                                                   | Class B common stock, $0.01 par value.
        Authorized 50,000,000 shares; issued and outstanding
        14,990,000 shares in 2001 and 2000                                |                                                    |           | 150      |          |   |           | 150      |         
|                                                   | Additional paid-in capital                                                                                                                                                    |                                                    |           | 554,891  |          |   |           | 748,503  |         
|                                                   | Accumulated other comprehensive income:                                                                                                                                       |                                                    |           |          |          |   |           |          |         
|                                                   |                                                                                                                                                                               | Cumulative foreign currency translation adjustment |           |          | (147,958 | ) |           |          | (111,970 | )
|                                                   |                                                                                                                                                                               | Unrealized loss on marketable equity securities    |           |          | (6,446   | ) |           |          | (49,580  | )
|                                                   |                                                                                                                                                                               | Minimum pension liability adjustment               |           |          | (16,972  | ) |           |          | (2,094   | )
|                                                   | Retained earnings                                                                                                                                                             |                                                    |           | 132,693  |          |   |           | 531,156  |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|                                                   |                                                                                                                                                                               |                                                    | 517,326   |          |          |   | 1,117,225 |         
|                                                   | Class A common stock in treasury, at
        cost  10,785,811 shares in 2001 and 21,840,371 shares
        in 2000                                                           |                                                    |           | (132,896 | )        |   |           | (258,604 | )       
|                                                   | Class A common stock in escrow 
        5,011,628 shares in 2001 and 129,038 shares in 2000
        (note 11)                                                                |                                                    |           | (58,655  | )        |   |           | (1,424   | )       
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Total stockholders equity                         |                                                                                                                                                                               |                                                    | 325,775   |          |          |   | 857,197   |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|Commitments and contingencies (notes 5 and 16)     |                                                                                                                                                                               |                                                    |           |          |          |   |           |         
|                                                   |                                                                                                                                                                               | $                                                  | 1,981,751 |          |          | $ | 2,737,214 |         
|                                                   |                                                                                                                                                                               |                                                    |           |          |          |   |           |         

See statement of significant accounting
policies and accompanying notes to consolidated financial
statements.

F-7



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended December 31, 2001,
2000 and 1999


|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |           |  
|-------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | --------- | -------- | - | ---- | --------- | --------- | - | - | --------- | --------- | -
|                                                                                       |                                       | 2001                                  |           | 2000     |   | 1999
|                                                                                       |                                       |                                       |           |          |   |     
|                                                                                       |                                       |                                      
|                                                                                       |                                       | (in thousands, except per share data)
|Operating revenues:                                                                    |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|                                                                                       | Advertising                           |                                       | $         | 804,462  |   |      | $         | 1,543,882 |   |   | $         | 1,557,033 |  
|                                                                                       | Circulation                           |                                       |           | 278,321  |   |      |           | 447,050   |   |   |           | 487,002   |  
|                                                                                       | Job printing                          |                                       |           | 25,092   |   |      |           | 59,089    |   |   |           | 48,207    |  
|                                                                                       | Other                                 |                                       |           | 38,446   |   |      |           | 45,998    |   |   |           | 55,160    |  
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Total operating revenues                                                               |                                       |                                       | 1,146,321 |          |   |      | 2,096,019 |           |   |   | 2,147,402 |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Operating costs and expenses:                                                          |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|                                                                                       | Newsprint                             |                                       |           | 204,424  |   |      |           | 304,177   |   |   |           | 310,850   |  
|                                                                                       | Compensation costs                    |                                       |           | 367,432  |   |      |           | 662,351   |   |   |           | 684,365   |  
|                                                                                       | Stock-based compensation              |                                       |           | (1,369   | ) |      |           | 1,518     |   |   |           |          |  
|                                                                                       | Other operating costs                 |                                       |           | 520,742  |   |      |           | 775,641   |   |   |           | 791,931   |  
|                                                                                       | Infrequent items (note 12)            |                                       |           | 21,734   |   |      |           | 7,950     |   |   |           | 22,046    |  
|                                                                                       | Depreciation                          |                                       |           | 37,968   |   |      |           | 64,546    |   |   |           | 64,153    |  
|                                                                                       | Amortization                          |                                       |           | 35,760   |   |      |           | 58,088    |   |   |           | 61,255    |  
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Total operating costs and expenses                                                     |                                       |                                       | 1,186,691 |          |   |      | 1,874,271 |           |   |   | 1,934,600 |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Operating income (loss)                                                                |                                       |                                       | (40,370   | )        |   |      | 221,748   |           |   |   | 212,802   |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Other income (expense):                                                                |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|                                                                                       | Interest expense                      |                                       |           | (78,639  | ) |      |           | (142,713  | ) |   |           | (131,600  | )
|                                                                                       | Amortization of debt issue costs      |                                       |           | (10,367  | ) |      |           | (10,469   | ) |   |           | (16,209   | )
|                                                                                       | Interest and dividend income          |                                       |           | 64,893   |   |      |           | 18,536    |   |   |           | 7,716     |  
|                                                                                       | Foreign currency gains (losses), net  |                                       |           | (1,259   | ) |      |           | (16,048   | ) |   |           | 13,774    |  
|                                                                                       | Other income (expense), net (note 13) |                                       |           | (295,878 | ) |      |           | 478,011   |   |   |           | 326,343   |  
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Total other income (expense)                                                           |                                       |                                       | (321,250  | )        |   |      | 327,317   |           |   |   | 200,024   |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Earnings (loss) before income taxes, minority
        interest and extraordinary items |                                       |                                       | (361,620  | )        |   |      | 549,065   |           |   |   | 412,826   |          
|Income taxes (recovery) (note 18)                                                      |                                       |                                       | (10,201   | )        |   |      | 374,898   |           |   |   | 155,203   |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Earnings (loss) before minority interest and
        extraordinary items               |                                       |                                       | (351,419  | )        |   |      | 174,167   |           |   |   | 257,623   |          
|Minority interest                                                                      |                                       |                                       | (13,913   | )        |   |      | 50,760    |           |   |   | 7,088     |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Earnings (loss) before extraordinary items                                             |                                       |                                       | (337,506  | )        |   |      | 123,407   |           |   |   | 250,535   |          
|Extraordinary loss on debt extinguishments
        (note 4(f))                         |                                       |                                       |          |          |   |      | (6,332    | )         |   |   | (5,183    | )        
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Net earnings (loss)                                                                    |                                       | $                                     | (337,506  | )        |   | $    | 117,075   |           |   | $ | 245,352   |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Basic earnings (loss) per share before
        extraordinary items                     |                                       | $                                     | (3.42     | )        |   | $    | 1.16      |           |   | $ | 2.35      |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Diluted earnings (loss) per share before
        extraordinary items                   |                                       | $                                     | (3.42     | )        |   | $    | 1.11      |           |   | $ | 2.13      |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Basic earnings (loss) per share                                                        |                                       | $                                     | (3.42     | )        |   | $    | 1.10      |           |   | $ | 2.30      |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          
|Diluted earnings (loss) per share                                                      |                                       | $                                     | (3.42     | )        |   | $    | 1.05      |           |   | $ | 2.09      |          
|                                                                                       |                                       |                                       |           |          |   |      |           |           |   |   |           |          

See statement of significant accounting
policies and accompanying notes to consolidated financial
statements.

F-8



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

For the Years Ended December 31, 2001,
2000 and 1999


|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |        |  
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------- | ------- | - | ---- | -------- | ------- | - | - | ------- | ------ | -
|                                   |                                                                                                                                                                                                                                                                                 | 2001           |          | 2000    |   | 1999
|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |     
|                                   |                                                                                                                                                                                                                                                                                 |               
|                                   |                                                                                                                                                                                                                                                                                 | (in thousands)
|Net earnings (loss)                |                                                                                                                                                                                                                                                                                 | $              | (337,506 | )       |   | $    | 117,075  |         |   | $ | 245,352 |       
|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |       
|Other comprehensive income (loss): |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |       
|                                   | Unrealized loss on marketable equity securities
        arising during the year, net of a related tax recovery of
        $18,730 and minority interest of $4,411 (2000  net of
        a related tax recovery of $13,729 and minority interest of
        $2,522; 1999  nil) |                |          | (80,586 | ) |      |          | (47,008 | ) |   |         | (2,572 | )
|                                   | Reclassification adjustment for realized losses
        reclassified out of accumulated comprehensive income, net of a
        related tax recovery of $30,420 and minority interest of $6,122                                                                                  |                |          | 123,720 |   |      |          |        |   |   |         |       |  
|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |       
|                                   |                                                                                                                                                                                                                                                                                 |                | 43,134   |         |   |      | (47,008  | )       |   |   | (2,572  | )     
|                                   | Foreign currency translation adjustments                                                                                                                                                                                                                                        |                |          | (35,988 | ) |      |          | (90,050 | ) |   |         | 43,879 |  
|                                   | Minimum pension liability adjustment, net of a
        related tax recovery of $7,573 (2000  nil)                                                                                                                                                                              |                |          | (14,878 | ) |      |          | (2,094  | ) |   |         |       |  
|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |       
|                                   |                                                                                                                                                                                                                                                                                 |                | (7,732   | )       |   |      | (139,152 | )       |   |   | 41,307  |       
|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |       
|Comprehensive income (loss)        |                                                                                                                                                                                                                                                                                 | $              | (345,238 | )       |   | $    | (22,077  | )       |   | $ | 286,659 |       
|                                   |                                                                                                                                                                                                                                                                                 |                |          |         |   |      |          |         |   |   |         |       

See statement of significant accounting
policies and accompanying notes to consolidated financial
statements.

F-9



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

For the Years Ended December 31, 2001,
2000 and 1999


|                                                            |  |                |        |             |  |            |       |               |  |          |          |          |  |           |          |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|----------------------------------------------------------- |  | -------------- | ------ | ----------- |  | ---------- | ----- | ------------- |  | -------- | -------- | -------- |  | --------- | -------- | ----- |  | - | -------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                                            |  |                |        |             |  |            |       | Accumulated   |  |          |          |          |  |           |          |      
|                                                            |  | Convertible    |        | Common      |  | Additional |       | other         |  |          |          |          |  | Issued    |          |      
|                                                            |  | preferred      |        | stock       |  | paid-in    |       | comprehensive |  | Retained |          | Treasury |  | shares    |          |      
|                                                            |  | stock          |        | Class A & B |  | capital    |       | income (loss) |  | earnings |          | stock    |  | in escrow |          | Total
|                                                            |  |                |        |             |  |            |       |               |  |          |          |          |  |           |          |      
|                                                            |  |               
|                                                            |  | (in thousands)
|Balance at December 31, 1998                                |  | $              | 6,377  |             |  | $          | 1,106 |               |  | $        | 610,440  |          |  | $         | (65,799  | )     |  | $ | 301,133  |   |  | $ | (16,744  | ) |  | $ | (18,592 | ) |  | $ | 817,921  |  
|Stock option exercise                                       |  |                |       |             |  |            | 1     |               |  |          | 1,303    |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 1,304    |  
|Share issue                                                 |  |                |       |             |  |            |      |               |  |          | 92       |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 92       |  
|Cash dividends  Class A andClass B, $0.55 per share        |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (55,360  | ) |  |   |         |   |  |   |        |   |  |   | (55,360  | )
|Dividends on redeemable preferred stock                     |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (262     | ) |  |   |         |   |  |   |        |   |  |   | (262     | )
|Dividends on convertible preferred stock                    |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (9,221   | ) |  |   |         |   |  |   |        |   |  |   | (9,221   | )
|Deemed dividend                                             |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (6,327   | ) |  |   |         |   |  |   |        |   |  |   | (6,327   | )
|Translation adjustments                                     |  |                |       |             |  |            |      |               |  |          | (1,420   | )        |  |           | 43,879   |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 42,459   |  
|Change in unrealized loss on securities, net                |  |                |       |             |  |            |      |               |  |          |         |          |  |           | (2,572   | )     |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (2,572   | )
|Net earnings                                                |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | 245,352  |   |  |   |         |   |  |   |        |   |  |   | 245,352  |  
|Interest on forward share purchase                          |  |                |       |             |  |            |      |               |  |          | (6,042   | )        |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (6,042   | )
|Common shares repurchased                                   |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   |         |   |  |   | (123,497 | ) |  |   |        |   |  |   | (123,497 | )
|Escrow shares on total return equity swap                   |  |                |       |             |  |            | 41    |               |  |          | 48,332   |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   | (49,995 | ) |  |   | (1,622   | )
|Escrow shares returned                                      |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   |         |   |  |   | (7,714   | ) |  |   | 7,714   |   |  |   |         |  
|                                                            |  |                |        |             |  |            |       |               |  |          |          |          |  |           |          |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 1999                                |  |                | 6,377  |             |  |            | 1,148 |               |  |          | 652,705  |          |  |           | (24,492  | )     |  |   | 475,315  |   |  |   | (147,955 | ) |  |   | (60,873 | ) |  |   | 902,225  |  
|Stock option exercise                                       |  |                |       |             |  |            | 5     |               |  |          | 5,492    |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 5,497    |  
|Preferred stock conversion toClass A common
        stock   |  |                | (6,377 | )           |  |            | 6     |               |  |          | 6,346    |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (25      | )
|Stock-based compensation                                    |  |                |       |             |  |            |      |               |  |          | 1,518    |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 1,518    |  
|Cash dividends  Class A andClass B, $0.55 per share        |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (52,284  | ) |  |   |         |   |  |   |        |   |  |   | (52,284  | )
|Dividends on redeemable preferred stock                     |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (519     | ) |  |   |         |   |  |   |        |   |  |   | (519     | )
|Dividends on convertible preferred stock                    |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (8,431   | ) |  |   |         |   |  |   |        |   |  |   | (8,431   | )
|Minimum pension liability adjustment                        |  |                |       |             |  |            |      |               |  |          |         |          |  |           | (2,094   | )     |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (2,094   | )
|Translation adjustments                                     |  |                |       |             |  |            |      |               |  |          | 503      |          |  |           | (90,050  | )     |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (89,547  | )
|Change in unrealized loss on securities, net                |  |                |       |             |  |            |      |               |  |          |         |          |  |           | (47,008  | )     |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (47,008  | )
|Net earnings                                                |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | 117,075  |   |  |   |         |   |  |   |        |   |  |   | 117,075  |  
|Interest on forward share purchase                          |  |                |       |             |  |            |      |               |  |          | (6,323   | )        |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (6,323   | )
|Gain on total return equity swap (note 11)                  |  |                |       |             |  |            |      |               |  |          | 35,314   |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 35,314   |  
|Escrow shares on total return equity swap                   |  |                |       |             |  |            | 51    |               |  |          | 52,948   |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   | (51,200 | ) |  |   | 1,799    |  
|Escrow shares returned                                      |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   |         |   |  |   | (110,649 | ) |  |   | 110,649 |   |  |   |         |  
|                                                            |  |                |        |             |  |            |       |               |  |          |          |          |  |           |          |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2000                                |  |                |       |             |  |            | 1,210 |               |  |          | 748,503  |          |  |           | (163,644 | )     |  |   | 531,156  |   |  |   | (258,604 | ) |  |   | (1,424  | ) |  |   | 857,197  |  
|Stock option exercise                                       |  |                |       |             |  |            | 6     |               |  |          | 6,857    |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 6,863    |  
|Preferred stock conversion toClass A common
        stock   |  |                |       |             |  |            | 65    |               |  |          | (7,410   | )        |  |           |         |       |  |   |         |   |  |   | 7,345    |   |  |   |        |   |  |   |         |  
|Class A common stock purchased for
        cancellation     |  |                |       |             |  |            | (107  | )             |  |          | (139,148 | )        |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (139,255 | )
|Stock-based compensation                                    |  |                |       |             |  |            |      |               |  |          | (1,369   | )        |  |           |         |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (1,369   | )
|Cash dividends  Class A andClass B, $0.55 per share        |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (48,440  | ) |  |   |         |   |  |   |        |   |  |   | (48,440  | )
|Dividends on redeemable preferred stock                     |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (442     | ) |  |   |         |   |  |   |        |   |  |   | (442     | )
|Dividends on convertible preferred stock                    |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (4,275   | ) |  |   |         |   |  |   |        |   |  |   | (4,275   | )
|Minimum pension liability adjustment                        |  |                |       |             |  |            |      |               |  |          |         |          |  |           | (14,878  | )     |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (14,878  | )
|In kind dividends (note 9)                                  |  |                |       |             |  |            |      |               |  |          | 7,800    |          |  |           |         |       |  |   | (7,800   | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Translation adjustments                                     |  |                |       |             |  |            |      |               |  |          | 713      |          |  |           | (35,988  | )     |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (35,275  | )
|Change in unrealized gain (loss) on securities,
        net |  |                |       |             |  |            |      |               |  |          |         |          |  |           | 43,134   |       |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 43,134   |  
|Net loss                                                    |  |                |       |             |  |            |      |               |  |          |         |          |  |           |         |       |  |   | (337,506 | ) |  |   |         |   |  |   |        |   |  |   | (337,506 | )
|Escrow shares on total return equity swap                   |  |                |       |             |  |            | 49    |               |  |          | 57,203   |          |  |           |         |       |  |   |         |   |  |   |         |   |  |   | (57,231 | ) |  |   | 21       |  
|Treasury shares cancelled                                   |  |                |       |             |  |            | (105  | )             |  |          | (118,258 | )        |  |           |         |       |  |   |         |   |  |   | 118,363  |   |  |   |        |   |  |   |         |  
|                                                            |  |                |        |             |  |            |       |               |  |          |          |          |  |           |          |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2001                                |  | $              |       |             |  | $          | 1,118 |               |  | $        | 554,891  |          |  | $         | (171,376 | )     |  | $ | 132,693  |   |  | $ | (132,896 | ) |  | $ | (58,655 | ) |  | $ | 325,775  |  
|                                                            |  |                |        |             |  |            |       |               |  |          |          |          |  |           |          |       |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  

See statement of significant accounting
policies and accompanying notes to consolidated financial
statements.

F-10



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2001, 2000
and 1999


|                                                |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |          |         |          |  
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------------------- | -------- | ------- | ------- | --------- | --------- | ------- | -------- | ------- | -------- | ------- | -------- | -
|                                                |                                                                                                                      | 2001                                      |                                                                 | 2000     |         | 1999   
|                                                |                                                                                                                      |                                           |                                                                 |          |         |        
|                                                |                                                                                                                      |                                          
|                                                |                                                                                                                      | (in thousands)                           
|Cash flows from operating activities:           |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |         
|                                                | Net earnings (loss)                                                                                                  |                                           | $                                                               | (337,506 | )       |         | $         | 117,075   |         |          | $       | 245,352  |        
|                                                | Adjustments to reconcile net earnings
        (loss) to net cash provided by (used in) operating
        activities: |                                           |                                                                 |          |         |         |           |           |         |          |         |          |        
|                                                |                                                                                                                      |                                           | Depreciation and amortization                                   |          |         | 73,728  |           |           |         | 122,634  |         |          |         | 125,408  |  
|                                                |                                                                                                                      |                                           | Deferred income taxes                                           |          |         | (48,822 | )         |           |         | (27,907  | )       |          |         | 6,086    |  
|                                                |                                                                                                                      |                                           | Amortization of debt issue costs                                |          |         | 10,367  |           |           |         | 10,469   |         |          |         | 16,209   |  
|                                                |                                                                                                                      |                                           | Minority interest                                               |          |         | (13,913 | )         |           |         | 50,760   |         |          |         | 7,088    |  
|                                                |                                                                                                                      |                                           | Equity in loss of affiliates, net of dividends
        received |          |         | 15,098  |           |           |         | 20,340   |         |          |         | 1,734    |  
|                                                |                                                                                                                      |                                           | Loss (gain) on sales of investments                             |          |         | 147,214 |           |           |         | (49,577  | )       |          |         |         |  
|                                                |                                                                                                                      |                                           | Gain on sales of assets                                         |          |         | (72     | )         |           |         | (492,459 | )       |          |         | (336,708 | )
|                                                |                                                                                                                      |                                           | Amortization of deferred gain                                   |          |         | (1,348  | )         |           |         | (1,417   | )       |          |         | (1,616   | )
|                                                |                                                                                                                      |                                           | Write-down of investments                                       |          |         | 48,037  |           |           |         | 20,621   |         |          |         |         |  
|                                                |                                                                                                                      |                                           | Total return equity swap                                        |          |         | 42,845  |           |           |         | 12,276   |         |          |         |         |  
|                                                |                                                                                                                      |                                           | Non-cash interest income                                        |          |         | (43,821 | )         |           |         |         |         |          |         |         |  
|                                                |                                                                                                                      |                                           | Other                                                           |          |         | 13,196  |           |           |         | 7,153    |         |          |         | (1,541   | )
|                                                | Changes in assets and liabilities, net of
        acquisitions and dispositions:                                     |                                           |                                                                 |          |         |         |           |           |         |          |         |          |        
|                                                |                                                                                                                      | Accounts receivable                       |                                                                 |          | 7,755   |         |           |           | (51,383 | )        |         |          | (17,922 | )       
|                                                |                                                                                                                      | Inventories                               |                                                                 |          | (4,516  | )       |           |           | (9,679  | )        |         |          | 3,224   |         
|                                                |                                                                                                                      | Prepaid expenses and other current assets |                                                                 |          | (16,424 | )       |           |           | 892     |          |         |          | 6,817   |         
|                                                |                                                                                                                      | Accounts payable                          |                                                                 |          | 11,081  |         |           |           | 10,279  |          |         |          | (44,016 | )       
|                                                |                                                                                                                      | Accrued expenses                          |                                                                 |          | 8,234   |         |           |           | (53,370 | )        |         |          | 48,259  |         
|                                                |                                                                                                                      | Income taxes payable                      |                                                                 |          | (49,299 | )       |           |           | 368,328 |          |         |          | 55,716  |         
|                                                |                                                                                                                      | Deferred revenue and other                |                                                                 |          | (8,573  | )       |           |           | 4,737   |          |         |          | (7,865  | )       
|                                                |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |         
|Cash provided by (used in) operating activities |                                                                                                                      |                                           | (146,739                                                        | )        |         |         | 59,772    |           |         |          | 106,225 |         
|                                                |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |         
|Cash flows from investing activities:           |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |         
|                                                | Purchase of property, plant and equipment                                                                            |                                           |                                                                 | (44,451  | )       |         |           | (74,024   | )       |          |         | (125,283 | )      
|                                                | Proceeds from sale of property, plant and
        equipment                                                          |                                           |                                                                 | 84       |         |         |           | 8,514     |         |          |         | 12,087   |        
|                                                | Purchase of subsidiaries stock and other
        investments                                                        |                                           |                                                                 | (45,194  | )       |         |           | (79,600   | )       |          |         | (441,689 | )      
|                                                | Acquisitions, net of cash acquired                                                                                   |                                           |                                                                 |         |         |         |           | (117,134  | )       |          |         | (28,659  | )      
|                                                | Proceeds on disposal of investments and other
        assets                                                         |                                           |                                                                 | 840,315  |         |         |           | 1,341,773 |         |          |         | 520,040  |        
|                                                | Other                                                                                                                |                                           |                                                                 | 5,982    |         |         |           | 1,293     |         |          |         | 3,950    |        
|                                                |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |         
|Cash provided by (used in) investing activities |                                                                                                                      |                                           | 756,736                                                         |          |         |         | 1,080,822 |           |         |          | (59,554 | )       
|                                                |                                                                                                                      |                                           |                                                                 |          |         |         |           |           |         |          |         |         
|(continued)                                    

F-11



---



##### Table of Contents



|                                                                     |                                                                                   |                |          |          |   |      |            |            |   |   |         |            |  
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------- | -------- | -------- | - | ---- | ---------- | ---------- | - | - | ------- | ---------- | -
|                                                                     |                                                                                   | 2001           |          | 2000     |   | 1999
|                                                                     |                                                                                   |                |          |          |   |     
|                                                                     |                                                                                   |               
|                                                                     |                                                                                   | (in thousands)
|Cash flows from financing activities:                                |                                                                                   |                |          |          |   |      |            |            |   |   |         |           
|                                                                     | Repayment of debt                                                                 |                |          | (93,469  | ) |      |            | (1,266,189 | ) |   |         | (1,363,351 | )
|                                                                     | Proceeds from bank debt                                                           |                |          | 91,574   |   |      |            | 450,539    |   |   |         | 1,476,323  |  
|                                                                     | Payment of debt issue costs                                                       |                |          | (3,013   | ) |      |            | (2,474     | ) |   |         | (37,964    | )
|                                                                     | Change in borrowings with affiliates                                              |                |          | (9,489   | ) |      |            | (41,146    | ) |   |         | 12,334     |  
|                                                                     | Net proceeds from issuance of equity                                              |                |          | 6,863    |   |      |            | 5,497      |   |   |         | 1,396      |  
|                                                                     | Issuance of common shares by a subsidiary                                         |                |          | 4        |   |      |            |           |   |   |         | 154,463    |  
|                                                                     | Repurchase of common shares                                                       |                |          | (139,255 | ) |      |            |           |   |   |         | (123,497   | )
|                                                                     | Redemption of preference shares                                                   |                |          | (3,800   | ) |      |            |           |   |   |         | (19,362    | )
|                                                                     | Redemption of Special shares                                                      |                |          |         |   |      |            | (58,164    | ) |   |         |           |  
|                                                                     | Dividends paid                                                                    |                |          | (53,157  | ) |      |            | (61,234    | ) |   |         | (64,843    | )
|                                                                     | Deemed dividend                                                                   |                |          |         |   |      |            |           |   |   |         | (6,327     | )
|                                                                     | Dividends and distributions paid by subsidiaries
        to minority stockholders |                |          | (53,673  | ) |      |            | (63,083    | ) |   |         | (112,539   | )
|                                                                     | Other                                                                             |                |          | (1,301   | ) |      |            | (3,977     | ) |   |         | (7,664     | )
|                                                                     |                                                                                   |                |          |          |   |      |            |            |   |   |         |           
|Cash used in financing activities                                    |                                                                                   |                | (258,716 | )        |   |      | (1,040,231 | )          |   |   | (91,031 | )         
|                                                                     |                                                                                   |                |          |          |   |      |            |            |   |   |         |           
|Effect of exchange rate changes on cash and cash
        equivalents |                                                                                   |                | (9,438   | )        |   |      | (2,595     | )          |   |   | 26,475  |           
|                                                                     |                                                                                   |                |          |          |   |      |            |            |   |   |         |           
|Net increase (decrease) in cash and cash
        equivalents         |                                                                                   |                | 341,843  |          |   |      | 97,768     |            |   |   | (17,885 | )         
|Cash and cash equivalents at beginning of year                       |                                                                                   |                | 137,671  |          |   |      | 39,903     |            |   |   | 57,788  |           
|                                                                     |                                                                                   |                |          |          |   |      |            |            |   |   |         |           
|Cash and cash equivalents at end of year                             |                                                                                   | $              | 479,514  |          |   | $    | 137,671    |            |   | $ | 39,903  |           
|                                                                     |                                                                                   |                |          |          |   |      |            |            |   |   |         |           

See statement of significant accounting
policies and accompanying notes to consolidated financial
statements.

F-12



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

For the Years Ended December 31, 2001, 2000
and 1999


(1) Acquisitions and
Dispositions

(a) In January 2001, Hollinger L.P.
completed the sale of UniMédia Company to Gesca Limited, a
subsidiary of Power Corporation of Canada. The publications sold
represented the French language newspapers of Hollinger L.P.
including three paid circulation dailies and 15 weeklies
published in Quebec and Ontario. A pre-tax gain of approximately
$47,500,000 was recognized on this sale.

(b) In two separate transactions in July and
November 2001, the Company and Hollinger L.P. completed the sale
of most of its remaining Canadian newspapers to Osprey Media
Group Inc. (Osprey) for total sale proceeds of
approximately Cdn. $255,000,000 ($166,000,000) plus closing
adjustments primarily for working capital. Included in these
sales were community newspapers in Ontario such as The
Kingston Whig-Standard, The Sault Star, the
Peterborough Examiner, the Chatham Daily Newsand
The Observer (Sarnia). Pre-tax gains of approximately
$800,000 were recognized on these sales. The former Chief
Executive Officer of Hollinger L.P. is a minority shareholder of
Osprey. The Companys independent directors have approved
the terms of these transactions.

In connection with the two sales of Canadian
newspaper properties to Osprey in 2001, to satisfy a closing
condition, the Company, Hollinger Inc., Lord Black of
Crossharbour PC(C), OC, KCSG and three senior executives entered
into non-competition agreements with Osprey pursuant to which
each agreed not to compete directly or indirectly in Canada with
the Canadian businesses sold to Osprey for a five-year period,
subject to certain limited exceptions, for aggregate
consideration of Cdn. $7,900,000 ($5,100,000). Such
consideration was paid to Lord Black and the three senior
executives and has been approved by the Companys
independent directors.

(c) In August 2001, the Company entered into
an agreement to sell to CanWest Global Communications Corp.
(CanWest) its 50% interest in the National Post. In
accordance with the agreement, the Companys
representatives resigned from their executive positions at the
National Post effective September 1, 2001. Accordingly,
from September 1, 2001, the Company had no influence over
the operations of the National Post and the Company no longer
consolidates or records on an equity basis its share of earnings
or losses. The results of operations of the National Post are
included in the consolidated results to August 31, 2001. A
pre-tax loss of approximately $78,200,000 was recognized on the
sale and is recorded in other income (expense), net.

(d) On November 16, 2000, the Company
and its affiliates, Southam and Hollinger L.P. (Hollinger
Group) completed the sale of most of its Canadian
newspapers and related assets to CanWest. Included in the sale
were the following assets of the Hollinger Group:



| |   |                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a 50% interest in National Post, with the Company
        continuing as managing partner;                                                                                                                                                                                                                                                                         
|
| |  | the metropolitan and a large number of community
        newspapers in Canada (including the Ottawa Citizen,
        The Vancouver Sun, The Province(Vancouver), the
        Calgary Herald, the Edmonton Journal, The
        Gazette(Montreal), The Windsor Star, the Regina
        Leader Post, the Star Phoenixand the
        Times-Colonist(Victoria)); and
|
| |  | the operating Canadian Internet properties,
        including canada.com.                                                                                                                                                                                                                                                                                         

The sale resulted in the Hollinger Group
receiving approximately Cdn. $1.7 billion
($1.1 billion) cash, approximately Cdn. $425,000,000
($277,000,000) in voting and non-voting shares of CanWest at
fair value (representing an approximate 15.6% equity interest
and 5.7% voting interest) and subordinated non-convertible
debentures of a holding company in the CanWest group at fair
value of approximately Cdn. $697,000,000 ($456,000,000).
The aggregate sale price of these properties at fair value was
approximately Cdn. $2.8 billion ($1.8 billion), plus
closing adjustments for working capital at August 31, 2000
and cash flow and interest for the period September 1 to
November 16, 2000 which in total was estimated as an additional
$40,700,000 at December 31, 2000. The sale resulted in a
pre-tax gain of approximately $378,500,000 in 2000.

In 2001, certain of the closing adjustments were
finalized, resulting in an additional pre-tax gain in 2001 of
approximately $18,300,000. At December 31, 2001,
approximately $36,000,000 in respect of closing adjustments
remained due to the Company. Certain closing adjustments have
not yet been finalized. Management expects such adjustments to
be finalized in 2002.

F-13



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

In connection with the sale to CanWest,
Ravelston, a holding company controlled by Lord Black through
which most of his interest in the Company is ultimately
controlled, entered into a management services agreement with
CanWest and National Post pursuant to which it agreed to
continue to provide management services to the Canadian
businesses sold to CanWest in consideration for an annual fee of
Cdn. $6,000,000 ($4,000,000) payable by CanWest. In
addition, CanWest will be obligated to pay Ravelston a
termination fee of Cdn. $45,000,000, in the event that
CanWest chooses to terminate the management services agreement
or Cdn. $22,500,000, in the event that Ravelston chooses to
terminate the agreement (which cannot occur before
December 31, 2002). Also, as required by CanWest as a
condition to the transaction, the Company, Ravelston, Hollinger
Inc., Lord Black and three senior executives entered into
non-competition agreements with CanWest pursuant to which each
agreed not to compete directly or indirectly in Canada with the
Canadian businesses sold to CanWest for a five-year period,
subject to certain limited exceptions, for aggregate
consideration of Cdn. $80,000,000 ($53,000,000) paid by
CanWest in addition to the purchase price referred to above, of
which Cdn. $38,000,000 ($25,200,000) was paid to Ravelston
and Cdn. $42,000,000 ($27,800,000) was paid to Lord Black
and the three senior executives. The Companys independent
directors have approved the terms of these payments.

(e) On November 1, 2000, Southam
converted the convertible promissory note in Hollinger L.P. in
the principal amount of Cdn. $225,800,000 ($147,900,000)
into 22,575,324 limited partnership units of Hollinger L.P.,
thereby increasing its interest in Hollinger L.P. to 87.0%.

(f) During 2000, the Company sold most of
its remaining U.S. community newspaper properties, including 11
paid dailies, three paid non-dailies and 31 free distribution
publications for total proceeds of approximately $215,000,000.
Pre-tax gains totaling $91,200,000 were recognized on these
sales in 2000.

In connection with the sales of United States
newspaper properties in 2000, to satisfy a closing condition,
the Company, Lord Black and three senior executives entered into
non-competition agreements with the purchasers pursuant to which
each agreed not to compete directly or indirectly in the United
States with the United States businesses sold to the purchasers
for a fixed period, subject to certain limited exceptions, for
aggregate consideration paid in 2001 of $600,000. These amounts
were in addition to the aggregate consideration paid in respect
of these non-competition agreements in 2000 of $15,000,000. Such
amounts were paid to Lord Black and the three senior executives.
The Companys independent directors have approved the terms
of these payments.

(g) Included in the disposition described in
note 1(f), during 2000 the Company sold four U.S. community
newspapers for an aggregate consideration of $38,000,000 to
Bradford Publishing Company, a company formed by a former U.S.
Community Group executive and in which some of the
Companys directors are shareholders. The terms of this
transaction were approved by the independent directors of the
Company.

(h) In December 2000, the Company acquired
four paid daily newspapers, one paid non-daily and 12 free
distribution publications in the Chicago suburbs for total
purchase consideration of $111,000,000. The excess purchase
price of $84,700,000 over the estimated fair value of tangible
assets acquired was ascribed to intangible assets.

(i) On February 17, 2000, Interactive
Investor International, in which the Company owned
51.7 million shares or a 47% equity interest, had its
initial public offering (IPO) issuing
52 million shares and raising £78,000,000
($125,800,000). The IPO reduced the Companys equity
ownership to 33% and resulted in a dilution gain of $17,000,000
for accounting purposes. Subsequently, the Company sold five
million shares of its holding, reducing its equity interest to
28.5% and resulting in a pre-tax gain in 2000 of $1,600,000. The
balance of the investment was sold in 2001 resulting in an
additional pre-tax gain in 2001 of $14,200,000.

F-14



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(j) In April 1999, the Company formed
Hollinger L.P. Hollinger L.P. acquired 48 daily newspapers,
180 non-daily newspapers and shopping guides and 106
magazines and specialty publications located across Canada from
Southam, UniMédia Inc. and Sterling Newspapers Company in
exchange for promissory notes due April 29, 2020 of
$309,500,000 (Cdn. $451,200,000) and 135,945,972 units in
Hollinger L.P. The transfer of properties to Hollinger L.P. was
accounted for at historical carrying values and no gain was
recognized on the transfer. A Cdn. $200,000,000
($137,200,000) private placement was completed April 30,
1999 and private placement investors subsequently received
20,000,000 partnership units of Hollinger L.P. During July 1999,
Hollinger L.P. completed its initial public offering issuing
4,000,000 units at Cdn. $10 per unit for total proceeds
of Cdn. $40,000,000 ($27,000,000). All
partnership units, including the 20,000,000 units issued through
the April 30, 1999 private placement, are listed on The
Toronto Stock Exchange. As a result of these investments by
others in Hollinger L.P., the Company recognized in 1999
dilution gains of $77,300,000 recorded in other income
(expense), net (note 13).

(k) In January 1999, Hollinger Canada
Publishing Holdings Inc. (HCPH) acquired 19,845,118
outstanding Southam common shares which had been tendered
pursuant to HCPHs offer to all Southam shareholders to
acquire the shares for Cdn. $25.25 cash per share after
payment by Southam of a special dividend of Cdn. $7.00 per
share. The aggregate consideration paid was $327,500,000 and
this purchase of shares brought HCPHs ownership interest
in Southam to approximately 97%. The remaining Southam common
shares were purchased by HCPH in February 1999 pursuant to
applicable Canadian law for an aggregate consideration of
$36,500,000. Of the aggregate purchase price of these 1999
acquisitions, $329,700,000 was ascribed to intangible assets.

(l) In February 1999, the Company completed
the sale of 45 U.S. community newspapers for proceeds of
approximately $460,000,000 of which approximately $441,000,000
was cash. The proceeds from the sale were used to pay down
outstanding debt of the Bank Credit Facility. The pre-tax gain
of approximately $249,200,000 resulting from this transaction
was recorded in other income (expense), net.

(m) During 1999, the Company sold to Horizon
Publications Inc. 33 U.S. community newspapers for $43,700,000
resulting in a pre-tax gain of approximately $20,700,000. During
2001, the Company transferred two publications to Horizon
Publications Inc. in exchange for net working capital. Horizon
Publications Inc. is managed by former Community Group
executives and controlled by certain members of the Board of
Directors of the Company. The terms of these transactions were
approved by the independent directors of the Company.

(n) Throughout 1999, the Company acquired
five community newspapers in the U.S. for total consideration of
$24,500,000. The excess purchase price of $16,900,000 over the
estimated fair value of tangible assets acquired was ascribed to
intangible assets.

F-15



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(2) Investments

|                                                                         |                                                               |                |         |        |   |   |         |         |  
|------------------------------------------------------------------------ | ------------------------------------------------------------- | -------------- | ------- | ------ | - | - | ------- | ------- | -
|                                                                         |                                                               | 2001           |         | 2000  
|                                                                         |                                                               |                |         |       
|                                                                         |                                                               |               
|                                                                         |                                                               | (in thousands)
|Available-for-sale securities, at fair value                             |                                                               |                |         |        |   |   |         |        
|                                                                         | CanWest shares (a)                                            |                | $       |       |   |   | $       | 219,314 |  
|                                                                         | Internet related equity securities                            |                |         | 2,217  |   |   |         | 12,215  |  
|                                                                         | CanWest debentures (b)                                        |                |         | 39,139 |   |   |         | 475,720 |  
|                                                                         |                                                               |                |         |        |   |   |         |        
|                                                                         |                                                               |                | 41,356  |        |   |   | 707,249 |        
|                                                                         |                                                               |                |         |        |   |   |         |        
|Other non-marketable investments, at cost                                |                                                               |                |         |        |   |   |         |        
|                                                                         | Internet related companies                                    |                |         | 49,055 |   |   |         | 64,866  |  
|                                                                         | Notes receivable from joint ventures                          |                |         | 8,508  |   |   |         | 11,533  |  
|                                                                         | Advances under printing contracts with joint
        ventures |                |         | 43,528 |   |   |         | 48,189  |  
|                                                                         | Other                                                         |                |         | 23,673 |   |   |         | 24,154  |  
|                                                                         |                                                               |                |         |        |   |   |         |        
|                                                                         |                                                               |                | 124,764 |        |   |   | 148,742 |        
|                                                                         |                                                               |                |         |        |   |   |         |        
|Equity accounted companies, at equity                                    |                                                               |                |         |        |   |   |         |        
|                                                                         | Printing joint ventures                                       |                |         | 25,860 |   |   |         | 28,067  |  
|                                                                         | Internet related companies                                    |                |         | 5,406  |   |   |         | 14,198  |  
|                                                                         | Other                                                         |                |         | 3,520  |   |   |         | 822     |  
|                                                                         |                                                               |                |         |        |   |   |         |        
|                                                                         |                                                               |                | 34,786  |        |   |   | 43,087  |        
|                                                                         |                                                               |                |         |        |   |   |         |        
|                                                                         |                                                               | $              | 200,906 |        |   | $ | 899,078 |        
|                                                                         |                                                               |                |         |        |   |   |         |        
|                                                                        
|                                                                         |                                                               | 2001           |         | 2000  
|                                                                         |                                                               |                |         |       
|                                                                         |                                                               |               
|                                                                         |                                                               | (in thousands)
|Gross unrealized holding losses on
        available-for-sale securities |                                                               |                |         |        |   |   |         |        
|                                                                         | CanWest shares                                                |                | $       |       |   |   | $       | (64,150 | )
|                                                                         | CanWest debentures                                            |                |         | (6,236 | ) |   |         |        |  
|                                                                         | Internet related equity securities                            |                |         | (3,060 | ) |   |         | (1,681  | )
|                                                                         |                                                               |                |         |        |   |   |         |        
|                                                                         |                                                               | $              | (9,296  | )      |   | $ | (65,831 | )      
|                                                                         |                                                               |                |         |        |   |   |         |        

(a) CanWest shares at December 31, 2000
consisted of 2,700,000 multiple voting preferred shares and
27,000,000 non-voting shares each of CanWest. The non-voting
shares were publicly-traded and the multiple voting shares were
not publicly-traded but convertible into non-voting shares at
the rate of 0.15 non-voting share for each voting preferred
share or a total additional 405,000 non-voting shares. The
non-voting shares and voting preferred shares represented an
approximate 15.6% equity interest and 5.7% voting interest in
CanWest. On November 28, 2001, the Company sold the
2,700,000 multiple voting preferred shares and 27,000,000
non-voting shares in CanWest for total cash proceeds of
approximately Cdn. $271,300,000 ($172,400,000). The sale
resulted in a realized pre-tax loss of $99,200,000 which is
included in other income (expense), net.

(b) The CanWest debentures at
December 31, 2000 had a principal amount of Cdn.
$767,000,000 ($493,000,000) and represented part of the proceeds
for the sale of properties to CanWest of Cdn. $750,000,000
($482,000,000) and interest accrued from August 31, 2000 to
November 16, 2000 of Cdn. $17,000,000 ($11,000,000).
Interest is calculated, compounded and payable semi-annually in
arrears at a rate of 12.125% per annum. At any time prior to
November 5, 2005 CanWest may elect to pay interest on the
debentures by way of non-voting shares of CanWest, debentures in
substantially the same form as CanWest debentures, or cash.
Subsequent to November 5, 2005 interest shall be paid in
cash. The debentures are due November 15, 2010.

During 2001, the Company received additional
CanWest debentures in the amount of Cdn $67,100,000
($43,800,000) in payment of the interest due on existing
debentures. These debentures have been recorded at their fair
value.

F-16



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

As part of its agreement with CanWest, the
Company is prohibited from selling the CanWest debentures prior
to May 15, 2003. In order to monetize this investment, in
August and December 2001, the Company sold participation
interests in Cdn. $540,000,000 ($350,000,000) and Cdn.
$216,800,000 ($140,500,000) principal
 amounts of CanWest debentures to a special
purpose trust (Participation Trust). Units of the
Participation Trust were sold by the Participation Trust to
arms length third parties. These transactions resulted in
net proceeds to the Company of $401,200,000 and have been
accounted for as sales in accordance with Statement of Financial
Accounting Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. The net loss on these transactions,
including realized holding losses on the underlying debentures,
amounted to $62,100,000 and has been included in other income
(expense), net.

The Company has not retained an interest in the
Participation Trust nor does it have any ongoing involvement in
the Participation Trust. The Participation Trust and its
investors have no recourse to the Companys other assets in
the event that CanWest defaults on its debentures. Under the
terms of the Participation Trust, the interest payments received
by the Company in respect of the underlying CanWest debentures
will be paid to the Participation Trust. However, after
May 15, 2003, the Company may be required to deliver to the
Participation Trust CanWest debentures with a face value
equivalent to $490,500,000. Given that the CanWest debentures
are denominated in Canadian dollars, the Company has entered
into a forward foreign exchange contract to mitigate part of its
currency exposure. The foreign currency contract requires the
Company to sell Cdn. $666,600,000 on May 15, 2003 at a
forward rate of 0.6423. The mark to market gain on the forward
contract and the foreign exchange loss on the residual
obligation have resulted in a net foreign currency loss at
December 31, 2001 of $400,000. This amount has been charged
to earnings and the net liability is included in other
liabilities.

In addition, in accordance with the terms of the
participation agreement, the Company cannot transfer to an
unaffiliated third party, until at least November 4, 2005,
the equivalent of $50,000,000 (Cdn. $79,600,000 at
December 31, 2001) principal amount of CanWest debentures.

(3) Property, Plant and
Equipment

|                                               |  |                |         |      |  |   |         | 
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                                               |  | 2001           |         | 2000
|                                               |  |                |         |     
|                                               |  |               
|                                               |  | (in thousands)
|Land                                           |  | $              | 29,165  |      |  | $ | 34,861  | 
|Building and leasehold interests               |  |                | 143,076 |      |  |   | 161,800 | 
|Machinery and equipment                        |  |                | 319,676 |      |  |   | 368,752 | 
|Construction in progress                       |  |                | 8,204   |      |  |   | 22,030  | 
|                                               |  |                |         |      |  |   |         | 
|                                               |  |                | 500,121 |      |  |   | 587,443 | 
|Less accumulated depreciation and amortization |  |                | 190,849 |      |  |   | 226,847 | 
|                                               |  |                |         |      |  |   |         | 
|                                               |  | $              | 309,272 |      |  | $ | 360,596 | 
|                                               |  |                |         |      |  |   |         | 

Depreciation and amortization of property, plant
and equipment totaled $37,968,000, $64,546,000 and $64,153,000
in 2001, 2000 and 1999, respectively. The Company capitalized
interest in 2001, 2000 and 1999 amounting to $81,000, $3,103,000
and $5,739,000, respectively, related to the construction and
equipping of production facilities for its newspaper in Chicago.

F-17



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(4) Long-Term Debt

|                                                                |                                                                                                 |                |         |         |  |   |         |         | 
|--------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                                                |                                                                                                 | 2001           |         | 2000   
|                                                                |                                                                                                 |                |         |        
|                                                                |                                                                                                 |               
|                                                                |                                                                                                 | (in thousands)
|Hollinger International Publishing Inc.
        (Publishing): |                                                                                                 |                |         |         |  |   |         |        
|                                                                | Senior Notes due 2005                                                                           |                | $       | 260,000 |  |   | $       | 260,000 | 
|                                                                | Senior Subordinated Notes due 2006                                                              |                |         | 250,000 |  |   |         | 250,000 | 
|                                                                | Senior Subordinated Notes due 2007                                                              |                |         | 290,000 |  |   |         | 290,000 | 
|United States Newspaper Group:                                  |                                                                                                 |                |         |         |  |   |         |        
|                                                                | Amounts due under non-interest bearing
        non-competition agreements
        due 2002-2007 |                |         | 3,124   |  |   |         | 4,584   | 
|                                                                | Other due 2002-2009 (at varying interest rates up
        to 9%)                                |                |         | 2,024   |  |   |         | 3,139   | 
|Telegraph Group Ltd. (Telegraph):                             |                                                                                                 |                |         |         |  |   |         |        
|                                                                | Obligations under capital leases (note 5)                                                       |                |         | 4,667   |  |   |         | 2,663   | 
|Other:                                                          |                                                                                                 |                |         |         |  |   |         |        
|                                                                | Other debt                                                                                      |                |         | 2,845   |  |   |         | 1,328   | 
|                                                                | Other capital leases                                                                            |                |         |        |  |   |         | 534     | 
|                                                                |                                                                                                 |                |         |         |  |   |         |        
|                                                                |                                                                                                 |                | 812,660 |         |  |   | 812,248 |        
|Less current portion included in current
        liabilities    |                                                                                                 |                | 3,008   |         |  |   | 4,753   |        
|                                                                |                                                                                                 |                |         |         |  |   |         |        
|                                                                |                                                                                                 | $              | 809,652 |         |  | $ | 807,495 |        
|                                                                |                                                                                                 |                |         |         |  |   |         |        

(a) The following table summarizes the terms
of the Publishing notes:

|             |  |          |        |            |  |                  |  |                     |  |                  |  |                  |  |                  
|------------ |  | -------- | ------ | ---------- |  | ---------------- |  | ------------------- |  | ---------------- |  | ---------------- |  | -----------------
|             |  |          |        |            |  |                  |  |                     |  | Early            |  | Early           
|             |  | Interest |        |            |  |                  |  |                     |  | Redemption       |  | Redemption      
|Principal    |  | Rate     |        | Issue Date |  | Status           |  | Maturity            |  | Date             |  | Price           
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                 
|$260,000,000 |  |          | 8.625% |            |  | March 18, 1997   |  | Senior              |  | March 15, 2005   |  | None             |  |                 
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                 
|$250,000,000 |  |          | 9.25%  |            |  | February 1, 1996 |  | Senior Subordinated |  | February 1, 2006 |  | February 1, 2001 |  | 2001 - 104.625%  
|             |  |          |        |            |  |                  |  |                     |  |                  |  | or after         |  | 2002 - 103.085%  
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                  |  | 2003 - 101.545%  
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                  |  | Thereafter - 100%
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                 
|$290,000,000 |  |          | 9. 25% |            |  | March 18, 1997   |  | Senior Subordinated |  | March 15, 2007   |  | March 15, 2002   |  | 2002 - 104.625%  
|             |  |          |        |            |  |                  |  |                     |  |                  |  | or after         |  | 2003 - 103.083%  
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                  |  | 2004 - 101.541%  
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                  |  | Thereafter - 100%
|             |  |          |        |            |  |                  |  |                     |  |                  |  |                  |  |                  

Interest on these notes is payable semi-annually
and the notes are guaranteed by the Company.

The Indentures relating to the Senior Notes and
Senior Subordinated Notes contain similar financial covenants
and negative covenants that limit Publishings ability to,
among other things, incur indebtedness, pay dividends or make
other distributions on its capital stock, enter into
transactions with related companies, and sell assets including
stock of a restricted subsidiary. The Indentures provide that
upon a Change of Control (as defined in the Indentures), each
noteholder has the right to require Publishing to purchase all
or any portion of such noteholders notes at a cash
purchase price equal to 101% of the principal amount of such
notes, plus accrued and unpaid interest.

As at December 31, 2001, the Company does
not meet a financial test set out in the Trust indentures for
Publishings Senior and Senior Subordinated Notes. As a
result, Publishing and its subsidiaries are unable to incur
additional indebtedness, make restricted investments, make
advances, pay dividends or make other distributions on their
capital stock.

F-18



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(b) In June 2000, Publishing, HCPH,
Telegraph, Southam, HIF Corp., a wholly owned subsidiary of
Publishing, and a group of financial institutions increased the
term loan component of the Fourth Amended and Restated Credit
Facility (Restated Credit Facility) by $100,000,000
to $975,000,000. On November 16, 2000, using the proceeds
from the CanWest transaction (note 1(d)) $972,000,000 of
borrowings were repaid and the
 Restated Credit Facility was reduced to
$5,000,000. The Restated Credit Facility is secured by the
collateralization of $5,000,000 of the Companys positive
cash which is included in prepaids and other current assets at
December 31, 2001. At December 31, 2001 and 2000 no
amounts were owing under the Restated Credit Facility. As noted
in (a) above, no amounts could be borrowed under this
facility.

In 2001, the Company entered into a new
short-term credit facility in the amount of $120,000,000.
Amounts borrowed under this facility were repaid during 2001.

(c) A subsidiary company had converted a
portion of its variable rate interest exposure to fixed rate by
entering into a 10 year Cdn. $25,000,000 fixed rate
interest swap at 8.7%, maturing May 2004. During 2000, Cdn.
$12,500,000 of this fixed rate interest swap was repaid.
Interest is paid at the fixed rate and received based on the
three-month bankers acceptance rate, which is reset
quarterly, on the notional principal.

(d) Principal amounts payable on long-term
debt, excluding obligations under capital leases, are:
2002  $1,481,000, 2003  $1,855,000,
2004  $1,197,000, 2005  $261,016,000 and
2006  $250,896,000.

(e) Interest paid for 2001, 2000 and 1999
was $84,223,000, $145,902,000, and $132,534,000, respectively.

(f) Extraordinary losses arising on debt
extinguishments are net of a related tax recovery of $4,222,000
in 2000 and $3,455,000 in 1999.

(5) Leases

The Company leases various facilities and
equipment under non-cancelable operating lease arrangements.
Rental expense under all operating leases was approximately
$12,067,000, $16,465,000 and $14,936,000 in 2001, 2000 and 1999,
respectively.

Minimum lease commitments together with the
present value of obligations at December 31, 2001 are as
follows:

|                                                             |  |                |       |           |  |   |         | 
|------------------------------------------------------------ |  | -------------- | ----- | --------- |  | - | ------- | 
|                                                             |  | Capital        |       | Operating
|                                                             |  | leases         |       | leases   
|                                                             |  |                |       |          
|                                                             |  |               
|                                                             |  | (in thousands)
|2002                                                         |  | $              | 1,595 |           |  | $ | 12,313  | 
|2003                                                         |  |                | 1,595 |           |  |   | 11,122  | 
|2004                                                         |  |                | 1,595 |           |  |   | 10,505  | 
|2005                                                         |  |                |      |           |  |   | 10,263  | 
|2006                                                         |  |                |      |           |  |   | 10,178  | 
|Later years                                                  |  |                |      |           |  |   | 94,193  | 
|                                                             |  |                |       |           |  |   |         | 
|                                                             |  |                | 4,785 |           |  | $ | 148,574 | 
|                                                             |  |                |       |           |  |   |         | 
|Less imputed interest and executory costs                    |  |                | 118   |           |  |   |         | 
|                                                             |  |                |       |           |  |   |         | 
|Present value of net minimum payments                        |  |                | 4,667 |           |  |   |         | 
|Less current portion included in current
        liabilities |  |                | 1,527 |           |  |   |         | 
|                                                             |  |                |       |           |  |   |         | 
|Long-term obligations                                        |  | $              | 3,140 |           |  |   |         | 
|                                                             |  |                |       |           |  |   |         | 

F-19



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(6) Minority Interest

|                            |  |                |        |      |  |   |        | 
|--------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                            |  | 2001           |        | 2000
|                            |  |                |        |     
|                            |  |               
|                            |  | (in thousands)
|Common shares of subsidiary |  | $              | 1,866  |      |  | $ | 24,714 | 
|Partnership units           |  |                | 13,111 |      |  |   | 63,514 | 
|Other                       |  |                | 1,000  |      |  |   | 1,000  | 
|                            |  |                |        |      |  |   |        | 
|                            |  | $              | 15,977 |      |  | $ | 89,228 | 
|                            |  |                |        |      |  |   |        | 

In July 1997, HCPH issued 6,552,425 Cdn. $10
Non-Voting Special shares for a total issue price of
Cdn. $65,524,000 ($47,564,000). These shares were
exchangeable, at the option of the holder, at any time before
June 26, 2000 into newly issued Class A Common Stock of the
Company and were previously disclosed as minority interest. On
June 12, 2000, the Company exercised its option to pay cash
on the mandatory exchange of HCPH Special shares. Pursuant to
the terms of the indenture governing the Special shares, each
Special share was exchanged for $8.88 cash resulting in a
payment to Special shareholders of $58,200,000. This payment was
$10,900,000 in excess of the recorded book amount and this
excess amount is presented as minority interest in the
consolidated statement of operations in 2000.

In September 1997, an additional 4,146,107
Special shares of HCPH were issued for a total issue price of
Cdn. $41,500,000 ($29,000,000) in exchange for 4,146,107 Special
shares in a subsidiary of Hollinger Inc. These shares have the
same terms and conditions as the Special shares described in the
previous paragraph. The Companys obligation to issue
Class A Common Stock was, however, offset by an obligation
of Hollinger Inc., through a subsidiary, to deliver those shares
of the Companys Class A Common Stock from its
holdings. These Special shares were exchanged for cash by
Hollinger Inc. in 2000.

(7) Redeemable Preferred Stock

Shares of Series E Preferred Stock, all of
which are owned by Hollinger Inc., are redeemable at the option
of either the holder or the Company at a price of Cdn. $146.63
($92.08 based on December 31, 2001 exchange rates) plus
accrued dividends. The holder of these shares may, at any time,
convert such shares into shares of Class A Common Stock of
the Company at a conversion price of $14.00 per share of
Class A Common Stock. The Series E Preferred Stock is
non-voting and is entitled to receive cumulative cash dividends,
payable quarterly. The amount of each quarterly dividend per
share is equal to the product of (a) the redemption price
of Cdn. $146.63 divided by the Canadian dollar equivalent
of the conversion price and (b) the per share amount of the
regularly scheduled dividend on Class A Common Stock. On
September 27, 2001, the Company redeemed 40,920 shares of
Series E Preferred Stock at the redemption price of Cdn.
$146.63 per share for a total cash payment of $3,800,000. At
December 31, 2001, 93,206 shares of Series E Preferred
Stock were outstanding and based on exchange rates in effect on
that day were exchangeable into 613,000 shares of Class A
Common Stock of the Company. In 2001, the dividend on the
Series E Preferred Stock amounted to $3.68 per share. At
December 31, 2000, 134,126 shares of Series E
Preferred Stock were outstanding and based on exchange rates in
effect on that day were exchangeable into 937,000 shares of
Class A Common Stock of the Company.

(8) Stockholders Equity

The Company is authorized to issue 20,000,000
shares of preferred stock in one or more series and to designate
the rights, preferences, limitations and restrictions of and
upon shares of each series, including voting, redemption and
conversion rights. In addition to the Series E Preferred
Stock referred to in note 7 above, the Company has issued
Series B and Series C Preferred Stock. The terms and
conditions of these shares are described below:

Series B

These shares underlie an issue of Preferred
Redeemable Increased Dividend Equity Securities
(PRIDES). The PRIDES are depository shares and each
one, in effect, represents one-half of a share of Series B
Preferred Stock. Each of the PRIDES has a stated value of $9.75
and is entitled to cumulative dividends at a rate of 9.75% per
annum payable quarterly. In January 2000, 706,469 PRIDES were
converted to 596,189 shares of Class A Common Stock. At December 31, 2000, all
issued Series B Preferred Stock had been converted to
Class A Common Stock.

F-20



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

Series C

Pursuant to a January 1997 transaction wherein
the Company acquired Canadian publishing assets from Hollinger
Inc., the Company issued 829,409 shares of Series C
Preferred Stock. These shares are similar to the PRIDES
described above. The stated value of each share is $108.51 and
cumulative dividends are payable quarterly at 9.5% per annum of
this amount. On June 1, 2001, the Company converted all the
Series C Preferred Stock at the conversion ratio of 8.503
shares of Class A Common Stock per share of Series C
Preferred Stock into 7,052,464 shares of Class A Common
Stock. On September 5, 2001, the Company purchased for
cancellation, from Hollinger Inc., the 7,052,464 shares of
Class A Common Stock for a total cost of $92,200,000.

Class A
and Class B Common Stock

Class A Common Stock and Class B Common
Stock have identical rights with respect to cash dividends and
in any sale or liquidation, but different voting rights. Each
share of Class A Common Stock is entitled to one vote per
share and each share of Class B Common Stock is entitled to
10 votes per share on all matters, including the election of
directors, where the two classes vote together as a single
class. Class B Common Stock is convertible at any time at
the option of Hollinger Inc. into Class A Common Stock on a
share-for-share basis and is transferable by Hollinger Inc.
under certain conditions.

General

A significant portion of the Companys
operating income and net earnings is derived from foreign
subsidiaries and affiliated companies. As an international
holding company, the Companys ability to meet its
financial obligations is dependent upon the availability of cash
flows from foreign subsidiaries and affiliated companies
(subject to applicable withholding taxes) through dividends,
intercompany advances, management fees and other payments. The
Companys subsidiaries and affiliated companies are under
no obligation to pay dividends.

(9) Stock Option Plan

During May 1994, the Company adopted the
Hollinger International Inc. 1994 Stock Option Plan (the
1994 Plan). The 1994 Plan was amended in September
1996 to increase the number of shares authorized for issuance up
to 1,471,140 shares. In 1997, the Company adopted the 1997 Stock
Incentive Plan (the Incentive Plan). The Incentive
Plan provided for awards of up to 5,156,915 shares of
Class A Common Stock. The Incentive Plan is administered by
an independent committee (Committee) of the Board of
Directors. The Committee has the authority to determine the
employees to whom awards will be made, the amount and type of
awards, and the other terms and conditions of the awards. In
1999, the Company adopted the 1999 Stock Incentive Plan
(1999 Stock Plan) which superseded the previous two
plans.

The 1999 Stock Plan provides for awards of up to
8,500,000 shares of Class A Common Stock. The 1999 Stock
Plan authorizes the grant of incentive stock options and
nonqualified stock options. The exercise price for stock options
must be at least equal to 100% of the fair market value of the
Class A Common Stock on the date of grant of such option.

The Company applies Accounting Principles Board
(APB) Opinion No. 25 and related
interpretations in accounting for its plans. On March 31,
2000, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 44
Accounting for Certain Transactions involving Stock
Compensation (FIN 44), which provided guidance
on several implementation issues related to APB Opinion
No. 25. The most relevant to the Company was the
clarification of the accounting for stock options that have been
repriced and the measurement of options granted to employees of
Ravelston, the parent company of Hollinger Inc. The Company
adopted FIN 44 effective July 1, 2000.

F-21



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

In 1999, the Company repriced a series of stock
options which had originally been issued in 1998. Under FIN 44
these repriced options effectively change to a variable stock
option award and are subject to compensation
expense. Accordingly, the stock based
compensation determined for this repriced series for 2001
amounted to income of $1,369,000 and for the period July 1 to
December 31, 2000 amounted to an expense of $1,518,000.

Under FIN 44, stock options granted to employees
of the parent company must be measured at fair value and
recorded as a dividend in kind. On April 2,
2001, the Company granted 1,402,500 stock options to employees
of Ravelston with an exercise price of $14.37 per share. The
aggregate fair value of these options was $7,800,000 and this
has been recorded as a dividend. There were no such options
granted in 2000 subsequent to July 1, being the effective
date of FIN 44.

For all other series of stock options, no
compensation cost has been recognized. Had the Company
determined compensation costs based on the fair value at the
grant date of its stock options under Statement of Financial
Accounting Standards No. 123 (FAS 123)
Accounting for Stock-Based Compensation, the
Companys net earnings (loss) and earnings
(loss) per share would have been reduced to the pro forma
amounts indicated in the following table:

|                                              |  |                                         |          |      |  |      |         |  |  |   |         | 
|--------------------------------------------- |  | --------------------------------------- | -------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                              |  | 2001                                    |          | 2000 |  | 1999
|                                              |  |                                         |          |      |  |     
|                                              |  |                                        
|                                              |  | (in thousands except per share amounts)
|Net earnings (loss) as reported               |  | $                                       | (337,506 | )    |  | $    | 117,075 |  |  | $ | 245,352 | 
|Pro forma net earnings (loss)                 |  |                                         | (342,773 | )    |  |      | 110,732 |  |  |   | 242,704 | 
|Basic earnings (loss) per share as reported   |  |                                         | (3.42    | )    |  |      | 1.10    |  |  |   | 2.30    | 
|Diluted earnings (loss) per share as reported |  |                                         | (3.42    | )    |  |      | 1.05    |  |  |   | 2.09    | 
|Pro forma basic earnings (loss) per share     |  |                                         | (3.47    | )    |  |      | 1.03    |  |  |   | 2.27    | 
|Pro forma diluted earnings (loss) per share   |  |                                         | (3.47    | )    |  |      | 0.99    |  |  |   | 2.07    | 
|                                              |  |                                         |          |      |  |      |         |  |  |   |         | 

Pro forma net earnings reflect only options
granted in 1998 through 2001. Therefore, the full impact of
calculating compensation cost for stock options under FAS 123 is
not reflected in the pro forma net earnings (loss) amounts
presented above because compensation cost is reflected over the
options vesting period of four years and the compensation
cost for options granted prior to January 1, 1998 is not
considered.

Calculating the compensation cost consistent with
FAS 123, the fair value of each stock option granted during
2001, 2000 and 1999 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 2001,
2000 and 1999, respectively: dividend yield of 4.6%, 3.4% and
4.5%; expected volatility of 55.2%, 43.3% and 32.7%; risk-free
interest rates of 5.0%, 5.1% and 6.4%; expected lives of
10 years. Weighted average fair value of options granted by
the Company during 2001, 2000 and 1999 was $5.67, $4.12 and
$3.81, respectively.

F-22



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

Stock option activity with respect to the
Companys stock options was as follows:

|                                         |  |           |            |                  |  |   |       | 
|---------------------------------------- |  | --------- | ---------- | ---------------- |  | - | ----- | 
|                                         |  | Number of |            | Weighted Average
|                                         |  | Shares    |            | Exercise Price  
|                                         |  |           |            |                 
|Options outstanding at December 31, 1998 |  |           | 3,147,625  |                  |  | $ | 12.74 | 
|Options granted                          |  |           | 3,475,000  |                  |  |   | 12.27 | 
|Options exercised                        |  |           | (116,000   | )                |  |   | 11.24 | 
|Options canceled                         |  |           | (1,357,125 | )                |  |   | 14.93 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 1999 |  |           | 5,149,500  |                  |  |   | 11.88 | 
|Options granted                          |  |           | 2,559,250  |                  |  |   | 10.57 | 
|Options exercised                        |  |           | (471,063   | )                |  |   | 11.67 | 
|Options canceled                         |  |           | (536,374   | )                |  |   | 12.11 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2000 |  |           | 6,701,313  |                  |  |   | 11.38 | 
|Options granted                          |  |           | 2,418,000  |                  |  |   | 14.40 | 
|Options exercised                        |  |           | (624,162   | )                |  |   | 11.01 | 
|Options canceled                         |  |           | (82,750    | )                |  |   | 12.33 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2001 |  |           | 8,412,401  |                  |  | $ | 12.26 | 
|                                         |  |           |            |                  |  |   |       | 
|Options exercisable at December 31, 1999 |  |           | 1,190,625  |                  |  | $ | 11.36 | 
|Options exercisable at December 31, 2000 |  |           | 1,989,548  |                  |  | $ | 11.51 | 
|Options exercisable at December 31, 2001 |  |           | 3,032,682  |                  |  | $ | 11.48 | 
|                                         |  |           |            |                  |  |   |       | 

(10) Earnings (Loss) per Share

The following table reconciles the numerator and
denominator for the calculation of basic and diluted earnings
(loss) per share for the years ended December 31,
2001, 2000 and 1999:

|                                          |                             |                                       |          |               |   |           |         |   |  |   |       |   | 
|----------------------------------------- | --------------------------- | ------------------------------------- | -------- | ------------- | - | --------- | ------- | - |  | - | ----- | - | 
|                                          |                             |                                      
|                                          |                             | Year Ended December 31, 2001         
|                                          |                             |                                      
|                                          |                             | Income                                |          | Shares        |   | Per-Share
|                                          |                             | (Numerator)                           |          | (Denominator) |   | Amount   
|                                          |                             |                                       |          |               |   |          
|                                          |                             |                                      
|                                          |                             | (in thousands, except per share data)
|Net loss                                  |                             | $                                     | (337,506 | )             |   |           |         |   |  |   |       |  
|Deduct dividends                          |                             |                                       |          |               |   |           |         |   |  |   |       |  
|                                          | Convertible preferred stock |                                       |          | (4,275        | ) |           |         |   |  |   |       |   | 
|                                          | Series E Preferred Stock    |                                       |          | (442          | ) |           |         |   |  |   |       |   | 
|                                          |                             |                                       |          |               |   |           |         |   |  |   |       |  
|Basic EPS                                 |                             |                                       |          |               |   |           |         |   |  |   |       |  
|Net loss available to common stockholders |                             |                                       | (342,223 | )             |   |           | 100,128 |   |  | $ | (3.42 | )
|Effect of dilutive securities             |                             |                                       |          |               |   |           |         |   |  |   |       |  
|                                          | None                        |                                       |          |              |   |           |         |  |  |   |       |   | 
|                                          |                             |                                       |          |               |   |           |         |   |  |   |       |  
|Diluted EPS                               |                             |                                       |          |               |   |           |         |   |  |   |       |  
|Net loss available to common stockholders |                             | $                                     | (342,223 | )             |   |           | 100,128 |   |  | $ | (3.42 | )
|                                          |                             |                                       |          |               |   |           |         |   |  |   |       |  

The effect of options, convertible preferred
stock and Series E preferred stock are excluded as they are
anti-dilutive as a result of the net loss.

F-23



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      |  | 
|----------------------------------------------------------------------------- | --------------------------- | ------------------------------------- | ------- | ------------- | - | --------- | ------- | ----- |  | - | ---- |  | 
|                                                                              |                             |                                      
|                                                                              |                             | Year Ended December 31, 2000         
|                                                                              |                             |                                      
|                                                                              |                             | Income                                |         | Shares        |   | Per-Share
|                                                                              |                             | (Numerator)                           |         | (Denominator) |   | Amount   
|                                                                              |                             |                                       |         |               |   |          
|                                                                              |                             |                                      
|                                                                              |                             | (in thousands, except per share data)
|Net earnings                                                                  |                             | $                                     | 117,075 |               |   |           |         |       |  |   |      | 
|Deduct dividends                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 
|                                                                              | Convertible preferred stock |                                       |         | (8,431        | ) |           |         |       |  |   |      |  | 
|                                                                              | Series E Preferred Stock    |                                       |         | (519          | ) |           |         |       |  |   |      |  | 
|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Basic EPS                                                                     |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Net earnings available to common stockholders                                 |                             |                                       | 108,125 |               |   |           | 98,672  |       |  | $ | 1.10 | 
|Effect of dilutive securities                                                 |                             |                                       |         |               |   |           |         |       |  |   |      | 
|                                                                              | Convertible preferred stock |                                       |         | 8,431         |   |           |         | 8,182 |  |   |      |  | 
|                                                                              | Series E preferred stock    |                                       |         | 519           |   |           |         | 936   |  |   |      |  | 
|                                                                              | HCPH Special shares         |                                       |         |              |   |           |         | 2,469 |  |   |      |  | 
|                                                                              | Stock options               |                                       |         |              |   |           |         | 1,251 |  |   |      |  | 
|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Diluted EPS                                                                   |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Net earnings available to common stockholders and
        assumed conversions |                             | $                                     | 117,075 |               |   |           | 111,510 |       |  | $ | 1.05 | 
|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 

|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      |  | 
|----------------------------------------------------------------------------- | --------------------------- | ------------------------------------- | ------- | ------------- | - | --------- | ------- | ----- |  | - | ---- |  | 
|                                                                              |                             |                                      
|                                                                              |                             | Year Ended December 31, 1999         
|                                                                              |                             |                                      
|                                                                              |                             | Income                                |         | Shares        |   | Per-Share
|                                                                              |                             | (Numerator)                           |         | (Denominator) |   | Amount   
|                                                                              |                             |                                       |         |               |   |          
|                                                                              |                             |                                      
|                                                                              |                             | (in thousands, except per share data)
|Net earnings                                                                  |                             | $                                     | 245,352 |               |   |           |         |       |  |   |      | 
|Deduct dividends                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 
|                                                                              | Convertible preferred stock |                                       |         | (9,221        | ) |           |         |       |  |   |      |  | 
|                                                                              | Series E Preferred Stock    |                                       |         | (262          | ) |           |         |       |  |   |      |  | 
|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Basic EPS                                                                     |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Net earnings available to common stockholders                                 |                             |                                       | 235,869 |               |   |           | 102,553 |       |  | $ | 2.30 | 
|Effect of dilutive securities                                                 |                             |                                       |         |               |   |           |         |       |  |   |      | 
|                                                                              | Convertible preferred stock |                                       |         | 9,221         |   |           |         | 8,778 |  |   |      |  | 
|                                                                              | Series E Preferred Stock    |                                       |         | 262           |   |           |         | 973   |  |   |      |  | 
|                                                                              | HCPH Special shares         |                                       |         |              |   |           |         | 4,930 |  |   |      |  | 
|                                                                              | Stock options               |                                       |         |              |   |           |         | 376   |  |   |      |  | 
|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Diluted EPS                                                                   |                             |                                       |         |               |   |           |         |       |  |   |      | 
|Net earnings available to common stockholders and
        assumed conversions |                             | $                                     | 245,352 |               |   |           | 117,610 |       |  | $ | 2.09 | 
|                                                                              |                             |                                       |         |               |   |           |         |       |  |   |      | 

Loss per share related to extraordinary items was
as follows:

|        |  |      |   |      |  |      |       |   |  |   |       |  
|------- |  | ---- | - | ---- |  | ---- | ----- | - |  | - | ----- | -
|        |  | 2001 |   | 2000 |  | 1999
|        |  |      |   |      |  |     
|Basic   |  | $    |  |      |  | $    | (0.06 | ) |  | $ | (0.05 | )
|Diluted |  | $    |  |      |  | $    | (0.06 | ) |  | $ | (0.04 | )
|        |  |      |   |      |  |      |       |   |  |   |      

(11) Total Return Equity Swap

At December 31, 2000, the Company had
arrangements with four banks pursuant to which the banks had
purchased 14,109,905 shares of the Companys Class A
Common Stock at an average price of $14.17. The Company had the
option, quarterly, up to and including September 30, 2000
to buy the shares from the banks at the same cost or to have the
banks resell those shares in the open market. These arrangements
were extended until June 30, 2001. In the event the banks
resold the shares any gain or loss realized by the banks would
be for the Companys account. Until the Company
purchases the shares or the banks resell the shares, dividends
paid on shares belong to the Company and the Company pays
interest to the banks, based on their purchase price, at the
rate of LIBOR plus a spread.

F-24



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

On November 16, 2000, the Emerging Issues
Task Force (EITF) issued EITF Issue No. 00-19
which clarified the accounting for derivative financial
instruments indexed to, and potentially settled in a
companys own stock, that require a cash payment by the
issuer upon the occurrence of future events outside the control
of the issuer. The EITF applies to new contracts entered into
after September 30, 2000. Consequently the extension of the
contracts on October 1, 2000 is accounted for under EITF
Issue No. 00-19. Accordingly, effective October 1,
2000, the above contracts have been accounted for using the
asset and liability method. As a result, the derivative forward
contracts have been marked to market after October 1, 2000.
The $35,314,000 gain inherent in the old contracts at
October 1, 2000, based on the September 30, 2000
market value of Class A Common Stock of $16.75, net of
previously deferred costs associated with the old contracts, has
been recorded as an adjustment to additional paid in capital.
The loss resulting from marking the contracts to market during
the period October 1 to December 31, 2000, together with
the interest paid to the banks, totaled $16,334,000, and was
reported in earnings as other income (expense), net.

In August 2001, the Company purchased for
cancellation from one of the banks 3,602,305 shares of
Class A Common Stock for $50,000,000 or $13.88 per share.
The market value of these shares on the date of purchase was
$47,000,000 or $13.05 per share.

In November 2001, one of the banks sold in the
open market 3,556,513 shares of Class A Common Stock for
$34,200,000 or an average price of $9.62 per share. This
resulted in a loss to the bank of $15,800,000 which, in
accordance with the arrangement, was paid in cash by the Company.

The losses resulting from marking these
arrangements to market during the year ended December 31,
2001, together with the interest paid to the banks, totaled
$73,863,000, and was reported in earnings as other income
(expense), net. Dividends, in respect of the shares purchased by
the banks, after September 30, 2000, have not been included
in cash dividends as a deduction from retained earnings.

At December 31, 2001, the Company had two
arrangements remaining with banks each of which had been
extended from July 1, 2001. One arrangement in respect of
3,348,782 shares at an average price of $14.93 was extended
until June 30, 2003 on the same terms and conditions that
applied previously. The other arrangement in respect of
3,602,305 shares at an average price of $13.88, was extended
until December 31, 2001. The Company retained the option to
buy the shares from the bank at the original cost or have the
bank resell the shares in the open market. In addition, the bank
had the option if the market price of the shares dropped by 20%
or more, to sell the shares on the open market and reduce the
notional amount of the swap. Under the terms of the agreement as
at December 31, 2001, 3,602,305 shares and $7,500,000 of
cash have been deposited with the escrow agent. The $7,500,000
of restricted cash is included in prepaid expenses and other
current assets at December 31, 2001.

If the Companys stock price falls below the
average purchase price of these shares, the Company is required
to deposit cash or shares into an escrow account as additional
security. During 2001, 2000 and 1999, the Company issued
4,882,590, 5,160,577 and 4,063,359 shares of Class A Common
Stock as additional security, of which 5,011,628 shares were
required to be deposited in the escrow account at
December 31, 2001. The balance of shares issued as
additional security have been returned to the Company and are
included in treasury until cancelled. The shares held in escrow
are shown as a deduction from stockholders equity. Until
September 30, 2000, when the original contacts expired, the
total interest paid to the banks, net of dividends paid on the
shares, was shown as a reduction to additional paid in capital.

(12) Infrequent Items

|                                                              |  |                |        |      |  |      |       |  |  |   |        | 
|------------------------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                                              |  | 2001           |        | 2000 |  | 1999
|                                                              |  |                |        |      |  |     
|                                                              |  |               
|                                                              |  | (in thousands)
|Pension and post-retirement plan liability
        adjustment |  | $              | 12,429 |      |  | $    |      |  |  | $ | 11,943 | 
|New Chicago plant pre-operating costs                         |  |                | 4,679  |      |  |      | 6,774 |  |  |   | 4,398  | 
|Other                                                         |  |                | 4,626  |      |  |      | 1,176 |  |  |   | 5,705  | 
|                                                              |  |                |        |      |  |      |       |  |  |   |        | 
|                                                              |  | $              | 21,734 |      |  | $    | 7,950 |  |  | $ | 22,046 | 
|                                                              |  |                |        |      |  |      |       |  |  |   |        | 

F-25



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(13) Other Income (Expense),
net

|                                                                                    |  |                |          |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | -------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                    |  | 2001           |          | 2000 |  | 1999
|                                                                                    |  |                |          |      |  |     
|                                                                                    |  |               
|                                                                                    |  | (in thousands)
|Net gains (losses) on sales of publishing
        interests (note 1)                |  | $              | (1,236   | )    |  | $    | 493,156 |   |  | $ | 270,017 |  
|Net gains (losses) on sales of assets                                               |  |                | (145,906 | )    |  |      | 32,569  |   |  |   | 3,561   |  
|Gain related to dilution of Hollinger L.P.
        interest (note 1)                |  |                |         |      |  |      |        |   |  |   | 77,297  |  
|Gain related to dilution of investment in equity
        accounted company (note 1) |  |                |         |      |  |      | 17,008  |   |  |   |        |  
|Write-down of investments                                                           |  |                | (48,037  | )    |  |      | (20,621 | ) |  |   |        |  
|Equity in loss of affiliates                                                        |  |                | (15,098  | )    |  |      | (20,340 | ) |  |   | (2,106  | )
|Total Return Equity Swap (note 11)                                                  |  |                | (73,863  | )    |  |      | (16,334 | ) |  |   |        |  
|Other                                                                               |  |                | (11,738  | )    |  |      | (7,427  | ) |  |   | (22,426 | )
|                                                                                    |  |                |          |      |  |      |         |   |  |   |         |  
|                                                                                    |  | $              | (295,878 | )    |  | $    | 478,011 |   |  | $ | 326,343 |  
|                                                                                    |  |                |          |      |  |      |         |   |  |   |         |  

(14) Segment Information

The Company operates principally in the business
of publishing, printing and distribution of newspapers and
magazines and holds investments principally in companies that
operate in the same business as the Company. The Chicago Group
and Community Group are located in the United States. The
Community Group includes the results of the Jerusalem Post and
the last remaining United States community newspaper property
which was sold in August 2001. The Canadian Newspaper Group
includes the operations of Hollinger Canadian Publishing
Holdings Co. (HCPC Co.), Hollinger L.P. and, until
August 31, 2001, National Post. On September 1, 2001, the
Company sold its 50% interest in National Post. During 2001 HCPH
Co. (formerly HCPH) became the successor to the operations of
XSTM Holdings (2000) Inc. (formerly Southam Inc.
(Southam)).

Effective January 1, 2001, corporate
overhead costs, which had previously been allocated, are
disclosed separately in the Investment and Corporate Group.
Segment information for the years ended December 31, 2000
and 1999 has been restated to conform to the 2001 disclosure.
The following is a summary of the segments of the Company:

|                              |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|----------------------------- |  | ---------------------------- | ------- | ---------- |  | --------- | ------ | --------- |  | --------- | ------- | ----- |  |  | ------- | - |  |  | ------- | - |  | - | --------- | -
|                              |  |                             
|                              |  | Year
Ended December 31, 2001
|                              |  |                             
|                              |  |                              |         | Investment |  |          
|                              |  |                              |         | U.K.       |  | Canadian  |        | and       |  |          
|                              |  | Chicago                      |         | Community  |  | Newspaper |        | Newspaper |  | Corporate |         |      
|                              |  | Group                        |         | Group      |  | Group     |        | Group     |  | Group     |         | Total
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|                              |  |                             
|                              |  | (in thousands)              
|Revenues                      |  | $                            | 442,884 |            |  |           | 19,115 |           |  |           | 486,374 |       |  |  | 197,948 |   |  |  |        |   |  | $ | 1,146,321 |  
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|Depreciation and amortization |  | $                            | 37,888  |            |  |           | 2,141  |           |  |           | 19,834  |       |  |  | 11,828  |   |  |  | 2,037   |   |  | $ | 73,728    |  
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|Infrequent items              |  | $                            | 4,797   |            |  |           | 870    |           |  |           | 3,063   |       |  |  | 13,004  |   |  |  |        |   |  | $ | 21,734    |  
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|Operating income (loss)       |  | $                            | 4,962   |            |  |           | (4,487 | )         |  |           | 27,850  |       |  |  | (50,341 | ) |  |  | (18,354 | ) |  | $ | (40,370   | )
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|Equity in loss of affiliates  |  | $                            | (3,381  | )          |  |           |       |           |  |           | (11,415 | )     |  |  | (302    | ) |  |  |        |   |  | $ | (15,098   | )
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|Total assets                  |  | $                            | 593,762 |            |  |           | 49,347 |           |  |           | 550,751 |       |  |  | 384,171 |   |  |  | 403,720 |   |  | $ | 1,981,751 |  
|                              |  |                              |         |            |  |           |        |           |  |           |         |      
|Capital expenditures          |  | $                            | 12,080  |            |  |           | 299    |           |  |           | 17,065  |       |  |  | 2,844   |   |  |  | 12,163  |   |  | $ | 44,451    |  
|                              |  |                              |         |            |  |           |        |           |  |           |         |      

|                                        |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |           |  |  |  |         |   |  |   |           |  
|--------------------------------------- |  | ---------------------------- | ------- | ---------- |  | --------- | ------ | --------- |  | --------- | ------- | ----- |  |  | --------- |  |  |  | ------- | - |  | - | --------- | -
|                                        |  |                             
|                                        |  | Year
Ended December 31, 2000
|                                        |  |                             
|                                        |  |                              |         | Investment |  |          
|                                        |  |                              |         | U.K.       |  | Canadian  |        | and       |  |          
|                                        |  | Chicago                      |         | Community  |  | Newspaper |        | Newspaper |  | Corporate |         |      
|                                        |  | Group                        |         | Group      |  | Group     |        | Group     |  | Group     |         | Total
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|                                        |  |                             
|                                        |  | (in thousands)              
|Revenues                                |  | $                            | 401,417 |            |  |           | 67,336 |           |  |           | 562,068 |       |  |  | 1,065,198 |  |  |  |        |   |  | $ | 2,096,019 |  
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|Depreciation and amortization           |  | $                            | 23,739  |            |  |           | 6,191  |           |  |           | 17,117  |       |  |  | 73,776    |  |  |  | 1,811   |   |  | $ | 122,634   |  
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|Infrequent items                        |  | $                            | 6,803   |            |  |           |       |           |  |           |        |       |  |  | 1,147     |  |  |  |        |   |  | $ | 7,950     |  
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|Operating income (loss)                 |  | $                            | 29,215  |            |  |           | 3,456  |           |  |           | 89,542  |       |  |  | 115,619   |  |  |  | (16,084 | ) |  | $ | 221,748   |  
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|Equity in earnings (loss) of affiliates |  | $                            | (703    | )          |  |           |       |           |  |           | (20,197 | )     |  |  | 560       |  |  |  |        |   |  | $ | (20,340   | )
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|Total assets                            |  | $                            | 613,686 |            |  |           | 61,165 |           |  |           | 542,030 |       |  |  | 551,583   |  |  |  | 968,750 |   |  | $ | 2,737,214 |  
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      
|Capital expenditures                    |  | $                            | 25,709  |            |  |           | 3,333  |           |  |           | 14,543  |       |  |  | 28,816    |  |  |  | 1,623   |   |  | $ | 74,024    |  
|                                        |  |                              |         |            |  |           |        |           |  |           |         |      

F-26



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

|                                        |  |                              |         |            |  |           |         |           |  |           |         |       |  |  |           |  |  |  |         |   |  |   |           |  
|--------------------------------------- |  | ---------------------------- | ------- | ---------- |  | --------- | ------- | --------- |  | --------- | ------- | ----- |  |  | --------- |  |  |  | ------- | - |  | - | --------- | -
|                                        |  |                             
|                                        |  | Year
Ended December 31, 1999
|                                        |  |                             
|                                        |  |                              |         | Investment |  |          
|                                        |  |                              |         | U.K.       |  | Canadian  |         | and       |  |          
|                                        |  | Chicago                      |         | Community  |  | Newspaper |         | Newspaper |  | Corporate |         |      
|                                        |  | Group                        |         | Group      |  | Group     |         | Group     |  | Group     |         | Total
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|                                        |  |                             
|                                        |  | (in thousands)              
|Revenues                                |  | $                            | 390,473 |            |  |           | 96,674  |           |  |           | 550,474 |       |  |  | 1,109,781 |  |  |  |        |   |  | $ | 2,147,402 |  
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|Depreciation and amortization           |  | $                            | 19,650  |            |  |           | 9,016   |           |  |           | 18,518  |       |  |  | 76,535    |  |  |  | 1,689   |   |  | $ | 125,408   |  
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|Infrequent items                        |  | $                            | 5,512   |            |  |           | 301     |           |  |           | 7,891   |       |  |  | 8,342     |  |  |  |        |   |  | $ | 22,046    |  
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|Operating income                        |  | $                            | 42,328  |            |  |           | 9,893   |           |  |           | 65,635  |       |  |  | 109,416   |  |  |  | (14,470 | ) |  | $ | 212,802   |  
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|Equity in earnings (loss) of affiliates |  | $                            | (482    | )          |  |           |        |           |  |           | (2,140  | )     |  |  | 516       |  |  |  |        |   |  | $ | (2,106    | )
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|Total assets                            |  | $                            | 457,613 |            |  |           | 162,887 |           |  |           | 580,078 |       |  |  | 2,126,759 |  |  |  | 175,687 |   |  | $ | 3,503,024 |  
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      
|Capital expenditures                    |  | $                            | 40,941  |            |  |           | 4,925   |           |  |           | 5,555   |       |  |  | 72,425    |  |  |  | 1,437   |   |  | $ | 125,283   |  
|                                        |  |                              |         |            |  |           |         |           |  |           |         |      

(15) Financial Instruments

The Company has entered into various types of
financial instruments in the normal course of business. In
addition, on September 30, 1998, the Company entered into
forward purchase contracts to purchase shares of its
Class A Common Stock (see note 11).

For certain of these instruments, fair value
estimates are made at a specific point in time, based on
assumptions concerning the amount and timing of estimated future
cash flows and assumed discount rates reflecting varying degrees
of perceived risk and the country of origin. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, may not represent actual
values of the financial instruments that could be realized in
the future.

At December 31, 2001 and 2000, the
comparison of the carrying value and the estimated fair value of
the Companys financial instruments was as follows:

|                                                             |  |                |         |            |  |          |         |            |  |   |         |   |  |   |         |  
|------------------------------------------------------------ |  | -------------- | ------- | ---------- |  | -------- | ------- | ---------- |  | - | ------- | - |  | - | ------- | -
|                                                             |  |                |         |           
|                                                             |  | 2001           |         | 2000      
|                                                             |  |                |         |           
|                                                             |  | Carrying       |         |            |  | Carrying |         |           
|                                                             |  | value          |         | Fair value |  | value    |         | Fair value
|                                                             |  |                |         |            |  |          |         |           
|                                                             |  |               
|                                                             |  | (in thousands)
|Long-term debt                                               |  | $              | 807,993 |            |  | $        | 796,639 |            |  | $ | 809,051 |   |  | $ | 795,546 |  
|Interest rate swaps  liability                              |  |                | (984    | )          |  |          | (984    | )          |  |   | (1,251  | ) |  |   | (1,251  | )
|Forward share purchase contracts 
        asset (liability) |  |                | (18,672 | )          |  |          | (18,672 | )          |  |   | 24,079  |   |  |   | 24,079  |  
|Foreign currency obligation  liability                      |  |                | (15,976 | )          |  |          | (15,976 | )          |  |   |        |   |  |   |        |  
|Forward foreign exchange contract 
        asset            |  |                | 15,542  |            |  |          | 15,542  |            |  |   |        |   |  |   |        |  
|                                                             |  |                |         |            |  |          |         |            |  |   |         |   |  |   |        

The fair value of the interest rate swaps,
forward share purchase contracts and forward foreign exchange
contracts is the estimated amount that the Company would pay or
receive to terminate the agreements. Interest rate swaps were
considered a hedge until the hedged debt was repaid in 2000.
Subsequent to the debt repayment the estimated cost to terminate
the swap has been included in income. Effective October 1,
2000, the forward share purchase contracts are recorded at their
fair values as described in note 11. The foreign currency
obligation and forward foreign exchange contract are in
connection with the sale of participations in the CanWest
debentures which is described in note 2(b). It is not practical
to determine the fair value of redeemable preferred stock held
by related parties. The carrying values of all other financial
instruments at December 31, 2001 and 2000 approximate their
estimated fair values.

(16) Commitments and
Contingencies

(a) The Telegraph has guaranteed the
printing joint venture partners share of leasing
obligations to third parties, which amounted to $1,200,000
(£825,000) at December 31, 2001. These obligations are
also guaranteed jointly and severally by each joint venture
partner.

(b) In connection with the Companys
insurance program, letters of credit are required to support
certain projected workers compensation obligations. At
December 31, 2001, letters of credit in the amount of
$602,000 were outstanding.

F-27



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

(c) A number of libel and legal actions
against the Company are outstanding. The Company believes there
are valid defenses to these proceedings or sufficient insurance
to protect it from material loss.

(17) Related-party Transactions

(a) Net amounts due from related companies
at December 31, 2001 totalled $32,228,000 and included a
$36,800,000 loan to a subsidiary of Hollinger Inc., net of
amounts payable in respect of management and administrative
expenses billed by Hollinger Inc. and corporate affiliates of
Hollinger Inc. Hollinger Inc. and its affiliates billed the
Company for allocable expense amounting to $34,329,000,
$40,979,000 and $38,239,000 for 2001, 2000 and 1999,
respectively (principally including management fees that were
approved by the audit committee). On July 11, 2000, the
Company loaned $36,800,000 to a subsidiary of Hollinger Inc. in
connection with the cash purchase by Hollinger Inc. of HCPH
Special shares (note 6). The loan is payable on demand and to
December 31, 2001 interest was payable at the rate of 13%
per annum. Effective January 1, 2002, the interest rate was
adjusted to LIBOR plus 3% per annum.

(b) Lord Black indirectly has voting control
of the Company. During each of 2001, 2000 and 1999 remuneration
paid directly by the Company and its subsidiaries to Lord Black
was $817,000, $2,477,000 and $640,000, respectively.

(c) On September 27, 2001, the Company
redeemed Series E Preferred Stock held by Hollinger Inc.
for cash consideration of $3,800,000 (note 7).

(d) On June 1, 2001, the Company
converted all the Series C Preferred Stock held by
Hollinger Inc. at the conversion ratio of 8.503 shares of
Class A Common Stock per share of Series C Preferred
Stock into 7,052,464 shares of Class A Common Stock. On
September 6, 2001, the Company purchased from Hollinger Inc.,
for cancellation the 7,052,464 shares of Class A Common
Stock for a total cost of $92,200,000.

(e) During 2000 and 2001, in connection with
the sales of properties described in note 1(b), (d) and
(f), the Company, Ravelston, Hollinger Inc., Lord Black and
three senior executives entered into non-competition agreements
with the purchasers in return for cash consideration paid.

(f) As described in notes 1(b), (g) and
(m), during 2001, 2000 and 1999, the Company sold newspaper
properties to certain related parties.

(18) Income Taxes

U.S. and foreign components of earnings
(loss) before income taxes, minority interest and
extraordinary items are presented below:

|        |  |                |          |      |  |      |         |  |  |   |         | 
|------- |  | -------------- | -------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|        |  | 2001           |          | 2000 |  | 1999
|        |  |                |          |      |  |     
|        |  |               
|        |  | (in thousands)
|U.S     |  | $              | (182,456 | )    |  | $    | 27,394  |  |  | $ | 263,600 | 
|Foreign |  |                | (179,164 | )    |  |      | 521,671 |  |  |   | 149,226 | 
|        |  |                |          |      |  |      |         |  |  |   |         | 
|        |  | $              | (361,620 | )    |  | $    | 549,065 |  |  | $ | 412,826 | 
|        |  |                |          |      |  |      |         |  |  |   |         | 

F-28



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

Income tax expense (recovery) for the
periods shown below consists of:

|                              |                 |                |         |          |   |       |         |          |   |   |         |         |  
|----------------------------- | --------------- | -------------- | ------- | -------- | - | ----- | ------- | -------- | - | - | ------- | ------- | -
|                              |                 | Current        |         | Deferred |   | Total
|                              |                 |                |         |          |   |      
|                              |                 |               
|                              |                 | (in thousands)
|Year ended December 31, 2001: |                 |                |         |          |   |       |         |          |   |   |         |        
|                              | U.S. federal    |                | $       | 15,021   |   |       | $       | 11,290   |   |   | $       | 26,311  |  
|                              | Foreign         |                |         | 20,636   |   |       |         | (53,046  | ) |   |         | (32,410 | )
|                              | State and local |                |         | 2,964    |   |       |         | (7,066   | ) |   |         | (4,102  | )
|                              |                 |                |         |          |   |       |         |          |   |   |         |        
|                              |                 | $              | 38,621  |          |   | $     | (48,822 | )        |   | $ | (10,201 | )      
|                              |                 |                |         |          |   |       |         |          |   |   |         |        
|Year ended December 31, 2000: |                 |                |         |          |   |       |         |          |   |   |         |        
|                              | U.S. federal    |                | $       | (43,366  | ) |       | $       | 91,479   |   |   | $       | 48,113  |  
|                              | Foreign         |                |         | 456,635  |   |       |         | (132,455 | ) |   |         | 324,180 |  
|                              | State and local |                |         | (10,464  | ) |       |         | 13,069   |   |   |         | 2,605   |  
|                              |                 |                |         |          |   |       |         |          |   |   |         |        
|                              |                 | $              | 402,805 |          |   | $     | (27,907 | )        |   | $ | 374,898 |        
|                              |                 |                |         |          |   |       |         |          |   |   |         |        
|Year ended December 31, 1999: |                 |                |         |          |   |       |         |          |   |   |         |        
|                              | U.S. federal    |                | $       | 82,184   |   |       | $       | 9,056    |   |   | $       | 91,240  |  
|                              | Foreign         |                |         | 53,067   |   |       |         | (4,264   | ) |   |         | 48,803  |  
|                              | State and local |                |         | 13,866   |   |       |         | 1,294    |   |   |         | 15,160  |  
|                              |                 |                |         |          |   |       |         |          |   |   |         |        
|                              |                 | $              | 149,117 |          |   | $     | 6,086   |          |   | $ | 155,203 |        
|                              |                 |                |         |          |   |       |         |          |   |   |         |        

Income tax expense (recovery) differed from
the amounts computed by applying the U.S. Federal income tax
rate of 35% for 2001, 2000 and 1999 as a result of the following:

|                                                             |                                                                            |                |          |        |   |      |         |         |   |   |         |         |  
|------------------------------------------------------------ | -------------------------------------------------------------------------- | -------------- | -------- | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                             |                                                                            | 2001           |          | 2000   |   | 1999
|                                                             |                                                                            |                |          |        |   |     
|                                                             |                                                                            |               
|                                                             |                                                                            | (in thousands)
|Computed expected tax expense
        (recovery)           |                                                                            | $              | (126,567 | )      |   | $    | 192,173 |         |   | $ | 144,489 |        
|Increase (reduction) in income taxes
        resulting from: |                                                                            |                |          |        |   |      |         |         |   |   |         |        
|                                                             | Non-deductible expenses for income tax purposes                            |                |          | 31,123 |   |      |         | 9,232   |   |   |         | 12,904  |  
|                                                             | Tax gain in excess of book gain or book loss in
        excess of tax loss |                |          | 15,689 |   |      |         | 129,488 |   |   |         |        |  
|                                                             | U.S. state and local income taxes, net of federal
        benefit          |                |          | (2,815 | ) |      |         | 1,693   |   |   |         | 9,669   |  
|                                                             | Impact of taxation at different foreign rates                              |                |          | (9,276 | ) |      |         | 32,596  |   |   |         | 4,429   |  
|                                                             | Dilution gain related to Hollinger L.P.                                    |                |          |       |   |      |         |        |   |   |         | (29,327 | )
|                                                             | Minority interest earnings in Hollinger L.P.                               |                |          | (1,292 | ) |      |         | (17,359 | ) |   |         | (2,728  | )
|                                                             | Losses not tax effected                                                    |                |          | 27,181 |   |      |         |        |   |   |         |        |  
|                                                             | Other                                                                      |                |          | 55,756 |   |      |         | 27,075  |   |   |         | 15,767  |  
|                                                             |                                                                            |                |          |        |   |      |         |         |   |   |         |        
|                                                             |                                                                            | $              | (10,201  | )      |   | $    | 374,898 |         |   | $ | 155,203 |        
|                                                             |                                                                            |                |          |        |   |      |         |         |   |   |         |        

F-29



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below:

|                               |                                                                                       |                |         |         |   |   |         |         |  
|------------------------------ | ------------------------------------------------------------------------------------- | -------------- | ------- | ------- | - | - | ------- | ------- | -
|                               |                                                                                       | 2001           |         | 2000   
|                               |                                                                                       |                |         |        
|                               |                                                                                       |               
|                               |                                                                                       | (in thousands)
|Deferred tax assets:           |                                                                                       |                |         |         |   |   |         |        
|                               | Accounts receivable, principally due to allowance
        for doubtful accounts       |                | $       | 1,755   |   |   | $       | 475     |  
|                               | Accrued expenses                                                                      |                |         | 7,939   |   |   |         | 23,283  |  
|                               | Net operating loss carryforwards                                                      |                |         | 85,000  |   |   |         | 37,863  |  
|                               | Other                                                                                 |                |         | 12,331  |   |   |         | 12,049  |  
|                               |                                                                                       |                |         |         |   |   |         |        
|                               | Gross deferred tax assets                                                             |                |         | 107,025 |   |   |         | 73,670  |  
|                               | Less valuation allowance                                                              |                |         | (39,452 | ) |   |         | (6,411  | )
|                               |                                                                                       |                |         |         |   |   |         |        
|                               | Net deferred tax assets                                                               |                |         | 67,573  |   |   |         | 67,259  |  
|                               |                                                                                       |                |         |         |   |   |         |        
|Deferred tax liabilities:      |                                                                                       |                |         |         |   |   |         |        
|                               | Property, plant and equipment, principally due to
        differences in depreciation |                |         | 38,579  |   |   |         | 18,861  |  
|                               | Intangible assets, principally due to differences
        in basis and amortization   |                |         | 93,106  |   |   |         | 118,741 |  
|                               | Foreign exchange basis differences                                                    |                |         | 7,607   |   |   |         | 11,299  |  
|                               | Long-term advances under printing contract                                            |                |         | 13,057  |   |   |         | 14,431  |  
|                               | Deferred gain on exchange of assets                                                   |                |         | 35,170  |   |   |         | 45,520  |  
|                               | Unremitted earnings of a foreign equity investment                                    |                |         | 43,104  |   |   |         | 44,253  |  
|                               |                                                                                       |                |         |         |   |   |         |        
|Gross deferred tax liabilities |                                                                                       |                | 230,623 |         |   |   | 253,105 |        
|                               |                                                                                       |                |         |         |   |   |         |        
|Net deferred taxes             |                                                                                       | $              | 163,050 |         |   | $ | 185,846 |        
|                               |                                                                                       |                |         |         |   |   |         |        

At December 31, 2001, the Company had
approximately $93,731,000 of Canadian net operating loss
carryforwards which will expire in varying amounts through
December 31, 2007.

Total income taxes paid in 2001, 2000 and 1999
amounted to $78,578,000, $46,584,000 and $158,618,000,
respectively.

(19) Employee Benefit Plans

Defined
Contribution Plans

The Company sponsors six domestic defined
contribution plans, three of which have provisions for Company
contributions. For the years ended December 31, 2001, 2000
and 1999, the Company contributed $1,551,000, $1,558,000 and
$1,722,000, respectively. The Company sponsors 11 defined
contribution plans in Canada and contributed $169,000,
$2,016,000 and $2,524,000 to the plans in 2001, 2000, and 1999,
respectively.

The Telegraph sponsors a defined contribution
plan, The Telegraph Staff Pension Plan, for the majority of its
employees, as well as a defined contribution plan to provide
pension benefits for senior executives. For 2001, 2000 and 1999,
contributions to the defined contribution plan are included as
part of the service cost of the defined benefit plan.
Contributions to The Telegraph Executive Pension Scheme were
$519,000, $585,000 and $514,000 in 2001, 2000 and 1999,
respectively.

The Telegraph plans assets consist
principally of U.K. and overseas equities, unit trusts and bonds.

F-30



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

Defined Benefit Plans

The Company and subsidiaries have seven domestic
and seven foreign single-employer defined benefit plans and
contribute to various union-sponsored, collectively bargained
domestic multi-employer pension plans. The Companys
contributions to these plans for the years ended
December 31, 2001, 2000 and 1999 were:

|                      |  |                |       |      |  |      |        |  |  |   |        | 
|--------------------- |  | -------------- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                      |  | 2001           |       | 2000 |  | 1999
|                      |  |                |       |      |  |     
|                      |  |               
|                      |  | (in thousands)
|Single-employer plans |  | $              | 8,753 |      |  | $    | 11,540 |  |  | $ | 14,954 | 
|Multi-employer plans  |  | $              | 1,251 |      |  | $    | 6,127  |  |  | $ | 6,888  | 
|                      |  |                |       |      |  |      |        |  |  |   |        | 

The Telegraph has a defined benefit plan that was
closed on July 1, 1991 and provides only benefits accrued
up to that date. The liabilities of the plan have been
actuarially valued as at December 31, 2001. At that date,
the market value of the plan assets was $131,169,000,
representing 97% of the estimated cost of purchasing the
plans benefits from an insurance company. The actuary
assumed a discount rate of 6%. Increases to pension payments are
discretionary and are awarded by the trustees, with the
Telegraphs consent, from surpluses arising in the fund
from time to time. Contributions to the trust were $6,480,000,
$6,670,000 and $6,469,000 for 2001, 2000 and 1999, respectively.

Pursuant to the West Ferry joint venture
agreement, the Telegraph has a commitment to fund 50% of the
obligation under West Ferrys defined benefit plan.

Single-Employer
Pension Plans

The benefits under the subsidiary companies
single-employer pension plans are based primarily on years of
service and compensation levels. The Company funds the annual
provision deductible for income tax purposes. The plans
assets consist principally of marketable equity securities and
corporate and government debt securities.

The components of net period benefit costs for
the years ended December 31, 2001, 2000 and 1999 are as
follows:

|                                                                  |  |                |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                  |  | 2001           |         | 2000 |  | 1999
|                                                                  |  |                |         |      |  |     
|                                                                  |  |               
|                                                                  |  | (in thousands)
|Service cost                                                      |  | $              | 8,192   |      |  | $    | 12,376  |   |  | $ | 15,552  |  
|Interest cost                                                     |  |                | 26,816  |      |  |      | 37,774  |   |  |   | 35,938  |  
|Expected return on plan assets                                    |  |                | (18,078 | )    |  |      | (52,771 | ) |  |   | (49,659 | )
|Amortization of losses (gains)                                    |  |                | 854     |      |  |      | (200    | ) |  |   |        |  
|Settlement loss                                                   |  |                | 1,832   |      |  |      | 4,262   |   |  |   |        |  
|Amortization of prior service costs                               |  |                | 305     |      |  |      | 521     |   |  |   | 564     |  
|Valuation allowance provided against prepaid
        benefit cost |  |                | 4,396   |      |  |      | 63,910  |   |  |   |        |  
|                                                                  |  |                |         |      |  |      |         |   |  |   |         |  
|Net periodic benefit cost                                         |  | $              | 24,317  |      |  | $    | 65,872  |   |  | $ | 2,395   |  
|                                                                  |  |                |         |      |  |      |         |   |  |   |         |  

F-31



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

The table below sets forth the reconciliation of
the benefit obligation as of December 31, 2001 and 2000:

|                                                |  |                |         |      |  |   |         |  
|----------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                |  | 2001           |         | 2000
|                                                |  |                |         |     
|                                                |  |               
|                                                |  | (in thousands)
|Benefit obligation at the beginning of the year |  | $              | 487,716 |      |  | $ | 591,180 |  
|Adjustment to opening balance                   |  |                | 9,210   |      |  |   | 3,130   |  
|Service cost                                    |  |                | 8,192   |      |  |   | 12,376  |  
|Interest cost                                   |  |                | 26,816  |      |  |   | 37,774  |  
|Participant contributions                       |  |                | 4,029   |      |  |   | 7,206   |  
|Divestitures                                    |  |                | (83,796 | )    |  |   | (96,738 | )
|Plan amendments                                 |  |                | 18      |      |  |   | 1,605   |  
|Settlement gain                                 |  |                | (8,378  | )    |  |   | (529    | )
|Exchange rate differences                       |  |                | (19,442 | )    |  |   | (29,066 | )
|Curtailment gain                                |  |                |        |      |  |   | (16     | )
|Actuarial loss (gain)                           |  |                | 7,239   |      |  |   | (2,346  | )
|Benefits paid                                   |  |                | (25,248 | )    |  |   | (36,860 | )
|                                                |  |                |         |      |  |   |         |  
|Benefit obligation at the end of the year       |  | $              | 406,356 |      |  | $ | 487,716 |  
|                                                |  |                |         |      |  |   |         |  

The 2001 curtailment and settlement gains were
related to the sale of Canadian newspapers (note 1(a),
(b) and (c)). The 2000 curtailment and settlement gains and
valuation allowance were related to the sale of Canadian and
Community Group newspapers (note 1(d) and (f)).

The table below sets forth the change in plan
assets for the years ended December 31, 2001 and 2000:

|                                                               |  |                |         |      |  |   |          |  
|-------------------------------------------------------------- |  | -------------- | ------- | ---- |  | - | -------- | -
|                                                               |  | 2001           |         | 2000
|                                                               |  |                |         |     
|                                                               |  |               
|                                                               |  | (in thousands)
|Fair value of plan assets at the beginning of the
        year |  | $              | 554,595 |      |  | $ | 684,417  |  
|Adjustment to opening balance                                  |  |                |        |      |  |   | 121      |  
|Actual return on plan assets                                   |  |                | (16,224 | )    |  |   | 20,092   |  
|Exchange rate differences                                      |  |                | (20,353 | )    |  |   | (30,716  | )
|Employer contributions                                         |  |                | 8,753   |      |  |   | 11,540   |  
|Participant contributions                                      |  |                | 4,029   |      |  |   | 7,206    |  
|Settlement gain                                                |  |                | (9,846  | )    |  |   | (529     | )
|Divestitures                                                   |  |                | (87,900 | )    |  |   | (100,676 | )
|Benefits paid                                                  |  |                | (25,248 | )    |  |   | (36,860  | )
|                                                               |  |                |         |      |  |   |          |  
|Fair value of plan assets at the end of the year               |  | $              | 407,806 |      |  | $ | 554,595  |  
|                                                               |  |                |         |      |  |   |          |  

F-32



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

The following table provides the amounts
recognized in the balance sheet as at the end of each year:

|                                                                   |  |                |         |      |  |   |         |  
|------------------------------------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                                   |  | 2001           |         | 2000
|                                                                   |  |                |         |     
|                                                                   |  |               
|                                                                   |  | (in thousands)
|Funded status                                                      |  | $              | 1,450   |      |  | $ | 66,879  |  
|Unrecognized net actuarial loss                                    |  |                | 61,864  |      |  |   | 3,732   |  
|Unrecognized prior service cost                                    |  |                | 1,024   |      |  |   | 3,663   |  
|                                                                   |  |                |         |      |  |   |         |  
|Prepaid benefit costs                                              |  |                | 64,338  |      |  |   | 74,274  |  
|Valuation allowance                                                |  |                | (65,286 | )    |  |   | (65,302 | )
|                                                                   |  |                |         |      |  |   |         |  
|Prepaid (accrued) benefit cost, net of
        valuation allowance |  | $              | (948    | )    |  | $ | 8,972   |  
|                                                                   |  |                |         |      |  |   |         |  

As a result of the 2000 sale of Canadian
newspapers to CanWest, the expected future benefit to be derived
from the plan surplus was significantly reduced. The expected
benefit as at December 31, 2001 and 2000 is limited to the
present value of the expected future annual service costs for
current members less the present value of the minimum employer
contributions required to be made.

The following table provides the amounts
recognized in the balance sheet at the end of each year. At
December 31, 2001, the Company has also included
$21,250,000 in other comprehensive income, representing the
Companys 50% share of West Ferrys minimum pension
liability adjustment.

|                                       |  |                |         |      |  |   |         |  
|-------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                       |  | 2001           |         | 2000
|                                       |  |                |         |     
|                                       |  |               
|                                       |  | (in thousands)
|Prepaid benefit cost                   |  | $              | 18,485  |      |  | $ | 21,130  |  
|Accrued benefit liability              |  |                | (24,158 | )    |  |   | (14,547 | )
|Intangible asset                       |  |                | 1,488   |      |  |   | 299     |  
|Accumulated other comprehensive income |  |                | 3,237   |      |  |   | 2,090   |  
|                                       |  |                |         |      |  |   |         |  
|                                       |  | $              | (948    | )    |  | $ | 8,972   |  
|                                       |  |                |         |      |  |   |         |  

The ranges of assumptions were as follows:

|                               |  |                |  |             |  |             
|------------------------------ |  | -------------- |  | ----------- |  | ------------
|                               |  | 2001           |  | 2000        |  | 1999        
|                               |  |                |  |             |  |             
|                               |  |               
|                               |  | (in thousands)
|Discount rate                  |  | 6.0% - 8.0%    |  | 6.0% - 8.0% |  | 6.0% -  8.0%
|Expected return on plan assets |  | 6.0% - 9.0%    |  | 6.0% - 9.0% |  | 7.0% - 10.0%
|Compensation increase          |  | 2.5% - 4.5%    |  | 3.5% - 4.0% |  | 3.0% -  4.0%

F-33



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

Multi-employer
Pension Plans

Certain U.S. employees are covered by
union-sponsored multi-employer pension plans, all of which are
defined benefit plans. Contributions are determined in
accordance with the provisions of negotiated labor contracts and
are generally based on the number of man hours worked. Pension
expense was $1,201,000 and $2,402,000 for the years ended
December 31, 2000 and 1999, respectively. There was no
pension expense in 2001. The passage of the Multi-employer
Pension Plan Amendments Act of 1980 (the Act) may, under certain
circumstances, cause the Company to become subject to
liabilities in excess of the amounts provided for in the
collective bargaining agreements. Generally, liabilities are
contingent upon withdrawal or partial withdrawal from the plans.
The Company has not undertaken to withdraw or partially withdraw
from any of the plans as of December 31, 2001. Under the
Act, withdrawal liabilities would be based upon the
Companys proportionate share of each plans unfunded
vested benefits. As of the date of the latest actuarial
valuations, the Companys share of the unfunded vested
liabilities of each plan was zero.

Post
Retirement Benefits

The Company sponsors two foreign defined post
retirement plans that provide post retirement benefits to
certain employees. The benefits are accrued in accordance with
Statement of Financial Accounting Standards No. 112
Employers Accounting for Post employment
Benefits.

The components of net period post retirement
benefit cost for the years ended December 31, 2001 and
December 31, 2000 are as follows:

|                                          |  |                |        |      |  |   |         |  
|----------------------------------------- |  | -------------- | ------ | ---- |  | - | ------- | -
|                                          |  | 2001           |        | 2000
|                                          |  |                |        |     
|                                          |  |               
|                                          |  | (in thousands)
|Service cost                              |  | $              | 120    |      |  | $ | 671     |  
|Interest cost                             |  |                | 1,916  |      |  |   | 2,657   |  
|Amortization of losses (gains)            |  |                | 15     |      |  |   | (131    | )
|Settlement/curtailment                    |  |                | (1,725 | )    |  |   | (11,992 | )
|                                          |  |                |        |      |  |   |         |  
|Net periodic post retirement benefit cost |  | $              | 326    |      |  | $ | (8,795  | )
|                                          |  |                |        |      |  |   |         |  

The table below sets forth the reconciliation of
the accumulated post retirement benefit obligation as at
December 31, 2001 and 2000:

|                                                                                    |  |                |        |      |  |   |         |  
|----------------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------- | -
|                                                                                    |  | 2001           |        | 2000
|                                                                                    |  |                |        |     
|                                                                                    |  |               
|                                                                                    |  | (in thousands)
|Accumulated post retirement benefit obligation at
        the beginning of the year |  | $              | 34,594 |      |  | $ | 39,349  |  
|Service cost                                                                        |  |                | 120    |      |  |   | 671     |  
|Interest cost                                                                       |  |                | 1,916  |      |  |   | 2,657   |  
|Actuarial losses                                                                    |  |                | 406    |      |  |   | 12,544  |  
|Divestitures                                                                        |  |                | (3,626 | )    |  |   | (17,694 | )
|Benefits paid                                                                       |  |                | (1,847 | )    |  |   | (1,388  | )
|Other, including exchange rate differences                                          |  |                | (3,620 | )    |  |   | (1,545  | )
|                                                                                    |  |                |        |      |  |   |         |  
|Accumulated post retirement benefit obligation at
        the end of the year       |  | $              | 27,943 |      |  | $ | 34,594  |  
|                                                                                    |  |                |        |      |  |   |         |  

The table below sets forth the plans funded
status reconciled to the amounts recognized in the
Companys financial statements.

|                                     |  |                |         |      |  |   |         |  
|------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                                     |  | 2001           |         | 2000
|                                     |  |                |         |     
|                                     |  |               
|                                     |  | (in thousands)
|Unfunded status                      |  | $              | (27,943 | )    |  | $ | (34,594 | )
|Unrecognized net gain                |  |                | 1,173   |      |  |   | 667     |  
|                                     |  |                |         |      |  |   |         |  
|Accrued post retirement benefit cost |  | $              | (26,770 | )    |  | $ | (33,927 | )
|                                     |  |                |         |      |  |   |         |  

F-34



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

The weighted average discount rate used in
determining the accumulated post retirement benefit obligation
was 6.5% and 6.75% for 2001 and 2000, respectively. All benefits
under the plan are paid for by the Companys contribution
to the Plan. For measuring the expected post retirement benefit
obligation, a 10% annual rate of increase in the per capita
claims was assumed for 2001.

Assumed health care cost trend rates have a
significant effect on the amounts reported for heath care plans.
If the health care cost trend rate was increased 1%, the
accumulated post retirement benefit obligation as at December
31, 2001 would have increased $2,189,000 (2000 
$2,512,000) and the effect of this change on the aggregate of
service and interest cost for 2001 would have been an increase
of $142,000 (2000  $299,000). If the health care cost
trend rate was decreased 1%, the accumulated post retirement
benefit obligation as of December 31, 2001 would have
decreased by $1,354,000 (2000  $2,249,000) and the
effect of this change on the aggregate of service and interest
cost for 2001 would have been a decrease of $103,000
(2000  $263,000).

(20) Summarized Financial
Information

Summarized balance sheet and income statement
data for Hollinger International Publishing Inc. is as follows:

|                       |                         |                |   |           |   |      |   |           |  |  |   |           | 
|---------------------- | ----------------------- | -------------- | - | --------- | - | ---- | - | --------- |  |  | - | --------- | 
|                       |                         | 2001           |   | 2000      |   | 1999
|                       |                         |                |   |           |   |     
|                       |                         |               
|                       |                         | (in thousands)
|Balance Sheet Data:    |                         |                |   |           |   |      |   |           |  |  |   |          
|                       | Current assets          |                | $ | 642,352   |   |      | $ | 429,345   |  |  | $ | 417,439   | 
|                       | Total assets            |                |   | 1,824,443 |   |      |   | 2,616,278 |  |  |   | 3,500,523 | 
|                       | Current liabilities     |                |   | 467,979   |   |      |   | 636,106   |  |  |   | 720,935   | 
|                       | Total liabilities       |                |   | 1,501,369 |   |      |   | 1,670,789 |  |  |   | 2,607,680 | 
|                       | Minority interest       |                |   | 15,977    |   |      |   | 89,228    |  |  |   | 155,901   | 
|                       | Stockholders equity    |                |   | 307,098   |   |      |   | 856,261   |  |  |   | 736,942   | 
|Income Statement Data: |                         |                |   |           |   |      |   |           |  |  |   |          
|                       | Operating revenues      |                |   | 1,146,321 |   |      |   | 2,096,019 |  |  |   | 2,147,402 | 
|                       | Operating income (loss) |                |   | (41,318   | ) |      |   | 227,596   |  |  |   | 215,549   | 
|                       | Net earnings (loss)     |                |   | (253,586  | ) |      |   | 146,537   |  |  |   | 213,675   | 
|                       |                         |                |   |           |   |      |   |           |  |  |   |          

(21) Quarterly Financial Data
(Unaudited)

Quarterly financial data for the years ended
December 31, 2001 and 2000 as follows:

|                              |  |                                       |         |         |  |         |         |         |  |   |          |   |  |   |          |  
|----------------------------- |  | ------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | -------- | - |  | - | -------- | -
|                              |  |                                      
|                              |  | 2001                                 
|                              |  |                                      
|                              |  | First                                 |         | Second  |  | Third   |         | Fourth 
|                              |  | quarter                               |         | quarter |  | quarter |         | quarter
|                              |  |                                       |         |         |  |         |         |        
|                              |  |                                      
|                              |  | (in thousands, except per share data)
|Total operating revenues      |  | $                                     | 326,360 |         |  | $       | 306,173 |         |  | $ | 263,524  |   |  | $ | 250,264  |  
|Total operating income (loss) |  |                                       | 2,119   |         |  |         | (8,729  | )       |  |   | (19,549  | ) |  |   | (14,211  | )
|Net earnings (loss)           |  |                                       | 1,386   |         |  |         | (15,535 | )       |  |   | (139,615 | ) |  |   | (183,742 | )
|Basic loss per share          |  |                                       | (0.01   | )       |  |         | (0.17   | )       |  |   | (1.37    | ) |  |   | (1.91    | )
|Diluted loss per share        |  |                                       | (0.01   | )       |  |         | (0.17   | )       |  |   | (1.37    | ) |  |   | (1.91    | )
|                              |  |                                       |         |         |  |         |         |         |  |   |          |   |  |   |          |  

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)

|                                  |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         | 
|--------------------------------- |  | ------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | 
|                                  |  |                                      
|                                  |  | 2000                                 
|                                  |  |                                      
|                                  |  | First                                 |         | Second  |  | Third   |         | Fourth 
|                                  |  | quarter                               |         | quarter |  | quarter |         | quarter
|                                  |  |                                       |         |         |  |         |         |        
|                                  |  |                                      
|                                  |  | (in thousands, except per share data)
|Total operating revenues          |  | $                                     | 549,224 |         |  | $       | 574,115 |         |  | $ | 517,474 |   |  | $ | 455,206 | 
|Total operating income            |  |                                       | 61,276  |         |  |         | 71,749  |         |  |   | 35,018  |   |  |   | 53,705  | 
|Net earnings (loss)               |  |                                       | 28,151  |         |  |         | 4,736   |         |  |   | (3,921  | ) |  |   | 88,109  | 
|Basic earnings (loss) per share   |  |                                       | 0.26    |         |  |         | 0.03    |         |  |   | (0.06   | ) |  |   | 0.87    | 
|Diluted earnings (loss) per share |  |                                       | 0.25    |         |  |         | 0.02    |         |  |   | (0.06   | ) |  |   | 0.80    | 
|                                  |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         | 

F-36